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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
ARBOR HEALTH CARE COMPANY
(Exact name of Registrant as specified in its Charter)
For the fiscal year ended December 31, 1996 Commission file number 0-22178
DELAWARE 34-1469604
(State of incorporation) (I.R.S. Employer Identification No.)
1100 SHAWNEE ROAD, P.O. BOX 840, LIMA, OHIO 45802-0840
(Address of principal executive offices) (Zip Code)
(419) 227-3000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE
SECURITIES EXCHANGE ACT OF 1934: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE
SECURITIES EXCHANGE ACT OF 1934:
Title of Each Class
-------------------
Common Stock, Par Value $.03 Per Share
Indicate by checkmark 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. [ ]
Indicate by checkmark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
-- --
The aggregate market value of the voting stock held by non-affiliates
of the Registrant at February 28, 1997 was approximately $139,158,275.
The number of shares of Registrant's Common Stock outstanding on
February 28, 1997 was 6,904,987.
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PART I
ITEM 1. BUSINESS
CERTAIN STATEMENTS CONTAINED IN THIS "ITEM 1. BUSINESS" THAT ARE NOT HISTORICAL
FACTS ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934. SEE "ITEM 7.
FORWARD-LOOKING STATEMENTS."
THE COMPANY
Arbor Health Care Company and its subsidiaries (collectively the
"Company" and "Arbor") provide subacute medical services and basic health care
services to a variety of patients at its licensed nursing centers (the
"Centers"). The Company also provides institutional pharmacy services. As of
January 1, 1997, the Company began to operate outpatient rehabilitation
facilities. Subacute care is appropriate for patients who no longer need
hospital care but require extensive amounts of skilled nursing care, therapies
and active physician involvement. Arbor's basic care services primarily consist
of general and restorative nursing care for geriatric or chronic care patients
and to a limited extent assisted living services for people who can no longer
live independently. Arbor operates three institutional pharmacies in Ohio and
Florida that serve approximately 200 non-affiliated facilities, as well as Arbor
Centers.
During 1996, the Company operated 30 Centers, primarily in Florida and
Ohio, with a total of 3,578 beds, all of which have been developed or acquired
by the Company since it was founded in April 1985. Since 1988 the Company has
increasingly emphasized the delivery of subacute care. All Centers provide
subacute services except for one. The Company believes it can deliver subacute
care at a cost below the cost of similar care provided in acute care hospitals.
The Company also believes that the growth in enrollment of managed care
organizations and limitations of Medicare reimbursement to hospitals will
contribute to continued demand for subacute care services.
Enrollment of managed care organizations, particularly those serving
the elderly, has been increasing. The Health Care Financing Administration
("HCFA") has proposed to replace the current cost-based Medicare reimbursement
system for subacute services with a prospective or per diem rate system. In
response to these two market trends, Arbor has introduced a plan to improve
operating margins through better cost control and increased referrals from
managed care.
The Company intends to expand its business by (i) developing new
Centers with subacute units; (ii) identifying and admitting appropriate high
acuity referrals; and (iii) seeking strategic acquisition opportunities in
selected markets.
The Company was organized as a Delaware corporation in April 1985. The
Company's headquarters are located in a company-owned office building at 1100
Shawnee Road, P.O. Box 840, Lima, Ohio 45802- 0840 and its telephone number is
(419) 227-3000.
INDUSTRY TRENDS
In 1983, a change in the federal government's reimbursement policy set
in motion a variety of trends in the health care industry which the Company
believes will contribute to its continued growth. At that time, the federal
government established a new type of payment system for hospitals based on
prospectively determined prices rather than retrospectively determined costs for
Medicare, a federal insurance program for individuals age 65 and over.
Concurrent with the change in government reimbursement of health care costs, the
managed care segment of the health care industry ( including indemnity insurers
that manage care)
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emerged based upon the theme of cost containment. Health maintenance
organizations ("HMOs") and preferred provider organizations ("PPOs") were formed
to limit hospitalization costs by giving physicians incentives to reduce
hospital utilization and by negotiating discounted fixed rates for hospital
services. Subsequently, traditional third party indemnity insurers began to
limit reimbursement to predetermined amounts of "reasonable charges," regardless
of actual cost, and to increase the amount of co-payment required to be paid by
patients, thereby requiring patients to assume more of the cost of hospital
care.
To reduce the high cost of traditional hospital care, managed care
companies are leading the drive for physicians, discharge planners and case
managers to find effective, low-cost alternatives. Medicare reimbursement to
hospitals provides a financial incentive for hospitals to discharge patients to
an alternative setting such as a subacute center or home. These conditions are
significant factors in the growth of the subacute business. Skilled nursing
facilities providing subacute care for medically stable patients have
considerably lower costs because they need only provide physician directed
nursing and rehabilitation services. As managed care companies experience the
cost advantages and positive outcomes of subacute care and as their enrollments
grow, the market for these services should also grow. Cost efficient providers
will benefit from the per diem payment system currently used by managed care
companies.
HCFA has proposed replacing the current cost-based Medicare
reimbursement system for subacute services with a prospective per diem rate
system. This prospective pay system will also reward cost efficient providers.
Many long-term care providers do not have the requisite clinical
personnel, equipment, physical space, and systems in place to provide subacute
care. In addition, certain providers are reluctant or unable to spend the
capital required to upgrade staff, implement medical procedures, and equip a
nursing home to treat subacute patients and provide the rehabilitative therapies
many of them require. Historically, Medicaid plans of many states discouraged
such a transition by long-term care providers. However, certain states are
beginning to recognize the need for increased levels of reimbursement for
patients receiving higher levels of care. Several states have developed or have
begun to develop Medicaid case mix systems to reimburse for these types of
services.
The market for subacute and basic care services is expanding because of
demographic trends. The elderly utilize health care extensively and represent a
large and growing portion of the population. Approximately 12.5% of Americans
today are over the age of 65. Furthermore, the U. S. Bureau of Census predicted
in 1990 that the fastest growing part of the elderly population, the 85 and
older or "frail elderly" would grow 39% by the year 2000 and more than double by
2010 to approximately 5.7 million people. The frail elderly population uses a
disproportionately larger share of health care services.
COMPANY GROWTH STRATEGY
The Company's goal is to add new Centers in its primary markets,
identify and admit appropriate high- acuity referrals, and seek opportunities
for strategic acquisitions of nursing facilities or related businesses in
selected markets.
EXPANSION IN SELECTED GEOGRAPHIC AREAS. The Company intends to develop
new Centers with subacute units designed to provide high-acuity services and,
where desirable, acquire existing facilities with the potential for
implementation of subacute services. The Company currently intends to focus its
Center expansion in major markets within Florida and Ohio. The Company believes
that concentrating its Centers within selected geographic areas helps to control
corporate overhead and enables the Company to establish effective working
relationships with the regulatory authorities in the states in which it operates
and also allows the Company to develop stronger local referral sources through
concentrated marketing efforts. Factors considered by the Company when targeting
new locations for development include availability of certificate
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of need approvals, community demographics, site availability, the local referral
base of physicians and hospitals, local labor costs, the availability of nursing
and therapy personnel, the historical occupancy rates, the reimbursement mix and
managed care utilization. The Company may acquire existing facilities with the
potential for conversion of basic care beds to subacute beds after considering
the physical location and condition of the prospective Center and many of the
other factors listed above. Consistent with this strategy, from its inception in
April 1985 through December 31, 1996, the Company developed 12 Centers and
acquired 18 Centers for its own use.
The Company intends to develop two or three Centers each year during
1997 and 1998. Over the next few years, the Company anticipates that most new
Centers will be developed in Florida due to the opportunities available for
health planning approvals in that state. See "Company Operations."
If the Company were unable to obtain required regulatory approvals for
its new projects, expansions or acquisitions, the Company's business strategy
would be adversely affected. However, the regulatory approvals are not generally
a significant barrier to acquisitions or to conversions of traditional nursing
home beds to subacute beds. See "Government Regulation."
GROWTH IN CURRENT CENTERS. The Company intends to expand its business
in existing Centers by identifying and admitting appropriate high-acuity
referrals. This should result in higher levels of care for the Company's
patients, an improved rate received by the Company per patient day and,
possibly, a more favorable mix of revenue sources.
The Company receives payment for services from a variety of sources.
The amount the Company receives from patients for its services greatly depends
on the source of the payment and the acuity level of its services. By increasing
the Company's subacute business, the Company will recognize higher revenue
because subacute services require considerably higher levels of nursing,
therapies and other services than basic care. See "Patient Services" and
"Sources of Revenue."
ACQUISITIONS. Although it primarily follows an internal growth
strategy, the Company investigates potential acquisitions that would complement
the Company's core business. It is expected that future acquisitions would be
funded with cash reserves, bank financing, or the issuance of equity or debt
securities or a combination of the foregoing.
During 1996, the Company acquired Poly-Stat Supply Corporation and
Poly-Stat Computer Applications, Inc., businesses that provide enteral feeding,
urological, ostomy, tracheostomy, surgical dressing and oxygen supplies, and
Medicare billing services to nursing homes. The Company also acquired the Arbors
at Waterville, a 100-bed Center that it had operated under an operating lease
agreement since 1989. Raymond James Financial, Inc. ("RJFI") owns two
subsidiaries that are the controlling partners in a partnership that is the
general partner in a partnership that previously owned the Arbors at Waterville.
A director of the Company is an officer, director and major stockholder of RJFI.
See "Item 13. Certain Relationships and Related Transactions."
In January 1997, the Company acquired Adult Services Unlimited, Inc.
and Health Poconos, Inc., two Comprehensive Outpatient Rehabilitation Facilities
("CORFs") that provide general, job-related injury and geriatric rehabilitation
to the northeastern Pennsylvania market.
In addition to developing its own Centers, the Company is seeking
strategic acquisitions of nursing facilities or related businesses in major
markets within Florida and Ohio and CORFs in Pennsylvania, the upper Midwest,
and Florida. The Company currently has no binding agreements or commitments with
respect to any material acquisition.
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PATIENT SERVICES
The Company's Centers are designed to provide subacute and basic health
care services to diverse but related types of patients. Centers generally are
located in markets that require both subacute and basic health care services.
The allocation of beds is determined by market needs, with some Centers
allocating up to 50% of total bed capacity to subacute care. The remaining beds
are used to deliver basic health care primarily consisting of general and
restorative nursing care. This model has several advantages: (i) a subacute unit
located in a Center can achieve the economic benefit of spreading fixed costs
across the basic care business instead of incurring the full fixed costs of a
comparably sized freestanding subacute facility; (ii) basic care patients who
develop a need for higher intensity services may be transferred to the Center's
subacute unit; and (iii) the Center's general and restorative care units provide
a step-down in medical intensity for geriatric subacute patients who cannot be
discharged home but still need low intensity nursing for extended periods of
time. These factors effectively combine basic care and subacute services to form
a continuum of care within an individual Center.
SUBACUTE SERVICES. As of December 31, 1996, the Company operated 29
subacute units, totaling 1,196 beds, within its 30 Centers. Subacute units
provide treatment programs appropriate for medically stable patients who may
require medical rehabilitation, ventilator weaning and respiratory therapy, and
complex medical services such as cardiac recovery, infusion therapy, and wound
care. The extent of services required largely are determined by the intensity
and number of medical diagnoses. Subacute units provide services as a follow up
to a hospital stay or in certain cases as a substitute for an acute care
admission. Patients seeking care within the Company's subacute units include
those with respiratory diseases, strokes, neurological and neuromuscular
diseases, orthopedic injuries or surgery, infections, chronic and obstructive
pulmonary diseases and digestive disorders. These patients generally require
extensive nursing care and therapies, active physician management,
pharmaceuticals, and medical supplies. The average length of stay in the
Company's subacute units for the year ended December 31, 1996 was 27 days.
Arbor's subacute units concentrate on medically complex patients with
high acuity medical needs requiring additional skills and services than those
associated with the more general subacute population. The Company supports this
emphasis with the management capabilities, physical plant and clinical expertise
to deliver a full array of services to more medically demanding patients. Each
subacute unit has a medical director, typically board certified and depending on
market needs, may have additional program medical directors, such as
pulmonologists. Subacute units also utilize nurse managers often supported by
full time staff development coordinators, clinical information coordinators and
case managers. Depending on the types of patients served, subacute units may
feature piped in oxygen, medical air and medical vacuum, diagnostic and
monitoring equipment and, in newly built Centers, separate entrances and service
areas.
Subacute per diem rates are potentially 30% to 60% lower than rates for
similar services provided in acute care hospitals. This savings is achieved in a
less institutional setting than typically provided by a hospital. The strong
interdisciplinary approach to patient services, in conjunction with the support
services that the patient and family receive, are important in optimizing
clinical outcomes and level of satisfaction.
The primary subacute programs currently offered by the Company are
medical rehabilitation, respiratory therapy and complex medical services, all of
which are supported by the Company's pharmacy services.
MEDICAL REHABILITATION. The Company's medical rehabilitation services
include subacute and comprehensive rehabilitation and are delivered with an
interdisciplinary focus. A physician specialist such as a neurologist or
physiatrist directs a team of licensed therapists, nurses and other clinicians
to meet the comprehensive rehabilitation needs of patients who have a variety of
impairments. The level of service provided is guided by the patient's goals and
ability to actively participate in the treatment plan. The
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Company's subacute rehabilitation in most Centers follows a similar approach to
its comprehensive rehabilitation, but is geared to the slower progressing
patient who only can tolerate a less aggressive therapy regimen. Typical medical
rehabilitation patients include patients with diagnoses such as cerebral
vascular accident (stroke), neurological disease, neuromuscular disease,
multiple trauma, orthopedic injury/surgery, joint replacement, and general
debilitation following hospitalization. The Company's therapy services are
provided by Company personnel and by subcontractors specializing in
rehabilitation.
RESPIRATORY THERAPY. The Company's ventilator programs are designed to
provide intensive interdisciplinary rehabilitation services to the ventilator
dependent patient. Under the direction of pulmonologists, Arbor's respiratory
therapy staff has established a successful track record in weaning
medically-complex patients from their ventilators. Additional respiratory
management services include pulmonary rehabilitation and artificial airway
management. Typical respiratory management patients include those with chronic
respiratory diagnosis such as COPD, emphysema and asthma, or acute respiratory
diagnoses such as pneumonia, hypoxemia, or reactive airway disease. The
Company's ventilator and respiratory services are provided with support and
monitoring equipment similar to that used in acute care hospitals.
COMPLEX MEDICAL SERVICES. The Company provides services for patients
with complex medical needs or for patients with additional comorbid conditions,
including:
- Infusion Therapy for patients suffering from dehydration,
digestive disorders, nutritional deficiencies, infections,
cardiac disorders, diabetes, cancer or renal failure.
- Wound Care for patients with wounds resulting from surgical
intervention, trauma, disease processes or unrelieved
pressure.
- Cardiac Recovery for post-acute care patients who have
experienced coronary artery bypass surgery, cardiac valve
procedures, heart failure or endocarditis.
- Digestive Disorders for patients with diseases or impairments
of the esophagus, stomach, duodenum or intestines.
The goal of these programs is to resolve acute conditions in a timely
and cost effective manner. In many cases, these patients also participate in
rehabilitation programs. By coordinating these programs, the patients' medical
conditions can be treated concurrently with rehabilitative gains.
PHARMACY SERVICES. The Company operates three institutional pharmacies,
one in Ohio and two in Florida. The pharmacies serve approximately 200
non-affiliated facilities, as well as the Company's Centers.
BASIC HEALTH CARE SERVICES. The Company's basic care services primarily
consist of general and restorative ("G&R") nursing care to patients with chronic
illnesses, diminished physical function, impaired cognition or behavior
problems, and to a limited extent assisted living services. Patients with
chronic or acute illnesses need clinical services such as administration of
medications, simple wound care, oxygen administration and frequent physician
visits. Other G&R patients need less clinical care but require supervision and
extensive assistance with tasks of daily living: bathing, eating, toileting and
locomotion. The average length of stay for G&R patients was approximately 202
days for the year ended December 31, 1996.
The Company's G&R nursing units also provide a step-down in medical
intensity for geriatric subacute patients who cannot be discharged home and need
lower intensity nursing for extended periods of time. Similarly, geriatric
patients in G&R units who develop a need for rehabilitative or higher intensity
services can be transferred to a subacute unit within the same Center. As of
December 31, 1996, the Company
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operated 2,197 G&R nursing beds within its Centers. The primary reimbursement
sources for G&R nursing care are Medicaid and private payors.
The Company also operates assisted living units in five Centers for
elderly individuals who do not require nursing care but need assistance with
activities of daily living such as bathing, dressing or cooking.
The Company operated 185 assisted living beds at December 31, 1996.
COMPANY OPERATIONS
OPERATIONS OF THE CENTERS. The Centers are licensed under state law and
certified under state and federal law as "nursing facilities" and/or "skilled
nursing facilities." See "Government Regulation." Each Center is supervised by a
licensed administrator and employs a director of nursing, who supervises a staff
of registered nurses, licensed practical nurses and certified nursing aides. At
each Center, a medical director oversees the medical management of all patients,
a marketing director supervises the marketing staff and an accountant supervises
financial matters. Certain Centers also have a rehabilitation program director
who oversees the clinical aspects of the medical rehabilitation program. Other
personnel include dietary, housekeeping, laundry, maintenance, activities,
social services and business office staff. Subacute units are staffed with a
medical director and additional personnel which may include specialty program
medical directors, case managers, respiratory managers, therapists, nurse
liaisons and other clinical administrative support personnel.
The Company's operations are organized into four regions, each of which
is supervised by a regional vice president of operations. In addition, the
Company's corporate office staff provides services such as marketing assistance,
training, clinical services oversight, human resource management, reimbursement
expertise, accounting, cash management, information services and general
management support. Financial control is maintained through financial and
accounting policies that are established at the corporate level for use at each
Center. The Company has standardized operating procedures and monitors its
Centers on a frequent basis to assure consistency of operations. The Company
uses a financial reporting system that enables it to monitor certain financial
data and other relevant information for each Center such as payor mix,
admissions and discharges, cash collections, net patient care revenues and
staffing.
MARKETING. The goal of the Company's marketing program is to increase
the occupancy of its Centers and to improve the payor mix by increasing the
number of patients covered by commercial insurance and managed care
organizations (HMOs, PPOs and indemnity insurers), which currently are the most
profitable payor sources. The Company utilizes a decentralized approach to sales
and promotion, with each Center responsible for achieving its occupancy and
revenue goals. Each Center has a director of marketing and typically an
admissions coordinator. Certain Centers also employ one or more marketing
representatives and/or nurse liaisons. Center personnel market the subacute care
services of the Company to hospital personnel responsible for utilization review
and discharging patients, specialty physicians who can refer specific types of
patients, independent case managers, managed care organizations, capitated
physician groups, indemnity insurers, third party administrators, liability
insurers and employers. Center personnel work closely with referral sources to
educate them about the Center's programs and services and to help determine
which patients are appropriate candidates for admission. Case managers or nurse
managers are utilized to provide ongoing feedback to key physicians and
insurance companies, thus contributing to repeat business. The Company markets
its basic care services directly to individual payors, primary care physicians,
hospital discharge planning personnel and community referral sources.
A corporate marketing staff supports the Center's marketing and sales
by providing strategic planning, sales management, sales training and systems
and the development of promotional materials. The corporate marketing staff also
seeks to establish contractual relationships with managed care organizations,
capitated
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physician groups and indemnity insurers, which are increasingly important
sources of referral for subacute patients.
CLINICAL SERVICES. The Company's clinical services staff is designed to
provide the Centers with direction and support that assures the provision of
quality care, while maintaining regulatory compliance.
Each Center is credentialed by the clinical services staff twice a
year. The credentialing process includes a review of clinical systems, staff
skill sets, Center contracts and supplies and equipment. The credentialing
validates the Center's ability to provide quality care to the
residents/patients. The process identifies any indicators that require
improvement to meet the corporate standards and is the cornerstone in the
corporate plan to assure a high quality clinical program.
To maintain regulatory compliance, the Company's clinical services
staff conducts a comprehensive audit of the Centers twice a year. The audit is
directed by the regional nurse consultant with input from a Company
interdisciplinary team which may include a rehabilitation therapist, a dietitian
and a respiratory therapist. The Company's audit standards exceed federal and
state regulations and requirements for licensure and certification. The program
is designed to provide the Center staff with a thorough review of care
management systems from pre-admission through discharge. The clinical services
staff works with the Center management team to develop an action plan for
identified issues. The monitoring, evaluation and action planning system is
consistent with a continuous quality improvement process.
In addition to state and federal regulatory compliance, Arbor
demonstrates its commitment to a quality clinical program by seeking
accreditation by the Joint Commission on Accreditation of Healthcare
Organizations ("JCAHO"). The JCAHO accreditation is recognized by health care
organizations and physicians as a symbol of quality patient care. Currently, 18
Centers are JCAHO approved for long term care. Eleven subacute units are also
JCAHO approved for subacute care. The Company's goal is to have all designated
subacute Centers accredited by the JCAHO subacute standards. The Company's Ohio
pharmacy was one of the first pharmacies in the nation to receive JCAHO's new
accreditation with commendations for Long-Term Care Pharmacies.
To ensure that quality clinical programs are maintained, the clinical
service department directs the outcomes management program. Outcome data is
collected and evaluated to identify opportunities to improve the care delivery
process and patient outcomes.
The care delivery process is directed by the clinical services
department. Standards of Practice, Standards of Care and Clinical Practice
Guidelines are developed with input from the Center clinicians in their areas of
expertise. The standards and guidelines drive the development of supportive
protocols and policies.
Clinical direction is based on best demonstrated practice.
DEVELOPMENT. The Company has extensive experience in developing its own
Centers. The Company's development staff researches and identifies potential
markets, selects the most appropriate sites, obtains health planning and other
approvals, then designs and builds Centers to meet the needs of the given
market. An integral part of the Company's philosophy is a commitment to creating
state of the art facilities that are functional, attractive, comfortable and
safe environments for its patients. From its founding through December 31, 1996,
the Company has developed 24 projects with approximately 2,800 beds, including
12 projects with over 1,350 beds for third parties.
The Company has developed Centers exclusively for its own use since
1993. The Company believes development of its Centers provides certain
competitive advantages, including (i) the selection of promising markets and
suitable sites within those markets; (ii) the ability to design buildings to fit
the patient needs of the specific community; and (iii) reduced construction
costs due to the Company's specialization in Center
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construction. The Company has determined that, for the foreseeable future, most
of its new Centers will contain approximately 80 to 120 beds, approximately half
of which will be dedicated as subacute units.
The Company intends to develop two or three Centers each year in 1997
and 1998. One Center, in Sarasota, Florida consisting of 81 beds, including a
subacute unit of 40 beds, is expected to open in the fourth quarter of 1997.
Another Center, in Port Charlotte, Florida consisting of 93 beds, including a 60
bed subacute unit, is also expected to open in the fourth quarter of 1997. A
third project, in Melbourne, Florida, an addition of a 47 bed subacute unit, is
expected to open in the first quarter of 1998. Over the next few years, most new
Centers will be developed in Florida due to the opportunities the Company
believes are available for obtaining health planning approvals in that state.
The Company anticipates that it will be able to meet its development schedule.
In addition to certificate of need ("CON") approvals for the three projects in
Florida which are planned to open in 1997 and early 1998, it currently holds one
CON approval for 108 beds in Florida along with four additional CON approvals
for 440 beds that have been appealed by other providers and, therefore, are not
yet final.
The development of a new Center requires approximately three to four
years from initial planning to opening. The Company's development team first
conducts market feasibility studies to determine overall demand and then
prepares CON applications. Upon obtaining a CON approval (which takes between
six and 24 months, depending on the state) the team chooses its site, designs
the facility specifically to meet the needs of the community, obtains all
necessary zoning changes and permits, serves as contractor, hires and supervises
subcontractors and ultimately opens the Center. In most instances, a new Center
must be open for approximately 6 to 12 months to attain profitability.
Compliance with government regulations generally causes some delay and
in certain instances can prevent the development of a Center. See "Government
Regulation."
SOURCES OF REVENUE
The Company receives payment for services from private and other
payors, Medicare and Medicaid. The following table reflects the allocation of
total revenues among these three payor groups:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Private (1)......................... 34.6% 33.4% 33.8%
Medicare............................ 34.2 36.1 34.6
Medicaid............................ 31.2 30.5 31.6
--------- ----------- ---------
100.0% 100.0% 100.0%
========= =========== =========
- --------------
<FN>
(1) Private revenues include reimbursements received from individuals,
indemnity insurers, other charge- based sources and, prior to May 31,
1995, fees for the management of one Center.
</TABLE>
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The sources and amounts of the Company's revenue are determined by a
number of factors, including facility capacity, occupancy, patient mix and
reimbursement rates among payor categories (private payors, Medicare and
Medicaid). Reimbursement levels generally are linked to the level of care
provided, and higher intensity levels of care generally require greater nursing
and ancillary services. In addition, Medicare and, in certain cases, private
payors typically cease reimbursement after defined lengths of stay or levels of
expenditure, following which the Company generally is dependent on the patient's
own resources or Medicaid for reimbursement.
PRIVATE PAYORS. Private pay revenues include payments from individuals
and contract payors that pay directly for services without government
assistance. The reimbursements received by the Company from private payors
generally are higher than other sources of reimbursements for comparable
services. Private payors include individuals, indemnity insurers, managed care
organizations such as HMOs and PPOs and other charge-based sources. Payments
from indemnity and managed care insurers generally are based on negotiated
contracts or on patient-specific rates and terms. Typically, managed care
contracts permit such organizations to place patients in the Company's
facilities for a negotiated per diem charge that varies with patient category,
or for a per diem base rate plus the Company's charges for ancillary services.
Certain of these contracts require the Company to provide specified health care
services for a set per diem payment rate and length of stay. These contracts
generally are automatically renewed unless terminated in writing by either party
at the end of an annual term. The amount the Company charges to private patients
in its Centers is not subject to regulatory control in any of the states in
which the Company operates.
MEDICARE. Under Medicare, the federal government provides payment for
medically necessary skilled nursing care, room and board, therapies, drugs,
supplies and other subacute services provided by the Company to eligible
patients (generally, those over age 65 and certain disabled persons). After the
first 20 days of a patient's stay, Medicare patients are subject to a
co-insurance payment, all or some of which may be paid by Medicaid, Medigap
insurance or the patient. Medicare does not provide reimbursement for inpatient
stays beyond the first 100 days, but may provide reimbursement for certain
therapies and medical supplies. Medicare pays the Company with interim
retrospective payments during the year, which are subject to later adjustment to
reflect actual allowable costs. These costs include the reasonable direct and
indirect costs of the services furnished at the Centers, subject to Medicare
routine cost limits ("Routine Cost Limits") for routine operating costs except
when the facility delivers atypical services and when there is an exemption
granted from the Routine Cost Limits until the end of the first three full years
of the Center's operation. The exception request process required to receive
payment for atypical services is an additional step in the cost reporting
process that is taken routinely by Medicare providers. The process for
requesting payment for atypical services involves both the local federal
reimbursement processing intermediary and the Health Care Financing
Administration ("HCFA"), which administers the Medicare program.
The Company recognizes amounts representing management's estimate,
based upon experience with the intermediary and HCFA, of cash that ultimately
will be received in excess of the Medicare Routine Cost Limits. All of the
Company's exception requests for payment for atypical services provided in years
prior to 1994 were approved for the full amount requested except three, which
were reduced moderately due to low occupancy in the Medicare certified beds, for
an average approval rate of 99%. The Company anticipates final approval of the
11 exception requests for 1994 in early 1997 and the approval of the 13
exception requests for 1995 in late 1997. There is no assurance that Medicare
reimbursement will be sufficient to cover actual costs incurred by the Company
for the delivery of Medicare atypical services. Six Centers were reimbursed
during 1995 and seven during 1996 under a three-year exemption for new
facilities. Nine Centers will be reimbursed under this exemption during 1997.
Reasonable costs of therapies, drugs, supplies and other ancillary services are
reimbursed to the Company without ceilings. Reasonable property costs
(depreciation, interest and rent) are reimbursed without a ceiling except that
facilities purchased after July 17, 1984 are limited to the cost of the original
owner of record on July 18, 1984. When a long-term care facility changes
ownership, amounts previously paid by Medicare as reimbursement for the
facility's depreciation expense may
10
<PAGE> 11
be recaptured at the time of sale up to the amount of the gain on the sale of
the facility. Through September 30, 1993, Medicare also paid to all nursing
facilities a rate of return on equity capital (the amount of which varied each
year), which was equal to approximately 7% of allowable equity. Effective
October 1, 1993, the return on equity payment previously permitted to nursing
facilities was eliminated and the Routine Cost Limits were frozen at the 1993
level for two years. This freeze was eliminated for cost reporting periods
beginning on or after October 1, 1995 and the Routine Cost Limits were inflated
forward from 1993 including inflation factors for Federal fiscal years 1994 and
1995. See "Government Regulation - Other Regulatory Matters."
MEDICAID. Medicaid programs are designed to provide medical assistance
to individuals unable to afford medical care. Medicaid is a joint federal and
state endeavor in which states voluntarily participate. Medicaid programs vary
by state but traditionally have reimbursed the Centers for the reasonable direct
and indirect allowable costs incurred in providing routine services (as defined
by the programs) plus a return on equity in some states, subject to certain cost
ceilings. Incentives may be earned by Centers operating below these cost
ceilings. These costs normally include allowances for administrative and general
costs and costs for property and equipment (depreciation and interest or rental
expense) subject to certain ceilings on the amount of such costs. Reimbursement
rates and covered services vary from state to state. All the states in which the
Company operates have converted to a prospective payment system that is based in
part on historical costs. See "Government Regulation."
AUDITS. Under current reimbursement regulations, funds received under
Medicaid and Medicare programs are subject to audit with respect to proper
application of the various payment formulas. In certain states, these audits can
result in retroactive adjustment of payments received from these programs,
resulting in either amounts due to the government agency from the Company or
amounts due to the Company from the government agency. Past government audits of
the Company's reimbursement requests have not resulted in any material
adjustments, and the Company does not anticipate that any material adjustments
will result from pending or future audits.
GOVERNMENT REGULATION
GOVERNMENT REIMBURSEMENT PROGRAMS. The federal government maintains a
health insurance program for the aged known as "Medicare." Individual states
have programs for medical assistance to the indigent known generally as
"Medicaid," which are partially financed by the federal government. Federal
funds are conditioned on state compliance with federal regulations. A portion of
the current revenue derived from Centers is received under Medicare, Medicaid
and other government programs.
Both the Medicare and Medicaid programs are subject to statutory and
regulatory changes, administrative rulings, interpretations of policy,
intermediary determinations and government funding restrictions, all of which
may materially increase or decrease the rate of program payments to health care
facilities. Since 1983, Congress consistently has attempted to limit the growth
of federal spending under the Medicare and Medicaid programs.
Recent federal budget discussions, and in particular President
Clinton's proposed budget, have targeted the Medicare program for reductions in
spending growth of approximately $9 billion for skilled nursing facilities over
the next six years, primarily through the implementation of a Medicare
prospective payment system for subacute services program. Currently, the Company
derives approximately 35% of its revenues from Medicare. Additionally, increased
pressure to reduce certain health care costs of Medicaid and discussions
permitting greater flexibility by states in the administration of Medicaid could
affect the Company. Currently, the Company derives approximately 32% of its
revenues from Medicaid. Until the ultimate form of any new legislation is known,
the Company will not be able to determine the exact nature of the financial
impact these proposals may have. The Company can give no assurance that payments
under such programs in the future will remain at a level comparable to the
present level or be sufficient to cover the costs
11
<PAGE> 12
allocable to serving its Medicare and Medicaid patients. Concern about the
potential effects of the proposed reform measures has contributed to the
volatility of prices of securities of companies in health care and related
industries, including the Company, and may similarly affect the price of the
Company's securities in the future.
During 1996, the Company introduced a plan to improve operating
margins, reduce operating costs and increase referrals from managed care
organizations. The Company believes this strategy will minimize the effects or
potentially maximize the benefits of future changes which management anticipates
in the Medicare payment system and the expansion of managed care business.
However, until the ultimate form of any new legislation is known, the Company
will not be able to determine its financial impact.
The Company operates 15 Centers in Ohio. The Ohio General Assembly
adopted a new Medicaid payment system effective July 1, 1993 which implemented
prospective reimbursement guidelines. The prospective payment rates are based on
prior year costs inflated to the mid-point in the payment period and are
adjusted quarterly based on case mix, subject to certain ceilings. The law also
provided that when a long-term care facility changed ownership on or after July
1, 1993, Medicaid would be entitled to receive a portion of the purchase price.
If the purchase proceeds exceeded the depreciated cost of the facility, amounts
previously paid by Medicaid arising from the facility's depreciation expense
would be recaptured at the time of sale, up to the amount of the gain on the
sale of the facility. This rule was changed effective July 1, 1995 and reverted
back to the depreciation recapture rule in effect prior to July 1, 1993 whereby
recapture is reduced by 10% for each year of operation. Therefore, there is no
recapture after ten years.
State Medicaid programs must ensure that for capital cost reimbursement
purposes any increase in valuation as a result of a change of ownership is
limited to a predetermined inflation factor. Under the Medicare program,
facilities' valuations will be based on the lesser of the cost to the new owner
or the historical cost of the original owner of record on July 18, 1984.
On February 2, 1993, President Clinton ordered the federal Department
of Health and Human Services ("HHS") to streamline the process of granting state
Medicaid programs certain waivers from federal requirements and indicated an
increased willingness to grant such waivers. States can obtain waivers from,
among other things, federal freedom-of-choice requirements, enabling the states
to direct patients to use only certain facilities that are cost effective and/or
provide benefits through HMO, PPO and other "managed care" plans more freely.
Waivers also can be granted to allow states to use Medicaid funding for home and
community-based alternatives to inpatient care.
