<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1933)
U.S. HOMECARE CORPORATION
(Name of Issuer)
U.S. HOMECARE CORPORATION
(Name of Person Filing Statement)
Common Stock, $0.01 par value, of U.S. HomeCare Corporation
(Title of Class of Securities)
911819100
(CUSIP Number of Class of Securities)
Sophia Bilinsky
President and Chief Executive Officer
Two Hartford Square West
Hartford, CT 06106
(860) 278-7242
(Name, address and telephone number of person authorized
to receive notices and communications on behalf of
person filing statement)
This statement is filed in connection with (check the appropriate box):
(a) |X| The filing of solicitation materials or an information
statement subject to Regulation 14A [17 CFR 240.14a-1 to
240.14b-1], Regulation 14C [17 CFR 240.14c-1 to 240.14c-101]
or Rule 13e-3(c) [Section 240.13e-(c)] under the Securities
Exchange Act of 1934.
(b) |_| The filing of a registration statement under the Securities
Exchange Act of 1933.
(c) |_| A tender offer.
(d) |_| None of the above.
Check the following box if the soliciting material or information statement
referred to in checking box (a) are preliminary copies: |X|
Calculation of Filing Fee
<TABLE>
<CAPTION>
Transaction Value Amount of Filing Fee
<S> <C>
$3,000* $0.60
</TABLE>
|_| Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify with which the offsetting fee was previously paid. Identify the
previous filing by registration statement number, or the form or schedule and
the date of its filing.
Notes
* 0000 fractional shares of the Issuer's Common Stock, $0.01 par value,
redeemed for cash consideration of $.014 cents per share
<PAGE> 2
SUMMARY - THE ANNUAL MEETING
This Rule 13E-3 Transaction Statement is being filed by U.S. HOMECARE
CORPORATION (the "Company") with respect to the class of equity securities of
the Company that is subject to a Rule 13e-3 transaction. The Company is
submitting to its shareholders a proposal to approve and adopt a Certificate of
Amendment to the Company's Certificate of Incorporation providing for (a) a
one-for-1,500 reverse stock split of the Company's Common Stock, and (b) a cash
payment of $0.014 per share (the "Cash Consideration") for the currently
outstanding Common Stock in lieu of the issuance of any resulting fractional
shares of Common Stock to any shareholders who, after the reverse stock split,
own a fractional share of Common Stock (items (a) and (b) will be considered one
proposal and referred to herein as the "Reverse Stock Split"). The Reverse Stock
Split is upon the terms and subject to the conditions set forth in the Company's
Preliminary Proxy Statement for the Company's Annual Meeting scheduled to be
held on June 21, 1999, a copy of which is filed as an exhibit hereto and is
incorporated herein by reference in its entirety. The other purposes of the
annual meeting are to elect members to the Board of Directors, and to transact
such other business as may properly come before the Annual Meeting.
The following Cross Reference Sheet is supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Proxy Statement
filed by the Company with the Securities and Exchange Commission on April 27,
1999 (including all annexes and schedules thereto, the "Proxy Statement") of the
information required to be included in response to the items of this Statement.
The information in the Proxy Statement, a copy of which is attached hereto as
Exhibit 17(d), is hereby expressly incorporated by reference and the responses
to each items are qualified in their entirely by the provisions of the Proxy
Statement.
CROSS REFERENCE SHEET SHOWING LOCATION
IN PRELIMINARY PROXY STATEMENT OF INFORMATION
REQUIRED BY ITEMS IN SCHEDULE 13E-3
<TABLE>
<CAPTION>
SCHEDULE 13E-3 ITEM LOCATION IN PROXY STATEMENT PAGE
------------------- --------------------------- ----
<S> <C> <C>
1. Issuer And Class Of Security
Subject To The Transaction
Item 1(a) Cover Page
Item 1(b) Cover Page
"Amendments to Certificate of Incorporation for 11
Reverse Stock Split - Purpose of the Reverse Stock
Split"
Item 1(c) "Amendments to Certificate of Incorporation for 21
Reverse Stock Split - Price Range of Common Stock and
Dividend Policy"
Item 1(d) "Amendments to Certificate of Incorporation for 21
Reverse Stock Split - Price Range of Common Stock and
Dividend Policy"
Item 1(e) NOT APPLICABLE
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
SCHEDULE 13E-3 ITEM LOCATION IN PROXY STATEMENT PAGE
------------------- --------------------------- ----
<S> <C> <C>
Item 1(f) NOT APPLICABLE
2. Identity And Background The person filing this statement is the issuer of the
class of equity securities which is the subject of
the Rule 13e-3 transaction.
3. Past Contacts, Transactions or NOT APPLICABLE
Negotiations
4. Terms of the Transaction
Items 4(a) and (b) "Amendments to Certificate of Incorporation for
Reverse Stock Split - Structure and Payment of Cash
Consideration" 18
5. Plans or Proposals of the
Issuer or Affiliate
Items 5(a) - (g) "Amendments to Certificate of Incorporation for 19
Reverse Stock Split - Plans for the Company After the
Reverse Stock Split"
"Amendments to Certificate of Incorporation for 19
Reverse Stock Split - Certain Effects of the Reverse
Stock Split"
6. SOURCE AND AMOUNTS OF FUNDS OR
OTHER CONSIDERATION
Item 6(a) and (b) "Amendments to Certificate of Incorporation for 20
Reverse Stock Split - Source and Amount of Funds for
and Expenses of the Reverse Stock Split"
Item 6(c) and (d) NOT APPLICABLE
7. Purpose(s), Alternatives,
Reasons and Effects
Item 7(a) "Amendments to Certificate of Incorporation for 11
Reverse Stock Split - Purpose of the Reverse Stock
Split"
Item 7(b) "Amendments to Certificate of Incorporation for 13
Reverse Stock Split - Summary of Board Meeting
Regarding the Reverse Stock Split"
Item 7(c) "Amendments to Certificate of Incorporation for 12
Reverse Stock Split - Background and Reasons for the
Reverse Stock Split"
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
SCHEDULE 13E-3 ITEM LOCATION IN PROXY STATEMENT PAGE
------------------- --------------------------- ----
<S> <C> <C>
Item 7(d) "Amendments to Certificate of Incorporation for 19
Reverse Stock Split - Plans for the Company After the
Reverse Stock Split"
"Amendments to Certificate of Incorporation for 19
Reverse Stock Split - Certain Effects of the Reverse
Stock Split"
"Amendments to Certificate of Incorporation for 20
Reverse Stock Split - Certain Federal Income Tax
Consequences"
8. Fairness of the Transaction
Item 8(a) "Amendments to Certificate of Incorporation for 17
Reverse Stock Split - Fairness of the Reverse Stock
Split"
"Amendments to Certificate of Incorporation for 21
Reverse Stock Split - Recommendations of the Board of
Directors"
Item 8(b) "Amendments to Certificate of Incorporation for 13
Reverse Stock Split - Summary of Board Meeting
Regarding the Reverse Stock Split"
"Amendments to Certificate of Incorporation for 17
Reverse Stock Split - Fairness of the Reverse Stock
Split"
Item 8(c) "Amendments to Certificate of Incorporation for 13
Reverse Stock Split - Summary of Board Meeting
Regarding the Reverse Stock Split"
"Amendments to Certificate of Incorporation for 21
Reverse Stock Split - Shareholder Approval"
Item 8(d) "Amendments to Certificate of Incorporation for 13
Reverse Stock Split - Summary of Board Meeting
Regarding the Reverse Stock Split"
"Amendments to Certificate of Incorporation for 18
Reverse Stock Split - Interest of Certain Persons In
the Reverse Stock Split; Conflicts of Interest"
Item 8(e) "Amendments to Certificate of Incorporation for 21
Reverse Stock Split - Recommendations of the Board of
Directors"
</TABLE>
4
<PAGE> 5
<TABLE>
<CAPTION>
SCHEDULE 13E-3 ITEM LOCATION IN PROXY STATEMENT PAGE
------------------- --------------------------- ----
<S> <C> <C>
Item 8(f) Not applicable
9. Reports, Opinions, Appraisals
and Certain Negotiations
Item 9(a) - (c) "Amendments to Certificate of Incorporation for 13
Reverse Stock Split - Summary of Board Meeting
Regarding the Reverse Stock Split"
10. Interest in Securities of the NOT APPLICABLE
Issuer
11. Contracts, Arrangements or NOT APPLICABLE
Understandings with Respect to
the Issuer's Securities
12. Present Intention and
Recommendation of Certain
Persons with Regard to the
Transaction
Item 12(a) - (b) "Amendments to Certificate of Incorporation for 13
Reverse Stock Split - Summary of Board Meeting
Regarding the Reverse Stock Split"
13. Other Provisions of the
Transaction
Item 13(a) "Amendments to Certificate of Incorporation for 13
Reverse Stock Split - Summary of Board Meeting
Regarding the Reverse Stock Split"
Item 13(b) and (c) NOT APPLICABLE
14. Financial Information
Item 14(a)(1) Provided in Form 10-K for the Fiscal Year Ended
December 31, 1998, as filed with the Securities and
Exchange Commission on April 7, 1999 and attached
hereto as Exhibit 14(a)
Item 14(a)(2) 10-Q for the first quarter of 1999 is not due until
5/15/99
Item 14(a)(3) Provided in Form 10-K for the Fiscal Year Ended
December 31, 1998, as filed with the Securities and
Exchange Commission on April 7, 1999 and attached
hereto as Exhibit 14(a)
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
SCHEDULE 13E-3 ITEM LOCATION IN PROXY STATEMENT PAGE
------------------- --------------------------- ----
<S> <C> <C>
Item 14(a)(4) Provided in Form 10-K for the Fiscal Year Ended
December 31, 1998, as filed with the Securities and
Exchange Commission on April 7, 1999 and attached
hereto as Exhibit 14(a)
Item 14(b) NOT MATERIAL
15. Persons and Assets Employed, NOT APPLICABLE
Retained or Utilized
16. Additional Information Proxy Statement in its entirety
17. Material to be Filed as Exhibits Form 10-K for the Fiscal Year Ended December 31, 1998, as
filed with the Securities and Exchange Commission on April 7,
1999 and attached hereto as Exhibit 14(a)
Item 1 Issuer and Class of Security
Subject to the Transaction
(a) The name of the Issuer is U.S. HomeCare Corporation, a New York
corporation and the address of its principal executive office
is Two Hartford Square West, Suite 300, Hartford, CT 06106.
(b) The exact title of the class of equity securities to which this
statement relates is Common Stock, $0.01 par value. There
are 40,000,00 shares authorized and 13,752,937 issued and
outstanding. The number of holders at 4/23/99 were
approximately 490.
(c) The information set forth under the caption 21
"Amendments to Certificate of Incorporation for
Reverse Stock Split - Price Range of Common Stock and
Dividend Policy" of the Proxy Statement is
incorporated herein by reference.
(d) The information set forth under the caption 21
"Amendments to Certificate of Incorporation for
Reverse Stock Split - Price Range of Common Stock and
Dividend Policy" of the Proxy Statement is
incorporated herein by reference.
(e) Not applicable.
(f) Not applicable.
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
SCHEDULE 13E-3 ITEM LOCATION IN PROXY STATEMENT PAGE
------------------- --------------------------- ----
<S> <C> <C>
Item 2 Identity and Background The person filing this statement is the issuer of the
class of equity securities which is the subject of
the Rule 13e-3 transaction.
Item 3 Past Contracts, Transactions or
Negotiations
(a) and (b) Not applicable.
Item 4 Terms of the Transaction
(a) and (b) The information set forth under the caption 18
"Amendments to Certificate of Incorporation for
Reverse Stock Split - Structure and Payment of Cash
Consideration" of the Proxy Statement is incorporated
herein by reference.
Item 5 Plans or Proposals of the
Issuer or Affiliate
(a) to (g) The information set forth under the captions 19
"Amendments to Certificate of Incorporation for
Reverse Stock Split - Plans for the Company After the
Reverse Stock Split" and "Amendments to Certificate
of Incorporation for Reverse Stock Split - Certain
Effects of the Reverse Stock Split" of the Proxy
Statement is incorporated herein by reference.
Item 6 Source and Amounts of Funds or
Other Consideration
(a) and (b) The information set forth under the caption 20
"Amendments to Certificate of Incorporation for
Reverse Stock Split - Source and Amount of Funds for
and Expenses of the Reverse Stock Split" of the Proxy
Statement is incorporated herein by reference.
(c) and (d) Not applicable.
Item 7 Purpose(s), Alternatives,
Reasons and Effects
(a) The information set forth under the caption 11
"Amendments to Certificate of Incorporation for
Reverse Stock Split - Purpose of the Reverse Stock
Split" of the Proxy Statement is incorporated herein
by reference
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
SCHEDULE 13E-3 ITEM LOCATION IN PROXY STATEMENT PAGE
------------------- --------------------------- ----
<S> <C> <C>
(b) The information set forth under the caption 13
"Amendments to Certificate of Incorporation for
Reverse Stock Split - Summary of Board Meeting
Regarding the Reverse Stock Split" of the Proxy
Statement is incorporated herein by reference
(c) The information set forth under the caption 12
"Amendments to Certificate of Incorporation for
Reverse Stock Split - Background and Reasons for the
Reverse Stock Split" of the Proxy Statement is
incorporated herein by reference
(d) The information set forth under the captions 19,20
"Amendments to Certificate of Incorporation for
Reverse Stock Split - Plans for the Company After the
Reverse Stock Split", "Amendments to Certificate of
Incorporation for Reverse Stock Split - Certain
Effects of the Reverse Stock Split" , and "Amendments
to Certificate of Incorporation for Reverse Stock
Split - Certain Federal Income Tax Consequences" of
the Proxy Statement is incorporated herein by
reference.
Item 8 Fairness of the Transaction
(a) The information set forth under the captions 17,21
"Amendments to Certificate of Incorporation for
Reverse Stock Split - Fairness of the Reverse Stock
Split" and "Amendments to Certificate of
Incorporation for Reverse Stock Split -
Recommendations of the Board of Directors" of the
Proxy Statement is incorporated herein by reference.
(b) The information set forth under the captions 13,17
"Amendments to Certificate of Incorporation for
Reverse Stock Split - Summary of Board Meeting
Regarding the Reverse Stock Split" and "Amendments to
Certificate of Incorporation for Reverse Stock Split
- Fairness of the Reverse Stock Split" of the Proxy
Statement is incorporated herein by reference.
(c) The information set forth under the captions 13,21
"Amendments to Certificate of Incorporation for
Reverse Stock Split - Summary of Board Meeting
Regarding the Reverse Stock Split" and "Amendments to
Certificate of Incorporation for Reverse Stock Split
- Shareholder Approval" of the Proxy Statement is
incorporated herein by reference.
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
SCHEDULE 13E-3 ITEM LOCATION IN PROXY STATEMENT PAGE
------------------- --------------------------- ----
<S> <C> <C>
(d) The information set forth under the caption 13,18
"Amendments to Certificate of Incorporation for
Reverse Stock Split - Summary of Board Meeting
Regarding the Reverse Stock Split and "Amendments to
Certificate of Incorporation for Reverse Stock Split
- Interest of Certain Persons in the Reverse Stock
Split; Conflicts of Interest" of the Proxy Statement
is incorporated herein by reference.
(e) The information set forth under the caption 21
"Amendments to Certificate of Incorporation for
Reverse Stock Split - Recommendations of the Board of
Directors" of the Proxy Statement is incorporated
herein by reference.
(f) Not applicable.
Item 9 Reports, Opinions, Appraisals
and Certain Negotiations
(a) to (c) The information set forth under the caption 13
"Amendments to Certificate of Incorporation for
Reverse Stock Split - Summary of Board Meeting
Regarding the Reverse Stock Split" of the Proxy
Statement is incorporated herein by reference.
Item 10 Interest in Securities of the
Issuer
(a) and (b) Not applicable
Item 11 Contracts, Arrangements, or Not applicable
Understandings with Respect to
the Issuer's Securities
Item 12 Present Intention and
Recommendation of Certain
Persons with Regard to the
Transaction
(a) and (b) The information set forth under the caption 13
"Amendments to Certificate of Incorporation for
Reverse Stock Split - Summary of Board Meeting
Regarding the Reverse Stock Split" of
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
SCHEDULE 13E-3 ITEM LOCATION IN PROXY STATEMENT PAGE
------------------- --------------------------- ----
<S> <C> <C>
the Proxy Statement is incorporated herein
by reference.
Item 13 Other Provisions of the
Transaction
(a) The information set forth under the caption 13
"Amendments to Certificate of Incorporation for Reverse
Stock Split - Summary of Board Meeting Regarding the
Reverse Stock Split" of the Proxy Statement is
incorporated herein by reference.
(b) and (c) Not applicable.
Item 14 Financial Information
(a)(1) The information requested is set forth in the Form 10-K for
fiscal year ended December 31, 1998, as filed April 7, 1999
with the Securities and Exchange Commission and is attached
hereto as Exhibit 14(a) and is incorporated herein by
reference.
(a)(2) The 10-Q for the first quarter of fiscal year 1999 is
not due until May 14, 1999.
(a)(3) The information requested is set forth in the Form 10-K for
fiscal year ended December 31, 1998, as filed April 7, 1999
with the Securities and Exchange Commission and is attached
hereto as Exhibit 14(a) and is incorporated herein by
reference.
(a)(4) The information requested is set forth in the Form 10-K for
fiscal year ended December 31, 1998, as filed April 7, 1999
with the Securities and Exchange Commission and is attached
hereto as Exhibit 14(a) and is incorporated herein by
reference.
(b) Not applicable.
Item 15 Persons and Assets Employed,
Retained or Utilized
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
SCHEDULE 13E-3 ITEM LOCATION IN PROXY STATEMENT PAGE
------------------- --------------------------- ----
<S> <C> <C>
(a) and (b) Not applicable.
Item 16 Additional Information All of the information set forth in the Preliminary
Proxy Statement is incorporated herein by reference.
