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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the year ended December 31, 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 [ ]
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
While it is difficult to determine the number of shares owned by
non-affiliates, the registrant estimates that, 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.
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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>
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PART I
ITEM 1. BUSINESS
GENERAL
U.S. HomeCare Corporation (collectively with its subsidiaries, "USHC"
or the "Company") is a regional provider of paraprofessional and professional
home health care services, including nursing care, personal care, and other
specialized therapies. 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
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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.
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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.
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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,
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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
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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
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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> 11
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> 12
<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> 13
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> 14
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> 15
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> 16
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> 17
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> 18
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> 19
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> 20
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> 21
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> 22
(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 $1.00, the fair market value of U.S. HomeCare's
Common Stock on the grant date. Of the 50,000 option shares, one third were
vested on issuance, with the remaining vesting on May 12, 1998 and 1999 (subject
to acceleration of vesting upon an acquisition of U.S. HomeCare by a merger or
by a stock or asset sale). In the event that Mr. Johnson's employment is
terminated without cause, he is entitled to his base salary, on a monthly basis,
for six months. Mr. Johnson's employment agreement was terminated effective
March 8, 1999.
19
<PAGE> 23
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
The following table shows, with respect to the Named Executive
Officers, certain information concerning the grant of stock options in 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
OPTION TERM(1)
- --------------------------------------------------------------------------------------------------------------------
NAME NUMBER OF PERCENT OF INITIAL EXPIRATION 5% 10%
SECURITIES TOTAL OPTIONS EXERCISE DATE
UNDERLYING GRANTED TO PRICE
OPTIONS EMPLOYEES IN ($/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> 24
(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> 25
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> 26
(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> 27
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> 28
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> 29
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> 30
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> 31
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> 32
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> 33
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> 34
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> 35
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> 36
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> 37
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> 38
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 -- -- $(58,089)
====== ==== === ==== ======= ==== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 39
U.S. HOMECARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($ 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> 40
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> 41
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> 42
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> 43
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> 44
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> 45
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> 46
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> 47
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> 48
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> 49
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> 50
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> 51
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
<PAGE> 1
AGREEMENT AND SETTLEMENT
AGREEMENT reached the 27th day of February, 1998, by and between the STATE
OF NEW YORK (hereinafter the "STATE"), by the Office of the Attorney General,
Medicaid Fraud Control Unit, and U.S. HOMECARE, CORPORATION. (For purposes of
this Agreement, U.S. HOMECARE, CORPORATION, hereinafter "USHC", is understood to
refer to the corporation, and its affiliates and subsidiaries, but not to any
individual officer, director, agent or employee.)
WHEREAS, USHC, a corporation with headquarters in Hartford, Connecticut,
operates six licensed home health agencies in New York State, all of which
agencies were enrolled in the Medicaid program as providers of personal care
services to Medicaid recipients during the period 1992-1997; and
WHEREAS, the Medicaid Fraud Control Unit conducted an audit comparing
USHC's Medicaid rates to the rates USHC charged the general public for personal
care services during the period 1992-1997, and thereafter contended that USHC
received reimbursements from Medicaid at rates higher than the rates charged the
general public, in violation of 18 NYCRR 505.14; and
WHEREAS, as a result of receipt of such reimbursements the Medicaid Fraud
Control Unit contends, USHC received overpayments from Medicaid; and,
WHEREAS, the STATE and USHC have agreed to resolve the issues raised by
the audit.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
set forth herein, the STATE and USHC agree as follows:
FIRST: The STATE represents that it has the authority to enter into this
settlement and to effectuate a final resolution with regard to the alleged
Medicaid overpayments on behalf of New York State and those counties of the
State that participated in making said payments to USHC.
<PAGE> 2
It is understood that USHC is entering into this Agreement in reliance on this
representation.
SECOND: USHC agrees to remit to the STATE the sum of $1,750,000, in an
initial payment of $100,000 to be made upon full execution of this Settlement
and Agreement on or before February 27, 1998, and subsequent installment
payments in the amounts and on the schedule defined in the Schedule of Payments
annexed hereto and made a part hereof. Interest shall be calculated at nine (9%)
commencing on the date of this Agreement and shall be increased a percentage
point on January 1, 1999, and an additional percentage point on January 1, 2000.
USHC may prepay the entirety of this amount without penalty or interest. USHC
further agrees to use reasonable efforts to prepay, in part or in full, the
unpaid balance at any point USHC refinances its senior lender indebtedness with
any third party lending institutions. Upon the signing of this Agreement, USHC
shall also provide a Promissory Note in commercially acceptable form. USHC
agrees its repayment obligation under this Agreement is a non-dischargeable debt
for purposes of 11 U.S.C. Sections 523 and 1328.
THIRD: USHC has entered into this Agreement solely for the purpose of
avoiding the burdens and expense of protracted litigation. The making of this
Agreement is not intended, and shall not be construed as an admission that USHC
has violated any law, ordinance or regulation. USHC maintains, and the STATE
does not dispute, that it has not knowingly billed incorrectly, knowingly
received any payments in excess of those to which it was entitled or engaged in
any unacceptable practices within the meaning of 18 NYCRR 515.2. The STATE
agrees that it shall take no action to affect, alter or modify USHC's status as
a provider in the Medicaid program by reason of this Agreement.
FOURTH: In consideration for USHC's payment, the STATE agrees to accept
that
2
<PAGE> 3
payment in full satisfaction of all claims the STATE could bring against USHC
for recovery of Medicaid payments or other damages arising from: USHC's
reimbursement for personal care services at a rate higher than that charged to
the general public during the period 1992-1997; and, USHC's submission of cost
reports pertaining to cost years 1990-1995.
FIFTH: The State further agrees that USHC shall have no further liability,
administrative, civil or criminal, for the communication of general public
charge information to the State of New York during the period 1992-1997, and the
submission of claims and receipt of reimbursement at rates higher than those
charged to the general public, during the period 1992-1997.
SIXTH: USHC and the STATE agree that this settlement shall preclude all
retroactive rate adjustments by the STATE for the period 1992-1997, except for
any amount constituting a retroactive rate adjustment pertaining to the
Westchester County operations of USHC for the period September 1, 1996 through
December 31, 1996.
SEVENTH: The STATE and USHC agree that each shall have the right to issue
press releases regarding this Agreement, but that any such press releases shall
be confined to the terms defined by this Agreement.
EIGHTH: USHC agrees to institute a compliance protocol with regard to the
appropriate identification of charges to the general public at all branches of
the corporation and the reporting of such information to all agencies of State
and local government. Formulation and implementation of such protocol shall be
conducted subject to approval by the STATE, and the STATE shall have the right
to review USHC's conformity with its compliance program. USHC will continue to
apply its Code of Ethics and Standards of Business Conduct and instruct all
levels of management in accordance therewith.
3
<PAGE> 4
NINTH: This constitutes the complete and full agreement reached by the
STATE and USHC, and may not be changed in any respect, except by a writing duly
executed by the parties or their authorized representatives.
WHEREFORE, the parties have read the foregoing Agreement and accept and
agree to the provisions contained therein and hereby have caused this Agreement
to be signed as of the day and date adjacent to their signatures.
AGREED TO:
US HOMECARE CORPORATION STATE OF NEW YORK
OFFICE OF THE ATTORNEY GENERAL
MEDICAID FRAUD CONTROL UNIT
By:__________________________ By:________________________________
Sworn to before me this
_____ day of February, 1998
_____________________________
4
<PAGE> 1
AMENDMENT NO. 6
Dated as of January 4, 1999
This AMENDMENT among U.S. HOMECARE CORPORATION AND ITS SUBSIDIARIES
LISTED IN ANNEX 1 HERETO (collectively, the "Borrowers" and each, individually,
a "Borrower"), the banks parties to the Credit Agreement referred to below (the
"Banks"), and THE CHASE MANHATTAN BANK (successor by merger to The Chase
Manhattan Bank, N.A.), as agent (the "Agent") for the Banks thereunder.
PRELIMINARY STATEMENT.
A. The Borrowers, the Banks and the Agent have entered into an Amended
and Restated Credit Agreement dated as of October 6, 1995, as amended by
Amendment No. 1 dated as of October 31, 1996, Amendment No. 2 dated as of
November 14, 1996, Amendment No. 3 dated as of March 25, 1997, Amendment No. 4
dated as of December 24, 1997, and Amendment No. 5 dated as of March 25, 1998
(said Credit Agreement, as so amended, being hereinafter referred to as the
"Credit Agreement"; the terms defined therein being used herein as therein
defined unless otherwise defined herein).
B. Pursuant to the Credit Agreement, the Borrowers are indebted to the
Banks under the Notes in the aggregate principal amount of $5,164,826.13 as of
the date hereof (the "Indebtedness"), which Indebtedness is owed by the
Borrowers to the Banks without offset, defense or counterclaim of any kind,
nature or description. As security for such Indebtedness, the Borrowers have
heretofore granted to the Banks a first priority security interest in all the
Borrowers' assets (such security interest having been partially released by the
Banks pursuant to the Partial Release Letter dated November 8, 1993), whether
now owed or hereafter acquired, wherever located of any kind, nature or
description, tangible or intangible, including without limitation, the
Borrowers' accounts receivable, inventory, equipment, and general intangibles,
and such security interests and liens granted by the Borrowers to the Banks are,
subject to the terms of the Partial Release Letter, hereby reacknowledged and
confirmed by the Borrowers.
B. The Borrowers, the Banks and the Agent each hereby acknowledge
that the Borrowers have failed to comply with the covenants contained in
Sections 8.1 and 8.4 of the Credit Agreement for the months of October, November
and December of 1998. As a result of such noncompliance, Events of Default have
occurred and are continuing under Section 9.1(c) of the Credit Agreement (the
"Subject Events of Default"). The Borrowers have requested that the Banks and
the Agent forbear, from January 4, 1999 through February 3, 1999, from
exercising their available rights and remedies solely in connection with the
Subject Events of Default.
C. The Borrowers, the Banks and the Agent have agreed to amend the
Credit Agreement as hereinafter set forth.
SECTION 1. Amendments. The Credit Agreement is, effective
as of the date hereof and subject to the satisfaction of the conditions
precedent set forth in Section 3 hereof, hereby amended as follows:
<PAGE> 2
-2-
(a) The following definition contained in Section 1.1 of the
Credit Agreement is amended and restated in full to read as follows:
"Termination Date" means (i) February 4, 1999 or such later date
that is set forth in any extension letter from the Agent and the Banks to
the Borrowers from time to time; provided that if such date is not a
Banking Day, the Termination Date shall be the next succeeding Banking Day,
or (ii) the earlier date of termination in whole of the Commitments
pursuant to Section 2.7 or Section 9.2, or otherwise.
(b) Subsection (d) of Section 2.11 is amended and restated in
full to read as follows:
(d) Extension Fee. So long as any of the Notes shall remain
unpaid or any Bank shall have any Commitment under this Agreement at the
time any of the following installments are due, the Borrowers shall pay to
the Agent for the ratable benefit of the Banks an extension fee in
installments as follows: (i) the amount of $135,000 shall be due and
payable on May 1, 1998, and (ii) the amount of $50,000 shall be due and
payable on the Termination Date.
SECTION 2. Forbearance and Extensions.
(a) From January 4, 1999 until and including February 3, 1999,
and subject to the satisfaction of the conditions precedent set forth in Section
3 hereof, the Agent and the Banks hereby agree to forbear from pursuing their
available rights and remedies solely in connection with the Subject Events of
Default, except that the Agent and the Banks may, in their sole discretion,
refuse to make any additional Loan or Loans during such period; provided,
however, that as between the Agent and the Banks, no Bank may refuse to make any
Loan or Loans unless it has provided at least one Banking Day's prior written
notice to the Agent of its intention to no longer make any additional Loan or
Loans, and after receipt of such written notice, the Agent shall make no
additional Loan or Loans on behalf of such Bank.
(b) The Agent and the Banks did not require that the Borrowing
Base reduce by the amount of $50,000 (the "Note B Reduction") on each of August
30, 1998, September 30, 1998, October 30, 1998, November 30, 1998 and December
30, 1998, as provided in paragraph (b) of the definition of "Borrowing Base" in
Section 1.1. The Note B Reductions shall continue to be deferred until the Agent
on behalf of the Banks shall provide written notice to the Borrowers requiring
the Borrowers to make such Note B Reductions. The Borrowers acknowledge that the
Agent and the Banks have not waived such Note B Reductions, but have only
extended the time for the Note B Reductions until such time satisfactory to the
Agent and the Banks.
(c) In accordance with the Letter Waiver and Extension by and
among the Borrowers, the Agent and the Banks dated November 16, 1998 (the
"Letter Waiver"), the Borrowers were to provide the Agent and the Banks, (i) not
later than December 1, 1998, with management-prepared 1999 projected financial
statements (the "Projections"), and (ii) not later
<PAGE> 3
-3-
than December 15, 1998, with a written report from M.R. Weiser, certified public
accountants (the "Accountants"), detailing the results of their review of the
Projections. The Agent and the Banks did not receive such Projections until on
or about December 15, 1998, and the Agent and the Banks have not yet received
the report from the Accountants. The Agent and the Banks reserve their rights
and remedies with respect to the failure of the Borrowers to comply with the
foregoing terms of the Letter Waiver, and nothing contained herein shall
constitute a waiver by the Agent or any Bank of such rights and remedies.
(d) Nothing contained herein shall prejudice any rights or
remedies the Agent or any Bank may have to exercise their rights and remedies
with respect to the Subject Events of Default after February 3, 1999, or, on any
future date, to declare the Borrowers to be out of compliance with any term or
provision of the Credit Agreement, for any reason other than the Subject Events
of Default, or prevent the Agent or the Banks now or hereafter from pursuing any
of their available remedies in connection with any Default or Event of Default
under the Credit Agreement, other than the Subject Events of Default.
SECTION 3. Conditions of Effectiveness. This Amendment shall
become effective when, and only when, the Agent shall have received counterparts
of this Amendment executed by the Borrowers and all of the Banks, except that
Section 1 hereof shall become effective when, and only when, the Agent and the
Banks shall have additionally received true photocopies of the executed
originals of an Amendment No. 6 to Receivables Purchase and Servicing Agreement
extending the maturity date of the Purchase Agreement to February 4, 1999 and in
form and substance satisfactory to the Agent and the Banks.
SECTION 4. Additional Covenants of the Borrowers.
(a) Not later than January 8, 1999, the Borrowers shall
provide to the Agent and the Banks, in form and substance satisfactory to the
Agent and the Banks, (i) weekly cash flow projections for the eight-week period
commencing January 4, 1999, and (ii) monthly cash flow projections for January,
February and March of 1999.
(b) Not later than January 21, 1999, the Borrowers shall
provide to the Agent and the Banks, in form and substance satisfactory to the
Agent and the Banks, photocopies of the executed originals of all waivers and
amendments with respect to the Junior Debt concerning the matters covered by
this Amendment, which shall include an amendment to the Junior Debt documents
extending the maturity date thereof to February 15, 1999.
(c) The failure of the Borrowers to comply with any of the
additional covenants set forth in this Amendment shall constitute an immediate
Event of Default under the Credit Agreement.
SECTION 5. Representations and Warranties of the Borrowers.
Each Borrower represents and warrants as follows:
(a) Such Borrower is a corporation duly organized and validly
existing under the laws of the jurisdiction of its incorporation.
