<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e) (2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
U.S. HOMECARE CORPORATION
(Name of Registrant as Specified In Its Charter)
N/A
(Name of Person(s) Filing Proxy Statement if other than the Registrant) Payment
of Filing Fee (Check the appropriate box):
|X| No fee required
| | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.01 per share
(2) Aggregate number of securities to which transaction applies: [ ]
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
$[ ]
(4) Proposed maximum aggregate value of transaction: $[ ]
(5) Total fee paid: $[ ]
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid: [ ]
2) Form, Schedule or Registration Statement No.: [ ]
3) Filing Party: [ ]
4) Date Filed: [ ]
<PAGE> 2
PROXY STATEMENT
_____________________________,1999
TABLE OF CONTENTS
<TABLE>
<S> <C>
Voting Securities 1
Election of Directors 1
Executive Officers 4
Executive Compensation and Other Information 5
Compensation Committee Report 7
Stock Performance Graph 9
Security Ownership of Certain Beneficial Owners and Management 10
Amendments to Certificate of Incorporation for Reverse Stock Split 11
Price Range of Common Stock and Dividend Policy 21
Shareholder Proposals 21
Other Matters 22
</TABLE>
i
<PAGE> 3
U.S. HOMECARE CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
JUNE 21, 1999
The Annual Meeting of Shareholders of U.S. HomeCare Corporation (the
"Company") will be held at the office of Brobeck, Phleger & Harrison LLP, 1633
Broadway, 47th Floor, New York, New York 10019 on June 21, 1999, at 10:00 A.M.
(local time) for the following purposes:
(1) To elect four directors for the ensuing year;
(2) To approve and adopt a Certificate of Amendment to the Company's
Certificate of Incorporation ("Certificate of Amendment") providing
for (a) a one-for 1,500 reverse stock split of the Company's Common
Stock into Common Stock, and (b) a cash payment of $0.014 per share
(the "Cash Consideration") for the currently outstanding Common
Stock in lieu of the issuance of any resulting fractional shares of
Common Stock to any stockholders who, after the reverse stock split,
own a fractional share of Common Stock (items (a) and (b) will be
considered one proposal and referred to herein as the "Reverse Stock
Split");
(3) To transact such other business as may properly come before the
Annual Meeting.
The text of the proposed Certificate of Amendment is set forth in Exhibit
A to the accompanying Proxy Statement. If the proposed Reverse Stock Split is
approved, the stockholders of the Company who own less than one (1) share of
Common Stock after giving effect to the split will cease to be stockholders of
the Company or to have any equity interest in the Company. Such stockholders
will receive the Cash Consideration for each fractional share of Common Stock of
which they are the owners.
Your Board of Directors believes that the proposed Reverse Stock Split is
in the best interests of the Company and its stockholders. In arriving at its
decision to recommend the proposed Reverse Stock Split, the Board carefully
reviewed and considered the terms and conditions of the proposed Reverse Stock
Split and the factors described in the enclosed Proxy Statement.
Approval of the Certificate of Amendment requires the affirmative vote of
the holders of a majority of the aggregate voting power of the Company's issued
and outstanding shares of Common Stock and $35.00 6% Convertible Preferred
Stock, par value $1.00 per share, represented and voting at the Annual Meeting.
UPON CONSUMMATION OF THE PROPOSED REVERSE STOCK SPLIT, THE COMPANY WILL
TERMINATE THE REGISTRATION OF THE COMPANY'S COMMON STOCK UNDER THE SECURITIES
EXCHANGE ACT OF 1934 AND WILL CEASE TO FILE REPORTS WITH THE SECURITIES AND
EXCHANGE COMMISSION.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE> 4
Only shareholders of record at the close of business on May 19, 1999 will
be entitled to notice of, and to vote at, the Annual Meeting. A list of
shareholders eligible to vote at the Annual Meeting will be available for
inspection at the Annual Meeting and during business hours, from __________ ___,
1999 to the date of the Annual Meeting, at the Company's corporate headquarters
at the address below.
Whether or not you expect to attend the Annual Meeting, your vote is
important. To assure your representation at the meeting, please sign and date
the enclosed proxy card and return it promptly in the enclosed envelope, which
requires no additional postage if mailed in the United States or Canada.
By Order of the Board of Directors
Sophia V. Bilinsky
President and Chief Executive
Officer
Two Hartford Square West
Hartford, Connecticut 06106
May 21, 1999
IT IS IMPORTANT THAT THE ENCLOSED PROXY CARD
BE COMPLETED AND RETURNED PROMPTLY.
<PAGE> 5
U.S. HOMECARE CORPORATION
PROXY STATEMENT
__________ ___, 1999
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of U.S. HomeCare Corporation (the "Company")
for use at its Annual Meeting of Shareholders to be held on June 21, 1999 (the
"Annual Meeting").
Shares can be voted at the meeting if the owner is present in person or by
proxy. All properly executed and unrevoked proxies in the accompanying form that
are received in time for the meeting will be voted at the meeting or any
adjournment thereof in accordance with the instructions thereon, or if no
instructions are given, will be voted "FOR" the election of the named nominees
and the adoption and approval of the Certificate of Amendment including the
Reverse Stock Split and will be voted in accordance with the best judgment of
the persons appointed as proxies with respect to other matters which properly
come before the Annual Meeting. Any person giving a proxy may revoke it by
written notice to the Company at any time prior to exercise of the proxy. In
addition, although mere attendance at the meeting will not revoke the proxy, a
shareholder who attends the meeting may withdraw his or her proxy and vote in
person. Abstentions and broker non-votes will have no effect on the outcome of
the vote on any of the matters to be considered at the Annual Meeting.
The mailing address of the principal executive offices of the Company is
Two Hartford Square West, Suite 300, Hartford, Connecticut 06106. This Proxy
Statement and the accompanying form of proxy are being mailed to the
shareholders of the Company on or about June 1, 1999.
VOTING SECURITIES
The Company has two classes of voting securities: its Common Stock, par
value $.01 per share (the "Common Stock"), and its $35.00 6% Convertible
Preferred Stock, par value $1.00 per share (the "$35.00 Preferred Stock"), which
has voting rights on an as-converted basis with the Common Stock. On April 15,
1999, 39,443,639 shares of Common Stock and 328,569 shares of $35.00 Preferred
Stock, convertible into 7,152,947 shares of Common Stock, were outstanding. See
"Security Ownership of Certain Beneficial Owners and Management." At the Annual
Meeting, each shareholder of record at the close of business on May 19, 1999
will be entitled to one vote for each share of Common Stock and 21.77 votes for
each share of $35.00 Preferred Stock owned by that shareholder on that date as
to each matter presented at the Annual Meeting.
ELECTION OF DIRECTORS
Unless otherwise directed, the persons appointed in the accompanying form
of proxy intend to vote at the Annual Meeting for the election of the four
nominees named below as directors of the Company to serve until the next Annual
Meeting or until their successors are duly elected and have qualified. If any
nominee is unable to be a candidate when the election takes place, the shares
represented by valid proxies will be voted in favor of the remaining nominees.
The Board of Directors (the "Board") does not currently anticipate that any
nominee will be unable to be a candidate for election.
<PAGE> 6
The Board currently has four members, all of whom are nominees for
re-election. All directors hold office for one year until the next Annual
Meeting of Shareholders or until their successors have been duly elected and
qualified.
SHAREHOLDER APPROVAL
The affirmative vote of a plurality of the aggregate voting power of the
Company's outstanding Common Stock and $35.00 Preferred Stock represented and
voting at the Annual Meeting is required to elect each of the directors.
RECOMMENDATION OF THE BOARD
The Board recommends that the shareholders vote "FOR" the nominees named
below.
INFORMATION REGARDING NOMINEES FOR ELECTION AS DIRECTORS
The following information with respect to the principal occupation or
employment, other affiliations and business experience of each nominee during
the last five years has been furnished to the Company by such nominee. Except as
indicated, each of the nominees has had the same principal occupation for the
last five years.