Item 17 Material to be Filed as
Exhibits
(a), (b), (c) and (f) Not applicable.
(d) Preliminary Proxy Statement of U.S. HomeCare Corporation for
the Annual Meeting of Stockholders to be held on June 21, 1999.
(e) and (f) Not applicable.
</TABLE>
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and accurate.
U.S. HOMECARE CORPORATION
---------------------------------
Name: Sophia Bilinsky
Title: President and Chief Executive Officer
Dated: May 10, 1999
11
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT ITEM REFERENCE
------- --------------
<S> <C>
Proxy Statement 17(d)
Form 10-K for fiscal year ending 14(a)
December 31, 1998
</TABLE>
12
<PAGE> 13
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e) (2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
U.S. HOMECARE CORPORATION
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement if other than the Registrant) Payment
of Filing Fee (Check the appropriate box):
|X| No fee required
| | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.01 per share
(2) Aggregate number of securities to which transaction applies: [ ]
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
$[ ]
(4) Proposed maximum aggregate value of transaction: $[ ]
(5) Total fee paid: $[ ]
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: [ ]
2) Form, Schedule or Registration Statement No.: [ ]
3) Filing Party: [ ]
4) Date Filed: [ ]
<PAGE> 14
PROXY STATEMENT
_____________________________,1999
TABLE OF CONTENTS
<TABLE>
<S> <C>
Voting Securities 1
Election of Directors 1
Executive Officers 4
Executive Compensation and Other Information 5
Compensation Committee Report 7
Stock Performance Graph 9
Security Ownership of Certain Beneficial Owners and Management 10
Amendments to Certificate of Incorporation for Reverse Stock Split 11
Price Range of Common Stock and Dividend Policy 21
Shareholder Proposals 21
Other Matters 22
</TABLE>
i
<PAGE> 15
U.S. HOMECARE CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
JUNE 21, 1999
The Annual Meeting of Shareholders of U.S. HomeCare Corporation (the
"Company") will be held at the office of Brobeck, Phleger & Harrison LLP, 1633
Broadway, 47th Floor, New York, New York 10019 on June 21, 1999, at 10:00 A.M.
(local time) for the following purposes:
(1) To elect four directors for the ensuing year;
(2) To approve and adopt a Certificate of Amendment to the Company's
Certificate of Incorporation ("Certificate of Amendment") providing
for (a) a one-for 1,500 reverse stock split of the Company's Common
Stock into Common Stock, and (b) a cash payment of $0.014 per share
(the "Cash Consideration") for the currently outstanding Common
Stock in lieu of the issuance of any resulting fractional shares of
Common Stock to any stockholders who, after the reverse stock split,
own a fractional share of Common Stock (items (a) and (b) will be
considered one proposal and referred to herein as the "Reverse Stock
Split");
(3) To transact such other business as may properly come before the
Annual Meeting.
The text of the proposed Certificate of Amendment is set forth in Exhibit
A to the accompanying Proxy Statement. If the proposed Reverse Stock Split is
approved, the stockholders of the Company who own less than one (1) share of
Common Stock after giving effect to the split will cease to be stockholders of
the Company or to have any equity interest in the Company. Such stockholders
will receive the Cash Consideration for each fractional share of Common Stock of
which they are the owners.
Your Board of Directors believes that the proposed Reverse Stock Split is
in the best interests of the Company and its stockholders. In arriving at its
decision to recommend the proposed Reverse Stock Split, the Board carefully
reviewed and considered the terms and conditions of the proposed Reverse Stock
Split and the factors described in the enclosed Proxy Statement.
Approval of the Certificate of Amendment requires the affirmative vote of
the holders of a majority of the aggregate voting power of the Company's issued
and outstanding shares of Common Stock and $35.00 6% Convertible Preferred
Stock, par value $1.00 per share, represented and voting at the Annual Meeting.
UPON CONSUMMATION OF THE PROPOSED REVERSE STOCK SPLIT, THE COMPANY WILL
TERMINATE THE REGISTRATION OF THE COMPANY'S COMMON STOCK UNDER THE SECURITIES
EXCHANGE ACT OF 1934 AND WILL CEASE TO FILE REPORTS WITH THE SECURITIES AND
EXCHANGE COMMISSION.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE> 16
Only shareholders of record at the close of business on May 19, 1999 will
be entitled to notice of, and to vote at, the Annual Meeting. A list of
shareholders eligible to vote at the Annual Meeting will be available for
inspection at the Annual Meeting and during business hours, from __________ ___,
1999 to the date of the Annual Meeting, at the Company's corporate headquarters
at the address below.
Whether or not you expect to attend the Annual Meeting, your vote is
important. To assure your representation at the meeting, please sign and date
the enclosed proxy card and return it promptly in the enclosed envelope, which
requires no additional postage if mailed in the United States or Canada.
By Order of the Board of Directors
Sophia V. Bilinsky
President and Chief Executive
Officer
Two Hartford Square West
Hartford, Connecticut 06106
May 21, 1999
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD
BE COMPLETED AND RETURNED PROMPTLY.
<PAGE> 17
U.S. HOMECARE CORPORATION
PROXY STATEMENT
__________ ___, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of U.S. HomeCare Corporation (the "Company")
for use at its Annual Meeting of Shareholders to be held on June 21, 1999 (the
"Annual Meeting").
Shares can be voted at the meeting if the owner is present in person or by
proxy. All properly executed and unrevoked proxies in the accompanying form that
are received in time for the meeting will be voted at the meeting or any
adjournment thereof in accordance with the instructions thereon, or if no
instructions are given, will be voted "FOR" the election of the named nominees
and the adoption and approval of the Certificate of Amendment including the
Reverse Stock Split and will be voted in accordance with the best judgment of
the persons appointed as proxies with respect to other matters which properly
come before the Annual Meeting. Any person giving a proxy may revoke it by
written notice to the Company at any time prior to exercise of the proxy. In
addition, although mere attendance at the meeting will not revoke the proxy, a
shareholder who attends the meeting may withdraw his or her proxy and vote in
person. Abstentions and broker non-votes will have no effect on the outcome of
the vote on any of the matters to be considered at the Annual Meeting.
The mailing address of the principal executive offices of the Company is
Two Hartford Square West, Suite 300, Hartford, Connecticut 06106. This Proxy
Statement and the accompanying form of proxy are being mailed to the
shareholders of the Company on or about June 1, 1999.
VOTING SECURITIES
The Company has two classes of voting securities: its Common Stock, par
value $.01 per share (the "Common Stock"), and its $35.00 6% Convertible
Preferred Stock, par value $1.00 per share (the "$35.00 Preferred Stock"), which
has voting rights on an as-converted basis with the Common Stock. On April 15,
1999, 39,443,639 shares of Common Stock and 328,569 shares of $35.00 Preferred
Stock, convertible into 7,152,947 shares of Common Stock, were outstanding. See
"Security Ownership of Certain Beneficial Owners and Management." At the Annual
Meeting, each shareholder of record at the close of business on May 19, 1999
will be entitled to one vote for each share of Common Stock and 21.77 votes for
each share of $35.00 Preferred Stock owned by that shareholder on that date as
to each matter presented at the Annual Meeting.
ELECTION OF DIRECTORS
Unless otherwise directed, the persons appointed in the accompanying form
of proxy intend to vote at the Annual Meeting for the election of the four
nominees named below as directors of the Company to serve until the next Annual
Meeting or until their successors are duly elected and have qualified. If any
nominee is unable to be a candidate when the election takes place, the shares
represented by valid proxies will be voted in favor of the remaining nominees.
The Board of Directors (the "Board") does not currently anticipate that any
nominee will be unable to be a candidate for election.
<PAGE> 18
The Board currently has four members, all of whom are nominees for
re-election. All directors hold office for one year until the next Annual
Meeting of Shareholders or until their successors have been duly elected and
qualified.
SHAREHOLDER APPROVAL
The affirmative vote of a plurality of the aggregate voting power of the
Company's outstanding Common Stock and $35.00 Preferred Stock represented and
voting at the Annual Meeting is required to elect each of the directors.
RECOMMENDATION OF THE BOARD
The Board recommends that the shareholders vote "FOR" the nominees named
below.
INFORMATION REGARDING NOMINEES FOR ELECTION AS DIRECTORS
The following information with respect to the principal occupation or
employment, other affiliations and business experience of each nominee during
the last five years has been furnished to the Company by such nominee. Except as
indicated, each of the nominees has had the same principal occupation for the
last five years.
SOPHIA V. BILINSKY, 33, joined the Company in June 1998 as President and
Chief Executive Officer. Prior to joining the Company, Ms. Bilinsky was Vice
President of US Servis Inc., a business management services organization for
hospitals and physician groups, and general manager of their physician division
from April 1995 to June 1998 prior to which she served as President and Chief
Operating Officer of HealthNet Corp. From 1986 to 1991, Ms. Bilinsky held
financial positions with Whitehead/Sterling, a private equity investment firm,
General Electric Corporation, and Citibank, N.A.
JOHN R. GUNN, 55, 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 Health Plan Services,
Inc., the Greater New York Hospital Association, Empire Blue Cross & Blue
Shield, Hospital Association of New York and Memorial Sloan-Kettering Cancer
Center.
JAY C. HUFFARD, 57, 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 1997, at which time he was named
President and Chief Executive Officer. Since 1988, Mr. Huffard has been Managing
Director of Huffard & Co., a direct investment and development banking firm.
From 1987 to 1988, he was Chief of Staff to the Chairman of The Equitable. From
1968 to 1988, Mr. Huffard served in various executive capacities at Donaldson,
Lufkin & Jenrette Securities Corporation, including Executive Vice President and
Managing Director, and Chairman or Chief Executive of certain direct or indirect
subsidiaries thereof. Since 1993, Mr. Huffard has been a Managing Director and
principal of Prima Management Corp., the general partner of an investment
partnership.
SHAWKAT RASLAN, 47, has been a director of the Company since December
1991. Since 1983, Mr. Raslan has been President and Chief Executive Officer of
International Resources Holdings, Inc., an asset management and investment
advisory service for international clients. He serves as a director of several
2
<PAGE> 19
companies, including Apogee Inc., a mental health rehabilitation company, Foster
Management, a health care investment fund, and Tiedeman Goodnow International,
an equity fund. Since 1993, Mr. Raslan has been a Managing Director and
principal of Prima Management Corp., the general partner of an investment
partnership.
COMMITTEES OF THE BOARD
The Board currently has standing Audit, Compensation, Executive and
Nominating Committees, of which the independent directors are members. The
President and Chief Executive Officer is an ex-officio member of the Committees.
The membership and principal responsibilities of the Board Committees are
described below:
Audit Committee
Members: John R. Gunn, Chairman
Jay C. Huffard
Shawkat Raslan
The Audit Committee's functions include recommending to the Board the
selection of the Company's independent public accountants and reviewing with
such accountants the plan and results of their audit and the adequacy of the
Company's systems of internal accounting controls and management information
systems. In addition, the Audit Committee reviews the independence of the
accountants and their fees for services rendered to the Company.
Compensation Committee
Members: Shawkat Raslan, Chairman
John R. Gunn
Jay C. Huffard
The Compensation Committee advises the President and Chief Executive
Officer and the Board on matters of the Company's compensation philosophy and
the compensation of executive officers. The Committee's functions also include
reviewing and setting the compensation of the Chairman, President and Chief
Executive Officer, and the directors. The Committee administers all plans
relating to the compensation of officers including the Company's stock option
plans.
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
During 1998, the Board held eight regular meetings and three special
meetings. The Audit Committee met three times and the Compensation Committee met
one time. During such fiscal year, each incumbent director attended at least 75%
of the aggregate of (i) the meetings of the Board and (ii) the meetings of the
Committees of the Board on which they served.
COMPLIANCE WITH REPORTING REQUIREMENTS
Under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Company's directors, executive (and certain other) officers, and any
persons holding more than ten percent of the Company's Common Stock are required
to report their ownership of the Company's Common Stock and any changes in their
ownership to the Securities and Exchange Commission and the Nasdaq Market
Surveillance Department. Specific due dates for these reports have been
established and the Company is required to report in this Proxy Statement any
failure to file by these dates during 1998. Based solely on
3
<PAGE> 20
its review of such forms received by it from such persons for their 1998
transactions, the Company believes that all filing requirements applicable to
such officers, directors and greater than ten percent beneficial owners were
complied with.
COMPENSATION OF DIRECTORS
Cash Compensation. Each director who is not an employee of the Company
receives an annual retainer paid In Common Stock of $10,000 as compensation for
services as a director. Mr. Huffard receives an additional annual cash fee of
$40,000 for his services as Chairman of the Board. Each director who is not an
employee of the Company also receives a fee of $1,000 paid in common shares for
attending each regular or special meeting of the Board or its committees. The
non-employee directors are also reimbursed for expenses incurred in connection
with performing their respective duties as directors of the Company. Directors
who are employees receive no additional compensation for their services as
directors of the Company. Since January 1, 1998, the non-employee members of the
Board have received three quarters of their annual retainer fees through the
issuance of shares of Common Stock equal in value to such fees. The directors
have waived the annual retainer and meeting attendance fees for 1999.
1995 Stock Option/Stock Issuance Plan. Pursuant to the Automatic Option
Grant Program under the Company's 1995 Stock Option/Stock Issuance Plan (the
"1995 Plan"), each individual who becomes a non-employee Board member is
automatically granted at that time an option grant for 25,000 shares of Common
Stock. Each option has an exercise price per share equal to 100% of the fair
market value per share of Common Stock on the option grant date and a term of
ten years. The options are immediately exercisable, but two-thirds of the
underlying shares are subject to the Company's right to repurchase the shares
should the non-employee Board member cease to serve as a Board member prior to
vesting in those shares. The Company's right of repurchase terminates: (i) as to
one-third of the shares, on each of the first and second anniversaries of the
grant date (with all shares fully vested at that time) and (ii) immediately upon
an acquisition of the Company by merger or by stock or asset sale or a hostile
change of control.
OTHER INFORMATION
In accordance with the Company's By-Laws, no person may be nominated as a
director by a shareholder at any Annual Meeting of Shareholders unless written
notice of such proposed nomination, containing certain information required
under the By-Laws, is delivered to the Secretary not less than 50 days nor more
than 75 days prior to the anniversary of the preceding year's Annual Meeting,
subject to certain exceptions set forth in the By-Laws.
EXECUTIVE OFFICERS
The sole executive officer of the Company is as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C>
Sophia V. Bilinsky...... 33 President and Chief Executive Officer
</TABLE>
4
<PAGE> 21
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation paid
by the Company during 1996, 1997 and 1998 to all individuals serving as the
Company's chief executive officer or acting in a similar capacity during 1998
and the other highest paid executive offices 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 COMPENSATION LONG-TERM 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................. 1998 95,000(2) 0 0 0
Interim President, Chief 1997 122,500(3) 0 100,000(4) 0
Executive Officer, Chairman 1996 0 0
and Director
Sophia V. Bilinsky............. 1998 107,692(6) 0 500,000(4) 53,846(7)
President, Chief Executive 1997 N/A N/A N/A N/A
Officer 1996 N/A N/A N/A N/A
Clifford G. Johnson............ 1998 125,000 0 0 20,000
Vice President, Finance and 1997 89,682(5) 0 50,000(4) 0
Administration and Chief 1996 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 of 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 $95,000 includes $40,000 in cash compensation for his role
as Chairman of the Company, $45,000 in cash compensation for his role as
CEO and President during 1998, and $10,000 in Common Stock of the Company
in compensation for his role as director of the Company.
(3) Mr. Huffard's $122,500 consists of $60,000 paid in cash compensation for
services as President, $40,000 in cash for service as Chairman, and
$22,500 as fees in Common Stock for attending various Board meetings.
(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. Mr. Johnson's employment with the Company terminated on March
8, 1999.
(6) Ms. Bilinsky received $107,692 during 1998, based on a salary of $200,000.
(7) Ms. Bilinsky is guaranteed a bonus of $100,000 per annum and received
$53,846 during 1998.
5
<PAGE> 22
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table shows, with respect to the Named Executive Officers,
certain information concerning the grant of stock options in 1998. No stock
appreciation rights ("SARs") were granted to any Named Executive Officers during
1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (1)
----------------- -------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS INITIAL
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED FISCAL YEAR(2) ($/SHARE) DATE 5% 10%
- ---- ------- -------------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Sophia V. Bilinsky.............. 500,000(2) 89% $0.50 6/15/05 $101,775 $237,179
</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) Ms. Bilinsky was granted an option on May 15, 1998 to purchase 500,000
shares of the Company's Common Stock at $0.50 per share, which was the
market value at the time of grant.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
The following table sets forth certain information with respect to the
Named Executive Officers regarding stock options during the year ended December
31, 1998. No stock options or SARs were exercised by such persons in 1998.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END FISCAL YEAR END(1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jay C. Huffard ..................... 192,000 33,000 0 0
Sophia V. Bilinsky.................. 166,665 333,335 0 0
Clifford G. Johnson................. 33,334 16,666 0 0
</TABLE>
(1) Based on a closing price on the OTC market of $0.0156 per share of Common
Stock on December 31, 1998, there were no unexercised in-the-money
options.
6
<PAGE> 23
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, Messrs. Ford and two former directors, Mr. Wallace
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 1998. Ms. Robfogel is a partner in the law firm of
Nixon, Hargrave, Devans & Doyle, which U.S. HomeCare has retained from time
to time.
EMPLOYMENT ARRANGEMENTS
Mr. Huffard's annual compensation as Chairman of the Board is $40,000
and $60,000 per annum for his duties as President and Chief Executive Officer
during 1998 paid through September of 1998.
Sophia V. Bilinsky's annual salary as President, Chief Executive Officer
of the Company was $200,000 with a guaranteed bonus of $100,000. Stock options
to purchase an aggregate of 500,000 shares of Common Stock were granted to Ms.
