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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
CHECK ONE:
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT
OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM ______ TO
_____.
COMMISSION FILE NUMBER 0-19532
AMERICAN HOMEPATIENT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 62-1474680
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
5200 MARYLAND WAY, SUITE 400 37027-5018
BRENTWOOD TN (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (615) 221-8884
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- ----------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of class)
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 the
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. [X]
The aggregate market value of registrant's voting stock held by
non-affiliates of the registrant, computed by reference to the price at which
the stock was sold, or average of the closing bid and asked prices, as of March
31, 1999 was $19,694,522.
On March 31, 1999, 15,149,632 shares of the registrant's $0.01 par
value Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into Part III,
Items 10, 11, 12 and 13 of this Form 10-K: Portions of the Registrant's
definitive proxy statement for its 1999 Annual Meeting of stockholders.
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PART I
ITEM 1. BUSINESS
INTRODUCTORY SUMMARY
American HomePatient, Inc. (the "Company") was incorporated in Delaware
in September 1991. The Company's principal executive offices are located at 5200
Maryland Way, Suite 400, Brentwood, Tennessee 37027-5018, and its telephone
number at that address is (615) 221-8884. The Company provides home health care
services and products consisting primarily of respiratory and infusion therapies
and the rental and sale of home medical equipment and home health care supplies.
These services and products are paid for primarily by Medicare, Medicaid and
other third-party payors. As of December 31, 1998, the Company provided these
services to patients primarily in the home through 313 centers in 38 states.
From its inception through 1997 the Company experienced substantial growth
primarily as a result of its strategy of acquiring and operating home health
care businesses. Beginning in 1998, the Company's strategy shifted from
acquiring new businesses to focus more on internal growth, the integration of
its acquired operations and achieving operating efficiencies.
MATERIAL 1998 CORPORATE DEVELOPMENTS.
Medicare Oxygen Reimbursement Reductions and Related Restructuring. The
Medicare reimbursement rate for oxygen related services was reduced by 25%
beginning January 1, 1998 as a result of the Balanced Budget Act of 1997 (the
"Medicare Oxygen Reimbursement Reduction") and an additional reduction of 5%
will be in effect beginning January 1, 1999. The reimbursement rate for certain
drugs and biologicals covered under Medicare was also reduced by 5% beginning
January 1, 1998. In addition, Consumer Price Index increases in Medicare
reimbursement rates for home medical equipment, including oxygen, will not
resume until the year 2003. The Company is one of the nation's largest providers
of home oxygen services to patients, many of whom are Medicare recipients, and
is therefore significantly affected by this legislation. Medicare oxygen
reimbursements account for approximately 23.5 percent of the Company's revenues.
The Company estimates that the Medicare Oxygen Reimbursement Reduction decreased
net revenue and pre-tax income by approximately $24.5 million during 1998.
On September 25, 1997, the Company announced initiatives to respond
aggressively to planned Medicare reimbursement reductions by fundamentally
reshaping the Company for long-term growth (the "Restructuring"). More than 100
of the Company's total operating and billing locations were affected by the
Restructuring. The specific actions resulted in pre-tax accounting charges in
the third quarter of 1997 of $65.0 million due to the closure, consolidation, or
scaling back of approximately 20 percent of the Company's total operating
centers, the closure or scaling back of nine billing centers, the elimination of
four operating regions, the scaling back or elimination of marginal products and
services at numerous locations, and the related termination
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of approximately 400 employees in the affected operating and billing centers.
These activities were substantially completed by June 1998.
1998 Non-recurring and Unusual Charges. In the quarter ended September
30, 1998, the Company recorded a net pre-tax accounting charge of $15.2 million
related to (i) certain non-recurring events in the third quarter ($3.2 million),
(ii) the recording of additional reserves related to accounts receivable ($16.0
million), and (iii) the reversal of excess restructuring accruals and related
reserves ($4.0 million credit). A description of these charges follows:
The non-recurring charge of $3.2 million relates to certain one-time
expenses associated with the retirement package of the former CEO, CEO
transition expenses, deal costs of abandoned mergers and acquisitions, and a
provision for adverse settlements related to accounting disputes with certain
sellers of acquired businesses.
The accounts receivable charge of $16.0 million relates primarily to
disruptions in collections as a result of the consolidation of billing centers
and changes in certain billing procedures continuing from the Restructuring in
1997. Billing center efficiencies have been affected because of personnel
turnover and other adverse impacts of previous cost reduction plans. The
termination of unprofitable contracts with certain health care institutions has
also adversely affected collections on existing receivables. Included in the
total accounts receivable charge is $1.5 million related to certain accounts
receivable consulting and management services provided to the Company.
The Company adjusted its original estimates of costs related to the
1997 Restructuring activities. This resulted in a $4.0 million reversal of
certain accruals and other reserves recorded in connection with the
Restructuring.
In addition to the 1998 third quarter charges, $1.3 million of
severance expense related to former senior executives was accrued in the fourth
quarter, and $37.8 million of impaired goodwill was written off due to the poor
financial results of certain acquisitions subsequent to the Medicare oxygen
reimbursement reductions.
Bank Credit Facility. On October 29, 1998, the Fourth Amended and
Restated Credit Agreement (the "Credit Agreement") between the Company and
Bankers Trust Company, as agent for a syndicate of banks (the "Banks"), was
amended (the "First Amendment") to modify certain financial covenants with which
the Company was not in compliance. The Company incurred increased interest
expense of $1,656,803 in 1998 as a result of the increased interest rate
established by the First Amendment. As part of the First Amendment, the
Company's credit availability was reduced from $400 million to $360 million
(credit availability was temporarily reduced to $340 million until April 1,
1999). On April 14, 1999 the Company entered into a Second Amendment to the
Fourth Amended and Restated Credit Agreement (the "Second Amendment" and
together, with the Credit Agreement and the First Amendment, the "Bank Credit
Facility"). This Second Amendment waives events of default, modifies existing
financial covenants and makes a number of other changes to the Credit Agreement.
The Company is required to employ a
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manager, acceptable to the Bank, with expertise in managing companies that are
in workout situations with their lenders. The Company's credit availability has
been reduced from $360 million (credit availability was temporarily reduced to
$340 million pursuant to the First Amendment) to $328.6 million, including a $75
million term loan and a $253.6 million revolving line of credit. As of April 14,
1999, approximately $248.5 million was outstanding under the revolving line of
credit. Availability is frozen for 30 days after the retention of the manager
referenced above. Substantially all of the Company's operating assets have been
pledged as security for borrowings under the Bank Credit Facility.
Interest is payable on borrowings under the Bank Credit Facility at the
election of the Company at either a Base Lending Rate or an Adjusted Eurodollar
Rate (each as defined in the Bank Credit Facility) plus an applicable margin.
The margin associated with the Adjusted Eurodollar Rate is fixed at 3.25%. The
margin associated with the Base Lending Rate is fixed at 2.50%. The applicable
margins increase 18 months after the date of the Second Amendment to 3.50% as to
the Adjusted Eurodollar Rate and to 2.75% as to the Base Lending Rate. In
addition, 18 months after the date of the Second Amendment, additional interest
of 4.50% will accrue on that portion of the Bank Credit Facility that is in
excess of four times Adjusted EBITDA.
The Company has agreed to issue on March 31, 2001 (provided loans,
letters of credit or commitments are still outstanding) warrants to the Banks
representing 19.99% of the fully diluted common stock of the Company issued and
outstanding as of March 31, 2001. Fifty percent of these warrants would be
exercisable at any time after issuance and the remaining fifty percent would be
exercisable from and after September 30, 2001 (provided loans, letters of credit
or commitments are still outstanding). The exercise price of the warrants will
be $0.01 per share.
In addition to the foregoing modifications, pursuant to the Second
Amendment (i) the maturity date of the Bank Credit Facility has been changed to
April 15, 2002 from December 16, 2002, (ii) the Company is no longer permitted
to make acquisitions or investments in joint ventures without the consent of
Banks holding a majority of the lending commitments under the Bank Credit
Facility, and (iii) an additional covenant has been added regarding collections
of accounts receivable.
Management has prepared operating projections, cash flow projections
and related operating plans which indicate the Company can remain in compliance
with the new financial covenants and meet its expected obligations throughout
1999. However, as with all projections, there is uncertainty as to whether
management's projections can be achieved. In an event of default under the
amended Credit Agreement, the lenders will have the ability to demand payment of
all outstanding amounts, and there is currently no commitment as to how any
such demand payment would be satisfied.
See "Business - Risk Factors - Substantial Leverage" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
Executive Officer Changes. On July 6, 1998, Edward K. Wissing retired
as the Company's President and Chief Executive Officer. Mr. Wissing remains on
the Company's board of directors. Mr. Wissing was briefly succeeded by Malcolm
MacKenzie, who was replaced by Joseph F. Furlong, III on November 6, 1998. The
Company was unable to reach agreement with Mr. MacKenzie on terms of an
employment agreement. Mr. MacKenzie resigned from the Company's board of
directors on February 16, 1999. Mr. Furlong continues to serve on the Company's
board of directors. Thomas E. Mills replaced David R. Gnass as Chief Operating
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Officer on November 23, 1998. Mr. Mills had previously served the Company as
Senior Vice President and Chief Operating Officer from 1992 - 1996 and as Senior
Vice President of the Company's strategic alliance and joint venture development
from 1996 - 1997. Marilyn A. O'Hara joined the Company as Senior Vice President
and Chief Financial Officer replacing Mary Ellen Rodgers effective January 1,
1999. In addition, Rita Hill, formerly Senior Vice President of Development,
left the Company in October, 1998, as the Company disbanded its acquisition and
development team.
Home Health Care Acquisitions. Effective in February 1998, the Company
acquired the assets of Evocare, Inc. ("Evocare") for approximately $9.8 million
in cash, $1.0 million in notes payable to sellers and $2.8 million in assumed
liabilities. Additionally, up to $1.5 million is payable by the Company if
Evocare meets the terms of an incentive based earn-out. Evocare consists of 3
centers in Rhode Island and Massachusetts. Effective in June 1998, the Company
acquired the assets of Greenbrier Respiratory Care Services, Inc. ("Greenbrier")
for approximately $12.6 million in cash and assumed liabilities of $400,000. An
additional $1.0 million is payable by the Company if Greenbrier meets the terms
of an incentive based earn-out. Greenbrier has 6 centers in West Virginia and
Virginia.
The Company acquired 2 additional home health care businesses effective
in 1998 consisting of 9 centers in Tennessee and New York. The approximate
aggregate purchase price included cash of $3.6 million, notes payable to sellers
of $500,000 and assumed liabilities of $300,000. The cash amounts have been
funded from operations and draws on the Bank Credit Facility.
Changes to Company's Strategic Direction. During 1998, the Company
purposefully slowed its pace of acquisition activities compared to prior years
to focus more on internal growth and operating efficiencies. Additionally, the
Company's selling efforts were directed primarily toward increasing the
Company's respiratory business while de-emphasizing lower margin products and
services. The Company exited certain perceived lower margin contracts and local
market business units during the third and fourth quarters of 1998. As a result,
the Company's net revenues and net income for these quarters were substantially
lower than expected. See "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
NASDAQ Inquiry. The Company's shares of Common Stock have been listed
on the NASDAQ National Market System since 1991 when the Company completed its
initial public offering. NASDAQ rules require that, as a condition of the
continued listing of a company's securities on the NASDAQ National Market
System, a company satisfy listing requirements relating to its financial
condition, results of operations and trading market for its listed securities.
There are two alternative sets of continued listing criteria: Listing Standard 1
and Listing Standard 2. The Company does not meet the requirements of Listing
Standard 1 because its net tangible assets are less than $4,000,000. Listing
Standard 2 consists of maintaining: (i) a public float of at least 1.1 million
shares, (ii) a market value of the public float of at least $15 million, (iii) a
minimum bid price equal or greater than $5.00 per share, (iv) at least 400
stockholders (round-
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lot holders), (v) a market capitalization of at least $50 million or total
assets of at least $50 million and total revenue of at least $50 million, (vi)
at least four (4) registered market makers, and (vii) compliance with certain
corporate governance requirements. The Company does not currently satisfy
Listing Standard 2, because the minimum bid price of its Common Stock is less
than $5.00 per share and the market value of its public float is less than $15
million, as of April 15, 1999. Other than these requirements related to the
price of the Common Stock, the Company believes that it satisfies all other
items included in Listing Standard 2. In addition, Counsel Corporation, which
currently owns approximately 27% of the Company's Common Stock, recently
announced that it intends to divest its interest in the Company by the end of
1999. Sales of the Company's Common Stock by Counsel Corporation could affect
the bid price of, and the market value of the public float of, the Company's
Common Stock.
On November 11, 1998, NASDAQ sent the Company a letter noting that the
Common Stock had failed to maintain a closing bid price greater than or equal to
$5.00 for the last thirty (30) consecutive trading dates. The letter further
noted that the Company's securities would be subject to de-listing from the
NASDAQ National Market System if the Company was unable to demonstrate
compliance with the minimum bid price requirement or any other listing criteria
by February 8, 1999. In response to such letter, the Company requested a hearing
before the NASDAQ Listing Qualifications Hearing Panel (the "Panel"). The Panel
stayed de-listing and granted the Company a hearing, which took place on April
9, 1999. At such hearing, the Company requested a temporary waiver of the bid
price and public float market value requirements in order to facilitate either
continued listing on the NASDAQ National Market System or a proposed initial
listing on the American Stock Exchange. There can be no assurance, however, that
NASDAQ will not de-list the Company from the NASDAQ National Market System or
that the Company will be accepted for listing on AMEX. Under such circumstances
the Company could not be admitted for listing on the NASDAQ Small Cap Market
without a waiver of certain listing requirements. If the Company is not listed
on any such market, it would instead be traded on the NASDAQ over-the-counter
market. See "Business - Risk Factors - Possible NASDAQ De-listing."
BUSINESS
The Company provides home health care services and products consisting
primarily of respiratory therapy services, infusion therapy services and the
rental and sale of home medical equipment and home health care supplies. For the
year ended December 31, 1998, such services represented 48%, 22% and 30%,
respectively, of net revenues. These services and products are paid for
primarily by Medicare, Medicaid and other third-party payors. The Company's
objective is to be a leading provider of home health care products and services
in the markets in which it operates. The Company's centers are regionally
located to achieve the market penetration necessary for the Company to be a
cost-effective provider of comprehensive home health care services to managed
care and other third-party payors.
As of December 31, 1998, the Company provided services to patients
primarily in the home through 313 centers in the following 38 states: Alabama,
Arizona, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois,
Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan,
Minnesota, Mississippi, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New
York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South
Carolina, Tennessee, Texas, Virginia, Washington, West Virginia, and Wisconsin.
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The Company had approximately 3,822 full-time employees and 320 part-time
employees at December 31, 1998.
Historically, the Company has significantly expanded its operations
through a combination of home health care acquisitions and joint ventures and
strategic alliances with integrated health care delivery systems. The Company
purposefully slowed its growth by acquisitions during 1998 compared to prior
years to focus more on existing operations.
During 1998, the Company embarked on a strategy to increase local
market share by focusing primarily on increasing respiratory revenues in
existing centers. Concurrently, the Company determined that certain "non-core",
lower margin products and services should be eliminated during the year. To
accelerate the development of the Company's respiratory selling efforts, it
increased its sales force by 67 account executives, on a net basis, by year-end.
It also exited certain contracts and businesses perceived to be lower margin
during the third and fourth quarters of 1998. The result of these efforts
working concurrently resulted in a substantial decrease in revenues and
increased expenses during these quarters.
Recognizing the situation, the new management of the Company (see
"Material 1998 Corporate Developments Executive Officer Changes") ceased the
exit of these businesses and contracts by mid-December. A new strategy for 1999
was developed to restore the Company's revenues and decrease expenses. This
strategy is designed to:
1. Stabilize and increase profitable revenues - respiratory
therapy services will remain a primary focus of the Company.
However, it will broaden its offering and sales focus in 1999
to include other profitable business units such as enteral
nutrition, HME rental, and select infusion therapy services.
The Company will also redirect its efforts to increase
revenues for certain managed care contracts - both new and
existing.
2. Decrease and control operating expenses - the Company has
already taken aggressive steps to decrease operating and
general and administrative expenses. During the first quarter
of 1999, the Company has eliminated 41 positions from its
corporate Support Center in Brentwood, Tennessee and
approximately 180 positions in the field.
3. Decrease days' sales outstanding in net accounts receivable
("DSO") and bad debt - the Company has three key initiatives
in place to improve accounts receivable performance: (i)
proper staffing and training; (ii) process redesign and
standardization; and (iii) billing center specific goals
geared toward improved cash collections and reduced accounts
receivable.
The Company does not anticipate renewing its acquisition development
activities during 1999 as it focuses its efforts on internal operational
matters. The Company also plans to slow the development of new joint ventures
and strategic alliances in order to focus on internal revenue development and
operating efficiencies at existing partnerships. See "Business - Hospital Joint
Ventures and Strategic Alliances."
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SERVICES AND PRODUCTS
The Company provides a diversified range of home health care services
and products. The following table sets forth the percentage of net revenues
represented by each line of business for the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
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<S> <C> <C> <C>
Home respiratory therapy services ......... 49% 47% 48%
Home infusion therapy services ............ 18 18 22
Home medical equipment and medical supplies 33 35 30
--- --- ---
Total ....................... 100% 100% 100%
=== === ===
</TABLE>
Home Respiratory Therapy Services. The Company provides a wide variety
of home respiratory services primarily to patients with severe and chronic
pulmonary diseases. Patients are referred to a Company center most often by
primary care and pulmonary physicians as well as by hospital discharge planners
and case managers. After reviewing pertinent medical records on the patient and
confirming insurance coverage information, a Company respiratory therapist or
technician visits the patient's home to deliver and to prepare the prescribed
therapy or equipment. Company representatives coordinate the prescribed therapy
with the patient's physician, train the patient and caregiver in the correct use
of the equipment, and make periodic follow-up visits to the home to provide
additional instructions, required equipment maintenance and oxygen and other
supplies.
The respiratory services that the Company provides include the
following:
- Oxygen systems to assist patients with breathing. There are
three types of oxygen systems: (i) oxygen concentrators, which
are stationary units that filter ordinary room air to provide
a continuous flow of oxygen; (ii) liquid oxygen systems, which
are portable, thermally-insulated containers of liquid oxygen
which can be used as stationary units and/or as portable
options for patients; and (iii) high pressure oxygen
cylinders, which are used primarily for portability with
oxygen concentrators. Oxygen systems are used to treat
patients with chronic obstructive pulmonary disease, cystic
fibrosis and neurologically-related respiratory problems.
- Nebulizers to deliver aerosol medications to patients.
Nebulizer compressors are used to administer aerosol
medications (such as albuterol) to patients with asthma,
chronic obstructive pulmonary disease, cystic fibrosis and
neurologically-related respiratory problems. "AerMeds" is the
Company's branded marketing name for its aerosol medications
business.
- Home ventilators to sustain a patient's respiratory function
mechanically in cases of severe respiratory failure when a
patient can no longer breathe normally.
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- Non-invasive positive pressure ventilation ("NPPV") to provide
ventilation support via a face mask for patients with chronic
respiratory failure and neuromuscular diseases. This therapy
enables patients to receive positive pressure ventilation
without the invasive procedure of intubation.
- Continuous positive airway pressure ("CPAP") and bi-level
positive airway pressure therapies to force air through
respiratory passage-ways during sleep. These treatments are
used on adults with obstructive sleep apnea (OSA), a condition
in which a patient's normal breathing patterns are disturbed
during sleep.
- Apnea monitors to monitor and to warn parents of apnea
episodes in newborn infants as a preventive measure against
sudden infant death syndrome.
- Home sleep screenings and studies to detect sleep disorders
and the magnitude of such disorders.
The provision of oxygen-related services and systems comprised
approximately 50% of the Company's 1998 respiratory revenues with the balance
generated from nebulizers and related aerosol medication services, home
ventilators, CPAP and bi-level therapies, home sleep studies and infant apnea
monitors. The Company provides respiratory therapy services at all but 10 of its
centers.
Home Infusion Therapy services. The Company provides a wide range of
home infusion therapy services. Patients are referred to a Company center most
often by primary care and specialist physicians (such as infectious disease
physicians and oncologists) as well as by hospital discharge planners and case
managers. After confirming the patient's treatment plan with the physician, the
pharmacist mixes the medications and coordinates with the nurse the delivery of
necessary equipment, medication and supplies to the patient's home. The Company
provides the patient and caregiver with detailed instructions on the patient's
prescribed medication, therapy, pump and supplies. The Company also schedules
follow-up visits and deliveries in accordance with physicians' orders.
Home infusion therapy involves the administration of nutrients,
antibiotics and other medications intravenously (into the vein), subcutaneously
(under the skin), intramuscularly (into the muscle), intrathecally or epidurally
(via spinal routes) or through feeding tubes into the digestive tract. The
primary infusion therapy services that the Company provides include the
following:
- Enteral nutrition is the infusion of nutrients through a
feeding tube inserted directly into the functioning portion of
a patient's digestive tract. This long-term therapy is often
prescribed for patients who are unable to eat or to drink
normally as a result of a neurological impairment such as a
stroke or a neoplasm (tumor).
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- Antibiotic therapy is the infusion of antibiotic medications
into a patient's bloodstream typically for 5 to 14 days to
treat a variety of serious infections and diseases.
- Total parenteral nutrition ("TPN") is the long-term provision
of nutrients through central vein catheters that are
surgically implanted into patients who cannot absorb adequate
nutrients enterally due to a chronic gastrointestinal
condition.
- Pain management involves the infusion of certain drugs into
the bloodstream of patients, primarily terminally or
chronically ill patients, suffering from acute or chronic
pain.
The Company's other infusion therapies include chemotherapy, hydration,
growth hormone and immune globulin therapies. Enteral nutrition services account
for approximately 29% of the Company's infusion revenues, while antibiotic
therapy, TPN, and pain management and other medications accounted for
approximately 24%, 7% and 2%, respectively. The Company's remaining infusion
revenues were derived from the provision of infusion nursing services,
prescription drug sales and other miscellaneous infusion therapies. Enteral
nutrition services are provided at most of the Company's centers, and the
Company currently provides other infusion therapies in 53 of its 313 centers.
Home Medical Equipment and Supplies. The Company provides a
comprehensive line of equipment to serve the needs of home care patients.
Revenues from home equipment services are derived principally from the rental
and sale of wheelchairs, hospital beds, ambulatory aids, bathroom aids and
safety equipment, and rehabilitation equipment. As a part of the Company's
Restructuring activities, many of its retail and showroom stores were closed or
scaled back during 1998.
OPERATIONS
Organization. A major component of the Company's Restructuring included
the reorganization and streamlining of the field structure. Currently, the
Company's operations are divided into 10 geographic areas, each headed by a
field vice president. The Company has also developed an eleventh special area
which is specifically dedicated to the operations of the Company's larger
rehabilitation centers (centers which specialize in assistive technology devices
and specialty wheelchairs) and a twelfth area specifically dedicated to the
operations of the Company's 20 hospital joint ventures and strategic alliances.
See "Business - Hospital Joint Ventures and Strategic Alliances". Each area vice
president oversees the operations of approximately 20 - 35 centers. Management
believes this field organizational structure enhances management flexibility and
facilitates communication. Specifically, it provides for a greater focus on
local market operations and control at the operating level, while enabling the
Company's management to be close to the patients and concentrate on achieving
the Company's strategic goals. Area vice presidents focus on cost control,
revenue development and accounts receivable management and assist local
management with decision making to improve responsiveness in local markets.
Other members of the area team include an Area Operations Manager (AOM), Area
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Sales Manager (ASM), Area Quality Improvement Specialist (AQI), Area Purchasing
Manager (APM), and Area Billing Center Manager(s) (BCM).
The Company's centers are typically staffed with a general manager, a
business office manager, a director of patient services (normally a registered
nurse or respiratory therapist), registered nurses, clinical coordinators,
respiratory therapists, service technicians and customer service
representatives. The Company also has account executives responsible for local
market selling efforts in many of its centers. In addition, the Company employs
a licensed pharmacist in all centers that provide a significant amount of
infusion therapy.
The Company has achieved what management believes is an appropriate
balance between centralized and decentralized management. Management believes
that home care is a local business dependent in large part on personal
relationships and, therefore, provides the Company's operating managers with a
significant degree of autonomy to encourage prompt and effective responses to
local market demands. In conjunction with this local operational authority, the
Company provides, through its corporate office (the "Support Center"),
sophisticated management support, compliance oversight and training, marketing
and managed care expertise, sales training and support, product development, and
financial and information systems that typically are not readily available to
independent operators. The Company retains centralized control over those
functions necessary to monitor quality of patient care and to maximize
operational efficiency. Services performed at the support center level include
financial and accounting functions, corporate compliance, clinical policy and
procedure development, regulatory affairs and licensure, and system design.
The Company has moved certain functions previously performed at the
Support Center or local level to the area level, such as quality improvement
oversight, billing, collections and purchasing, in an effort to maximize
efficiencies and performance.
Commitment to Quality. The Company's quality and performance
improvement programs are designed to ensure that its service standards are
properly implemented. Management believes that the Company has developed and
implemented service and procedure standards that not only comply with, but often
exceed, the standards required by the Joint Commission on Accreditation of
Healthcare Organizations ("JCAHO"). All of the Company's centers are
JCAHO-accredited or are in the process of being reviewed for accreditation from
the JCAHO. The Company has Quality Improvement Advisory Boards at many of its
centers, and center general managers conduct quarterly quality improvement
reviews. Area quality improvement ("AQI") specialists conduct quality compliance
audits at each center to ensure compliance with state and federal regulations,
JCAHO, FDA and internal standards. The AQI specialist also helps train all new
clinical personnel on the Company's policies and procedures. The Company's
corporate philosophy for service excellence is its Personal Caring Service
Promise, which characterizes the Company's standards for quality care and
customer service. The Personal Caring Service Promise is as follows: "We promise
to serve our customers with personal caring service. We do this by treating them
with dignity and respect, just like members of our own family, giving each of
them the individual attention they deserve." The Company's Governing Body, which
consists of the
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President and Chief Executive Office, Chief Operating Officer, Chief Financial
Officer, Senior Vice President of Marketing, Vice President of Clinical &
Regulatory Affairs and three of the field Vice Presidents, meets quarterly to
review and oversee the Company's quality assurance and corporate regulatory
compliance programs.
Training and Retention of Quality Personnel. Management recognizes that
home health care is by nature a localized business. General managers attempt to
recruit knowledgeable local talent for all positions including account
executives who are capable of gaining new business from the local medical
community. In addition, the Company provides training to all new nurses,
respiratory therapists and pharmacy personnel as well as continuing education
for existing employees.
Management Information Systems. Management believes that periodic
refinement and upgrading of its management information systems, which permit
management to monitor closely the activities of the Company's centers, is
important to the Company's success. These systems provide monthly budget
analyses, financial comparisons to prior periods and comparisons among Company
centers, thus enabling management to identify areas for improvement. Medicare
and many third-party payor claims are billed electronically, thereby
facilitating the collection of accounts receivable. In addition, the Company's
financial reporting system monitors certain key data for each center, such as
accounts receivable, payor mix, cash collections, net revenues and operating
trends. The Company also has focused upon integrating the information systems of
acquired centers as a part of its overall integration efforts.
Corporate Compliance. The Company's commitment to providing quality
home health care services and products is matched by a commitment to maintaining
high standards of ethical and legal conduct. The Company strives to operate its
business with honesty and integrity and the Company's Corporate Compliance
Program is designed to accomplish these goals through employee training and
education, a confidential disclosure program, written policy guidelines,
periodic reviews, compliance audits, and other programs. The Company's
compliance program is monitored by its Compliance officer, Assistant Compliance
officer and Compliance committee, composed of the Company's President and CEO,
Chief Operating Officer, Chief Financial Officer, Vice President of Human
Resources and Vice President of Clinical and Regulatory Affairs.
HOSPITAL JOINT VENTURES AND STRATEGIC ALLIANCES
As of December 31, 1998, the Company had 20 home health care joint
ventures with hospitals or hospital systems. During 1998, the Company developed
4 new joint ventures, one of which was a start-up operation involving 12
hospitals in Nebraska and Iowa. The Company has slowed the development of
additional new joint ventures in order to focus on existing operations.
The Company's joint ventures with hospitals set forth below typically
are 50/50% equity partnerships with an initial term of between three and ten
years and with the following typical provisions: (i) the Company contributes
assets of an existing business in the designated market or contributes cash to
fund half of the initial working capital required for the hospital joint venture
to
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<PAGE> 13
commence operations; (ii) the hospital partner contributes similar assets and/or
an amount of cash equal, in the aggregate, to the fair market value of the
Company's net contribution; (iii) the Company is the managing partner for the
hospital joint venture and receives a monthly management and administrative fee;
and (iv) distributions, to the extent made, are generally made on a quarterly
basis and are consistent with each partners capital contributions. Within the
hospital joint venture's designated market, all net revenues generated by the
provision of those services for which the joint venture was formed are deemed to
be net revenues of the hospital joint venture, including revenues from sources
other than the hospital joint venture partner.
The following table lists the Company's hospital joint venture partners
and locations:
<TABLE>
<CAPTION>
HOSPITAL JOINT VENTURE PARTNER LOCATION
------------------------------ --------
<S> <C>
Baptist Medical Center (2 hospitals) Columbia, SC
Baptist Medical Center (5 hospitals) Montgomery, AL
Baptist Medical System (3 hospitals) Little Rock, AR
Baylor Health System (10 hospitals) Dallas, TX
Central Carolina Hospital Sanford, NC
Centura Health (6 hospitals) Denver, CO
Columbia/HCA (6 hospitals) Richmond, Roanoke, VA
Conway Hospital Conway, SC
East Alabama Medical Center Opelika, AL
Evergreen Community Hospital* Kirkland, WA
Fort Sanders Alliance (5 hospitals) Knoxville, TN
Frye Regional Medical Hickory, Maiden,
Center/Grace Hospital/Caldwell Memorial Morganton, NC
High Plains Baptist Hospital (2 hospitals) Amarillo, TX
Mercury Health System (2 hospitals)* Wilkes-Barre, Scranton, PA
Midlands Health Resources (12 hospitals)* Omaha, NE
Peninsula Regional Medical Center* Salisbury, MD
Piedmont Medical Center Rock Hill, SC
Spruce Pine Community Hospital Spruce Pine, NC
Tolfree Memorial Hospital West Branch, MI
Wallace Thompson Hospital Union, SC
</TABLE>
*New Joint Ventures developed in 1998
To further its strategy of aligning with hospitals and hospital
systems, the Company also has developed numerous multi-year strategic alliance
contracts. These contracts enable the Company to be a preferred provider of home
respiratory services, home infusion services and home medical equipment and
supplies for certain hospitals in selected markets.
REVENUES AND COLLECTIONS
The Company derives substantially all of its net revenues from
third-party payors, including Medicare, private insurers and Medicaid. Medicare
is a federally funded and administered health insurance program that provides
coverage for beneficiaries who require
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<PAGE> 14
certain medical services and products. Medicaid is a state administered
reimbursement program that provides reimbursement for certain medical services
and products.
The following table sets forth the percentage of the Company's net
revenues from each source indicated for the years presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Medicare ...................................................... 46% 44% 42%
Private pay, primarily private insurance ...................... 41 44 48
Medicaid ...................................................... 13 12 10
--- --- ---
Total ........................................... 100% 100% 100%
=== === ===
</TABLE>
The Omnibus Budget Reconciliation Act of 1987 ("OBRA 1987") created six
categories for home medical equipment reimbursement under the Medicare Part B
program, for which the Company qualifies. OBRA 1987 also defined whether
products would be paid for on a rental or sale basis and established fixed
monthly payment rates for oxygen service regardless of the type of service (i.e.
concentrators, liquid oxygen, etc.) as well as a 15-month rental ceiling on
certain medical equipment such as hospital beds. After 15 months of rental,
rental payments cease for HME and the Company receives a "maintenance fee" each
six months equivalent to one-month's rental. The Omnibus Budget Reconciliation
Act of 1990 ("OBRA 1990") made new changes to Medicare Part B reimbursement. The
substantive changes relating to OBRA 1990 included a national standardization of
Medicare rates for certain equipment categories, which vary slightly state by
state and further reductions in amounts paid for HME rentals.
In August 1993, Congress passed the Omnibus Budget Reconciliation Act
of 1993 ("OBRA 1993"), which included approximately $56 billion in reimbursement
reductions to the Medicare program over the following five years. The specific
reimbursement changes that became effective for fiscal 1994 related to the
recategorization of certain respiratory products, to the capped rental program,
coupled with a reduction in reimbursement rates for these same products.
In August 1997, President Clinton signed a Balanced Budget Act that
reduced the Medicare reimbursement rate for oxygen by 25% beginning January 1,
1998 and by another 5% beginning January 1, 1999. Medicare oxygen reimbursement
rates will be held steady thereafter as Consumer Price Index increases for
oxygen and durable medical equipment will not resume until the year 2003. The
reimbursement rate for certain drugs and biologicals covered under Medicare was
also reduced 5% beginning January 1, 1998. In addition, payments from parenteral
and enteral nutrition were frozen at 1995 levels through the year 2002. The
Company is one of the nation's largest providers of home oxygen services to
patients, many of whom are Medicare recipients, and is therefore significantly
adversely affected financially by this legislation. The Medicare oxygen
reimbursement reductions affect approximately 23.5% of the Company's net
revenues. The Company estimates that the Medicare Oxygen Reimbursement Reduction
decreased net revenues and pre-tax income by approximately $24.5 million in
1998.
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<PAGE> 15
Prior to 1998, the Company's significant growth in net revenues has
been accompanied by corresponding growth in net patient accounts receivable. Net
patient accounts receivable at December 31, 1998 were $94.2 million compared to
net accounts receivable of $102.4 million at December 31, 1997. The Company
attempts to minimize DSO by screening new patient cases for adequate sources of
reimbursement and by providing complete and accurate claims data to relevant
payor sources.
The table below shows the Company's DSO for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Days' sales outstanding.................... 93 days 88 days 92 days
</TABLE>
The increase in DSO and net patient receivables between 1997 and 1998
is primarily attributable to disruptions in collections as a result of the
consolidation of billing centers and changes in certain billing procedures
continuing from the Restructuring. Billing center efficiencies have also been
adversely affected by personnel turnover and previously instituted cost
reduction plans.
Because of these factors, which caused the increase in DSO in 1998, a
non-recurring charge of $16.0 million related to accounts receivable was
recorded in the third quarter of 1998. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
The decrease in DSO between 1996 and 1997 was primarily attributable to
the additional accounts receivable reserves created in September, 1997 for
restructured centers.
SALES AND MARKETING
Sales. During 1998, the Company focused its selling efforts primarily
on physicians and other high-volume referral sources in an effort to increase
its respiratory rental and sales business. It also significantly increased its
investment in selling resources by hiring, on a net basis, 67 new account
executives by year-end for a total of 176. The Company intends to continue in
1999 focusing its selling efforts in respiratory, but intends to broaden its
sales efforts to include other profitable products and services such as enteral
nutrition, HME rental and select infusion therapy. General managers will be
expected to take a more active role in selling in 1999, and the promotion of the
new TEAMS (Together Everyone Achieves More Sales) strategy is designed to
involve all field employees in selling activities.
Managed Care Sales. The Company takes a selective approach to managed
care contracts utilizing its local operating and market strengths supplemented
by area and corporate managed care expertise. Target selling and negotiation
with local and regional managed care organizations are performed by general
managers, area vice presidents and area sales managers. Account executives do
not participate in contract negotiations with managed care payors.
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<PAGE> 16
During the last half of 1998, the Company de-emphasized contracting
activity with new managed care accounts and exited several existing lower margin
contracts. The 1999 sales strategy includes a renewed focus on contract
development in select areas as well as a focused effort to maximize revenues
from existing contracts through improved provider relations and pull-through
selling.
Hospital Joint Ventures. The Company has a senior level, experienced
operating team to lead its efforts to manage and operate all hospital joint
ventures. The team consists of several former key operations managers, providing
it significant depth in leadership and experience. The Company does not intend
to pursue the development of new joint ventures in 1999. It will focus its
efforts on improving operating efficiencies and increasing revenues of existing
joint ventures and strategic alliances. See "Business - Hospital Joint Ventures
and Strategic Alliances."
Corporate Marketing Support. The Company's corporate marketing
department provides product and services planning and development and marketing
communications, and assistance in public and community relations for the
Company's centers. The Company has primarily expanded services by marketing
existing services as branded products, such as the Company's Resource(TM)
Respiratory Services, AerMeds(TM) and EnterCare(TM) programs. All marketing
programs introduced by the corporate marketing department are designed to meet
the needs of the Company's traditional referral sources as well as managed care
organizations and integrated health care delivery networks.
COMPETITION
The home health care industry is still consolidating but remains highly
fragmented and competition varies significantly from market to market. In the
small and mid-size markets in which the Company primarily operates, the majority
of its competition comes from local independent operators or hospital-based
facilities, whose primary competitive advantage is market familiarity. In the
larger markets, regional and national providers account for a significant
portion of competition. In addition, there are still relatively few barriers to
entry in the local markets served by the Company, and it may encounter
substantial competition from new market entrants. Management believes that the
competitive factors most important in the Company's lines of business are
quality of care and service, reputation with referring sources, ease of doing
business with the provider, ability to develop and to maintain relationships
with referral sources, competitive prices, and the range of services offered.
Third party payors and their case managers actively monitor and direct
the care delivered to their beneficiaries. Accordingly, relationships with such
payors and their case managers and inclusion within preferred provider and other
networks of approved or accredited providers has become a prerequisite, in many
cases, to the Company's ability to serve many of the patients treated by it.
Similarly, the ability of the Company and its competitors to align themselves
with other health care service providers may increase in importance as managed
care providers and provider networks seek out providers who offer a broad range
of services and geographic coverage.
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<PAGE> 17
BRANCH LOCATIONS
Following is a list of the Company's 313 home health care centers as of
December 31, 1998.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ALABAMA FLORIDA KENTUCKY Warrensburg OHIO SOUTH CAROLINA Temple
------- ------- -------- ---- -------------- Texarkana
Alexander City 1 Crawfordville Bowling Green NEBRASKA Bryan Columbia 1 Tyler
Andalusia Crystal River Danville -------- Cambridge Conway 1 Victoria
Auburn Daytona Beach Jackson Beatrice 1 Chillicothe Florence Waco
Birmingham Ft. Lauderdale Lexington Hastings 1 Cincinnati Greenville
Dothan Ft. Myers London Lincoln 1 Dayton N. Charleston VIRGINIA
Fayette Ft. Walton Beach Louisville Norfolk 1 Mansfield Rock Hill 1 --------
Florence Gainesville Paducah Omaha 1 Maumee Union 1 Charlottesville
Foley Jacksonville Pineville/ Newark Chesapeake
Huntsville Leesburg Middlesboro NEVADA Springfield TENNESSEE Farmville 1
Mobile Longwood/Orlando Somerset ------- Twinsburg ---------- Fishersville
Montgomery 1 Marianna Whitley City Las Vegas Worthington Ashland City Harrisonburg
Russellville Panama City Zanesville Chattanooga Onley 1
Sylacauga 1 Pensacola LOUISIANA NEW JERSEY Clarksville Richmond 1
Tuscaloosa Port St. Lucie --------- ---------- OKLAHOMA Cookeville Roanoke/Salem 1
Rockledge Bogalusa Cedar Grove -------- Dayton Winchester
ARIZONA St. Augustine Hammond Flemington Antlers Dickson
------- Tallahassee (2) Slidell Bartlesville Erin WASHINGTON
Bullhead City Tampa NEW MEXICO Claremore Jackson ----------
Globe MAINE ---------- Enid Johnson City Kirkland
Lake Havasu GEORGIA ----- Alamogordo Grove Kingsport Seattle
Phoenix ------- Bangor Albuquerque Lawton Knoxville 1 Tacoma
Albany Rumford Clovis Muskogee Manchester Yakima
ARKANSAS Americus Farmington Oklahoma City Morristown 1
-------- Brunswick MARYLAND Grants Tulsa Murfreesboro WEST VIRGINIA
Batesville Camilla -------- Las Cruces Nashville -------------
Benton 1 Dublin Cumberland Roswell OREGON Oak Ridge 1 Hinton
Dardanelle Eastman Salisbury 1 ------ Oneida 1 Lewisburg
El Dorado 1 Ft. Oglethorpe NEW YORK Eugene Union City Rainelle
Ft. Smith (2) Martinez/Augusta MASSACHUSETTS -------- Medford
Harrison Savannah ------------- Albany TEXAS WISCONSIN
Hot Springs Valdosta Chelmsford Buffalo PENNSYLVANIA ----- ---------
Jonesboro (2) Waycross Geneva ------------ Amarillo 1 Eau Claire
Little Rock 1(2) MICHIGAN Hudson Brookville Austin Elkhorn
Mena ILLINOIS -------- Kingston Burnham Bay City La Crosse/Onalaska
Mtn. Home -------- Detroit Marcy Clearfield Borger 1 Madison
Newport Alsip Gaylord Oneonta Erie Brownwood Marshfield
Paragould Arlington West Branch Painted Post Everett Bryan Milwaukee
Pine Bluff Heights Poughkeepsie Harrisburg Conroe Minocqua
Rogers Mt. Vernon MINNESOTA Skaneateles Hazleton Corpus Christi Racine
Salem Peoria --------- Watertown Johnstown Dallas 1
Springdale Springfield Rochester Webster Kane Ennis
Warren Lock Haven Harlingen
IOWA MISSISSIPPI NORTH CAROLINA McKees Rocks (2) Hereford
COLORADO ---- ----------- -------------- Mt. Pleasant Houston
-------- Cedar Rapids Tupelo Asheboro Philipsburg Irving 1
Cortez Clarinda 1 Asheville 1 Pottsville Lake Jackson
Denver 1 Coralville MISSOURI Charlotte Scranton Laredo
Durango Davenport -------- Hickory 1 State College Longview
Pagosa Springs Decorah Cameron Kannapolis Titusville Lubbock
Des Moines Cape Girardeau Maiden 1 Trevose/Philadelphia Lufkin
CONNECTICUT Dubuque Columbia (2) Marion 1 Warren McAllen
----------- Marshalltown Festus Morganton 1 Waynesboro Mount Pleasant
Brookfield Mason City Florissant Newland Wilkes-Barre Nacogdoches
New Britain Ottumwa Hannibal Salisbury York Pampa 1
Waterbury Sioux City Ironton Sanford 1 Paris
Waterloo Joplin Spruce Pine 1 RHODE ISLAND Plainview
DELAWARE Kansas City Sylva ------------ San Angelo
-------- KANSAS Kirksville Wadesboro East Providence San Antonio
Dover ------ Mountain Grove Whiteville Johnston
Newark Pittsburg Osage Beach Winston-Salem
Wilmington Potosi
Rolla
Springfield (2)
St. Louis (2)
St. Robert
</TABLE>
- ----------------------------------
1 Owned by a joint venture.
17
<PAGE> 18
SUPPLIES AND EQUIPMENT
The Company purchases home medical equipment, prescription drugs,
solutions and other materials and products required in connection with the
Company's business from select suppliers. The Company has not experienced, and
management does not anticipate that the Company will experience, any significant
difficulty in purchasing equipment or supplies or in leasing equipment from
current suppliers. In the event that such suppliers are unable or fail to sell
supplies or lease equipment to the Company, management believes that other
suppliers are available to meet the Company's needs at comparable prices.
INSURANCE
The Company's professional liability policies are on an occurrence
basis and are renewable annually with per claim coverage limits of up to
$1,000,000 per occurrence and $3,000,000 in the aggregate. The Company maintains
a commercial general liability policy which includes product liability coverage
on the medical equipment that it sells or rents with per claim coverage limits
of up to $1,000,000 per occurrence with a $1,000,000 product liability annual
aggregate and a $2,000,000 general liability annual aggregate. The Company also
maintains excess liability coverage with limits of $50,000,000 per occurrence
and $50,000,000 in the aggregate. While management believes the manufacturers of
the equipment it sells or rents currently maintain their own insurance, and in
many cases the Company has received evidence of such coverage and has been added
by endorsement as additional insured, there can be no assurance that such
manufacturers will continue to do so, that such insurance will be adequate or
available to protect the Company, or that the Company will not have liability
independent of that of such manufacturers and/or their insurance coverage. There
can be no assurance that any of the Company's insurance will be sufficient to
cover any judgments, settlements or cost relating to any pending or future legal
proceedings or that any such insurance will be available to the Company in the
future on satisfactory terms, if at all. If the insurance carried by the Company
is not sufficient to cover any judgments, settlements or cost relating to
pending or future legal proceedings, the Company's business and financial
condition could be materially adversely affected.
EMPLOYEES
At December 31, 1998, the Company employed approximately 3,822
full-time, 320 part-time and 624 PRN (staff used on an "as needed" basis only)
individuals. Of these individuals, approximately 143 were employed at the
corporate Support Center in Brentwood, Tennessee. During 1998, the Company
experienced abnormally high turnover rates. Management believes this was
primarily attributable to the wage and salary policies instituted as a part of
the Restructuring. Management believes that the Company's employee relations
have been stabilized due to a relaxing of the policies in force earlier in 1998.
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<PAGE> 19
TRADEMARKS
The Company owns and uses a variety of marks, including American
HomePatient, AerMeds(R), EnterCare(TM), Resource(TM) and Extracare, which have
either been registered at the federal or state level or are being used pursuant
to common law rights.
GOVERNMENT REGULATION
The Company, as a participant in the healthcare industry, is subject to
extensive federal, state and local regulation. In addition to the federal and
state anti-kickback and self-referral laws applicable to all of the Company's
operations (discussed more fully below), the operations of the Company's home
health care centers are subject to federal laws covering the repackaging and
dispensing of drugs (including oxygen) and regulating interstate motor-carrier
transportation. Such centers also are subject to state laws (most notably
licensing and controlled substances registration) governing pharmacies, nursing
services and certain types of home health agency activities. Additionally,
certain of the Company's employees are subject to state laws and regulations
governing the professional practice of respiratory therapy, pharmacy and
nursing. Recently, federal government has increased access to information about
individuals and other healthcare providers who have been sanctioned or excluded
from participation in government reimbursement programs. Information about such
providers is now readily available on the Internet, and all healthcare
providers, including the Company, are held responsible for carefully screening
entities and individuals they employ or do business with, to avoid contracting
with an excluded provider.
The Company's operations are also subject to a series of laws and
regulations dating back to the Omnibus Budget Reconciliation Act of 1987 ("OBRA
1987") which apply to the Company's operation. Periodic changes have occurred
from time to time since the 1987 Act including reimbursement reduction and
changes to payment rules.
As a provider of services under the federal reimbursement programs such
as Medicare, Medicaid and CHAMPUS, the Company is subject to the anti-kickback
statute, also known as the "fraud and abuse law." This law prohibits any bribe,
kickback, rebate or remuneration of any kind in return for, or as an inducement
for, the referral of patients for government-reimbursed healthcare services. The
Company may also be affected by the federal physician self-referral prohibition,
known as the "Stark" law, which, with certain exceptions, prohibits physicians
from referring patients to entities in which they have a financial interest.
Many states in which the Company operates have adopted similar self-referral
laws, as well as laws that prohibit certain direct or indirect payments or
fee-splitting arrangements between health care providers, under the theory that
such arrangements are designed to induce or to encourage the referral of
patients to a particular provider. In many states, these laws apply to services
reimbursed by all payor sources.
The Company regularly reviews and updates its policies and procedures
in an effort to comply with applicable laws and regulations. The Company must
follow strict requirements with paperwork and billing. As required by law, it is
Company policy that certain service charges (as
19
<PAGE> 20
defined by Medicare) falling under Medicare Part B are confirmed with a
Certificate for Medical Necessity ("CMN") signed by a physician. In January,
1999, the Office of Inspector General of the U.S. Department of Health and Human
Services ("OIG") published a draft Model Compliance Plan for the Durable Medical
Equipment, Prosthetics, Orthotics and Supply Industry. The OIG has stressed the
importance for all health care providers to have an effective compliance plan,
and the Company is currently reviewing its compliance program with legal counsel
and intends to modify it as appropriate to meet the elements of the OIG's Model
Plan for the industry.
In recent years, various state and federal regulatory agencies have
stepped up investigative and enforcement activities with respect to the health
care industry, and many health care providers, including durable medical
equipment ("DME") suppliers, have received subpoenas and other requests for
information in connection with such activities. On February 12, 1998, a subpoena
from the OIG was served on the Company at its Pineville, Kentucky center in
connection with an investigation relating to possible improper claims for
payment from Medicare. Since that time the U.S. Department of Justice has begun
examining issues involving CMN's and loaning of equipment by the Company
nationwide. The Company has retained experienced health care counsel to
represent it in this matter and is cooperating with the investigation. The
Company's counsel has conducted meetings with governmental officials, and
governmental officials have interviewed certain company officers and employees.
The Company has responded to government requests for information and documents,
and is cooperating with the government investigators to move forward with the
investigation. Although this has not been confirmed, management believes that
the investigation was initiated as a result of a qui tam complaint filed by a
former employee of the Company under the False Claims Act.
From time to time the Company also receives notices and subpoenas from
various government agencies concerning plans to audit the Company, or requesting
information regarding certain aspects of the Company's business. The Company
cooperates with the various agencies in responding to such requests. The
government has broad authority and discretion in enforcing applicable laws and
regulations, and therefore the scope and outcome of these investigations and
inquiries cannot be predicted with certainty. The Company expects to incur
additional costs in the future, such as legal expenses in connection with all
investigations.
Health care law is an area of extensive and dynamic regulatory
oversight. Changes in laws or regulations or new interpretations of existing
laws or regulations can have a dramatic effect on permissible activities, the
relative costs associated with doing business, and the amount and availability
of reimbursement from government and other third-party payors. There can be no
assurance that federal, state or local governments will not impose additional
regulations upon the Company's activities. Such regulatory changes could
adversely affect the Company's business, making the Company unable to comply
with all regulations in the geographic areas in which it presently conducts, or
wishes to commence, business.
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<PAGE> 21
RISK FACTORS
This section summarizes certain risks, among others, that should be
considered by stockholders and prospective investors in the Company. Many of
these risks are discussed in other sections of this report.
Substantial Leverage. The Company maintains a significant amount of
long-term debt. As of December 31, 1998, the Company's consolidated indebtedness
was $323,942,000. On April 14, 1999 the Company entered into the Second
Amendment to the Bank Credit Facility. The Second Amendment waives events of
default, modifies existing financial covenants, and makes a number of other
changes to the Credit Agreement. The Second Amendment reduces the Company's
credit availability from $360 million (credit availability was temporarily
reduced to $340 million pursuant to the First Amendment) to $328.6 million and
freezes the credit availability for 30 days after the hiring of a manager
mandated by the Banks. The margins associated with the Eurodollar interest rate
and the Base Lending Rate remain in place for 18 months and then increase.
Additional increases are provided for that portion of the indebtedness in excess
of four times Adjusted EBITDA. The degree to which the Company is leveraged and
the terms contained in the Bank Credit Facility will impair the Company's
ability to finance, through its own cash flow or from additional financing, its
future operations or pursue its business strategy and could make the Company
more vulnerable to economic downturns, competitive and payor pricing pressures
and adverse changes in government regulation. There can be no assurance that
future cash flow from operations will be sufficient to cover debt obligations.
Additional sources of funds may be required and there can be no assurance the
Company will be able to obtain additional funds on acceptable terms, if at all.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -Liquidity and Capital Resources." Any significant increase in the
interest rates on these borrowings would have a material adverse effect on the
Company's liquidity, business, financial condition and results of operations.
Government Regulation. The Company is subject to extensive and
frequently changing federal, state and local regulation. In addition, new laws
and regulations are adopted periodically to regulate new and existing products
and services in the health care industry. Changes in laws or regulations or new
interpretations of existing laws or regulations can have a dramatic effect on
operating methods, costs and reimbursement amounts provided by government and
other third-party payors. Federal laws governing the Company's activities
include regulation of the repackaging and dispensing of drugs, Medicare
reimbursement and certification and certain financial relationships with
physicians and other health care providers. Although the Company intends to
comply with all applicable fraud and abuse laws, there can be no assurance that
administrative or judicial interpretation of existing laws or regulations or
enactments of new laws or regulations will not have a material adverse effect on
the Company's business. In addition, the OIG has expanded its auditing of the
health care industry in an effort better to detect and remedy fraud and abuse
and irregularities in Medicare and Medicaid billing. The Company and many other
health care providers have received subpoenas and other requests for information
concerning its billing practices and its relationships with potential referral
sources. See "Business - Government Regulation" and "Management's Discussion and
Analysis of Financial Condition
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<PAGE> 22
and Results of Operations - Generally." There can be no assurance such
activities will not have a material adverse effect on the Company's results of
operations, financial condition or prospects. The Company is subject to state
laws governing Medicaid, professional training, certificates of need, licensure,
financial relationships with physicians and the dispensing and storage of
pharmaceuticals. The facilities operated by the Company must comply with all
applicable laws, regulations and licensing standards and many of the Company's
employees must maintain licenses to provide some of the services offered by the
Company. In addition, the Balanced Budget Act of 1997 introduced several
government initiatives which are either in the planning or early implementation
stages and which, when fully implemented, could have a material adverse impact
on reimbursement for products and services provided by the Company. These
initiatives include Prospective Payment and Consolidated Billing requirements
for skilled nursing facilities and home health agencies, which do not affect the
Company directly but could affect the Company's contractual relationships with
such entities; a pilot project set to begin soon to determine the efficacy of
competitive billing for certain durable medical equipment (DME); and Medicare
and Medicaid surety bond requirements for home health agencies and DME
suppliers. There can be no assurance that federal, state or local governments
will not change existing standards or impose additional standards. Any failure
to comply with existing or future standards could have a material adverse effect
on the Company's results of operations, financial condition or prospects.
Collectibility of Accounts Receivable. The Company's days sales
outstanding increased from 88 days at December 31, 1997 to 92 days at December
31, 1998. This increase is primarily the result of disruptions in collections
associated with the consolidation of billing centers and changes in certain
billing procedures continuing from the Restructuring. Billing efficiency has
also been adversely affected by personnel turnover and previously instituted
cost reduction plans. As a result, the Company experienced an increased level of
billing delays and errors which ultimately affected the timeliness of
collections and necessitated a $16.0 million accounts receivable charge in the
third quarter of 1998. The Company has implemented three key initiatives to
improve accounts receivable performance: (i) proper staffing and training, (ii)
process redesign and standardization, and (iii) billing center specific goals
geared toward improved cash collections and reduced accounts receivable. No
assurances can be given, however, that additional charges for uncollectible
accounts receivable will not be required as a result of continuing difficulties
associated with the Company's billing activities and meeting payor documentation
requirements and claim submission deadlines.
Possible NASDAQ De-listing. On November 11, 1998, NASDAQ sent the
Company a letter noting that the Common Stock had failed to maintain a closing
bid price greater than or equal to $5.00 for the last thirty (30) consecutive
trading dates. The letter further noted that the Company's securities would be
subject to de-listing from the NASDAQ National Market System if the Company was
unable to demonstrate compliance with the minimum bid price requirement or any
other listing criteria by February 8, 1999. In response to such letter, the
Company requested a hearing before the NASDAQ Listing Qualifications Hearing
Panel (the "Panel"). The Panel stayed de-listing and granted the Company a
hearing, which took place on April 9, 1999. At such hearing, the Company
requested a temporary waiver of the bid price requirement and the public float
market value requirement in order to facilitate either continued listing on the
NASDAQ National Market System or proposed initial listing on the American Stock
Exchange. There can be no assurance,
22
<PAGE> 23
however, that NASDAQ will not de-list the Company from the NASDAQ National
Market System or that the Company will be accepted for listing on AMEX. Under
such circumstances the Company could not be admitted for listing on the NASDAQ
Small Cap Market without a waiver of certain listing requirements. If the
Company is not listed on any such market, it would instead be traded on the
NASDAQ over-the-counter market. If the Company is de-listed from the NASDAQ
National Market, is not permitted to be listed on AMEX and/or is not permitted
to be listed on the NASDAQ Small Cap Market, the liquidity of the Company's
Common Stock will likely be adversely affected and the Company's ability to
raise any necessary capital may be limited. See "Business - Material 1998
Corporate Developments."