The federal portion of state Medicaid budgets is based on a percentage
of the amount of state funding, which percentage varies from state to state. On
December 12, 1991, President Bush signed a law that eliminated federal Medicaid
payments to the extent that the state's share is funded by taxes imposed upon
Medicaid providers ("provider-specific taxes") or voluntary provider donations,
with certain exceptions. The effective date of this law was September 30, 1992
in most states, and December 31, 1992 or June 30, 1993 in some states. This law
reduced Medicaid payments to states with provider-specific taxes or provider
donation programs, including certain states in which the Company operates
Centers.
CERTIFICATES OF NEED. Pursuant to federal legislation that was
operative through 1986, most states established programs that required health
care providers to obtain a certificate of need ("CON") before establishing a new
health facility, changing the number of beds or the nature of services provided
in such a facility, or making any capital expenditures in excess of certain
thresholds. Since January 1, 1987, the individual states may choose whether or
not to continue their CON programs. Failure to continue state CON programs can
allow construction of new facilities to compete with Arbor's Centers. However,
in almost all instances of discontinued CON programs, restrictions have been
placed on new development, such as Medicaid reimbursement prohibitions.
12
<PAGE> 13
The availability of CONs is subject to statutory and regulatory change.
Certain states, including some of the states in which the Company operates, have
passed legislation, enacted rules and regulations and adopted policies that
prohibit, restrict or delay the issuance of CONs. Effective July 1, 1993, the
Ohio General Assembly adopted legislation that imposed a two-year moratorium on
CONs for long-term care facilities. The moratorium on new CONs has been
continued through June 30, 1997 and is expected to continue for at least an
additional two years. CONs in Florida and certain other states include Medicaid
utilization requirements that can negatively affect reimbursement. The governor
of Florida has recommended a moratorium on nursing home beds to the legislature
but legislation has not been introduced at this time. The Florida and Ohio
hospital industry also is lobbying to exempt hospitals from the normal CON
approval process when converting a limited number of acute care beds to skilled
nursing home beds. Any such legislation would result in more competition if
enacted.
The process of obtaining CONs is highly competitive. CON awards
generally are appealed requiring the Company to litigate such appeals.
Accordingly, the cost and the time required to develop new Centers have
increased.
LICENSURE AND CERTIFICATION. Health care facilities must comply with
licensing requirements of state and local health agencies, as well as building,
health and life safety codes. In granting and renewing a facility's license,
state health agencies consider the physical buildings and equipment, the
qualifications of the administrative personnel and nursing staffs, the quality
of nursing programs and the continuing compliance of the facility with the laws
and regulations applicable to its operations. Pharmacies are subject to
regulation by the states in which the Company conducts pharmaceutical operations
as well as federal regulation under the Food, Drug and Cosmetic Act and
Prescription Drug Marketing Act. The Company also is required to register its
pharmacies with the United States Drug Enforcement Administration, file reports
of inventories and transactions and provide adequate security measures.
Separate certification standards must be met for nursing facilities to
participate in Medicaid and Medicare programs. As part of the Omnibus Budget
Reconciliation Act of 1987 (the "1987 Act"), Congress adopted legislation that
substantially increased the requirements for Medicare and Medicaid
certifications. The 1987 Act, as amended, created a number of new sanctions for
noncomplying facilities. Federal regulations which became effective July 1, 1995
affect the survey process for nursing facilities and the authority of state
survey agencies and HCFA to impose sanctions on facilities that are found to be
out of compliance with certification standards, including denial of or
reductions in payments, fines and the appointment by the state of a manager to
operate the facility. If a facility is found to be substandard in three
consecutive annual surveys, the state is required to deny payment for new
admissions and to appoint a monitor to oversee correction of deficiencies. The
Company believes that its Centers are substantially in compliance with the
applicable Medicare and Medicaid regulatory requirements. However, from time to
time the Company receives notices of deficiencies for failure to comply with
various regulatory requirements. The Company reviews such notices and takes
appropriate corrective action. In most cases, the Company and the reviewing
agency agree upon the measures to be taken to bring the Center into compliance
with regulatory requirements. In some cases, the reviewing agency may take
various adverse actions against a facility, including the imposition of fines,
temporary suspension of admission of new patients into the facility, suspension
or decertification from participation in the Medicare or Medicaid programs and,
in extreme circumstances, revocation of a facility's license. These actions may
adversely affect the facility's ability to continue to operate, the ability of
the Company to provide certain services, and eligibility to participate in the
Medicare, Medicaid or Veterans Administration programs. Additionally, conviction
for engaging in abusive or fraudulent behavior with respect to one facility may
subject other facilities under common control or ownership to be disqualified
for participation in Medicare and Medicaid programs. Regulations in some states
provide that all facilities under common control or ownership within a state are
subject to being delicensed if any one or more of such facilities is delicensed.
Certain of the Company's facilities in the past were notified by state agencies
that, as a result of certain alleged deficiencies, the agencies were taking
steps to decertify
13
<PAGE> 14
the facility from participation in Medicare and Medicaid programs and/or revoke
or suspend its license. In all cases, such deficiencies were remedied before any
facilities were decertified or their licenses were suspended or revoked.
Certain states have adopted legislation, enacted rules and regulations,
and/or adopted policies that prohibit, restrict or delay the issuance of new
facility certifications under state Medicaid programs. The state of Ohio has
prohibited new long-term care facility certifications under Medicaid for several
years. In some cases, certification requirements that create a duty to admit
Medicaid patients may limit the ability of the Company's facilities to increase
their private pay census.
OTHER REGULATORY MATTERS. The Ohio Department of Human Services, which
administers the state Medicaid program, has adopted a pre-admission screening
program to promote utilization of home-based services as an alternative to
nursing services. In 1990, HCFA granted a waiver to allow federal Medicaid funds
for home-based services under this program, which is expected to result in a
substantial expansion of the program. In addition, the Ohio General Assembly
adopted legislation requiring pre-admission screening of non-Medicaid covered
persons before admission to any Medicaid certified long-term care facility,
effective January 1, 1994. Because the Centers operated by the Company in Ohio
are single purpose facilities, a reduction in demand for services as a result of
this program could adversely affect Company revenues.
After the first three full years of a facility's operation, Medicare
reimbursement of routine operating costs is subject to a cap that is related to
costs of similar providers. In cases where this cap is exceeded, the facility
may obtain an exception if it can show that the excess costs are caused by
"atypical services." Several of the Centers have sought and received such
exceptions. See "Sources of Revenue - Medicare." The 1993 Budget Act froze the
Routine Cost Limits at 1993 levels for two years and provided that the exception
process could not be used to recover the amount not paid solely due to this
freeze.
ANTI-KICKBACK LAW. Various federal and state laws regulate the
relationship between providers of health care services and physicians, including
employment or service contracts and investment relationships. Certain provisions
of the Medicare/Medicaid Anti-Fraud and Abuse Amendment to the Social Security
Act (the "Anti-Kickback Law") and similar state statutes prohibit the payment,
receipt, solicitation, or offering of any direct or indirect remuneration
intended to induce the referral of patients or for the ordering or providing of
services, items, or equipment. The Secretary of HHS has interpreted these
provisions broadly to include the intentional payment of anything of value to
influence the referral of Medicare and Medicaid business. Other provisions of
these laws prohibit referrals from physicians who have an ownership interest in
or compensation arrangement with the service provider, unless a specified
exception applies, regardless of intent to induce referrals. Violations of these
provisions may result in civil and/or criminal penalties and/or exclusion from
participation in the Medicare and Medicaid programs and from state programs
containing similar provisions relating to referrals of privately insured
patients. The Secretary of HHS has issued regulations which set forth certain
"safe harbors," representing business relationships and payments that can safely
be undertaken without violation of the Fraud and Abuse Laws. The Company
believes that all of its contracts and business relationships comply with these
laws.
COMPETITION
The Centers compete primarily on a local and regional basis with other
basic and subacute care providers, including rehabilitation Centers, hospitals,
nursing facilities and home health agencies. Many such providers currently have
underutilized facilities and are expanding into subacute care by converting some
or all of such facilities to subacute care. In particular, a number of nursing
facilities and general acute care hospitals are adding subacute care units. Some
competing providers have greater financial resources than those of the Company
or may operate on a nonprofit basis or as charitable organizations. The degree
of success with which the Centers compete varies from location to location and
depends on a number of factors, including the number of competing facilities
14
<PAGE> 15
in the local market, types of services, quality of care, reputation, age and
appearance of each Center and the cost of care in each locality. In light of
these factors, the Company seeks to compete in each locality by establishing a
reputation within the local community for high quality clinical and basic health
care services, attractive and comfortable Centers, and for responding to the
specialized health needs of its patients and referral sources. The Company also
faces competition when it pursues acquisitions and Certificate of Need
approvals.
EMPLOYEES
As of December 31, 1996, the Company employed approximately 4,500
people, approximately 4,360 of whom are employed in the Centers and
institutional pharmacies. The Company's corporate staff consists of
approximately 140 people, the majority of whom are located at the Company's
headquarters in Lima, Ohio. Certain of the Company's employees in one Center in
Ohio are covered by a collective bargaining contract. The Company believes that
it has good relationships with its employees.
Although the Company believes it is able to employ sufficient personnel
to staff its Centers adequately, a shortage of nurses, nursing assistants or
therapists in key geographic areas could affect the ability of the Company to
attract and maintain qualified professional health care personnel. The Company
competes with other health care providers for both professional and
non-professional employees and with non-health care providers for
non-professional employees.
INSURANCE
Health care companies are subject to medical professional liability,
personal injury and other liability claims that are customary risks inherent in
the operation of healthcare facilities. The Company carries general liability,
comprehensive property damage, professional liability, workers' compensation and
other insurance coverages that are deemed appropriate by management, based upon
historical claims, industry standards and the nature and risks of its business.
There can be no assurance that a future claim will not exceed insurance coverage
or that such coverage will continue to be available.
ENVIRONMENTAL AND OTHER MATTERS
The Company believes that it is in substantial compliance with all
existing applicable environmental laws and does not anticipate that continued
compliance will have a material effect on its future capital expenditures,
earnings or competitive position.
ITEM 2. PROPERTIES
At December 31, 1996, the Company operated 30 Centers in five states.
Twelve Centers with 1,388 beds were built by the Company and an additional
five Centers with 588 beds were built by a company with which members of the
Company's management team were affiliated prior to the establishment of the
Company. Twenty- four Centers are owned by the Company and the remaining six
Centers are leased under long-term operating leases with remaining terms
of two to five years that generally require the Company to pay all taxes,
insurance and maintenance costs. These operating leases provide the Company with
the opportunity to extend the term of the leases for varying periods of
time. The majority of the Centers were developed during the past 12 years and
the balance recently have been renovated. Certain Centers serve as collateral
for various debt obligations. See Note 4 of Notes to the Consolidated Financial
Statements. The Company leases properties for its pharmacy in Ohio and two
pharmacies in Florida under renewable, long-term operating leases with remaining
initial terms of two to four years. The Company is required to pay all taxes,
insurance and maintenance costs under the lease agreements. The Company owns its
headquarters in Lima, Ohio. The Company generally considers its properties to be
in good operating condition and suitable for the purposes for which they are
being used. See "Item 1. Business - Company Operations."
15
<PAGE> 16
LOCATIONS. The following table summarizes certain information regarding
the Centers operated by the Company during 1996:
<TABLE>
<CAPTION>
LICENSED BEDS (1) SUBACUTE UNIT BEDS (2)
------------------------------------ ----------------------------------
Placed In Occupancy % Occupancy %
CENTER LOCATION Service Number (3) Number (3)
- ---------------
------------ ----------- ---------------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
OHIO
Canton......................... 8/85 127 89.9% 60 88.2%
Milford........................ 9/85 169 87.0 36 77.2
Hilliard....................... 10/85 122 95.4 18 90.1
Marietta....................... 1/86 170 94.9 31 87.4
West Jefferson................. 1/86 100 95.8 18 87.2
Clyde.......................... 5/86 138 87.5 18 64.3
Toledo......................... 5/86 100 93.2 34 84.2
London......................... 6/86 100 97.5 25 94.4
Fairlawn ...................... 7/86 150 92.5 21 81.9
Columbus....................... 1/87 120 89.6 60 83.7
Delaware....................... 1/87 117 93.6 32 87.9
Waterville..................... 4/88 100 90.6 18 76.0
Blanchester.................... 5/88 50 94.4 4 41.9
Columbus East.................. 7/91 100 93.1 48 86.9
Sylvania....................... 4/96 79 67.6 60 72.9
----------- ---------------- ---------- -----------------
TOTALS..................... 1,742 91.3% 483 83.0%
FLORIDA
Brandon........................ 7/85 120 92.3% 60 85.9%
Safety Harbor.................. 5/86 120 93.8 26 80.1
Orange Park.................... 12/89 120 90.2 60 82.9
Lakeland....................... 5/90 120 90.7 45 79.6
Tallahassee.................... 2/92 120 91.3 44 87.2
Bayonet Point.................. 2/93 120 95.8 78 95.9
Orlando........................ 1/94 113 87.8 60 79.2
Melbourne...................... 8/94 120 95.2 60 91.8
Tampa.......................... 4/95 120 77.1 60 56.5
St. Petersburg................. 10/95 120 88.3 52 85.2
Jacksonville................... 8/96 116 54.6 60 54.6
Pensacola...................... 12/96 120 1.3 60 0.0
----------- ---------------- ---------- -----------------
TOTALS..................... 1,429 88.2% 665 80.5%
OTHER
Fairmont, WV................... 6/85 120 99.3% 0 N/A
Fort Wayne, IN................. 10/88 167 66.2 30 69.5%
New Castle, DE................. 1/91 120 94.7 18 86.9
----------- ---------------- ---------- -----------------
TOTALS.................... 407 84.4% 48 76.6%
----------- ---------------- ---------- -----------------
GRAND TOTALS ............. 3,578 89.3% 1,196 81.4%
=========== ================ ========== =================
<FN>
- -------------
(1) Licensed beds refers to the number of nursing beds for which a license
has been issued or the number of assisted living beds designated by
management as available for use.
(2) Subacute unit beds refers to the number of nursing beds designated by
management as available for providing care to subacute patients.
</TABLE>
16
<PAGE> 17
(3) Occupancy is the average for the year ended December 31, 1996 as
computed by dividing the total billed patient days by the total
available bed days.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings. The Company is engaged
on an ongoing basis in routine litigation arising in the ordinary course of
business. The Company does not believe that the results of such litigation, even
if the outcomes were unfavorable to the Company, would have a material adverse
effect on its financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
No matters were submitted to stockholders during the fourth quarter of
the fiscal year.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on The Nasdaq National Market of The
Nasdaq Stock Market under the symbol "AHCC." The high and low sales prices for
each quarter for the years indicated are shown below:
<TABLE>
<CAPTION>
1995
----------------------------------------------------------
QUARTER ENDED HIGH LOW
----------------------- ----------------- -------------
<S> <C> <C>
March 31 $23.50 $19.25
June 30 $21.75 $17.38
September 30 $23.25 $17.25
December 31 $23.25 $15.00
<CAPTION>
1996
----------------------------------------------------------
QUARTER ENDED HIGH LOW
---------------------- ---------------- -------------
<S> <C> <C>
March 31 $28.87 $16.75
June 30 $29.75 $25.25
September 30 $28.00 $20.50
December 31 $26.00 $18.75
</TABLE>
There were approximately 1,800 stockholders of record on February 28,
1997.
The Company has not paid or declared any dividends since its inception.
The Company currently intends to retain all future earnings for the operation of
its business. The Company's bank credit facilities contain certain restrictions
on the payment of dividends and other distributions. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" and Note 4 of Notes to Consolidated Financial
Statements.
17
<PAGE> 18
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following summary should be read in conjunction with the
consolidated financial statements and related notes and Exhibit 11.1 contained
herein. See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations," and "Item 1. Business."
(IN THOUSANDS, EXCEPT SELECTED STATISTICAL AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------------------------------
INCOME STATEMENT DATA: 1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net revenues
Subacute care ................................. $38,562 $62,008 $82,874 $100,945 $113,123
Basic care..................................... 55,974 60,999 65,615 75,931 84,015
Pharmacy and other ............................ 11,806 9,273 10,302 15,282 21,639
----------- ------------- ----------- ----------- -----------
Total net revenues .............................. 106,342 132,280 158,791 192,158 218,777
Expenses
Operating...................................... 83,995 104,883 126,249 151,922 171,170
General corporate ............................ 4,460 6,230 7,353 8,992 9,680
Operating lease rental......................... 4,289 3,939 4,062 4,301 4,450
Interest....................................... 4,700 5,043 4,642 5,822 7,108
Depreciation and amortization.................. 3,661 4,436 5,636 7,450 8,924
Total expenses................................... 101,105 124,531 147,942 178,487 201,332
Other expense (income)
Loss on disposal of property .................. 312 303 231 248 766
Interest and sundry............................ (159) (264) (215) (332) (272)
----------- ------------- ----------- ----------- -----------
Total other expense (income)..................... 153 39 16 (84) 494
----------- ------------- ----------- ----------- -----------
Income before income taxes....................... 5,084 7,710 10,833 13,755 16,951
Income taxes (pro forma for 1992 and 1993)(1).... 1,848 2,826 3,930 5,303 6,728
----------- ------------- ----------- ----------- -----------
Net income (pro forma for 1992 and 1993)(1)...... $ 3,236 $ 4,884 $ 6,903 $ 8,452 $ 10,223
=========== ============= =========== =========== ===========
Net income per share (pro forma for 1992 and 1993)(1) $ .60 $ .82 $ 1.01 $ 1.23 $ 1.47
=========== ============= =========== =========== ===========
Weighted average shares outstanding.............. 5,408 5,986 6,842 6,881 6,969
=========== ============= =========== =========== ===========
DECEMBER 31
-----------------------------------------------------------------------------
BALANCE SHEET DATA: 1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Working capital.................................. $ 9,609 $ 11,857 $ 10,175 $ 4,207 $ 14,422
Total assets..................................... 100,651 116,311 136,591 178,783 209,474
Long-term obligations, less current maturities... 57,426 48,354 52,956 74,741 94,643
Stockholders' equity and redeemable stock........ 19,098 39,575 46,485 55,628 66,016
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED STATISTICAL DATA(2):
Number of licensed beds (end of year):
Subacute care ........................ 551 662 817 931 1,196
Basic care ........................... 1,938 1,957 2,029 2,313 2,382
Total ................................ 2,489 2,619 2,846 3,244 3,578
Average number of licensed beds:
Subacute care ........................ 525 642 776 890 1,039
Basic care ........................... 1,998 1,968 2,000 2,167 2,342
Total ................................ 2,523 2,610 2,776 3,057 3,381
Average occupancy(3):
Subacute care ........................ 76.8% 78.7% 79.2% 79.1% 81.4%
Basic care ........................... 91.2 92.5 91.2 93.0 92.8
Total ................................ 88.2 89.1 87.8 88.9 89.3
Percentage of total net revenue:
Subacute care(4) ..................... 36.3% 46.9% 52.2% 52.5% 51.7%
Basic care ........................... 52.6 46.1 41.3 39.5 38.4
Pharmacy and other(5) ................ 11.1 7.0 6.5 8.0 9.9
Percentage of total net revenues by
payor:
Private(6) ........................... 41.1% 37.0% 34.6% 33.4% 33.8%
Medicare ............................. 21.3 29.0 34.2 36.1 34.6
Medicaid ............................. 37.6 34.0 31.2 30.5 31.6
Percentage of subacute care net
revenues by payor:
Private(7) ........................... 28.6% 26.9% 25.7% 24.1% 26.0%
Medicare ............................. 54.2 58.7 62.8 65.2 63.3
Medicaid ............................. 17.2 14.4 11.5 10.7 10.7
Percentage of basic care net revenues
by payor:
Private(7) ........................... 45.0% 45.7% 44.2% 44.7% 41.7%
Medicaid ............................. 55.0 54.3 55.8 55.3 58.3
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Percentage of pharmacy and other
revenues by payor:
Private(6)................................ 65.8% 48.5% 45.1% 39.2% 43.2%
Medicare.................................. 12.0 20.2 21.9 23.3 19.3
Medicaid.................................. 22.2 31.3 33.0 37.5 37.5
Subacute census mix percentage:
Private(7)................................ 24.2% 20.2% 20.7% 19.2% 24.1%
Medicare.................................. 53.7 62.3 63.8 68.0 64.7
Medicaid.................................. 22.1 17.5 15.5 12.8 11.2
<FN>
- ---------------------
(1) Pro forma income taxes include income taxes computed as if Marshall
Properties, Inc. had been included in the Company's consolidated group
for income tax purposes prior to its acquisition and pooling of
interests effective June 30, 1993.
(2) All statistics for 1992 through 1994 exclude one managed Center in
Fairlawn, Ohio with 150 beds of which 23 are subacute beds. The Company
acquired the managed Center in 1995.
(3) Represents total billed patient days divided by total available days.
(4) Subacute care revenue includes all room and board, nursing, therapies,
and medical supplies provided to patients in the Company's subacute
units and pharmacy charges for all Arbor patients.
(5) Pharmacy and other revenue includes institutional pharmacy sales made
to non-related facilities and their residents, outpatient
rehabilitation clinic revenue, fees for the management of one center
through May 31, 1995 and in 1992 the development of facilities for
others.
(6) Private revenues as classified by the Company include reimbursement
received from individuals, HMOs, PPOs, indemnity insurers and other
charge-based sources, the management of one center and in 1992 the
development of facilities for others.
(7) Private as classified by the Company includes reimbursement and
patient days applicable to individuals, HMOs, PPOs, indemnity
insurers and other charge-based sources.
</TABLE>
20
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company provides subacute care services and basic health services
for a variety of patients at its licensed nursing centers ("Centers"). The
Company also provides institutional pharmacy services to both the Centers and
non-affiliated facilities and their residents.
Subacute care revenues increased from $38.6 million in 1992 to $113.1
million in 1996. Included in subacute care revenues are all room and board,
nursing, therapies, and medical supplies for subacute patients and pharmacy
charges for all Arbor patients. The Company is primarily reimbursed for the care
of subacute patients by Medicare, managed care payors and commercial insurance.
Rates received vary by payor type. The Company directs its marketing efforts to
attract patients reimbursed by managed care providers (principally HMOs and
PPOs), commercial insurers and Medicare. Subacute care beds increased from 551
in 1992 to 1,196 in 1996.
The Company includes in basic health care revenues all room and board,
nursing, therapies and medical supplies for its geriatric, chronic care and
assisted living patients. The Company receives payment for basic health care
services primarily from Medicaid and private pay sources. Revenues from basic
care patients increased from $56.0 million in 1992 to $84.0 million in 1996.
Basic care revenues have not increased as much as subacute care revenues because
(i) rates for subacute patients are considerably higher than for basic care
patients; and (ii) the Company has converted existing basic care beds to
subacute care beds. Basic care beds increased from 1,938 in 1992 to 2,382 in
1996.
The Company includes in pharmacy and other revenues those institutional
pharmacy and related ancillary sales made to non-affiliated facilities and their
residents, outpatient rehabilitation clinic revenue and, prior to June 1, 1995,
the revenue from management of one Center not owned by the Company.
Operating expenses primarily include the costs incurred by the Centers,
pharmacies and, prior to June 1, 1995, costs of providing management services.
General corporate expenses are for the supervisory staff needed to handle the
general affairs of the Company and to support its operations. Center ownership
costs include operating lease rentals, net interest expense, and depreciation
and amortization expense. Operating, general corporate and ownership costs
increased since 1992 as the Company increased the number of Centers, acquired
pharmacies and expanded subacute care services.
The Company's three institutional pharmacies service approximately 200
non-affiliated facilities and its Centers in Florida, Ohio and Indiana. Pharmacy
sales to the Company's subacute and basic care patients are included in subacute
care revenue. Pharmacy sales to non-affiliated facilities and their residents
are included in pharmacy and other revenue. Sales to the Company's Centers for
resale to their Medicare Part A, Veterans Administration and certain other
patients constitute intercompany transactions and are eliminated in
consolidation.
During 1996 the Company developed and opened a 36-bed subacute unit
addition to an existing Center in February, a 79-bed Center in April, a 116-bed
Center in August, and a 120-bed Center in late December. The Company acquired a
company that provides specialty medical supplies and Medicare billing services
on June 30, 1996, and on September 19, 1996 exercised an option to purchase a
100-bed Center that it had operated under an operating lease since 1989.
21
<PAGE> 22
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
of net revenues represented by certain items reflected in the Company's
consolidated statements of income.
<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUES
YEAR ENDED DECEMBER 31
--------------------------------------------------------------------
1994 1995 1996
------------- ------------- --------------
<S> <C> <C> <C>
Net revenues
Subacute care................................ 52.2% 52.5% 51.7%
Basic care................................... 41.3 39.5 38.4
Pharmacy and other........................... 6.5 8.0 9.9
------------- ------------- --------------
Total net revenues............................. 100.0% 100.0% 100.0%
Expenses
Operating.................................... 79.5 79.1 78.2
General corporate............................ 4.6 4.7 4.4
Operating lease rental....................... 2.6 2.2 2.0
Interest..................................... 2.9 3.0 3.3
Depreciation and amortization................ 3.6 3.8 4.1
Net other expense............................ - - 0.2
------------- ------------- --------------
Total expenses................................. 93.2 92.8 92.2
------------- ------------- --------------
Income before income taxes..................... 6.8 7.2 7.8
Income taxes .................................. 2.5 2.8 3.1
------------- ------------- --------------
Net income .................................... 4.3% 4.4% 4.7%
============= ============= ==============
</TABLE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
During the current year the Company introduced a plan to improve
operating margins, reduce operating costs and increase referrals from managed
care organizations. The Company believes this strategy will minimize the effect
of or potentially maximize the benefits from future changes which management
anticipates in the Medicare payment system and the expansion of managed care
business. As anticipated, as operating costs were reduced, Medicare revenues,
which are cost-based, declined. The lower operating costs reduced the growth
rate of Medicare revenues in Mature Centers (Centers in operation for 24 months
or more in the period being reported upon) during 1996. The effects of cost
reductions are more apparent in Mature Centers. The Company began to focus its
marketing efforts on increasing revenues from managed care payors, which
traditionally have provided higher operating margins than Medicare. As a result,
managed care and insurance subacute revenues increased 21.3% from 1995 and now
represent 20.8% of subacute care revenue as compared to 19.2% in 1995.
22
<PAGE> 23
Total net revenues for the year ended December 31, 1996 of $218.8
million increased $26.6 million, or 13.9%, from the year ended December 31,
1995. Approximately 64.3% of the revenue increase during 1996 resulted from
internal growth and 35.7% from acquisitions made during 1995 and 1996. Internal
revenue growth came from Start- Up Centers (developed Centers that are empty
when put into operation). Subacute care revenues (which accounted for 51.7% of
total revenues) increased $12.2 million due to added beds and improved
occupancy. Basic care revenues increased $8.1 million ($2.8 million from higher
rates, $3.3 million from added beds and higher occupancy and $2.0 million from
the Center acquired in May, 1995). Pharmacy and other revenues increased $6.3
million, primarily due to the acquisition of an institutional pharmacy on June
30, 1995.
Operating expenses for the year ended December 31, 1996 of $171.2
million increased $19.2 million, or 12.7%, over the comparable period in 1995.
However, as a percent of revenue, operating costs decreased to 78.2% from 79.1%
for the comparable period in 1995, due primarily to the initial implementation
of the margin-driven strategy in Mature Centers and the effect of the pharmacy
acquisition made during 1995. Increased costs were due to the Start-Up Centers
and the 1995 acquisition while operating costs in Mature Centers decreased 3.4%
from 1995. Compensation expenses for Center staff of $78.1 million (which are
included in operating expenses) increased by $6.9 million, or 9.7%, over the
comparable period in 1995. The Start-Up Centers and the Center acquired in May,
1995 accounted for $8.5 million of the increase in Center personnel compensation
expenses. These expenses in Mature Centers decreased by $1.6 million due to the
partial implementation of standardized staffing models. The cost of providing
therapies, pharmaceuticals and medical supplies ("Ancillary Services") increased
operating expenses by $8.6 million, primarily due to the Start-Up Centers and
the institutional pharmacy acquired in 1995. Ancillary Services expenses in
Mature Centers decreased by $2.1 million primarily as a result of providing more
therapy services in-house rather than by contract. The net effect of other cost
increases and decreases reflected an overall net increase of $3.7 million
primarily resulting from the Start-Up Centers and the acquisition of one Center
in May, 1995.
General corporate expenses for the year ended December 31, 1996 of $9.7
million increased $0.7 million, or 7.7%, over the comparable period in 1995.
This change was primarily caused by expenses for additional administrative
personnel and other related expenses needed to support the growing business.
Center ownership costs for the year ended December 31, 1996 of $20.5
million increased $2.9 million, or 16.6%, over the year ended December 31, 1995.
The increase in ownership costs is due to the Start-Up Centers and the
acquisition of one Center and an institutional pharmacy in 1995.
Net income increased by $1.8 million, or 21.0%, from the comparable
period in 1995, primarily as a result of the foregoing factors, notwithstanding
an increase in the effective income tax rate from 38.6% to 39.7%.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Total net revenues for the year ended December 31, 1995 of $192.2
million increased $33.4 million, or 21.0%, from the year ended December 31,
1994. Approximately 76.9% of the revenue increase during 1995 resulted from
internal growth and 23.1% resulted from acquisitions made during 1995. Internal
revenue growth resulted from Mature Operations (Centers and pharmacies in
operation for 24 months or more in the period being reported upon), which
accounted for approximately 34.5% of the revenue growth, and Start-Up Centers
which provided approximately 42.4% of the increase in revenue. Subacute care
revenues (which accounted for 52.5% of total revenues) increased $18.1 million
($6.0 million from higher rates and $12.1 million from added beds and improved
occupancy). Basic care revenues increased $10.3 million ($3.4 million from
higher rates and $6.9 million from added beds and improved occupancy) and
pharmacy and other revenues increased $5.0 million, primarily due to the June
30, 1995 institutional pharmacy acquisition. Mature Operations provided $7.5
million of the subacute care revenue increase ($5.0 million due to higher rates)
and $3.7 million of the basic care revenue increase ($2.9 million due to higher
rates). The remaining revenue growth came from four Start-Up Centers and the
acquisition of one Center in May, 1995.
23
<PAGE> 24
Operating expenses for the year ended December 31, 1995 of $151.9
million increased $25.7 million, or 20.3%, over the comparable period in 1994.
The increased costs were primarily due to increased occupancy and utilization of
Ancillary Services in Mature Centers, the increased occupancy of four Start-Up
Centers, the acquisition of one Center in May, 1995, and the June 30, 1995
institutional pharmacy acquisition. Center personnel compensation expenses of
$71.2 million (which are included in operating expenses) increased by $9.0
million, or 14.4%, over the comparable period in 1994. The increased occupancy
of four Start-Up Centers and the acquisition of one Center in May, 1995
accounted for $6.6 million of the increase in Center personnel compensation
expenses, while routine wage increases accounted for the remaining $2.4 million
increase. The cost of providing additional Ancillary Services increased
operating expenses by $15.0 million, while the net effect of other cost
increases and decreases reflected an overall net increase of $1.7 million
primarily resulting from four Start-Up Centers and the acquisition of one Center
in May, 1995. As a percent of revenue, operating costs decreased to 79.1% from
79.5% for the comparable period in 1994, due primarily to the effect of the
pharmacy acquisition made during the year and increased occupancy at Start-Up
Centers.
General corporate expenses for the year ended December 31, 1995 of $9.0
million increased $1.6 million, or 22.3%, over the comparable period in 1994.
This change was primarily caused by expenses for additional administrative
personnel and other related expenses needed to support the growing business.
Center ownership costs for the year ended December 31, 1995 of $17.6
million increased $3.2 million, or 22.5%, over the year ended December 31, 1994.
The increase in ownership costs is due primarily to four Start-Up Centers and
the acquisition of one Center and an institutional pharmacy in 1995.
Net income increased by $1.5 million, or 22.4%, from the comparable
period in 1994, primarily as a result of the foregoing factors, notwithstanding
an increase in the effective income tax rate from 36.3% to 38.6% primarily as a
result of the discontinuance of the targeted jobs tax credit in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company obtained substantially all of its original equity financing
from two private offerings in 1985 and 1986. This equity financing was
supplemented by operating leases, revolving credit facilities and long-term
borrowings. In August, 1993, the Company completed its initial public offering
of 1.4 million shares of common stock at a price of $13 per share. Net proceeds
of $16.5 million were used to retire debt, upgrade subacute units, develop
additional Centers, and for general corporate purposes.
The Company's growth during the last three years has been financed with
cash from operating and financing activities. The Company's cash from operating
activities was $6.5 million, $22.5 million, and $13.4 million for the years
ended December 31, 1994, 1995, and 1996, respectively. Cash provided by
financing activities was $10.4 million, $13.1 million, and $16.2 million for the
years ended December 31, 1994, 1995, and 1996, respectively. Expenditures for
investing activities, primarily development of Centers, renovations to existing
Centers and acquisitions were $18.3 million, $34.7 million, and $30.2 million
for 1994, 1995, and 1996, respectively.
At December 31, 1996, the Company had working capital of $14.4 million
compared to $4.2 million at December 31, 1995. Accounts receivable net of
allowances were $44.0 million at December 31, 1996 compared to $36.2 million at
December 31, 1995. The number of days of net revenues for the quarter in net
receivables increased from 64 at December 31, 1995 to 70 at December 31, 1996
primarily due to the Start-Up Centers. Additionally, receivables from insurance
companies increased from 139 days at December 31, 1995 to 161 days at December
31, 1996 primarily due to the Start-Up Centers. Management is developing a
standardized system to more closely monitor the billing and collection
procedures associated with receivables from insurance companies.