Bilinsky on May 15, 1998. The commencement of her employment with the Company
was May 15, 1998. These options are exercisable at $0.50, the fair market value
of the Company's Common Stock on the grant date. Of the 500,000 option shares,
166,668 were vested on June 15, 1998, with the remaining vesting on the second
and third anniversary dates of the original vesting (subject to acceleration of
vesting upon an acquisition of the Company by a merger or by a stock or asset
sale). In the event Ms. Bilinsky's employment is terminated, she is entitled to
her base salary, on a monthly basis for one year.
Clifford C. 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 50,00 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
without cause, he is entitled to his base salary, on a monthly basis, for six
months. Mr. Johnson's employment agreement was terminated on March 8 1999.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of the Company is responsible for
establishing and administering the Company's executive compensation programs.
The Compensation Committee is comprised entirely of non-employee directors. The
Compensation Committee has reviewed and is in accord with the compensation paid
to executive officers in fiscal 1998.
GENERAL COMPENSATION POLICY
The fundamental policy of the Compensation Committee is to provide the
Company's executive officers with competitive compensation opportunities based
upon their contribution to the development and financial success of the Company
and their performance. The Compensation Committee reviews the compensation
structures of companies in the Company's industry peer group and establishes a
7
<PAGE> 24
compensation structure designed to attract highly qualified individuals while
also recognizing the Company's financial condition. This compensation structure
involves three principal components:
- A base salary established at the minimum level necessary to
attract new management and to retain qualified individuals.
- A significant bonus opportunity based both on overall Company
performance and individually-established goals.
- Significant equity incentives in the form of stock options with a
portion of such options vesting up front (to replace cash
compensation and to align the interests of management with the
shareholders).
With this compensation structure, the Company has been able to attract
executives who recognize that their success is tied to the Company's future
business performance and to their success in increasing shareholder value. For
1999 and future years, incentive compensation plans will be heavily weighted to
reward superior operating performance, growth, and profitability compared to the
Company's industry peer group.
CHIEF EXECUTIVE OFFICER COMPENSATION
Ms. Bilinsky's compensation package was negotiated with the
Compensation Committee to generally reflect the principles described above.
The Compensation Committee believes that Ms. Bilinsky's compensation,
including her salary, bonus, severance, stock options and transaction bonus
fall well within the Company's established compensation philosophy. See
"Employment Arrangements."
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held companies for compensation exceeding
$1 million paid to certain of the corporation's executive officers. The
limitation applies only to compensation which is not considered to be
performance-based. The non-performance based compensation to be paid to the
Company's executive officers for the 1998 fiscal year did not exceed the $1
million limit per officer, nor is it expected that the non-performance based
compensation to be paid to the Company's executive officers for fiscal 1999 will
exceed that limit. The 1995 Plan is structured so that any compensation deemed
paid to an executive officer in connection with the exercise of option grants
made under that plan with an exercise price equal to the fair market value of
the option shares on the grant date will qualify as performance-based
compensation which will not be subject to the $1 million limitation. Because it
is very unlikely that the cash compensation payable to any of the Company's
executive officers in the foreseeable future will approach the $1 million limit,
the Compensation Committee has decided at this time not to take any other action
to limit or restructure the elements of cash compensation payable to the
Company's executive officers. The Compensation Committee will reconsider this
decision should the individual compensation of any executive officer ever
approach the $1 million level.
Compensation Committee of the Board of Directors
Members: Shawkat Raslan, Chairman
John R. Gunn
Jay C. Huffard
8
<PAGE> 25
STOCK PERFORMANCE GRAPH
Set forth below is a graph comparing the annual percentage change in the
Company's cumulative total shareholder return on its Common Stock during the
five years ended December 31, 1998 (as measured by dividing (i) the sum of (A)
the cumulative amount of dividends for the measurement period, assuming dividend
reinvestment, and (B) the excess of the Company's share price at the end over
the price at the beginning of the measurement period, by (ii) the share price at
the beginning of the measurement period), with the cumulative total shareholder
return so calculated of the Russell 2000, and a group of peer issuers in a line
of business similar to the Company during the same period (the "Peer Group").
The Peer Group consists of the following companies: New York Health Care,
National Home Health, Staff Builders, Inc. and American HomePatient, Inc..
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Exchange
Act, which might incorporate future filings made by the Company under those
statutes, the preceding Compensation Committee Report on Executive Compensation
and the Company's Stock Performance Graph will not be incorporated by reference
into any of those prior filings, nor will such report or graph be incorporated
by reference into any future filings made by the Company under those statutes.
[LINE GRAPHIC]
9
<PAGE> 26
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of April 15, 1999, by (i) each
director and nominee for director, (ii) each of the Named Executive Officers,
(iii) each person known by the Company to be the beneficial owner of more than
5% of the Company's Common Stock, and (iv) all executive officers and directors
as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK PERCENTAGE OF SHARES
NAME OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) OUTSTANDING(2)
- --------------------------- --------------------- --------------
<S> <C> <C>
Jay C. Huffard............................................ 731,046(4)(5) 1.8%
Sophia V. Bilinsky........................................ 166,665(3) **
Shawkat Raslan............................................ 294,942(5) **
c/o International Resources Holdings, Inc.
770 Lexington Ave New York, NY 10021
John R. Gunn.............................................. 71,386(5) **
All directors and executive officers as a group .......... 1,264,039(6) 3.2%
(4 persons)
Connecticut Development Authority......................... 1,551,302 11.4%
999 West Street
Rocky Hill, CT 06067
Prima Partners, L.P....................................... 807,262(6) 8.3%
115 East 69th Street
New York, New York 10021
</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, 1998 upon the conversion of the $35.00 Preferred Stock and
the exercise of all options, warrants and other rights beneficially held
by the indicated shareholder of that date.
(3) Includes shares issuable upon exercise of options granted under the 1995
Stock Option Issuance Plan.
(4) 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
225,000 of Common Stock.
(5) 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.
(6) See Notes (2) through (5).
10
<PAGE> 27
AMENDMENTS TO CERTIFICATE OF INCORPORATION FOR REVERSE STOCK SPLIT
INTRODUCTION
The Board of Directors of the Company has unanimously adopted a resolution
approving a Certificate of Amendment to the Company's Restated Certificate of
Incorporation ("Certificate of Amendment") providing for (a) a one-for-1,500
reverse stock split of the Company's Common Stock and (b) a cash payment of
$0.014 per share (the "Cash Consideration") for the currently outstanding Common
Stock in lieu of the issuance of any resulting fractional shares of Common Stock
to any stockholders who, after the reverse stock split, own a fractional share
of Common Stock. The proposals in items (a) and (b) are referred to together as
the "Reverse Stock Split."
PURPOSE OF THE REVERSE STOCK SPLIT
The principal purpose of the proposed Reverse Stock Split is to eliminate
expenses associated with being a public company by becoming a privately-owned
corporation in a manner that is fair both to the Company and its stockholders.
The Company and its stockholders do not derive significant benefit from the
Company's status as a public company due, among other reasons, to the lack of an
effective trading market for its Common Stock and the decline in value of such
shares of Common Stock. On the other hand, the conversion of the Company from a
reporting company to a private, non-reporting company will result in the
elimination of the substantial costs it incurs each year as a result of its
public company obligations.
The Company presently has approximately 490 shareholders of record. Of the
record shareholders, approximately 241 own fewer than 1,500 shares. In the
aggregate, the shares held by small holders comprise less than ______% of the
outstanding voting securities.
The Board believes that the disadvantages of being a public company
outweigh any advantages. The Board has no present intention or ability (given
the financial condition of the Company) to raise capital through sales of
securities in a public offering or to acquire other business entities using
liquid Common Stock as the consideration for such acquisitions. Accordingly, the
Company is not likely to make use of any advantage that the Company's status as
a reporting company may offer.
The Company incurs substantial direct and indirect costs associated with
compliance with the filing and reporting requirements imposed on public
companies under the 1934 Act. The Company estimates that it incurs direct costs
of approximately $250,000 annually. The Company also incurs substantial indirect
costs as a result of, among other things, the executive time expended to prepare
and review such filings. Since the Company has relatively few executive
personnel, the effect of this indirect cost can be substantial. In light of the
Company's size and inability to fund its cash requirements, the Board does not
believe the costs of remaining a public company are justified.
In addition, many of the Company's direct competitors are private. The
Company believes it suffers a competitive disadvantage because it is required to
disclose certain information that these other companies are not required to
disclose.
11
<PAGE> 28
The Board has determined that the Reverse Stock Split is the most
expeditious and economical way of changing the Company's status from that of a
reporting company to that of a non-reporting company.
If the Reverse Stock Split is effected, shareholders owning fewer than
1,500 shares of Common Stock will no longer have any equity interest in the
Company and will not participate in any future earnings of the Company or any
increases in the value of the Company's assets or operations. Further, the 248
record shareholders that will continue to have an equity interest in the Company
after the Reverse Stock Split will own a security, the liquidity of which will
be restricted. The Cash Consideration offered by the Company for fractional
share interests was determined using the "Average Market Price" (the average of
the daily closing prices of the Common Stock for the twenty consecutive trading
days ending on April 23, 1999. The closing price for each day is the last
reported sales price or, if no such sale took place on a given day, the average
of the closing bid and ask prices of the Common Stock). The Board of Directors
also considered the value attributed to the Common Stock and the $35.00
Preferred Stock in certain recent proposals to acquire or invest in the Company.
(See "Background and Reasons for the Reverse Stock Split".) The Cash
Consideration offered by the Company for fractional share interests was not
determined in arm's length negotiations and therefore does not necessarily
reflect the actual market value of the Common Stock. (See "Fairness of the
Reverse Stock Split.")
BACKGROUND AND REASONS FOR THE REVERSE STOCK SPLIT
Following significant operating losses in 1993 through 1996, the Company's
management and the Board undertook several restructuring initiatives. These
included the sale of the Company's home infusion therapy business in October
1996 and the engagement of outside consultants at that time to significantly
reduce overhead and personnel expenses. During the same period, the Company
directly, or through its investment advisors, initiated and engaged in
discussions with numerous health care services companies to determine if it
would be in the best interests of the shareholders for the Company to be
acquired by a financial or strategic buyer.
Throughout most of 1997, the Company engaged in active negotiations and
due diligence with several prospective merger candidates which resulted in a
publicly announced merger agreement in September of 1997 with Home Health
Corporation of America, Inc., a publicly-held home health care company ("HHCA").
At that time, the Company's operations had become profitable for the first time
in several years. Following a lengthy and costly process to obtain regulatory
and other approvals for the merger, and for reasons unrelated to that process,
the merger agreement was mutually terminated by the parties in February 1998.
In the Spring of 1998, the Company began to experience reductions in sales
and margins principally as a result of the impact of the Interim Payment System
("IPS") adopted by Medicare which became effective in 1998. In June 1998, the
Company hired Sophia V. Bilinsky as its President and Chief Executive Officer to
provide leadership and evaluate alternatives for the Company's future. Over the
last three quarters of 1998, the Company took charges to earnings totaling $3.2
million - more than half of which was related to the revision of estimates for
earlier period tax audits, retrospectively rated workers compensation, vendor
settlements, and Medicare cost report settlements for 1996, with the remaining
charges principally for the 1998 IPS liability. By October of 1998, the full
impact of IPS was evident on the Company's operating results.
Based on the projections for 1999, it was clear that the Company would not
have enough operating cash to fund its cash requirements and the Company
initiated cost reduction measures which
12
<PAGE> 29
were implemented in January 1999. These cost cutting measures were not enough to
fund the cash shortfall. During the process of identifying cost reduction
opportunities, management identified additional substantial savings available to
the Company through terminating its status as a public company. The sum of all
cost savings available for 1999 through both operating cost reductions and
becoming a private company are still not anticipated to fund the total cash
shortfall projected for 1999. The Company's outstanding indebtedness matured on
January 4, 1999 and has, to date, been renewed on a monthly basis by the
Company's lenders. These lenders have indicated, however, that they would not
extend additional funds in order to meet the Company's cash requirements and
there is no assurance that they will continue to extend the maturity of the
outstanding indebtedness on a monthly basis.
In the fourth quarter of 1998, the Company also began an active process of
seeking additional capital resources and/or strategic alternatives to support
its business, including a possible sale of the Company. In January of 1999, the
Company received three (3) proposals from independent third parties who had
expressed an interest either in an equity investment in, or an acquisition of,
the Company. Under all of these proposals, essentially no value was attributed
to the Common Stock or the $35.00 Preferred Stock. In each case, the investor or
acquirer proposed to assume or repay the Company's outstanding indebtedness (in
part or in total) and operate its business, but without the payment of cash or
securities to the Company's equity holders. In February of 1999, after the Board
determined that such a transaction would be in the best interest of the Company
and its shareholders, the Company signed a non-binding letter of intent with one
of these third parties, a privately-held home health care company, in order to
facilitate further negotiations and due diligence. The total purchase price
proposed in the letter of intent was (i) $1.00 for all outstanding of the shares
of Common Stock and $35.00 Preferred Stock, and (ii) assumption of all
outstanding indebtedness. The Company has complete flexibility to continue to
solicit and negotiate with any third parties until a Definitive Agreement is
signed. This letter of intent expires on April 30, 1999 and, although the
parties continue to discuss and conduct due diligence in connection with a
possible transaction, there is no assurance that an acquisition of the Company
will be consummated with this or any other party.
SUMMARY OF BOARD MEETING REGARDING THE REVERSE STOCK SPLIT
The Board of Directors met in person or by telephone on December 17, 1998,
February 8, 1999, and February 24, 1999 to discuss the Company's operations and
financial condition, its relationship with its lenders, and its strategic
alternatives. At the February 24, 1999 Board meeting, during which the Company's
outside counsel participated, Ms. Bilinsky, the Company's President and Chief
Executive Officer, proposed that the Board consider alternatives to remaining a
public company and requested the Company's outside counsel to review possible
alternatives. A proposal to convert the Company to private ownership was first
considered and voted on by the Board of Directors at its telephonic Board
meeting on February 8, 1999, in which all of the Company's directors
participated. The Board of Directors made an initial determination that it would
be in the best interest of the Company and its shareholders to effect a Reverse
Stock Split and deregister the Company's Common Stock under the 1934 Act.
The principal factor in making the determination to become a private
company was the costs of remaining a public company. These costs include legal,
auditing, and printing fees, the cost of preparing annual reports on Form 10-K,
quarterly reports on Form 10-QSB, current reports on Form 8-K, reports and
schedules required to be filed by the Company's officers and directors and proxy
solicitation materials. The Company's management is also required to devote
substantial time and attention to the preparation and review of these filings,
the furnishing of information to stockholders, and to other stockholder matters.
The Company has incurred and will continue to incur substantial costs as a
result of
13
<PAGE> 30
its status as a public company under the Exchange Act. The Company estimates
that it has expended approximately $250,000 per year to comply with the
reporting and compliance requirements applicable to public companies.
An added factor considered by the Board was that, given the Company's
activities to find additional equity or a strategic partner for the business, as
a private company, the Company would be in a position to minimize the costs
associated with consummating a transaction. As a private company, the Board
would also have the ability to move significantly more quickly to effect a
transaction. The Board believes that given the Company's cash flow deficits, any
delay in consummating a transaction, if an agreement were signed, would have a
material adverse effect on the Company's operations and financial condition.
Various methods for taking the Company private were discussed. From a
procedural point of view, the Reverse Stock Split would provide an opportunity
for the shareholders to receive, in the Board's view, fair value for their
shares without incurring any brokerage costs. They determined that privately
negotiated or open market purchases would not be feasible because, in all
likelihood, it would not be possible, in any reasonable period of time, to
purchase a significant number of the shares of the Company's Common Stock to
ensure the reduction of the number of the holders of the shares of its Common
Stock to less than 300. Finally, they determined that the legal and other
transaction costs to implement this alternative would be substantially greater
than the costs to implement the Reverse Stock Split
The Board also considered the following additional factors in determining
that the Reverse Stock Split is in the best interests of the Company and its
shareholders:
- The Board of Directors recognized that neither the Company nor its
shareholders derive any material benefit from the continued
registration of the Company's Common Stock under the Exchange Act.
Operating losses in previous years followed by significant recent
financial and operational downsizing have prevented the Company and
its stockholders from enjoying the benefits that traditionally flow
from being a public company. In fact, the going concern opinion
issued by the Company's independent public accountants with the
Company's 1998 financial statements clearly outlines the potential
that the Company, if unable to find enough cost savings and an
equity or strategic investor, faces the prospect of filing for
judicial protection from its creditors. The Board anticipates that
the current situation will prevent for some time any meaningful
appreciation in the value of the Company's shares of Common Stock
and therefore the Company's ability to access the public markets for
capital.
- There is not currently and will likely not develop in the
foreseeable future any significant trading market for the shares of
the Company's Common Stock. The Company's Common Stock was traded on
the Nasdaq National Market from its initial public offering in 1991
until it was de-listed from this market in mid-1996 for failure to
meet the minimum requirements for trading on this market. The
Company's Common Stock then began to trade on the Nasdaq Small Cap
Market but was de-listed from trading on this market in late 1996
for failing to meet this markets minimum requirements. The Common
Stock has traded since only infrequently and sporadically on the OTC
Bulletin Board. The Company's Common Stock will not likely qualify
in the foreseeable future for re-listing on any national securities
exchange or for quotation on an inter-dealer quotation system of a
registered national securities association (such as Nasdaq ). See
"Price Range of Common Stock and Dividend Policy."
14
<PAGE> 31
- A significant number of the Company's shareholders hold less than
1,500 shares. Of approximately 490 shareholders of record, 241
(approximately 49% of the Company's shareholders of record) hold
fewer than 1,500 shares of Common Stock. Thus, if for any reason a
trading market developed for the Company's Common Stock,
stockholders holding less than 1,500 shares would nonetheless have
limited opportunities to realize any value for their shares since
the sales of their shares would ordinarily involve
disproportionately high brokerage commissions.