<PAGE> 4
-4-
(b) The execution, delivery and performance by such Borrower of
this Amendment and the Facility Documents, as amended hereby, to which it is or
is to be a party are within such Borrower's corporate powers, have been duly
authorized by all necessary corporate action and do not contravene (i) such
Borrower's charter or by-laws, (ii) any contractual restriction binding on or
affecting such Borrower, or result in, or require, the creation or imposition of
any mortgage, deed of trust, pledge, lien, security interest or other charge,
encumbrance or preferential arrangement of any nature upon or with respect to
any of the properties now owned or hereafter acquired by such Borrower, or (iii)
to the best of such Borrower's knowledge, any law.
(c) No authorization, approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by such Borrower of this Amendment
or any of the Facility Documents, as amended hereby, to which it is or is to be
a party.
(d) This Amendment and each of the other Facility Documents as
amended hereby, to which such Borrower is a party constitute legal, valid and
binding obligations of such Borrower enforceable against such Borrower in
accordance with their respective terms.
(e) To the best of such Borrower's knowledge, the Security
Agreement constitutes valid and perfected first priority security interests and
liens in and to the Collateral covered thereby enforceable against all third
parties in all jurisdictions and secure the payment of all obligations of such
Borrower under the Facility Documents, as amended hereby, and the execution,
delivery and performance of this Amendment do not adversely affect the aforesaid
security interests and liens of such Security Agreement.
(f) Except as set forth on Schedule 5(f), there is no pending or
threatened action or proceeding affecting such Borrower or any of its
Subsidiaries before any court, governmental agency or arbitrator, which may
materially adversely affect the financial condition or operations of such
Borrower or any Subsidiary or which purport to affect the legality, validity or
enforceability of this Amendment or any of the other Facility Documents, as
amended hereby.
(g) After giving effect to the terms of the Amendment, no event
has occurred and is continuing which constitutes a Default or an Event of
Default.
SECTION 6. Reference to and Effect on the Facility Documents.
(a) Upon the effectiveness of this Amendment, on and after the
date hereof each reference in the Credit Agreement to "this Agreement,"
"hereunder," "hereof," "herein" or words of like import, and each reference in
any Facility Documents to the Credit Agreement or any other Facility Document,
shall mean and be a reference to the Credit Agreement or such other Facility
Document as amended hereby.
(b) Except as specifically amended above, the Credit Agreement
and the other Facility Documents shall remain in full force and effect and are
hereby ratified and
<PAGE> 5
-5-
confirmed. Without limiting the generality of the foregoing, the Pledge
Agreements and all of the Pledged Collateral described therein, and the Security
Agreement and all of the Collateral described therein, do and shall continue to
secure the payment of all Obligations, in each case as amended hereby.
(c) The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of the Agent or any Bank under any of the Facility
Documents, nor constitute a waiver of any provision of any of the Facility
Documents.
(d) The Agent and the Banks are under no obligation to enter into
this Amendment. The Agent's and the Banks' entering into this Amendment shall
not be deemed to limit or hinder any rights of the Agent or any Bank under the
Credit Agreement, nor shall it be deemed to create or infer a course of dealing
between the Agent or any Bank and the Parent or any of the other Borrowers with
regard to any provision of the Credit Agreement.
SECTION 7. Costs, Expenses and Taxes. The Borrowers jointly
and severally agree to pay on demand all costs and expenses of the Agent and the
Banks in connection with the preparation, execution and delivery of this
Amendment and the other instruments and documents to be delivered hereunder,
including, without limitation, the reasonable fees and out-of-pocket expenses of
counsel for the Agent and the Banks with respect thereto and with respect to
advising the Agent and the Banks as to their rights and responsibilities
hereunder and thereunder. The Borrowers further jointly and severally agree to
pay on demand all costs and expenses, if any (including, without limitation,
reasonable counsel fees and expenses), in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this Amendment
and the other instruments and documents to be delivered hereunder, including,
without limitation, reasonable counsel fees and expenses in connection with the
enforcement of rights under this Section 7. In addition, the Borrowers shall pay
any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this Amendment and the other
instruments and documents to be delivered hereunder, and agrees to save the
Agent and the Banks harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such taxes.
SECTION 8. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument.
SECTION 9. Governing Law. This Amendment shall be governed by,
and construed in accordance with, the laws of the State of New York.
<PAGE> 6
-6-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
Borrowers:
U.S. HOMECARE CORPORATION AND ITS
SUBSIDIARIES LISTED ON ANNEX 1 HERETO
By: ____________________________________
Name:
Vice President of each of the above
corporations
Banks:
THE CHASE MANHATTAN BANK (successor by
merger to The Chase Manhattan Bank, N.A.)
By: ____________________________________
John Hariaczyi
Vice President
BANK AUSTRIA CREDITANSTALT CORPORATE
FINANCE, INC., formerly known as
CREDITANSTALT CORPORATE FINANCE, INC.
By: ____________________________________
Name:
Title:
By: ____________________________________
Name:
Title:
<PAGE> 7
-7-
Agent:
THE CHASE MANHATTAN BANK (successor by
merger to The Chase Manhattan Bank, N.A.)
By: ____________________________________
John Hariaczyi
Vice President
<PAGE> 8
ANNEX 1
U.S. HOMECARE CORPORATION, AFFILIATED HOME CARE OF WESTCHESTER, INC., U.S.
HOMECARE CORPORATION OF NORTHERN WESTCHESTER, U.S. HOMECARE CORPORATION OF
MANHATTAN, U.S. HOMECARE CORPORATION OF THE BRONX, U.S. HOMECARE CERTIFIED
CORPORATION OF NEW YORK, U.S. HOMECARE CORPORATION OF ALBANY, U.S. HOMECARE
INFUSION THERAPY SERVICES CORPORATION OF NEW JERSEY, U.S. HOMECARE
CORPORATION OF CONNECTICUT, U.S. HOMECARE CERTIFIED CORPORATION OF
CONNECTICUT, U.S. HOMECARE CORPORATION OF PENNSYLVANIA, U.S. HOMECARE
CERTIFIED CORPORATION OF PENNSYLVANIA, U.S. HOMECARE INFUSION THERAPY
PRODUCTS CORPORATION
<PAGE> 1
AMENDMENT NO. 7
Dated as of February 4, 1999
This AMENDMENT among U.S. HOMECARE CORPORATION AND ITS SUBSIDIARIES
LISTED IN ANNEX 1 HERETO (collectively, the "Borrowers" and each, individually,
a "Borrower"), the banks parties to the Credit Agreement referred to below (the
"Banks"), and THE CHASE MANHATTAN BANK (successor by merger to The Chase
Manhattan Bank, N.A.), as agent (the "Agent") for the Banks thereunder.
PRELIMINARY STATEMENT.
A. The Borrowers, the Banks and the Agent have entered into an Amended
and Restated Credit Agreement dated as of October 6, 1995, as amended by
Amendment No. 1 dated as of October 31, 1996, Amendment No. 2 dated as of
November 14, 1996, Amendment No. 3 dated as of March 25, 1997, Amendment No. 4
dated as of December 24, 1997, Amendment No. 5 dated as of March 25, 1998, and
Amendment No. 6 dated as of January 4, 1999 (said Credit Agreement, as so
amended, being hereinafter referred to as the "Credit Agreement"; the terms
defined therein being used herein as therein defined unless otherwise defined
herein).
B. Pursuant to the Credit Agreement, the Borrowers are indebted to the
Banks under the Notes in the aggregate principal amount of $5,852,918.21 as of
the date hereof (the "Indebtedness"), which Indebtedness is owed by the
Borrowers to the Banks without offset, defense or counterclaim of any kind,
nature or description. As security for such Indebtedness, the Borrowers have
heretofore granted to the Banks a first priority security interest in all the
Borrowers' assets (such security interest having been partially released by the
Banks pursuant to the Partial Release Letter dated November 8, 1993), whether
now owed or hereafter acquired, wherever located of any kind, nature or
description, tangible or intangible, including without limitation, the
Borrowers' accounts receivable, inventory, equipment, and general intangibles,
and such security interests and liens granted by the Borrowers to the Banks are,
subject to the terms of the Partial Release Letter, hereby reacknowledged and
confirmed by the Borrowers.
C. The Borrowers, the Banks and the Agent each hereby acknowledge
that the Borrowers have failed to comply with the covenants contained in
Sections 8.1 and 8.4 of the Credit Agreement for the months of October, November
and December of 1998, and for the month of January of 1999. As a result of such
noncompliance, Events of Default have occurred and are continuing under Section
9.1(c) of the Credit Agreement (the "Subject Events of Default"). The Borrowers
have requested that the Banks and the Agent forbear, from February 4, 1999
through March 3, 1999, from exercising their available rights and remedies
solely in connection with the Subject Events of Default.
D. The Borrowers, the Banks and the Agent have agreed to amend the
Credit Agreement as hereinafter set forth.
SECTION 1. Amendments. The Credit Agreement is, effective as
of the date hereof and subject to the satisfaction of the conditions precedent
set forth in Section 3 hereof, hereby amended as follows:
<PAGE> 2
-2-
(a) The following new definitions are added in proper
alphabetical order to Section 1.1 of the Credit Agreement:
"Class B Receivables" means, as of any date of determination
thereof, all Receivables that would constitute Eligible Receivables but for
the application of clause (i), (ii) or (iii) contained in the definition of
"Eligible Receivable."
"Unapplied Cash" means, as of any date of determination thereof,
all cash proceeds of Receivables that are identified as "unapplied cash" on
the Borrowers' general ledger.
(b) The following definition contained in Section 1.1 of the
Credit Agreement is amended and restated in full to read as follows:
"Termination Date" means (i) March 4, 1999 or such later date
that is set forth in any extension letter from the Agent and the Banks to
the Borrowers from time to time; provided that if such date is not a
Banking Day, the Termination Date shall be the next succeeding Banking Day,
or (ii) the earlier date of termination in whole of the Commitments
pursuant to Section 2.7 or Section 9.2, or otherwise.
(c) Paragraphs (a) and (b) of the definition of Borrowing Base
contained in Section 1.1 of the Credit Agreement are amended and restated in
full to read as follows:
(a) the lesser of (i) the sum of (A) 90% of Eligible Receivables,
plus (B) 65% of Class B Receivables, plus (C)$335,000 (or any lesser amount
of cash reserves established under the Purchase Agreement in which the
Agent for the benefit of the Banks has a second priority security interest,
which security interest is hereby reacknowledged and confirmed by the
Borrowers), or (ii) $5,750,000, as such number set forth in this clause
(ii) shall reduce in the manner set forth in paragraph (b) below; plus
(b) an amount equal to (i) $1,315,661, less (ii) the principal
amount of any reductions in the Commitments occurring after February 4,
1999, whether pursuant to Section 2.7 or otherwise, less (iii) as of the
date the same are collected, fifty percent (50%) of all collections after
February 4, 1999, of USHNJ Receivables other than USHNJ Eligible
Receivables and USHNJ Receivables subject to the Purchase Agreement, less
(iv) $50,000 on August 30, 1998, and on the thirtieth day (twenty-eighth
day with respect to February) of each calendar month thereafter; provided
that such amount under this clause (b) shall not be less than zero, and
when such amount is reduced to zero, the reductions set forth in clause
(iv) of this paragraph (b) that have not yet been made shall be applied in
reduction of the dollar amount set forth in clause (ii) of paragraph (a)
above; less
(d) The first paragraph of the definition of Eligible Receivable
contained in Section 1.1 of the Credit Agreement is amended and restated in full
to read as follows:
<PAGE> 3
-3-
"Eligible Receivable" means, as of any date of determination
thereof, all Receivables, net of USHNJ Receivables, Unapplied Cash, the
Borrowers' customary reserves (the Agent will make adjustments to the
extent contractual reserves are maintained at a lesser or greater
percentage level than the level in effect on the date of the June 30, 1995
financial statements referred to in Section 5.5), unearned customer
deposits, taxes, trade or other documents, discounts, claims, credits,
returns, allowances, or set-offs, excluding the following:
(e) The form of Borrowing Base Certificate attached to the
Credit Agreement as Exhibit C is hereby replaced with the form of Borrowing Base
Certificate attached hereto as Exhibit C.
SECTION 2. Forbearance and Extensions.
(a) From February 4, 1999 until and including March 3, 1999,
and subject to the satisfaction of the conditions precedent set forth in Section
3 hereof, the Agent and the Banks hereby agree to forbear from pursuing their
available rights and remedies solely in connection with the Subject Events of
Default, except that the Agent and the Banks may, in their sole discretion,
refuse to make any additional Loan or Loans during such period; provided,
however, that as between the Agent and the Banks, no Bank may refuse to make any
Loan or Loans unless it has provided at least one Banking Day's prior written
notice to the Agent of its intention to no longer make any additional Loan or
Loans, and after receipt of such written notice, the Agent shall make no
additional Loan or Loans on behalf of such Bank. Notwithstanding the
satisfaction by the Borrowers of any conditions precedent to the making of Loans
under the Credit Agreement, nor any provision of the Credit Agreement or the
other Facility Documents to the contrary, the Borrowers acknowledge that the
Agent and the Banks are not under any commitment to make any Loans to the
Borrowers and the decision to make each Loan is subject to the sole discretion
of the Agent and the Banks. The Borrowers shall use their reasonable best
efforts during the forbearance period to provide to the Agent and the Banks, in
form and substance satisfactory to the Agent and the Banks, photocopies of an
executed letter of intent for the sale of all or substantially all of the assets
and/or business of the Borrowers to a non-affiliated third party.
(b) The Agent and the Banks did not require that the Borrowing
Base reduce by the amount of $50,000 (the "Note B Reduction") on each of August
30, 1998, September 30, 1998, October 30, 1998, November 30, 1998, December 30,
1998, and January 30, 1999, as provided in paragraph (b) of the definition of
"Borrowing Base" in Section 1.1. The Note B Reductions shall continue to be
deferred until the Agent on behalf of the Banks shall provide written notice to
the Borrowers requiring the Borrowers to make such Note B Reductions. The
Borrowers acknowledge that the Agent and the Banks have not waived such Note B
Reductions, but have only extended the time for the Note B Reductions until such
time satisfactory to the Agent and the Banks.
(c) In accordance with the Letter Waiver and Extension by and
among the Borrowers, the Agent and the Banks dated November 16, 1998 (the
"Letter Waiver"), the Borrowers were to provide the Agent and the Banks, (i) not
later than December 1, 1998, with
<PAGE> 4
-4-
management-prepared 1999 projected financial statements (the "Projections"), and
(ii) not later than December 15, 1998, with a written report from M.R. Weiser,
certified public accountants (the "Accountants"), detailing the results of their
review of the Projections. The Agent and the Banks did not receive such
Projections until on or about December 15, 1998, and the Agent and the Banks
have not yet received the report from the Accountants. The Agent and the Banks
reserve their rights and remedies with respect to the failure of the Borrowers
to comply with the foregoing terms of the Letter Waiver, and nothing contained
herein shall constitute a waiver by the Agent or any Bank of such rights and
remedies.
(d) Nothing contained herein shall prejudice any rights or
remedies the Agent or any Bank may have to exercise their rights and remedies
with respect to the Subject Events of Default after March 3, 1999, or, on any
future date, to declare the Borrowers to be out of compliance with any term or
provision of the Credit Agreement, for any reason other than the Subject Events
of Default, or prevent the Agent or the Banks now or hereafter from pursuing any
of their available remedies in connection with any Default or Event of Default
under the Credit Agreement, other than the Subject Events of Default.
