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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from - to -.
Commission File Number 0-19240
U.S. HOMECARE CORPORATION
(Exact name of registrant as specified in its charter)
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NEW YORK 13-2853680
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
TWO HARTFORD SQUARE WEST, SUITE 300, HARTFORD, CT 06106
(Address of principal executive offices) (Zip Code)
(860) 278-7242
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Name of each
exchange on which
Title of Each Class registered
COMMON STOCK, $.01 PAR VALUE OTC BULLETIN BOARD
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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 [ ]
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
While it is difficult to determine the number of shares owned by
non-affiliates, the registrant estimates that the aggregate market value of
outstanding Common Stock on March 27, 1998, (based upon the average bid and
asked prices of such Common Stock on the OTC Bulletin Board on March 27, 1998)
held by non-affiliates was approximately $4,614,000 and the aggregate market
value of outstanding Preferred Stock on March 27, 1998 (based upon the price at
which such Preferred Stock was sold) held by non-affiliates was approximately
$10,765,000. For this computation, the registrant has excluded the market value
of all shares of its Common Stock and Preferred Stock reported as beneficially
owned by officers and directors and their affiliates and certain significant
shareholders of the registrant. Such exclusion shall not be deemed to constitute
an admission that any such shareholder is an affiliate of the registrant.
Documents Incorporated by Reference
NONE.
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U.S. HOMECARE CORPORATION
ANNUAL REPORT ON FORM 10K
DECEMBER 31, 1997
TABLE OF CONTENTS
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PART I
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Item 1. BUSINESS...................................................................................... 1
Item 2. PROPERTIES.................................................................................... 11
Item 3. LEGAL PROCEEDINGS............................................................................. 12
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................... 12
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS ............................................................... 13
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA ......................................................... 14
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................................. 15
Item 7.A. MARKET RISK DISCLOSURES....................................................................... 21
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................... 21
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 0N
ACCOUNTING AND FINANCIAL DISCLOSURE................. .............................. 21
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................ 22
Item 11. EXECUTIVE COMPENSATION ....................................................................... 24
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT......................................................................... 28
Item 13. CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS ............................................... 29
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K....................................................................... 30
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PART I
ITEM 1. BUSINESS
GENERAL
U.S. HomeCare Corporation (collectively with its subsidiaries, "USHC"or
the "Company") is a regional provider of paraprofessional and professional home
health care services, including nursing care, personal care, and other
specialized therapies. The Company is headquartered in Hartford, Connecticut and
has operations in New York (Westchester County, metropolitan New York City, Long
Island and upstate New York) as well as Connecticut and Pennsylvania. The
Company works with physicians, social service agencies, health care
institutions, and patients to identify home care services that are appropriate
for the patient's diagnosis and required to implement the physician's plan of
treatment. The Company addresses the needs of its patients by coordinating
therapies, products, equipment, and support services with the appropriate
nursing care. To further its emphasis on a diagnosis-centered approach, the
Company has designed specialized programs for patients with particular diseases
such as Cancer, AIDS and Alzheimer's disease, and for particular classes of
patients such as the developmentally disabled and hospice patients.
Following its formation in 1986, the Company expanded through a
strategy of internal growth, the opening of new branch offices, selected
acquisitions within its region and the introduction of new services and
programs, including infusion therapy which was added in 1989. In 1992, the
Company adopted an accelerated expansion strategy, opened offices in a number of
new geographic markets, developed a new and sizable base of Medicare business in
South Florida, and, in late 1992, consummated a significant infusion therapy
acquisition in the greater New York metropolitan area. Management underestimated
the financial, managerial and system resources necessary to execute its
expansion strategy. As a result, the Company failed to successfully implement
its expansion strategy and began to incur operating losses in the second quarter
of 1993. In August 1994, the Company announced an extensive restructuring plan,
which included the closing of its development-stage offices outside of its core
markets, the consolidation of its infusion therapy pharmacy facilities from five
to two, and the sale of its South Florida operations which was completed in
December 1995. Despite these actions, the Company continued to incur operating
losses in 1994, 1995 and the first three quarters of 1996.
At the end of September 1996, the Company undertook a series of steps
to improve operating results, restore financial health and focus on its core
home nursing services business. The Company engaged a team of experienced
turnaround consultants to improve the operating and financial performance of the
Company. During the fourth quarter of 1996 the following were accomplished:
- Corporate overhead was reduced by more than $4 million per
annum and branch level overhead and direct costs were reduced
by more than $2.5 million per annum;
- The Company sold the business and operating assets of its home
infusion therapy operations as of October 1, 1996; and
- The Company settled all of its material litigation and reduced
the borrowings under the Company's revolving credit facility
from $8.9 million on September 30, 1996 to $5.0 million on
December 31, 1996.
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In connection with these steps, the Company recognized a loss on the
sale of its home infusion therapy operations of $13.8 million (including the
write-off of $11.6 million of related goodwill and intangibles and a reserve of
$2.6 million for the collection of infusion therapy receivables) and recorded a
$3.6 million provision for restructuring and other non-recurring charges.
During 1997, the Company reported profitable operations through the
first six months of the year. During that time the Company pursued the
possibility of merging with a larger healthcare company, culminating in an
agreement to merge with Home Health Corporation of America (HHCA), which was
announced publicly in September 1997.
US HomeCare announced in December, 1997 that the New York State
Attorney General's office had initiated a broad-based investigation into the
billing and other practices of companies providing home health care services in
New York under Medicaid-funded state programs. US HomeCare was included in the
investigation.
The Company cooperated fully with the State's investigation. In
addition, the Company hired outside counsel and initiated its own internal
investigation of its billing practices and Medicaid rates. Because of the
Company's pending merger with HHCA, US HomeCare asked the Attorney General for
expedited review of its investigation of the Company.
Based on its internal review, the Company concluded that it had
meritorious legal defenses for substantially all potential claims by the state
for monetary or other penalties based on cost reporting and billing practices
related to Medicaid-funded home health care programs. However, the Company also
believed that it could take substantial time and expense to litigate any of
these issues to their conclusion. The Company in January 1998 entered into
negotiations with the office of the Attorney General in an effort to reach a
rapid resolution of the investigation.
On Wednesday, February 11, 1998, the Company and Home Health
Corporation of America (HHCA) announced that they had mutually terminated their
merger agreement.
Under the terms of a final agreement signed on February 27, 1998, the
Company has agreed to settle the state's investigation for a monetary payment of
$1.75 million, payable with interest over a period of 36 months. The full amount
of the settlement may be prepaid at any time, and the Company has agreed with
the state that it will use reasonable efforts to refinance the amount of the
settlement as soon as possible.
HOME HEALTH CARE MARKET
Home health care is a growing major segment of the health care industry
and is projected to remain so through the end of the decade. According to the
Health Care Financing Administration, U.S. home health care spending was $26
billion in 1995 with $17 billion spent in home health care nursing services. The
annual industry growth rate in home health care spending from 1986 to 1991 was
estimated to be in excess of 20%. Management believes that this growth rate has
moderated in recent periods in the markets in which it operates.
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The primary factors contributing to this growth in homecare are:
- Increased acceptance of home care by physicians, patients and
third-party payors.
- Advancements in home care therapies, which allow for care
outside of a traditional institutional setting.
- Changing population demographics, including an increasing
number of aged.
- Increased number of patients suffering from therapy-intensive
diseases such as AIDS and cancer.
- Cost-effectiveness of care administered in the home (home
health care is estimated to cost approximately 50% of
equivalent care delivered in the hospital).
Rapid industry growth and market forces have led to the emergence of
many independent and hospital-based home care agencies. The number of home
health care agencies in the U.S. has grown to more than 17,000 agencies.
Collectively, these agencies provide services to over 6 million people in the
U.S. who require care because of acute illness, long term chronic health
conditions, permanent disability or terminal illness. The home health care
industry, while still highly fragmented, is experiencing a period of
consolidation, with larger companies emerging through acquisitions and mergers
in order to achieve economies of scale.
The home health care industry consists of four segments: nursing
services, infusion therapy, respiratory therapy and home medical equipment. The
Company operates in the nursing services segment. The nursing services segment
includes the provision of both professional and paraprofessional nursing and
personal care in the home, and is estimated to represent two-thirds of
expenditures within the home health care market, or approximately $17 billion
in 1995. Approximately 70% of nursing services are provided to people over the
age of 65 and primarily consist of non-technical, medically related personal
care services related to assisted living. Such services are often intended to
prevent costly, premature and/or unnecessary institutionalization of the
patient. The primary diagnoses of patients receiving home nursing care are
cardiovascular and cerebrovascular disease, respiratory disease, orthopedic
conditions, carcinomas, diabetes, and central nervous system problems.
The home health care market is highly competitive and is divided among
a large number of providers, some of which are national providers, but most of
which are either regional or local providers. Certain of the Company's
competitors and potential competitors have significantly greater financial,
technical and marketing and sales resources than the Company and may, in certain
locations, possess licenses or certificates (for example, certificates of need
in New York) that permit them to provide services that the Company cannot
provide currently.
RELATIONSHIPS WITH REFERRAL SOURCES
The development and growth of the Company's business depends to a
significant extent on its ability to establish and maintain close working
relationships with home care and social service agencies, hospitals, clinics,
nursing homes, physicians and physician groups, health maintenance organizations
and other health care providers. There can be no assurance that the Company's
existing relationships with these referral sources will be successfully
maintained or that additional relationships will be successfully developed and
maintained. In March 1994, VNS HomeCare
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("VNS"), a non-profit home health care institution in New York City informed the
Company that it intended to reduce the Company's overall caseload due to
substandard administrative performance ratings. Consequently, the Company's net
revenues attributable to VNS declined from $8.8 million (16%) for the year ended
December 31, 1994, to $6.2 million (11%) for the year ended December 31, 1995,
and to $5.4 million (10%) for the year ended December 31, 1996, and to $4.5
million (8.4%) for the year ended December 31, 1997.
Part of the Company's strategy is to increase its business with managed
care third party payors, such as health maintenance organizations and preferred
provider organizations. An increase in these contracts could also reduce the
profit margin for the Company's business because managed care payors typically
reimburse at lower rates and limit service coverage to a greater extent than
other non-governmental third party payors, such as indemnity insurance
providers. The Company is unable to predict how quickly, if at all, its managed
care business will increase and what effect any such increased business in this
segment would have on the Company's business or results of operations.
NEED TO REFINANCE OR EXTEND EXISTING CREDIT FACILITIES
All of the Company's existing credit facilities, including its accounts
receivable securitization program, are scheduled to mature in January 1999. The
Company will need to replace these credit facilities to ensure sufficient
funding of the Company's operations. There can be no assurance that such
financing will be available when needed or, if available, that it will be
available on terms acceptable to the Company.
LIQUIDITY OF US HOMECARE COMMON STOCK
The Company's Common Stock is currently trading on the OTC Bulletin
Board under the symbol "USHO". Thus, only bid and asked prices between dealers
(rather than sales prices) are currently available with respect to the Common
Stock. The fact that the Company is trading on the OTC Bulletin Board rather
than on Nasdaq or an exchange might cause the market price of the Common Stock
to be lower than it otherwise would be. Thus, holders of the Common Stock might
not realize the extent of liquidity as they might were the stock listed on
Nasdaq or a national securities exchange.
DEPENDENCE ON REIMBURSEMENT BY THIRD PARTY PAYORS
A substantial portion of the Company's revenues are derived directly or
indirectly from government-sponsored health care programs, including Medicaid
and Medicare. The Company receives direct payments from both Medicare
(approximately 15% of revenue) and Medicaid (approximately 9% of revenue). The
Company also derives significant revenues indirectly from the Medicaid program
through contracts with local government agencies (approximately 11.6% of
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revenue), such as the Department of Social Services of Westchester County. In
addition, a substantial portion of the Company's business is derived as a
sub-contractor to Medicare-Certified and Medicaid-Certified agencies. As a
result, the Company would likely be adversely affected by any rate freezes,
payment delays, cutbacks in coverage or any other adverse actions taken with
respect to Medicare and Medicaid and there can be no assurance that such actions
will not be taken in the future.
Governmental and third-party payors have taken extensive steps intended
to contain or reduce payments made to health care providers such as the Company.
These steps have included, among others, changes in reimbursement methodologies,
changes in services covered, increased utilization review of services,
negotiated prospective or discounted contract pricing and adoption of a
competitive bid approach to service contracts. Managed care and related cost
containment efforts are expected to continue in the future. Home health care,
which is generally less costly than hospital-based care, has generally benefited
from many of these cost containment efforts. As expenditures in the home health
care market continue to grow, however, initiatives aimed at reducing the cost of
health care delivery at non-hospital sites are increasing. For example, several
state Medicaid programs, in an effort to contain the cost of health care and in
light of state budgetary constraints, have reduced their payment rates and have
narrowed the scope of covered services. Such initiatives are expected to
continue in the future. A significant change in coverage or a reduction in
payment rates for the types of home health care services provided by the Company
could have a material adverse effect upon the Company's business and financial
condition.
For each office in which the Company participates in the Medicare
program, the Company is required to file annual cost reports to establish its
reimbursement rate per Medicare visit for that office. Such reimbursement rates
are subject to audit and retroactive adjustment by the Medicare fiscal
intermediaries for the geographic areas in which the Company's
Medicare-certified offices are located.
In its core market operations the Company is required to file cost
reports for two of its upstate New York offices, for its Connecticut operations,
and for its Pennsylvania operations as well as for its home office operations.
Cost reports for all of the Company's Medicare certified operations have been
settled through June 1995 although they remain subject to reopening through
November 1998. The remaining cost reports filed for periods through December 31,
1996 are in various stages of review, audit and or settlement with the fiscal
intermediaries. While the Company has recorded estimated settlements for these
open cost report periods there can be no assurance that final settlements will
not result in future assessments against the Company. Such assessments could
result in reductions in revenue recorded.
The Balanced Budget Act of 1997 created a new Medicare reimbursement
structure that is called the Interim Payment System (IPS). This new structure
establishes new cost reimbursement limitations that are affecting many homecare
companies to a severe level. The Company believes that, due to the limited
amount of its business that is directly reimbursed by Medicare, the impact on it
resulting from the IPS legislation will not be material. However, the Company as
a result of this legislation may experience additional pressure on rates paid it
by those of its clients who derive a material portion of their revenues from
Medicare.
Part of the Company's strategy is to increase its business with managed
care third party payors, such as health maintenance organizations and preferred
provider organizations. An increase in these contracts could also reduce the
profit margin for the Company's business because managed care payors typically
reimburse at lower rates and limit service coverage to a greater extent than
other non-governmental third party payors, such as indemnity insurance
providers. The Company is unable to predict how quickly, if at all, its managed
care business will increase and what effect any such increased business in this
segment would have on the Company's business or results of operations.
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GOVERNMENT REGULATION
The Company and the health care industry generally are subject to
extensive and frequently changing state and federal regulation governing the
provision of home health care services and home infusion services, the licensing
of branch offices, certification of home health agencies and the licensing of
professionals. In addition, state and federal fraud and abuse laws prohibit,
among other things, the payment of remuneration for patient or business
referrals. New laws and regulations are enacted from time to time to regulate
new and existing services and products in the home health care industry, and any
changes in the laws or regulations or new interpretations of existing laws or
regulations could have an adverse effect on the Company's methods and costs of
doing business. Further, failure by the Company to comply with applicable laws
could adversely affect the Company's ability to continue to provide, or receive
reimbursement for, its services from Medicare, Medicaid and other third party
payors and also could subject the Company and its officers to civil and criminal
penalties. There can be no assurance that the Company will not encounter
regulatory impediments that could adversely affect its ability to open new
branch offices and to expand the services currently provided at its existing
branch offices.
The Company's operations are subject to the illegal remuneration
provisions of the Social Security Act (sometimes referred to as the
"anti-kickback" statute and similar state laws that impose criminal and civil
sanctions on persons who knowingly and willfully solicit, offer, receive or pay
any remuneration, whether directly or indirectly, in return for, or to induce,
the referral of a patient for treatment, or, among other things, the ordering,
purchasing, or leasing, of items or services that are paid for in whole or part
by Medicare, Medicaid or similar state programs. Violations of the federal
anti-kickback statute are punishable by criminal penalties, including
imprisonment, fines and exclusion from future participation in the Medicare and
Medicaid programs. Federal enforcement officials also may attempt to impose
civil false claims liability with respect to claims resulting from an
anti-kickback violation. If successful, civil penalties could be imposed,
including assessments of $2,000 per improper claim for payment plus twice the
amount of such claims and suspension from future participation in Medicare and
Medicaid programs. Civil suspension for anti-kickback violations also can be
imposed through an administrative process, without the imposition of civil
monetary penalties. While the federal anti-kickback statute expressly prohibits
transactions that have traditionally had criminal implication, such as
kickbacks, rebates or bribes for patient referrals, its language has been
construed broadly and has not been limited to such obviously wrongful
transactions. Court decisions state that, under certain circumstances, the
statute is also violated when one purpose (as opposed to the "primary" or a
"material" purpose) of a payment is to induce referrals. Congress has frequently
considered federal legislation that would expand the federal anti-kickback
statute to include the same broad prohibitions regardless of payor source.
In addition, an increasing number of states have laws, which vary from
state to state, prohibiting certain direct or indirect providers for the
referral of patients to a particular provider, including pharmacies and home
health agencies. Possible sanctions for violation of these restrictions include
loss of licensure and civil and criminal penalties. There can be no assurance
that such laws will ultimately be interpreted in a manner consistent with the
practices of the Company.
Under both the Omnibus Budget Reconciliation Act of 1933 ("Stark II")
and certain state legislation, it is unlawful for a physician to refer patients
for certain designated health services to an entity with which the physician has
a financial relationship. A "financial relationship" under Stark II is defined
as an ownership or investment interest in, or a compensation arrangement
between, the physician and the entity. The entity is prohibited from claiming
payment under the Medicare or
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Medicaid programs for services rendered pursuant to a prohibited referral and is
liable for the refund of amounts received pursuant to prohibited claims. The
entity also can receive civil penalties of up to $15,000 per improper claim and
can be excluded from participation in the Medicare and Medicaid programs.
In New York State, a certificate of need ("CON") must be obtained in
order to be certified to participate in the Medicare and Medicaid programs. The
Company does not have CONs covering its Westchester County, metropolitan New
York and Long Island branches and is therefore not certified as a Medicare
provider for such branches. A majority of the Company's business in these
branches is therefore derived as a subcontractor to Medicare-certified and
Medicaid-certified agencies or as a contractor with local government agencies.
In upstate New York (which was an acquired operation), the Company does have
CONs.
The Company is also subject to laws and regulations pertaining to the
environment, health and safety. If the Company were found to be in violation of
any such laws and regulations, it could have a material adverse effect on its
business or financial condition.
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HEALTH CARE REFORM
Political, economic and regulatory influences are likely to lead to
fundamental change in the health care industry in the United States. Numerous
proposals for comprehensive reform of the nation's health care system have been
introduced in Congress. Many approaches have been considered, including mandated
basic health care benefits, controls on health care spending through limitations
on the growth of private health insurance premiums and Medicare and Medicaid
spending, the creation of large insurance purchasing groups and fundamental
changes to health care delivery systems. In addition, some of the states in
which the Company operates are considering various health care reform proposals.
The Company anticipates that Congress and state legislatures will continue to
review and assess alternative health care delivery systems and payment
methodologies, and that public debate of these issues will continue in the
future. Due to uncertainties regarding the ultimate features of reform
initiatives and their enactment and implementation, the Company cannot predict
which, if any, reforms will be adopted, when they may be adopted, or what impact
they may have on the Company. In addition, the cost and service considerations
which have generated proposals for health care reform have also resulted in, and
are expected to continue to result in, strategic realignments and combinations
in the health care industry which may, over time, have a significant impact on
the Company's strategic direction and results of operations. The actual
announcement of reform proposals and the investment communities' reaction to
such proposals, announcements by competitors and payors of their strategies to
respond to reform initiatives and general industry conditions have produced and
may continue to produce volatility in the trading and market price of the
Company's Common Stock and for securities of health care companies generally.
ABILITY TO ATTRACT KEY MANAGEMENT AND DEPENDENCE ON HEALTH CARE PROFESSIONALS
The Company's future success will depend in large part on its ability
to attract and retain senior management personnel and branch-level management.
In addition, the Company is dependent on its staff of professional nurses and
its other health care professionals and paraprofessionals. Competition for
qualified management personnel and health care professionals and
paraprofessionals is strong. The inability to attract, retain or motivate
management and sufficient numbers of qualified health care professionals and
paraprofessionals could adversely affect the Company's business and prospects.
Although the Company has been generally able to meet its staffing requirements
for professional nurses and other health care staff, the Company has experienced
occasional staffing shortages at certain of its offices, and an increase in
competition, or a decline in its ability to meet its staffing needs, in the
future could have a material adverse effect on the Company's profitability and
on the Company's ability to maintain or increase its patient base at certain or
all of its branch offices.
LIABILITY AND INSURANCE
The Company's services subject it to liability risk. Malpractice claims
may be asserted against the Company if its services are alleged to have resulted
in patient injury or other adverse effects. The Company has from time to time
been subject to such suits in the ordinary course of its business. There can be
no assurance that future claims will not be made or that such claims, if made,
will not materially and adversely affect the Company's business or financial
condition. The Company currently maintains liability insurance in the amount of
$2.0 million per occurrence and $6.0 million in the aggregate. There can be no
assurance that the coverage limits of the Company's insurance policies will be
adequate. In addition, while the Company has been able to obtain liability
insurance in the past, such insurance varies in cost, is difficult to obtain and
may not be available in the future on
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acceptable terms or at all. A successful claim against the Company in excess of
the Company's insurance coverage could have a material adverse effect upon the
Company's business and financial condition. Claims against the Company,
regardless of their merits or eventual outcome, also may have a material adverse
effect upon the Company's reputation and business.
COMPETITION
The home health care market is highly competitive and is divided among
a large number of providers, some of which are national providers, but most of
which are either regional or local providers. The Company believes that the
programs provided, the quality of care and service provided, reputation, and the
level of charges for services are significant competitive factors. Certain of
the Company's competitors and potential competitors have significantly greater
financial, technical and marketing and sales resources than the Company and may,
in certain locations, possess licenses or certificates (for example, CONs in New
York State) that permit them to provide services that the Company cannot
currently provide. There can be no assurance that the Company will not encounter
increased competition in the future that could limit the Company's ability to
maintain or increase its business and could adversely affect the Company's
operating results.
EMPLOYEES
As of December 31, 1997, the Company had more than 3,000 employees. The
Company believes that its employee relations are good. None of the Company's
employees is represented by a labor union.
PATENTS AND TRADEMARKS
The Company has no material patents or trademarks.
BACKLOG OF ORDERS AND INVENTORY
The Company has no backlog of orders.
OTHER
The Company does not have significant research and development
expenditures. The Company's business is not significantly seasonal in nature.
RISK FACTORS
The Company's future business, financial condition and results of
operations are dependent on the Company's ability to successfully provide home
health care services to its customers and to successfully collect fees for such
services. Inherent in this process are numerous 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; complying with the financial covenants in its revolving line of
credit, subordinated credit facility and
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accounts receivable securitization program so the banks would not have the right
to declare the amounts outstanding under such facilities immediately due and
payable; competing effectively with other home health care providers;
establishing and maintaining close working relationships with home care and
social service agencies, hospitals, clinics, nursing homes, physicians and
physician groups, health maintenance organizations and other health care
providers; obtaining adequate 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 and maintaining adequate
liability insurance. The failure to manage such risks successfully could have a
material adverse effect on the Company's business, financial condition and
results of operations.
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ITEM 2. PROPERTIES
The following table sets forth the branch offices of the Company in
each of its markets.
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DATE OPENED
OR BUSINESS LEASE
LOCATION ACQUIRED SQUARE FOOTAGE
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NEW YORK
Hartsdale (regional processing center) 5/86 5,968
Brooklyn 1/88 3,215
Queens 3/89 4,860
Nassau 3/89 5,350
Suffolk 3/89 2,118
Manhattan 5/86 9,600
Bronx 5/86 2,275
Scarsdale 5/86 5,854
Peekskill 5/86 1,250
Kingston 4/92 2,600
Latham 4/92 4,770
CONNECTICUT
Hartford 1/88 3,238
Hartford (Corporate Headquarters) 5/86 3,238
Bridgeport 1/92 2,061
New Haven 8/92 1,224
PENNSYLVANIA
Philadelphia 7/90 6,460
Pittsburgh 9/92 7,000
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The Company's headquarters are located in Hartford, Connecticut. The
Company's nursing services are provided by staff located at branch offices in
the Company's markets. All facilities are leased with various expiration dates
through the year 2003.
The Company regularly evaluates the suitability of each location and
overall adequacy of its various branch offices in regards to the impact on the
efficient operation of the business.
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ITEM 3. LEGAL PROCEEDINGS
On November 11, 1997, the Company received a Grand Jury subpoena from the
New York State Attorney General's Medicaid Fraud Control Unit, which audits all
activities and funding pertinent to participation in the Medicaid Program, in
connection with its broad-based investigation into the billing and other
practices of a number of companies providing home care services in New York
under Medicaid-funded state programs.
As part of the audit, the Attorney General alleged that the Company had
been overpaid in that the Company's charges to private paying clients were
lower than the Medicaid rates established by the State. The Attorney General
acknowledged that the Company did not knowingly cause such overpayment to
occur. However, the Attorney General contended that the differential between
private charges and the Medicaid rates in effect during the audit period should
be repaid to the State.
The Company cooperated fully with the State's investigation. In addition,
the Company hired outside counsel and initiated its own internal investigation
of its billing practices and Medicaid rates. Because of the Company's pending
merger, US HomeCare asked the Attorney General for expedited review of its
investigation of the Company.
Based on its internal review, the Company concluded that it had meritorious
legal defenses for substantially all potential claims by the state for monetary
or other penalties based on cost reporting and billing practices related to
Medicaid-funded home care programs. However, the Company also believed that
litigating these issues could take substantial time and expense.
The Company in January 1998 entered into negotiations with the office of
the Attorney General in an effort to reach a rapid resolution of the
investigation. Under the terms of a final agreement signed on February 27, 1998
which terminated the proceeding as to the Company, the Company agreed to settle
the state's investigation for a monetary payment of $1.75 million, with
$100,000 payable initially and the remainder payable with interest over a period
of 36 months. The full amount of the settlement may be prepaid at any time, and
the Company has agreed with the state that it will use reasonable efforts to
prepay, in part or in full, the unpaid balance at any time the Company
refinances its bank debt.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the OTC Bulletin Board under
the symbol "USHO." The following table presents the quarterly high and low bid
quotations, as reported by the Nasdaq National Market through the second quarter
of 1996; quotations for third and fourth quarter 1996 and all of 1997 were as
reported by on-line services monitoring the OTC Bulletin Board. These quotations
reflect the inter-dealer prices, without retail mark-up, markdown or commission
and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
1997 1996
---- ----
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First Quarter $1.375 $0.688 $2.500 $1.625
Second Quarter $1.375 $0.969 $2.625 $1.625
Third Quarter $1.531 $0.938 $2.250 $1.250
Fourth Quarter $1.531 $0.906 $1.250 $0.500
</TABLE>
On March 27, 1998 the last reported sales price for the Company's
Common Stock on the OTC Market was $0.40625 per share.