At a subsequent Board meeting on February 24, 1999, the terms of a
specific proposal for a Reverse Stock Split were outlined. It was proposed that
the Board of Directors approve a Certificate of Amendment to the Company's
Certificate of Incorporation providing for the 1,500-for-one Reverse Stock Split
of the Company's Common Stock and that such Certificate of Amendment be placed
on the agenda for consideration of the shareholders at the Company's Annual
Meeting. If the stockholders approved this proposal, then every 1,500 shares of
Common Stock would automatically be converted into one share of Common Stock; no
fractional shares of Common Stock would be issued in the Reverse Stock Split and
consequently any shareholder whose ownership would include or consist of less
than one share of Common Stock (the "Fractional Stockholders") would instead
receive cash in lieu of the issuance of one share of Common Stock. On the
effectiveness of the Reserve Stock Split, the Fractional Shareholders whose
ownership prior to the Reverse Stock Split constituted less than 1,500 shares of
Common Stock would no longer have any continuing interest as stockholders in the
Company. Pursuant to Section 15(d) of the Exchange Act, the Company's obligation
to file reports would be suspended and the registration of the shares of Common
Stock would be eligible for termination under Section 12(g)(4) of the Exchange
Act.
From a financial point of view, the Board believed that the amount
proposed to be paid for their fractional shares of Common Stock (the "Cash
Consideration") would be fair to the shareholders. In determining the price to
be paid for fractional shares, the Board considered (i) that the valuation
methodology was the same as that which is used in calculating the value of the
dividend payable on a quarterly basis to the holders of the $35.00 Preferred
Stock in shares of Common Stock, pursuant to the Company's Restated Certificate
of Incorporation, and (ii) that the nominal value ascribed to the Common Stock
and the $35.00 Preferred Stock by the three (3) proposals received from
independent third parties who had expressed a desire to either invest in the
Company or to acquire the Company.
The cost to the Company of paying the Cash Consideration for fractional
shares, however, would not be significant and would be outweighed by the cost
savings of becoming a private company.
The Board of Directors then discussed each of the aspects of the proposal:
The potential detriments of becoming a private company and/or the Reverse
Stock Split methodology considered by the Board included the following:
- If the Reverse Stock Split is approved, _____ shareholders, owning
in the aggregate __________ shares of Common Stock, would cease to
be shareholders of the Company and thereby will not participate in
any future savings from avoiding the costs of being a public
company.
- If the Reverse Stock Split is approved, __________ shareholders,
owning in the aggregate __________ shares of Common Stock, will
continue as minority shareholders and consequently will not, either
singly or by aggregating their shares, be able to elect any
15
<PAGE> 32
members of the Company's Board of Directors, and therefore will not
be able to affect decisions regarding the Company's management and
policies, including but not limited to compensation policy, dividend
policy, merger and/or acquisition strategies, and sale of the
Company and/or its assets.
- If the Reverse Stock Split is approved, the Company will elect to
become a private company by applying for termination of the
registration of its shares of Common Stock under the Exchange Act.
Consequently, management believes that the ability of post-Reverse
Stock Split shareholders to locate broker/dealers willing to enter
quotations for the Company's common stock and/or effectuate trades
therein may be severely curtailed. As a result, it is management's
belief that the only realistic way for continuing shareholders to
realize upon their equity ownership in the Company would be
privately-negotiated transactions, a corporate redemption and/or
liquidation or management's ability to locate one or more
third-party purchasers for the company's assets or common stock.
- The Company and Board of Directors did not obtain any report,
opinion, or appraisal from an outside party with respect to the
Reverse Stock Split, including any report, opinion, or appraisal
with respect to the fairness of the Reverse Stock Split from a
financial or procedural point of view to the Company, to any
affiliate of the Company, or to any unaffiliated stockholders of the
Company. The Board of Directors determined that the cost and expense
to retain such representative or to prepare such report, opinion, or
appraisal were not warranted in light of (i) the fact that the
Company was paying the Fractional Shareholders based on the same
valuation methodology used in calculating the Common Stock dividends
paid in Common Stock to the holders of the $35.00 Preferred Stock,
(ii) the terms of three (3) independent, arms length proposals for
the Company which provided for consideration to the Common and
$35.00 Preferred Shareholders of less than the Cash Consideration,
and (iii) the relatively high cost and expense required to obtain
such report, opinion or appraisal when compared to the low value of
the Company's net assets.
- The Board of Directors did not retain a non-affiliate representative
to act solely on behalf of non-affiliated shareholders for purposes
of negotiating the terms of the Reverse Stock Split or preparing a
report with respect to the fairness of the Reverse Stock Split.
- The Board of Directors did not structure the Reverse Stock Split to
require the approval of at least a majority of the Company's
nonaffiliated shareholders. In this regard, the Company's affiliated
shareholders have indicated that they will vote their shares for the
Reverse Stock Split. Consequently, a majority of the total issued
and outstanding common stock of the Company entitled to vote for the
Reverse Stock Split will be cast in favor and thus the Reverse Stock
Split will be approved even if all of the nonaffiliates shareholders
of the Company vote their shares against the Reverse Stock Split.
- Under the New York General Corporation Law, no appraisal rights
exist with respect to the Reverse Stock Split and the Company is not
voluntarily according dissenting shareholders such rights.
- Shareholders owning whole shares, rather than fractions of a share,
after the Reverse Stock Split will not be entitled to receive any
cash payment.
16
<PAGE> 33
As a result, the Board at a special meeting on April 26, 1999 concluded
that the Cash Consideration and the Reverse Stock Split would be fair to the
shareholders from a procedural and financial point of view and in the best
interests of the Company. The Board of Directors concurred with the proposal
that the Company consider going private at this time and the reasons for such
proposal.
FAIRNESS OF THE REVERSE STOCK SPLIT
The Board of Directors, at the meetings of the Board of Directors on
February 24, 1999, and April 26, 1999, considered the fairness of the proposed
one-for-1,500 Reverse Stock Split of the Company's Common Stock. The Board of
Directors unanimously concluded that the Reverse Stock Split, both from a
financial and procedural point of view, is fair to, and in the best interests
of, both the Company and the stockholders including the Fractional Stockholders.
The Board unanimously approved the Reverse Stock Split, directed that it be
placed on the agenda of the Annual Meeting for consideration, and recommended
that the shareholders vote for the Reverse Stock Split at such meeting.
The Board of Directors, as a part of their determination of the Cash
Consideration and the fairness of the Reverse Stock Split considered certain
specified factors. They considered the current book value of the net assets of
the Company, the historical and current market prices for the shares of Common
Stock, the Company's going concern value, the $11,500,000 liquidation preference
attributable to the $35.00 Preferred Stock, the obligation of the Company to pay
dividends on the $35.00 Preferred Stock and the trading volume of the shares of
Common Stock of the Company during the years ended December 31, 1996, 1997 and
1998. In particular, the Board noted the dilutive effect on the value of the
Common Stock caused by the Company's dividend obligation to the holders of the
$35.00 Preferred Stock. The Company is obligated to pay a dividend, at the rate
of 6% per annum (or approximately $172,000 per quarter), on its $35.00 Preferred
Stock, either in cash or in shares of Common Stock valued quarterly at an
average market price over a 20 trading day period. Due to restrictions imposed
by its lenders, the Company has paid, and will continue to pay, these dividends
in shares of Common Stock. This obligation resulted in the issuance of
approximately 5,700,000 shares of Common Stock following the quarter ended
December 31, 1998 and 20,000,000 shares following the quarter ended March 31,
1999.
The Board of Directors considered that the book value of the Company's net
assets and the historical and current market prices for the shares of Common
Stock were the best and most realistic and reliable indications of the fair
market value of the Company's shares of Common Stock for purposes of their
determination of the amount of the proposed Cash Consideration and their
analysis of the fairness of the Reverse Stock Split to the Fractional
Stockholders.
The Board of Directors concluded on the basis of all of the factors
considered that the Cash Consideration reflects the Company's fair value and,
for this reason, that the Reverse Stock Split is fair to the Fractional
Stockholders from a financial point of view.
The Board of Directors likewise concluded that the Reverse Stock Split is
fair to the Fractional Stockholders from a procedural point of view. They
reiterated that, in the determination of the amount of the Cash Consideration
and in their evaluation of the fairness of the Reverse Stock Split from a
financial point of view, they had relied on non-affiliated third party
negotiated proposals and on a valuation methodology negotiated and agreed upon
in connection with the $35.00 Preferred Stock financing in 1995. Second, they
noted that the Reverse Stock Split, given the lack of a market of consequence
for the Company's shares of Common Stock, afforded stockholders a one time
opportunity to receive, in the view of the Board of Directors, fair value for
their shares. Third, the Reverse Stock Split constituted the most expeditious,
efficient, cost effective and fairest method to convert the Company from a
reporting
17
<PAGE> 34
\company to a privately held non-reporting company in comparison to other
alternatives considered by them
The Board of Directors did not assign any weight to a specified factor if,
in their view, such factor did not assist them in their determination either of
the Cash Consideration or the fairness of the Reverse Stock Split. If any factor
assisted them in their determination, they also did not assign a relative weight
to such factor and did not make a determination as to why any particular factor,
as a result of the deliberations by them, should be assigned any weight.
INTEREST OF CERTAIN PERSONS IN THE REVERSE STOCK SPLIT; CONFLICTS OF INTEREST
As of the date of this Proxy Statement, [22,843,790] shares of Common
Stock, representing approximately [58] % of the Company's issued and outstanding
shares of Common Stock (including shares of $35.00 Preferred Stock on an as
converted basis) are held by affiliated shareholders. If the Reverse Stock Split
is effectuated, these individuals will beneficially own an aggregate of [15,229]
shares of the Common Stock, representing approximately ______ of the Company's
issued and outstanding shares of Common Stock (including shares of $35.00
Preferred Stock on an as converted basis). These directors' ownership in the
Company will effectively increase. Each of Messrs. Gunn, Huffard and Raslan, all
of whom own Common Stock and/or $35.00 Preferred Stock, was present and voted at
the meetings of the Board of Directors at which the Reverse Stock Split was
considered and approved. The Board of Directors was aware of these potential and
actual conflicts of interest but concluded that, despite these conflicts, the
Reverse Stock Split is, fair to the Company and its shareholders.
The Board of Directors of the Company did not retain an unaffiliated
representative to act solely on behalf of unaffiliated stockholders for the
purpose of negotiating the terms of the Reverse Stock Split or for the purpose
of preparing a report with respect to the fairness of the Reverse Stock Split.
The Board of Directors determined that the cost and expense to retain such
representative or to prepare such report were not warranted in light of (i) the
expected Cash Consideration to be paid to the Fractional Stockholders pursuant
to the Reverse Stock Split, and (ii) the relatively low value of the Company's
net assets when compared to the cost and expense required to obtain such report,
opinion or appraisal. The Board of Directors also did not appoint an independent
committee of the Board of Directors to review the fairness of the Reverse Stock
Split.
STRUCTURE AND PAYMENT OF CASH CONSIDERATION
If the Reverse Stock Split is approved by the shareholders at the Annual
Meeting, the Company expects to file a Certificate of Amendment to the Company's
Restated Certificate of Incorporation with the Secretary of State of the State
of New York. The form of the Certificate of Amendment is attached as Exhibit A
to this Proxy Statement.
Pursuant to the terms of the Certificate of Amendment, on the effective
date of filing, each 1,500 shares of the Company's Common Stock issued and
outstanding immediately prior to the effective date will be automatically
converted into one share of the Company's Common Stock.
The Board of Directors has determined to make a cash payment in lieu of
the issuance of fractional shares. Consequently, a cash payment of $0.014 times
each fraction of a share resulting from
18
<PAGE> 35
such one-for-1,500 Reverse Stock Split will be made, in lieu of the issuance of
any fractional shares, to those shareholders who, after the Reverse Stock Split,
own a fractional share of Common Stock. SHAREHOLDERS HOLDING WHOLE SHARES,
RATHER THAN FRACTIONS, AFTER THE CONSUMMATION OF THE REVERSE STOCK SPLIT WILL
NOT BE ENTITLED TO RECEIVE CASH IN LIEU OF THOSE WHOLE SHARES.
PLANS FOR THE COMPANY AFTER THE REVERSE STOCK SPLIT
Once the Reverse Stock Split is effected, the Company will file an
application with the Securities and Exchange Committee to de-register the
Company's Common Stock. Once de-registered, the Company's management will move
aggressively to reduce all expenses incurred as a result of maintaining public
status. Such expense reductions will however, not be enough to eliminate the
Company's cash deficit. Additionally, the Company will continue its due
diligence efforts with the prospective buyer it has identified while continuing
the process of identifying, soliciting and working with other third parties to
obtain a proposal on more favorable terms to the Company's shareholders.
CERTAIN EFFECTS OF THE REVERSE STOCK SPLIT
If the Reverse Stock Split is approved by the vote of a majority of the
outstanding shares of Common Stock, the interest of shareholders of Common Stock
in terms of both dollar amounts and percentages will change. Each share of
Common Stock owned by the Fractional Stockholders which would upon conversion
represent a fractional share of Common Stock will be automatically converted
into the right to receive from the Company, in lieu of fractional shares of
Common Stock, cash in the amount of $0.014 for each share of Common Stock. The
Fractional Stockholders owning less than 1,500 shares of Common Stock will cease
to be stockholders or to have any equity interest in the Company and, therefore,
will not share in its future earnings and growth, if any, and will not have any
right to vote on any corporate matter.
The shares of Common Stock are currently registered under the Exchange
Act. Such registration may be terminated upon application of the Company to the
SEC if the Company has fewer than 300 record holders of the shares or fewer than
500 stockholders and less than $10,000,000 in assets as of the end of three
consecutive fiscal years. The Company currently intends to make an application
for termination of registration of the shares of Common Stock as promptly as
possible after filing the Certificate of Amendment. Termination of registration
of the shares of Common Stock under the Exchange Act would substantially reduce
the information required to be furnished by the Company to its stockholders and
would make certain provisions of the Exchange Act, such as the short-swing
profit recovery provisions of Section 16(b) of the Exchange Act, the requirement
of furnishing a proxy or information statement in connection with stockholder
meetings pursuant to Section 14(a) of the Exchange Act (including a proxy
statement with respect to any sale of the Company), and the requirements of Rule
13e-3 promulgated by the SEC under the Exchange Act with respect to "going
private" transactions, no longer applicable to the Company. Termination of the
registration of the shares of the Common Stock would also deprive "affiliates"
of the Company and persons holding "restricted securities" of the Company of the
ability to dispose of such securities pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended. Such termination of registration shall cause
all shares of Common Stock to be restricted.
19
<PAGE> 36
If the Reverse Stock Split is approved and, as contemplated the shares of
Common Stock are deregistered under the Exchange Act, there will not be any
market for the outstanding shares of the Company's Common Stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The payment for fractional shares for the Company's Common Stock pursuant
to the Reverse Stock Split is expected to be a fully taxable transaction.
Accordingly, each exchanging shareholder will recognize gain or loss for federal
income tax purposes measured by the difference between such shareholder's basis
in the Shares exchanged and the cash received by the Shareholder for the
fractional shares. Such gain or loss will be capital gain or loss if the Shares
were held as a capital asset. All shareholders are urged to consult with their
own tax advisors as to the tax consequences of the Reverse Stock Split.
SOURCE AND AMOUNT OF FUNDS FOR AND EXPENSES OF THE REVERSE STOCK SPLIT
Estimated fees and expenses incurred or to be incurred by the Company in
connection with the Reverse Stock Split are approximately as follows:
<TABLE>
<CAPTION>
Item Approximate Amount
<S> <C>
Payment of Cash Consideration............................. $ 100,000
Legal Fees................................................ 15,000
Cost of New Stock Certificates............................ 5,000
Filing Fees............................................... 60
Printing and Mailing Expenses............................. 5,000
Miscellaneous Expenses.................................... 1,500
----------
Total $ 126,560
----------
</TABLE>
The Company has paid or will be responsible for paying all of such expenses. It
will pay such expenses (including the Cash Consideration payments) from funds
provided, on a month-to-month basis, under its credit facility.
EXCHANGE OF SHARES AND PAYMENT IN LIEU OF ISSUANCE OF FRACTIONAL SHARES
Within ten days after the Effective Date, the Company will mail to the
Fractional Stockholders a notice of the filing of the Certificate of Amendment
(the "Notice of Filing") and a letter of transmittal (the "Letter of
Transmittal") containing instructions with respect to the submission of shares
of Common Stock to the Company. Fractional Stockholders will be entitled to
receive and the Company will be obligated to make payment of, cash in lieu of
fractional shares of Common Stock only by transmitting stock certificate(s) for
shares of Common Stock to the Company, together with the properly executed and
completed Letter of Transmittal and such evidence of ownership of such shares as
the Company may require.
20
<PAGE> 37
SHAREHOLDER APPROVAL
The affirmative vote of the holders of a majority of the aggregate voting
power of the Company's Common Stock and $35.00 Preferred Stock represented and
voting at the meeting is required to approve the Reverse Stock Split.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The Board of Directors unanimously concluded that, on the basis of the
factors discussed below, the Reverse Stock Split, both from a procedural and
financial point of view, is fair to the Company and its shareholders. THE BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE REVERSE
STOCK SPLIT.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
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 on-line services monitoring the OTC Bulletin Board,
for 1997, 1998 and the first quarter of 1999. These quotations reflect the
inter-dealer prices, without retain mark-up, markdown or commission and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
HIGH LOW HIGH LOW HIGH LOW
<S> <C> <C> <C> <C> <C> <C>
First Quarter $0.03 $0.00 $0.94 $0.28 $1.375 $0.688
Second Quarter $0.53 $0.28 $1.375 $0.969
Third Quarter $0.50 $0.34 $1.531 $0.938
Fourth Quarter $0.42 $0.02 $1.531 $0.9065
</TABLE>
On April 23, 1999 the last reported sales price for the Company's Common
Stock on the OTC Bulletin Board was $0.035 per share.