The Company has revolving credit facilities ("Credit Facilities") with
three banks that are renewable annually. These Credit Facilities provide working
capital, letters of credit, and acquisition and development financing of $4.7
24
<PAGE> 25
million, $4.2 million, and $43.7 million, respectively. As of December 31, 1996,
$4.5 million of working capital had been borrowed, $2.6 million of letters of
credit were outstanding, and $32.8 million had been committed. The annual rates
charged by the banks vary. Interest rates on the working capital lines range
from London Interbank Offered Rates ("LIBOR") plus 1.5% to prime and on the
acquisition/development facilities from LIBOR plus 1.75% to LIBOR plus 2.00%.
Annual fees of from 1.0% to 1.5% are charged to the Company by the banks issuing
letters of credit under these Credit Facilities.
Long-term obligations, including current maturities, totaled
approximately $97.8 million at December 31, 1996 and were for long-term
financing of Centers and acquisitions. These obligations are for varying amounts
and for terms that expire at varying times over the next 17 years. Interest
rates on outstanding obligations ranged from 3.82% to 10.75% at December 31,
1996. See Note 4 of Notes to Consolidated Financial Statements. The Company has
been successful in finding permanent financing but uses its Credit Facilities as
interim sources of financing when appropriate.
The Company has various ongoing needs for capital, including (i)
working capital for operations; (ii) capital expenditures for its Centers or
other facilities; and (iii) capital expenditures for the development of new
Centers and possible acquisitions. The Company expects to utilize funds for
certain specific purposes during 1997, including approximately $18.7 million for
the development of four Centers; $2.5 million for Center renovations; $3.2
million to upgrade information technology systems; and $4.2 million for other
center and pharmacy routine capital expenditures. The Company expects to open
two or three Centers per year during 1997 and 1998 at a cost of $6.0 to $7.5
million per 120-bed Center. Management believes when all sources of capital are
considered, including cash to be generated by operating activities, Credit
Facilities likely to be available, and other financing activities to be
undertaken, that sufficient capital resources will be available to carry out
anticipated undertakings during the next 12 to 24 months.
OTHER MATTERS
Inflation. The Company does not believe inflation has had a material
impact on earnings during the past three years. Substantial increases in costs
could have a significant impact on the Company and the industry, particularly if
reimbursement from the Company's payors does not keep pace with such increases.
Environmental Matters. The Company is unaware of any claims or legal
proceedings related to environmental concerns.
New Accounting Pronouncements. There are no new accounting
pronouncements that will have a significant effect upon the Company's financial
statements when they are adopted.
FORWARD-LOOKING STATEMENTS
Certain oral statements made by management from time to time and
certain statements contained herein that are not historical facts are
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934 and because such statements involve risks and
uncertainties, actual results may differ materially from those expressed or
implied by such forward-looking statements. Forward-looking statements,
including those in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," are statements regarding the intent,
belief or current expectations, estimates or projections of the Company, its
Directors or its Officers about the Company and the industry in which it
operates, and assumptions made by management, and include among other items, (i)
the Company's strategies regarding growth, including its intention to develop
additional Centers and to make acquisitions of Centers, pharmacies and other
related businesses; (ii) the Company's ability to continue to control costs and
to meet its liquidity and other financing needs; (iii) the Company's ability to
respond to changes in regulations; and (iv) the Company's ability to earn
additional revenues from managed care organizations and other payors and its
implementation of a business strategy in furtherance of achieving such
additional revenues.
25
<PAGE> 26
Although the Company believes that its expectations are based on reasonable
assumptions, it can give no assurance that the anticipated results will occur.
Important factors that could cause the actual results to differ
materially from those in the forward-looking statements include, among other
items, (i) conditions in the capital markets, including the interest rate
environment and the availability of capital; (ii) changes in or failure to
comply with government regulations; (iii) changes in the competitive marketplace
that could affect the Company's revenue and/or cost bases, such as increased
competition, lack of qualified nursing, management or other personnel and
increased labor costs; and (iv) enactment of health care reform measures by
Congress and/or state legislatures, particularly in Ohio or Florida where most
of the Company's Centers are located.
Recent federal budget discussions, and in particular President
Clinton's proposed budget, have targeted the Medicare program for reductions in
spending growth of approximately $9 billion for skilled nursing facilities over
the next six years, primarily through the implementation of a Medicare
prospective payment for subacute services program. Currently, the Company
derives approximately 35% of its revenues from Medicare. Additionally, increased
pressure to reduce certain health care costs of Medicaid and discussions
permitting greater flexibility by states in the administration of Medicaid could
affect the Company. Currently, the Company derives approximately 32% of its
revenues from Medicaid. Until the ultimate form of any new legislation is known,
the Company will not be able to determine the exact nature of the financial
impact these proposals may have. The Company can give no assurance that payments
under such programs in the future will remain at a level comparable to the
present level or be sufficient to cover the costs allocable to serving its
Medicare and Medicaid patients. Concern about the potential effects of the
proposed reform measures has contributed to the volatility of prices of
securities of companies in health care and related industries, including the
Company, and may similarly affect the price of the Company's securities in the
future. See "Item 1. Business-Sources of Revenue" and "-Government Regulation -
Government Reimbursement Programs".
26
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Arbor Health Care Company
We have audited the accompanying consolidated balance sheets of Arbor Health
Care Company and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Arbor Health Care
Company and subsidiaries at December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
Toledo, Ohio
February 7, 1997
27
<PAGE> 28
<TABLE>
<CAPTION>
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except for share data)
December 31
---------------------------------
1995 1996
---------------- ---------------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents .................................................. $6,394 $5,761
Accounts receivable, less allowances of $1,285 and
$1,948, respectively ................................................... 36,207 44,019
Supply inventories ......................................................... 2,779 2,963
Other current assets ....................................................... 2,986 3,503
Deferred income taxes ...................................................... 1,320 1,972
------------------ -----------------
Total current assets ........................................................... 49,686 58,218
Property and equipment
Land and improvements ...................................................... 19,966 25,337
Buildings and improvements ................................................. 73,845 95,017
Equipment and furnishings .................................................. 30,411 40,477
Leasehold improvements ..................................................... 7,247 5,970
Construction in process .................................................... 12,985 2,599
------------------ -----------------
144,454 169,400
Less allowances for depreciation and amortization .......................... 27,470 33,564
------------------ -----------------
Total property and equipment ................................................... 116,984 135,836
Other assets
Goodwill, less amortization of $281 and $926, respectively ................. 10,483 13,034
Deferred costs, less amortization of $3,242 and
$3,475, respectively ................................................... 1,438 2,205
Sundry ..................................................................... 192 181
------------------ -----------------
Total other assets ............................................................. 12,113 15,420
------------------ -----------------
$178,783 $209,474
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable .............................................................. $4,496 $4,526
Accounts payable ........................................................... 15,889 11,121
Accrued payroll and related items .......................................... 11,043 11,522
Other liabilities .......................................................... 8,094 13,465
Current maturities of long-term obligations ................................ 5,957 3,162
------------------ -----------------
Total current liabilities ...................................................... 45,479 43,796
Long-term obligations, less current maturities ................................. 74,741 94,643
Deferred income taxes .......................................................... 2,935 5,019
Stockholders' equity
Preferred stock, $.01 par value
Authorized -- 2,000,000 shares, none issued or outstanding
Series A Junior Participating Cumulative Preferred Stock, $.01 par
value, Authorized - 10,000 shares, none issued or outstanding
Common stock, $.03 par value
Authorized -- 20,000,000 shares
Issued and outstanding -- 6,891,992 and 6,904,054, respectively ......... 207 207
Additional paid-in capital ................................................ 30,135 30,300
Retained earnings ......................................................... 25,286 35,509
------------------ -----------------
Total stockholders' equity ..................................................... 55,628 66,016
------------------ -----------------
$178,783 $209,474
================== =================
</TABLE>
See accompanying notes
28
<PAGE> 29
<TABLE>
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<CAPTION>
Year Ended December 31
----------------------------------------------------------------
1994 1995 1996
------------------ ----------------- ------------------
<S> <C> <C> <C>
Net revenues
Subacute care ......................................... $82,874 $100,945 $113,123
Basic care ............................................ 65,615 75,931 84,015
Pharmacy and other .................................... 10,302 15,282 21,639
------------------ ----------------- ------------------
Total net revenues ...................................... 158,791 192,158 218,777
Expenses
Operating ............................................. 126,249 151,922 171,170
General corporate ..................................... 7,353 8,992 9,680
Operating lease rental ................................ 4,062 4,301 4,450
Interest .............................................. 4,642 5,822 7,108
Depreciation and amortization ......................... 5,636 7,450 8,924
------------------ ----------------- ------------------
Total expenses .......................................... 147,942 178,487 201,332
Other expense (income)
Loss on disposal of property .......................... 231 248 766
Interest and sundry ................................... (215) (332) (272)
------------------ ----------------- ------------------
Total other expense (income) ............................ 16 (84) 494
------------------ ----------------- ------------------
Income before income taxes .............................. 10,833 13,755 16,951
Income taxes ............................................ 3,930 5,303 6,728
------------------ ----------------- ------------------
Net income .............................................. $6,903 $8,452 $10,223
================== ================= ==================
Net income per share .................................... $1.01 $1.23 $1.47
================== ================= ==================
Weighted average shares outstanding ..................... 6,842 6,881 6,969
================== ================= ==================
</TABLE>
See accompanying notes
29
<PAGE> 30
<TABLE>
<CAPTION>
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except for share data)
Additional
Common Paid-In Retained
Stock Capital Earnings Total
---------- ---------- --------- -----------
<S> <C> <C> <C> <C>
Balances at January 1, 1994 ................................................ $204 $29,548 $9,823 $39,575
Net income ................................................................. 6,903 6,903
Stock options exercised - 1,826 shares ..................................... 7 7
---------- --------- --------- ----------
Balances at December 31, 1994 .............................................. 204 29,555 16,726 46,485
Net income ................................................................. 8,452 8,452
Issuance of 74,905 shares of commom stock related to acquisitions .......... 3 498 108 609
Stock options exercised - 14,451 shares .................................... 82 82
---------- --------- --------- ----------
Balances at December 31, 1995 .............................................. 207 30,135 25,286 55,628
Net income ................................................................. 10,223 10,223
Stock options exercised - 12,062 shares .................................... 165 165
---------- --------- --------- ----------
Balances at December 31, 1996 .............................................. $207 $30,300 $35,509 $66,016
========== ========= ========= ==========
</TABLE>
See accompanying notes
30
<PAGE> 31
<TABLE>
<CAPTION>
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31
-----------------------------------------------
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Operating activities
Net income ................................................................. $6,903 $8,452 $10,223
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for depreciation ........................................... 5,056 6,397 7,504
Amortization ......................................................... 902 1,296 1,718
Provision for deferred income taxes .................................. 102 464 1,432
Provision for losses on accounts receivable .......................... 1,554 2,219 2,993
Loss on disposal of property ......................................... 231 248 766
Changes in operating assets and liabilities
Accounts receivable ............................................... (8,514) (1,854) (10,405)
Supply inventories ................................................ (416) (404) (41)
Other current assets .............................................. (1,236) (1,175) (537)
Deferred costs .................................................... (758) (708) (1,068)
Accounts payable .................................................. 1,223 4,416 (4,951)
Accrued payroll and related items ................................. 1,009 3,065 450
Other liabilities ................................................. 410 65 5,300
-------------- -------------- --------------
Net cash provided by operating activities .................................. 6,466 22,481 13,384
Investing activities
Expenditures for property and equipment .................................. (18,549) (23,159) (23,463)
Cash paid to acquire businesses, net of cash received .................... (11,686) (6,753)
Sundry and other ......................................................... 209 111 19
-------------- -------------- --------------
Net cash used in investing activities ...................................... (18,340) (34,734) (30,197)
Financing activities
Net borrowings (repayments) under line of credit agreements to
finance development projects and acquisitions ........................ 12,759 19,196 (1,206)
Net borrowings of working capital
under line of credit agreements ...................................... 263 2,919 30
Borrowings on long-term obligations ...................................... 54 107 27,000
Repayments of long-term obligations ...................................... (2,685) (9,148) (9,035)
Deferred financing costs ................................................. (17) (65) (774)
Issuance of stock ........................................................ 7 83 165
-------------- -------------- --------------
Net cash provided by financing activities .................................. 10,381 13,092 16,180
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents ....................... (1,493) 839 (633)
Cash and cash equivalents at beginning of year ............................. 7,048 5,555 6,394
-------------- -------------- --------------
Cash and cash equivalents at end of year ................................... $5,555 $6,394 $5,761
============== ============== ==============
</TABLE>
See accompanying notes
31
<PAGE> 32
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1996
1. ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Arbor Health Care Company ("Arbor") is a Delaware corporation organized
on April 4, 1985, and does business principally in Ohio and Florida. The
consolidated financial statements include the accounts of Arbor and its
subsidiaries, all of which are wholly owned (the "Company"). All significant
intercompany accounts and transactions have been eliminated in consolidation.
The Company owns, operates, and develops nursing centers (the
"Centers") that provide subacute and basic health care services and operates
three institutional pharmacies. Subacute care generally is provided to patients
who have been discharged from an acute care hospital and require additional care
in specialized clinical programs before being discharged. The Company includes
in its subacute care revenues all room and board, nursing, therapies, and
medical supplies for its subacute patients and pharmacy charges for all its
patients. Basic care generally is provided to geriatric and chronic care
patients requiring routine nursing or assisted living services.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers short-term investments consisting of highly
liquid debt instruments with a maturity of three months or less when purchased
and money market funds to be cash equivalents.
ACCOUNTS RECEIVABLE AND NET REVENUES
Accounts receivable and subacute and basic care net revenues are
recorded when the related patient services are provided at established billing
rates or at amounts estimated by management to be reimbursable by Medicare,
Medicaid and other third-party payors under the provisions of reimbursement
formulae in effect. Final settlement of amounts earned is subject to review by
appropriate governmental authorities or their agents. In the opinion of
management, adequate provision has been made for any adjustments that may result
from such reviews. Differences between amounts accrued and final settlements, if
any, are recorded in operations in the year of settlement.
Pharmacy and other revenues include amounts related to institutional
pharmacy sales made to non-related facilities and their residents and the
management of one Center through May, 1995.
A significant portion of the Company's revenue is derived from patients
under the Medicaid and Medicare programs. For the years ended December 31, 1994,
1995, and 1996, the Company derived approximately 34%, 36%, and 35% of its
revenues from Medicare and approximately 31%, 30%, and 32% of its revenues from
Medicaid, respectively. There have been and the Company expects that there will
continue to be proposals to limit Medicare and Medicaid reimbursement for
long-term and rehabilitative care services. The Company cannot predict at this
time whether such proposals will be adopted or, if adopted and implemented, what
effect they will have on the Company.
SUPPLY INVENTORIES
Supply inventories, consisting primarily of pharmaceutical and medical supplies,
are valued at the lower of cost (first-in, first-out) or market.
32
<PAGE> 33
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1996
1. ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Property includes costs of
acquiring, constructing or renovating Centers, other facilities and equipment.
The Company provides for depreciation and obsolescence at rates which are
sufficient to amortize the carrying amounts of such assets over their estimated
useful lives using the straight-line method.
GOODWILL
Goodwill resulted from businesses acquired and is amortized on a
straight-line basis over twenty years. Contingent payments made in connection
with acquisitions are recorded as goodwill. The carrying value of goodwill is
reviewed if the facts and circumstances suggest that it may be impaired. If this
review indicates that goodwill will not be recoverable, as determined based on
the undiscounted cash flows of the entity acquired over the remaining
amortization period, the Company's carrying value of the goodwill will be
reduced by the estimated shortfall of cash flows.
DEFERRED COSTS
Deferred costs include the costs of obtaining financing and Center
preopening costs. Such costs are amortized by the straight-line method using the
following periods: financing costs over the term of the related debt and Center
preopening costs over twenty-four months.
FINANCIAL INSTRUMENTS
The Company believes the carrying amount of cash and equivalents,
accounts receivable (net of allowances), other current assets, notes and
accounts payable, accrued payroll and other liabilities approximates fair value
due to the short maturity of those instruments.
The fair value of the Company's long-term obligations is estimated
based on the quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same remaining maturities
and carrying value approximates fair value.
INCOME TAXES
Income taxes are accounted for under Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes." This statement requires
the recognition of deferred tax liabilities and assets for the expected future
tax consequences of temporary differences between the carrying amounts and the
tax basis of assets and liabilities.
STOCK BASED COMPENSATION
The Company grants stock options for a fixed number of shares to
employees and outside directors of the Company with an exercise price equal to
the fair value of the shares at the date of grant. As permitted by SFAS No. 123,
"Accounting for Stock-Based Compensation", the Company applies Accounting
Principles Board (APB) Opinion No. 25 "Accounting for Stock Issued to Employees"
and related interpretations in accounting for its stock option plans and,
accordingly, does not recognize compensation expense for its options granted.
NET INCOME PER SHARE
Net income per share is based on the weighted average shares of Common
Stock outstanding plus common stock equivalents from stock options, after giving
effect to the conversion of preferred stock.
RECLASSIFICATION
Certain amounts in prior year financial statements have been
reclassified to conform with the 1996 presentation.
33
<PAGE> 34
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1996
2. ACQUISITIONS
On September 19, 1996, the Company acquired Arbors at Waterville, a
100-bed Center that it has operated under an operating lease agreement since
1989. The Company financed a portion of the $5.8 million purchase with $4.6
million from its acquisition/development lines of credit. Raymond James
Financial, Inc. ("RJFI") owns two subsidiaries that are the controlling partners
in a partnership that is the general partner in a partnership that owned the
center. A director of the Company is an officer, director and major stockholder
of RJFI. Effective June 30, 1996, the Company acquired all of the outstanding
stock of Poly-Stat Supply Corporation and Poly-Stat Computer Applications, Inc.
The Poly-Stat businesses provide enteral feeding, urological, ostomy,
tracheostomy, surgical dressing and oxygen supplies and Medicare billing
services to nursing homes. The purchase price of approximately $1.2 million for
the Poly-Stat businesses included approximately $1.0 million in cash and $0.2
million in promissory notes. In addition, the Company must make a $1.0 million
contingent payment if certain earnings targets are attained over the next five
years.
On May 31, 1995, the Company acquired substantially all of the assets
of the Arbors at Fairlawn ("Fairlawn") for approximately $6.7 million in cash
and assumed certain liabilities of $3.8 million. Fairlawn is a 150-bed nursing
and assisted living facility which the Company had operated under a management
agreement since its opening in 1986. A principal stockholder of the Company was
a principal stockholder in the corporate general partner of the partnership that
previously owned Fairlawn. On June 30, 1995, the Company acquired all of the
outstanding stock of The Druggist, Inc. ("Druggist") for approximately $10.5
million, including $.5 million in Common Stock (24,968 shares) and $4.8 million
in seller financing. The Druggist provides institutional pharmacy and
respiratory services to nursing homes and correctional facilities in Ohio.
Additional consideration of up to $2.5 million may be required for the Druggist
acquisition if certain earnings targets are attained through December 31, 1999.
The Arbors at Waterville, Poly-Stat businesses, Fairlawn and Druggist
acquisitions have been accounted for as purchases, and results of operations are
included from the dates of acquisition. The 1996 purchase prices which included
approximately $6,753,000 paid in cash, seller-financed debt of approximately
$193,000 and debt assumed of approximately $157,000 were allocated primarily to
property and equipment ($5,006,000), goodwill ($1,834,000), and working capital
($263,000). The 1995 purchase prices which included approximately $11,686,000
paid in cash, seller-financed debt and common stock issued of $5,250,000 and
debt assumed of approximately $4,380,000 were allocated primarily to goodwill
($12,126,000), property and equipment ($8,618,000), and working capital
($572,000).
The Company exchanged 49,937 shares of its Common Stock for all of the
outstanding shares of Alternacare Plus Enterprises, Inc. ("Alternacare") on June
30, 1995. Alternacare provides medical and enteral feeding supplies, and
Medicare billing services. This transaction was accounted for as an immaterial
pooling of interests; thus, prior years' financial statements of the Company
have not been restated and results of operations are included from the date of
acquisition.
34
<PAGE> 35
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1996
2. ACQUISITIONS (CONTINUED)
The pro forma unaudited results of operations for the years ended
December 31, 1995 and 1996, assuming the purchases had been consummated as of
January 1, 1995, are not materially different from the reported results of
operations.
On June 30, 1994 Arbor exchanged 428,571 shares of its Common Stock for
all of the outstanding shares of two related institutional pharmacy
corporations, Bay Geriatric Pharmacy, Inc. ("Bay") and Home Care Pharmacy, Inc.
of Florida ("Home Care").These transactions have been accounted for as poolings
of interests, and the Company has included the accounts of Bay and Home Care in
consolidation as if they had always been subsidiaries.
Effective January 1, 1997, the Company acquired substantially all of
the assets and assumed certain liabilities of Adult Services Unlimited, Inc.
("ASUI") and Health Poconos, Inc. ("HPI") for approximately $3.2 million,
including $1.7 million in seller financing. ASUI and HPI are Comprehensive
Outpatient Rehabilitation Facilities that provide general, job-related injury
and geriatric rehabilitation to the northeastern Pennsylvania market.
The acquisitions will be treated as purchases for accounting and financial
reporting purposes. The pro forma unaudited results of operations for the year
ended December 31, 1996, assuming the purchase had been consummated as of
January 1, 1996, are not materially different from the reported results of
operations.
3. NOTES PAYABLE AND OTHER CURRENT LIABILITIES
The Company has short-term working capital lines of credit of
$4,650,000 with three banks. Interest rates range from London Interbank Offered
Rates ("LIBOR") plus 1.50% to prime, and commitment fees of up to .25% are
calculated on any unused portion. There were borrowings under the lines at
December 31, 1995 and 1996 of $4,496,188 and $4,525,766, respectively, at a
weighted average interest rate of 8.34% and 8.08%, respectively.
Accrued payroll and related items include $1,950,768 and $2,651,205
accrued for wages and $2,928,871 and $2,336,065 accrued for workers compensation
as of December 31, 1995 and 1996, respectively. Other liabilities include
$1,454,363 and $6,510,450 owed under various Medicare and Medicaid programs as
of December 31, 1995 and 1996, respectively.
35
<PAGE> 36
<TABLE>
<CAPTION>
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1996
4. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
December 31
1995 1996
------------- -------------
Notes payable to banks (In thousands)
-------------
<S> <C> <C>
Collateralized by real estate or leasehold improvements and/or equipment
and/or accounts receivable, payable in monthly installments and lump sums
ranging to July 2013
Interest fixed from 7.16% to 10.75%................................ $20,702 $30,849
Interest variable from 6.74% to 9.25%.............................. 8,281 21,041
Uncollateralized, payable in monthly installments to January
1998, interest at LIBOR plus 1.75%.................................. 710 330
Acquisition/development credit facilities
Collateralized by real estate and/or equipment......................... 4,829 -
Uncollateralized, payable in monthly installments and lump
sums to December 2003, interest from LIBOR plus 1.75% to
LIBOR plus 2.00%..................................................... 29,126 32,748
Notes payable to non-financial institutions, collateralized by
real estate or leasehold improvements and/or equipment and/or accounts
receivable, payable in monthly installments and lump sums to
May 2002, interest from 9.00% to 10.50%................................ 7,272 7,160
Note payable to stockholder, uncollateralized, payable in
semi-annual installments and lump sums to July 2000,
interest at 8.00%...................................................... 4,750 4,425
Industrial development revenue bonds, collateralized by real estate and
equipment and/or accounts receivable, payable in monthly
installments and lump sums to May 1999, interest variable of 3.82%..... 4,710 905
Other.................................................................... 318 347
------------- -------------
80,698 97,805
Less current maturities.................................................. 5,957 3,162
------------- -------------
$74,741 $94,643
============= =============
</TABLE>
36
<PAGE> 37
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1996
4. LONG-TERM OBLIGATIONS (CONTINUED)
The Company has acquisition/development credit facilities with three
banks which provide for borrowings up to $42,500,000 and $43,750,000 at December
31, 1995 and 1996, respectively. Commitment fees of up to .25% are calculated on
the unused portion. Terms of the credit facilities provide that, at their
option, the banks may request a first mortgage and/or security interest in the
property financed. As of December 31, 1995 and 1996 commitments under these
credit facilities were $37,600,000 and $32,845,000 and outstanding balances were
$33,954,860 and $32,748,000, respectively.
The Company has letter of credit facilities aggregating $4,233,131
available with four banks. Standby letters of credit of $2,635,021 were issued
and outstanding at December 31, 1996. Additionally, the Company has
collateralized Industrial Development Revenue Bonds with letters of credit of
$917,611. Outstanding letters of credit are subject to annual renewal and
issuance fees from 1.0% to 1.5%.
Certain of the Company's borrowing agreements contain covenants which,
among other things, require the maintenance of minimum net worth and certain
financial ratios, and prohibit cash dividends in excess of $400,000 annually.
The Company is in compliance with all provisions of the agreements.
Maturities of long-term obligations as of December 31, 1996 are as
follows (in thousands):
<TABLE>
<C> <C>
1997........................................ $ 3,162
1998........................................ 3,631
1999........................................ 19,713
2000........................................ 18,588
2001........................................ 12,259
Thereafter.................................. 40,452
------------
$97,805
============
</TABLE>
Interest paid amounted to $4,736,000, $5,988,000, and $8,188,000 for
the years ended December 31, 1994, 1995, and 1996, respectively. Interest
capitalized amounted to $348,000, $631,000, and $591,000 for the years ended
December 31, 1994, 1995, and 1996, respectively.
5. LEASES
The Company operates certain Centers pursuant to the terms of operating
leases. Each of the operating leases contains one or more of the following
options: (a) the Company can, after the initial lease term, purchase the
property at the fair value of the property; or (b) the Company can, at the end
of the initial lease term, renew the lease (in some cases at the original terms
and in others at the fair rental value) ranging from one to five periods of five
to seven years. Certain of the leases require the Company to provide a letter of
credit to the lessor sufficient to cover from three months' to one year's lease
payments. Rental payments under operating leases are based on minimum rentals
plus contingent rentals derived from several factors, including the consumer
price index and increases in revenues. Operating lease rental expense included
contingent rentals of $601,789, $614,431, and $623,545 for the years ended
December 31, 1994, 1995, and 1996, respectively.
37
<PAGE> 38
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1996
5. LEASES (CONTINUED)
Future minimum lease payments under operating leases as of December 31,
1996 are as follows (in thousands):
Operating
Leases
-----------
1997................................. $3,483
1998................................. 3,177
1999................................. 3,005
2000................................. 2,853
2001................................. 775
Thereafter........................... -
-----------
Total minimum lease payments......... $13,293
===========
6. STOCK OPTION PLANS
In 1985 and 1995 the Company adopted stock option plans (the 1985 Plan
and 1995 Plan) for key employees and directors. The 1995 Plan authorizes the
issuance of 332,197 shares of common stock, including 132,197 shares which were
previously reserved for issuance under the 1985 Plan. No further options may be
granted under the 1985 Plan. Options granted to eligible employees under the
plans may be incentive stock options under the provisions of the Internal
Revenue Code or nonstatutory options. Options granted to members of the Board of
Directors are nonstatutory options. The options which have been granted under
the plans provide that each employee option award will become exercisable in
five equal installments on the first five anniversaries of the grant date. The
options which have been granted to the outside directors will become exercisable
in three equal installments on the first three anniversaries of the grant date.
Options granted under the plans expire no later than ten years after the grant
date. At December 31, 1996, there were 396,996 shares reserved for issuance
under the plans.
In 1996 the Company adopted a stock option plan (the 1996 Plan) for
non-employee directors. The 1996 Plan authorized the issuance of 42,000 shares
of common stock. Under the terms of the plan, in May, 1996 each of the Company's
five non-employee directors was granted an option to purchase 1,000 shares of
common stock. Additional options to purchase 1,000 shares of common stock
automatically will be granted to non-employee directors on the date of each
future annual meeting of stockholders. The non-statutory options become
exercisable in three equal installments on the first three anniversaries of the
grant date and expire ten years after the grant date. At December 31, 1996,
42,000 shares were reserved for issuance under the 1996 Plan.
38
<PAGE> 39
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1996
6. STOCK OPTION PLANS (CONTINUED)
The effect on net income and net income per share had compensation
expense been computed in accordance with the fair value provisions of SFAS No.
123 is immaterial for each of the years ended December 31, 1995 and 1996,
however, the effects on future years are not presently determinable.
A summary of the Company's stock option activity and related
information for the years ended December 31 follows:
<TABLE>
<CAPTION>
1994 1995 1996
----------------------------- ----------------------------- ----------------------------
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
------------ ----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 51,962 $5.48 160,365 $14.80 281,528 $16.83
Granted 111,667 18.81 200,000 17.31 134,000 20.25
Exercised (1,826) 3.60 (14,451) 5.75 (12,062) 13.63
Canceled (1,438) 4.43 (64,386) 15.73 (117,267) 17.27
------------ ----------- ------------
Outstanding at December 31 160,365 14.80 281,528 16.83 286,199 18.39
============ =========== ============
Exercisable at December 31 24,260 5.89 27,602 12.28 55,999 15.15
============ =========== ============
</TABLE>
7. STOCKHOLDER RIGHTS AGREEMENT
On November 14, 1996, the Company adopted a Stockholder Rights
Agreement (the "Agreement") under which each outstanding share of Company common
stock will carry with it the right to buy one one-thousandth (1/1000th) of a
share of a new series of junior participating cumulative preferred stock at an
exercise price of $100 per right, subject to antidilution adjustments. If a
person or group other than an exempt person acquires 15% or more of the
Company's outstanding voting stock or announces a tender or exchange offer that
would result in ownership of 15% or more of the Company's voting stock, then
each right will become exercisable (except by such acquiring person). An exempt
person includes the Company, any employee benefit plan of the Company and
persons who beneficially held 15% or more of the Company's common stock at the
time of adoption of the Agreement and their affiliates. Thereafter, in the event
of a merger or combination, sale of assets or earnings power, each right then
outstanding will entitle its holder to purchase for $100, subject to
antidilution adjustments, a number of the acquiring party's common stock having
a market value of twice that amount. The Company may redeem all rights for $0.01
per right at any time prior to the acquisition of 15% or more of the Company's
stock by a person or group. The rights will expire on November 14, 2006.
39
<PAGE> 40
<TABLE>
<CAPTION>
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1996
8. INCOME TAXES
The Company's income taxes consisted of the following:
Year Ended December 31
------------------------------------------------------------------
1994 1995 1996
--------------- ------------------- ----------------
(In thousands)
<S> <C> <C> <C>
Current provision:
Federal.............................................. $3,230 $4,052 $4,463
State and local...................................... 598 787 833
--------------- ------------------- ----------------
3,828 4,839 5,296
Deferred provision:
Federal.............................................. 56 399 1,218
State and local...................................... 46 65 214
--------------- ------------------- ----------------
102 464 1,432
--------------- ------------------- ----------------
$3,930 $5,303 $6,728
=============== =================== ================
</TABLE>
Total income taxes differed from the amounts computed by applying the
federal income tax statutory rates to income before income taxes as a result of
the following:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------------------
1994 1995 1996
--------------- ------------------- ---------------
(In thousands)
<S> <C> <C> <C>
Expected federal income tax expense.................... $3,683 $4,677 $5,891
Increase (reduction) in income taxes:
State and local income taxes, net of federal
income tax benefit............................... 425 562 683
Tax credits......................................... (282) (68) (7)
Other............................................... 104 132 161
--------------- ------------------- ---------------
Total income tax expense............................... $3,930 $5,303 $6,728
=============== =================== ===============
</TABLE>
40
<PAGE> 41
<TABLE>
<CAPTION>
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1996
8. INCOME TAXES (CONTINUED)
Significant components of the Company's deferred tax assets and
liabilities are as follows:
December 31
------------------------------------
1995 1996
-------------- ---------------
(In thousands)
Deferred tax assets
<S> <C> <C>
Accrued liabilities and reserves......................... $ 771 $ 1,194
Allowance for doubtful accounts.......................... 486 718
Other.................................................... 63 60
-------------- ---------------
Total deferred tax assets.................................... $ 1,320 $ 1,972
============== ===============
Deferred tax liabilities
Tax depreciation in excess of book depreciation........... $ 2,519 $ 4,317
Other..................................................... 416 702
-------------- ---------------
Total deferred tax liabilities............................... $ 2,935 $ 5,019
============== ===============
</TABLE>
Total income tax payments during the years ended December 31, 1994,
1995, and 1996 were approximately $3,494,000, $5,615,000, and $6,482,000,
respectively.
9. CONCENTRATION OF CREDIT RISK
The Company has concentrations of credit risk in the following
receivables:
<TABLE>
<CAPTION>
December 31
------------------------
1995 1996
----------- ----------
(In thousands)
<S> <C> <C>
Medicare program...................................... $10,416 $11,979
Medicaid programs..................................... $ 7,209 $ 9,142
</TABLE>
10. EMPLOYEE BENEFIT PLANS
The Company has defined contribution plans under Section 401(k) of the
Internal Revenue Code covering eligible employees. Employees may elect to defer
up to 17% of their gross pay and the Company makes matching contributions
subject to certain limitations. The Company's contributions to the plans
amounted to $298,997, $411,206, and $514,609 for the years ended December 31,
1994, 1995, and 1996, respectively.
41
<PAGE> 42
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
THREE YEARS ENDED DECEMBER 31, 1996
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company offers health insurance benefits principally under a
self-insured plan but has purchased insurance to limit both individual and
aggregate claim exposure. Employees who were enrolled in the Company's health
insurance plan prior to retirement are eligible to elect to continue in the plan
for up to 36 months after retirement under COBRA. Claims paid on behalf of
individual retirees are limited by insurance and were not material in 1994,
1995, and 1996.
The Company entered into agreements with certain key executives that
provide, in the event of termination of employment within one year of a change
of control of the Company, for termination payments including (a) cash severance
benefits based on current salary and in certain cases prior year bonus; (b)
acceleration of any unvested stock options; and (c) payment of COBRA insurance
premiums.