SECTION 3. Conditions of Effectiveness. This Amendment shall
become effective when, and only when, the Agent shall have received counterparts
of this Amendment executed by the Borrowers and all of the Banks, except that
Section 1 hereof shall become effective when, and only when, the Agent and the
Banks shall have additionally received true photocopies of the executed
originals of an Amendment No. 7 to Receivables Purchase and Servicing Agreement
extending the maturity date of the Purchase Agreement to March 4, 1999 and in
form and substance satisfactory to the Agent and the Banks.
SECTION 4. Additional Covenants of the Borrowers.
(a) Not later than February 21, 1999, the Borrowers shall
provide to the Agent and the Banks, in form and substance satisfactory to the
Agent and the Banks, photocopies of the executed originals of all waivers and
amendments with respect to the Junior Debt concerning the matters covered by
this Amendment, which shall include an amendment to the Junior Debt documents
extending the maturity date thereof to March 15, 1999.
(b) The failure of the Borrowers to comply with any of the
additional covenants set forth in this Amendment shall constitute an immediate
Event of Default under the Credit Agreement.
SECTION 5. Representations and Warranties of the Borrowers.
Each Borrower represents and warrants as follows:
(a) Such Borrower is a corporation duly organized and validly
existing under the laws of the jurisdiction of its incorporation.
(b) The execution, delivery and performance by such Borrower
of this Amendment and the Facility Documents, as amended hereby, to which it is
or is to be a party are within such Borrower's corporate powers, have been duly
authorized by all necessary corporate
<PAGE> 5
-5-
action and do not contravene (i) such Borrower's charter or by-laws, (ii) any
contractual restriction binding on or affecting such Borrower, or result in, or
require, the creation or imposition of any mortgage, deed of trust, pledge,
lien, security interest or other charge, encumbrance or preferential arrangement
of any nature upon or with respect to any of the properties now owned or
hereafter acquired by such Borrower, or (iii) to the best of such Borrower's
knowledge, any law.
(c) No authorization, approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by such Borrower of this Amendment
or any of the Facility Documents, as amended hereby, to which it is or is to be
a party.
(d) This Amendment and each of the other Facility Documents as
amended hereby, to which such Borrower is a party constitute legal, valid and
binding obligations of such Borrower enforceable against such Borrower in
accordance with their respective terms.
(e) To the best of such Borrower's knowledge, the Security
Agreement constitutes valid and perfected first priority security interests and
liens in and to the Collateral covered thereby enforceable against all third
parties in all jurisdictions and secure the payment of all obligations of such
Borrower under the Facility Documents, as amended hereby, and the execution,
delivery and performance of this Amendment do not adversely affect the aforesaid
security interests and liens of such Security Agreement.
(f) Except as set forth on Schedule 5(f), there is no pending or
threatened action or proceeding affecting such Borrower or any of its
Subsidiaries before any court, governmental agency or arbitrator, which may
materially adversely affect the financial condition or operations of such
Borrower or any Subsidiary or which purport to affect the legality, validity or
enforceability of this Amendment or any of the other Facility Documents, as
amended hereby.
(g) After giving effect to the terms of the Amendment, no event
has occurred and is continuing which constitutes a Default or an Event of
Default.
SECTION 6. Reference to and Effect on the Facility Documents.
(a) Upon the effectiveness of this Amendment, on and after the
date hereof each reference in the Credit Agreement to "this Agreement,"
"hereunder," "hereof," "herein" or words of like import, and each reference in
any Facility Documents to the Credit Agreement or any other Facility Document,
shall mean and be a reference to the Credit Agreement or such other Facility
Document as amended hereby.
(b) Except as specifically amended above, the Credit Agreement
and the other Facility Documents shall remain in full force and effect and are
hereby ratified and confirmed. Without limiting the generality of the foregoing,
the Pledge Agreements and all of the Pledged Collateral described therein, and
the Security Agreement and all of the Collateral described therein, do and shall
continue to secure the payment of all Obligations, in each case as amended
hereby.
<PAGE> 6
-6-
(c) The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of the Agent or any Bank under any of the Facility
Documents, nor constitute a waiver of any provision of any of the Facility
Documents.
(d) The Agent and the Banks are under no obligation to enter into
this Amendment. The Agent's and the Banks' entering into this Amendment shall
not be deemed to limit or hinder any rights of the Agent or any Bank under the
Credit Agreement, nor shall it be deemed to create or infer a course of dealing
between the Agent or any Bank and the Parent or any of the other Borrowers with
regard to any provision of the Credit Agreement.
SECTION 7. Costs, Expenses and Taxes. The Borrowers jointly
and severally agree to pay on demand all costs and expenses of the Agent and the
Banks in connection with the preparation, execution and delivery of this
Amendment and the other instruments and documents to be delivered hereunder,
including, without limitation, the reasonable fees and out-of-pocket expenses of
counsel for the Agent and the Banks with respect thereto and with respect to
advising the Agent and the Banks as to their rights and responsibilities
hereunder and thereunder. The Borrowers further jointly and severally agree to
pay on demand all costs and expenses, if any (including, without limitation,
reasonable counsel fees and expenses), in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this Amendment
and the other instruments and documents to be delivered hereunder, including,
without limitation, reasonable counsel fees and expenses in connection with the
enforcement of rights under this Section 7. In addition, the Borrowers shall pay
any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this Amendment and the other
instruments and documents to be delivered hereunder, and agrees to save the
Agent and the Banks harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such taxes.
SECTION 8. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument.
SECTION 9. Governing Law. This Amendment shall be governed by,
and construed in accordance with, the laws of the State of New York.
<PAGE> 7
-7-
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
Borrowers:
U.S. HOMECARE CORPORATION AND ITS
SUBSIDIARIES LISTED ON ANNEX 1 HERETO
By: ____________________________________
Name:
Vice President of each of the above
corporations
Banks:
THE CHASE MANHATTAN BANK (successor by
merger to The Chase Manhattan Bank, N.A.)
By: ____________________________________
John Hariaczyi
Vice President
BANK AUSTRIA CREDITANSTALT CORPORATE
FINANCE, INC., formerly known as
CREDITANSTALT CORPORATE FINANCE, INC.
By: ____________________________________
Name:
Title:
By: ____________________________________
Name:
Title:
<PAGE> 8
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Agent:
THE CHASE MANHATTAN BANK (successor by
merger to The Chase Manhattan Bank, N.A.)
By: ____________________________________
John Hariaczyi
Vice President
<PAGE> 9
ANNEX 1
U.S. HOMECARE CORPORATION, AFFILIATED HOME CARE OF WESTCHESTER, INC., U.S.
HOMECARE CORPORATION OF NORTHERN WESTCHESTER, U.S. HOMECARE CORPORATION OF
MANHATTAN, U.S. HOMECARE CORPORATION OF THE BRONX, U.S. HOMECARE CERTIFIED
CORPORATION OF NEW YORK, U.S. HOMECARE CORPORATION OF ALBANY, U.S. HOMECARE
INFUSION THERAPY SERVICES CORPORATION OF NEW JERSEY, U.S. HOMECARE
CORPORATION OF CONNECTICUT, U.S. HOMECARE CERTIFIED CORPORATION OF
CONNECTICUT, U.S. HOMECARE CORPORATION OF PENNSYLVANIA, U.S. HOMECARE
CERTIFIED CORPORATION OF PENNSYLVANIA, U.S. HOMECARE INFUSION THERAPY
PRODUCTS CORPORATION
<PAGE> 1
AMENDMENT NO. 8
Dated as of March 4, 1999
This AMENDMENT among U.S. HOMECARE CORPORATION AND ITS SUBSIDIARIES
LISTED IN ANNEX 1 HERETO (collectively, the "Borrowers" and each, individually,
a "Borrower"), the banks parties to the Credit Agreement referred to below (the
"Banks"), and THE CHASE MANHATTAN BANK (successor by merger to The Chase
Manhattan Bank, N.A.), as agent (the "Agent") for the Banks thereunder.
PRELIMINARY STATEMENT.
A. The Borrowers, the Banks and the Agent have entered into an
Amended and Restated Credit Agreement dated as of October 6, 1995, as amended by
Amendment No. 1 dated as of October 31, 1996, Amendment No. 2 dated as of
November 14, 1996, Amendment No. 3 dated as of March 25, 1997, Amendment No. 4
dated as of December 24, 1997, Amendment No. 5 dated as of March 25, 1998,
Amendment No. 6 dated as of January 4, 1999, and Amendment No. 7 dated as of
February 4, 1999 (said Credit Agreement, as so amended, being hereinafter
referred to as the "Credit Agreement"; the terms defined therein being used
herein as therein defined unless otherwise defined herein).
B. Pursuant to the Credit Agreement, the Borrowers are indebted to
the Banks under the Notes in the aggregate principal amount of $6,307,830.43 as
of the date hereof (the "Indebtedness"), which Indebtedness is owed by the
Borrowers to the Banks without offset, defense or counterclaim of any kind,
nature or description. As security for such Indebtedness, the Borrowers have
heretofore granted to the Banks a first priority security interest in all the
Borrowers' assets (such security interest having been partially released by the
Banks pursuant to the Partial Release Letter dated November 8, 1993), whether
now owed or hereafter acquired, wherever located of any kind, nature or
description, tangible or intangible, including without limitation, the
Borrowers' accounts receivable, inventory, equipment, and general intangibles,
and such security interests and liens granted by the Borrowers to the Banks are,
subject to the terms of the Partial Release Letter, hereby reacknowledged and
confirmed by the Borrowers.
C. The Borrowers, the Banks and the Agent each hereby acknowledge
that the Borrowers have failed to comply with the covenants contained in
Sections 8.1 and 8.4 of the Credit Agreement for the months of October, November
and December of 1998, and for the months of January and February of 1999. As a
result of such noncompliance, Events of Default have occurred and are continuing
under Section 9.1(c) of the Credit Agreement (the "Subject Events of Default").
The Borrowers have requested that the Banks and the Agent forbear, from March 4,
1999 through April 4, 1999, from exercising their available rights and remedies
solely in connection with the Subject Events of Default.
D. The Borrowers, the Banks and the Agent have agreed to amend the
Credit Agreement as hereinafter set forth.
<PAGE> 2
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SECTION 1. Amendments. The Credit Agreement is, effective as
of the date hereof and subject to the satisfaction of the conditions precedent
set forth in Section 3 hereof, hereby amended as follows:
(a) The following definition contained in Section 1.1 of the
Credit Agreement is amended and restated in full to read as follows:
"Termination Date" means (i) April 5, 1999 or such later date that
is set forth in any extension letter from the Agent and the Banks to the
Borrowers from time to time; provided that if such date is not a Banking
Day, the Termination Date shall be the next succeeding Banking Day, or
(ii) the earlier date of termination in whole of the Commitments pursuant
to Section 2.7 or Section 9.2, or otherwise.
SECTION 2. Forbearance and Extensions.
(a) From March 4, 1999 until and including April 4, 1999, and
subject to the satisfaction of the conditions precedent set forth in Section 3
hereof, the Agent and the Banks hereby agree to forbear from pursuing their
available rights and remedies solely in connection with the Subject Events of
Default, except that the Agent and the Banks may, in their sole discretion,
refuse to make any additional Loan or Loans during such period; provided,
however, that as between the Agent and the Banks, no Bank may refuse to make any
Loan or Loans unless it has provided at least one Banking Day's prior written
notice to the Agent of its intention to no longer make any additional Loan or
Loans, and after receipt of such written notice, the Agent shall make no
additional Loan or Loans on behalf of such Bank. Notwithstanding the
satisfaction by the Borrowers of any conditions precedent to the making of Loans
under the Credit Agreement, nor any provision of the Credit Agreement or the
other Facility Documents to the contrary, the Borrowers acknowledge that the
Agent and the Banks are not under any commitment to make any Loans to the
Borrowers and the decision to make each Loan is subject to the sole discretion
of the Agent and the Banks. During the forbearance period, the Borrowers shall
diligently pursue effectuating a binding agreement in connection with any
existing letters of intent for the sale of all or substantially all of the
assets and/or business of the Borrowers to a non-affiliated third party. If such
letters of intent shall terminate prior to the effectiveness of a binding
agreement, then the Borrowers shall use their reasonable best efforts during the
forbearance period to provide to the Agent and the Banks, in form and substance
satisfactory to the Agent and the Banks, photocopies of new executed letters of
intent for the sale of all or substantially all of the assets and/or business of
the Borrowers to a non-affiliated third party.
(b) The Agent and the Banks did not require that the Borrowing
Base reduce by the amount of $50,000 (the "Note B Reduction") on each of August
30, 1998, September 30, 1998, October 30, 1998, November 30, 1998, December 30,
1998, January 30, 1999, and February 28, 1999, as provided in paragraph (b) of
the definition of "Borrowing Base" in Section 1.1. The Note B Reductions shall
continue to be deferred until the Agent on behalf of the Banks shall provide
written notice to the Borrowers requiring the Borrowers to make such Note B
Reductions. The Borrowers acknowledge that the Agent and the Banks
<PAGE> 3
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have not waived such Note B Reductions, but have only extended the time for the
Note B Reductions until such time satisfactory to the Agent and the Banks.
(c) In accordance with the Letter Waiver and Extension by and
among the Borrowers, the Agent and the Banks dated November 16, 1998 (the
"Letter Waiver"), the Borrowers were to provide the Agent and the Banks, (i) not
later than December 1, 1998, with management-prepared 1999 projected financial
statements (the "Projections"), and (ii) not later than December 15, 1998, with
a written report from M.R. Weiser, certified public accountants (the
"Accountants"), detailing the results of their review of the Projections. The
Agent and the Banks did not receive such Projections until on or about December
15, 1998, and the Agent and the Banks have not yet received the report from the
Accountants. The Agent and the Banks reserve their rights and remedies with
respect to the failure of the Borrowers to comply with the foregoing terms of
the Letter Waiver, and nothing contained herein shall constitute a waiver by the
Agent or any Bank of such rights and remedies.
(d) Nothing contained herein shall prejudice any rights or
remedies the Agent or any Bank may have to exercise their rights and remedies
with respect to the Subject Events of Default after April 4, 1999, or, on any
future date, to declare the Borrowers to be out of compliance with any term or
provision of the Credit Agreement, for any reason other than the Subject Events
of Default, or prevent the Agent or the Banks now or hereafter from pursuing any
of their available remedies in connection with any Default or Event of Default
under the Credit Agreement, other than the Subject Events of Default.
SECTION 3. Conditions of Effectiveness. This Amendment shall
become effective when, and only when, the Agent shall have received counterparts
of this Amendment executed by the Borrowers and all of the Banks, except that
Section 1 hereof shall become effective when, and only when, the Agent and the
Banks shall have additionally received true photocopies of the executed
originals of an Amendment No. 8 to Receivables Purchase and Servicing Agreement
extending the maturity date of the Purchase Agreement to April 5, 1999 and in
form and substance satisfactory to the Agent and the Banks.
SECTION 4. Additional Covenants of the Borrowers.
(a) Not later than March 12, 1999, the Borrowers shall provide
to the Agent and the Banks, in form and substance satisfactory to the Agent and
the Banks, weekly cash flow projections for the nine-week period commencing
March 1, 1999.
(b) Not later than March 21, 1999, the Borrowers shall provide
to the Agent and the Banks, in form and substance satisfactory to the Agent and
the Banks, photocopies of the executed originals of all waivers and amendments
with respect to the Junior Debt concerning the matters covered by this
Amendment, which shall include an amendment to the Junior Debt documents
extending the maturity date thereof to April 15, 1999.