The Company has never declared or paid any cash dividends on its capital
stock. In addition, the Company's revolving line of credit prohibits the payment
of cash dividends on the Company's capital stock without prior consent. The
Company does not anticipate being able to pay any cash dividends in the
foreseeable future. The Company pays dividends on its outstanding $35.00
Preferred Stock through the issuance of shares of Common Stock.
SHAREHOLDER PROPOSALS
In accordance with regulations issued by the Securities and Exchange
Commission, shareholder proposals intended for presentation at the 2000 Annual
Meeting of Shareholders must be received by the
21
<PAGE> 38
Secretary of the Company no later than January 7, 2000, if such proposals are to
be considered for inclusion in the Company's Proxy Statement. In accordance with
the Company's By-Laws, shareholder proposals intended for presentation at the
Annual Meeting of Shareholders that are not intended to be considered for
inclusion in the Company's Proxy Statement must be received by the Secretary of
the Company no earlier than March 24, 2000 and no later than April 17, 2000.
OTHER MATTERS
Management knows of no matters that are to be presented for action at the
Annual Meeting other than those set forth above. If any other matters properly
come before the Annual Meeting, the persons named in the enclosed form of proxy
will vote the shares represented by proxies in accordance with their best
judgment on such matters.
Proxies will be solicited by mail and may also be solicited in person or
by telephone by some regular employees of the Company. The Company may also
consider the engagement of a proxy solicitation firm. Costs of the solicitation
will be borne by the Company.
By Order of the Board
Sophia V. Bilinsky
President and Chief Executive Officer
Two Hartford Square West
Hartford, Connecticut 06106
__________ ___, 1999
22
<PAGE> 39
P
R
O
X
Y
U.S. HOMECARE CORPORATION
TWO HARTFORD SQUARE WEST
HARTFORD, CONNECTICUT 06106
Jay C. Huffard, Sophia V. Bilinsky, or either of them, are hereby
authorized, with full power of substitution, to represent and to vote the stock
of the undersigned at the Annual Meeting of Shareholders of the Company to be
held on June 21, 1999, or at any adjournment of such meeting, upon such business
as may properly come before the meeting, including the following items as set
forth in the Proxy Statement:
Item 1. Election of four (4) Directors
1. Jay C. Huffard 2. John R. Gunn 3. Shawkat Raslan
4. Sophia V. Bilinsky
Item 2. Approval of the Reverse Stock Split.
PLEASE MARK, SIGN AND DATE THIS PROXY WHERE INDICATED AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE.
----------------------
SEE REVERSE
SIDE
----------------------
23
<PAGE> 40
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WHEN PROPERLY
EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS AND FOR THE APPROVAL
OF THE REVERSE STOCK SPLIT.
1. Election of FOR WITHHELD
Directors [ ] [ ]
(see reverse)
For, except vote withheld from the following nominee(s):
2. Approval of the Reverse Stock Split.
FOR AGAINST WITHHELD
[ ] [ ] [ ]
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
Please sign name(s) exactly as printed hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, sign in full corporate name by
President or other authorized officer. If a partnership, sign in partnership
name by authorized person.
SIGNATURE(S) DATE
24
<PAGE> 41
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, 1998
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)
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
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 [ ]
<PAGE> 42
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, based upon the average bid and
asked prices of such Common Stock on the OTC Bulletin Board on March 29, 1999 of
$0.0156, the aggregate market value of outstanding Common Stock on March 29,
1999, held by non-affiliates was less than $100,000. The aggregate market value
of outstanding Preferred Stock held by non-affiliates on March 29, 1999, based
upon private market transactions for such Preferred Stock in 1998 was less than
$100,000. 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.
<PAGE> 43
U.S. HOMECARE CORPORATION
ANNUAL REPORT ON FORM 10K
DECEMBER 31, 1998
TABLE OF CONTENTS
PART I
<TABLE>
<S> <C> <C>
Item 1 BUSINESS ........................................................ 1
Item 2 PROPERTIES ...................................................... 8
Item 3 LEGAL PROCEEDINGS ............................................... 9
Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............. 9
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS ......................................................... 10
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA ............................ 11
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS............................................ 12
Item 7.A. MARKET RISK DISCLOSURES.......................................... 16
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................... 16
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE................. ........................... 16
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............... 17
Item 11. EXECUTIVE COMPENSATION .......................................... 18
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT... 22
Item 13. CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS .................. 23
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K......................................................... 24
</TABLE>
<PAGE> 44
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. U.S. HomeCare 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. U.S.
HomeCare 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. U.S. HomeCare 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, U.S.
HomeCare 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, hospice patients and the frail
elderly.
Following its formation in 1986, U.S. HomeCare 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, U.S.
HomeCare 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, U.S. HomeCare failed to successfully implement
its expansion strategy and began to incur operating losses in the second quarter
of 1993. In August 1994, U.S. HomeCare 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, U.S. HomeCare continued to incur operating
losses in 1994, 1995 and 1996.
In late 1996, U.S. HomeCare undertook further restructuring efforts,
including the sale of the business and operating assets of its home infusion
therapy operations as of October 1, 1996. U.S. HomeCare 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, U.S. HomeCare reported profitable operations through the first six months
of the year. During that time U.S. HomeCare 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. This Agreement was terminated by mutual agreement in February of 1998.
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. U.S. HomeCare cooperated fully with the State's investigation and
initiated its own internal investigation of its billing practices and Medicaid
rates. Based on its internal review, U.S. HomeCare 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, U.S. HomeCare
also believed that it could take substantial time and expense to litigate any of
these issues to their conclusion. U.S. HomeCare 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
1
<PAGE> 45
a final agreement signed on February 27, 1998, U.S. HomeCare 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 U.S. HomeCare has agreed with the state that it will
use reasonable efforts to refinance the amount of the settlement as soon as
possible.
In April and May of 1998 U.S. HomeCare began to experience reductions in sales
and margins principally as a result of the impact of the Interim Payment System
("IPS") adopted by Medicare which became effective in 1998. On June 15, 1998,
U.S. HomeCare announced the hiring of a new CEO to provide leadership to the
company. Over the last three quarters of 1998, U.S. HomeCare took charges to
earnings totaling $3.2 million -- more than half of which was related to the
revision of estimates for earlier period tax audits, retrospectively rated
workers compensation, vendor settlements, and Medicare cost report settlements
for 1996 with the remaining charges principally for the 1998 IPS liability. By
October of 1998, the full impact of IPS was evident on the company's operating
results and U.S. HomeCare began again the active process of seeking capital
resources to support its business.
At the end of December of 1998, U.S. HomeCare initiated further cost reduction
measures expected to yield $1.3 million on an annualized basis.
In January of 1999, U.S. HomeCare's bank group extended the maturity on the
existing credit lines and they continue to do so on a month to month basis. In
February of 1999, the bank group approved an increase in the credit facilities
to provide U.S. HomeCare with liquidity while U.S. HomeCare pursues outside
capital resources.
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 ("HCFA"), U.S. home health care spending
for 1998 is estimated to exceed $33 billion with nursing services representing
approximately two thirds of the total. The market for home health care services
is expected to grow by approximately 8% per year to over $66 billion in the year
2007.
The growth in home health care revenues is being driven by several
factors, including
- The aging of the U.S. population;
- The increased acceptance by physicians, patients and
third-party payors of home health care services as a
viable alternative for administering care outside of
an institutional setting;
- The cost effectiveness of home health care versus
hospitalization (home health care is estimated to
cost approximately 50% of equivalent care delivered
in the hospital); and
- The deterioration of the family unit which forces the
dependence of individuals on outside caregivers.
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.
2
<PAGE> 46
The home health care industry consists of four segments: nursing
services, infusion therapy, respiratory therapy and home medical equipment. U.S.
HomeCare 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.
In 1998, the nursing segment of the home health care industry was
adversely affected by continued reimbursement rate pressure from governmental
payors and, in particular, from the implementation of a new method of
reimbursement for nursing services by Medicare - the Interim Payment System
("IPS"). Historically, Medicare reimbursements were based upon the lower of the
home health agency's cost of providing services to a patient on a per visit
basis or Medicare's per visit cost cap. Under IPS, home health care agencies, in
addition to the above reimbursement limitations, are also subject to a total per
patient cap on reimbursement. This cap is agency specific, based principally on
the individual agency's experience in 1993. Agencies that have a more acute
census of patients or have changed their patient mix are experiencing
difficulties in managing to deliver the necessary care to patients within these
reimbursement limitations. Many agencies have reduced their overall Medicare
census and are looking for alternate referral sources of less acute patients or
looking to reduce their overall costs in order to reduce their exposure to
Medicare. Many certified agencies are reducing the frequency and length of
paraprofessional visits to patients. Even though patient census may have
increased, licensed agencies have experienced significant reductions in per
patient revenues. Since the per patient caps were not finalized until the second
quarter of 1998, many certified home health agencies were slow to adjust to the
new reimbursement system. They are now facing significant paybacks owed to the
Medicare program as a result of these changes. The financial wherewithal of a
significant number of these agencies is in question (several large home health
agencies have already filed for Chapter 11 protection) leading to an even more
accelerated consolidation of the home health care industry expected to occur in
1999.
In October of 2000, HCFA expects to implement the Prospective Pay
System ("PPS") which is expected to address a number of inadequacies inherent in
the IPS system the industry is burdened with today. PPS will reimburse per
patient based on the patients diagnosis. In theory, this will allow agencies who
accept higher acuity patients or patients with diagnoses that require longer
periods of treatment to be reimbursed fairly under the Medicare system. Agencies
efficient in returning a patient to independence based on specific disease
states are expected to prosper under this reimbursement system.
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. Many of U.S. HomeCare's
competitors and potential competitors have significantly greater financial,
technical and marketing and sales resources than U.S. HomeCare and may, in
certain locations, possess licenses or certificates (for example, certificates
of need in New York) that permit them to provide services that U.S. HomeCare
cannot provide currently.
NEED TO REFINANCE OR EXTEND EXISTING CREDIT FACILITIES
All of U.S. HomeCare's existing credit facilities, including
its accounts receivable securitization program, revolving line of credit, term
loan, and subordinated debt matured in January 1999. Given the industry
conditions and U.S. HomeCare's need for additional capital resources, the bank
group is renewing financing on a month to month basis, although it has no
obligation to do so.
3
<PAGE> 47
U.S. HomeCare's ability to continue to operate its business over the
near term is highly dependent on, among other things, its ability to secure
adequate financing. Discussions with potential financing sources in 1998 did not
result in U.S. HomeCare obtaining such financing. There can be no assurance that
such financing is available.
RELATIONSHIPS WITH REFERRAL SOURCES
U.S. HomeCare'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 U.S. HomeCare's existing relationships with these
referral sources will be successfully maintained or that additional
relationships will be successfully developed. In March 1994, VNS HomeCare
("VNS"), a non-profit home health care institution in New York City informed
U.S. HomeCare that it intended to reduce U.S. HomeCare's overall caseload due to
substandard administrative performance ratings. Though these issues were
addressed and current ratings are above average, the VNS has been reluctant to
reinstate U.S. Homecare's premier vendor status. This, in combination with the
fact that 1)the VNS started its own licensed agency to which it is directing
referrals on a priority basis and 2) the negative effect of the Interim Payment
System on the VNS has resulted in continuing revenue declines for U.S.
HomeCare's VNS business. U.S. HomeCare's net revenues attributable to VNS
declined from $6.2 million (11% of total revenues) for the year ended December
31, 1995 to $5.4 million (9%) for the year ended December 31, 1996, and to $4.5
million (8%) for the year ended December 31, 1997, and to $3.5 million (7%) for
the year ended December 31, 1998.
During 1998, US HomeCare obtained several significant new customers
including New York Health and Hospital Corporation, Catholic Medical Centers,
Coram, and Merit Behavioral, which have offset somewhat the volume reductions
attributable to VNS.
U.S. HomeCare's recent strategy has been to focus on elevating its
relationships with its customers to more of a partnership which U.S. HomeCare
believes is necessary for both parties to effectively deal with the adverse
reimbursement environment the industry is currently faced with. U.S. HomeCare is
working with selected customers to implement special training and other staffing
programs to more effectively meet the customers' needs. Most importantly, U.S.
HomeCare is reinvesting in technology and software to provide a more cost
effective, responsive service to patients of its referral sources. Quicker, more
efficient discharges are assisting hospitals and family members in ensuring cost
effective, high quality care for their patients while more efficient tracking of
start and stop times and billing of services provided ensure lower costs for
certified agency customers. Lastly, U.S. HomeCare has initiated discussions
about developing jointly with its customers, prospective disease specific care
protocols in anticipation of the Prospective Pay System.
DEPENDENCE ON REIMBURSEMENT BY THIRD PARTY PAYORS
A portion of U.S. HomeCare's revenues is derived directly or indirectly
from government-sponsored health care programs, including Medicaid and Medicare.
U.S. HomeCare receives direct payments from both Medicare (12.8% of revenue) and
Medicaid (12.5% of revenue). US HomeCare also derives significant revenues
indirectly from the Medicare program through contracts with local government
agencies (9.2% of revenue), such as the Department of Social Services of
Westchester County. In addition, a substantial portion of U.S. HomeCare's
business is derived as a subcontractor to Certified Home Health Agencies that
derive a substantial portion of their revenues from Medicare and Medicaid. As a
result, U.S. HomeCare is adversely affected by any rate freezes, payment delays,
cutbacks in coverage or any other adverse actions taken with respect to Medicare
and Medicaid. 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 home health care providers such as U.S.
HomeCare. These steps have included, among others,
4
<PAGE> 48
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 U.S. HomeCare could have a material adverse effect
upon U.S. HomeCare's business and financial condition.
For each office in which U.S. HomeCare participates in the Medicare
program, U.S. HomeCare 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 U.S.
HomeCare's Medicare-certified offices are located.
In its core market operations U.S. HomeCare 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 U.S. HomeCare's Medicare certified operations have been
settled for all filings made in 1997 for operations through December 1996
although they remain subject to reopening through September 2000. The cost
reports filed for periods through December 31, 1997 were initially settled
during the third quarter of 1998 but will be subject to audit during 1999. All
estimated liabilities to the Medicare Program for 1997 cost report settlements
were paid during the third and fourth quarter of 1998. The remaining open cost
reports for periods through December 31, 1998 are not due until May 1999.
However, during December 1998 and January 1999 our Medicare intermediary for our
Pennsylvania operations requested an interim cost report for these providers.
The results of their review are fully reserved for in 1998. While U.S. HomeCare
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 U.S. HomeCare. Such assessments could result in reductions in recorded
revenues in 1999.
GOVERNMENT REGULATION
U.S. HomeCare 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, 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 U.S. HomeCare's methods and costs of doing business. Further,
failure by U.S. HomeCare to comply with applicable laws could adversely affect
U.S. HomeCare's ability to continue to provide, or receive reimbursement for,
its services from Medicare, Medicaid and other third party payors and also could
subject U.S. HomeCare and its officers to civil and criminal penalties. There
can be no assurance that U.S. HomeCare 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.
U.S. HomeCare'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
5
<PAGE> 49
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 U.S. HomeCare.
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 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. U.S.
HomeCare 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 U.S. HomeCare'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), U.S. HomeCare does have
CONs.
U.S. HomeCare is also subject to laws and regulations pertaining to the
environment, health and safety. If U.S. HomeCare 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.
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 U.S. HomeCare operates are considering various health care reform
proposals. U.S. HomeCare 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, U.S. HomeCare cannot predict
which, if any, reforms will be adopted, when they may be adopted, or what impact
they may have on U.S. HomeCare. In addition, the cost and service considerations
which have generated proposals for
6
<PAGE> 50
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 U.S. HomeCare'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 difficult
financial circumstances and volatility in the trading and market price of U.S.
HomeCare's Common Stock and for securities of health care companies generally.
ABILITY TO ATTRACT AND RETAIN KEY MANAGEMENT AND DEPENDENCE ON HEALTH CARE
PROFESSIONALS
U.S. HomeCare's future success will depend in large part on its ability
to attract and retain senior management personnel and branch-level management.
In addition, U.S. HomeCare is dependent on its staff of professional nurses and
it's 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 U.S. HomeCare's business and prospects.
Although U.S. HomeCare has been generally able to meet its staffing requirements
for professional nurses and other health care staff, U.S. HomeCare 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 U.S. HomeCare's
profitability and on U.S. HomeCare's ability to maintain or increase its patient
base at certain or all of its branch offices.
LIABILITY AND INSURANCE
U.S. HomeCare's services subject it to liability risk. Malpractice
claims may be asserted against U.S. HomeCare if its services are alleged to have
resulted in patient injury or other adverse effects. U.S. HomeCare 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 U.S. HomeCare's business or
financial condition. U.S. HomeCare currently maintains liability insurance in
the amount of $ 5 million per occurrence and $ 9 million in the aggregate. There
can be no assurance that the coverage limits of U.S. HomeCare's insurance
policies will be adequate. During 1998 U.S. HomeCare did comply with the Balance
Budget Act of 1997 and obtain surety bonds for all its Medicare businesses. In
addition, while U.S. HomeCare 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 acceptable terms or at all. A successful claim
against U.S. HomeCare in excess of U.S. HomeCare's insurance coverage could have
a material adverse effect upon the Company's business and financial condition.
Claims against U.S. HomeCare, regardless of their merits or eventual outcome,
also may have a material adverse effect upon U.S. HomeCare'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. U.S. HomeCare believes that the
programs provided, the quality of care and service provided, reputation, and the
level of charges for services are significant competitive factors. Many of U.S.
HomeCare's competitors and potential competitors have significantly greater
financial, technical and marketing and sales resources than U.S. HomeCare and
may, in certain locations, possess licenses or certificates (for example, CONs
in New York State) that permit them to provide services that U.S. HomeCare
cannot currently provide. There can be no assurance that U.S. HomeCare will not
encounter increased competition in the future that could limit U.S.
7
<PAGE> 51
HomeCare's ability to maintain or increase its business and could adversely
affect U.S. HomeCare's operating results.