11. QUARTERLY RESULTS OF OPERATION FOR YEARS ENDED DECEMBER 31, 1995 AND
1996 (UNAUDITED)
<TABLE>
<CAPTION>
Total Net Operating Net Income
Quarter Ended Revenues Margin Net Income Per Share
- -----------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
March 31, 1995...................... $43,568 $6,468 $1,625 $.24
June 30, 1995....................... 46,700 7,133 1,838 .27
September 30, 1995.................. 49,602 8,445 2,299 .33
December 31, 1995................... 52,288 9,282 2,690 .39
March 31, 1996...................... 52,476 8,229 2,023 .29
June 30, 1996....................... 52,641 8,677 2,243 .32
September 30, 1996.................. 55,961 9,670 2,690 .39
December 31, 1996................... 57,699 10,857 3,267 .47
</TABLE>
Operating margin represents earnings before depreciation and amortization,
interest, operating lease rentals and income taxes.
42
<PAGE> 43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
43
<PAGE> 44
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Company currently consists of seven
members. The Board is divided into three classes of Directors serving staggered
three-year terms. Directors hold their positions until the annual meeting of
stockholders in the year in which their term expires, and until their respective
successors are elected and qualified or until their earlier resignation, removal
from office or death. Executive officers serve at the pleasure of the Board of
Directors.
The following table sets forth the names and ages of the Company's
Directors and executive officers and the positions they hold with the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Pier C. Borra ..................... 57 Chairman, Director (term expiring in 1999),
Chief Executive Officer, President, and a
member of the Executive and Compensation
Committees
Stephen T. Bennett................. 56 Senior Vice President-Development
Richard J. Clark................... 50 Senior Vice President-Health Care and Chief
Operating Officer
Dennis R. Smith.................... 42 Senior Vice President-Finance,
Chief Financial Officer and Chief
Accounting Officer
Allan K. Vrable.................... 45 President, Pharmacy Division
Carl R. Adkins, M.D................ 52 Director (term expiring in 1997) and
nominee for Director (term expiring in 2000)
Howard E. Cox, Jr. ................ 53 Director (term expiring in 1998) and a
member of the Executive and Compensation
Committees
Thomas A. James ................... 54 Director (term expiring in 1998) and a
member of the Executive and Compensation
Committees
Fredrick C. Powell................. 56 Director (term expiring in 1999) and a
member of the Audit Committee
Bruce G. Thompson.................. 67 Director (term expiring in 1999) and a
member of the Audit Committee
James F. White, Jr................. 57 Director (term expiring in 1997), nominee
for Director (term expiring in 2000) and a
member of the Audit Committee
</TABLE>
- -------------------------------------------------------------------------------
44
<PAGE> 45
PIER C. BORRA has served as Chairman of the Board, President and Chief
Executive Officer of the Company since he founded it in April, 1985. From 1980
to 1984, he was President and a Director of Health Care and Retirement
Corporation of America ("HCR"), a public company involved in the development and
operation of nursing homes. From 1972 to 1980, Mr. Borra served as Executive
Vice President and a Director of HCR and its predecessor, Wolfe Industries
Construction Company. Mr. Borra is a Director of Health Care REIT, Inc., a
public company, the shares of which are traded on the New York Stock Exchange.
STEPHEN T. BENNETT has served as Senior Vice President-Development,
since April, 1985. From 1979 to 1984, Mr. Bennett was a Project Planner for HCR.
Prior to 1979, he was a Project Review and Planning Officer for the West Central
Ohio Systems Agency, and a consultant to the State of Ohio in the development of
the state's health plan. From 1988 to 1993, Mr. Bennett served on the Ohio
Certificate of Need Review Board. In 1995, he served as the Governor's appointee
to the Florida Certificate of Need Study Committee.
RICHARD J. CLARK has served as Chief Operating Officer since August,
1994, and as Senior Vice President-Health Care since April, 1985. From 1981 to
1984, Mr. Clark was Vice President of Operations for HCR. From 1978 to 1981, he
was General Manager and Executive Vice President of Heartland Health Care
Company, a division of HCR. Prior to 1978 he was Executive Director of the
Southern Division of Unicare Health Facilities and the Vice President of
Operations of Monterey Life Systems, Inc. Mr. Clark currently is Chairman of the
board and executive committee member of the National Subacute Care Association.
He also currently serves on the American Health Care Association's
multi-facility committee.
DENNIS R. SMITH has served as Senior Vice President-Finance and Chief
Financial Officer since June, 1996 and as Chief Accounting Officer since
February, 1995. From March, 1994 to June, 1996, Mr. Smith was the Company's
Controller. From June, 1991 through March, 1994, Mr. Smith was Corporate
Controller for Triad Healthcare, a spin-off of Nu-Med, Inc. From 1989 to 1991,
he was Treasurer and Vice President of Corporate Finance at Nu-Med, Inc., a
public company, the shares of which are traded on the Nasdaq National Market.
Prior to 1989, Mr. Smith served as Senior Manager in the health care audit
department of Deloitte & Touche.
ALLAN K. VRABLE has served as President of the Company's Pharmacy
Division since August, 1995. He also served as manager of Green Tree Pharmacy,
Inc. ("Green Tree") from November, 1989, through June 30, 1995, when Green Tree
was merged into The Druggist, Inc. which operates under the name of Vrable
Healthcare Services. He has served as President of The Druggist, Inc. since 1978
and of Alternacare Plus Enterprises, Inc.
since 1987.
CARL R. ADKINS, M.D. has served as a Director of the Company since
November, 1996. Dr. Adkins is Chairman, President and Chief Executive Officer of
UtiliMed, Inc. a position he has held since September, 1995. From September,
1992 to September, 1995, he was President and Chief Executive Officer for the
West Region of United HealthCare of Ohio, a subsidiary of United HealthCare
Corp., a public company, the shares of which are traded on the New York Stock
Exchange. From August, 1986 to September, 1992, Dr. Adkins served as Senior Vice
President/Senior Medical Director for the New York Region of U.S. Healthcare.
HOWARD E. COX, JR. has served as a Director of the Company since April,
1985. Mr. Cox is a General Partner of Greylock, a national venture capital firm
headquartered in Boston with which he has been associated for 26 years. Mr. Cox
is a Director of Stryker Corporation, HPR, AMISYS, Vincam and numerous private
companies.
THOMAS A. JAMES has served as a Director of the Company since June,
1988. Mr. James is Chairman and Chief Executive Officer of Raymond James
Financial, Inc. and Chairman of Raymond James & Associates, Inc., an investment
banking and securities firm. Raymond James & Associates, Inc. was a Managing
Underwriter for the Company's initial public offering. Mr. James is Chairman of
the Heritage Family of Mutual Funds, is a director of Imco Recycling, Inc., and
has served as a Director of numerous other public corporations.
45
<PAGE> 46
FREDRICK C. POWELL has served as a Director of the Company since
December, 1990. Mr. Powell is Chief Executive Officer and Founder of Omni
Interactive Systems which custom designs and installs electronic environmental
control systems for homes and businesses. Until December, 1993, he was President
and General Manager of Rehab Systems Company ("Rehab"), a firm he founded in
1987. From 1982 to 1987, he helped form and was Executive Vice President and
Head of Operations for Rehab Hospital Services Corporation. Prior to 1982, Mr.
Powell served as President and Chief Executive Officer at the Bradford,
Pennsylvania hospital. Mr. Powell is a founding Director of Campania Insurance
Co.
BRUCE G. THOMPSON has been a Director of the Company since April, 1985.
Mr. Thompson serves as President of First Toledo Corporation and retired in
November, 1996 as Chairman of the Board and Chief Executive Officer of Health
Care REIT, Inc. ("REIT"), the securities of which are listed on the New York
Stock Exchange, companies he had founded in 1970 and 1971, respectively. Mr.
Thompson is a Director of the REIT, a Director of KeyCorp, formerly known as
Society National Bank, Toledo, Ohio; a Director of the Douglas Company, a
general contractor; a Director of Huron Systems, Inc., which develops hospital
information systems software for health care providers; and Chairman of the
Board of Trustees of Medical College of Ohio.
JAMES F. WHITE, JR. has served as a Director of the Company since May,
1994. Since January 1, 1996, he has been of counsel to the law firm of Shumaker,
Loop & Kendrick, LLP. He served as Vice Chairman and Chief Executive Officer of
Checkers Drive-In Restaurants, Inc. ("Checkers"), a public company, the shares
of which are traded on the Nasdaq National Market, from August, 1994 to August,
1995, and as Vice Chairman from August, 1995 to December, 1995. Mr. White served
as President of Checkers from March to July, 1994, and as Chief Operating
Officer of Checkers from February, 1993 to February, 1994, and was a Director of
the company from January, 1993 to December, 1995. Prior to joining Checkers, Mr.
White was a senior partner of Shumaker, Loop & Kendrick, LLP in Toledo, Ohio. He
practiced law with Shumaker, Loop & Kendrick, LLP for over 25 years and
continued of counsel to the firm until December 31, 1993. Mr. White is a
Director of Danka Business Systems, PLC, a public company, the shares of which
are traded on the Nasdaq National Market.
No family relationships exist between the Company's Directors, nominees
and executive officers. There are no arrangements or understandings between any
Director or nominee and any other person concerning service or nomination as a
Director.
The Board of Directors has Executive, Audit and Compensation
Committees. The Company does not have a Nominating Committee; instead, the
entire Board of Directors functions as a Nominating Committee.
The Executive Committee, to the fullest extent allowed by Delaware
General Corporation law and subject to the powers and authority delegated to the
Audit Committee and the Compensation Committee, has and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Company during intervals between meetings of the Board of
Directors.
The functions of the Audit Committee are to recommend annually to the
Board of Directors the appointment of the independent auditors, discuss and
review the scope and fees of the prospective annual audit with the independent
auditors, review the results thereof with the independent auditors, review
compliance with existing major accounting and financial policies, review the
adequacy of the financial organization of the Company, review the adequacy of
the internal audit process, review the adequacy of internal accounting controls
and monitor compliance with federal and state laws relating to accounting
practice.
The functions of the Compensation Committee are to review compensation
for all officers, to review and approve annual salaries and bonuses for all
executive officers, to review, approve and recommend to the Board of Directors
the terms and conditions of the 401(k) employee benefit plan or changes thereto,
to administer the Company's Stock Option Plans, and to carry out the
responsibilities required by rules of the Securities and Exchange Commission.
46
<PAGE> 47
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors, officers and holders of more than 10% of the Company's
Common Stock to file with the Securities and Exchange Commission initial reports
of ownership and reports of changes in ownership of Common Stock and any other
equity securities of the Company. To the Company's knowledge, based solely upon
a review of the forms, reports and certificates filed with the Company by such
persons, all of them complied with the Section 16(a) filing requirements in
1996, except as follows: Pier C. Borra, Renee A. Borra, Fredrick C. Powell and
Dennis R. Smith each filed one untimely Form 4 report with respect to one
transaction.
47
<PAGE> 48
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table is a summary of the compensation paid or accrued by
the Company for the last three fiscal years, for services in all capacities to
each of the Named Executive Officers.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------
LONG TERM
ANNUAL COMPENSATION COMPENSATION ALL OTHER
NAME AND ------------------- AWARDS - COMPEN-
PRINCIPAL POSITION YEAR SALARY (1) BONUS (2) OPTIONS (3) SATION
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Pier C. Borra 1996 $245,000 $171,638 50,000 $ -
Chairman of the Board, 1995 225,000 148,419 - -
President and Chief Executive 1994 200,000 116,156 - -
Officer
Richard J. Clark 1996 165,000 67,571 - 1,000
Senior Vice President- 1995 135,000 76,438 20,000 1,000
Health Care and Chief 1994 120,000 70,659 - 1,000
Operating Officer
Allan K. Vrable 1996 167,000 60,000 - 1,000
President, Pharmacy 1995 80,000 25,000 - -
Division 1994 - - - -
Stephen T. Bennett 1996 125,000 57,075 - 1,000
Senior Vice President- 1995 115,000 56,845 10,000 479
Development 1994 110,000 48,330 - 1,000
Dennis R. Smith 1996 120,000 34,296 28,000 1,000
Senior Vice President - 1995 87,000 20,342 7,000 650
Finance, Chief 1994 85,000 15,000 5,000 -
Financial Officer and
Chief Accounting Officer
<FN>
- ------------------------------------------------------------------------
(1) Certain perquisites were provided to certain of the Named Executive
Officers, but in no event did the value of the perquisites provided
in any year exceed 10% of the amount of the executive's salary for
that year.
(2) Bonuses were accrued pursuant to individual bonus plans with each
executive officer, which are comprised of an objective component (a
percentage of the Company's pre-tax income in excess of a pre-determined
goal) and a subjective component (based on the Compensation Committee's
evaluation of the executive's overall performance, including performance
in comparison with goals for which the officer has responsibility).
(3) The stock options described in this table which were granted by the
Company in 1996 and 1995 were granted pursuant to the 1995 Stock Option
Plan of the Company. The options vest 20% each year over five years, and
the options granted in 1996 and 1995 expire in 2006 and 2005,
respectively, except for 23,310 options granted in 1996 to Mr. Borra
which expire in 2001. The stock options awarded in 1994 were granted by
the Company pursuant to the 1985 Stock Option Plan of the Company. The
options vest 20% each year over five years and expire in 2004.
</TABLE>
48
<PAGE> 49
STOCK OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table details individual grants of stock options made in
fiscal year 1996 to each of the Named Executive Officers of the Company. The
Company has never granted any stock appreciation rights (SAR). The table also
indicates the potential realizable value of each grant of options assuming that
the market price of the underlying security appreciates in value from the date
of the grant to the end of the option term at the following annualized rates:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS (1) OPTION TERM (2)
- -------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Securities Options Exercise
Underlying Granted to or Base
Options Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
26,690 (3) 20.9 19.50 10/29/06 327,311 829,471
Pier C. Borra 23,310 (3) 18.2 21.45 10/29/01 138,140 305,254
Richard J. Clark - - - - - -
Allan K. Vrable - - - - - -
Stephen T. Bennett - - - - - -
Dennis R. Smith 28,000 (3) 21.9 19.50 10/29/06 343,376 870,183
- -------------------------------------------------------------------------
<FN>
(1) All options were granted pursuant to the 1995 Stock Option Plan.
(2) The 5% and 10% assumed annual rates of stock price
appreciation are provided in compliance with Regulation S-K
under the Securities Exchange Act of 1934. The Company does
not necessarily believe that these appreciation calculations
are indicative of actual future stock option values or that
the price of the Company's Common Stock will appreciate at
such rates.
(3) These options provide that they become exercisable for
one-fifth of the shares on October 29, 1997, and for an
additional one-fifth thereafter on each of the next four
anniversaries of such date.
</TABLE>
49
<PAGE> 50
STOCK OPTION EXERCISES AND YEAR END OPTION VALUES
The following table sets forth information with respect to the Named
Executive Officers concerning the exercise of options during 1996 and
unexercised options held on December 31, 1996.
<TABLE>
<CAPTION>
Number of Securities
Shares Underlying Unexercised Value of Unexercised In-the-
Acquired Value Options at Money Options at
on Exer- Realized December 31, 1996 December 31, 1996 (1)
------------------------------ ------------------------------
Name cise (#) ($000) Exercisable Unexercisable Exercisable Unexercisable
---- -------- ------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Pier C. Borra - - - 50,000 $ - $279,546
Richard J. Clark - - 7,333 16,000 110,659 144,000
Allan K. Vrable - - - - - -
Stephen T. Bennett - - 5,333 8,000 92,659 72,000
Dennis R. Smith 2,400 18,157 1,000 36,600 7,250 235,750
- -------------------------------------------------------------------------
<FN>
(1) Based upon the December 31, 1996 closing stock price of $26.00, as reported on the Nasdaq
National Market.
</TABLE>
TERMINATION OF EMPLOYMENT CHANGE-IN-CONTROL ARRANGEMENTS
On June 1, 1996, the Company entered into key executive termination
payment plans with Pier C. Borra, Richard J. Clark, and Stephen T. Bennett and
on June 21, 1996 with Dennis R. Smith. The termination plan for each of Messrs.
Clark, Bennett and Smith provides that if, within one year following a change in
control of the Company, the Company terminates such employee's employment or
such employee terminates his employment with the Company for good reason
(including diminution of his duties, removal from his position as executive
officer of the Company, reduction in his compensation, or any requirement that
he change his current place of principal residence), such employee will receive
a cash severance benefit equal to the sum of his then current annual base salary
and his prior year's bonus. Mr. Borra's plan provides that, upon the happening
of any such event, he will receive a cash severance benefit equal to two times
the sum of his then current annual base salary and his prior year's bonus. The
severance benefit will be paid in a lump sum within ten business days following
the employee's termination of employment. In addition, such employee will be
entitled to acceleration of any stock options which are unvested at the date of
termination of his employment and payment of COBRA insurance premiums for a
period of six months following the date of termination of his employment. If it
is determined that any payment or distribution by the Company to such employee
would be subject to excise tax, the amount of the payments to him will be
increased to cover such excise tax.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee are Pier C. Borra,
Howard E. Cox, Jr. and Thomas A. James. Mr. Borra is Chairman, President and
Chief Executive Officer of the Company. Mr. Borra abstained from voting as to
his compensation package as an officer. Mr. Borra also is a director of Health
Care REIT, Inc., a company for which Bruce G. Thompson, a director of the
Company, serves as a director and until November, 1996, served as an executive
officer. Mr. James is chairman of Raymond James & Associates, Inc., an
investment banking and securities firm which acted as a managing underwriter in
the Company's initial public offering. Mr. James is also chairman and chief
executive officer of Raymond James Financial, Inc., which owned two subsidiaries
that are the controlling partners in a partnership that is the general partner
in a partnership that owned a health center leased to the Company until
September, 1996, at which time the Company acquired the center. See "Certain
Transactions."
50
<PAGE> 51
DIRECTOR COMPENSATION
Directors who were not officers of the Company received an $8,000
annual retainer in 1996, plus $2,000 for each Board meeting attended. In
addition, Directors are reimbursed for expenses in connection with attendance at
Board meetings. Directors who are officers of the Company receive no extra
compensation for their services as Directors.
In 1996 the Company adopted a stock option plan for non-employee
directors. Under the terms of the plan, each of the Company's six non-employee
directors was granted an option to purchase 1,000 shares of common stock. All of
the options have an exercise price equal to the average closing sale price for
the five most recent trading days prior to the grant date. The non-statutory
options become exercisable in three equal installments on the first three
anniversaries of the grant date and expire ten years after the grant date.
Additional options to purchase 1,000 shares of common stock automatically will
be granted to non-employee directors on the date of each future annual meeting
of stockholders.
51
<PAGE> 52
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 28, 1997, information as
to the beneficial ownership of the Company's Common Stock by (i) each person
known to the Company as having beneficial ownership of more than 5% of the
Company's Common Stock, (ii) each Director and nominee for Director, (iii) each
"named executive officer" as defined in Item 402(a)(3) of Regulation S-K under
the Securities Exchange Act of 1934 ("Named Executive Officers"), and (iv) all
Directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) CLASS
---------------- -------------------- -----
<S> <C> <C>
Pier C. Borra (3)(4) 1,062,324 15.3%
AIM Management Group(5) 510,100 7.4
111 Greenway Plaza
Suite 1919
Houston, TX 77046
Thomas F. Franke (6) 454,324 6.6
410 N. Eagle Street
Marshall, MI 49068
Allan K. Vrable (3)(7) 79,905 1.2
Richard J. Clark (3) 68,416 1.0
Stephen T. Bennett (3) 46,999 *
Howard E. Cox, Jr. (3) 43,546 *
Greylock
One Federal Street
Boston, MA 02110
Thomas A. James (3)(8) 35,000 *
Raymond James Financial, Inc.
880 Carillon Parkway
St. Petersburg, FL 33716
Bruce G. Thompson (3)(9) 25,467 *
First Toledo Corp.
One SeaGate, Suite 1960
P.O. Box 2165
Toledo, OH 43603-2165
Fredrick C. Powell (3) 2,333 *
Omni Interactive Systems
2415A Old Gettysburg Road
Camp Hill, PA 17011
Dennis R. Smith (3) 2,400 *
James F. White, Jr. (3) (10) 2,000 *
Shumaker, Loop & Kendrick, LLP
North Courthouse Square
1000 Jackson
Toledo, OH 43624
</TABLE>
52
<PAGE> 53
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2) CLASS
------------------- ----------------------- -----
<S> <C> <C>
Carl R. Adkins, M.D.(3) -0- *
UtiliMed, Inc
40 Skokie Blvd., Suite 500
Northbrook, IL 60062
All Directors and Executive Officers as 1,368,390 19.7%
a Group (11 persons)
<FN>
* Represents less than one percent of the class.
(1) Unless otherwise indicated above, the address of the persons listed in the table is as follows: c/o Arbor
Health Care Company, 1100 Shawnee Road, Lima, OH 45805.
(2) This column sets forth shares of common stock which are deemed to be
"beneficially owned" by the persons named in the table under Rule 13d-3
of the Securities and Exchange Commission. All of the persons named in
the table have sole voting and investment power with respect to all
shares beneficially owned by them except as otherwise described in the
following footnotes.
(3) See "Directors and Executive Officers" for position with the Company.
(4) Shares are held of record by Pier C. Borra individually (101,666), Renee A. Borra (100,000), and Pier
C. Borra and Renee A. Borra, jointly (860,658). Excludes 33,333 shares held in trust for Mr. Borra's
son as to which he disclaims beneficial ownership.
(5) Based on information contained in Amendment No. 1 to Schedule 13G filed by AIM Management Group
with the Securities and Exchange Commission on February 12, 1997.
(6) Shares are held of record by Thomas F. Franke as Trustee under an Inter
Vivos Trust dated May 20, 1981. The address of the trust is Suite F,
6360 Jackson Road, Ann Arbor, MI 48103. Based on information contained
in Amendment No. 1 to Schedule 13G filed by Thomas F. Franke with the
Securities and Exchange Commission, dated February 2, 1996.
(7) Includes 5,000 shares owned by Mr. Vrable's wife, beneficial ownership of which is disclaimed.
(8) Includes 20,000 shares owned by a charitable foundation for which Mr. James serves as a trustee, beneficial
ownership of which is disclaimed.
(9) Includes 5,555 shares held by Mr. Thompson's son, beneficial ownership of which is disclaimed.
(10) Includes 1,000 shares held in a self-directed retirement plan for the benefit of James F. White, Jr.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
The information set forth herein briefly describes transactions during
the past fiscal year between the Company and its Directors, officers and 5%
stockholders. Management of the Company believes that such transactions have
been on terms no less favorable to the Company than those that could have been
obtained from unaffiliated parties. These transactions have been approved by a
majority of the Company's disinterested Directors and the Audit Committee.
Future transactions, if any, with affiliated parties will be approved by a
majority of the Company's disinterested Directors and the Audit Committee and
will be on terms no less favorable to the Company than those that could be
obtained from unaffiliated parties.
53
<PAGE> 54
On September 19, 1996, the Company acquired Arbors at Waterville, a
100-bed Center that it has operated under an operating lease agreement since
1989. Raymond James Financial, Inc. ("RJFI") owns two subsidiaries that are
controlling partners in a partnership that is the general partner in the
partnership that owned the Center. The general partner's interest in the leased
Center was 1%. Thomas A. James, a Director of the Company, is an officer,
director and major stockholder of RJFI. The purchase price of $5.8 million
consisted of $4.6 million in acquisition borrowings and cash of approximately
$1.2 million. The acquisition was accounted for using the purchase method. The
excess of the purchase price over the estimated fair value of the tangible net
assets acquired is amortized over a period of 20 years using the straight-line
method. Lease expense paid to the partnership in 1996 prior to acquisition was
approximately $401,000. RJFI is an affiliate of Raymond James & Associates,
Inc., an investment banking firm which served as Managing Underwriter for the
Company's initial public offering.
On June 30, 1995, the Company acquired all of the outstanding stock of
The Druggist, Inc. ("Druggist") from Allan K. Vrable. Mr. Vrable currently
serves as President of the Company's Pharmacy Division, The Druggist, Inc. and
Alternacare Plus Enterprises, Inc. ("Alternacare"). The purchase price of $10.5
million consisted of $4.8 million in seller financing, $3.0 million in
additional acquisition borrowings, cash of approximately $2.2 million and $0.5
million in Common stock of the Company (24,968 shares). The Company may be
required to make additional payments of up to $2.5 million if certain earnings
targets are attained through December 31, 1999. The Company leases Druggist and
Alternacare office space from Mr. Vrable under renewable operating lease
agreements. Interest and lease expense paid by the Company to or on behalf of
Allan K. Vrable in 1996 was $373,619 and $240,000, respectively.
54
<PAGE> 55
<TABLE>
<CAPTION>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. The following financial statements are included in Part II, Item 8:
<S> <C>
Report of Independent Auditors....................................................... 27
Consolidated Balance Sheets as of December 31, 1995 and 1996......................... 28
Consolidated Statements of Income for the years ended
December 31, 1994, 1995, and 1996................................................... 29
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994, 1995, and 1996................................................... 30
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995, and 1996................................................... 31
Notes to Consolidated Financial Statements........................................... 32
2. The following financial statement schedule is included in Item 14(d):
Schedule II -- Valuation and Qualifying Accounts
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
55
<PAGE> 56
<TABLE>
<CAPTION>
3. Exhibit Index:
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1* Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-3 (File No. 33-93470) filed
June 14, 1995 under the Securities Act of 1933).
3.2* Restated bylaws of the Company (incorporated by reference to Exhibit 3.2 of the
Company's Registration Statement on Form S-3 (File No. 33-93470) filed June 14, 1995
under the Securities Act of 1933).
4.1 Second Amendment to Amended and Restated Loan Agreement dated December 30, 1996
between the Company and Bank One, Lima, NA.
4.2 Loan Agreement dated August 9, 1996 between the Company and The Provident Bank.
4.3* Second Amended and Restated Revolving Credit and Term Loan Agreement dated June
28, 1996 between the Company and KeyBank National Association,
fka Society National Bank (incorporated by reference to
Exhibit 4.1 of the Company's 10-Q for the quarter ended June
30, 1996).
4.4* Loan Agreement extension letter dated April 11, 1996 between the Company and The Fifth
Third Bank (incorporated by reference to Exhibit 4.2 of the Company's 10-Q for the
quarter ended June 30, 1996).
4.5* Promissory Note dated February 15, 1996 between the Company and Capital One Funding
Corporation (incorporated by reference to Exhibit 4.1 of the Company's 10-Q for the
quarter ended March 31, 1996).
4.6* Reimbursement Agreement dated February 12, 1996 between the Company and Bank One,
Kentucky, N.A. (incorporated by reference to Exhibit 4.2 of the Company's 10-Q for the
quarter ended March 31, 1996).
4.7* Open-End Mortgage and Security Agreement dated February 12, 1996 between the
Company and Bank One, Kentucky, N.A. (incorporated by reference to Exhibit 4.3 of the
Company's 10-Q for the quarter ended March 31, 1996).
4.8* Mortgage and Security Agreements (5) dated February 12, 1996 between the Company and
Bank One, Kentucky, N.A. (incorporated by reference to Exhibit 4.4 of the Company's 10-
Q for the quarter ended March 31, 1996).
4.9* Assignments of Leases and Rents (6) dated February 12, 1996 between the Company and
Bank One, Kentucky, N.A. (incorporated by reference to Exhibit 4.5 of the Company's 10-
Q for the quarter ended March 31, 1996).
4.10* Guaranty Agreement dated February 12, 1996 between the Company and Bank One,
Kentucky, N.A. (incorporated by reference to Exhibit 4.6 of the Company's 10-Q for the
quarter ended March 31, 1996).
4.11* Contingent Guaranty Agreement dated February 12, 1996 between the Company and Bank
One, Kentucky, N.A. (incorporated by reference to Exhibit 4.7 of the Company's 10-Q for
the quarter ended March 31, 1996).
4.12* Working Capital Line of Credit extension letter dated March 31, 1996 between the
Company and Society National Bank (incorporated by reference to Exhibit 4.8 of the
Company's 10-Q for the quarter ended March 31, 1996).
4.13* Letter of Credit extension letter dated March 31, 1996 between the Company and Society
National Bank (incorporated by reference to Exhibit 4.9 of the Company's 10-Q for the
quarter ended March 31, 1996).
4.14* Acquisition and Development Revolving Credit Facility extension letter dated March 31,
1996 between the Company and Society National Bank (incorporated by reference to
Exhibit 4.10 of the Company's 10-Q for the quarter ended March 31, 1996).
</TABLE>
56
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
4.15* Second Amendment to Amended and Restated Revolving Credit and
Term Loan Agreement dated February 9, 1996 between the Company
and Society National Bank (incorporated by reference to
Exhibit 4.11 of the Company's 10-Q for the quarter ended March
31, 1996).
4.16* Amendment to Amended and Restated Loan Agreement dated February 1, 1996
between the Company and Bank One, Lima, N.A. (incorporated by reference to Exhibit
4.12 of the Company's 10-Q for the quarter ended March 31, 1996).
4.17* Acquisition and Development Revolving Credit Facility extension letter dated March
31, 1996 between the Company and Society National Bank (incorporated by reference
to Exhibit 4.1 of the Company's 10-K for the year ended December 31, 1995).
4.18* Working Capital Line of Credit extension letter dated December 21, 1995 between the
Company and Society National Bank (incorporated by reference to Exhibit 4.2 of
the Company's 10-K for the year ended December 31, 1995).
4.19* Letter of Credit extension letter dated December 21, 1995 between the Company and
Society National Bank (incorporated by reference to Exhibit 4.3 of the Company's 10-
K for the year ended December 31, 1995).
4.20* Second Amended and Restated Demand Promissory Note dated December 28, 1995
between the Company and Society National Bank (incorporated by reference to Exhibit
4.4 of the Company's 10-K for the year ended December 31, 1995).
4.21* Amended and Restated Revolving Credit and Term Loan Agreement dated June 1,
1995 between the Company and Society National Bank (incorporated by reference to
Exhibit 4.5 of the Company's 10-K for the year ended December 31, 1995).
4.22* Amendment to Loan Agreement dated September 14, 1995 between the Company and
The Provident Bank (incorporated by reference to Exhibit 4.1 of the Company's 10-Q
for the quarter ended September 30, 1995).
4.23* Acquisition and Development Revolving Credit Facility
extension letter dated August 31, 1995 between the Company and
Society National Bank (incorporated by reference to Exhibit
4.2 of the Company's 10-Q for the quarter ended September 30,
1995).
4.24* Working Capital Line of Credit extension letter dated August 31, 1995 between the
Company and Society National Bank (incorporated by reference to Exhibit 4.3 of the
Company's 10-Q for the quarter ended September 30, 1995).
4.25* Letter of Credit extension letter dated August 31, 1995 between the Company and
Society National Bank (incorporated by reference to Exhibit 4.4 of the Company's 10-
Q for the quarter ended September 30, 1995).
4.26* Loan Agreement dated August 1, 1995 between the Company and The Provident Bank
(incorporated by reference to Exhibit 4.5 of the Company's 10-Q for the quarter ended
September 30, 1995).
4.27* Amended and Restated Loan Agreement dated August 1, 1995 between the Company
and Bank One, Lima, NA (incorporated by reference to Exhibit 4.6 of the Company's
10-Q for the quarter ended September 30, 1995).
</TABLE>
57
<PAGE> 58
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
4.28* Amendment to Amended and Restated Revolving Credit and Term Loan Agreement
dated June 30, 1995 between the Company and Society National Bank (incorporated
by reference to Exhibit 4.1 of the Company's 10-Q for the quarter ended June 30,
1995).
4.29* Amendment to Loan Agreement dated June 30, 1995 between the Company and The
Provident Bank (incorporated by reference to Exhibit 4.2 of the Company's 10-Q for
the quarter ended June 30, 1995).
4.30* Amendment to Loan Agreement dated June 29, 1995 between the Company and Bank
One (incorporated by reference to Exhibit 4.3 of the Company's 10-Q for the quarter
ended June 30, 1995).
4.31* Amendment to Loan Agreement dated June 30, 1995 between the Company and The
Fifth Third Bank (incorporated by reference to Exhibit 4.4 of the Company's 10-Q for
the quarter ended June 30, 1995).
4.32* Acquisition and Development Revolving Credit Facility extension letter dated June 1,
1995 between the Company and Society National Bank (incorporated by reference to
Exhibit 4.5 of the Company's 10-Q for the quarter ended June 30, 1995).
4.33* Working Capital Line of Credit extension letter dated June 1, 1995 between the
Company and Society National Bank (incorporated by reference to Exhibit 4.6 of the
Company's 10-Q for the quarter ended June 30, 1995).
4.34* Letter of Credit extension letter dated June 1, 1995 between the Company and Society
National Bank (incorporated by reference to Exhibit 4.7 of the Company's 10-Q for the
quarter ended June 30, 1995).
4.35* Loan Agreement amendment dated May 31, 1995 between the Company and Bank One
(incorporated by reference to Exhibit 4.8 of the Company's 10-Q for the quarter ended
June 30, 1995).
4.36* Loan Agreement extension letter dated May 29, 1995 between the Company and The
Provident Bank (incorporated by reference to Exhibit 4.9 of the Company's 10-Q for
the quarter ended June 30, 1995).
4.37* Loan Agreement extension letter dated March 22, 1995 between the Company and The
Provident Bank (incorporated by reference to Exhibit 4.1 of the Company's 10-Q for
the quarter ended March 31, 1995).
4.38* Line of Credit for Letters of Credit Agreement dated November 10, 1994 between the
Company and Society National Bank (incorporated by reference to Exhibit 4.1 of the
Company's 10-K for the year ended December 31, 1994).
4.39* Loan Agreement extension letter dated September 16, 1994 between the Company and
The Provident Bank (incorporated by reference to Exhibit 4.1 of the Company's 10-Q
for the quarter ended September 30, 1994).
4.40* Acquisition and Development Revolving Credit Facility
extension letter dated August 31, 1994 between the Company and
Society National Bank (incorporated by reference to Exhibit
4.2 of the Company's 10-Q for the quarter ended September 30,
1994).