SOPHIA V. BILINSKY, 33, joined the Company in June 1998 as President and
Chief Executive Officer. Prior to joining the Company, Ms. Bilinsky was Vice
President of US Servis Inc., a business management services organization for
hospitals and physician groups, and general manager of their physician division
from April 1995 to June 1998 prior to which she served as President and Chief
Operating Officer of HealthNet Corp. From 1986 to 1991, Ms. Bilinsky held
financial positions with Whitehead/Sterling, a private equity investment firm,
General Electric Corporation, and Citibank, N.A.
JOHN R. GUNN, 55, has been a director of the Company since September 1994.
Since 1987, Mr. Gunn has served as the Executive Vice President and Chief
Operating Officer of Memorial Sloan-Kettering Cancer Center, where he has served
in various executive capacities since 1982. Previously, he was the Vice
President of Finance at Michael Reese Medical Center. Mr. Gunn serves as a board
member of several companies and associations, including Health Plan Services,
Inc., the Greater New York Hospital Association, Empire Blue Cross & Blue
Shield, Hospital Association of New York and Memorial Sloan-Kettering Cancer
Center.
JAY C. HUFFARD, 57, has been a director of the Company since 1988,
Chairman of the Board of Directors since July 1991, interim President and Chief
Executive Officer from October 1996 to July 1997, at which time he was named
President and Chief Executive Officer. Since 1988, Mr. Huffard has been Managing
Director of Huffard & Co., a direct investment and development banking firm.
From 1987 to 1988, he was Chief of Staff to the Chairman of The Equitable. From
1968 to 1988, Mr. Huffard served in various executive capacities at Donaldson,
Lufkin & Jenrette Securities Corporation, including Executive Vice President and
Managing Director, and Chairman or Chief Executive of certain direct or indirect
subsidiaries thereof. Since 1993, Mr. Huffard has been a Managing Director and
principal of Prima Management Corp., the general partner of an investment
partnership.
SHAWKAT RASLAN, 47, has been a director of the Company since December
1991. Since 1983, Mr. Raslan has been President and Chief Executive Officer of
International Resources Holdings, Inc., an asset management and investment
advisory service for international clients. He serves as a director of several
2
<PAGE> 7
companies, including Apogee Inc., a mental health rehabilitation company, Foster
Management, a health care investment fund, and Tiedeman Goodnow International,
an equity fund. Since 1993, Mr. Raslan has been a Managing Director and
principal of Prima Management Corp., the general partner of an investment
partnership.
COMMITTEES OF THE BOARD
The Board currently has standing Audit, Compensation, Executive and
Nominating Committees, of which the independent directors are members. The
President and Chief Executive Officer is an ex-officio member of the Committees.
The membership and principal responsibilities of the Board Committees are
described below:
Audit Committee
Members: John R. Gunn, Chairman
Jay C. Huffard
Shawkat Raslan
The Audit Committee's functions include recommending to the Board the
selection of the Company's independent public accountants and reviewing with
such accountants the plan and results of their audit and the adequacy of the
Company's systems of internal accounting controls and management information
systems. In addition, the Audit Committee reviews the independence of the
accountants and their fees for services rendered to the Company.
Compensation Committee
Members: Shawkat Raslan, Chairman
John R. Gunn
Jay C. Huffard
The Compensation Committee advises the President and Chief Executive
Officer and the Board on matters of the Company's compensation philosophy and
the compensation of executive officers. The Committee's functions also include
reviewing and setting the compensation of the Chairman, President and Chief
Executive Officer, and the directors. The Committee administers all plans
relating to the compensation of officers including the Company's stock option
plans.
ATTENDANCE AT BOARD AND COMMITTEE MEETINGS
During 1998, the Board held eight regular meetings and three special
meetings. The Audit Committee met three times and the Compensation Committee met
one time. During such fiscal year, each incumbent director attended at least 75%
of the aggregate of (i) the meetings of the Board and (ii) the meetings of the
Committees of the Board on which they served.
COMPLIANCE WITH REPORTING REQUIREMENTS
Under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), the Company's directors, executive (and certain other) officers, and any
persons holding more than ten percent of the Company's Common Stock are required
to report their ownership of the Company's Common Stock and any changes in their
ownership to the Securities and Exchange Commission and the Nasdaq Market
Surveillance Department. Specific due dates for these reports have been
established and the Company is required to report in this Proxy Statement any
failure to file by these dates during 1998. Based solely on
3
<PAGE> 8
its review of such forms received by it from such persons for their 1998
transactions, the Company believes that all filing requirements applicable to
such officers, directors and greater than ten percent beneficial owners were
complied with.
COMPENSATION OF DIRECTORS
Cash Compensation. Each director who is not an employee of the Company
receives an annual retainer paid In Common Stock of $10,000 as compensation for
services as a director. Mr. Huffard receives an additional annual cash fee of
$40,000 for his services as Chairman of the Board. Each director who is not an
employee of the Company also receives a fee of $1,000 paid in common shares for
attending each regular or special meeting of the Board or its committees. The
non-employee directors are also reimbursed for expenses incurred in connection
with performing their respective duties as directors of the Company. Directors
who are employees receive no additional compensation for their services as
directors of the Company. Since January 1, 1998, the non-employee members of the
Board have received three quarters of their annual retainer fees through the
issuance of shares of Common Stock equal in value to such fees. The directors
have waived the annual retainer and meeting attendance fees for 1999.
1995 Stock Option/Stock Issuance Plan. Pursuant to the Automatic Option
Grant Program under the Company's 1995 Stock Option/Stock Issuance Plan (the
"1995 Plan"), each individual who becomes a non-employee Board member is
automatically granted at that time an option grant for 25,000 shares of Common
Stock. Each option has an exercise price per share equal to 100% of the fair
market value per share of Common Stock on the option grant date and a term of
ten years. The options are immediately exercisable, but two-thirds of the
underlying shares are subject to the Company's right to repurchase the shares
should the non-employee Board member cease to serve as a Board member prior to
vesting in those shares. The Company's right of repurchase terminates: (i) as to
one-third of the shares, on each of the first and second anniversaries of the
grant date (with all shares fully vested at that time) and (ii) immediately upon
an acquisition of the Company by merger or by stock or asset sale or a hostile
change of control.
OTHER INFORMATION
In accordance with the Company's By-Laws, no person may be nominated as a
director by a shareholder at any Annual Meeting of Shareholders unless written
notice of such proposed nomination, containing certain information required
under the By-Laws, is delivered to the Secretary not less than 50 days nor more
than 75 days prior to the anniversary of the preceding year's Annual Meeting,
subject to certain exceptions set forth in the By-Laws.
EXECUTIVE OFFICERS
The sole executive officer of the Company is as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ---- --- -------------------------
<S> <C>
Sophia V. Bilinsky...... 33 President and Chief Executive Officer
</TABLE>
4
<PAGE> 9
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual and long-term compensation paid
by the Company during 1996, 1997 and 1998 to all individuals serving as the
Company's chief executive officer or acting in a similar capacity during 1998
and the other highest paid executive offices of the Company whose compensation
was in excess of $100,000 as of the end of the last fiscal year (collectively,
the "Named Executive Officers"):
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------- ------------------------------
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION OPTIONS GRANTED COMPENSATION
--------------------------- ---- ------ ------------ --------------- ------------
<S> <C> <C> <C> <C> <C>
Jay C. Huffard................. 1998 95,000(2) 0 0 0
Interim President, Chief 1997 122,500(3) 0 100,000(4) 0
Executive Officer, Chairman 1996 0 0
and Director
Sophia V. Bilinsky............. 1998 107,692(6) 0 500,000(4) 53,846(7)
President, Chief Executive 1997 N/A N/A N/A N/A
Officer 1996 N/A N/A N/A N/A
Clifford G. Johnson............ 1998 125,000 0 0 20,000
Vice President, Finance and 1997 89,682(5) 0 50,000(4) 0
Administration and Chief 1996 N/A N/A N/A N/A
Financial Officer
</TABLE>
(1) Mr. Huffard was appointed Interim President and Chief Executive Officer of
the Company in October 1996. The figure of $108,000 includes Mr. Huffard's
actual earnings for the period from October 1, 1996 to December 31, 1996
of $15,000. For the period of January to December 1996, he received
$40,000 in compensation for his role as chairman of the Company and
$28,000 in compensation for his role as a director of the Company. Mr.