EMPLOYEES
As of December 31, 1998, U.S. HomeCare had approximately 3,000
employees. U.S. HomeCare believes that its employee relations are good. None of
U.S. HomeCare's employees are currently represented by a labor union.
PATENTS AND TRADEMARKS
U.S. HomeCare has no material patents or trademarks.
OTHER
U.S. HomeCare does not have significant research and development
expenditures. U.S. HomeCare's business is not significantly seasonal in nature.
RISK FACTORS
U.S. HomeCare's future is dependent on its ability to improve its
financial condition and secure additional outside capital and results of
operations are dependent on U.S. HomeCare'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 U.S. HomeCare must
carefully manage in order to be successful. Some of these factors are: obtaining
sufficient cash flow from operations to meet its debt service and pay vendors on
a timely basis; obtaining outside sources of capital to fund cash flow deficits;
successful re-negotiation and extension of its credit facilities; complying with
the financial covenants in its revolving line of credit, subordinated credit
facility and accounts receivable securitization program; 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 these risks
successfully has had and will continue to have a material adverse effect on U.S.
HomeCare's business, financial condition and results of operations.
ITEM 2. PROPERTIES
The following table sets forth the branch offices of U.S. HomeCare in
each of its markets.
<TABLE>
<CAPTION>
DATE OPENED LEASE
OR BUSINESS SQUARE
LOCATION ACQUIRED FOOTAGE
- -------- -------- --------
<S> <C> <C>
NEW YORK
Hartsdale (regional processing center) 5/86 5,968
Brooklyn 1/88 3,215
</TABLE>
8
<PAGE> 52
<TABLE>
<S> <C> <C>
Queens 3/89 4,860
Nassau 3/89 3,600
Suffolk 3/89 2,668
Manhattan 5/86 9,600
Bronx 5/86 5,000
Scarsdale 5/86 3,643
Peekskill 5/86 1,250
Kingston 4/92 6,400
Latham 4/92 4,420
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 6,145
</TABLE>
U.S. HomeCare's headquarters is located in Hartford, Connecticut. U.S.
HomeCare's nursing services are provided by staff located at branch offices in
U.S. HomeCare's markets. All facilities are leased with various expiration dates
through the year.
U.S. HomeCare 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.
ITEM 3. LEGAL PROCEEDINGS
On August 10, 1998, Neuman Distributors, a vendor to U.S. HomeCare's
discontinued IV Infusion business, enforced a judgement against U.S. HomeCare's
New York assets from a New York State Court. U.S. HomeCare presented its case to
the New York Courts and was not successful. In September of 1998, U.S. HomeCare
settled the matter with Neuman Distributors at an additional expense to U.S.
HomeCare of $280,000 to be paid over time.
As a routine part of its business, U.S. HomeCare is from time to time
involved in a variety of employee related disputes, many of which are litigated.
It is U.S. HomeCare's experience that these claims do not typically represent a
material claim. It is U.S. HomeCare's judgement and the judgement of its counsel
that none of the claims currently in litigation would have a material affect on
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
9
<PAGE> 53
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
U.S. HomeCare'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 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>
1998 1997
---- ----
HIGH LOW HIGH LOW
<S> <C> <C> <C> <C>
First Quarter $0.94 $0.28 $1.375 $0.688
Second Quarter $0.53 $0.28 $1.375 $0.969
Third Quarter $0.50 $0.34 $1.531 $0.938
Fourth Quarter $0.42 $0.02 $1.531 $0.906
</TABLE>
On March 29, 1999 the last reported sales price for U.S. HomeCare's
Common Stock on the OTC Market was $0.0156 per share.
HOLDERS
At December 31, 1998, there were approximately 400 record holders of
Common Stock.
DIVIDENDS
U.S. HomeCare has never declared or paid any cash dividends on its
capital stock. In addition, U.S. HomeCare's revolving line of credit prohibits
the payment of cash dividends on U.S. HomeCare's capital stock without prior
consent. U.S. HomeCare does not anticipate being able to pay any cash dividends
in the foreseeable future. U.S. HomeCare pays dividends on its outstanding
$35.00 6% cumulative Convertible Preferred Stock, $1.00 par value (the "$35.00
Preferred") through the issuance of shares of Common Stock.
10
<PAGE> 54
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, 1996, 1997 and 1998 and at December 31, 1997 and 1998
respectively, have been derived from U.S. HomeCare's audited consolidated
financial statements, and are included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues ........................................ $ 56,351 $ 56,450 $ 55,085 $ 52,635 $ 47,785
Cost of revenues .................................... 38,295 37,605 37,815 32,630 32,132
-------- -------- -------- -------- --------
Gross profit ........................................ 18,056 18,845 17,270 20,005 15,653
Selling, general and administrative expenses ........ 26,748 17,944 18,416 15,301 16,446
Provision for litigation settlement ................. 2,000 -- -- 1,750 --
Amortization and depreciation ....................... 4,875 2,208 1,743 1,051 856
Restructuring and other non-recurring charges ....... 7,650 -- 3,619 1,306 --
-------- -------- -------- -------- --------
Income (loss) from continuing operations ............ (23,217) (1,307) (6,508) 597 (1,649)
Interest and other financing expenses ............... 2,057 1,533 1,892 2,044 2,293
-------- -------- -------- -------- --------
Loss from continuing operations before
provisions (benefit) for income taxes ............... (25,274) (2,840) (8,400) (1,447) (3,942)
Provision (benefit) for income taxes ................ (219) 154 150 150 150
Discontinued operations:
Income (loss) from discontinued operations .......... (1,710) 1,196 (1,464) (1,597) --
Loss on sale of IV therapy business ................. -- -- (13,779) --
-------- -------- -------- -------- --------
Net loss ............................................ (26,765) (1,798) (23,793) (1,597) (4,092)
Dividends in common stock to preferred shareholders.. (34) (641) (690) (690) (690)
-------- -------- -------- -------- --------
Net Loss applicable to common shareholders .......... (26,799) (2,439) (24,483) (2,287) (4,782)
======== ======== ======== ======== ========
Basic and diluted loss per share:
Income (loss) from continuing operations ............ $ (3.04) $ (.45) $ (1.04) $ (.22) $ (.37)
Discontinued operations:
Income (loss) from discontinued operations .......... (.21) .15 (.17) -- --
Loss on disposal of IV therapy business ............. -- -- (1.55) -- --
-------- -------- -------- -------- --------
Basic and diluted loss per share .................... $ (3.25) $ (.30) $ (2.76) $ (.22) $ (.37)
======== ======== ======== ======== ========
Weighted average common shares outstanding .......... 8,247 8,180 8,868 10,444 12,975
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Net accounts receivable ............................. $ 13,382 $ 15,480 $ 7,925 $ 5,147 $ 5,525
Working capital (deficit) ........................... (6,547) 8,186 (3,511) (345) (11,901)
Total assets ........................................ 43,681 38,441 15,545 10,378 9,372
Short-term debt ..................................... 6,729 1,119 346 -- 8,277
Long-term debt (less current portion) ............... 9,282 12,524 7,983 7,577 --
Stockholders' equity (deficit) ...................... 8,593 15,915 (7,055) (6,471) (10,471)
</TABLE>
11
<PAGE> 55
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 U.S. HomeCare. 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
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. U.S. HomeCare 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. U.S.
HomeCare 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. U.S. HomeCare 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, U.S.
HomeCare 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, hospice patients and the frail
elderly.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net revenues were $47.8 million in 1998 compared to $52.6 million in
1997. Approximately 55% of the $4.8 million revenue decline was directly as a
result of changes in rates or reimbursement methodology (Interim Payment System)
of governmental payors, 23% was the result of losses in revenues from one major
customer (VNS), and the remaining revenue decline was predominately caused by
the indirect effect of the above referenced governmental reimbursement changes
on U.S. HomeCare's customers. Of the $2.6 million in revenue declines resulting
from direct governmental reimbursement changes, $724,000 or 28% was for services
rendered in earlier periods.
Cost of revenues as a percentage of net revenues increased to 67.2% in
1998 as compared to 62.0% in 1997. More than 67% of the margin decline is due to
governmental reimbursement changes while the remainder reflects increased
professional and paraprofessional staffing costs brought about by the near
full-employment levels in the U.S. economy.
Selling, general and administrative expense increased by $1.1 million
or 6.7% to $16.4 million in 1998 compared to $15.3 million for 1997. $990,000 of
this increase reflects the effect of revised estimates of liabilities related to
tax audits for 1989 to 1996, retrospectively rated workers compensation for 1992
to 1996, and a revised settlement with a vendor to the Company's discontinued
home infusion business.
Net interest and other financing expense was $2.3 million in 1998 or
12.2% higher than in 1997. The increase resulted from an increase in borrowed
funds. Amortization and depreciation were $.9 million for the year ended 1998
compared to $ 1.1 million for the year ended 1997.
U.S. HomeCare's net operating losses eliminated any Federal income tax
liability. The income taxes noted relate to state tax obligations.
12
<PAGE> 56
As a result of the foregoing, for the twelve months ended December 31,
1998, U.S. HomeCare had a net loss of $ 4.1 million compared to a net loss of $
1.6 million for the corresponding twelve months in 1997. After eliminating the
impact of various charges taken in 1998 for prior period liabilities and charges
taken in 1997 for the regulatory settlement, merger, and other non-recurring
items, the net loss for the calendar year 1998 would have been $2.4 million
versus net income of $ 1.5 million in 1997.
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 U.S. HomeCare'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 16.9% to $15.3 million in 1997 compared to $18.4 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 and other financing expense was $2.0 million in 1997 or 8.0%
higher than in 1996. The increase reflects amounts paid to extend borrowing
facilities through January 1998.
During the year U.S. HomeCare also incurred a $1.75 million cost of
settling a regulatory matter with the State of New York, as described in Note 9.
This settlement related to Medicaid contract years from 1992 through 1997.
U.S. HomeCare 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.
U.S. HomeCare 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
U.S. HomeCare.
Had U.S. HomeCare not incurred the charges for the regulatory
settlement, merger, or other non-recurring charges in 1997, net income would
have been $1,459,000.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, U.S. HomeCare had cash and cash equivalents of
approximately $0.3 million. The working capital deficit increased by $11.6
million, from $0.3 million at December 31, 1997 to a working capital deficit of
$11.9 million at December 31, 1998. The deterioration in net working capital was
primarily a result of the reclassification of all of U.S. HomeCare's credit
facilities from long-term to short-term based on the maturities of those loans.
The remainder of the change is principally the result of increases in accrued
expenses described below.
13
<PAGE> 57
The increase in net accounts receivable resulted primarily from slower
Medicare reimbursement resulting from the implementation of sequential billing
and the implementation of greater focused medical reviews. The changes also had
a direct impact on many of U.S. HomeCare's Certified Home Health Agency
customers resulting in slower payments to their sub-contracted vendors.
Trade accounts payable increased from $2.5 million at December 31, 1997
to $2.9 million at December 31, 1998 reflecting the inclusion of $0.76 million
of un-presented payroll checks.
Accrued expenses increased from $2.8 million at December 31, 1997 to
$6.2 million at December 31, 1998, resulting primarily from increased
liabilities related to repayments owed to Medicare, increases in workers
compensation reserves, the establishment of a tax reserve from prior period tax
audits, and miscellaneous accruals for year end invoices not received for U.S.
HomeCare's self-funded health benefits plan, banking, legal, and accounting
fees.
Accrued payroll and related costs decreased from $1.7 million at
December 31, 1997 to $1.0 million at December 31, 1998, resulting primarily from
the timing of the pay period which resulted in the $0.76 of un-presented checks
recorded in accounts payable above.
Cash flow from operating activities for the year ended December 31,
1998 declined $ 1.1 million to $(0.5) million from $0.6 million for the year
ended December 31, 1997. This decline was principally due to changes in accounts
receivable and accounts payable and accrued expenses. Overall, the cash flow
deficit in 1998 was due to payments made on various long-term liabilities
incurred in prior years as well as industry factors discussed above. Cash flow
from financing activities was $0.7 million for the year ended December 31, 1998,
compared to ($0.8) million for the year ended December 31, 1997.
The Company is not in compliance with the financial covenants of its
revolving credit agreement. Non-compliance with financial covenants gives the
banks the right to declare the amounts outstanding under all of the Company's
credit facilities immediately due and payable. To date, the banks have not
called the loans and are working with U.S. HomeCare on a month to month basis in
providing funding for the Company's cash needs, although there is no obligation
to do so.
The credit facilities, within the existing funding parameters, together
with cash generated from operations will not be sufficient to fund the Company's
operations and debt obligations through 1999 even if the credit facilities
continue to be renewed. U.S. HomeCare will need to raise equity capital and/or
increase and extend or replace its existing credit facilities to ensure
sufficient funding of its operations. U.S. HomeCare is currently discussing with
its current creditors and others such expanded and extended financing. There can
be no assurance that U.S. HomeCare will obtain such expanded and extended
financing. Failure to obtain such financing would have a material adverse effect
on U.S. HomeCare's business, financial condition and results of operations.
U.S. HomeCare has a Receivables Purchase and Servicing Agreement (the
"Securitization Program"), which allows U.S. HomeCare to sell for cash an
undivided percentage ownership interest in a designated pool of eligible
receivables, as defined. U.S. HomeCare 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, 1998 were $6.7 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 and has
been extended on a month-to-month basis since that time.
U.S. HomeCare 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, 1998 was less than $10,000. Borrowings under the RLOC
of $5.3 million as of December 31, 1998 are collateralized by substantially all
of U.S. HomeCare's assets. The terms of the RLOC provide, among other
14
<PAGE> 58
things, for prepayments in the event that U.S. HomeCare'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 and has been extended since that date for additional
one-month periods.
U.S. HomeCare has a $3.0 million subordinated credit facility ("the
Subordinated Credit 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, U.S. HomeCare
agreed to issue additional warrants (the "Additional Warrants") to the CDA to
purchase 735,000 shares of U.S. HomeCare'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 U.S. HomeCare 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. Both instruments have been extended on a month-to-month basis
since that time.
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.
U.S. HomeCare 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 modifications and test Year 2000
Compliance. U.S. HomeCare plans on completing the testing process of all
significant applications by July 31, 1999.
U.S. HomeCare has also initiated discussions with its significant
suppliers, large customers and financial institutions to determine that those
parties have appropriate plans to remediate Year 2000 issues where their systems
interface with the U.S. HomeCare's system or otherwise impact its operations.
U.S. HomeCare is assessing the extent to which its operations are vulnerable
should those organizations fail to properly remediate their computer systems,
and as of the date hereof is not able to quantify the impact on the Company, if
any, of failures of those organizations to remediate Year 2000 issues properly.
The total cost to U.S. HomeCare 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 U.S. HomeCare 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.
15
<PAGE> 59
QUARTERLY INFORMATION
The following table presents unaudited financial data for the eight
quarters beginning January 1, 1997. 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>
1998
Net revenues ........................... $ 12,962 $ 11,737 $ 11,239 $ 11,847
Income/(loss) from continuing operations
before interest and income taxes .. 938 (669) (1,351) (567)
Net income (loss) ...................... 350 (1,276) (1,965) (1,201)
Net income (loss) applicable to common
shareholders ...................... 178 (1,448) (2,137) (1,375)
Basic income (loss) per share(a) ....... $ .01 $ (.11) $ (.17) $ (.10)
Diluted income (loss) per share ........ $ .01 $ (.11) $ (.17) $ (.10)
1997
Net revenues ........................... $ 13,754 $ 13,976 $ 12,195 $ 12,710
Income/(loss) from continuing operations
before interest and income taxes .. 1,511 1,544 (355) (2,103)
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)
</TABLE>
During the fourth quarter of 1997 U.S. HomeCare recorded an accrual for
$1.75 million representing the costs of settlement of the New York Medicaid
investigation. Also in the fourth quarter, U.S. HomeCare 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
U.S. HomeCare's outstanding borrowings as of December 31, 1998 bear
interest at variable rates, therefore, results of operations would be affected
by changes in interest rates. A change of 100 basis points in interest rates
would cause a $150,000 change in annual interest expense.
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
16
<PAGE> 60
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AS OF
MARCH 15,1999
The directors and executive officers of U.S. HomeCare and their ages
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- ----------------- -------
<S> <C> <C>
Jay C. Huffard (2) 57 Chairman of the Board and Director
Sophia V. Bilinsky (2) 33 President, Chief Executive Officer and Director
John R. Gunn (1)(3) 55 Director
Shawkat Raslan (2)(3) 47 Director
</TABLE>
- -----------------------
(1) Member of the Nominating Committee.
(2) Member of the Executive Committee of which Mr. Huffard is Chairperson.
(3) Member of the Audit Committee of which Mr. Gunn is Chairperson.
U.S. HomeCare's directors hold office until the next annual meeting of
shareholders or until their successors have been duly elected and qualified.
U.S. HomeCare'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
U.S. HomeCare receives an annual retainer of $10,000 as compensation for
services as a director, except for Mr. Huffard who receives an additional annual
fee of $40,000 for his services as Chairman of the Board. Each director who is
not an employee of U.S. HomeCare 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 U.S. HomeCare. Directors
who are employees receive no additional compensation for their services as
directors of U.S. HomeCare. During 1995, the Board did not receive its $10,000
retainer and meeting fees. U.S. HomeCare 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. Fees for 1998 were also paid in
stock, with the final stock issuance occurring in March 1999.
Jay C. Huffard has been a director of U.S. HomeCare since 1988,
Chairman of the Board of Directors since July 1991, interim President and Chief
Executive Officer from October 1996 to June 1998 when Sophia V. Bilinsky 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.
Sophia V. Bilinsky joined U.S. HomeCare in June 1998 serving as
President and Chief Executive Officer. Prior to joining U.S. HomeCare, Ms.
Bilinsky was Vice President, of US Servis Inc., a business
17
<PAGE> 61
management services organization for hospitals and physician groups, and general
manager of their physician division from April 1995 to June 1998 prior to which
she served as President and Chief Operating Officer of HealthNet Corp. From 1986
to 1991, Ms. Bilinsky held financial positions with Whitehead/Sterling, a
private equity investment firm, General Electric Corporation, and Citibank, N.A.