(c) The failure of the Borrowers to comply with any of the
additional covenants set forth in this Amendment shall constitute an immediate
Event of Default under the Credit Agreement.
<PAGE> 4
-4-
SECTION 5. Representations and Warranties of the Borrowers.
Each Borrower represents and warrants as follows:
(a) Such Borrower is a corporation duly organized and validly
existing under the laws of the jurisdiction of its incorporation.
(b) The execution, delivery and performance by such Borrower
of this Amendment and the Facility Documents, as amended hereby, to which it is
or is to be a party are within such Borrower's corporate powers, have been duly
authorized by all necessary corporate action and do not contravene (i) such
Borrower's charter or by-laws, (ii) any contractual restriction binding on or
affecting such Borrower, or result in, or require, the creation or imposition of
any mortgage, deed of trust, pledge, lien, security interest or other charge,
encumbrance or preferential arrangement of any nature upon or with respect to
any of the properties now owned or hereafter acquired by such Borrower, or (iii)
to the best of such Borrower's knowledge, any law.
(c) No authorization, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by such Borrower of
this Amendment or any of the Facility Documents, as amended hereby, to which it
is or is to be a party.
(d) This Amendment and each of the other Facility Documents as
amended hereby, to which such Borrower is a party constitute legal, valid and
binding obligations of such Borrower enforceable against such Borrower in
accordance with their respective terms.
(e) To the best of such Borrower's knowledge, the Security
Agreement constitutes valid and perfected first priority security interests and
liens in and to the Collateral covered thereby enforceable against all third
parties in all jurisdictions and secure the payment of all obligations of such
Borrower under the Facility Documents, as amended hereby, and the execution,
delivery and performance of this Amendment do not adversely affect the aforesaid
security interests and liens of such Security Agreement.
(f) Except as set forth on Schedule 5(f), there is no pending
or threatened action or proceeding affecting such Borrower or any of its
Subsidiaries before any court, governmental agency or arbitrator, which may
materially adversely affect the financial condition or operations of such
Borrower or any Subsidiary or which purport to affect the legality, validity or
enforceability of this Amendment or any of the other Facility Documents, as
amended hereby.
(g) After giving effect to the terms of the Amendment, no
event has occurred and is continuing which constitutes a Default or an Event of
Default.
SECTION 6. Reference to and Effect on the Facility Documents.
(a) Upon the effectiveness of this Amendment, on and after the
date hereof each reference in the Credit Agreement to "this Agreement,"
"hereunder," "hereof," "herein" or
<PAGE> 5
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words of like import, and each reference in any Facility Documents to the Credit
Agreement or any other Facility Document, shall mean and be a reference to the
Credit Agreement or such other Facility Document as amended hereby.
(b) Except as specifically amended above, the Credit Agreement
and the other Facility Documents shall remain in full force and effect and are
hereby ratified and confirmed. Without limiting the generality of the foregoing,
the Pledge Agreements and all of the Pledged Collateral described therein, and
the Security Agreement and all of the Collateral described therein, do and shall
continue to secure the payment of all Obligations, in each case as amended
hereby.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of the Agent or any Bank under any of the Facility
Documents, nor constitute a waiver of any provision of any of the Facility
Documents.
(d) The Agent and the Banks are under no obligation to enter
into this Amendment. The Agent's and the Banks' entering into this Amendment
shall not be deemed to limit or hinder any rights of the Agent or any Bank under
the Credit Agreement, nor shall it be deemed to create or infer a course of
dealing between the Agent or any Bank and the Parent or any of the other
Borrowers with regard to any provision of the Credit Agreement.
SECTION 7. Costs, Expenses and Taxes. The Borrowers jointly
and severally agree to pay on demand all costs and expenses of the Agent and the
Banks in connection with the preparation, execution and delivery of this
Amendment and the other instruments and documents to be delivered hereunder,
including, without limitation, the reasonable fees and out-of-pocket expenses of
counsel for the Agent and the Banks with respect thereto and with respect to
advising the Agent and the Banks as to their rights and responsibilities
hereunder and thereunder. The Borrowers further jointly and severally agree to
pay on demand all costs and expenses, if any (including, without limitation,
reasonable counsel fees and expenses), in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this Amendment
and the other instruments and documents to be delivered hereunder, including,
without limitation, reasonable counsel fees and expenses in connection with the
enforcement of rights under this Section 7. In addition, the Borrowers shall pay
any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this Amendment and the other
instruments and documents to be delivered hereunder, and agrees to save the
Agent and the Banks harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such taxes.
SECTION 8. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument.
SECTION 9. Governing Law. This Amendment shall be governed by,
and construed in accordance with, the laws of the State of New York.
<PAGE> 6
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
Borrowers:
U.S. HOMECARE CORPORATION AND ITS
SUBSIDIARIES LISTED ON ANNEX 1 HERETO
By: ________________________________
Name:
Vice President of each of the above
corporations
Banks:
THE CHASE MANHATTAN BANK (successor by
merger to The Chase Manhattan Bank, N.A.)
By: _________________________________
John Hariaczyi
Vice President
BANK AUSTRIA CREDITANSTALT CORPORATE
FINANCE, INC., formerly known as
CREDITANSTALT CORPORATE FINANCE, INC.
By: _________________________________
Name:
Title:
By: _________________________________
Name:
Title:
<PAGE> 7
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Agent:
THE CHASE MANHATTAN BANK (successor by
merger to The Chase Manhattan Bank, N.A.)
By: _________________________________
John Hariaczyi
Vice President
<PAGE> 8
ANNEX 1
U.S. HOMECARE CORPORATION, AFFILIATED HOME CARE OF WESTCHESTER, INC., U.S.
HOMECARE CORPORATION OF NORTHERN WESTCHESTER, U.S. HOMECARE CORPORATION OF
MANHATTAN, U.S. HOMECARE CORPORATION OF THE BRONX, U.S. HOMECARE CERTIFIED
CORPORATION OF NEW YORK, U.S. HOMECARE CORPORATION OF ALBANY, U.S. HOMECARE
INFUSION THERAPY SERVICES CORPORATION OF NEW JERSEY, U.S. HOMECARE
CORPORATION OF CONNECTICUT, U.S. HOMECARE CERTIFIED CORPORATION OF
CONNECTICUT, U.S. HOMECARE CORPORATION OF PENNSYLVANIA, U.S. HOMECARE
CERTIFIED CORPORATION OF PENNSYLVANIA, U.S. HOMECARE INFUSION THERAPY
PRODUCTS CORPORATION
<PAGE> 1
AMENDMENT NO. 5
Dated as of January 15, 1999
This AMENDMENT among U.S. HOMECARE CORPORATION AND ITS SUBSIDIARIES
LISTED IN ANNEX 1 HERETO (collectively, the "Borrowers" and each, individually,
a "Borrower") and FLEET NATIONAL BANK (successor by merger to Fleet Bank,
National Association)(the "Bank").
PRELIMINARY STATEMENT.
A. The Borrowers and the Bank have entered into a Credit Agreement
dated as of October 6, 1995, as amended by Amendment No. 1 dated as of November
14, 1996, Amendment No. 2 dated as of March 25, 1997, Amendment No. 3 dated as
of December 24, 1997, and Amendment No. 4 dated as of March 26, 1998 (said
Credit Agreement, as so amended, being hereinafter referred to as the "Credit
Agreement"; the terms defined therein being used herein as therein defined
unless otherwise defined herein).
B. Pursuant to the Credit Agreement, the Borrowers are indebted to the
Bank under the Note in the aggregate principal amount of $3,000,000 as of the
date hereof (the "Indebtedness"), which Indebtedness is owed by the Borrowers to
the Bank without offset, defense or counterclaim of any kind, nature or
description. As security for such Indebtedness, the Borrowers have heretofore
granted to the Bank a second priority security interest in all the Borrowers'
assets (excluding certain health care receivables as more fully set forth in the
Security Agreement), whether now owed or hereafter acquired, wherever located of
any kind, nature or description, tangible or intangible, including without
limitation, the Borrowers' accounts receivable, inventory, equipment, and
general intangibles, and such security interests and liens granted by the
Borrowers to the Bank are hereby reacknowledged and confirmed by the Borrowers.
C. The Borrowers and the Bank each hereby acknowledge that the
Borrowers have failed to comply with the covenants contained in Sections 7.1 and
7.3 of the Credit Agreement for the months of October, November and December of
1998. As a result of such noncompliance, Events of Default have occurred and are
continuing under Section 8.1(c) of the Credit Agreement (the "Subject Events of
Default"). The Borrowers have requested that the Bank forbear, from January 15,
1999 through February 15, 1999, from exercising their available rights and
remedies solely in connection with the Subject Events of Default.
D. The Borrowers and the Bank have agreed to amend the Credit Agreement
as hereinafter set forth.
<PAGE> 2
SECTION Amendments.
(a) The Credit Agreement is, effective as of the date hereof and subject to the
satisfaction of the conditions precedent set forth in Section 3 hereof, hereby
amended as follows:
The following definition contained in Section 1.1 of
the Credit Agreement is amended and restated in full to read
as follows:
"Termination Date" means (i) February 16, 1999 or
such later date that is set forth in any extension letter from
the Bank to the Borrowers from time to time; provided that if
such date is not a Banking Day, the Termination Date shall be
the next succeeding Banking Day, or (ii) the earlier date of
termination in whole of the Commitments pursuant to Section
2.6 or Section 8.2, or otherwise.
(a) The Note is, effective as of the date hereof and subject to the satisfaction
of the conditions precedent set forth in Section 3 hereof, hereby amended as
follows:
(b) The following definition contained in Section 1(ix) of the Note is amended
and restated in full to read as follows:
(c) (ix) "Termination Date" means February 16, 1999.
SECTION Forbearance and Extensions.
(a) From January 15, 1999 until and including February 15, 1999, and subject to
the satisfaction of the conditions precedent set forth in Section 3 hereof, the
Bank hereby agrees to forbear from pursuing its available rights and remedies
solely in connection with the Subject Events of Default, except that the Bank
may, in its sole discretion, refuse to make any additional Loan or Loans during
such period.
(b) In accordance with the Letter Waiver by and among the Borrowers and the Bank
dated November 13, 1998 (the "Letter Waiver"), the Borrowers were to provide the
Bank and the Guarantor, (i) not later than December 1, 1998, with
management-prepared 1999 projected financial statements (the "Projections"), and
(ii) not later than December 15, 1998, with a written report from M.R. Weiser,
certified public accountants (the "Accountants"), detailing the results of their
review of the Projections. The Bank did not receive such Projections until on or
about December 15, 1998, and the Bank has not yet received the report from the
Accountants. The Bank reserves its rights and remedies with respect to the
failure of the Borrowers to comply with the foregoing terms of the Letter
Waiver, and nothing contained herein shall constitute a waiver by the Bank of
such rights and remedies.
(c) Nothing contained herein shall prejudice any rights or remedies the Bank may
have to exercise its rights and remedies with respect to the Subject Events of
Default after February 15, 1999, or, on any future date, to declare the
Borrowers to be out of compliance with
<PAGE> 3
any term or provision of the Credit Agreement, for any reason other than the
Subject Events of Default, or prevent the Bank now or hereafter from pursuing
any of their available remedies in connection with any Default or Event of
Default under the Credit Agreement, other than the Subject Events of Default.
SECTION Conditions of Effectiveness. This Amendment shall
become effective when, and only when, the Bank shall have received counterparts
of this Amendment executed by the Borrowers and the Bank and the consent hereto
executed by the Guarantor, except that Section 1 hereof shall become effective
when, and only when, the Bank shall have additionally received (i) true
photocopies of the executed originals of an Amendment No. 6 to Receivables
Purchase and Servicing Agreement extending the maturity date of the Purchase
Agreement to February 4, 1999 and in form and substance satisfactory to the Bank
and the Guarantor, (ii) true photocopies of the executed originals of all
waivers and amendments with respect to the Senior Debt (as defined in the
Intercreditor Agreement) concerning the matters covered by this Amendment, which
shall include an amendment to the Senior Debt documents extending the maturity
date thereof to February 4, 1999 and (iii) a fully executed amendment to the
Guarantee extending the termination date thereof to a date no earlier than March
1, 1999.
SECTION Representations and Warranties of the Borrowers. Each
Borrower represents and warrants as follows:
(a) Such Borrower is a corporation duly organized and validly existing under the
laws of the jurisdiction of its incorporation.
(b) The execution, delivery and performance by such Borrower of this Amendment
and the Facility Documents, as amended hereby, to which it is or is to be a
party are within such Borrower's corporate powers, have been duly authorized by
all necessary corporate action and do not contravene (i) such Borrower's charter
or by-laws, (ii) any contractual restriction binding on or affecting such
Borrower, or result in, or require, the creation or imposition of any mortgage,
deed of trust, pledge, lien, security interest or other charge, encumbrance or
preferential arrangement of any nature upon or with respect to any of the
properties now owned or hereafter acquired by such Borrower, or (iii) to the
best of such Borrower's knowledge, any law.
(c) No authorization, approval or other action by, and no notice to or filing
with, any governmental authority or regulatory body is required for the due
execution, delivery and performance by such Borrower of this Amendment or any of
the Facility Documents, as amended hereby, to which it is or is to be a party.
(d) This Amendment and each of the other Facility Documents as amended hereby,
to which such Borrower is a party constitute legal, valid and binding
obligations of such Borrower enforceable against such Borrower in accordance
with their respective terms.
(e) To the best of such Borrower's knowledge, the Security Agreement constitutes
valid and perfected second priority security interests and liens in and to the
Collateral covered
<PAGE> 4
thereby enforceable against all third parties in all jurisdictions and secure
the payment of all obligations of such Borrower under the Facility Documents, as
amended hereby, and the execution, delivery and performance of this Amendment do
not adversely affect the aforesaid security interests and liens of such Security
Agreement.
(f) Except as set forth on Schedule 4(f), there is no pending or threatened
action or proceeding affecting such Borrower or any of its Subsidiaries before
any court, governmental agency or arbitrator, which may materially adversely
affect the financial condition or operations of such Borrower or any Subsidiary
or which purport to affect the legality, validity or enforceability of this
Amendment or any of the other Facility Documents, as amended hereby.
(g) After giving effect to the terms of the Amendment, no event has occurred and
is continuing which constitutes a Default or an Event of Default.
SECTION Reference to and Effect on the Facility Documents.
(a) Upon the effectiveness of this Amendment, on and after the date hereof each
reference in the Credit Agreement to "this Agreement," "hereunder," "hereof,"
"herein" or words of like import, and each reference in any Facility Documents
to the Credit Agreement or any other Facility Document, shall mean and be a
reference to the Credit Agreement or such other Facility Document as amended
hereby.
(b) Except as specifically amended above, the Credit Agreement and the other
Facility Documents shall remain in full force and effect and are hereby ratified
and confirmed. Without limiting the generality of the foregoing, the Pledge
Agreements and all of the Pledged Collateral described therein, and the Security
Agreement and all of the Collateral described therein, do and shall continue to
secure the payment of all Obligations (as defined in the Pledge Agreement and
the Security Agreement respectively), in each case as amended hereby.
(c) The execution, delivery and effectiveness of this Amendment shall not,
except as expressly provided herein, operate as a waiver of any right, power or
remedy of the Bank or the Guarantor under any of the Facility Documents, nor
constitute a waiver of any provision of any of the Facility Documents.