Huffard received an additional $25,000 for additional services rendered to
the Company. Of the $108,000 paid to Mr. Huffard in 1996, $55,000 was paid
in cash and $53,000 in Common Stock of the Company.
(2) The figure of $95,000 includes $40,000 in cash compensation for his role
as Chairman of the Company, $45,000 in cash compensation for his role as
CEO and President during 1998, and $10,000 in Common Stock of the Company
in compensation for his role as director of the Company.
(3) Mr. Huffard's $122,500 consists of $60,000 paid in cash compensation for
services as President, $40,000 in cash for service as Chairman, and
$22,500 as fees in Common Stock for attending various Board meetings.
(4) Granted pursuant to the 1995 Stock Option/Stock Issuance Plan.
(5) Mr. Johnson received $89,682 during 1997, based on a salary of $125,000
per annum. Mr. Johnson's employment with the Company terminated on March
8, 1999.
(6) Ms. Bilinsky received $107,692 during 1998, based on a salary of $200,000.
(7) Ms. Bilinsky is guaranteed a bonus of $100,000 per annum and received
$53,846 during 1998.
5
<PAGE> 10
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table shows, with respect to the Named Executive Officers,
certain information concerning the grant of stock options in 1998. No stock
appreciation rights ("SARs") were granted to any Named Executive Officers during
1998.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERM (1)
----------------- -------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS INITIAL
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED FISCAL YEAR(2) ($/SHARE) DATE 5% 10%
- ---- ------- -------------- --------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Sophia V. Bilinsky.............. 500,000(2) 89% $0.50 6/15/05 $101,775 $237,179
</TABLE>
(1) This column reflects the potential realizable value of each grant assuming
that the market value of the Company's stock appreciates at five percent
and ten percent annually from the date of grant over the term of the
option. There is no assurance provided to any executive officer or any
other holder of the Company's securities that the actual stock price
appreciation over the option term will be at the assumed five percent and
ten percent levels or at any other defined level. Unless the market price
of the Common Stock does in fact appreciate over the option term, no value
will be realized from the option grants made
(2) Ms. Bilinsky was granted an option on May 15, 1998 to purchase 500,000
shares of the Company's Common Stock at $0.50 per share, which was the
market value at the time of grant.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION VALUES
The following table sets forth certain information with respect to the
Named Executive Officers regarding stock options during the year ended December
31, 1998. No stock options or SARs were exercised by such persons in 1998.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END FISCAL YEAR END(1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jay C. Huffard ..................... 192,000 33,000 0 0
Sophia V. Bilinsky.................. 166,665 333,335 0 0
Clifford G. Johnson................. 33,334 16,666 0 0
</TABLE>
(1) Based on a closing price on the OTC market of $0.0156 per share of Common
Stock on December 31, 1998, there were no unexercised in-the-money
options.
6
<PAGE> 11
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, Messrs. Ford and two former directors, Mr. Wallace
McDowell and Ms. Robfogel served as members of the Compensation Committee.
There were no Compensation Committee interlocks between the Company and any
other entity during 1998. Ms. Robfogel is a partner in the law firm of
Nixon, Hargrave, Devans & Doyle, which U.S. HomeCare has retained from time
to time.
EMPLOYMENT ARRANGEMENTS
Mr. Huffard's annual compensation as Chairman of the Board is $40,000
and $60,000 per annum for his duties as President and Chief Executive Officer
during 1998 paid through September of 1998.
Sophia V. Bilinsky's annual salary as President, Chief Executive Officer
of the Company was $200,000 with a guaranteed bonus of $100,000. Stock options
to purchase an aggregate of 500,000 shares of Common Stock were granted to Ms.
Bilinsky on May 15, 1998. The commencement of her employment with the Company
was May 15, 1998. These options are exercisable at $0.50, the fair market value
of the Company's Common Stock on the grant date. Of the 500,000 option shares,
166,668 were vested on June 15, 1998, with the remaining vesting on the second
and third anniversary dates of the original vesting (subject to acceleration of
vesting upon an acquisition of the Company by a merger or by a stock or asset
sale). In the event Ms. Bilinsky's employment is terminated, she is entitled to
her base salary, on a monthly basis for one year.
Clifford C. Johnson's annual salary as Vice President, Finance and
Administration & Chief Financial Officer of the Company was $125,000 with a
target bonus opportunity of $30,000. Stock options to purchase an aggregate of
50,000 shares of Common Stock were granted to Mr. Johnson on May 12, 1997. The
commencement date of his employment with the Company was April 8, 1997. These
options are exercisable at $1.00, the fair market value of the Company's Common
Stock on the grant date. Of the 50,00 option shares, one third were vested on
issuance, with the remaining vesting on May 12, 1998 and 1999 (subject to
acceleration of vesting upon an acquisition of the Company by a merger or by a
stock or asset sale). In the event that Mr. Johnson's employment is terminated
without cause, he is entitled to his base salary, on a monthly basis, for six
months. Mr. Johnson's employment agreement was terminated on March 8 1999.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of the Company is responsible for
establishing and administering the Company's executive compensation programs.
The Compensation Committee is comprised entirely of non-employee directors. The
Compensation Committee has reviewed and is in accord with the compensation paid
to executive officers in fiscal 1998.
GENERAL COMPENSATION POLICY
The fundamental policy of the Compensation Committee is to provide the
Company's executive officers with competitive compensation opportunities based
upon their contribution to the development and financial success of the Company
and their performance. The Compensation Committee reviews the compensation
structures of companies in the Company's industry peer group and establishes a
7
<PAGE> 12
compensation structure designed to attract highly qualified individuals while
also recognizing the Company's financial condition. This compensation structure
involves three principal components:
- A base salary established at the minimum level necessary to
attract new management and to retain qualified individuals.
- A significant bonus opportunity based both on overall Company
performance and individually-established goals.
- Significant equity incentives in the form of stock options with a
portion of such options vesting up front (to replace cash
compensation and to align the interests of management with the
shareholders).
With this compensation structure, the Company has been able to attract
executives who recognize that their success is tied to the Company's future
business performance and to their success in increasing shareholder value. For
1999 and future years, incentive compensation plans will be heavily weighted to
reward superior operating performance, growth, and profitability compared to the
Company's industry peer group.
CHIEF EXECUTIVE OFFICER COMPENSATION
Ms. Bilinsky's compensation package was negotiated with the
Compensation Committee to generally reflect the principles described above.
The Compensation Committee believes that Ms. Bilinsky's compensation,
including her salary, bonus, severance, stock options and transaction bonus
fall well within the Company's established compensation philosophy. See
"Employment Arrangements."
COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held companies for compensation exceeding
$1 million paid to certain of the corporation's executive officers. The
limitation applies only to compensation which is not considered to be
performance-based. The non-performance based compensation to be paid to the
Company's executive officers for the 1998 fiscal year did not exceed the $1
million limit per officer, nor is it expected that the non-performance based
compensation to be paid to the Company's executive officers for fiscal 1999 will
exceed that limit. The 1995 Plan is structured so that any compensation deemed
paid to an executive officer in connection with the exercise of option grants
made under that plan with an exercise price equal to the fair market value of
the option shares on the grant date will qualify as performance-based
compensation which will not be subject to the $1 million limitation. Because it
is very unlikely that the cash compensation payable to any of the Company's
executive officers in the foreseeable future will approach the $1 million limit,
the Compensation Committee has decided at this time not to take any other action
to limit or restructure the elements of cash compensation payable to the
Company's executive officers. The Compensation Committee will reconsider this
decision should the individual compensation of any executive officer ever
approach the $1 million level.