John R. Gunn has been a director of U.S. HomeCare 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 U.S. HomeCare 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.
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 U.S. HomeCare during the 1998, 1997 and 1996 fiscal years to all
individuals serving as U.S. HomeCare's chief executive officer or acting in a
similar capacity during 1998 and the other highest paid executive officers of
U.S. HomeCare 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 1998 95,000(2) 0 0 0
Interim President, Chief 1997 122,500(3) 0 100,000(4) 0
Executive Officer, 1996 108,000(1) 0 0 0
Chairman and Director
Sophia V. Bilinsky 1998 107,692 0 500,000(4) 53,846(7)
President, Chief 1997 N/A N/A N/A N/A
Executive Officer 1996 N/A N/A N/A N/A
Clifford G. Johnson 1998 125,000 0 0 20,000
Vice President, Finance and 1997 89,682(5) 0 50,000(4) 0
Administration & Chief 1996 N/A N/A N/A N/A
Financial Officer
</TABLE>
- -------
18
<PAGE> 62
(1) Mr. Huffard was appointed Interim President and Chief Executive Officer
of U.S. HomeCare 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 U.S.
HomeCare and $28,000 in compensation for his role as a director of U.S.
HomeCare. Mr. Huffard received an additional $25,000 for additional
services rendered to U.S. HomeCare. Of the $108,000 paid to Mr. Huffard
in 1996, $55,000 was paid in cash and $53,000 in Common Stock of U.S.
HomeCare.
(2) The figure of $ 95,000 includes $40,000 in cash compensation for his
role as Chairman of U.S. HomeCare, $45,000 in cash compensation for his
role as CEO and President during 1998, and $10,000 in Common Stock of
U.S. HomeCare in compensation for his role as director of U.S.
HomeCare.
(3) Mr. Huffard's $122,500 consists of $60,000 paid as cash compensation
for services as President, $40,000 in cash for service as Chairman, and
$22,500 as fees in Common Stock for attending various Board meetings.
(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.
(6) Ms. Bilinsky received $107,692 during 1998, based on a salary of
$200,000.
(7) Ms. Bilinsky is guaranteed a bonus of $100,000 per annum and received $
53,846 during 1998.
EMPLOYMENT ARRANGEMENTS
Mr. Huffard's annual compensation as Chairman of the Board is
$40,000 and $60,000 per annum for his duties as President and Chief Executive
Officer during 1998 paid through September of 1998.
Sophia V. Bilinsky's annual salary as President, Chief Executive
Officer of U.S. HomeCare was $200,000 with a guaranteed bonus of $100,000. Stock
options to purchase an aggregate of 500,000 shares of Common Stock were granted
to Ms. Bilinsky on May 15, 1998. The commencement of her employment with U.S.
HomeCare was May 15, 1998. These options are exercisable at $0.50, the fair
market value of U.S. HomeCare's common stock on the grant date. Of the 500,000
option shares, 166,668 were vested on June 15, 1998, with the remaining vesting
on the second and third anniversary dates of the original vesting (subject to
acceleration of vesting upon an acquisition of U.S. HomeCare by a merger or by a
stock or asset sale). In the event Ms. Bilinsky's employment is terminated, she
is entitled to her base salary, on a monthly basis for one year.
Clifford G. Johnson's annual salary as Vice President, Finance and
Administration & Chief Financial Officer of U.S. HomeCare 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 U.S. HomeCare was April 8, 1997. These
options are exercisable at $1.00, the fair market value of U.S. HomeCare's
Common Stock on the grant date. Of the 50,000 option shares, one third were
vested on issuance, with the remaining vesting on May 12, 1998 and 1999 (subject
to acceleration of vesting upon an acquisition of U.S. HomeCare by a merger or
by a stock or asset sale). In the event that Mr. Johnson's employment is
terminated without cause, he is entitled to his base salary, on a monthly basis,
for six months. Mr. Johnson's employment agreement was terminated effective
March 8, 1999.
19
<PAGE> 63
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table shows, with respect to the Named Executive
Officers, certain information concerning the grant of stock options in 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
OPTION TERM(1)
- --------------------------------------------------------------------------------------------------------------------
NAME NUMBER OF PERCENT OF INITIAL EXPIRATION 5% 10%
SECURITIES TOTAL OPTIONS EXERCISE DATE
UNDERLYING GRANTED TO PRICE
OPTIONS EMPLOYEES IN ($/SHARE)
GRANTED FISCAL YEAR
------ ---------- ------- ------- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Sophia V. Bilinsky 500,000(2) 89% $0.50 6/15/05 $101,775 $237,179
</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 U.S. HomeCare'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) Ms. Bilinsky was granted an option on May 15, 1998 to purchase 500,000
shares of U.S. HomeCare common stock at $0.50 per share, which was the
market value at the time of grant.
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, 1998. No stock options were exercised by such persons in 1998.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED OPTIONS AT UNEXERCISED
FISCAL YEAR IN-THE-MONEY OPTIONS AT
FISCAL YEAR END (1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jay C. Huffard 192,000 33,000 0 0
Sophia V. Bilinsky 166,665 333,335 0 0
Clifford G. Johnson 33,334 16,666 0 0
</TABLE>
20
<PAGE> 64
(1) Based on a closing price on the OTC Market of $ 0.0156 per share of Common
Stock on December 31, 1998, there were no unexercised in-the-money options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, Messrs. Ford and two former directors, Mr. Wallace
McDowell and Ms. Robfogel served as members of the Compensation Committee.
There were no Compensation Committee interlocks between U.S. HomeCare and any
other entity during 1998. Ms. Robfogel is a partner in the law firm of Nixon,
Hargrave, Devans & Doyle, which U.S. HomeCare has retained from time to time.
21
<PAGE> 65
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of U.S. HomeCare's Common Stock as of March 29, 1999 by (i) each
director, (ii) each of the Named Executive Officers, (iii) each person known by
U.S. HomeCare to be the beneficial owner of more than 5% of U.S. HomeCare'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 1,360,754(4)(5)(6) 9.3%
Sophia V. Bilinsky 166,665(3) 1.2%
Clifford G. Johnson 33,333(3) **
Shawkat Raslan 924,650(5)(6) 6.4%
c/o International Resources Holdings, Inc.
770 Lexington Ave New York, NY 10021
John R. Gunn 71,386(5) **
All directors and executive officers as a group
(5 persons) 1,872,914(7) 12.6%
Connecticut Development Authority 1,551,302 11.4%
999 West Street
Rocky Hill, CT 06067
Prima Partners, L.P 807,262(7) 8.3%
115 East 69th Street
New York, New York 10021
</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, 1998 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.
(3) Includes shares issuable upon exercise of options granted under the 1995
Stock Option and
Issuance Plan.
(4) 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 U.S.
HomeCare, is managing director of the general partner thereof and stock
options for 225,000 of Common Stock.
22
<PAGE> 66
(5) 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.
(6) Includes 629,708 shares of Common Stock of U.S. HomeCare issuable upon
conversion of 28,928 shares of $35.00 Preferred of U.S. HomeCare 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.
(7) See Notes (2) through (10).
ITEM 13. CERTAIN RELATIONSHIPS AND CERTAIN TRANSACTIONS
For information regarding employment and severance agreement. (See
Employment Arrangements)
23
<PAGE> 67
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-17 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.)
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.)
24
<PAGE> 68
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. (Filed as Exhibit
4.10 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference.)
4.11 Amendment to Stock Purchase Warrant No. WA-17 dated March 25, 1998
between Registrant and the Connecticut Development Authority. (Filed as
Exhibit 4.11 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1997 and incorporated herein by reference.)
4.12 Amendment to Stock Purchase Warrant No. WA-18 dated March 25, 1998
between Registrant and Creditanstalt AG. (Filed as Exhibit 4.12 to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1997 and incorporated herein by reference.)
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.)
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.)
25
<PAGE> 69
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.)
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.)
26
<PAGE> 70
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. (Filed as Exhibit 10.27 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1997 and
incorporated herein by reference.)
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 thereto
and The Chase Manhattan Bank, N.A., as agent. (Filed as Exhibit 10.28 to
the Registrant's Annual Report on Form 10-K for the year ended December
31, 1997 and incorporated herein by reference.)
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. (Filed as
Exhibit 10.31 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997 and incorporated herein by reference.)
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. (Filed as
Exhibit 10.32 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997 and incorporated herein by reference.)
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
27
<PAGE> 71
Development Authority and Fleet National Bank. (Filed as Exhibit 10.34
to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference.)
10.35 Third Amendment to Guarantee Agreement, dated March 26, 1998 between
Connecticut Development Authority and Fleet National Bank. (Filed as
Exhibit 10.35 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997 and incorporated herein by reference.)
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.)
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 27, 1998 between U.S.
HomeCare Corporation and the State of New York.
10.44 Amendment No.4 to Receivable Purchase and Servicing agreement, between
U.S. HomeCare and Chase Manhattan Bank, dated December 23, 1997. (Filed as
Exhibit 10.45 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997.)
10.45 Amendment No.5 to Receivables Purchase and Servicing agreement, between
U.S. HomeCare and Chase Manhattan Bank, dated March 26, 1998. (Filed as
Exhibit 10.46 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997 and incorporated herein by reference.)
10.46 Employment Agreement of Clifford G. Johnson, dated May 12, 1997.
10.47 Amendment No. 6 to Receivables Purchasing and Servicing Agreement
between U.S. HomeCare Corporation and Chase Manhattan Bank, dated
December 29, 1998.
28
<PAGE> 72
10.48 Amendment No. 7 to Receivables Purchasing and Servicing Agreement
between U.S. HomeCare Corporation and Chase Manhattan Bank, dated
February 16, 1999.
10.49 Amendment No. 8 to Receivables Purchasing Agreement between U.S.
HomeCare Corporation and Chase Manhattan Bank, dated March 2, 1999.
10.50 Amendment Number 6, dated as of January 4, 1999, 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, as agent.
10.51 Amendment Number 7, dated as of February 4, 1999, 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, as agent.
10.52 Amendment Number 8, dated as of March 4, 1999, 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, as agent.
10.53 Amendment Number 5, dated as of January 15, 1999 to the Credit Agreement
among U.S. HomeCare Corporation and its Consolidated Subsidiaries,
signatory thereto and Fleet National Bank.
10.54 Amendment Number 6, dated as of February 16, 1999 to the Credit Agreement
among U.S. HomeCare Corporation and its Consolidated Subsidiaries,
signatory thereto and Fleet National Bank.
10.55 Amendment Number 7, dated as of March 16, 1999 to the Credit Agreement
among U.S. HomeCare Corporation and its Consolidated Subsidiaries,
signatory thereto and Fleet national Bank.
10.56 Fourth Amendment to Guarantee Agreement, dated as of January 15, 1999
between Connecticut Development Authority and Fleet National Bank.
10.57 Fifth Amendment to Guarantee Agreement, dated as of February 16, 1999
between Connecticut Development Authority and Fleet National Bank.
10.58 Sixth Amendment to Guarantee Agreement, dated as of March 16, 1999 between
Connecticut Development Authority and Fleet National Bank.
10.59 Employment Agreement dated May 6, 1998 between U.S. HomeCare Corporation
and Sophia Bilinsky.
10.60 Amendment dated March 16, 1999 to Employment Agreement dated May 6, 1998
between U.S. HomeCare Corporation and Sophia Bilinsky.
21. List of Subsidiaries.
27.1 1998 Financial Data Schedule
29
<PAGE> 73
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
By:/s/ Arlene T. Perricone April 15, 1999
- -----------------------------------------
Arlene T. Perricone, Controller
(Principal Accounting Officer)
By:/s/ Sophia V. Bilinsky April 15, 1999
- ------------------------------------------
Sophia V. Bilinsky, President
and Chief Executive Officer
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.
By:/s/ Jay C. Huffard April 15, 1999
- ------------------------------------------
Jay C. Huffard, Chairman
By:/s/ Shawkat Raslan April 15, 1999
- ------------------------------------------
Shawkat Raslan, Director
By:/s/ John R. Gunn April 15, 1999
- ------------------------------------------
John R. Gunn, Director
30
<PAGE> 74
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report ........................................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 ........... F-3
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 ................................... F-4
Consolidated Statements of Stockholders' Deficit for
the years ended December 31, 1998, 1997 and 1996 ................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 .................................. 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> 75
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, 1998 and 1997, and the related
consolidated statements of operations, stockholders' deficit and cash flows for
each of the three years in the period ended December 31, 1998. Our audits also
included the financial statement schedule listed in the Index on page F-1. These
consolidated financial statements and financial statement schedule are the
responsibility of U.S. HomeCare Corporation's management. Our responsibility is
to express an opinion on these consolidated 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
Also, in our opinion, the 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.
The accompanying consolidated financial statements have been prepared assuming
that U.S. HomeCare Corporation and subsidiaries will continue as a going
concern. As discussed in Note 1, U.S. HomeCare Corporation's difficulty in
generating sufficient cash flow to meet its obligations and sustain its
operations, recurring losses from operations and stockholders' deficit raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 1. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Deloitte & Touche LLP
April 2, 1999
Hartford, Connecticut
F-2
<PAGE> 76
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 267 $ 313
Accounts receivable, net of allowance
for doubtful accounts of $546 and $581 -Note 3 5,525 5,147
Other current assets 673 1,339
-------- --------
TOTAL CURRENT ASSETS 6,465 6,799
-------- --------
PROPERTY AND EQUIPMENT, NET -Note 4 629 841
-------- --------
OTHER ASSETS:
Excess cost over net assets acquired, net
of accumulated amortization of $820 and $736 1,414 1,497
Intangible assets, net of accumulated
amortization of $5,784 and $5,502 203 485
Other 661 756
-------- --------
TOTAL OTHER ASSETS 2,278 2,738
-------- --------
TOTAL ASSETS $ 9,372 $ 10,378
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable and unpresented checks $ 2,850 $ 2,528
Accrued expenses -Note 7 6,229 2,821
Reserve for restructuring and other non-recurring charges -Note 6 19 140
Accrued payroll and related costs -Note 7 991 1,655
Debt -Note 8 8,277 --
-------- --------
TOTAL CURRENT LIABILITIES 18,366 7,144
-------- --------
OTHER LIABILITIES:
Long-term debt -Note 8 -- 7,577
Other long-term liabilities 1,477 2,128
-------- --------
TOTAL OTHER LIABILITIES 1,477 9,705
-------- --------
TOTAL LIABILITIES 19,843 16,849
-------- --------
COMMITMENT AND CONTINGENCIES - Note 9
STOCKHOLDERS' DEFICIT:
Common stock, $0.01 par value, 40,000,000 shares
authorized, 13,752,937 and 12,130,353 shares issued and outstanding 137 121
Preferred stock, $1 par value, 5,000,000 authorized, 328,569
shares issued and outstanding of $35.00, 6% cumulative convertible
preferred stock; liquidation preference of $11,500 328 328
Additional paid-in capital 47,153 47,077
Accumulated deficit (58,089) (53,997)
-------- --------
TOTAL STOCKHOLDERS' DEFICIT (10,471) (6,471)
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS'
DEFICIT $ 9,372 $ 10,378
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 77
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net revenues $ 47,785 $ 52,635 $ 55,085
Cost of revenues, primarily payroll and related costs 32,132 32,630 37,815
-------- -------- --------
Gross profit 15,653 20,005 17,270
-------- -------- --------
Operating expenses:
Selling, general and administrative expenses 16,446 15,301 18,416
Amortization and depreciation 856 1,051 1,743
Merger expenses -- 907 --
Regulatory settlement -- 1,750 --
Restructuring and other non-recurring
charges -- 399 3,619
-------- -------- --------
Total operating expenses 17,302 19,408 23,778
-------- -------- --------
Income (loss) from continuing operations before interest
expense and income taxes (1,649) 597 (6,508)
Interest and other financing expense 2,293 2,044 1,892
-------- -------- --------
Loss from continuing operations
before income taxes (3,942) (1,447) (8,400)
State income taxes 150 150 150
-------- -------- --------
Loss from continuing operations (4,092) (1,597) (8,550)
Discontinued operations:
Loss from discontinued operations -- -- (1,464)
Loss on sale of IV therapy business -- -- (13,779)
-------- -------- --------
Net loss (4,092) (1,597) (23,793)
Dividends to preferred shareholders (690) (690) (690)
-------- -------- --------
Net loss applicable to common shareholders $ (4,782) $ (2,287) $(24,483)
======== ======== ========
Basic and diluted loss per share:
Loss from continuing operations $ (0.37) $ (0.22) $ (1.04)
Discontinued Operations:
Loss from discontinued operations -- -- (0.17)
Loss on sale of IV therapy business -- -- (1.55)
-------- -------- --------
Basic and diluted loss per share $ (0.37) $ (0.22) $ (2.76)
======== ======== ========
Weighted average common
shares outstanding 12,975 10,444 8,868
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 78
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, 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)
Preferred dividends 1,315 13 (13)
Stock issued in lieu of cash for
accounts payable settlement 308 3 89
Net loss (4,092)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 13,753 $137 328 $328 $47,153 -- -- $(58,089)
====== ==== === ==== ======= ==== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 79
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($ 4,092) ($ 1,597) ($23,793)
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 811 1,009 2,510
Provision for bad debts 466 351 3,759
Non-cash charges 92 444 1,470
Changes in operating assets and liabilities:
Accounts receivable (754) 2,427 3,796
Other current assets 666 (114) 1,104
Other assets 95 (11) 361
Accounts payable
and accrued expenses 3,640 (1,805) 2,062
Restructuring reserve (121) (976) 1,494
Accrued payroll
and related costs (664) 47 485
Other liabilities (651) 819 1,155
-------- -------- --------
Net cash provided by (used in) operating activities (512) 594 5,980
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES -
Purchases of property and equipment (234) (176) (255)
-------- -------- --------
Net cash used in investing activities (234) (176) (255)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on leases and long- term debt -- (752) (5,314)
Proceeds from borrowings 700 -- --
Issuance of common stock -- -- 11
-------- -------- --------
Net cash provided by (used in) financing activities 700 (752) (5,303)
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (46) (334) 422
Cash and cash equivalents, beginning of year 313 647 225
-------- -------- --------
0
Cash and cash equivalents, end of year $ 267 $ 313 $ 647
======== ======== ========
Cash paid during the year for:
State income taxes $ 150 $ 140 $ 169
======== ======== ========
Interest expense $ 1,613 $ 1,376 $ 1,643
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
F-6
<PAGE> 80
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation and Nature of Business - The consolidated financial
statements include the accounts of U.S. HomeCare and its subsidiaries (the
"Company" or "U.S.HomeCare"), all of which are wholly owned. All material
intercompany accounts and transactions have been eliminated. U.S. HomeCare
operates in the home health care business and provides home health care
services, including nursing care and personal care, to patients in Connecticut,
New York and Pennsylvania. The infusion therapy business was discontinued
September 30, 1996.
b. Management Actions and Operating Results - As described in Note 8, the
Company's long-term debt matured in January 1999. Upon maturity the lenders have
agreed to extend financing to the Company on a month to month basis. Based on
this agreement, all of the Company's debt, totaling $8,277,000 at December
31,1998, is classified as a current liability. Also, as shown in the financial
statements, during the years ended December 31,1998, 1997 and 1996 the Company
incurred net losses of $4,092,000, $1,597,000 and $23,793,000 respectively, and,
as of December 31,1998, the Company's current liabilities exceeded its current
assets by $11,901,000 and its total liabilities exceed its total assets by
$10,471,000. These factors among others may indicate that the Company will be
unable to continue as a going concern. The Company's continuation as a going
concern is dependent upon its ability to generate sufficient cash flow to meet
its obligations on a timely basis and/or to obtain additional financing or
refinancing as may be required. In addition to focusing on improving operating
results, management is currently pursuing several options including additional
financing and attempting to find additional permanent capital with which to
continue operating its business.
c. Discontinued Operations - On October 31, 1996, U.S. HomeCare 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, U.S. HomeCare 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 $6,541,000 for the year ended December 31, 1996. The loss from
operations of the IV therapy business was $1,464,000 for the year ended December
31, 1996. As a result of net operating loss tax credit carryforwards, no income
tax benefits have been recognized for the discontinued operations.
d. Accounting Estimates - The preparation of consolidated financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates in U.S. HomeCare's
consolidated financial statements include: bad debt reserves, medicare reserves
and workers' compensation reserves. Actual results could differ from those
estimates.