HOLDERS
At December 31, 1997, there were approximately 400 record holders of
Common Stock.
DIVIDENDS
The Company has never declared or paid any cash dividends on its
capital stock. In addition, the Company's RLOC (as defined below) prohibits the
payment of cash dividends on the Company's capital stock without prior consent.
The Company currently intends to retain all earnings for the operation of its
business and does not anticipate paying any cash dividends in the foreseeable
future. The Company pays dividends on its outstanding $35.00 6% Convertible
Preferred Stock, $1.00 par value (the "$35.00 Preferred") through the issuance
of shares of Common Stock.
13
<PAGE> 17
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The financial data set forth below is qualified by reference to, and
should be read in conjunction with, the consolidated financial statements,
related notes and other financial information included elsewhere herein and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The selected statement of operations and balance sheet data for the
years ended December 31, 1995, 1996 and 1997 and at December 31, 1996 and 1997
respectively, have been derived from the Company's audited consolidated
financial statements, and are included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues................................... $ 62,637 $ 56,351 $ 56,450 $ 55,085 52,635
Cost of revenues.............................. 42,016 38,295 37,605 37,815 32,630
-------- -------- -------- -------- ------
Gross profit................................... 20,621 18,056 18,845 17,270 20,005
Selling, general and administrative expenses .. 25,436 27,382 18,607 19,016 15,931
Provision for litigation settlement ........... -- 2,000 -- -- 1,750
Amortization and depreciation ................. 5,166 4,875 2,208 1,943 1,613
Restructuring and other non-recurring charges . -- 7,650 -- 3,619 1,306
-------- -------- -------- -------- ------
Loss from continuing operations................ (9,981) (23,851) (1,970) (7,308) (595)
Interest expense............................... 1,398 1,423 870 1,092 852
-------- -------- -------- -------- ------
Loss from continuing operations before
provisions (benefit) for income taxes.......... (11,379) (25,274) (2,840) (8,400) (1,447)
Provision (benefit) for income taxes .......... (3,606) (219) 154 150 150
Discontinued operations:
Income (loss) from discontinued operations .... 637 (1,710) 1,196 (1,464) (1,597)
Loss on sale of IV therapy business ........... -- -- -- (13,779)
-------- -------- -------- -------- ------
Net loss ...................................... $ (7,136) $(26,765) $ (1,798) $(23,793) (1,597)
Dividends to preferred shareholders............ -- (34) (641) (690) (690)
-------- -------- -------- -------- ------
Net Loss applicable to common shareholders..... (7,136) (26,799) (2,439) (24,483) (2,287)
======== ======== ======== ======== ======
Basic and diluted loss per share:
Income (loss) from continuing operations ...... $ (.94) $ (3.04) $ (.45) $ (1.04) $ (.22)
Discontinued operations:
Income (loss) from discontinued operations .07 (.21) .15 (.17) --
Loss on disposal of IV therapy business ....... -- -- -- $ (1.55) --
-------- -------- -------- -------- ------
Basic and diluted loss per share .............. $ (.87) $ (3.25) $ (.30) $ (2.76) $ (.22)
======== ======== ======== ======== ======
Weighted average common shares outstanding .... 8,244 8,247 8,180 8,868 10,444
======== ======== ======== ======== ======
BALANCE SHEET DATA:
Net accounts receivable........................ $ 24,024 $ 13,382 $ 15,480 $ 7,925 $ 5,147
Working capital (deficit)...................... 19,338 (6,547) 8,186 (3,511) (345)
Total assets................................... 64,662 43,681 38,441 15,545 10,378
Short-term debt................................ 2,747 6,729 1,119 346 --
Long-term debt (less current portion).......... 17,561 9,282 12,524 7,983 7,577
Stockholders' equity (deficit)................. 33,408 8,593 15,915 (7,055) (6,471)
</TABLE>
14
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Annual Report on Form 10-K 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 and under "Risk Factors."
GENERAL
The Company was formed in April 1986 to acquire a home health care
company operating primarily through five nursing service offices in New York
City and Westchester County with net revenues of approximately $8.8 million for
the year ended May 31, 1986. Following its formation in 1986, the Company
expanded through a strategy of internal growth, the opening of new branch
offices, selected acquisitions within its region and the introduction of new
services and programs, including infusion therapy which was added in 1989.
In 1992, the Company adopted an accelerated expansion strategy, opened
offices in a number of new geographic markets, developed a new and sizable base
of Medicare business in South Florida, and, in late 1992, consummated a
significant infusion therapy acquisition in the greater New York metropolitan
area. Management underestimated the financial, managerial and system resources
necessary to execute its expansion strategy. As a result, the Company failed to
successfully implement its expansion strategy and began to incur operating
losses in the second quarter of 1993.
In August 1994, the Company announced an extensive restructuring plan,
which included the closing of its development-stage offices outside of its core
markets, the consolidation of its infusion therapy pharmacy facilities from five
to two, and the sale of its South Florida operations which was completed in
December 1995. Despite these actions, the Company continued to incur operating
losses in 1994, 1995 and the first three quarters of 1996.
At the end of September 1996, the Company undertook a series of steps
to improve operating results, restore financial health and focus on building its
core home nursing services business. First, the Company engaged a team of
experienced turnaround specialists to improve the operating and financial
performance of the Company. During the fourth quarter of 1996, corporate
overhead was reduced by more than $4 million per annum and branch level overhead
and direct costs were reduced by more than $2.5 million per annum. Second, the
Company sold the business and operating assets of its home infusion therapy
operations as of October 1, 1996. Finally, the Company settled all of its
material litigation and reduced the borrowings under the Company's revolving
credit facility from $8.9 million on September 30, 1996 to $5.0 million on
December 31, 1996.
During 1997, the Company pursued the possibility of merging the
Company with a larger healthcare
15
<PAGE> 19
company, culminating in the execution of an agreement to merge with Home Health
Corporation of America (HHCA) in September 1997.
US HomeCare announced in December, 1997 that the New York State
Attorney General's office had initiated a broad-based investigation into the
billing and other practices of companies providing home health care services in
New York under Medicaid-funded state programs. US HomeCare was included in the
investigation.
The Company cooperated fully with the State's investigation. In
addition, the Company hired outside counsel and initiated its own internal
investigation of its billing practices and Medicaid rates. Because of the
Company's pending merger with HHCA, US HomeCare asked the Attorney General for
expedited review of its investigation of the Company.
Based on its internal review, the Company concluded that it had
meritorious legal defenses for substantially all potential claims by the state
for monetary or other penalties based on cost reporting and billing practices
related to Medicaid-funded home health care programs. However, the Company also
believed that it could take substantial time and expense to litigate any of
these issues to their conclusion. The Company in January 1998 entered into
negotiations with the office of the Attorney General in an effort to reach a
rapid resolution of the investigation.
On Wednesday, February 11, 1998, the Company and Home Health
Corporation of America (HHCA) announced that they had mutually terminated their
merger agreement.
Under the terms of a final agreement signed on February 27, 1998, the
Company has agreed to settle the state's investigation of Medicaid billing for
the period 1992 through 1997 for a monetary payment of $1.75 million, payable
with interest over a period of 36 months. This settlement was accrued as of
December 31, 1997. The full amount of the settlement may be prepaid at any time,
and the Company has agreed with the state that it will use reasonable efforts to
refinance the amount of the settlement as soon as possible.
16
<PAGE> 20
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net revenues from continuing (nursing) operations were $52.6 million in
1997 compared to $55.1 million in 1996. The $2.5 million decline (4.4%) was due
to a combination of rate and volume impacts. In most of the Company's markets
we maintained our revenue base, but in several we experienced declines due to
loss of contracts or due to continued pressure by payor agencies to control
costs by cutting utilization and by trimming back on rates they pay for our
services.
Cost of revenues as a percentage of net revenues decreased to 62.0% in
1997 as compared to 68.6% in 1996. The decrease in cost of revenues reflected
efforts of company management to more closely monitor costs. Specific areas of
cost containment included the management of overtime, transportation
costs, and the productivity of salaried clinical resources. Management believes
that these savings are permanent.
Selling, general and administrative expense decreased by $3.1 million
or 16.2% to $15.9 million in 1997 compared to $19.0 million for 1996. This
decrease primarily reflects the benefits of the restructuring accomplished in
the fourth quarter of 1996, primarily the elimination of excessive levels of
corporate staff, and tighter control over a wide variety of administrative
expenses.
Interest expense was $0.9 million in 1997 or 21.9% lower than in 1996.
The decrease reflects the reduction of average borrowings under the Company's
bank facilities in 1997.
During the year the Company also incurred a $1.75 million cost of
settling a regulatory matter with the State of New York, as described in Note
13. This settlement related to Medicaid contract years from 1992 through 1997.
The Company also incurred $907,000 of expenses related to the
terminated merger with Home Health Corporation of America. These expenses were
largely professional fees paid to investment bankers, accountants and lawyers.
The Company also incurred an additional non-recurring charge of
$399,000 related to the employment of turnaround consultants, who were
originally hired to work with Company management in September 1996. A separate
agreement was entered into in 1997 principally related to the proposed sale of
the Company.
Had the Company not incurred the charges for the regulatory settlement,
merger, or other non-recurring charges in 1997, net income would have been
$1,459,000.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net revenues from continuing (nursing) operations were $56.5 million in
both 1996 and 1995.
Cost of revenues as a percentage of net revenues increased to 69.4% in
1996 as compared to 66.6% in 1995. The increase in cost of revenues reflected
increased workers compensation insurance expense, additional employee benefit
expense, and changes in the mix of direct labor.
Operating expense increased by $3.8 million or 18.3% to $24.6 million
in 1996 compared to $20.8 million for 1995. This increase primarily reflecting a
restructuring charge in the third and fourth quarters of 1996 of $3.6 million, a
decline in depreciation and amortization expense of $.3 million and an increase
in selling, general and administrative expenses of $.4 million. The increase in
SG&A costs reflected increased workers compensation insurance expense, increased
employee benefits expense, information systems expense and an increase in
personnel and related costs during the first nine months of 1996, offset by the
expense reductions achieved by the restructuring program initiated in late
September 1996.
The restructuring steps that the Company undertook at the end of
September 1996 resulted in the following. On October 31, 1996, the Company
completed the sale of certain assets (not including accounts receivable) of its
IV therapy business for approximately $2.0 million in cash. The sale had an
effective date of October 1, 1996. As a result of the sale the operations of the
IV therapy business has been treated as a discontinued operation. The Company
recorded a loss on disposal of the IV therapy business of $13.8 million. Such
loss on sale, which was net of the cash proceeds of the sale of approximately
$2,000,000, included (1) a write-off of $11.6 million of goodwill and other
intangible assets, (2) additional provisions for losses on accounts receivable
of $2.6 million, and (3) $1.6 million related to a charge for severance and
other anticipated costs during the phase out period. The loss from IV operations
in the 1996 period was $1.5 million including a provision of $1.1 million for
legal settlements. The Company also recorded a provision for restructuring and
other nonrecurring charges of $3.6 million which was comprised of: severance of
$.6 million, turnaround consultants' compensation of $1.9 million, an increase
in 1994 restructuring reserve of $.5 million and other restructuring costs of
$.6 million (including assets write-offs and lease costs). The reserve
established for compensation
17
<PAGE> 21
for the turnaround consultants includes cash payments totaling $.4 million and
significant performance based equity incentives valued at approximately $1.5
million.
Interest expense was $1.1 million in 1996 or 25.5% higher than in 1995.
The increase reflects the result of the increased average borrowings under the
Company's bank facilities in 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had cash and cash equivalents of
approximately $0.3 million. Working capital (deficit) decreased by $3.2 million,
from $(3.5) million at December 31, 1996 to a working capital (deficit) of
($0.3) million at December 31, 1997. The improvement in net working capital was
primarily a result of a reduction in accounts payable, accrued liabilities and
reserves for restructuring and other non-recurring charges offset by collection
of IV receivables.
The reduction in net accounts receivable resulted primarily from the
reduction of receivables from the Company's discontinued infusion therapy
operations. The Company sold its infusion therapy operations on October 31, 1996
but retained its infusion therapy accounts receivable. Infusion therapy
receivables (including off balance sheet receivables, which were sold under the
securitization program) were $2.0 million on December 31, 1996 and $11,000 at
December 31, 1997.
Trade accounts payable declined from $3.2 million at December 31, 1996
to $2.5 million at December 31, 1997 reflecting the discontinuance of the
Company's infusion therapy business and the payment of accounts payable from
improved cash flow.
Accrued expenses decreased from $4.5 million at December 31, 1996 to
$2.8 million at December 31, 1997, resulting primarily from satisfaction of
certain accrued amounts related to the company's discontinued operations and
payments of legal settlements.
Cash flow from operating activities for the year ended December 31,
1997 declined $5.4 million to $.6 million from $6.0 million for the year ended
December 31, 1996. This decline was principally due to the reduction of reserves
for restructuring and other non-recurring charges, payments of accounts payable
and accrued liabilities, and payments for merger expenses. Cash flow for
financing activities was ($0.8) million for the year ended December 31, 1997,
compared to ($5.3) million for the year ended December 31, 1996.
The Company has a revolving line of credit ("RLOC"), with availability
based upon a stated formula applied to "eligible" accounts receivable balances.
Borrowings bear interest at the higher of the bank's prime rate plus 2.0% or the
federal funds rate plus 1.0%. Remaining availability under the RLOC at December
31, 1997 was $1.0 million. Borrowings under the RLOC are collateralized by
substantially all of the Company's assets. The terms of the RLOC provide, among
other things, for prepayments in the event that the Company's formula based
borrowing capacity is reduced, for maintenance of certain financial ratios and
limitations on capital expenditures, acquisitions, and cash dividends. On
December 24, 1997 the RLOC agreement was amended and restated to include a
revised maturity date of March 31, 1998. On March 26, 1998, the RLOC was
extended to January 4, 1999.
The Company has a $3.0 million subordinated credit facility the
("Subordinated Credit
18
<PAGE> 22
Facility") with a commercial bank. The Subordinated Credit Facility is 100%
guaranteed by the Connecticut Development Authority ("CDA"). On December 24,
1997 the maturity of the Subordinated Credit Facility was extended to March 31,
1998 and the CDA guarantee was extended to March 31, 1998. In connection with
the October 1995 issuance of the CDA guarantee, the Company agreed to issue
additional warrants (the "Additional Warrants") to the CDA to purchase 735,000
shares of the Company's common stock for $1.5969 per share if the guarantee was
not released by April 30, 1997. As a result of the previous extension of the CDA
guarantee to January 30, 1998 the Company issued the Additional Warrants to the
CDA on March 25, 1997. On March 26, 1998, the Fleet note was extended to
January 15, 1999, and the CDA guarantee was extended to January 30, 1999.
The Company has a Receivables Purchase and Servicing Agreement (the
"Securitization Program"), which allows the Company to sell for cash an
undivided percentage ownership interest in a designated pool of eligible
receivables, as defined. The Company relies on this accounts receivable
financing to fund working capital for current operations. The maximum amount of
cash advances (based on eligible accounts receivable) allowed under the program
is $9.0 million. The net proceeds from the sale of accounts receivable through
the Securitization Program at December 31, 1997 were $6.9 million. On December
24, 1997 the maturity date of the Securitization Program was extended to March
31, 1998. On March 26, 1998, the program was extended to January 4, 1999.
Sales of substantial amounts of Common Stock in the public market in
the future could adversely affect the prevailing market price of the Company's
Common Stock. As outlined above, on March 25 and March 27, 1997, the Company
issued Warrants exercisable for an aggregate of 913,000 shares of Common Stock
exercisable at $1.5969 per share to its RLOC banks and the CDA. In addition,
during 1996 the Company issued or committed to issue an aggregate of 644,000
shares in exchange for the cancellation of certain of the Company's obligations
(the "Common Shares"). The foregoing securities are all restricted securities
within the definition of Rule 144 and are subject to certain resale provisions
relating to the manner and notice of sale, availability of current public
information about the Company and volume limitations. The holders of the
foregoing securities are entitled to have such shares registered by the Company
under the Securities Act of 1933, as amended. The Company filed a registration
statement registering approximately 11,900,000 shares of Common Stock for resale
in the second quarter of 1997 and plans to keep such registration statement
effective for a minimum of three years.
The Company believes that its cash position and liquidity will continue
to require careful management for the foreseeable future. Cash availability
improved during the last quarter of 1996 and in 1997, and the Company expects
this improvement to continue in the future.
The Company believes that its existing credit facilities, together with
cash generated from operations, will be sufficient to fund the Company's
operations and debt obligations through 1998. Beyond 1998, the Company believes
that it will need to replace its existing credit facilities to ensure sufficient
funding of the Company's operations. The Company is currently in the process of
replacing its current credit facilities with a new lender.
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a
2-digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date-based information.
The Company has identified all significant applications that will
require modification to ensure Year 2000 Compliance. Internal and external
resources are being used to make the required
19
<PAGE> 23
modifications and test Year 2000 Compliance. The Company plans on completing the
testing process of all significant applications by December 31, 1998.
The total cost to the Company of those Year 2000 Compliance activities
has not been and is not anticipated to be material to its financial position or
results of operations in any given year. These costs and the date on which the
company plans to complete the Year 2000 modification and testing processes are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of certain
resources, third party modifications plans and other factors. However, there can
be no guarantee that these estimates will be achieved and actual results could
differ from those plans.
20
<PAGE> 24
QUARTERLY INFORMATION
The following table presents unaudited financial data for the eight
quarters beginning January 1, 1996. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) necessary have been
made to present fairly the following selected quarterly information when read in
conjunction with the consolidated financial statements included elsewhere
herein.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1997
Net revenues................................ $ 13,754 $ 13,976 $ 12,195 $ 12,710
Income/(loss) from continuing operations
before interest and income taxes....... 1,213 1,246 (653) (2,401)
Net income (loss) .......................... 955 961 (900) (2,613)
Net income (loss) applicable to common
shareholders........................... 783 789 (1,073) (2,786)
Basic income (loss) per share(a)............ $ .08 $ .08 $ (.11) $ (.23)
Diluted income (loss) per share............. $ .05 $ .05 $ (.11) $ (.23)
1996
Net revenues................................ $ 13,776 $ 14,032 $ 13,094 $ 14,183
Income/(loss) from continuing operations
before interest and income taxes....... (423) (242) (8,300) 1,657
Income/(loss) from discontinued
operations ............................ 171 (62) (14,452) (900)
Net income (loss) .......................... (567) (608) (23,073) 455
Net income (loss) applicable to common
shareholders........................... (739) (780) (23,246) 282
Basic income (loss) per share(a)............ $ (.09) $ (.09) $ (2.56) $ .03
Diluted income (loss) per share............. $ (.09) $ (.09) $ (2.56) $ .03
</TABLE>
During the fourth quarter of 1996, the Company recorded an adjustment
to reduce its provision for restructuring and other non-recurring charges by $.9
million based upon a reevaluation of the cost of such reorganization. Also, in
the fourth quarter of 1996 the Company increased its loss on discontinued
operations by $.9 million to adjust its estimate for uncollectable IV therapy
receivables.
During the fourth quarter of 1997 the Company recorded an accrual for
$1.75 million representing the costs of settlement of the New York Medicaid
investigation. Also in the fourth quarter, the Company recognized an additional
$319,000 of expenses related to the now terminated merger with HHCA.
(a) The sum of the quarterly basic amounts do not equal the annual amounts due
to rounding.
ITEM 7A. MARKET RISK DISCLOSURES
None
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by the item is set forth in the
Consolidated Financial Statements on F-1 through F-18 and in the Financial
Statement Schedule in S-1 of this report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
21
<PAGE> 25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company and their ages are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- --------------------------
<S> <C> <C>
Jay C. Huffard (2) 56 President, Chief Executive Officer,
Chairman of the Board and Director
Clifford G. Johnson 43 Vice President, Finance and Administration,
Chief Financial Officer, and Corporate Secretary
Hadley C. Ford (3)(4) 62 Director
John R. Gunn (1)(3) 54 Director
W. Wallace McDowell, Jr.(2)(4) 61 Director
Shawkat Raslan (2)(3) 46 Director
Susan S. Robfogel, Esq.(1)(4) 55 Director
</TABLE>
- -----------------------
(1) Member of the Nominating Committee of which Ms. Robfogel is Chairperson.
(2) Member of the Executive Committee of which Mr. Huffard is Chairperson.
(3) Member of the Audit Committee of which Mr. Gunn is Chairperson.
(4) Member of the Compensation Committee of which Mr. McDowell is Chairperson.
The Company's directors hold office until the next annual meeting of
shareholders or until their successors have been duly elected and qualified. The
Company's officers are elected annually by the Board of Directors and serve at
the discretion of the Board. Each director who is not an employee of the Company
receives an annual retainer of $10,000 as compensation for services as a
director, except for Mr. Huffard who receives an additional annual fee of
$40,000 for his services as Chairman of the Board, and $60,000 for his services
as President. Each director who is not an employee of the Company also receives
a fee of $1,000 for attending each regular or special meeting of the Board or of
its committees. The non-employee directors are also reimbursed for expenses
incurred in connection with performing their respective duties as directors of
the Company. Directors who are employees receive no additional compensation for
their services as directors of the Company. During 1995, the Board did not
receive its $10,000 retainer and meeting fees. The Company satisfied the 1995
amounts as well as the 1996 amounts due during 1996 through the issuance of
shares of Common Stock equal in value to such fees. Fees for 1997 were also paid
in stock, with the final stock issuance occurring in January 1998.
Jay C. Huffard has been a director of the Company since 1988, Chairman
of the Board of Directors since July 1991, interim President and Chief Executive
Officer from October 1996 to July
22
<PAGE> 26
1997, at which time he was named President and Chief Executive Officer. Since
1988, Mr. Huffard has been Managing Director of Huffard & Co. LP From 1987 to
1988, he was Chief of Staff to the Chairman of The Equitable. From 1980 to 1988,
Mr. Huffard served in various executive capacities at Donaldson, Lufkin &
Jenrette Securities Corporation, including Executive Vice President and Managing
Director, and Chairman or Chief Executive of certain direct or indirect
subsidiaries thereof. Since 1993 Mr. Huffard has been a Managing Director and
Principal of Prima Management Corp., a direct investment firm.
Clifford G. Johnson joined the Company in April 1997 and served as Vice
President, Finance and Administration & Chief Financial Officer of the Company
since May 1997. Prior to joining the Company, Mr. Johnson was Chief Financial
Officer of Medical Alliances, Inc. from April 1996 to April 1997, Controller of
Physicians Health Services from September 1994 to December 1995, Controller and
Treasurer of Connecticare, Inc. from August 1992 to September 1994, various
management positions at Aetna Life and Casualty from July 1982 to August 1992.
Prior to July 1982 Mr. Johnson was with Coopers and Lybrand. Mr. Johnson is a
Certified Public Accountant.
W. Wallace McDowell, Jr., has been a director of the Company since
August 1992. Since December 1994, Mr. McDowell has been a private investor. From
January 1991 to December 1994 Mr. McDowell has been a Managing Director of MLGAL
Partners, LP, the General Partner of an investment partnership concentrating on
leveraged transactions. From 1983 to 1990, Mr. McDowell was Chairman and Chief
Executive Officer of The Prospect Group, Inc., a public diversified holding
company. He serves as a director of Children's Discovery Centers of America,
Inc., Jack Morton Productions, and Grossman's, Inc., and is Chairman of
Interactive Technologies, Inc. In addition, Mr. McDowell is a Trustee of The
Excelsior Funds, a family of mutual funds.
Hadley C. Ford has been a director of the Company since November 1994.
Mr. Ford currently is a Senior Advisor to insurance industry clients of Andersen
Consulting. From 1965 until his retirement in 1992, Mr. Ford was with Booz,
Allen & Hamilton, Inc., whose insurance industry consulting practice he founded,
in various executive capacities including Senior Vice President, director and
member of its Operating Council. Mr. Ford serves as non-executive Chairman of
the Board of Gryphon Holdings, Inc., Chairman of the Board of the American
Federation for Aging Research, and is a director and officer of the Atlantic
Salmon Federation (U.S.). In addition, Mr. Ford is a trustee of Helen Keller
International.
John R. Gunn has been a director of the Company since September 1994.
Since 1987, Mr. Gunn has served as the Executive Vice President and Chief
Operating Officer of Memorial Sloan-Kettering Cancer Center, where he has served
in various executive capacities since 1982. Previously, he was the Vice
President of Finance at Michael Reese Medical Center. Mr. Gunn serves as a board
member of several companies and associations, including the Greater New York
Hospital Association, Empire Blue Cross & Blue Shield, Hospital Association of
New York and Memorial Sloan-Kettering Cancer Center.
Shawkat Raslan has been a director of the Company since December 1991.
Since 1983, Mr. Raslan has been President and Chief Executive Officer of
International Resource Holdings, Inc., an asset management and investment
advisory service for international clients. He serves as a director of several
companies, including Apogee Inc., a mental health rehabilitation company, Foster
Management, a health care investment fund, and Tiedemann Goodnow International,
an equity fund. Since 1993, Mr. Raslan has been a Managing Director and
Principal of Prima Management Corp., a direct investment firm.
Susan S. Robfogel, Esq. has been a director of the Company since July
1991. Ms. Robfogel is
23
<PAGE> 27
a partner in the law firm of Nixon, Hargrave, Devans & Doyle with which she has
been associated since October 1985, and is Chair of the Health Services Practice
Group. Ms. Robfogel is a member of the visiting committee of the University of
Rochester School of Medicine and Dentistry. Ms. Robfogel serves on the New York
State Data Protection Review Board for the Commissioner of Health.
Section 16(a) Beneficial Ownership Reporting Compliance
All required filings were made in a timely fashion.
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation
paid by the Company during the 1997, 1996 and 1995 fiscal years to all
individuals serving as the Company's chief executive officer or acting in a
similar capacity during 1997 and the other highest paid executive officers of
the Company whose compensation was in excess of $100,000 as of the end of the
last fiscal year (collectively, the "Named Executive Officers"):
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION OPTIONS GRANTED COMPENSATION
($) ($) (#) ($)
<S> <C> <C> <C> <C> <C>
Jay C. Huffard 1997 122,500(3) 0 100,000(4) 0
Interim President, Chief 1996 108,000(1) 0 0 0
Executive Officer, 1995 72,000(2) 0 0 0
Chairman and Director
Clifford G. Johnson 1997 89,682(5) 0 50,000(4) 0
Vice President, Finance and 1996 N/A N/A N/A N/A
Administration & Chief 1995 N/A N/A N/A N/A
Financial Officer
</TABLE>
- ----------------
(1) Mr. Huffard was appointed Interim President and Chief Executive Officer
of the Company in October 1996. The figure of $108,000 includes Mr.
Huffard's actual earnings for the period from October 1, 1996 to
December 31, 1996 of $15,000. For the period January to December 1996,
he received $40,000 in compensation for his role as chairman of the
Company and $28,000 in compensation for his role as a director of the
Company. Mr. Huffard received an additional $25,000 for additional
services rendered to the Company. Of the $108,000 paid to Mr. Huffard
in 1996, $55,000 was paid in cash and $53,000 in Common Stock of the
Company.