(d) The Bank is under no obligation to enter into this Amendment. The Bank's
entering into this Amendment shall not be deemed to limit or hinder any rights
of the Bank or the Guarantor under the Credit Agreement, nor shall it be deemed
to create or infer a course of dealing between the Bank and the Parent or any of
the other Borrowers with regard to any provision of the Credit Agreement.
SECTION Costs, Expenses and Taxes. The Borrowers jointly and
severally agree to pay on demand all costs and expenses of the Bank and the
Guarantor in connection with the preparation, execution and delivery of this
Amendment and the other instruments and documents to be delivered hereunder,
including, without limitation, the reasonable fees and out-
<PAGE> 5
of-pocket expenses of counsel for the Bank and the Guarantor with respect
thereto and with respect to advising the Bank and the Guarantor as to their
rights and responsibilities hereunder and thereunder. The Borrowers further
jointly and severally agree to pay on demand all costs and expenses, if any
(including, without limitation, reasonable counsel fees and expenses), in
connection with the enforcement (whether through negotiations, legal proceedings
or otherwise) of this Amendment and the other instruments and documents to be
delivered hereunder, including, without limitation, reasonable counsel fees and
expenses in connection with the enforcement of rights under this Section. In
addition, the Borrowers shall pay any and all stamp and other taxes payable or
determined to be payable in connection with the execution and delivery of this
Amendment and the other instruments and documents to be delivered hereunder, and
agrees to save the Bank and the Guarantor harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes.
SECTION Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument.
SECTION Governing Law. This Amendment shall be governed by,
and construed in accordance with, the laws of the State of Connecticut.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written..
Borrowers:
U.S. HOMECARE CORPORATION AND ITS
SUBSIDIARIES LISTED ON ANNEX 1 HERETO
By:
Name:
Vice President of each of the above
corporations
Bank:
FLEET NATIONAL BANK (successor by merger
to Fleet Bank, National Association)
By:
Christopher R. Zell
Vice President
<PAGE> 6
CONSENT OF GUARANTOR
The Guarantor hereby consents to the execution of the foregoing Amendment by the
Bank and to the terms and conditions contained therein.
CONNECTICUT DEVELOPMENT AUTHORITY
By
Its
<PAGE> 7
ANNEX 1
U.S. HOMECARE CORPORATION, AFFILIATED HOME CARE OF WESTCHESTER, INC., U.S.
HOMECARE CORPORATION OF NORTHERN WESTCHESTER, U.S. HOMECARE CORPORATION OF
MANHATTAN, U.S. HOMECARE CORPORATION OF THE BRONX, U.S. HOMECARE CERTIFIED
CORPORATION OF NEW YORK, U.S. HOMECARE CORPORATION OF ALBANY, U.S. HOMECARE
INFUSION THERAPY SERVICES CORPORATION OF NEW JERSEY, U.S. HOMECARE CORPORATION
OF CONNECTICUT, U.S. HOMECARE CERTIFIED CORPORATION OF CONNECTICUT, U.S.
HOMECARE CORPORATION OF PENNSYLVANIA, U.S. HOMECARE CERTIFIED CORPORATION OF
PENNSYLVANIA, U.S. HOMECARE INFUSION THERAPY PRODUCTS CORPORATION
<PAGE> 1
AMENDMENT NO. 6
Dated as of February 16, 1999
This AMENDMENT among U.S. HOMECARE CORPORATION AND ITS SUBSIDIARIES
LISTED IN ANNEX 1 HERETO (collectively, the "Borrowers" and each, individually,
a "Borrower") and FLEET NATIONAL BANK (successor by merger to Fleet Bank,
National Association)(the "Bank").
PRELIMINARY STATEMENT.
A. The Borrowers and the Bank have entered into a Credit Agreement
dated as of October 6, 1995, as amended by Amendment No. 1 dated as of November
14, 1996, Amendment No. 2 dated as of March 25, 1997, Amendment No. 3 dated as
of December 24, 1997, Amendment No. 4 dated as of March 26, 1998 and Amendment
No. 5 dated as of January 15, 1999 (said Credit Agreement, as so amended, being
hereinafter referred to as the "Credit Agreement"; the terms defined therein
being used herein as therein defined unless otherwise defined herein).
B. Pursuant to the Credit Agreement, the Borrowers are indebted to the
Bank under the Note in the aggregate principal amount of $3,000,000 as of the
date hereof (the "Indebtedness"), which Indebtedness is owed by the Borrowers to
the Bank without offset, defense or counterclaim of any kind, nature or
description. As security for such Indebtedness, the Borrowers have heretofore
granted to the Bank a second priority security interest in all the Borrowers'
assets (excluding certain health care receivables as more fully set forth in the
Security Agreement), whether now owed or hereafter acquired, wherever located of
any kind, nature or description, tangible or intangible, including without
limitation, the Borrowers' accounts receivable, inventory, equipment, and
general intangibles, and such security interests and liens granted by the
Borrowers to the Bank are hereby reacknowledged and confirmed by the Borrowers.
C. The Borrowers and the Bank each hereby acknowledge that the
Borrowers have failed to comply with the covenants contained in Sections 7.1 and
7.3 of the Credit Agreement for the months of October, November and December of
1998. As a result of such noncompliance, Events of Default have occurred and are
continuing under Section 8.1(c) of the Credit Agreement (the "Subject Events of
Default"). The Borrowers have requested that the Bank forbear, from February 16,
1999 through March 15, 1999, from exercising their available rights and remedies
solely in connection with the Subject Events of Default.
D. The Borrowers and the Bank have agreed to amend the Credit Agreement
as hereinafter set forth.
<PAGE> 2
SECTION Amendments.
(a) The Credit Agreement is, effective as of the date hereof and subject to the
satisfaction of the conditions precedent set forth in Section 3 hereof, hereby
amended as follows:
The following definition contained in Section 1.1 of
the Credit Agreement is amended and restated in full to read
as follows:
"Termination Date" means (i) March 16, 1999 or such
later date that is set forth in any extension letter from the
Bank to the Borrowers from time to time; provided that if such
date is not a Banking Day, the Termination Date shall be the
next succeeding Banking Day, or (ii) the earlier date of
termination in whole of the Commitments pursuant to Section
2.6 or Section 8.2, or otherwise.
(b) The Note is, effective as of the date hereof and subject to the satisfaction
of the conditions precedent set forth in Section 3 hereof, hereby amended as
follows:
(c) The following definition contained in Section 1(ix) of the Note is amended
and restated in full to read as follows:
(d) (ix) "Termination Date" means March 16, 1999.
SECTION Forbearance and Extensions.
(a) From February 15, 1999 until and including March 15, 1999, and subject to
the satisfaction of the conditions precedent set forth in Section 3 hereof, the
Bank hereby agrees to forbear from pursuing its available rights and remedies
solely in connection with the Subject Events of Default, except that the Bank
may, in its sole discretion, refuse to make any additional Loan or Loans during
such period. The Borrowers shall use their reasonable best efforts during the
forbearance period to provide to the Bank and the Guarantor, in form and
substance satisfactory to the Bank and the Guarantor, photocopies of an executed
letter of intent for the sale of all or substantially all of the assets and/or
business of the Borrowers to a non-affiliated third party.
(b) In accordance with the Letter Waiver by and among the Borrowers and the Bank
dated November 13, 1998 (the "Letter Waiver"), the Borrowers were to provide the
Bank and the Guarantor, (i) not later than December 1, 1998, with
management-prepared 1999 projected financial statements (the "Projections"), and
(ii) not later than December 15, 1998, with a written report from M.R. Weiser,
certified public accountants (the "Accountants"), detailing the results of their
review of the Projections. The Bank did not receive such Projections until on or
about December 15, 1998, and the Bank has not yet received the report from the
Accountants. The Bank reserves its rights and remedies with respect to the
failure of the Borrowers to comply with the foregoing terms of the Letter
Waiver, and nothing contained herein shall constitute a waiver by the Bank of
such rights and remedies.
<PAGE> 3
(c) Nothing contained herein shall prejudice any rights or remedies the Bank may
have to exercise its rights and remedies with respect to the Subject Events of
Default after March 15, 1999, or, on any future date, to declare the Borrowers
to be out of compliance with any term or provision of the Credit Agreement, for
any reason other than the Subject Events of Default, or prevent the Bank now or
hereafter from pursuing any of their available remedies in connection with any
Default or Event of Default under the Credit Agreement, other than the Subject
Events of Default.
SECTION Conditions of Effectiveness. This Amendment shall
become effective when, and only when, the Bank shall have received counterparts
of this Amendment executed by the Borrowers and the Bank and the consent hereto
executed by the Guarantor, except that Section 1 hereof shall become effective
when, and only when, the Bank shall have additionally received (i) true
photocopies of the executed originals of an Amendment No. 7 to Receivables
Purchase and Servicing Agreement extending the maturity date of the Purchase
Agreement to March 4, 1999 and in form and substance satisfactory to the Bank
and the Guarantor, (ii) true photocopies of the executed originals of all
waivers and amendments with respect to the Senior Debt (as defined in the
Intercreditor Agreement) concerning the matters covered by this Amendment, which
shall include an amendment to the Senior Debt documents extending the maturity
date thereof to March 4, 1999, (iii) a fully executed amendment to the Guarantee
extending the termination date thereof to a date no earlier than March 31, 1999
and (iv) an underwriting fee in the amount of $2,500.
SECTION Representations and Warranties of the Borrowers. Each
Borrower represents and warrants as follows:
(a) Such Borrower is a corporation duly organized and validly existing under the
laws of the jurisdiction of its incorporation.
(b) The execution, delivery and performance by such Borrower of this Amendment
and the Facility Documents, as amended hereby, to which it is or is to be a
party are within such Borrower's corporate powers, have been duly authorized by
all necessary corporate action and do not contravene (i) such Borrower's charter
or by-laws, (ii) any contractual restriction binding on or affecting such
Borrower, or result in, or require, the creation or imposition of any mortgage,
deed of trust, pledge, lien, security interest or other charge, encumbrance or
preferential arrangement of any nature upon or with respect to any of the
properties now owned or hereafter acquired by such Borrower, or (iii) to the
best of such Borrower's knowledge, any law.
(c) No authorization, approval or other action by, and no notice to or filing
with, any governmental authority or regulatory body is required for the due
execution, delivery and performance by such Borrower of this Amendment or any of
the Facility Documents, as amended hereby, to which it is or is to be a party.
<PAGE> 4
(d) This Amendment and each of the other Facility Documents as amended hereby,
to which such Borrower is a party constitute legal, valid and binding
obligations of such Borrower enforceable against such Borrower in accordance
with their respective terms.
(f) To the best of such Borrower's knowledge, the Security Agreement constitutes
valid and perfected second priority security interests and liens in and to the
Collateral covered thereby enforceable against all third parties in all
jurisdictions and secure the payment of all obligations of such Borrower under
the Facility Documents, as amended hereby, and the execution, delivery and
performance of this Amendment do not adversely affect the aforesaid security
interests and liens of such Security Agreement.
(g) Except as set forth on Schedule 4(f), there is no pending or threatened
action or proceeding affecting such Borrower or any of its Subsidiaries before
any court, governmental agency or arbitrator, which may materially adversely
affect the financial condition or operations of such Borrower or any Subsidiary
or which purport to affect the legality, validity or enforceability of this
Amendment or any of the other Facility Documents, as amended hereby.
(h) After giving effect to the terms of the Amendment, no event has occurred and
is continuing which constitutes a Default or an Event of Default.
SECTION Reference to and Effect on the Facility Documents.
(a) Upon the effectiveness of this Amendment, on and after the date hereof each
reference in the Credit Agreement to "this Agreement," "hereunder," "hereof,"
"herein" or words of like import, and each reference in any Facility Documents
to the Credit Agreement or any other Facility Document, shall mean and be a
reference to the Credit Agreement or such other Facility Document as amended
hereby.
(b) Except as specifically amended above, the Credit Agreement and the other
Facility Documents shall remain in full force and effect and are hereby ratified
and confirmed. Without limiting the generality of the foregoing, the Pledge
Agreements and all of the Pledged Collateral described therein, and the Security
Agreement and all of the Collateral described therein, do and shall continue to
secure the payment of all Obligations (as defined in the Pledge Agreement and
the Security Agreement respectively), in each case as amended hereby.
(c) The execution, delivery and effectiveness of this Amendment shall not,
except as expressly provided herein, operate as a waiver of any right, power or
remedy of the Bank or the Guarantor under any of the Facility Documents, nor
constitute a waiver of any provision of any of the Facility Documents.
(d) The Bank is under no obligation to enter into this Amendment. The Bank's
entering into this Amendment shall not be deemed to limit or hinder any rights
of the Bank or the Guarantor under the Credit Agreement, nor shall it be deemed
to create or infer a course of
<PAGE> 5
dealing between the Bank and the Parent or any of the other Borrowers with
regard to any provision of the Credit Agreement.
SECTION Costs, Expenses and Taxes. The Borrowers jointly and
severally agree to pay on demand all costs and expenses of the Bank and the
Guarantor in connection with the preparation, execution and delivery of this
Amendment and the other instruments and documents to be delivered hereunder,
including, without limitation, the reasonable fees and out-of-pocket expenses of
counsel for the Bank and the Guarantor with respect thereto and with respect to
advising the Bank and the Guarantor as to their rights and responsibilities
hereunder and thereunder. The Borrowers further jointly and severally agree to
pay on demand all costs and expenses, if any (including, without limitation,
reasonable counsel fees and expenses), in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this Amendment
and the other instruments and documents to be delivered hereunder, including,
without limitation, reasonable counsel fees and expenses in connection with the
enforcement of rights under this Section. In addition, the Borrowers shall pay
any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this Amendment and the other
instruments and documents to be delivered hereunder, and agrees to save the Bank
and the Guarantor harmless from and against any and all liabilities with respect
to or resulting from any delay in paying or omission to pay such taxes.
SECTION Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument.
SECTION Governing Law. This Amendment shall be governed by,
and construed in accordance with, the laws of the State of Connecticut.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written..
Borrowers:
U.S. HOMECARE CORPORATION AND ITS
SUBSIDIARIES LISTED ON ANNEX 1 HERETO
By:
Name:
Vice President of each of the above
corporations
Bank:
FLEET NATIONAL BANK (successor by merger to
Fleet Bank, National Association)
By:
Christopher R. Zell
Vice President
CONSENT OF GUARANTOR
The Guarantor hereby consents to the execution of the foregoing Amendment by the
Bank and to the terms and conditions contained therein.
CONNECTICUT DEVELOPMENT AUTHORITY
By
Its
<PAGE> 7
ANNEX 1
U.S. HOMECARE CORPORATION, AFFILIATED HOME CARE OF WESTCHESTER, INC., U.S.
HOMECARE CORPORATION OF NORTHERN WESTCHESTER, U.S. HOMECARE CORPORATION OF
MANHATTAN, U.S. HOMECARE CORPORATION OF THE BRONX, U.S. HOMECARE CERTIFIED
CORPORATION OF NEW YORK, U.S. HOMECARE CORPORATION OF ALBANY, U.S. HOMECARE
INFUSION THERAPY SERVICES CORPORATION OF NEW JERSEY, U.S. HOMECARE CORPORATION
OF CONNECTICUT, U.S. HOMECARE CERTIFIED CORPORATION OF CONNECTICUT, U.S.