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-7
<PAGE> 81
f. Intangible Assets - Excess cost over net assets acquired is being amortized
over a period of 25 years. U.S. HomeCare reviews the recoverability of the
excess cost of net assets acquired based upon anticipated future undiscounted
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 $203,000 and $485,000 as of December
31, 1998 and 1997, respectively.
g. Revenue Recognition - U.S. HomeCare recognizes revenues as the services are
performed. U.S. HomeCare 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 U.S. HomeCare's revenues and related
disbursements are subject to audit by third party payors; these revenues are
accrued on an estimated basis in the period the related services are rendered.
Net revenues are adjusted, as required in subsequent periods, based on final
settlement.
h. Reclassification - The presentation of certain prior year information has
been reclassified to conform with the current year presentation.
i. Cash and Cash Equivalents - U.S. HomeCare considers all highly liquid
instruments with original maturities of three months or less to be cash
equivalents.
j. Income Taxes - U.S. HomeCare 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 consolidated financial statements.
k. Non-cash transactions - Schedule of non-cash transactions for the years
ended:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 (in thousands)
----------------- --------------
<S> <C>
Stock issued in lieu of cash for accounts payable settlement $ 92
Preferred stock dividends paid with common stock 690
DECEMBER 31, 1997
-----------------
Exercise of stock options $1,470
Stock issued in lieu of cash for accounts payable settlement 530
Preferred stock dividends paid with common stock 690
Warrant issuance 181
Write-off of assets against restructuring reserve 1,084
DECEMBER 31, 1996
-----------------
Stock issued in lieu of cash for accounts payable settlement 812
Preferred stock dividends paid with common stock 690
</TABLE>
F-8
<PAGE> 82
l. Stock Based Compensation - 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 Accounting Principles Board Opinion
(APB) No. 25, "Accounting for Stock Issued to Employees", which recognizes
compensation cost based on the intrinsic value of the equity instrument awarded.
U.S. HomeCare 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
consolidated balance sheets, for which it is practicable to estimate that value.
U.S. HomeCare's consolidated balance sheets include the following financial
instruments: cash and cash equivalents; accounts receivable; accounts payable
and accrued expenses; bank revolving line of credit and other long-term debt.
U.S. HomeCare 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.
2. LOSS PER SHARE
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>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Nonemployee stock options -- -- 1,730,000
Employee stock options 1,290,500 1,130,500 1,190,500
Warrants to acquire common stock 3,031,600 3,031,600 3,120,600
Common stock to be used for
convertible preferred stock 7,152,308 7,152,308 7,152,308
---------- ---------- ----------
Total 11,474,408 11,314,408 13,193,408
========== ========== ==========
</TABLE>
3. ACCOUNTS RECEIVABLE
In November 1993, U.S. HomeCare 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, March 26, 1998, January 13, 1999, February 13, 1999
and March 13, 1999. The bank has committed up to $9.0 million based upon
securitizing U.S. HomeCare's eligible accounts receivable. The agreement expired
on January 4, 1999 and has been renewed on a month-to-month basis since that
time.
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.
F-9
<PAGE> 83
The following table sets forth receivables including those sold to the
securitization program as of December 31, 1998 and December 31, 1997,
respectively.
<TABLE>
<CAPTION>
DECEMBER 31,
(in thousands)
1998 1997
-------- --------
<S> <C> <C>
Total Accounts Receivable $ 12,771 $ 12,667
Allowance for Doubtful Accounts (546) (581)
-------- --------
Net Accounts Receivable $ 12,225 $ 12,086
Accounts Receivable Sold to Securitization (6,700) (6,939)
-------- --------
Accounts Receivable, on the Balance Sheet $ 5,525 $ 5,147
======== ========
</TABLE>
U.S. HomeCare maintains a cash reserve for accounts receivable including
receivables sold, based upon the expected collectibility of all accounts
receivable. Included in other current assets at December 31, 1998 and 1997 are
$471,252 and $945,364, 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)
1998 1997
------- -------
<S> <C> <C>
Leasehold improvements and buildings $ 1,140 $ 1,115
Furniture and fixtures 1,335 1,328
Computer and other equipment 5,382 5,182
------- -------
7,857 7,625
Less accumulated depreciation
and amortization (7,228) (6,784)
------- -------
$ 629 $ 841
======= =======
</TABLE>
Depreciation expense was approximately $446,000, $587,000, and $1,086,000 for
the years ended December 31, 1998, 1997 and 1996, respectively.
F-10
<PAGE> 84
5. INCOME TAXES
There was no federal income tax benefit recorded in 1998, 1997, or 1996
due to the incurred net operating losses. The 1998, 1997, and 1996 provision
consists entirely of state taxes.
The tax effect of temporary differences giving rise to U.S. HomeCare's
deferred tax assets and liabilities at December 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 16,840 $ 15,171
Bad debt reserves 517 758
Restructuring reserves 7 56
Legal and regulatory settlements 693 1,151
Accrued expenses 683 622
Other 139 160
-------- --------
Total deferred tax assets 18,879 17,918
Deferred tax liabilities:
Depreciation and amortization (114) (59)
-------- --------
Net deferred tax asset 18,765 17,859
Valuation allowance (18,765) (17,859)
-------- --------
Net deferred tax asset $ -- $ --
======== ========
</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 U.S. HomeCare's cumulative losses, management does not consider that
enough support to overcome the "more likely than not" criteria existed at
December 31, 1998 and 1997.
At December 31, 1998 U.S. HomeCare has a tax net operating loss
carryforward ("NOL") of approximately $49.5 million for federal and state income
tax purposes expiring from 2009 to 2018 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). U.S. HomeCare does not believe any such
"ownership change" has occurred which would limit the available annual amount.
6. RESTRUCTURING AND OTHER NON-RECURRING CHARGES
During the third quarter of 1996, U.S. HomeCare's Board of Directors
decided to restructure the operations of U.S. HomeCare and restore its focus on
its core home nursing operations (the "1996 Restructuring Plan"). The 1996
Restructuring Plan included the discontinuance of U.S. HomeCare'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, U.S. HomeCare 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 of $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
F-11
<PAGE> 85
incentives granted to the turnaround consultants consisted of options to
purchase 1,730,000 shares of U.S. HomeCare'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. U.S. HomeCare 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 1998,1997 and 1996, U.S. HomeCare paid in cash $121,000, $976,000
and $406,000 respectively, in restructuring and other non-recurring costs for
severance, turnaround consultant fees, legal costs and leasing costs. There were
no non-cash items charged against the reserve in 1998. 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 1998, the balance in the reserve for restructuring is approximately
$19,000 relating to remaining severance payments to be paid in 1999.
In addition, during 1997, U.S. HomeCare 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 U.S. HomeCare.
7. ACCRUED EXPENSE
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Medicare $2,075 $ 556
Workers compensation 2,100 1,185
Regulatory settlement - current portion 438 501
Tax audits 300 --
Health and life 283 175
Legal settlements 240 340
Other
793 64
------ ------
$6,229 $2,821
====== ======
</TABLE>
8. DEBT
Debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Revolving credit facility (a) $ 5,277 $ 4,577
Subordinated revolving credit facility (b) 3,000 3,000
------- -------
Total Bank Debt, on the Balance Sheet $ 8,277 $ 7,577
Securitization Advances 6,700 6,939
------- -------
Total Bank Financing $14,977 $14,516
======= =======
</TABLE>
F-12
<PAGE> 86
a. U.S. HomeCare 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, 1998 was 7.75%.
Remaining availability under the RLOC at December 31, 1998 was less than
$10,000. Borrowings under the RLOC are collateralized by substantially all of
U.S. HomeCare's assets. The terms of the RLOC provide, among other things, for
prepayments in the event that U.S. HomeCare's formula based borrowing capacity
is reduced, for maintenance of certain financial ratios, limitations on capital
expenditures, acquisition, and cash dividends. Non-compliance with financial
covenants gives the banks the right to declare the amounts outstanding under all
of the Company's credit facilities due and payable. At December 31, 1998 the
Company was not in compliance with the financial covenants of its RLOC
agreement.
On March 25, 1997, the RLOC agreement was amended and restated. In
connection with the revised agreement the banks were issued warrants to purchase
89,000 shares of U.S. HomeCare'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, and has been extended on a month-to-month basis since that
time.
b. In October 1995, U.S. HomeCare 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,
1998 was 7.75%. In connection with the October 1995 issuance of the CDA
guarantee, U.S. HomeCare agreed to issue additional warrants (the "Additional
Warrants") to the CDA to purchase 735,000 shares of U.S. HomeCare's common stock
for $1.5969 per share. As a result of the extension of the CDA guarantee to
January 30, 1998, U.S. HomeCare 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. Both
instruments have been extended on a month-to-month basis since that time.
Accordingly all such debt is classified as current on the consolidated balance
sheet.
9. COMMITMENTS AND CONTINGENCIES
a. Operating Leases - U.S. HomeCare leases office space under various leases
with terms ranging from one to fifteen years. Rent expense was $1,146,000,
$1,005,000 and $1,284,000 for the years ended December 31, 1998, 1997, and
1996 respectively. Future minimum rental commitments under non-cancelable
operating leases as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1999 $1,087
2000 946
2001 697
2002 562
2003 320
Thereafter 1,161
------
$4,773
======
</TABLE>
b. Revenue Adjustments - Of U.S. HomeCare's revenues, approximately 13% in
1998, 15% in 1997 and 14% in 1996 of net revenues were derived under the
Medicare program. These are based, in part, on cost reimbursement
principles or maximum number of allowed visits and are subject to audit
and retroactive adjustment by the respective third-party fiscal
intermediaries. Included in accrued expenses at December
F-13
<PAGE> 87
31, 1998 was approximately $2,075,000, of which approximately $865,000
relates to settlement of the 1996 and prior Medicare cost reports and
approximately $1,210,000 relates principally to estimates for the impact
of IPS on our 1998 Medicare revenues. Additionally, U.S. HomeCare had
Medicaid reserves of $379,000, which is an estimate of rate differentials
on the 1998 Medicaid reimbursement. In the opinion of management,
additional other retroactive adjustments, if any, are not expected to be
material to the consolidated financial statements of U.S. HomeCare.
c. Litigation -
i. HIPS/Abel. U.S. HomeCare 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. U.S. HomeCare 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. U.S. HomeCare 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.
iv. 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. U.S. HomeCare 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, U.S. HomeCare believed that it could take substantial time
and expense to litigate any of these issues to their conclusion.
Because of U.S. HomeCare's pending merger (which was subsequently
terminated), U.S. HomeCare asked the Attorney General for expedited
review of its investigation of U.S. HomeCare.
U.S. HomeCare, on February 27, 1998, reached a final agreement under
which, U.S. HomeCare 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.
Included in other long-term liabilities at December 31, 1998 is
$811,458 of the settlement which is payable beyond 1999.
v. Neuman Litigation. U.S. HomeCare reached settlement in September
1998, in Neuman Distributors Inc. against U.S. HomeCare Corporation
et al (Supreme Court of the State of New York County of New York), a
suit which arose from U.S. HomeCare's failure to comply in 1997 with
an earlier settlement agreement reached in the first quarter of 1997
as a result of U.S. HomeCare's inability at that time to pay monies
owed to Neuman for IV Pharmaceutical products purchased by U.S.
HomeCare's discontinued infusion therapy business. This was settled
by cash payments through April 2001.
F-14
<PAGE> 88
U.S. HomeCare is involved in litigation in the ordinary course of
business. U.S. HomeCare 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 U.S. HomeCare.
10. STOCKHOLDERS' EQUITY
a. Exchange Preferred Stock - Preferred Stock Placement - On February 1 and
February 8, 1995, U.S. HomeCare 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 U.S. HomeCare'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 U.S. HomeCare'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. The total liquidation preference was $11.5 million at December 31, 1998
and 1997. At December 31, 1998 dividends in arrears were $2.10 per share or
$173,000 in the aggregate.
b. In connection with the restructured financing in 1995, U.S. HomeCare 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, U.S. HomeCare 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 U.S. HomeCare's Annual Meeting held on May 18, 1995, U.S.
HomeCare 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 U.S. HomeCare's 1990
Stock Option Plan (the "1990 Plan"). Options available for grant at December 31,
1998 were 1,259,500.
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 U.S. HomeCare, non-employee members of the Board (other than
those serving as members of the Compensation Committee) and consultants and
independent advisors of U.S. HomeCare 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> 89
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 U.S. HomeCare. Shares may also be
issued solely as a bonus for past services.
A summary of the status of employee and directors options under U.S.
HomeCare's Stock Option Plan at December 31, 1998, 1997 and 1996, and changes
during the years ending on those dates, is presented below.
<TABLE>
<CAPTION>
1998 1997 1996
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
PRICE PRICE PRICE
1998 1997 1996
SHARES SHARES SHARES
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,130,500 $ 1.44 1,190,500 $ 1.61 1,966,500 $ 3.10
Granted 560,000 $ .50 150,000 $ 1.00 945,000 $ 1.26
Exercised -- -- -- -- -- --
Cancelled/expired (400,000) $ 1.16 (210,000) $ 2.98 (1,721,000) $ 2.86
--------- --------- ---------
Outstanding at end of year 1,290,500 $ 1.11 1,130,500 $ 1.44 1,190,500 $ 1.61
========= ========= =========
Options exercisable at year end 813,830 $ 1.34 805,499 $ 1.47 767,067 $ 1.95
========= ========= =========
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
<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>
$ .50 560,000 5.3 years $ .50 186,664 $ .50
$ 1.00 530,000 7.9 years $ 1.00 446,666 $ 1.00
$ 2.13 100,000 6.0 years $ 2.13 100,000 $ 2.13
$ 4.00 100,000 5.6 years $ 4.00 80,000 $ 4.00
$ 9.25 500 4.5 years $ 9.25 500 $ 9.25
--------- -------- ------- -------
1,290,500 $ 1.11 813,830 $ 1.34
========= ======== ======= =======
</TABLE>
F-16
<PAGE> 90
On December 12, 1996, U.S. HomeCare 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 1998, 1997 and 1996
were $.50, $.78 and $1.19, 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 $0.66 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. U.S. HomeCare 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 U.S. HomeCare'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, U.S. HomeCare's net loss
applicable to common shareholders and net loss per share for the years ended
December 31, 1998, 1997 and 1996 would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Net loss applicable to common shareholders:
As reported $ (4,782,000) $ (2,287,000) $ (24,483,000)
Pro forma $ (5,103,000) $ (2,570,000) $ (24,808,000)
Basic and diluted loss per common share
As reported $ (.37) $ (.22) $ (2.76)
Pro forma $ (.39) $ (.25) $ (2.80)
</TABLE>
The fair value of options granted under U.S. HomeCare's stock option plans
during 1998, 1997 and 1996 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 271%, 56%, and 56%
for 1998, 1997 and 1996, respectively, risk free interest rate of 6.0%, and
expected lives of 5 years.
11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Unaudited quarterly results of operations are shown on page 16 of the 1998
Form 10-K.
F-17
<PAGE> 91
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, 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 $ -- $(3,613,460) $ 581,000
=========== =========== ========== =========== ===========
YEAR ENDED
DECEMBER 31, 1998:
ALLOWANCE FOR
DOUBTFUL ACCOUNTS $ 581,000 $ 466,000 $ -- $ (501,000) $ 546,000
=========== =========== ========== =========== ===========
</TABLE>
S-1