Compensation Committee of the Board of Directors
Members: Shawkat Raslan, Chairman
John R. Gunn
Jay C. Huffard
8
<PAGE> 13
STOCK PERFORMANCE GRAPH
Set forth below is a graph comparing the annual percentage change in the
Company's cumulative total shareholder return on its Common Stock during the
five years ended December 31, 1998 (as measured by dividing (i) the sum of (A)
the cumulative amount of dividends for the measurement period, assuming dividend
reinvestment, and (B) the excess of the Company's share price at the end over
the price at the beginning of the measurement period, by (ii) the share price at
the beginning of the measurement period), with the cumulative total shareholder
return so calculated of the Russell 2000, and a group of peer issuers in a line
of business similar to the Company during the same period (the "Peer Group").
The Peer Group consists of the following companies: New York Health Care,
National Home Health, Staff Builders, Inc. and American HomePatient, Inc..
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Exchange
Act, which might incorporate future filings made by the Company under those
statutes, the preceding Compensation Committee Report on Executive Compensation
and the Company's Stock Performance Graph will not be incorporated by reference
into any of those prior filings, nor will such report or graph be incorporated
by reference into any future filings made by the Company under those statutes.
[LINE GRAPHIC]
9
<PAGE> 14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of April 15, 1999, by (i) each
director and nominee for director, (ii) each of the Named Executive Officers,
(iii) each person known by the Company to be the beneficial owner of more than
5% of the Company's Common Stock, and (iv) all executive officers and directors
as a group.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMMON STOCK PERCENTAGE OF SHARES
NAME OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) OUTSTANDING(2)
- --------------------------- --------------------- --------------
<S> <C> <C>
Jay C. Huffard............................................ 731,046(4)(5) 1.8%
Sophia V. Bilinsky........................................ 166,665(3) **
Shawkat Raslan............................................ 294,942(5) **
c/o International Resources Holdings, Inc.
770 Lexington Ave New York, NY 10021
John R. Gunn.............................................. 71,386(5) **
All directors and executive officers as a group .......... 1,264,039(6) 3.2%
(4 persons)
Connecticut Development Authority......................... 1,551,302 11.4%
999 West Street
Rocky Hill, CT 06067
Prima Partners, L.P....................................... 807,262(6) 8.3%
115 East 69th Street
New York, New York 10021
</TABLE>
* Less than one percent.
(1) Except as where noted otherwise, the address of all persons listed is c/o
U.S. HomeCare Corporation, Two Hartford Square West, Suite 300, Hartford,
Connecticut 06106.
(2) Gives effect to the shares of Common Stock issuable within 60 days after
December 31, 1998 upon the conversion of the $35.00 Preferred Stock and
the exercise of all options, warrants and other rights beneficially held
by the indicated shareholder of that date.
(3) Includes shares issuable upon exercise of options granted under the 1995
Stock Option Issuance Plan.
(4) Includes 185,552 shares of Common Stock held by Huffard & Co. L.P., of
which Jay C. Huffard, Chairman of the Board and a director of the Company,
is managing director of the general partner thereof and stock options for
225,000 of Common Stock.
(5) Includes 25,000 shares of Common Stock issuable upon exercise of a stock
option granted pursuant to the 1995 Plan's Automatic Grant Program for
non-employee directors.
(6) See Notes (2) through (5).
10
<PAGE> 15
AMENDMENTS TO CERTIFICATE OF INCORPORATION FOR REVERSE STOCK SPLIT
INTRODUCTION
The Board of Directors of the Company has unanimously adopted a resolution
approving a Certificate of Amendment to the Company's Restated Certificate of
Incorporation ("Certificate of Amendment") providing for (a) a one-for-1,500
reverse stock split of the Company's Common Stock and (b) a cash payment of
$0.014 per share (the "Cash Consideration") for the currently outstanding Common
Stock in lieu of the issuance of any resulting fractional shares of Common Stock
to any stockholders who, after the reverse stock split, own a fractional share
of Common Stock. The proposals in items (a) and (b) are referred to together as
the "Reverse Stock Split."
PURPOSE OF THE REVERSE STOCK SPLIT
The principal purpose of the proposed Reverse Stock Split is to eliminate
expenses associated with being a public company by becoming a privately-owned
corporation in a manner that is fair both to the Company and its stockholders.
The Company and its stockholders do not derive significant benefit from the
Company's status as a public company due, among other reasons, to the lack of an
effective trading market for its Common Stock and the decline in value of such
shares of Common Stock. On the other hand, the conversion of the Company from a
reporting company to a private, non-reporting company will result in the
elimination of the substantial costs it incurs each year as a result of its
public company obligations.
The Company presently has approximately 490 shareholders of record. Of the
record shareholders, approximately 241 own fewer than 1,500 shares. In the
aggregate, the shares held by small holders comprise less than ______% of the
outstanding voting securities.
The Board believes that the disadvantages of being a public company
outweigh any advantages. The Board has no present intention or ability (given
the financial condition of the Company) to raise capital through sales of
securities in a public offering or to acquire other business entities using
liquid Common Stock as the consideration for such acquisitions. Accordingly, the
Company is not likely to make use of any advantage that the Company's status as
a reporting company may offer.
The Company incurs substantial direct and indirect costs associated with
compliance with the filing and reporting requirements imposed on public
companies under the 1934 Act. The Company estimates that it incurs direct costs
of approximately $250,000 annually. The Company also incurs substantial indirect
costs as a result of, among other things, the executive time expended to prepare
and review such filings. Since the Company has relatively few executive
personnel, the effect of this indirect cost can be substantial. In light of the
Company's size and inability to fund its cash requirements, the Board does not
believe the costs of remaining a public company are justified.
In addition, many of the Company's direct competitors are private. The
Company believes it suffers a competitive disadvantage because it is required to
disclose certain information that these other companies are not required to
disclose.
11
<PAGE> 16
The Board has determined that the Reverse Stock Split is the most
expeditious and economical way of changing the Company's status from that of a
reporting company to that of a non-reporting company.
If the Reverse Stock Split is effected, shareholders owning fewer than
1,500 shares of Common Stock will no longer have any equity interest in the
Company and will not participate in any future earnings of the Company or any
increases in the value of the Company's assets or operations. Further, the 248
record shareholders that will continue to have an equity interest in the Company
after the Reverse Stock Split will own a security, the liquidity of which will
be restricted. The Cash Consideration offered by the Company for fractional
share interests was determined using the "Average Market Price" (the average of
the daily closing prices of the Common Stock for the twenty consecutive trading
days ending on April 23, 1999. The closing price for each day is the last
reported sales price or, if no such sale took place on a given day, the average
of the closing bid and ask prices of the Common Stock). The Board of Directors
also considered the value attributed to the Common Stock and the $35.00
Preferred Stock in certain recent proposals to acquire or invest in the Company.
(See "Background and Reasons for the Reverse Stock Split".) The Cash
Consideration offered by the Company for fractional share interests was not
determined in arm's length negotiations and therefore does not necessarily
reflect the actual market value of the Common Stock. (See "Fairness of the
Reverse Stock Split.")
BACKGROUND AND REASONS FOR THE REVERSE STOCK SPLIT
Following significant operating losses in 1993 through 1996, the Company's
management and the Board undertook several restructuring initiatives. These
included the sale of the Company's home infusion therapy business in October
1996 and the engagement of outside consultants at that time to significantly
reduce overhead and personnel expenses. During the same period, the Company
directly, or through its investment advisors, initiated and engaged in
discussions with numerous health care services companies to determine if it
would be in the best interests of the shareholders for the Company to be
acquired by a financial or strategic buyer.
Throughout most of 1997, the Company engaged in active negotiations and
due diligence with several prospective merger candidates which resulted in a
publicly announced merger agreement in September of 1997 with Home Health
Corporation of America, Inc., a publicly-held home health care company ("HHCA").
At that time, the Company's operations had become profitable for the first time
in several years. Following a lengthy and costly process to obtain regulatory
and other approvals for the merger, and for reasons unrelated to that process,
the merger agreement was mutually terminated by the parties in February 1998.