Infrastructure. As the Company continues to refine its business model,
it may need to implement enhanced operational and financial systems and may
require additional employees and management, operational and financial
resources. There can be no assurance that the Company will successfully (i)
implement and maintain any such operational and financial systems, or (ii) apply
the human, operational and financial resources needed to manage a developing and
expanding business. Failure to implement such systems successfully and use such
resources effectively could have a material adverse effect on the Company's
results of operations, financial condition or prospects. See "Business."
Medicare Reimbursement for Oxygen Therapy and Other Services. In 1998
oxygen therapy services reimbursement from Medicare accounted for approximately
23.5% of the Company's revenues. The Balanced Budget Act of 1997, as amended,
reduced Medicare reimbursement rates for oxygen and certain oxygen equipment to
75% of their 1997 levels beginning January 1, 1998 and to 70% of their 1997
levels beginning January 1, 1999. Reimbursement for drugs and biologicals was
reduced by 5% beginning January 1, 1998. Effective January 1, 1998, payments for
parenteral and enteral nutrition ("PEN") were frozen at 1995 levels, through the
year 2002. Medicare also has the option of developing fee schedules for PEN and
home dialysis supplies and equipment, although currently there is no timetable
for the development or implementation of such fee schedules. In addition,
Consumer Price Index ("CPI") increases in Medicare reimbursement rates for home
medical equipment, including oxygen, will not resume until the year 2003, and
CPI updates for prosthetics and orthotics are limited to 1%. In March, 1998,
HCFA was granted "inherent reasonableness" authority to reduce payments for all
Medicare Part B items and services by as much as 15% without industry
consultation, publication or public comment. Therefore, the Company cannot be
certain that additional reimbursement reductions for oxygen therapy services or
other services and products provided by the Company will not occur.
Reimbursement reductions already implemented have materially adversely affected
the Company's net revenues and net income, and any such future reductions could
have a similar material adverse effect. See "Material 1998 Corporate
Developments," "Business - Revenues and Collections" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Medicare Reimbursement for Oxygen Therapy Services."
Dependence on Reimbursement by Third-Party Payors. In 1998, the
percentage of the Company's net revenues derived from Medicare, Medicaid and
private pay was 42%, 10% and 48%, respectively. The net revenues and
profitability of the Company are affected by the continuing efforts of all
payors to contain or reduce the costs of health care by lowering
23
<PAGE> 24
reimbursement rates, narrowing the scope of covered services, increasing case
management review of services and negotiating reduced contract pricing. Any
changes in reimbursement levels under Medicare, Medicaid or private pay programs
and any changes in applicable government regulations could have a material
adverse effect on the Company's net revenues and net income. Changes in the mix
of the Company's patients among Medicare, Medicaid and private pay categories
and among different types of private pay sources, may also affect the Company's
net revenues and profitability. There can be no assurance that the Company will
continue to maintain its current payor or revenue mix. Also, many payors,
including Medicare and Medicaid, are dependent upon their computer systems for
determining and paying reimbursements to the Company. If such payor's computer
systems are adversely affected by Year 2000 problems, this could have a material
adverse impact on the Company's revenue and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business - Revenues and Collections."
Role of Managed Care. As managed care assumes an increasingly
significant role in markets in which the Company operates, the Company's success
will, in part, depend on retaining and obtaining profitable managed care
contracts. There can be no assurance that the Company will retain or obtain such
managed care contracts. In addition, reimbursement rates under managed care
contracts are likely to continue experiencing downward pressure as a result of
payors' efforts to contain or reduce the costs of health care by increasing case
management review of services and negotiating reduced contract pricing.
Therefore, even if the Company is successful in retaining and obtaining managed
care contracts, unless the Company also decreases its cost for providing
services and increases higher margin services, it will experience declining
profit margins. See "Business."
Impact of Health Care Reform. The health care industry continues to
undergo dramatic changes. There can be no assurance that federal health care
legislation will not be adopted in the future. Some states are adopting health
care programs and initiatives as a replacement for Medicaid. It is also possible
that proposed federal legislation will include language which provides
incentives to further encourage Medicare recipients to shift to Medicare at-risk
managed care programs. There can be no assurance that the adoption of such
legislation or other changes in the administration or interpretation of
governmental health care programs or initiatives will not have a material
adverse effect on the Company.
Acquisitions. In the past, the Company's strategic focus was on the
acquisition of small to medium sized home health care suppliers in targeted
markets. Although the Company attempted in its acquisitions to determine the
nature and extent of any pre-existing liabilities, and generally has the right
to seek indemnification from the previous owners for acts or omissions arising
prior to the date of the acquisition, resolving issues of liability between the
parties, could involve a significant amount of time, manpower and expense on the
part of the Company. If the Company or its subsidiary were to be unsuccessful in
a claim for indemnity from a seller, the liability imposed on the Company or its
subsidiary could have a material adverse effect on the Company's financial
results and operations.
24
<PAGE> 25
No Assurance of Growth or Successful Integration of Past Acquisitions.
The Company reported a net loss of $39.0 million for the year ended December 31,
1998. No assurance can be given that the Company will achieve profitable
operations in the near term. The Company intends to expand its business
primarily through internal growth of existing operations including existing
hospital joint ventures. There can be no assurance that the Company can increase
growth in net revenues. There can also be no assurance that previously acquired
companies will be integrated successfully into the Company's operations or that
any past acquisition will not have a material adverse effect upon the Company's
results of operations, financial condition or prospects. The price of the
Company's common stock may fluctuate substantially in response to quarterly
variations in the Company's operating and financial results, announcements by
the Company or other developments affecting the Company, as well as general
economic and other external factors. See "Material 1998 Corporate Developments,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and "Business."
"Year 2000". The Company has taken a comprehensive approach to its Year
2000 remediation work. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Year 2000 Update." The Company can give no
assurance that it will not encounter unanticipated Year 2000 problems or that
third parties it does business with (including payors and vendors) will
adequately address their Year 2000 problems. The failure of third parties to
adequately address their Year 2000 issues could have a material adverse effect
on the Company's business, results of operations or financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Year 2000 Update."
Influence of Executive Officers, Directors and Principal Stockholder.
On March 31, 1999, the Company's executive officers, directors and principal
stockholder, Counsel Corporation ("Counsel"), in the aggregate, beneficially
owned approximately 34% of the outstanding shares of the common stock of the
Company. As a result of such equity ownership and their positions in the
Company, if the executive officers, directors and principal stockholder were to
vote all or substantially all of their shares in the same manner, they could
significantly influence the management and policies of the Company, including
the election of the Company's directors and the outcome of matters submitted to
stockholders of the Company for approval. The Company is highly dependent upon
its senior management, and competition for qualified management personnel is
intense. Recent changes in senior management may limit the Company's ability to
attract and retain qualified personnel, which in turn could adversely affect
profitability.
Competition. The home health care market is highly fragmented and
competition varies significantly from market to market. In the small and
mid-size markets in which the Company primarily operates, the majority of its
competition comes from local independent operators or hospital-based facilities,
whose primary competitive advantage is market familiarity. In the larger
markets, regional and national providers account for a significant portion of
competition. Some of the Company's present and potential competitors are
significantly larger than the Company and have, or may obtain, greater financial
and marketing resources than the Company. In addition, there are relatively few
barriers to entry in the local markets served by the Company, and it may
25
<PAGE> 26
encounter substantial competition from new market entrants. See "Business -
Competition."
Liability and Adequacy of Insurance. The provision of health care
services entails an inherent risk of liability. Certain participants in the home
health care industry may be subject to lawsuits which may involve large claims
and significant defense costs. It is expected that the Company periodically will
be subject to such suits as a result of the nature of its business. The Company
currently maintains product and professional liability insurance intended to
cover such claims in amounts which management believes are in keeping with
industry standards. There can be no assurance that the Company will be able to
obtain liability insurance coverage in the future on acceptable terms, if at
all. There can be no assurance that claims in excess of the Company's insurance
coverage or claims not covered by the Company's insurance coverage will not
arise. A successful claim against the Company in excess of the Company's
insurance coverage could have a material adverse effect upon the results of
operations, financial condition or prospects of the Company. Claims against the
Company, regardless of their merit or eventual outcome, may also have a material
adverse effect upon the Company's ability to attract patients or to expand its
business. See "Business - Insurance."
ITEM 2. PROPERTIES
The Company's corporate headquarters occupy approximately 31,000 square
feet leased in the Parklane Building, Maryland Farms, Brentwood, Tennessee. The
lease has a base monthly rent of $39,000 and expires in January 2003 unless the
Company exercises its option to extend the term an additional 5 years.
The Company owns its centers in Tallahassee, Florida, Waterloo, Iowa,
North Charleston, South Carolina and a warehouse in Harrisburg, Pennsylvania
which consist of approximately 15,000, 35,000, 10,000 and 43,000 square feet,
respectively and owns a 50% interest in its center in Little Rock, Arkansas,
which consists of approximately 15,000 square feet. The Company leases the
operating space required for its remaining home health care centers. A typical
center occupies between 2,000 and 6,000 square feet and generally combines
showroom, office and warehouse space, with approximately two-thirds of the
square footage consisting of warehouse space. Lease terms on most of the leased
centers range from three to five years. Management believes that the Company's
owned and leased properties are adequate for its present needs and that suitable
additional or replacement space will be available as required.
ITEM 3. LEGAL PROCEEDINGS
As with any health care provider, the Company is engaged in routine
litigation incidental to its business and which is not material to the Company.
Additionally, in recent years, the health care industry has come under
increasing scrutiny from various state and federal regulatory agencies, which
are stepping up investigative and enforcement activities. The Company is
currently the subject of an investigation by the Justice Department and OIG. The
government has
26
<PAGE> 27
broad authority and discretion in enforcing applicable laws and regulations, and
therefore the timing, scope and outcome of these investigations and inquiries
cannot be predicted with certainty. The Company expects to incur additional
costs in the future, such as legal expenses in connection with all
investigations. For a description of these activities, see "Business -
Governmental Regulation."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
27
<PAGE> 28
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The common stock of the Company is currently traded on the Nasdaq
National Market System under the designation "AHOM". The following table sets
forth representative bid quotations of the common stock for each quarter of
calendar years 1997 and 1998 as provided by NASDAQ. The following bid quotations
reflect interdealer prices without retail mark-ups, mark-downs or commissions,
and may not necessarily represent actual transactions. The Company may be
de-listed from the NASDAQ National Market System. See "Business - Material 1998
Corporate Developments" and "Business - Risk Factors - Possible NASDAQ
De-listing."
<TABLE>
<CAPTION>
BID QUOTATIONS
--------------
FISCAL PERIOD HIGH LOW
------------- ----- ---
<S> <C> <C>
1997 1st Quarter $28.25 $20.75
1997 2nd Quarter $25.25 $16.75
1997 3rd Quarter $25.50 $16.25
1997 4th Quarter $27.00 $18.50
1998 1st Quarter $26.87 $17.44
1998 2nd Quarter $21.13 $15.50
1998 3rd Quarter $19.50 $ 1.44
1998 4th Quarter $ 3.50 $ 1.63
</TABLE>
On March 31, 1999, there were 1,305 holders of record of the Common
Stock and the closing bid quotation for the Common Stock was $1.3125 per share,
as reported by NASDAQ. Most of the Company's stockholders have their holdings in
the street name of their broker/dealer.
The Company has not paid cash dividends on its Common Stock and
anticipates that, for the foreseeable future, any earnings will be retained for
use in its business and no cash dividends will be paid. The Company is
prohibited from declaring and paying dividends under its Credit Agreement. See
- - "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
Pursuant to a Stock Purchase Warrant issued to Age Wave, Inc. in 1993,
Age Wave, Inc. purchased 12,000 shares of the Company's Common Stock for $8.33
per share in August 1998. The Common Stock was issued to Age Wave, Inc. in
reliance upon Section 4(2) of the Securities Act of 1933, as amended, and upon
Regulation D. These statutory and regulatory exemptions were available because
less than $5,000,000 of the Company's Common Stock was issued and no general
solicitation or advertising was made with respect thereto.
28
<PAGE> 29
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
FINANCIAL STATEMENTS PRESENTED AND DERIVATION OF INFORMATION
The following selected financial data below is derived from the audited
financial statements of the Company and should be read in conjunction with those
statements, including the related notes thereto. The addition of new operations
through acquisitions materially affects the comparability of the financial data
presented. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues $ 90,185 $162,371 $268,348 $387,277 $403,868
Cost of sales and related services, excluding
depreciation and amortization expense 17,445 34,031 58,575 97,418 98,166
Operating expenses 47,081 82,608 138,213 216,532 235,269
General and administrative expenses 7,829 11,704 14,664 15,953 22,262
Depreciation and amortization expense 6,656 14,081 23,845 33,736 39,653
Interest expense 2,132 4,829 8,294 16,494 24,249
Restructuring -- -- -- 33,829 (3,614)
Goodwill impairment -- -- -- 8,165 37,805
-------- -------- -------- -------- --------
Total expenses 81,143 147,253 243,591 422,127 453,790
-------- -------- -------- -------- --------
Income (Loss) before taxes 9,042 15,118 24,757 (34,850) (49,922)
Provision (Benefit) for income taxes 3,476 6,029 9,556 (8,942) (10,944)
-------- -------- -------- -------- --------
Net Income (Loss) $ 5,566 $ 9,089 $ 15,201 $(25,908) $(38,978)
======== ======== ======== ======== ========
Net Income (Loss) per share - basic $ 0.68 $ 0.86 $ 1.13 $ (1.75) $ (2.60)
======== ======== ======== ======== ========
Net Income (Loss) per share - diluted $ 0.67 $ 0.84 $ 1.10 $ (1.75) $ (2.60)
======== ======== ======== ======== ========
Weighted average shares outstanding - basic 8,131,000 10,550,000 13,473,000 14,839,000 14,986,000
Weighted average shares outstanding - diluted 8,344,000 10,838,000 13,841,000 14,839,000 14,986,000
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
1994 1995 1996 1997 1998
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 20,848 $ 46,272 $ 84,012 $112,721 $ 99,115
Total assets 110,965 232,516 395,611 558,366 531,892
Total debt and capital leases, including current portion 35,908 93,606 149,703 301,324 323,942
Shareholders' equity 58,096 119,431 215,642 194,089 156,499
</TABLE>
29
<PAGE> 30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS ANNUAL REPORT ON FORM 10-K INCLUDES FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
INCLUDING, WITHOUT LIMITATION, STATEMENTS CONTAINING THE WORDS "BELIEVES,"
"ANTICIPATES," "INTENDS," "EXPECTS," "ESTIMATES," "MAY," "WILL", "LIKELY" AND
WORDS OF SIMILAR IMPORT. SUCH STATEMENTS INCLUDE STATEMENTS CONCERNING THE
COMPANY'S YEAR 2000 EFFORTS, BUSINESS STRATEGY, OPERATIONS, COST SAVINGS
INITIATIVES, FUTURE COMPLIANCE WITH ACCOUNTING STANDARDS, INDUSTRY, ECONOMIC
PERFORMANCE, FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES, EXISTING
GOVERNMENT REGULATIONS AND CHANGES IN, OR THE FAILURE TO COMPLY WITH,
GOVERNMENTAL REGULATIONS, FUTURE COMPLIANCE WITH BANK CREDIT FACILITY COVENANTS,
LEGISLATIVE PROPOSALS FOR HEALTHCARE REFORM, THE ABILITY TO ENTER INTO JOINT
VENTURES, STRATEGIC ALLIANCES AND ARRANGEMENTS WITH MANAGED CARE PROVIDERS ON AN
ACCEPTABLE BASIS, AND CHANGES IN REIMBURSEMENT POLICIES. SUCH STATEMENTS ARE
SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS
BECAUSE OF A NUMBER OF FACTORS, INCLUDING THOSE IDENTIFIED IN THE "RISK FACTORS"
SECTION AND ELSEWHERE IN THIS ANNUAL REPORT ON FORM 10-K. THE FORWARD-LOOKING
STATEMENTS ARE MADE AS OF THE DATE OF THIS ANNUAL REPORT ON FORM 10-K AND THE
COMPANY DOES NOT UNDERTAKE TO UPDATE THE FORWARD-LOOKING STATEMENTS OR TO UPDATE
THE REASONS THAT ACTUAL RESULTS COULD DIFFER FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS.
STATEMENTS CONTAINED IN THIS ANNUAL REPORT ON FORM 10-K INVOLVING THE
COMPANY'S YEAR 2000 EFFORTS CONSTITUTE "YEAR 2000 READINESS DISCLOSURE" UNDER
THE YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT AND ARE SUBJECT TO THE
PROTECTIONS OF SUCH ACT.
The Company provides home healthcare services and products to patients
through its 313 centers in 38 states. These services and products are primarily
paid for by Medicare, Medicaid and other third party payors.
The Company has three principal services or product lines: home
respiratory services, home infusion services and home medical equipment and
supplies. Home respiratory services include oxygen systems, nebulizers, aerosol
medications and home ventilators and are provided primarily to patients with
severe and chronic pulmonary diseases. Home infusion services are used to
administer nutrients, antibiotics and other medications to patients with medical
conditions such as neurological impairments, infectious diseases or cancer. The
Company also sells and rents a variety of home medical equipment and supplies,
including wheelchairs, hospital beds and
30
<PAGE> 31
ambulatory aids. The following table sets forth the percentage of the Company's
net revenues represented by each line of business for the periods presented:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Home respiratory therapy services 49% 47% 48%
Home infusion therapy services 18 18 22
Home medical equipment and medical supplies 33 35 30
--- --- ---
Total 100% 100% 100%
=== === ===
</TABLE>
Prior to 1998, the Company had significantly expanded its operations
through a combination of acquisitions of home health care companies, development
of joint ventures and strategic alliances with health care delivery systems as
well as internal growth. From 1996 through 1998, the Company acquired 72 home
health care companies (40, 28 and 4 companies in 1996, 1997, and 1998
respectively). In 1998, the Company purposefully slowed its acquisition activity
compared to prior years to focus on existing operations. As amended, the
Company's Credit Agreement now requires bank consent for acquisitions.
The Company's strategy for 1999 is to maintain a diversified offering
of home health care services reflective of its current business mix. Respiratory
services will remain a primary focus with increased emphasis on home medical
equipment rental, enteral nutrition products and services and select infusion
therapies.
The Company also continues to implement a variety of initiatives
designed to lower its costs. Activities underway for 1999 include: (i)
elimination of 41 positions at the Company's corporate Support Center and
approximately 180 positions in the field during the first quarter of 1999; (ii)
reduction of expenses related to these positions; (iii) reduction of other
general and administrative expenses and field expenses such as travel and
entertainment, marketing and advertising and consulting; (iv) greater control of
capital expenditures at all levels; and (v) reduction of the Company's bad debt
expense.
MEDICARE REIMBURSEMENT FOR OXYGEN THERAPY SERVICES
The Medicare reimbursement rate for oxygen related services was reduced
by 25% beginning January 1, 1998 as a result of the Balanced Budget Act of 1997
and an additional reduction of 5% will be in effect beginning January 1, 1999.
The reimbursement rate for certain drugs and biologicals covered under Medicare
was also reduced by 5% beginning January 1, 1998. In addition, Consumer Price
Index increases in Medicare reimbursement rates for home medical equipment,
including oxygen, will not resume until the year 2003. American HomePatient is
one of the nation's largest providers of home oxygen services to patients, many
of whom are Medicare recipients, and is therefore significantly affected by this
legislation. Medicare oxygen reimbursements account for approximately 23.5
percent of the Company's revenues. The Company estimates that the Medicare
Oxygen Reimbursement Reduction decreased net revenue and pre-tax income by
approximately $24.5 million during 1998. Effective January 1, 1998, payments for
parenteral and enteral nutrition ("PEN") were frozen at 1995 levels, through the
31
<PAGE> 32
year 2002. Medicare also has the option of developing fee schedules for PEN and
home dialysis supplies and equipment, although currently there is no timetable
for the development or implementation of such fee schedules. In March, 1998,
HCFA was granted "inherent reasonableness" authority to reduce payments for all
Medicare Part B items and services by as much as 15% without industry
consultation, publication or public comment. Therefore, the Company cannot be
certain that additional reimbursement reductions for oxygen therapy services or
other services and products provided by the Company will not occur. See
"Business - Risk Factors - Medicare Reimbursement for Oxygen Therapy and Other
Services."
NON-RECURRING AND UNUSUAL CHARGES
1997
On September 25, 1997, the Company announced initiatives to respond
aggressively to planned Medicare reimbursement reductions by fundamentally
restructuring the Company for long-term growth. More than 100 of the Company's
total operating and billing locations were affected by the Restructuring. The
specific actions resulted in pre-tax accounting charges in the third quarter of
1997 of $65.0 million due to the closure, consolidation, or scaling back of
approximately 20 percent of the Company's total operating centers, the closure
or scaling back of nine billing centers, the elimination of four operating
regions, the scaling back or elimination of marginal products and services at
numerous locations, and the related termination of approximately 400 employees
in the affected operating and billing centers. These activities were
substantially completed by June 1998.
In addition to the $65.0 million charge, the Company also recorded $2.0
million in certain unusual non-recurring charges in the third quarter of 1997
related to physical inventory adjustments and the recording of additional
franchise taxes.
1998
The Company recorded non-recurring pre-tax accounting charges in the
third quarter of 1998 in the amount of $15.2 million due to: (i) non-recurring
expenses of approximately $3.2 million related to executive officer transition,
abandoned acquisitions and a provision for adverse settlements related to
accounting disputes with certain sellers of acquired businesses; and (ii) a
pre-tax charge of approximately $16.0 million against accounts receivable
resulting from the Company's Restructuring and disruption in collections due to
the consolidation of billing centers and changes in certain billing procedures;
offset by (iii) the reversal into income of approximately $4.0 million of excess
1997 Restructuring reserves.
In the fourth quarter of 1998, goodwill was written-down by $37.8
million as required under SFAS 121. This write-down was based upon management's
estimate of the negative impact of the Company's inability to replace the
decreased cash flows associated with the Medicare oxygen reimbursement
reductions to the extent originally planned, as well as certain business
strategies implemented in the latter half of 1998 which decreased revenue and
increased
32
<PAGE> 33
operating expenses (See - "Results of Operations" for additional discussion).
Also, in the fourth quarter of 1998, the Company expensed $1.3 million in
severance-related costs associated with former senior executives of the Company.
(For additional discussion on the 1997 and 1998 non-recurring charges, see
Footnote 4 of the Notes to the Consolidated Financial Statements).
The total accounting charges discussed above were recorded in the 1997
and 1998 consolidated statements of operations in the following classifications:
<TABLE>
<CAPTION>
1997 1998
----------- ------------
<S> <C> <C>
Cost of sales $ 6,255,000 $ (386,000)
Operating expenses 18,751,000 14,500,000
General & administrative expenses -0- 6,041,000
Restructuring charge 33,829,000 (3,614,000)
Goodwill impairments 8,165,000 37,805,000
----------- ------------
$67,000,000 $ 54,346,000
=========== ============
</TABLE>
RESULTS OF OPERATIONS
The Company's net revenues from continuing operations have grown at an
average compound annual growth rate of approximately 23% during the period from
January 1, 1996 through December 31, 1998. In addition, since 1991, the Company
has expanded its operations from 24 home health care centers in four states to
313 home health care centers in 38 states. This growth has been achieved through
a combination of acquisitions, start-up operations, hospital joint ventures and
strategic alliances and internal growth. The Company acquired 40, 28 and 4
companies with 101, 98, and 18 centers during 1996, 1997 and 1998, respectively.
Throughout this expansion, the Company's earnings before interest, taxes,
depreciation and amortization ("EBITDA"), before non-recurring charges, has
ranged from 21% to 17% of revenues.
The Company's operating results for 1998, excluding the impact of the
non-recurring charges, are significantly lower than historical trends due to
three factors. First, the Company experienced lower than expected revenue in the
latter half of 1998 attributable to a slower improvement in sales force
effectiveness particularly from the account executives hired since January 1998;
a de-emphasis of non-core, low margin products in favor of more profitable
business lines; and a more stringent criteria for acquisition candidates which
slowed the Company's growth through acquisition. Second, the Company's operating
and general and administrative expenses were higher than previously anticipated
due primarily to increased wages, labor and payroll costs. Third, accounts
receivable have been adversely affected by process problems at the operating and
billing center levels and a tougher payor environment which resulted in higher
than anticipated bad debt expense. Further, the Company's implementation of
process improvements in the billing and collection functions has been slower
than anticipated.
The Company's current financial situation is defined by two pivotal
events: significant reductions in Medicare oxygen reimbursement which began
January 1, 1998 and the Company's
33
<PAGE> 34
ongoing Restructuring which began in the latter part of 1997. In response to
reimbursement reductions, the Company announced in September 1997 its intent to
reshape its business model. The necessary changes to achieve this business model
were not accomplished as rapidly as the Company had hoped. In addition, the
Company believes the disruption of these changes has had more of an adverse
impact on the organization as a whole than originally anticipated.
During 1998 in order to drive internal revenue growth, the Company
embarked on a strategy to increase local market share by focusing primarily on
increasing respiratory revenues in existing centers. Concurrently, the Company
determined that certain "non-core", lower margin products and services should be
eliminated during the year. To accelerate the development of the Company's
respiratory selling efforts, it increased its sales force by 67 account
executives, on a net basis, by year-end. It also exited certain contracts and
businesses perceived to be lower margin during the third and fourth quarters of
1998. The result of these factors working concurrently resulted in a substantial
decrease in revenues and increased expenses during these quarters.
Recognizing the situation, the new management of the Company ceased the
exit of businesses and contracts by mid-December. A new strategy for 1999 was
developed to restore the Company's revenues and decrease expenses. Key points of
this strategy are:
1. To stabilize and increase profitable revenues - respiratory
will remain a primary focus of the Company. However, it will
broaden its offering and sales focus in 1999 to include other
profitable business units such as enteral nutrition, HME
rental, and select infusion therapy services. The Company will
also re-direct its efforts to increase revenues for certain
managed care contracts - both new and existing.
2. To decrease and control operating expenses - the Company has
already taken aggressive steps to decrease operating and
general and administrative expenses. Through the first quarter
of 1999, the Company has eliminated 41 positions from its
corporate Support Center in Brentwood, Tennessee and
approximately 180 positions in the field.
3. To decrease DSO and bad debt - the Company has three key
initiatives in place to improve accounts receivable
performance: (i) proper staffing and training; (ii) process
redesign and standardization; and (iii) billing center
specific goals geared toward improved cash collections and
reduced accounts receivable.
The Company does not anticipate renewing its acquisition activities nor
its joint venture development during 1999 as it focuses its efforts on existing
operations.
The Company reports its net revenues as follows: (i) sales and related
services; (ii) rentals and other; and (iii) earnings from joint ventures. Sales
and related services revenues are derived from the provision of infusion
therapies, the sale of home health care equipment and supplies, the sale of
aerosol and respiratory therapy equipment and supplies and services related to
the delivery
34
<PAGE> 35
of these products. Rentals and other revenues are derived from the rental of
home health care equipment, enteral pumps and equipment related to the provision
of respiratory therapies. The majority of the Company's hospital joint ventures
are not consolidated for financial statement reporting purposes. Earnings from
hospital joint ventures represent the Company's equity in earnings from
unconsolidated hospital joint ventures and management and administrative fees
for unconsolidated joint ventures. Cost of sales and related services includes
the cost of equipment, drugs and related supplies sold to patients. Operating
expenses include operating center labor costs, delivery expenses, selling costs,
occupancy costs, costs related to rentals other than depreciation, billing
center costs, provision for doubtful accounts and other operating costs. General
and administrative expenses include corporate and area management expenses and
costs.
The following table and related discussion set forth items from the
Company's consolidated statements of operations as a percentage of net revenues,
excluding the 1997 and 1998 non-recurring pre-tax charges previously discussed,
for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net revenues 100% 100% 100%
Cost of sales and related services, excluding depreciation and
amortization expense 22 24 24
Operating expenses 52 51 55
General and administrative expense 5 4 4
Depreciation and amortization expense 9 9 10
Interest expense 3 4 6
--- --- ---
Total expenses 91 92 99
--- --- ---
Income from operations before taxes 9 8 1
Provision for income taxes 3 3 0
--- --- ---
Income from operations 6 5 1
=== === ===
OTHER DATA:
EBITDA 21% 21% 17%
</TABLE>
Historically, the Company reported same-store growth. Due to the
Restructuring activity that occurred during the fourth quarter of 1997, the
Company determined that internal growth is a more accurate representation of
revenue growth than same-store growth. The Company has moved to an internal
growth calculation which still reflects the strength of operations excluding
acquired revenues.
35
<PAGE> 36
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997 -
EXCLUDING NON-RECURRING CHARGES
The operations of acquired centers are included in the operations of
the Company from the effective date of each acquisition. Because of the
substantial acquisition activity, the comparison of the results of operations
between 1998 and 1997 is materially impacted by the operations of these acquired
businesses.
The following discussion excludes the non-recurring charges recorded in
1998 and 1997. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Non-recurring and Unusual Charges" and "Material
1998 Corporate Developments - Medicare Oxygen Reimbursement Reductions and
Related Restructuring" and "1998 Non-recurring and Unusual Charges."
NET REVENUES. Net revenues increased from $387.3 million in 1997 to
$403.9 million in 1998, an increase of $16.6 million, or 4%. The Company
estimates the Medicare oxygen reimbursement reductions decreased net revenue in
1998 by approximately $24.5 million. Excluding the impact of the Medicare oxygen
reimbursement reductions, net revenues would have increased from $387.3 million
in 1997 to approximately $428.6 million in 1998, an increase of approximately
$41.3 million, or 11%. The Company estimates that $40.4 million of this increase
is attributable to the acquired businesses net of dissolutions. The remainder of
the increase is primarily attributable to internal revenue growth generated
through the Company's sales and marketing efforts. Internal revenue growth,
excluding the impact of the Medicare oxygen reimbursement reductions, was 3% for
1998 and was adversely impacted in the latter half of 1998 by the strategic
factors discussed earlier.
36
<PAGE> 37
The following is a discussion of the components of net revenues:
Sales and Related Services Revenues. Sales and related
services revenues increased from $180.2 million in 1997 to $192.9
million in 1998, an increase of $12.7 million, or 7%. This increase is
primarily attributable to the acquisition of home health care
businesses and internal revenue growth, offset by lower sales of low
margin products and lost revenue of branches closed or scaled back in
the Restructuring.
Rentals and Other Revenues. Rentals and other revenues
increased from $200.3 million in 1997 to $206.5 million in 1998, an
increase of $6.2 million, or 3%. This increase is primarily
attributable to the acquisition of home health care businesses and
internal revenue growth net of the impact of the Medicare oxygen
reimbursement reductions and lost revenue of branches closed or scaled
back in the Restructuring.
Earnings from Joint Ventures. Earnings from joint ventures
decreased from $6.9 million in 1997 to $4.5 million in 1998, a decrease
of $2.4 million, or 35%. This decrease was primarily attributable to
the impact of the Medicare oxygen reimbursement reductions and higher
bad debt expense at certain joint venture locations. Internal revenue
growth of joint ventures was 19% in 1998, increasing the Company's
total internal revenue growth rate by 3%.
COST OF SALES AND RELATED SERVICES. Cost of sales and related services
increased from $91.2 million in 1997 to $98.6 million in 1998, an increase of
$7.4 million, or 8%. This increase was primarily attributable to acquisitions.
As a percentage of sales and related services revenues, cost of sales and
related services remained constant at 51% for both 1997 and 1998.
OPERATING EXPENSES. Operating expenses increased from $197.8 million in
1997 to $220.8 million in 1998, an increase of $23.0 million, or 12%. Excluding
the impact of the Medicare oxygen reimbursement reductions, operating expenses
as a percentage of net revenue would have been 52% in 1998. This percentage
increase is attributable to higher bad debt expense and to higher personnel
expenses in 1998 compared to 1997. Higher personnel expenses in 1998 were
primarily related to increased investments in selling resources and accounts
receivable management.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased from $16.0 million in 1997 to $17.6 million in 1998, an
increase of $1.6 million, or 10%. As a percentage of net revenues, general and
administrative expenses remained constant at 4% for both 1997 and 1998.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased from $33.7 million in 1997 to $39.7 million in 1998, an
increase of $6.0 million. This increase was primarily attributable to
depreciation expense and the amortization of goodwill recorded in connection
with acquisitions.
37
<PAGE> 38
INTEREST EXPENSE. Interest expense increased from $16.5 million in 1997
to $24.2 million in 1998, an increase of $7.7 million. This increase was
attributable to higher interest rates on borrowings and to additional interest
expense on increased borrowings under the Bank Credit Facility to fund
acquisitions of home healthcare business during 1997 and 1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 -
EXCLUDING NON-RECURRING CHARGES
The operations of acquired centers are included in the operations of
the Company from the effective date of each acquisition. Because of the
substantial acquisition activity, the comparison of the results of operations
between 1997 and 1996 is materially impacted by the operations of these acquired
businesses.
The following discussion excludes the non-recurring charges taken in
1997. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Non-recurring and Unusual Charges" and "Material 1998
Corporate Developments - Medicare Oxygen Reimbursement Reductions and Related
Restructuring" and "1998 Non-recurring and Unusual Charges."
NET REVENUES. Net revenues increased from $268.3 million in 1996 to
$387.3 million in 1997, an increase of $119.0 million, or 44%. The Company
estimates that $94.0 million of this increase in net revenues is attributable to
the acquired businesses. The remainder of the increase is primarily attributable
to internal revenue growth generated through the Company's sales and marketing
efforts. Internal revenue growth, including net revenues of hospital joint
ventures managed by the Company and accounted for under the equity method, was
13% for 1997.
The following is a discussion of the components of net revenues:
Sales and Related Services Revenues. Sales and related
services revenues increased from $119.3 million in 1996 to $180.2
million in 1997, an increase of $60.9 million, or 51%. This increase is
primarily attributable to the acquisition of home health care
businesses and internal revenue growth.
Rentals and Other Revenues. Rentals and other revenues
increased from $142.7 million in 1996 to $200.3 million in 1997, an
increase of $57.6 million, or 40%. This increase is primarily
attributable to the acquisition of home health care businesses and
internal revenue growth.
Earnings from Joint Ventures. Earnings from joint ventures
increased from $6.4 million in 1996 to $6.9 million in 1997, an
increase of $500,000, which was primarily attributable to internal
growth, acquired and newly-formed joint ventures. Internal revenue
growth of joint ventures was 23% in 1997 compared to 1996, increasing
the Company's total internal revenue growth rate by 1%.
38
<PAGE> 39
COST OF SALES AND RELATED SERVICES. Cost of sales and related services
increased from $58.6 million in 1996 to $91.2 million in 1997, an increase of
$32.6 million, or 56%. This increase was primarily attributable to acquisitions.
As a percentage of sales and related services revenues, cost of sales and
related services increased from 49% in 1996 to 51% in 1997. This percentage
increase was attributable to the change in the mix of sales and related service
revenues primarily attributable to the acquired home health care businesses.
OPERATING EXPENSES. Operating expenses increased from $138.2 million in
1996 to $197.8 million in 1997, an increase of $59.6 million, or 43%. This
increase was primarily attributable to increased costs associated with the
Company's increased net revenues. As a percentage of net revenues, operating
expenses decreased from 52% in 1996 to 51% in 1997. During the fourth quarter of
1997, operating expenses were higher than budgeted primarily due to the
reorganization of the field management structure and management's focus on
implementing the restructuring plan. The higher operating expenses were
partially offset by the improvement in bad debt expense. Bad debt expense as a
percentage of net revenue decreased from 4.3% in 1996 to 3.3% in 1997 as a
result of the Company's increased focus on accounts receivable management.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased from $14.7 million in 1996 to $16.0 million in 1997, an
increase of $1.3 million, or 9%. As a percentage of net revenues, general and
administrative expenses decreased from 5% in 1996 to 4% in 1997 as a result of a
larger base of revenues to which to spread the general and administrative
expenses. The larger base of revenues is due to internal growth and
acquisitions.
DEPRECIATION AND AMORTIZATION EXPENSES. Depreciation and amortization
expenses increased from $23.8 million in 1996 to $33.7 million in 1997, an
increase of $9.9 million. This increase was primarily attributable to
depreciation expense and the amortization of goodwill recorded in connection
with acquisitions.
INTEREST EXPENSE. Interest expense increased from $8.3 million in 1996
to $16.5 million in 1997, an increase of $8.2 million. This increase was
attributable to interest expense on increased borrowings under the Bank Credit
Facility to fund acquisitions of home healthcare business during 1996 and 1997.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had current assets of $148.1 million
and current liabilities of $49.0 million, resulting in working capital of $99.1
million and a current ratio of 3.0x. This compares to working capital of $112.7
million and a current ratio of 2.9x at December 31, 1997.
On October 29, 1998, the Fourth Amended and Restated Credit Agreement
(the "Credit Agreement") between the Company and Bankers Trust Company, as agent
for a syndicate of banks (the "Banks"), was amended (the "First Amendment") to
modify certain financial covenants
39
<PAGE> 40
with which the Company was not in compliance. The Company incurred increased
interest expense of $1,656,803 in 1998 as a result of the increased interest
rate established by the First Amendment. As part of the First Amendment, the
Company's credit availability was reduced from $400 million to $360 million
(credit availability was temporarily reduced to $340 million until April 1,
1999). The Bank Credit Facility (the "Bank Credit Facility") includes a $75
million term loan and a $285 million (credit availability was temporarily
reduced to $265 million until April 1, 1999) revolving line of credit, each with
a maturity of December 16, 2002. $323.5 million was outstanding under the
revolving line of credit in loans and letters of credit as of April 14, 1999.
Substantially all of the Company's operating assets have been pledged as
security for borrowings under the Bank Credit Facility.
As of December 31, 1998 the weighted average borrowing rate was 8.6%. A
commitment fee of up to .50% per annum is payable by the Company on the undrawn
balance.
The Credit Agreement contained various financial covenants and other
restrictions regarding specified activities. At December 31, 1998 the Company
was in violation of certain of these covenants. Noncompliance with these
covenants gave the lenders the right to accelerate the due date of outstanding
amounts under the Facility. In addition to the possibility of accelerated due
dates, the Company was unable to access availability under the Facility.
On April 14, 1999 the Company entered into a Second Amendment to the
Credit Agreement. This Second Amendment waives events of default, modifies
existing financial covenants and makes a number of other changes to the Credit
Agreement.
The Company's credit availability has been reduced from $360 million
(credit availability was temporarily reduced to $340 million pursuant to the
First Amendment) to $328.6 million, including a $75 million term loan and a
$253.6 million revolving line of credit. As of April 14, 1999, approximately
$248.5 million was outstanding under the revolving line of credit.
Interest is payable on borrowings under the Bank Credit Facility at the
election of the Company at either a Base Lending Rate or an Adjusted Eurodollar
Rate (each as defined in the Bank Credit Facility) plus an applicable margin.
The margin associated with the Adjusted Eurodollar Rate is fixed at 3.25%. The
margin associated with the Base Lending Rate is fixed at 2.50%. The applicable
margins increase 18 months after the date of the Second Amendment to 3.50% as to
the Adjusted Eurodollar Rate and to 2.75% as to the Base Lending Rate. In
addition, 18 months after the date of the Second Amendment, additional interest
of 4.50% will accrue on that portion of the Bank Credit Facility that is in
excess of four times Adjusted EBITDA.
The Company has agreed to issue on March 31, 2001 (provided loans,
letters of credit or commitments are still outstanding) warrants to the Banks
representing 19.99% of the fully diluted common stock of the Company issued and
outstanding as of March 31, 2001. Fifty percent of these warrants would be
exercisable at any time after issuance and the remaining fifty percent would be
exercisable from and after September 30, 2001 (provided loans, letters of credit
or commitments are still outstanding). The exercise price of the warrants will
be $0.01 per share.
The Credit Agreement, as amended, contains various financial covenants,
the most restrictive of which relate to measurements of EBITDA, shareholder's
equity, leverage, debt-to-equity ratios, interest coverage ratios, and
collections of accounts receivable. The Credit Agreement, as amended, also
contains provisions for periodic
40
<PAGE> 41
reporting and the recapture of excess cash flow. Mandatory prepayments are due
if excess cash flow targets are met or the Company issues debt securities.
The Bank Credit Facility also contains covenants which, among other
things, impose certain limitations or prohibitions on the Company with respect
to the incurrence of indebtedness, the creation of liens, the payment of
dividends, the redemption or repurchase of securities, investments,
acquisitions, capital expenditures, sales of assets and transactions with
affiliates. The Company is no longer permitted to make acquisitions or
investments in joint ventures without the consent of Banks holding a majority of
the lending commitments under the Bank Credit Facility.
Management has prepared operating projections, cash flow projections
and related operating plans which indicate the Company can remain in compliance
with the new financial covenants and meet its expected obligations throughout
1999. However, as with all projections, there is uncertainty as to whether
management's projections can be achieved. In an event of default under the
amended Credit Agreement, the lenders will have the ability to demand payment of
all outstanding amounts, and there is currently no commitment as to how any such
demand payment would be satisfied.
The Bank Credit Facility terminates and any unpaid obligations of the
Company become due on April 15, 2002.
In addition to maintaining compliance with its debt covenants,
the Company's future liquidity will continue to be dependent upon the relative
amounts of current assets (principally cash, accounts receivable and
inventories) and current liabilities (principally accounts payable and accrued
expenses). In that regard, accounts receivable can have a significant impact on
the Company's liquidity. The Company has various types of accounts receivable,
such as receivables from patients, contracts, and former owners of acquisitions.
The majority of the Company's accounts receivables are patient receivables.
Accounts receivable are generally outstanding for longer periods of time in the
health care industry than many other industries because of requirements to
provide third party payors with additional information subsequent to billing and
the time required by such payors to process claims. Certain accounts receivable
frequently are outstanding for more than 90 days, particularly where the account
receivable relates to services for a patient receiving a new medical therapy or
covered by private insurance or Medicaid. Net patient accounts receivable were
$102.4 million and $94.2 million at December 31, 1997 and December 31, 1998,
respectively. Average days' sales in accounts receivable was approximately 88
and 92 days' sales outstanding at December 31, 1997, and December 31, 1998,
respectively. This increase is primarily the result of disruptions in
collections associated with the consolidation of billing centers and changes in
certain billing procedures continuing from the Restructuring. As a result, the
Company experienced an increased level of billing delays and errors which
ultimately affected the timeliness of collections and necessitated a $16.0
million accounts receivable charge in the third quarter of 1998.
Net cash provided by operating activities increased from $14.3 million
in 1997 to $28.1 million in 1998, an increase of $13.8 million. Net cash used in
investing activities decreased from $134.1 million in 1997 to $90.7 million in
1998, a decrease of $43.4 million. Acquisition expenditures decreased from
$103.3 million in 1997 to $58.4 million in 1998, a decrease of $44.9 million.
The $58.4 million in acquisition expenditures in 1998 included $31.0 million
related to a 1997 acquisition. Capital expenditures decreased from $32.5 million
in 1997 to $26.8 million in 1998, a decrease of $5.7 million. Net cash provided
from financing activities decreased from $124.6 million in 1997 to $54.9 million
in 1998, a decrease of $69.7 million. The cash provided from financing
activities in 1998 primarily related to proceeds from the Bank Credit Facility.
41
<PAGE> 42
The Company's principal capital requirements are for working capital.
The Company has financed and intends to continue to finance these requirements
with net cash provided by operations and, if available, with borrowings under
the Bank Credit Facility.
IMPLEMENTATION OF FINANCIAL ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130") has been issued effective for fiscal years
beginning after December 15, 1997. SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The Company adopted the provisions of
SFAS No. 130 in 1998, however, there was no material effect on the Company's
financial position or results of operations, as comprehensive income was
equivalent to the Company's net income (loss).
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131") has been issued
effective for fiscal years beginning after December 15, 1997. SFAS 131
establishes standards for the way public business enterprises report information
about operating segments in annual financial statements and require that these
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. The Company adopted the provisions of
SFAS 131 in the fourth quarter of 1998; however, the Company operates in one
industry segment and, accordingly, the adoption of SFAS 131 had no significant
effect on the Company.
42
<PAGE> 43
YEAR 2000 UPDATE
Many computer software programs were written using two digits instead
of four to define the applicable year. As a result, computer programs may
interpret a date including the digits "00" to refer to the year 1900 instead of
the year 2000. Such a Year 2000 problem could result in system failures which
disrupt patient services, billing and collections, payroll and other standard
business operations.
Accordingly, the Company has formally established a Year 2000
compliance committee under the sponsorship of senior management. The committee
includes representation from information systems, purchasing, finance, and
reimbursement. An inventory of all information technology and non-information
technology systems was conducted during 1997 and a risk assessment was
performed. Based on that assessment, plans were put in place to address the Year
2000 readiness of each system, including remediation and testing. As part of
that process, a Year 2000 compliance plan has been prepared, and approved by the
Board of Directors.
Year 2000 remediation work is being performed by both internal and
external personnel. Most of the Company's software is supplied by external
vendors. In all cases, the Company has worked with the vendor to ensure that a
Year 2000 compliant version is being developed and certified, and that the
version is being installed when available. The majority of testing and
certification must be performed by these vendors, and the Company has been
informed that such vendors are currently undertaking such testing and
certification. The Company has no means to assure that third party vendors'
programs will be Year 2000 compliant on a timely basis. The effect of any such
non-compliance is indeterminable.
The Company has incurred approximately $800,000 in costs associated
with its Year 2000 compliance efforts, primarily as capital expenditures.
Remaining costs to achieve Year 2000 compliance are expected to be less than
$800,000, also as capital expenditures. These costs are being funded from
operating cash flow.
In addition to computer systems, the Company is performing inventories
and assessments of other critical equipment. This includes patient care
equipment, branch telephone systems, and other embedded systems.
The status of specific systems being addressed through the Year 2000
plan is shown below:
- The Company uses multiple computer systems for customer
service, billing, and clinical operations. Approximately 75%
of these are fully Year 2000 compliant as of December 31,
1998. All customer service, billing, and clinical systems have
a target date of June 30, 1999 to be on Year 2000 compliant
software.
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<PAGE> 44
- The financial systems were made Year 2000 compliant in January
1998. Payroll and Human Resources systems were also converted
to Year 2000 compliant versions in October 1998. All other
corporate support systems are targeted to be Year 2000
compliant by June 30, 1999.
- Product manufacturers and suppliers of equipment/supplies used
in conjunction with patient care have been contacted to
determine the state of compliance for all patient equipment.
Any non-compliant equipment will be identified and plans put
in place to upgrade or dispose of them by July 31, 1999. An
insubstantial amount of the patient equipment supplied by the
Company is expected to have a Year 2000 issue, and the Company
does not believe this risk is material.
- The Company has multiple telephone systems in place throughout
its 313 centers. These are targeted to be evaluated and
upgraded as necessary by September 30, 1999.
- The Company has contacted all business partners and payers
where implicit or implied relationships are such that a
significant disruption would be detrimental to the well-being
of either entity. Responses are being received and reviewed on
an on-going basis. Although the Company cannot require all
such parties to respond, follow-up requests are being made to
those who have not responded to initial requests. The Company
intends to address in a timely manner any issues or problems
that come to light as a result of these responses. At this
point, the responses have indicated that major governmental
payors (e.g., Medicare) will be Year 2000 compliant.
In addition, testing and contingency planning will occur during 1999:
- Although almost all software is vendor supplied, the Company
has begun testing critical systems in order to ensure Year
2000 compliance and expects it to be completed before December
31, 1999.
- Contingency plans are not yet established, but expected to be
developed during the second half of 1999 for all critical
systems, as well as for branch operations.
The Company is highly dependent upon certain government and private
third party payors for reimbursement of claims for services and equipment
provided by the Company. The Company has initiated correspondence with its most
significant payors regarding their Year 2000 compliance efforts and intends to
address in a timely manner any issues or problems that arise as a result of
these responses. The Company, however, cannot be assured of the accuracy of the
responses nor the timely remediation of third party claims processing and
payment systems. Failure by third party payors to correct Year 2000 problems
could have a material impact on the Company's cash flow from operations should
delays in processing and appropriate payments occur.
The Company believes it compliance efforts will resolve all material
Year 2000 issues prior to December 31, 1999; however, as noted above, the
Company has not completed all phases of its compliance efforts. If the Company
does not complete its compliance program timely, the Company may be unable to
properly service patients, generate bills, or undertake collection efforts. In
addition, although the Company has received assurances from key vendors that
their programs will be Year 2000 compliant on a timely basis, failure of the
computer programs of key or multiple vendors and/or payors could materially
adversely affect the Company's ability to provide services and/or collect
revenue. Moreover, disruptions in the economy or health care industry in general
caused by Year 2000 non-compliance could materially adversely affect the
Company. Such results would adversely affect the Company's financial results and
could cause defaults under its credit agreement. The Company could be sued for
Year 2000 non-compliance. The amount of potential liability and losses in any
such event cannot be reasonably estimated at this time.
See "Business - Risk Factors - Year 2000."
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<PAGE> 45
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The chief market risk factor affecting the financial condition and
operating results of the Company is interest rate risk. The Company's Bank
Credit Facility uses a floating interest rate. As of December 31, 1998, the
Company had outstanding borrowings of approximately $317 million. In the event
that interest rates associated with this facility were to increase by 10%, the
impact on future cash flows would be approximately $1.6 million. Interest
expense associated with other debts would not materially impact the Company as
most interest rates are fixed.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements are contained on pages 49 through 82 of this
Report and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning directors and executive officers of the Company
is incorporated by reference to the Company's definitive proxy statement dated
April 21, 1999 ("Proxy Statement") for the annual meeting of stockholders to be
held on May 27, 1999.
ITEM 11. EXECUTIVE COMPENSATION
Executive compensation information is incorporated by reference to the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security ownership of certain beneficial owners and management
information is incorporated by reference to the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions
of the Company is incorporated by reference to the Proxy Statement.
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<PAGE> 46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
Financial statements and schedules of the Company and its subsidiaries
required to be included in Part II, Item 8 are listed below.
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FORM 10-K PAGES
---------------
<S> <C>
Report of Independent Public Accountants 50
Consolidated Balance Sheets, December 31, 1997 and 1998 51 - 52
Consolidated Statements of Operations for the Years Ended December 31, 1996,
1997, and 1998 53
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1996, 1997, and 1998 54 - 55
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996,
1997, and 1998 56 - 57
Notes to Consolidated Financial Statements, December 31, 1998 58 - 82
FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants S-1
Schedule II -- Valuation and Qualifying Accounts S-2
</TABLE>
EXHIBITS
The Exhibits filed as part of the Report on Form 10-K are listed in the
Index to Exhibits immediately following the financial statement schedules.
REPORTS ON FORM 8-K DURING THE LAST QUARTER OF THE YEAR ENDED DECEMBER 31, 1998.
None.
46
<PAGE> 47
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.
AMERICAN HOMEPATIENT, INC.
/s/JOSEPH F. FURLONG III
-----------------------------------------
Joseph F. Furlong III, President,
Chief Executive Officer and Director
/s/MARILYN A. O'HARA
-----------------------------------------
Marilyn A. O'Hara
Senior Vice President and
Chief Financial Officer
Date: April 15, 1999
47
<PAGE> 48
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.