(2) The figure of $72,000 includes $40,000 in cash received in compensation
for his role as chairman of the Company and $32,000 in Common Stock of
the Company received in compensation for his role as director of the
Company.
(3) Mr. Huffard's 122,500 consists of $60,000 paid as compensation for
services as President, $40,000 for service as Chairman, and $22,500
as fees for attending various Board meetings. The $22,500 was paid with
Common Stock.
24
<PAGE> 28
(4) Granted pursuant to the 1995 Stock Option/ Stock Issuance Plan.
(5) Mr. Johnson received $89,682 during 1997, based on a salary of
$125,000 per annum.
EMPLOYMENT ARRANGEMENTS
Jay C. Huffard's annual compensation as President & Chief Executive
Officer is $60,000. Mr. Huffard's annual compensation as Chairman of the Board
is $40,000.
Clifford G. Johnson's annual salary as Vice President, Finance and
Administration & Chief Financial Officer of the Company was $125,000 with a
target bonus opportunity of $30,000. Stock options to purchase an aggregate of
50,000 shares of Common Stock were granted to Mr. Johnson on May 12, 1997. The
commencement date of his employment with the Company was April 8, 1997. These
options are exercisable at $1.00, the fair market value of the Company's Common
Stock on the grant date. Of the 50,000 option shares, one third were vested on
issuance, with the remaining vesting on May 12, 1998 and 1999 (subject to
acceleration of vesting upon an acquisition of the Company by a merger or by a
stock or asset sale).
In the event that Mr. Johnson's employment is terminated, he is
entitled to his base salary, on a monthly basis, for six months.
25
<PAGE> 29
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table shows, with respect to the Named Executive
Officers, certain information concerning the grant of stock options in 1997.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
OPTION TERM(1)
- ----------------------------------------------------------------------------------------------------------------------------
NAME NUMBER OF PERCENT OF INITIAL EXPIRATION 5% 10%
SECURITIES TOTAL OPTIONS EXERCISE DATE
UNDERLYING GRANTED TO PRICE
OPTIONS EMPLOYEES IN ($/SHARE)
GRANTED FISCAL YEAR(2)
---------- --------------- --------- ---------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Jay C. Huffard 100,000(4) 67% $1.00 1/7/07 152,790 143,293
Clifford G. Johnson 50,000(3) 33% $1.00 5/12/07 $ 31,445 $ 79,687
------ ------- ------- -------
</TABLE>
- --------------
(1 This column reflects the potential realizable value of each grant
assuming that the market value of the Company's stock appreciates at
five percent and ten percent annually from the date of grant over the
term of the option. There is no assurance provided to any executive
officer or any other holder of the Company's securities that the actual
stock price appreciation over the option term will be at the assumed
five percent and ten percent levels or at any other defined level.
Unless the market price of the Common Stock does in fact appreciate
over the option term, no value will be realized from the option grants
made
(2) Based on options for 50,000 shares granted to employees and directors
in 1996 under the Company's 1995 Stock Option/Stock Issuance Plan.
(3) Mr. Johnson was granted an option on May 12, 1997 to purchase 50,000
shares of the Company's Common Stock at and exercise price of $1.00 per
share. On May 12, 1997, the fair value of the Company's stock was
$1.00.
(4) Mr. Huffard was granted an option on January 7, 1997 to purchase
100,000 shares of the Company's Common Stock at $1.00 per share, which
exceeded the market value at the time of the grant.
26
<PAGE> 30
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information with respect to the
Named Executive Officers regarding stock options during the year ended December
31, 1997. No stock options were exercised by such persons in 1997.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED OPTIONS AT UNEXERCISED
FISCAL YEAR END IN-THE-MONEY OPTIONS AT
FISCAL YEAR END (1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jay C. Huffard 85,000 140,000 0 0
Clifford G. Johnson 16,666 33,334 0 0
</TABLE>
(1) Based on a closing price on the OTC Market of $.938 per share of Common
Stock on December 31, 1997, there were no unexercised in-the-money
options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1997, Messrs. Ford and McDowell and Ms. Robfogel served as
members of the Compensation Committee. There were no Compensation Committee
interlocks between the Company and any other entity during 1997. Ms. Robfogel is
a partner in the law firm of Nixon, Hargrave, Devans & Doyle, which the Company
has retained from time to time.
27
<PAGE> 31
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 14, 1997 by (i) each
director, (ii) each of the Named Executive Officers, (iii) each person known by
the Company to be the beneficial owner of more than 5% of the Company's Common
Stock and (iv) all executive officers and directors as a group.
<TABLE>
<CAPTION>
PERCENT OF
SHARES BENEFICIALLY SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) OUTSTANDING(2)
- --------------------------------------- -------- --------------
<S> <C> <C>
Jay C. Huffard 1,253,647(6)(7)(8) 9.7%
Clifford G. Johnson 16,666(3) *
W. Wallace McDowell, Jr 140,784(7)(9) 1.2%
Shawkat Raslan 924,650(7)(8) 7.2%
c/o International Resources Holdings, Inc.
770 Lexington Ave New York, NY 10021
Susan S. Robfogel 65,273(7) *
John R. Gunn 71,386(7) *
Hadley C. Ford 101,232(7)(10) *
All directors and executive officers as a group
(7 persons) 1,766,376(11) 13.5%
John W. Gildea 1,735,819(12) 14.3%
Network Fund III, Ltd. 1,076,819(12) 8.9%
Connecticut Development Authority 1,551,302 11.4%
999 West Street
Rocky Hill, CT 06067
W. Edward Massey 1,013,179(12) 8.4%
173 Spring Valley Road
Ridgefield, Connecticut 06877
Prima Partners, L.P 807,262(7) 8.3%
115 East 69th Street
New York, New York 10021
Don A. Sanders 1,631,734(4) 12.8%
c/o Sanders Morris Mundy Inc.
3100 Texas Commerce Tower
Houston, TX 77002
</TABLE>
- ----------------
* Less than one percent.
(1) Except as where noted otherwise, the address of all persons listed is
c/o U.S. HomeCare Corporation, Two Hartford Square West, Suite 300,
Hartford, Connecticut 06106.
(2) Gives effect to the shares of Common Stock issuable within 60 days
after December 31, 1996 upon the conversion of the $35.00 Preferred and
the exercise of all options, warrants and other rights beneficially
held by the indicated shareholder of that date.
28
<PAGE> 32
(3) Includes 16,666 shares issuable upon exercise of options granted under
the 1995 Stock Option and Issuance Plan.
(4) Includes 355,876 shares of Common Stock held by The Lindward Group, of
which W. Edward Massey, is a general partner. Also includes 3,984
shares of Common Stock held by Mr. Massey under the Company's ESOP.
(5) Includes 428,580 shares of Common Stock issuable upon conversion of
21,429 shares of $35.00 Preferred and 2,501 shares of Common Stock
issuable upon exercise of warrants.
(6) Includes 185,552 shares of Common Stock held by Huffard & Co. L.P., of
which Jay C. Huffard, Chairman of the Board and a director of the
Company, is managing director of the general partner thereof and stock
options for 118,333 shares of Common Stock. Does not include additional
stock options for 106,667 shares, which will not vest within 60 days of
December 31, 1997.
(7) Includes 25,000 shares of Common Stock issuable upon exercise of a
stock option granted pursuant to the 1995 Plan's Automatic Grant
Program for non-employee directors.
(8) Includes 629,708 shares of Common Stock of the Company issuable upon
conversion of 28,928 shares of $35.00 Preferred of the Company held by
Prima Partners, L.P. Also includes 37,499 shares of Common Stock
issuable upon exercise of warrants issued to Prima Management Corp.,
the general partner of Prima Partners, L.P. Messrs. Huffard and Raslan
are officers, directors and shareholders of Prima Management Corp. and
are special limited partners of Prima Partners, L.P.
(9) Includes 31,107 shares of Common Stock of the Company issuable upon
conversion of 1,429 shares of $35.00 Preferred. Also includes 2,501
shares of Common Stock issuable upon exercise of warrants.
(10) Includes 32,652 shares of Common Stock of the Company issuable upon
conversion of 1,500 shares of $35.00 Preferred.
(11) See Notes (2) through (10).
(12) Includes 1,076,819 shares held by Network Fund III Ltd and 539,000
shares held by Network Fund IV, Ltd. Mr. Gildea is a manager of both
funds.
ITEM 13. CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS
For information regarding employment and severance agreement. (See
Employment Arrangements)
Ms. Robfogel is a partner in the law firm of Nixon, Hargrave, Devans &
Doyle, which the Company has retained from time to time.
29
<PAGE> 33
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
Exhibit
Number
1. Financial Statement and Schedules. The Financial Statements and
Financial Statement Schedules required to be included in this report
are listed on page F-1 hereof and attached hereto on pages F-2 through
F-18 and S-1. All other required schedules have been omitted because
the required information is shown in the consolidated financial
statements or the notes thereto.
(b) Reports on Form 8-K None.
(c) Exhibits Required by Regulation S-K
3(i) Restated Certificate of Incorporation. (Filed as Exhibit 3(a) to the
Registrant's Registration Statement on Form S-1 (Registration No.
33-40288) and incorporated herein by reference.)
3(i)(a) Certificate of Amendment of Certificate of Incorporation regarding
$35.00 6% Convertible Preferred Stock. (Filed as Exhibit 3(i)(a) to the
Registrant's Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference.)
3(ii) Bylaws. (Filed as Exhibit 3(b) to Registrant's Registration Statement
on Form S-1 (Registration No. 33-40288) and incorporated herein by
reference.)
4.1 Shareholders and Registration Rights Agreement dated as of March 15,
1989. (Filed as Exhibit 10(g) to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-40288) and incorporated
herein by reference.)
4.2 Form of 9% Convertible Subordinated Debenture. (Filed as Exhibit 10(h)
to the Registrant's Registration Statement on Form S-1 (Registration
No. 33-40288) and incorporated herein by reference.)
4.3 Standstill Agreement among Florence Katz, Judith Smith, Steven Cole and
Registrant dated February 1, 1988. (Filed as Exhibit 10(i) to the
Registrant's Registration Statement on Form S-1 (Registration No.
33-40288) and incorporated herein by reference.)
4.4 Stock Purchase Warrant, dated October 6, 1995, granted to The Chase
Manhattan Bank. (Filed as Exhibit 4.4 to the Registrant's Annual Report
Form 10-K for the year ended December 31, 1996 and incorporated herein
by reference.)
30
<PAGE> 34
4.5 Stock Purchase Warrant, dated October 6, 1995, granted to Connecticut
Development Authority. (Filed as Exhibit 4.5 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference.)
4.6 Stock Purchase Warrant, dated October 6, 1995, granted to Creditanstalt
Bankverein. (Filed as Exhibit 4.6 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996 and incorporated herein
by reference.)
4.7 Stock Purchase Warrant, dated March 25, 1997, granted to The Chase
Manhattan Bank. (Filed as Exhibit 4.7 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1996 and incorporated
herein by reference.)
4.8 Stock Purchase Warrant, date March 25, 1997, granted to Connecticut
Development Authority. (Filed as Exhibit 4.8 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference.)
4.9 Stock Purchase Warrant, dated March 25, 1997, granted to Creditanstalt
Bankverin. (Filed as Exhibit 4.9 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996 and incorporated herein
by reference.)
4.10 Amendment to Stock Purchase Warrant No. WA-16 dated March 25, 1998
between Registrant and The Chase Manhattan Bank, N.A.
4.11 Amendment to Stock Purchase Warrant No. WA-17 dated March 25, 1998
between Registrant and the Connecticut Development Authority.
4.12 Amendment to Stock Purchase Warrant No. WA-18 dated March 25, 1998
between Registrant and Creditanstalt AG.
10.1 Credit Facility with Bank of New York Commercial Corporation dated
March 15, 1989 and related amendments dated February 6, 1991 and April
25, 1991. (Filed as Exhibit 10(f) to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-40288) and incorporated
herein by reference.)
10.2 1991 Employee Stock Purchase Plan. (Filed as Exhibit 10(m) to the
Registrant's Registration Statement on Form S- 1 (Registration No.
33-45748) and incorporated herein by reference.)
10.3 Agreement of Lease dated February 28, 1991. (Filed as Exhibit 10(k) to
the Registrant's Registration Statement on Form S-1 (Registration No.
33-40288) and incorporated herein by reference.)
10.4 Letter of Intent dated February 12, 1992 with the Bank of New York to
extend and amend Revolving Credit and Security Agreement included as
Exhibit 4. (Filed as Exhibit 10(o) to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-45748) and incorporated
herein by reference.)
10.5 Employee Stock Ownership Plan, as amended. (Filed as Exhibit 10(c) to
the Registrant's Registration Statement on Form S-1 (Registration No.
33-40288) and incorporated herein by reference.)
10.6 1995 Stock Option/Stock Issuance Plan. (Filed as Exhibit 99.1 to the
Registrant's Registration Statement on Form S-8 (Registration No.
333-31177) and incorporated herein by reference.)
10.7 401(k) Plan, as amended. (Filed as Exhibit 10(d) to the Registrant's
Registration Statement on Form S-1 (Registration No. 33-40288) and
incorporated herein by reference.)
31
<PAGE> 35
10.8 Lease Agreement dated January 31, 1992. (Filed as Exhibit 10(n) to the
Registrant's Registration Statement on Form S- 1 (Registration No.
33-45748) and incorporated herein by reference.)
10.9 Lease Agreement dated July 28, 1988. (Filed as Exhibit 10(e) to the
Registrant's Registration Statement on Form S-1 (Registration No.
33-40288) and incorporated herein by reference.)
10.10 Credit facility with The Chase Manhattan Bank dated March 19, 1993.
(Filed as Exhibit 19 to the Registrant's Form 10-K for the year ended
December 31, 1992 and incorporated herein by reference.)
10.11 Lease Agreement dated May 18, 1992. (Filed as Exhibit 20 to the
Registrant's Form 10-K for the year ended December 31, 1992 and
incorporated herein by reference.)
10.12 Lease Agreement dated July 1, 1992. (Filed as Exhibit 21 to the
Registrant's Form 10-K for the year ended December 31, 1992 and
incorporated herein by reference.)
10.13 Lease Agreement dated August 1, 1992. (Filed as Exhibit 22 to the
Registrant's Form 10-K for the year ended December 31, 1992 and
incorporated herein by reference.)
10.14 Lease Agreement dated November 18, 1992. (Filed as Exhibit 23 to the
Registrant's Form 10-K for the year ended December 31, 1992 and
incorporated herein by reference.)
10.15 Amendment No. 1 to Credit facility with The Chase Manhattan Bank dated
November 8, 1993. (Filed as Exhibit 24 to the Registrant's Form 10-K
for the year ended December 31, 1993 and incorporated herein by
reference.)
10.16 Letter Agreement with The Chase Manhattan Bank dated March 28, 1994.
(Filed as Exhibit 25 to the Registrant's Form 10-K for the year ended
December 31, 1993 and incorporated herein by reference.)
10.17 Stock Purchase Agreement for $35 6% Convertible Preferred Stock, dated
January 31, 1995. (Filed as Exhibit 10.18 to the Registrant's Form 10-K
for the year ended December 31, 1994 and incorporated herein by
reference.)
10.18 Employment Agreement of Stephen H. Matheson, dated January 27, 1995.
(Filed as Exhibit 10.19 to the Registrant's Form 10-K for the year
ended December 31, 1994 and incorporated herein by reference.)
10.19 Amendment No. 4 to Credit facility with The Chase Manhattan Bank, dated
January 31, 1995. (Filed as Exhibit 10.20 to the Registrant's Form 10-K
for the year ended December 31, 1994 and incorporated herein by
reference.)
32
<PAGE> 36
10.20 Form of Stock Purchase Warrant, dated February 1, 1995. (Filed as
Exhibit 10.21 to the Registrant's Form 10-K for the year ended December
31, 1994 and incorporated herein by reference.)
10.21 Amended and Restated Credit Agreement dated October 6, 1995, among U.S.
HomeCare Corporation and its Consolidated Subsidiaries, signatory
thereto, the Banks signatory thereto and The Chase Manhattan Bank, N.A.
as Agent. (Filed as Exhibit 3 to the Registrant's Form 10-Q for the
quarter ended September 30, 1995 and incorporated herein by reference.)
10.22 Credit Agreement dated October 6, 1995 among U.S. HomeCare Corporation
and its Consolidated Subsidiaries, signatory thereto, and Fleet Bank,
National Associate. (Filed as Exhibit 4 to the Registrant's Form 10-Q
for the quarter ended September 30, 1995 and incorporated herein by
reference.)
10.23 Guarantee Agreement dated October 6, 1995 between Connecticut
Development Authority and Fleet Bank, National Association. (Filed as
Exhibit 5 to the Registrant's Form 10-Q for the quarter ended September
30, 1995 and incorporated herein by reference.)
10.24 Amendment Number 1, dated October 31, 1996, to the Amended and Restated
Credit Agreement among U.S. HomeCare Corporation and its Consolidated
Subsidiaries, signatory thereto, the Banks signatory thereto and The
Chase Manhattan Bank, N.A., as agent. (Filed as Exhibit 10.24 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1996, and incorporated herein by reference.)
10.25 Amendment Number 2, dated November 14, 1996 to the Amended and Restated
Credit Agreement among U.S. HomeCare Corporation and its Consolidated
Subsidiaries, signatory thereto, the Banks signatory thereto and The
Chase Manhattan Bank, N.A., as agent. (Filed as Exhibit 10.25 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1996, and incorporated herein by reference.)
10.26 Amendment Number 3, dated March 25, 1997, to the Amended and Restated
Credit Agreement among U.S. HomeCare Corporation and its Consolidated
Subsidiaries, signatory thereto, the Banks signatory thereto and The
Chase Manhattan Bank, N.A., as agent. (Filed as Exhibit 10.26 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1996, and incorporated herein by reference.)
10.27 Amendment Number 4, dated December 24, 1997, to the Amended and
Restated Credit Agreement amount U.S. HomeCare Corporation and its
Consolidated Subsidiaries, signatory thereto, the Banks signatory
thereto and The Chase Manhattan Bank, as agent.
10.28 Amendment Number 5, dated as of March 25, 1998, to the Amended and
Restated Credit Agreement among U.S. HomeCare Corporation and its
Consolidated Subsidiaries, signatory thereto, the Banks signatory
33
<PAGE> 37
thereto and The Chase Manhattan Bank, N.A., as agent.
10.29 Amendment Number 1, dated November 14, 1996, to the Credit Agreement
among U.S. HomeCare Corporation and its Consolidated Subsidiaries,
signatory thereto, and Fleet Bank, National Associate. (Filed as
Exhibit 10.27 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996, and incorporated herein by reference.)
10.30 Amendment Number 2, dated March 25, 1997, to the Credit Agreement among
U.S. HomeCare Corporation and its Consolidated Subsidiaries, signatory
thereto, and Fleet Bank, National Associate. (Filed as Exhibit 10.28 to
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1996, and incorporated herein by reference.)
10.31 Amendment Number 3, dated December 24, 1997, to the Credit Agreement
among U.S. HomeCare Corporation and its Consolidated Subsidiaries,
signatory thereto, the Banks signatory thereto and Fleet National Bank.
10.32 Amendment Number 4, dated March 24, 1998, to the Credit Agreement among
U.S. HomeCare Corporation and its Consolidated Subsidiaries, signatory
thereto, the Banks signatory thereto and Fleet National Bank.
10.33 First Amendment to Guarantee Agreement, dated March 25, 1997 between
Connecticut Development Authority and Fleet National Bank (Filed as
Exhibit 10.36 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996)
10.34 Second Amendment to Guarantee Agreement, dated December 24, 1997
between Connecticut Development Authority and Fleet National Bank.
10.35 Third Amendment to Guarantee Agreement, dated March 26, 1998
between Connecticut Development Authority and Fleet National Bank.
10.36 Consulting Agreement between Mehdi Ali and U.S. HomeCare Corporation
dated October 2, 1996. (Filed as Exhibit 10 (a) to the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1996
and incorporated herein by reference).
10.37 Consulting Agreement between James Laird and U.S. HomeCare Corporation
dated October 2, 1996. (Filed as Exhibit 10 (b) to the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1996
and incorporated herein by reference).
10.38 Settlement Agreement and Mutual Release between G. Robert O'Brien and
U.S. HomeCare Corporation dated October 14, 1996. (Filed as Exhibit
10.31 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated herein by reference.)
10.39 Settlement Agreement and Mutual Release between Stephen H. Matheson and
U.S. HomeCare Corporation dated October 14, 1996. (Filed as Exhibit
10.32 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, and incorporated herein by reference.)
10.40 Asset Purchase Agreement dated as of October 31, 1996 among Transworld
Acquisition Corp., Transworld Home HealthCare, Inc., U.S. HomeCare
Infusion Therapy Services Corporation of New Jersey, and U.S. HomeCare
Corporation. (Filed as Exhibit 10.33 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1996, and incorporated
herein by reference.)
34
<PAGE> 38
10.41 Settlement Agreement dated as of November 25, 1996, between U.S.
HomeCare Infusion Therapy Products Corporation and U.S. HomeCare
Corporation and Edward J. Abel, Abel Health Management Services, Inc.
and Home Infusion Pharmaceutical Services, Inc. (Filed as Exhibit 10.34
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996.)
10.42 Settlement Agreement, dated as of November 25, 1996, between U.S.
HomeCare Corporation and U.S. HomeCare Infusion Therapy Products
Corporation and Kingsland Associates. (Filed as Exhibit 10.34 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1996.)
10.43 Settlement Agreement, dated as of February [ ], 1998 between U.S.
HomeCare Corporation and the State of New York.
10.44 Employment Agreement of Clifford G. Johnson, dated [ ], 1997.
10.45 Amendment No.4 to Receivable Purchase and Servicing agreement, between
the Company and Chase Manhattan Bank, dated December 23, 1997.
10.46 Amendment No.5 to Receivables Purchase and Servicing agreement,
between the Company and Chase Manhattan Bank, dated March 26, 1998.