4.41* Working Capital Line of Credit extension letter dated August 31, 1994 between the
Company and Society National Bank (incorporated by reference to Exhibit 4.3 of the
Company's 10-Q for the quarter ended September 30, 1994).
4.42* Letter of Credit extension letter dated August 31, 1994 between the Company and
Society National Bank (incorporated by reference to Exhibit 4.4 of the Company's 10-Q
for the quarter ended September 30, 1994).
4.43* Loan Agreement amendment dated September 15, 1994 between the Company and
Bank One (incorporated by reference to Exhibit 4.5 of the Company's 10-Q for the
quarter ended September 30, 1994).
</TABLE>
58
<PAGE> 59
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
4.44* Revolving Credit and Term Loan Agreement dated April 11, 1994 between the
Company and The Fifth Third Bank (incorporated by reference to Exhibit 4.1 of the
Company's 10-Q for the quarter ended June 30, 1994).
4.45* Loan Agreement extension letter dated May 25, 1994 between the Company and The
Provident Bank (incorporated by reference to Exhibit 4.2 of the Company's 10-Q for
the quarter ended June 30, 1994).
4.46* Acquisition and Development Revolving Credit Facility extension letter dated May 18,
1994 between the Company and Society National Bank (incorporated by reference to
Exhibit 4.3 of the Company's 10-Q for the quarter ended June 30, 1994).
4.47* Acquisition and Development Revolving Credit Facility extension letter dated July 31,
1994 between the Company and Society National Bank (incorporated by reference to
Exhibit 4.4 of the Company's 10-Q for the quarter ended June 30, 1994).
4.48* Working Capital Line of Credit extension letter dated May 16, 1994 between the
Company and Society National Bank (incorporated by reference to Exhibit 4.5 of the
Company's 10-Q for the quarter ended June 30, 1994).
4.49* Working Capital Line of Credit extension letter dated July 31, 1994 between the
Company and Society National Bank (incorporated by reference to Exhibit 4.6 of the
Company's 10-Q for the quarter ended June 30, 1994).
4.50* Letter of Credit extension dated May 18, 1994 between the Company and Society
National Bank (incorporated by reference to Exhibit 4.7 of the Company's 10-Q for the
quarter ended June 30, 1994).
4.51* Letter of Credit extension letter dated July 31, 1994 between the Company and Society
National Bank (incorporated by reference to Exhibit 4.8 of the Company's 10-Q for the
quarter ended June 30, 1994).
4.52* Loan Agreement dated December 21, 1993 between the Company and Bank One,
Lima, NA (incorporated by reference to Exhibit 4.1 of the Company's 10-K for the year
ended December 31, 1993).
4.53* Revolving Credit and Term Loan Agreement dated August 11, 1993 between the
Company and The Provident Bank (incorporated by reference to Exhibit 4.1 of the
Company's 10-Q for the quarter ended September 30, 1993).
4.54* Revolving Credit and Term Loan Agreement dated September 30, 1993 between the
Company and Society Bank & Trust (incorporated by reference to Exhibit 4.2 of the
Company's 10-Q for the quarter ended September 30, 1993).
4.55* Revolving Credit and Term Loan Agreement dated June 30, 1992
between the Company and Society Bank & Trust (incorporated by
reference to Exhibit 4.3 of the Company's Registration
Statement on Form S-1 (File No. 33-65080) filed June 25, 1993
under the Securities Act of 1933).
4.56* Line of Credit Agreement dated June 22, 1993 between the Company and Society Bank
& Trust (incorporated by reference to Exhibit 4.4 of the Company's Registration
Statement on Form S-1 (File No. 33-65080) filed June 25, 1993 under the Securities
Act of 1933).
</TABLE>
59
<PAGE> 60
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
4.57* Loan Agreement between the Company and The Provident Bank
dated September 9, 1992 (incorporated by reference to Exhibit
4.5 of the Company's Registration Statement on Form S-1 (File
No. 33-65080) filed June 25, 1993 under the Securities Act of
1933).
4.58* Loan Agreement between the Company and Bank One, Lima, NA
dated December 7, 1992 (incorporated by reference to Exhibit
4.6 of the Company's Registration Statement on Form S-1 (File
No. 33-65080) filed June 25, 1933 under the Securities Act of
1933).
4.59* Commitment Letter dated May 28, 1993 from Bank One, Lima, NA, accepted by the
Company June 7, 1993 (incorporated by reference to Exhibit 4.7 of the Company's
Registration Statement on Form S-1 (File No. 33-65080) filed June 25, 1993 under the
Securities Act of 1933).
4.60* Mortgage and Security Agreement between the Company and
Southtrust Bank of Alabama, National Association, dated
September 29, 1992 (incorporated by reference to Exhibit 4.8
of the Company's Registration Statement on Form S-1 (File No.
33- 65080) filed June 25, 1993 under the Securities Act of
1933).
4.61* Commitment Letter dated as of May 30, 1993, from Society Bank
& Trust for revolving credit facility, accepted by the Company
June 22, 1993 (incorporated by reference to Exhibit 4.9 of the
Company's Registration Statement on Form S-1 (File No.
33-65080) filed July 9, 1993 under the Securities Act of
1933).
4.62* Commitment Letter dated as of July 1, 1993, from The Provident
Bank, informing the Company of reaffirmation of line of credit
(incorporated by reference to Exhibit 4.10 of the Company's
Registration Statement on Form S-1 (File No. 33-65080) filed
July 9, 1993 under the Securities Act of 1933). (The Company
is not filing any instrument with respect to long-term debt
that does not exceed 10 percent of the total assets of the
Company, and the Company agrees to furnish a copy of any such
instrument to the Commission upon request).
10.1 Share Purchase Agreement dated December 16, 1996 between the Company and Diane
S. Bartoli, sole shareholder of Adult Services Unlimited, Inc. and Health Poconos, Inc.
10.2+ Key Executive Termination Payment Plan dated June 1, 1996.
10.3+ Description of 1996 Bonus Plans for Named Executive Officers.
10.4* Purchase and Sale Agreement dated September 19, 1996 between the Company and
Cumberland Healthcare, L.P. I-C. (incorporated by reference to Exhibit 10.1 of the
Company's 10-Q for the quarter ended September 30, 1996).
10.5* Share Purchase Agreement dated June 30, 1996 between the Company and Robert Q.
Baker, sole shareholder of Poly-Stat Supply Corporation(incorporated by reference to
Exhibit 10.1 of the Company's 10-Q for the quarter ended June 30, 1996).
10.6* Share Purchase Agreement dated June 30, 1996 between the
Company and Robert Q. Baker and Richard E. Moon, shareholders
of Poly-Stat Computer Applications, Inc (incorporated by
reference to Exhibit 10.2 of the Company's 10-Q for the
quarter ended June 30, 1996).
10.7* Second Amendment to Lease Agreement dated March 18, 1996 between the Company
and V & V Properties (incorporated by reference to Exhibit 10.1 of the Company's 10-
Q for the quarter ended March 31, 1996).
10.8*+ Arbor Health Care Company 1996 Stock Option Plan for
Non-Employee Directors (incorporated by reference to the
Company's Proxy Statement dated April 8, 1996).
</TABLE>
60
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.9*+ Description of 1995 Bonus Plans for Named Executive Officers (incorporated by
reference to Exhibit 10.1 of the Company's 10-K for the year ended December 31,
1995).
10.10* Asset Purchase Agreement dated April 28, 1995 between the Company and Fairlawn
Associates Limited Partnership (incorporated by reference to Exhibit 10.1 of the
Company's 10-Q for the quarter ended June 30, 1995).
10.11* Amendment to Asset Purchase Agreement dated June 1, 1995 between the Company
and Fairlawn Associates Limited Partnership (incorporated by reference to Exhibit 10.2
of the Company's 10-Q for the quarter ended June 30, 1995).
10.12* Agreement of Merger dated June 30, 1995 between the Company, Green Tree
Pharmacy, Inc., Allan K. Vrable and The Druggist, Inc. (incorporated by reference to
Exhibit 10.3 of the Company's 10-Q for the quarter ended June 30, 1995).
10.13* Addendum to Agreement of Merger dated June 30, 1995 between the Company, Green
Tree Pharmacy, Inc., Allan K. Vrable and The Druggist, Inc. (incorporated by reference
to Exhibit 10.4 of the Company's 10-Q for the quarter ended June 30, 1995).
10.14* Share Purchase Agreement dated June 30, 1995 between the Company and
Allan K. Vrable, sole shareholder of Alternacare Plus Enterprises, Inc. (incorporated
by reference to Exhibit 10.5 of the Company's 10-Q for the quarter ended June 30,
1995).
10.15*+ Employment Agreement dated June 30, 1995 between the Company and Allan K.
Vrable (incorporated by reference to Exhibit 10.6 of the Company's 10-Q for the
quarter ended June 30, 1995).
10.16*+ Arbor Health Care Company 1995 Stock Option Plan (incorporated by reference to the
Company's Proxy Statement dated April 24, 1995).
10.17* Share Purchase Agreement dated June 30, 1994 between the Company and the
Stockholders of Bay Geriatric Pharmacy, Inc. and Home Care Pharmacy, Inc. of Florida
(incorporated by reference to Exhibit 10.1 of the Company's 10-K for the year ended
December 31, 1994).
10.18* Lease Agreement between Highland Oaks Associates, LTD., and Bay Geriatric
Pharmacy, dated May 23, 1991 (incorporated by reference to Exhibit 10.2 of the
Company's 10-K for the year ended December 31, 1994).
10.19* Lease Agreement between FGHP Properties, Limited Partnership and Home Care
Pharmacy, Inc. of Florida, dated March 24, 1993 (incorporated by reference to Exhibit
10.3 of the Company's 10-K for the year ended December 31, 1994).
10.20* First Amendment to lease between the Company and Semi Cane Investments, Inc., as
Successor in Interest to Great Western Bank dated June 17, 1994 (incorporated by
reference to Exhibit 10.4 of the Company's 10-K for the year ended December 31,
1994).
10.21* First Amendment to Lease Agreement dated March 11, 1994 between the Company
and V & V Properties (incorporated by reference to Exhibit 10.5 of the Company's 10-
K for the year ended December 31, 1994).
10.22* Management Agreement between the Company and Fairlawn Nursing Home and
Assisted Living, Inc. dated June 9, 1986, and amendments thereto dated June 13, 1986,
October 1, 1990, and January 1, 1993 (incorporated by reference to Exhibit 10.1 of the
Company's Registration Statement on Form S-1 (File No. 33-65080) filed June 25,
1993 under the Securities Act of 1933).
</TABLE>
61
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C> <C>
10.23* Lease Agreement between the Company and V & V Properties, dated June 2, 1988
(incorporated by reference to Exhibit 10.2 of the Company's Registration Statement
on Form S-1 (File No. 33-65080) filed June 25, 1993 under the Securities Act of
1933).
10.24* Operating Lease between the Company and Health Care Property
Investors, Inc., dated January 31, 1986, as amended September
11, 1991 (incorporated by reference to Exhibit 10.3 of the
Company's Registration Statement on Form S-1 (File No. 33-
65080) filed June 25, 1993 under the Securities Act of 1933).
10.25* Business Property Lease between the Company and Office World, Inc. dated July 1,
1992 (incorporated by reference to Exhibit 10.4 of the Company's Registration
Statement on Form S-1 (File No. 33-65080) filed June 25, 1993 under the Securities
Act of 1933).
10.26* Lease Agreement between the Company and Great Western Bank,
dated July 1, 1992 (incorporated by reference to Exhibit 10.5
of the Company's Registration Statement on Form S-1 (File No.
33-65080) filed June 25, 1993 under the Securities Act of
1933).
10.27* Operating Lease between the Company and Health Care Property
Investors, Inc., dated January 31, 1986, as amended September
11, 1991 (incorporated by reference to Exhibit 10.6 of the
Company's Registration Statement on Form S-1 (File No. 33-
65080) filed June 25, 1993 under the Securities Act of 1933).
10.28* Office Lease between the Company and NFI MetroCenter II Associates dated
November 15, 1992 (incorporated by reference to Exhibit 10.7 of the Company's
Registration Statement on Form S-1 (File No. 33-65080) filed June 25, 1993 under the
Securities Act of 1933).
10.29* Lease Agreement between the Company and Marie Antoinette
Partners, dated April 2, 1986 (incorporated by reference to
Exhibit 10.8 of the Company's Registration Statement on Form
S-1 (File No. 33-65080) filed June 25, 1993 under the
Securities Act of 1933).
10.30* Facility Lease by and between the Company and Cumberland
Healthcare, L.P., I-C, dated February 1, 1989, as amended
November 15, 1991 (incorporated by reference to Exhibit 10.9
of the Company's Registration Statement on Form S-1 (File No.
33- 65080) filed June 25, 1993 under the Securities Act of
1933).
10.31* Lease and Security Agreement between BIP SUB I, INC. and Arbors East, Inc. dated
April 1, 1991 (incorporated by reference to Exhibit 10.10 of the Company's
Registration Statement on Form S-1 (File No. 33-65080) filed June 25, 1993 under the
Securities Act of 1933).
10.32* Operating Lease between the Company and Health Care Properties Investors, Inc.
dated December 30, 1986 and Addendum dated March 23, 1987 (incorporated by
reference to Exhibit 10.11 of the Company's Registration Statement on Form S-1 (File
No. 33-65080) filed June 25, 1993 under the Securities Act of 1933).
10.33*+ First Amended and Restated Incentive Stock Option Plan dated November 26, 1991
(incorporated by reference to Exhibit 10.12 of the Company's Registration Statement
on Form S-1 (File No. 33-65080) filed June 25, 1993 under the Securities Act of
1933).
10.34* Management Agreement dated September 28, 1989 between the Company and The
Druggist, Inc., as amended June 30, 1991 (incorporated by reference to Exhibit 10.14
of the Company's Registration Statement on Form S-1 (File No. 33-65080) filed June
25, 1993 under the Securities Act of 1933).
</TABLE>
62
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.35* Assignment and Assumption of Management Agreement dated
January 4, 1989 among the Company, Fairlawn Nursing Home and
Assisted Living, Inc., and Fairlawn Associates Limited
Partnership, relating to Management Agreement previously filed
as Exhibit 10.1 of the Company's Registration Statement on
Form S-1 filed on June 25, 1993 (File No. 33-65080) and
incorporated by reference herein (incorporated by reference to
Exhibit 10.16 of the Company's Registration Statement on Form
S-1 (File No. 33-65080) filed July 9, 1993 under the
Securities Act of 1933).
10.36*+ Certificate of Amendment dated July 7, 1993, to First
Amended and Restated Incentive Stock Option Plan
previously filed as Exhibit 10.12 of the Company's
Registration Statement on Form S-1 (File No.
33-65080) and incorporated by reference herein
(incorporated by reference to Exhibit 10.17 of the
Company's Registration Statement on Form S-1 (File
No. 33-65080) filed July 9, 1993 under the Securities
Act of 1933).
10.37* Land Lease Agreement between the Company and the Chesapeake
and Potomac Telephone Company of West Virginia dated June 24,
1993 (incorporated by reference to Exhibit 10.18 of the
Company's Registration Statement on Form S-1 (File No. 33-
65080) filed July 29, 1993 under the Securities Act of 1933).
10.38*+ Form of Indemnification Agreement between the Company and its Directors and
Executive Officers (incorporated by reference to Exhibit 10.19 of the Company's
Registration Statement on Form S-1 (File No. 33-65080) filed July 29, 1993 under the
Securities Act of 1933).
11.1 Statement Re Computation of Earnings Per Share.
21.1 List of Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
<FN>
*Previously filed.
+Executive management contract or compensatory plan or arrangement.
</TABLE>
(b) Reports on Form 8K:
Report on Form 8-K dated November 14, 1996 announcing the appointment
of Carl R. Adkins, M.D. as a Director of the Company and announcing the
adoption of a Stockholder Rights Agreement.
(c) Exhibits -- The exhibits listed in Item 14(a)(3) of this report are
filed with this Form 10-K.
(d) Financial Statement Schedules -- The following financial statement
schedule listed in Item 14(a)(2) of this report is filed with this
Form 10-K.
Schedule II -- Valuation and Qualifying Accounts.............................64
63
<PAGE> 64
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PROVISIONS
FOR ACCOUNTS
BALANCE AT LOSSES ON WRITTEN OFF BALANCE AT
ALLOWANCE FOR BEGINNING ACCOUNTS NET OF END OF
DOUBTFUL ACCOUNTS OF PERIOD RECEIVABLE RECOVERIES PERIOD
----------------- --------- ---------- ----------- ------
<S> <C> <C> <C> <C>
Year ended December 31, 1994................ $ 911 $1,554 $1,296 $1,169
Year ended December 31, 1995................ $1,169 $2,219 $2,103 $1,285
Year ended December 31, 1996................ $1,285 $2,993 $2,330 $1,948
</TABLE>
64
<PAGE> 65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Arbor Health Care Company has duly caused this annual report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized, on March 13, 1997.
ARBOR HEALTH CARE COMPANY
(Registrant)
By: /s/ P. BORRA
-------------------------------------
Pier C. Borra, Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Arbor Health Care
Company and in the capacities indicated on March 13, 1997.
Signature Title
--------- -----
/s/ P. BORRA Chairman, President and Chief Executive Officer
- ---------------------------
Pier C. Borra
/s/ DENNIS R. SMITH Senior Vice President-Finance, Chief Financial
- --------------------------- Officer and Chief Accounting Officer
Dennis R. Smith
Pier C. Borra, pursuant to powers of attorney which are being filed with this
Annual Report on Form 10-K, has signed below on March 13, 1997, as
attorney-in-fact for the following directors of the Registrant:
Carl R. Adkins, M.D. Fredrick C. Powell
Howard E. Cox, Jr. Bruce G. Thompson
Thomas A. James James F. White, Jr.
/s/ P. BORRA
---------------------------------
Pier C. Borra
65
<PAGE> 66
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3.1* Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-3 (File No. 33-93470) filed
June 14, 1995 under the Securities Act of 1933).
3.2* Restated bylaws of the Company (incorporated by reference to Exhibit 3.2 of the
Company's Registration Statement on Form S-3 (File No. 33-93470) filed June 14, 1995
under the Securities Act of 1933).
4.1 Second Amendment to Amended and Restated Loan Agreement dated December 30, 1996
between the Company and Bank One, Lima, NA.
4.2 Loan Agreement dated August 9, 1996 between the Company and The Provident Bank.
4.3* Second Amended and Restated Revolving Credit and Term Loan Agreement dated June
28, 1996 between the Company and KeyBank National Association,
fka Society National Bank (incorporated by reference to
Exhibit 4.1 of the Company's 10-Q for the quarter ended June
30, 1996).
4.4* Loan Agreement extension letter dated April 11, 1996 between the Company and The Fifth
Third Bank (incorporated by reference to Exhibit 4.2 of the Company's 10-Q for the
quarter ended June 30, 1996).
4.5* Promissory Note dated February 15, 1996 between the Company and Capital One Funding
Corporation (incorporated by reference to Exhibit 4.1 of the Company's 10-Q for the
quarter ended March 31, 1996).
4.6* Reimbursement Agreement dated February 12, 1996 between the Company and Bank One,
Kentucky, N.A. (incorporated by reference to Exhibit 4.2 of the Company's 10-Q for the
quarter ended March 31, 1996).
4.7* Open-End Mortgage and Security Agreement dated February 12, 1996 between the
Company and Bank One, Kentucky, N.A. (incorporated by reference to Exhibit 4.3 of the
Company's 10-Q for the quarter ended March 31, 1996).
4.8* Mortgage and Security Agreements (5) dated February 12, 1996 between the Company and
Bank One, Kentucky, N.A. (incorporated by reference to Exhibit 4.4 of the Company's 10-
Q for the quarter ended March 31, 1996).
4.9* Assignments of Leases and Rents (6) dated February 12, 1996 between the Company and
Bank One, Kentucky, N.A. (incorporated by reference to Exhibit 4.5 of the Company's 10-
Q for the quarter ended March 31, 1996).
4.10* Guaranty Agreement dated February 12, 1996 between the Company and Bank One,
Kentucky, N.A. (incorporated by reference to Exhibit 4.6 of the Company's 10-Q for the
quarter ended March 31, 1996).
4.11* Contingent Guaranty Agreement dated February 12, 1996 between the Company and Bank
One, Kentucky, N.A. (incorporated by reference to Exhibit 4.7 of the Company's 10-Q for
the quarter ended March 31, 1996).
4.12* Working Capital Line of Credit extension letter dated March 31, 1996 between the
Company and Society National Bank (incorporated by reference to Exhibit 4.8 of the
Company's 10-Q for the quarter ended March 31, 1996).
4.13* Letter of Credit extension letter dated March 31, 1996 between the Company and Society
National Bank (incorporated by reference to Exhibit 4.9 of the Company's 10-Q for the
quarter ended March 31, 1996).
4.14* Acquisition and Development Revolving Credit Facility extension letter dated March 31,
1996 between the Company and Society National Bank (incorporated by reference to
Exhibit 4.10 of the Company's 10-Q for the quarter ended March 31, 1996).
</TABLE>
<PAGE> 67
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
4.15* Second Amendment to Amended and Restated Revolving Credit and
Term Loan Agreement dated February 9, 1996 between the Company
and Society National Bank (incorporated by reference to
Exhibit 4.11 of the Company's 10-Q for the quarter ended March
31, 1996).
4.16* Amendment to Amended and Restated Loan Agreement dated February 1, 1996
between the Company and Bank One, Lima, N.A. (incorporated by reference to Exhibit
4.12 of the Company's 10-Q for the quarter ended March 31, 1996).
4.17* Acquisition and Development Revolving Credit Facility extension letter dated March
31, 1996 between the Company and Society National Bank (incorporated by reference
to Exhibit 4.1 of the Company's 10-K for the year ended December 31, 1995).
4.18* Working Capital Line of Credit extension letter dated December 21, 1995 between the
Company and Society National Bank (incorporated by reference to Exhibit 4.2 of
the Company's 10-K for the year ended December 31, 1995).
4.19* Letter of Credit extension letter dated December 21, 1995 between the Company and
Society National Bank (incorporated by reference to Exhibit 4.3 of the Company's 10-
K for the year ended December 31, 1995).
4.20* Second Amended and Restated Demand Promissory Note dated December 28, 1995
between the Company and Society National Bank (incorporated by reference to Exhibit
4.4 of the Company's 10-K for the year ended December 31, 1995).
4.21* Amended and Restated Revolving Credit and Term Loan Agreement dated June 1,
1995 between the Company and Society National Bank (incorporated by reference to
Exhibit 4.5 of the Company's 10-K for the year ended December 31, 1995).
4.22* Amendment to Loan Agreement dated September 14, 1995 between the Company and
The Provident Bank (incorporated by reference to Exhibit 4.1 of the Company's 10-Q
for the quarter ended September 30, 1995).
4.23* Acquisition and Development Revolving Credit Facility
extension letter dated August 31, 1995 between the Company and
Society National Bank (incorporated by reference to Exhibit
4.2 of the Company's 10-Q for the quarter ended September 30,
1995).
4.24* Working Capital Line of Credit extension letter dated August 31, 1995 between the
Company and Society National Bank (incorporated by reference to Exhibit 4.3 of the
Company's 10-Q for the quarter ended September 30, 1995).
4.25* Letter of Credit extension letter dated August 31, 1995 between the Company and
Society National Bank (incorporated by reference to Exhibit 4.4 of the Company's 10-
Q for the quarter ended September 30, 1995).
4.26* Loan Agreement dated August 1, 1995 between the Company and The Provident Bank
(incorporated by reference to Exhibit 4.5 of the Company's 10-Q for the quarter ended
September 30, 1995).
4.27* Amended and Restated Loan Agreement dated August 1, 1995 between the Company
and Bank One, Lima, NA (incorporated by reference to Exhibit 4.6 of the Company's
10-Q for the quarter ended September 30, 1995).
</TABLE>
<PAGE> 68
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
4.28* Amendment to Amended and Restated Revolving Credit and Term Loan Agreement
dated June 30, 1995 between the Company and Society National Bank (incorporated
by reference to Exhibit 4.1 of the Company's 10-Q for the quarter ended June 30,
1995).
4.29* Amendment to Loan Agreement dated June 30, 1995 between the Company and The
Provident Bank (incorporated by reference to Exhibit 4.2 of the Company's 10-Q for
the quarter ended June 30, 1995).
4.30* Amendment to Loan Agreement dated June 29, 1995 between the Company and Bank
One (incorporated by reference to Exhibit 4.3 of the Company's 10-Q for the quarter
ended June 30, 1995).
4.31* Amendment to Loan Agreement dated June 30, 1995 between the Company and The
Fifth Third Bank (incorporated by reference to Exhibit 4.4 of the Company's 10-Q for
the quarter ended June 30, 1995).
4.32* Acquisition and Development Revolving Credit Facility extension letter dated June 1,
1995 between the Company and Society National Bank (incorporated by reference to
Exhibit 4.5 of the Company's 10-Q for the quarter ended June 30, 1995).
4.33* Working Capital Line of Credit extension letter dated June 1, 1995 between the
Company and Society National Bank (incorporated by reference to Exhibit 4.6 of the
Company's 10-Q for the quarter ended June 30, 1995).
4.34* Letter of Credit extension letter dated June 1, 1995 between the Company and Society
National Bank (incorporated by reference to Exhibit 4.7 of the Company's 10-Q for the
quarter ended June 30, 1995).
4.35* Loan Agreement amendment dated May 31, 1995 between the Company and Bank One
(incorporated by reference to Exhibit 4.8 of the Company's 10-Q for the quarter ended
June 30, 1995).
4.36* Loan Agreement extension letter dated May 29, 1995 between the Company and The
Provident Bank (incorporated by reference to Exhibit 4.9 of the Company's 10-Q for
the quarter ended June 30, 1995).
4.37* Loan Agreement extension letter dated March 22, 1995 between the Company and The
Provident Bank (incorporated by reference to Exhibit 4.1 of the Company's 10-Q for
the quarter ended March 31, 1995).
4.38* Line of Credit for Letters of Credit Agreement dated November 10, 1994 between the
Company and Society National Bank (incorporated by reference to Exhibit 4.1 of the
Company's 10-K for the year ended December 31, 1994).
4.39* Loan Agreement extension letter dated September 16, 1994 between the Company and
The Provident Bank (incorporated by reference to Exhibit 4.1 of the Company's 10-Q
for the quarter ended September 30, 1994).
4.40* Acquisition and Development Revolving Credit Facility
extension letter dated August 31, 1994 between the Company and
Society National Bank (incorporated by reference to Exhibit
4.2 of the Company's 10-Q for the quarter ended September 30,
1994).
4.41* Working Capital Line of Credit extension letter dated August 31, 1994 between the
Company and Society National Bank (incorporated by reference to Exhibit 4.3 of the
Company's 10-Q for the quarter ended September 30, 1994).
4.42* Letter of Credit extension letter dated August 31, 1994 between the Company and
Society National Bank (incorporated by reference to Exhibit 4.4 of the Company's 10-Q
for the quarter ended September 30, 1994).
4.43* Loan Agreement amendment dated September 15, 1994 between the Company and
Bank One (incorporated by reference to Exhibit 4.5 of the Company's 10-Q for the
quarter ended September 30, 1994).
</TABLE>
<PAGE> 69
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
4.44* Revolving Credit and Term Loan Agreement dated April 11, 1994 between the
Company and The Fifth Third Bank (incorporated by reference to Exhibit 4.1 of the
Company's 10-Q for the quarter ended June 30, 1994).
4.45* Loan Agreement extension letter dated May 25, 1994 between the Company and The
Provident Bank (incorporated by reference to Exhibit 4.2 of the Company's 10-Q for
the quarter ended June 30, 1994).
4.46* Acquisition and Development Revolving Credit Facility extension letter dated May 18,
1994 between the Company and Society National Bank (incorporated by reference to
Exhibit 4.3 of the Company's 10-Q for the quarter ended June 30, 1994).
4.47* Acquisition and Development Revolving Credit Facility extension letter dated July 31,
1994 between the Company and Society National Bank (incorporated by reference to
Exhibit 4.4 of the Company's 10-Q for the quarter ended June 30, 1994).
4.48* Working Capital Line of Credit extension letter dated May 16, 1994 between the
Company and Society National Bank (incorporated by reference to Exhibit 4.5 of the
Company's 10-Q for the quarter ended June 30, 1994).
4.49* Working Capital Line of Credit extension letter dated July 31, 1994 between the
Company and Society National Bank (incorporated by reference to Exhibit 4.6 of the
Company's 10-Q for the quarter ended June 30, 1994).
4.50* Letter of Credit extension dated May 18, 1994 between the Company and Society
National Bank (incorporated by reference to Exhibit 4.7 of the Company's 10-Q for the
quarter ended June 30, 1994).
4.51* Letter of Credit extension letter dated July 31, 1994 between the Company and Society
National Bank (incorporated by reference to Exhibit 4.8 of the Company's 10-Q for the
quarter ended June 30, 1994).
4.52* Loan Agreement dated December 21, 1993 between the Company and Bank One,
Lima, NA (incorporated by reference to Exhibit 4.1 of the Company's 10-K for the year
ended December 31, 1993).
4.53* Revolving Credit and Term Loan Agreement dated August 11, 1993 between the
Company and The Provident Bank (incorporated by reference to Exhibit 4.1 of the
Company's 10-Q for the quarter ended September 30, 1993).
4.54* Revolving Credit and Term Loan Agreement dated September 30, 1993 between the
Company and Society Bank & Trust (incorporated by reference to Exhibit 4.2 of the
Company's 10-Q for the quarter ended September 30, 1993).
4.55* Revolving Credit and Term Loan Agreement dated June 30, 1992
between the Company and Society Bank & Trust (incorporated by
reference to Exhibit 4.3 of the Company's Registration
Statement on Form S-1 (File No. 33-65080) filed June 25, 1993
under the Securities Act of 1933).
4.56* Line of Credit Agreement dated June 22, 1993 between the Company and Society Bank
& Trust (incorporated by reference to Exhibit 4.4 of the Company's Registration
Statement on Form S-1 (File No. 33-65080) filed June 25, 1993 under the Securities
Act of 1933).
</TABLE>
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
4.57* Loan Agreement between the Company and The Provident Bank
dated September 9, 1992 (incorporated by reference to Exhibit
4.5 of the Company's Registration Statement on Form S-1 (File
No. 33-65080) filed June 25, 1993 under the Securities Act of
1933).
4.58* Loan Agreement between the Company and Bank One, Lima, NA
dated December 7, 1992 (incorporated by reference to Exhibit
4.6 of the Company's Registration Statement on Form S-1 (File
No. 33-65080) filed June 25, 1933 under the Securities Act of
1933).
4.59* Commitment Letter dated May 28, 1993 from Bank One, Lima, NA, accepted by the
Company June 7, 1993 (incorporated by reference to Exhibit 4.7 of the Company's
Registration Statement on Form S-1 (File No. 33-65080) filed June 25, 1993 under the
Securities Act of 1933).
4.60* Mortgage and Security Agreement between the Company and
Southtrust Bank of Alabama, National Association, dated
September 29, 1992 (incorporated by reference to Exhibit 4.8
of the Company's Registration Statement on Form S-1 (File No.
33- 65080) filed June 25, 1993 under the Securities Act of
1933).
4.61* Commitment Letter dated as of May 30, 1993, from Society Bank
& Trust for revolving credit facility, accepted by the Company
June 22, 1993 (incorporated by reference to Exhibit 4.9 of the
Company's Registration Statement on Form S-1 (File No.
33-65080) filed July 9, 1993 under the Securities Act of
1933).
4.62* Commitment Letter dated as of July 1, 1993, from The Provident
Bank, informing the Company of reaffirmation of line of credit
(incorporated by reference to Exhibit 4.10 of the Company's
Registration Statement on Form S-1 (File No. 33-65080) filed
July 9, 1993 under the Securities Act of 1933). (The Company
is not filing any instrument with respect to long-term debt
that does not exceed 10 percent of the total assets of the
Company, and the Company agrees to furnish a copy of any such
instrument to the Commission upon request).
10.1 Share Purchase Agreement dated December 16, 1996 between the Company and Diane
S. Bartoli, sole shareholder of Adult Services Unlimited, Inc. and Health Poconos, Inc.
10.2+ Key Executive Termination Payment Plan dated June 1, 1996.
10.3+ Description of 1996 Bonus Plans for Named Executive Officers.
10.4* Purchase and Sale Agreement dated September 19, 1996 between the Company and
Cumberland Healthcare, L.P. I-C. (incorporated by reference to Exhibit 10.1 of the
Company's 10-Q for the quarter ended September 30, 1996).
10.5* Share Purchase Agreement dated June 30, 1996 between the Company and Robert Q.
Baker, sole shareholder of Poly-Stat Supply Corporation(incorporated by reference to
Exhibit 10.1 of the Company's 10-Q for the quarter ended June 30, 1996).
10.6* Share Purchase Agreement dated June 30, 1996 between the
Company and Robert Q. Baker and Richard E. Moon, shareholders
of Poly-Stat Computer Applications, Inc (incorporated by
reference to Exhibit 10.2 of the Company's 10-Q for the
quarter ended June 30, 1996).
10.7* Second Amendment to Lease Agreement dated March 18, 1996 between the Company
and V & V Properties (incorporated by reference to Exhibit 10.1 of the Company's 10-
Q for the quarter ended March 31, 1996).
10.8*+ Arbor Health Care Company 1996 Stock Option Plan for
Non-Employee Directors (incorporated by reference to the
Company's Proxy Statement dated April 8, 1996).
</TABLE>
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.9*+ Description of 1995 Bonus Plans for Named Executive Officers (incorporated by
reference to Exhibit 10.1 of the Company's 10-K for the year ended December 31,
1995).
10.10* Asset Purchase Agreement dated April 28, 1995 between the Company and Fairlawn
Associates Limited Partnership (incorporated by reference to Exhibit 10.1 of the
Company's 10-Q for the quarter ended June 30, 1995).