/s/Morris Perlis Chairman April 15, 1999
- -------------------------------------
Morris A. Perlis
/s/Allan Silber Director April 15, 1999
- -------------------------------------
Allan C. Silber
/s/Henry T. Blackstock Director April 15, 1999
- -------------------------------------
Henry T. Blackstock
/s/Joseph F. Furlong III Director, President, April 15, 1999
- ------------------------------------- and Chief Executive
Joseph F. Furlong III Officer
/s/Thomas Dattilo Director April 15, 1999
- -------------------------------------
Thomas Dattilo
/s/Edward Sonshine Director April 15, 1999
- -------------------------------------
Edward Sonshine
/s/Mark Manner Director April 15, 1999
- -------------------------------------
Mark Manner
/s/Edward K. Wissing Director April 15, 1999
- -------------------------------------
Edward K. Wissing
/s/Marilyn A. O'Hara Chief Financial April 15, 1999
- ------------------------------------ Officer and
Marilyn A. O'Hara Chief Accounting
Officer
48
<PAGE> 49
AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997
TOGETHER WITH
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
49
<PAGE> 50
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American HomePatient, Inc.:
We have audited the accompanying consolidated balance sheets of AMERICAN
HOMEPATIENT, INC. (a Delaware corporation) and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We have 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, the financial statements referred to above present fairly, in
all material respects, the financial position of American HomePatient, Inc. 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.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 26, 1999 (except with respect
to the matter discussed in Notes 2 and 8
as to which the date is April 14, 1999)
50
<PAGE> 51
AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,276,000 $ 12,050,000
Restricted cash 51,000 50,000
Accounts receivable, less allowance for doubtful accounts of
$41,147,000 and $43,862,000, respectively 99,574,000 114,386,000
Inventories 20,776,000 25,824,000
Prepaid expenses and other assets 3,135,000 1,423,000
Income tax receivable 13,090,000 8,099,000
Deferred tax asset 7,174,000 8,998,000
------------- -------------
Total current assets 148,076,000 170,830,000
------------- -------------
PROPERTY AND EQUIPMENT, AT COST: 165,642,000 146,803,000
Less accumulated depreciation and amortization (87,864,000) (66,729,000)
------------- -------------
Net property and equipment 77,778,000 80,074,000
------------- -------------
OTHER ASSETS:
Excess of cost over fair value of net assets acquired, net 249,173,000 262,294,000
Investment in joint ventures 23,325,000 14,974,000
Deferred financing costs, net 4,119,000 3,967,000
Deferred tax asset 6,048,000 --
Other assets, net 23,373,000 26,227,000
------------- -------------
Total other assets 306,038,000 307,462,000
------------- -------------
$ 531,892,000 $ 558,366,000
============= =============
</TABLE>
(Continued)
51
<PAGE> 52
AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
(Continued)
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and capital leases $ 7,024,000 $ 9,361,000
Trade accounts payable 10,629,000 13,484,000
Other payables 1,446,000 1,343,000
Accrued expenses:
Payroll and related benefits 9,074,000 9,994,000
Interest 3,327,000 867,000
Insurance 3,776,000 1,715,000
Restructuring accruals 3,413,000 13,604,000
Other 10,272,000 7,741,000
------------- -------------
Total current liabilities 48,961,000 58,109,000
------------- -------------
NONCURRENT LIABILITIES:
Long-term debt and capital leases, less current portion 316,918,000 291,963,000
Deferred tax liabilities -- 2,046,000
Other noncurrent liabilities 9,514,000 12,159,000
------------- -------------
Total noncurrent liabilities 326,432,000 306,168,000
------------- -------------
COMMITMENTS, CONTINGENCIES AND GUARANTEES
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized, 5,000,000 shares;
none issued and outstanding -- --
Common stock, $.01 par value; authorized, 35,000,000 shares;
issued and outstanding, 14,986,000 and 14,901,000 shares,
respectively 150,000 149,000
Paid-in capital 172,520,000 171,133,000
(Accumulated deficit) retained earnings (16,171,000) 22,807,000
------------- -------------
Total shareholders' equity 156,499,000 194,089,000
------------- -------------
$ 531,892,000 $ 558,366,000
============= =============
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
52
<PAGE> 53
AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
REVENUES:
Sales and related service revenues $ 192,863,000 $ 180,176,000 $119,266,000
Rentals and other revenues 206,464,000 200,251,000 142,660,000
Earnings from joint ventures 4,541,000 6,850,000 6,422,000
------------- ------------- ------------
Total revenues 403,868,000 387,277,000 268,348,000
------------- ------------- ------------
EXPENSES:
Cost of sales and related services, excluding
depreciation and amortization 98,166,000 97,418,000 58,575,000
Operating 235,269,000 216,532,000 138,213,000
General and administrative 22,262,000 15,953,000 14,664,000
Depreciation and amortization 39,653,000 33,736,000 23,845,000
Interest 24,249,000 16,494,000 8,294,000
Restructuring (3,614,000) 33,829,000 --
Goodwill impairment 37,805,000 8,165,000 --
------------- ------------- ------------
Total expenses 453,790,000 422,127,000 243,591,000
------------- ------------- ------------
INCOME (LOSS) BEFORE INCOME TAXES (49,922,000) (34,850,000) 24,757,000
------------- ------------- ------------
PROVISION (BENEFIT) FOR INCOME TAXES:
Current (4,674,000) (5,979,000) 8,866,000
Deferred (6,270,000) (2,963,000) 690,000
------------- ------------- ------------
(10,944,000) (8,942,000) 9,556,000
------------- ------------- ------------
NET INCOME (LOSS) $ (38,978,000) $ (25,908,000) $ 15,201,000
============= ============= ============
NET INCOME (LOSS) PER COMMON SHARE:
BASIC $ (2.60) $ (1.75) $ 1.13
============= ============= ============
DILUTED $ (2.60) $ (1.75) $ 1.10
============= ============= ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
BASIC 14,986,000 14,839,000 13,473,000
============= ============= ============
DILUTED 14,986,000 14,839,000 13,841,000
============= ============= ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
53
<PAGE> 54
AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS/
---------------------- PAID-IN (ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT) TOTAL
---------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 11,486,665 $115,000 $ 85,802,000 $ 33,514,000 $ 119,431,000
---------- -------- ------------ ------------ -------------
Issuance of shares through exercise of
employee stock options 168,004 2,000 1,981,000 -- 1,983,000
Issuance of shares through employee
stock purchase plan 34,007 -- 423,000 -- 423,000
Issuance of shares through exercise of
stock warrants 66,600 -- 516,000 -- 516,000
Issuance of shares in connection with
an acquisition 446,460 5,000 11,603,000 -- 11,608,000
Tax benefit of stock options exercised -- -- 450,000 -- 450,000
Issuance of shares, net of issuance
costs 2,475,000 25,000 66,005,000 -- 66,030,000
Net income -- -- -- 15,201,000 15,201,000
---------- -------- ------------ ------------ -------------
BALANCE, DECEMBER 31, 1996 14,676,736 147,000 166,780,000 48,715,000 215,642,000
Issuance of shares through exercise of
employee stock options 184,862 2,000 3,125,000 -- 3,127,000
Issuance of shares through employee
stock purchase plan 32,152 -- 608,000 -- 608,000
Issuance of shares through exercise of
stock warrants 7,500 -- 90,000 -- 90,000
Tax benefit of stock options exercised -- -- 530,000 -- 530,000
Net loss -- -- -- (25,908,000) (25,908,000)
---------- -------- ------------ ------------ -------------
BALANCE, DECEMBER 31, 1997 14,901,250 $149,000 $171,133,000 $ 22,807,000 $ 194,089,000
---------- -------- ------------ ------------ -------------
</TABLE>
(Continued)
54
<PAGE> 55
AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Continued)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS/
---------------------- PAID-IN (ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT) TOTAL
---------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 14,901,250 $149,000 $171,133,000 $ 22,807,000 $ 194,089,000
---------- -------- ------------ ------------ -------------
Issuance of shares through exercise of
employee stock options 35,109 -- 518,000 -- 518,000
Issuance of shares through employee
stock purchase plan 37,600 1,000 734,000 -- 735,000
Issuance of shares through exercise of
stock warrants 12,000 -- 100,000 -- 100,000
Tax benefit of stock options exercised -- -- 35,000 -- 35,000
Net loss -- -- -- (38,978,000) (38,978,000)
---------- -------- ------------ ------------ -------------
BALANCE, DECEMBER 31, 1998 14,985,959 $150,000 $172,520,000 $(16,171,000) $ 156,499,000
========== ======== ============ ============ =============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
55
<PAGE> 56
AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(38,978,000) $ (25,908,000) $ 15,201,000
Adjustments to reconcile net income (loss) to net cash provided from
operating activities:
Depreciation and amortization 39,653,000 33,736,000 23,845,000
Equity in earnings of unconsolidated joint ventures 90,000 (3,476,000) (3,375,000)
Deferred income taxes (6,270,000) (2,963,000) 690,000
Minority interest 306,000 244,000 161,000
Goodwill impairment and write-off 37,805,000 20,411,000 --
Other non-cash charges 10,500,000 44,589,000 --
Change in assets and liabilities, net of acquisitions:
Restricted cash (1,000) 375,000 (50,000)
Accounts receivable, net (3,583,000) (31,944,000) (14,920,000)
Inventories 4,206,000 (999,000) (2,303,000)
Prepaid expenses and other assets (2,000,000) 416,000 348,000
Income tax receivable (4,607,000) (8,520,000) (940,000)
Trade accounts payable, accrued expenses and other current
liabilities 79,000 (5,982,000) (4,196,000)
Restructuring accruals (8,602,000) (4,108,000) --
Deferred costs 35,000 (51,000) (30,000)
Other assets and liabilities (554,000) (1,475,000) (1,281,000)
------------ ------------- -------------
Net cash provided from operating activities 28,079,000 14,345,000 13,150,000
------------ ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (58,420,000) (103,289,000) (93,800,000)
Additions to property and equipment, net (26,780,000) (32,530,000) (21,157,000)
Distributions to minority interest owners (80,000) (166,000) (65,000)
Distributions from (advances to) unconsolidated joint ventures, net (5,437,000) 1,839,000 (1,193,000)
------------ ------------- -------------
Net cash used in investing activities (90,717,000) (134,146,000) (116,215,000)
------------ ------------- -------------
</TABLE>
(Continued)
56
<PAGE> 57
AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(Continued)
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred financing costs $ (992,000) $ (1,859,000) $ (1,299,000)
Proceeds from long-term debt 74,777,000 133,766,000 47,196,000
Principal payments on debt and capital leases (19,539,000) (10,228,000) (8,286,000)
Proceeds from sale of stock, net of issuance costs 618,000 2,873,000 68,529,000
------------ ------------- -------------
Net cash provided from financing activities 54,864,000 124,552,000 106,140,000
------------ ------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,774,000) 4,751,000 3,075,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 12,050,000 7,299,000 4,224,000
------------ ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 4,276,000 $ 12,050,000 $ 7,299,000
============ ============= =============
SUPPLEMENTAL INFORMATION:
Cash payments of interest $ 22,413,000 $ 16,675,000 $ 8,042,000
============ ============= =============
Cash payments of income taxes $ 2,303,000 $ 2,985,000 $ 9,866,000
============ ============= =============
</TABLE>
In connection with the acquisitions of home health care businesses, the Company
issued 446,460 shares of common stock in 1996, and debt of $1.5 million, $41.7
million, and $22.4 million in 1998, 1997 and 1996, respectively.
The accompanying notes are an integral part of
these consolidated financial statements.
57
<PAGE> 58
AMERICAN HOMEPATIENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION AND BACKGROUND
American HomePatient, Inc. and subsidiaries (the "Company" or "American
HomePatient") is a health care services company engaged in the provision
of home health care services. The Company's home health care services are
comprised of the rental and sale of home medical equipment and home health
care supplies, and the provision of infusion therapies and respiratory
therapies. As of December 31, 1998, the Company provides these services to
patients in the home through 313 branches in 38 states.
2. DEBT COVENANTS
The Company suffered net losses of $38,978,000 and $25,908,000 for the
years ending 1998 and 1997, respectively, and the financial results of the
fourth quarter of 1998 caused the Company to be in violation of certain
covenants of its Credit Agreement (see Note 8). Noncompliance with these
covenants gave the lenders, among other rights, the right to accelerate
the due date of $316,900,000 of the Company's debt. On April 14, 1999,
management and the lenders agreed to amend the Credit Agreement which
establishes, among other things, new covenants, a more limited borrowing
availability, and higher interest rates. Management has prepared operating
projections, cash flow projections and related operating plans which
indicate the Company can remain in compliance with the new financial
covenants and meet its expected obligations throughout 1999. However, as
with all projections, there is uncertainty as to whether management's
projections can be achieved. In an event of default under the amended
Credit Agreement, the lenders will have the ability to demand payment of
all outstanding amounts, and there is currently no commitment as to how
any such demand payment would be satisfied.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation. The results of
operations of companies and other entities acquired in purchase
transactions are included from the effective dates of their respective
acquisitions. Investments in 50% owned joint ventures are accounted for
using the equity method.
58
<PAGE> 59
REVENUES
The Company's principal business is the operation of home health care
centers. Approximately 52%, 56% and 59% of the Company's net revenues in
1998, 1997 and 1996, respectively, are from participation in Medicare and
state Medicaid programs. Amounts paid under these programs are generally
based on a fixed rate. Revenues are recorded at the expected reimbursement
rates when the services are provided, merchandise delivered or equipment
rented to patients. Amounts earned under the Medicare and Medicaid
programs are subject to review by such third party payors. In the opinion
of management, adequate provision has been made for any adjustment that
may result from such reviews. Any differences between estimated
settlements and final determinations are reflected in operations in the
year finalized.
Sales and related services revenues are derived from the provision of
infusion therapies, the sale of home health care equipment and supplies,
the sale of aerosol medications and respiratory therapy equipment and
supplies and services related to the delivery of these products. Rentals
and other patient revenues are derived from the rental of home health care
equipment, enteral pumps and equipment related to the provision of
respiratory therapy.
CASH EQUIVALENTS
Cash equivalents consist of highly liquid investments that have an
original maturity of less than three months.
ACCOUNTS RECEIVABLE
The Company's accounts receivable, before allowances, consists of the
following components:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Patient receivables:
Medicare $ 45,790,000 $ 45,077,000
All other, principally commercial insurance 89,519,000 101,137,000
------------ ------------
135,309,000 146,214,000
Other receivables, principally due from vendors and former owners 5,412,000 12,034,000
------------ ------------
Total $140,721,000 $158,248,000
============ ============
</TABLE>
The Company provides credit for a substantial portion of its non-third
party reimbursed revenues and continually monitors the credit worthiness
and collectibility of amounts due from its clients. The Company is subject
to accounting losses from uncollectible receivables in excess of its
reserves.
59
<PAGE> 60
PROVISION FOR DOUBTFUL ACCOUNTS
The Company includes provisions for doubtful accounts in operating
expenses in the accompanying consolidated statements of operations. The
provisions for doubtful accounts excluding the unusual and restructuring
charges of $14,500,000 and $17,750,000 (see Note 4 for further discussion)
in 1998 and 1997, respectively, were $15,357,000, $12,791,000 and
$11,450,000 in 1998, 1997 and 1996, respectively.
INVENTORIES
All inventories represent goods or supplies and are priced at the lower of
cost (on a first-in, first-out basis) or net realizable value.
PROPERTY AND EQUIPMENT
Property and equipment are depreciated or amortized primarily using the
straight-line method over the estimated useful lives of the assets for
financial reporting purposes and the accelerated cost recovery method for
income tax reporting purposes. Assets under capital leases are amortized
over the term of the lease for financial reporting purposes. The estimated
useful lives are as follows: buildings and improvements, 18-30 years;
rental equipment, 3-7 years; furniture, fixtures and equipment, 4-5 years;
leasehold improvements, 5 years; and delivery equipment, 3-5 years. The
provision for depreciation includes the amortization of equipment and
vehicles under capital leases.
In 1998, 1997 and 1996, depreciation expense includes $23,537,000,
$20,344,000 and $15,059,000, respectively, related to the depreciation of
rental equipment.
Maintenance and repairs are charged against income as incurred, and major
betterments and improvements are capitalized. The cost and accumulated
depreciation of assets sold or otherwise disposed of are removed from the
accounts and the resulting gain or loss is reflected in the consolidated
statements of operations.
Property and equipment obtained through purchase acquisitions are stated
at their estimated fair value determined on their respective dates of
acquisition.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
The excess of cost over fair value of net assets acquired ("goodwill") is
amortized over 40 years using the straight-line method. Accumulated
amortization related to goodwill totaled $17,199,000 and $12,296,000 as of
December 31, 1998 and 1997, respectively. The Company believes its
estimated goodwill life is reasonable given the continuing movement of
patient care to noninstitutional settings, expanding demand due to
demographic trends, the emphasis of the Company on establishing
significant coverage in each local and regional market, the consistent
practice with other home care companies and other factors.
60
<PAGE> 61
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-Lived Assets", management
evaluates long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Management utilizes estimated undiscounted future cash flows
to determine when an impairment exists. When this analysis indicates an
impairment exists, the amount of loss is determined based upon a
comparison of estimated fair value with the net book value of the asset.
Estimated fair value is based upon the present value of estimated future
cash flows or other objective criteria.
In 1998, the Company's evaluation of goodwill indicated an impairment
related to certain acquisitions of approximately $37,805,000 which was
charged to expense in the 1998 consolidated statement of operations. This
write-down was based upon management's estimate of the negative impact of
the Company's inability to replace the decreased cash flows associated
with the Medicare oxygen reimbursement reductions to the extent originally
planned, as well as certain business strategies implemented in the latter
half of 1998 which decreased revenue and increased operating expenses.
In connection with the restructuring as described in Note 4, the Company
wrote down $8.1 million of goodwill in 1997, as required under SFAS 121
based upon management's estimate of the impact of the announced Medicare
oxygen reimbursement reductions on the Company's continuing operations.
Also, the Company wrote off $12.2 million of goodwill in 1997 related to
the closure of certain operating locations which is reflected as part of
the restructuring charge in the 1997 consolidated statement of operations.
DEFERRED FINANCING COSTS
Financing costs are amortized primarily using the straight-line method
over the periods of the related indebtedness.
OTHER ASSETS
The estimated value of non-compete agreements, net of accumulated
amortization of $2,183,000 and $1,850,000 as of December 31, 1998 and
1997, respectively, are amortized over the lives of the agreements,
generally periods of up to seven years. As of December 31, 1998 and 1997,
the net amounts of non-compete agreements of $376,000 and $711,000,
respectively, are reflected in other assets in the accompanying
consolidated balance sheets.
Other intangibles are amortized over their expected benefit period of two
to three years. The net balance at December 31, 1998 and 1997 is
$1,076,000 and $1,902,000, respectively, and is reflected in other assets
in the accompanying consolidated balance sheets.
Receivables under split dollar value life insurance arrangements of
$13,187,000 and $14,957,000 at December 31, 1998 and 1997, respectively,
were recorded in connection with the acquisitions of certain home health
care businesses and are reflected in other assets. The Company owes
premiums on the split dollar value life insurance policies of $7,711,000
and $10,770,000 at December 31, 1998 and 1997, respectively, which are
classified as other noncurrent liabilities.
61
<PAGE> 62
INCOME TAXES
The Company has adopted SFAS No. 109, "Accounting for Income Taxes", which
requires an asset and liability approach for financial accounting and
reporting for income taxes. Deferred income taxes are provided for
differences between financial reporting and tax bases of assets and
liabilities, with the primary differences related to the allowance for
doubtful accounts, accrued liabilities, depreciation methods and periods
and deferred cost amortization methods. See Note 10 for additional
information related to the provision (benefit) for income taxes.
STOCK BASED COMPENSATION
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"),
encourages, but does not require, companies to record compensation cost
for stock-based employee compensation plans at fair value. The Company has
chosen to continue to account for stock-based compensation using the
intrinsic value method as prescribed in Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion
No. 25"), and related Interpretations. Under APB Opinion No. 25, no
compensation cost related to stock options has been recognized because all
options are issued with exercise prices equal to the fair market value at
the date of grant. See Note 9 for further discussion.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable and accruals approximate fair value because of the
short-term nature of these items. Based on the current market rates
offered for similar debt of the same maturities, the carrying amount of
the Company's long-term debt, including current portion, also approximates
fair value at December 31, 1998.
ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130") has been issued effective for fiscal
years beginning after December 15, 1997. SFAS 130 establishes standards
for reporting and display of comprehensive income and its components in a
full set of general purpose financial statements. The Company adopted the
provisions of SFAS 130 in 1998; however, there was no material effect on
the Company's financial position or results of operations, as
comprehensive income was equivalent to the Company's net income (loss).
62
<PAGE> 63
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131") has been
issued effective for fiscal years beginning after December 15, 1997. SFAS
131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements
and requires that these enterprises report selected information about
operating segments in interim financial reports issued to shareholders.
The Company adopted the provisions of SFAS 131 in the fourth quarter of
1998; however, the Company operates in one industry segment and,
accordingly, the adoption of SFAS 131 had no significant effect on the
Company.
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-up
Activities" has been issued effective for fiscal years beginning after
December 15, 1998. SOP 98-5 establishes standards for accounting for costs
of start-up activities. The Company is required to adopt the provisions of
SOP 98-5 in the first quarter of 1999. Initial application of this SOP
will be reported as a cumulative effect of a change in accounting
principle. The Company does not expect the adoption to have a material
effect on the Company's financial position or results of operations.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1997 consolidated
financial statements to conform to the 1998 presentation.
4. UNUSUAL CHARGES
1998
In the quarter ended September 30, 1998, the Company recorded a pre-tax
accounting charge of $15.2 million related to: (a) certain non-recurring
events which occurred in the third quarter ($3.2 million), (b) the
recording of additional reserves related to accounts receivable ($16.0
million), and (c) the reversal of excess restructuring accruals
(originally recorded in 1997) and related reserves ($4.0 million credit).
The non-recurring charges of $3.2 million relates to certain expenses
associated with the retirement package of the former CEO, CEO transition
expenses, deal costs of abandoned mergers and acquisitions, and a
provision for adverse settlements related to accounting disputes with
certain sellers of acquired business. These charges are included in
general and administrative expenses in the accompanying 1998 consolidated
statement of operations.
The accounts receivable charge of $16.0 million relates primarily to
disruptions in collections as a result of the consolidation of billing
centers and changes in certain billing procedures continuing from the 1997
restructuring. Billing center efficiencies have been affected because of
personnel turnover and other adverse impacts of previous cost reduction
plans. The termination of unprofitable contracts with certain health care
institutions has also adversely affected collections on existing
receivables. This accounts receivable charge is included in operating
expense ($14.5 million) and general and administrative expense ($1.5
million) in the accompanying 1998 consolidated statement of operations.
63
<PAGE> 64
As discussed below, the Company adjusted its original estimates of
restructuring costs related to the 1997 restructuring activities. This
adjustment resulted in a $4.0 million dollar reversal of certain
restructuring accruals and other reserves recorded in connection with the
restructuring. This reversal is included in cost of sales ($.4 million)
and restructuring ($3.6 million) in the accompanying 1998 consolidated
statement of operations.
In addition to the 1998 third quarter charges, $1.3 million of severance
expense, related to former senior executive officers, was recorded as
general and administrative expense, and $37.8 million of impaired goodwill
was written off (see Note 3).
1997 MEDICARE OXYGEN REIMBURSEMENT REDUCTIONS AND RELATED RESTRUCTURING
In August of 1997, Congress enacted and President Clinton signed the
Balanced Budget Act of 1997 which reduced the Medicare reimbursement rate
for oxygen-related services by 25 percent and drugs and biologicals by
five percent on January 1, 1998, and will reduce the Medicare
reimbursement rate for oxygen-related services by another five percent in
1999. In addition, Consumer Price Index increases in oxygen reimbursement
rates will not resume until the year 2003. American HomePatient is one of
the nation's largest providers of home oxygen services to patients, many
of whom are Medicare recipients, and is therefore significantly and
adversely affected by this legislation. Medicare oxygen reimbursements
account for a significant percentage of the Company's revenues.
On September 25, 1997, the Company announced initiatives to aggressively
respond to planned Medicare oxygen reimbursement reductions by
fundamentally reshaping the Company for long-term growth. More than 100 of
the Company's total operating and billing locations were affected by the
planned activities. The specific actions resulted in pre-tax accounting
charges in the third quarter of 1997 of $65.0 million due to the closure,
consolidation, or scaling back of nine billing centers, the consolidation
of operating regions, the scaling back or elimination of marginal products
and services at numerous locations, and the related termination of
approximately 400 employees in the affected locations. These activities
were substantially completed as of June 30, 1998.
The $65.0 million pre-tax charges recorded in the third quarter of 1997
specifically related to the write down of goodwill and other noncurrent
assets ($8.2 million), the closure, consolidation, scaling back, or
elimination of services at selected locations ($44.8 million), and the
anticipated negative impact on assets of the remaining operating locations
($12.0 million).
The write off of goodwill and other noncurrent assets is required under
SFAS 121 based upon management's estimate of the impact of the announced
Medicare oxygen reimbursement reductions on the Company's continuing
operations. Management's projections of future operations considering the
reduced reimbursement rates for oxygen-related services indicated that the
carrying value of goodwill and other noncurrent assets should be written
down by $8.2 million.
64
<PAGE> 65
The closure, consolidation, scaling back, or elimination of services at
more than 100 of the Company's operating and billing centers resulted in
the write off of goodwill and other intangible assets specifically
identified with affected locations ($12.2 million), the accrual of
estimated employee severance and related exit costs ($6.7 million), the
accrual of estimated facility exit costs including future lease costs, the
write off of leasehold improvements, and the write down of furniture and
equipment ($6.1 million), the write down of accounts receivable to
estimated realizable value ($8.7 million), the write down of inventory to
estimated realizable value ($2.2 million), the write down of rental
equipment to estimated realizable value ($2.8 million), the termination of
related management contracts ($3.0 million), and other exit costs ($3.1
million). The accounting charges discussed in this paragraph are recorded
in the accompanying 1997 consolidated statement of operations as cost of
sales ($2,204,000), operating expenses ($8,729,000), and restructuring
charge ($33,829,000).
Due to the comprehensive nature of this restructuring, including the
consolidation of regional responsibilities, reorganization of the field
management structure, refinements and modifications of existing procedures
in all locations and additional management attention required to
accomplish the restructuring in the desired timeframe, negative impacts
are anticipated in the remaining operating locations relative to
realization of accounts receivable, inventories and rental equipment, for
which an additional $12.1 million charge was recorded. This accounting
charge is recorded in the accompanying 1997 consolidated statement of
operations as cost of sales ($3,051,000) and operating expenses
($9,022,000).
The total accounting charges discussed above are recorded in the
accompanying 1997 consolidated statement of operations in the following
classifications:
<TABLE>
<S> <C>
Cost of sales $ 5,255,000
Operating expenses 17,751,000
Restructuring charge 33,829,000
Goodwill and other intangible impairments 8,165,000
-----------
$65,000,000
===========
</TABLE>
The following actions have occurred related to the restructuring:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
---------------
1998 1997 TOTAL
---- ---- -----
<S> <C> <C> <C>
Employees terminated 83 323 406
Operating centers closed 5 47 52
Billing locations closed 4 5 9
Operating centers consolidated, scaled back or had
marginal products and services eliminated 11 44 55
</TABLE>
65
<PAGE> 66
The expected cash payments related to the restructuring charge accrued on
September 25, 1997 were approximately $17.7 million. As costs were
incurred and payments were made, $4.1 million and $8.6 million were
charged against the related restructuring accruals during the fourth
quarter of 1997 and the year ended December 31, 1998, respectively.
In addition to cash payments related to restructuring expenses, $9.3
million in the fourth quarter of 1997 and $15.2 million in the year ended
December 31, 1998 were charged against other valuation reserves
established in connection with the Company's restructuring related to the
write down of accounts receivable, inventory and rental equipment to their
estimated realizable value.
In the third quarter ended September 30, 1998, the Company adjusted its
original estimates of restructuring costs resulting in the reversal of
$1.6 million of excess restructuring accruals related to items requiring a
cash payment, and $2.4 million of other valuation reserves established in
connection with the restructuring. The restructuring accruals at December
31, 1998 represent remaining estimated severance costs to be paid to
terminated employees ($0.1 million), remaining facility costs ($1.0
million), and termination costs of certain management contracts ($2.3
million).
5. INVESTMENT IN JOINT VENTURE PARTNERSHIPS
The Company owns 50% of 18 home health care businesses (the
"Partnerships"). The remaining 50% of each business is owned by local
hospitals or other investors within the same community as the joint
ventures. The Company is solely responsible for the management of these
businesses and receives management fees ranging from 3% to 15% based on
revenues or cash collections.
The Company provides accounting and receivable billing services to the
Partnerships. The Partnerships are charged for their share of such costs
based on contract terms. The Company's earnings from joint ventures
include equity in earnings, management fees and fees for accounting and
receivable billing services. The Company's investment in unconsolidated
joint ventures includes receivables from joint ventures of $10,683,000 and
$2,289,000 at December 31, 1998 and 1997, respectively.
The Company guarantees a mortgage payable of one of the Partnerships. The
balance of the guaranteed debt at December 31, 1998 is $451,000.
66
<PAGE> 67
Summarized financial information of the Partnerships at December 31, 1998
and 1997 and the years then ended:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Accounts receivable, net $ 16,300,000 $12,902,000
Other current assets 3,431,000 5,512,000
Property and equipment, net 16,500,000 12,551,000
Other assets 5,744,000 3,660,000
------------ -----------
Total assets $ 41,975,000 $34,625,000
============ ===========
Accounts payable $ 691,000 $ 1,236,000
Other accrued expenses 11,435,000 3,001,000
Debt 4,834,000 4,895,000
Partners' capital 25,015,000 25,493,000
------------ -----------
Total liabilities and partners' capital $ 41,975,000 $34,625,000
============ ===========
Net sales and rental revenues $ 51,696,000 $44,898,000
Cost of sales 9,212,000 7,513,000
Operating and management fees 36,810,000 25,952,000
Depreciation, amortization and interest expense 5,967,000 4,342,000
------------ -----------
Total expenses 51,989,000 37,807,000
------------ -----------
Pre-tax income (loss) $ (293,000) $ 7,091,000
============ ===========
</TABLE>
The Company's ownership percentage of undistributed earnings of the
Partnerships at December 31, 1998 and 1997 is $4,186,000 and $6,653,000,
respectively. For federal and state income tax reporting purposes, each
partner reports their share of the profits and losses of the Partnerships.
6. ACQUISITIONS
1998 ACQUISITIONS
Effective in 1998, the Company acquired four home health care businesses
consisting of 18 locations having combined annualized revenues of
approximately $24.0 million. The aggregate purchase price of approximately
$31.0 million included cash of $26.0 million, assumed liabilities of $3.5
million and notes payable to sellers of $1.5 million.
1997 ACQUISITIONS
Effective in December, 1997, the Company acquired the stock of National
Medical Systems, Inc. ("NMS") for $34.1 million in notes payable to
sellers and $9.9 million in assumed liabilities. In February 1998, $33.1
million of the notes payable to sellers was funded from operations and
draws on the Bank Credit Facility (the "Facility") (see discussion at Note
8). NMS consisted of 35 branches.
67
<PAGE> 68
Additionally, effective in 1997, the Company acquired 27 home health care
businesses consisting of 63 branches. The aggregate purchase price
included cash of $87.7 million, assumed liabilities of $21.6 million and
notes payable to sellers of $7.6 million. The cash amounts have been
funded from operations and draws on the Facility (see discussion at Note
8). Of the 98 branches acquired in 1997, the Company has consolidated 23
branches within the other Company locations.
The allocation of the aggregate purchase price of 1998 and 1997
acquisitions is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Net current and other assets $ 4,862,000 $ 26,066,000
Fixed assets 2,058,000 18,869,000
Goodwill, noncompete agreements and other intangibles 24,012,000 115,902,000
------------ ------------
$ 30,932,000 $160,837,000
============ ============
</TABLE>
The purchase prices for the above acquisitions were allocated to the
underlying assets based on their estimated relative fair values. Certain
of the assets acquired in 1998 are currently being evaluated and final
allocations of the purchase prices will be made in 1999. Management
believes that the final allocations will not materially affect the
Company's results of operations. The consolidated statements of operations
include the results of operations of the acquired businesses from the
respective dates of acquisition of the controlling interests.
The following unaudited pro forma information assumes the acquisitions
described above had occurred as of the beginning of the respective
periods:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997
------------ ------------
(in thousands except share data)
<S> <C> <C>
Net revenues $ 409,870 $ 466,028
============ ============
Net loss from operations $ (38,819) $ (21,495)
============ ============
Net loss from operations per common share - basic $ (2.59) $ (1.45)
============ ============
Net loss from operations per common share - diluted $ (2.59) $ (1.45)
============ ============
Weighted average common shares outstanding - basic 14,986,000 14,839,000
============ ============
Weighted average common shares outstanding - diluted 14,986,000 14,839,000
============ ============
</TABLE>
68
<PAGE> 69
7. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Land $ 729,000 $ 671,000
Buildings and improvements 8,416,000 7,841,000
Rental equipment 127,620,000 113,166,000
Furniture, fixtures and equipment 24,735,000 20,837,000
Delivery vehicles 4,142,000 4,288,000
------------ ------------
$165,642,000 $146,803,000
============ ============
</TABLE>
Property and equipment under capital leases are included under the various
equipment categories.
8. LONG-TERM DEBT AND LEASE COMMITMENTS
LONG-TERM DEBT AND CAPITAL LEASES
Long-term debt and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Secured Revolving Line of Credit $241,900,000 $213,613,000
Secured Term Loan 75,000,000 75,000,000
Notes payable, primarily secured with acquired assets, with interest
rates primarily from 6.5% to 9.5%, principal and interest due monthly
or quarterly, maturities through 2016 832,000 1,107,000
Mortgage note payable, interest at 8%, principal and interest due monthly,
with balloon payment of $442,000 due July 1, 2004 567,000 584,000
Notes payable, primarily secured with acquired assets, with interest rates
from 7% to 8%, interest due quarterly, principal payment due at
maturity date, final maturities through 1999 3,336,000 7,292,000
Acquisition note payable, interest at 7%, principal and interest due on
August 26, 1998 -- 1,000,000
</TABLE>
69
<PAGE> 70
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Acquisition note payable, interest at 7%, principal and interest due on
February 4, 2000 $ 1,000,000 $ 1,000,000
Capital lease obligations, monthly principal and interest payments until 2003 1,307,000 1,728,000
------------ ------------
323,942,000 301,324,000
Less current portion (7,024,000) (9,361,000)
------------ ------------
$316,918,000 $291,963,000
============ ============
</TABLE>
Principal payments required on long-term debt (excluding capital leases)
for the next five years and thereafter beginning January 1, 1999, are as
follows:
<TABLE>
<S> <C>
1999 $ 6,379,000
2000 10,049,000
2001 21,052,000
2002 283,957,000
2003 60,000
Thereafter 1,138,000
------------
$322,635,000
============
</TABLE>
On October 29, 1998, the Company entered into a First Amendment to the
Fourth Amended and Restated Credit Agreement (the "Credit Agreement") in
order to remain in compliance with certain financial covenants. As part of
the amendment, the Company's credit availability under the facility was
reduced from $400 million to $360 million (credit availability was
temporarily reduced to $340 million through April 1, 1999). The Facility
included a $75.0 million five-year Secured Term Loan and a $285.0 million
five-year Secured Revolving Line of Credit with a maturity of December 16,
2002.
The Credit Agreement contained various financial covenants and other
restrictions regarding specified activities. At December 31, 1998 the
Company was in violation of certain of these covenants. Noncompliance with
these covenants gave the lenders the right to accelerate the due date of
outstanding amounts under the Facility. In addition to the possibility of
accelerated due dates, the Company was unable to access availability under
the Facility.
On April 14, 1999, management and the lenders agreed to amend the Credit
Agreement and entered into a Second Amendment to the Fourth Amended and
Restated Credit Agreement. This Second Amendment waives events of default,
modifies existing financial covenants and makes a number of other changes
to the Credit Agreement. The Second Amendment establishes, among other
things, new covenants, a more limited borrowing availability, and higher
interest rates. The Company's credit availability has been reduced from
$360.0 million (credit availability was temporarily reduced to $340.0
million pursuant to the First Amendment) to $328.6 million, including a
$75.0 million term loan and a $253.6 million revolving line of credit. As
of April 14, 1999, approximately $248.5 million was outstanding under the
revolving line of credit. The Credit Agreement contains various financial
covenants, the most restrictive of which relate to measurements of EBITDA,
shareholders' equity, leverage, debt-to-equity ratios, interest coverage
ratios, and collections of accounts receivable. The Credit Agreement, as
amended, also contains provisions for periodic reporting and the recapture
of excess cash flow. Mandatory prepayments are due if excess cash flow
targets are met or the Company issues debt securities.
The Bank Credit Facility also contains covenants which, among other
things, impose certain limitations or prohibitions on the Company with
respect to the incurrence of indebtedness, the creation of liens, the
payment of dividends, the redemption or repurchase of securities,
investments, acquisitions, capital expenditures, sales of assets and
transactions with affiliates. The Company is no longer permitted to make
acquisitions or investments in joint ventures without the consent of Banks
holding a majority of the lending commitments under the Bank Credit
Facility.
70
<PAGE> 71
The Company has agreed to issue on March 31, 2001 (provided loans, letters
of credit or commitments are still outstanding) warrants to the lenders
representing 19.99% of the fully diluted common stock of the Company
issued and outstanding as of March 31, 2001. Fifty percent of these
warrants would be exercisable at any time after issuance and the remaining
fifty percent would be exercisable from and after September 30, 2001
(provided loans, letters of credit or commitments are still outstanding).
The exercise price of the warrants will be $0.01 per share.
Interest is payable on borrowings under the Facility, at the election of
the Company, at either a "Base Lending Rate" or an "Adjusted Eurodollar
Rate" (each as defined in the Credit Agreement), plus a margin of 2.5% and
3.25%, respectively, through September 30, 2000 and a margin of 2.75% and
3.50%, respectively, thereafter. Beginning September 30, 2000 the Company
is required to pay additional interest in the amount of 4.5% per annum on
that portion of the Facility that is in excess of four times adjusted
EBITDA, as defined. The Company's ability to borrow under the Facility
terminates on April 15, 2002, subject to exceptions set forth therein. At
December 31, 1998, the weighted average borrowing rate was 8.6%. A
commitment fee of up to .50% per annum is payable by the Company on the
undrawn balance.
In 1998, the Company refinanced $31,000,000 of notes payable to
shareholders of acquired companies using the Secured Revolving Line of
Credit. The refinanced notes were classified in the 1997 consolidated
balance sheet according to the terms of the Secured Revolving Line of
Credit. The remaining notes to shareholders of acquired companies are
classified according to the terms of the notes.
Commencing on September 15, 1999, the Company shall make quarterly
principal payments on the Secured Term Loan of $1.5 million per quarter
through and including June 15, 2000; $3.0 million per quarter through and
including March 15, 2001; $6.0 million per quarter through and including
December 15, 2001; and a $42.0 million balloon payment due April 15, 2002.
The original terms of the Secured Revolving Line of Credit did not require
principal payments until maturity at December 16, 2002.
CAPITAL LEASE COMMITMENTS
The Company leases certain equipment under capital leases. Future minimum
rental payments required on capital leases for the next five years
beginning January 1, 1999, less amounts representing interest, are as
follows:
<TABLE>
<S> <C>
1999 $ 704,000
2000 374,000
2001 216,000
2002 111,000
2003 6,000
-----------
1,411,000
Less amounts representing interest (104,000)
-----------
$ 1,307,000
===========
</TABLE>
71
<PAGE> 72
OPERATING LEASE COMMITMENTS
The Company has noncancelable operating leases on certain land, vehicles,
buildings and equipment. The approximate minimum future rental commitments
on the operating leases for the next five years beginning January 1, 1999,
are as follows:
<TABLE>
<S> <C>
1999 $11,203,000
2000 8,140,000
2001 5,336,000
2002 2,745,000
2003 1,156,000
Thereafter 1,183,000
-----------
$29,763,000
===========
</TABLE>
Rent expense for all operating leases was approximately $15,695,000,
$13,811,000 and $8,356,000 in 1998, 1997 and 1996, respectively.
9. SHAREHOLDERS' EQUITY AND STOCK PLANS
NONQUALIFIED STOCK OPTION PLANS
Under the 1991 Nonqualified Stock Option Plan (the "Plan"), as amended,
3,500,000 shares of common stock have been reserved for issuance upon
exercise of options granted thereunder. The maximum term of any option
granted pursuant to the Plan is ten years. Shares subject to options
granted under the Plan which expire, terminate or are canceled without
having been exercised in full become available again for future grants.
An analysis of stock options outstanding is as follows:
<TABLE>
<CAPTION>
WEIGHTED\
AVERAGE
OPTIONS EXERCISE PRICE
------- --------------
<S> <C> <C>
OUTSTANDING AT DECEMBER 31, 1995 735,900 $ 14.16
Granted 1,011,500 $ 18.10
Exercised 168,004 $ 11.81
Canceled 4,001 $ 17.50
--------- -----------
OUTSTANDING AT DECEMBER 31, 1996 1,575,395 $ 16.93
Granted 267,000 $ 21.64
Exercised 184,862 $ 15.00
Canceled 54,475 $ 19.57
--------- -----------
OUTSTANDING AT DECEMBER 31, 1997 1,603,058 $ 17.85
Granted 1,274,500 $ 7.69
Exercised 35,109 $ 13.33
Canceled 772,118 $ 17.64
--------- -----------
OUTSTANDING AT DECEMBER 31, 1998 2,070,331 $ 11.75
========= ===========
EXERCISABLE AT DECEMBER 31, 1998 1,195,963
=========
</TABLE>
72
<PAGE> 73
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE PRICE
REMAINING OPTIONS OF OPTIONS
WEIGHTED CONTRACTUAL EXERCISABLE AT EXERCISABLE AT
OPTIONS EXERCISE AVERAGE LIFE DECEMBER 31, DECEMBER 31,
OUTSTANDING PRICES EXERCISE PRICE IN YEARS 1998 1998
----------- ------ -------------- -------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
17,338 $6.00 $ 6.00 2.7 17,338 $ 6.00
37,900 $10.00 to $ 10.05 5.5 37,900 $ 10.05
$11.50
581,143 $15.83 to $ 17.14 6.7 581,143 $ 17.14
$20.67
270,500 $20.44 to $ 22.52 7.9 178,749 $ 23.03
$28.00
1,163,450 $2.13 to $ 6.70 9.7 380,833 $ 5.52
$18.13
--------- ---------
2,070,331 1,195,963
========= =========
</TABLE>
Options granted during 1996 have a two year vesting period and expire in
ten years. Options granted during 1997 have two and three year vesting
periods and expire in ten years. Options granted during 1998 to all
employees, except officers and directors, have a one, two, three and four
year vesting periods and expire in ten years. As of December 31, 1998,
205,779 shares remain available for future grants of options under the
Plan.
Under the 1995 Nonqualified Stock Option Plan for Directors (the "1995
Plan"), 300,000 shares of common stock have been reserved for issuance
upon exercise of options granted thereunder. The maximum term of any
option granted pursuant to the 1995 Plan is ten years. Shares subject to
options granted under the Plan which expire, terminate or are canceled
without having been exercised in full become available for future grants.
In 1996, the Company granted options for 24,000 shares of common stock
under the 1995 Plan at an exercise price of $26.25. In 1997, the Company
granted options for 24,000 shares of common stock at an exercise price of
$21.06. In 1998, the Company granted options for 31,500 shares of common
stock at exercise prices of $1.69 and $19.00. The issued options are fully
vested and expire in ten years.
73
<PAGE> 74
The Company has adopted the disclosure provisions of SFAS 123.
Accordingly, no compensation cost has been recognized for the stock option
plans. Had compensation cost for the Company's stock option and employee
stock purchase plans been determined based on the fair value at the grant
date of awards in 1998, 1997 and 1996 consistent with the provisions of
SFAS 123, the Company's net income (loss) and net income (loss) per common
share would have been reduced (increased) to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Net income (loss) - as reported $ (38,978,000) $ (25,908,000) $ 15,201,000
Net income (loss) - pro forma (40,796,000) (31,326,000) 10,521,000
Net income (loss) per common share - as reported
Basic (2.60) (1.75) 1.13
Diluted (2.60) (1.75) 1.10
Net income (loss) per common share - pro forma
Basic (2.72) (2.11) .78
Diluted (2.72) (2.11) .77
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years. The
weighted average fair value of options granted were $2.44, $13.31 and
$11.07 for 1998, 1997 and 1996, respectively. The fair value of each grant
is estimated on the date of grant using the Black-Scholes option-pricing
model with the following assumptions used for grants in 1998, 1997 and
1996:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Dividend yield 0% 0% 0%
Expected volatility 42% 38% 38%
Expected lives 1 TO 4 YEARS 10 years 10 years
Risk-free interest rate range 4.6% TO 5.6% 5.7% to 6.5% 5.6% to 6.8%
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
The Company's 1993 Stock Purchase Plan (the "Stock Purchase Plan")
originally reserved 750,000 shares for issuance to employees. Under the
Stock Purchase Plan, employees may purchase stock, subject to certain
limitations, at 85% of the lower of the closing market price at the
beginning or at the end of each plan year, which is the last day of
February. As of December 31, 1998, 173,141 shares have been issued under
this plan.
74
<PAGE> 75
WARRANTS
As of December 31, 1998, warrants to purchase 16,007 shares of common
stock are outstanding at $11.00 per share. In 1998, 1997 and 1996,
warrants were exercised for 12,000 shares at $8.33 per share, 7,500 shares
at $12.00 per share and 66,600 shares at prices ranging from $11.00 per
share to $18.00 per share, respectively.
COMMON STOCK
In May 1996, the Company issued 1,650,000 shares of its common stock (on a
pre-split basis) to the public (the "1996 Secondary Offering") at a price
of $42.00 per share before underwriting discounts and expenses. Net of
discounts and expenses, the Company realized approximately $66 million
from the 1996 Secondary Offering. Of the 1996 Secondary Offering proceeds,
approximately $59 million was applied to reduce outstanding borrowings and
the remainder was used to fund acquisitions.
The Company completed a 3-for-2 common stock split dividend effective with
a record date at the close of trading on June 28, 1996. All amounts shown
in the financial statements related to common shares outstanding, weighted
average common shares outstanding, net income per share, stock options,
and warrants have been adjusted to reflect this stock split.
PREFERRED STOCK
The Company's certificate of incorporation was amended in 1996 to
authorize the issuance of up to 5,000,000 shares of preferred stock. The
Company's board of directors is authorized to establish the terms and
rights of each such series, including the voting powers, designations,
preferences, and other special rights, qualifications, limitations or
restrictions thereof.
EARNINGS PER SHARE
In the fourth quarter of 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS 128"). SFAS 128 establishes standards for computing and presenting
earnings per share. Under the standards established by SFAS 128, earnings
per share is measured at two levels: basic earnings per share and diluted
earnings per share. Basic earnings per share is computed by dividing net
income by the weighted average number of common shares outstanding during
the year. Diluted earnings per share is computed by dividing net income by
the weighted average number of common shares after considering the
additional dilution related to convertible preferred stock, convertible
debt, options and warrants. Net income per common share for prior periods
have been restated to comply with SFAS 128. In computing diluted earnings
per share, the outstanding stock warrants and stock options are considered
dilutive using the treasury stock method.
75
<PAGE> 76
The following table information is necessary to calculate earnings per
share for the years ending December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Net income (loss) $(38,978,000) $(25,908,000) $15,201,000
============ ============ ===========
Weighted average common shares outstanding 14,986,000 14,839,000 13,473,000
Effect of dilutive options and warrants -- -- 368,000
------------ ------------ -----------
Adjusted diluted common shares outstanding 14,986,000 14,839,000 13,841,000
============ ============ ===========
Net income (loss) per common share
Basic $ (2.60) $ (1.75) $ 1.13
============ ============ ===========
Diluted $ (2.60) $ (1.75) $ 1.10
============ ============ ===========
</TABLE>
Securities that could potentially dilute basic EPS in the future that were
not included in the calculations above, because of the anti-dilutive
effects for 1998 and 1997, include all outstanding stock options and
warrants previously discussed.
10. INCOME TAXES
The provision (benefit) for income taxes is comprised of the following
components:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1998 1997 1996
------------ ----------- ----------
<S> <C> <C> <C>
Current
Federal $ (4,528,000) $(5,702,000) $8,039,000
State (146,000) (277,000) 827,000
------------ ----------- ----------
(4,674,000) (5,979,000) 8,866,000
------------ ----------- ----------
Deferred
Federal (6,074,000) (2,826,000) 626,000
State (196,000) (137,000) 64,000
------------ ----------- ----------
(6,270,000) (2,963,000) 690,000
------------ ----------- ----------
Provision (benefit) for income taxes $(10,944,000) $(8,942,000) $9,556,000
============ =========== ==========
</TABLE>
76
<PAGE> 77
The difference between the actual income tax provision and the tax
provision computed by applying statutory federal income tax rate to
earnings before taxes is attributable to the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
------------ ------------ ----------
<S> <C> <C> <C>
Provision (benefit) for federal income taxes at
statutory rate $(17,473,000) $(12,198,000) $8,665,000
State income taxes, net of federal tax benefit (564,000) (592,000) 371,000
Other, principally non-deductible goodwill 7,093,000 3,848,000 520,000
------------ ------------ ----------
Provision (benefit) for income taxes $(10,944,000) $ (8,942,000) $9,556,000
============ ============ ==========
</TABLE>
The net deferred tax assets and liabilities, at the respective income tax
rates, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
----------- -----------
<S> <C> <C>
Current deferred tax asset:
Accrued restructuring liabilities $ 1,331,000 $ 5,346,000
Accounts receivable reserves 3,019,000 403,000
Accrued liabilities and other 2,824,000 3,249,000
----------- -----------
Net current deferred tax asset $ 7,174,000 $ 8,998,000
=========== ===========
Noncurrent deferred tax asset:
Financial reporting amortization in excess of tax amortization $ 3,948,000 $ --
Alternative minimum tax credit 3,000,000 --
Noncurrent asset valuation reserves 100,000 2,163,000
Employee benefit plan deposits 473,000 354,000
Other 2,385,000 1,155,000
----------- -----------
9,906,000 3,672,000
----------- -----------
Noncurrent deferred tax liabilities:
Tax amortization in excess of financial reporting amortization -- (1,685,000)
Acquisition costs (2,351,000) (2,575,000)
Tax depreciation in excess of financial reporting depreciation (1,507,000) (1,455,000)
Other -- (3,000)
----------- -----------
(3,858,000) (5,718,000)
----------- -----------
Net noncurrent deferred tax asset (liability) $ 6,048,000 $(2,046,000)
=========== ===========
</TABLE>
77
<PAGE> 78
In 1998, 1997 and 1996 the Company realized tax deductions resulting from
employees' exercise of non-qualified stock options. Tax benefits of
$35,000, $530,000 and $450,000, respectively, have been recorded to
paid-in capital.
11. COMMITMENTS AND CONTINGENCIES
LITIGATION
There is certain known or possible litigation incidental to the Company's
business, which, in management's opinion, will not have a material adverse
effect on the Company's results of operations or financial condition.
Professional liability insurance up to certain limits is carried by the
Company for coverage of such claims. See Note 12 for further discussion.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company has employment agreements with certain members of management
which provide for the payment to these members of amounts up to one and
one-half times their annual compensation in the event of a termination
without cause, a constructive discharge (as defined) or upon a change in
control of the Company (as defined). The terms of such agreements are from
one to three years and automatically renew for one year if not terminated
by the employee or the Company. The maximum contingent liability under
these agreements is approximately $1.4 million.
SELF-INSURANCE
The Company is self-insured for workers compensation claims for the first
$250,000 per claim and for amounts over $500,000 per claim; and for health
insurance for substantially all employees for the first $150,000 on a per
claim basis. The Company provides reserves for the settlement of
outstanding claims at amounts believed to be adequate. The differences
between actual settlements and reserves are included in expense in the
year finalized.
LETTERS OF CREDIT
The Company has in place two letters of credit totaling $1,887,000
securing obligations with respect to its workers' compensation
self-insurance program. Effective January l, 1999, the Company was
required to increase these letters of credit to $2,130,000.
78
<PAGE> 79
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Company has established a Supplemental Executive Retirement Plan (the
"SERP") to provide retirement benefits for officers and employees of the
Company at the level of manager and above who have been designated for
participation by the President of the Company. Participants in the SERP
will be eligible to receive benefits thereunder after reaching normal
retirement age, which is defined in the SERP as either (i) age 65, (ii)
age 60 and 10 years of service, or (iii) age 55 and 15 years of service.
Under the SERP, participants can defer up to 6% of their base pay. The
Company makes matching contributions of 100% of the amount deferred by
each participant.
Benefits under the SERP become fully vested upon the participant reaching
normal retirement age or the participant's disability or death. In
addition, if there is a change in control of the Company as defined in the
SERP, all participants shall be fully vested and each participant shall be
entitled to receive their benefits under the SERP upon termination of
employment.
The SERP trust funds are at risk of loss. Should the Company become
insolvent, its creditors would be entitled to a claim to the funds
superior to the claim of SERP participants.
Due to limited participation in the SERP, the Company's board of directors
on February 3, 1999 approved the termination of the SERP and authorized
appropriate amendments to the SERP to allow the prompt distribution of all
funds thereunder to participants.
401K RETIREMENT SAVINGS PLAN
The Company has a 401K Retirement Savings Plan (the "401K"), administered
by Pan American Life Insurance Company through December 31, 1998 and
ReliaStar Life Insurance Company from January 1, 1999 to present, to
provide a tax deferred retirement savings plan to its employees. To
qualify employees must be 21 years of age and over, with twelve months of
continuous employment and must work at least twenty hours per week. The
401K is 100% employee funded with contributions limited to 1% to 15% of
employee compensation.
HEALTH CARE INDUSTRY
The health care industry is subject to numerous laws and regulations of
federal, state and local governments. These laws and regulations include,
but are not necessarily limited to, matters such as licensure,
accreditation, government health care program participation requirements,
reimbursement for patient services, and Medicare and Medicaid fraud and
abuse. Recently, government activity has increased with respect to
investigation and allegations concerning possible violations of fraud and
abuse statutes and regulations by health care providers. Violations of
these laws and regulations could result in expulsion from government
health care programs together with the imposition of significant fines and
penalties, as well as significant repayment for patient services
previously billed. Management believes that the Company is in compliance
with fraud and abuse as well as other applicable government laws and
regulations. Compliance with such laws and regulations can be subject to
future government review and interpretation as well as regulatory actions
unknown or unasserted at this time.
79
<PAGE> 80
In recent years, various state and federal regulatory agencies have
stepped up investigative and enforcement activities with respect to the
health care industry, and many health care providers, including durable
medical equipment ("DME") suppliers, have received subpoenas and other
requests for information in connection with such activities. On February
12, 1998, a subpoena from the Office of Inspector General of the
Department of Health and Human Services ("OIG") was served on the Company
at its Pineville, Kentucky center in connection with an investigation
relating to possible improper claims for payment from Medicare. Since that
time, the U.S. Department of Justice has begun examining issues involving
CMN's and loaning of equipment by the Company nationwide. The Company has
retained experience health care counsel to represent it in this matter and
is cooperating in the investigation. The Company's counsel has conducted
meetings with governmental officials, and governmental officials have
interviewed certain company officers and employees. The Company has
responded to government requests for information and documents, and is
working with the government investigators to move forward with the
investigation. The ultimate outcome of these matters is currently
uncertain.
In addition to the above referenced investigation, the Company from
time-to-time receives notices and subpoenas from various governmental
agencies concerning their plans to audit the Company or requesting
information regarding certain aspects of the Company's business, and the
Company cooperates with the various agencies in responding to such
requests. The government has broad authority and discretion in enforcing
applicable laws and regulations, and therefore the scope and outcome of
these investigations and inquiries cannot be predicted with certainty. The
Company expects to incur additional costs in the future, such as legal
expenses in connection with all investigations.
80
<PAGE> 81
12. PROFESSIONAL LIABILITY INSURANCE
The Company's professional liability policies are on an occurrence basis
and are renewable annually with per claim coverage limits of up to
$1,000,000 per occurrence and $3,000,000 in the aggregate. The Company
maintains a commercial general liability policy which includes product
liability coverage on the medical equipment that it sells or rents with
per claim coverage limits of up to $1,000,000 per occurrence with a
$1,000,000 product liability annual aggregate and a $2,000,000 general
liability annual aggregate. The Company also maintains excess liability
coverage with a limit of $50,000,000 per occurrence and $50,000,000 in the
aggregate. While management believes the manufacturers of the equipment it
sells or rents currently maintain their own insurance, and in some cases
the Company has received evidence of such coverage and had been added by
endorsement as additional insured, there can be no assurance that such
manufacturers will continue to do so, that such insurance will be adequate
or available to protect the Company, or that the Company will not have
liability independent of that of such manufacturers and/or their insurance
coverage.
There can be no assurance that any of the Company's insurance will be
sufficient to cover any judgments, settlements or cost relating to any
pending or future legal proceedings or that any such insurance will be
available to the Company in the future on satisfactory terms, if at all.
If the insurance carried by the Company is not sufficient to cover any
judgments, settlements or cost relating to pending or future legal
proceedings, the Company's business and financial condition could be
materially, adversely affected.
13. RELATED PARTY TRANSACTIONS
Effective January l, 1992 and for a term of one year, the Company entered
into a consulting agreement with the then chairman of the Company and the
chairman and chief executive officer of Counsel Corporation ("Counsel").
The agreement has been renewed each year through 1998. The agreement
provides for a base consulting fee of $20,000 per month, with additional
compensation at the discretion of the Board of Directors of up to $60,000
per year. The Company paid $240,000, $300,000 and $300,000 pursuant to
this agreement for 1998, 1997 and 1996 respectively. In May 1994, the
president of Counsel became chairman of the Company and receives a
consulting fee of $8,500 per month for his service as chairman. The
Company paid $102,000 under this agreement for 1998, 1997 and 1996.
Counsel owns approximately 26 % of the Company's common stock at December
31, 1998.
A director of the Company is a partner in the law firm of Harwell Howard
Hyne Gabbert & Manner, P.C. ("Harwell Howard") which the Company engaged
during 1998, 1997 and 1996 to render legal advice in a variety of
activities for which Harwell Howard was paid $1,727,000, $1,656,000 and
$1,400,000, respectively.
81
<PAGE> 82
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1998 QUARTER QUARTER QUARTER QUARTER TOTAL
------------------------------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net Revenues $102,793 $103,600 $101,345 $ 96,130 $403,868
======== ======== ======== ======== ========
Net Income (Loss) $ 2,989 $ 3,929 $ (9,865)(1) $(36,031)(2) $(38,978)
======== ======== ======== ======== ========
Basic Income (Loss) Per Share $ .20 $ .26 $ (.66)(1) $ (2.40)(2) $ (2.60)
======== ======== ======== ======== ========
Diluted Income (Loss) Per Share $ .20 $ .26 $ (.66)(1) $ (2.40)(2) $ (2.60)
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER TOTAL
------------------------------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net Revenues $ 84,586 $ 94,789 $102,651 $105,251 $387,277
======== ======== ======== ======== ========
Net Income (Loss) $ 4,638 $ 4,902 $(40,196)(3) $ 4,748 $(25,908)
======== ======== ======== ======== ========
Basic Income (Loss) Per Share $ .31 $ .33 $ (2.70)(3) $ .32 $ (1.75)
======== ======== ======== ======== ========
Diluted Income (Loss) Per Share $ .31 $ .33 $ (2.70)(3) $ .31 $ (1.75)
======== ======== ======== ======== ========
</TABLE>
1) Includes $15.2 million pre-tax charge primarily related to accounts
receivable. (See Note 4).
2) Includes $37.8 million pre-tax charge related to goodwill. (See
Note 4).
3) Includes $65.0 million pre-tax charges related to restructuring.
(See Note 4).
82
<PAGE> 83
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To American HomePatient, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of American HomePatient, Inc. included in this
Form 10-K, and have issued our report thereon, dated February 26, 1999 (except
with respect to the matter discussed in Notes 2 and 8, as to which the date is
April 14, 1999). Our audit was made for the purpose of forming an opinion on
those statements taken as a whole. The schedule listed in the accompanying index
is the responsibility of the Company's management and is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Nashville, Tennessee
February 26, 1999 (except with respect to the matter
discussed in Notes 2 and 8, as to which the
date is April 14, 1999)
S-1
<PAGE> 84
AMERICAN HOMEPATIENT, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- --------------------------------- -------- --------
Additions
---------------------------------
Charged
Balance at to Costs Charged Balance at
Beginning and to other Deductions End of
Description of Period Expenses Accounts Other(1) (2) Period
----------- --------- -------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31, 1998:
Allowances for doubtful accounts $43,862 $29,857(4) $ -- $ 868 $33,440 $41,147
------- ------- ----- -------- ------- -------
FOR THE YEAR ENDED DECEMBER 31, 1997:
Allowances for doubtful accounts $18,755 $30,541(3) $ -- $ 8,408 $13,842 $43,862
------- ------- ----- -------- ------- -------
FOR THE YEAR ENDED DECEMBER 31, 1996:
Allowances for doubtful accounts $12,383 $11,450 $ -- $ 6,540 $11,618 $18,755
------- ------- ----- -------- ------- -------
</TABLE>
- ----------------
(1) Amounts recorded in connection with acquisitions.