21. List of Subsidiaries.
35
<PAGE> 39
27.1 1997 Financial Data Schedule
27.2 Restated 1996 Financial Data Schedule
27.3 Restated 1995 Financial Data Schedule
27.4 Restated Quarter ended March 31, 1997 Financial Data Schedule
27.5 Restated Quarter ended June 30, 1997 Financial Data Schedule
27.6 Restated Quarter ended September 30, 1997 Financial Data Schedule
27.7 Restated Quarter ended March 31, 1996 Financial Data Schedule
27.8 Restated Quarter ended June 30, 1996 Financial Data Schedule
27.9 Restated Quarter ended September 30, 1996 Financial Data Schedule
36
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
U.S. HomeCare Corporation
<TABLE>
<CAPTION>
<S> <C>
By:/s/ Jay C. Huffard March 30, 1998
- ------------------------------------------
Jay C. Huffard, Interim President
and Chief Executive Officer
By:/s/ Clifford G. Johnson March 30, 1998
- ------------------------------------------
Clifford G. Johnson, Vice President,
Finance and Administration and Chief
Financial Officer (Principal Financial and
Accounting Officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
By:/s/ Jay C. Huffard March 30, 1998
- ------------------------------------------
Jay C. Huffard, Interim President,
Chief Executive Officer and Director
By:/s/ W. Wallace McDowell, Jr. March 30, 1998
- -----------------------------
W. Wallace McDowell, Jr.
Director
By:/s/ Shawkat Raslan March 30, 1998
- ------------------------------------------
Shawkat Raslan, Director
By:/s/ Susan S. Robfogel March 30, 1998
- ------------------------------------------
Susan S. Robfogel, Director
By:/s/ John R. Gunn March 30, 1998
- ------------------------------------------
John R. Gunn, Director
By:/s/ Hadley C. Ford March 30, 1998
- ------------------------------------------
Hadley C. Ford, Director
</TABLE>
37
<PAGE> 41
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report...................................................................F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996...................................F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995...........................................................F-4
Consolidated Statements of Stockholders' Deficit for
the years ended December 31, 1997, 1996 and 1995...........................................F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995..........................................................F-6
Notes to Consolidated Financial Statements.....................................................F-7
Schedule II - Valuation and Qualifying Accounts................................................S-1
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
F-1
<PAGE> 42
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
U.S. HomeCare Corporation
Hartford, Connecticut
We have audited the accompanying consolidated balance sheets of U.S. HomeCare
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' deficit and cash flows for
each of the three years in the period ended December 31, 1997. Our audits also
included the financial statement schedule listed in the Index on page F-1. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of U.S. HomeCare Corporation and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Deloitte & Touche LLP
Hartford, Connecticut
March 30, 1998
F-2
<PAGE> 43
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 313 $ 647
Accounts receivable, net of allowance
for doubtful accounts of $1,892 and $3,843 5,147 7,925
Other current assets 1,339 1,225
-------- --------
TOTAL CURRENT ASSETS 6,799 9,797
-------- --------
PROPERTY AND EQUIPMENT, net 841 2,578
-------- --------
OTHER ASSETS
Excess cost over net assets acquired, net
of accumulated amortization of $736 and $653 1,497 1,581
Intangible assets, net of accumulated
amortization of $5,502 and $5,165 485 822
Other 756 767
-------- --------
TOTAL OTHER ASSETS 2,738 3,170
-------- --------
TOTAL ASSETS $ 10,378 $ 15,545
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Current maturities of long-term debt $ -- $ 346
Accounts payable 2,528 3,175
Accrued expenses 2,821 4,509
Reserve for restructuring and other non-recurring charges 140 3,670
Accrued payroll and related costs 1,655 1,608
-------- --------
TOTAL CURRENT LIABILITIES 7,144 13,308
-------- --------
OTHER LIABILITIES
Long-term debt 7,577 7,983
Other long-term liabilities 2,128 1,309
-------- --------
TOTAL OTHER LIABILITIES 9,705 9,292
-------- --------
TOTAL LIABILITIES 16,849 22,600
-------- --------
COMMITMENT AND CONTINGENCIES - Notes 9 and 13
STOCKHOLDERS' DEFICIT
Common stock, $0.01 par value, 40,000,000 shares
authorized, 12,130,353 and 9,419,973 shares outstanding 121 94
Preferred stock, $1 par value, 5,000,000 authorized, 328,569
shares outstanding of $35, 6% convertible preferred stock;
liquidation preference of $11,500 328 328
Additional paid-in capital 47,077 44,923
Accumulated deficit (53,997) (52,400)
-------- --------
TOTAL STOCKHOLDERS' DEFICIT (6,471) (7,055)
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS'
DEFICIT $ 10,378 $ 15,545
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 44
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1997 1996 1995
<S> <C> <C> <C>
Net revenues $ 52,635 $ 55,085 $ 56,450
Cost of revenues, primarily payroll and related costs 32,630 37,815 37,605
-------- -------- --------
Gross profit 20,005 17,270 18,845
Operating expenses:
Selling, general & administrative expenses 15,931 19,016 18,607
Amortization and depreciation 1,613 1,943 2,208
Merger expenses 907
Regulatory Settlement 1,750
Restructuring and other non-recurring
charges 399 3,619 --
-------- -------- --------
Total operating expenses 20,600 24,578 20,815
-------- -------- --------
Loss from continuing operations before interest
expense and income taxes (595) (7,308) (1,970)
Interest expense 852 1,092 870
-------- -------- --------
Loss from continuing operations
before income taxes (1,447) (8,400) (2,840)
State income taxes 150 150 154
-------- -------- --------
Loss from continuing operations (1,597) (8,550) (2,994)
Discontinued operations:
Income (loss) from discontinued operations -- (1,464) 1,196
Loss on sale of IV therapy business -- (13,779) --
-------- -------- --------
Net loss (1,597) (23,793) (1,798)
Dividends to preferred shareholders (690) (690) (641)
-------- -------- --------
Net loss applicable to common shareholders $ (2,287) $(24,483) $ (2,439)
======== ======== ========
Basic and diluted loss per share:
Loss from continuing operations $ (0.22) $ (1.04) $ (0.45)
Discontinued Operations:
Income (loss) from discontinued operation -- (0.17) 0.15
Loss on sale of IV therapy business -- (1.55) --
-------- -------- --------
Basic and diluted loss per share $ (0.22) $ (2.76) $ (0.30)
======== ======== ========
Weighted average common
shares outstanding 10,444 8,868 8,180
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 45
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(In thousands)
<TABLE>
<CAPTION>
Series B Additional
Common Stock Preferred Stock Paid-In Treasury Stock Accumulated
Shares Amount Shares Amount Capital Shares Amount Deficit
------ ------ ------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 8,552 $ 85 57 $ 57 $ 37,817 s(303) $ (2,557) $(26,809)
Private placement 271 271 8,391
Purchase of treasury stock from
a related party (200) (329)
Preferred dividends (1,263) 225 1,304
Stock issued in lieu of cash for
accounts payable settlement 231 3 545
Stock issued under
Employee Stock Savings Plan 198
Net loss (1,798)
-----------------------------------------------------------------------------------------
Balance, December 31, 1995 8,783 88 328 328 45,688 (278) (1,582) (28,607)
Preferred dividends 95 1 (1,583) 278 1,582
Stock issued in lieu of cash for
accounts payable settlement 534 5 807
Stock issued under
Employee Stock Savings Plan 8 11
Net loss (23,793)
----------------------------------------------------------------------------------------
Balance, December 31, 1996 9,420 94 328 328 44,923 (52,400)
Stock issued in lieu of cash for
accounts payable settlement 494 5 525
Exercise of options 1,553 15 1,455
Preferred dividends 663 7 (7)
Issuance of Warrants 181
Net loss (1,597)
----------------------------------------------------------------------------------------
Balance, December 31, 1997 12,130 $121 328 $328 $ 47,077 -- -- $(53,997)
====== ==== === ==== ======== ====== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 46
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($ 1,597) ($23,793) ($ 1,798)
Adjustments to reconcile net loss to net cash
provided by/(used in) operating activities:
Write-off of goodwill and intangible assets - 11,577 -
Depreciation and amortization 1,009 2,510 3,456
Provision for bad debts 351 3,759 1,757
Non-cash charges 444 1,470 59
Deferred income taxes - - (280)
Gain on return of leased assets - - (24)
Changes in operating assets and liabilities:
Decrease/(increase) in accounts receivable 2,427 3,796 (3,855)
(Increase)/decrease in other current assets (114) 1,104 2,301
(Increase)/decrease in other assets (11) 361 (425)
(Decrease)/increase in accounts payable
and accrued expenses (1,805) 2,062 (3,389)
(Decrease)/increase in restructuring reserve (976) 1,494 (3,047)
Increase in accrued payroll
and related costs 47 485 38
Increase in other liabilities 819 1,155
-------- -------- --------
Net cash provided by / (used in) operating activities 594 5,980 (5,207)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (176) (255) (114)
-------- -------- --------
Net cash used in investing activities (176) (255) (114)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on promissory note - - (2,000)
Proceeds from borrowings on long-term debt - - 3,000
Payments on capital leases and long-term debt (752) (5,314) (3,201)
Purchase of treasury stock - - (329)
Decrease in cash overdraft - - (1,247)
Issuance of common stock 11
Issuance of preferred stock - - 8,664
-------- -------- --------
Net cash (used in)/provided by financing activities (752) (5,303) 4,887
-------- -------- --------
Net (decrease) increase in cash (334) 422 (434)
Cash and cash equivalents, beginning of year 647 225 659
-------- -------- --------
Cash and cash equivalents, end of year $ 313 $ 647 $ 225
======== ======== ========
Cash paid during the year for:
State income taxes $ 140 $ 169 $ 25
======== ======== ========
Interest $ 746 $ 1,043 $ 870
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 47
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
1. SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation and Nature of Business - The consolidated financial
statements include the accounts of the Company and its subsidiaries, all of
which are wholly owned. All material intercompany accounts and transactions have
been eliminated. The Company is a provider of home health care services,
including nursing care and personal care, in Connecticut, New York, and
Pennsylvania. The infusion therapy business was discontinued September 30, 1996.
b. Management Actions and Operating Results - The accompanying financial
statements reflect operating and net losses for 1997, 1996 and 1995 and a
stockholders' deficit and working capital deficit at December 31, 1997. As
discussed in c. below, the Company sold its IV therapy business effective
October 1, 1996. As discussed in Note 6, in 1996 the Company restructured its
operations to reduce both corporate overhead and branch operating costs. On
February 11, 1998, the previously announced merger with Home Health Corporation
of America was terminated. As discussed in Note 8, the Company's long-term debt
maturities were extended to January 1999. As a result of the above actions, the
Company believes that its existing credit facilities, together with cash
generated from operations, will be sufficient to fund the Company's operations
through 1998. During 1998, the Company plans to replace its existing credit
facilities.
c. 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 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 $13,779,000. Such loss on sale included (1) a write-off of
$11,577,000 of goodwill and other tangible assets, (2) additional provisions for
losses on accounts receivable of $2,578,000, and (3) $1,624,000 related to a
charge for severance and other anticipated costs during the phase out period net
of the net cash proceeds of the sale of approximately $2,000,000.
Net revenues from the discontinued IV therapy operations were
approximately $0, $6,541,000, and $14,733,000 for the years ended December 31,
1997, 1996 and 1995, respectively. The income (loss) from operations of the IV
therapy business was $0, ($1,464,000), and $1,196,000 for the years ended
December 31, 1997, 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. Included in accounts receivable at December 31,
1997 and 1996 is $11,000 and $2,000,000, respectively, related to the IV therapy
business. The accounts receivable were retained by the Company.
d. Accounting Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates in the Company's financial
statements include: bad debt reserves, medicare reserves, and reserves for
self-insured risks. Actual results could differ from those estimates.
F-7
<PAGE> 48
e. Property and Equipment - Property and equipment are recorded at cost, less
accumulated depreciation computed on a straight-line basis over the useful lives
of the related assets. The useful lives vary from three to seven years.
Leasehold improvements and leased equipment are amortized over the lives of the
respective leases or the service lives of the asset, whichever is shorter.
f. Intangible Assets - Excess cost over net assets acquired is being amortized
over a period of 25 years. The Company reviews the recoverability of the excess
cost of net assets acquired based upon anticipated future cash flows of the
acquired company. Other intangible assets consist principally of patient and
referral lists, training programs, and aides and nurses lists and are being
amortized over a period of five to ten years. The net carrying value of aides
and nurses lists was approximately $485,000 and $822,000 as of December 31, 1997
and 1996 respectively.
g. Revenue Recognition - The Company recognizes revenues as the services are
performed. The Company receives retroactive changes to certain rates and records
such changes as revenues when they are notified by the payor and 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 is
adjusted, as required in subsequent periods, based on final settlement.
h. Reclassification - The presentation of certain prior year information has
been reclassified to conform with the current year presentation.
i. Cash and Cash Equivalents - The Company considers all highly liquid
instruments with original maturities of three months or less to be cash
equivalents.
j. Income Taxes - The Company provides for income taxes based upon the asset and
liability method. Deferred income taxes have been provided for temporary
differences between the tax basis of assets and liabilities and their reported
amounts in the financial statements.
k. Non-cash transactions - Schedule of non-cash transactions for the years
ended:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------
<S> <C>
Exercise of stock options $1,470,000
Stock issued in lieu of cash for accounts payable settlement 530,000
Preferred stock dividends paid with common stock 689,995
Warrant issuance 181,000
Write-off of assets against restructuring reserve 1,084,000
DECEMBER 31, 1996
-----------------
Stock issued in lieu of cash for accounts payable settlement 812,000
Preferred stock dividends paid with common stock 689,995
DECEMBER 31, 1995
-----------------
Write-off of assets against restructuring reserve $1,484,000
Disposal of assets under capital leases 854,000
Stock issued in lieu of cash for accounts payable settlement 548,000
Preferred stock dividends paid with common stock 640,867
</TABLE>
F-8
<PAGE> 49
l. Stock Based Compensation - In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock-Based Compensation," which was effective for the
Company beginning January 1, 1996. SFAS No. 123 requires expanded disclosures of
stock-based compensation arrangements with employees and non-employees and
encourages (but does not require) compensation cost to be measured based on the
fair value of the equity instrument awarded to employees. Companies are
permitted, however, to continue to apply APB Opinion No. 25, which recognizes
compensation cost based on the intrinsic value of the equity instrument awarded.
The Company will continue to apply APB Opinion No. 25 to its stock based
compensation awards to employees.
m. Fair Value of Financial Instruments - SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure of fair value information
for certain assets and liabilities, whether or not recognized in the balance
sheets, for which it is practicable to estimate that value. The Company's
balance sheets include the following financial instruments: cash and cash
equivalents; accounts receivable; accounts payable and accrued expenses; bank
revolving line of credit; and capital lease obligations and other long-term
debt. The Company considers the carrying amount in the financial statements to
approximate fair value of these financial instruments because of the relatively
short period of time between the origination of such instruments and their
expected realization and/or the fact that the instruments reprice frequently at
market rates.
n. Recently Enacted Pronouncements - Statements of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"), and No. 131,
"Disclosures About Segments of Enterprise and Related Information" ("SFAS 131"),
were issued in June 1997.
SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. This statement is effective 1998.
SFAS 131 establishes the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to stockholders. It also establishes standards
for related disclosures about products and services, geographic areas and major
customers. This statement is effective for financial statements for 1998.
As the Company does not have changes in equity other than from
investments by owners and distributions to owners and operates in a single
segment, implementation of these standards is not expected to have a material
effect on the Company.
F-9
<PAGE> 50
2. LOSS PER SHARE
Loss Per Share - As of December 31, 1997, the Company adopted Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS 128") for
all periods presented. As a result, loss per share for all periods presented has
been restated to conform with the provisions of SFAS 128. Basic loss per share
is based on weighted average number of common shares outstanding. Convertible
preferred stock, warrants, and stock options outstanding have not been used in
the calculation of diluted earnings per share because to do so would result in
anti-dilution. As such, the denominator (weighted average shares) used in
calculating both the amount of basic and diluted loss per share are equal for
all years.
The following table shows securities outstanding as of December 31 that could
potentially dilute EPS in the future that were not included in the computation
of diluted EPS because to do so would have been antidilutive:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Employee stock option 1,130,500 1,190,500 1,966,500
Nonemployee stock options -- 1,730,000 --
Warrants to acquire common stock 3,031,600 3,120,600 2,987,996
Common stock to be used for
convertible preferred stock 7,152,308 7,152,308 6,571,380
---------- ---------- ----------
Total 11,314,408 13,193,408 11,525,876
========== ========== ==========
</TABLE>
3. ACCOUNTS RECEIVABLE
In November 1993, the Company entered into a financing agreement with a bank
whereby it can sell an undivided percentage ownership interest in a designated
pool of accounts receivable. This agreement was amended and extended on March
27, 1997, December 24, 1997, and March 26, 1998. The bank has committed up to
$9.0 million based upon securitizing the Company's eligible accounts receivable.
The agreement now expires on January 4, 1999. In accordance with SFAS 125,
"Accounting for Transfer and Servicing of Financial Assets and Extinguishments
of Liabilities," accounts receivable in the consolidated balance sheet do not
include the receivables sold to the bank in the amount of approximately $6.9
million and $7.5 at December 31, 1997 and 1996, respectively. The Company
maintains a reserve for accounts receivable including receivables sold, based
upon the expected collectibility of all accounts receivable. Included in other
current assets at December 31, 1997 and 1996 are $945,364 and $810,301,
respectively, related to securitization program deposits and amounts due from
the bank.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS)
1997 1996
---- ----
<S> <C> <C>
Leasehold improvements and buildings $ 1,115 $ 2,743
Furniture and fixtures 1,328 1,970
Computer and other equipment 5,182 6,889
------- -------
7,625 11,602
Less accumulated depreciation
and amortization 6,784 9,024
------- -------
$ 841 $ 2,578
======= =======
</TABLE>
F-10
<PAGE> 51
Depreciation expense was $587,000, $1,086,000, and $1,235,000 for the
years ended December 31, 1997, 1996 and 1995, respectively.
5. INCOME TAXES
There was no federal benefit recorded in 1997, 1996, or 1995 due to the
incurred net operating losses. The 1997, 1996, and 1995 provision consists
entirely of state taxes.
The tax effect of temporary differences giving rise to the Company's
deferred tax assets and liabilities at December 31, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 15,171 $ 12,920
Bad debt reserves 758 1,537
Restructuring reserves 56 1,468
Legal and regulatory settlements 1,151 584
Accrued expenses 622 964
Other 160 200
-------- --------
Total deferred tax assets 17,918 17,673
Deferred tax liabilities:
Depreciation and amortization (59) (127)
--------- --------
Net deferred tax asset (17,859) 17,546
Valuation allowance (17,859) (17,546)
-------- --------
Net deferred tax liability $ -- $ --
======== ========
</TABLE>
For financial reporting purposes, deferred tax assets are reduced by a
valuation allowance to an amount that is "more likely than not" to be realized.
Due to the Company's cumulative losses, management does not consider that enough
support to overcome the "more likely than not" criteria existed at December 31,
1997 and 1996.
At December 31, 1997 the Company has a tax net operating loss
carryforward ("NOL") of approximately $44.4 million expiring from 2009 to 2012
to offset against future taxable income, if any. The Internal Revenue Code
limits the amount of a company's NOL carryforward that may be used in any one
year to offset future income after an "ownership change" (as defined). The
Company does not believe any such "ownership change" has occurred which would
limit the available annual amount.
F-11
<PAGE> 52
6. RESTRUCTURING AND OTHER NON-RECURRING CHARGES
During the third quarter of 1996, the Company's Board of Directors
decided to restructure the operations of the Company and restore its focus on
its core home nursing operations (the "1996 Restructuring Plan"). The 1996
Restructuring Plan included the discontinuance of the Company's IV therapy
discussed in Note 1. Additional actions included the retention of turnaround
consultants, 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 the consolidation of certain offices. As a result of
these decisions, the Company recorded a provision for restructuring and other
non-recurring charges of $3,619,000 during 1996 which was comprised of:
severance of $640,000, turnaround consultants $1,898,000, an increase in the
reserve for the 1994 Restructuring Plan of $535,000, and other reorganization
costs of $546,000 (including asset write-offs and lease costs).
The reserve established for compensation for the turnaround consultants
included cash payments totaling $428,000 and significant performance based
equity incentives valued at approximately $1,470,000. The equity incentives
granted to the turnaround consultants consisted of options to purchase 1,730,000
shares of the Company's common stock for $0.15 per share of which 576,667 were
vested immediately. The remaining 1,153,000 options vested in January 1997 based
on predefined operating results being achieved in the fourth quarter of 1996.
The Company had recorded a liability at December 31, 1996 of $1,470,000 to
account for the issuance of these options to non-employees. Such amount
approximated the fair value of the services provided. In October 1997, these
options were exercised.
During 1997 and 1996, the Company paid in cash $976,000 and $406,000,
respectively, in restructuring and other non-recurring costs for severance,
turnaround consultant fees, legal costs and leasing costs. Non-cash items
charged against the reserve in 1997 totaled $2,554,000 and include the write-off
of assets for closed facilities and the exercise of options by the turnaround
consultants. In 1996, non-cash items which reduced the reserve were $715,000 and
related to the asset write-offs and obligations settled in common stock. As of
December 1997, the balance in the reserve for restructuring is $140,000 relating
to remaining severance payments and lease payments to be paid in 1998.
In addition, during 1997, the Company recorded and paid fees totaling
approximately $399,000 for cash payments and the issuance of 222,500 shares of
common stock. These charges related to a separate agreement entered into with
the turnaround consultants for services provided in the third and fourth
quarters of 1997 principally related to the proposed sale of the Company.
7. ACCRUED EXPENSE
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Legal settlements $ 340 $1,459
Medicare 556 1,012
Workers compensation 1,185 1,398
Regulatory settlement - current portion 501 --
Other 239 640
------ ------
$2,821 $4,509
====== ======
</TABLE>
F-12
<PAGE> 53
8. LONG TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
(IN THOUSANDS)
<S> <C> <C>
Capitalized lease obligations $ -- $ 69
Revolving credit facility (a) 4,577 4,980
Subordinated revolving credit facility (b) 3,000 3,000
Other -- 280
------ ------
7,577 8,329
Less current portion -- 346
------ ------
$7,577 $7,983
====== ======
</TABLE>
a. The Company has a revolving line of credit ("RLOC"), with availability based
upon a stated formula applied to accounts receivable balances. Borrowings bear
interest at the higher of the bank's prime rate plus 2.0% or the federal funds
rate plus 1.0%. The interest rate at December 31, 1997 was 8.5%. Remaining
availability under the RLOC at December 31, 1997 was $967,000. Borrowings under
the RLOC are collateralized by substantially all of the Company's assets. The
terms of the RLOC provide, among other things, for prepayments in the event that
the Company's formula based borrowing capacity is reduced, for maintenance of
certain financial ratios, limitations on capital expenditures, acquisitions, and
cash dividends.
On March 25, 1997 the RLOC agreement was amended and restated to
include a revised maturity date of January 2, 1998. In connection with the
revised agreement the banks were issued warrants to purchase 178,000 shares of
the Company's Common Stock at $1.5969 per share. On March 26, 1998, the RLOC
agreement was amended to include a revised maturity date of January 4, 1999.
b. In October 1995, the Company entered into a $3.0 million subordinated credit
facility with a commercial bank. The subordinated credit facility is 100%
guaranteed by the Connecticut Development Authority ("CDA"). The credit facility
originally had an expiration date of April 15, 1997. On March 25, 1997 the
subordinated credit facility was extended to January 15, 1998 and the CDA
guarantee was extended to January 30, 1998. The interest rate at December 31,
1997 was 8.5%. In connection with the October 1995 issuance of the CDA
guarantee, the Company agreed to issue additional warrants (the "Additional
Warrants") to the CDA to purchase 735,000 shares of the Company's common stock
for $1.5969 per share if the guarantee was not released by April 30, 1997. As a
result of the extension of the CDA guarantee to January 30, 1998 the Company
issued the Additional Warrants to the CDA on March 25, 1997. On March 26, 1998,
the subordinated credit facility was extended to January 15, 1999 and the CDA
guarantee was extended to January 30, 1999.
All long-term debt as of December 31, 1997 becomes due in January 1999.
F-13
<PAGE> 54
9. COMMITMENTS AND CONTINGENCIES
a. Operating Leases - The Company leases office space under various leases with
terms ranging from one to fifteen years. Rent expense was $1,005,000,
$1,284,000, and $1,330,000 for the years ended December 31, 1997, 1996, and 1995
respectively. Future minimum rental commitments under non-cancelable operating
leases as of December 31, 1997 are as follows:
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C>
1998 $1,117
1999 926
2000 819
2001 674
2002 568
Thereafter 1,424
-----
$5,528
======
</TABLE>
Medicare - Approximately 15% in 1997, 14% in 1996, and 18% in 1995 of
net revenues were derived under the Medicare program. These revenues are based,
in part, on cost reimbursement principles and are subject to audit and
retroactive adjustment by the respective third-party fiscal intermediaries.
Included in accrued expenses at December 31, 1997 was approximately $556,000,
which is an estimate of what is to be paid upon finalization of certain cost
reports. In the opinion of management, additional other retroactive adjustments,
if any, are not expected to be material to the consolidated financial statements
of the Company.
b. Litigation -
i. HIPS/Abel. The Company reached settlement in November 1996 in
HIPS v. USHC Infusion, et al (Supreme Court, State of New York
County), a suit brought in July 1993 by Home Infusion
Pharmaceutical Services, Inc. ("HIPS") in connection with
acquisition (the "Acquisition") of assets from HIPS and its
affiliate Abel Health Management Services, Inc. and their
principal, Edward J. Abel. The settlement is comprised of both
cash and Company Common Stock, and is payable in installments
through April 2001.
ii. Kingsland Litigation. The Company reached settlement in
November 1996 in Kingsland Associates v. Abel Health
Management Services, Inc. and U.S. HomeCare Infusion Therapy
Products Corporation (Supreme Court of the State of New York,
Nassau County), a suit which also arose from the Acquisition.
This was settled principally in cash payable through April
1998.
iii. Debenture Litigation. The Company reached settlement in
February 1997, in Smith, Katz and Cole v. U.S. HomeCare
Corporation, et al. (Supreme Court of the State of New York,
Nassau County), a suit which arose from the 1986 acquisition
of Reliable Nurses Aides of Westchester, Inc. This was settled
by cash payments through August 1998.
The Company is involved in litigation in the ordinary course of
business. The Company carries general liability insurance in the amounts of $2.0
million per occurrence and $6.0 million in the aggregate, such aggregate
coverage having been increased over time. The Company does not believe, after
giving consideration to the insurance in place and the claims outstanding, that
the resolution of these matters will have a material adverse effect on the
financial position, results of operations, or cash flows of the Company. (See
also Note 13)
F-14
<PAGE> 55
10. STOCKHOLDERS' EQUITY
a. Exchange Preferred Stock - Preferred Stock Placement - On February 1 and
February 8, 1995, the Company issued and sold in a private placement a total of
271,428 shares of $35.00 6% Convertible Preferred Stock, $1.00 par value (the
"$35.00 Preferred") for $35.00 per share (the "Private Placement"). The $35.00
Preferred is convertible into approximately 7,200,000 shares of Common Stock at
a current conversion price of $1.608 per share (as adjusted from the original
conversions 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 a 6% 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 Exchange Warrants for
Warrants to purchase an aggregate of 99,997 shares of Common Stock at $1.75 per
share. To date, the dividends have been paid in Common Stock, with a total of
approximately 1,439,944 shares issued. The total liquidation preference was
$11.5 million at December 31, 1997 and 1996.
b. In connection with the restructured financing in 1995, the Company issued
warrants, which are currently exercisable to purchase an aggregate of 816,302
shares of Common Stock at $1.608 per share to its RLOC banks. In connection with
the CDA's guarantee, the Company issued to the CDA warrants to purchase 816,302
shares of Common Stock at $1.608 per share and has issued, as a result of the
March 25, 1997 extension of the guarantee, to the CDA a warrant to purchase an
additional 735,000 shares of Common Stock at $1.5969, and an additional 89,000
shares at 1.5969 to the RLOC banks. These warrants are exercisable at any time
through March 25, 2002.
c. Stock Options - At the Company's Annual Meeting held on May 18, 1995, the
Company obtained shareholder approval of its 1995 Stock Option/Stock Issuance
Plan (the "1995 Plan"), pursuant to which 2,550,000 shares of common Stock were
reserved for issuance. The 1995 Plan is the successor to the Company's 1990
Stock Option Plan (the "1990 Plan"). Options available for grant at December 31,
1997 were 1,419,500.
The 1995 Plan contains three separate equity incentive programs; (i) a
Discretionary Option Grant Program, (ii) an Automatic Option Grant Program and
(iii) a Stock Issuance Program.
The 1995 Plan (other than the automatic Option Grant Program) is
administered by the Compensation Committee of the Board. However, all grants
under the Automatic Option Grant Program are made in strict compliance with the
provisions of that program, and no administrative discretion is exercised by the
Compensation Committee with respect to the grants made thereunder.
Employees of the Company, non-employee members of the Board (other than
those serving as members of the Compensation Committee) and consultants and
independent advisors of the Company are eligible to participate in the
Discretionary Option Grant and Stock Issuance Program. Non-employee members of
the Board (including members of the Compensation Committee) are also eligible to
participate in the Automatic Option Grant Program.
F-15
<PAGE> 56
Options may be granted under the Discretionary Option Grant Program at
an exercise price per share not less than 85% of the fair market value per share
of Common Stock on the option grant date. No granted option will have a term in
excess of ten years. The fair market value per share of Common Stock on any
relevant date under the 1995 Plan will be the last reported sales price per
share on that date.
Under the Automatic Option Grant Program, each individual who was
serving as a non-employee Board member on December 21, 1994 was automatically
granted at that time an option grant for 25,000 shares of Common Stock. Each
individual who first becomes a non-employee Board member after such date will
automatically be granted at that time an option grant for 25,000 shares of
Common Stock. Each option will have an exercise price per share equal to 100% of
the fair market value per share of Common Stock on the option grant date and a
maximum term of ten years measured from the option grant date.
Shares may be sold under the Stock Issuance Program at a price per
share not less than 85% of fair market value per share of Common Stock, payable
in cash or through a promissory note payable to the Company. Shares may also be
issued solely as a bonus for past services.
A summary of the status of employee and directors options under the
Company's Stock Option Plan at December 31, 1997, 1996 and 1995, and changes
during the years ending on those dates, is presented below.
<TABLE>
<CAPTION>
1997 1996 1995
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
PRICE PRICE PRICE
1997 1996 1995
SHARES SHARES SHARES
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,190,500 $ 1.61 1,966,500 $ 3.10 1,206,223 $ 4.25
Granted 150,000 $ 1.00 945,000 $ 1.26 1,097,232 $ 2.52
Exercised -- -- -- -- -- --
Cancelled/expired (210,000) $ 2.98 (1,721,000) $ 2.86 (336,955) $ 5.97
--------- --------- ---------
Outstanding at end of year 1,130,500 $ 1.44 1,190,500 $ 1.61 1,966,500 $ 3.10
========= ========= =========
Option exercisable at year end 805,499 $ 1.47 767,067 $ 1.95 1,151,450 $ 3.37
========= ========= =========
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
<S> <C> <C> <C> <C> <C>
$1.00 855,000 8.9 years $1.00 569,999 $1.00
$2.13 175,000 7.0 years $2.13 175,000 $2.13
$4.00 100,000 6.7 years $4.00 60,000 $4.00
$9.25 500 5.5 years $9.25 500 $9.25
--------- -------
1,130,500 $1.44 805,499 $1.47
========= =======
</TABLE>
F-16
<PAGE> 57
On December 12, 1996, the Company canceled and reissued options
previously granted to certain employees under the Discretionary Option Grant
Program at a significantly lower exercise prices but equal to or greater than
the market price on such date. A total of 409,500 shares with exercise prices
ranging from $1.22 to $25.87 were canceled and reissued with an exercise price
of $1.00. The quoted market price at the date of reissuance was $0.625
The weighted average fair values of options granted during 1997, 1996 and 1995
was $.78, $1.19 and $1.29, respectively per share for those options granted with
an exercise price that equaled the market price of the stock on the grant date
and was $.66 and $0.31 per share for options granted during 1997 and 1996,
respectively, whose exercise price was greater than the market price of the
stock on the grant date. The Company applies Accounting Principles Board Opinion
No. 25 and related Interpretations in accounting for stock option plans.