HOMECARE CORPORATION OF PENNSYLVANIA, U.S. HOMECARE CERTIFIED CORPORATION OF
PENNSYLVANIA, U.S. HOMECARE INFUSION THERAPY PRODUCTS CORPORATION
<PAGE> 1
AMENDMENT NO. 7
Dated as of March 16, 1999
This AMENDMENT among U.S. HOMECARE CORPORATION AND ITS SUBSIDIARIES
LISTED IN ANNEX 1 HERETO (collectively, the "Borrowers" and each, individually,
a "Borrower") and FLEET NATIONAL BANK (successor by merger to Fleet Bank,
National Association)(the "Bank").
PRELIMINARY STATEMENT.
A. The Borrowers and the Bank have entered into a Credit Agreement
dated as of October 6, 1995, as amended by Amendment No. 1 dated as of November
14, 1996, Amendment No. 2 dated as of March 25, 1997, Amendment No. 3 dated as
of December 24, 1997, Amendment No. 4 dated as of March 26, 1998, Amendment No.
5 dated as of January 15, 1999 and Amendment No. 6 dated as of February 16, 1999
(said Credit Agreement, as so amended, being hereinafter referred to as the
"Credit Agreement"; the terms defined therein being used herein as therein
defined unless otherwise defined herein).
B. Pursuant to the Credit Agreement, the Borrowers are indebted to the
Bank under the Note in the aggregate principal amount of $3,000,000 as of the
date hereof (the "Indebtedness"), which Indebtedness is owed by the Borrowers to
the Bank without offset, defense or counterclaim of any kind, nature or
description. As security for such Indebtedness, the Borrowers have heretofore
granted to the Bank a second priority security interest in all the Borrowers'
assets (excluding certain health care receivables as more fully set forth in the
Security Agreement), whether now owed or hereafter acquired, wherever located of
any kind, nature or description, tangible or intangible, including without
limitation, the Borrowers' accounts receivable, inventory, equipment, and
general intangibles, and such security interests and liens granted by the
Borrowers to the Bank are hereby reacknowledged and confirmed by the Borrowers.
C. The Borrowers and the Bank each hereby acknowledge that the
Borrowers have failed to comply with the covenants contained in Sections 7.1 and
7.3 of the Credit Agreement for the months of October, November and December of
1998 and for the months of January and February of 1999. As a result of such
noncompliance, Events of Default have occurred and are continuing under Section
8.1(c) of the Credit Agreement (the "Subject Events of Default"). The Borrowers
have requested that the Bank forbear, from March 16, 1999 through April 15,
1999, from exercising their available rights and remedies solely in connection
with the Subject Events of Default.
D. The Borrowers and the Bank have agreed to amend the Credit Agreement
as hereinafter set forth.
<PAGE> 2
SECTION Amendments.
(a) The Credit Agreement is, effective as of the date hereof and subject to
the satisfaction of the conditions precedent set forth in Section 3 hereof,
hereby amended as follows:
The following definition contained in Section 1.1 of the
Credit Agreement is amended and restated in full to read as follows:
"Termination Date" means (i) April 16, 1999 or such later date
that is set forth in any extension letter from the Bank to the
Borrowers from time to time; provided that if such date is not a
Banking Day, the Termination Date shall be the next succeeding Banking
Day, or (ii) the earlier date of termination in whole of the
Commitments pursuant to Section 2.6 or Section 8.2, or otherwise.
(b) The Note is, effective as of the date hereof and subject to the
satisfaction of the conditions precedent set forth in Section 3 hereof, hereby
amended as follows:
(c) The following definition contained in Section 1(ix) of the Note is
amended and restated in full to read as follows:
(d) (ix) "Termination Date" means April 16, 1999.
SECTION Forbearance and Extensions.
(a) From March 16, 1999 until and including April 15, 1999, and subject to
the satisfaction of the conditions precedent set forth in Section 3 hereof, the
Bank hereby agrees to forbear from pursuing its available rights and remedies
solely in connection with the Subject Events of Default, except that the Bank
may, in its sole discretion, refuse to make any additional Loan or Loans during
such period. Notwithstanding the satisfaction by the Borrowers of any conditions
precedent to the making of Loans under the Credit Agreement, nor any provision
of the Credit Agreement or the other Facility Documents to the contrary, the
Borrowers acknowledge that the Bank is not under any commitment to make any
Loans to the Borrowers and the decision to make each Loan is subject to the sole
discretion of the Bank. During the forbearance period, the Borrowers shall
diligently pursue effectuating a binding agreement in connection with any
existing letters of intent for the sale of all or substantially all of the
assets and/or business of the Borrowers to a non-affiliated third party. If such
letters of intent shall terminate prior to the effectiveness of a binding
agreement, then the Borrowers shall use their reasonable best efforts during the
forbearance period to provide to the Bank and the Guarantor, in form and
substance satisfactory to the Bank and the Guarantor, photocopies of new
executed letters of intent for the sale of all or substantially all of the
assets and/or business of the Borrowers to a non-affiliated third party.
(b) In accordance with the Letter Waiver by and among the Borrowers and the Bank
dated November 13, 1998 (the "Letter Waiver"), the Borrowers were to provide the
Bank and the
<PAGE> 3
Guarantor, (i) not later than December 1, 1998, with management-prepared 1999
projected financial statements (the "Projections"), and (ii) not later than
December 15, 1998, with a written report from M.R. Weiser, certified public
accountants (the "Accountants"), detailing the results of their review of the
Projections. The Bank did not receive such Projections until on or about
December 15, 1998, and the Bank has not yet received the report from the
Accountants. The Bank reserves its rights and remedies with respect to the
failure of the Borrowers to comply with the foregoing terms of the Letter
Waiver, and nothing contained herein shall constitute a waiver by the Bank of
such rights and remedies.
(c) Nothing contained herein shall prejudice any rights or remedies the
Bank may have to exercise its rights and remedies with respect to the Subject
Events of Default after April 15, 1999, or, on any future date, to declare the
Borrowers to be out of compliance with any term or provision of the Credit
Agreement, for any reason other than the Subject Events of Default, or prevent
the Bank now or hereafter from pursuing any of their available remedies in
connection with any Default or Event of Default under the Credit Agreement,
other than the Subject Events of Default.
SECTION Conditions of Effectiveness. This Amendment shall become
effective when, and only when, the Bank shall have received counterparts of this
Amendment executed by the Borrowers and the Bank and the consent hereto executed
by the Guarantor, except that Section 1 and Section 2 hereof shall become
effective when, and only when, the Bank shall have additionally received (i)
true photocopies of the executed originals of an Amendment No. 8 to Receivables
Purchase and Servicing Agreement extending the maturity date of the Purchase
Agreement to April 5, 1999 and in form and substance satisfactory to the Bank
and the Guarantor, (ii) true photocopies of the executed originals of all
waivers and amendments with respect to the Senior Debt (as defined in the
Intercreditor Agreement) concerning the matters covered by this Amendment, which
shall include an amendment to the Senior Debt documents extending the maturity
date thereof to April 5, 1999, (iii) a fully executed amendment to the Guarantee
extending the termination date thereof to a date no earlier than April 30, 1999
and (iv) weekly cash flow projections for the nine-month period commencing March
1, 1999, in form and substance satisfactory to the Bank and the Guarantor.
SECTION Representations and Warranties of the Borrowers. Each Borrower
represents and warrants as follows:
(a) Such Borrower is a corporation duly organized and validly existing
under the laws of the jurisdiction of its incorporation.
(b) The execution, delivery and performance by such Borrower of this
Amendment and the Facility Documents, as amended hereby, to which it is or is to
be a party are within such Borrower's corporate powers, have been duly
authorized by all necessary corporate action and do not contravene (i) such
Borrower's charter or by-laws, (ii) any contractual restriction binding on or
affecting such Borrower, or result in, or require, the creation or imposition of
any mortgage, deed of trust, pledge, lien, security interest or other charge,
encumbrance or preferential
<PAGE> 4
arrangement of any nature upon or with respect to any of the properties now
owned or hereafter acquired by such Borrower, or (iii) to the best of such
Borrower's knowledge, any law.
(c) No authorization, approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for the
due execution, delivery and performance by such Borrower of this Amendment or
any of the Facility Documents, as amended hereby, to which it is or is to be a
party.
(d) This Amendment and each of the other Facility Documents as amended
hereby, to which such Borrower is a party constitute legal, valid and binding
obligations of such Borrower enforceable against such Borrower in accordance
with their respective terms.
(e) To the best of such Borrower's knowledge, the Security Agreement
constitutes valid and perfected second priority security interests and liens in
and to the Collateral covered thereby enforceable against all third parties in
all jurisdictions and secure the payment of all obligations of such Borrower
under the Facility Documents, as amended hereby, and the execution, delivery and
performance of this Amendment do not adversely affect the aforesaid security
interests and liens of such Security Agreement.
(f) Except as set forth on Schedule 4(f), there is no pending or threatened
action or proceeding affecting such Borrower or any of its Subsidiaries before
any court, governmental agency or arbitrator, which may materially adversely
affect the financial condition or operations of such Borrower or any Subsidiary
or which purport to affect the legality, validity or enforceability of this
Amendment or any of the other Facility Documents, as amended hereby.
(g) After giving effect to the terms of the Amendment, no event has
occurred and is continuing which constitutes a Default or an Event of Default.
SECTION Reference to and Effect on the Facility Documents.
(a) Upon the effectiveness of this Amendment, on and after the date hereof
each reference in the Credit Agreement to "this Agreement," "hereunder,"
"hereof," "herein" or words of like import, and each reference in any Facility
Documents to the Credit Agreement or any other Facility Document, shall mean and
be a reference to the Credit Agreement or such other Facility Document as
amended hereby.
(b) Except as specifically amended above, the Credit Agreement and the
other Facility Documents shall remain in full force and effect and are hereby
ratified and confirmed. Without limiting the generality of the foregoing, the
Pledge Agreements and all of the Pledged Collateral described therein, and the
Security Agreement and all of the Collateral described therein, do and shall
continue to secure the payment of all Obligations (as defined in the Pledge
Agreement and the Security Agreement respectively), in each case as amended
hereby.
<PAGE> 5
(c) The execution, delivery and effectiveness of this Amendment shall not,
except as expressly provided herein, operate as a waiver of any right, power or
remedy of the Bank or the Guarantor under any of the Facility Documents, nor
constitute a waiver of any provision of any of the Facility Documents.
(d) The Bank is under no obligation to enter into this Amendment. The
Bank's entering into this Amendment shall not be deemed to limit or hinder any
rights of the Bank or the Guarantor under the Credit Agreement, nor shall it be
deemed to create or infer a course of dealing between the Bank and the Parent or
any of the other Borrowers with regard to any provision of the Credit Agreement.
SECTION Costs, Expenses and Taxes. The Borrowers jointly and severally
agree to pay on demand all costs and expenses of the Bank and the Guarantor in
connection with the preparation, execution and delivery of this Amendment and
the other instruments and documents to be delivered hereunder, including,
without limitation, the reasonable fees and out-of-pocket expenses of counsel
for the Bank and the Guarantor with respect thereto and with respect to advising
the Bank and the Guarantor as to their rights and responsibilities hereunder and
thereunder. The Borrowers further jointly and severally agree to pay on demand
all costs and expenses, if any (including, without limitation, reasonable
counsel fees and expenses), in connection with the enforcement (whether through
negotiations, legal proceedings or otherwise) of this Amendment and the other
instruments and documents to be delivered hereunder, including, without
limitation, reasonable counsel fees and expenses in connection with the
enforcement of rights under this Section. In addition, the Borrowers shall pay
any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this Amendment and the other
instruments and documents to be delivered hereunder, and agrees to save the Bank
and the Guarantor harmless from and against any and all liabilities with respect
to or resulting from any delay in paying or omission to pay such taxes.
SECTION Execution in Counterparts. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same instrument.
SECTION Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of Connecticut.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written..
Borrowers:
U.S. HOMECARE CORPORATION AND ITS
SUBSIDIARIES LISTED ON ANNEX 1 HERETO
By:
---------------------
Name:
of each of the above corporations
-----------
Bank:
-----
FLEET NATIONAL BANK (successor by merger to
Fleet Bank, National Association)
By:
---------------------
Christopher R. Zell
Vice President
CONSENT OF GUARANTOR
--------------------
The Guarantor hereby consents to the execution of the foregoing Amendment by the
Bank and to the terms and conditions contained therein.
CONNECTICUT DEVELOPMENT AUTHORITY
By
--------------------------------
Its
<PAGE> 7
ANNEX 1
U.S. HOMECARE CORPORATION, AFFILIATED HOME CARE OF WESTCHESTER, INC., U.S.
HOMECARE CORPORATION OF NORTHERN WESTCHESTER, U.S. HOMECARE CORPORATION OF
MANHATTAN, U.S. HOMECARE CORPORATION OF THE BRONX, U.S. HOMECARE CERTIFIED
CORPORATION OF NEW YORK, U.S. HOMECARE CORPORATION OF ALBANY, U.S. HOMECARE
INFUSION THERAPY SERVICES CORPORATION OF NEW JERSEY, U.S. HOMECARE CORPORATION
OF CONNECTICUT, U.S. HOMECARE CERTIFIED CORPORATION OF CONNECTICUT, U.S.
HOMECARE CORPORATION OF PENNSYLVANIA, U.S. HOMECARE CERTIFIED CORPORATION OF
PENNSYLVANIA, U.S. HOMECARE INFUSION THERAPY PRODUCTS CORPORATION
<PAGE> 1
FOURTH AMENDMENT TO GUARANTEE AGREEMENT
THIS FOURTH AMENDMENT TO GUARANTEE AGREEMENT (the "Fourth Amendment") is
entered into effective as of the 15th day of January, 1999, by and between the
Connecticut Development Authority, a body politic and corporate, constituting a
public instrumentality and political subdivision of the State of Connecticut
with its principal office at 999 West Street, Rocky Hill, Connecticut 06067 (the
"Authority"), and Fleet National Bank (successor by merger to Fleet Bank,
National Association), a national banking association with an office at 777 Main
Street, Hartford, Connecticut 06115-1600 ("Lender").
RECITALS
WHEREAS, on or about October 6, 1995, Lender entered into a certain Credit
Agreement with U.S. HomeCare Corporation, a New York corporation, and its
consolidated Subsidiaries which were signatory parties thereto (collectively,
the "Borrower"), pursuant to which Lender agreed to make available to the
Borrower certain revolving credit loans in an amount of up to $3,000,000.00 with
a maturity date of April 15, 1997 (the "Credit Agreement"); and
WHEREAS, on or about October 6, 1995, the Authority executed and delivered
to Lender a Guarantee Agreement pursuant to which the Authority agreed to
guarantee an amount of up to $3,000,000.00 of the aggregate loans from time to
time outstanding under the Credit Agreement (the "Guarantee Agreement"), as more
fully described in Section 8 of the Guarantee Agreement; and
WHEREAS, on or about November 14, 1996, Lender and the Borrower entered
into Amendment No. 1 to the Credit Agreement pursuant to which certain terms and
conditions of the Credit Agreement were amended; and
WHEREAS, on March 25, 1997, Lender and the Borrower entered into Amendment
No. 2 to the Credit Agreement pursuant to which the maturity date of such loans
was extended to January 15, 1998; and
WHEREAS, effective as of December 24, 1997, Lender and the Borrower
entered into Amendment No. 3 to the Credit Agreement pursuant to which the
maturity date of such loans was extended to April 15, 1998; and
WHEREAS, effective as of March 26, 1998, Lender and Borrower entered into
Amendment No. 4 to the Credit Agreement pursuant to which the maturity date of
such loans was extended to January 15, 1999; and
<PAGE> 2
WHEREAS, on the effective date hereof, Lender and Borrower have entered
into Amendment No. 5 to the Credit Agreement pursuant to which the maturity date
of such loans has been further extended to February 16, 1999; and
WHEREAS, the Credit Agreement, as amended by Amendment No. 1, Amendment
No. 2, Amendment No. 3, Amendment No. 4 and Amendment No. 5 thereto, is
herein referred to as the "Amended Credit Agreement"; and
WHEREAS, the Authority is willing to enter into this Fourth Amendment with
Lender to evidence the terms and conditions of its guarantee of the loans made
available by Lender to the Borrower under the terms of the Amended Credit
Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. The capitalized terms used in this Fourth Amendment shall
have the same meanings as in the Guarantee Agreement unless the context hereof
otherwise provides.