(2) Amounts written off as uncollectible accounts, net of recoveries.
(3) Includes $17.75 million charge associated with restructuring.
(4) Includes $14.5 million additional bad debt provision recorded in the third
quarter 1998.
S-2
<PAGE> 85
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
3.1 Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement
No. 33-42777 on Form S-1).
3.2 Certificate of Amendment to the Certificate of Incorporation of
the Company dated October 31, 1991 (incorporated by reference to
Exhibit 3.2 to Amendment No. 2 to the Company's Registration
Statement No. 33-42777 on Form S-1).
3.3 Certificate of Amendment to the Certificate of Incorporation of
the Company Dated May 14, 1992 (incorporated by reference to
Registration Statement on Form S-8 dated February 16, 1993).
3.4 Certificate of Ownership and Merger merging American
HomePatient, Inc. into Diversicare Inc. dated May 11, 1994
(incorporated by reference to Exhibit 4.4 to the Company's
Registration Statement No. 33-89568 on Form S-2).
3.5 Certificate of Amendment to the Certificate of Incorporation of
the Company dated July 8, 1996 (incorporated by reference to
Exhibit 3.5 to the Company's Report of Form 10-Q for the Quarter
ended June 30, 1996).
3.6 Bylaws of the Company, as amended (incorporated by reference to
Exhibit 3.3 to the Company's Registration Statement No. 33-42777
on Form S-1).
10.1 Subsidiary Security Agreement dated October 20, 1994 by and
among Bankers Trust Company and certain direct and indirect
subsidiaries of American HomePatient, Inc. (incorporated by
reference to Exhibit 10.17 to the Company's Registration
Statement No. 33-89568 on Form S-2).
10.2 Borrower Security Agreement dated October 20, 1994, by and
between Bankers Trust Company and American HomePatient, Inc.
(incorporated by reference to Exhibit 10.18 to the Company's
Registration Statement No. 33-89568 on Form S-2).
10.3 1991 Non-Qualified Stock Option Plan, as amended (incorporated
by reference to Exhibit 10.25 to the Company's Registration
Statement No. 33-89568 on Form S-2).
10.4 Amendment No. 4 to 1991 Nonqualified Stock Option Plan
(incorporated herein by reference to Exhibit A of Schedule 14A
dated April 17, 1995).
<PAGE> 86
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
10.5 1995 Nonqualified Stock Option Plan for Directors (incorporated
herein by reference to Exhibit B of Schedule 14A dated April 17,
1995).
10.6 1993 Employee Stock Purchase Plan (incorporated by reference to
Exhibit 10.26 to the Company's Registration Statement No.
33-89568 on Form S-2).
10.7 Trust Agreement for the Company Master Plan dated January 1,
1992, by and between the Company and C&S/Sovran Trust Company
(incorporated by reference to Exhibit 10.42 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1991).
10.8 Restated Master Agreement and Supplemental Executive Retirement
Plan (restated as of December 31, 1993) (incorporated by
reference to Exhibit 10.57 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993).
10.9 Partnership Agreement dated November 1, 1994, by and between HCA
Health Services of Tennessee, Inc. and American HomePatient
Ventures, Inc. (incorporated by reference to Exhibit 10.42 to
the Company's Registration Statement No. 33-89568 on Form S-2).
10.10 Agreement of Partnership of Alliance Home Health Care
Partnership d/b/a Medcenters Home Equipment dated January 1,
1994, by and between Medical Centers Home Equipment and American
HomePatient Ventures, Inc. (incorporated by reference to Exhibit
10.43 to the Company's Registration Statement No. 33-89568 on
Form S-2).
10.11 Agreement of Limited Partnership of Health Star DME, Ltd. dated
May 19, 1988, by and between Health Star Medical of Amarillo,
Inc. and HPBH Enterprises, Inc. as amended by Amendment No. 1 to
Certificate of Limited Partnership of Health Star DME, Ltd.
dated February 4, 1994, by AHP, L.P., D/B/A AHP Health, L.P.
(incorporated by reference to Exhibit 10.44 to the Company's
Registration Statement No. 33-89568 on Form S-2).
10.12 Partnership Agreement of Paragon Home Medical Equipment
Partnership dated January 15, 1990, by and between Baylor
Medical Plaza Services Corporation and Healthstar Medical
Equipment of Dallas, Inc. as amended by Amendment to Partnership
Agreement dated January 15, 1990, by and between Baylor Medical
Plaza Services Corporation and Healthstar Medical Equipment of
Dallas and as amended by Amendment to Partnership Agreement
dated March 31, 1994, by and between Medical Development Corp.
and AHP, L.P. (incorporated by reference to Exhibit 10.45 to the
Company's Registration Statement No. 33-89568 on Form S-2).
<PAGE> 87
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
10.13 Agreement of Partnership of Homelink Home Healthcare Partnership
dated February 28, 1985, by and between Med-E-Quip Rental and
Leasing, Inc. and Homelink Home Health Care Services, Inc., as
amended by First Amendment to Agreement of Partnership of
Homelink Home Health Care Partnership dated February 28, 1988,
by and between Med-E-Quip Rental and Leasing, Inc. and Homelink
Home Healthcare Services, Inc. and Second Amendment to Agreement
of Partnership of Homelink Home Health Care Partnership dated
October 1, 1988, by and between Med-E-Quip Rental and Leasing,
Inc. and Homelink Home Health Care Services, Inc. and Third
Amendment to Agreement of Partnership of Homelink Healthcare
Partnership dated October 1, 1991, by and between Med-E-Quip
Rental and Leasing, Inc. and Homelink Home Health Care Services,
Inc. (Incorporated by reference to Exhibit 10.46 to the
Company's Registration Statement No. 33-89568 on Form S-2).
10.14 Management Agreement dated December 27, 1994, by and among
Rural/Metro Corporation, Coronado Health Services, Inc. and
American HomePatient, Inc. (Incorporated by reference to Exhibit
10.49 to the Company's Registration Statement No. 33-89568 on
Form S-2).
10.15 Option Agreement dated December 27, 1994, by and among
Rural/Metro Corporation, Coronado Health Services, Inc. and
American HomePatient, Inc. (incorporated by reference to Exhibit
10.50 to the Company's Registration Statement No. 33-89568 on
Form S-2).
10.16 Form of Underwriting Agreement (incorporated by reference to
Exhibit 1 to the Company's Registration Statement No. 33-89568
on Form S-2).
10.17 Borrower Partnership Security Agreement dated December 28, 1995
by and between Bankers Trust Company and the Company
(incorporated by reference to Exhibit 10.69 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1995).
10.18 Subsidiary Partnership Security Agreement dated December 28,
1995 by and between Bankers Trust Company and certain direct and
indirect subsidiaries of the Company (incorporated by reference
to Exhibit 10.70 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995).
<PAGE> 88
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
10.19 Amended and Restated Borrower Pledge Agreement dated December
28, 1995 by and between Bankers Trust Company and the Company
(incorporated by reference to Exhibit 10.71 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1995).
10.20 Amended and Restated Subsidiary Pledge Agreement dated December
28, 1995 by and among Bankers Trust Company and certain direct
and indirect subsidiaries of the Company (incorporated by
reference to Exhibit 10.72 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995).
10.21 Subsidiary Guaranty dated October 20, 1994 by certain direct and
indirect subsidiaries of the Company (incorporated by reference
to Exhibit 10.73 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995).
10.22 Lease and addendum as amended dated October 25, 1995 by and
between Principal Mutual Life Insurance Company and American
HomePatient, Inc. (incorporated by reference to Exhibit 10.47 to
the Company's Report on Form 10-K for the year ended December
31, 1996).
10.23 Stock Purchase Agreement dated December 23, 1997 among National
Medical Systems, Inc., its stockholders named therein, and
American HomePatient, Inc. (incorporated by reference to Exhibit
2.1 to the Company's Report on Form 8-K dated February 17,
1998).
10.24 Amendment to Stock Purchase Agreement dated February 5, 1998
among National Medical Systems, Inc., its stockholders named
therein, and American HomePatient, Inc. (incorporated by
reference to Exhibit 2.2 to the Company's Report on Form 8-K
dated February 17, 1998).
10.25 Fourth Amended and Restated Credit Agreement dated December 19,
1997 by and among American HomePatient, Inc., the Banks named
therein and Bankers Trust Company (incorporated by reference to
Exhibit 10.44 to the Company's Report on Form 10-K for the year
ended December 31, 1997).
10.26 Revolving Note dated December 23, 1997 by and between American
HomePatient, Inc. and Bankers Trust Company (incorporated by
reference to Exhibit 10.45 to the Company's Report on Form 10-K
for the year ended December 31, 1997).
10.27 Revolving Note dated December 23, 1997 by and between American
HomePatient, Inc. and ABN Amrobank, N.V. (incorporated by
reference to Exhibit 10.46 to the Company's Report on Form 10-K
for the year ended December 31, 1997).
<PAGE> 89
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
10.28 Revolving Note dated December 23, 1997 by and between American
HomePatient, Inc. and AmSouth Bank (incorporated by reference to
Exhibit 10.47 to the Company's Report on Form 10-K for the year
ended December 31, 1997).
10.29 Revolving Note dated December 23, 1997 by and between American
HomePatient, Inc. and Bank of America, NT & SA (incorporated by
reference to Exhibit 10.48 to the Company's Report on Form 10-K
for the year ended December 31, 1997).
10.30 Revolving Note dated December 23, 1997 by and between American
HomePatient, Inc. and Bank of Montreal (incorporated by
reference to Exhibit 10.49 to the Company's Report on Form 10-K
for the year ended December 31, 1997).
10.31 Revolving Note dated December 23, 1997 by and between American
HomePatient, Inc. and Corestates Bank, N.A. (incorporated by
reference to Exhibit 10.5 to the Company's Report on Form 10-K
for the year ended December 31, 1997).
10.32 Revolving Note dated December 23, 1997 by and between American
HomePatient, Inc. and First American National Bank (incorporated
by reference to Exhibit 10.51 to the Company's Report on Form
10-K for the year ended December 31, 1997).
10.33 Revolving Note dated December 23, 1997 by and between American
HomePatient, Inc. and The First National Bank of Chicago
(incorporated by reference to Exhibit 10.52 to the Company's
Report on Form 10-K for the year ended December 31, 1997).
10.34 Revolving Note dated December 23, 1997 by and between American
HomePatient, Inc. and The Fuji Bank, Limited, Atlanta Agency
(incorporated by reference to Exhibit 10.53 to the Company's
Report on Form 10-K for the year ended December 31, 1997).
10.35 Revolving Note dated December 23, 1997 by and between American
HomePatient, Inc. and NationsBank, N.A. (incorporated by
reference to Exhibit 10.54 to the Company's Report on Form 10-K
for the year ended December 31, 1997).
10.36 Revolving Note dated December 23, 1997 by and between American
HomePatient, Inc. and PNC Bank, Kentucky, Inc. (incorporated by
reference to Exhibit 10.55 to the Company's Report on Form 10-K
for the year ended December 31, 1997).
10.37 Revolving Note dated December 23, 1997 by and between American
HomePatient, Inc. and Cooperative Centrale Raiffesen
Boerenleenbank,
<PAGE> 90
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
B.A., "Rabobank Nederland," New York Branch (incorporated by
reference to Exhibit 10.56 to the Company's Report on Form 10-K
for the year ended December 31, 1997).
10.38 Revolving Note dated December 23, 1997 by and between American
HomePatient, Inc. and the Sakura Bank, Limited (incorporated by
reference to Exhibit 10.57 to the Company's Report on Form 10-K
for the year ended December 31, 1997).
10.39 Revolving Note dated December 23, 1997 by and between American
HomePatient, Inc. and Suntrust Bank, Nashville, N.A.
(incorporated by reference to Exhibit 10.58 to the Company's
Report on Form 10-K for the year ended December 31, 1997).
10.40 Revolving Note dated December 23, 1997 by and between American
HomePatient, Inc. and Union Bank of California, N.A.
(incorporated by reference to Exhibit 10.59 to the Company's
Report on Form 10-K for the year ended December 31, 1997).
10.41 Revolving Note dated December 23, 1997 by and between American
HomePatient, Inc. and Union Bank of Switzerland, New York Branch
(incorporated by reference to Exhibit 10.6 to the Company's
Report on Form 10-K for the year ended December 31, 1997).
10.42 Term Note dated December 19, 1997 by and between American
HomePatient, Inc. and Bankers Trust Company (incorporated by
reference to Exhibit 10.61 to the Company's Report on Form 10-K
for the year ended December 31, 1997).
10.43 Term Note dated December 19, 1997 by and between American
HomePatient, Inc. and ABN Amrobank, N.V. (incorporated by
reference to Exhibit 10.62 to the Company's Report on Form 10-K
for the year ended December 31, 1997).
10.44 Term Note dated December 19, 1997 by and between American
HomePatient, Inc. and AmSouth Bank. (incorporated by reference
to Exhibit 10.63 to the Company's Report on Form 10-K for the
year ended December 31, 1997).
10.45 Term Note dated December 19, 1997 by and between American
HomePatient, Inc. and Bank of America, NT & SA (incorporated by
reference to Exhibit 10.64 to the Company's Report on Form 10-K
for the year ended December 31, 1997).
10.46 Term Note dated December 19, 1997 by and between American
HomePatient, Inc. and Bank of Montreal (incorporated by
reference to Exhibit 10.65 to the Company's Report on Form 10-K
for the year ended December 31, 1997).
<PAGE> 91
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
10.47 Term Note dated December 19, 1997 by and between American
HomePatient, Inc. and Corestates Bank, N.A. (incorporated by
reference to Exhibit 10.66 to the Company's Report on Form 10-K
for the year ended December 31, 1997).
10.48 Term Note dated December 19, 1997 by and between American
HomePatient, Inc. and First American National Bank (incorporated
by reference to Exhibit 10.67 to the Company's Report on Form
10-K for the year ended December 31, 1997).
10.49 Term Note dated December 19, 1997 by and between American
HomePatient, Inc. and The First National Bank of Chicago
(incorporated by reference to Exhibit 10.68 to the Company's
Report on Form 10-K for the year ended December 31, 1997).
10.50 Term Note dated December 19, 1997 by and between American
HomePatient, Inc. and The Fuji Bank, Limited, Atlanta Agency
(incorporated by reference to Exhibit 10.69 to the Company's
Report on Form 10-K for the year ended December 31, 1997).
10.51 Term Note dated December 19, 1997 by and between American
HomePatient, Inc. and NationsBank, N.A. (incorporated by
reference to Exhibit 10.7 to the Company's Report on Form 10-K
for the year ended December 31, 1997).
10.52 Term Note dated December 19, 1997 by and between American
HomePatient, Inc. and PNC Bank, Kentucky, Inc. (incorporated by
reference to Exhibit 10.71 to the Company's Report on Form 10-K
for the year ended December 31, 1997).
10.53 Term Note dated December 19, 1997 by and between American
HomePatient, Inc. and Cooperative Centrale Raiffesen
Boerenleenbank, B.A., "Rabobank Nederland," New York Branch
(incorporated by reference to Exhibit 10.72 to the Company's
Report on Form 10-K for the year ended December 31, 1997).
10.54 Term Note dated December 19, 1997 by and between American
HomePatient, Inc. and the Sakura Bank, Limited (incorporated by
reference to Exhibit 10.73 to the Company's Report on Form 10-K
for the year ended December 31, 1997).
10.55 Term Note dated December 19, 1997 by and between American
HomePatient, Inc. and Suntrust Bank, Nashville, N.A.
(incorporated by reference to Exhibit 10.74 to the Company's
Report on Form 10-K for the year ended December 31, 1997).
<PAGE> 92
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
10.56 Term Note dated December 19, 1997 by and between American
HomePatient, Inc. and Union Bank of California, N.A.
(incorporated by reference to Exhibit 10.75 to the Company's
Report on Form 10-K for the year ended December 31, 1997).
10.57 Term Note dated December 19, 1997 by and between American
HomePatient, Inc. and Union Bank of Switzerland, New York Branch
(incorporated by reference to Exhibit 10.76 to the Company's
Report on Form 10-K for the year ended December 31, 1997).
10.58 Swing Line Note dated December 19, 1997 by and between American
HomePatient, Inc. and Bankers Trust Company (incorporated by
reference to Exhibit 10.78 to the Company's Report on Form 10-K
for the year ended December 31, 1997).
10.58 Master Agreement dated October 11, 1996 by and between American
HomePatient, Inc. and Bank of Montreal (incorporated by
reference to Exhibit 10.78 to the Company's Report on Form 10-K
for the year ended December 31, 1997).
10.59 Severance Agreement dated December 22, 1997 by and between
American HomePatient, Inc. and Thomas E. Mills (incorporated by
reference to Exhibit 10.79 to the Company's Report on Form 10-K
for the year ended December 31, 1997).
10.60 Letter Agreement dated August 7, 1997 by and between American
HomePatient, Inc., and DCAmerica Inc. (incorporated by reference
to Exhibit 10.81 to the Company's Report on Form 10-K for the
year ended December 31, 1997).
10.61 Amendment No. 7 to 1991 Nonqualified Stock Option Plan
(incorporated by reference to Exhibit 10.1 to the Company's
Report on Form 10-Q for the quarter ended March 31, 1998).
10.62 Asset Purchase Agreement dated February 27, 1998 among the
Company, Evocare, Inc., Evocare Home Health Care Services, Inc.
Chester Black, Bernard Lambrese and Kelly Lambrese (incorporated
by reference to Exhibit 10.2 to the Company's Report on Form
10-Q for the quarter ended March 31, 1998).
10.63 Amendment to Asset Purchase Agreement dated March 12, 1998
Company, Evocare, Inc., Evocare Home Health Care Services, Inc.
Chester Black, Bernard Lambrese and Kelly Lambrese (incorporated
by reference to Exhibit 10.3 to the Company's Report on Form
10-Q for the quarter ended March 31, 1998).
<PAGE> 93
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
10.64 Confidentiality, Non-Competition and Severance Pay Agreement
dated June 16, 1996 between the Company and David R. Gnass
(incorporated by reference to Exhibit 10.4 to the Company's
Report on Form 10-Q for the quarter ended March 31, 1998).
10.65 Confidentiality, Non-Competition and Severance Pay Agreement
dated April 1, 1996 between the Company and Mary Ellen Rodgers
(incorporated by reference to Exhibit 10.5 to the Company's
Report on Form 10-Q for the quarter ended March 31, 1998).
10.66 Confidentiality, Non-Competition and Severance Pay Agreement
dated December 23, 1997 between the Company and Kathey Palmer
(incorporated by reference to Exhibit 10.6 to the Company's
Report on Form 10-Q for the quarter ended March 31, 1998).
10.67 Separation Agreement dated July 6, 1998 between the Company and
Edward K. Wissing (incorporated by reference to Exhibit 10.1 to
the Company's Report on Form 10-Q for the Quarter ended June 30,
1998).
10.68 First Amendment to Fourth Amended and Restated Credit Agreement
dated October 29, 1998 among the Company, Banker's Trust Company
as Agent and the Banks named therein (incorporated by reference
to the Company's Report on Form 10-Q for the quarter ended
September 30, 1998).
10.69 Stock Purchase Agreement dated December 23, 1997 among the
Company, National Medical Systems, Inc. and its stockholders
named therein (incorporated by reference to Exhibit 2.1 to the
Company's Report on Form 8-K dated February 17, 1998).
10.70 Amendment to Stock Purchase Agreement dated February 5, 1998
Company, National Medical Systems, Inc. and its stockholders
named therein (incorporated by reference to Exhibit 2.2 to the
Company's Report on Form 8-K dated February 17, 1998).
10.71 Employment Agreement dated November 6, 1998 between the Company
and Joseph F. Furlong, III.
10.72 Employment Agreement dated January 1, 1999 between the Company
and Marilyn O'Hara.
10.73 Amendment No. 1 to Confidentiality, Non-Competition and
Severance pay Agreement dated February 15, 1999 between the
Company and Kathey Palmer.
10.74 Severance Agreement dated December 21, 1998 between the Company
and Mary Ellen Rodgers.
<PAGE> 94
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
10.75 Employment Evaluation Agreement dated July 15, 1998 between the
Company and David R. Gnass.
10.76 Severance Agreement dated December 31, 1998 between the Company
and Rita N. Hill.
10.77 Separation and Release Agreement dated February 16, 1999 between
the Company and Malcolm MacKenzie.
10.78 Asset Purchase Agreement dated July 7, 1998 among the Company,
Greenbrier Respiratory Care Services, Inc. and Allen Carson.
10.79 Stock Purchase Warrant dated August 11, 1994, by and between
Joseph F. Furlong III and the Company.
10.80 Second Amendment to Fourth Amended and Restated Credit Agreement
Dated as of April 14, 1999 by and among American HomePatient,
Inc., the Banks named therein and Bankers Trust Company, as
Agent for the Banks.
10.81 Engagement Letter dated April 13, 1999, by and between American
HomePatient, Inc. and The Recovery Group, Inc.
21 Subsidiary List.
23.1 Consent of Arthur Andersen LLP.
27 Financial Data Schedule (for SEC use only).
<PAGE> 1
EXHIBIT 10.71
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made effective as of November 6, 1998, by
and between AMERICAN HOMEPATIENT, INC., a Delaware corporation (hereinafter, the
"Employer"), and Joseph F. Furlong, III, a resident of the State of California
(the "Employee").
W I T N E S S E T H:
WHEREAS, Employer desires to employ Employee to serve as its President
and Chief Executive Officer, and Employee desires to accept such employment, on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements made herein, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound hereby, agree as
follows:
1. EMPLOYMENT. Employer hereby employs Employee to serve as Employer's
President and Chief Executive Officer during the term of this Agreement, and
Employee hereby accepts such employment.
2. TERM. The Agreement shall commence on November 6, 1998. Either party
may terminate this Agreement upon four (4) weeks' prior written notice to the
other party. In such event, Employee will continue to fully perform services
under this Agreement through the date of termination, and the Employer will pay
Employee timely all compensation due pursuant to Section 4 through the date of
termination. The provisions of Section 6 will survive termination of this
Agreement.
3. DUTIES OF EMPLOYEE. The Employee shall be responsible for the
typical management responsibilities expected of a President and Chief Executive
Officer of a publicly-held company, as well as such other responsibilities as
may be assigned to Employee from time to time by Employer's Board of Directors.
Employee agrees to devote substantially all of his business time, attention and
skill to the business and affairs of Employer and its subsidiaries and will
perform his duties hereunder faithfully. Employer acknowledges that Employee
will retain and pursue his other business interests which existed immediately
prior to the date of this Agreement.
4. COMPENSATION.
(a) Salary. For his employment hereunder, Employee shall be paid a
monthly salary of Thirty Thousand and No/100 Dollars ($30,000.00). Such salary
will be payable in accordance with the Employer's standard payroll practices.
(b) Options. Upon execution and delivery of this Agreement,
Employer will grant Employee options pursuant to its 1991 Nonqualified Stock
Option Plan, as amended, to acquire three hundred thousand (300,000) shares of
Employer's common stock. Such options will be subject to
<PAGE> 2
the above-referenced plan and to that certain Option Agreement between Employee
and Employer to be entered into forthwith.
(c) Business Expenses. Employer will reimburse Employee for all
reasonable travel and other expenses incurred by Employee in connection with the
services to be performed hereunder. Employer hereby acknowledges and agrees that
expenses related to travel to and from Employer's corporate support center in
Brentwood, Tennessee and Employee's residence in California, and expenses
related to accommodations, rental cars and similar items while Employee is in
Brentwood, Tennessee performing services for Employer will constitute reasonable
expenses.
(d) No Other Benefits. Employee will not be entitled to any
insurance or other benefits or perquisites except as is mutually agreed upon by
Employer and Employee.
5. TERMINATION FOR CAUSE. Employer may terminate this Agreement at any
time upon written notice for "cause." For purposes of this Agreement, the term
"cause" means (i) Employee's gross or willful misconduct with respect to the
performance of his services as President and Chief Executive Officer of
Employer, (ii) Employee being charged or convicted of either a felony or
misdemeanor involving moral turpitude, (iii) Employee's disability to such an
extent that he is unable to perform services hereunder for a period of one
month, or (iv) Employee's death.
6. CONTINUING RESPONSIBILITIES.
(a) Cooperation Regarding Claims. Employee will, with reasonable
notice during and after the term of this Agreement, furnish information as may
be in his possession or otherwise cooperate with Employer as may be reasonably
requested in connection with any claims or legal actions in which Employer or a
subsidiary is or may become a party. Employer will reimburse Employee for all
documented out-of-pocket expenses Employee incurs in the performance of his
duties under this clause (a).
(b) Confidentiality. Employee recognizes and acknowledges that all
information pertaining to the affairs, business, clients, customers and other
relationships of Employer and its subsidiaries is confidential and is a unique
and valuable asset of Employer. Access to and knowledge of this information are
essential to the performance of the Employee's services under this Agreement.
Employee will not, either during the term of this Agreement or thereafter,
except to the extent reasonably necessary in the performance of his services
hereunder, give to any person, firm, association, corporation or governmental
agency any information concerning the affairs, business, clients, customers or
other relationships of Employer and its subsidiaries except as required by law.
Employee will not make use of this type of information for his own purpose or
for the benefit of any person or organization other than Employer and its
subsidiaries. All such information, even though it may be in the possession of
the Employee, will remain confidential and the property of Employer.
(c) Remedies. Employee acknowledges that his breach or attempted or
threatened breach of any provision of clause (b) above would cause irreparable
harm to Employer not compensable in monetary damages and that Employer will be
entitled, in addition to all other applicable remedies, to a temporary and/or
permanent injunction and a decree for specific
2
<PAGE> 3
performance of the terms of such clause (b), without being required to prove
damages or furnish a bond or any other type of security.
7. INDEMNIFICATION. Employer will indemnify Employee to the fullest
extent permitted by the laws of the State of Delaware in effect at that time, or
the Certificate of Incorporation and Bylaws of Employer, whichever affords the
greater protection to Employer.
8. ASSIGNMENTS; SUCCESSORS AND ASSIGNS. The rights and obligations of
Employee hereunder are personal in nature and are not assignable or delegable.
Any prohibited assignment or delegation will be null and void. The Employer may
assign and delegate this Agreement. The provisions hereof shall inure to the
benefit of and be binding upon the permitted successors and assigns of the
parties hereto.
9. GOVERNING LAW. This Agreement shall be interpreted under, subject to
and governed by the substantive laws of the State of Tennessee, without giving
effect to provisions thereof regarding conflict of laws, and all questions
concerning its validity, construction, and administration shall be determined in
accordance thereby.
10. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which will be deemed an original but all of
which will together constitute one and same instrument.
11. INVALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect any other provision hereof, and this Agreement
shall be construed in all respects as if such invalid or unenforceable provision
was omitted. Furthermore, in lieu of such illegal, invalid, or unenforceable
provision there shall be added automatically as a part of this Agreement a
provision as similar in terms to such illegal, invalid, or unenforceable
provision as may be possible and be legal, valid and enforceable.
12. EXCLUSIVENESS. This Agreement constitutes the entire understanding
and agreement between the parties with respect to the employment by Employer of
Employee and supersedes any and all other agreements, oral or written, between
the parties, including but not limited to that certain Retention Agreement dated
as of November 6, 1998, which is hereby rendered null and void.
13. MODIFICATION. This Agreement may not be modified or amended except
in writing signed by the parties. No term or condition of this Agreement will be
deemed to have been waived except in writing by the party charged with waiver. A
waiver shall operate only as to the specific term or condition waived and will
not constitute a waiver for the future or act on anything other than that which
is specifically waived.
14. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered or mailed first-class postage prepaid by registered mail, return
receipt requested, or when delivered if by hand, overnight delivery service or
confirmed facsimile transmission, to the following:
3
<PAGE> 4
(a) If to the Employer, at 5200 Maryland Way, Suite 400, Brentwood,
Tennessee 37027 Attention: Corporate Secretary, or at such other address as may
have been furnished to the Employee by the Employer in writing; or
(b) If to the Employee, at ________________________, or such other
address as may have been furnished to Employer by Employee in writing.
15. CONSOLIDATION, MERGER OR SALE OF ASSETS. Nothing in this Agreement
shall preclude Employer from consolidating or merging in to or with, or
transferring all or substantially all of its assets to, another corporation
which assumes this Agreement and all obligations and undertaking of Employer
hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"EMPLOYER"
AMERICAN HOMEPATIENT, INC.,
a Delaware corporation
By: /s/ Morris Perlis
--------------------------------------
Title: Chairman of the Board of Directors
-----------------------------------
"EMPLOYEE"
/s/ Joseph F. Furlong, III
-------------------------------------
JOSEPH F. FURLONG, III
4
<PAGE> 1
EXHIBIT 10.72
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of January 1,
1999, by and between AMERICAN HOMEPATIENT, INC., a Delaware corporation (the
"Employer"), and MARILYN O'HARA, a resident of the State of Rhode Island (the
"Employee").
W I T N E S S E T H:
WHEREAS, Employer and Employee have agreed to enter into this Agreement
which sets forth certain of the terms and conditions of Employee's employment by
Employer.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements made herein, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound hereby, agree as
follows:
1. EMPLOYMENT. Employer hereby employs Employee and Employee hereby
accepts employment with Employer on the terms and conditions specified herein.
2. TERM. The term of this Agreement shall be for a period commencing on
the date hereof and ending December 31, 2000; provided, however, that this
Agreement will thereafter automatically renew for consecutive one-year terms
unless either party notifies the other party in writing at least thirty (30)
days prior to the end of the then current term that this Agreement will
terminate at the expiration of such term. Notwithstanding anything to the
contrary contained in this Agreement, the provisions of Section 6 and 7 will
survive the expiration or termination of this Agreement.
3. DUTIES OF EMPLOYEE. Employee shall be responsible for certain
assigned aspects of Employer's operations and shall initially have the title
Senior Vice President, Chief Financial Officer, and Corporate Secretary.
Employee shall perform the duties and responsibilities assigned to Employee from
time to time in accordance with the policies and objectives established by the
Board of Directors and Chief Executive Officer of Employer. Employee agrees to
devote her full time, attention and skill to her duties hereunder and to use her
best efforts to attain or exceed Employer's objective goals for profit, quality,
stability and growth. Employee will at all times while employed by Employer
comply fully with Employer's "Guidelines of Company Policies and Conduct" and
any other compliance programs of Employer, as such programs may be amended from
time to time, and acknowledges that her obligations under such programs as an
employee are contractual in nature.
4. COMPENSATION.
(a) Employee will be paid a base salary of One Hundred Sixty
Thousand Dollars and No/100 Dollars ($160,000) per year during the term of this
Agreement, payable in accordance with Employer's standard payroll practices.
Employee will be entitled to receive incentive of compensation of up to thirty
percent (30%) of her annual base salary under such incentive programs as may
from time to time be provided to employees of Employer of similar rank, which
programs may be created, changed or terminated at any time at Employer's sole
discretion. Employer will
<PAGE> 2
periodically conduct a merit review regarding Employee's performance to consider
increasing, but not decreasing, Employee's base salary.
(b) Employer recognizes that Employee will be commuting from her
residence in Rhode Island to Employer's corporate support center in Brentwood,
Tennessee. Employer will reimburse Employee for all reasonable and actual travel
and other expenses incurred by Employee in connection with the services she is
to perform hereunder, including travel by Employee between her Warwick, Rhode
Island residence and Employer's corporate support center in Brentwood, Tennessee
and expenses related to accommodations, rental cars and similar items while
Employee is in Brentwood, Tennessee. Reimbursement hereunder will be subject to
compliance with Employer's reimbursement policies as established from time to
time.
(c) Employee will be entitled to such medical, dental, disability
and life insurance benefits, participation in any profit-sharing plan or similar
plans of Employer, and such other employee benefits as are provided to employees
of Employer of similar rank from time to time. Promptly following execution and
delivery of this Agreement, either the Board of Directors of Employer or such
Board's Independent Stock Option Committee will consider and act upon a grant of
stock options under Employer's 1991 Non-Qualified Stock Option Plan in favor of
Employee.
5. TERMINATION.
(a) Employee's employment will be terminable by Employer at any time
for cause, which will include but not be limited to (i) insubordination,
malfeasance, misconduct, (ii) charge or conviction of a felony or of a
misdemeanor involving moral turpitude, (iii) the inability of Employee to
perform her duties hereunder for a period of thirty (30) consecutive days (or
sixty (60) total days in any ninety (90) consecutive day period) by reason of
illness or mental or physical disability, (iv) death, and (v) other
circumstances deemed by the Employer to be materially detrimental to the
Employer. Notwithstanding the above, it is the intent of the Employer at all
times to comply with the Americans With Disabilities Act, the Family and Medical
Leave Act and any other applicable federal and state employment laws. This
Agreement will be terminable by Employee upon thirty (30) days written notice to
Employer if without cause. In the case of termination under this Section 5(a),
all obligations of the parties under this Agreement and relating to Employee's
employment will cease except for Employee's obligations under Sections 6 and 7
hereof.
(b) Employee's employment will be terminable by Employee upon
written notice to Employer if Employer willfully breaches any material terms of
this Agreement, after fifteen (15) day's written notice and right to cure.
Employee's employment will also be terminable by Employer at any time without
stated cause. In the case of termination under this Section 5(b), all
obligations of the parties in this Agreement will cease except for Employee's
obligations under Sections 6 and 7. If Employer terminates Employee's employment
without stated cause, Employee will be entitled to receive (i) her monthly base
salary (not including incentive compensation or benefits) as in effect at the
time of termination multiplied by the lesser of (y) the number of months
remaining in the then current term of this Agreement, or (z) twelve (12), plus
(ii) the annual incentive compensation Employee received for performance during
Employer's immediately preceding fiscal year, multiplied by a fraction, the
numerator of which is the total number of full calendar months during
2
<PAGE> 3
which Employee was employed by Employer during Employer's current fiscal year
prior to termination and the denominator of which is twelve (12). Employer will
pay Employee such severance in equal amounts over the applicable number of
months following termination in accordance with Employer's standard payroll
practices. In addition, Employer will (i) pay Employee upon termination any
earned but unpaid base salary, and (ii) subsidize COBRA premiums for Employee's
medical and dental insurance benefits as such benefits were in effect
immediately prior to termination by paying Employee, following termination in
accordance with Employer's standard payroll practices, an amount equal to the
standard employer portion of the COBRA premium for a period equal to the lesser
of (y) the period remaining in the then current term of this Agreement, or (z)
twelve (12) months. Employer acknowledges that in the event of such termination,
Employee will be entitled to her individual vested account balances with respect
to Employer's Supplemental Executive Retirement and Stock Purchase Plan, as the
balances, if any, exist as of the date of termination of employment.
(c) (i) In the event there is a "Change in Control" of the
ownership of Employer, and Employer terminates Employee's employment within
twelve (12) months following such Change in Control, Employee will be entitled
to receive as a severance payment in a lump sum upon such termination an amount
equal to the sum of (i) her monthly base salary (not including incentive
compensation or benefits) as in effect at the time of such termination
multiplied by twelve (12), plus (ii) the annual incentive compensation Employee
received for performance during Employer's immediately preceding fiscal year,
multiplied by a fraction, the numerator of which is the total number of full
calendar months during which Employee was employed by Employer during Employer's
current fiscal year prior to termination and the denominator of which is twelve
(12). In addition, any earned but unpaid base salary and incentive compensation
will be paid, and Employer will subsidize COBRA premiums for Employee's medical
and dental insurance benefits as such benefits were in effect immediately prior
to termination by paying to Employee upon termination an amount equal to the
standard employer portion of the COBRA premium for a twelve (12) month period.
Employer acknowledges that, in the event of such termination following a Change
in Control, Employee will be entitled to her individual vested account balances
with respect to Employer's Supplemental Executive Retirement and Stock Purchase
Plans, as the balances, if any, exist as of the date of termination of
employment. Further, any stock options granted to Employee will be fully vested
upon a Change of Control, whether or not Employee's employment is terminated,
notwithstanding any previously stated vesting restrictions but subject to
expiration or termination pursuant to the governing stock option plan.
(ii) A "Change in Control" will be deemed to have
occurred if (i) a tender offer will be made and consummated for the
ownership of more than fifty percent (50%) of the outstanding voting
securities of Employer, (ii) Employer will be merged or consolidated
with another corporation and as a result of such merger or
consolidation less than fifty percent (50%) of the outstanding voting
securities of the surviving or resulting corporation will be owned in
the aggregate by the former shareholders of Employer, as the same will
have existed immediately prior to such merger or consolidation, (iii)
Employer will sell all or substantially all of its assets to another
corporation that is not a wholly-owned subsidiary, or (iv) a person,
within the meaning of Section 3(a)(9) or of Section 13 (d)(3) (as in
effect on the date hereof) of the Securities and Exchange Act of 1934
("Exchange Act"), will acquire more than fifty percent (50%) of the
outstanding voting securities of Employer
3
<PAGE> 4
(whether directly, indirectly, beneficially or of record). For purposes
hereof, ownership of voting securities shall take into account and
shall include ownership as determined by applying the provisions of
Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the
Exchange Act. For purposes hereof, a "Change in Control" will not
include any transaction of the type described above with or undertaken
by Counsel Corporation or its affiliates, within the meaning of
Exchange Act Rule 12b-2 (as in effect on the date hereof).
6. CONFIDENTIAL INFORMATION. In consideration of the covenants of
Employer contained herein, Employee agrees as follows:
(a) Employee hereby agrees and acknowledges that she has had
access to or is aware of certain confidential, restricted and/or proprietary
information concerning operation by the Employer and its affiliates of their
home health care businesses (collectively the "Business"). Employee hereby
undertakes and agrees that she will have a duty to Employer and its affiliates
to protect such information from use or disclosure.
(b) For the purposes of this Section 6, the following definitions
will apply:
(i) "Trade Secret" as related to the Business, will mean any
specialized technical information or data relating to (w) procurement
of medical equipment and other inventory for resale; (x) marketing
strategy or plans of Employer or its affiliates; (y) proprietary
computer software; and (z) terms of contracts with suppliers,
employees and principal customers of Employer or its affiliates which
are not generally known to the competitors of Employer.
(ii) "Confidential Information," as related to the Business,
will mean any data or information, other than Trade Secrets, which is
material to Employer or its affiliates and not generally known by the
public. Confidential Information will include, without limitation, any
information pertaining to the Business Opportunities (as hereinafter
defined) of Employer or its affiliates, the details of this Agreement,
and the business plans, financial statements and projections of
Employer or its affiliates.
(iii) "Business Opportunity" will mean any information or plans
of Employer or its affiliates concerning the purchase of or investment
in any retail outlets, stores, distribution centers or similar retail
facilities in the field of home health care, or the availability of
any such outlets for purchase or investment by Employer or its
affiliates, together with all related information, concerning the
specifics of any contemplated purchase or investment (including price,
terms and the identity of such outlet), regardless of whether Employer
or its affiliates have entered any agreement, made any commitment, or
issued any bid or offer to such outlet or other facility.
(c) Employee will not, without the prior written consent of
Employer, use or disclose, or negligently permit any unauthorized person who is
not an employee of Employer to use, disclose, or gain access to, any Trade
Secrets or Confidential Information.
4
<PAGE> 5
(d) Employee hereby agrees to maintain on behalf of Employer, or,
upon request or termination of this Agreement, deliver to Employer, all
memoranda, notes, records, drawings, manuals, documents, disks, computer
software and other materials, including all copies and derivations of such
materials, containing Trade Secrets or Confidential Information, whether made or
compiled by Employee or furnished to her from any source by virtue of her
relationship with Employer or its affiliates.
(e) Employee will, with reasonable notice during and after her
employment by Employer, furnish information as may be in her possession and
cooperate with Employer or its affiliates as may reasonably be requested in
connection with any claims or legal actions in which Employer is or may become a
party. Employer will reimburse Employee for any reasonable out-of-pocket
expenses she incurs in order to satisfy her obligations under this clause (e).
7. NONCOMPETE, ETC. In consideration of the covenants of the Employer
contained herein, the Employee agrees as follows:
(a) During and after her employment by Employer, Employee will not
use her status with Employer to obtain loans, goods or services from another
organization on terms that would not be available to her in the absence of her
relationship to Employer. During the period of employment and for a twelve (12)
month period following termination of such employment for any reason, (i)
Employee will not make any statements or perform any acts intended to advance
the interest of any existing or prospective competitor of Employer in any way
that will injure the interests of Employer or an affiliate; and (ii) Employee
will not directly or indirectly own or hold any "Proprietary Interest" in or be
employed by or receive compensation from any party engaged in the same or any
similar business within fifty (50) miles of any location of Employer upon the
date of termination of employment. The states in which Employer and its
affiliates currently conduct business are Alabama, Arizona, Arkansas, Colorado,
Connecticut, Delaware, Florida, Georgia, Illinois, Iowa, Kansas, Kentucky,
Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi,
Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina,
Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee,
Texas, Virginia, Washington, West Virginia and Wisconsin. During her employment
by Employer and for a twelve (12) month period following termination of such
employment for any or no reason, (i) Employee will not solicit any client of
Employer or an affiliate or discuss with any client or employee of Employer or
an affiliate any information or the operation of any business intended to
compete with Employer or an affiliate; and (ii) Employee will not, directly or
indirectly, hire any current or future employee of Employer or an affiliate, or
solicit or encourage any such employee to leave the employ of Employer or an
affiliate. For the purposes of this Agreement, "Proprietary Interest" means
legal or equitable ownership, whether through stock holdings or otherwise, of a
debt or equity interest (including options, warrants, rights and convertible
interests) in a business firm or entity, or ownership of more than 5% of any
class of equity interest in a publicly-held company. Employee acknowledges that
the covenants contained herein are reasonable as to geographic and temporal
scope.
(b) Employee acknowledges that her breach or threatened or attempted
breach of any provision of Section 6 or 7 would cause irreparable harm to
Employer not compensable in monetary damages and that Employer will be entitled,
in addition to all other applicable remedies,
5
<PAGE> 6
to a temporary and permanent injunction and a decree for specific performance of
the terms of Section 6 or 7 without being required to prove damages or furnish
any bond or other security. Nothing herein contained will be construed as
prohibiting Employer from pursuing any other remedy available to it for such
breach or threatened or attempted breach.
(c) All parties hereto acknowledge the necessity of protection
against the competition of the Employee and that the nature and scope of such
protection has been carefully considered by the parties. The period and area
covered are expressly acknowledged and agreed to be fair, reasonable and
necessary. If any covenant contained in Section 6 or 7 is held to be invalid,
illegal or unenforceable because of the duration of such covenant, the
geographic area covered thereby or otherwise, the parties agree that the court
making such determination will have the power to reduce the duration, the area
and/or other provision(s) of any such covenant to the maximum permissible and to
include as much of its nature and scope as will render it enforceable, and, in
its reduced form said covenant will be valid, legal and enforceable.
8. COVENANT REGARDING CERTAIN PROCEEDINGS. Employee covenants that she
will not, without Employer's prior written consent unless required to do so by
means of a valid court order or subpoena, cooperate with any person in the
institution or prosecution of any proceeding, suit, claim, investigation or
administrative proceeding brought, initiated or conducted by any person against
Employer, its affiliates, agents, employees, officers and representatives.
Employee further covenants that she will notify Employer immediately if she is
contacted by any person regarding any pending or contemplated proceeding, suit,
claim or investigation involving Employer, its affiliates, agents, employees,
officers or representatives. The parties understand that the covenants
stipulated in this paragraph 8 do not limit Employee's ability to initiate or
bring any proceeding, suit, claim or action against Employer regarding her
employment hereunder.
9. ASSIGNMENTS; SUCCESSORS AND ASSIGNS. The rights and obligations of
Employee hereunder are not assignable or delegable and any prohibited assignment
or delegation will be null and void. Employer may assign and delegate this
Agreement. The provisions hereof shall inure to the benefit of and be binding
upon the permitted successors and assigns of the parties hereto.
10. GOVERNING LAW. This Agreement will be interpreted under, subject to
and governed by the substantive laws of the State of Tennessee, without giving
effect to provisions thereof regarding conflict of laws, and all questions
concerning its validity, construction, and administration will be determined in
accordance thereby.
11. COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which will be deemed an original but all of
which will together constitute one and same instrument.
12. INVALIDITY. The invalidity or unenforceability of any provision of
this Agreement will not affect any other provision hereof, and this Agreement
will be construed in all respects as if such invalid or unenforceable provision
was omitted. Furthermore, in lieu of such illegal, invalid, or unenforceable
provision there will be added automatically as a part of this Agreement a
provision as similar in terms to such illegal, invalid, or unenforceable
provision as may be possible and be legal, valid and enforceable.
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<PAGE> 7
13. EXCLUSIVENESS. This Agreement, the Guidelines of Company Policies
and Conduct and other policies of Employer constitute the entire understanding
and agreement between the parties with respect to the employment by Employer of
Employee and supersedes any and all other agreements, oral or written, between
the parties.
14. MODIFICATION. This Agreement may not be modified or amended except
in writing signed by the parties. No term or condition of this Agreement will be
deemed to have been waived except in writing by the party charged with waiver. A
waiver will operate only as to the specific term or condition waived and will
not constitute a waiver for the future or act on anything other than that which
is specifically waived.
15. NOTICES. All notices, requests, consents and other communications
hereunder will be in writing and will be deemed to have been made when delivered
or mailed first-class postage prepaid by registered mail, return receipt
requested, or when delivered if by hand, overnight delivery service or confirmed
facsimile transmission, to the following:
(a) If to the Employer, at 5200 Maryland Way, Suite 400,
Brentwood, Tennessee 37027 Attention: President and Chief Executive Officer, or
at such other address as may have been furnished to the Employee by the Employer
in writing; or
(b) If to the Employee, at 399 Squantum Drive, Warwick, Rhode
Island 02888 or such other address as may have been furnished to Employer by
Employee in writing.
16. CONSOLIDATION, MERGER OR SALE OF ASSETS. Nothing in this Agreement
will preclude Employer from consolidating or merging in to or with, or
transferring all or substantially all of its assets to, another corporation
which assumes this Agreement and all obligations and undertaking of Employer
hereunder.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the date first above written.
"EMPLOYER"
AMERICAN HOMEPATIENT, INC.,
a Delaware corporation
By: /s/ Joseph F. Furlong, III
-----------------------------------------
Title: President and Chief Executive Officer
-------------------------------------
"EMPLOYEE"
/s/ Marilyn O'Hara
---------------------------------------
MARILYN O'HARA
7
<PAGE> 1
EXHIBIT 10.73
AMENDMENT NO. 1 TO CONFIDENTIALITY, NON-COMPETITION AND
SEVERANCE PAY AGREEMENT
THIS AMENDMENT NO. 1 TO CONFIDENTIALITY, NON-COMPETITION AND SEVERANCE
PAYMENT AGREEMENT is entered into on February __, 1999 by and between AMERICAN
HOMEPATIENT, INC., a Delaware corporation (the "Company"), and KATHEY PALMER, a
resident of the State of Tennessee (the "Employee").
WHEREAS, the parties have entered into that certain Confidentiality,
Non-Competition and Severance Pay Agreement dated as of December 23, 1997 (the
"1997 Contract"); and
WHEREAS, the parties have entered into that certain Amendment No. 1 to
the 1997 Contract, which Amendment is to be nullified hereby; and
WHEREAS, the Company is currently involved in certain restructuring
activities, but has agreed to continue the employ of the Employee, either
directly or through a wholly-owned subsidiary; and
WHEREAS, in connection with the Employee's continuing employment with
the Company, the parties mutually desire to amend the 1997 Contract as
stipulated herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements contained in the 1997 Contract and made herein, the parties,
intending to be legally bound hereby, agree as follows:
1. That certain Amendment No. 1 to Confidentiality, Non-Competition and
Severance Pay Agreement dated October 16, 1998 is hereby rendered null and void
by mutual agreement of the parties.
2. Clause B of Section 1 of the 1997 Contract is hereby modified by
adding the following at the end of the clause:
"Upon termination of employment, Employee will immediately deliver
to Company all materials, including but not limited to documents,
discs, computer software and copies thereof, containing confidential
and/or proprietary information of Company, whether compiled or
created by Employee or furnished to her."
3. Clause F of Section 1 of the 1997 Contract is hereby modified by
deleting the phrase "Section 1" and inserting in its stead "Sections 1 and 4."
<PAGE> 2
4. Section 2.1 of the 1997 Contract is hereby deleted in its entirety
and the following substituting in its stead:
2.1 Termination by Company Following a Change in Control. In the
event there is a "Change in Control" of the ownership of the
Company, and the Company terminates Employee's employment within
twelve (12) months following such Change in Control, the Employee
shall be entitled to receive as a severance payment in a lump sum
upon such termination an amount equal to the sum of (i) her monthly
base salary (not including incentive compensation or benefits) as
in effect at the time of such termination multiplied by twelve (12),
plus (ii) her monthly vehicle allowance (exclusive of gasoline
and oil expense reimbursement) multiplied by twelve (12), plus (iii)
the annual incentive compensation Employee received for performance
during the Company's immediately preceding fiscal year, multiplied
by a fraction, the numerator of which is the total number of full
calendar months during which the Employee was employed by the
Company during the Company's then current fiscal year prior to
termination and the denominator of which is twelve (12). In
addition, any earned but unpaid base salary and accrued vacation
will be paid. The Company will also pay the COBRA administrative
services company the COBRA premium attributable to Employee's
medical and dental insurance benefits as such benefits were in
effect immediately prior to termination, with payments beginning
on the first day of the calendar month immediately following the
date of termination and continuing until the earlier of (i) twelve
(12) months after the date of termination, or (ii) the date on
which Employee is eligible to receive, as an employee, independent
contractor or agent, medical and/or dental insurance benefits
from a third party. The Company will deduct from the lump sum
severance payment to the Employee the standard employee portion of
such COBRA premium as in effect on the date of termination for up
to a twelve (12) month period. If Employee elects to discontinue
COBRA for any reason before expiration of the twelve (12) month
period and notifies the Company of the same in writing, the Company
will thereafter refund to the Employee that portion of the
deduction not attributable to the COBRA premium actually paid. The
Company acknowledges that the Employee is entitled to her
individual, vested account balance with respect to the Company's
Stock Purchase Plan as the balance exists as of the date of
termination of employment. Further, any stock options granted to
the Employee will be fully vested upon a Change in Control, whether
or not the Employee is terminated, notwithstanding any previously
stated vesting restrictions, but subject to expiration or
termination pursuant to the governing stock option plan.
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<PAGE> 3
5. The following is hereby inserted as new Section 2.3 of the 1997
Contract:
2.4 Termination Without Cause Not Accompanied by a Change in
Control. Although Employee has never raised an age discrimination
issue, in order for this Agreement to embody a release of all
claims as contemplated by both parties, federal law stipulates
that the Employee specifically release any potential claims on
the basis of age discrimination. Therefore, in consideration for
such release and in addition to other considerations stipulated
in this Agreement, the Company has agreed that in the event that
Company terminates Employee's employment without cause, and there
has been no Change in Control, Employee shall be entitled to
receive a severance payment, earned but unpaid base salary, COBRA
payments and vesting of stock options, all as and to the extent
stipulated in Section 2.1. Termination without cause shall not
include termination as a result of the following: termination for
cause, resignation by Employee, or Employee's death or
disability. "Cause" shall mean (i) if Employee engages in
insubordination, malfeasance or misconduct, (ii) Employee being
charged with or conviction of a felony offense or conviction of a
misdemeanor involving moral turpitude, and (iii) material breach
by Employee of her obligations under this Agreement.
Notwithstanding the above, it is the intent of the Company at all
times to comply with the Americans With Disabilities Act, the
Family and Medical Leave Act and any other applicable federal and
state employment laws.
6. The following is hereby inserted as new Section 3 of the 1997
Contract:
3. Compliance Programs. The Employee will at all times while
employed with the Company comply fully with the Company's
"Guidelines of Company Policies and Conduct" and any other
compliance program, as such programs may be amended from time to
time, and acknowledges that her obligations under such programs
as an employee are contractual in nature.
7. The following is hereby inserted as new Section 4 of the 1997
Contract:
4. Releases; Covenant Not to Sue.
4.1 General Release. Employee hereby fully and forever
releases the Company, its successors and assigns, affiliates,
insurers, officers, directors, employees and agents, from any and
all liability, causes of action, suits, damages, claims and
demands whatsoever that
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<PAGE> 4
Employee may have and that arise from or relate in any way to her
employment with the Company or the conduct of the Company's
business through February 15, 1999.
4.2 ADEA Release. Employee specifically releases Company and
the other related parties included in Section 4.1, from any
claims based upon any law prohibiting discrimination on the basis
of Employee's age including but not limited to the Age
Discrimination in Employment Act ("ADEA"). Employee does not
waive rights or claims under the ADEA that may arise after
February 15, 1999.
4.3 Covenant Not to Sue. Employee covenants that she will not
initiate or bring any proceeding, suit, claim, or administrative
proceeding against the Company, its affiliates, agents,
employees, officers, directors, successors and assigns arising
out of or in any way related to her employment by the Company or
the conduct of the Company's business prior to February __, 1999.
Employee further covenants that she will not, without the
Company's prior written consent unless required to do so by means
of a valid court order or subpoena, cooperate with any person in
the institution or prosecution of any such proceeding, suit,
claim or investigation brought, initiated or conducted by any
person against the Company, its affiliates, agents, employees,
officers, directors, successors and assigns. Employee further
covenants that she will notify the Company immediately in the
event she is contacted by any person regarding any pending or
contemplated proceeding, suit, claim or investigation involving
the Company, its affiliates, agents, employees, officers,
directors, successors and assigns.
8. The following is hereby inserted as new Section 5 of the 1997
Contract:
5. Agreement is Voluntary and Knowing. Employee acknowledges she
understands the terms and conditions of this Agreement. Employee
has had the opportunity to discuss thoroughly all aspects of this
Agreement with Employee's legal counsel and has been advised to
do so by the Company. Employee is voluntarily entering into this
Agreement, of her own free will, free of any coercion, pressure
or duress. She is knowingly releasing Company in accordance with
the terms contained herein. Employee further acknowledges that
she is receiving consideration beyond anything of value to which
she is already entitled. Should Employee ever attempt to
challenge this Agreement, Employee will as a precondition return
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<PAGE> 5
to the Company all consideration provided to Employee hereunder.
Employee will have up to twenty-one (21) days in which to
consider this Agreement. After the execution of this Agreement,
Employee will have an additional seven (7) days to revoke this
Agreement. Therefore, this Agreement will become final on the
eighth (8th) day after Employee has executed it. Notwithstanding
anything to the contrary stated in this Agreement, the Company
will not be required to make any payments or provide any benefits
or other consideration to the Employee until this Agreement
becomes final pursuant to the provisions of this Section 5.
9. Sections 3 through 9 and Sections 11 and 12 of the 1997 Contract
are hereby redesignated accordingly due to the insertions stipulated in
paragraphs 6, 7 and 8 of this Amendment. Section 10 appearing in the 1997
Contract is hereby deleted.
10. The following is hereby inserted as new Section 15 to the 1997
Contract:
15. Final Settlement. The parties declare that each has carefully
read this Agreement, as amended, that each has reviewed its terms
with each one's respective counsel, and that each agrees to it
for the purpose of making a full and final adjustment and
resolution of the matters addressed herein. Nothing in this
Agreement is to be construed as an admission of any kind by
either the Employee or the Company.
11. Other than as expressly set forth herein, all terms and
provisions of the 1997 Contract remain in full force and effect. This Amendment
will be interpreted under, subject to and governed by the laws of the State of
Tennessee and all questions concerning its validity, construction, and
administration will be determined in accordance therewith.
IN WITNESS WHEREOF, the parties have executed this Amendment No. To
Confidentiality, Non-Competition and Severance Pay Agreement as of the date
first above written.
"EMPLOYEE" "COMPANY"
AMERICAN HOMEPATIENT, INC.