Accordingly, no compensation cost has been recognized for its stock option
plans. Had compensation cost for the Company's stock option plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of FASB Statement 123, the Company's net loss
applicable to common shareholders and net loss per share for the years ended
December 31, 1997, 1996 and 1995 would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net loss applicable to common shareholders:
As reported $ (2,287,000) $ (24,483,000) $ (2,439,000)
Pro forma $ (2,570,000) $ (24,808,000) $ (3,139,000)
Basic and diluted loss per common share
As reported $(.22) $ (2.76) $(0.30)
Pro forma $(.25) $ (2.80) $(0.38)
</TABLE>
The fair value of options granted under the Company's stock option
plans during 1997, 1996 and 1995 was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used: no dividend yield, expected volatility of 56%, risk free
interest rate of 6.0%, and expected lives of 5 years.
11. MAJOR CUSTOMER
VNS HomeCare ("VNS"), a non-profit home health institution in New York
City, accounted for approximately $4.5 million (8.4%), $5.4 million (10%), and
$6.2 million (11%), respectively, of net revenue for the years ended December
31, 1997, 1996, and 1995.
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Unaudited quarterly results of operations are shown on page 21 of the
1997 Form 10-K.
F-17
<PAGE> 58
13. REGULATORY SETTLEMENT
In November, 1997, the New York State Attorney General's office began a
broad-based investigation into billing and other practices of companies
providing home health care services in New York under Medicaid-funded state
programs. U.S. HomeCare was included in the investigation. The Company
cooperated fully with the State's investigation. In addition, the Company hired
outside counsel and initiated its own internal investigation of its billing
practices and Medicaid rates. Because of the Company's pending merger, U.S.
HomeCare asked the Attorney General for expedited review of its investigation of
the Company. Based on its internal review, the Company concluded that it had
meritorious legal defenses for substantially all potential claims by the state
for monetary or other penalties based on cost reporting and billing practices
related to Medicaid-funded home health care programs. However, the Company also
believes that it could take substantial time and expense to litigate any of
these issues to their conclusion.
The Company in January 1998 entered into negotiations with the office
of the Attorney General in an effort to reach a rapid resolution of the
investigation. Under the terms of a final agreement signed on February 27, 1998,
the Company has agreed to settle the state's investigation of Medicaid billing
for the period 1992 through 1997 for a monetary payment of $1,750,000, payable
with interest over a period of 36 months. This settlement was accrued as of
December 31, 1997. The full amount of the settlement may be prepaid at any time,
and the Company has agreed with the state that it will use reasonable efforts to
refinance the amount of the settlement as soon as possible. Interest is payable
at 9% in 1998, 10% in 1999 and 11% in 2000. $1,249,000 of the settlement is
payable beyond 1998 and is included in other long-term liabilities at December
31, 1997.
F-18
<PAGE> 59
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
DESCRIPTION BALANCE AT CHARGED TO COST CHARGED TO DEDUCTIONS BALANCE AT END
BEGINNING OF AND EXPENSE OTHER ACCOUNTS OF PERIOD
PERIOD
<S> <C> <C> <C> <C> <C>
YEAR ENDED
DECEMBER 31, 1995:
ALLOWANCE FOR
DOUBTFUL ACCOUNTS $8,016,741 $1,757,469 $ -- $6,814,064 $2,960,146
========== ========== ========== ========== ==========
YEAR ENDED
DECEMBER 31, 1996:
ALLOWANCE FOR
DOUBTFUL ACCOUNTS $2,960,146 $3,759,455 $ -- $2,876,141 $3,843,460
========== ========== ========= ========== ==========
YEAR ENDED
DECEMBER 31, 1997:
ALLOWANCE FOR
DOUBTFUL ACCOUNTS $3,843,460 $ 351,000 $ -- $2,302,460 $1,892,000
========== ========== ======== ========== ==========
</TABLE>
The notes to the financial statements are an integral part of this schedule.
S-1
<PAGE> 1
AMENDMENT TO STOCK PURCHASE WARRANT NO. WA-16
This Amendment to Stock Purchase Warrant No. WA-16 (this
"Amendment") is made this 25th day of March, 1998 by and between U.S. HomeCare
Corporation (the "Company") and The Chase Manhattan Bank, N.A. ("Chase").
WITNESSETH:
WHEREAS, the Company issued to Chase Stock Purchase Warrant
No. WA-16 (the "Warrant") dated October 6, 1995, as amended on March 25, 1997;
and
WHEREAS, the Company and Chase amended the definitions of
"Common Stock Deemed Outstanding" and "Exercise Price" and Section 15.5
regarding the Registered Holder on March 25, 1997, all of which amendments are
incorporated herein in their entirety; and
WHEREAS, the Company and Chase desire to further amend the
Warrant as provided herein.
NOW THEREFORE, the Company and Chase each intending to be
legally bound hereby, covenant and agree as follows:
Section 1. Previous Amendments to the Warrant.
The Warrant was amended, effective March 25, 1997, as follows:
a. The definition of "Common Stock Deemed
Outstanding" in Section 1 was deleted in its entirety and the following
definition was inserted in lieu thereof:
"Common Stock Deemed Outstanding" means, at any given
time, (a) the number of shares of Common Stock actually outstanding at
such time; (b) the number of shares of Common Stock issuable (i) upon
the conversion of outstanding shares of preferred stock and (ii) with
respect to all other options, warrants, rights, or other securities
convertible into shares of Common Stock (provided that such options,
warrants or rights are at an exercise price less than or equal to the
Market Price in effect on the relevant date; provided, further that
such options, warrants and rights shall only be considered "Common
Stock Deemed Outstanding" only to the extent that they have vested and
are exercisable on the relevant date), and (c) securities convertible
into or exchangeable for any of the foregoing.
<PAGE> 2
b. The definition of "Exercise Price" in Section 1
was amended by deleting the phrase "Section 3" and inserting the phrase
"Sections 3 and 5" in lieu thereof.
c. Section 15.5 was deleted in its entirety and the
following was inserted in lieu thereof:
15.5 Registered Holder. Notwithstanding any other
provision of this Warrant, if The Chase Manhattan Bank ("Chase") or any
Affiliate thereof is the Registered Holder, Chase and its affiliates
may exercise this Warrant, in whole or in part, solely to the extent
such exercise would not result in Chase and its Affiliates holding,
directly or indirectly, in excess of 4.99% of the outstanding Common
Stock of the Company at the time of such exercise (such determination
to be made by Chase).
Section 2. Amendments to the Warrant.
The Warrant is hereby amended as follows:
Section 2.1 is deleted in its entirety and the following shall
be inserted in lieu thereof, to be read as though Section 2.1 contained the
language set forth below on the original date of the Warrant (it being
understood that the number of shares of the Warrant Stock set forth below does
not take into account any additional Warrant Stock in favor of the Registered
Holder that has become available between the date of the Warrant and the date of
this amendment as a result of the adjustment provisions of the Warrant or
otherwise):
2.1 Exercise Period. The Registered Holder may
(i) exercise this Warrant, in whole or in part (but
not as to a fractional share of Warrant Stock), with respect
to 212,500 shares of the Warrant Stock (subject to adjustment
as herein provided) at any time prior to 5:00 p.m. (New York
time) on March 25, 2002, and
(ii) after April 1, 1996, exercise this Warrant, in
whole or in part (but not as to a fractional share of Warrant
Stock) with respect to the remaining 212,500 shares of the
Warrant Stock (subject to adjustments as herein provided) (the
"Additional Warrant Shares"), at any time on or after April 1,
1996 but prior to 5:00 p.m. (New York time) on March 25, 2002;
provided, however, that this Warrant shall not be exercisable
for the Additional Warrant Shares if all obligations and
liabilities of the Company and its Affiliates arising
- 2 -
<PAGE> 3
under or related to the Credit Agreement have been repaid in
full prior to April 1, 1996; and provided, further, that if
such amounts have been repaid in full but any or all of such
amounts are required to be returned by the Registered Holder
as a preference payment or for a similar reason, then the
Additional Warrant Shares shall again be subject to this
Warrant, exercisable pursuant to this Section 2.1(ii),
unless the right to purchase shares of Warrant Stock under this Warrant is
earlier terminated pursuant to Section 14 (the "Exercise Period").
Section 3. Further Action and Assurances.
The Company and Chase hereby agree to execute and deliver such
additional documents and shall cause such further and additional action to be
taken as may be required or, in the reasonable judgment of the Company and
Chase, necessary or desirable to effect or evidence the provisions or intent of
this Amendment and the transactions contemplated hereby.
Section 4. Reference to and Effect on the Warrant.
Except as specifically amended above, the Warrant shall remain
in full force and effect and is hereby ratified and confirmed.
Section 5. Execution in Counterparts.
This Amendment may be executed in any number of counterparts
and by the different parties hereto in separate counterparts, each of which when
so executed and delivered shall be deemed to be an original and all of which
taken together shall constitute but one and the same instrument.
Section 6. Governing Law.
This Amendment shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
principles of conflicts of laws or choice of law.
Section 7. Headings.
Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
- 3 -
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first above written.
U.S. HOMECARE CORPORATION
By:
Clifford G. Johnson
Vice President, Finance and
Administration & Chief Financial Officer
THE CHASE MANHATTAN BANK
By:
Name:
Title:
- 4 -
<PAGE> 1
AMENDMENT TO STOCK PURCHASE WARRANT NO. WA-17
This Amendment to Stock Purchase Warrant No. WA-17 (this
"Amendment") is made this 25th day of March, 1998 by and between U.S. HomeCare
Corporation (the "Company") and the Connecticut Development Authority (the
"CDA").
WITNESSETH:
WHEREAS, the Company issued to the CDA Stock Purchase Warrant
No. WA-17 (the "Warrant") dated October 6, 1995, as amended on March 25, 1997;
and
WHEREAS, the Company and the CDA amended the definitions of
"Common Stock Deemed Outstanding" and "Exercise Price" on March 25, 1997, which
amendments are incorporated herein in their entirety; and
WHEREAS, the Company and the CDA desire to further amend the
Warrant as provided herein.
NOW THEREFORE, the Company and the CDA each intending to be
legally bound hereby, covenant and agree as follows:
Section 1. Previous Amendments to the Warrant.
The Warrant was amended, effective March 25, 1997, as follows:
a. The definition of "Common Stock Deemed
Outstanding" in Section 1 was deleted in its entirety and the following
definition was inserted in lieu thereof:
"Common Stock Deemed Outstanding" means, at any given
time, (a) the number of shares of Common Stock actually outstanding at
such time; (b) the number of shares of Common Stock issuable (i) upon
the conversion of outstanding shares of preferred stock and (ii) with
respect to all other options, warrants, rights, or other securities
convertible into shares of Common Stock (provided that such options,
warrants or rights are at an exercise price less than or equal to the
Market Price in effect on the relevant date; provided, further that
such options, warrants and rights shall only be considered "Common
Stock Deemed Outstanding" only to the extent that they have vested and
are exercisable on the relevant date), and (c) securities convertible
into or exchangeable for any of the foregoing.
<PAGE> 2
b. The definition of "Exercise Price" in Section 1
was amended by deleting the phrase "Section 3" and inserting the phrase
"Sections 3 and 5" in lieu thereof.
Section 2. Amendments to the Warrant.
The Warrant is hereby amended as follows:
Section 2.1 is deleted in its entirety and the following shall
be inserted in lieu thereof, to be read as though Section 2.1 contained the
language set forth below on the original date of the Warrant (it being
understood that the number of shares of the Warrant Stock set forth below does
not take into account any additional Warrant Stock in favor of the Registered
Holder that has become available between the date of the Warrant and the date of
this amendment as a result of the adjustment provisions of the Warrant or
otherwise):
2.1 Exercise Period. (a) The Registered Holder may exercise
this Warrant, in whole or in part (but not as to a fractional share of
Warrant Stock), with respect to 750,000 shares of the Warrant Stock,
subject to subsection (b) below, (subject to adjustment as herein
provided at any time prior to 5:00 p.m. (New York time) on March 25,
2002, unless the right to purchase shares of Warrant Stock under this
Warrant is earlier terminated pursuant to Section 14 (the "Exercise
Period").
(b) If at any time when the Junior Debt (as defined
in that certain Intercreditor Agreement dated the date hereof among
Fleet Bank, National Association ("Fleet"), the Registered Holder, the
Company and its subsidiaries listed therein, The Chase Manhattan Bank,
N.A., Creditanstalt Bankverein and The Chase Manhattan Bank, N.A., as
agent (the "Intercreditor Agreement")) is not in default the Company
elects to permanently reduce the principal balance of the Loan (as
defined in the Credit Agreement dated the date hereof among Fleet, the
Company and the subsidiaries listed therein (the "Credit Agreement"))
and reduce the Commitment (as defined in the Credit Agreement), then
the Warrant shall (to the extent not previously exercised) be reduced
such that the total Warrant Stock obtainable under this Section 2.1
(including any Warrant Stock previously issued pursuant to a partial
exercise of this Warrant) is equal to the product of 750,000 shares
times a fraction, the numerator of which is the Commitment following
such reduction and the denominator of which is $3 million; provided,
however, that upon an event of default that results in total payments
by the Registered Holder to Fleet pursuant to the Guarantee Agreement
dated the date
- 2 -
<PAGE> 3
hereof among Fleet, the Registered Holder and the Company and its
subsidiaries listed therein (the "Guarantee") of an amount greater than
the Commitment then outstanding, then the Warrant shall be increased
such that the total Warrant Stock obtainable under this Section 2.1
(including any Warrant Stock previously issued pursuant to a partial
exercise of this Warrant) is equal to the product of 750,000 shares
times a fraction (not to exceed 1.0), the numerator of which is the
total payments made as of the date of such calculation by the
Registered Holder to Fleet pursuant to the Guarantee and any additional
amounts owed to the Registered Holder by the Company and its
subsidiaries as of the date of such calculation pursuant to the terms
of the Credit Agreement, and the denominator of which is $3 million.
Section 3. Further Action and Assurances.
The Company and the CDA hereby agree to execute and deliver
such additional documents and shall cause such further and additional action to
be taken as may be required or, in the reasonable judgment of the Company and
the CDA necessary or desirable to effect or evidence the provisions or intent of
this Amendment and the transactions contemplated hereby.
Section 4. Reference to and Effect on the Warrant.
Except as specifically amended above, the Warrant shall remain
in full force and effect and is hereby ratified and confirmed.
Section 5. Execution in Counterparts.
This Amendment may be executed in any number of counterparts
and by the different parties hereto in separate counterparts, each of which when
so executed and delivered shall be deemed to be an original and all of which
taken together shall constitute but one and the same instrument.
Section 6. Governing Law.
This Amendment shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
principles of conflicts of laws or choice of law.
Section 7. Headings.
Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
- 3 -
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first above written.
U.S. HOMECARE CORPORATION
By:
Clifford G. Johnson
Vice President, Finance and
Administration & Chief Financial Officer
CONNECTICUT DEVELOPMENT AUTHORITY
By:
Name:
Title:
- 4 -
<PAGE> 1
AMENDMENT TO STOCK PURCHASE WARRANT NO. WA-18
This Amendment to Stock Purchase Warrant No. WA-18 (this
"Amendment") is made this 25th day of March, 1998 by and between U.S. HomeCare
Corporation (the "Company") and Creditanstalt AG, formerly known as
Creditanstalt Bankverein, ("Creditanstalt").
WITNESSETH:
WHEREAS, the Company issued to Creditanstalt Stock
Purchase Warrant No. WA-18 (the "Warrant") dated October 6, 1995,
as amended on March 25, 1997; and
WHEREAS, the Company and Creditanstalt amended the definitions
of "Common Stock Deemed Outstanding" and "Exercise Price" on March 25, 1997,
which amendments are incorporated herein in their entirety; and
WHEREAS, the Company and Creditanstalt desire to further amend
the Warrant as provided herein.
NOW THEREFORE, the Company and Creditanstalt each intending to
be legally bound hereby, covenant and agree as follows:
Section 1. Previous Amendments to the Warrant.
The Warrant was amended, effective March 25, 1997, as follows:
a. The definition of "Common Stock Deemed
Outstanding" in Section 1 was deleted in its entirety and the following
definition was inserted in lieu thereof:
"Common Stock Deemed Outstanding" means, at any given
time, (a) the number of shares of Common Stock actually outstanding at
such time; (b) the number of shares of Common Stock issuable (i) upon
the conversion of outstanding shares of preferred stock and (ii) with
respect to all other options, warrants, rights, or other securities
convertible into shares of Common Stock (provided that such options,
warrants or rights are at an exercise price less than or equal to the
Market Price in effect on the relevant date; provided, further that
such options, warrants and rights shall only be considered "Common
Stock Deemed Outstanding" only to the extent that they have vested and
are exercisable on the relevant date), and (c)
<PAGE> 2
securities convertible into or exchangeable for any of
the foregoing.
b. The definition of "Exercise Price" in Section 1
was amended by deleting the phrase "Section 3" and inserting the phrase
"Sections 3 and 5" in lieu thereof.
Section 2. Amendments to the Warrant.
The Warrant is hereby amended as follows:
Section 2.1 is deleted in its entirety and the following shall
be inserted in lieu thereof, to be read as though Section 2.1 contained the
language set forth below on the original date of the Warrant (it being
understood that the number of shares of the Warrant Stock set forth below does
not take into account any additional Warrant Stock in favor of the Registered
Holder that has become available between the date of the Warrant and the date of
this amendment as a result of the adjustment provisions of the Warrant or
otherwise):
2.1 Exercise Period. The Registered Holder may
(i) exercise this Warrant, in whole or in part (but
not as to a fractional share of Warrant Stock), with respect
to 162,500 shares of the Warrant Stock (subject to adjustment
as herein provided) at any time prior to 5:00 p.m. (New York
time) on March 25, 2002, and
(ii) after April 1, 1996, exercise this Warrant, in
whole or in part (but not as to a fractional share of Warrant
Stock) with respect to the remaining 162,500 shares of the
Warrant Stock (subject to adjustments as herein provided) (the
"Additional Warrant Shares"), at any time on or after April 1,
1996 but prior to 5:00 p.m. (New York time) on March 25, 2002;
provided, however, that this Warrant shall not be exercisable
for the Additional Warrant Shares if all obligations and
liabilities of the Company and its Affiliates arising under or
related to the Credit Agreement have been repaid in full prior
to April 1, 1996; and provided, further, that if such amounts
have been repaid in full but any or all of such amounts are
required to be returned by the Registered Holder as a
preference payment or for a similar reason, then the
Additional Warrant Shares shall again be subject to this
Warrant, exercisable pursuant to this Section 2.1(ii),
- 2 -
<PAGE> 3
unless the right to purchase shares of Warrant Stock under this Warrant is
earlier terminated pursuant to Section 14 (the "Exercise Period").
Section 3. Further Action and Assurances.
The Company and Creditanstalt hereby agree to execute and
deliver such additional documents and shall cause such further and additional
action to be taken as may be required or, in the reasonable judgment of the
Company and Creditanstalt, necessary or desirable to effect or evidence the
provisions or intent of this Amendment and the transactions contemplated hereby.
Section 4. Reference to and Effect on the Warrant.
Except as specifically amended above, the Warrant shall remain
in full force and effect is hereby ratified and confirmed.
Section 5. Execution in Counterparts.
This Amendment may be executed in any number of counterparts
and by the different parties hereto in separate counterparts, each of which when
so executed and delivered shall be deemed to be an original and all of which
taken together shall constitute but one and the same instrument.
Section 6. Governing Law.
This Amendment shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of laws or choice of law.
Section 7. Headings.
Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
- 3 -
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first above written.
U.S. HOMECARE CORPORATION
By:
Clifford G. Johnson
Vice President, Finance and
Administration & Chief Financial Officer
CREDITANSTALT AG (formerly known as
Creditanstalt Bankverein)
By:
Name:
Title:
- 4 -
<PAGE> 1
AMENDMENT NO. 4
Dated as of December 24, 1997
This AMENDMENT among U.S. HOMECARE CORPORATION AND ITS SUBSIDIARIES
LISTED IN ANNEX 1 HERETO (collectively, the "Borrowers" and each, individually,
a "Borrower"), the banks parties to the Credit Agreement referred to below (the
"Banks"), and THE CHASE MANHATTAN BANK (successor by merger to The Chase
Manhattan Bank, N.A.), as agent (the "Agent") for the Banks thereunder.
PRELIMINARY STATEMENT.
A. The Borrowers, the Banks and the Agent have entered into an
Amended and Restated Credit Agreement dated as of October 6, 1995, as amended
by Amendment No. 1 dated as of October 31, 1996, Amendment No. 2 dated as of
November 14, 1996, and Amendment No. 3 dated as of March 25, 1997 (said Credit
Agreement, as so amended, being hereinafter referred to as the "Credit
Agreement"; the terms defined therein being used herein as therein defined
unless otherwise defined herein).
B. Pursuant to the Credit Agreement, the Borrowers are indebted to
the Banks under the Notes in the aggregate principal amount of $4,280,230.13,
as of the date hereof (the "Indebtedness"), which Indebtedness is owed by the
Borrowers to the Banks without offset, defense or counterclaim of any kind,
nature or description. As security for such Indebtedness, the Borrowers have
heretofore granted to the Banks a first priority security interest in all the
Borrowers' assets (such security interest having been partially released by the
Banks pursuant to the Partial Release Letter dated November 8, 1993), whether
now owed or hereafter acquired, wherever located of any kind, nature or
description, tangible or intangible, including without limitation, the
Borrowers' accounts receivable, inventory, equipment, and general intangibles,
and such security interests and liens granted by the Borrowers to the Banks
are, subject to the terms of the Partial Release Letter, hereby reacknowledged
and confirmed by the Borrowers.
C. The Borrowers, the Banks and the Agent have agreed to amend the
Credit Agreement as hereinafter set forth.
SECTION 1. Amendments. The Credit Agreement is, effective as of
the date hereof and subject to the satisfaction of the conditions precedent
set forth in Section 2 hereof, hereby amended as follows:
(a) The following definition contained in Section 1.1 of the
Credit Agreement is amended and restated in full to read as follows:
"Termination Date" means (i) March 31, 1998; provided that
if such date is not a Banking Day, the Termination Date shall be the
next succeeding Banking Day, or (ii) the earlier date of termination
in whole of the Commitments pursuant to Section 2.7 or Section 9.2,
or otherwise.
<PAGE> 2
-2-
(b) Paragraph (a) of the definition of Borrowing Base contained in
Section 1.1 of the Credit Agreement is amended and restated in full to read as
follows:
(a) the lesser of (i) 85% of Eligible Receivables or (ii)
$5,750,000; plus
(c) For financial reporting periods ending on and before December 31,
1997, Article 8 shall remain unchanged. Commencing with financial reporting
periods ending after December 31, 1997, Article 8 is amended and restated in
its entirety to read as follows:
ARTICLE 8. FINANCIAL COVENANTS.
So long as any of the Notes shall remain unpaid or any Bank shall
have any Commitment under this Agreement:
Section 8.1. MINIMUM EARNINGS. The Borrowers shall maintain on a
consolidated basis at all times as of the end of each calendar month
EBITDA of not less than 90% of the projected EBITDA for such month as
set forth in the Borrowers' 1998 Business Plan.
Section 8.2. CAPITAL EXPENDITURES. The Borrowers shall not make or
permit to be made Consolidated Capital Expenditures during any calendar
month to exceed in the aggregate $50,000.
Section 8.3. INTEREST COVERAGE RATIO. The Borrowers shall maintain
at all times as of the end of each calendar month on a consolidated
basis an Interest Coverage Ratio of not less than 2.5 to 1.0.
(d) Subsection (d) of Section 2.11 is amended and restated in full to
read as follows:
(d) EXTENSION FEE. The Borrowers shall pay to the Agent for the
ratable benefit of the Banks an extension fee in the amount of $35,000,
which shall be fully earned by the Banks on March 31, 1997, and which
shall be payable on the earlier to occur of (i) January 2, 1998, or (ii)
the Termination Date. The Borrowers shall pay to the Agent for the
ratable benefit of the Banks an extension fee in the amount of $20,000,
which shall be fully earned by the Banks on January 2, 1998, and which
shall be payable on the Termination Date.
SECTION 2. CONDITIONS OF EFFECTIVENESS. This Amendment shall become
effective when, and only when, the Agent shall have received counterparts of
this Amendment executed by the Borrowers and all of the Banks, except that
Section 1 hereof shall become effective when, and only when, the Agent shall
have additionally received all of the following documents, each document (unless
otherwise indicated) being dated the date of receipt thereof by the Agent (which
date shall be the same for all such documents), in form and substance
satisfactory to the Banks:
<PAGE> 3
-3-
(a) Certified copies of (i) the resolutions of the Board of Directors
or Executive Committee of each Borrower approving this Amendment and the
matters contemplated hereby, (ii) all documents evidencing other necessary
corporate action and governmental approvals, if any, with respect to this
Amendment and the matters contemplated hereby, (iii) all waivers and amendments
with respect to the Junior Debt concerning the matters covered by this
Amendment, which shall include an amendment to the Junior Debt documents
extending the maturity date thereof to April 15, 1998, and (iv) an executed copy
of Amendment No. 4 to Receivables Purchase and Servicing Agreement extending
the maturity date of the Purchase Agreement to March 31, 1998 and in form and
substance satisfactory to the Banks.
(b) A certificate of the Secretary or an Assistant Secretary of each
Borrower certifying the names and true signatures of the officers of such
Borrower authorized to sign this Amendment and the other documents to be
delivered hereunder.
(c) A favorable opinion of Brobeck, Phleger & Harrison LLP, counsel for
the Borrowers, to the effect that this Amendment and each and every other
document delivered by any of the Borrowers have been duly authorized, executed
and delivered by such Borrowers, and constitute the legal, valid and binding
obligations of such Borrowers, enforceable against such Borrowers in accordance
with their respective terms, and to such other matters as the Agent may
reasonably require.
(d) A certificate signed by a duly authorized officer of each Borrower
stating that:
(i) The representations and warranties contained in Section 3
hereof are correct on and as of the date of such certificate as though
made on and as of such date, and
(ii) After giving effect to the terms of the Amendment, no event
has occurred and is continuing which constitutes a Default or an Event
of Default.
(e) Results of a recent field examination by the Banks of the
Borrowers' assets, liabilities, books and records that are satisfactory to the
Banks in their sole discretion.
(f) A 1998 Business Plan (forecasted on a monthly basis).
(g) Payment of a $40,000 extension fee to the Agent for the ratable
benefit of the Banks, which shall be fully earned by the Banks on the date so
paid.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS. Each
Borrower represents and warrants as follows:
(a) Such Borrower is a corporation duly organized and validly existing
under the laws of the jurisdiction of its incorporation.