2. Amendments to Guarantee Agreement. From and after the effective date of
this Fourth Amendment, the Guarantee Agreement shall be amended as follows:
2.1. The following definitions set forth in Section 1 of the
Guarantee Agreement shall be amended in their entirety to hereafter read as
follows:
" 'Commitment' shall mean the Authority's commitment letters dated
September 14, 1995 and March 21, 1997 setting forth the conditions to the
issuance of its Guarantee of the Lender Loan, and the terms of such Guarantee.
'Guarantee' shall mean the Guarantee Agreement as amended by this
Fourth Amendment."
2.2. Section 8 of the Guarantee Agreement, entitled "Guarantee
Amount", shall be amended in its entirety to hereafter read as follows:
"Section 8. Guarantee Amount
The Guarantee Amount at any given time shall be equal to the
aggregate sum of $3,000,000.00 minus the total of all payments theretofore made
by the Authority under this Guarantee. Upon any payment by the Authority under
this Guarantee, the Guarantee Amount shall be immediately and automatically
reduced by the amount of such payment, except that the Guarantee Amount may be
reinstated as provided in Section 9 hereof. NOTWITHSTANDING THE FOREGOING, THE
GUARANTEE AMOUNT SHALL AUTOMATICALLY REDUCE TO ZERO AND THIS GUARANTEE SHALL
TERMINATE ON MARCH 1, 1999, UNLESS PRIOR TO SUCH DATE LENDER HAS DELIVERED TO
THE AUTHORITY UNDER SECTION 9 HEREOF A NOTICE OF DEFAULT OR A NOTICE THAT
BORROWER HAS FAILED TO MAKE A PAYMENT UNDER THE LENDER LOAN DOCUMENTS ON DEMAND
OF LENDER."
2.3. Section 13 of the Guarantee Agreement, entitled "Fees and
Expenses of Authority", shall be amended to provide that the following fees are
to be paid by the Borrower to the Authority on or before the date of this Fourth
Amendment: (i) a pro-rated commitment fee, extension fee and penalty fee in the
aggregate amount of $8,750.00, and (ii) reimbursement of all reasonable legal
fees and expenses incurred by the Authority in connection with this Fourth
Amendment.
3. Effect of this Fourth Amendment. Except as otherwise amended hereby,
the terms of the Guarantee Agreement shall remain in full force and effect. The
rights, privileges, duties and obligations of the parties under the Guarantee
Agreement shall, except as modified by this Fourth Amendment, remain unchanged
and in full force and effect.
<PAGE> 3
4. Governing Law. This Fourth Amendment is made, executed and delivered in
the State of Connecticut and it is the specific intent of the parties hereto
that it shall be in all respects be construed under the laws of the State of
Connecticut.
5. Entire Agreement. This Fourth Amendment sets forth the entire agreement
of the parties hereto with respect to the subject matter hereof and supersedes
all prior agreements between the parties, written or oral, specifically relating
to such matters.
6. Binding Effect. This Fourth Amendment shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
7. Execution in Counterparts. This Fourth Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto, by their duly authorized officers,
have executed this Fourth Amendment as of the date first above written.
CONNECTICUT DEVELOPMENT AUTHORITY
By:_________________________________________
Francis T. Gagliardo
Its Senior Vice President
<PAGE> 4
FLEET NATIONAL BANK
(successor by merger to Fleet Bank, National
Association)
By:__________________________________________
Christopher R. Zell
Its Vice President
Acknowledged and agreed to effective
as of the 15th day of January, 1999:
U.S. HOMECARE CORPORATION AND ITS CONSOLIDATED
SUBSIDIARIES LISTED ON ANNEX I HERETO
By:________________________________________
Name:
Vice President of each of the above corporations
<PAGE> 5
ANNEX I
U.S. HOMECARE CORPORATION, AFFILIATED HOME CARE OF WESTCHESTER, INC., U.S.
HOMECARE CORPORATION OF NORTHERN WESTCHESTER, U.S. HOMECARE CORPORATION OF
MANHATTAN, U.S. HOMECARE CORPORATION OF THE BRONX, U.S. HOMECARE CERTIFIED
CORPORATION OF NEW YORK, U.S. HOMECARE CORPORATION OF ALBANY, U.S. HOMECARE
INFUSION THERAPY SERVICES CORPORATION OF NEW JERSEY, U.S. HOMECARE
CORPORATION OF CONNECTICUT, U.S. HOMECARE CERTIFIED CORPORATION OF
CONNECTICUT, U.S. HOMECARE CORPORATION OF PENNSYLVANIA, U.S. HOMECARE
CERTIFIED CORPORATION OF PENNSYLVANIA, U.S. HOMECARE INFUSION THERAPY
PRODUCTS CORPORATION.
<PAGE> 1
*10.60 Amendment dated March 16, 1999 to Employment Agreement dated May 6,
1998 between U.S. HomeCare Corporation and Sophia Bilinsky.
FIFTH AMENDMENT TO GUARANTEE AGREEMENT
THIS FIFTH AMENDMENT TO GUARANTEE AGREEMENT (the "Fifth Amendment") is
entered into effective as of the 16th day of February, 1999, by and between the
Connecticut Development Authority, a body politic and corporate, constituting a
public instrumentality and political subdivision of the State of Connecticut
with its principal office at 999 West Street, Rocky Hill, Connecticut 06067 (the
"Authority"), and Fleet National Bank (successor by merger to Fleet Bank,
National Association), a national banking association with an office at 777 Main
Street, Hartford, Connecticut 06115-1600 ("Lender").
RECITALS
WHEREAS, on or about October 6, 1995, Lender entered into a certain Credit
Agreement with U.S. HomeCare Corporation, a New York corporation, and its
consolidated Subsidiaries which were signatory parties thereto (collectively,
the "Borrower"), pursuant to which Lender agreed to make available to the
Borrower certain revolving credit loans in an amount of up to $3,000,000.00 with
a maturity date of April 15, 1997 (the "Credit Agreement"); and
WHEREAS, on or about October 6, 1995, the Authority executed and delivered
to Lender a Guarantee Agreement pursuant to which the Authority agreed to
guarantee an amount of up to $3,000,000.00 of the aggregate loans from time to
time outstanding under the Credit Agreement (the "Guarantee Agreement"), as more
fully described in Section 8 of the Guarantee Agreement; and
WHEREAS, on or about November 14, 1996, Lender and the Borrower entered
into Amendment No. 1 to the Credit Agreement pursuant to which certain terms and
conditions of the Credit Agreement were amended; and
WHEREAS, on March 25, 1997, Lender and the Borrower entered into Amendment
No. 2 to the Credit Agreement pursuant to which the maturity date of such loans
was extended to January 15, 1998; and
WHEREAS, effective as of December 24, 1997, Lender and the Borrower
entered into Amendment No. 3 to the Credit Agreement pursuant to which the
maturity date of such loans was extended to April 15, 1998; and
WHEREAS, effective as of March 26, 1998, Lender and Borrower entered into
Amendment No. 4 to the Credit Agreement pursuant to which the maturity date of
such loans was extended to January 15, 1999; and
<PAGE> 2
WHEREAS, effective as of January 15, 1999, Lender and Borrower entered
into Amendment No. 5 to the Credit Agreement pursuant to which the maturity date
of such loans was extended to February 16, 1999; and
WHEREAS, on the effective date hereof, Lender and Borrower have entered
into Amendment No. 6 to the Credit Agreement pursuant to which the maturity date
of such loans has been further extended to March 16, 1999; and
WHEREAS, the Credit Agreement, as amended by Amendment No. 1, Amendment
No. 2, Amendment No. 3, Amendment No. 4, Amendment No. 5 and Amendment No. 6
thereto, is herein referred to as the "Amended Credit Agreement"; and
WHEREAS, the Authority is willing to enter into this Fifth Amendment with
Lender to evidence the terms and conditions of its guarantee of the loans made
available by Lender to the Borrower under the terms of the Amended Credit
Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. The capitalized terms used in this Fifth Amendment shall
have the same meanings as in the Guarantee Agreement unless the context hereof
otherwise provides.
2. Amendments to Guarantee Agreement. From and after the effective date of
this Fifth Amendment, the Guarantee Agreement shall be amended as follows:
2.1. The following definition set forth in Section 1 of the
Guarantee Agreement shall be amended in its entirety to hereafter read as
follows:
"'Guarantee' shall mean the Guarantee Agreement as amended by
this Fifth Amendment."
2.2. Section 8 of the Guarantee Agreement, entitled "Guarantee
Amount", shall be amended in its entirety to hereafter read as follows:
"Section 8. Guarantee Amount
The Guarantee Amount at any given time shall be equal to the
aggregate sum of $3,000,000.00 minus the total of all payments theretofore made
by the Authority under this Guarantee. Upon any payment by the Authority under
this Guarantee, the Guarantee Amount shall be immediately and automatically
reduced by the amount of such payment, except that the Guarantee Amount may be
reinstated as provided in Section 9 hereof. NOTWITHSTANDING THE FOREGOING, THE
GUARANTEE AMOUNT SHALL AUTOMATICALLY REDUCE TO ZERO AND THIS GUARANTEE SHALL
TERMINATE ON MARCH 31, 1999, UNLESS PRIOR TO SUCH DATE LENDER HAS DELIVERED TO
THE AUTHORITY UNDER SECTION 9 HEREOF A NOTICE OF DEFAULT OR A NOTICE THAT
BORROWER HAS FAILED TO MAKE A PAYMENT UNDER THE LENDER LOAN DOCUMENTS ON DEMAND
OF LENDER."
2.3. Section 13 of the Guarantee Agreement, entitled "Fees and
Expenses of Authority", shall be amended to provide that the following fees are
to be paid by the Borrower to the Authority on or before the effective date of
this Fifth Amendment: (i) a pro-rated commitment fee, extension fee and penalty
fee in the aggregate amount of $8,750.00, and (ii) reimbursement of all
reasonable legal fees and expenses incurred by the Authority in connection with
this Fifth Amendment.
3. Effect of this Fifth Amendment. Except as otherwise amended hereby, the
terms of the Guarantee Agreement shall remain in full force and effect. The
rights, privileges, duties and obligations of the parties under the Guarantee
Agreement shall, except as modified by this Fifth Amendment, remain unchanged
and in full force and effect.
<PAGE> 3
4. Governing Law. This Fifth Amendment is made, executed and delivered in
the State of Connecticut and it is the specific intent of the parties hereto
that it shall be in all respects be construed under the laws of the State of
Connecticut.
5. Entire Agreement. This Fifth Amendment sets forth the entire agreement
of the parties hereto with respect to the subject matter hereof and supersedes
all prior agreements between the parties, written or oral, specifically relating
to such matters.
6. Binding Effect. This Fifth Amendment shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
7. Execution in Counterparts. This Fifth Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same
instrument.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto, by their duly authorized officers,
have executed this Fifth Amendment as of the date first above written.
CONNECTICUT DEVELOPMENT AUTHORITY
By: __________________________________________
Francis T. Gagliardo
Its Senior Vice President
FLEET NATIONAL BANK
(successor by merger to Fleet Bank, National
Association)
By: __________________________________________
Christopher R. Zell
Its Vice President
Acknowledged and agreed to effective
as of the 16th day of February, 1999:
U.S. HOMECARE CORPORATION AND ITS CONSOLIDATED
SUBSIDIARIES LISTED ON ANNEX I HERETO
By: __________________________________________
Name:
Vice President of each of the above corporations
<PAGE> 5
ANNEX I
U.S. HOMECARE CORPORATION, AFFILIATED HOME CARE OF WESTCHESTER, INC., U.S.
HOMECARE CORPORATION OF NORTHERN WESTCHESTER, U.S. HOMECARE CORPORATION OF
MANHATTAN, U.S. HOMECARE CORPORATION OF THE BRONX, U.S. HOMECARE CERTIFIED
CORPORATION OF NEW YORK, U.S. HOMECARE CORPORATION OF ALBANY, U.S. HOMECARE
INFUSION THERAPY SERVICES CORPORATION OF NEW JERSEY, U.S. HOMECARE
CORPORATION OF CONNECTICUT, U.S. HOMECARE CERTIFIED CORPORATION OF
CONNECTICUT, U.S. HOMECARE CORPORATION OF PENNSYLVANIA, U.S. HOMECARE
CERTIFIED CORPORATION OF PENNSYLVANIA, U.S. HOMECARE INFUSION THERAPY
PRODUCTS CORPORATION.
<PAGE> 1
SIXTH AMENDMENT TO GUARANTEE AGREEMENT
THIS SIXTH AMENDMENT TO GUARANTEE AGREEMENT (the "Sixth Amendment") is
entered into effective as of the 16th day of March, 1999, by and between the
Connecticut Development Authority, a body politic and corporate, constituting a
public instrumentality and political subdivision of the State of Connecticut
with its principal office at 999 West Street, Rocky Hill, Connecticut 06067 (the
"Authority"), and Fleet National Bank (successor by merger to Fleet Bank,
National Association), a national banking association with an office at 777 Main
Street, Hartford, Connecticut 06115-1600 ("Lender").
RECITALS
WHEREAS, on or about October 6, 1995, Lender entered into a certain Credit
Agreement with U.S. HomeCare Corporation, a New York corporation, and its
consolidated Subsidiaries which were signatory parties thereto (collectively,
the "Borrower"), pursuant to which Lender agreed to make available to the
Borrower certain revolving credit loans in an amount of up to $3,000,000.00 with
a maturity date of April 15, 1997 (the "Credit Agreement"); and
WHEREAS, on or about October 6, 1995, the Authority executed and delivered
to Lender a Guarantee Agreement pursuant to which the Authority agreed to
guarantee an amount of up to $3,000,000.00 of the aggregate loans from time to
time outstanding under the Credit Agreement (the "Guarantee Agreement"), as more
fully described in Section 8 of the Guarantee Agreement; and
WHEREAS, on or about November 14, 1996, Lender and the Borrower entered
into Amendment No. 1 to the Credit Agreement pursuant to which certain terms and
conditions of the Credit Agreement were amended; and
WHEREAS, on March 25, 1997, Lender and the Borrower entered into Amendment
No. 2 to the Credit Agreement pursuant to which the maturity date of such loans
was extended to January 15, 1998; and
WHEREAS, effective as of December 24, 1997, Lender and the Borrower
entered into Amendment No. 3 to the Credit Agreement pursuant to which the
maturity date of such loans was extended to April 15, 1998; and
WHEREAS, effective as of March 26, 1998, Lender and Borrower entered into
Amendment No. 4 to the Credit Agreement pursuant to which the maturity date of
such loans was extended to January 15, 1999; and
<PAGE> 2
WHEREAS, effective as of January 15, 1999, Lender and Borrower entered
into Amendment No. 5 to the Credit Agreement pursuant to which the maturity date
of such loans was extended to February 16, 1999; and
WHEREAS, effective as of February 16, 1999, Lender and Borrower entered
into Amendment No. 6 to the Credit Agreement pursuant to which the maturity date
of such loans was extended to March 16, 1999; and
WHEREAS, on the effective date hereof, Lender and Borrower have entered
into Amendment No. 7 to the Credit Agreement pursuant to which the maturity date
of such loans has been further extended to April 16, 1999; and
WHEREAS, the Credit Agreement, as amended by Amendment No. 1, Amendment
No. 2, Amendment No. 3, Amendment No. 4, Amendment No. 5, Amendment No. 6 and
Amendment No. 7 thereto, is herein referred to as the "Amended Credit
Agreement"; and
WHEREAS, the Authority is willing to enter into this Sixth Amendment with
Lender to evidence the terms and conditions of its guarantee of the loans made
available by Lender to the Borrower under the terms of the Amended Credit
Agreement;
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. The capitalized terms used in this Sixth Amendment shall
have the same meanings as in the Guarantee Agreement unless the context hereof
otherwise provides.