/s/ Kathey Palmer 2/15/99 By: /s/ Joseph F. Furlong, III
- -------------------------------- --------------------------------
KATHEY PALMER
Title: President and Chief
-----------------------------
Executive Officer
-----------------------------
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<PAGE> 1
EXHIBIT 10.74
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT is entered into on December 21, 1998 by and
between AMERICAN HOMEPATIENT, INC., a Delaware corporation (the "Company"), and
MARY ELLEN RODGERS, a resident of the State of Tennessee (the "Employee").
WHEREAS, the Company has agreed to pay the Employee certain severance
benefits in connection with termination of her employment under the terms and
conditions set forth herein and in exchange for the Employee's agreements
contained herein; and
WHEREAS, in her position as an employee of the Company, the Employee
has had access to confidential information and trade secrets of the Company and
has developed relationships with customers, employees, suppliers and others who
deal with the Company which relationships are valuable to the Company.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements made herein, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound hereby, agree as
follows:
1. TERMINATION; SEVERANCE PAY; ETC.
1.1 TERMINATION. The parties agree that the Company's employment of
the Employee will terminate at the close of business on December 31, 1998 (the
"Termination Date"). Accordingly, the Employee resigns effective at the close of
business on the Termination Date as an employee and officer of the Company and
all of its subsidiaries and relinquishes all powers and rights associated
therewith (except as expressly set forth herein), and the Company accepts such
resignation, on behalf of itself and its subsidiaries, effective at the close of
business on the Termination Date.
1.2 SEVERANCE PAY; BENEFITS.
(a) The Company will pay the Employee, as a severance payment, an
amount equal to the sum of (i) twelve (12) times her current monthly base salary
(not including incentive compensation or benefits), plus (ii) twelve (12) times
her monthly $500.00 vehicle allowance (exclusive of gasoline and oil expense
reimbursements). In addition, between January 4, 1999 and January 8, 1999
Employee will be paid (i) a lump sum payment of Fifty Thousand and No/100
Dollars ($50,000.00) in lieu of any incentive compensation, (ii) any earned but
unpaid base salary through the Termination Date, (iii) any unpaid vehicle
allowance through the Termination Date, and (iv) subject to the Company's
standard reimbursement policies, expense reimbursements owed to Employee in
respect to her employment through the Termination Date. Employee agrees that she
is not entitled to any accrued vacation. In the event Employee has not secured
either (i) full-time employment or (ii) been otherwise so engaged at an
annualized rate of compensation of at least $125,000.00, Company will pay
Employee, as additional severance, a sum per month equal to her current monthly
base salary (not including incentive compensation or benefits) plus Five Hundred
and No/100 Dollars ($500.00) (reflecting her monthly vehicle allowance exclusive
of gasoline and
<PAGE> 2
oil expense reimbursements) for six (6) months or, if earlier, such time as
Employee (i) secures full-time employment or (ii) is otherwise engaged and
receiving annualized compensation of at least $125,000.00. Subject to paragraph
6(c), any severance payments hereunder to be made following the Termination Date
will be made in installments in accordance with the Company's standard payroll
practices.
(b) Subject to paragraph 6(c), Company will continue medical and
dental insurance employee benefits to which Employee was entitled immediately
prior to the Termination Date until the earlier of (i) eighteen (18) months
following the Termination Date, or (ii) the date or dates on which Employee
receives, as an employee, independent contractor or agent, medical and/or dental
insurance benefits from a third party. The parties hereby acknowledge that COBRA
coverage eligibility for Employee will commence immediately upon cessation of
such benefits. Company acknowledges that Employee is entitled to her individual
account balances with respect to the Company's Supplemental Executive Retirement
and Stock Purchase Plans as the balances exist as of the Termination Date.
1.3 OPTIONS. Notwithstanding any terms in the applicable Option
Agreement or Company's 1991 Nonqualified Stock Option Plan to the contrary, all
options granted by Company to Employee shall be deemed fully vested as of the
Termination Date and shall remain exercisable until December 31, 2001.
1.4 PROVISION OF OUTPLACEMENT SERVICES AND POSSIBLE REIMBURSEMENT
IN CONSIDERATION OF RELEASE OF AGE DISCRIMINATION CLAIMS. Although Employee has
never raised an age discrimination issue, in order for this Agreement to embody
a release of all claims as contemplated by both parties, federal law stipulates
that Employee specifically release any potential claims on the basis of age
discrimination. Therefore, in consideration for such release and in addition to
the consideration provided in paragraphs 1.2 above, the Company will pay (a) up
to Ten Thousand and No/100 Dollars ($10,000.00) for services provided in the
"Individual Outplacement Services" program as provided by Russell Montgomery &
Associates during the twelve (12) month period immediately following the
Termination Date, and (b) if Employee transfers or terminates her membership in
the Richland Country Club within twelve (12) months of the date hereof in
connection with a change of personal residence to a location more than thirty
(30) miles from Nashville, Tennessee, Company will reimburse Employee up to Ten
Thousand and No/100 Dollars ($10,000.00) for any lost initiation fees which are
not recouped by Employee in connection with such termination or transfer of club
membership. The Employee may, within one month of the date of this Agreement,
elect to use comparable services of another placement agency and receive
reimbursement from the Company on the same basis set forth in clause (a) of the
preceding sentence, subject to the Company's prior written approval of such
alternative placement agency and services, which approval will not be
unreasonably withheld.
2. TRANSITIONAL CONSULTING AGREEMENT. The parties agree that for a
period of twelve (12) months from the Termination Date (the "Consulting
Period"), Company will retain Employee as a consultant to provide services on an
"as-needed" basis to assist in transition associated with termination of
Employee's employment. For such consulting services, Company will pay Employee a
fee of Twenty-Four Thousand and No/100 Dollars ($24,000.00), payable in
2
<PAGE> 3
equal monthly installments. In addition to such fee, Company will reimburse
Employee for out-of-pocket expenses she incurs in the performance of her duties
under this paragraph 2, subject to Company's standard reimbursement policies.
During the Consulting Period, Employee will not be entitled to receive, and will
not receive, any benefit provided by the Company or any of its affiliates to
employees except as expressly stipulated in paragraphs 1.2 and 1.3 of this
Agreement. Additionally, the Company will not be responsible for deducting or
withholding any taxes or other assessments from any monies paid to Employee as a
consultant under this paragraph 2. The parties acknowledge and agree that
Employee is to act as a consultant and advisor to Company and not as an agent or
employee in any respect. Accordingly, the Employee will have no right, authority
or power to act for or on behalf of Company or its affiliates except as Company
may specifically grant.
3. CONFIDENTIALITY, NON-COMPETE AND OTHER COVENANTS.
3.1 CONFIDENTIALITY.
(a) Employee hereby agrees and acknowledges that she has had
access to or is aware of certain confidential, restricted and/or proprietary
information concerning operation by Company of its health care business (the
"Business"). Further, Employee hereby represents that she has delivered to
Company all memoranda, notes, records, drawings, discs, computer software,
manuals or other documents and materials, including all copies thereof,
containing "Trade Secrets" or "Confidential Information" (each as defined
below), whether compiled or created by Employee or furnished to her. Employee
hereby undertakes and agrees that she shall have a duty to Company to protect
such information from improper use or disclosure.
(b) For the purposes of this Section 3.1, the following definitions
shall apply:
(i) "Trade Secret" as related to the Business, shall mean any
specialized technical information or data relating to (w) procurement
of medical equipment and other inventory for resale; (x) marketing
strategy or plans of Company or its affiliates; (y) proprietary
computer software; and (z) terms of contracts with suppliers,
employees and principal customers of Company which are not generally
known to the competitors of Company.
(ii) "Confidential Information," as related to the Business,
shall mean any data or information, other than Trade Secrets, which is
material to Company or its affiliates and not generally known by the
public. Confidential Information shall include, without limitation,
any information pertaining to the Business Opportunities (as
hereinafter defined) of Company, the details of this Agreement, and
the business plans, financial statements and projections of the
Company. Notwithstanding the foregoing sentence, Employee may disclose
the details of this Agreement as may be required by statute and to
members of her immediate family and, for purposes of Employee's
personal financial, tax, lending and other banking transactions, third
parties so long as she also informs such individuals of the
confidential nature of such information. Confidential Information does
not include information which (x) is or becomes generally available to
the public other than as a result of disclosure by Employee or
disclosure by another person, other than Company, who is
3
<PAGE> 4
prohibited from disclosing such information, (y) was available to
Employee on a non-confidential basis prior to her employment by
Company, or (z) becomes available to Employee on a non-confidential
basis from a person other than Company who is not prohibited from
disclosing the information publicly.
(iii) "Business Opportunity" shall mean any information or
plans of Company concerning the purchase of or investment in any
retail outlets, stores, distribution centers or similar service
facilities in the field of health care, or the availability of any
such outlets for purchase or investment by Company, together with all
related information, concerning the specifics of any contemplated
purchase or investment (including price, terms and the identity of
such outlet), regardless of whether Company has entered any agreement,
made any commitment, or issued any bid or offer to such outlet or
other facility.
(c) Employee shall not, without the prior written consent of
Company and except as required by law, use or disclose, or negligently permit
any unauthorized "Person" who is not an employee of Company to use, disclose, or
gain access to, any Trade Secrets or Confidential Information. For purposes of
this Agreement, "Person" is defined as a corporation, partnership, joint venture
or other business entity, a governmental agency, or an individual.
(d) Following the Termination Date, Employee will, with
reasonable notice, furnish information as may be in her possession and cooperate
fully with Company as may reasonably be requested in connection with any claims,
investigations, or legal actions or other disputes in which the Company is or
may become a party. Company will reimburse Employee for out-of-pocket expenses
she actually incurs in order to satisfy her obligations under this clause (d).
3.2 NON-COMPETITION AND NON-SOLICITATION. During the
"Noncompete Period" as defined below, (i) Employee will not make any statements
or perform any acts intended to advance the interest of any existing or
prospective competitor of Company in any way that will injure the interests of
the Company; and (ii) Employee will not directly or indirectly own or hold any
"Proprietary Interest" in or be employed by or receive compensation from any
party engaged in the same or any similar business within fifty (50) miles of any
location of Company existing as of the Termination Date. Notwithstanding the
foregoing restrictions, Employee may be employed by an owner or operator of
hospitals which also owns and/or operates home health care businesses, but only
so long as Employee is not primarily employed to participate in the ownership
and/or operation of such home health care business. During the Noncompete
Period, (i) Employee will not solicit any client of Company or discuss with any
client of Company or any employee of Company any information concerning the
operation of any business intended to compete with the Company; and (ii)
Employee will not, directly or indirectly, hire any Person now or hereafter
employed by Company, or solicit or encourage any such employee to leave the
employ of Company; provided, however, that once the Noncompete Period has ended,
Employee may hire a past employee of Company but only so long as such past
employee has not been so employed for at least six (6) months. For purposes of
this Agreement, the "Noncompete Period" will mean the twelve (12) month period
following the Termination Date; provided, however, that if the Company pays
Employee additional severance pursuant to the fourth sentence of paragraph
1.2(a), the "Noncompete Period" will be extended to include the additional
months during which the Company pays such additional
4
<PAGE> 5
severance. For the purposes of this Agreement, "Proprietary Interest" means
legal or equitable ownership, whether through stock holdings or otherwise, of a
debt or equity interest (including options, warrants, rights and convertible
interests) in a business firm or entity, or ownership of more than 5% of any
class of equity interest in a publicly-held company. Employee acknowledges that
the covenants contained herein are reasonable as to geographic and temporal
scope.
3.3 REMEDIES. Employee acknowledges that her breach or
threatened or attempted breach of any provision of Section 3 of this Agreement
would cause irreparable harm to Company not compensable in monetary damages and
that Company shall be entitled, in addition to all other applicable remedies, to
a temporary and permanent injunction and a decree for specific performance of
the terms of Section 3 of this Agreement without being required to prove damages
or furnish any bond or other security. Nothing herein contained will be
construed as prohibiting Company from pursuing any other remedy available to it
for such breach or attempted or threatened breach.
3.4 APPLICATION TO AFFILIATES. For purposes of Section 3 of this
Agreement, the term "Company" refers to American HomePatient, Inc., a Delaware
corporation, and each corporation, limited liability company, partnership, joint
venture or other business entity in which American HomePatient, Inc. directly or
indirectly has an ownership interest as of the date of this Agreement.
4. RELEASES; COVENANT NOT TO SUE.
4.1 GENERAL RELEASE. Employee hereby fully and forever releases
Company, its successors and assigns, affiliates, insurers, officers, directors,
employees and agents, from any and all liability, causes of action, suits,
damages, claims and demands whatsoever that Employee may have and that arise
from or relate in any way to her employment with Company or the conduct of
Company's business through the Termination Date.
4.2 ADEA RELEASE. Employee specifically releases Company and the
other related parties included in paragraph 4.1, from any claims based upon any
law prohibiting discrimination on the basis of Employee's age including but not
limited to the Age Discrimination in Employment Act ("ADEA"). Employee does not
waive rights or claims under the ADEA that may arise after the date this
Agreement is executed by Employee.
4.3 DISPARAGING STATEMENTS; DEPARTURE STATEMENT. Employee will not,
now or hereafter, make any disparaging comments about Company, its affiliates,
representatives or operations to any patient, customer, health care provider,
vendor, or any other Person with whom Company does business, nor will Employee
derive, directly or indirectly, any economic profit or benefit as a result of
any such disparaging comments. Company will instruct its directors and senior
management not to, now or hereafter, make any disparaging comments about
Employee to any Company employee or any potential employer of Employee or any
other Person with whom Employee is then doing business. Further, Company and
Employee will create a mutually agreeable statement regarding Employee's
termination of employment with the Company which will be the basis used by the
parties for any statements they may be asked to make to a potential employer of
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<PAGE> 6
Employee. Nothing herein is intended to effect the obligation of Employee or
Company to give truthful testimony in any proceeding when and as may be required
by law.
4.4 COVENANT NOT TO SUE. Employee covenants that she will not
initiate or bring any proceeding, suit, claim, or administrative proceeding
against Company, its affiliates, agents, employees, officers, successors and
assigns arising out of or in any way related to her employment by Company or the
conduct of Company's business prior to the Termination Date. Employee further
covenants that she will not, without Company's prior written consent unless
required to do so by means of a valid court order or subpoena, cooperate with
any Person in the institution or prosecution of any such proceeding, suit, claim
or investigation brought, initiated or conducted by any Person against Company,
its affiliates, agents, employees, officers, successors and assigns. Employee
further covenants that she will notify Company's Chief Executive Officer
immediately in the event she has been contacted or in the future is contacted by
any Person regarding any pending or contemplated proceeding, suit, claim or
investigation involving Company, its affiliates, agents, employees, officers,
successors and assigns.
5. EXIT INTERVIEW. The parties have engaged in, or will engage in by
December 31, 1998, an exit interview prior to the Termination Date addressing
issues relating to the operations of Company and Employee's employment. Employee
hereby represents and warrants that in such exit interview she informed Joseph
F. Furlong, III, President and Chief Executive Officer, and Company counsel of
all activities of any Company employee or other party, and all other
circumstances, related to or otherwise affecting Company, if any, which Employee
reasonably believes may constitute a violation of law.
6. AGREEMENT IS VOLUNTARY AND KNOWING.
(a) Employee acknowledges she understands the terms and conditions
of this Agreement. Employee has had the opportunity to discuss thoroughly all
aspects of this Agreement with Employee's legal counsel and has been advised to
do so by Company.
(b) Employee is voluntarily entering into this Agreement, of her own
free will, free of any coercion, pressure or duress. She is knowingly releasing
Company in accordance with the terms contained herein. Employee further
acknowledges that she is receiving consideration beyond anything of value to
which she is already entitled. Should Employee ever attempt to challenge this
Agreement, Employee shall as a precondition return to Company all consideration
provided to Employee hereunder.
(c) Employee shall have up to twenty-one (21) days in which to
consider this Agreement. After the execution of this Agreement, Employee shall
have an additional seven (7) days to revoke this Agreement. Therefore, this
Agreement will become final on the eighth (8th) day after Employee has executed
it. No consideration will be paid to Employee until this Agreement becomes
final.
7. SUCCESSORS AND ASSIGNS. The provisions hereof shall inure to the
benefit of and be binding upon the permitted successors and assigns of the
parties hereto. Notwithstanding the
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<PAGE> 7
foregoing, the rights and obligations of Employee hereunder are not assignable
and any prohibited assignment will be null and void.
8. GOVERNING LAW. This Agreement shall be interpreted under, subject to
and governed by the substantive laws of the State of Tennessee, without
reference to its conflicts of laws provisions, and all questions concerning its
validity, construction, and administration shall be determined in accordance
thereby.
9. WAIVERS. The waiver of a breach by either party of a term or
provision of this Agreement, at any time or times, shall not be deemed or
construed to be a waiver of any subsequent breach or breaches of the same or of
any other terms or provisions of this Agreement at any time or times.
10. INVALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect any other provision hereof, and this Agreement
shall be construed in all respects as if such invalid or unenforceable provision
was omitted. Furthermore, in lieu of such illegal, invalid or unenforceable
provision there shall be added automatically as a part of this Agreement a
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
11. EXCLUSIVENESS. This Agreement, along with that certain letter of
even date herewith from the Company to the Employee, constitutes the entire
understanding and agreement between the parties with respect to the employment
and severance arrangements of the Employee and supersedes any and all other
agreements, oral or written, directly and solely between the parties, including
but not limited to that certain Confidentiality, Non-Competition and Severance
Pay Agreement dated April 1, 1996. No waiver, modification, or amendment to this
Agreement shall be valid unless the same be reduced to writing and signed by the
parties hereto.
12. MODIFICATION. This Agreement may not be modified or amended except
in writing signed by the parties. No term or condition of this Agreement will be
deemed to have been waived except in writing by the party charged with waiver. A
waiver shall operate only as to the specific term or condition waived and will
not constitute a waiver for the future or act on anything other than that which
is specifically waived.
13. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when mailed
first-class postage prepaid by registered mail, return receipt requested, or
when delivered by hand, overnight delivery service or confirmed facsimile
transmission, to the following:
A. If to Company, at Suite 400, 5200 Maryland Way, Brentwood,
Tennessee 37027, Attention: President and Chief Executive Officer, or at such
other address as may have been furnished to the Employee by the Company in
writing; or
B. If to Employee, at 5272 McGavock Road, Brentwood, Tennessee
37027, or such other address as may have been furnished to the Company by the
Employee in writing.
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<PAGE> 8
14. CONSOLIDATION, MERGER OR SALE OF ASSETS. Nothing in this Agreement
shall preclude Company from consolidating or merging into or with, or
transferring all or substantially all of its assets to, another individual,
entity or business that assumes this Agreement and all obligations of the
Company hereunder.
15. FINAL SETTLEMENT. The parties declare that each has carefully read
this Agreement, that each has reviewed its terms with each one's respective
counsel, and that each agrees to it for the purpose of making a full and final
adjustment and resolution of the matters contained herein. Nothing in this
agreement is to be construed as an admission of any kind by either Employee or
Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"COMPANY"
AMERICAN HOMEPATIENT, INC.
By: /s/ Joseph F. Furlong, III
---------------------------------------
Its: President and Chief Executive Officer
--------------------------------------
"EMPLOYEE"
/s/ Mary Ellen Rodgers
------------------------------------------
MARY ELLEN RODGERS 12/7/98
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<PAGE> 1
EXHIBIT 10.75
EMPLOYMENT EVALUATION AGREEMENT
THIS EMPLOYMENT EVALUATION AGREEMENT is made and entered into as of
July 15, 1998 by and between AMERICAN HOMEPATIENT, INC., a Delaware corporation
(the "Company"), and DAVID R. GNASS, a resident of Tennessee and the Chief
Operating Officer of the Company (the "Employee").
WHEREAS, the Company is currently employing the Employee, directly or
indirectly through an affiliate, on an "at-will" basis; and
WHEREAS, the Company and Employee are parties to that certain
Confidentiality, Non-Competition and Severance Pay Agreement dated as of June
16, 1996 (the "1996 Contract"); and
WHEREAS, both the Company and Employee are interested in exploring the
possibility of Employee remaining in the employ of the Company as its Chief
Operating Officer pursuant to an employment agreement and wish to ensure orderly
continuity of management of the Company while this possibility is explored.
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, the receipt and sufficiency of which are hereby acknowledged,
the parties, intending to be legally bound hereby, agree as follows:
1. EMPLOYEE NOTICE. Within thirty (30) days of the date of this
Agreement, or until such later date as mutually agreeable to the Company and
Employee (such period to be known as the "Notice Period"), the Employee will
deliver a written notice to the Company (the "Notice"), which Notice will
clearly state whether Employee desires to proceed with negotiation of a
long-term employment agreement with the Company. Such Notice will be deemed
delivered when personally delivered to the Company at its Brentwood, Tennessee
corporate office so long as such Notice is directed to the attention of the
Company's President and Chief Executive Officer. In the event such Notice
evidences Employee's desire not to proceed with negotiation of a long-term
employment agreement, the Company's employment of Employee will terminate on
November 25, 1998.
2. NEGOTIATION. If the Notice evidences Employee's desire to proceed
with negotiation of a long-term employment agreement, each of the Employee and
the Company will use good faith efforts to enter into such an agreement. In the
event a mutually-agreeable employment agreement is not executed and delivered by
both the Company and the Employee by November 25, 1998, then Employee's
employment will terminate.
3. DUTIES. For so long as Employee's employment with the Company
continues and this Agreement remains in effect, the Employee will continue to
serve as Chief Operating Officer of the Company and will perform all duties and
responsibilities commensurate with such office.
<PAGE> 2
Employee agrees to devote his full time, attention and skills to such duties and
to use his best efforts to attain or exceed the Company's objective goals for
profit, quality, stability and growth. The Employee will at all times while
employed with the Company comply fully with the Company's "Guidelines of Company
Policies and Conduct" and any other compliance program, as such programs may be
amended from time to time, and acknowledges that his obligations under such
programs as an employee are contractual in nature. While serving as the
Company's Chief Operating Office, the Employee will continue to receive his
customary compensation as adjusted for merit increase, including base salary and
benefits, including car allowance to which he is entitled as of the date hereof.
4. SEVERANCE PAY. In the event Employee's employment with the Company
is terminated pursuant to either paragraph 1 or 2 of this Agreement and not as a
result of any breach by Employee hereunder, Employee will be entitled to receive
as a severance payment in a lump sum upon such termination an amount equal to
his current annual base salary, which is One Hundred Seventy Thousand and No/100
Dollars ($170,000.00) as adjusted for merit increase. In addition, the Company
will pay the Employee any earned but unpaid base salary and the Company will
continue, for twelve (12) months following such termination, all employee
benefits including car allowance to which Employee was entitled immediately
prior to termination.
5. RELEASE; COVENANT NOT TO SUE. Employee hereby fully and forever
releases the Company, its successors and assigns, affiliates, insurers,
officers, directors, employees and agents, from any and all liability, causes of
action, suits, damages, claims and demands whatsoever that Employee may have and
that arise from or relate in any way to his employment with the Company or the
conduct of the Company's business prior to the date hereof. Employee hereby
covenants that he will not initiate or bring any proceeding, suit or claim
against the Company, its successors and assigns, affiliates, officers,
directors, employees or agents arising out of or in any way related to his
employment by the Company or the conduct of the Company's business prior to the
date hereof.
6. RIGHTS AND OBLIGATIONS OF EMPLOYEE. The rights and obligations of
Employee hereunder are not assignable or delegable, and any prohibited
assignment or delegation will be null and void. The Company may assign and/or
delegate this Agreement. The provisions hereof will inure to the benefit of and
be binding upon the permitted successors and assigns of the respective parties.
7. GOVERNING LAW. This Agreement will be governed by the substantive
laws of the State of Tennessee.
8. EXCLUSIVENESS. This Agreement constitutes the entire understanding
and agreement between the parties with respect to the negotiation of an
employment agreement. Notwithstanding the foregoing, this Agreement is subject
to the Guidelines of Company Policies and Conduct and any other compliance
programs of the Company (as referenced in Section 3), and does not supercede the
1996 Contract.
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<PAGE> 3
9. MODIFICATION. This Agreement may not be modified or amended except
in a writing signed by both the Company and the Employee. No term or condition
of this Agreement will be deemed have been waived except pursuant to a written
instrument executed by the party charged with waiver. A waiver will operate only
as to the specific term or condition waived and will not constitute a waiver for
the future or act on anything other than that which is specifically waived.
10. INVALIDITY. The invalidity of any provision of this Agreement will
not affect any other provision hereof, and this Agreement will be construed in
all respects as if such invalid provision was omitted. Further, in lieu of such
invalid provision, there will be automatically added as a part of this Agreement
a provision as similar in terms to such invalid provision as may be possible
which substitute provision will be valid and enforceable.
11. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original but all of which together
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Employment
Evaluation Agreement as of the date first above written.
"COMPANY"
AMERICAN HOMEPATIENT, INC., a
Delaware corporation
By: /s/ Malcolm MacKenzie
----------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
"EMPLOYEE"
/s/ David R. Gnass
--------------------------------------------
DAVID R. GNASS
-3-
<PAGE> 1
EXHIBIT 10.76
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT is entered into on December __, 1998 to be
effective as of October 16, 1998 by and between AMERICAN HOMEPATIENT, INC., a
Delaware corporation (the "Company"), and RITA N. HILL, a resident of the State
of Tennessee (the "Employee").
WHEREAS, the Company has agreed to pay the Employee certain severance
benefits in connection with termination of her employment under the terms and
conditions set forth herein and in exchange for the Employee's agreements
contained herein; and
WHEREAS, in her position as an employee of the Company, the Employee
has had access to confidential information and trade secrets of the Company and
has developed relationships with customers, employees, suppliers and others who
deal with the Company which relationships are valuable to the Company.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements made herein, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound hereby, agree as
follows:
1. Termination; Severance Pay.
1.1 Termination. The parties agree that the Company's employment of
the Employee will be deemed terminated at the close of business on October 16,
1998 (the "Termination Date"). Accordingly, the Employee hereby resigns as an
officer of the Company and all of its subsidiaries and relinquishes all powers
and rights associated therewith (except as expressly set forth herein), and the
Company hereby accepts such resignation, on behalf of itself and its
subsidiaries, effective as of the Termination Date.
1.2 Severance Pay; Benefits.
(a) The Company will pay the Employee, as a severance payment, an
amount equal to the sum of (i) twelve (12) times the sum of her current monthly
base salary (not including incentive compensation or benefits), plus (ii) twelve
(12) times her monthly $500.00 vehicle allowance (exclusive of gasoline and oil
expense reimbursements). Employee acknowledges that the Company has, as of the
date of execution hereof, already made four (4) payments to the Employee
pursuant to this obligation, and the Company agrees to continue to make such
payments in equal bi-weekly installments in accordance with the Company's
standard payroll practices. In addition, subject to paragraph 6(c), between
January 4, 1999 and January 8, 1999, the Company will pay the Employee the lump
sum of Fifty Thousand and No/100 Dollars ($50,000.00) in lieu of any incentive
compensation.
(b) Subject to paragraph 6(c), Company will continue medical and
dental insurance employee benefits to which Employee was entitled immediately
prior to the Termination Date until the earlier of (i) twelve (12) months
following the Termination Date or (ii) the date or
<PAGE> 2
dates on which Employee receives, as an employee, independent contractor or
agent, medical, dental and/or life insurance benefits from a third party. The
parties hereby acknowledge that COBRA coverage eligibility for Employee will
commence immediately upon cessation of such benefits. Company will provide
Employee such director and officer liability insurance coverage as it may from
time to time provide its officers (including but not limited to if new such
insurance is obtained) until such time as Employee is no longer subject to
claims as an officer of Company. Company acknowledges that Employee is entitled
to her individual account balances with respect to the Company's Supplemental
Executive Retirement and Stock Purchase Plans as the balances exist as of the
Termination Date. Moreover, Company agrees to accelerate Employee's vesting
schedule under the Company's Supplemental Executive Retirement Plan so that her
Employer Contribution Account is fully vested and not subject to forfeiture as
of the Termination Date. This Agreement will inure to the benefit of and be
enforceable by Employee's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Employee should die while any amounts are still payable to her hereunder, all
such amounts, unless otherwise provided hereunder or under the terms of
governing insurance or other documents, will be paid in accordance with the
terms of this Agreement to Employee's devisee, legatee or other designee or, if
there be no such designee, to Employee's estate.
1.3 Options. The parties acknowledge that Company has granted
Employee under Company's 1991 Nonqualified Stock Option Plan (the "1991 Option
Plan") options to acquire, in the aggregate, seventy-two thousand (72,000)
shares of Company common stock, the majority of which options are vested. The
Company hereby agrees that the options regarding sixteen thousand (16,000)
shares of Company common stock not previously vested will vest as of the
Termination Date. Further, the Company hereby agrees to extend the term in which
Employee may exercise all options granted to her until the close of business on
October 15, 2001. Although not anticipated, in the event the Company, through
one or more transactions, reprices options issued under the 1991 Option Plan to
the Company's Chief Executive Officer, any of the Company's Senior Vice
Presidents, or any member of the Company's Board of Directors at any time prior
to October 15, 2001, the options held by the Employee will simultaneously be
repriced on identical terms.
1.4 Transitional Consulting Agreement. The parties agree that
for a period of up to twenty-four (24) months from the Termination Date (the
"Consulting Period"), Company will retain Employee as a consultant to provide
services on an "as-needed" basis to assist in transition associated with
termination of Employee's employment. For such consulting services, Company will
pay a fee of Twenty-Four Thousand and No/100 Dollars ($24,000.00), payable over
the first twelve (12) months of the Consulting Period in equal amounts in
accordance with the Company's standard payroll practices. Employee acknowledges
and agrees that even though the fees under this paragraph 1.4 will be fully paid
one year from the Termination Date, Employee's consulting responsibilities will
continue for two (2) years. During the Consulting Period, Employee will not be
entitled to receive, and will not receive, any benefit provided by the Company
or any of its affiliates to employees except as expressly stipulated in
paragraphs 1.2 and 1.3 of this Agreement. The Company hereby acknowledges that
Employee may have other commitments during the Consulting Period, including but
not limited to full-time employment. Accordingly, the performance of duties
under this paragraph 1.4 will not be inconsistent with Employee's ability to be
employed on a full-time basis elsewhere. In other words, the Company will not
require a prescribed minimum
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<PAGE> 3
amount of time to the performance of Employee's duties hereunder, while Employee
will devote such time as reasonably necessary to perform her duties hereunder.
Additionally, the Company will not be responsible for deducting or withholding
any taxes or other assessments from any monies paid to Employee as a consultant
under this paragraph 1.4. The parties acknowledge and agree that Employee is to
act as a consultant and advisor to Company and not as an agent or employee in
any respect. Accordingly, the Employee will have no right, authority or power to
act for or on behalf of Company or its affiliates except as Company may
specifically grant.
1.5 Provision of Outplacement Services in Consideration of Release
of Age Discrimination Claims. Although Employee has never raised an age
discrimination issue, in order for this Agreement to embody a release of all
claims as contemplated by both parties, federal law stipulates that Employee
specifically release any potential claims on the basis of age discrimination.
Therefore, in consideration for such release and in addition to the
consideration provided in Paragraph 1.2 above, the Company will give Employee
the laptop computer she has been using in the performance of her duties and will
pay up to Ten Thousand and No/100 Dollars ($10,000.00) for services provided in
the "Individual Outplacement Services" program as provided by Russell Montgomery
& Associates during the twelve (12) month period immediately following the
Termination Date. The Employee may, within three (3) weeks of the date of this
Agreement, elect to use comparable services of another agency and receive
reimbursement from the Company on the same basis set forth in the preceding
sentence, subject to the Company's prior written approval of such alternative
agency and services, which approval will not be unreasonably withheld.
2. Confidentiality, Non-Compete and Other Covenants.
2.1 Confidentiality.
(a) Employee hereby agrees and acknowledges that she has had access
to or is aware of certain confidential, restricted and/or proprietary
information concerning operation by Company of its health care business (the
"Business"). Further, Employee hereby represents to the Company that she has
allowed Company to reformat the laptop computer referenced in Section 1.5 and
has delivered to Company all memoranda, notes, records, drawings, discs,
computer software, manuals or other documents and materials, including all
copies thereof, containing "Trade Secrets" or "Confidential Information" (each
as defined below), whether compiled or created by Employee or furnished to her.
Employee hereby undertakes and agrees that she shall have a duty to Company to
protect such information from use or disclosure.
(b) For the purposes of this Section 2.1, the following definitions
shall apply:
(i) "Trade Secret" as related to the Business, shall mean any
specialized technical information or data relating to (w) procurement
of medical equipment and other inventory for resale; (x) marketing
strategy or plans of Company or its affiliates; (y) proprietary
computer software; and (z) terms of contracts with suppliers,
employees and principal customers of Company which are not generally
known to the competitors of Company.
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<PAGE> 4
(ii) "Confidential Information," as related to the Business,
shall mean any data or information, other than Trade Secrets, which is
material to Company or its affiliates and not generally known by the
public. Confidential Information shall include, without limitation,
any information pertaining to the Business Opportunities (as
hereinafter defined) of Company, the details of this Agreement, and
the business plans, financial statements and projections of the
Company. Confidential Information does not include information which
(x) is or becomes generally available to the public other than as a
result of disclosure by Employee or disclosure by another person,
other than Company, who is prohibited from disclosing such
information, (y) was available to Employee on a non-confidential basis
prior to her employment by Company, or (z) becomes available to
Employee on a non-confidential basis from a person other than Company
who is not prohibited from disclosing the information publicly.
(iii) "Business Opportunity" shall mean any information or plans
of Company concerning the purchase of or investment in any retail
outlets, stores, distribution centers or similar service facilities in
the field of health care, or the availability of any such outlets for
purchase or investment by Company, together with all related
information, concerning the specifics of any contemplated purchase or
investment (including price, terms and the identity of such outlet),
regardless of whether Company has entered any agreement, made any
commitment, or issued any bid or offer to such outlet or other
facility.
(c) Employee shall not, without the prior written consent of
Company and except as required by law, use or disclose, or negligently permit
any unauthorized "Person" who is not an employee of Company to use, disclose, or
gain access to, any Trade Secrets or Confidential Information. For purposes of
this Agreement, "Person" is defined as a corporation, partnership, joint venture
or other business entity, a governmental agency, or an individual.
(d) Following the Termination Date, Employee will, with reasonable
notice, furnish information as may be in her possession and cooperate fully with
Company as may reasonably be requested in connection with any claims,
investigations, or legal actions or other disputes in which the Company is or
may become a party. Company will reimburse Employee for out-of-pocket expenses
she actually incurs in order to satisfy her obligations under this clause (e).
2.2 Non-Competition and Non-Solicitation. For a twelve (12) month
period following the Termination Date, (i) Employee will not make any statements
or perform any acts intended to advance the interest of any existing or
prospective competitor of Company in any way that will injure the interests of
the Company; and (ii) Employee will not directly or indirectly own or hold any
"Proprietary Interest" in or be employed by or receive compensation from any
party engaged in the same or any similar business within fifty (50) miles of any
location of Company existing as of the Termination Date. Employee will not, now
or hereafter, make any disparaging comments to any patient, customer, health
care provider, vendor, or any other Person with whom Company does business, nor
will Employee derive, directly or indirectly, any economic profit or benefit as
a result of any such disparaging comments. For a twelve (12) month period
following the Termination Date, (i) Employee will not solicit any client of
Company or discuss with any client of Company or any employee of Company any
information concerning the operation of any business
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<PAGE> 5
intended to compete with the Company; and (ii) Employee will not, directly or
indirectly, hire any Person now or hereafter employed by Company, or solicit or
encourage any such employee to leave the employ of Company; provided, however,
that beginning twelve (12) months after the Termination Date, Employee may hire
a past employee of Company but only so long as such past employee has not been
so employed for at least six (6) months. For the purposes of this Agreement,
"Proprietary Interest" means legal or equitable ownership, whether through stock
holdings or otherwise, of a debt or equity interest (including options,
warrants, rights and convertible interests) in a business firm or entity, or
ownership of more than 5% of any class of equity interest in a publicly-held
company. Employee acknowledges that the covenants contained herein are
reasonable as to geographic and temporal scope.
2.3 Remedies. Employee acknowledges that her breach or threatened or
attempted breach of any provision of Section 2 of this Agreement would cause
irreparable harm to Company not compensable in monetary damages and that Company
shall be entitled, in addition to all other applicable remedies, to a temporary
and permanent injunction and a decree for specific performance of the terms of
Section 2 of this Agreement without being required to prove damages or furnish
any bond or other security. Nothing herein contained will be construed as
prohibiting Company from pursuing any other remedy available to it for such
breach or attempted or threatened breach.
2.4 Application to Affiliates. For purposes of Section 2 of this
Agreement, the term "Company" refers to American HomePatient, Inc., a Delaware
corporation, and each corporation, limited liability company, partnership, joint
venture or other business entity in which American HomePatient, Inc. directly or
indirectly has an ownership interest.
3. Releases; Covenant Not to Sue.
3.1 General Release. Employee hereby fully and forever releases
Company, its successors and assigns, affiliates, insurers, officers, directors,
employees and agents, from any and all liability, causes of action, suits,
damages, claims and demands whatsoever that Employee may have and that arise
from or relate in any way to her employment with Company or the conduct of
Company's business through the date hereof.
3.2 ADEA Release. Employee specifically releases Company and the
other related parties included in paragraph 3.1, from any claims based upon any
law prohibiting discrimination on the basis of Employee's age including but not
limited to the Age Discrimination in Employment Act ("ADEA"). Employee does not
waive rights or claims under the ADEA that may arise after the date this
Agreement is executed by Employee.
3.3 Covenant Not to Sue. Employee covenants that she will not
initiate or bring any proceeding, suit, claim, or administrative proceeding
against Company, its affiliates, agents, employees, officers, successors and
assigns arising out of or in any way related to her employment by Company or the
conduct of Company's business prior to the date hereof. Employee further
covenants that she will not, without Company's prior written consent unless
required to do so by means of a valid court order or subpoena, cooperate with
any Person in the institution or prosecution
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<PAGE> 6
of any such proceeding, suit, claim or investigation brought, initiated or
conducted by any Person against Company, its affiliates, agents, employees,
officers, successors and assigns. Employee further covenants that she will
notify Company immediately in the event she is contacted by any Person regarding
any pending or contemplated proceeding, suit, claim or investigation involving
Company, its affiliates, agents, employees, officers, successors and assigns.
4. Exit Interview. The parties will engage in an exit interview to
address issues relating to the operations of Company and Employee's employment.
Employee hereby represents and warrants that in such exit interview she will
inform Joseph F. Furlong, III, President and Chief Executive Officer, and
Company counsel of all violations of law, if any, known by Employee to have been
committed by or on behalf of Company and/or its affiliates.
5. No Obligation to Mitigate. Employee will not be required to mitigate
the amount of any payments provided for under this Agreement by seeking other
employment or otherwise. Other than with respect to the medical and dental
insurance benefits noted in Section 1.2(b), no payment provided for under this
Agreement will be reduced by any compensation earned by Employee as a result of
employment by another employer or otherwise after the Termination Date.
6. Agreement is Voluntary and Knowing.
(a) Employee acknowledges she understands the terms and conditions
of this Agreement. Employee has had the opportunity to discuss thoroughly all
aspects of this Agreement with Employee's legal counsel and has been advised to
do so by Company.
(b) Employee is voluntarily entering into this Agreement, of her own
free will, free of any coercion, pressure or duress. She is knowingly releasing
Company in accordance with the terms contained herein. Employee further
acknowledges that she is receiving consideration beyond anything of value to
which she is already entitled. Should Employee ever attempt to challenge this
Agreement, Employee shall as a precondition return to Company all consideration
provided to Employee hereunder.
(c) Employee shall have up to twenty-one (21) days in which to
consider this Agreement. After the execution of this Agreement, Employee shall
have an additional seven (7) days to revoke this Agreement. Therefore, this
Agreement will become final on the eighth (8th) day after Employee has executed
it. Notwithstanding any other provision hereof to the contrary, other than the
second sentence of Section 1.2(a). No consideration will be paid to Employee
until this Agreement becomes final.
7. Successors and Assigns. The provisions hereof shall inure to the
benefit of and be binding upon the permitted successors and assigns of the
parties hereto. Company will require any successor or assign (whether direct or
indirect by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of Company to unconditionally
assume and agree to perform this Agreement in the same manner and to the same
extent that Company would be required to perform it if no such succession or
assignment had taken place. Notwithstanding the
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foregoing, the rights and obligations of Employee hereunder are not assignable,
other than as noted in the last two (2) sentences of Section 1.2(b), and any
prohibited assignment will be null and void.
8. Governing Law. This Agreement shall be interpreted under, subject to
and governed by the laws of the State of Tennessee and all questions concerning
its validity, construction, and administration shall be determined in accordance
thereby.
9. Waivers. The waiver of a breach by either party of a term or
provision of this Agreement, at any time or times, shall not be deemed or
construed to be a waiver of any subsequent breach or breaches of the same or of
any other terms or provisions of this Agreement at any time or times.
10. Invalidity. The invalidity or unenforceability of any provision of
this Agreement shall not affect any other provision hereof, and this Agreement
shall be construed in all respects as if such invalid or unenforceable provision
was omitted. Furthermore, in lieu of such illegal, invalid or unenforceable
provision there shall be added automatically as a part of this Agreement a
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
11. Exclusiveness. This Agreement constitutes the entire understanding
and agreement between the parties with respect to the employment and severance
arrangements of the Employee and supersedes any and all other agreements, oral
or written, between the parties. No waiver, modification, or amendment to this
Agreement shall be valid unless the same be reduced to writing and signed by the
parties hereto.
12. Modification. This Agreement may not be modified or amended except
in writing signed by the parties. No term or condition of this Agreement will be
deemed to have been waived except in writing by the party charged with waiver. A
waiver shall operate only as to the specific term or condition waived and will
not constitute a waiver for the future or act on anything other than that which
is specifically waived.
13. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when mailed
first-class postage prepaid by registered mail, return receipt requested, or
when delivered by hand, overnight delivery service or confirmed facsimile
transmission, to the following:
A. If to Company, at Suite 400, 5200 Maryland Way, Brentwood,
Tennessee 37027, Attention: President and Chief Executive Officer, or at such
other address as may have been furnished to the Employee by the Company in
writing; or
B. If to Employee, at 6230 Bresslyn Road, Nashville, Tennessee,
37205, or such other address as may have been furnished to the Company by the
Employee in writing.
14. Consolidation, Merger or Sale of Assets. Nothing in this Agreement
shall preclude Company from consolidating or merging into or with, or
transferring all or substantially all of its
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assets to, another individual, entity or business that assumes this Agreement
and all obligations of the Company hereunder.
15. Final Settlement. The parties declare that each has carefully read
this Agreement, that each has reviewed its terms with each one's respective
counsel, and that each agrees to it for the purpose of making a full and final
adjustment and resolution of the matters contained herein. Nothing in this
agreement is to be construed as an admission of any kind by either Employee or
Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"COMPANY"
AMERICAN HOMEPATIENT, INC.
By: /s/ Joseph F. Furlong, III
---------------------------------------
Its: President and Chief Executive Officer
--------------------------------------
"EMPLOYEE"
/s/ Rita N. Hill
------------------------------------------
RITA N. HILL
8
<PAGE> 1
EXHIBIT 10.77
SEPARATION AND RELEASE AGREEMENT
THIS SEPARATION AND RELEASE AGREEMENT is entered into as of December
30, 1998 by and between AMERICAN HOMEPATIENT, INC., a Delaware corporation (the
"Company"), and MALCOLM MACKENZIE, a resident of the State of Massachusetts (the
"Employee").
WHEREAS, the Company has agreed to pay Employee certain sums in
connection with termination of his employment and in settlement of certain
claims under the terms and conditions set forth herein and in exchange for
Employee's agreements contained herein; and
WHEREAS, in his position as an employee, director and consultant to the
Company, Employee had access to confidential information and trade secrets of
the Company and developed relationships with customers, employees, suppliers and
others who deal with the Company, which relationships are valuable to the
Company.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements made herein, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound hereby, agree as
follows:
1. Termination; Severance Pay; Options Previously Granted; D&O
Insurance.
1.1 Termination. The parties agree that the Company's employment of
Employee terminated at the close of business on Friday, November 6, 1998, (the
"Termination Date"). Effective as of the date of this Agreement, Employee hereby
resigns as a director of the Company and as an officer and director of all the
Company's subsidiaries in which he holds any position. The Company hereby
accepts such resignations on behalf of itself and its subsidiaries.
1.2 Payment to Employee.
(a) Upon execution of this Agreement by Employee, the Company will
pay Employee, by wire transfer of same day funds to account #0212862942 at Fleet
Bank in Boston, Massachusetts, a lump sum payment in the amount of Forty-Seven
Thousand Six Hundred Seventy-Two Dollars and 12/100 ($47,672.12), as determined
as follows: Twenty-Five percent (25%) of Two Hundred Seventy-five Thousand and
No/100 Dollars ($275,000.00), less Twenty-One Thousand Three Hundred Seven
Dollars and 08/100 ($21,307.08) in withholding taxes, plus Two Hundred
Twenty-Nine Dollars and 20/100 ($229.20) to enable Employee to exercise his
COBRA rights for up to one year with respect to his dental coverage under the
Company's plan of insurance. Employee acknowledges that all salary due to him
for work through the Termination Date has been paid. The Company acknowledges
that expense reimbursements to Employee in an amount no greater than $2,500.00
remain pending with the Company. The parties further acknowledge that COBRA
coverage eligibility for the Employee commenced immediately upon the Termination
Date, and that
<PAGE> 2
it is Employee's responsibility to timely exercise and make payments required to
continue any family dental or other coverage to which Employee or his dependants
may be entitled.
(b) Commencing on March 15, 1999 and continuing on the 15th
day of each month until November 15, 1999, the Company will pay to Employee by
wire transfer, same day funds, an amount equal to Twenty-Two Thousand Nine
Hundred and Sixteen Dollars and 67/100 ($22,916.67) less appropriate withholding
taxes.
1.3 Options Previously Granted. The parties acknowledge that
the Company granted Employee under the Company's 1995 Nonqualified Stock Option
Plan for Directors (the "1995 Directors Option Plan") vested options to acquire,
in the aggregate, Seven Thousand Five Hundred (7,500) shares of Company common
stock at a price of $19.00 per share. Employee's rights to such options shall be
subject to the terms and the conditions of the option agreement attached hereto
as Exhibit A (the "Option Agreement"), which Option Agreement shall be executed
simultaneously with the execution of this Agreement, and the terms and
conditions of the 1995 Directors Option Plan. Employee acknowledges that
pursuant to the terms of the 1995 Directors Option Plan, Employee has three (3)
months from the date of this Agreement to exercise his options to acquire
Company common stock.
1.4 Directors and Officers Insurance; Indemnification. The
Company will provide Employee director and officer liability insurance coverage
in amounts, and on terms and conditions, no less favorable to Employee than the
coverage provided for any other present or former officer or director of the
Company, until the earlier of (i) the sixth anniversary of the Termination Date
or (ii) such time as the Company and its affiliates no longer maintain any
policy of insurance covering errors or omissions by any of the Company's present
or former officers or directors. The Company will, promptly upon written request
and to the fullest extent legally permitted or authorized by the Company's
certificate of incorporation, by-laws or Board resolutions or, if greater, by
the laws of the State of Delaware, indemnify and hold harmless Employee in all
pending or threatened actions, suits and proceedings, against him or threatened
against him, whether civil, criminal, administrative, or investigative by reason
of the fact that Employee was a director, officer, or agent of the Company, or
was at the Company's request serving as a director, officer, employee or agent
of another entity, against all costs, expenses, liabilities and losses
(including, without limitation, judgments, interest, penalties, fines, ERISA
excise taxes or penalties, attorneys' fees reasonably incurred, expenses of
investigation reasonably incurred, and reasonable amounts paid to or to be paid
in settlement) that are suffered or incurred by him in connection with any such
pending or threatened action, suit or proceeding, and such indemnification shall
inure to the benefit of Employee's heirs, executives and administrators. In
addition, the Company shall advance to Employee all costs and expenses
(including, without limitation, attorneys fees) reasonably incurred by him in
connection with any such pending or threatened action, suit or proceeding within
20 days after receipt by the Company of a written request for advancement
accompanied by (x) documentation reasonably evidencing the sums for which
advancement is sought and (y) to the extent required by law, an undertaking by
Employee to repay the amount advanced if he is ultimately determined not to be
entitled to indemnification against such costs and expenses. Notwithstanding
anything herein to the contrary,
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<PAGE> 3
Employee shall not be entitled to indemnification if it is prohibited by
Delaware General Corporation Law, and nothing in this Agreement shall limit or
reduce Employee's rights under Article XI of the Company's current Certificate
of Incorporation (which Article relates to indemnification).
2. Confidentiality, Non-Solicitation and Other Covenants.
2.1 Confidentiality.
(a) Employee hereby agrees and acknowledges that he has had access
to or is aware of certain confidential, restricted and/or proprietary
information concerning operation and growth by the Company of its health care
business (the "Business"). Further, Employee hereby represents to the Company
that he has delivered to the Company all materials, including but not limited to
documents, discs, computer software and copies thereof, containing "Trade
Secrets" or "Confidential Information" (each as defined below), whether compiled
or created by Employee or furnished to him. Employee hereby undertakes and
agrees that he shall have a duty to the Company to protect such information that
is in his possession or control from improper use or disclosure.
(b) For the purposes of this Section 2, the following definitions
shall apply:
(i) "Trade Secret" shall mean any specialized technical
information or data not generally known to the public relating to (w)
the Company's or its affiliates' procurement of medical equipment and
other inventory for resale; (x) marketing strategy or plans of the
Company or its affiliates; (y) the Company's or its affiliates'
proprietary computer software; and (z) terms of the Company's or its
affiliate's contracts with suppliers, employees and principal
customers, which terms are not generally known to the competitors of
the Company.
(ii) "Confidential Information" shall mean any material data or
information, other than Trade Secrets, that relates to the Company or
its affiliates or its Business and is not generally known by the
public. Confidential Information shall include, without limitation,
any information pertaining to the Business Opportunities (as
hereinafter defined) of the Company, the details of this Agreement,
and the business plans, financial statements and projections of the
Company.
(iii) "Business Opportunity" shall mean any information or plans
of the Company or its affiliates concerning the purchase of or
investment in (or potential purchase of or investment in) any entity,
retail outlets, stores, distribution centers or similar service
facilities in the field of health care, or the availability of any of
the foregoing for purchase or investment by the Company, together with
all related information, concerning the specifics of any contemplated
purchase or investment (including price, terms and the identity of
such entity or outlet), regardless of whether the Company has entered
any agreement, made any commitment, or issued any bid or offer to
purchase or invest with respect to any such opportunity.
3
<PAGE> 4
(c) Employee shall not, without the prior written consent of the
Company and except (x) as required by law, by subpoena, or by order of any
court, legislative body, or other Person with apparent jurisdiction to require
disclosure or (y) and except for disclosure in confidence to any attorney,
accountant or other professional in the course of seeking professional advice or
services, use or disclose, or negligently permit any unauthorized "Person" who
is not an employee, agent, attorney, accountant or other representative of the
Company to use, disclose, or gain access to, any Trade Secrets or Confidential
Information. For purposes of this Agreement, "Person" is defined as a
corporation, partnership, joint venture or other business entity, a governmental
agency, or an individual.
2.2 Non-Solicitation. For a twelve (12) month period following the
Termination Date, Employee will not solicit, directly or indirectly, in
competition with the Company, any client, customer, employee, joint-venture, or
business opportunity of the Company or its affiliates; and (ii) the Employee
will not, directly or indirectly, (a) solicit or encourage any individual who is
now or hereafter employed by the Company to leave the employ of the Company or
(b) hire any individual who shall have been employed by the Company at any time
during the three (3) months prior to such hiring. The Employee acknowledges that
the covenants contained herein are reasonable.
2.3 Remedies. The Employee acknowledges that his breach or
threatened or attempted breach of any provision of Section 2 of this Agreement
could cause irreparable harm to the Company not compensable in monetary damages
and that the Company shall be entitled, in addition to all other applicable
remedies, to seek a temporary and permanent injunction and a decree for specific
performance of the terms of Section 2 of this Agreement without being required
to prove damages or furnish any bond or other security; provided that the
Company shall have no right to enforce this Section 2 through injunction if it
at any time materially breaches any provision of this Agreement. Nothing herein
contained will be construed as prohibiting the Company from pursuing any other
remedy available to it for such breach or attempted or threatened breach.
2.4 Application to Affiliates. For purposes of this Agreement, the
term "Company" refers to American HomePatient, Inc., a Delaware corporation, any
successors by merger, and the term "affiliate" means each corporation, limited
liability company, partnership, joint venture or other business entity in which
American HomePatient, Inc. directly or indirectly has a 30% or greater ownership
interest.
3. Releases; Covenant Not to Sue.
3.1 General Release By Employee. Employee for himself, his
dependents, heirs, executors, administrators, successors, and assigns, does
hereby fully, finally and forever release and discharge the Company, its
officers, directors, agents, employees, subsidiaries and affiliates from any and
all claims, obligations and liabilities, including those for personal injuries,
as well as claims for compensatory/punitive damages, breach of contract,
liquidated damages, wages, salaries, commissions, bonuses, deductions, back pay,
front pay, court costs, attorneys' fees, job assignments, promotions/transfers,
past employment as a consultant, monetary damages for intentional infliction
4
<PAGE> 5
of mental/emotional distress, or any other causes, claims, or demands which, as
of the date hereof, Employee has or may have had arising out of or relating to
Employee's employment with, consultation with, and/or separation from employment
with the Company. Further released are, including without limitation, any such
claims that, as of the date hereof, Employee has or may have had under Title VII
of the Civil Rights Act of 1991(42 U.S.C. ss.ss. 2000(e), et seq.) the AGE
DISCRIMINATION IN EMPLOYMENT ACT OF 1967, as amended ("ADEA"); the Civil Rights
Acts of 1866, 1871, 1964 and 1991; the Americans with Disabilities Act of 1990
(42 U.S.C. ss. 1211 et seq.); the Rehabilitation Act of 1973 (29 U.S.C. ss. 701,
et seq.); the Fair Labor Standards Act (29 U.S.C. ss. 201, et seq.); the Equal
Pay Act of 1973 (29 U.S.C. Chapter 8, ss.ss. 206(d), et seq.); the Consolidated
Omnibus Budget and Reconciliation Act of 1985, 29 U.S.C. ss. 1161, et seq., as
amended, the Employee Retirement Income and Security Act of 1974 (29 U.S.C. ss.
1001, et seq., as amended) (but not as to the continuation benefits, if any, to
which Employee may be entitled); any state or federal "whistle-blower" type
statutes; any and all claims under the laws of any state, county, municipality
or other governmental subdivision of the United States or any state; and any and
all other relevant Federal and/or State statutory and/or common laws including,
but not limited to intentional infliction of emotional distress. Notwithstanding
anything in this Section 3 to the contrary, nothing herein shall release the
Company from any claims or damages, or preclude, limit or prohibit Employee from
suing the Company for, any wrongs arising from conduct or actions of the
Company, or any of its officers, directors, agents, employees, subsidiaries or
affiliates, that have ben concealed and of which Employee has no knowledge as of
December 31, 1998.
3.2 ADEA RELEASE. EMPLOYEE SPECIFICALLY RELEASES COMPANY AND
THE OTHER AFFILIATED PARTIES INCLUDED IN SUBSECTION 2.4, FROM ANY CLAIMS BASED
UPON ANY LAW PROHIBITING DISCRIMINATION ON THE BASIS OF EMPLOYEE'S AGE,
INCLUDING BUT NOT LIMITED TO THE AGE DISCRIMINATION IN EMPLOYMENT ACT ("ADEA
CLAIMS"). EMPLOYEE IS RECEIVING ONE HUNDRED THOUSAND AND NO/100 DOLLARS
($100,000.00) AS CONSIDERATION FOR THE RELEASE OF SUCH ADEA CLAIMS, WHICH
$100,000 IS A PART OF THE LUMP SUM PAYMENT SET FORTH IN SUBSECTION 1.2 HEREIN.
EMPLOYEE DOES NOT WAIVE RIGHTS OR CLAIMS UNDER THE ADEA THAT MAY ARISE AFTER THE
DATE THIS AGREEMENT IS EXECUTED BY EMPLOYEE.