10.11* Amendment to Asset Purchase Agreement dated June 1, 1995 between the Company
and Fairlawn Associates Limited Partnership (incorporated by reference to Exhibit 10.2
of the Company's 10-Q for the quarter ended June 30, 1995).
10.12* Agreement of Merger dated June 30, 1995 between the Company, Green Tree
Pharmacy, Inc., Allan K. Vrable and The Druggist, Inc. (incorporated by reference to
Exhibit 10.3 of the Company's 10-Q for the quarter ended June 30, 1995).
10.13* Addendum to Agreement of Merger dated June 30, 1995 between the Company, Green
Tree Pharmacy, Inc., Allan K. Vrable and The Druggist, Inc. (incorporated by reference
to Exhibit 10.4 of the Company's 10-Q for the quarter ended June 30, 1995).
10.14* Share Purchase Agreement dated June 30, 1995 between the Company and
Allan K. Vrable, sole shareholder of Alternacare Plus Enterprises, Inc. (incorporated
by reference to Exhibit 10.5 of the Company's 10-Q for the quarter ended June 30,
1995).
10.15*+ Employment Agreement dated June 30, 1995 between the Company and Allan K.
Vrable (incorporated by reference to Exhibit 10.6 of the Company's 10-Q for the
quarter ended June 30, 1995).
10.16*+ Arbor Health Care Company 1995 Stock Option Plan (incorporated by reference to the
Company's Proxy Statement dated April 24, 1995).
10.17* Share Purchase Agreement dated June 30, 1994 between the Company and the
Stockholders of Bay Geriatric Pharmacy, Inc. and Home Care Pharmacy, Inc. of Florida
(incorporated by reference to Exhibit 10.1 of the Company's 10-K for the year ended
December 31, 1994).
10.18* Lease Agreement between Highland Oaks Associates, LTD., and Bay Geriatric
Pharmacy, dated May 23, 1991 (incorporated by reference to Exhibit 10.2 of the
Company's 10-K for the year ended December 31, 1994).
10.19* Lease Agreement between FGHP Properties, Limited Partnership and Home Care
Pharmacy, Inc. of Florida, dated March 24, 1993 (incorporated by reference to Exhibit
10.3 of the Company's 10-K for the year ended December 31, 1994).
10.20* First Amendment to lease between the Company and Semi Cane Investments, Inc., as
Successor in Interest to Great Western Bank dated June 17, 1994 (incorporated by
reference to Exhibit 10.4 of the Company's 10-K for the year ended December 31,
1994).
10.21* First Amendment to Lease Agreement dated March 11, 1994 between the Company
and V & V Properties (incorporated by reference to Exhibit 10.5 of the Company's 10-
K for the year ended December 31, 1994).
10.22* Management Agreement between the Company and Fairlawn Nursing Home and
Assisted Living, Inc. dated June 9, 1986, and amendments thereto dated June 13, 1986,
October 1, 1990, and January 1, 1993 (incorporated by reference to Exhibit 10.1 of the
Company's Registration Statement on Form S-1 (File No. 33-65080) filed June 25,
1993 under the Securities Act of 1933).
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C> <C>
10.23* Lease Agreement between the Company and V & V Properties, dated June 2, 1988
(incorporated by reference to Exhibit 10.2 of the Company's Registration Statement
on Form S-1 (File No. 33-65080) filed June 25, 1993 under the Securities Act of
1933).
10.24* Operating Lease between the Company and Health Care Property
Investors, Inc., dated January 31, 1986, as amended September
11, 1991 (incorporated by reference to Exhibit 10.3 of the
Company's Registration Statement on Form S-1 (File No. 33-
65080) filed June 25, 1993 under the Securities Act of 1933).
10.25* Business Property Lease between the Company and Office World, Inc. dated July 1,
1992 (incorporated by reference to Exhibit 10.4 of the Company's Registration
Statement on Form S-1 (File No. 33-65080) filed June 25, 1993 under the Securities
Act of 1933).
10.26* Lease Agreement between the Company and Great Western Bank,
dated July 1, 1992 (incorporated by reference to Exhibit 10.5
of the Company's Registration Statement on Form S-1 (File No.
33-65080) filed June 25, 1993 under the Securities Act of
1933).
10.27* Operating Lease between the Company and Health Care Property
Investors, Inc., dated January 31, 1986, as amended September
11, 1991 (incorporated by reference to Exhibit 10.6 of the
Company's Registration Statement on Form S-1 (File No. 33-
65080) filed June 25, 1993 under the Securities Act of 1933).
10.28* Office Lease between the Company and NFI MetroCenter II Associates dated
November 15, 1992 (incorporated by reference to Exhibit 10.7 of the Company's
Registration Statement on Form S-1 (File No. 33-65080) filed June 25, 1993 under the
Securities Act of 1933).
10.29* Lease Agreement between the Company and Marie Antoinette
Partners, dated April 2, 1986 (incorporated by reference to
Exhibit 10.8 of the Company's Registration Statement on Form
S-1 (File No. 33-65080) filed June 25, 1993 under the
Securities Act of 1933).
10.30* Facility Lease by and between the Company and Cumberland
Healthcare, L.P., I-C, dated February 1, 1989, as amended
November 15, 1991 (incorporated by reference to Exhibit 10.9
of the Company's Registration Statement on Form S-1 (File No.
33- 65080) filed June 25, 1993 under the Securities Act of
1933).
10.31* Lease and Security Agreement between BIP SUB I, INC. and Arbors East, Inc. dated
April 1, 1991 (incorporated by reference to Exhibit 10.10 of the Company's
Registration Statement on Form S-1 (File No. 33-65080) filed June 25, 1993 under the
Securities Act of 1933).
10.32* Operating Lease between the Company and Health Care Properties Investors, Inc.
dated December 30, 1986 and Addendum dated March 23, 1987 (incorporated by
reference to Exhibit 10.11 of the Company's Registration Statement on Form S-1 (File
No. 33-65080) filed June 25, 1993 under the Securities Act of 1933).
10.33*+ First Amended and Restated Incentive Stock Option Plan dated November 26, 1991
(incorporated by reference to Exhibit 10.12 of the Company's Registration Statement
on Form S-1 (File No. 33-65080) filed June 25, 1993 under the Securities Act of
1933).
10.34* Management Agreement dated September 28, 1989 between the Company and The
Druggist, Inc., as amended June 30, 1991 (incorporated by reference to Exhibit 10.14
of the Company's Registration Statement on Form S-1 (File No. 33-65080) filed June
25, 1993 under the Securities Act of 1933).
</TABLE>
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.35* Assignment and Assumption of Management Agreement dated
January 4, 1989 among the Company, Fairlawn Nursing Home and
Assisted Living, Inc., and Fairlawn Associates Limited
Partnership, relating to Management Agreement previously filed
as Exhibit 10.1 of the Company's Registration Statement on
Form S-1 filed on June 25, 1993 (File No. 33-65080) and
incorporated by reference herein (incorporated by reference to
Exhibit 10.16 of the Company's Registration Statement on Form
S-1 (File No. 33-65080) filed July 9, 1993 under the
Securities Act of 1933).
10.36*+ Certificate of Amendment dated July 7, 1993, to First
Amended and Restated Incentive Stock Option Plan
previously filed as Exhibit 10.12 of the Company's
Registration Statement on Form S-1 (File No.
33-65080) and incorporated by reference herein
(incorporated by reference to Exhibit 10.17 of the
Company's Registration Statement on Form S-1 (File
No. 33-65080) filed July 9, 1993 under the Securities
Act of 1933).
10.37* Land Lease Agreement between the Company and the Chesapeake
and Potomac Telephone Company of West Virginia dated June 24,
1993 (incorporated by reference to Exhibit 10.18 of the
Company's Registration Statement on Form S-1 (File No. 33-
65080) filed July 29, 1993 under the Securities Act of 1933).
10.38*+ Form of Indemnification Agreement between the Company and its Directors and
Executive Officers (incorporated by reference to Exhibit 10.19 of the Company's
Registration Statement on Form S-1 (File No. 33-65080) filed July 29, 1993 under the
Securities Act of 1933).
11.1 Statement Re Computation of Earnings Per Share.
21.1 List of Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
<FN>
*Previously filed.
+Executive management contract or compensatory plan or arrangement.
</TABLE>
<PAGE> 1
Exhibit 4.1
SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT
-------------------------------------------------------
THIS SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT ("Second
Amendment") is made and entered into as of December 30, 1996 by and between
Arbor Health Care Company, a corporation organized and existing under the laws
of the State of Delaware, located at 1100 Shawnee Road, Lima, Ohio 45805
("Company"), and Bank One, Lima, NA, 121 West High Street, Lima, Ohio 45802,
("Bank One").
WITNESSETH:
-----------
WHEREAS, Company and Bank One entered into an Amended and Restated Loan
Agreement dated August 1, 1995, as amended by that certain Amendment to Amended
and Restated Loan Agreement dated as of February 1, 1996 (the "Agreement")
pursuant to which Company obtained loans from Bank One up to the maximum amount
of Fourteen Million Dollars ($14,000,000.00); and
WHEREAS, Company and Bank have agreed to amend the Agreement in order to change
the maturity and availability dates of the loans upon the terms and conditions
hereinafter set forth;
NOW, THEREFORE, the parties agree as follows:
A. The first sentence of Section 1.1 of the Agreement is hereby deleted and
replaced by the following:
For the period through July 1, 1998 Bank One hereby agrees to lend
Company up to the maximum aggregate amount of Fourteen Million Dollars
($14,000,000.00) (the "Credit Commitment").
B. The first sentence of Section 1.2.1 of the Agreement is hereby deleted and
replaced by the following:
Company shall execute and deliver to Bank One a promissory note in the
form of Exhibit "A-2" attached hereto (hereinafter referred to as the
"Revolving Credit Note").
C. The first sentence of Section 1.2.3 of the Agreement is hereby deleted and
replaced by the following:
The Revolving Credit Note will mature on July 1, 1998 and shall bear
interest prior to maturity at the rate(s) stated in Section 1.4.
D. Section 1.2.4 of the Agreement is hereby deleted and replaced by the
following:
1.2.4 INTEREST PAYMENTS. Interest on the outstanding principal balance of the
Revolving Credit Note shall be paid by Company in monthly installments
commencing thirty (30) days from the date the Revolving Credit Note is
signed and continuing on the 30th day of each succeeding calendar month
until July 1, 1998, when all accrued but unpaid interest shall be due
and payable in full.
<PAGE> 2
E. The last sentence of Section 1.5 of the Agreement is hereby deleted and
replaced by the following:
The Company shall be entitled to cancel this commitment in whole or in
part at any time prior to July 1, 1998 and such cancellation shall be
irrevocable.
E. In Section 8.1, the definition of "Revolving Credit Note" is hereby deleted
and replaced with the following:
"Revolving Credit Note" shall mean the note in the form of Exhibit
"A-2" attached hereto executed by Company and delivered to Bank One
pursuant to Section 1.2.1 hereof.
F. Company shall execute and deliver to Bank One an Amended and Restated
Revolving Credit Note in the form and substance of Exhibit "A-2".
G. This Second Amendment is a revision only and not a novation, and except as
specifically modified by the terms and conditions of this Second Amendment, all
of the terms and conditions of the Agreement remain in full force and effect.
THE PARTIES HAVE HEREUNTO SET THEIR HANDS and caused this Second Amendment to be
duly executed by their respective duly-authorized officers on the day and year
set forth below.
BANK ONE, LIMA, NA ARBOR HEALTH CARE COMPANY
By: /s/ Jeff Dudderar By: /s/W. Wondolowski
------------------------------- -----------------------------
Its: Vice President Its:Vice President & Treasurer
------------------------------ ----------------------------
Date: 12/30/96 Date: 12/30/96
----------------------------- ---------------------------
<PAGE> 3
EXHIBIT "A-2"
REVOLVING CREDIT NOTE
$1,000,000.00 Lima, Ohio December 30, 1996
On or before July 1, 1998, for value received, the undersigned promises to pay
to the order of Bank One, Lima, NA (hereinafter called "Bank One") the sum of
One Million Dollars ($1,000,000.00) or such lesser portion thereof as may from
time to time be disbursed to, or for the benefit of the undersigned, with
interest (computed on the basis of the actual number of days elapsed divided by
a year of 360 days) before maturity on the balance from time to time remaining
unpaid at the rate or rates provided for in that certain Amended and Restated
Loan Agreement dated August 1, 1995 (the "Loan Agreement"). Both principal and
interest are payable in lawful money of the United States at the Main Office of
Bank One, 121 West High Street, Lima, OH 45802.
This promissory note evidences a borrowing under and is entitled to the benefits
of the Loan Agreement. The principal may become due or may be declared forthwith
due and payable in the manner and upon the terms and conditions and with the
effect provided in said Loan Agreement.
THE UNDERSIGNED, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE, BETWEEN BANK ONE AND THE UNDERSIGNED ARISING OUT OF, IN CONNECTION
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THE
UNDERSIGNED AND BANK ONE IN CONNECTION WITH THIS PROMISSORY NOTE, THE LOAN
AGREEMENT, OR ANY OTHER AGREEMENT OR DOCUMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO. THIS WAIVER SHALL NOT IN
ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY BANK ONE'S ABILITY TO PURSUE
REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION CONTAINED
IN THIS PROMISSORY NOTE OR ANY OTHER DOCUMENT RELATED HERETO.
The undersigned authorize(s) any attorney-at-law to appear for the undersigned
in an action on this promissory note, at any time after the same becomes due, as
herein provided, in any court of record in or of the State of Ohio, or
elsewhere, to waive the issuing and service of process against the undersigned,
and to confess judgment in favor of the legal holder of this promissory note
against the undersigned, for the amount that may be due, with interest at the
rate therein mentioned and cost of suit, and to waive and release all errors in
said proceedings and judgment, and all petitions in error, and right of appeal
from the judgment rendered.
<PAGE> 4
- ------------------------------------------------------------------------------
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE.
- ------------------------------------------------------------------------------
ARBOR HEALTH CARE COMPANY
By:________________________________
Its:_______________________________
<PAGE> 5
REVOLVING CREDIT NOTE
$1,000,000.00 Lima, Ohio December 30, 1996
On or before July 1, 1998, for value received, the undersigned promises to pay
to the order of Bank One, Lima, NA (hereinafter called "Bank One") the sum of
One Million Dollars ($1,000,000.00) or such lesser portion thereof as may from
time to time be disbursed to, or for the benefit of the undersigned, with
interest (computed on the basis of the actual number of days elapsed divided by
a year of 360 days) before maturity on the balance from time to time remaining
unpaid at the rate or rates provided for in that certain Amended and Restated
Loan Agreement dated August 1, 1995 (the "Loan Agreement"). Both principal and
interest are payable in lawful money of the United States at the Main Office of
Bank One, 121 West High Street, Lima, OH 45802.
This promissory note evidences a borrowing under and is entitled to the benefits
of the Loan Agreement. The principal may become due or may be declared forthwith
due and payable in the manner and upon the terms and conditions and with the
effect provided in said Loan Agreement.
THE UNDERSIGNED, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY RIGHT TO HAVE A JURY
PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR
OTHERWISE, BETWEEN BANK ONE AND THE UNDERSIGNED ARISING OUT OF, IN CONNECTION
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THE
UNDERSIGNED AND BANK ONE IN CONNECTION WITH THIS PROMISSORY NOTE, THE LOAN
AGREEMENT, OR ANY OTHER AGREEMENT OR DOCUMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS RELATED HERETO. THIS WAIVER SHALL NOT IN
ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY BANK ONE'S ABILITY TO PURSUE
REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR COGNOVIT PROVISION CONTAINED
IN THIS PROMISSORY NOTE OR ANY OTHER DOCUMENT RELATED HERETO.
The undersigned authorize(s) any attorney-at-law to appear for the undersigned
in an action on this promissory note, at any time after the same becomes due, as
herein provided, in any court of record in or of the State of Ohio, or
elsewhere, to waive the issuing and service of process against the undersigned,
and to confess judgment in favor of the legal holder of this promissory note
against the undersigned, for the amount that may be due, with interest at the
rate therein mentioned and cost of suit, and to waive and release all errors in
said proceedings and judgment, and all petitions in error, and right of appeal
from the judgment rendered.
<PAGE> 6
- ------------------------------------------------------------------------------
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER
FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE
AGREEMENT, OR ANY OTHER CAUSE.
- ------------------------------------------------------------------------------
ARBOR HEALTH CARE COMPANY
By: /s/ W. Wondolowski
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Its: Vice President & Treasurer
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<PAGE> 1
Exhibit 4.2
LOAN AGREEMENT
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This Agreement, dated August 9, 1996, between ARBOR HEALTH CARE
COMPANY, a Delaware corporation, with its principal place of business at 1100
Shawnee Road, Lima, Ohio 45802 (hereinafter called the "Company"), and THE
PROVIDENT BANK, Cincinnati, Ohio, an Ohio banking corporation with its
principal place of business at One East Fourth Street, Cincinnati, Ohio 45202
(hereinafter called the "Bank"),
WITNESSETH
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements hereinafter stated, the parties hereto agree as follows:
Section 1. General Provisions
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1.1 For the period through June 30, 1998, the Bank agrees to make
available to the Company a revolving credit facility not to exceed Twenty
Million and 00/100 dollars ($20,000,000) of indebtedness of the Company to the
Bank outstanding from time to time (the "Loan"), or so much thereof as the
Company may draw upon and borrow from time to time, and the amount, terms, and
conditions of which may be adjusted from time to time under mutual consent.
Each portion of the Loan representing advances applied for the acquisition or
development of a center pursuant to Section 1.2 below is sometimes referred to
herein as the "Facility Loan." Each Facility Loan shall be evidenced by a
Promissory Note (individually and collectively referred to as the "Note") of
the Company in the form annexed hereto as Exhibit A maturing as provided
therein and bearing interest at prime + 0 Basis Points or LIBOR + 175 Basis
Points. The Note shall provide for: two years of monthly interest payments
from date of note: during the third year, monthly interest and principal
payments based upon a 15 year amortization schedule; during years four through
seven, substantially equal monthly payments of principal together with
interest in an amount necessary to fully amortize the balance of the Note over
a four year period. The terms and conditions of the Note may be adjusted by
mutual consent of Bank and Company. The term, principal amount and
amortization specified in this Section, may be adjusted by Bank to reflect
changes in laws and regulations subsequent to this Agreement. The Company may
at any time, or from time to time prepay the Note, in whole or in part,
without penalty.
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1.2 The purpose of the Loan shall be for the acquisition, development
and refinancing by the Company of health care and retirement centers (and
leasehold interests therein), obtaining stand-by letters of credit,
renovations and capital expenditures, and providing for working capital needs.
Any working capital advanced may not exceed $2,000,000 at any one time. The
Company further understands that, with respect to advances drawn under
Facility Loans, the Bank will lend no more than ninety percent (90%) of the
purchase price, development costs, or leasehold interest of any such center.
The Bank reserves the right to approve all terms and conditions of any loans,
advance or commitment at its reasonable discretion.
1.3 The parties agree that the Bank shall have no further obligation
to advance any additional loans to the Company under the terms of previous
Loan Agreements dated August 1, 1995, August 11, 1993, September 9, 1992,
December 5, 1989, and November 7, 1990, between the Company and the Bank.
Section 2. Conditions of Commitment
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The Bank shall not be obligated to lend hereunder unless:
2.1 The representations and warranties in Section 3 shall be true on
and as of the date of each advance with the same effect as though they had
been made on and as of that date, and no Event of Default (as specified in
Section 6) and no event which with the lapse of time or the lapse of time and
the giving of notice would constitute an Event of Default, shall have occurred
and be continuing at the date of each advance.
Section 3. Representations and Warranties of the Company
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The Company represents and warrants that:
3.1 The Company is a corporation duly organized and existing under
the laws of the State of Delaware.
3.2 There is no provision in the Company's Articles of Incorporation
or By-laws, and no provision of any existing indenture, contract or agreement,
to which the Company is a part, which would be contravened by the execution
and delivery hereof or of the Note or by the performance of any of the
covenants, undertakings or actions of the Company provided for in this
Agreement, except as disclosed in Section 3.8 of this Agreement.
3.3 The financial statements of the Company, as of December 31, 1995,
copies of which have been delivered to the Bank, accurately reflect the
financial condition of the Company. There are no undisclosed contingent
liabilities of the Company. There has been no material adverse change in the
financial condition, business or operations of the Company since December 31,
1995.
3.4 No litigation or governmental proceedings are pending or, to the
knowledge of the officers of the Company, threatened against the Company which
could have a material adverse effect on its financial condition or
<PAGE> 3
business, except as set forth in the opinion of the Company's counsel referred
to in Section 2.2 of the Agreement.
3.5 The Company has corporate authority to enter into this agreement
and to incur the obligations provided for herein and the Company has taken all
proper and necessary corporate action to authorize the execution and delivery
of this Agreement, the Note, and other instruments and documents provided for
herein.
3.6 No consent or approval of or exemption by any governmental or
public body or authority is required to authorize, or is required in
connection with, the execution, delivery and performance by the Company of
this Agreement or of any Notes or other documentation in connection herewith.
3.7 The Company has good and marketable title to the properties and
assets set forth in the balance sheet of latest date referred to above, or
purported to have been acquired after said date, excepting, however, property
and assets sold or otherwise disposed of in the ordinary course of business
subsequent to said date. There are no mortgages, liens, charges, or
encumbrances of any nature whatsoever on any of the properties or assets of
the Company financed by the Bank other than those permitted by Section 5.2
hereof.
3.8 The Company is not in default in the performance, observance, or
fulfillment of any of the obligations, covenants, or conditions contained in
any evidence of indebtedness of the Company or in any lease to which the
Company is a party, and the execution and delivery of this Agreement, the
consummation of the transactions herein contemplated, in compliance with the
terms and provisions hereof and of the Note, will not, to the knowledge of the
Company, violate the provisions of any applicable law, or of any applicable
order or regulation of any governmental authority having jurisdiction of the
Company and will not conflict with or result in a breach of any of the terms,
conditions or provisions of any corporate restriction or of any agreement or
instrument to which the Company is now a party, or constitute a default
thereunder, or result in the creation or imposition of any lien, charge, or
encumbrance of any nature whatsoever upon any of the properties or assets of
the Company.
3.9 All plans (as the term "Plan" is defined in Section 4021(a) of
the Employee Retirement Income Security Act of 1974 as amended or supplemented
from time to time ("ERISA")), except multi-employer plans, for which the
Company is an "employer" or a "Substantial Employer" as defined in Section
3(5) and 4001a(2) of ERISA, respectively, are in compliance with ERISA and the
regulations and published interpretations thereunder. To the extent the
Company maintains any qualified defined benefit pension plan:
a. There exists no accumulated funding deficiency with respect
thereto;
<PAGE> 4
b. No reportable event has occurred and is continuing with
respect thereto that requires a 30 day notice to the Pension Benefit Guaranty
Corporation ("PBGC") under Section 4043(a) of ERISA.
c. No lien has been filed or threatened to be filed by the
PBGC pursuant to Subtitle A of Title IV or ERISA, and/or Subparagraph D.
3.10 Environmental Matters:
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(1) There have been no claims, notices, orders or directives
on environmental grounds made or delivered to, pending or served on Company or
its agents, or of which Company or its agents after due investigation are
aware, issued by a governmental department or agency having jurisdiction over
the Land and Improvements, affecting the Land and Improvements or any part
thereof or requiring any work to be done upon or about the Land and
Improvements or any part thereof, including but not limited to clean up
orders; or issued or claimed by any private agency or individual affecting the
Land and Improvements or any part thereof.
(2) To the best of Company's knowledge, there have not been,
are not now and as of the closing date, there will be no solid waste,
hazardous waste, hazardous substance, toxic substances, toxic chemicals,
pollutants or contaminants, underground storage tanks, purposeful dumps,
substances, wastes, pollutants or accidental spills in, on or about the Land
the Improvements, except for medical, biological and related hazardous wastes
disposed of by Company in the ordinary course of business, and to the best of
Company's knowledge, no solid waste, hazardous waste, hazardous substances,
pollutants, contaminants, wastes or toxic substances have ever been stored on
the Land and Improvements by Company, except for medical, biological and
related hazardous wastes disposed of by Company in the ordinary course of
business.
(3) Company agrees and covenants that Bank shall not assume
any liability or obligation for loss, damage, fines, penalties, claims or duty
to clean up or dispose of wastes or materials on or relating to the Land and
Improvements regardless of any inspections of the Land and Improvements made
by the Bank prior to the consummation of this transaction or as a result of
any conveyance of title of the Land and Improvements to the Bank by
foreclosure, deed in lieu of foreclosures, or otherwise. Company agrees to
remain fully liable and shall indemnify and hold harmless Bank from any costs,
expenses, cleanup costs, waste disposal costs, litigation costs, fines,
penalties, including without limitation those costs, expenses, penalties and
fines within the meaning of the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA), the Superfund Amendments and
Reauthorization Act ("SARA"), the Clean Water Act, the Clean Air Act, the
Resource Conservation Recovery Act as amended by the Hazardous and Solid Waste
Amendments of 1984, the Safe Drinking Water Act, the Toxic Substances Control
Act, the Hazardous Materials Transportation Act all as amended and other
federal, state and
<PAGE> 5
local environmental laws, and from other related liabilities, upon the
occurrence of a breach of any of Company's foregoing representations and
warranties.
(4) As used herein, "Land and Improvements" shall mean those
health care facilities which have been or are being acquired or developed with
the proceeds of advances from the Loan.
Section 4. Affirmative Covenants of the Company
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The Company agrees that, from the date hereof and so long as the Note
shall be outstanding, unless the Bank shall otherwise consent in writing:
4.1 The Company will pay when due the principal of, and the interest
on the Notes.
4.2 The Company will pay and discharge when due all taxes,
assessments, levies, and governmental charges imposed upon their properties,
operations, income, products or profits, and all lawful claims, including
claims for labor, material and supplies, which if unpaid might become a lien
or charge upon the Company's property or assets, provided, however, that the
provisions of this paragraph shall not apply to any taxes, assessments, levies
or other alleged liabilities the validity of which is being contested in good
faith by appropriate legal proceedings.
4.3 The Company will provide for the maintenance of insurance with
responsible insurers to the same extend as is usual with corporations in
similar businesses, and will provide the Bank with evidence of its fire and
extended coverage of its property, and such insurance shall provide for the
payment of loss, if any, to Bank or its assigns, as its interests may appear,
and Bank may, at its option, apply the proceeds of such insurance, in whole or
in part, to the reduction of the Company's indebtedness referred to in this
Agreement.
4.4 The Company will furnish Bank:
a. Within ninety (90) days after each fiscal year of the
Company, a copy of the annual audit report of the Company prepared (on a
consolidated basis) and in conformity with generally accepted accounting
principles applied on a basis consistent with that of the preceding fiscal
year, signed by an independent Certified Public Accountant.
b. Within forty-five (45) days after each quarter except the
last quarter of each fiscal year of the Company, a copy of its unaudited
financial statement, similarly prepared, consisting of at least a balance
sheet as of the close of such quarter, a profit and loss statement and an
analysis of cash flow for such quarter and for the period from the beginning
of such fiscal year to the close of such quarter, signed by the appropriate
financial officer of the Company.
<PAGE> 6
c. Such other information as may from time to time reasonably
be requested by Bank.
4.5 Inform the Bank of any litigation involving the Company, the
adverse determination of which might substantially prejudice the payment of
the Loan.
4.6 Maintain its corporate existence and comply with all valid laws
and regulations applicable thereto.
4.7 Maintain a relationship of total debt to net worth such that at
no time will total debt be more than 4.5 times the amount of net worth. Total
debt and net worth will be defined in accordance with generally accepted
accounting principles.
4.8 Maintain current assets in an amount not less than current
liabilities. Current assets and current liabilities shall be determined in
accordance with generally accepted accounting principles.
4.9 Maintain and interest coverage ratio of at least 1.1 to 1 at each
fiscal year end. The "interest coverage ratio" means a ratio in which the
numerator is the sum of net income of the Company calculated for the twelve
(12) month period preceding the date of calculation of such coverage PLUS
federal and state taxes owed or paid by the Company PLUS interest expense PLUS
the sum of noncash expenses or allowances for such period, including, without
limitation, amortization or write down of intangible assets, depreciation,
depletion, and deferred taxes and expenses, LESS an assumed capital
expenditure of $300.00 per bed for all nursing home beds owned/leased by the
Company for the applicable period, and the denominator is the interest expense
of the Company for such period.
In calculating "net income," federal and state taxes on such income
shall be deducted, any extraordinary income shall be deducted.
4.10 Maintain a debt service coverage ratio of at least 1.15 to 1 at
each fiscal year end. The "debt service coverage ratio" means a ratio in which
the numerator is the sum of net income of the Company calculated for the
twelve (12) month period preceding the date of calculation of such coverage
PLUS the sum of noncash expenses or allowances for such period, including,
without limitation, amortization or write down of intangible assets,
depreciation, depletion, and deferred taxes and expenses, LESS any dividends
paid by the Company, and LESS an assumed capital expenditure of $300.00 per
bed for all nursing home beds owned/leased by Company for the applicable
period, and the DENOMINATOR is the sum of the current portion of the long term
debt of the Company at the end of such period.
In calculating "net income," federal and state taxes on the Company's
income shall be deducted, and any extraordinary income shall be deducted. In
calculating "long term debt", this includes all obligations (including capital
lease obligations) which are due more than one (1) year from the date as of
which the computation thereof is made, provided that for
<PAGE> 7
purposes of determining the debt service coverage ratio for the Company as set
forth above, any principal "balloon" or "bullet" payments due at maturity of
indebtedness will not be included in such computation.
4.11 Maintain a net worth of at least $30,000,000 throughout the
fiscal year ending December 31, 1994, a net worth equal to $30,000,000 plus
50% of net income of each year after December 31, 1994. In calculating net
income, federal and state taxes on the Company's income shall be deducted, and
any extraordinary income shall be deducted.
4.12 Maintain, preserve, protect and keep its property used or useful
in the conduct of its business in good repair, working order, and condition
and, from time to time, make all necessary and proper repairs, renewals,
replacements, betterments, and improvements thereto, so that the business
carried on in connection therewith may be properly and advantageously
conducted at all times.
4.13 Comply in all material respects with ERISA and the regulation
and published interpretations thereof. The provisions of this paragraph shall
not apply to any ERISA regulations or published interpretations, the validity
of which is being contested in good faith by appropriate legal proceedings.
4.14 Indemnify Bank for and hold Bank harmless from (including
without limit reasonable attorneys' fees and litigation expenses) any claims
of whatever nature arising out of or in any way related to this Agreement.
4.15 Company hereby covenants that it shall not encumber the property
(real property, furnishings, fixtures, and appliances located at those health
care and leasehold interests which are acquired, developed or refinanced with
the proceeds of the Term Notes) without the Bank's prior written consent.
4.16 Provide Bank with a market study prior to funding of new loan
and a third party appraisal within 90 days of funding any new loan, both of
which support the proposed development or acquisition.
Section 5. Negative Covenants of the Company
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The Company agrees that, from the date hereof and so long as the Note
shall be outstanding, unless the Bank shall otherwise consent in writing, it
will not:
5.1 Liquidate or dissolve or consolidate with, acquire or merge into
any other corporation, sell or otherwise dispose of any substantial part of
its assets or business, unless the surviving or resulting corporation or
transferee is subject to the obligations of Company under this Agreement
(including without limitation Section 4.7 to 4.10) and the Notes executed
pursuant to this Agreement. This Section does not prohibit a merger into or
with a wholly owned subsidiary or affiliate of Company.
<PAGE> 8
5.2 Create any new liens, or encumbrances on any of the facilities
being financed by Bank pursuant to Section 1.2 hereof, except as required
hereunder and except liens being contested in good faith.
5.3 Guarantee, endorse or otherwise become surety for or upon the
obligations of others except by endorsement for deposit or collection in the
ordinary course of business and for guaranties of loans required under
management contracts in an amount not to exceed $750,000 on each management
contract, and except for other guarantees of up to $1,500,000 in aggregate.
5.4 Create, incur, assume, become, or be liable in any manner in
respect of, any indebtedness except:
a. Indebtedness in respect of the Note;
b. Indebtedness under credit commitments including any and all
short term credit provided by banks;
c. Indebtedness incurred in the ordinary course of business;
d. Indebtedness for liens, taxes, assessments, governmental
charges, or claims to the extent that payment thereof shall not be required to
be made by the provisions hereof.
5.5 Make loans or advances of any kind to any firm, corporation, or
enterprise whatsoever, except extensions of credit in the ordinary course of
business.
Section 6. Events of Default
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If any one or more of the following events, herein called "Events of
Default," shall occur and be continuing, for thirty (30) days after written
notice to the Company, the entire principal amount of the Note and accrued
unpaid interest thereon shall become due and payable upon demand by the Bank:
6.1 The Company shall default in the payment of installments of
principal or interest as required by the terms of the Note.
6.2 The Company shall default in the observance or performance of any
covenant or agreement set forth in this Agreement or in any other agreement
executed in connection with the Loan.
6.3 Any representation or warranty made by the Company herein proves
untrue in any material respect.
6.4 The Company becomes insolvent or bankrupt, or makes an assignment
for the benefit of creditors or consents to the appointment of a trustee or
receiver or voluntarily suspends the transaction of its usual business.
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6.5 A trustee or receiver is appointed for all or a substantial part
of the properties of the Company without the consent of the Company and not
being discharged within 30 days.
6.6 Any failure to perform any other covenant or agreement, or to
meet any other condition required to be paid, perform, or met by any loan
document or by any other agreement or contract between the Company and Bank or
any failure to conform to any other warranty or representation contained in
any loan document or in any other agreement or contract between the Company
and Bank.
Section 7. Remedies Upon Default
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Immediately upon the occurrence of any default and continuously
thereafter until Bank waives the default in writing, at Bank's option:
7.1 The outstanding balance of the Loan and all interest accrued
thereon shall be immediately due and payable without demand, presentment of
any kind, notice of dishonor, protest, noting for protest, or other notice of
any kind, all of which are waived.