In the Spring of 1998, the Company began to experience reductions in sales
and margins principally as a result of the impact of the Interim Payment System
("IPS") adopted by Medicare which became effective in 1998. In June 1998, the
Company hired Sophia V. Bilinsky as its President and Chief Executive Officer to
provide leadership and evaluate alternatives for the Company's future. Over the
last three quarters of 1998, the Company took charges to earnings totaling $3.2
million - more than half of which was related to the revision of estimates for
earlier period tax audits, retrospectively rated workers compensation, vendor
settlements, and Medicare cost report settlements for 1996, with the remaining
charges principally for the 1998 IPS liability. By October of 1998, the full
impact of IPS was evident on the Company's operating results.
Based on the projections for 1999, it was clear that the Company would not
have enough operating cash to fund its cash requirements and the Company
initiated cost reduction measures which
12
<PAGE> 17
were implemented in January 1999. These cost cutting measures were not enough to
fund the cash shortfall. During the process of identifying cost reduction
opportunities, management identified additional substantial savings available to
the Company through terminating its status as a public company. The sum of all
cost savings available for 1999 through both operating cost reductions and
becoming a private company are still not anticipated to fund the total cash
shortfall projected for 1999. The Company's outstanding indebtedness matured on
January 4, 1999 and has, to date, been renewed on a monthly basis by the
Company's lenders. These lenders have indicated, however, that they would not
extend additional funds in order to meet the Company's cash requirements and
there is no assurance that they will continue to extend the maturity of the
outstanding indebtedness on a monthly basis.
In the fourth quarter of 1998, the Company also began an active process of
seeking additional capital resources and/or strategic alternatives to support
its business, including a possible sale of the Company. In January of 1999, the
Company received three (3) proposals from independent third parties who had
expressed an interest either in an equity investment in, or an acquisition of,
the Company. Under all of these proposals, essentially no value was attributed
to the Common Stock or the $35.00 Preferred Stock. In each case, the investor or
acquirer proposed to assume or repay the Company's outstanding indebtedness (in
part or in total) and operate its business, but without the payment of cash or
securities to the Company's equity holders. In February of 1999, after the Board
determined that such a transaction would be in the best interest of the Company
and its shareholders, the Company signed a non-binding letter of intent with one
of these third parties, a privately-held home health care company, in order to
facilitate further negotiations and due diligence. The total purchase price
proposed in the letter of intent was (i) $1.00 for all outstanding of the shares
of Common Stock and $35.00 Preferred Stock, and (ii) assumption of all
outstanding indebtedness. The Company has complete flexibility to continue to
solicit and negotiate with any third parties until a Definitive Agreement is
signed. This letter of intent expires on April 30, 1999 and, although the
parties continue to discuss and conduct due diligence in connection with a
possible transaction, there is no assurance that an acquisition of the Company
will be consummated with this or any other party.
SUMMARY OF BOARD MEETING REGARDING THE REVERSE STOCK SPLIT
The Board of Directors met in person or by telephone on December 17, 1998,
February 8, 1999, and February 24, 1999 to discuss the Company's operations and
financial condition, its relationship with its lenders, and its strategic
alternatives. At the February 24, 1999 Board meeting, during which the Company's
outside counsel participated, Ms. Bilinsky, the Company's President and Chief
Executive Officer, proposed that the Board consider alternatives to remaining a
public company and requested the Company's outside counsel to review possible
alternatives. A proposal to convert the Company to private ownership was first
considered and voted on by the Board of Directors at its telephonic Board
meeting on February 8, 1999, in which all of the Company's directors
participated. The Board of Directors made an initial determination that it would
be in the best interest of the Company and its shareholders to effect a Reverse
Stock Split and deregister the Company's Common Stock under the 1934 Act.
The principal factor in making the determination to become a private
company was the costs of remaining a public company. These costs include legal,
auditing, and printing fees, the cost of preparing annual reports on Form 10-K,
quarterly reports on Form 10-QSB, current reports on Form 8-K, reports and
schedules required to be filed by the Company's officers and directors and proxy
solicitation materials. The Company's management is also required to devote
substantial time and attention to the preparation and review of these filings,
the furnishing of information to stockholders, and to other stockholder matters.
The Company has incurred and will continue to incur substantial costs as a
result of
13
<PAGE> 18
its status as a public company under the Exchange Act. The Company estimates
that it has expended approximately $250,000 per year to comply with the
reporting and compliance requirements applicable to public companies.
An added factor considered by the Board was that, given the Company's
activities to find additional equity or a strategic partner for the business, as
a private company, the Company would be in a position to minimize the costs
associated with consummating a transaction. As a private company, the Board
would also have the ability to move significantly more quickly to effect a
transaction. The Board believes that given the Company's cash flow deficits, any
delay in consummating a transaction, if an agreement were signed, would have a
material adverse effect on the Company's operations and financial condition.
Various methods for taking the Company private were discussed. From a
procedural point of view, the Reverse Stock Split would provide an opportunity
for the shareholders to receive, in the Board's view, fair value for their
shares without incurring any brokerage costs. They determined that privately
negotiated or open market purchases would not be feasible because, in all
likelihood, it would not be possible, in any reasonable period of time, to
purchase a significant number of the shares of the Company's Common Stock to
ensure the reduction of the number of the holders of the shares of its Common
Stock to less than 300. Finally, they determined that the legal and other
transaction costs to implement this alternative would be substantially greater
than the costs to implement the Reverse Stock Split
The Board also considered the following additional factors in determining
that the Reverse Stock Split is in the best interests of the Company and its
shareholders:
- The Board of Directors recognized that neither the Company nor its
shareholders derive any material benefit from the continued
registration of the Company's Common Stock under the Exchange Act.
Operating losses in previous years followed by significant recent
financial and operational downsizing have prevented the Company and
its stockholders from enjoying the benefits that traditionally flow
from being a public company. In fact, the going concern opinion
issued by the Company's independent public accountants with the
Company's 1998 financial statements clearly outlines the potential
that the Company, if unable to find enough cost savings and an
equity or strategic investor, faces the prospect of filing for
judicial protection from its creditors. The Board anticipates that
the current situation will prevent for some time any meaningful
appreciation in the value of the Company's shares of Common Stock
and therefore the Company's ability to access the public markets for
capital.
- There is not currently and will likely not develop in the
foreseeable future any significant trading market for the shares of
the Company's Common Stock. The Company's Common Stock was traded on
the Nasdaq National Market from its initial public offering in 1991
until it was de-listed from this market in mid-1996 for failure to
meet the minimum requirements for trading on this market. The
Company's Common Stock then began to trade on the Nasdaq Small Cap
Market but was de-listed from trading on this market in late 1996
for failing to meet this markets minimum requirements. The Common
Stock has traded since only infrequently and sporadically on the OTC
Bulletin Board. The Company's Common Stock will not likely qualify
in the foreseeable future for re-listing on any national securities
exchange or for quotation on an inter-dealer quotation system of a
registered national securities association (such as Nasdaq ). See
"Price Range of Common Stock and Dividend Policy."
14
<PAGE> 19
- A significant number of the Company's shareholders hold less than
1,500 shares. Of approximately 490 shareholders of record, 241
(approximately 49% of the Company's shareholders of record) hold
fewer than 1,500 shares of Common Stock. Thus, if for any reason a
trading market developed for the Company's Common Stock,
stockholders holding less than 1,500 shares would nonetheless have
limited opportunities to realize any value for their shares since
the sales of their shares would ordinarily involve
disproportionately high brokerage commissions.
At a subsequent Board meeting on February 24, 1999, the terms of a
specific proposal for a Reverse Stock Split were outlined. It was proposed that
the Board of Directors approve a Certificate of Amendment to the Company's
Certificate of Incorporation providing for the 1,500-for-one Reverse Stock Split
of the Company's Common Stock and that such Certificate of Amendment be placed
on the agenda for consideration of the shareholders at the Company's Annual
Meeting. If the stockholders approved this proposal, then every 1,500 shares of
Common Stock would automatically be converted into one share of Common Stock; no
fractional shares of Common Stock would be issued in the Reverse Stock Split and
consequently any shareholder whose ownership would include or consist of less
than one share of Common Stock (the "Fractional Stockholders") would instead
receive cash in lieu of the issuance of one share of Common Stock. On the
effectiveness of the Reserve Stock Split, the Fractional Shareholders whose
ownership prior to the Reverse Stock Split constituted less than 1,500 shares of
Common Stock would no longer have any continuing interest as stockholders in the
Company. Pursuant to Section 15(d) of the Exchange Act, the Company's obligation
to file reports would be suspended and the registration of the shares of Common
Stock would be eligible for termination under Section 12(g)(4) of the Exchange
Act.