3.3 Covenant Not to Sue. Employee covenants that he will not
initiate or bring any proceeding, suit, claim, or administrative proceeding
against the Company, its affiliates, agents, employees, officers, successors or
assigns arising out of or relating to his employment by, or consulting for, the
Company or the conduct of the Company's business prior to the Termination Date.
Employee further covenants that he will, to the extent permitted by law, notify
the Chief Executive Officer of the Company immediately in the event he is
contacted by any Person regarding any pending or contemplated proceeding, suit,
claim or investigation involving the Company, its affiliates, agents, employees,
officers, successors or assigns.
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<PAGE> 6
3.4 Sum Paid Is For Release Of Claims. The parties agree that the
sum paid is for release of claims and was not calculated based on or derived
from lost wages or benefits Employee might have received had his employment
continued.
3.5 Release By the Company. The Company, for itself, its officers,
directors, agents, employees, subsidiaries and affiliates, does hereby fully,
finally and forever release and discharge Employee for himself, his dependents,
heirs, executors, administrators, successors, and assigns from any and all
claims, obligations and liabilities, as well as claims for compensatory/punitive
damages, breach of contract, liquidated damages, court costs, attorneys' fees,
or any other causes, claims, or demands, as of the date hereof, that the Company
has or may have had arising out of, or relating to, Employee's employment with,
consulting for, and/or separation from employment with the Company. The Company
covenants that it will not initiate or bring any proceeding, suit, claim, or
administrative proceeding against Employee, his dependents, heirs, executors,
administrators, successors or assigns arising out of or relating to Employee's
employment with, or consulting for, the Company or the conduct of the Company's
business prior to the Termination Date. Notwithstanding anything in this Section
3 to the contrary, nothing herein shall release Employee from any claims or
damages, or preclude, limit or prohibit the Company from suing Employee for, any
wrongs arising from conduct or actions of Employee which have ben concealed by
Employee and of which no member of the Company's board of directors (other than
Employee) had knowledge as of December 31, 1998. The Company further covenants
that it will notify Employee immediately in the event that it, or its attorneys,
is contacted by any Person regarding any pending or contemplated proceeding,
suit claim or investigation in which Employee is a party or in which he is
threatened to be named as a party.
3.6 No Admission of Liability. This Agreement shall not in any way
be construed as an admission by the Company or Employee of any liability
whatsoever, or as an admission by either of the Company or Employee of any acts
of wrongdoing against the other or any other persons.
3.7 No Release of Claims under this Agreement. Nothing in this
Section 3 shall be construed to release, limit, or bar any claim based on any
breach, or claimed breach, of this Agreement.
3.8 No Release of Monitor Company. Nothing in this Section 3 shall
be construed to release, limit in any way, or bar any claim that the Company may
have against Monitor Company or its affiliates, other than claims against
Monitor Company or its affiliates that seek to impose liability on Monitor
Company or its affiliates for claims against Employee that are released by
Section 3.5.
4. Disclosure; Post-Departure Assistance. Employee shall, at a mutually
agreeable time prior to March 26, 1999, discuss with representatives of the
Company and the Company's legal counsel, at their request, any issue relating to
the operation of the Company's Business of which Employee has knowledge. In
addition, Employee shall, on reasonable notice and subject to
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<PAGE> 7
Employee's commitments and obligations, furnish such information as may be in
his possession, and such additional cooperation and assistance, as the Chief
Executive Officer of the Company may specifically and reasonably request in
connection with any claims, investigations, legal actions or other disputes in
which the Company is or may become a party and in which Employee's interests do
not conflict with those of the Company. Employee shall be obligated to provide,
at no charge to the Company, up to sixteen (16) hours of his time (including,
without limitation, travel time) in connection with his obligations under this
Section 4. For each hour (a) after March 26, 1999, or (b) in excess of 16 hours,
the Company shall pay Employee Five Hundred Dollars ($500) per hour promptly
upon receipt of an invoice for such time. As a condition to Employee's
obligation to provide information and cooperation under this Section 4, the
Company shall advance to the Employee amounts sufficient to cover the costs of
all reasonable travel, lodging, legal and other expenses relating thereto;
provided, however, that Company will have no obligation to reimburse Employee's
legal expenses in connection with the matters as to which the Company's primary
outside law firm renders to Employee an unqualified written opinion stating that
Employee's interests do not conflict with those of the Company, any such opinion
to be provided within 21 days of Employee's written notice to the Company
requesting such an opinion.
5. Agreement is Voluntary and Knowing.
5.1 Employee acknowledges he understands the terms and conditions of
this Agreement. Employee has had the opportunity to discuss thoroughly all
aspects of this Agreement with Employee's legal counsel and has been advised to
do so by the Company.
5.2 Employee acknowledges that his Agreement was provided to him on
December 17, 1998, and that he shall have twenty-one (21) days (prior to
execution of this Agreement) in which to consider this Agreement. If Employee
elects to execute this Agreement prior to the expiration of the twenty-one (21)
days, such election is solely his choice. After the execution of this Agreement,
Employee shall have seven (7) days to revoke this Agreement. Employee has been
advised to consult with an attorney or advisor concerning this Agreement and has
done so. Employee represents and warrants that he freely negotiated the terms of
this Agreement, and enters into it and executes it voluntarily. In the event
Employee elects to revoke this Agreement, Employee shall promptly return all
consideration provided to Employee herein or such revocation shall be of no
force or effect.
6. No Disparagement. Each party hereto agrees not to disparage or make
comments of a negative or unfavorable nature with respect to the other, other
than (x) truthful statements required by law, by subpoena, or by order of any
court, legislative body, or other Person with apparent jurisdiction to require
such statements and (y) statements made in confidence to any attorney,
accountant or other professional in the course of seeking professional advice or
services, and warrants that it/he has made so such statements since the
Termination Date.
7. Successors and Assigns. The provisions hereof (including, without
limitation, the provisions of Section 1.4, 3 and 4) shall inure to the benefit
of and be binding upon the successors
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<PAGE> 8
and assigns of the Company. Notwithstanding the foregoing, the rights and
obligations of Employee hereunder are not assignable during his lifetime, and
any prohibited assignment will be null and void.
8. Governing Law. This Agreement shall be interpreted under, subject to
and governed by the laws of the State of Tennessee, and all questions concerning
its validity, construction, and administration shall be determined in accordance
therewith.
9. Additional Agreements. Simultaneously with the execution of this
Agreement, Employee shall execute the Form 5 attached as Exhibit B and
authorizes the Company to file this form with the Securities and Exchange
Commission. Upon request of the Company, Employee agrees to execute any
additional documents, agreements or forms reasonably necessary to evidence or
effectuate (x) the termination of his affiliation with the Company or (y) the
terms of this Agreement.
10. Attorneys' Fees. In the event of any proceeding or litigation
arising out of this Agreement, the prevailing party in such proceeding or
litigation shall be entitled to recover the reasonable costs and expenses
incurred in connection with such proceeding or litigation, including, but not
limited to reasonable attorneys' fees.
11. Waivers. The waiver of a breach by either party of any term or
provision of this Agreement, at any time or times, shall not be deemed or
construed to be a waiver of any subsequent breach or breaches of the same or of
any other term or provision of this Agreement at any time or times.
12. Invalidity. The invalidity or unenforceability of any provision of
this Agreement shall not affect any other provision hereof, and this Agreement
shall be construed in all respects as if such invalid or unenforceable provision
was omitted. Furthermore, in lieu of such illegal, invalid or unenforceable
provision there shall be added automatically as a part of this Agreement a
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
13. Exclusiveness. This Agreement constitutes the entire understanding
and agreement between the parties with respect to the employment and severance
arrangements of Employee and supersedes any and all other agreements, oral or
written, between the parties. No waiver, modification, or amendment to this
Agreement shall be valid unless the same be reduced to writing and signed by the
parties hereto.
14. Modification. This Agreement may not be modified or amended except
in writing signed by the parties. No term or condition of this Agreement will be
deemed to have been waived except in writing by the party charged with waiver. A
waiver shall operate only as to the specific term or condition waived and will
not constitute a waiver for the future or act on anything other than that which
is specifically waived.
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<PAGE> 9
15. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made (x) five
days after being mailed first-class postage prepaid by registered mail, return
receipt requested, or (y) when delivered by hand, overnight delivery service or
confirmed facsimile transmission, to the following:
A. If to the Company, at Suite 400, 5200 Maryland Way, Brentwood,
Tennessee 37027, Attention: President and Chief Executive Officer, or at such
other address as may have been furnished to Employee by the Company in writing,
with a copy to Mark Manner, Harwell Howard Hyne Gabbert & Manner, P.C., 315
Deaderick Street, 1800 First American Center, Nashville, Tennessee 37238; or
B. If to Employee, at 97 Thorndike Street, Cambridge, MA 02141 or
such other address as may have been furnished to the Company by Employee in
writing, with a copy to Robert M. Sedgwick, Bachelder Law Offices, 780 Third
Avenue, New York, NY 10017.
16. Consolidation, Merger or Sale of Assets. Nothing in this Agreement
shall preclude the Company from consolidating or merging into or with, or
transferring all or substantially all of its assets to, another individual,
entity or business that assumes this Agreement and all obligations of the
Company hereunder.
17. Final Settlement. The parties declare that each has carefully read
this Agreement, that each has reviewed its terms with each one's respective
counsel, and that each agrees to it for the purpose of making a full and final
adjustment and resolution of the matters contained herein. Nothing in this
agreement is to be construed as an admission of any kind by either Employee or
the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first set above herein.
"COMPANY"
AMERICAN HOMEPATIENT, INC.
By: /s/ Joseph F. Furlong, III
---------------------------------
JOSEPH F. FURLONG, III
Its: Chief Executive Officer
"EMPLOYEE"
/s/ Malcolm MacKenzie
---------------------------------------
MALCOLM MACKENZIE
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<PAGE> 1
EXHIBIT 10.78
ASSET PURCHASE AGREEMENT
AMONG
GREENBRIER RESPIRATORY CARE SERVICES, INC.
D/B/A GREENBRIER RESPIRATORY AND REHABILITATION, INC.
THE SELLER
ALLEN CARSON
THE SHAREHOLDER
AND
AMERICAN HOMEPATIENT, INC.
THE BUYER
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. PURCHASE AND SALE................................................1
1.1 Purchase and Sale................................................1
1.2 Excluded Assets..................................................3
1.3 Assumed Contracts, Leases and Liabilities........................3
1.4 Effective Date; Closing..........................................4
ARTICLE II. PURCHASE PRICE...................................................4
2.1 Purchase Price...................................................4
2.2 Interest on Purchase Price.......................................4
2.3 Allocation of Purchase Price.....................................5
2.4 Referrals........................................................5
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER AND SHAREHOLDER.........5
3.1 Organization, Qualification and Authority........................5
3.2 Absence of Default...............................................6
3.3 Financial Statements.............................................6
3.4 Operations Since December 31, 1997 ..............................7
3.5 Litigation.......................................................8
3.6 Licenses.........................................................9
3.7 Medicare, Medicaid and Other Third-Party Payors..................9
3.8 Title to and Condition of Assets................................10
3.9 Contracts.......................................................11
3.10 Environmental Matters...........................................12
3.11 Miscellaneous Representations Relating to Real Estate...........14
3.12 Seller's Employees..............................................14
3.13 Employee Benefit Plans..........................................15
3.14 Insurance.......................................................17
3.15 Conflicts of Interest...........................................18
3.16 Compliance with HealthCare Laws and Other Laws..................18
3.17 Bulk Sales Laws.................................................18
3.18 WARN Act........................................................18
3.19 Tax Returns; Taxes..............................................19
3.20 No Omissions or Misstatements...................................19
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER.........................19
4.1 Organization, Qualification and Authority.......................19
4.2 Absence of Default..............................................20
4.3 SEC Reports.....................................................20
ARTICLE V. COVENANTS OF PARTIES............................................21
5.1 Books and Records...............................................21
5.2 Employees.......................................................21
</TABLE>
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<TABLE>
<S> <C>
5.3 Broker's or Finder's Fee........................................22
5.4 Indebtedness; Liens.............................................22
5.5 Regulatory Consents.............................................22
5.6 Maintain Insurance Coverage.....................................22
5.7 Medicare and Medicaid Reporting.................................23
5.8 Current Return Filing...........................................23
5.9 Financial Analysis..............................................23
ARTICLE VI. SELLER'S AND SHAREHOLDER'S CONDITIONS TO CLOSE..................24
ARTICLE VII. BUYER'S CONDITIONS TO CLOSE.....................................24
ARTICLE VIII. OBLIGATIONS OF SELLER AND SHAREHOLDER AT CLOSING................24
8.1 Documents Relating to Title.....................................24
8.2 Possession......................................................24
8.3 Opinion of Counsel..............................................25
8.4 Corporate Good Standing and Corporate Resolutions...............25
8.5 Exhibits........................................................25
8.6 Regulatory Approvals............................................25
8.7 Third Party Consents and Releases; Amendment....................25
8.8 Non-Foreign Tax Certificate; Power of Attorney..................25
8.9 Insurance.......................................................26
8.10 Confidentiality, Finder's, Consulting, Employment
and Lease Agreements............................................26
8.11 Closing Statement...............................................26
8.12 Approval of Board of Directors..................................26
8.13 Additionally Requested Documents; Post Closing Assistance.......26
ARTICLE IX. OBLIGATIONS OF BUYER AT CLOSING.................................27
9.1 Purchase Price..................................................27
9.2 Assumption of Liabilities.......................................27
9.3 Opinion of Buyer's Counsel......................................27
9.4 Corporate Good Standing and Board Resolutions...................27
ARTICLE X. SURVIVAL OF PROVISIONS AND INDEMNIFICATION......................28
10.1 Survival........................................................28
10.2 Indemnification by Seller and Shareholder.......................28
10.3 Indemnification by Buyer........................................29
10.4 Rules Regarding Indemnification.................................29
ARTICLE XI. PRESERVATION OF BUSINESS AND NONCOMPETE RESTRICTIONS............31
11.1 Covenant Not to Compete.........................................31
11.2 Enforce ability.................................................32
</TABLE>
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<TABLE>
<S> <C>
ARTICLE XII. MISCELLANEOUS...................................................33
12.1 Assignment......................................................33
12.2 Other Expenses..................................................33
12.3 Notices.........................................................33
12.4 Confidentiality; Prohibition on Trading.........................34
12.5 Partial Invalidity; Waiver......................................34
12.6 Interpretation; Knowledge.......................................35
12.7 Entire Agreement; Counterparts..................................35
12.8 Legal Fees and Costs............................................35
12.9 Controlling Law.................................................35
</TABLE>
iii
<PAGE> 5
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is entered into on July 7, 1998
by and among GREENBRIER RESPIRATORY CARE SERVICES, INC., d/b/a GREENBRIER
RESPIRATORY AND REHABILITATION, INC., a West Virginia corporation (the
"Seller"), ALLEN CARSON, a resident of the State of West Virginia (the
"Shareholder"), and AMERICAN HOMEPATIENT, INC., a Delaware corporation (the
"Buyer").
R E C I T A L S:
WHEREAS, Seller owns and operates a respiratory and home medical
equipment business as more particularly described on Exhibit A hereto, which
Exhibit sets forth the type of services and products provided by Seller at each
location (the "Business"); and
WHEREAS, Shareholder owns all of the issued and outstanding securities
of Seller; and
WHEREAS, except for the Excluded Assets (as such term is defined
herein), Seller and Shareholder desire to sell and transfer the Assets (as such
term is defined herein) of the Business to Buyer, and Buyer desires to purchase
the same from Seller, subject to the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained in this Agreement and of other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties, intending
to be legally bound hereby, agree as follows:
ARTICLE I. PURCHASE AND SALE
1.1 Purchase and Sale. Seller agrees to sell, transfer, assign, convey
and deliver to Buyer, and Buyer agrees to purchase from Seller, all right, title
and interest in all assets (except the Excluded Assets as defined in paragraph
1.2) of Seller of every kind and type, tangible or intangible, real and
personal, that are or have been used to operate the Business (collectively, the
"Assets"), free and clear of all encumbrances, mortgages, pledges, liens,
security interests, obligations and liabilities other than the Assumed
Liabilities (as defined in paragraph 1.3), which Assets include, without
limitation except as specified below, the following:
(1) All right, title and interest in and to all of the real
property owned or leased by Seller or Shareholder and used in connection with
the Business as listed in Exhibit A attached hereto and in and to all
structures, improvements, fixed assets and fixtures including fixed machinery
and fixed equipment situated thereon or forming a part thereof and all
appurtenances, easements and rights-of-way related thereto (collectively, the
"Real Estate");
<PAGE> 6
(2) All medical and other equipment, machinery, data processing
hardware and software, furniture, furnishings, appliances, vehicles and other
tangible personal property and all replacement parts therefor used in connection
with the Business including, without limitation, the items listed on Exhibit
1.1(2) attached hereto (collectively, the "Equipment and Furnishings");
(3) All inventory of goods and supplies used or maintained in
connection with the Business (collectively, the "Inventory");
(4) All accounts and notes receivables arising from operation of
the Business on and after the Effective Date (as defined in paragraph 1.4) (the
"Receivables");
(5) All cash generated from operation of the Business on and after
the Effective Date, and all related, bank accounts (as listed by name and
address of banking institution, account name and account and routing numbers on
Exhibit 1.1(5) attached hereto), money market accounts, other accounts,
certificates of deposit and other investments of Seller, exclusive of an amount
equal to the amount of cash reflected on Seller's Interim Financial Statements
(as such term is defined in paragraph 3.3 herein) and exclusive of cash
generated from unbilled and billed accounts and notes receivable arising from
the operation of the Business for all periods prior to the Effective Date and as
detailed on Seller's Interim Financial Statements under the headings "Accounts
Receivable", "Accounts Receivable Unbilled" and "Accounts Receivable Care Plus
(the "Pre-effective Date Receivables") as of the date immediately prior to the
Effective Date (collectively, the "Cash and Cash Equivalents"), and all prepaid
expenses;
(6) To the full extent transferrable without patient consent, all
patient, medical, personnel and other records related to the Business (including
both hard and microfiche copies), and all manuals, books and records used in
operating the Business (exclusive of Seller's minute books and stock records),
including, without limitation, personnel policies and files and manuals,
accounting records (exclusive of Seller's tax returns), and computer software;
(7) To the full extent transferable, all federal, state and local
licenses, permits, registrations, certificates, consents, accreditations,
approvals and franchises necessary or advisable to operate and conduct the
Business (collectively, the "Licenses"), together with assignments thereof, if
required, and all waivers which Seller currently has, if any, of any
requirements pertaining to the Licenses;
(8) All goodwill, and, to the extent assignable by Seller, all
warranties (express or implied) and rights and claims related to the Assets or
the operation of the Business;
(9) Contract and leasehold rights and interests arising out of or
related to the Business and that are Assumed Liabilities; and
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<PAGE> 7
(10) To the full extent transferrable, all rights in
intangible or intellectual property owned, leased, licensed or possessed by
either Seller or Shareholder and utilized in connection with the Business,
including without limitation, the names "Greenbrier Respiratory and
Rehabilitation," "Greenbrier Care Services" and derivatives thereof;
1.2 Excluded Assets. Seller is not selling and Buyer is not
purchasing or assuming obligations with respect to the following (collectively,
the "Excluded Assets"): (a) Seller's corporate and fiscal records and other
records that Seller is required by law to retain in its possession; (b) cash and
accounts receivable reflected on Seller's interim financial statements as of the
day prior to the Effective Date, including without limitation those receivables
detailed on Seller's Interim Financial Statements under the headings "Accounts
Receivable" in the amount of $1,013,266, "Accounts Receivable Unbilled in the
amount of $152,697, "Accounts Receivable Care Plus" in the amount of $33,000,
and other cash generated from unbilled and billed accounts and notes receivable
arising from the operation of the Business for all periods prior to the
Effective Date; and (c) certain real estate and improvements located at 179
Seneca Trail, Fairlea, West Virginia 24902; (d) certain real estate and
improvements located at 210 Maplewood Avenue, Fairlea, West Virginia 24982; (e)
a 1997 Toyota Forerunner (VINJT3HN873R3VO061037), and (f) all other items
specifically set forth on Exhibit 1.2 attached hereto.
1.3 Assumed Contracts, Leases and Liabilities.
(1) At Closing, Buyer will assume and agree to pay or perform,
as the case may be, only (a) those obligations existing on July 1, 1998
constituting working capital liabilities incurred in the ordinary course of
business (other than long-term and interest bearing debt) and accrued vacation
and sick leave, all as specifically set forth on Exhibit 1.3 attached hereto, in
an aggregate amount up to the Pre-Effective Date Assumed Liabilities Cap
described in clause (3) below, (b) those obligations constituting working
capital liabilities incurred in the ordinary course of business on and after the
Effective Date, other than long-term and interest bearing debt and other than
obligations and costs associated with the "Seller Plans" described in paragraph
3.13, and (c) those obligations arising on and after the Effective Date under
those Contracts (as such term is defined in paragraph 3.9) which Buyer expressly
elects to assume as noted on Exhibit 3.9 attached hereto (collectively, the
"Assumed Liabilities").
(2) Except for the Assumed Liabilities, it is expressly agreed
and understood by each of the parties to this Agreement that Buyer does not
assume, and will not be liable for, any debt, liability or obligation of Seller
or Shareholder, of any type or description whatsoever, whether related or
unrelated to the Assets, the Business or the transactions contemplated under
this Agreement and that Seller and/or Shareholder will remain liable and
responsible for the payment or performance, as the case may be, of all debts,
liabilities, obligations, contracts, leases, notes payable, accounts payable,
commitments, agreements, suits, claims, indemnities, mortgages, taxes,
contingent liabilities and other obligations of Seller and/or Shareholder
including, without limitation, any and all investment tax credit recapture,
depreciation recapture, recapture or prior
3
<PAGE> 8
period adjustments under Medicare, Medicaid and Blue Cross, all impositions of
income tax and other taxes; all employee wages, salaries and benefits including,
without limitation, COBRA and WARN obligations, accrued vacation and sick pay
not expressly assumed by Buyer pursuant to this paragraph, and other accrued
employee benefits including rights of Seller's retirees to participate in
Seller's medical plans.
(3) Notwithstanding any statement contained in this Agreement
or otherwise seemingly to the contrary, Buyer will not be obligated to assume
liabilities pursuant to clause (a) of paragraph 1.3(1) in excess of, in the
aggregate, Three Hundred Fifty Thousand and No/100 Dollars ($350,000.00) (the
"Pre-Effective Date Assumed Liabilities Cap"). For purposes of calculating the
amount of the Assumed Liabilities, the present value of payments to be made on
and after the Effective Date with respect to any Assumed Liability that is a
capitalized obligation under generally accepted accounting principles will be
considered part of the amount of such Assumed Liabilities. In the event that
Buyer elects to assume Assumed Liabilities pursuant to paragraph 1.3(1)(a) in
excess of the Pre-Effective Date Assumed Liabilities Cap, then the cash portion
of the Purchase Price (as such term is defined herein) payable at Closing will
be reduced on a dollar-for-dollar basis to the full extent of such excess.
1.4 Effective Date; Closing. Closing will occur on the date of this
Agreement (the "Closing"). Upon consummation, Closing will be deemed to be
effective, and the transfer of the Assets will be deemed to have occurred, for
accounting purposes as of 12:01 a.m. local time on July 1, 1998 (the "Effective
Date"). Accordingly, except for the Excluded Assets, all income generated from
operation of the Business on and after the Effective Date will belong to Buyer,
and adjustments to reflect the distribution of income and liabilities with
respect to the Business as contemplated under this Agreement will be made in
accordance with the procedures outlined in Exhibit 1.4 attached hereto.
ARTICLE II. PURCHASE PRICE
2.1 Purchase Price. The purchase price payable by Buyer to Seller for
the Assets and in consideration for the agreements contained herein, including
the agreements contained in Article XI, will be an amount not to exceed Thirteen
Million Fifty Two Thousand Ninety-Nine and No/100 Dollars ($13,052,099.00),
subject to certain adjustments pursuant to the terms of this Agreement (the
"Purchase Price"). The Purchase Price will be payable at Closing in the
following manner:
(1) Ten Million Seven Hundred Forty-Nine Thousand Three Hundred
Seventy-Nine and No/100 Dollars ($10,749,379.00), subject to the foregoing
adjustments, if any, in immediately available funds by wire transfer at Closing;
(2) One Million Three Hundred Two Thousand Seven Hundred Twenty and
No/100 Dollars ($1,302,720.00) by deposit of good funds by wire transfer into an
4
<PAGE> 9
interest earning escrow account pursuant to the terms of an escrow agreement
(the "Escrow Agreement"), the form of which is attached hereto as Exhibit
2.1(2); and
(3) Up to One Million and No/100 Dollars ($1,000,000.00) in an
earnout payment based on the terms and conditions set forth on Exhibit 2.1(3)
(the "Earnout Payment").
2.2 Interest on Purchase Price. In addition to the Purchase Price
described in paragraph 2.1, Buyer will deliver to Seller, in immediately
available funds by wire transfer at Closing, interest on that portion of the
Purchase Price noted in paragraphs 2.1(1) and 2.1(2) at the rate of seven
percent (7%) per annum from the Effective Date until Closing.
2.3 Allocation of Purchase Price. The Purchase Price will be allocated
among the Assets in the manner set forth in Exhibit 2.3 attached hereto (the
"Allocation"). The parties to this Agreement expressly agree that the Allocation
will be used by them for tax, reimbursement and all other purposes. Each party
to this Agreement agrees that it will report the transaction completed under
this Agreement in accordance with the Allocation, including any report made
under Section 1060 of the Internal Revenue Code of 1986, as amended (the
"Code"), and that no such party will take a position inconsistent with the
Allocation except with the prior written consent of the other parties hereto.
2.4 Referrals. No part of the Purchase Price is a payment to the Seller
or the Stockholder for the recommending or arranging for the referral of
business or the ordering of items or services offered by Buyer; nor are the
payments intended to induce referrals of business to Buyer. All parties hereto
acknowledge and agree that neither Seller nor Stockholder has any obligation
(and there is no representation, implied or otherwise) to refer business to, or
otherwise utilize the services or facilities, of Buyer or any Affiliate of
Buyer.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SELLER
AND SHAREHOLDER
As a material inducement to Buyer to enter into this Agreement and to
consummate the transactions contemplated hereunder, Seller and Shareholder
hereby jointly and severally represent and warrant to Buyer, which
representations and warranties will be true and correct on the date hereof and
as of the date of Closing, as follows:
3.1 Organization, Qualification and Authority. Seller is a corporation
duly organized and validly existing in the State of West Virginia, and is in
good standing and qualified to do business as a foreign corporation in Virginia.
Since the date of its organization and incorporation, Seller has consistently
observed and operated within the corporate formalities of the jurisdictions in
which it is incorporated and/or conducts the Business, and has consistently
observed and complied with the general corporation law of such jurisdictions.
Seller has full power and authority to own, lease and operate its
5
<PAGE> 10
facilities and assets as presently owned, leased and operated; to carry on its
business as it is now being conducted; and is duly qualified to do business and
is in good standing in each of the jurisdictions where the Business is
conducted. Except for Shareholder, no other person or entity owns or holds, has
any interest in, whether legal, equitable or beneficial, or has the right to
purchase, any capital stock or other security of Seller. Seller owns no capital
stock, security, interest or other right, or any option or warrant convertible
into the same, of any corporation, partnership, joint venture or other business
enterprise. Seller has the full right, power and authority to execute, deliver
and carry out the terms of this Agreement and all documents and agreements
necessary to give effect to the provisions of this Agreement and to consummate
the transactions contemplated on the part of Seller hereby. Shareholder has the
full right, power and authority to execute, deliver and carry out the terms of
this Agreement and all documents and agreements necessary to give effect to the
provisions of this Agreement, to consummate the transactions contemplated on the
part of Shareholder hereby, and to take all actions necessary, in his capacity
as the sole stockholder of Seller, to permit or approve the actions of Seller
taken in connection with this Agreement. The execution, delivery and
consummation of this Agreement, and all other agreements and documents executed
in connection herewith by Seller, have been duly authorized by all necessary
action on the part of Seller. No other action, consent or approval on the part
of Seller, Shareholder or any other person or entity is necessary to authorize
due and valid execution, delivery and consummation of this Agreement and all
other agreements and documents executed in connection herewith. This Agreement
and all other agreements and documents executed in connection herewith by Seller
and/or Shareholder, upon due execution and delivery thereof, will constitute the
valid and binding obligations of each of Seller and Shareholder, enforceable in
accordance with their respective terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally and by general principles of equity.
3.2 Absence of Default. The execution, delivery and consummation of
this Agreement, and all other agreements and documents executed in connection
herewith by Seller and/or Shareholder will not constitute a violation of, or be
in conflict with, will not, with or without the giving of notice or the passage
of time, or both, result in a breach of, constitute a default under, create (or
cause the acceleration of the maturity of) any debt, indenture, obligation or
liability affecting the Assets or the Business pursuant to, result in the
creation or imposition of any security interest, lien, charge or other
encumbrance upon any of the Assets, or otherwise adversely affect Buyer, Seller
or Business under: (a) any term or provision of the Charter or Bylaws of Seller;
(b) except as set forth on Exhibit 3.2 attached hereto, any contract, lease,
purchase order, agreement, document, instrument, indenture, mortgage, pledge,
assignment, permit, license, approval or other commitment to which Seller and/or
Shareholder is a party or by which Seller and/or Shareholder or the Assets are
bound; (c) any judgment, decree, order, regulation or rule of any court or
regulatory authority; or (d) any law, statute, rule, regulation, order, writ,
injunction, judgment or decree of any court or governmental authority or
arbitration tribunal to which Seller, Shareholder and/or the Assets are subject.
6
<PAGE> 11
3.3 Financial Statements.
(1) Attached hereto as Exhibit 3.3 are true and correct copies
of Seller's audited balance sheets as of December 31, 1997 and its audited
income statements for the year then ending (the "Fiscal Year Financial
Statements"), and the interim unaudited balance sheet and income statement of
Seller for the six (6) month period ended June 30, 1998 (the "Interim Financial
Statements" which, with the Fiscal Year Financial Statements, will be referred
to as the "Financial Statements"). The Financial Statements are based on the
books and records of Seller and present fairly, in compliance with generally
accepted accounting principles, the financial position of Seller as of, and the
results of its operations for, the periods specified. Except as set forth in the
Interim Financial Statements, Seller has, no contingent liabilities or
obligations.
(2) The books and records of Seller are in such order and
completeness so that an unqualified audit may be performed, at Buyer's expense,
for any period prior to Closing not already audited. Seller and Shareholder will
fully and readily cooperate with Buyer in Buyer's attempt to perform an audit of
Seller for any period prior to Closing not already audited.
(3) Seller has maintained its books of account in the usual,
regular and ordinary manner on a basis consistent with prior years and made no
change in its accounting methods and practices since December 31, 1997.
3.4 Operations Since December 31, 1997. Except as set forth on Exhibit
3.4, since December 31, 1997, there has been no:
(1) material change in the condition, financial or otherwise, which
has, or could reasonably be expected to have, an adverse effect on any of the
Assets, the Business or future prospects of the Business, or in the results of
the operations of Seller;
(2) loss, damage or destruction of or to any of the Assets, whether
or not covered by insurance;
(3) sale, lease, transfer or other disposition by Seller of, or
mortgages or pledges of or the imposition of any lien, charge or encumbrance on,
any portion of the Assets, other than those made in the ordinary course of
business;
(4) increase in the compensation payable by Seller to Shareholder
or any employees, directors, independent contractors or agents, or any increase
in, or institution of, any bonus, insurance, pension, profit-sharing or other
employee benefit plan or arrangements made to, for or with the employees,
directors, Shareholder, independent contractors or agents of Seller;
(5) cumulative net operating loss incurred in the operation of the
Business, adjustment or write-off of Receivables or reduction in reserves for
Receivables
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<PAGE> 12
outside of the ordinary course of business, or change in the accounting methods
or practices employed by Seller or change in depreciation or amortization
policies;
(6) issuance or sale by Seller or Shareholder, or contract or other
commitment entered into by Seller or Shareholder, for the issuance or sale of
any shares of capital stock or securities convertible into or exchangeable for
capital stock of Seller;
(7) payment by Seller of any dividend, distribution or
extraordinary or unusual disbursement or expenditure or intercompany payable,
except for the distribution of any Excluded Assets, including without limitation
cash reflected on the Seller's Interim Financial Statements as of the day prior
to the Effective Date,
(8) merger, consolidation or similar transaction, or solicitations
therefor;
(9) federal, state or local statutes, rule, regulation, order or
case adopted, promulgated or decided which, to the best knowledge of Seller and
Shareholder, adversely affects the Business or Assets;
(10) strike, work stoppage or other labor dispute adversely
affecting the Business; or
(11) termination, waiver or cancellation of any rights or claims of
Seller, under contract or otherwise.
Further, since the Effective Date, neither Shareholder nor any of
Shareholder's family members or affiliates have received any compensation,
benefits or distributions from Seller, except for the distribution of any
Excluded Assets, including without limitation cash reflected on the Seller's
Interim Financial Statements as of the day prior to the Effective Date, whether
as salary, bonus, fees, dividends or any other form of compensation, which is
greater than the amount of compensation and benefits contemplated for each
pursuant to the agreements referenced in paragraph 9.6(2) and (4).
3.5 Litigation. Except as disclosed in Exhibit 3.5 attached hereto, no
person or party (including, without limitation, any governmental agency) has
asserted, or to the best knowledge of Seller or Shareholder, has threatened to
assert, any claim for any action or proceeding, against Seller (or any officer,
director, employee, agent or Shareholder of Seller) arising out of any statute,
ordinance or regulation relating to wages, collective bargaining, discrimination
in employment or employment practices or occupational safety and health
standards (including, without limitation, the Fair Labor Standards Act, Title
VII of the Civil Rights Act of 1964, as amended, the Occupational Safety and
Health Act, the Age Discrimination in Employment Act of 1967, the Americans With
Disabilities Act or the Family and Medical Leave Act of 1993). Neither Seller
nor Shareholder has received notice of any violation of any law, rule,
regulation, ordinance or order of any court or federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality (including, without limitation, legislation and regulations
8
<PAGE> 13
applicable to the Medicare and Medicaid programs, environmental protection,
civil rights, public health and safety and occupational health), involving
Seller, Shareholder, any of the Assets or the Business. Except as set forth in
Exhibit 3.5, there are no lawsuits, proceedings, judgments, actions,
arbitrations, governmental investigations, claims, inquiries or proceedings
pending or, to the best knowledge of Seller and Shareholder, threatened
involving Seller, Shareholder, any of the Assets or the Business. The claims
disclosed in Exhibit 3.5 will not result in any liability to or obligation of
Buyer, and will not cause or lead to any lien or encumbrance being placed,
created or filed against or upon any of the Assets.
3.6 Licenses.
(1) Seller has all Licenses necessary to occupy, operate and
conduct the Business, and there does not exist any waivers or exemptions
relating thereto. Except as set forth on Exhibit 3.6(1) or Exhibit 3.7, there is
no default on the part of Seller or any other party under any of the Licenses,
and there exist no grounds for revocation, suspension or limitation of any of
the Licenses. Copies of each of the Licenses are attached to and listed on
Exhibit 3.6(1) attached hereto. The most recent licensure surveys, deficiency
reports and plans of correction related to each of these items has also been
included in Exhibit 3.6(1). Seller is, and at the time of Closing will be,
licensed by the regulatory bodies listed on Exhibit 3.6(1). No notices have been
received by Seller or Shareholder with respect to any threatened, pending, or
possible revocation, termination, suspension or limitation of the Licenses.
(2) Seller is not required to have any certificates of need or
similar authorization in order to operate the Business.
(3) Each employee of Seller has all Licenses required for each
such employee to perform such employees' designated functions and duties for
Seller in connection with conducting the Business, and there exists no waivers
or exemptions relating thereto. There is no default under, nor does there exist
any grounds for revocation, suspension or limitation of, any such Licenses.
(4) Seller is duly accredited by the Joint Commission on
Accreditation of Healthcare Organizations ("JCAHO") to operate and conduct the
Business. Included in Exhibit 3.6(4) attached hereto are the certificates of
accreditation issued by the JCAHO, and copies of the most recent JCAHO
accreditation survey report, including a list of deficiencies, if any.
3.7 Medicare, Medicaid and Other Third-Party Payors.
(1) Seller participates in the Medicare and Medicaid Programs
(the "Programs"). A list of and copies of its existing Medicare and Medicaid
contracts or, if such contracts do not exist, other documentation evidencing
such participation (collectively, the "Program Agreements") are included in
Exhibit 3.9 attached hereto. Since the Effective
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Date, Seller has been, and will be at the time of Closing, in full compliance
with all of the terms, conditions and provisions of the Program Agreements. Any
noncompliance by Seller, if any, with the Program Agreements prior to the
Effective Date will not adversely affect Buyer or the Business. Seller is in the
process of collecting, for its benefit and for the benefit of Buyer,
Certificates of Medical Necessity for those individuals set forth on Exhibit 3.7
attached hereto.
(2) No notice of any offsets against future reimbursements under or
pursuant to the Programs has been received by either Seller or Shareholder, nor
is there any basis therefor with respect to operations on and after the
Effective Date. There are no pending appeals, adjustments, challenges, audits,
litigation, notices of intent to recoup past or present reimbursements with
respect to the Programs. Seller has not been subject to or threatened with loss
of waiver of liability for utilization review denials with respect to the
Programs during the past twelve (12) months, nor have either Seller or
Shareholder received notice of any pending, threatened or possible
decertification or other loss of participation in, any of the Programs.
(3) Seller currently has contractual arrangements with Blue Cross
and other third party payors. A list of and copies of its existing Blue Cross
contracts and other third party payor contract(s) are included in Exhibit 3.9.
Since the Effective Date, Seller has been, and will be at the time of Closing,
in full compliance with all of the terms, conditions and provisions of such
contracts. Any noncompliance by Seller, if any, with such third party payor
contract(s) prior to the Effective date will not adversely affect Buyer or the
Business.
(4) All liabilities and contractual adjustments of Seller under any
third party payor or reimbursement programs have been properly reflected and
adequately reserved for in the Financial Statements. If, following Closing,
Buyer suffers any offsets against any reimbursement under any third-party payor
or reimbursement programs due to Buyer relating to operation of the Business
during the periods on or prior to Closing, then Seller and/or Shareholder will
promptly pay to Buyer the amounts so offset (unless such offset relates to any
Certificate of Medical Necessity set forth on Exhibit 3.7. then the parties
shall use the mechanism for handling claims by non-parties set forth in
paragraph 10.4(1) and the manner of payment set forth in paragraph 10.4(6)),
with interest at a rate equal to seven percent (7%) per annum; provided,
however, that Buyer will bear the risk of offset as to operations from the
Effective Date through Closing so long as such offsets are not caused by the
willful acts or omissions, or gross negligence, of Seller or its Shareholder,
employees, representatives or agents. The interest will accrue from the date of
offset by the third party until the date paid by Seller and/or Shareholder to
Buyer.
3.8 Title to and Condition of Assets.
(1) Seller is the sole legal and beneficial owner of, or has the
exclusive, unrestricted right and authority to use and transfer to Buyer, the
personal property included in the Assets, free and clear of all mortgages,
security interests, liens, leases, covenants,
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assessments, easements, options, rights of refusal, restrictions, reservations,
defects in the title, encroachments, and other encumbrances, except the Assumed
Liabilities. The Assets are all the assets set forth on the Interim Financial
Statements or used in the operation of the Business.
(2) The descriptions of the Real Estate contained in Exhibit A are
accurate and include all real property leased by Seller and used in connection
with the Business or set forth on the Interim Financial Statements. Seller owns
no real property except for the Excluded Assets; however, Shareholder is the
sole owner of certain parcels of real property so designated on Exhibit A.
Seller is in lawful possession of all of the Real Estate that is leased rather
than owned, in each case free and clear of all mortgages, liens and other
encumbrances or restrictions that are related to or impair the Assets or the
Business.
(3) The Equipment and Furnishings are all of the "Equipment"
reflected on the Interim Financial Statements, other than those items sold and
replaced in the ordinary course of business. The Assets together with the
Excluded Assets comprise all assets owned by Seller and all assets used in
connection with the Business. All of the Equipment and Furnishings reflected on
the Interim Financial Statements, subject to normal wear and tear and subject to
repair in the ordinary course of business, (a) operate in accordance with their
respective specifications, (b) perform the functions they are supposed to
perform, (c) are free of structural, installation, engineering, or mechanical
defects or problems, and (d) are otherwise in good working order. Seller has
received no written recommendation from any insurer to repair or replace any of
the Assets with which Seller has not complied.
(4) The Inventory is, and on Closing will be, of a quality and
quantity presently used by Seller in the ordinary course of business determined
and valued consistent with Seller's past practice. The Inventory is, and at
Closing will be, properly valued at the lower of cost or market value on a
first-in/first-out basis in accordance with generally accepted accounting
principles consistently applied. Seller has in place adequate controls to track
all Inventory and, notwithstanding the $50,000 "Basket" described in paragraph
10.4(4), will, along with Shareholder, jointly and severally indemnify Buyer for
any missing oxygen cylinders which, in the aggregate, would cost Ten Thousand
Dollars ($10,000.00) or more to replace. Since the date of the Interim Financial
Statements, Seller has not decreased or substituted its items of Inventory other
than in the ordinary course of business.
(5) All vehicles used in the Business (other than Excluded Assets),
whether owned or leased, are listed in Exhibit 1.1(2) attached hereto, are
properly licensed, and are registered in accordance with applicable law.
(6) All trademarks, service marks, trade names, patents,
inventions, processes, copyrights and applications therefor, whether registered
or at common law (collectively, the "Intellectual Property"), owned by Seller
are listed and described in Exhibit 3.8 attached hereto. No proceedings have
been instituted or are pending or, to the best
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knowledge of Seller and Shareholder, threatened which challenge the validity of
the ownership by Seller of any such Intellectual Property. Seller has not
licensed anyone to use any such Intellectual Property, and neither Seller nor
Shareholder has any knowledge of the use or the infringement of any of such
Intellectual Property by any other person. Seller owns or possesses adequate and
enforceable licenses or other rights to use all Intellectual Property now used
in the conduct of its Business.
3.9 Contracts.
(1) Exhibit 3.9 attached hereto sets forth a complete and
accurate list of all contracts, including the Program Agreements, agreements,
purchase orders, leases, subleases, options and commitments, oral or written,
and all assignments, amendments, schedules, exhibits and appendices thereof,
affecting or relating to the Business or any Asset or any interest therein, to
which either Seller and/or Shareholder is a party or by which Seller, the Assets
or the Business is bound or affected (collectively, the "Contracts"). Attached
to Exhibit 3.9 are accurate and complete copies of all written Contracts and
written summaries of key terms of all oral Contracts. Except for the Assumed
Liabilities, all Contracts and all other obligations and liabilities relating to
the Assets and the Business will be retained by Seller.
(2) None of the Contracts being assumed by Buyer have been
modified, amended, assigned or transferred, and each is in full force and effect
and is valid, binding and enforceable in accordance with its respective terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally and by general principles
of equity. No event or condition has happened or presently exists which
constitutes a default or breach or, after notice or lapse of time or both, would
constitute a default or breach by any party under any of the Contracts. There
are no counterclaims or offsets under any of the Contracts.
(3) There does not exist any security interest, lien, encumbrance
or claim of others created or suffered to exist on any interest created under
any of the Contracts, except for those that result from or relate to leased
Assets. No purchase commitment by Seller is in excess of Seller's ordinary
business requirements.
(4) Except as noted on Exhibit 3.2, assignment to Buyer of those
Contracts constituting part of the Assumed Liabilities will not default, alter
or terminate any such Contracts, and such assignment will confer and convey all
of Seller's rights thereunder to Buyer.
3.10 Environmental Matters.
(1) Key Definitions. As used in this paragraph 3.10, the term
"Hazardous Substances" means any hazardous or toxic substances, materials or
wastes, including but not limited to those substances, materials, and wastes
defined in Section 101 of the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as
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amended ("CERCLA") listed in the United States Department of Transportation
Table (49 CFR 172.101) or by the Environmental Protection Agency as hazardous
substances pursuant to 40 CFR Part 302, or which are regulated under any other
Environmental Law (as such term is defined below), or any of the following:
hydrocarbons, petroleum and petroleum products, asbestos, polychlorinated
biphenyls, formaldehyde, radioactive substances (other than naturally occurring
materials in place), flammables and explosives. As used in this paragraph 3.10,
the term "Environmental Law" means
(2) Compliance with Laws and Regulations. All operations or
activities on, and any use or occupancy of, the Real Estate by Seller, any
Affiliates of Seller (wherein the term "Affiliates" will mean any person or
entity controlling, controlled by or under common control at any time with
Seller, and the term "control" will mean the power, directly or indirectly, to
direct the management or policies of such person or entity), and any agent,
contractor or employee of any agent or contractor of Seller or its Affiliates
("Agents"), or any tenant or subtenant of Seller is and has been in compliance
with Environmental Law. Seller, Affiliates and Agents have kept the Real Estate
free of any lien imposed pursuant to Environmental Law. To the best knowledge of
Seller and Shareholder, all prior owners, operators and occupants of the Real
Estate complied with Environmental Law.
(3) Use, Storage, Etc. Except for uses and storage or presence of
Hazardous Substances reasonably necessary or incidental to the customary
operation of a business similar to the Business, as appropriate which, if
required, was duly licensed or authorized by appropriate governmental
authorities or otherwise permitted by and complies with Environmental Law:
(a) Neither Seller nor its Affiliates or Agents have allowed
the use, generation, treatment, handling, manufacture, voluntary transmission or
storage of any Hazardous Substances on the Real Estate, nor, to the best
knowledge of Seller and Shareholder, has the Real Estate ever been used for any
of the foregoing.
(b) Neither Seller nor its Affiliates or Agents have installed
or permitted to be installed, on the Real Estate friable asbestos or any
substance containing asbestos in condition or amount deemed hazardous by
Environmental Law.
(c) Seller has not at any time engaged in or permitted any
dumping, discharge, disposal, spillage or leakage (whether legal or illegal,
accidental or intentional) of such Hazardous Substances on the Real Estate that
would subject the Real Estate or Buyer to clean-up obligations imposed by
governmental authorities. Seller has not assumed any liability of a third party
for clean up under, or noncompliance with, Environmental Law.
(d) Neither Seller nor any present owner or operator of the
Real Estate (i) has either received or been issued a notice, demand, request for
information, citation, summons, claim, complaint and other communication
regarding an alleged failure to comply with Environmental Law, or (ii) is
subject to any existing, pending, or to the best knowledge of Seller and
Shareholder, threatened investigation or inquiry by any
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governmental authority for failure to comply with, or any remedial obligations
under, Environmental Law, and there are no circumstances known to Seller or
Shareholder which could serve as a basis therefor.
(e) Neither Seller nor its Affiliates or Agents have
transported or arranged for the transportation of any Hazardous Substances to
any location which is listed or, to the best knowledge of Seller and
Shareholder, proposed for listing under Environmental Law, or is the subject of
any enforcement action, investigation or other inquiry under Environmental Law.
(4) Other Environmental Matters. Neither Seller nor
Shareholder has installed any underground storage tanks on any portion of the
Real Estate and, to the best knowledge of Seller and Shareholder, there are no
underground storage tanks on any portion of the Real Estate. To the best
knowledge of Seller and Shareholder, the Real Estate is free of illegal and
dangerous levels of naturally-emitted radon, and no portion of the Real Estate
has ever been used as a landfill. Seller has furnished to Buyer a copy of any
environmental audit, study, report or other analysis on the Real Estate which
Seller or its Affiliates obtained or were furnished.
3.11 Miscellaneous Representations Relating to Real Estate.
(1) No part of the Real Estate is currently subject to
condemnation proceedings, and, to the best knowledge of Seller and Shareholder,
no condemnation or taking is threatened or contemplated. There are no public
improvements which may result in special assessments against or otherwise affect
the Real Estate. There are no facts known to either Seller or Shareholder that
would adversely affect the possession, use or occupancy of the Real Estate for
use in the Business.
(2) None of the Real Estate is in violation of any zoning, public
health, building code or other similar laws applicable thereto or to the
ownership, occupancy and/or operation thereof, nor does there exist any waivers
or exemptions relating to the Real Estate with respect to any non-conforming use
or other zoning or building codes matters. Seller has all easements and rights
necessary to continue operation of the Business, copies of which are listed on
and included in Exhibit 3.11 attached hereto.
(3) Attached as part of Exhibit 3.11 are complete copies of all
appraisals, mechanical and structural studies or reports or assessments,
engineering plans, architectural drawings, soil studies, surveys and other
documents which have been prepared by or at the direction of Seller and/or
Shareholder within the last five (5) years relating to any of the Real Estate.
(4) All utilities serving the Real Estate are adequate to operate
the Real Estate in the manner it is currently operated, all utility lines,
pipes, hook-ups and wires serving the Real Estate are located within recorded
easements for the benefit of the Real Estate, and any associated charges accrued
to date have been fully paid. There are no encroachments upon the Real Estate
and no encroachment of any improvements to the
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Real Estate onto adjacent property. None of the improvements to the Real Estate
violate set-back, building or side lines, nor do they encroach on any easements
located on the Real Estate.
3.12 Seller's Employees. (1) Exhibit 3.12 attached hereto sets forth:
(a) a complete list of all of Seller's employees, (b) their respective rates of
pay, (c) the employment dates and job titles of each such person, and (d)
categorization of each such person as a full-time or part-time employee of
Seller. For purposes of this paragraph, "part-time employee" means an employee
who is employed for an average of fewer than twenty hours (20) per week or who
has been employed for fewer than six of the twelve (12) months preceding the
date on which notice is required pursuant to the "Worker Adjustment and
Retraining Notification Act" ("WARN"), 29 U.S.C. ss. 2102 et seq. Except as
provided in Exhibit 3.9, Seller has no employment agreements with its employees
and all such employees are employed on an at "at will" basis. Exhibit 3.12 also
(a) lists, and has attached copies of, all employee fringe benefits and
personnel policies, and (b) lists all ex-employees of Seller utilizing or
eligible to utilize COBRA (health insurance). Seller will terminate all of its
employees at Closing, and each of Seller and Shareholder agree, jointly and
severally, to indemnify and hold Buyer harmless, from and against any and all
claims of Seller's employees relating to their employment by Seller through
Closing and such termination, whenever made, except for accrued vacation and
sick pay to the extent included in the Assumed Liabilities. Other than the
Assumed Liabilities, the parties expressly agree that Seller will retain
responsibility for and fully and timely pay all salaries and wages, related
payroll taxes and all sick leave, holiday, vacation benefits, retirement and
other fringe benefits that have accrued to its employees through the date of
Closing, including related payroll taxes.
(2) Seller is not a party to any labor contract, collective
bargaining agreement, contract, letter of understanding, or any other
arrangement, formal or informal, with any labor union or organization which
obligates Seller to compensate employees at prevailing rates or union scale, nor
are any of its employees represented by any labor union or organization. There
is no pending or, to the best knowledge of Seller and Shareholder, threatened
labor dispute, work stoppage, unfair labor practice complaint, strike,
administrative or court proceeding or order between Seller and any present or
former employee(s) of Seller. Except as set forth on Exhibit 3.5, there is no
pending or, to the best knowledge of Seller and Shareholder, threatened suit,
action, investigation or claim between Seller and any present or former
employee(s) of Seller. There has not been any labor union organizing activity at
any location of Seller, or elsewhere, with respect to Seller's employees.
3.13 Employee Benefit Plans.
(1) Except as described on Exhibit 3.13, Seller does not maintain
any bonus, deferred compensation, pension, retirement, stock option, stock
appreciation, restricted stock, profit sharing, severance, medical or life
insurance, employee stock ownership or stock purchase plans or other "employee
pension benefit plan", as defined
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in Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") or other "employee welfare benefit plan", as defined in
Section 3(1) of ERISA (collectively the "Seller Plans"). All of the Seller Plans
described in Exhibit 3.13 have been operated in all material respects in
compliance with all applicable laws, including without limitation, the
applicable provisions of ERISA and the Internal Revenue Code of 1986 ("Code"),
and regulations thereunder (collectively the "Employee Benefit Laws"). Copies of
all Seller Plans have previously been provided to Buyer.
(2) Each Seller Plan which is intended to qualify under Section
401(a) of the Code (collectively, the "Seller Pension Plans") is so qualified,
and the related trust is exempt from taxation under Section 501(a) of the Code,
and no amendment made (or the failure to make such amendment) to any Seller
Pension Plan has adversely affected the qualified status of any such Seller
Pension Plan.
(3) Seller has performed all obligations required to be performed
by it under, and is not in default or in violation of, the terms of any of the
Seller Plans in any respect. No "disqualified person" (as defined in Section
4975 of the Code) or "party in interest" (as defined in Section 3(14) of ERISA)
has engaged in any "prohibited transaction" (as such term is defined in Section
4975 of the Code or Section 406 of ERISA) or breach of fiduciary duties (as
described in Section 404 of ERISA), and no "reportable event" within the meaning
of Section 4043 of ERISA has occurred with respect to any Seller Plan. Seller
has not incurred, and does not reasonably expect to incur, any liability to the
Pension Benefit Guaranty Corporation (except for required premium payments,
which payments have been made when due). No "accumulated funding deficiency", as
such term is defined in Section 302 of ERISA and Section 412 of the Code
(whether or not waived), exists with respect to any of the Seller Plans. No
"unfunded current liability" as determined under Section 412(1) of the Code
exists with respect to any Seller Plan subject to the minimum funding
requirements of Code Section 412 and, if applicable, Title IV of ERISA. Seller
has no liability for any delinquent contributions within the meaning of Section
515 of ERISA (including, without limitation, related attorneys' fees, costs,
liquidated damages and interest) or for any arrearages of wages.
(4) Seller is not required to contribute to, and during the
five-year period ending on the date of Closing will not have been required to
contribute to, any "multi-employer plan" as such term is defined in Section
4001(a)(3) of ERISA covering Seller's employees and Seller will not be subject
to any withdrawal liability (whether partial or complete) within the
contemplation of Section 4001 et seq. of ERISA as a result of the Transactions.
Seller has never contributed to, withdrawn from, or had any employee covered by
a multi-employer plan.
(5) Seller has no unpaid obligations and liabilities to provide
benefits or contributions with respect to any Seller Plan (including, without
limitation, liabilities and obligations currently due and those not yet due that
are attributable to the current plan year or otherwise will become due at a
later date for benefits previously earned). With respect to each Seller Plan
subject to Title IV of ERISA, as of the date of Closing, the assets of each such
Plan are at least equal in value to the greater of (1) the present value of the
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accrued benefits (determined as of the date of Closing) of the participants in
such Plans, based on actuarial methods, tables and assumptions satisfactory to
Buyer which present value is not less than the projected benefit obligation for
such Plan under FASB 87, or (2) such amount as may be determined pursuant to
Sections 411 and 417 of the Code (or such other provision of the Code or ERISA
as may be applicable) as necessary to fund required benefits upon termination of
such Seller Plan.
(6) Seller has made all contributions and other payments required
by and due under the terms of each Seller Plan.
(7) No asset of Seller is subject to any lien under Code Section
401(a)(29), ERISA Section 302(f) or Code Section 412(n), ERISA Section
4068 or arising out of any action filed under ERISA Section 4301(b).
(8) Neither Seller nor any affiliated company that is, or was at
any time after September 2, 1974, together with Seller, treated as a "single
employer" under Section 414(b), 414(c), 414(m), or 414(o) of the Code, has
incurred any liability which could subject any of the parties to this Agreement
to any liability under Section 4062, 4063, or 4064 of ERISA.
(9) There are no negotiations, demands or proposals which are
pending which affect matters now covered, or that would be covered, by the types
of plans or agreements listed in Exhibit 3.13. There has been no failure to
comply with any applicable reporting and disclosure requirements under Title I
or Title IV of ERISA that could subject Seller to any civil or criminal
sanction. There are no actions, suits or claims (other than routine claims for
benefits) pending or threatened against Seller or the Seller Plans, and no facts
are known to exist which could reasonably be expected to give rise to any
actions, suits or claims (other than routine claims for benefits) pending or
threatened against Seller or the Seller Plans, and no facts are known to exist
which could reasonably be expected to give rise to any actions, suits or claims
(other than routine claims for benefits) against Seller or against the Seller
Plans.