7.2 Without waiving any prior or subsequent default, Bank may either
waive or, with or without waiving, remedy any default.
7.3 Bank may exercise any remedy or right granted in any loan
document or provided by law and, in so doing, incur reasonable expenses
(including attorney's fees).
7.4 To the extent permitted by law, the Company agrees that if
default shall be made in the payment of the principal of, or interest or late
charges, if any, on the Note, when the same shall become due and payable, it
will pay to the Bank such additional amount as shall be sufficient to cover
the cost and expenses of collection, including reasonable compensation to the
Bank's attorneys.
Section 8. Miscellaneous
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8.1 Neither the failure nor any delay on the part of the Bank to
exercise any right, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right, power or
privilege preclude any other or further exercise thereof or the exercise of
any other right, power or privilege.
8.2 This Agreement shall be binding upon the Company, its successors
and assigns, and shall be binding upon the Bank and shall inure to the benefit
of the Bank and its respective successors and assigns.
8.3 This Agreement shall be construed in accordance with and governed
by the laws of the State of Ohio.
8.4 All Agreements, Representations and Warranties made herein shall
survive the delivery of the Note and the making of the Loan hereunder.
<PAGE> 10
8.5 Bank and its officers, agents and attorneys shall at all
reasonable times be given free and complete access to the place of business of
Company and to its property, ledgers, records and books, provided that the
Bank and its officers, agents and attorneys shall maintain the confidentiality
of any information respecting the Company, its business or operations that
they receive or have access to pursuant to this provision.
8.6 Company hereby assumes and agrees to pay all costs incidental to
the Loan, including without limitation, recording and filing fees, insurance
costs, reasonable fees and out-of-pocket expenses of Bank's counsel in
connection with the negotiation, preparation, execution, performance and
enforcement of this Agreement
8.7 If any provision of the Agreement or the Note is contrary to the
laws of the State of Ohio, the same shall not invalidate the other provision
thereof.
8.8 This Agreement is part and parcel of the single Agreement
consisting of this instrument and the Note executed by the Company pursuant
hereto; all of said agreement, instruments, loans and documents to be read as
a whole in determining the entire Agreement and the intent of the parties.
8.9 All notices, statements, requests and demands to or on the
Company hereunder shall be deemed to have been given when deposited in the
mail, delivered to the courier company, or a facsimile sent, addressed to
Arbor Health Care Company, 1100 Shawnee Road, Lima, OH 45805 or such other
address as may be furnished in writing by the Company to the Bank. No other
method of giving notice or furnishing such information is hereby precluded.
8.10 All notices to be given to the Bank shall be deemed to have been
given when deposited in the mail, delivered to the courier company, or
facsimile sent, addressed to The Provident Bank, One East Fourth Street,
Cincinnati, Ohio 45202, Attn: Senior Commercial Loan Officer. No other method
of giving notice or furnishing such information is hereby precluded.
8.11 AS A SPECIFICALLY BARGAINED INDUCEMENT FOR THE BANK TO EXTEND
CREDIT TO THE COMPANY, THE COMPANY HEREBY WAIVES ANY AND ALL RIGHTS TO TRIAL
BY JURY IN ANY LITIGATION BETWEEN THE BANK AND THE COMPANY ARISING OUT OF THIS
AGREEMENT, THE NOTE AND/OR THE TRANSACTIONS CONTEMPLATED HEREBY.
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the day and year first above written.
THE PROVIDENT BANK ARBOR HEALTH CARE COMPANY
By: /s/Robert C. Lafkas By: /s/W. Wondolowski
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Title: Vice President Title: Vice President & Treasurer
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EXHIBIT A
PROMISSORY NOTE
$___________________ Cincinnati, Ohio ______________, 19 ____
Seven years after date of this Note set forth above, except as set forth
below, the undersigned, for value received, promises to pay to the order of
The Provident Bank, at any of its offices in Cincinnati, Ohio, the sum of
____________________________ , with interest at the rate of LIBOR +1.75% per
annum until maturity, and after maturity at a rate two percent greater than
the stated rate.
Principal and/or interest shall be due and payable in arrears on the monthly
anniversary of the date of this Note set forth above according to the
following schedule:
a. During the first 24 months payments of interest only.
b. During the subsequent 12 months payments of principal and
interest, based on a 15 year amortization period. The 15 year amortization
period is calculated according to a normal mortgage amortization period, and
the interest is variable and calculated monthly.
c. Followed by 4 years of substantially equal monthly payments of
principal together with interest.
If any payment of principal or interest hereunder is not paid when due, and
continues for thirty (30) days after written notice to the Company including
but not limited to the insolvency, bankruptcy, business failure, death,
default in the payment of other obligations or receivership of or concerning
any maker or indorser(s) hereof, this Note shall, at the option of its holder,
become immediately due and payable, without notice to or further consent from
any of them.
If any payment of principal or interest is not paid within 10 days of when
due, the holder at its option may charge and collect, or add to the unpaid
principal balance hereof, a late charge up to the greater of $100 or 1% of the
unpaid balance of this Note at the time of such delinquency for each such
delinquency to cover the extra expense incident to handling delinquent
accounts. Interest will be charged only upon the unpaid balance for the actual
number of days outstanding, except that there will be a minimum Finance Charge
of $25.00. The per diem interest charge hereon is one-three hundred sixtieth
of the per annum interest amount. Prime rate is that annual percentage rate of
interest which is announced by The Provident Bank from time to time, which is
in effect until a new rate is announced and which provides a base to which
loan rates may be referenced.
The undersigned and all endorsers hereby waive presentment, demand for
payment, protest and notice, and agree and consent to the addition of
<PAGE> 13
persons as parties to this obligation without notice to the undersigned, and
to all extensions and/or renewals which the holder hereof may grant. The
undersigned and all indorsers further agree to reimburse the holder for all
advances, charges, costs and expenses, including reasonable attorneys' fees,
incurred or paid in exercising any right, power or remedy conferred by this
Note, or in the enforcement thereof. If the undersigned are more than one (1),
the liability of the undersigned hereon is joint and several, and the term
"undersigned," as used herein, means any one or more of them.
This Note is issued pursuant to a certain Loan Agreement dated as of August 9,
1996 between the undersigned and The Provident Bank and is subject to the
terms and conditions of the Loan Agreement.
The undersigned hereby state(s) that the purpose of the loan evidenced by this
Note is for the development of the ______________________ project. The
provisions of this Note shall be interpreted in accordance with the laws of
Ohio.
ARBOR HEALTH CARE COMPANY
By: _____________________________
Title: __________________________
<PAGE> 1
Exhibit 10.1
SHARE PURCHASE AGREEMENT
This Share Purchase Agreement (hereinafter referred to as the
"Agreement") is made and entered into as of the 16th day of December, 1996, by
and among Arbor Health Care Company, a Delaware corporation (hereinafter
referred to as the "Purchaser"), and Diane S. Bartoli, an individual residing at
4411 McIntosh, Lakes Avenue, Sarasota, FL 34233 (the "Shareholder").
R E C I T A L S
WHEREAS, the Shareholder presently owns all of the issued and
outstanding capital stock of Adult Services Unlimited, Inc., a Pennsylvania
corporation ("ASUI") and Health Poconos, Inc., a Pennsylvania corporation
("HPI") (the shares of ASUI and HPI owned by the Shareholder are hereinafter
collectively referred to as the "Shares");
WHEREAS, ASUI and HPI (hereinafter collectively referred to as the
"Companies") are presently engaged in the business of operating comprehensive
outpatient rehabilitation facility services in Pennsylvania (said business is
hereinafter collectively referred to as the "Companies' Business");
WHEREAS, the Shareholder desires to sell to the Purchaser the Shares
upon the terms and subject to the conditions set forth in this Agreement; and
WHEREAS, the Purchaser desires to purchase from the Shareholder the
Shares upon the terms and subject to the conditions hereinafter set forth in
this Agreement.
NOW, THEREFORE, in consideration of the premises, of the mutual
promises, covenants and conditions herein contained and for other good and
valuable considerations, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound hereby agree as
follows:
1. SALE AND PURCHASE OF EACH SHAREHOLDER'S SHARES.
----------------------------------------------
At the Closing (as that term is hereinafter defined in Section 5 of
this Agreement), the Shareholder shall sell and deliver to the Purchaser and the
Purchaser shall purchase and take from the Shareholder the Shares, all upon the
terms and subject to the conditions set forth in this Agreement. The sale and
delivery by the Shareholder of the Shares to the Purchaser pursuant to this
Section shall be effected by the delivery to the Purchaser by the Shareholder at
the Closing of a certificate or certificates representing the Shares duly
endorsed in blank by the owner of record or accompanied by a duly executed stock
power in blank by the owner of record with such signature guarantees or other
certifications or affidavits as the Purchaser shall reasonably request.
<PAGE> 2
2. CONSIDERATION FOR THE SHARES.
----------------------------
In consideration of the sale and transfer to the Purchaser by the
Shareholder of the Shares as provided in Section 1 of this Agreement, at the
Closing the Purchaser shall deliver to the Shareholder the following:
(a) $1,500,000.00 in immediately available funds (the "Cash"); and
(b) A promissory note (the "Note") in the principal amount of
$1,700,000.00, in the form attached hereto as Exhibit A.
3. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE
-------------------------------------------------
SHAREHOLDER.
------------
The Shareholder hereby represents, warrants and agrees (and
acknowledges that each such representation, warranty and agreement shall be
deemed material and independently relied upon by the Purchaser), in consummating
the transactions herein contemplated as follows:
3.1. BINDING EFFECT. This Agreement constitutes her
legally binding and valid obligation, enforceable in accordance with its terms.
3.2. OWNERSHIP OF THE SHARES. She is the record owner of
and has good and valid title to the Shares, she has full right, power and
authority to sell and deliver the Shares to the Purchaser pursuant to the terms
of this Agreement and, upon the sale and transfer by her of her certificate or
certificates therefor to the Purchaser pursuant to this Agreement, she will
deliver to the Purchaser good and valid title to the Shares, free and clear of
any and all claims, liens, charges, encumbrances, restrictions, agreements and
defects of any kind or nature whatsoever.
3.3. OWNERSHIP OF THE SHARES. The Shares are owned
beneficially and of record by the Shareholder, and she has no right to acquire
or receive any additional shares of the Companies' capital stock.
3.4. VOLUNTARY ACT. She is executing this Agreement
freely, knowingly and voluntarily, she is fully aware of the contents and legal
effects hereof, and such execution is not the result of any duress, mistake or
undue influence whatsoever.
3.5. CLAIMS AGAINST THE PURCHASER OR THE COMPANIES. She
has no presently existing claim, demand, action or cause of action, whether at
law or in equity, whether accrued, contingent, fixed or otherwise, which she
might hereafter attempt to assert against the Purchaser, the Company or any of
their respective attorneys, accountants, parents, subsidiaries, affiliates,
predecessors, officers, directors, employees or stockholders, of any kind,
character or description whatsoever, arising out of, related to or in any manner
connected with, either directly or indirectly, her participation as an employee,
director, officer or stockholder of the Companies,
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including but not limited to (i) any rights to purchase or receive shares of the
Companies' capital stock, or (ii) presently existing claim or basis for a claim
for indemnification from the Companies pursuant to the Companies Articles of
Incorporation or By-Laws, or any agreement or law other than for (a) unpaid
dividends declared by the board of directors of the Companies, (b) salaries
and/or employee expense reimbursements not exceeding $2,000 in the aggregate
with respect to her, and (c) bonuses to be granted to the Shareholder in the
ordinary course of business but which will not reduce the Companies' respective
shareholder equity to a negative number.
3.6. ORGANIZATION. The Companies are corporations duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania and are legally entitled and licensed to own and
lease their respective properties and to carry on the Companies' Business as and
in the places where such properties are now owned, leased or operated. There are
no jurisdictions in which the nature of the assets or the business of the
Companies would require them to qualify as a foreign corporation.
3.7. CAPITALIZATION. The authorized capital stock of ASUI
consists of 100,000 shares of Common Stock, par value $10.00 per share
(hereinafter referred to as the "ASUI Common Stock"), 900 shares of which
are validly issued, fully paid, non-assessable and outstanding. The authorized
capital stock of HPI consists of 500 shares of Common Stock, without par value
(hereinafter referred to as the "HPI Common Stock"), 100 shares of which are
validly issued, fully paid, non-assessable and outstanding (the ASUI Common
Stock and the HPI Common Stock are hereinafter collectively referred to as the
"Common Stock"). No governmental agency or purchaser of shares of the Common
Stock has asserted a claim or demand to either of the Companies that any of such
shares were issued in violation of any federal or state securities laws.
3.8. OPTIONS. There are no existing options, warrants,
commitments or agreements of any kind or nature whatsoever relating to the
issuance of the Common Stock or securities of the Companies and no existing
agreements, trusts or understandings relating to the voting or transfer of the
Common Stock.
3.9. SUBSIDIARIES. The Companies have no subsidiaries or
investments in any subsidiaries or other businesses.
3.10. CORPORATE INSTRUMENTS. The Articles of Incorporation
and By-Laws of the Companies, as amended to date, are true, correct and complete
in all respects. The stock record books of the Companies are true, correct and
complete in all respects and accurately reflect all issuances and transfers of
the authorized capital stock of the Companies. Copies of all such corporate
instruments of the Companies shall be furnished to the Purchaser prior to
Closing.
3.11 CONFLICTS. Except as set forth on Schedule 3.11,
neither the execution and delivery of this Agreement and the consummation of the
transactions herein contemplated nor compliance by the Shareholder with any
provisions hereof will; (a) conflict with, cause an
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acceleration of or result in a material breach of or default under any of the
terms, conditions, or provisions of any (i) article of the Articles of
Incorporation or any of the By-Laws of the Companies; or (ii) note, bond,
mortgage, indenture, license, agreement or other instrument to which either of
the Companies is a party or by which they or any of their property is bound; or
(b) violate any order, writ, injunction, decree, statute, rule or regulation,
the violation of which would have a material adverse consequence upon the
Companies, their properties, and their assets, each taken as a whole.
3.12. CONSENT. Except as set forth on Schedule 3.12, no
consent or approval by any governmental agency or authority or any
non-governmental person or entity is required in connection with the execution,
performance and delivery by the Shareholder of this Agreement or the
consummation of the transactions herein contemplated (including, but not limited
to, consents from federal, state, municipal or other governmental agencies or
authorities having jurisdiction over the Companies Business).
3.13. FINANCIAL STATEMENTS. The Companies have each
previously furnished the Purchaser with a true, correct and complete copy of the
internal balance sheet and income statement dated September 30, 1996 and the
compiled balance sheet and income statement for the fiscal years ended December
31, 1995, December 31, 1994, December 31, 1993, December 31, 1992 and December
31, 1991 (hereinafter referred to individually and/or collectively as the
"Financial Statements"). The Financial Statements fairly present the financial
position of the Companies as of their respective dates and the results of their
operations for the respective periods then ended. The shareholders' equity of
ASUI and HPI, as stated on their respective Financial Statements, is at least
$302,645 and $332,981, respectively at September 30, 1996, but may be reduced to
zero by the time of the Closing.
3.14. MACHINERY AND EQUIPMENT. Schedule 3.14 sets forth as
of September 30, 1996 a complete list, description and location of each item of
the Companies' machinery, equipment and other tangible assets used in the
Companies Business having an initial cost of greater than $1,000
(hereinafter referred to as the "Machinery and Equipment"). Each such item of
the Machinery and Equipment is in good operating condition and repair, normal
wear and tear excepted, and is free of any material defects. Since September 30,
1996 and except as otherwise provided in Schedule 3.14, there has been no sale
or other disposition of any of the Machinery and Equipment.
3.15. LEASED PROPERTY. Schedule 3.15 sets forth as of the
date of this Agreement each parcel of real property (including all
improvements thereto) leased by the Companies (hereinafter referred to as the
"Leased Property"). The Companies shall deliver to the Purchaser copies of such
leases. The Companies are not in default under any such leases and such leases
are in full force and effect. The Companies do not own any real property.
3.16. ACCOUNTS RECEIVABLE. Except as disclosed on Schedule
3.16, all accounts receivable of the Companies (hereinafter referred to as the
"Accounts Receivable") as of
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September 30, 1996 and all notes and accounts receivable acquired by it
subsequent to September 30, 1996, have arisen in the ordinary course of business
and have been collected or are in the process of collection and will be
collected in the ordinary course of business in the aggregate recorded amounts
thereof, less the applicable allowances of $155,000 and $100,000, set up on the
books of ASUI and HPI, respectively, as of the date hereof. Schedule 3.16 also
sets forth a description of the Companies' policies and current status with
respect to sales discounts, returns and allowances, and also sets forth a
description of any material changes in credit terms since September 30, 1996.
3.17. PATENTS AND TRADEMARKS. Schedule 3.17 sets forth a
true, correct and complete listing of all patents, trademarks, trade names,
brand names and registered copyrights and any pending applications therefor,
owned by or licensed to either of the Companies (hereinafter collectively
referred to as the "Patents"), together with a brief statement as to the filing,
registration or issuance thereof, as to any licenses, sublicenses, covenants or
agreements entered into or granted by or to the Companies with respect
thereto and as to any pending or threatened disputes or adverse claims with
respect thereto. Except as set forth on Schedule 3.17, there is no claim or
demand of any person pertaining to, or any proceedings which are pending or, to
the best knowledge of the Companies, overtly threatened, which challenge: (a)
the rights of the Patents; or (b) the rights of the Companies in respect of any
material confidential information or material trade secrets used in the conduct
of the Companies' Business. None of the Patents are subject to any outstanding
order, ruling, decree, judgment or stipulation by or with any court, arbitrator
or administrative agency or, to the best knowledge of the Companies, infringes
or is being infringed by others or is used by others (whether or not such use
constitutes infringement), except for orders, rulings, decrees, judgments,
stipulations or alleged infringements set forth on Schedule 3.17, none of which
individually or collectively will materially and adversely affect the Companies'
Business.
3.18. ASSETS USED IN BUSINESS. Since September 30, 1996,
the Companies have not utilized any material assets in the conduct of the
Companies' Business other than: (a) assets reflected on the balance sheets
included in the Financial Statements; (b) assets set forth in the Schedules; and
(c) supplies and inventories acquired, consumed or disposed of by the Company
since September 30, 1996 in the ordinary course of the Companies' Business.
3.19. TITLE TO ASSETS. The Companies each have good, valid
and indefeasible leasehold title to the Leased Property, to all of the assets
listed on the Schedules delivered to the Purchaser by the Companies and to
all of the assets, both real and personal, reflected on the balance sheets
included in the Financial Statements (except for such assets sold, consumed or
otherwise disposed of in the ordinary course of the Companies' Business since
the dates of such balance sheets), free and clear of all mortgages, liens,
pledges, charges, restrictions, agreements, encroachments or encumbrances of any
kind or nature whatsoever, except; (a) for those associated with the
indebtedness listed on Schedule 3.23; and (b) liens for current taxes not yet
due and payable.
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3.20. NO UNDISCLOSED LIABILITIES. Except as set forth on
Schedule 3.20, the Companies have no material liabilities or obligations of any
kind or nature whatsoever, whether absolute, accrued, contingent or
otherwise and whether due or to become due, other than: (a) those reflected on
or referred to in the Financial Statements and not since paid or discharged; or
(b) those incurred since September 30, 1996 in the ordinary course of the
Companies' Business or disclosed in one or more Schedules delivered to the
Purchaser by the Companies. Except as set forth on Schedule 3.20, the Companies
do not have, directly or indirectly, any contractual arrangement with or
commitment to or from any of its officers, directors or employees. Without
limiting the generality of the foregoing and except as so disclosed, no officer,
director, shareholder or employee of the Companies was or is, directly or
indirectly, a joint investor or co-venturer with, or owner, lessor, lessee,
licensor, licensee or supplier of any real or personal property, tangible or
intangible, owned or used by or a lender to or debtor of the Companies and the
Companies have no commitments or obligations as a result of any such transaction
prior to the date of this Agreement.
3.21. ACCOUNTS PAYABLE. Schedule 3.21 sets forth as of
September 30, 1996 all of the accounts payable of the Companies as of such date.
No accounts payable have arisen since September 30, 1996 except in the ordinary
course of the Companies' Business.
3.22. TAXES. Copies of all federal, state and local, as the
case may be, income tax returns of each of the Companies for each of the five
(5) consecutive taxable years ended December 31 have heretofore been delivered
to the Purchaser. The Companies have filed or made all federal, state and local
income and other tax returns and tax filings which it has been required to file
or make (and there are no requests pending for extensions of time to file or
make any such returns or filings) and have paid all taxes and governmental
charges due and payable as shown on such returns and filings. The Companies have
never been audited by any federal, state or local taxing authority, with the
exception of Medicare audits performed in calendar year 1995.
3.23. INDEBTEDNESS. Schedule 3.23 sets forth as of the
date of this Agreement a complete description of any indebtedness for borrowed
money incurred, assumed or guaranteed by the Companies.
3.24. CAPITAL EXPENDITURES. Schedule 3.24 sets forth as of
the date of this Agreement each outstanding commitment of each of the Companies
to make a capital expenditure, capital addition or capital improvement in the
amount of $5,000.00 or more individually or $25,000.00 in the aggregate.
3.25. GOVERNMENTAL AUTHORIZATIONS. The Companies now have
and, in a manner consistent with good business practice, will maintain in effect
through the Closing all licenses, permits, certificates, agreements, consents
and other authorizations from all federal, state and local agencies or
authorities as are necessary for the lawful and proper conduct of the Companies'
Business. Schedule 3.25 sets forth as of the date of this Agreement a complete
list of all such governmental authorizations material to the conduct of the
Companies' Business.
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3.26. EMPLOYEES. Schedule 3.26 sets forth as of the date of
this Agreement a complete list of all officers, directors and employees of the
Companies, whether full time or part time, indicating the name of each such
person, the method and the amount of annual compensation of each such person and
the title or job description of each such person.
3.27. CONSULTANTS. Schedule 3.27 sets forth as of the date
of this Agreement a complete list of all consultants of the Companies, whether
full time or part time, indicating the name of each consultant and any
compensation arrangement with each consultant.
3.28. FRINGE BENEFITS. Schedule 3.28 sets forth as of the
date of this Agreement a complete list and description of all fringe benefits,
including hospitalization insurance, accident and health insurance,
disability insurance, death insurance, vacation policies, meals and lodging
policies and parking policies of the Companies, along with true, correct and
complete copies of all contracts, policies, procedures, actuarial reports and
manuals of employee disclosures related thereto.
3.29. EMPLOYEE BENEFIT PLANS. Schedule 3.29 sets forth as
of the date of this Agreement a complete list and description of all employment
contracts, bonus, collective bargaining, deferred compensation, stock
option, profit-sharing, pension, retirement, termination, incentive or other
similar arrangement, plan or commitment (other than those described on Schedule
3.28 or Schedule 3.30) to which either of the Companies is a party or by which
either of the Companies or their respective assets or properties are bound along
with complete copies of such documents, arrangements or plans.
3.30. ERISA PLANS. The only "employee benefit plans"
(hereinafter referred to as the "Plans"), as that term is defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), with respect to which any liability under ERISA or otherwise
presently exists or may be incurred by the Companies are those listed on
Schedule 3.30. Neither of the Companies has at any time in the past five years
made (or been obligated to make) contributions to any "multiemployer plan" as
defined in Section 3(37) or ERISA or to any multiple employer plan subject to
Sections 4063 and 4064 of ERISA, except as described in Schedule 3.30. For each
such plan, Schedule 3.30 contains a complete and accurate description of (i) the
unfunded vested benefits, if any, of such Plan as of its most recent valuation
date, and (ii) the Companies' best estimate of the liability, if any, the
Companies would incur under ERISA Section 4062 and 4203 as a result of an
immediate withdrawal form such plan on the Closing. No material liability under
ERISA or otherwise has been incurred by the Companies with respect to any Plan,
individually or in the aggregate, and the Shareholder is not aware of any facts
which indicate that such liability is reasonably likely to be incurred in the
future. No "prohibited transaction," as such term is defined in Section 406 of
ERISA or in Section 4975 of the Internal Revenue Code of 1954, as amended (the
"Code"), nor any "reportable event," as that term is defined in Section 4043 of
ERISA has occurred with respect to any Plan, no "accumulated funding
deficiency," as such term is defined in Section 302 of ERISA or in Section 412
of the Code (whether or not waived) exists with respect to any Plan and no
suits, claims or other actions have
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been commenced or threatened with respect to any Plan. No Plan is a "defined
benefit plan" as that term is defined in Section 3(35) of ERISA.
3.31. AGREEMENTS AND COMMITMENTS. Schedule 3.31 sets forth
as of the date of this Agreement a complete list of all written agreements
(copies of which shall have been delivered to the Purchaser), and describes all
oral agreements and commitments to which either of the Companies is a party,
concerning the following:
3.31.1. PURCHASE AND SALE COMMITMENTS. Each outstanding
purchase and sale commitment of the Companies in the amount of
$1,000.00 or more. No material outstanding purchase commitments by the
Companies is in excess of the normal, ordinary and usual requirements
of the Companies' Business. No commitment the term of which extends
beyond ninety (90) days after the date hereof purports to obligate the
Companies to sell any product or service at a price which, in view of
currently prevailing and projected costs of raw materials, would
result, when all such sales commitments are taken in the aggregate, in
a loss to the Companies. The Companies have not rendered billings for
or collected progress or other advance payments under any sales
commitment providing for such payments in excess of amounts which
could reasonably be billed or collected on the basis of work actually
completed thereunder.
3.31.2. DISTRIBUTORSHIP AND SALES MANAGEMENT. Each
distributorship, sales, agency, franchise or similar agreement of the
Companies.
3.31.3. OTHER AGREEMENTS. Each material contract, agreement
and commitment to which either of the Companies is a party or by which
either of the Companies or any of their assets are bound other than
those disclosed on the other Schedules delivered to the Purchaser by
the Companies.
3.31.4. PHYSICIAN REFERRALS. Each physician (or an immediate
family member of such physician) that has a financial relationship (as
defined in 42 U.S.C.A. ss.1395) with either of the Companies and who
makes referrals to either of the Companies.
3.32. ADVERSE CHANGE. Schedule 3.32 sets forth as of the
date of this Agreement a complete description of any material adverse change in
the financial condition, business or properties of the Companies occurring after
September 30, 1996, whether or not such change is reflected in the Financial
Statements or in the ordinary course of the Companies' Business including, but
not limited to, any material change in the value of the assets or properties of
the Companies or changes to laws or rules affecting the Companies' Business.
3.33. INSURANCE POLICIES. Schedule 3.33 sets forth as of
the date of this Agreement a complete description of all policies of insurance
with respect to the Companies covering their properties, buildings, machinery,
equipment, furniture, fixtures, operations and employees including, but not
limited to, policies covering errors and omissions and public
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liability, along with true, correct and complete copies of all such policies.
All of such policies are in full force and effect. The Companies are not in
default with respect to any provisions of any such policy and has not failed to
give any notice or present any material claim thereunder in due and timely
fashion. There are no claims pending under such policies related to the
Companies' Business except as disclosed as Schedule 3.33.
3.34. SUPPLIERS. Schedule 3.34 sets forth as of the date
of this Agreement a complete list of all suppliers to the Companies which were
paid more than $10,000.00 by the Companies during the last twelve (12) months
prior to the date of this Agreement. There has been no material changes in
suppliers during the last three (3) years except as set forth on Schedule 3.34.
3.35. STATUS OF AGREEMENTS. Each of the contracts,
agreements, commitments, licenses and leases listed on Schedules delivered by
the Companies pursuant to this Agreement that are in full force and effect, are
a valid and legally binding obligation as to the Companies, and there is no
material default under the terms of any thereof (and no condition exists which,
with the passage of time, the giving of notice, or both, would result in such a
material default under the terms of any thereof).
3.36. BANK ACCOUNTS. The name of every bank in which the
Companies have an account or safe deposit box, the identifying numbers of all
such accounts and safe deposit boxes, and the names of all persons having power
to borrow, discount debt obligations, cash or draw checks or otherwise act on
behalf of the Companies in any dealings with such banks are set forth on
Schedule 3.36.
3.37. INTERIM OPERATIONS. Except as disclosed on Schedule
3.37, on the other Schedules delivered by the Companies to the Purchaser or
in the Financial Statements, since September 30, 1996, the Companies' Business
has been conducted only in the ordinary course and there has not been: (a) any
material change in the condition (financial or otherwise), assets, liabilities
or business of the Companies other than changes in the ordinary course, none of
which, singly or in the aggregate, has been materially adverse; (b) any damage,
destruction or loss (whether or not covered by insurance) materially and
adversely affecting the business or assets of the Companies taken as a whole;
(c) any declaration, setting aside a payment of any dividend, or other
distribution, in respect of the Common Stock or any direct or indirect
redemption, purchase or other acquisition of any capital stock of the Companies
(d) any option to purchase the Common Stock granted to any person, or any
employment or deferred compensation agreement entered into between the Companies
and any of their officers, directors, employees or consultants; (e) any issuance
or sale by the Companies of any stock, bonds, or other corporate securities; (f)
any labor disputes materially and adversely affecting the business or assets of
the Companies; (g) to the best of the knowledge of the Shareholder, any statute
enacted or proposed or any rule or regulation adopted or proposed which may
materially and adversely affect the Companies' Business; (h) any mortgage,
pledge, lien or other encumbrance or security interest (other than liens for
current taxes not yet due and such encumbrances, if any, except such as are not
substantial in character, amount
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or extent and do not materially detract from the value or interfere with the
present or proposed use of the property subject thereto or affected thereby, or
otherwise materially impair business operations) created on any material asset,
tangible or intangible, of the Companies or assumed, either by the Companies or
by others with respect to any such asset; (i) any indebtedness or other
liability or obligation (whether absolute, accrued, contingent or otherwise)
incurred, or other transactions (except as reflected in this Agreement) engaged
in, by the Companies, except in the ordinary course of business, which is
material in light of the Companies' Business; (j) any material obligation or
liability discharged or satisfied by the Companies other than current
liabilities shown in the Financial Statements and current liabilities incurred
since that date in the ordinary course of business; (k) any amendment,
termination or waiver of any material right of substantial value belonging to
the Companies; or (l) any increase in the compensation payable or to become
payable by the Companies to any of its officers, employees, directors,
consultants or agents, other than normal merit and cost-of-living increases in
accordance with the Companies' general prevailing practices or in accordance
with Section 3.5(c) hereof.
3.38. LITIGATION AND PROCEEDINGS. Except as set forth in
Schedule 3.38, there is no litigation or any proceedings or governmental
investigations pending or to the best of the knowledge of the Shareholder
threatened against or relating to the Companies or its properties or business
including, but not limited to, litigation, proceedings or governmental
investigations under federal or state anti-trust laws, Medicaid or Medicare
laws, labor laws, environmental protection laws, safety and occupation laws or
tax laws before any court, arbitrator or administrative agency which may
materially and adversely affect the Companies or its business and properties
taken as a whole. Such Schedule sets forth a statement as to reserves and other
provisions that have been made by the Companies concerning possible liabilities
that may arise out of pending or threatened litigation or proceedings.
3.39. COMPLIANCE WITH LAWS. Except as set forth in
Schedule 3.39: (a) the Companies are not in material violation of any applicable
building, zoning, occupational safety and health, pension, reimbursement
(including, but not limited to, Medicare and Medicaid), environmental control or
similar law, ordinance or regulation in relation to its structures, equipment,
or the operation thereof or of the Companies' Business, or any applicable fair
employment, equal opportunity or similar law, ordinance or regulation; (b) the
Companies have not received any written notice or complaint from any
governmental agency or authority and, to the best of the knowledge of the
Shareholder none is threatened, alleging that the Companies have violated any
such requirement, law, ordinance or regulation; (c) the Companies have not
received any written notice from any governmental agency or authority of any
pending proceeding to take all or any part of the properties of the Companies
(whether leased or owned) by condemnation or right of eminent domain and, to the
best of the knowledge of the Shareholder, no such proceeding is threatened; and
(d) the Companies are not a party to any agreement or instrument, or subject to
any judgment, order, writ, injunction, rule, regulation, code or ordinance which
materially and adversely affects or may affect the business, operations,
prospects, properties, assets or condition, financial or otherwise, of the
Companies.
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3.40. WORKERS' COMPENSATION; UNEMPLOYMENT COMPENSATION.
Schedule 3.40 is a description of the basis upon which, under the various
applicable laws, workers' compensation and unemployment compensation matters
have been handled for the Companies for the last three (3) fiscal years. Except
as otherwise described in such Schedule, workers' compensation and unemployment
compensation matters have been conducted and are being conducted so as to be in
substantial compliance with all laws and regulations applicable thereto.
3.41. POWERS OF ATTORNEY. The Companies have no powers of
attorney or similar authorizations outstanding, other than those issued in the
ordinary course of business, with respect to insurance, tax and federal and
state securities laws.
3.42. ENERGY SOURCES. The Companies have not received any
written notification of any proposed cut in or allocation of natural gas,
electrical energy, or other similar sources of heat, light and power by any
public utility or other body in connection with the operation of the Companies'
Business.
3.43. RELATIONSHIP WITH REFERRAL SOURCES. Except as set
forth in Schedule 3.43, no referral source of the Companies which has accounted
for more than five percent (5%) of the Companies' annual revenue during the
last two (2) years or referral sources of the Companies which, collectively,
accounted for more than ten percent (10%) of the Companies' annual sales during
the last two (2) years, have refused to purchase services delivered by the
Companies or provided the Companies with information indicating material
dissatisfaction with the quality or price of the Companies' services, and there
has been no material adverse change with respect to the relationship of the
Companies with any such referral sources.