From a financial point of view, the Board believed that the amount
proposed to be paid for their fractional shares of Common Stock (the "Cash
Consideration") would be fair to the shareholders. In determining the price to
be paid for fractional shares, the Board considered (i) that the valuation
methodology was the same as that which is used in calculating the value of the
dividend payable on a quarterly basis to the holders of the $35.00 Preferred
Stock in shares of Common Stock, pursuant to the Company's Restated Certificate
of Incorporation, and (ii) that the nominal value ascribed to the Common Stock
and the $35.00 Preferred Stock by the three (3) proposals received from
independent third parties who had expressed a desire to either invest in the
Company or to acquire the Company.
The cost to the Company of paying the Cash Consideration for fractional
shares, however, would not be significant and would be outweighed by the cost
savings of becoming a private company.
The Board of Directors then discussed each of the aspects of the proposal:
The potential detriments of becoming a private company and/or the Reverse
Stock Split methodology considered by the Board included the following:
- If the Reverse Stock Split is approved, _____ shareholders, owning
in the aggregate __________ shares of Common Stock, would cease to
be shareholders of the Company and thereby will not participate in
any future savings from avoiding the costs of being a public
company.
- If the Reverse Stock Split is approved, __________ shareholders,
owning in the aggregate __________ shares of Common Stock, will
continue as minority shareholders and consequently will not, either
singly or by aggregating their shares, be able to elect any
15
<PAGE> 20
members of the Company's Board of Directors, and therefore will not
be able to affect decisions regarding the Company's management and
policies, including but not limited to compensation policy, dividend
policy, merger and/or acquisition strategies, and sale of the
Company and/or its assets.
- If the Reverse Stock Split is approved, the Company will elect to
become a private company by applying for termination of the
registration of its shares of Common Stock under the Exchange Act.
Consequently, management believes that the ability of post-Reverse
Stock Split shareholders to locate broker/dealers willing to enter
quotations for the Company's common stock and/or effectuate trades
therein may be severely curtailed. As a result, it is management's
belief that the only realistic way for continuing shareholders to
realize upon their equity ownership in the Company would be
privately-negotiated transactions, a corporate redemption and/or
liquidation or management's ability to locate one or more
third-party purchasers for the company's assets or common stock.
- The Company and Board of Directors did not obtain any report,
opinion, or appraisal from an outside party with respect to the
Reverse Stock Split, including any report, opinion, or appraisal
with respect to the fairness of the Reverse Stock Split from a
financial or procedural point of view to the Company, to any
affiliate of the Company, or to any unaffiliated stockholders of the
Company. The Board of Directors determined that the cost and expense
to retain such representative or to prepare such report, opinion, or
appraisal were not warranted in light of (i) the fact that the
Company was paying the Fractional Shareholders based on the same
valuation methodology used in calculating the Common Stock dividends
paid in Common Stock to the holders of the $35.00 Preferred Stock,
(ii) the terms of three (3) independent, arms length proposals for
the Company which provided for consideration to the Common and
$35.00 Preferred Shareholders of less than the Cash Consideration,
and (iii) the relatively high cost and expense required to obtain
such report, opinion or appraisal when compared to the low value of
the Company's net assets.
- The Board of Directors did not retain a non-affiliate representative
to act solely on behalf of non-affiliated shareholders for purposes
of negotiating the terms of the Reverse Stock Split or preparing a
report with respect to the fairness of the Reverse Stock Split.
- The Board of Directors did not structure the Reverse Stock Split to
require the approval of at least a majority of the Company's
nonaffiliated shareholders. In this regard, the Company's affiliated
shareholders have indicated that they will vote their shares for the
Reverse Stock Split. Consequently, a majority of the total issued
and outstanding common stock of the Company entitled to vote for the
Reverse Stock Split will be cast in favor and thus the Reverse Stock
Split will be approved even if all of the nonaffiliates shareholders
of the Company vote their shares against the Reverse Stock Split.
- Under the New York General Corporation Law, no appraisal rights
exist with respect to the Reverse Stock Split and the Company is not
voluntarily according dissenting shareholders such rights.
- Shareholders owning whole shares, rather than fractions of a share,
after the Reverse Stock Split will not be entitled to receive any
cash payment.
16
<PAGE> 21
As a result, the Board at a special meeting on April 26, 1999 concluded
that the Cash Consideration and the Reverse Stock Split would be fair to the
shareholders from a procedural and financial point of view and in the best
interests of the Company. The Board of Directors concurred with the proposal
that the Company consider going private at this time and the reasons for such
proposal.
FAIRNESS OF THE REVERSE STOCK SPLIT
The Board of Directors, at the meetings of the Board of Directors on
February 24, 1999, and April 26, 1999, considered the fairness of the proposed
one-for-1,500 Reverse Stock Split of the Company's Common Stock. The Board of
Directors unanimously concluded that the Reverse Stock Split, both from a
financial and procedural point of view, is fair to, and in the best interests
of, both the Company and the stockholders including the Fractional Stockholders.
The Board unanimously approved the Reverse Stock Split, directed that it be
placed on the agenda of the Annual Meeting for consideration, and recommended
that the shareholders vote for the Reverse Stock Split at such meeting.
The Board of Directors, as a part of their determination of the Cash
Consideration and the fairness of the Reverse Stock Split considered certain
specified factors. They considered the current book value of the net assets of
the Company, the historical and current market prices for the shares of Common
Stock, the Company's going concern value, the $11,500,000 liquidation preference
attributable to the $35.00 Preferred Stock, the obligation of the Company to pay
dividends on the $35.00 Preferred Stock and the trading volume of the shares of
Common Stock of the Company during the years ended December 31, 1996, 1997 and
1998. In particular, the Board noted the dilutive effect on the value of the
Common Stock caused by the Company's dividend obligation to the holders of the
$35.00 Preferred Stock. The Company is obligated to pay a dividend, at the rate
of 6% per annum (or approximately $172,000 per quarter), on its $35.00 Preferred
Stock, either in cash or in shares of Common Stock valued quarterly at an
average market price over a 20 trading day period. Due to restrictions imposed
by its lenders, the Company has paid, and will continue to pay, these dividends
in shares of Common Stock. This obligation resulted in the issuance of
approximately 5,700,000 shares of Common Stock following the quarter ended
December 31, 1998 and 20,000,000 shares following the quarter ended March 31,
1999.
The Board of Directors considered that the book value of the Company's net
assets and the historical and current market prices for the shares of Common
Stock were the best and most realistic and reliable indications of the fair
market value of the Company's shares of Common Stock for purposes of their
determination of the amount of the proposed Cash Consideration and their
analysis of the fairness of the Reverse Stock Split to the Fractional
Stockholders.
The Board of Directors concluded on the basis of all of the factors
considered that the Cash Consideration reflects the Company's fair value and,
for this reason, that the Reverse Stock Split is fair to the Fractional
Stockholders from a financial point of view.