(10) Seller has complied in all respects with the requirements
of the Consolidated Omnibus Budget Reconciliation Act as it relates to employee
benefits provided to Seller's employees.
(11) Prior to the Closing, Seller has taken the necessary
official actions to terminate the Seller Plans. Seller will handle the
termination of the Seller Plans, including (1) adoption of the necessary
amendments to the Seller Plans to bring each into full compliance with the
current laws, (2) preparation and distribution of benefit distribution forms to
participants, and (3) preparation of remaining forms to be filed with the
government agencies. If one of the Seller's Plans includes the features
described in Section 401(k) of the Code, then such actions to terminate the Plan
prior to the date of Closing will be handled in such a manner so that
distributions may be made to the participants in such Plan as provided in
Section 401(k)(2)(B)(i)(II) of the Code and the restrictions under Section
401(k)(10)(A)(i) of the Code and 1.401(k)-1(d)(3) of the Treasury
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Regulations on distributions do not apply upon Plan termination because of the
maintaining of a defined contribution plan maintained by the Buyer. All costs
associated with the termination of the Seller Plans and any other liabilities
related thereto shall remain with and be assumed by the Seller.
3.14 Insurance. Seller has in effect and has for at least five (5)
years continuously maintained insurance coverage for all of its operations,
personnel and assets, and for the Assets and the Business. A complete and
accurate list of all current insurance policies is included in Exhibit 3.9.
Exhibit 3.14 attached hereto sets forth a summary of Seller's current insurance
coverage (listing type, carrier and limits), includes a list of any pending
insurance claims relating to Seller or the Business, and includes a recent
three-year claims history relating to Seller and the Business as prepared by the
applicable insurance carrier(s). Seller and Shareholder agree, jointly and
severally, to indemnify and hold harmless Buyer from and against any damages or
costs (including attorney fees) arising out of such insurance claims. Seller is
not in default or breach with respect to any provision contained in any such
insurance policies, nor has Seller failed to give any notice or to present any
claim thereunder in due and timely fashion.
3.15 Conflicts of Interest. Except as described on Exhibit 11.1, none
of the following is either a supplier of goods or services to Seller, or
directly or indirectly controls or is a director, officer, employee or agent of
any corporation, firm, association, partnership or other business entity that is
a supplier of goods or services to Seller: (a) Shareholder, (b) any director or
officer of Seller, or (c) any entity under common control with Seller or
controlled by or related to Shareholder.
3.16 Compliance with Healthcare Laws and Other Laws. Seller has not
made any kickback, bribe or payment to any person or entity, directly or
indirectly, for referring, recommending or arranging business or patients with,
to or for Seller which action could have a material adverse effect on the
Business. Neither WARN nor any similar state law applies to such transactions,
and such transactions comply with applicable state antitrust and similar laws.
None of the Contracts and no activity of Seller violates (a) Section 1877 of the
Social Security Act or any similar provision of applicable state law in any
material respect, or (b) provisions of applicable state law relating to the
corporate practice of medicine in any material respect. The Seller is in
compliance (without obtaining waivers, variances or extensions) with, all
federal, state and local laws, rules and regulations which relate to the
operations of the Business, except where the failure to be in compliance could
not have a material adverse effect on the Business. All Certificates of Medical
Necessity filed by Seller either on or after the Effective Date or which have
served as the basis for any services or billing on or after the Effective Date
have been properly completed, executed and filed in full compliance with all
applicable laws, rules, regulations and DMERC standards. All healthcare, tax and
other returns, reports, plans and filings of any nature required to be or
otherwise filed by Seller with any governmental authorities or third party
payors have been properly completed, except where the failure to be so completed
or filed could not have a material adverse effect on the Business, and timely
filed in compliance with all applicable requirements. Each return, report, plan
and filing contains no materially untrue or misleading statements and does not
omit anything which would
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cause it to be misleading or inaccurate in any material respect. Seller will
retain and be responsible for any liability incurred in connection with any such
return, report, plan and filing.
3.17 Bulk Sales Laws. Buyer and Seller agree that Seller has not
provided notice of the sale of the Assets to Seller's creditors under the
Uniform Commercial Code -- Bulk Sales Act. Nevertheless, Seller and Shareholder
jointly and severally agree to be fully liable for any amounts due to any party
under applicable state bulk sales acts and such amounts due shall not be deemed
to be subject to or part of the "Basket" (as such term is defined in paragraph
10.4(4).
3.18 WARN Act. Since ninety (90) days prior to the Effective Date,
Seller has not temporarily or permanently closed or shut down any single site of
employment or any facility or any operating unit, department or service within a
single site of employment, as such terms are used in WARN.
3.19 Tax Returns; Taxes. Seller has filed all federal, state and local
tax returns and tax reports required by such authorities to be filed. Seller has
paid all taxes, assessments, governmental charges, penalties, interest and fines
due or claimed to be due (including, without limitation, taxes on properties,
income, franchises, licenses, sales and payrolls) by any governmental authority.
Additionally, the reserves for taxes reflected in the Financial Statements are
adequate to cover all tax liabilities accrued as of the respective dates
thereof. There is no pending tax examination or audit of, nor any action, suit,
investigation or claim asserted or, to the best knowledge of Seller and
Shareholder, threatened against Seller by any governmental authority; and Seller
has not been granted any extension of the limitation period applicable to any
tax claims.
3.20 No Omissions or Misstatements. There is no fact relevant to the
Assets, liabilities, Business or prospects of Seller or the Business which has
not been set forth or described in this Agreement or in the Exhibits hereto,
that is material to the conduct, prospects, operations or financial condition of
the Business or the Assets. None of the information included in this Agreement
and Exhibits hereto, or other documents furnished or to be furnished by
Shareholder or Seller, or any of its representatives, contains any untrue
statement of a material fact or is misleading in any material respect or omits
to state any material fact necessary in order to make any of the statements
herein or therein not misleading in light of the circumstances in which they
were made. Copies of all documents referred to in any Exhibit hereto have been
delivered or made available to Buyer and constitute true, correct and complete
copies thereof and include all amendments, exhibits, schedules, appendices,
supplements or modifications thereto or waivers thereunder, except as otherwise
noted herein or therein.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to Seller and Shareholder to enter into this Agreement
and to consummate the transactions contemplated hereunder, Buyer hereby
represents and
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warrants to Seller and Shareholder, which representations and warranties will be
true and correct on the date hereof and on the date of Closing, as follows:
4.1 Organization, Qualification and Authority. Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Buyer has the full corporate power and corporate authority to
own, lease and operate its properties and assets as presently owned, leased and
operated and to carry on its business as it is now being conducted. Buyer has
the full right, power and authority to execute, deliver and carry out the terms
of this Agreement and all documents and agreements necessary to give effect to
the provisions of this Agreement and to consummate the transactions contemplated
on the part of Buyer hereby. The execution, delivery and consummation of this
Agreement and all other agreements and documents executed in connection herewith
by Buyer has been duly authorized by all necessary corporate action on the part
of Buyer. No other action on the part of Buyer or any other person or entity is
necessary to authorize the execution, delivery and consummation of this
Agreement and all other agreements and documents executed in connection
herewith. This Agreement, and all other agreements and documents executed in
connection herewith by Buyer, upon due execution and delivery thereof, will
constitute the valid binding obligations of Buyer, enforceable in accordance
with their respective terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights generally
and by general principles of equity.
4.2 Absence of Default. The execution, delivery and consummation of
this Agreement and all other agreements and documents executed in connection
herewith by Buyer will not constitute a violation of, be in conflict with, or,
with or without the giving of notice or the passage of time, or both, result in
a breach of, constitute a default under, or create (or cause the acceleration of
the maturity of) any debt, indenture, obligation or liability or result in the
creation or imposition of any security interest, lien, charge or other
encumbrance upon any of the Assets (except in the ordinary course pursuant to
the existing credit agreement of Buyer) under: (a) any term or provision of the
Certificate of Incorporation or Bylaws of Buyer; (b) any contract, lease,
agreement, indenture, mortgage, pledge, assignment, permit, license, approval or
other commitment to which Buyer is a party or by which Buyer is bound; (c) any
judgment, decree, order, regulation or rule of any court or regulatory
authority, or (d) any law, statute, rule, regulation, order, writ, injunction,
judgment or decree of any court or governmental authority or arbitration
tribunal to which Buyer is subject.
4.3 SEC Reports. Buyer has furnished to Shareholder true and complete
copies of its Annual Report on Form 10-K for the fiscal year ended December 31,
1997, its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1998 and its proxy materials for the most recently held annual meeting of
shareholders (collectively, the "SEC Reports") as such reports were filed with
the Securities and Exchange Commission. The SEC Reports, at the time they were
filed, did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Since December 31, 1997, there has been no material adverse
change
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in the operation of the business of the Buyer, taken as a whole, which would
necessitate any filings with the Securities and Exchange Commission modifying
the SEC Reports, other than in the ordinary course of business.
4.4 No Omissions or Misstatements. There is no fact material to Buyer's
obligations hereunder which has not been set forth or described in this
Agreement, the SEC Reports or in the relevant Exhibits hereto. None of the
information relevant to Buyer and included in this Agreement and the relevant
Exhibits hereto, or other documents furnished or to be furnished by Buyer, or
any of its representatives, contains any untrue statement of a material fact or
is misleading in any material respect or omits to state any material fact
necessary in order to make any of the statements of Buyer herein or therein not
misleading in light of the circumstances in which they were made.
ARTICLE V. COVENANTS OF PARTIES
5.1 Books and Records.
(1) Following Closing, Buyer will permit Seller, during normal
business hours, to have reasonable access to, and examine and make copies of,
all books and records of the Business which relate to the Assets or transactions
or events occurring prior to Closing, including, without limitation, patient
records, billing records, and certificates of Medical Necessity. All
out-of-pocket costs associated with the delivery of the requested documents will
be paid by Seller.
(2) Following Closing, Seller will permit Buyer to have access
to, and examine and make copies of, all books and records of Seller and its
Affiliates relating to the Business or Assets, which books and records are
retained by Seller and which relate to transactions or events occurring prior to
Closing. For a period of seven (7) years after Closing, Seller agrees that,
prior to the destruction or disposition of any such books or records, Seller
will provide not less than forty-five (45) days', nor more than ninety (90)
days', prior written notice to Buyer of such proposed destruction or disposal.
If Buyer desires to obtain any such documents or records, it may do so by
notifying Seller in writing at any time prior to the date scheduled for such
destruction or disposal. In such event, Seller will not destroy such documents
or records and the parties will then promptly arrange for the delivery of such
documents or records to Buyer, its successors or assigns. All out-of-pocket
costs associated with the delivery of the requested documents or records will be
paid by Buyer.
(3) Seller will cause its accounting firm to consent to the
inclusion of the Financial Statements in any registration statements, private
placement memoranda and periodic reports, if any, necessary or appropriate to
enable Buyer or its Affiliates to comply with any applicable registration or
reporting requirements of federal or state securities laws. After Closing,
Seller and Shareholder will make the books and records of Seller available to
Buyer during normal business hours, and will otherwise cooperate with Buyer in
every reasonable way in order to permit Buyer, at its expense, to conduct an
audit of Seller's financial statements for any period prior to Closing and not
already audited. Seller agrees
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to cooperate with Buyer in Buyer's preparation of financial statements relating
to such periods and Buyer's filing in a timely manner of registration
statements, private placement memoranda and periodic reports, if any, pursuant
to any applicable federal or state securities law.
5.2 Employees. At Closing Seller will terminate those employees listed
on Exhibit 5.2, and Buyer (or one of its Affiliates) will retain such employees.
Seller, Shareholder and Buyer acknowledge and agree that such employees will
remain on Seller's payroll system during transition of the Business to the
control of Buyer until integration of payroll is possible but in no event later
than August 15, 1998 (the "Transition Period"). During the Transition Period,
Seller will timely pay all taxes related to the payroll of such employees and
file and maintain all reports and documentation related to such payroll,
including employee 941 and W-2 forms. Buyer agrees to use its best efforts to
assume, either directly or through an Affiliate, such payroll responsibilities
as promptly as possible and, during the Transition Period, will promptly
reimburse Seller for documented, out-of-pocket costs directly associated with
maintaining such payroll, including but not limited to payment of payroll taxes
and payment of reasonable expenses incurred by Seller for any person or entity
hired or engaged by Seller to provide the services contemplated hereunder.
Seller need not continue its worker's compensation coverage following Closing
with regard to individuals who become employees of Buyer. Buyer will obtain
worker's compensation for such employees beginning as of Closing. Effective as
of the Closing Buyer shall offer "at will" employment, at the then current base
salary to all employees of the Seller, other than the Shareholder, employed in
the Business, including employees who are absent from work due to illness or who
are on approved leave of absence or layoff status.
5.3 Broker's or Finder's Fee. Neither Seller nor Shareholder has
employed or is liable for the payment of any fee to any finder, broker, or
similar person in connection with the transactions contemplated under this
Agreement. Buyer has engaged Paragon Ventures as a broker in connection with the
contemplated transactions, and Buyer is solely responsible for the payment of
all expenses and fees due Paragon Ventures in connection with the contemplated
transactions.
5.4 Indebtedness; Liens. Notwithstanding any provision in this
Agreement to the contrary, the Assets are free and clear of all mortgages,
security interests, liens, leases, covenants, assessments, easements, options,
rights of first refusal, restrictions, reservations, defects in title,
encroachments or other encumbrances, except as set forth in those Contracts
which Buyer expressly elects to assume, and Seller will deliver to Buyer by
Closing such pay-off letters, releases, U.C.C. termination statements and other
documents as Buyer may request to evidence the same.
5.5 Regulatory Consents; Amendment. Seller and Shareholder will use
their best efforts and will cooperate fully with Buyer to obtain all consents,
approvals, exemptions and authorizations of third parties, whether governmental
or private, necessary to effect the consummation of the transactions
contemplated under this Agreement, and Seller and Shareholder have made or
caused to be made all filings or given or caused to be given all notices which
may be necessary or desirable under all applicable laws and under
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applicable contracts, agreements and commitments in order to consummate the
transactions contemplated under this Agreement. Seller and Shareholder will use
their best efforts and will cooperate fully with Buyer to amend that certain
Discount Agreement for Home Medical Equipment and related Services with the
Rector and Visitors of the University of Virginia in a manner reasonably
acceptable to Buyer.
5.6 Maintain Insurance Coverage. Seller will provide at Closing
evidence satisfactory to Buyer that the insurance policies set forth in
paragraph 3.14 continue to be in effect, that all premiums due under such
policies have been paid and that Buyer has been named as additional named
insured since the Effective Date. If Seller's existing product and professional
liability insurance is on an "occurrence" basis, Seller will maintain such
insurance through "discontinued operations" coverage for at least one year after
Closing. If Seller's existing product and professional liability insurance is on
a "claims made" basis, Seller will maintain such insurance through both
"discontinued operations" coverage for at least one year after Closing and
"tail" coverage for at least five (5) years after Closing.
5.7 Medicare and Medicaid Reporting. Seller has paid or will pay all
liabilities for contracted adjustments, discounts, refunds and other offsets in
connection with the filing of all reports and claims of every kind, nature or
description, required by law or by written or oral contract to be filed with
respect to the purchase of services by third party payors, including, but not
limited to, Medicare, Medicaid and Blue Cross up to the Effective Date;
provided, however, that if any adverse adjustments or offsets regarding
operations on or after the Effective Date are the result of the willful acts or
omissions, or negligence, of Seller, Shareholder or either's employees,
representatives or agents, Seller and Shareholder will also be jointly and
severally responsible for such adjustments and offsets as contemplated under
paragraph 3.7. Seller will be entitled to receive any refund or other benefit
which may result from the filing of said reports and claims for operations up to
the Effective Date, and Buyer will likewise be so entitled beginning on the
Effective Date.
5.8 Current Return Filing. Seller will be responsible for (a) the
preparation and filing of the federal, state and local income tax and gross
receipts and use tax returns for all the tax periods of Seller ending on or
before Closing, and (b) the payment of all such taxes when due. Buyer will
promptly reimburse Seller for all income and gross receipt taxes (but no
penalties or assessments properly paid by Seller which relate to operations of
the Business from the Effective Date through Closing.
5.9 Financial Analysis. Buyer covenants to provide Seller and
Shareholder all information which Seller and Shareholder feel relevant to their
decision to accept the form of Purchase Price stipulated in paragraph 2.1,
exclusive of confidential and/or proprietary information which Buyer in good
faith determines is not relevant to the Seller and Shareholder' determination.
Seller and Shareholder represent that they possess, with their financial
advisors (if any), the financial and business experience to make an informed
decision regarding the form of the Purchase Price and the financial means to
bear the economic risk of the same. The representations, warranties and
covenants contained in this Agreement are not to be deemed acknowledgments by
any party that any portion of
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the Purchase Price constitutes a "security" as defined in either the Security
Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
5.10 Further Action. Subject to the provisions hereof, each of the
parties hereto shall execute such documents and other papers and take such
further actions as may be reasonably required or desirable to carry out the
prevision hereof and the transactions contemplated hereby. Upon the terms and
subject to the conditions hereof, each of the parties hereto shall use its best
efforts to take, or cause to be taken, all actions and to do, or cause to be
done, all other things necessary, proper or advisable to consummate and make
effective as promptly as reasonably practicable the transactions contemplated by
this Agreement and to obtain in a timely manner all necessary waivers, consents
and approvals and to effect all necessary registrations and filings.
5.11 Collection of Pre-Effective Date Receivables. Buyer acknowledges
that Seller and Shareholder will be collecting the Pre-Effective Date
Receivables after Closing, and that the collection of such amounts will require
access to various records and office equipment used in the Business.
Consequently, the parties hereto agree that the following procedures will apply
to the Pre-Effective Date Receivables:
(1) Buyer shall permit Seller and Shareholder and agents and
representatives of Seller and Shareholder reasonable access, on reasonable
notice and during normal business hours, to its books and records, including
information stored on its computers, for the purpose of verifying amounts
related to Pre-Effective Date Receivables and related to the collection thereof.
(2) Buyer shall permit Seller and Shareholder and agents and
representatives of Seller and Shareholder, for a period not to exceed nine (9)
months after Closing, on reasonable notice and during normal business hours, to
have reasonable access to and use of computers and related software, as well as
voice mail on the telephone numbers used by the Business, for the purpose of
generating invoices, reminder statements and related items and reports and for
facilitating communication with payors, all with respect to the Pre-Effective
Date Receivables, and all in the name of Seller and Shareholder and not Buyer.
Buyer agrees to use its best efforts to make its employees available to Seller
and Shareholder for the purpose of assisting Seller in the collection of
Pre-Effective Date Receivables.
(3) Any amount received by Buyer in respect of any Pre-Effective
Date Receivables, if any, shall be promptly paid over to Seller.
ARTICLE VI. SELLER'S AND SHAREHOLDER'S CONDITIONS TO CLOSE
[Article VI intentionally omitted.]
ARTICLE VII. BUYER'S CONDITIONS TO CLOSE
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[Article VII intentionally omitted]
ARTICLE VIII. OBLIGATIONS OF SELLER AND SHAREHOLDER AT CLOSING
At Closing, contemporaneously with delivery hereof, Seller and
Shareholder will deliver or cause to be delivered to Buyer the following in form
and substance satisfactory to Buyer:
8.1 Documents Relating to Title. Seller and Shareholder will execute,
acknowledge, deliver and cause to be executed, acknowledged and delivered to
Buyer:
(1) An Assignment and Assumption of Lease Agreement for each
location of the leased Real Estate (not including any Excluded Assets) except
for the real properties located at 175 Seneca Trail, Fairlea, West Virginia and
243 Neff Avenue, Harrisonburg, Virginia, for which new leases are being
executed), with all recording, stamp tax or other transfer fees paid by Seller,
and conveying to Buyer the legal right to possess and use the leased Real Estate
free and clear of all liens, mortgages, superior rights of possession or use,
except for those expressly acceptable to Buyer or set forth in the underlying
lease.
(2) A Bill of Sale warranting and conveying to Buyer good, valid
and marketable title to all Assets, free and clear of all liens, mortgages,
pledges, encumbrances, security interests, covenants, easements, rights of way,
equities, options, rights of first refusal restrictions, special tax or
governmental assessments, defects in title, encroachments and other burdens,
except for the Assumed Liabilities.
(3) Certificates of title to all vehicles that constitute Assets
endorsed by Seller and evidencing current odometer readings, together with
completed originals of any forms required by applicable state authorities to
transfer the titles and register each vehicle, free and clear of all liens
except for the Assumed Liabilities, and a written statement of the book value of
each vehicle.
(4) An effective and enforceable assignment to Buyer of each
Contract which Buyer has agreed to assume.
8.2 Possession. Seller delivers to Buyer full possession and control of
the Business and Assets, including but not limited to the Cash and Cash
Equivalents.
8.3 Opinion of Counsel. Seller and Shareholder deliver to Buyer a
favorable opinion of counsel, dated as of Closing, and pursuant to the Legal
Opinion Accord of the ABA Section of Business Law (1991) in the form attached
hereto as Exhibit 8.3.
8.4 Corporate Good Standing and Corporate Resolutions. Seller and
Shareholder deliver to Buyer certificates of good standing from the Secretary of
State of its state of organization, and from each jurisdiction in which Seller
is qualified to do business, certified copies of the Bylaws and Charter of
Seller (all dated the most recent practical date prior to Closing), certified
copies of the resolutions of the Board of Directors
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and Shareholder of Seller authorizing the execution, delivery and consummation
of this Agreement and the execution, delivery and consummation of all other
agreements and documents executed in connection herewith by them, including all
deeds, bills of sale and other instruments required hereunder, sufficient in
form and content to meet the requirements of the law of the State of Seller's
incorporation relevant to such transactions and certified by officers of Seller
to be validly adopted and in full force and effect and unamended as of Closing.
8.5 Exhibits. Seller and Shareholder will deliver to Buyer the Exhibits
to this Agreement and related documents referenced herein in form satisfactory
to Buyer.
8.6 Regulatory Approvals. Buyer will have obtained (a) certification
for participation in the Medicaid Programs of the states where the Business is
conducted, (b) certification from the appropriate agency of the federal
government for participation in the federal Medicare Program, and (c) all other
consents, licenses, permits, approvals, provider contracts, determinations or
certificates of need necessary or reasonably advisable in the judgment of Buyer
to acquire and operate the Assets and Business as contemplated hereunder.
8.7 Third Party Consents and Releases; Amendment. Seller will deliver
to Buyer, all consents, estoppels, approvals, releases, pay-off letters, filings
and authorizations of third parties that are necessary or advisable for the
legal and proper execution, delivery and consummation of this Agreement, and the
transactions contemplated hereunder, including but not limited to, those
consents necessary for the assignment of Contracts pursuant to paragraph 8.1(4),
for release of any and all mortgages, security interests, liens, pledges,
restrictions or other encumbrances on or applicable to the Assets, and any
U.C.C. termination statements regarding the Assets.
8.8 Non-Foreign Tax Certificate; Power of Attorney. Seller will deliver
to Buyer a certificate of non-foreign status signed by the appropriate party and
sufficient in form and substance to relieve Buyer of all withholding obligations
under Section 1445 of the Code. Seller will also deliver to Buyer a temporary
power of attorney with respect to the Controlled Substances Act or the
Controlled Substances Import and Export Act in the form attached hereto as
Exhibit 8.8.
8.9 Insurance. Seller will deliver evidence of insurance coverage as
required by paragraph 5.6.
8.10 Confidentiality, Finder's, Consulting, Employment and Lease
Agreements. Seller and Shareholder will deliver to Buyer each of the following
agreements:
(1) Executed Confidentiality and Non-Compete Agreement by and
between Buyer and Seller;
(2) Executed Consulting Agreement by and between Buyer and
Shareholder;
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(3) Executed Finder's Agreement by and between Buyer and
Shareholder;
(4) Executed Lease Agreements by and between Buyer and Shareholder
for the real estate located at 175 Seneca Trail, Fairlea, West
Virginia, and 243 Neff Avenue, Harrisonburg, Virginia; and
(5) Executed employment agreements by and between an affiliate
of Buyer and each of the individuals listed on Exhibit 8.10(5)
(the "Employment Agreements").
8.11 Closing Statement. Seller and Shareholder along with Buyer,
executes and delivers a Closing Statement setting forth the Purchase Price and
various adjustments thereto.
8.12 Approval of Board of Directors. This Agreement and consummation of
the transactions contemplated hereunder will have been approved by the Board of
Directors of Buyer.
8.13 Additionally Requested Documents; Post Closing Assistance. At the
reasonable request of Buyer from time to time, Seller and Shareholder, as Buyer
may reasonably request and at Buyer's expense, will (a) cooperate with Buyer to
put Buyer in actual possession and operating control of the Assets and Business,
(b) execute and deliver such further instruments of sale, conveyance, transfer
and assignment effectively to sell, convey, transfer and assign the Assets and
Business to Buyer, (c) execute and deliver such further instruments and to take
such other actions as Buyer may reasonably request to release Buyer from all
obligation and liability with regard to any obligation or liability retained by
Seller and/or Shareholder, and (d) execute and deliver such further instruments
and cooperate with Buyer to enable Buyer to obtain all necessary health care or
regulatory certifications, approvals, consents and licenses, accreditations or
permits.
ARTICLE IX. OBLIGATIONS OF BUYER AT CLOSING
At Closing, contemporaneously with the delivery hereof, Buyer will
deliver or cause to be delivered to Seller the following in a form and substance
reasonably satisfactory to Seller:
9.1 Purchase Price. Buyer hereby makes available to Seller the Purchase
Price upon the terms specified in this Agreement.
9.2 Assumption of Liabilities. Buyer covenants to fully perform and
comply with all of the Assumed Liabilities, subject to the provisions of this
Agreement.
9.3 Opinion of Buyer's Counsel. Buyer delivers to Seller a favorable
opinion of counsel for Buyer, dated as of Closing and pursuant to the Legal
Opinion Accord of the
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ABA Section of Business Law (1991), in form and substance reasonably
satisfactory to Seller and its counsel to the effect that:
(1) Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
corporate power and corporate authority to own, operate and lease its properties
and assets and to carry on its business as now conducted.
(2) Buyer has the corporate power and corporate authority to
execute, deliver and carry out the terms of this Agreement and all documents and
agreements delivered by Buyer at Closing and to consummate the transactions
contemplated on the part of Buyer hereby and thereby; Buyer has taken all action
required by law, and its Certificate of Incorporation and Bylaws, to authorize
such execution, delivery and consummation of this Agreement, and this Agreement,
and all other agreements delivered by Buyer at Closing constitute the valid and
binding obligations of Buyer enforceable in accordance with their respective
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally and by
general principles of equity.
9.4 Corporate Good Standing and Board Resolutions. Buyer delivers to
Seller a certificate of good standing from the Secretary of State of Delaware,
dated the most recent practical date prior to Closing, together with a certified
copy of the resolutions of the Board of Directors of Buyer approving this
Agreement and the consummation of the transactions contemplated hereunder.
9.5 Exhibits. Buyer shall deliver to Seller and Shareholder the
Exhibits to this Agreement in form satisfactory to Seller and Shareholder.
9.6 Confidentiality, Finder's, Consulting, Employment and Lease
Agreements. Buyer shall deliver to Seller and Shareholder each of the following
agreements:
(1) Executed Confidentiality and Non-Compete Agreement by and
between Buyer and Seller;
(2) Executed Consulting Agreements by and between Buyer and
Shareholder;
(3) An executed Finder's Agreement by and between Buyer and
Shareholder;
(4) Executed Lease Agreements by and between Buyer and Shareholder
as described in paragraph 8.10(4); and
(5) Executed Employment Agreements as described in paragraph
8.10(5).
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ARTICLE X. SURVIVAL OF PROVISIONS AND INDEMNIFICATION
10.1 Survival. The covenants, obligations, representations and
warranties of Buyer, Seller and Shareholder contained in this Agreement, or in
any certificate or document delivered pursuant to this Agreement, will be deemed
to be material and to have been relied upon by the parties hereto
notwithstanding any investigation prior to Closing, will not be merged into any
documents delivered in connection with Closing, and will survive the date of
Closing and shall remain in full force and effect for a period of two (2) years;
provided however, that the representations, warranties and covenants set forth
in paragraphs 3.7, 3.10, 3.16 (as such paragraph pertains to healthcare
matters), 3.19, 5.7 and 5.8 will each survive for the applicable statute of
limitations (the "Unrestricted Items").
10.2 Indemnification by Seller and Shareholder. Subject to provisions
of paragraph 10.4, Seller and Shareholder, jointly and severally, will promptly
indemnify, defend, and hold harmless Buyer, the directors, officers,
shareholders, employees and agents of Buyer, and the Assets against any and all
losses, costs, and expenses (including reasonable cost of investigation, court
costs and reasonable legal fees) actually incurred and other damages incurred
resulting from (a) any breach by either Seller or Shareholder of any of the
covenants, obligations, representations or warranties or breach or untruth of
any representation, warranty, fact or conclusion contained in this Agreement or
any certificate or document of Seller and/or Shareholder delivered pursuant to
this Agreement, (b) any liability of Seller not expressly assumed by Buyer
pursuant to paragraph 1.3, and (c) any claim (whether or not disclosed herein)
that is brought or asserted by any third party(ies) against Buyer arising out of
the ownership, licensing, operation or conduct of the Business or Assets or the
conduct of any of Seller's employees, agents or independent contractors,
relating to all periods of time prior to the Effective Date. Any indemnification
payment made pursuant to this Article will include interest at a floating rate
equal to two points over the prime rate of Bankers Trust Company established
from time to time (the "Rate"), payable for the period measured from the date
that the loss, cost, expense or damage was incurred until the date of payment.
The liability created under this paragraph will be joint and several between
Seller and Shareholder.
10.3 Indemnification by Buyer. Subject to the provisions of paragraph
10.4, Buyer will promptly indemnify, defend, and hold Seller harmless against
any and all losses, costs, and expenses (including reasonable cost of
investigation, court costs and reasonable legal fees) actually incurred and
other damages incurred resulting from (a) any breach by Buyer of any of its
covenants, obligations, representations or warranties or breach or untruth of
any representation, warranty, fact or conclusion contained in this Agreement or
any certificate or document of Buyer delivered pursuant to this Agreement, (b)
any claim which is brought or asserted by any third party(ies) against Seller
for failure to pay or perform any of the Assumed Liabilities, and (c) subject to
the other provisions of this Agreement, any claim that is brought or asserted by
any third party(ies) against Seller arising out of the ownership, licensing,
operation or conduct of the Business or Assets or the conduct of any of Buyer's
employees, agents or independent contractors, relating to all periods of time
subsequent to the Effective Date. Any indemnification payment pursuant to the
foregoing
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will include interest at the Rate from the date that the loss, cost, expense or
damage was incurred until the date of payment.
10.4 Rules Regarding Indemnification. The obligations and liabilities
of each party which may be subject to indemnification liability hereunder (the
"indemnifying party") to the other party (the "indemnified party") will be
subject to the following terms and conditions:
(1) Claims by Non-parties. The indemnified party will give prompt
written notice to the indemnifying party of any written claim by or in respect
of a third party of which it has knowledge concerning any indemnification
liability hereunder as to which it may request indemnification hereunder,
stating the nature of said claim and the amount thereof, to the extent known.
Anything in this Article X to the contrary notwithstanding, no claim may be
asserted nor may any action be commenced against any indemnifying party for
indemnification under this Article X, unless written notice of any event,
discovery of facts or any written claim or notice of investigation which could
give rise to such claim for indemnification has been sent to the indemnifying
party by the indemnified party, setting forth a description of the facts and
circumstances with respect to the subject matter therefore in reasonable detail
within thirty (30) days of the date on which the representation, warranty,
covenant or agreement on which such claim or action is based ceases to survive
as set forth in Section 10.1 hereof. The indemnified party will give notice to
the indemnifying party that pursuant to the indemnity, the indemnified party is
asserting against the indemnifying party a claim with respect to a potential
loss from the third party claim, and such notice will constitute the assertion
of a claim for indemnity by the indemnified party. If, within twenty (20) days
after receiving such notice, the indemnifying party advises the indemnified
party that it will provide indemnification and assume the defense at its
expense, then so long as such defense is being conducted, the indemnified party
will not settle or admit liability with respect to the claim and will afford to
the indemnifying party and defending counsel reasonable assistance in defending
against the claim. If the indemnifying party assumes the defense, counsel will
be selected by such party and if the indemnified party then retains its own
counsel, it will do so at its own expense. If the indemnified party does not
receive a written objection to the notice from the indemnifying party within
twenty (20) days after the indemnifying party's receipt of such notice, the
claim for indemnity will be conclusively presumed to have been assented to and
approved, and in such case the indemnified party may control the defense of the
matter or case and, at its sole discretion, settle or admit liability. If within
the aforesaid twenty (20) day period the indemnified party will have received
written objection to a claim (which written objection will briefly describe the
basis of the objection to the claim or the amount thereof, all in good faith),
then for a period of sixty (60) days after receipt of such objection the parties
will attempt to settle the dispute as between the indemnified and indemnifying
parties. If they are unable to settle the dispute, the indemnified party shall
have the right to pursue any remedy available to it in resolution of such
dispute or unresolved issue or issues.
(2) Claims by a Party. The determination of a claim asserted by a
party hereunder (other than as set forth in subparagraph (1) above) pursuant to
this Article will be made as follows: The indemnified party will give written
notice to the indemnifying party,
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<PAGE> 35
within such time as not to prejudice unduly the indemnifying party's ability to
defend against the underlying claim, of any claim by the indemnified party which
has not been made pursuant to subparagraph (1) above, stating the nature of such
claim and the amount thereof, to the extent known. The claim will be deemed to
have resulted in a determination in favor of the indemnified party and to have
resulted in a liability of the indemnifying party in an amount equal to the
amount of such claim estimated pursuant to this paragraph if within thirty (30)
days after the indemnifying party's receipt of the claim the indemnified party
will not have received written objection to the claim. In such event, the claim
will be conclusively presumed to have been assented to and approved. If within
the aforesaid thirty (30) day period the indemnified party will have received
written objection to a claim (which written objection will briefly describe the
basis of the objection to the claim or the amount thereof, all in good faith),
then for a period of sixty (60) days after receipt of such objection the parties
will attempt to settle the disputed claim as between the indemnified and
indemnifying parties. If they are unable to settle the disputed claim, the
indemnified party shall have the right to pursue any remedy available to it in
resolution of such dispute or unresolved issue or issues.
(3) Claims by a Straddle Patient. Any claim by a patient relating
to professional negligence or similar matters involving a patient served both
prior to the Effective Date and subsequent to the Effective Date will be the
responsibility of either Buyer, on the one hand, or Seller and Shareholder,
jointly and severally, on the other hand, in accordance with the following
guidelines: (a) if it is a claim in which the incident giving rise to liability
clearly arose prior to the Effective Date, Seller and Shareholder will respond
to the loss and defense expenses; (b) if it is a claim in which the incident
giving rise to liability clearly arose on or after the Effective Date, Buyer
will respond to the loss and defense expenses; and (c) in the event that the
incident giving rise to liability as to time is not clear, Seller, Shareholder
and Buyer will jointly defend the case and each will fully cooperate with the
others in such defense.
(4) Limitations. The obligations of Seller and Shareholder, on
the one hand, or the Buyer, on the other hand, under this Article X will not
begin until the indemnified party incurs one or more claims that equal, in the
aggregate, Fifty Thousand and No/100 Dollars ($50,000.00) (the "Basket");
provided, however, that such Basket will not apply either to any working capital
liabilities which are the responsibility of Seller, Shareholder or Buyer, as the
case may be, or to obligations of Seller and Shareholder as referenced in either
paragraph 3.8(4) or paragraph 3.17. Once the Basket is reached, the obligations
of indemnifying part under this Agreement will apply to all claims of ain
indemnified party, whether such claims are part of or in addition to the Basket.
Further, the aggregate indemnification obligations of the Seller and
Shareholder, on the other hand, and the Buyer, on the other hand, will not
exceed, the Purchase Price (the "Cap"); provided, however, that obligations
arising with respect to the Unrestricted Items will not be subject to the Cap or
considered when calculating the Cap.
(5) Payments by an indemnifying party hereunder shall be limited
to the amount of indemnification liability hereunder that remain after deducting
therefore any actual tax benefit to the relevant indemnified party or Affiliate
thereof and any insurance
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<PAGE> 36
proceeds (excluding there from any self-insurance proceeds and the retention
amount payable by such indemnified party) and any indemnity, contribution or
other similar payment payable tot he indemnified party from any third party with
respect thereto. Tax benefits will be considered to be realized by an
indemnified party or Affiliate thereof for purposes hereof in the year in which
a payment occurs, and the relevant indemnified party or Affiliate effective
state or local income tax rate is its effective rate for the most recent prior
taxable year for which such information is available.
(6) Anything in this Agreement to the contrary notwithstanding,
the parties to this Agreement agree that any amount payable to Buyer pursuant to
this Article X shall be treated as an adjustment to the Purchase Price and may
be offset first against the funds held pursuant to the Escrow Agreement, and
then from the Earnout Payment, if any, and thereafter by claims directly against
Seller and/or Shareholder.
(7) Anything in this Agreement to the contrary notwithstanding,
no breach of any representation, warranty, covenant or agreement contained
herein shall give rise to any right on the part of any indemnified party to
rescind this Agreement of the transactions contemplated hereby.
ARTICLE XI. PRESERVATION OF BUSINESS
AND NONCOMPETE RESTRICTIONS
11.1 Covenant Not to Compete. Seller and Shareholder hereby, jointly
and severally, covenant and agree with Buyer that, during the "Noncompete
Period" (as such term is defined herein) and within the "Noncompete Area" (as
such term is defined herein), neither Seller nor Shareholder will directly or
indirectly, (a) acquire, lease, manage, consult for, serve as agent or
subcontractor for, finance, invest in, own any part of or exercise management
control over any health care operation or business which provides any goods or
services competitive with the goods and services provided by the Business as of
Closing; (b) solicit for employment or employ any person who at Closing or
thereafter became an employee of Buyer or an Affiliate unless such person is not
so employed for at least six (6) months; or (c) with respect to any customer,
patient, physician, physician group, or healthcare provider with whom Buyer or
an Affiliate contracts with in connection with the Business, either solicit the
same in a manner which could adversely affect Buyer or an Affiliate or make
statements to the same which disparage Buyer, an Affiliate, the Business or
their respective operations in anyway. The "Noncompete Period" will commence at
Closing and terminate on the fifth (5th) anniversary thereof. The "Noncompete
Area" will mean the area within a fifty (50) mile radius of each location from
which the Business is operated or conducted as of Closing. Notwithstanding the
above provisions of this paragraph 11.1, the following will not be deemed a
breach of this covenant.
(x) Ownership of less than five percent (5%) of the stock of a publicly
held company;
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<PAGE> 37
(y) Seller's continuing ownership and/or operation of the home health
agency currently operated under the name Home Care Plus, which agency currently
provides the services listed on Exhibit 11.1 attached hereto, so long as the
services of such agency are not expanded to include any goods or services
competitive with those provided by the Business as of Closing; and
(z) Seller's continuing ownership and operation of Greenbrier Medical
Arts Pharmacy, Western Greenbrier Pharmacy, Alderman's Pharmacy and/or Union
Pharmacy, each a retail pharmacy, so long as, on and after Closing, each such
pharmacy does not either (i) provide aerosol medications to any patients other
than those patients being provided such medications by the pharmacy as of the
date of Closing; (ii) provide enteral services to any patients other than those
patients receiving such services from the pharmacy as of the date of Closing; or
(iii) engage in any advertising or solicitation of business regarding the
provision of either aerosol medications or enteral services.
11.2 Enforceability. In the event of a breach of paragraph 11.1, Seller
and Shareholder recognize that monetary damages will be inadequate to compensate
Buyer and Buyer will be entitled, without the posting of a bond or similar
security and notwithstanding the arbitration provisions contained in Article X,
to an injunction restraining such breach, with the costs (including attorneys
fees) of securing such injunction to be jointly and severally borne by Seller
and Shareholder. Nothing contained herein will be construed as prohibiting Buyer
from pursuing any other remedy available to it for such breach or threatened
breach. All parties hereby acknowledge the necessity of protection against the
competition of Seller and Shareholder and that the nature and scope of such
protection has been carefully considered by the parties. The period provided and
the area covered are expressly represented and agreed to be fair, reasonable and
necessary. The consideration provided for herein is deemed to be sufficient and
adequate to compensate Seller and Shareholder for agreeing to the restrictions
contained in paragraph 11.1. If, however, any court determines that the
foregoing restrictions are not reasonable, such restrictions will be modified,
rewritten or interpreted to include as much of their nature and scope as will
render them enforceable.
ARTICLE XII. MISCELLANEOUS
12.1 Assignment. No party hereto shall assign any of its rights
hereunder or delegate any obligations under this Agreement without the prior
written consent of the other parties, which consent shall not be unreasonably
withheld, conditioned or delayed, and any prohibited assignment or delegation
will be null and void. Subject to the foregoing, this Agreement will be binding
upon and will inure to the exclusive benefit of the parties hereto and their
respective heirs, legal representatives, successors and assigns. This Agreement
is not intended to, nor will it, create any rights in any other party.
12.2 Other Expenses. Except as otherwise provided in this Agreement,
Seller and Shareholder will pay all of their expenses in connection with the
negotiation, execution, and implementation of the transactions contemplated
under this Agreement and Buyer will pay
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<PAGE> 38
all of its expenses in connection with the negotiation, execution, and
implementation of the transactions contemplated under this Agreement. All state
and local sales and use taxes, recording fees, and transfer fees and taxes
incurred in connection with the transactions contemplated under this Agreement
will be borne and timely paid by Seller. All ad valorem taxes incurred and
related to the Real Estate will be shared equally by Seller and Buyer and will
be prorated at Closing as of the Effective Date. The Purchase Price will be
reduced, on a dollar-per-dollar basis, to the extent and in an amount equal to
any taxes that are accrued but unpaid by Seller as of the date of Closing and
such taxes are paid or assumed by Buyer.
12.3 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement will be in
writing and will be deemed to have been duly given: (a) if delivered personally
or sent by facsimile, on the date received, (b) if delivered by overnight
courier, on the day after mailing so long as the sending party retains a receipt
thereof, and (c) if mailed, five (5) days after mailing with postage prepaid.
Any such notice will be sent as follows:
To Seller or Shareholder:
Allen Carson
6 Coleman Drive
Lewisburg, West Virginia 24901
with a courtesy copy to:
Alexander I. Saunders, Esq.
Woods, Rogers & Hazlegrove, P.L.C.
First Union Tower, Suite 1400
10 S. Jefferson Street
Roanoke, VA 24011
To Buyer:
American HomePatient, Inc.
5200 Maryland Way
Suite 400
Brentwood, Tennessee 37027
Attn: Edward K. Wissing
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<PAGE> 39
with a courtesy copy to:
Lauren W. Anderson
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
Nashville, Tennessee 37238-1800
12.4 Confidentiality; Prohibition on Trading. Seller, Shareholder and
their Affiliates agree to maintain the confidentiality of the existence of this
Agreement and the transactions contemplated hereunder until such time as the
parties release a mutually satisfactory press release to the public, unless
disclosure is required by law. Seller, Shareholder and the Affiliates further
agree to maintain after Closing the confidentiality of the terms of the
contemplated transactions except to the extent disclosed in filings with the
Securities and Exchange Commission, unless disclosure is required by law.
Seller, Shareholder and their Affiliates agree not to trade in the securities of
Buyer or its Affiliates based upon any nonpublic information.
12.5 Partial Invalidity; Waiver. The invalidity or unenforceability of
any particular provision of this Agreement will not affect the other provisions
hereof, and this Agreement will be construed in all respects as if such invalid
or unenforceable provisions were omitted. Further, there will be automatically
substituted for such invalid or unenforceable provision a provision as similar
as possible which is valid and enforceable. Neither the failure nor any delay on
the part of any party hereto in exercising any rights, power or remedy hereunder
will operate as a waiver thereof, or of any other right, power or remedy; nor
will any single or partial exercise of any right, power or remedy preclude any
further or other exercise thereof, or the exercise of any other right, power or
remedy. No waiver of any of the provisions of this Agreement will be valid
unless it is in writing and signed by the party against which it is sought to be
enforced.
12.6 Interpretation; Knowledge. All pronouns and any variation thereof
will be deemed to refer to the masculine, feminine, neuter, singular or plural
as the identity of the person or entity, or the context, may require. Further,
it is acknowledged by the parties that this Agreement has undergone several
drafts with the negotiated suggestions of both, and, therefore, no presumptions
will arise favoring either party by virtue of the authorship of any of its
provisions or the changes made through revisions. Any table of contents and
paragraph headings in this Agreement are for convenience of reference only and
will not be considered or referred to in resolving questions of interpretation.
Whenever in this Agreement the term "to the best knowledge of Seller or
Shareholder" or the like is used, Seller and Shareholder will each be deemed to
have the best knowledge of Seller's Shareholder, officers, directors and key
employees, and of its Affiliates; and Seller and Shareholder will each be under
a duty of due inquiry.
12.7 Entire Agreement; Counterparts. This Agreement, including the
Exhibits and attachments hereto, constitutes the entire agreement between the
parties hereto with regard to the matters contained herein and it is understood
and agreed that all previous undertakings, negotiations, letters of intent and
agreements between the parties are
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<PAGE> 40
merged herein. This Agreement may not be modified orally, but only by an
agreement in writing signed by Buyer, Seller and Shareholder. This Agreement may
be executed simultaneously in two or more counterparts each of which will be
deemed an original and all of which together will constitute but one and the
same instrument.
12.8 Legal Fees and Costs. In the event any party incurs legal expenses
to enforce or interpret any provision of this Agreement, the prevailing party
will be entitled to recover such legal expenses, including, without limitation,
attorney's fees, costs and disbursements, in addition to any other relief to
which such party will be entitled.
12.9 Controlling Law. This Agreement will be construed, interpreted and
enforced in accordance with the substantive laws of the State of Tennessee,
without giving effect to its conflict of laws provisions.
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<PAGE> 41
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"SELLER":
GREENBRIER RESPIRATORY CARE
SERVICES, INC., d/b/a
GREENBRIER RESPIRATORY AND
REHABILITATION, INC.
By: /s/ Allen Carson
----------------------------------------
Title: President
-------------------------------------
"SHAREHOLDER":
/s/ Allen Carson
------------------------------------------
ALLEN CARSON
"BUYER"
AMERICAN HOMEPATIENT, INC.
By: /s/ Rita N. Hill
---------------------------------------
Title: Sr. Vice President
------------------------------------
<PAGE> 1
EXHIBIT 10.79
THIS STOCK PURCHASE WARRANT AND SECURITIES REPRESENTED HEREBY AND THE
SHARES OF STOCK ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND THE WARRANT MAY NOT BE EXERCISED, AND
NEITHER THE WARRANT NOR THE STOCK ISSUABLE UPON ITS EXERCISE MAY BE
SOLD OR OTHERWISE TRANSFERRED, IN THE ABSENCE OF EFFECTIVE REGISTRATION
STATEMENTS UNDER SUCH ACT AND LAWS OR AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
STOCK PURCHASE WARRANT
FOR VALUE RECEIVED, American HomePatient, Inc., a Delaware corporation
(the "Company"), hereby grants to Joseph F. Furlong III (the "Investor"), on
this 11th day of August, 1994, the right, subject to the provisions hereinafter
set forth, to purchase 10,671 shares of the Company's Common Stock, $0.01 par
value (all shares of the Common Stock of the Company being referred to as the
"Shares"), at the exercise price of Eleven and No/100 Dollars ($11.00) per
Share.
This Warrant is subject to the following provisions.
1. Exercise Period. This Warrant shall be exercisable by Investor, in
whole or in increments of 100 Shares or more, subject to the terms of Section 3
hereof, beginning as of the date hereof, and Investor's right to exercise this
Warrant shall expire on August 11, 1999. Upon the expiration of this Warrant,
Investor shall return the Warrant to the Company.
2. Exercise Price. The price at which the Shares purchasable upon
exercise of this Warrant may be purchased (herein referred to as the "Exercise
Price"), will be Eleven and No/100 Dollars ($11.00) per Share.
3. Exercise Procedures.
a. Subject to the terms herein, this Warrant will be deemed to
have been exercised when the Company has received the following items (the date
that all such items have been received is hereinafter referred to as the
"Exercise Date"), at its offices at 105 Reynolds Drive, Franklin, Tennessee
37064:
i. a completed Exercise Agreement, in the form attached hereto as
Exhibit A, executed by Investor;
ii. this Warrant; and
<PAGE> 2
iii. the Exercise Price, in immediately available funds, or, at
Investor's option, by utilizing the value of unexercised warrants as
consideration for the Exercise Price. Any warrants so utilized shall be
cancelled.
b. Certificate(s) evidencing the Shares being purchased will be
delivered to Investor promptly after the Exercise Date, and the Shares so issued
shall be deemed for all purposes to have been issued to Investor and Investor
will be deemed for all purposes to have become the record holder of the Shares
as of the Exercise Date. If the Investor exercises the Warrant for less than all
of the Shares issuable hereunder, the Company shall issue and deliver to the
Investor a new Warrant of like tenor and date for the balance of the Shares
issuable hereunder, excluding those warrants utilized as provided in a.iii.
above.
c. Freedom from Liens, etc. When issued in accordance with the terms
hereof, said Shares will be fully paid and nonassessable, and free and clear of
all liens, pledges, security interests, restrictions, claims, charges or other
encumbrances, other than those placed upon such securities by applicable state
and federal law and as otherwise provided herein.
4. Adjustment of Exercise Price, Conversion Price and Number of Shares.
In order to prevent dilution of the rights granted under this Warrant, the
initial Exercise Price set forth in Section 2 hereof shall be subject to
adjustment from time to time as provided in this Section 4 (such price or such
price as last adjusted pursuant to the terms hereof, as the case may be, is
herein called the "Exercise Price"), and the number of Shares obtainable upon
exercise of this Warrant shall be subject to adjustment from time to time as
provided in this Section 4.
a. Subdivision or Combination of Shares. If the Company at any time
after the date hereof shall, by stock dividend, subdivision, stock split or
combination or other reclassification of securities (any such action herein
referred to as a "Reclassification"), change any of the securities to which
purchase rights under this Warrant exist into the same or a different number of
securities of any class or series, this Warrant shall entitle the registered
holder to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant immediately prior to such
Reclassification, and the Exercise Price shall be appropriately adjusted.
b. Notices. Following any adjustment pursuant to this Section 4, the
Company will give written notice of the new Exercise Price and number of
securities to Investor.
5. No Voting Rights. This Warrant will not entitle the holder hereof to
any voting rights or other rights as a shareholder of the Company.
6. Replacement. Upon receipt of evidence reasonably satisfactory to the
Company of the ownership and loss, theft, destruction or mutilation of this
Warrant, and receipt of indemnity reasonably satisfactory to the Company, the
Company will execute and deliver a replacement to this Warrant, representing the
then current identical rights granted herein. All costs of such replacement
shall be borne by the Investor.
2
<PAGE> 3
7. Exercise, Transfer. This Warrant is not transferrable by the
Investor, other than pursuant to the laws of descent and distribution, without
the consent of the Company. In addition, the Company may permit the exercise of
this Warrant or the transfer of this Warrant only when the Warrant or securities
or Shares subject to this Warrant have been registered under the Securities Act
and any applicable state securities law or when the request for exercise or
transfer is accompanied by an opinion of counsel, which opinion and counsel
shall be acceptable to the Company and its counsel, to the effect that the
exercise, sale or proposed transfer does not require registration under the
Securities Act or any state securities law.
8. Saturdays, Sundays, Holidays, etc. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a Saturday,
Sunday or legal holiday.
9. Governing Law. This Warrant shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Tennessee.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer as of the date first above written.
AMERICAN HOMEPATIENT, INC.
By: /s/ Edward K. Wissing
----------------------------------
Edward K. Wissing, President
Agreed to and Accepted by:
/s/ Joseph F. Furlong, III
- ------------------------------
Joseph F. Furlong III
3
<PAGE> 1
Exhibit 10.80
AMERICAN HOMEPATIENT, INC.
SECOND AMENDMENT TO FOURTH
AMENDED AND RESTATED CREDIT AGREEMENT
This SECOND AMENDMENT TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
(this "AMENDMENT") is dated as of April 14, 1999 and entered into by and among
American HomePatient, Inc., a Delaware corporation (the "BORROWER"), the
financial institutions listed on the signature pages hereof (each a "BANK" and
collectively, the "BANKS"), and Bankers Trust Company, as agent for the Banks
(in such capacity, the "AGENT"), and is made with reference to that certain
Fourth Amended and Restated Credit Agreement dated as of December 19, 1997, as
amended to the date hereof (as so amended, the "CREDIT AGREEMENT"). Capitalized
terms used herein without definition shall have the same meanings herein as set
forth in the Credit Agreement.
RECITALS
WHEREAS, on January 29, 1999, the Borrower advised the Banks that the
Borrower was not in compliance with the provisions of the negative covenants set
forth in Sections 8.08, 8.10 and 8.17 of the Credit Agreement for the four
fiscal quarter period ending December 31, 1998, which non-compliance constituted
Events of Default under the Credit Agreement (the Events of Default resulting
from such non-compliance with such enumerated covenants for such particular
period being the "FINANCIAL COVENANT DEFAULTS"); and
WHEREAS, the Borrower has also advised the Banks that the Borrower is
currently not in compliance with the provisions of the negative covenant set
forth in Section 8.16 of the Credit Agreement as a result of the commingling of
proceeds of accounts receivable of certain Joint Ventures with proceeds of
Accounts Receivable deposited in Deposit Accounts that are subject to the terms
of Collection Bank Agreements and/or the Concentration Bank Agreement (the Event
of Default resulting from such non-compliance with Section 8.16 being the
"COMMINGLING DEFAULT"); and
WHEREAS, the Borrower has requested that the Banks waive (i) the
Financial Covenant Defaults, such waiver to be effective as of the Second
Amendment Effective Date (as hereinafter defined) for the period from and after
such date, (ii) the increase in the interest rates applicable to outstanding
Loans that would otherwise be required under Section 2.06(e) of the Credit
Agreement for the period from January 29, 1999 to the Second Amendment Effective
Date as a result of the occurrence and continuation of the Financial Covenant
Defaults during such period; provided that the Borrower has agreed that such
waiver of such increased interest rates shall only be applicable to the extent
that increased interest at such rates has not already been paid by the Borrower
as of the Second Amendment Effective Date, and (iii) the Commingling Default for
the period from and after the Second Amendment Effective Date; provided that the
Borrower has agreed that such waiver of the Commingling Default shall expire on
the date that is 30 days after the Second Amendment Effective Date unless the
Borrower complies with the provisions of Section 7.14B of the Amended Agreement
(as hereinafter defined) on or before such date; and
<PAGE> 2
WHEREAS, the Banks have agreed to grant such limited waivers on the
terms and conditions set forth herein; and
WHEREAS, the Borrower and the Banks desire to amend certain of the
terms and provisions of the Credit Agreement as set forth below:
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 AMENDMENTS TO SECTION 1: DEFINITIONS AND PRINCIPLES OF CONSTRUCTION.
A. Section 1.01 of the Credit Agreement is hereby amended by restating
the definitions of "Applicable Base Margin", "Applicable Eurodollar Margin",
"Interest Payment Date", "Performance Plan" and "Termination Date" in their
entirety as follows:
"APPLICABLE BASE MARGIN" means (i) with respect to any date prior to
September 30, 2000, a percentage per annum equal to 2.50%, and (ii) with
respect to any date on and after September 30, 2000, a percentage per annum
equal to 2.75%.
"APPLICABLE EURODOLLAR MARGIN" means (i) with respect to any date
prior to September 30, 2000, a percentage per annum equal to 3.25%, and
(ii) with respect to any date on and after September 30, 2000, a percentage
per annum equal to 3.50%.
"INTEREST PAYMENT DATE" means, with respect to any Eurodollar Rate
Loan, the last day of the Interest Period applicable to such Loan.