<PAGE> 4
-4-
(b) The execution, delivery and performance by such Borrower of this
Amendment and the Facility Documents, as amended hereby, to which it is or is
to be a party are within such Borrower's corporate powers, have been duly
authorized by all necessary corporate action and do not contravene (i) such
Borrower's charter or by-laws, (ii) any contractual restriction binding on or
affecting such Borrower, or result in, or require, the creation or imposition
of any mortgage, deed of trust, pledge, lien, security interest or other
charge, encumbrance or preferential arrangement of any nature upon or with
respect to any of the properties now owned of hereafter acquired by such
Borrower, or (iii) to the best of such Borrower's knowledge, any law.
(c) No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for the
due execution, delivery and performance by such Borrower of this Amendment or
any of the Facility Documents, as amended hereby, to which it is or is to be a
party.
(d) This Amendment and each of the other Facility Documents as amended
hereby, to which such Borrower is a party constitute legal, valid and binding
obligations of such Borrower enforceable against such Borrower in accordance
with their respective terms.
(e) To the best of such Borrower's knowledge, the Security Agreement
constitutes valid and perfected first priority security interests and liens in
an to the Collateral covered thereby enforceable against all third parties in
all jurisdictions and secure the payment of all obligations of such Borrower
under the Facility Documents, as amended hereby, and the execution, delivery
and performance of this Amendment do not adversely affect the aforesaid
security interests and liens of such Security Agreement.
(f) Except as set forth on Schedule 3(f), there is no pending or
threatened action or proceeding affecting such Borrower or any of its
Subsidiaries before any court, governmental agency or arbitrator, which may
materially adversely affect the financial condition or operations of such
Borrower or any Subsidiary or which purport to affect the legality, validity or
enforceability of this Amendment or any of the other Facility Documents, as
amended hereby.
(g) After giving effect to the terms of the Amendment, no event has
occurred and is continuing which constitutes a Default or an Event of Default.
SECTION 4. Reference to and Effect on the Facility Documents.
(a) Upon the effectiveness of Section 1 hereof, on and after the date
hereof each reference in the Credit Agreement to "this Agreement," "hereunder,"
"hereof" "herein" or words of like import, and each reference in any Facility
Documents to the Credit Agreement or any other Facility Document as amended
hereby.
(b) Except as specifically amended above, the Credit Agreement and the
other Facility Documents shall remain in full force and effect and are hereby
ratified and
<PAGE> 5
-5-
confirmed. Without limiting the generality of the foregoing, the Pledge
Agreements and all of the Pledged Collateral described therein, and the Security
Agreement and all of the Collateral described therein, do and shall continue to
secure the payment of all Obligations, in each case as amended hereby.
(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of the Agent or any Bank under any of the Facility Documents,
nor constitute a waiver of any provision of any of the Facility Documents.
(d) The Agent and the Banks are under no obligation to enter into this
Amendment. The Agent's and the Banks' entering into this Amendment shall
not be deemed to limit or hinder any rights of the Agent or any Bank under the
Credit Agreement, nor shall it be deemed to create or infer a course of dealing
between the Agent or any Bank and the Parent or any of the other Borrowers with
regard to any provision of the Credit Agreement.
SECTION 5. Costs, Expenses and Taxes. The Borrowers jointly and
severally agree to pay on demand all costs and expenses of the Agent and the
Banks in connection with the preparation, execution and delivery of this
Amendment and the other instruments and documents to be delivered hereunder,
including, without limitation, the reasonable fees and out-of-pocket expenses
of counsel for the Agent and the Banks with respect thereto and with respect to
advising the Agent and the Banks as to their rights and responsibilities
hereunder and thereunder. The Borrowers further jointly and severally agree to
pay on demand all costs and expenses, if any (including, without limitation,
reasonable counsel fees and expenses), in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this
Amendment and the other instruments and documents to be delivered hereunder,
including, without limitation, reasonable counsel fees and expenses in
connection with the enforcement of rights under this Section 5. In addition,
the Borrowers shall pay any and all stamp and other taxes payable or determined
to be payable in connection with the execution and delivery of this Amendment
and the other instruments and documents to be delivered hereunder, and agrees
to save the Agent and the Banks harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission
to pay such taxes.
SECTION 6. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which taken together shall constitute but one and the
same instrument.
SECTION 7. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
-5-
<PAGE> 6
-6-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BORROWERS:
U.S. HOMECARE CORPORATION AND ITS
SUBSIDIARIES LISTED ON ANNEX 1 HERETO
By: /s/ Clifford S. Johnson
------------------------------------
Name:
Vice President of each of the above
corporations
BANKS:
THE CHASE MANHATTAN BANK (successor by
merger to The Chase Manhattan Bank, N.A.)
By: /s/ John Hariaczyi V.P.
------------------------------------
John Hariaczyi
Vice President
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ A.W. Seidel
------------------------------------
Name: A.W. Seidel
Title: Vice President
By: /s/ Peter A. Halter
------------------------------------
Name: Peter A. Halter
Title: Vice President
<PAGE> 7
-7-
AGENT:
THE CHASE MANHATTAN BANK (successor by
merger to The Chase Manhattan Bank, N.A.)
By: /s/ John Hariaczyi V.P.
--------------------------------------
John Hariaczyi
Vice President
-9-
<PAGE> 8
ANNEX 1
U.S. HOMECARE CORPORATION, AFFILIATED HOME CARE OF WESTCHESTER, INC., U.S.
HOMECARE CORPORATION OF NORTHERN WESTCHESTER, U.S. HOMECARE CORPORATION OF
MANHATTAN, U.S. HOMECARE CORPORATION OF THE BRONX, U.S. HOMECARE CERTIFIED
CORPORATION OF NEW YORK, U.S. HOMECARE CORPORATION OF ALBANY, U.S. HOMECARE
INFUSION THERAPY SERVICES CORPORATION OF NEW JERSEY, U.S. HOMECARE CORPORATION
OF CONNECTICUT, U.S. HOMECARE CERTIFIED CORPORATION OF CONNECTICUT, U.S.
HOMECARE CORPORATION OF PENNSYLVANIA, U.S. HOMECARE CERTIFIED CORPORATION OF
PENNSYLVANIA, U.S. HOMECARE INFUSION THERAPY PRODUCTS CORPORATION
<PAGE> 1
AMENDMENT NO. 5
Dated as of March 25, 1997
This AMENDMENT among U.S. HOMECARE CORPORATION AND ITS SUBSIDIARIES LISTED
IN THE ANNEX 1 HERETO (collectively, the "Borrowers" and each, individually, a
"Borrower"), the banks parties to the Credit Agreement referred to below (the
"Banks"), and THE CHASE MANHATTAN BANK (successor by merger to The Chase
Manhattan Bank, N.A.), as agent (the "Agent") for the Banks thereunder.
PRELIMINARY STATEMENT.
A. The Borrowers, the Banks and the Agent have entered into an Amended
and Restated Credit Agreement dated as of October 6, 1995, as amended by
Amendment No. 1 dated as of October 31, 1996, Amendment No. 2 dated as of
November 14, 1996, Amendment No. 3 dated as of March 25, 1997, and Amendment
No. 4 dated as of December 24, 1997 (said Credit Agreement, as so amended,
being hereinafter referred to as the "Credit Agreement"; the terms defined
therein being used herein as therein defined unless otherwise defined herein).
B. Pursuant to the Credit Agreement, the Borrowers are indebted to the
Banks under the Notes in the aggregate principal amount of $4,043,083.97, as of
the date hereof (the "Indebtedness"), which Indebtedness is owed by the
Borrowers to the Banks without offset, defense or counterclaim of any kind,
nature or description. As security for such Indebtedness, the Borrowers have
heretofore granted to the Banks a first priority security interest in all the
Borrowers' assets (such security interest having been partially released by the
Banks pursuant to the Partial Release Letter dated November 8, 1993), whether
now owed or hereafter acquired, wherever located of any kind, nature or
description, tangible or intangible, including without limitation, the
Borrowers' accounts receivable, inventory, equipment, and general intangibles
and such security interest and liens granted by the Borrowers to the Banks
are, subject to the terms of the Partial Release Letter, hereby reacknowledged
and confirmed by the Borrowers.
C. The Borrowers, the Banks and the Agent have agreed to amend the
Credit Agreement as hereinafter set forth.
SECTION 1. Amendments. The Credit Agreement is, effect as of the
date hereof and subject to the satisfaction of the conditions precedent set
forth in Section 3 hereof, hereby amended as follows:
(a) The following definition contained in Section 1.1 of the Credit
Agreement is amended and restated in full to read as follows:
"Termination Date" means (i) January 4, 1999; provided that if such
date is not a Banking Day, the Termination Date shall be the next
succeeding Banking Day, or (ii) the earlier date of termination in whole of
the Commitments pursuant to Section 2.7 or Section 9.2, or otherwise.
<PAGE> 2
-2-
(b) Paragraphs (a) and (b) of the definition of Borrowing Base
contained in Section 1.1 of the Credit Agreement is amended and restated in
full to read as follows:
(a) the lesser of (i) 85% of Eligible Receivables or (ii) $5,750,000
as such number set forth in this clause (ii) shall reduce in the manner set
forth in paragraph (b) below; plus
(b) an amount equal to (i) $950,774, less (ii) the principal amount
of any reductions in the Commitments occurring after the Closing Date,
whether pursuant to Section 2.7 or otherwise, less (iii) as of the date the
same are collected, fifty percent (50%) of all collections of USHNJ
Receivables other than USHNJ Eligible Receivables and USHNJ Receivables
subject to the Purchase Agreement, less (iv) (A) $25,000 on each of April
30, 1998, May 30, 1998, and June 30, 1998, and (B) $50,000 on the thirtieth
day of each calendar month thereafter; provided that such amount under this
clause (b) shall not be less than zero, and when such amount is reduced to
zero, the reductions set forth in clause (iv) of this paragraph (b) that
have not yet been made shall be applied in reduction of the dollar amount
set forth in clause (ii) of paragraph (a) above; less
(c) Subsection (d) of Section 2.11 is amended and restated in full
to read as follows:
(d) Extension Fee. So long as any of the Notes shall remain unpaid
or any Bank shall have any Commitment under this Agreement at the time any
of the following installments are due, the Borrowers shall pay to the Agent
for the ratable benefit of the Banks an extension fee in installments as
follows: (i) the amount of $135,000 shall be due and payable on May 1,
1998, and (ii) the amount of $50,000 shall be due and payable on September
30, 1998.
(d) The following new Subsection (e) is added at the end of Section
2.11:
(e) Waiver Fee. The Borrowers shall pay to the Agent for the ratable
benefit of the Banks a waiver fee in the amount of $25,000, which shall be
fully earned by the Banks on December 31, 1997, and which shall be payable
on the earlier to occur of (i) March 31, 1998, or (ii) the Termination
Date.
(e) Section 6.13 is amended and restated in full to read as follows:
Section 6.13. Amendment to Purchase Agreement. By March 31, 1998,
enter into an amendment to the Purchase Agreement extending the maturity
date thereof to January 4, 1999, which amendment shall be satisfactory to
the Banks.
SECTION 2. Waivers. Effective as of December 31, 1997, and
subject to the satisfaction of the conditions precedent set forth in Section 3
hereof, the Agent and the
<PAGE> 3
-3-
Banks hereby waive any Default or Event of Default due to the Borrowers'
failure to comply with the covenant contained in Section 8.1 of the Credit
Agreement for the month of December, 1997.
SECTION 3. Conditions of Effectiveness. This Amendment shall
become effective when, and only when, the Agent shall have received
counterparts of this Amendment executed by the Borrowers and all of the Banks,
except that Section 1 hereof shall become effective when, and only when, the
Agent shall have additionally received all of the following documents, each
document (unless otherwise indicated) being dated the date of receipt thereof
by the Agent (which date shall be the same for all such documents), in form and
substance satisfactory to the Banks:
(a) Certified copies of (i) the resolutions of the Board of
Directors or Executive Committee of each Borrower approving this Amendment and
the matters contemplated hereby, (ii) all documents evidencing the other
necessary corporate action and governmental approvals, if any, with respect to
this Amendment and the matters contemplated hereby, and (iii) all waivers and
amendments with respect to the Junior Debt concerning the matters covered by
this Amendment, which shall include an amendment to the Junior Debt documents
extending the maturity date thereof to January 15, 1999.
(b) A certificate of the Secretary or an Assistant Secretary of each
Borrower certifying the names and true signatures of the officers of such
Borrower authorized to sign this Amendment and the other documents to be
delivered hereunder.
(c) A favorable opinion of Brobeck, Phleger & Harrison LLP, counsel
for the Borrowers, to the effect that this Amendment and each and every other
document delivered by any of the Borrowers have been duly authorized, executed
and delivered by such Borrowers, and constitute the legal, valid and binding
obligations of such Borrowers, enforceable against such Borrowers in accordance
with their respective terms, and as to such other matters as the Agent may
reasonably require.
(d) A certificate signed by a duly authorized officer of each
Borrower stating that:
(i) The representations and warranties contained in Section 4
hereof are correct on and as of the date of such certificate as though
made on and as of such date, and
(ii) After giving effect to the terms of the Amendment, no event
has occurred and is continuing which constitutes a Default or an Event
of Default.
(c) Payment to the Agent for the ratable benefit of the Banks, of
(i) a $50,000 extension fee, which shall be fully earned by the Banks on the
date so paid, and (ii) the $20,000 extension fee that, pursuant to Section
2.11(d) of the Credit Agreement, as amended by Amendment No. 4, was to be
payable on the Termination Date.
<PAGE> 4
-4-
(f) Payment to the Agent for the benefit of itself, as a Bank, and
Creditanstalt AG (formerly known as Creditanstalt Bankverein) of a settlement
fee, in an amount equal to the amount set forth below opposite the name of each
such party, to settle in full the overstatement by the Parent of the number of
warrants in favor of such party in the letters from the Parent to each such
party dated March 20, 1997:
<TABLE>
<CAPTION>
NUMBER OF OVERSTATED
BANK WARRANTS SETTLEMENT FEE
<S> <C> <C>
The Chase Manhattan Bank 3175 $2000
Creditanstalt AG (formerly
known as Creditanstalt
Bankverein) 2427 $1500
</TABLE>
(g) The Parent shall extend the end of the exercise period with
respect to the Warrants described below from October 6, 2000, to March 25,
2002, and shall deliver to the Banks all such documents, and perform all such
acts, as are necessary to cause such extension to be effective in a manner that
is satisfactory to the Banks, in their sole discretion:
WARRANT IDENTIFICATION
WARRANT HOLDER DATE OF ISSUANCE NUMBER
The Chase Manhattan Bank 10/6/95 WA-16
Creditanstalt AG (formerly
known as Creditanstalt
Bankverein) 10/6/95 WA-18
SECTION 4. Representations and Warranties of the Borrowers.
Each Borrower represents and warrants as follows:
(a) Such Borrower is a corporation duly organized and validly
existing under the laws of the jurisdiction of its incorporation.
(b) The execution, delivery and performance by such Borrower of this
Amendment and the Facility Documents, as amended hereby, to which it is or is
to be a party are within such Borrower's corporate powers, have been duly
authorized by all necessary corporate action and do not contravene (i) such
Borrower's charter or by-laws, (ii) any contractual restriction binding on or
affecting such Borrower, or result in, or require, the creation or imposition
of any mortgage, deed of trust, pledge, lien, security interest or other
charge, encumbrance or preferential arrangement of any nature upon or with
respect to any of the properties now owned or hereafter acquired by such
Borrower, or (iii) to the best of such Borrower's knowledge, any law.
<PAGE> 5
-5-
(c) No authorization, approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by such Borrower of this Amendment
or any of the Facility Documents, as amended hereby, to which it is or is to be
a party.
(d) This Amendment and each of the other Facility Documents as
amended hereby, to which such Borrower is a party constitute legal, valid and
binding obligations of such Borrower enforceable against such Borrower in
accordance with their respective terms.
(e) To the best of such Borrower's knowledge, the Security Agreement
constitutes valid and perfected first priority security interests and liens in
and to the Collateral covered thereby enforceable against all third parties in
all jurisdictions and secure the payment of all obligations of such Borrower
under the Facility Documents, as amended hereby, and the execution, delivery
and performance of this Amendment do not adversely affect the aforesaid
security interests and liens of such Security Agreement.
(f) Except as set forth in Schedule 4(f), there is no pending or
threatened action or proceeding affecting such Borrower or any of its
Subsidiaries before any court, governmental agency or arbitrator, which may
materially adversely affect the financial condition or operations of such
Borrower or any Subsidiary or which purport to affect the legality, validity or
enforceability of this Amendment or any of the other Facility Documents, as
amended hereby.
(g) After giving effect to the terms of the Amendment, no event has
occurred and is continuing which constitutes a Default or an Event of Default.
SECTION 5. Reference to and Effect on the Facility Documents.
(a) Upon the effectiveness of Section 1 hereof, on and after the
date hereof each reference in the Credit Agreement to "this Agreement,"
"hereunder," "hereof," "herein" or words of like import, and each reference in
any Facility Documents to the Credit Agreement or any other Facility Document,
shall mean and be a reference to the Credit Agreement or such other Facility
Document as amended hereby.
(b) Except as specifically amended above, the Credit Agreement and
the other Facility Documents shall remain in full force and effect and are
hereby ratified and confirmed. Without limiting the generality of the
foregoing, the Pledge Agreements and all of the Pledged Collateral described
therein, and the Security Agreement and all of the Collateral described
therein, do and shall continue to secure the payment of all Obligations, in
each case as amended hereby.
(c) The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of the Agent or any Bank under any of the Facility
Documents, nor constitute a waiver of any provision of any of the Facility
Documents.
<PAGE> 6
-6-
(d) The Agent and the Banks are under no obligation to enter into
this Amendment. The Agent's and the Banks' entering into this Amendment shall
not be deemed to limit or hinder any rights of the Agent or any Bank under the
Credit Agreement, nor shall it be deemed to create or infer a course of dealing
between the Agent or any Bank and the Parent or any of the other Borrowers with
regard to any provision of the Credit Agreement.
SECTION 6. Costs, Expenses and Taxes. The Borrowers jointly
and severally agree to pay on demand all costs and expenses of the Agent and
the Banks in connection with the preparation, execution and delivery of this
Amendment and the other instruments and documents to be delivered hereunder,
including, without limitation, the reasonable fees and out-of-pocket expenses
of counsel for the Agent and the Banks with respect thereto and with respect to
advising the Agent and the Banks as to their rights and responsibilities
hereunder and thereunder. The Borrowers further jointly and severally agree to
pay on demand all costs and expenses, if any (including, without limitation,
reasonable counsel fees and expenses), in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this
Amendment and the other instruments and documents to be delivered hereunder,
including, without limitation, reasonable counsel fees and expenses in
connection with the enforcement of rights under this Section 6. In addition,
the Borrowers shall pay any and all stamp and other taxes payable or determined
to be payable in connection with the execution and delivery of this Amendment
and the other instruments and documents to be delivered hereunder, and agrees
to save the Agent and the Banks harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission
to pay such taxes.
SECTION 7. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument.
SECTION 8. Governing Law. This Amendment shall be governed by,
and construed in accordance with, the laws of the State of New York.
<PAGE> 7
-7-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
Borrowers:
U.S. HOMECARE CORPORATION AND ITS
SUBSIDIARIES LISTED ON ANNEX 1 HERETO
By: /s/ Clifford G. Johnson
---------------------------------
Name: Clifford G. Johnson
Vice President of each of the above
corporations
Banks:
THE CHASE MANHATTAN BANK (successor by
merger to The Chase Manhattan Bank, N.A.)
By:
----------------------------------
John Hariaczyi
Vice President
CREDITANSTALT CORPORATE FINANCE, INC.
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
<PAGE> 8
-7-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
Borrowers:
U.S. HOMECARE CORPORATION AND ITS
SUBSIDIARIES LISTED ON ANNEX 1 HERETO
By:
---------------------------------
Name:
Vice President of each of the above
corporations
Banks:
THE CHASE MANHATTAN BANK (successor by
merger to The Chase Manhattan Bank, N.A.)
By: /s/ John Hariaczyi
----------------------------------
John Hariaczyi
Vice President
CREDITANSTALT CORPORATE FINANCE, INC.
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
<PAGE> 9
-7-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
Borrowers:
U.S. HOMECARE CORPORATION AND ITS
SUBSIDIARIES LISTED ON ANNEX 1 HERETO
By:
---------------------------------
Name: Clifford G. Johnson
Vice President of each of the above
corporations
Banks:
THE CHASE MANHATTAN BANK (successor by
merger to The Chase Manhattan Bank, N.A.)
By:
----------------------------------
John Harlaczyi
Vice President
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ R.W. Seidel
----------------------------------
Name: R.W. Seidel
Title: Vice President
By: /s/ Perm Halter
----------------------------------
Name: Perm Halter
Title: Vice President
<PAGE> 10
-8-
Agent:
THE CHASE MANHATTAN BANK (successor by
merger to The Chase Manhattan Bank, N.A.)
By: /s/ John Harlaczyi
---------------------------------
John Harlaczyi
Vice President
<PAGE> 1
AMENDMENT NO. 3
---------------
Dated as of December 24, 1997
This AMENDMENT among U.S. HOMECARE CORPORATION AND ITS SUBSIDIARIES LISTED
IN ANNEX I HERETO (collectively, the "Borrowers" and each, individually, a
"Borrower") and FLEET NATIONAL BANK (successor by merger to Fleet Bank,
National Association) (the "Bank").
PRELIMINARY STATEMENT.
A. The Borrowers and the Bank have entered into a Credit Agreement dated
as of October 6, 1995, as amended by Amendment No. 1 dated as of November 14,
1996 and Amendment No. 2 dated as of March 25, 1997 (said Credit Agreement, as
so amended, being hereinafter referred to as the "Credit Agreement"; the terms
defined therein being used herein as therein defined unless otherwise defined
herein).
B. Pursuant to the Credit Agreement, the Borrowers are indebted to the
Bank under the Note in the principal amount of $3,000,000, as of the date
hereof (the "Indebtedness"), which Indebtedness is owed by the Borrowers to the
Bank without offset, defense or counterclaim of any kind, nature or
description. As security for such Indebtedness, the Borrowers have heretofore
granted to the Bank a second priority security interest in all the Borrowers'
assets (excluding certain health care receivables as more fully set forth in
the Security Agreement), whether now owed or hereafter acquired, wherever
located of any kind, nature or description, tangible or intangible, including
without limitation, the Borrowers' accounts receivable, inventory, equipment,
and general intangibles, and such security interests and liens granted by the
Borrowers to the Bank are hereby reacknowledged and confirmed by the Borrowers.
C. The Borrowers and the Bank have agreed to amend the Credit Agreement
as hereinafter set forth.
SECTION 1. Amendments.
----------
(a) The Credit Agreement is, effective as of the date hereof and subject
to the satisfaction of the conditions precedent set forth in Section 2 hereof,
hereby amended as follows:
(i) The following definition contained in Section 1.1 of the Credit
Agreement is amended and restated in full to read as follows:
"Termination Date" means (i) April 15, 1998; provided that if
such date is not a Banking Day, the Termination Date shall be the next
succeeding Banking Day, or (ii) the earlier date of termination in
whole of the Commitment pursuant to Section 2.6 or Section 8.2, or
otherwise.
(ii) For financial reporting periods ending on and before December 31,
1997, Article 7 shall remain unchanged. Commencing with
financial reporting periods ending after December 31, 1997,
Article 7 is amended and restated in its entirety to read
as follows:
ARTICLE 7. FINANCIAL COVENANTS.
So long as the Note shall remain unpaid or the Bank shall have any
Commitment under this Agreement:
Section 7.1 Minimum Earnings. The Borrowers shall maintain on a
consolidated basis at all times as of the end of each calendar month
EBITDA of not less than 90% of the projected EBITDA for such month as set
forth in the Borrowers' 1998 Business Plan.
Section 7.2 Capital Expenditures. The Borrowers shall not make
<PAGE> 2
-2-
or permit to be made Consolidated Capital Expenditures during any calendar
month to exceed in the aggregate $50,000.
Section 7.3 Interest Coverage Ratio. The Borrowers shall maintain
at all times as of the end of each calendar month on a consolidated basis
an Interest Coverage Ratio of not less than 2.5 to 1.0.
(b) The Note is, effective as of the date hereof and subject to the
satisfaction of the conditions precedent set forth in Section 2 hereof, hereby
amended as follows:
The following definition contained in Section 1(ix) of the Note is amended
and restated in full to read as follows:
(ix) "Termination Date" means April 15, 1998.
SECTION 2. Conditions of Effectiveness. This Amendment shall become
effective when, and only when, the Bank shall have received counterparts of
this Amendment executed by the Borrowers and the Bank and the Bank shall have
additionally received all of the following documents, each document (unless
otherwise indicated) being dated the date of receipt thereof by the Bank (which
date shall be the same for all such documents), in form and substance
satisfactory to the Bank and the Guarantor:
(a) Certified copies of (i) the resolutions of the Board of Directors or
Executive Committee of each Borrower approving this Amendment and the matters
contemplated hereby, (ii) all documents evidencing other necessary corporate
action and governmental approvals, if any, with respect to this Amendment and
the matters contemplated hereby, (iii) all waivers and amendments with respect
to the Senior Debt (as defined in the Intercreditor Agreement) concerning the
matters covered by this Amendment, which shall include an amendment to the
Senior Debt (as defined in the Intercreditor Agreement) documents extending the
maturity date thereof to March 31, 1998 and (iv) an executed copy of Amendment
No. 4 to Receivables Purchase and Servicing Agreement extending the maturity
date of the Purchase Agreement to March 31, 1998 and in form and substance
satisfactory to the Bank and the Guarantor.
(b) A certificate of the Secretary or an Assistant Secretary of each
Borrower certifying the names and true signatures of the officers of such
Borrower authorized to sign this Amendment and other documents to be delivered
hereunder.
(c) A favorable opinion of Brobeck, Phleger & Harrison LLP, counsel for
the Borrowers, to the effect that this Amendment and each and every other
document delivered by any of the Borrowers have been duly authorized, executed
and delivered by such Borrowers, and constitute the legal, valid and binding
obligations of such Borrowers, enforceable against such Borrowers in accordance
with their respective terms, and as to such other matters as the Bank or the
Guarantor may reasonable require.
(d) A certificate signed by a duly authorized officer of each Borrower
stating that:
(i) The representations and warranties contained in Section 3 hereof
are correct on and as of the date of such certificate as though made on
and as of such date, and
(ii) After giving effect to the terms of the Amendment, no event has
occurred and is continuing which constitutes a Default or an Event of
Default.
(iii) All conditions to the effectiveness of Section 1 of Amendment
No. 4 to the Restated First Credit Agreement with the Senior Lenders, a
certified copy of which shall have been provided to the Bank as provided
above, have been satisfied and that Section
<PAGE> 3
-3-
1 is effective.
(e) A 1998 Business Plan (forecasted on a monthly basis).
(f) A fully executed amendment to the Guarantee extending the termination
date thereof to a date no earlier than April 30, 1998.