The Board of Directors likewise concluded that the Reverse Stock Split is
fair to the Fractional Stockholders from a procedural point of view. They
reiterated that, in the determination of the amount of the Cash Consideration
and in their evaluation of the fairness of the Reverse Stock Split from a
financial point of view, they had relied on non-affiliated third party
negotiated proposals and on a valuation methodology negotiated and agreed upon
in connection with the $35.00 Preferred Stock financing in 1995. Second, they
noted that the Reverse Stock Split, given the lack of a market of consequence
for the Company's shares of Common Stock, afforded stockholders a one time
opportunity to receive, in the view of the Board of Directors, fair value for
their shares. Third, the Reverse Stock Split constituted the most expeditious,
efficient, cost effective and fairest method to convert the Company from a
reporting
17
<PAGE> 22
\company to a privately held non-reporting company in comparison to other
alternatives considered by them
The Board of Directors did not assign any weight to a specified factor if,
in their view, such factor did not assist them in their determination either of
the Cash Consideration or the fairness of the Reverse Stock Split. If any factor
assisted them in their determination, they also did not assign a relative weight
to such factor and did not make a determination as to why any particular factor,
as a result of the deliberations by them, should be assigned any weight.
INTEREST OF CERTAIN PERSONS IN THE REVERSE STOCK SPLIT; CONFLICTS OF INTEREST
As of the date of this Proxy Statement, [22,843,790] shares of Common
Stock, representing approximately [58] % of the Company's issued and outstanding
shares of Common Stock (including shares of $35.00 Preferred Stock on an as
converted basis) are held by affiliated shareholders. If the Reverse Stock Split
is effectuated, these individuals will beneficially own an aggregate of [15,229]
shares of the Common Stock, representing approximately ______ of the Company's
issued and outstanding shares of Common Stock (including shares of $35.00
Preferred Stock on an as converted basis). These directors' ownership in the
Company will effectively increase. Each of Messrs. Gunn, Huffard and Raslan, all
of whom own Common Stock and/or $35.00 Preferred Stock, was present and voted at
the meetings of the Board of Directors at which the Reverse Stock Split was
considered and approved. The Board of Directors was aware of these potential and
actual conflicts of interest but concluded that, despite these conflicts, the
Reverse Stock Split is, fair to the Company and its shareholders.
The Board of Directors of the Company did not retain an unaffiliated
representative to act solely on behalf of unaffiliated stockholders for the
purpose of negotiating the terms of the Reverse Stock Split or for the purpose
of preparing a report with respect to the fairness of the Reverse Stock Split.
The Board of Directors determined that the cost and expense to retain such
representative or to prepare such report were not warranted in light of (i) the
expected Cash Consideration to be paid to the Fractional Stockholders pursuant
to the Reverse Stock Split, and (ii) the relatively low value of the Company's
net assets when compared to the cost and expense required to obtain such report,
opinion or appraisal. The Board of Directors also did not appoint an independent
committee of the Board of Directors to review the fairness of the Reverse Stock
Split.
STRUCTURE AND PAYMENT OF CASH CONSIDERATION
If the Reverse Stock Split is approved by the shareholders at the Annual
Meeting, the Company expects to file a Certificate of Amendment to the Company's
Restated Certificate of Incorporation with the Secretary of State of the State
of New York. The form of the Certificate of Amendment is attached as Exhibit A
to this Proxy Statement.
Pursuant to the terms of the Certificate of Amendment, on the effective
date of filing, each 1,500 shares of the Company's Common Stock issued and
outstanding immediately prior to the effective date will be automatically
converted into one share of the Company's Common Stock.
The Board of Directors has determined to make a cash payment in lieu of
the issuance of fractional shares. Consequently, a cash payment of $0.014 times
each fraction of a share resulting from
18
<PAGE> 23
such one-for-1,500 Reverse Stock Split will be made, in lieu of the issuance of
any fractional shares, to those shareholders who, after the Reverse Stock Split,
own a fractional share of Common Stock. SHAREHOLDERS HOLDING WHOLE SHARES,
RATHER THAN FRACTIONS, AFTER THE CONSUMMATION OF THE REVERSE STOCK SPLIT WILL
NOT BE ENTITLED TO RECEIVE CASH IN LIEU OF THOSE WHOLE SHARES.
PLANS FOR THE COMPANY AFTER THE REVERSE STOCK SPLIT
Once the Reverse Stock Split is effected, the Company will file an
application with the Securities and Exchange Committee to de-register the
Company's Common Stock. Once de-registered, the Company's management will move
aggressively to reduce all expenses incurred as a result of maintaining public
status. Such expense reductions will however, not be enough to eliminate the
Company's cash deficit. Additionally, the Company will continue its due
diligence efforts with the prospective buyer it has identified while continuing
the process of identifying, soliciting and working with other third parties to
obtain a proposal on more favorable terms to the Company's shareholders.
CERTAIN EFFECTS OF THE REVERSE STOCK SPLIT
If the Reverse Stock Split is approved by the vote of a majority of the
outstanding shares of Common Stock, the interest of shareholders of Common Stock
in terms of both dollar amounts and percentages will change. Each share of
Common Stock owned by the Fractional Stockholders which would upon conversion
represent a fractional share of Common Stock will be automatically converted
into the right to receive from the Company, in lieu of fractional shares of
Common Stock, cash in the amount of $0.014 for each share of Common Stock. The
Fractional Stockholders owning less than 1,500 shares of Common Stock will cease
to be stockholders or to have any equity interest in the Company and, therefore,
will not share in its future earnings and growth, if any, and will not have any
right to vote on any corporate matter.
The shares of Common Stock are currently registered under the Exchange
Act. Such registration may be terminated upon application of the Company to the
SEC if the Company has fewer than 300 record holders of the shares or fewer than
500 stockholders and less than $10,000,000 in assets as of the end of three
consecutive fiscal years. The Company currently intends to make an application
for termination of registration of the shares of Common Stock as promptly as
possible after filing the Certificate of Amendment. Termination of registration
of the shares of Common Stock under the Exchange Act would substantially reduce
the information required to be furnished by the Company to its stockholders and
would make certain provisions of the Exchange Act, such as the short-swing
profit recovery provisions of Section 16(b) of the Exchange Act, the requirement
of furnishing a proxy or information statement in connection with stockholder
meetings pursuant to Section 14(a) of the Exchange Act (including a proxy
statement with respect to any sale of the Company), and the requirements of Rule
13e-3 promulgated by the SEC under the Exchange Act with respect to "going
private" transactions, no longer applicable to the Company. Termination of the
registration of the shares of the Common Stock would also deprive "affiliates"
of the Company and persons holding "restricted securities" of the Company of the
ability to dispose of such securities pursuant to Rule 144 promulgated under the
Securities Act of 1933, as amended. Such termination of registration shall cause
all shares of Common Stock to be restricted.
19
<PAGE> 24
If the Reverse Stock Split is approved and, as contemplated the shares of
Common Stock are deregistered under the Exchange Act, there will not be any
market for the outstanding shares of the Company's Common Stock.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The payment for fractional shares for the Company's Common Stock pursuant
to the Reverse Stock Split is expected to be a fully taxable transaction.
Accordingly, each exchanging shareholder will recognize gain or loss for federal
income tax purposes measured by the difference between such shareholder's basis
in the Shares exchanged and the cash received by the Shareholder for the
fractional shares. Such gain or loss will be capital gain or loss if the Shares
were held as a capital asset. All shareholders are urged to consult with their
own tax advisors as to the tax consequences of the Reverse Stock Split.
SOURCE AND AMOUNT OF FUNDS FOR AND EXPENSES OF THE REVERSE STOCK SPLIT
Estimated fees and expenses incurred or to be incurred by the Company in
connection with the Reverse Stock Split are approximately as follows:
<TABLE>
<CAPTION>
Item Approximate Amount
<S> <C>
Payment of Cash Consideration............................. $ 100,000
Legal Fees................................................ 15,000
Cost of New Stock Certificates............................ 5,000
Filing Fees............................................... 60
Printing and Mailing Expenses............................. 5,000
Miscellaneous Expenses.................................... 1,500
----------
Total $ 126,560
----------
</TABLE>
The Company has paid or will be responsible for paying all of such expenses. It
will pay such expenses (including the Cash Consideration payments) from funds
provided, on a month-to-month basis, under its credit facility.