2. Amendments to Guarantee Agreement. From and after the effective date of
this Sixth Amendment, the Guarantee Agreement shall be amended as follows:
2.1. The following definition set forth in Section 1 of the
Guarantee Agreement shall be amended in its entirety to hereafter read as
follows:
"'Guarantee' shall mean the Guarantee Agreement as amended by
this Sixth Amendment."
2.2. Section 8 of the Guarantee Agreement, entitled "Guarantee
Amount", shall be amended in its entirety to hereafter read as follows:
"Section 8. Guarantee Amount
The Guarantee Amount at any given time shall be equal to the
aggregate sum of $3,000,000.00 minus the total of all payments theretofore made
by the Authority under this Guarantee. Upon any payment by the Authority under
this Guarantee, the Guarantee Amount shall be immediately and automatically
reduced by the amount of such payment, except that the Guarantee Amount may be
reinstated as provided in Section 9 hereof. NOTWITHSTANDING THE FOREGOING, THE
GUARANTEE AMOUNT SHALL AUTOMATICALLY REDUCE TO ZERO AND THIS GUARANTEE SHALL
TERMINATE ON APRIL 30, 1999, UNLESS PRIOR TO SUCH DATE LENDER HAS DELIVERED TO
THE AUTHORITY UNDER SECTION 9 HEREOF A NOTICE OF DEFAULT OR A NOTICE THAT
BORROWER HAS FAILED TO MAKE A PAYMENT UNDER THE LENDER LOAN DOCUMENTS ON DEMAND
OF LENDER."
2.3. Section 13 of the Guarantee Agreement, entitled "Fees and
Expenses of Authority", shall be amended to provide that the following fees are
to be paid by the Borrower to the Authority on or before the effective date of
this Sixth Amendment: (i) a pro-rated commitment fee, extension fee and penalty
fee in the aggregate amount of $8,750.00, and (ii) reimbursement of all
reasonable legal fees and expenses incurred by the Authority in connection with
this Sixth Amendment.
<PAGE> 3
3. Effect of this Sixth Amendment. Except as otherwise amended hereby, the
terms of the Guarantee Agreement shall remain in full force and effect. The
rights, privileges, duties and obligations of the parties under the Guarantee
Agreement shall, except as modified by this Sixth Amendment, remain unchanged
and in full force and effect.
4. Governing Law. This Sixth Amendment is made, executed and delivered in
the State of Connecticut and it is the specific intent of the parties hereto
that it shall be in all respects be construed under the laws of the State of
Connecticut.
5. Entire Agreement. This Sixth Amendment sets forth the entire agreement
of the parties hereto with respect to the subject matter hereof and supersedes
all prior agreements between the parties, written or oral, specifically relating
to such matters.
6. Binding Effect. This Sixth Amendment shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns.
7. Execution in Counterparts. This Sixth Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which taken together shall constitute but one and the same
instrument.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto, by their duly authorized officers,
have executed this Sixth Amendment as of the date first above written.
CONNECTICUT DEVELOPMENT AUTHORITY
By: ______________________________________
Francis T. Gagliardo
Its Senior Vice President
FLEET NATIONAL BANK
(successor by merger to Fleet Bank, National
Association)
By:_______________________________________
Christopher R. Zell
Its Vice President
Acknowledged and agreed to effective
as of the ____ day of March, 1999:
U.S. HOMECARE CORPORATION AND ITS CONSOLIDATED
SUBSIDIARIES LISTED ON ANNEX I HERETO
By:___________________________________________
Name:
_______________ of each of the above corporations
<PAGE> 5
ANNEX I
U.S. HOMECARE CORPORATION, AFFILIATED HOME CARE OF WESTCHESTER, INC., U.S.
HOMECARE CORPORATION OF NORTHERN WESTCHESTER, U.S. HOMECARE CORPORATION OF
MANHATTAN, U.S. HOMECARE CORPORATION OF THE BRONX, U.S. HOMECARE CERTIFIED
CORPORATION OF NEW YORK, U.S. HOMECARE CORPORATION OF ALBANY, U.S. HOMECARE
INFUSION THERAPY SERVICES CORPORATION OF NEW JERSEY, U.S. HOMECARE
CORPORATION OF CONNECTICUT, U.S. HOMECARE CERTIFIED CORPORATION OF
CONNECTICUT, U.S. HOMECARE CORPORATION OF PENNSYLVANIA, U.S. HOMECARE
CERTIFIED CORPORATION OF PENNSYLVANIA, U.S. HOMECARE INFUSION THERAPY
PRODUCTS CORPORATION.
<PAGE> 1
HIGHLY CONFIDENTIAL
May 6, 1998
Ms. Sophia Bilinsky
5 Natasha Court
Sparta, New Jersey 07871
Dear Sophia:
On behalf of the Board of Directors of U.S. HomeCare Corporation (the "Company"
or "USHO"), I am pleased to offer you the position of President and Chief
Executive Officer of USHO. You will be responsible for the operations and
management of USHO and will report directly to the Board of Directors. You will
also be appointed to the Board of Directors at the regularly scheduled Board
Meeting following the Annual Meeting of Shareholders on June 11, 1998.
In accepting the position, you agree that this responsibility shall be your
full-time and primary means of employment and that you will apply your
professional energies on a full-time basis to the execution of your
responsibilities with the Company. In your role, you will be the recipient of
information of a confidential nature regarding the Company and it is understood
that such information shall remain confidential during and after your employment
by the Company. Your employment with USHO will commence on May 15, 1998 ("DOE")
and you will be elected as the President and Chief Executive Officer of USHO
within four weeks thereafter (the "CEO DOE"). We will mutually determine the
extent of your responsibilities during the period between your DOE and your CEO
DOE ("Transition Period"). Your employment with the Company will be of no
specific duration and you will be an "at will" employee, which means you may
resign for any reason at any time, without notice and the Company may terminate
your employment for any reason at any time, without notice, with or without
cause. The basic terms of your employment are as follows:
1. Compensation.
a. Base Salary. During the Transition Period you will be paid at the
rate of $1,000 per month, payable biweekly at $500.00 gross and subject to
proper withholding as per the W-4 you file with the Company. Commencing with
your CEO DOE through the remainder of calendar 1998, you will be paid a Base
Salary at the rate of $200,000 per year, payable biweekly at $7,692.31 gross and
subject to proper withholding as per the W-4. There will be no adjustment to
Base Salary during calendar 1998. Any increases in Base Salary in the future
will be determined by the Board of Directors or the Compensation Committee.
While you serve as President and Chief Executive Officer, in no event shall you
be paid a Base Salary at a rate less than $200,000 per year.
b. Annual Cash Incentive Compensation. Subject to paragraph (c)
below, for calendar year 1998, your Target Bonus will be equal to 50% of Base
Salary (or $100,000), prorated accordingly for the calendar year (if CEO DOE is
May 1, 1998, your Target Bonus would be eight-twelfths of $100,000). Details,
including future Target Bonus levels, will be established by the Compensation
Committee annually in connection with the approval of the USHO annual budget.
The initial criteria upon which a Target Bonus will be paid will be in line with
the following guidelines:
<PAGE> 2
<TABLE>
<CAPTION>
% of Target Bonus Criteria
----------------- --------
<S> <C>
33.33% Achieving Plan for USHO EBITDA (taking
EPS into consideration)
33.33% Achieving Plan for Revenue
33.34% Board assessment of your performance in
building the organization
</TABLE>
The Compensation Committee will develop a simple performance scale, with 0% of
Target Bonus if less than 90% of Plan is achieved and up to a 50% premium of
Target Bonus for performance that is 25% greater than Plan.
c. Guaranteed Bonus. For calendar years 1998 and 1999 you are
guaranteed to receive $100,000 of your Target Bonus, prorated accordingly,
payable biweekly at $3,809.49 (if a May 1, 1998 CEO DOE) gross and subject to
proper withholding as per the W-4 for calendar year 1998 and payable biweekly at
$3,846.15 gross and subject to withholding as per the W-4 for calendar year
1999.
d. Stock Options. As of your DOE, you will be granted stock options
to purchase an aggregate of 500,000 shares of USHO Common Stock, subject to the
following terms:
i. Maximum Term: 7 years
ii. Exercise Price: $.50 per share
iii. Vesting: 166,668 shares on CEO DOE 166,666 shares each
on first anniversary and second anniversary of CEO DOE
100% vesting on Change of Control if option is not
assumed in connection with the Change of Control or you
are involuntarily terminated within 18 months of the
Change of Control, as set forth in Article Two of the
Company's 1995 Stock Option/Stock Issuance Plan, as
amended (the "Plan")
iv. Expiration: each installment must be exercised within 5
years of vesting
v. Cashless exercise permitted
vi. Anti-dilution protection for stock splits and stock
dividends in accordance with the Plan.
The terms of this option will be more fully set forth in a separate option
agreement between USHO and you. You will also be eligible to receive such
additional annual option grants that may be granted by the Compensation
Committee from time to time to the Company's senior management team.
2. Severance.
a. Termination. If your employment as President and Chief Executive
Officer of USHO is terminated without "good cause," USHO will for one year from
the last day of employment: (1) continue to pay you an amount equal to your then
current Base Salary on a monthly basis, and (2) continue your benefits as
described in paragraph 3 below (other than the 401(k) plan) unless and until you
commence full-time reemployment. "Good Cause" means gross misconduct, gross
neglect of duties, acts involving moral turpitude, material breach by you of the
terms of this letter if not cured within ten (10) days after notice from the
Company, or any act or omission involving fraud, embezzlement, or
misappropriation of any property or proprietary information of the Company by
you.
<PAGE> 3
b. Change of Control. In the event of a Change of Control of USHO
during your employment, you will be entitled to the payments described in
paragraph 2.a. unless you elect to continue employment with the successor
company. "Change of Control" shall mean a consolidation or merger in which USHO
stockholders do not own 50% of the outstanding shares after the transaction, or
sale of all or substantially all of the assets of USHO, or other transaction in
which substantially all of the outstanding shares of USHO Common Stock are
exchanged for securities, cash or other property of any other corporation or
business entity.
3. Benefits. During your employment, you will be eligible to participate
in the USHO health insurance program and any other benefits that pertain to key
executives of USHO, including the 401(k) plan. In addition, USHO will provide
you with substantially the same life insurance and long-term disability
insurance coverage provided to you in your current employment.
If the terms of this letter are acceptable, please sign this letter at the
bottom of this page and return it to Jay C. Huffard. An original of this letter
is enclosed for your records.
Very truly yours,
U.S. HomeCare Corporation
/s/ Jay C. Huffard
--------------------------------------
Jay C. Huffard
President, Chief Executive Officer
and Chairman of the Board
/s/ W. Wallace McDowell, Jr.
--------------------------------------
W. Wallace McDowell, Jr.
Chairman, Compensation Committee
ACCEPTED AND AGREED:
/s/ Sophia Bilinsky
- -------------------------------------
Sophia Bilinsky
Date: May 6, 1998
-------------------------------
<PAGE> 1
HIGHLY CONFIDENTIAL
March 16, 1999
Ms. Sophia Bilinsky
5 Natasha Court
Sparta, New Jersey 07871
Dear Sophia:
The following will amend the terms of your employment with U.S. HomeCare
Corporation (the "Company" or "USHO") set forth in that certain employment
letter dated May 6, 1998 (the "Employment Letter").
Effective on the date hereof, the Employment Letter is hereby amended as
follows:
1. Paragraph 2(a) of the Employment Letter is hereby deleted and replaced
in its entirety with the following:
"a. Termination. If your employment as President and Chief Executive
Officer of USHO is terminated without "good cause," USHO will, for the longer of
the period ended June 30, 2000 or one year from the last day of employment: (1)
continue to pay you an amount equal to your then current Base Salary on a
monthly basis, (2) continue to pay you the Guaranteed Bonus amounts set forth in
Paragraph 1(c) above and, unless and until you commence full time reemployment,
(3) continue your benefits as described in Paragraph 3 below (other than the
401(k) plan). If it is consistent with the Company's best interest, USHO's Board
of Directors will use reasonable efforts to pay you the amounts set forth in
clauses (1) and (2) above in full in cash upon the termination of your
employment with USHO. "Good Cause" means gross misconduct, gross neglect of
duties, acts involving moral turpitude, material breach by you of the terms of
this letter if not cured within ten (10) days after notice from the Company, or
any act or omission involving fraud, embezzlement, or misappropriation of any
property or proprietary information of the Company by you."
2. The following is hereby added to the Employment Letter as Paragraph 4:
"4. Transaction Bonus. In the event of a Change of Control and/or the
investment into the Company of $2 million or more of subordinated debt or equity
capital or any reorganization of the Company, you will be entitled to a cash
bonus of $250,000 ( the "Transaction Bonus") upon the consummation of the Change
of Control or the investment (the "Closing"), provided, however, that in the
event the $2 million of debt or equity is provided by a group currently
affiliated with USHO, you shall not be entitled to the Transaction Bonus."
If the terms of this letter are acceptable, please sign this letter at the
bottom of this page and return it to Jay C. Huffard. An original of this letter
is enclosed for your records.
Very truly yours,
U.S. HomeCare Corporation
/s/ Jay C. Huffard
-------------------------------------
Jay C. Huffard
Chairman of the Board
ACCEPTED AND AGREED:
/s/ Sophia Bilinsky
- ------------------------------------
Sophia Bilinsky
Date: March 17, 1999
------------------------------
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS DATED AS OF DECEMBER 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 267
<SECURITIES> 0
<RECEIVABLES> 7,046
<ALLOWANCES> 1,521
<INVENTORY> 0
<CURRENT-ASSETS> 6,464
<PP&E> 7,857
<DEPRECIATION> 7,228
<TOTAL-ASSETS> 9,372
<CURRENT-LIABILITIES> 18,366
<BONDS> 0
0
320
<COMMON> 136
<OTHER-SE> (10,471)
<TOTAL-LIABILITY-AND-EQUITY> 9,372
<SALES> 47,785
<TOTAL-REVENUES> 47,785
<CGS> 0
<TOTAL-COSTS> 32,132
<OTHER-EXPENSES> 16,446
<LOSS-PROVISION> 856
<INTEREST-EXPENSE> 2,293
<INCOME-PRETAX> (3,942)
<INCOME-TAX> 150
<INCOME-CONTINUING> (4,092)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,092)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> (.37)
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