(g) Payment of a $10,000 extension fee to the Bank, which shall be fully
earned by the Bank on the date so paid.
SECTION 3. Representations and Warranties of the Borrowers. Each Borrower
represents and warrants as follows:
(a) Such Borrower is a corporation duly organized and validly existing
under the laws of the jurisdiction of its incorporation.
(b) The execution, delivery and performance by such Borrower of this
Amendment and the Facility Documents, as amended hereby, to which it is or is
to be a party are within such Borrower's corporate powers, have been duly
authorized by all necessary corporate action and do not contravene (i) such
Borrower's charter or by-laws, (ii) any contractual restriction binding on or
affecting such Borrower, or result in, or require, the creation or imposition
of any mortgage, deed of trust, pledge, lien, security interest or other
charge, encumbrance or preferential arrangement of any nature upon or with
respect to any of the properties now owned or hereafter acquired by such
Borrower, or (iii) to the best of such Borrower's knowledge, any law.
(c) No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for the
due execution, delivery and performance by such Borrower of this Amendment or
any of the Facility Documents, as amended hereby, to which it is or is to be a
party.
(d) This Amendment and each of the other Facility Documents as amended
hereby, to which such Borrower is a party constitute legal, valid and binding
obligations of such Borrower enforceable against such Borrower in accordance
with their respective terms.
(e) To the best of such Borrower's knowledge, the Security Agreement
constitutes valid and perfected second priority security interests and liens in
and to the Collateral covered thereby enforceable against all third parties in
all jurisdictions and secure the payment of all obligations of such Borrower
under the Facility Documents, as amended hereby, and the execution, delivery
and performance of this Amendment do not adversely affect the aforesaid
security interest and liens of such Security Agreement.
(f) Except as set forth on Schedule 3(f), there is no pending or
threatened action or proceeding affecting such Borrower or any of its
Subsidiaries before any court, governmental agency or arbitrator, which may
materially adversely affect the financial condition or operations of such
Borrower or any Subsidiary or which purport to affect the legality, validity or
enforceability of this Amendment or any of the other Facility Documents, as
amended hereby.
(g) After giving effect to the terms of the Amendment, no event has
occurred and is continuing which constitutes a Default or an Event of Default.
SECTION 4. Reference to and Effect on the Facility Documents.
(a) Upon the effectiveness of Section 1 hereof, on and after the date
hereof each reference in the Credit Agreement to "this Agreement," "hereunder,"
"hereof," "herein" or words of like import, and each reference in any Facility
Documents to the Credit Agreement or any other Facility Document, shall mean
and be a reference to the Credit Agreement or such other Facility Document as
amended hereby.
<PAGE> 4
-4-
(b) Except as specifically amended above, the Credit Agreement and the
other Facility Documents shall remain in full force and effect and are hereby
ratified and confirmed. Without limiting the generality of the foregoing, the
Pledge Agreement and all of the Pledged Collateral described therein, and the
Security Agreement and all of the Collateral described therein, do and shall
continue to secure the payment of all Obligations (as defined in the Pledge
Agreement and the Security Agreement respectively), in each case as amended
hereby.
(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of the Bank or the Guarantor under any of the Facility
Documents, nor constitute a waiver of any provision of any of the Facility
Documents.
(d) The Bank is under no obligation to enter into this Amendment. The
Bank's entering into this Amendment shall not be deemed to limit or hinder any
rights of the Bank or the Guarantor under the Credit Agreement, nor shall it be
deemed to create or infer a course of dealing between the Bank and the Parent
or any of the other Borrowers with regard to any provision of the Credit
Agreement.
SECTION 5. Costs, Expenses and Taxes. The Borrowers jointly and severally
agree to pay on demand all costs and expenses of the Bank and the Guarantor in
connection with the preparation, execution and delivery of this Amendment and
the other instruments and documents to be delivered hereunder, including,
without limitation, the reasonable fees and out-of-pocket expenses of counsel
for the Bank and the Guarantor with respect thereto and with respect to
advising the Bank and the Guarantor as to their rights and responsibilities
hereunder and thereunder. The Borrowers further jointly and severally agree to
pay on demand all costs and expenses, if any (including, without limitation,
reasonable counsel fees and expenses), in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this
Amendment and the other instruments and documents to be delivered hereunder,
including, without limitation, reasonable counsel fees and expenses in
connection with the enforcement of rights under this Section 5. In addition,
the Borrowers shall pay any and all stamp and other taxes payable or determined
to be payable in connection with the execution and delivery of this Amendment
and the other instruments and documents to be delivered hereunder, and agrees
to save the Bank and the Guarantor harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission
to pay such taxes.
SECTION 6. Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which taken together shall be governed by, and
construed in accordance with, the laws of the State of Connecticut.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
Borrowers:
----------
U.S. HOMECARE CORPORATION AND ITS
SUBSIDIARIES LISTED ON ANNEX 1 HERETO
By: /s/ Clifford G. Johnson
---------------------------------
Name: Clifford G. Johnson
Vice president of each of the above corporations
<PAGE> 5
-5-
Bank:
-----
FLEET NATIONAL BANK (successor by merger to
Fleet Bank, National Association)
By: /s/ Christopher R. Zell
---------------------------------------
Christopher R. Zell
Vice President
CONSENT OF GUARANTOR
--------------------
The Guarantor hereby consents to the execution of the foregoing Amendment by
the Bank and to the terms and conditions contained therein.
CONNECTICUT DEVELOPMENT AUTHORITY
By: /s/ Antonio Roberto
-----------------------------
Antonio Roberto
Its Executive Vice President
and Executive Director
<PAGE> 6
ANNEX 1
-------
U.S. HOMECARE CORPORATION, AFFILIATED HOME CARE OF WESTCHESTER, INC., U.S.
HOMECARE CORPORATION OF NORTHERN WESTCHESTER, U.S. HOMECARE CORPORATION OF
MANHATTAN, U.S. HOMECARE CORPORATION OF THE BRONX, U.S. HOMECARE CERTIFIED
CORPORATION OF NEW YORK, U.S. HOMECARE CORPORATION OF ALBANY, U.S. HOMECARE
INFUSION THERAPY SERVICES CORPORATION OF NEW JERSEY, U.S. HOMECARE CORPORATION
OF CONNECTICUT, U.S. HOMECARE CERTIFIED CORPORATION OF CONNECTICUT, U.S.
HOMECARE CORPORATION OF PENNSYLVANIA, U.S. HOMECARE CERTIFIED CORPORATION OF
PENNSYLVANIA, U.S. HOMECARE INFUSION THERAPY PRODUCTS CORPORATION
<PAGE> 7
SCHEDULE 3(f)
A broad based review and investigation of the personal care industry is being
conducted by the office of the New York State Attorney General. Based on
information circulated by an industry organization, the review and the
investigation began in November with a number of New York providers of personal
care services, including U.S. HomeCare Corporation ("U.S. HomeCare"). As part
of this review and investigation, the Attorney General served these providers
with subpoenas for production of documentation. U.S. HomeCare is cooperating
with the investigation and has asked for an expeditious review.
U.S. HomeCare believes that the services under review are New York State
Medicaid programs which involve personal care attendant services. U.S. HomeCare
is a long term provider of such services in over ten counties within the State.
U.S. HomeCare is subject to frequent, independent reviews and audits of its
operations and its Medicare/Medicaid participation on an ongoing basis by
county, state and federal agencies.
<PAGE> 1
AMENDMENT NO. 4
Dated as of March 24, 1998
This AMENDMENT among U.S. HOMECARE CORPORATION AND ITS
SUBSIDIARIES LISTED IN ANNEX 1 HERETO (collectively, the "Borrowers" and each,
individually, a "Borrower") and FLEET NATIONAL BANK (successor by merger to
Fleet Bank, National Association)(the "Bank").
PRELIMINARY STATEMENT.
A. The Borrowers and the Bank have entered into a Credit
Agreement dated as of October 6, 1995, as amended by Amendment No. 1 dated as of
November 14, 1996, Amendment No. 2 dated as of March 25, 1997 and Amendment No.
3 dated as of December 24, 1997 (said Credit Agreement, as so amended, being
hereinafter referred to as the "Credit Agreement"; the terms defined therein
being used herein as therein defined unless otherwise defined herein).
B. Pursuant to the Credit Agreement, the Borrowers are
indebted to the Bank under the Note in the principal amount of $3,000,000, as of
the date hereof (the "Indebtedness"), which Indebtedness is owed by the
Borrowers to the Bank without offset, defense or counterclaim of any kind,
nature or description. As security for such Indebtedness, the Borrowers have
heretofore granted to the Bank a second priority security interest in all the
Borrowers' assets (excluding certain health care receivables as more fully set
forth in the Security Agreement), whether now owed or hereafter acquired,
wherever located of any kind, nature or description, tangible or intangible,
including without limitation, the Borrowers' accounts receivable, inventory,
equipment, and general intangibles, and such security interests and liens
granted by the Borrowers to the Bank are hereby reacknowledged and confirmed by
the Borrowers.
C. The Borrowers and the Bank have agreed to amend the Credit
Agreement as hereinafter set forth.
SECTION 1. Amendments.
(a) The Credit Agreement is, effective as of the date hereof
and subject to the satisfaction of the conditions precedent set forth in Section
2 hereof, hereby amended as follows:
(i) The following definition contained in
Section 1.1 of the Credit Agreement is
amended and restated in full to read as
follows:
"Termination Date" means (i) January 15,
1999; provided that if such date is not a Banking
Day, the Termination Date shall be the next
succeeding Banking Day, or (ii) the earlier date of
termination in whole of the Commitment pursuant to
Section 2.6 or Section 8.2, or otherwise.
(ii) A new Section 2.9 is added as follows:
Section 2.9 Extension Fee. So long as the
Note shall remain unpaid or the Bank shall have any
Commitment under this Agreement on May 1, 1998, an
extension fee in the amount of $10,000 shall be due
and payable by the Borrowers to the Bank on May 1,
1998, which fee shall be fully earned by the Bank on
May 1, 1998.
(iii) Section 5.12 is amended and restated in full
to read as follows:
Section 5.12 Amendment to Purchase
Agreement. By March 31, 1998, enter into an amendment
to the Purchase Agreement extending the maturity date
thereof to January 4, 1999, which amendment shall be
satisfactory to the Bank and the Guarantor.
(b) The Note is, effective as of the date hereof and subject
to the satisfaction of the conditions precedent set forth in Section 2 hereof,
hereby amended as follows:
<PAGE> 2
-2-
The following definition contained in Section 1(ix) of the
Note is amended and restated in full to read as follows:
(ix) "Termination Date" means January 15, 1999.
SECTION 2. Waivers. Effective as of December 31, 1997, and
subject to the satisfaction of the conditions precedent set forth in Section 3
hereof, the Bank hereby waives any Default or Event of Default due to the
Borrowers' failure to comply with the covenant contained in Section 7.1 for the
month of December, 1997.
SECTION 3. Conditions of Effectiveness. This Amendment shall
become effective when, and only when, the Bank shall have received counterparts
of this Amendment executed by the Borrowers and the Bank and the consent hereto
executed by the Guarantor, except that Section 1 hereof shall become effective
when, and only when, the Bank shall have additionally received all of the
following documents, each document (unless otherwise indicated) being dated the
date of receipt thereof by the Bank (which date shall be the same for all such
documents), in form and substance satisfactory to the Bank and the Guarantor:
(a) Certified copies of (i) the resolutions of the Board of
Directors or Executive Committee of each Borrower approving this Amendment and
the matters contemplated hereby, (ii) all documents evidencing other necessary
corporate action and governmental approvals, if any, with respect to this
Amendment and the matters contemplated hereby, and (iii) all waivers and
amendments with respect to the Senior Debt (as defined in the Intercreditor
Agreement) concerning the matters covered by this Amendment, which shall include
an amendment to the Senior Debt (as defined in the Intercreditor Agreement)
documents extending the maturity date thereof to January 4, 1999.
(b) A certificate of the Secretary or an Assistant Secretary of
each Borrower certifying the names and true signatures of the officers of such
Borrower authorized to sign this Amendment and the other documents to be
delivered hereunder.
(c) A favorable opinion of Brobeck, Phleger & Harrison LLP,
counsel for the Borrowers, to the effect that this Amendment and each and every
other document delivered by any of the Borrowers have been duly authorized,
executed and delivered by such Borrowers, and constitute the legal, valid and
binding obligations of such Borrowers, enforceable against such Borrowers in
accordance with their respective terms, and as to such other matters as the Bank
or the Guarantor may reasonably require.
(d) A certificate signed by a duly authorized officer of each
Borrower stating that:
(i) The representations and warranties contained in
Section 4 hereof are correct on and as of the date of such
certificate as though made on and as of such date, and
(ii) After giving effect to the terms of the Amendment, no
event has occurred and is continuing which constitutes a Default
or an Event of Default.
(iii) All conditions to the effectiveness of Section 1 of
Amendment No. 5 to the Restated First Credit Agreement with the
Senior Lenders, a certified copy of which shall have been
provided to the Bank as provided above, have been satisfied and
that Section 1 is effective.
(e) A fully executed amendment to the Guarantee extending the
termination date thereof to a date no earlier than January 30, 1999.
(f) Payment of a $2,000 administrative fee to the Bank, which
shall be fully earned by the Bank on the date so paid.
<PAGE> 3
-3-
SECTION 4. Representations and Warranties of the Borrowers. Each
Borrower represents and warrants as follows:
(a) Such Borrower is a corporation duly organized and validly
existing under the laws of the jurisdiction of its incorporation.
(b) The execution, delivery and performance by such Borrower of
this Amendment and the Facility Documents, as amended hereby, to which it is or
is to be a party are within such Borrower's corporate powers, have been duly
authorized by all necessary corporate action and do not contravene (i) such
Borrower's charter or by-laws, (ii) any contractual restriction binding on or
affecting such Borrower, or result in, or require, the creation or imposition of
any mortgage, deed of trust, pledge, lien, security interest or other charge,
encumbrance or preferential arrangement of any nature upon or with respect to
any of the properties now owned or hereafter acquired by such Borrower, or (iii)
to the best of such Borrower's knowledge, any law.
(c) No authorization, approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by such Borrower of this Amendment
or any of the Facility Documents, as amended hereby, to which it is or is to be
a party.
(d) This Amendment and each of the other Facility Documents as
amended hereby, to which such Borrower is a party constitute legal, valid and
binding obligations of such Borrower enforceable against such Borrower in
accordance with their respective terms.
(e) To the best of such Borrower's knowledge, the Security
Agreement constitutes valid and perfected second priority security interests and
liens in and to the Collateral covered thereby enforceable against all third
parties in all jurisdictions and secure the payment of all obligations of such
Borrower under the Facility Documents, as amended hereby, and the execution,
delivery and performance of this Amendment do not adversely affect the aforesaid
security interests and liens of such Security Agreement.
(f) Except as set forth on Schedule 4(f), there is no pending or
threatened action or proceeding affecting such Borrower or any of its
Subsidiaries before any court, governmental agency or arbitrator, which may
materially adversely affect the financial condition or operations of such
Borrower or any Subsidiary or which purport to affect the legality, validity or
enforceability of this Amendment or any of the other Facility Documents, as
amended hereby.
(g) After giving effect to the terms of the Amendment, no event
has occurred and is continuing which constitutes a Default or an Event of
Default.
SECTION 5. Reference to and Effect on the Facility Documents.
(a) Upon the effectiveness of Section 1 hereof, on and after the
date hereof each reference in the Credit Agreement to "this Agreement,"
"hereunder," "hereof," "herein" or words of like import, and each reference in
any Facility Documents to the Credit Agreement or any other Facility Document,
shall mean and be a reference to the Credit Agreement or such other Facility
Document as amended hereby.
(b) Except as specifically amended above, the Credit Agreement
and the other Facility Documents shall remain in full force and effect and are
hereby ratified and confirmed. Without limiting the generality of the fore
going, the Pledge Agreement and all of the Pledged Collateral described therein,
and the Security Agreement and all of the Collateral described therein, do and
shall continue to secure the payment of all Obligations (as defined in the
Pledge Agreement and the Security Agreement respectively), in each case as
amended hereby.
(c) The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of the Bank or the Guarantor under any of the Facility
Documents, nor constitute a waiver of any provision of any of the Facility
Documents.
<PAGE> 4
-4-
(d) The Bank is under no obligation to enter into this Amendment.
The Bank's entering into this Amendment shall not be deemed to limit or hinder
any rights of the Bank or the Guarantor under the Credit Agreement, nor shall it
be deemed to create or infer a course of dealing between the Bank and the Parent
or any of the other Borrowers with regard to any provision of the Credit
Agreement.
SECTION 6. Costs, Expenses and Taxes. The Borrowers jointly and
severally agree to pay on demand all costs and expenses of the Bank and the
Guarantor in connection with the preparation, execution and delivery of this
Amendment and the other instruments and documents to be delivered hereunder,
including, without limitation, the reasonable fees and out-of-pocket expenses of
counsel for the Bank and the Guarantor with respect thereto and with respect to
advising the Bank and the Guarantor as to their rights and responsibilities
hereunder and thereunder. The Borrowers further jointly and severally agree to
pay on demand all costs and expenses, if any (including, without limitation,
reasonable counsel fees and expenses), in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this Amendment
and the other instruments and documents to be delivered hereunder, including,
without limitation, reasonable counsel fees and expenses in connection with the
enforcement of rights under this Section 6. In addition, the Borrowers shall pay
any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this Amendment and the other
instruments and documents to be delivered hereunder, and agrees to save the Bank
and the Guarantor harmless from and against any and all liabilities with respect
to or resulting from any delay in paying or omission to pay such taxes.
SECTION 7. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument.
SECTION 8. Governing Law. This Amendment shall be governed by,
and construed in accordance with, the laws of the State of Connecticut.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
Borrowers:
U.S. HOMECARE CORPORATION AND ITS
SUBSIDIARIES LISTED ON ANNEX 1 HERETO
By: /s/ Clifford G. Johnson
---------------------------------------------------
Name:
Vice President of each of the above corporations
Bank:
FLEET NATIONAL BANK (successor by merger to
Fleet Bank, National Association)
By: /s/ Christopher R. Zell
------------------------------------------------
Christopher R. Zell
Vice President
CONSENT OF GUARANTOR
<PAGE> 5
-5-
The Guarantor hereby consents to the execution of the foregoing Amendment by the
Bank and to the terms and conditions contained therein.
CONNECTICUT DEVELOPMENT AUTHORITY
By
---------------------------------
Its Senior Vice President
Public Finance
<PAGE> 6
ANNEX 1
U.S. HOMECARE CORPORATION, AFFILIATED HOME CARE OF WESTCHESTER, INC., U.S.
HOMECARE CORPORATION OF NORTHERN WESTCHESTER, U.S. HOMECARE CORPORATION OF
MANHATTAN, U.S. HOMECARE CORPORATION OF THE BRONX, U.S. HOMECARE CERTIFIED
CORPORATION OF NEW YORK, U.S. HOMECARE CORPORATION OF ALBANY, U.S. HOMECARE
INFUSION THERAPY SERVICES CORPORATION OF NEW JERSEY, U.S. HOMECARE CORPORATION
OF CONNECTICUT, U.S. HOMECARE CERTIFIED CORPORATION OF CONNECTICUT, U.S.
HOMECARE CORPORATION OF PENNSYLVANIA, U.S. HOMECARE CERTIFIED CORPORATION OF
PENNSYLVANIA, U.S. HOMECARE INFUSION THERAPY PRODUCTS CORPORATION
<PAGE> 7
SCHEDULE 4(f)
THREATENED OR PENDING LITIGATION
<PAGE> 1
SECOND AMENDMENT TO GUARANTEE AGREEMENT
THIS SECOND AMENDMENT TO GUARANTEE AGREEMENT (the "Second Amendment")
is entered into effective as of the 24th day of December, 1997, by and between
the Connecticut Development Authority, a body politic and corporate,
constituting a public instrumentality and political subdivision of the State of
Connecticut with its principal office at 999 West Street, Rocky Hill,
Connecticut 06067 (the "Authority"), and Fleet National Bank (successor by
merger to Fleet Bank, National Association), a national banking association with
an office at 777 Main Street, Hartford, Connecticut 06115-1600 ("Lender").
RECITALS
WHEREAS, on or about October 6, 1995, Lender entered into a certain
Credit Agreement with U.S. HomeCare Corporation, a New York corporation, and its
consolidated Subsidiaries which were signatory parties thereto (collectively,
the "Borrower"), pursuant to which Lender agreed to make available to the
Borrower certain revolving credit loans in an amount of up to $3,000,000.00 with
a maturity date of April 15, 1997 (the "Credit Agreement"); and
WHEREAS, on or about October 6, 1995, the Authority executed and
delivered to Lender a Guarantee Agreement pursuant to which the Authority agreed
to guarantee an amount of up to $3,000,000.00 of the aggregate loans from time
to time outstanding under the Credit Agreement (the "Guarantee Agreement"), as
more fully described in Section 8 of the Guarantee Agreement; and
WHEREAS, on or about November 14, 1996, Lender and the Borrower entered
into Amendment No. 1 to the Credit Agreement pursuant to which certain terms and
conditions of the Credit Agreement were amended; and
WHEREAS, on March 25, 1997, Lender and the Borrower entered into
Amendment No. 2 to the Credit Agreement pursuant to which the maturity date of
such loans was extended to January 15, 1998; and
WHEREAS, on the effective date hereof, Lender and the Borrower have
entered into Amendment No. 3 to the Credit Agreement pursuant to which the
maturity date of such loans has been further extended to April 15, 1998; and
WHEREAS, the Credit Agreement, as amended by Amendment No. 1, Amendment
No. 2 and Amendment No. 3 thereto, is herein referred to as the "Amended Credit
Agreement"; and
<PAGE> 2
WHEREAS, the Authority is willing to enter into this Second Amendment
with Lender to evidence the terms and conditions of its guarantee of the loans
made available by Lender to the Borrower under the terms of the Amended Credit
Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. The capitalized terms used in this Second Amendment
shall have the same meanings as in the Guarantee Agreement unless the context
hereof otherwise provides.
2. Amendments to Guarantee Agreement. From and after the date of this
Second Amendment, the Guarantee Agreement shall be amended as follows:
2.1. The following definitions set forth in Section 1 of the
Guarantee Agreement shall be amended in their entirety to hereafter read as
follows:
" 'Commitment' shall mean the Authority's commitment letters
dated September 14, 1995 and March 21, 1997, setting forth the conditions to the
issuance of its Guarantee of the Lender Loan, and the terms of such Guarantee.
'Guarantee' shall mean the Guarantee Agreement as amended by
this Second Amendment."
2.2. Section 8 of the Guarantee Agreement, entitled "Guarantee
Amount", shall be amended in its entirety to hereafter read as follows:
"Section 8. Guarantee Amount
The Guarantee Amount at any given time shall be equal to the
aggregate sum of $3,000,000.00 minus the total of all payments theretofore made
by the Authority under this Guarantee. Upon any payment by the Authority under
this Guarantee, the Guarantee Amount shall be immediately and automatically
reduced by the amount of such payment, except that the Guarantee Amount may be
reinstated as provided in Section 9 hereof. NOTWITHSTANDING THE FOREGOING, THE
GUARANTEE AMOUNT SHALL AUTOMATICALLY REDUCE TO ZERO AND THIS GUARANTEE SHALL
TERMINATE ON APRIL 30, 1998, UNLESS PRIOR TO SUCH DATE LENDER HAS DELIVERED TO
THE AUTHORITY UNDER SECTION 9 HEREOF A NOTICE OF DEFAULT OR A NOTICE THAT
BORROWER HAS FAILED TO MAKE A PAYMENT UNDER THE LENDER LOAN DOCUMENTS ON DEMAND
OF LENDER."
2.3. Section 13 of the Guarantee Agreement, entitled "Fees and
Expenses of Authority", shall be amended to provide that the following fees are
to be paid by the Borrower to the Authority on or before the date of this Second
Amendment: (i) a commitment fee of
-2-
<PAGE> 3
$22,500.00 and (ii) reimbursement of all reasonable legal fees and expenses
incurred by the Authority in connection with this Second Amendment.
3. Effect of this Second Amendment. Except as otherwise amended hereby,
the terms of the Guarantee Agreement shall remain in full force and effect. The
rights, privileges, duties and obligations of the parties under the Guarantee
Agreement shall, except as modified by this Second Amendment, remain unchanged
and in full force and effect.
4. Governing Law. This Second Amendment is made, executed and delivered
in the State of Connecticut and it is the specific intent of the parties hereto
that it shall be in all respects be construed under the laws of the State of
Connecticut.
5. Entire Agreement. This Second Amendment sets forth the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements between the parties, written or oral,
specifically relating to such matters.
6. Binding Effect. This Second Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
IN WITNESS WHEREOF, the parties hereto, by their duly authorized
officers, have executed this Second Amendment as of the date first above
written.
CONNECTICUT DEVELOPMENT AUTHORITY
By: /s/ Antonio Roberto
----------------------------------
Antonio Roberto
Its Executive Vice President and
Executive Director
FLEET NATIONAL BANK
(successor by merger to Fleet Bank,
National Association)
By: /s/ Christopher R. Zell
----------------------------------
Christopher R. Zell
Its Vice President
-3-
<PAGE> 4
Acknowledged and agreed to effective
as of the 24th day of December, 1997:
U.S. HOMECARE CORPORATION AND ITS CONSOLIDATED
SUBSIDIARIES LISTED ON SCHEDULE I HERETO
By: /s/ Clifford G. Johnson
-----------------------------------
Name: Clifford G. Johnson
Title:V.P. Finance and Administration
-4-
<PAGE> 1
THIRD AMENDMENT TO GUARANTEE AGREEMENT
THIS THIRD AMENDMENT TO GUARANTEE AGREEMENT (the "Third Amendment") is
entered into effective as of the 26th day of March, 1998, by and between the
Connecticut Development Authority, a body politic and corporate, constituting a
public instrumentality and political subdivision of the State of Connecticut
with its principal office at 999 West Street, Rocky Hill, Connecticut 06067 (the
"Authority"), and Fleet National Bank (successor by merger to Fleet Bank,
National Association), a national banking association with an office at 777 Main
Street, Hartford, Connecticut 06115-1600 ("Lender").