EXCHANGE OF SHARES AND PAYMENT IN LIEU OF ISSUANCE OF FRACTIONAL SHARES
Within ten days after the Effective Date, the Company will mail to the
Fractional Stockholders a notice of the filing of the Certificate of Amendment
(the "Notice of Filing") and a letter of transmittal (the "Letter of
Transmittal") containing instructions with respect to the submission of shares
of Common Stock to the Company. Fractional Stockholders will be entitled to
receive and the Company will be obligated to make payment of, cash in lieu of
fractional shares of Common Stock only by transmitting stock certificate(s) for
shares of Common Stock to the Company, together with the properly executed and
completed Letter of Transmittal and such evidence of ownership of such shares as
the Company may require.
20
<PAGE> 25
SHAREHOLDER APPROVAL
The affirmative vote of the holders of a majority of the aggregate voting
power of the Company's Common Stock and $35.00 Preferred Stock represented and
voting at the meeting is required to approve the Reverse Stock Split.
RECOMMENDATIONS OF THE BOARD OF DIRECTORS
The Board of Directors unanimously concluded that, on the basis of the
factors discussed below, the Reverse Stock Split, both from a procedural and
financial point of view, is fair to the Company and its shareholders. THE BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE REVERSE
STOCK SPLIT.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company 's Common Stock is traded on the OTC Bulletin Board under the
symbol "USHO." The following table presents the quarterly high and low bid
quotations, as reported by on-line services monitoring the OTC Bulletin Board,
for 1997, 1998 and the first quarter of 1999. These quotations reflect the
inter-dealer prices, without retain mark-up, markdown or commission and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
HIGH LOW HIGH LOW HIGH LOW
<S> <C> <C> <C> <C> <C> <C>
First Quarter $0.03 $0.00 $0.94 $0.28 $1.375 $0.688
Second Quarter $0.53 $0.28 $1.375 $0.969
Third Quarter $0.50 $0.34 $1.531 $0.938
Fourth Quarter $0.42 $0.02 $1.531 $0.9065
</TABLE>
On April 23, 1999 the last reported sales price for the Company's Common
Stock on the OTC Bulletin Board was $0.035 per share.
The Company has never declared or paid any cash dividends on its capital
stock. In addition, the Company's revolving line of credit prohibits the payment
of cash dividends on the Company's capital stock without prior consent. The
Company does not anticipate being able to pay any cash dividends in the
foreseeable future. The Company pays dividends on its outstanding $35.00
Preferred Stock through the issuance of shares of Common Stock.
SHAREHOLDER PROPOSALS
In accordance with regulations issued by the Securities and Exchange
Commission, shareholder proposals intended for presentation at the 2000 Annual
Meeting of Shareholders must be received by the
21
<PAGE> 26
Secretary of the Company no later than January 7, 2000, if such proposals are to
be considered for inclusion in the Company's Proxy Statement. In accordance with
the Company's By-Laws, shareholder proposals intended for presentation at the
Annual Meeting of Shareholders that are not intended to be considered for
inclusion in the Company's Proxy Statement must be received by the Secretary of
the Company no earlier than March 24, 2000 and no later than April 17, 2000.
OTHER MATTERS
Management knows of no matters that are to be presented for action at the
Annual Meeting other than those set forth above. If any other matters properly
come before the Annual Meeting, the persons named in the enclosed form of proxy
will vote the shares represented by proxies in accordance with their best
judgment on such matters.
Proxies will be solicited by mail and may also be solicited in person or
by telephone by some regular employees of the Company. The Company may also
consider the engagement of a proxy solicitation firm. Costs of the solicitation
will be borne by the Company.
By Order of the Board
Sophia V. Bilinsky
President and Chief Executive Officer
Two Hartford Square West
Hartford, Connecticut 06106
__________ ___, 1999
22
<PAGE> 27
P
R
O
X
Y
U.S. HOMECARE CORPORATION
TWO HARTFORD SQUARE WEST
HARTFORD, CONNECTICUT 06106
Jay C. Huffard, Sophia V. Bilinsky, or either of them, are hereby
authorized, with full power of substitution, to represent and to vote the stock
of the undersigned at the Annual Meeting of Shareholders of the Company to be
held on June 21, 1999, or at any adjournment of such meeting, upon such business
as may properly come before the meeting, including the following items as set
forth in the Proxy Statement:
Item 1. Election of four (4) Directors
1. Jay C. Huffard 2. John R. Gunn 3. Shawkat Raslan
4. Sophia V. Bilinsky
Item 2. Approval of the Reverse Stock Split.
PLEASE MARK, SIGN AND DATE THIS PROXY WHERE INDICATED AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE.
----------------------
SEE REVERSE
SIDE
----------------------
23
<PAGE> 28
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS AND WHEN PROPERLY
EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE,
THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE DIRECTORS AND FOR THE APPROVAL
OF THE REVERSE STOCK SPLIT.
1. Election of FOR WITHHELD
Directors [ ] [ ]
(see reverse)
For, except vote withheld from the following nominee(s):
2. Approval of the Reverse Stock Split.
FOR AGAINST WITHHELD
[ ] [ ] [ ]
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
Please sign name(s) exactly as printed hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, sign in full corporate name by
President or other authorized officer. If a partnership, sign in partnership
name by authorized person.
SIGNATURE(S) DATE
24
<PAGE> 29
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
U.S. HOMECARE CORPORATION
Under Section 805 of the Business Corporation Law
WE, THE UNDERSIGNED, SOPHIA BILINSKY and JAY C. HUFFARD, being,
respectively, the President and Chairman of the Board of U.S. HomeCare
Corporation, do hereby certify:
1. The name of the Corporation is U.S. HomeCare Corporation (the
"Corporation").
2. The original certificate of incorporation of said Corporation was
filed by the Department of State, State of New York, on March 22, 1976,
and its restated certificate of incorporation was filed by the Department
of State on March 10, 1989, and was further amended on March 19, 1993,
August 25, 1994, January 5, 1995 and June 20, 1996.
3. The Certificate of Incorporation of said Corporation, as
heretofore restated and amended, is hereby further amended to effect the
following changes authorized by the Business Corporation Law.
4. The Corporation presently has 40,000,000 authorized shares of
common stock of the par value of $.01 per share (the "Common Stock") and
is effecting a 1-for-1,500 reverse split of its outstanding shares of
common stock. There will be no reduction in the number of shares of
authorized common stock or authorized preferred stock.
Therefore, the Certificate of Incorporation is hereby amended by
amending the first paragraph of Article IV to read in its entirety as
follows:
"The aggregate number of shares which the Corporation shall
have authority to issue is 40,000,000 shares of common stock of the
par value of $.01 per share (the "Common Stock"), and 5,000,000
shares of preferred stock of the par value of $1.00 per share. At
the filing of this Amendment, each outstanding share of Common Stock
shall become one-fifteen hundredth (1/1,500) share of Common Stock,
so that after the filing of this Certificate of Amendment, each
holder of Common Stock of the Corporation shall be deemed to hold
one share of Common Stock for every 1,500 shares of Common Stock
held by such holder prior to the filing, with any fractional shares
converted into the right to receive from the Corporation, in lieu of
fractional shares, cash in the amount of $.014 times the fraction of
a share that such holder otherwise would have received."
<PAGE> 30
6. As of the date of approval of this Certificate of Amendment,
there were [39,443,639] shares of Common Stock of the par value of $.01
per share issued and outstanding and [556,361] shares of Common Stock of
the par value of $.01 per share authorized but unissued. Following the
filing of this Certificate of Amendment, there will be [-------------]
shares of Common Stock of the par value of $.01 per share issued and
outstanding and [----------] shares of Common Stock of the par value $.01
authorized but unissued.
7. This Certificate of Amendment to the Corporation's Certificate of
Incorporation was authorized pursuant to Section 803(a) of the Business
Corporation Law, by vote of the Board of Directors of the Corporation,
followed by vote of at least a majority of all outstanding shares of the
Corporation entitled to vote thereon at a meeting of shareholders.
IN WITNESS WHEREOF, this certificate has been signed and the truth
of the statements therein affirmed under penalty of perjury, on this ____ day of
______, 1999.
-------------------------
Sophia Bilinsky
President
-------------------------
Jay C. Huffard
Chairman of the Board
2