"PERFORMANCE PLAN" has the meaning assigned to that term in Section
7.01(d); provided that, with respect to Fiscal Year 1999, "PERFORMANCE
PLAN" shall mean the financial plan for Fiscal Year 1999 delivered by the
Borrower to the Banks on February 10, 1999 at the meeting held by the
Borrower and the Banks in Nashville, Tennessee.
"TERMINATION DATE" means the earlier of (a) April 15, 2002 and (b) the
date upon which the Revolving Loan Commitments are terminated pursuant to
Section 4.03 or Section 9.
B. Section 1.01 of the Credit Agreement is hereby further amended by
adding thereto the following definitions, which shall be inserted in proper
alphabetical order:
"ADJUSTED NET REVENUES" means, for any period, reported net revenues
of the Borrower and its Subsidiaries for such period, in each case as
adjusted for (i) revenues that are associated with locations in which cash
collections are not statistically tracked and (ii) revenues associated with
Joint Ventures.
2
<PAGE> 3
"AGGREGATE WARRANT SHARE AMOUNT" means an aggregate number of shares
of Borrower Common Stock equal to 0.1999 multiplied by the aggregate number
of shares of Borrower Common Stock issued and outstanding as of March 31,
2001.
"BORROWER COMMON STOCK" means common stock of the Borrower, par value
$0.01 per share.
"COLLECTION DAY" means each day of the calendar year other than (i)
Saturday and Sunday of each week during such year and (ii) the following
holidays during such year: Christmas, New Year's Day, Thanksgiving, Fourth
of July, Memorial Day, and Labor Day.
"EXCESS LEVERAGE AMOUNT" means, for any date of determination from and
after September 30, 2000, the amount (if any) by which the sum of (i) the
aggregate outstanding principal amount of all Term Loans on such date plus
(ii) the Total Utilization of Revolving Loan Commitments on such date
exceeds the Excess Leverage Threshold Amount.
"EXCESS LEVERAGE CALCULATION DATE" means the date on which the
Borrower delivers the Compliance Certificate which covers the four-fiscal
quarter period ending September 30, 2000.
"EXCESS LEVERAGE THRESHOLD AMOUNT" means an amount equal to (i)
Consolidated Adjusted EBITDA for the four-fiscal quarter period ending
September 30, 2000 multiplied by (ii) 400%.
"INFORMATION SYSTEMS AND EQUIPMENT" means all computer hardware,
firmware and software, as well as other information processing systems, or
any equipment containing embedded microchips, whether directly owned,
licensed, leased, operated or otherwise controlled by the Borrower or any
of its Subsidiaries, including through third-party service providers, and
which, in whole or in part, are used, operated, relied upon, or integral
to, the Borrower's or any of its Subsidiaries' conduct of their businesses.
"O.I.G." means the Office of Inspector General of the United States
Department of Health and Human Services.
"SECOND AMENDMENT" means that certain Second Amendment to Fourth
Amended and Restated Credit Agreement dated as of April 12, 1999 by and
among the Borrower, the Banks and the Agent.
"SECOND AMENDMENT EFFECTIVE DATE" has the meaning assigned to that
term in the Second Amendment.
3
<PAGE> 4
"TURNAROUND MANAGER" has the meaning assigned to that term in the
Second Amendment.
"YEAR 2000 COMPLIANT" means that all Information Systems and Equipment
(i) accurately process date data (including, but not limited to,
calculating, comparing and sequencing such data) before, during and after
the year 2000, as well as same and multi-century dates, or between the
years 1999 and 2000, taking into account all leap years (including the fact
that the year 2000 is a leap year), and (ii) when used in combination with,
or interfacing with, other Information Systems and Equipment, shall
accurately accept, release and exchange date data, and shall in all
material respects continue to function in the same manner as it performs
today and shall not otherwise impair the accuracy or functionality of
Information Systems and Equipment.
C. Section 1.01 of the Credit Agreement is hereby further amended by
deleting therefrom the definitions of "High-Yield Cut-Off Date", "Leverage
Ratio" and "Margin Rate Determination Certificate".
D. Section 1.01 of the Credit Agreement is hereby further amended by
deleting the word "and" immediately before clause (iv) of the definition of
"Consolidated EBIT" and by adding new clause (v) and (vi) at the end of such
definition as follows:
", (v) certain one-time pre-tax write-downs and/or write-offs of goodwill,
in each case taken or recorded during the fiscal quarters of the Borrower
ending December 31, 1998 and March 31, 1999, in an aggregate amount not to
exceed $38,000,000, and (vi) any costs or expenses incurred by the Borrower
in respect of (a) the engagement of PricewaterhouseCoopers LLP ("PWC") by
the Borrower, at the request of the Banks, to analyze the Borrower's
accounts receivable operations, (b) the engagement of PwC by the Banks, at
the Borrower's expense, to analyze the Performance Plan for Fiscal Year
1999, and (c) the engagement of the Turnaround Manager by the Borrower, in
each case to the extent that such costs or expenses were not reflected in
the Performance Plan for Fiscal Year 1999 and cannot be capitalized by the
Borrower."
1.2 AMENDMENTS TO SECTION 2: AMOUNT AND TERMS OF CREDIT.
A. THE REVOLVING LOANS. Section 2.01(a) of the Credit Agreement is hereby
amended by (a) deleting the reference therein to "$285,000,000" and replacing it
with "$253,600,000" and (b) restating clause (ii) of the second paragraph
thereof in its entirety as follows:
"(ii) In no event shall the Total Utilization of Revolving Loan
Commitments exceed (A) at any time prior to the date that is 30 days after
the Turnaround Manager actually commences work pursuant to his/her
engagement, the lesser of (1) the Total Utilization of Revolving Loan
Commitments as of the Second Amendment Effective Date and (2) the Total
Revolving Loan Commitments then in
4
<PAGE> 5
effect, and (B) at any time from and after such date, the Total Revolving
Loan Commitments then in effect."
B. THE SWING LINE LOANS. Section 2.02(a) of the Credit Agreement is
hereby amended by restating clause (i) of the second paragraph thereof in its
entirety as follows:
"(i) In no event shall the Total Utilization of Revolving Loan
Commitments exceed (A) at any time prior to the date that is 30 days after
the Turnaround Manager actually commences work pursuant to his/her
engagement, the lesser of (1) the Total Utilization of Revolving Loan
Commitments as of the Second Amendment Effective Date and (2) the Total
Revolving Loan Commitments then in effect, and (B) at any time from and
after such date, the Total Revolving Loan Commitments then in effect."
C. RATE OF INTEREST. Section 2.06(a) of the Credit Agreement is hereby
amended by deleting the last two paragraphs thereof in their entirety.
D. INTEREST PERIODS. Section 2.06(b) of the Credit Agreement is hereby
amended by restating the first paragraph thereof in its entirety as follows:
"In connection with each Eurodollar Rate Loan, an interest period
(each an "INTEREST PERIOD") shall be applicable to such Loan, which
Interest Period shall be a one-month period; provided that:"
E. INTEREST PAYMENTS. Section 2.06(c) of the Credit Agreement is hereby
amended by deleting Section 2.06(c)(iii) in its entirety and by restating
Section 2.06(c)(i) in its entirety as follows:
"(i) interest on each Base Rate Loan (including each Swing Line Loan)
shall be payable monthly in arrears on and to the last Business Day of each
month (each a "REGULAR INTEREST PAYMENT DATE" with respect to Base Rate
Loans), upon any prepayment of any such Loan (to the extent accrued on the
amount being prepaid), and at maturity (including final maturity); provided
that, in the event any Swing Line Loans or any Revolving Loans that are
Base Rate Loans are voluntarily prepaid pursuant to Section 4.02(c),
interest accrued on such Loans through the date of such prepayment shall be
payable on the next succeeding Regular Interest Payment Date with respect
to Base Rate Loans (or, if earlier, at final maturity)."
F. ADDITIONAL INTEREST. Section 2.06 of the Credit Agreement is hereby
amended by adding a new Section 2.06(g) at the end thereof as follows:
"(G) ADDITIONAL INTEREST. Anything contained in this Agreement to the
contrary notwithstanding, without duplication of any other amounts of
interest payable under this Agreement in respect of the Loans, from and
after September 30, 2000 the Borrower shall pay additional interest in
respect of the Loans as follows:
5
<PAGE> 6
(i) On the Excess Leverage Calculation Date, the Borrower shall pay to
the Agent, for distribution to each Bank in proportion to its Pro Rata
Share, additional interest in respect of the Loans for each day during the
period from and including September 30, 2000 to but excluding the Excess
Leverage Calculation Date (the "INITIAL ADDITIONAL INTEREST CALCULATION
PERIOD") at a rate equal to 4.50% per annum multiplied by the Excess
Leverage Amount (if any) for such day.
(ii) On the last Business Day of each month, commencing with the first
such date occurring after the Excess Leverage Calculation Date, the
Borrower shall pay to the Agent, for distribution to each Bank in
proportion to its Pro Rata Share, additional interest in respect of the
Loans for each day during the period from and including the last date on
which any additional interest was required to be paid by the Borrower
pursuant to this Section 2.06(f) to but excluding the applicable last
Business Day (each a "SUBSEQUENT ADDITIONAL INTEREST CALCULATION PERIOD")
at a rate equal to 4.50% per annum multiplied by the Excess Leverage Amount
(if any) for such day.
(iii) Any additional interest paid by the Borrower pursuant to this
Section 2.06 in respect of any date during the Initial Additional Interest
Calculation Period or any Subsequent Additional Interest Calculation Period
shall be allocated and distributed to each Bank in accordance with its Pro
Rata Share as of such date."
G. LETTERS OF CREDIT. Section 2.10(a) of the Credit Agreement is hereby
amended by restating clause (i) of the first paragraph thereof in its entirety
as follows:
"(i) any Letter of Credit if, after giving effect to such issuance,
the Total Utilization of Revolving Loan Commitments would exceed (A) at any
time prior to the date that is 30 days after the Turnaround Manager
actually commences work pursuant to his/her engagement, the lesser of (1)
the Total Utilization of Revolving Loan Commitments as of the Second
Amendment Effective Date and (2) the Total Revolving Loan Commitments then
in effect, and (B) at any time from and after such date, the Total
Revolving Loan Commitments then in effect; or."
1.3 AMENDMENTS TO SECTION 4: PREPAYMENTS AND REDUCTIONS IN COMMITMENTS;
PAYMENTS.
A. SCHEDULED PAYMENTS OF TERM LOANS. Section 4.01 of the Credit Agreement
is hereby amended by deleting the table set forth therein in its entirety and
substituting therefor the following:
<TABLE>
<CAPTION>
=========================================================
DATE SCHEDULED PAYMENT
=========================================================
<S> <C>
September 15, 1999 $ 1,500,000
---------------------------------------------------------
December 15, 1999 $ 1,500,000
---------------------------------------------------------
March 15, 2000 $ 1,500,000
=========================================================
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
=========================================================
DATE SCHEDULED PAYMENT
=========================================================
<S> <C>
June 15, 2000 $ 1,500,000
---------------------------------------------------------
September 15, 2000 $ 3,000,000
---------------------------------------------------------
December 15, 2000 $ 3,000,000
---------------------------------------------------------
March 15, 2001 $ 3,000,000
---------------------------------------------------------
June 15, 2001 $ 6,000,000
---------------------------------------------------------
September 15, 2001 $ 6,000,000
---------------------------------------------------------
December 15, 2001 $ 6,000,000
---------------------------------------------------------
April 15, 2002 $42,000,000
=========================================================
</TABLE>
B. MANDATORY PREPAYMENTS AND MANDATORY REDUCTIONS OF REVOLVING
LOAN COMMITMENTS.
(i) Section 4.02(c) is hereby amended by (a) renumbering
existing paragraph "(iii)" thereof as paragraph "(iv)" and (b) adding the
following new paragraph "(iii)" thereto:
"(iii) Prepayments and Reductions Due to Tax Refunds. No later
than the second Business Day following the date of receipt by the
Borrower or any of its Subsidiaries of any cash proceeds from any tax
refunds made by the Internal Revenue Service, the Borrower shall prepay
the Loans and/or the Revolving Loan Commitments shall be permanently
reduced in an aggregate amount equal to 100% of such net cash proceeds.
Concurrently with any prepayment of the Loans and/or reduction of the
Revolving Loan Commitments pursuant to this Section 4.02(c)(iii), the
Borrower shall deliver to the Agent an Officers' Certificate
demonstrating the calculation of the net cash proceeds that gave rise
to such prepayment and/or reduction. In the event that the Borrower
shall subsequently determine that the actual net cash proceeds were
greater than the amount set forth in such Officers' Certificate, the
Borrower shall promptly make an additional prepayment of the Loans
(and/or, if applicable, the Revolving Loan Commitments shall be
permanently reduced) in an amount equal to the amount of such excess,
and the Borrower shall concurrently therewith deliver to the Agent an
Officers' Certificate demonstrating the derivation of the additional
net cash proceeds resulting in such excess."
(ii) Section 4.03(b) of the Credit Agreement is hereby amended
by deleting the phrase "pursuant to Section 4.02(c)(i) or Section 4.02(c)(ii)"
contained therein and substituting therefor the phrase "pursuant to Section
4.02(c)(i), Section 4.02(c)(ii) or Section 4.02(c)(iii)".
(iii) Section 4.03(c) of the Credit Agreement is hereby
amended by adding a new sentence at the end thereof as follows:
7
<PAGE> 8
"Any mandatory prepayments of the Term Loans pursuant to Section
4.02(c)(iii) shall be applied to reduce the scheduled installments of
principal of the Term Loans in Section 4.01 in the inverse order of
maturity."
1.4 AMENDMENTS TO SECTION 6: REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
Section 6 of the Credit Agreement is hereby amended by adding a new
Section 6.25 at the end thereof as follows:
"6.25 YEAR 2000 COMPLIANCE. All Information Systems and
Equipment are either Year 2000 Complaint, or any reprogramming,
remediation, or any other corrective action, including the internal
testing of all such Information Systems and Equipment, will be
completed by October 1, 1999. Further, to the extent that such
reprogramming/remediation and testing action is required, the cost
thereof, as well as the cost of the reasonably foreseeable consequences
of failure to become Year 2000 Compliant, to the Borrower and its
Subsidiaries (including, without limitation, reprogramming errors and
the failure of other systems or equipment) will not result in an Event
of Default or a material adverse effect on the business, operations,
property, assets, condition (financial or otherwise) or prospects of
the Borrower and its Subsidiaries, taken as a whole."
1.5 AMENDMENTS TO SECTION 7: AFFIRMATIVE COVENANTS.
A. INFORMATION COVENANTS.
(i) Section 7.01 of the Credit Agreement is hereby amended by
restating existing paragraph "(j)" thereof in its entirety as follows:
"(J) [INTENTIONALLY OMITTED]."
(ii) Section 7.01 of the Credit Agreement is hereby further
amended by deleting existing paragraph "(l)" thereof in its entirety, by
re-lettering existing paragraph "(m)" thereof as paragraph "(p)", and by adding
new paragraphs "(l)", "(m)", "(n)" and "(o)" thereto as follows:
"(L) MONTHLY FINANCIAL STATEMENTS. Within 30 days after the
end of each calendar month, (i) the consolidated balance sheets of the
Borrower and its Subsidiaries as at the end of such month and the
related consolidated statements of operations and statements of cash
flows for such month and for the elapsed portion of the Fiscal Year
ended with the last day of such month, all of which shall be certified
by the Chief Executive Officer or the Chief Financial Officer of the
Borrower, subject to normal year-end audit adjustments, (ii) a
performance report, in a form reasonably satisfactory to the Banks,
comparing the actual results of operations, financial position and cash
flows for such month and for the elapsed portion of the Fiscal Year
ended with the last day of such month to those forecasted in the
Performance Plan and stating the reasons for any variance between such
actual
8
<PAGE> 9
and forecasted results of operations, financial position and cash flows
and explanations for any such variances that are adverse to the
Borrower or any of its Subsidiaries, (iii) a narrative report, in the
form prepared for presentation to senior management, describing the
operations of the Borrower and its Subsidiaries (including placements
of oxygen concentrators) for such month and for the period from the
beginning of the then current Fiscal Year to the end of such month,
(iv) an Accounts Receivable report for such month, in form and
substance satisfactory to the Banks, consisting of (a) detailed
Accounts Receivable agings (including both billed and unbilled Accounts
Receivable, on both a current and an over-90-days-old basis) and (b) an
analysis of bad debt expense, (v) a Joint Venture report, in form and
substance satisfactory to the Banks, including details with respect to
investments by the Borrower and its Subsidiaries in Joint Ventures and
advances by the Borrower and its Subsidiaries to Joint Ventures for
such month, and (vi) a breakdown of revenues of the Borrower and its
Subsidiaries for such month by individual product line, all of which
shall be certified by the Chief Executive Officer or the Chief
Financial Officer of the Borrower.
(M) OTHER MONTHLY REPORTS. Within 10 working days after the
end of each calendar month, (i) a "flash" report, in form and substance
satisfactory to the Banks, setting forth the net revenues and
Consolidated EBITDA of the Borrower and its Subsidiaries for such
month, (ii) a report, in form and substance satisfactory to the Banks,
setting forth a breakdown of Accounts Receivable by billing center for
such month, with a comparison of operating data (i.e., reject rates,
etc.) to the Borrower's established targets/goals and a revised time
frame, if appropriate, for meeting such targets/goals, (iii) an
accounts payable aging report for the Borrower and its Subsidiaries for
such month, and (iv) an employee headcount report for the Borrower and
its Subsidiaries for such month, together with a comparison to the
assumptions in the Performance Plan, all of which shall be certified by
the Chief Executive Officer or the Chief Financial Officer of the
Borrower.
(N) WEEKLY AND BI-WEEKLY FORECASTS AND CENSUS INFORMATION. (i)
Within 2 working days after the beginning of each week, a weekly cash
disbursement forecast for such week and for each of the following 11
weeks, in form and substance satisfactory to the Banks, which forecasts
shall include details on receipts and disbursements for the Borrower
and its Subsidiaries for each week of the applicable 12-week period and
shall include cumulative year-to-date totals and prior week variances,
and (ii) within 7 working days after the end of every second week,
census information for the two-week period then ended, all of which
shall be certified by the Chief Executive Officer or the Chief
Financial Officer of the Borrower.
(O) REPORTS ON ACCOUNTS RECEIVABLE OPERATIONAL PLAN. On or
before the last day of each month, commencing with May of 1999, a
report, in form and substance satisfactory to the Banks, updating the
Borrower's progress in implementing the Accounts Receivable operational
plan prepared by the Borrower and delivered to the Banks prior to the
Second Amendment Effective Date."
9
<PAGE> 10
B. YEAR 2000 COMPLIANCE. Section 7 of the Credit Agreement is hereby
further amended by deleting existing Section 7.13 thereof in its entirety and by
adding a new Section 7.13 thereto as follows:
"7.13 YEAR 2000 COMPLIANCE. The Borrower will ensure that its
Information Systems and Equipment are, at all times after October 1, 1999,
Year 2000 Compliant, except insofar as the failure to do so will not result
in a Material Adverse Effect, and shall notify the Agent promptly upon
detecting any failure of the Information Systems and Equipment to be Year
2000 Compliant. In addition, the Borrower shall provide the Agent or any
Bank with such information about its year 2000 computer readiness
(including, without limitation, information as to contingency plans,
budgets and testing results) as the Agent or such Bank shall reasonably
request"
C. CERTAIN MATTERS RELATING TO JOINT VENTURES. Section 7 of the Credit
Agreement is hereby further amended by adding a new Section 7.14 at the end
thereof as follows:
"7.14 CERTAIN MATTERS RELATING TO JOINT VENTURES.
A. Within 30 days after the Second Amendment Effective Date, the
Borrower shall deliver to the Agent evidence satisfactory to the Agent and
its counsel that all Indebtedness of any Joint Venture to the Borrower or
any of its Subsidiaries has been evidenced by a promissory note and that
each such promissory note has been pledged and delivered to the Agent, duly
endorsed in blank, as security for the Obligations.
B. Within 30 days after the Second Amendment Effective Date, the
Borrower shall deliver to the Agent evidence satisfactory to the Agent and
its counsel that the Borrower and its Subsidiaries are in compliance with
the terms of Section 8.16, including without limitation with respect to the
non-commingling of any proceeds of accounts receivable of any Joint
Ventures with proceeds of Accounts Receivable."
D. ISSUANCE OF WARRANTS. Section 7 of the Credit Agreement is hereby
further amended by adding a new Section 7.15 at the end thereof as follows:
"7.15 ISSUANCE OF WARRANTS. On March 31, 2001, so long as any Loans or
Letters of Credit remain outstanding or the Revolving Loan Commitments
remain in effect as of such date, the Borrower shall issue to each Bank
warrants (any such warrants being "INCENTIVE WARRANTS") to purchase, at an
exercise price of $0.01 per share, a number of shares of Borrower Common
Stock equal to such Bank's Pro Rata Share of the Aggregate Warrant Share
Amount. The form and terms of the Incentive Warrants (including
anti-dilution provisions and other customary terms) shall be satisfactory
to the Required Banks, and each Bank shall be entitled to exercise its
Incentive Warrants as follows: (i) 50% of such Bank's Incentive Warrants
shall be exercisable at any time from and after the date of issuance
thereof and (ii) the
10
<PAGE> 11
remaining 50% of such Bank's Incentive Warrants shall be exercisable at any
time from and after September 30, 2001; provided that, in the event the
Loans and all other Obligations have been paid in full and all Letters of
Credit have been cancelled, expired or otherwise provided for to the
satisfaction of the Issuing Bank and the Revolving Loan Commitments have
terminated (the date such conditions are satisfied being the "WARRANT
CANCELLATION DATE") subsequent to March 31, 2001 and prior to September 30,
2001, such remaining 50% (but only such remaining 50%) of its Incentive
Warrants shall be cancelled as of the Warrant Cancellation Date and shall
be returned by such Bank to the Borrower."
1.6 AMENDMENTS TO SECTION 8: NEGATIVE COVENANTS.
A. CONSOLIDATION, MERGER, SALE OF ASSETS, ETC. Section 8.02 of the Credit
Agreement is hereby amended by restating paragraph "(v)" contained therein in
its entirety as follows:
"(v) the Borrower and its Wholly-Owned Subsidiaries may (without
regard to the limitations set forth in Section 8.07) acquire property and
assets of other Persons (including any assets or property acquired in any
Acquisition) with the prior written consent of the Required Banks;"
B. INDEBTEDNESS. Section 8.04(xii) of the Credit Agreement is hereby
amended by restating it in its entirety as follows:
"(xii) the Borrower and its Subsidiaries may remain liable, either as
primary obligor or as guarantor, with respect to Unsecured Seller Debt
outstanding on the Second Amendment Effective Date and permitted under
Section 8.04(xii) of this Agreement as in effect prior to the effectiveness
of the Second Amendment;"
C. ADVANCES, INVESTMENTS AND LOANS. Section 8.05 of the Credit Agreement
is hereby amended by deleting the reference to "$15,000,000" contained in clause
(iii) thereof and substituting "$13,000,000" therefor and by restating paragraph
(vii) thereof in its entirety as follows:
"(vii) [INTENTIONALLY OMITTED]."
D. CAPITAL EXPENDITURES. Section 8.07 of the Credit Agreement is hereby
amended by restating it in its entirety as follows:
"8.07 CAPITAL EXPENDITURES. Except for Consolidated Capital Expenditures
made by the Borrower and its Subsidiaries during any Fiscal Year to acquire
assets in Acquisitions permitted under Section 8.02(v), the Borrower will
not, and will not permit any of its Subsidiaries to, make Consolidated
Capital Expenditures (i) during any Fiscal Year set forth below in an
aggregate amount in excess of the correlative amount set forth below
opposite such Fiscal Year or(ii) during the period from January 1, 2002
through the Termination Date in an aggregate amount in excess of
$5,000,000."
11
<PAGE> 12
<TABLE>
<CAPTION>
=============================================
FISCAL YEAR AMOUNT
=============================================
<S> <C>
1999 $20,000,000
---------------------------------------------
2000 $20,000,000
---------------------------------------------
2001 $20,000,000
=============================================
</TABLE>
E. LEVERAGE RATIO. Section 8.08 of the Credit Agreement is hereby
amended by deleting the table set forth therein in its entirety and substituting
the following therefore:
<TABLE>
<CAPTION>
===================================================
FISCAL QUARTER LEVERAGE RATIO
===================================================
<S> <C>
1999 FQ1 5.95:1.00
---------------------------------------------------
1999 FQ2 7.25:1.00
---------------------------------------------------
1999 FQ3 7.65:1.00
---------------------------------------------------
1999 FQ4 7.10:1.00
---------------------------------------------------
2000 FQ1 6.50:1.00
---------------------------------------------------
2000 FQ2 6.00:1.00
---------------------------------------------------
2000 FQ3 5.50:1.00
---------------------------------------------------
2000 FQ4 5.00:1.00
---------------------------------------------------
2001 FQ1 5.00:1.00
---------------------------------------------------
2001 FQ2 5.00:1.00
---------------------------------------------------
2001 FQ3 5.00:1.00
---------------------------------------------------
2001 FQ4 5.00:1.00
---------------------------------------------------
2002 FQ1 4.75:1.00
===================================================
</TABLE>
F. MINIMUM CONSOLIDATED NET WORTH. Section 8.09 of the Credit Agreement
is hereby amended by restating it in its entirety as follows:
"8.09 MINIMUM CONSOLIDATED NET WORTH. The Borrower will not permit
Consolidated Net Worth of the Borrower and its Subsidiaries at any time to
be less than the sum of (i) the Base Net Worth Amount (as hereinafter
defined) plus (ii) 75% of Consolidated Net Income of the Borrower and its
Subsidiaries for each fiscal quarter in which Consolidated Net Income is a
positive number and which ends during the period from January 1, 1999 to
and including the end of the then most recently ended fiscal quarter of the
Borrower plus (iii) 100% of any additions to Net Worth from any issuance
of, or any exercise of an option to purchase, or any
12
<PAGE> 13
conversion of any debt Securities into, any equity Securities of the
Borrower on or after the Second Amendment Effective Date. For purposes of
this Section 8.09, the term "BASE NET WORTH AMOUNT" means (a) in the event
the Borrower's audited financial statements for Fiscal Year 1998 that are
included in the Borrower's report on Form 10-K filed with the SEC with
respect to such Fiscal Year (the "1998 AUDITED FINANCIALS") are certified
without qualification by the Borrower's independent certified public
accountants, $124,000,000, and (b) in the event such accountants'
certification with respect to the 1998 Audited Financials contains one or
more qualifications which result in adjustments to the 1998 Audited
Financials that [eliminate certain tax benefits], $115,000,000."
G. MINIMUM INTEREST COVERAGE RATIO. Section 8.10 of the Credit Agreement is
hereby amended by deleting the table set forth therein in its entirety and
substituting the following therefore:
<TABLE>
<CAPTION>
================================================
MINIMUM INTEREST
FISCAL QUARTER COVERAGE RATIO
================================================
<S> <C>
1999 FQ1 2.05:1.00
------------------------------------------------
1999 FQ2 1.50:1.00
------------------------------------------------
1999 FQ3 1.40:1.00
------------------------------------------------
1999 FQ4 1.50:1.00
------------------------------------------------
2000 FQ1 1.63:1.00
------------------------------------------------
2000 FQ2 1.75:1.00
------------------------------------------------
2000 FQ3 1.88:1.00
------------------------------------------------
2000 FQ4 2.00:1.00
------------------------------------------------
2001 FQ1 2.00:1.00
------------------------------------------------
2001 FQ2 2.10:1.00
------------------------------------------------
2001 FQ3 2.20:1.00
------------------------------------------------
2001 FQ4 2.30:1.00
------------------------------------------------
2002 FQ1 2.30:1.00
================================================
</TABLE>
H. MINIMUM CONSOLIDATED EBITDA. Section 8.17 of the Credit Agreement is
hereby amended by deleting it in its entirety and substituting the following
therefor:
"8.17. MINIMUM CONSOLIDATED EBITDA. The Borrower shall not permit
Consolidated EBITDA for the three-month period ending on the last day of
any month set forth below to be less than the correlative amount indicated:
13
<PAGE> 14
<TABLE>
<CAPTION>
=================================================================
MONTH ENDING MINIMUM CONSOLIDATED EBITDA
=================================================================
<S> <C>
April 1999 $10,500,000
-----------------------------------------------------------------
May 1999 $10,500,000
-----------------------------------------------------------------
June 1999 $10,750,000
-----------------------------------------------------------------
July 1999 $10,500,000
-----------------------------------------------------------------
August 1999 $10,750,000
-----------------------------------------------------------------
September 1999 $11,000,000
-----------------------------------------------------------------
October 1999 $11,250,000
-----------------------------------------------------------------
November 1999 $11,750,000
-----------------------------------------------------------------
December 1999 $12,250,000
-----------------------------------------------------------------
January 2000 $12,500,000
-----------------------------------------------------------------
February 2000 $12,750,000
-----------------------------------------------------------------
March 2000 $13,250,000
-----------------------------------------------------------------
April 2000 $14,500,000
-----------------------------------------------------------------
May 2000 $14,500,000
-----------------------------------------------------------------
June 2000 $14,500,000
-----------------------------------------------------------------
July 2000 $14,750,000
-----------------------------------------------------------------
August 2000 $15,000,000
-----------------------------------------------------------------
September 2000 $15,500,000
-----------------------------------------------------------------
October 2000 $16,000,000
-----------------------------------------------------------------
November 2000 $16,250,000
-----------------------------------------------------------------
December 2000 $17,000,000
-----------------------------------------------------------------
January 2001 $15,750,000
-----------------------------------------------------------------
February 2001 $14,750,000
-----------------------------------------------------------------
March 2001 $13,500,000
-----------------------------------------------------------------
April 2001 $14,750,000
-----------------------------------------------------------------
May 2001 $14,750,000
-----------------------------------------------------------------
June 2001 $15,000,000
-----------------------------------------------------------------
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
=================================================================
MONTH ENDING MINIMUM CONSOLIDATED EBITDA
=================================================================
<S> <C>
July 2001 $15,250,000
-----------------------------------------------------------------
August 2001 $15,750,000
-----------------------------------------------------------------
September 2001 $16,000,000
-----------------------------------------------------------------
October 2001 $16,500,000
-----------------------------------------------------------------
November 2001 $16,750,000
-----------------------------------------------------------------
December 2001 $17,250,000
-----------------------------------------------------------------
January 2002 $16,000,000
-----------------------------------------------------------------
February 2002 $15,000,000
-----------------------------------------------------------------
March 2002 $13,750,000
-----------------------------------------------------------------
April 2002 $14,750,000
=================================================================
</TABLE>
I. MONTHLY ACCOUNTS RECEIVABLE COVENANT. Section 8 of the Credit
Agreement is hereby further amended by adding a new Section 8.19 at the end
thereof as follows:
"8.19 ACCOUNTS RECEIVABLE COLLECTIONS.
A. The Borrower shall not permit the average daily amount collected by
the Borrower and its Subsidiaries in respect of Accounts Receivable for
each Collection Day during any consecutive three-month period (the "CURRENT
THREE-MONTH PERIOD") to be less than the Applicable Three-Month Percentage
(as hereinafter defined) of the average daily Adjusted Net Revenues for
each Collection Day during the consecutive three-month period immediately
preceding the commencement of such Current Three-Month Period. For purposes
of this Section 8.19A, the term "APPLICABLE THREE-MONTH PERCENTAGE" shall
mean (i) for any Current Three-Month Period ending during the first fiscal
quarter of 1999, 87%, (ii) for any Current Three-Month Period ending during
the second fiscal quarter of 1999, 89%, (iii) for any Current Three-Month
Period ending during the third fiscal quarter of 1999, 90%, and (iv) for
any Current Three-Month Period ending during the fourth fiscal quarter of
1999 or thereafter, 91%.
B. The Borrower shall not permit the average daily amount collected by
the Borrower and its Subsidiaries in respect of Accounts Receivable for
each Collection Day during any month (the "CURRENT MONTH") to be less than
the Applicable Monthly Percentage (as hereinafter defined) of the average
daily Adjusted Net Revenues for each Collection Day during the third month
immediately preceding such Current Month. For purposes of this Section
8.19B, the term "APPLICABLE MONTHLY PERCENTAGE" shall mean (i) for any
Current Month ending during the first
15
<PAGE> 16
fiscal quarter of 1999, 83%, (ii) for any Current Month ending during the
second fiscal quarter of 1999, 85%, (iii) for any Current Month ending
during the third fiscal quarter of 1999, 85.5%, and (iv) for any Current
Month ending during the fourth fiscal quarter of 1999 or thereafter, 86%."
1.7 AMENDMENTS TO SECTION 9: EVENTS OF DEFAULT.
A. COVENANTS. Section 9.03 of the Credit Agreement is hereby amended by
restating it in its entirety as follows:
"9.03 COVENANTS. The Borrower shall (i) default in the due performance
or observance by it of any term, covenant or agreement contained in Section
7.01(g)(i), Section 7.14, Section 7.15 or Section 8, (ii) default in the
due performance or observance by it of any term, covenant or agreement
contained in Section 7.01(l), Section 7.01(m), Section 7.01(n) or Section
7.01(o) and such default shall continue unremedied for a period of 5 days
after written notice to the Borrower by the Agent, or (iii) default in the
due performance or observance by it of any term, covenant or agreement
(other than those referred to in Sections 9.01 and 9.02 and clause (i) or
clause (ii) of this Section 9.03) contained in this Agreement and such
default shall continue unremedied for a period of 30 days after written
notice to the Borrower by the Agent"
B. O.I.G. INVESTIGATION. Section 9 of the Credit Agreement is hereby
further amended by adding a new Section 9.12 at the end thereof as follows:
"9.12 O.I.G. INVESTIGATION. Any investigation and/or audit of the
Borrower and its Subsidiaries by the O.I.G. or any other Governmental
Authority that is pending as of the Second Amendment Effective Date shall
result in a liability on the part of the Borrower and its Subsidiaries
and/or a reduction or set-off in respect of future Accounts Receivable of
the Borrower and its Subsidiaries in an aggregate amount which, in the
opinion of the Required Banks, could reasonably be expected to have a
material adverse effect on the business, operations, properties, assets,
condition (financial or otherwise) or prospects of the Borrower and its
Subsidiaries taken as a whole."
SECTION 2. LIMITED WAIVER
A. WAIVER OF FINANCIAL COVENANT DEFAULTS AND COMMINGLING DEFAULT. Subject
to the terms and conditions set forth herein and in reliance on the
representations and warranties of the Borrower herein contained, the Banks
hereby (i) waive the Financial Covenant Defaults, such waiver to be effective as
of the Second Amendment Effective Date for the period from and after the Second
Amendment Effective Date, (ii) waive the increase in the interest rates
applicable to outstanding Loans that would otherwise be required under Section
2.06(e) of the Credit Agreement for the period from January 29, 1999 through the
Second Amendment Effective Date as a result of the occurrence and continuation
of the Financial Covenant Defaults during such period; provided that the waiver
16
<PAGE> 17
contained in clause (ii) of this Section 2A shall only apply with respect to any
increased amounts of interest that would have been payable at such increased
rates to the extent such increased amounts of interest have not already been
paid by the Borrower prior to the Second Amendment Effective Date, and (iii)
waive the Commingling Default, such waiver to be effective as of the Second
Amendment Effective Date for the period from and after the Second Amendment
Effective Date; provided that such waiver of the Commingling Default shall
expire on the date that is 30 days after the Second Amendment Effective Date
unless the Borrower complies with the provisions of Section 7.14B of the Amended
Agreement on or before such date.
B. LIMITATION OF WAIVER. Without limiting the generality of the provisions
of subsection 11.13 of the Credit Agreement, the waiver set forth in Section 2A
shall be limited precisely as written and relates solely to (i) the waiver of
the Financial Covenant Defaults for the period from and after the Second
Amendment Effective Date, (ii) the inapplicability of the increase in interest
rates provided for in Section 2.06(e) of the Credit Agreement as a result of the
Financial Covenant Defaults in the manner and to the extent described above, and
(iii) the waiver of the Commingling Default to the extent described above, and
nothing in this Amendment shall be deemed to:
(a) constitute a waiver of compliance by the Borrower with respect to
(i) Section 2.06(e), Section 8.08, Section 8.10, Section 8.16 or Section 8.17 of
the Credit Agreement in any other instance or for any other period or (ii) any
other term, provision or condition of the Credit Agreement or any other
instrument or agreement referred to therein; or
(b) prejudice any right or remedy that the Agent or any Bank may now
have or may have in the future under or in connection with the Credit Agreement
or any other instrument or agreement referred to therein.
SECTION 3. CONDITIONS TO EFFECTIVENESS
Sections 1 and 2 of this Amendment shall become effective only upon the
satisfaction of all of the following conditions precedent (the date of
satisfaction of such conditions being referred to herein as the "SECOND
AMENDMENT EFFECTIVE DATE"):
A. On or before the Second Amendment Effective Date, the Borrower shall
deliver to the Banks (or to Agent for the Banks with sufficient originally
executed copies, where appropriate, for each Bank and its counsel) Resolutions
of the Board of Directors of the Borrower approving and authorizing the
execution, delivery, and performance of this Amendment, signed by the President
or Vice President of the Borrower and attested to by the Secretary or any
Assistant Secretary of the Borrower, and dated the Second Amendment Effective
Date.
B. The Banks and their respective counsel shall have received originally
executed copies of one or more favorable written opinions of Harwell Howard Hyne
Gabbert & Manner, P.C., counsel for the Borrower, in form and substance
reasonably satisfactory to Agent and its counsel, dated as of the Second
Amendment Effective Date, with respect to the enforceability of the Amended
17
<PAGE> 18
Agreement and as to such other matters as Agent acting on behalf of the Banks
may reasonably request.
C. On or before the Second Amendment Effective Date, the Borrower shall
have delivered to the Agent, for distribution to each Bank, a non-refundable
amendment fee equal to 1/4 of 1% of the sum of the outstanding principal amount
of the Term Loan of such Bank as of the Second Amendment Effective Date plus the
Revolving Loan Commitment of such Bank as of the Second Amendment Effective
Date, as reduced pursuant to the terms of this Amendment.
D. On or before the Second Amendment Effective Date, the Borrower shall
have engaged an independent outside consultant to function as what is commonly
referred to as a "turnaround manager", such turnaround manager to be selected by
the Borrower and approved by the Required Banks; provided that the scope,
duration and other terms of such engagement (including the terms relating to (i)
the management authority of such turnaround manager and (ii) the free and timely
sharing of information by such turnaround manager with the Banks) shall be
acceptable to the Required Banks (the turnaround manager engaged by the Borrower
in accordance with the terms of this Section 3D is herein called the "TURNAROUND
MANAGER").
SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce the Banks to enter into this Amendment and to amend the
Credit Agreement in the manner provided herein, the Borrower represents and
warrants to each Bank that the following statements are true, correct and
complete:
A. CORPORATE POWER AND AUTHORITY. The Borrower has all requisite corporate
power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement as amended by this Amendment (the "AMENDED AGREEMENT").
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this
Amendment, the performance of the Amended Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Borrower.
C. NO CONFLICT. The execution and delivery by the Borrower of this
Amendment, the performance by the Borrower of the Amended Agreement and the
consummation of the transactions contemplated hereby do not and will not (i)
violate any provision of any law or any governmental rule or regulation
applicable to the Borrower or any of its Subsidiaries, the Certificate or
Articles of Incorporation or Bylaws of the Borrower or any of its Subsidiaries,
or any order, judgment or decree of any court or other agency of government
binding on the Borrower or any of its Subsidiaries, (ii) conflict with, result
in a breach of or constitute (with due notice or lapse of time or both) a
default under any Contractual Obligation of the Borrower or any of its
Subsidiaries, (iii) result in or require the creation or imposition of any Lien
upon any of the properties or assets of the Borrower or any of its Subsidiaries,
or (iv) require any approval of stockholders or any approval or consent of any
Person under any Contractual Obligation of the Borrower or any of its
Subsidiaries except
18
<PAGE> 19
for such approvals or consents which will be obtained on or before the Second
Amendment Effective Date (as hereinafter defined).
D. GOVERNMENTAL CONSENTS. The execution and delivery by the Borrower of
this Amendment, the performance by the Borrower of the Amended Agreement and the
consummation of the transactions contemplated hereby do not and will not require
any registration with, consent or approval of, or notice to, or other action to,
with or by, any federal, state or other governmental authority or regulatory
body.
E. BINDING OBLIGATION. This Amendment and the Amended Agreement have been
duly executed and delivered by the Borrower and are the legally valid and
binding obligations of the Borrower, enforceable against the Borrower in
accordance with their respective terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or limiting
creditors' rights generally or by equitable principles relating to
enforceability.
F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT DOCUMENTS.
All representations and warranties of the Borrower or any of its Subsidiaries
contained in the Credit Documents are and will be true, correct and complete in
all material respects on and as of the Second Amendment Effective Date to the
same extent as though made on and as of that date, except to the extent such
representations and warranties specifically relate to an earlier date, in which
case they were true, correct and complete in all material respects on and as of
such earlier date.
G. ABSENCE OF DEFAULT. No event has occurred and is continuing or will
result from the consummation of the transactions contemplated by this Amendment
that would constitute an Event of Default or a Potential Event of Default.
SECTION 5. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT
DOCUMENTS.
(i) The Borrower hereby agrees and confirms that on and after the Second
Amendment Effective Date each Credit Document and all collateral encumbered
thereby shall continue to secure to the fullest extent possible the payment and
performance of all "Secured Obligations" (as defined in each applicable Credit
Document), including without limitation the payment and performance of all such
"Secured Obligations" in respect of the Obligations of the Borrower now or
hereafter existing under or in respect of the Amended Agreement and the Notes.
(ii) On and after the Second Amendment Effective Date, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import referring to the Credit Agreement, and each reference in
the other Credit Documents to the "Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement shall mean and be a
reference to the Amended Agreement.
19
<PAGE> 20
(iii) The Borrower acknowledges and agrees that any of the Credit
Documents to which it is a party or otherwise bound shall continue in full force
and effect, and are hereby ratified and confirmed, and that all of its
respective obligations thereunder shall be valid and enforceable and shall not
be impaired, limited or otherwise affected by the execution, delivery or
effectiveness of this Amendment or any future amendment or modification of the
Amended Agreement.
(iv) The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein or therein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of the Agent
or any Bank under, the Credit Agreement or any of the other Credit Documents.
B. FEES AND EXPENSES. The Borrower acknowledges that all reasonable costs,
fees and expenses incurred by the Agent and its counsel with respect to this
Amendment and the documents and transactions contemplated hereby shall be for
the account of the Borrower.
C. HEADINGS. Section and subsection headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purpose or be given any substantive effect.
D. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
E. COUNTERPARTS; EFFECTIVENESS. 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 an original, but
all such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document. This Amendment (other than the provisions of Sections 1 and 2
hereof, the effectiveness of which is governed by Section 3 hereof) shall become
effective upon the execution of a counterpart hereof by the Borrower, the Agent
and the Required Banks and receipt by the Borrower and the Agent of written or
telephonic notification of such execution and authorization of delivery thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
20
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
AMERICAN HOMEPATIENT, INC.,
a Delaware corporation
By: /s/ Marilyn A. O'Hara
-----------------------------------
Name: Marilyn A. O'Hara
-----------------------------
Title: Sr. V.P. and CFO
-----------------------------
S-1
<PAGE> 22
BANKERS TRUST COMPANY,
Individually and as the Agent
By:
-----------------------------------
Name:
-----------------------------
Title:
-----------------------------
S-2
<PAGE> 23
ABN AMRO BANK, N.V.
By:
-----------------------------------
Name:
-----------------------------
Title:
-----------------------------
By:
-----------------------------------
Name:
-----------------------------
Title:
-----------------------------
S-3
<PAGE> 24
AMSOUTH BANK
By:
-----------------------------------
Name:
-----------------------------
Title:
-----------------------------
S-4
<PAGE> 25
BANK OF AMERICA, N.T. & S.A.
(including the former NationsBank, N.A.)
By: /s/ Charles A. Kerr
-----------------------------------
Name: Charles A. Kerr
-----------------------------
Title: Senior Vice President
-----------------------------
S-5
<PAGE> 26
BANK OF MONTREAL
By:
-----------------------------------
Name:
-----------------------------
Title:
-----------------------------
S-6
<PAGE> 27
FIRST UNION NATIONAL BANK
(formerly Corestates Bank, N.A.)
By: /s/ Anne D. Brehony
-----------------------------------
Name: Anne D. Brehony
-----------------------------
Title: Vice President
-----------------------------
S-7
<PAGE> 28
FIRST AMERICAN NATIONAL BANK
By:
-----------------------------------
Name:
-----------------------------
Title:
-----------------------------
S-8
<PAGE> 29
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Jacqueline P. Yardley
-----------------------------------
Name: Jacqueline P. Yardley
-----------------------------
Title: First Vice President
-----------------------------
S-9
<PAGE> 30
THE FUJI BANK, LIMITED, NEW YORK BRANCH
By:
-----------------------------------
Name:
-----------------------------
Title:
-----------------------------
S-10
<PAGE> 31
PNC BANK NATIONAL ASSOCIATION
By: /s/ Martin E. Mueller
-----------------------------------
Name: Martin E. Mueller
-----------------------------
Title: Vice President
-----------------------------
S-11
<PAGE> 32
COOPERATIEVE CENTRALE RAIFFESEN -
BOERENLEENBANK, B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
By: /s/ Kathleen M. Auda
-----------------------------------
Name: Kathleen M. Auda
-----------------------------
Title: Vice President
-----------------------------
By: /s/ W. Jeffrey Volleck
-----------------------------------
Name: W. Jeffrey Volleck
-----------------------------
Title: Senior Credit Officer
-----------------------------
Senior Vice President
-----------------------------
S-12
<PAGE> 33
THE SAKURA BANK, LIMITED
By:
-----------------------------------
Name:
-----------------------------
Title:
-----------------------------
S-13
<PAGE> 34
SUNTRUST BANK, NASHVILLE, N.A.
By: /s/ T. Michael Logan
-----------------------------------
Name: T. Michael Logan
-----------------------------
Title: S.V.P.
-----------------------------
S-14
<PAGE> 35
UNION BANK OF CALIFORNIA, N.A.
By:
-----------------------------------
Name:
-----------------------------
Title:
-----------------------------
S-15
<PAGE> 36
UBS AG, NEW YORK BRANCH
By:
-----------------------------------
Name:
-----------------------------
Title:
-----------------------------
S-16
<PAGE> 1
EXHIBIT 10.81
April 13, 1999
Joseph F. Furlong
President & CEO
American HomePatient, Inc.
5200 Maryland Way
Suite 400
Brentwood, TN 37027-5018
VIA FACSIMILE
Dear Joseph:
This letter will confirm our conversation concerning the engagement of The
Recovery Group, Inc.'s ("TRG") services by American Home Patient (the
"Company").
You shall, by executing this letter of agreement, engage TRG for the purposes of
providing business advice and consultation to you regarding the Company's
current financial issues and the development of strategies appropriate to the
shareholders' interests. We will also work with you toward the implementation of
whatever strategies are most appropriate to achieve shareholders' interest. Our
focus will include, but not be limited to, the following areas:
- financial and operational analysis of the current and potential
profitability, ongoing cash requirements, profit center
contributions and break even levels;
- assistance to you in relationships and communications with the
Company's lenders and creditors;
- review and analysis of the Company's existing business plan and
turnaround strategy;
- review and assess the Company's existing 13-week cash flow
projection and weekly variance reporting for the purpose of
making recommendations regarding short term liquidating issues;
<PAGE> 2
- analysis of your branch, product line, and joint venture
operating strategies and cost structures with the intent of
assessing potential for further rationalization of the business
model and improvement of operating leverage and cash flow;
- review and analysis of the Company's G&A;
- review and assessment of management's plans to improve current
asset performance, particularly with respect to intake
processing, billing, collection and denial recovery;
- development and analysis of alternative financing and/or debt
restructuring strategies;
- analysis of potential divestiture strategies with respect to
their potential effect on enterprise value and debt reduction;
- review and analysis of the Company's capital expenses;
- assistance to you in the development of "pulse" reporting
processes for management directors and lenders;
- review and assessment of the Company's 12-month financial
projections and business plan reflecting the decision made by
management concerning product lines, operating strategies, cost
structure, asset performance as well as other issues which may
impact EITDA and cash flow, and
- development of a detailed action plan for the implementation of
the business plan which is ultimately approved by management and
the Company's board.
In the most general sense, TRG will work with management on the development of
strategies and action plans which will have significant impact on enterprise
value and debt service coverage within time frames which will engender the
support of your board and lenders.
To the extent possible TRG will use source data and analyses developed by the
Company, or other professionals currently or previously employed by the Company
to accomplish our objectives. This, of course, will be coordinated with senior
management.
The one area specifically excluded from our work is analyses of the
achievability of the Company sales projections. We will depend largely on sales
and marketing information provided to us by the Company.
It is mutually understood and agreed that all source data required for the above
analysis will be made available to TRG from the books and records of the Company
or from whatever other sources which may be available to you. TRG will rely on
the accuracy, completeness and veracity of all
2
<PAGE> 3
information provided by the Company. TRG in turn agrees that all information
made available to it by and about the Company, its business operations,
personnel and finances will be treated confidentially and no such information
which is not available to the public will be passed along to any persons not in
the employ of either the Company or TRG or used by TRG or any of its employees,
agents or representatives for any purpose other than the performance of TRG's
obligations hereunder. It is mutually understood that TRG is authorized to
respond to requests for information from and to otherwise discuss the Company's
financial affairs with its directors and principal lenders, with or without the
Company's presence.
TRG's professional fees for the above services will be at the rate of $75-330 an
hour depending on the staff member assigned to the project. From time to time,
our hourly rates change. Such changes will be implemented in your weekly
invoices following their effective date.
The Company will be billed for all out-of-pocket expenses reasonably incurred by
TRG in the performance of its obligations under this agreement. Such expenses
shall include travel, meals and lodging, delivery services, etc. In addition,
the Company will be billed an administrative fee of 4.5% of professional fees.
This fee covers variable administrative expenses (e.g. telephone, computer
services, copying, etc.).
All professional fees and expenses will be billed to you weekly and are payable
weekly. There will be a $25,000 retainer paid to TRG at the execution of this
contract. This retainer will be held by TRG and applied to TRG's final bill for
fees and expenses hereunder. The unused portion of the retainer, if any, will be
refunded to the Company promptly following the payment of TRG's final bill.
If during the course of this agreement, the Company asks TRG to seek and secure
new financing sources, restructure its existing debt, or find merger partners
and/or buyers for the Company's assets, each and every transaction will warrant
a success fee due to TRG of two-tenths of one percent (0.002%) of the value of
the transaction. These fees will be payable in cash at the closing of said
transaction and will be in addition to our hourly fee described above.
The Company agrees to fully indemnity and hold harmless TRG, its officers,
directors, agents and employees from any liabilities arising out of or related
to this engagement except those which are directly or indirectly attributable to
the willful misconduct or illegal acts of TRG or its officers, directors,
employees, agents or representatives.
If the foregoing accurately sets forth the understanding between us, please so
indicate by signing and returning the enclosed copy of this letter to me. By
virtue of my signature below, TRG is committed to providing its best efforts in
the areas discussed above.
However, you have the option to cancel this agreement at any time and for
whatever reason upon written or oral notice to TRG.
3
<PAGE> 4
I very much appreciate the opportunity to present this agreement to you and look
forward to working with you on this assignment.
Very truly yours,
/s/ Stephen S. Gray Date: 4/13/99
- -------------------------------------- --------------------
THE RECOVERY GROUP
By: Stephen S. Gray
Managing Director
Agreed and accepted:
/s/ Joseph F. Furlong Date: 4/14/99
- -------------------------------- -------------------------
American HomePatient, Inc.
By: Joseph F. Furlong III
President, CEO
4
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF AMERICAN HOMEPATIENT, INC.
<TABLE>
<CAPTION>
NAME OF STATE OF D/B/A
SUBSIDIARY INCORPORATION NAME
<S> <C> <C>
Designated Companies, Inc. New York CarePlan
AHP Finance, Inc. Delaware
American HomePatient of Iowa, Inc. Delaware
American HomePatient, Inc. Tennessee
American HomePatient of Texas, L.P. Texas
AHP, L.P. Tennessee
Outpatient Medical Network, Inc. Washington
American HomePatient, East, Inc. Massachusetts
American HomePatient Of New York, New York
Inc.
Breathing Equipment Incorporated Pennsylvania Hazelton Medical &
Breathing Equipment
Happy Harry's Health Care, Inc. Delaware
AHP HomeCare of Gainesville Florida
Downeast Medical Shoppe Maine
American HomePatient of Nevada, Inc Nevada
Volunteer Medical Oxygen and Hospital Tennessee
Equipment Company, Inc.
United Clinical Services, Inc. New Jersey
Allegheny Respiratory Associates, Inc. Pennsylvania
Medical Equipment Services, Inc. Illinois
American HomePatient of Illinois, Inc. Illinois
ProCare Medical Supply Co., Inc. Missouri
American HomePatient of Arkansas, Inc. Arkansas
Clasen Health Services, Inc. Missouri
Missouri Home Health Care Consortium, Missouri
Inc.
Neogenesis, Inc. South Carolina
American HomePatient Ventures, Inc. Tennessee
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
NAME OF STATE OF D/B/A
SUBSIDIARY INCORPORATION NAME
<S> <C> <C>
National Medical Systems, Inc. Arkansas
The National Medical Rentals, Inc. Arkansas
National I.V., Inc. Arkansas
Sound Medical Equipment, Inc. Washington
Baptist Ventures AHP Homecare Alliance Alabama
HomeLink Home Health Care Services, Inc. Arkansas
Paragon Home Medical Equipment Texas
Partnership
Home Care Resource Alliance-American South Carolina
HomePatient
Columbia-AHP Home Care Alliance Tennessee
Columbia-AHP Home Care Alliance of Va. Virginia
Coastal Home Care South Carolina
Total Home Care of East Alabama, LLC Alabama
Alliance Home Health Care Partnership Tennessee
Health Star DME, Ltd. Texas
Piedmont Medical Equipment South Carolina
Blue Ridge Home Care North Carolina
Medical Arts Joint Venture Michigan
Colorado Home Medical Equipment Colorado
Alliance, LLC
American HomePatient of Unifour, LLC North Carolina
American HomePatient of Sanford, LLC North Carolina
Pro Med South Carolina
AHP Delmarva, LLP Maryland
Twin Tier Home Care New York
AHP-MHR Home Care, LLP Nebraska
Northeast Pennsylvania Alliance, LLC Pennsylvania d/b/a American
HomePatient
Northwest Washington Alliance, LLC Washington
</TABLE>
2
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated February 26, 1999 (except with respect to the matter discussed in
Notes 2 and 8, as to which the date is April 14, 1999), included in this Annual
Report on Form 10-K of American HomePatient, Inc. and Subsidiaries into the
Company's previously filed Registration Statement File Numbers 000-19532. It
should be noted that we have not audited any financial statements of the Company
subsequent to December 31, 1998, or performed any audit procedures subsequent to
the date of our report.
Arthur Andersen LLP
Nashville, Tennessee
April 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF AMERICAN HOMEPATIENT, INC. FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,276,000
<SECURITIES> 0
<RECEIVABLES> 140,721,000
<ALLOWANCES> 41,147,000
<INVENTORY> 20,776,000
<CURRENT-ASSETS> 148,076,000
<PP&E> 165,642,000
<DEPRECIATION> 87,864,000
<TOTAL-ASSETS> 531,892,000
<CURRENT-LIABILITIES> 48,961,000
<BONDS> 323,942,000
0
0
<COMMON> 150,000
<OTHER-SE> 156,349,000
<TOTAL-LIABILITY-AND-EQUITY> 531,892,000
<SALES> 192,863,000
<TOTAL-REVENUES> 403,868,000
<CGS> 98,166,000
<TOTAL-COSTS> 395,350,000
<OTHER-EXPENSES> 58,440,000
<LOSS-PROVISION> 29,857,000
<INTEREST-EXPENSE> 24,249,000
<INCOME-PRETAX> (49,922,000)
<INCOME-TAX> (10,944,000)
<INCOME-CONTINUING> (38,978,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (38,978,000)
<EPS-PRIMARY> (2.60)
<EPS-DILUTED> (2.60)
</TABLE>