RECITALS
WHEREAS, on or about October 6, 1995, Lender entered into a certain
Credit Agreement with U.S. HomeCare Corporation, a New York corporation, and its
consolidated Subsidiaries which were signatory parties thereto (collectively,
the "Borrower"), pursuant to which Lender agreed to make available to the
Borrower certain revolving credit loans in an amount of up to $3,000,000.00 with
a maturity date of April 15, 1997 (the "Credit Agreement"); and
WHEREAS, on or about October 6, 1995, the Authority executed and
delivered to Lender a Guarantee Agreement pursuant to which the Authority agreed
to guarantee an amount of up to $3,000,000.00 of the aggregate loans from time
to time outstanding under the Credit Agreement (the "Guarantee Agreement"), as
more fully described in Section 8 of the Guarantee Agreement; and
WHEREAS, on or about November 14, 1996, Lender and the Borrower entered
into Amendment No. 1 to the Credit Agreement pursuant to which certain terms and
conditions of the Credit Agreement were amended; and
WHEREAS, on March 25, 1997, Lender and the Borrower entered into
Amendment No. 2 to the Credit Agreement pursuant to which the maturity date of
such loans was extended to January 15, 1998; and
WHEREAS, effective as of December 24, 1997, Lender and the Borrower
entered into Amendment No. 3 to the Credit Agreement pursuant to which the
maturity date of such loans was extended to April 15, 1998; and
<PAGE> 2
WHEREAS, on the effective date hereof, Lender and Borrower have entered
into Amendment No. 4 to the Credit Agreement pursuant to which the maturity date
of such loans has been further extended to January 15, 1999; and
WHEREAS, the Credit Agreement, as amended by Amendment No. 1, Amendment
No. 2, Amendment No. 3 and Amendment No. 4 thereto, is herein referred to as the
"Amended Credit Agreement"; and
WHEREAS, the Authority is willing to enter into this Third Amendment
with Lender to evidence the terms and conditions of its guarantee of the loans
made available by Lender to the Borrower under the terms of the Amended Credit
Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. The capitalized terms used in this Third Amendment
shall have the same meanings as in the Guarantee Agreement unless the context
hereof otherwise provides.
2. Amendments to Guarantee Agreement. From and after the date of this
Third Amendment, the Guarantee Agreement shall be amended as follows:
2.1. The following definitions set forth in Section 1 of the
Guarantee Agreement shall be amended in their entirety to hereafter read as
follows:
" 'Commitment' shall mean the Authority's commitment letters
dated September 14, 1995 and March 21, 1997 setting forth the conditions to the
issuance of its Guarantee of the Lender Loan, and the terms of such Guarantee.
'Guarantee' shall mean the Guarantee Agreement as amended by
this Third Amendment."
2.2. Section 8 of the Guarantee Agreement, entitled "Guarantee
Amount", shall be amended in its entirety to hereafter read as follows:
"Section 8. Guarantee Amount
The Guarantee Amount at any given time shall be equal to the
aggregate sum of $3,000,000.00 minus the total of all payments theretofore made
by the Authority under this Guarantee. Upon any payment by the Authority under
this Guarantee, the Guarantee Amount shall be immediately and automatically
reduced by the amount of such payment, except that the Guarantee Amount may be
reinstated as provided in Section 9 hereof. NOTWITHSTANDING THE FOREGOING, THE
GUARANTEE AMOUNT SHALL AUTOMATICALLY REDUCE TO ZERO AND THIS GUARANTEE SHALL
TERMINATE ON JANUARY 30, 1999, UNLESS PRIOR TO SUCH DATE LENDER HAS DELIVERED TO
THE AUTHORITY
-2-
<PAGE> 3
UNDER SECTION 9 HEREOF A NOTICE OF DEFAULT OR A NOTICE THAT BORROWER HAS FAILED
TO MAKE A PAYMENT UNDER THE LENDER LOAN DOCUMENTS ON DEMAND OF LENDER."
2.3. Section 13 of the Guarantee Agreement, entitled "Fees and
Expenses of Authority", shall be amended to provide that the following fees are
to be paid by the Borrower to the Authority on or before the date of this Third
Amendment: (i) a commitment fee of $60,000.00 and (ii) reimbursement of all
reasonable legal fees and expenses incurred by the Authority in connection with
this Third Amendment.
3. Effect of this Third Amendment. Except as otherwise amended hereby,
the terms of the Guarantee Agreement shall remain in full force and effect. The
rights, privileges, duties and obligations of the parties under the Guarantee
Agreement shall, except as modified by this Third Amendment, remain unchanged
and in full force and effect.
4. Governing Law. This Third Amendment is made, executed and delivered
in the State of Connecticut and it is the specific intent of the parties hereto
that it shall be in all respects be construed under the laws of the State of
Connecticut.
5. Entire Agreement. This Third Amendment sets forth the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements between the parties, written or oral,
specifically relating to such matters.
6. Binding Effect. This Third Amendment shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
IN WITNESS WHEREOF, the parties hereto, by their duly authorized
officers, have executed this Third Amendment as of the date first above written.
CONNECTICUT DEVELOPMENT AUTHORITY
By: /s/ Francis T. Gagliardo
------------------------------
Francis T. Gagliardo
Its Senior Vice President
-3-
<PAGE> 4
FLEET NATIONAL BANK
(successor by merger to Fleet Bank, National Association)
By: /s/ Christopher R. Zell
-----------------------------
Christopher R. Zell
Its Vice President
Acknowledged and agreed to effective
as of the 26th day of March, 1998:
U.S. HOMECARE CORPORATION AND ITS CONSOLIDATED
SUBSIDIARIES LISTED ON ANNEX I HERETO
By: /s/ Clifford G. Johnson
------------------------------------------
Name:
Vice President of each of the above corporations
-4-
<PAGE> 1
EXECUTION COPY
AMENDMENT NO. 4
TO RECEIVABLES PURCHASE
AND SERVICING AGREEMENT
AMENDMENT NO. 4 TO RECEIVABLES PURCHASE AND SERVICING
AGREEMENT (the "Amendment No. 4"), dated as of December 23, 1997, by and among
U.S. HOMECARE FUNDING CORPORATION, a Delaware corporation (the "Seller"), THE
CHASE MANHATTAN BANK, N.A., a national banking association (together with its
successors and assigns, the "Purchaser"), and as Advisor (the "Advisor"), U.S.
HOMECARE CORPORATION, a New York corporation, in its individual capacity (as
such, together with its successors and assigns, the "Parent") and as servicer
(together with its successors and permitted assigns, the "Servicer") and each of
the Health Care Providers, in their individual capacities and as Subservicers
(the "Health Care Providers").
W I T N E S S E T H:
WHEREAS, the Seller, the Purchaser, the Advisor, the Servicer
and the Health Care Providers have entered into a Receivables Purchase and
Servicing Agreement (the "Facility"), dated as of November 5, 1993 (the
"Purchase Agreement");
WHEREAS, the Seller, the Purchaser, the Advisor, the Servicer
and the Health Care Providers have entered into an Amendment No. 1, dated as of
January 28, 1994 ("Amendment No. 1"), Amendment No. 2, dated as of October 6,
1995 ("Amendment No. 2") and Amendment No. 3, dated as of March 27, 1997
("Amendment No. 3") to the Purchase Agreement.
WHEREAS, all capitalized terms that are used herein and not
otherwise defined shall have the meanings ascribed thereto in the Purchase
Agreement; and
WHEREAS, the Seller, the Purchaser, the Advisor, the Health
Care Providers and the Servicer desire to amend the Purchase Agreement, all as
hereinafter set forth;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
AMENDMENTS TO PURCHASE AGREEMENT
SECTION 1.1. Amendments to Article I. The definition of "Termination
Date" is amended by deleting such definition in its entirety and substituting
therefor the following:
<PAGE> 2
"Termination Date" means the earlier of (a) March 31,
1998 or (b) the date of declaration or automatic occurrence of
the Termination Date pursuant to Section 8.01.
ARTICLE II
REPRESENTATION AND WARRANTIES.
SECTION II.1. The Parent, the Servicer, each of the Health
Care Providers and the Seller have the power to execute, deliver and perform the
Original Purchase Agreement, as amended hereby, and all other instruments and
documents provided for herein or therein, and to perform their obligations on
the terms and conditions of the Original Purchase Agreement as amended hereby,
and have taken all necessary action to authorize the execution, delivery and
performance of this Amendment No. 4, and their obligations on the terms and
conditions of the Original Purchase Agreement, as amended hereby. No consent or
approval of any Person, and no consent, license, approval, authorization or
declaration of any governmental authority, bureau or agency is or will be
required in connection with the execution, delivery or performance by the
Parent, the Servicer, each Health Care Provider and the Seller or the
enforcement of the Original Purchase Agreement, as amended hereby, or this
Amendment No. 4.
SECTION II.2. The execution and delivery of this Amendment No.
4 and any other agreements, instruments or documents to be executed and
delivered hereunder, and performance hereunder and thereunder and under the
Original Purchase Agreement, as amended hereby, will not violate any provision
of law and will not conflict with or result in a breach of any order, writ,
injunction, ordinance, resolution, decree, or other similar document or
instrument of any court or governmental authority, bureau or agency, domestic or
foreign, or the partnership agreement of the Parent, any Health Care Provider or
the Seller, create (with or without the giving of notice or lapse of time, or
both) a default under any agreement, bond, note or indenture to which the
Parent, the Servicer or any Health Care Provider is a party, or by which it is
bound or any of its properties or assets is affected, or result in the
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets owned by or used in connection with the business of
the Parent, the Servicer, any Health Care Provider or the Seller except for the
liens and security interests created and granted pursuant to the Purchase
Agreement and Sale Agreement.
SECTION II.3. Each of this Amendment No. 4, the Original
Purchase Agreement, as amended and each Related Document is the legal, valid and
binding obligation of the Parent, the Servicer, each of the Health Care
Providers and the Seller enforceable against each of the Parent, the Servicer,
each of the Health Care Providers and the Seller in accordance with its
respective terms.
<PAGE> 3
ARTICLE III
FEES AND EXPENSES.
SECTION III.1. In consideration of the extension of the
Facility and the other amendments entered into hereunder, the Parent agrees to
pay the Purchaser a fee of $36,000 payable in three equal installments of
$12,000 (each, an "Extension Fee") on each of the first Receivables Purchase
Dates in January, February and March 1998. The Purchaser shall deduct such
amounts from the proceeds payable to the Seller on each such Receivables
Purchase Date. If the program ends before March 31, 1998, the balance of the fee
is to be paid at the program termination.
SECTION III.2. Amendment No. 3 is hereby amended to terminate
and delete therefrom Section 3.2 thereto in its entirety.
SECTION III.3. The Seller will continue to pay an additional
amount of $2,884.61 per week until termination of the Purchase Agreement. Such
amount will be paid by deduction of such amount from the proceeds payable to the
Seller on such Receivables Purchase Date. If the Purchase Agreement is
terminated during a week, the amount shall be prorated based on the number of
outstanding Business Days for that week.
SECTION III.4. The Seller will reimburse the Purchaser for all
legal expenses and disbursements in connection with preparation of this
Amendment. Such amounts will be paid by deduction of such amounts from the
proceeds payable to the Seller on the first Receivables Purchase Date in
January.
ARTICLE IV
MISCELLANEOUS.
SECTION IV.1. The miscellaneous provisions under Article 12 of
the Original Purchase Agreement, together with the definition of all terms used
therein, and all other sections of the Original Purchase Agreement to which
Article 12 refers are hereby incorporated by reference as if the provisions
thereof were set forth in full herein, except that (i) the term "Purchase
Agreement" shall be deemed to refer to the Original Purchase Agreement, as
amended hereby; (ii) the term "this Purchase Agreement" shall be deemed to refer
to the Original Purchase Agreement, as amended hereby; and (iii) the terms
"hereunder" and "hereto" shall be deemed to refer to the Original Purchase
Agreement as amended hereby.
SECTION IV.2. The parties hereto acknowledge that Section
12.04(a) of the Original Purchase Agreement remains in full force and effect and
that the "Other Costs" referred to in such section shall be deemed to include
all reasonable costs and expenses incurred by the Purchaser and the Advisor in
connection with the preparation, negotiation and execution of this Amendment No.
4 and all other agreements, instruments or other
<PAGE> 4
documents prepared or entered into in connection with or incidental to this
Amendment No. 4. Seller agrees to pay upon demand all Other Costs pursuant to
the terms of Section 12.04(a) of the Original Purchase Agreement.
SECTION IV.3. The Original Purchase Agreement, as amended
hereby, and the Related Documents shall each be deemed to be amended hereby to
the extent necessary, if any, to give effect to this Amendment No. 4. Except as
so amended hereby, the Original Purchase Agreement, as amended, and the Related
Documents shall remain in full force and effect in accordance with their
respective terms. Except as amended hereby, all provisions, terms and
conditions, covenants, and representations and warranties of the Original
Purchase Agreement, as amended, and the Related Documents shall remain in full
force and effect in accordance with their respective terms. The execution and
delivery of this Amendment No. 4 by the Purchaser shall not waive any default
which has occurred or which may be occurring in respect of the Purchase
Agreement as a result of the execution of this Amendment No. 4.
<PAGE> 5
IN WITNESS WHEREOF, the parties have caused this Amendment No.
4 to Purchase Agreement to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
U.S. HOMECARE FUNDING CORPORATION,
as Seller
By: /s/ Clifford G. Johnson
----------------------------------
Name: Clifford G. Johnson
Title: Chief Financial Officer
THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION),
as Purchaser and as Advisor
By: /s/ Frank G. Eng
----------------------------------
Name: Frank G. Eng
Title: Vice President
U.S. HOMECARE CORPORATION,
as Servicer
By: /s/ Clifford G. Johnson
----------------------------------
Name: Clifford G. Johnson
Title: VP Finance and Administration
Address: US Homecare
Two Hartford Square West
Suite 300
Hartford, CT 06106
Attention: President, Jay C. Hufford
Telephone number: (860) 278-7242
Telecopier number: (860) 278-5008
5
<PAGE> 6
U.S. HOMECARE CORPORATION
AFFILIATED HOME CARE OF WESTCHESTER, INC.
U.S. HOMECARE CORPORATION OF NORTHERN WESTCHESTER, INC.
U.S. HOMECARE CORPORATION OF MANHATTAN
U.S. HOMECARE CORPORATION OF THE BRONX
U.S. HOMECARE CERTIFIED CORPORATION OF NEW YORK
U.S. HOMECARE CORPORATION OF ALBANY
U.S. HOMECARE INFUSION THERAPY PRODUCTS CORPORATION
U.S. HOMECARE INFUSION THERAPY SERVICES CORPORATION OF NEW JERSEY
U.S. HOMECARE CORPORATION OF CONNECTICUT
U.S. HOMECARE CERTIFIED CORPORATION OF CONNECTICUT
U.S. HOMECARE CORPORATION OF PENNSYLVANIA
U.S. HOMECARE CERTIFIED CORPORATION OF PENNSYLVANIA
By: /s/ Clifford G. Johnson
----------------------------------
Name: Clifford G. Johnson
Title: VP Finance and Administration
Address: US Homecare
Two Hartford Square West
Suite 300
Hartford, CT 06106
6
<PAGE> 1
EXECUTION COPY
AMENDMENT NO. 5
TO RECEIVABLES PURCHASE
AND SERVICING AGREEMENT
AMENDMENT NO. 5 TO RECEIVABLES PURCHASE AND SERVICING
AGREEMENT (the "Amendment No. 5"), dated as of March 26, 1998, by and among U.S.
HOMECARE FUNDING CORPORATION, a Delaware corporation (the "Seller"), THE CHASE
MANHATTAN BANK, N.A., a national banking association (together with its
successors and assigns, the "Purchaser"), and as Advisor (the "Advisor"), U.S.
HOMECARE CORPORATION, a New York corporation, in its individual capacity (as
such, together with its successors and assigns, the "Parent") and as servicer
(together with its successors and permitted assigns, the "Servicer") and each of
the Health Care Providers, in their individual capacities and as Subservicers
(the "Health Care Providers").
W I T N E S S E T H:
WHEREAS, the Seller, the Purchaser, the Advisor, the Servicer
and the Health Care Providers have entered into a Receivables Purchase and
Servicing Agreement (the "Facility"), dated as of November 5, 1993 (the
"Purchase Agreement");
WHEREAS, the Seller, the Purchaser, the Advisor, the Servicer
and the Health Care Providers have entered into an Amendment No. 1, dated as of
January 28, 1994 ("Amendment No. 1"), Amendment No. 2, dated as of October 6,
1995 ("Amendment No. 2"), Amendment No. 3, dated as of March 27, 1997
("Amendment No. 3") and Amendment No. 4, dated as of December 23, 1997
("Amendment No. 4") to the Purchase Agreement.
WHEREAS, all capitalized terms that are used herein and not
otherwise defined shall have the meanings ascribed thereto in the Purchase
Agreement; and
WHEREAS, the Seller, the Purchaser, the Advisor, the Health
Care Providers and the Servicer desire to amend the Purchase Agreement, all as
hereinafter set forth;
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
AMENDMENTS TO PURCHASE AGREEMENT
SECTION 1.1. Amendments to Article I. (a) The definition of
"Purchase Limit" is amended by deleting such definition in its entirety and
substituting therefor the following:
<PAGE> 2
"Purchase Limit" means $9,000,000; provided, however,
that the Seller may, subject to Section 8.01(s), reduce the Purchase Limit at
any time without penalty.
(b) The definition of "Termination Date" is amended by
deleting such definition in its entirety and substituting therefor the
following:
"Termination Date" means the earlier of (a) January
4, 1999 or (b) the date of declaration or automatic occurrence of the
Termination Date pursuant to Section 8.01.
ARTICLE II
REPRESENTATION AND WARRANTIES.
SECTION II.1. The Parent, the Servicer, each of the Health
Care Providers and the Seller have the power to execute, deliver and perform the
Original Purchase Agreement, as amended hereby, and all other instruments and
documents provided for herein or therein, and to perform their obligations on
the terms and conditions of the Original Purchase Agreement as amended hereby,
and have taken all necessary action to authorize the execution, delivery and
performance of this Amendment No. 5, and their obligations on the terms and
conditions of the Original Purchase Agreement, as amended hereby. No consent or
approval of any Person, and no consent, license, approval, authorization or
declaration of any governmental authority, bureau or agency is or will be
required in connection with the execution, delivery or performance by the
Parent, the Servicer, each Health Care Provider and the Seller or the
enforcement of the Original Purchase Agreement, as amended hereby, or this
Amendment No. 5.
SECTION II.2. The execution and delivery of this Amendment No.
5 and any other agreements, instruments or documents to be executed and
delivered hereunder, and performance hereunder and thereunder and under the
Original Purchase Agreement, as amended hereby, will not violate any provision
of law and will not conflict with or result in a breach of any order, writ,
injunction, ordinance, resolution, decree, or other similar document or
instrument of any court or governmental authority, bureau or agency, domestic or
foreign, or the partnership agreement of the Parent, any Health Care Provider or
the Seller, create (with or without the giving of notice or lapse of time, or
both) a default under any agreement, bond, note or indenture to which the
Parent, the Servicer or any Health Care Provider is a party, or by which it is
bound or any of its properties or assets is affected, or result in the
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets owned by or used in connection with the business of
the Parent, the Servicer, any Health Care Provider or the Seller except for the
liens and security interests created and granted pursuant to the Purchase
Agreement and Sale Agreement.
SECTION II.3. Each of this Amendment No. 5, the Original
Purchase Agreement, as amended and each Related Document is the legal, valid and
binding obligation of the Parent, the Servicer, each of the Health Care
Providers and the Seller in accordance with its respective terms.
2
<PAGE> 3
ARTICLE III
FEES AND EXPENSES.
SECTION III.1. In consideration of the extension of the
Facility and the other amendments entered into hereunder, the Parent agrees to
pay the Purchaser a fee of $108,000 payable in nine (9) equal installments of
$12,000 (each, an "Extension Fee") on each of the dates listed on Schedule 1
attached hereto. The Purchaser shall deduct such amounts from the proceeds
payable to the Seller on each such Receivables Purchase Date. If the program
ends before January 4, 1999, the balance of the fee need not be paid.
SECTION III.2. Seller agrees to pay a one-time conversion fee
of $10,000 to update the Purchaser's computer processing systems for year 2000
adjustments. This fee will be paid by deduction of such amounts from the
proceeds payable to the Seller on the first Receivables Purchase Date in April.
SECTION III.3. The Seller will continue to pay an additional
amount of $2,884.61 per week until termination of the Purchase Agreement. Such
amount will be paid by deduction of such amount from the proceeds payable to the
Seller on such Receivables Purchase Date. If the Purchase Agreement is
terminated during a week, the amount shall be prorated based on the number of
outstanding Business Days for that week.
SECTION III.4. The Seller will reimburse the Purchaser for all
legal expenses and disbursements in connection with preparation of this
Amendment. Such amounts will be paid by deduction of such amounts from the
proceeds payable to the Seller on the first Receivables Purchase Date in April.
ARTICLE IV
MISCELLANEOUS.
SECTION IV.1. The miscellaneous provisions under Article 12 of
the Original Purchase Agreement, together with the definition of all terms used
therein, and all other sections of the Original Purchase Agreement to which
Article 12 refers are hereby incorporated by reference as if the provisions
thereof were set forth in full herein, except that (i) the term "Purchase
Agreement" shall be deemed to refer to the Original Purchase Agreement, as
amended hereby; (ii) the term "this Purchase Agreement" shall be deemed to refer
to the Original Purchase Agreement, as amended hereby; and (iii) the terms
"hereunder" and "hereto" shall be deemed to refer to the Original Purchase
Agreement as amended hereby.
SECTION IV.2. The parties hereto acknowledge that Section
12.04(a) of the Original Purchase Agreement remains in full force and effect and
that the "Other Costs" referred to in such section shall be deemed to include
all reasonable costs and expenses incurred by the Purchaser and the Advisor in
connection with the preparation, negotiation
3
<PAGE> 4
and execution of this Amendment No. 5 and all other agreements, instruments or
other documents prepared or entered into in connection with or incidental to
this Amendment No. 5. Seller agrees to pay upon demand all Other Costs pursuant
to the terms of Section 12.04(a) of the Original Purchase Agreement.
SECTION IV.3. The Original Purchase Agreement, as amended
hereby, and the Related Documents shall each be deemed to be amended hereby to
the extent necessary, if any, to give effect to this Amendment No. 5. Except as
so amended hereby, the Original Purchase Agreement, as amended, and the Related
Documents shall remain in full force and effect in accordance with their
respective terms. Except as amended hereby, all provisions, terms and
conditions, covenants, and representations and warranties of the Original
Purchase Agreement, as amended, and the Related Documents shall remain in full
force and effect in accordance with their respective terms. The execution and
delivery of this Amendment No. 5 by the Purchaser shall not waive any default
which has occurred or which may be occurring in respect of the Purchase
Agreement as a result of the execution of this Amendment No. 5.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties have caused this Amendment No.
5 to Purchase Agreement to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
U.S. HOMECARE FUNDING CORPORATION,
as Seller
By: /s/ Clifford G. Johnson
--------------------------------------
Name: Clifford G. Johnson
Title: Chief Financial Officer
THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION),
as Purchaser and as Advisor
By: /s/ Frank G. Eng
-------------------------------------
Name:Frank G. Eng
Title:
U.S. HOMECARE CORPORATION,
as Servicer
By: /s/ Clifford G. Johnson
-------------------------------------
Name: Clifford G. Johnson
Title: VP Finance and Administration
Address: US Homecare, Two Hartford Square West, Hartford, CT 06106
Attention: President
Telephone number: (860)278-7242 ext 20
Telecopier number: (860)278-5008
5
<PAGE> 6
U.S. HOMECARE CORPORATION
AFFILIATED HOME CARE OF WESTCHESTER, INC.
U.S. HOMECARE CORPORATION OF NORTHERN WESTCHESTER, INC.
U.S. HOMECARE CORPORATION OF MANHATTAN
U.S. HOMECARE CORPORATION OF THE BRONX
U.S. HOMECARE CERTIFIED CORPORATION OF NEW YORK
U.S. HOMECARE CORPORATION OF ALBANY
U.S. HOMECARE INFUSION THERAPY PRODUCTS CORPORATION
U.S. HOMECARE INFUSION THERAPY SERVICES CORPORATION OF NEW
JERSEY
U.S. HOMECARE CORPORATION OF CONNECTICUT
U.S. HOMECARE CERTIFIED CORPORATION OF CONNECTICUT
U.S. HOMECARE CORPORATION OF PENNSYLVANIA
U.S. HOMECARE CERTIFIED CORPORATION OF PENNSYLVANIA
By: /s/ Clifford G. Johnson
-------------------------------------
Name: Clifford G. Johnson
Title: VP Finance and Administration
Address: US Homecare,
Two Hartford Square West,
Hartford, CT 06106
6
<PAGE> 1
Exhibit 21
Affiliated Home Care of Westchester, Inc. - a New York Corporation
U.S. HomeCare Corporation of Northern Westchester - a New York Corporation
U.S. HomeCare Corporation of Manhattan - a New York Corporation
U.S. HomeCare Corporation of the Bronx - a New York Corporation
U.S. HomeCare Certified Corporation of New York - a New York Corporation
U.S. HomeCare Corporation of Albany - a New York Corporation
U.S. HomeCare Infusion Therapy Services Corporation of New Jersey - a New Jersey
Corporation
U.S. HomeCare Corporation of Connecticut - a Connecticut Corporation
U.S. HomeCare Certified Corporation of Connecticut - a Connecticut Corporation
U.S. HomeCare Corporation of Pennsylvania - a Pennsylvania Corporation
U.S. HomeCare Certified Corporation of Pennsylvania - a Pennsylvania Corporation
U.S. HomeCare Infusion Therapy Products Corporation - a New York Corporation
U.S. HomeCare Capital Corp. - a New York Corporation
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS DATED AS OF DECEMBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
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<BONDS> 0
0
328
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<OTHER-SE> (6,920)
<TOTAL-LIABILITY-AND-EQUITY> 10,378
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<CGS> 0
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<OTHER-EXPENSES> 20,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 852
<INCOME-PRETAX> (1,447)
<INCOME-TAX> 150
<INCOME-CONTINUING> (1,597)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,597)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS DATED AS OF DECEMBER 31, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
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<PERIOD-START> JAN-01-1996
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<CURRENT-LIABILITIES> 13,308
<BONDS> 0
0
328
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<OTHER-SE> (7,477)
<TOTAL-LIABILITY-AND-EQUITY> 15,545
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<OTHER-EXPENSES> 24,578
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<INCOME-PRETAX> (8,400)
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<DISCONTINUED> 15,243
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<CHANGES> 0
<NET-INCOME> (23,793)
<EPS-PRIMARY> (2.76)
<EPS-DILUTED> (2.76)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS DATED AS OF DECEMBER 31, 1995 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
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<PERIOD-START> JAN-01-1995
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<CURRENT-LIABILITIES> 9,848
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0
328
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<NET-INCOME> (1,798)
<EPS-PRIMARY> (0.30)
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</TABLE>
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS DATED AS OF MARCH 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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97
0
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS DATED AS OF JUNE 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<S> <C>
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0
328
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<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, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
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<PERIOD-START> JAN-01-1997
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0
328
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
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0
328
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<NET-INCOME> (568)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS DATED AS OF JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
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0
328
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<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
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<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>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 360
<SECURITIES> 0
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<PP&E> 11,448
<DEPRECIATION> 8,740
<TOTAL-ASSETS> 22,450
<CURRENT-LIABILITIES> 29,823
<BONDS> 0
0
328
<COMMON> 91
<OTHER-SE> (8,015)
<TOTAL-LIABILITY-AND-EQUITY> 22,450
<SALES> 42,300
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<CGS> 0
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<INTEREST-EXPENSE> 854
<INCOME-PRETAX> (9,819)
<INCOME-TAX> 86
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<CHANGES> 0
<NET-INCOME> (24,248)
<EPS-PRIMARY> (2.66)
<EPS-DILUTED> (2.66)
</TABLE>