3.44. ENVIRONMENTAL MATTERS. The term "Environmental Laws"
shall refer to any and all applicable federal, state, county or local
statutes, laws, regulations, rules, ordinances, codes, licenses and permits
relating in any way to the protection of the environment, including, without
limitation, the Clean Air Act, the Federal Water Pollution Control Act of 1972,
the Resource Conservation and Recovery Act of 1976 ("RCRA"), the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), and
the Toxic Substances Control Act and any amendments or extensions of the
foregoing and the regulations promulgated thereunder. The Companies have not
received any written notice of any work, repairs, construction or capital
expenditures required to be made by it pursuant to applicable Environmental Laws
with respect to the Companies' Business. None of the Leased Property is
contaminated by or contains any toxic substance, as that term is defined in
RCRA, such that the contamination violates Environmental Laws. No claim, action,
suit or proceeding is pending or threatened against the Companies before any
court or other governmental authority or arbitration tribunal, relating to
hazardous substances, pollution or the environment, and there is no outstanding
judgment, order, writ, injunction, decree or award against or affecting the
Companies or its respective assets with respect to the same. The Companies have
not received any written notice from any government agency or private or public
entity advising it that it is responsible for response costs with respect to a
release, a threatened release or clean up of chemicals produced
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by, or resulting from, any business, commercial, or industrial activities,
operations, or processes, including, but not limited to, hazardous substances,
as defined under CERCLA, and has not received any information requests under
CERCLA from any government agency. As used herein, "Hazardous substances"
include any pollutants, dangerous substances, toxic substances, hazardous
wastes, hazardous materials, or hazardous substances as defined in or pursuant
to RCRA and CERCLA, or any other federal, state or local environmental law,
ordinance, rule or regulation, except that, for purposes of this Agreement,
"petroleum" (including crude oil or any faction thereof) shall be deemed a
"hazardous substance." "Release" shall have the same meaning as defined in
CERCLA.
3.45. CERTAIN CONDITIONS FOR ACCOUNTING TREATMENT. The
Companies have not been a subsidiary or division of another corporation and
the Companies have not changed the equity interest of the shares of the Common
Stock in contemplation of effecting the transactions contemplated by this
Agreement during the period beginning on the date of its organization and ending
on the date of this Agreement.
3.46. CERTIFICATES AND SCHEDULES. All certificates
and Schedules (as well as those items referred to therein) delivered to the
Purchaser by the Companies pursuant to the provisions of this Agreement are
true, correct and complete in all material respects.
3.47. BROKER'S FEE. The Shareholder has not engaged
or consulted with any broker with respect to the transaction contemplated
by this Agreement so as to give rise to any valid claim against the Shareholder
or the Purchaser for a brokerage commission, finder's fee or like payment.
3.48. ACCURACY OF INFORMATION. No statement contained in
the Schedules and in any other written documents executed and/or delivered
by Shareholder pursuant to the terms of this Agreement nor any representation or
warranty contained herein or made hereunder, contains any misstatement of a
material fact, or omits or will omit to state a material fact required to be
stated herein or therein in order to make the statements contained herein or
therein, in light of the circumstances under which they were made, not
misleading. The Schedules and such other documents shall be deemed to constitute
representations and warranties of the Companies and the Shareholder under this
Agreement to the same extent as if set forth in this Agreement.
4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE PURCHASER.
-----------------------------------------------------------
The Purchaser hereby represents, warrants and agrees (and
acknowledges that each such representation, warranty and agreement shall be
deemed material and independently relied upon by the Shareholder), in
consummating the transactions herein contemplated:
4.1. ORGANIZATION OF THE PURCHASER. The Purchaser is a
corporation duly organized and validly existing under the laws of the State of
Delaware and is legally entitled to
12
<PAGE> 13
own and lease its properties and to carry on its business as and in the places
where such properties are now owned, leased or operated or where its business is
now conducted.
4.2. AUTHORITY. Except as otherwise provided in this
Agreement, the execution and delivery of this Agreement and the consummation of
the transactions herein contemplated have been duly and validly authorized by
all necessary action on the part of the Purchaser and this Agreement constitutes
a valid and legally binding obligation of the Purchaser enforceable in
accordance with its terms.
4.3. BROKER'S FEE. The Purchaser has not engaged or
consulted with any broker with respect to the transactions contemplated by this
Agreement so as to give rise to any valid claim against the Purchaser for a
brokerage commission, finder's fee or like payment.
4.4 CONFLICTS. Neither the execution and delivery of
this Agreement and the consummation of the transactions herein contemplated nor
compliance by the Purchaser with any provisions hereof will: (a) conflict
with, cause an acceleration of or result in a material breach of or default
under any of the terms, conditions, or provisions of any (i) charter instrument
or (ii) note, bond, mortgage, indenture, license, agreement or other instrument
to which the Purchaser is a party or by which it or any of its property is
bound; or (b) violate any order, writ, injunction, decree, statute, rule or
regulation, the violation of which would have a material adverse consequence
upon the Purchaser, its properties, and its assets, taken as a whole.
4.5. ACCURACY OF INFORMATION. No statements in any other
written Documents executed and/or delivered by or on behalf of the Purchaser
pursuant to the terms of this Agreement nor any representation or warranty
contained herein or made hereunder, contains any misstatement of a material
fact, or omits or will omit to state a material fact required to be stated
herein or therein in order to make the statements contained herein or therein,
in light of the circumstances under which they were made, not misleading. Such
other documents shall be deemed to constitute representations and warranties of
the Purchaser under this Agreement to the same extent as if set forth in this
Agreement.
5. THE CLOSING.
-----------
The Closing under this Agreement (herein referred to as the "Closing")
shall be held no later than January 6, 1997 but to be effective as of January 1,
1997 (unless extended by either party for up to 30 days upon written notice by
such party to the other party). At the Closing, the parties hereto shall proceed
in the manner and in the order as hereinafter set forth:
5.1. CERTIFICATE OF GOOD STANDING OF THE COMPANIES AND
THE PURCHASER. The Companies and the Purchaser shall deliver to each other
certified copies of their respective Certificates of Good Standing executed
by the Secretary of the State in which they are incorporated and dated no more
than twenty (20) days prior to the date of Closing.
13
<PAGE> 14
5.2. CERTIFIED RESOLUTIONS OF THE PURCHASER. The
Purchaser shall deliver to the Shareholder a copy of resolutions adopted by the
Board of Directors of the Purchaser, certified true and correct by an officer of
the Purchaser as of the date of Closing, authorizing it to enter into this
Agreement and the transactions herein contemplated.
5.3. DELIVERY OF SHARE CERTIFICATES. The Shareholder
shall deliver to the Purchaser the certificate or certificates representing the
Shares as required by Section 1 of this Agreement.
5.4. DELIVERY OF CONSIDERATION. The Purchaser shall
deliver to the Shareholder the Note and the Cash described in Section 2 hereof.
5.5. RESIGNATIONS. The Shareholder shall deliver to the
Purchaser resignations of all officers and directors of the Companies.
5.6. OPINION OF COUNSEL. The Shareholder shall deliver
to the Purchaser an opinion, dated as of the Closing, of counsel for the
Shareholder, in the form attached hereto as Exhibit B.
5.7. SIMULTANEOUS ASSIGNMENT; TRANSFER. The Shareholder
shall, simultaneously with the closing of this transaction assign to the
Purchaser her limited partnership interest in Cross Valley Professional Group,
Ltd., a Pennsylvania limited partnership, in exchange for a payment by the
Purchaser to the Shareholder of the sum of $167,520.54, in such form as may be
reasonably requested by the Purchaser. The transfer tax on such assignment shall
be paid equally by the Shareholder and the Purchaser.
5.8. OTHER DOCUMENTS. The parties shall execute and
deliver to each other all other certificates, agreements and other documents
required to be delivered pursuant to this Agreement or necessary or useful to
complete the transaction contemplated hereby.
5.9. DUE DILIGENCE REVIEW. Notwithstanding anything to
the contrary stated in this Agreement, the parties recognize and agree that the
obligation of the Purchaser to consummate the transactions contemplated by this
Agreement are expressly conditioned upon and subject to the Purchaser having
completed, by December 23, 1996, its due diligence review of the Companies and
the Companies' Business, and the Purchaser being satisfied therewith in all
respects as determined in its sole and absolute discretion.
6. INDEMNIFICATION; SET OFF.
------------------------
6.1. THE SHAREHOLDER'S INDEMNIFICATION. From and after
the Closing, the Shareholder shall indemnify, defend and hold harmless the
Purchaser from, against and with
14
<PAGE> 15
respect to any actual monetary loss incurred by the Purchaser from any claim,
liability, obligation, loss, damage, assessment, judgment, cost and expense
(including, without limitation, reasonable attorneys' and accountants' fees and
costs and expenses reasonably incurred in investigating, preparing, defending
against or prosecuting any litigation or claim, action, suit, proceeding or
demand), of any kind or character arising out of or in any manner incident,
relating or attributable to (i) the inaccuracy in any representation or breach
of warranty of the Shareholder contained in this Agreement, in the Schedules, or
in any certificate, instrument or other document or agreement executed by the
Shareholder in connection with this Agreement, except to the extent the
Purchaser was aware of such inaccuracy or breach at the Closing, (ii) any
failure by the Shareholder or the Companies to perform or observe any covenant,
agreement or condition to be performed or observed by either of them under this
Agreement or under any certificates or other documents or agreements executed by
either of them in connection with this Agreement; (iii) claims relating to the
enforcement of the Purchaser's rights under this Agreement; (iv) amounts that
are due or that may become due to Medicaid and/or Medicare intermediaries, or to
other public or private third party payors, on account of adjustments to
Medicaid and/or Medicare or any other public or private third party payer cost
reimbursement claims made with respect to the Companies' Business for any period
ending on or before the Closing; and (v) claims from federal, state and/or local
tax authorities for increased taxes, interest or penalties related to or
resulting from audit findings that the Companies paid unreasonable or excessive
compensation to employees for periods prior to the Closing.
If any claim covered by the foregoing indemnity is asserted against the
Purchaser, the Purchaser shall notify the Shareholder promptly and give her an
opportunity to defend the same, and the Purchaser shall extend reasonable
cooperation to the Shareholder in connection with such defense. In the event
that the Shareholder fails to defend the same within a reasonable time, the
Purchaser shall be entitled to assume the defense thereof and the Shareholder
shall be liable to repay the Purchaser for all of its expenses reasonably
incurred in connection with such defense (including reasonable attorneys' fees
and settlements payments).
6.2. THE PURCHASER'S INDEMNIFICATION. From and after
the Closing, the Purchaser shall indemnify, defend and hold harmless the
Shareholder from, against an with respect to any claim, liability, obligation,
loss, damage,assessment, judgment, cost and expense (including, without
limitation, reasonable attorneys' and accountants' fees and costs and expenses
reasonably incurred in investigating, preparing, defending against or
prosecuting any litigation or claim, action, suit, proceeding or demand), of any
kind or character arising out of or in any manner incident, relating or
attributable to (i) the inaccuracy in any representation or breach of warranty
of the Purchaser contained in this Agreement, in the Schedules, or in any
certificate, instrument or other document or agreement executed by the Purchaser
in connection with this Agreement or otherwise made or given in writing in
connection with this Agreement by the Purchaser, except to the extent the
Shareholder was aware of such inaccuracy or breach at the Closing, (ii) any
failure by the Purchaser to perform or observe any covenant, agreement or
condition to be performed or observed by it under this Agreement or under any
certificates or other documents or agreements executed it in connection with
this Agreement, and (iii) claims relating to the
15
<PAGE> 16
enforcement of the Shareholder's rights under this Agreement. If any claim
covered by the foregone indemnity is asserted against the Shareholder, the
Shareholder shall notify the Purchaser promptly and give it an opportunity in
connection with such defense. In the event that the Purchaser fails to defend
the same within a reasonable time, the Shareholder shall be entitled to assume
the defense thereof and the Purchaser shall be liable to repay the Shareholder
for all of its expenses reasonably incurred in connection with such defense
(including reasonable attorneys' fees and settlement payments).
6.3. Rights of Set Off. If the Purchaser reasonably, in
its sole discretion, determines that it is or is reasonably expected to be
entitled to indemnification for any amounts (collectively, the "Amounts
Subject to Indemnification") pursuant to Section 6.1 of this Agreement, then the
Purchaser may, in lieu of or in addition to pursuing its rights of
indemnification from the Shareholder, give notice to the Shareholder that it is
reducing any amounts due the Shareholder under the Note by an amount equal to
the Amounts Subject to Indemnification, such reduction to be treated as first
credited against interest accrued but not yet paid and then a pre-payment of
principal without penalty.
7. MUTUAL FURTHER ASSURANCE AND AGREEMENTS.
---------------------------------------
Each of the Purchaser and the Shareholder covenants with the other as
follows:
7.1. CONFIDENTIALITY. All information furnished by one
party to the other party in connection with this Agreement or the
transactions contemplated hereby shall be kept confidential by such other party
(and shall be used by them only in connection with this Agreement and the
transactions contemplated hereby) except to the extent that such information (i)
already is known to such other party when received, (ii) thereafter becomes
lawfully obtainable from other sources, (iii) is required to be disclosed in any
document filed with the SEC or any other agency of any government, or (iv) as
otherwise required to be disclosed pursuant to any federal or state law, rule or
regulation or by any applicable judgment, order or decree of any court or by any
governmental body or agency having jurisdiction in the premises after such other
party has given reasonable prior written notice to the other parties to this
Agreement of the pending disclosure of any such information.
7.2. CURRENT INFORMATION. During the period from the
date of this Agreement to the Closing, or until this Agreement is
terminated as provided herein and except as publicly disclosed by the Purchaser,
each party shall promptly notify the other parties of (i) any material change in
the normal course of its business or in the operation of its properties, (ii)
any governmental complaints, investigations or hearing (or communications
indicating that the same may be contemplated), or receipt of any memorandum of
understanding or cease and desist order from a regulatory authority, or (iii)
the institution of the threat of material litigation involving such party, and
will keep the other party fully informed of such events.
16
<PAGE> 17
7.3. MISCELLANEOUS AGREEMENTS. Subject to the terms
and conditions herein provided, each party shall use its best efforts to take,
or cause to be taken, all action, and to do, or cause to be done, all
things necessary, appropriate or desirable under applicable laws and regulations
to consummate and make effective the transactions contemplated by this
Agreement.
7.4. PUBLICITY. Subject to the other provisions of
this Agreement, press releases and other publicity materials relating to the
transactions contemplated by this Agreement shall be released by the parties
hereto only after review and with the consent of both parties; provided,
however, that the Purchaser shall have the right, after consulting with the
Shareholder, to make a public announcement of the execution of this
Agreement, and its subsequent closing, and a disclosure of the basic terms
and conditions of this Agreement if advised to do so by its legal counsel in
connection with the reporting and disclosure obligations of the Purchaser
under the federal securities laws and/or the NASDAQ National Market.
7.5. COLLECTION OF CERTAIN RECEIVABLES. The Purchaser
and the Shareholder acknowledge that at the Closing hereunder there will
remain certain receivables for the Companies which have been written off by
virtue of their age but which may in the future be nevertheless collected.
These receivables are set forth on Schedule 7.5. The Purchaser and the
Shareholder agree that said receivables are not included as assets of the
respective Companies for purposes of the Agreement but rather have been
assigned to the Shareholder. Any sums collected on the receivables set forth
on Schedule 7.5 shall be the property of the Shareholder less an
administrative fee of 20% of the amounts collected, payable to the company
collecting the receivable (i.e., ASUI or HPI).
8. COVENANT NOT-TO-COMPETE.
-----------------------
(a) For a period of five (5) years from and after the Closing, neither
the Shareholder nor any corporation, partnership or other business entity or
person controlling, controlled by or under common control with the Shareholder
("Restricted Party") shall, directly or indirectly, operate, manage, own,
control, finance or provide financing for, be a consultant or employee for or
enter into a service contract with, any comprehensive outpatient rehabilitation
facility and/or therapy business, or any entity existing or to be formed that
competes in any way with the Companies located within the counties of Monroe,
Luzerne or either counties contiguous to either such counties, in the
Commonwealth of Pennsylvania.
(b) From and after the Closing, no Restricted Party shall disclose,
directly or indirectly, to any person outside of the Purchaser's employ without
the express authorization of the Purchaser, any patient lists, pricing
strategies, patient files or records, any proprietary data and trade secrets
relating to the Companies Business or any financial or other information about
the Companies Business not then in the public domain.
(c) For the period of five (5) years from and after the Closing, no
Restricted Party shall engage or participate in any effort or act to induce any
of the patients, physicians, suppliers,
17
<PAGE> 18
associates, employees or independent contractors admitted to or employed by
either of the Companies prior to the Closing, or to take any action or to
refrain from taking any action or inaction that might be disadvantageous to the
Purchaser, including but not limited to the solicitation of the Companies'
respective patients, physicians, suppliers, associates, employees or independent
contractors' the Companies' to cease doing business, or their association or
employment, with the Companies.
(d) The Restricted Parties acknowledge that the restrictions contained
in this Section 8 are reasonable and necessary to protect the legitimate
business interests of the Purchaser and that any violation thereof by any of
them would result in irreparable harm to the Purchaser. Accordingly, the
Restricted Parties agree that upon the violation by any of them of any of the
restrictions contained in this Section 8, the Purchaser shall be entitled to
obtain from any court of competent jurisdiction a preliminary and permanent
injunction as well as any other relief provided at law, equity, under this
Agreement or otherwise. In the event any of the foregoing restrictions are
adjudged unreasonable in any proceeding, then the parties agree that the period
of time or the scope of such restrictions (or both) shall be adjusted to such a
manner or for such a time (or both) as is adjudged to be reasonable.
9. WAIVERS.
-------
The Shareholder or the Purchaser may, by an instrument in writing
extend the time for or waive the performance of any of the obligations of the
other or waive compliance by the other with any of the covenants or conditions
contained in this Agreement.
10. NOTICES.
-------
All notices and other communications which are required or permitted
hereunder shall be in writing and shall be deemed to have been duly given when
delivered personally or when mailed, by registered or certified mail, postage
prepaid, or when delivered by nationally recognized overnight courier service,
or when telecopied, as follows:
If to the Shareholder to: The Shareholder at the address
listed under the first
paragraph of this Agreement.
with a copy to: Jerry A. Snyder, Esq.
Snyder, Dimmich, Guldin &
Dinklelacker, P.C.
2112 Tilguman Street
Allentown, PA 18104
Telecopier: (610) 437-9132
If to the Purchaser to: Arbor Health Care Company
1100 Shawnee Road
P.O. Box 840
18
<PAGE> 19
Lima, OH 45802-0840
Attention: Pier C. Borra, President
Telecopier: (419) 227-3499
with a copy to: Brad C. Roush, General Counsel
Arbor Health Care Company
1100 Shawnee Road
P.O. Box 840
Lima, OH 45802-0840
Telecopier: (419) 221-3366
11. ENTIRE AGREEMENT.
----------------
This Agreement (including the Recitals, Exhibits and Schedules hereto)
supersedes any and all oral or written agreements (including, but not limited
to, the Letter of Intent by and between the Purchaser and the Shareholder and
dated October 29, 1996) heretofore made relating to the subject matter hereof
and constitutes the entire agreement of the parties hereto relating to the
subject matter hereof.
12. SECTION 338(h)(10) ELECTION.
---------------------------
The Shareholder agrees to timely file an election pursuant to Section
338(h)(10) of the Internal Revenue Code of 1986 as amended (the "Election"),
after the Closing. In consideration of the filing of such Election, the
Purchaser agrees to indemnify the Shareholder and hold her harmless, on an
after-tax basis, from any additional federal and/or state income tax liability
incurred by the Shareholder by reason of the filing of the Election as compared
with the federal and/or state income tax liability that would have been incurred
by the Shareholder had the Election not been made.
13. PERSONAL GUARANTY.
-----------------
The Purchaser acknowledges that the Shareholder has personally
guaranteed certain indebtedness of the Companies as disclosed on Schedule 3.23
hereof (the "Personally Guaranteed Loans"). The Purchaser covenants and agrees
that it shall use its best efforts to obtain the release of such Personally
Guaranteed Loans within thirty (30) days after the Closing. In the event that
such release cannot be obtained, the Purchaser hereby agrees to cause the
Companies to pay the balance due on such Personally Guaranteed Loan(s).
14. NO IMPLIED RIGHTS OR REMEDIES.
-----------------------------
Except as otherwise expressly provided herein, nothing herein expressed
or implied is intended or shall be construed to confer upon or to give any
person, firm or corporation, other than the Shareholders or Purchaser any rights
or remedies under or by reason of this Agreement.
19
<PAGE> 20
15. HEADINGS.
--------
Headings in this Agreement are inserted for convenience of reference
only and shall not be a part of or control or affect the meaning of this
Agreement.
16. COUNTERPARTS.
------------
This Agreement may be executed in several counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
17. BENEFIT AND ASSIGNMENT.
----------------------
This Agreement binds and inures to the benefit of each party hereto and
their respective heirs, successors and assigns. No assignment of this Agreement
shall be permitted by the Purchaser without the prior written consent of the
Shareholder.
18. GOVERNING LAW.
-------------
This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania.
19. CROSS-REFERENCE.
---------------
To the extent that any Schedule hereto would be required to contain
information covered by another Schedule hereto, a brief cross-reference
identifying the information and the Schedule where it is best described will be
sufficient.
20. PRONOUNS.
--------
Whenever required by the context herein, the singular includes the
plural and the masculine includes the feminine or the neuter. Words such as
"herein", "hereof", "hereby", "hereunder" and words of similar import refer to
this Agreement as a whole and not to any particular Section or subsection of
this Agreement.
21. SURVIVAL OF REPRESENTATION AND WARRANTIES.
-----------------------------------------
All of the representations and warranties made in this Agreement by
either the Shareholders or the Purchaser including without limitation agreements
to indemnify under Section 6 hereunder, shall survive the Closing.
20
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
PURCHASER SHAREHOLDER
ARBOR HEALTH CARE COMPANY
By \s\ Pier C. Borra, President \s\ Diane S. Bartoli
------------------------------ ------------------------
Pier C. Borra, President Diane S. Bartoli
21
<PAGE> 22
EXHIBIT A
---------
PROMISSORY NOTE
---------------
$1,700,000.00 Lima, Ohio
January 1, 1997
For value received, the receipt and sufficiency of which are
hereby acknowledged, the undersigned, ARBOR HEALTH CARE COMPANY, a Delaware
corporation ("Payor"), hereby promises to pay to the order of DIANE S. BARTOLI
("Payee") or her heirs, personal representatives and assigns, at 4411 McIntosh,
Lakes Avenue, Sarasota, FL 34233, or at such other place as the holder hereof
may, from time to time, designate in writing, the outstanding principal balance
of One Million Seven Hundred Thousand and no/100 Dollars ($1,700,000.00), with
simple interest on the unpaid principal sum thereof at a rate of seven percent
(7%) per year, payable at the times and on the terms as hereinafter provided in
this promissory note (the "Note"):
1. Interest hereon and the principal sum shall be paid in lawful
money of the United States of America.
2. Payor shall pay the principal and accrued interest thereon
quarterly in arrears in the amount of $62,500.00, beginning
March 31, 1997 and pursuant to the Amortization Schedule
attached hereto as Schedule I. Payor shall pay the outstanding
principal balance hereof, together with all interest accrued
to date, in full on December 31, 2001, whereupon this Note
shall be cancelled.
<PAGE> 23
3. Prepayment of all or any part of the principal sum of the
Note, together with accrued interest thereon, shall be allowed
at any time. Any partial prepayment shall be applied first
against accrued interest and then as a reduction of principal.
Any such prepayment shall not postpone the due date of any
subsequent installment.
4. In the event that any payment due under this Note is not made
within three (3) days after the due date, the holder hereof
shall be entitled to receive, without notice to Payor and in
addition to any other remedies it may have, a late charge
equal to five percent (5%) of such payment.
5. The principal amount of this Note and/or accrued interest
thereon may be reduced in the manner specified in Section 6:
"Indemnification; Set Off" of that certain Share Purchase
Agreement entered into by and among Payor and Payee, and dated
as of December 16, 1996 (the "Agreement").
6. At the option of the holder hereof exercised by written notice
to Payor, the happening of any of the following event shall be
deemed a default under this Note: (a) default by Payor in the
payment of any installment of principal or interest when due
under this Note and the same shall remain unpaid for a period
of ten (10) days after written notice thereof has been
delivered to Payor; (b) the commencement of proceedings in
bankruptcy or for the reorganization of Payor, or the
readjustment of any of the debts of Payor, under the Federal
Bankruptcy Code, as amended, or under any other laws,
-2-
<PAGE> 24
whether state or federal, for the relief of debtors now or
hereafter existing, which shall not be discharged within
ninety (90) days after their commencement; or (c) the
appointment of a receiver, trustee or custodian for Payor, or
for any substantial part of the assets of Payor, or the
institution of proceedings for the dissolution of Payor, and
such receiver or trustee shall not be discharged within ninety
(90) days of his or it's appointment, or such proceedings
shall not be discharged within ninety (90) days of their
commencement, or the discontinuance of the business or the
material change in the nature of the business of Payor.
7. In the event of a default under this Note, the entire
principal balance then owing shall bear interest at a rate of
ten percent (10%) per year and the outstanding principal
balance and accrued interest of this Note shall become
immediately due and payable.
8. This Note shall be construed by the laws of the Commonwealth
of Pennsylvania.
ARBOR HEALTH CARE COMPANY
\s\ Pier C. Borra, President
----------------------------
Pier C. Borra, President
-3-
<PAGE> 1
Exhibit 10.2
ARBOR HEALTH CARE COMPANY
KEY EXECUTIVE TERMINATION PAYMENT PLAN
Attached hereto is a sample of the Company's Key Executive Termination
Payment Plan which the Company has entered into with Messrs. Borra, Clark,
Bennett and Smith. The agreements are the same except that Mr. Borra's agreement
provides that upon the happening of any of the events set forth in the
agreement, Mr. Borra will receive a cash severance equal to two times the sum of
his then current annual base salary and prior year's bonus.
<PAGE> 2
June 1, 1996
Mr. Richard J. Clark
Senior Vice President and
Chief Operating Officer
Arbor Health Care Company
1100 Shawnee Road
Lima, Ohio 45805
Re: KEY EXECUTIVE TERMINATION PAYMENT PLAN
Dear Mr. Clark:
The Company desires to be assured of your continued services as Senior
Vice President and Chief Operating Officer and, to that end, believes that it is
in the best interest of the Company and its stockholders to adopt a written plan
providing you with termination payments in the event of a change in control of
the Company.
1. TERMINATION OF EMPLOYMENT FOR GOOD REASON WITHIN ONE YEAR
FOLLOWING A CHANGE IN CONTROL. If, within one year following a Change in
Control, the Company terminates your employment or you terminate your
employment with the Company for "Good Reason," you shall be entitled to the
following benefits:
A. A cash severance benefit equal to the sum of your then
current annual Base Salary and your prior year's bonus. The severance
benefit shall be paid to you in a lump sum within ten business days
following your termination of employment.
B. Acceleration of any stock options which are unvested at
the date of your termination of employment.
C. Payment of COBRA insurance premiums for a period of six
months following the date of your termination of employment.
2. DEFINITIONS OF CHANGE IN CONTROL AND GOOD REASON.
A. CHANGE IN CONTROL. A Change in Control shall be deemed
to have occurred:
1. if any person (as such term is defined in Sections
13(d) and 14(d) of the Exchange Act), corporation or other
entity (other than the Company, or any of its subsidiaries or
any employee benefit plan sponsored by the Company) (a) shall
purchase any common stock of the Company (or securities
convertible into
<PAGE> 3
Mr. Richard J. Clark
June 1, 1996
Page 2
the Company's common stock) for cash, securities or any other
consideration pursuant to a tender offer or exchange offer,
without the prior consent of the Board, and (b) shall become
the "beneficial owner" (as such term is defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities
of the Company representing 20 percent or more of the combined
voting power of the then outstanding securities of the Company
ordinarily (and apart from rights accruing under special
circumstances) having the right to vote in the election of
directors (calculated as provided in paragraph (d) of such
Rule 13d-3 in the case of rights to acquire the Company's
securities; or
2. upon any sale, lease, exchange, or other transfer
(in one transaction or a series of related transactions) of
all, or substantially all, of the assets of the Company; or
3. upon any consolidation or merger of the Company in
which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company's
common stock would be converted into cash, securities or other
property, other than a merger of the Company in which the
holders of the Company's common stock immediately prior to the
merger have the same proportionate ownership of common stock
of the surviving corporation immediately after the merger; or
4. upon the adoption of any plan or proposal for the
liquidation or dissolution of the Company ; or
5. if during any period of two consecutive years,
individuals who at the beginning of such period constitute the
entire Board shall cease for any reason to constitute a
majority thereof unless the election or the nomination for
election by the Company's stockholders of each new Director
was approved by a vote of at least two-thirds of the Directors
then still in office who were Directors at the beginning of
the period.
B. GOOD REASON. For purposes of this Agreement,
"Good Reason" shall mean (i) any diminution (or constructive
diminution) of your duties as Senior Vice President and Chief Operating
Officer of the Company, reporting directly to the Chairman, President
and Chief Executive Officer of the Company, with supervision and
control over, and responsibility for, the Health Center business and
operations of the Company; (ii) your removal from any of the positions
as Senior Vice President and Chief Operating Officer of the Company;
(iii) any reduction in your aggregate compensation package, as
determined immediately prior to the Change in Control; or (iv) any
requirement by the Company that you change your current principal
residence.
<PAGE> 4
Mr. Richard J. Clark
June 1, 1996
Page 3
3. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Anything in this
Agreement to the contrary notwithstanding, in the event it shall be determined
that any payment or distribution by the Company to or for your benefit (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 3.A.) (a "Payment") would be subject to the excise
tax imposed by Section 4999 of the Internal Revenue Code (the "Code"), or any
interest or penalties are incurred by you with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), payment (a "Gross-Up Payment") in
an amount such that after payment by you of all taxes, including, without
limitation, any income taxes (and any interest and penalties imposed with
respect thereto) and Excise Tax imposed upon the Gross-Up Payment, you retain an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
4. SUCCESSORS; BINDING AGREEMENT.
A. SUCCESSORS. This Agreement shall be binding upon the
Company and its successors, and all your rights hereunder shall inure
to the benefit of and be enforceable by your personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees, and legatees.
B. AGREEMENT OF SUCCESSORS TO THE COMPANY. The Company
shall require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, by agreement in form and
substance satisfactory to you, to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken
place; PROVIDED, HOWEVER, that the failure of the Company to perform
such undertaking shall in no way limit the Company's obligations or
contravene paragraph 4.A.
5. NOTICE. Notices and all other communications provided for in
this Agreement shall be in writing and shall be deemed to have been duly given
when delivered or mailed by United States
<PAGE> 5
Mr. Richard J. Clark
June 1, 1996
Page 4
registered mail, return receipt requested, postage prepaid, addressed as
follows:
IF TO YOU:
Mr. Richard J. Clark
3018 White Oak Lane
Lima, Ohio 45805
IF TO THE COMPANY:
Board of Directors
c/o Corporate Secretary
Arbor Health Care Company
1100 Shawnee Road
Lima, Ohio 45805
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
6. MISCELLANEOUS. No provision hereof may be modified, waived or
discharged unless agreed to in writing by you and such officer as specifically
designed by the Board. No waiver by either party of, or compliance with, any
provision hereof to be performed by such other party shall be deemed a waiver of
any similar or dissimilar provision at the same or at any prior or subsequent
time. No agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not set forth expressly in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of Delaware.
7. VALIDITY. The invalidity or unenforceability of any provision
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force and
effect.
8. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same instrument.
9. COSTS OF ENFORCEMENT. In the event any arbitration or
litigation is brought to enforce any provision of this Agreement and you
prevail, then you shall be entitled to recover from the Company, your reasonable
costs and expenses of such arbitration or litigation, including reasonable fees
and disbursements of counsel (both at trial and in appellate proceedings). If
the Company prevails, then each party shall be responsible for its/his
respective costs, expenses and attorneys' fees, and the costs of litigation or
arbitration shall be equally divided.
<PAGE> 6
Mr. Richard J. Clark
June 1, 1996
Page 5
If this letter sets forth our complete understanding on the subject
matter hereof, kindly sign and return the enclosed counterpart of this letter,
which shall constitute our Agreement.
Sincerely,
ARBOR HEALTH CARE COMPANY
By: \s\ Pier C. Borra
-----------------
Pier C. Borra
Chairman, President and CEO
AGREED TO AND ACCEPTED AS OF JUNE 1, 1996
\s\ Richard J. Clark
- --------------------
RICHARD J. CLARK
<PAGE> 1
Exhibit 10.3
ARBOR HEALTH CARE COMPANY
1996 BONUS PLANS FOR NAMED EXECUTIVE OFFICERS
The 1996 bonus formulae are as follows:
S. T. Bennett 1.24% of pretax income over $13.8 million up to a
maximum of $48,000 plus up to $20,000 based on attaining
goals.
P.C. Borra 3.86% of pretax income over $13.8 million plus up to $50,000
dependent on achievement of qualitative goals as determined by
the Compensation Committee.
R.J. Clark 1.7% of pretax income over $13.8 million up to a maximum
of $66,000 plus up to $25,000 based on attaining
goals. Provided, however, that the bonus will be reduced by
$4,000 for certain defined Center survey deficiency citations.
However, the maximum reduction shall not exceed $8,000.
D.R. Smith 0.77% of pretax income over $13.8 million up to
a maximum of $30,000 plus up to $10,000 based on attaining
goals.
A.K. Vrable Incentive compensation, equal to an amount not to exceed
$50,000 based upon the profitability of the Arbor pharmacy
business, plus up to $10,000 based on attaining goals.
<PAGE> 1
Exhibit 11.1
ARBOR HEALTH CARE COMPANY AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------
1994 1995 1996
---- ---- ----
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income (1)................................................ $6,903 $8,452 $10,223
=========== ============ =============
Weighted average shares outstanding
Common Stock................................................ 6,802 6,848 6,896
Common Stock equivalents based upon the
treasury stock method........................... 40 33 73
----------- ------------ -------------
Totals(2) 6,842 6,881 6,969
=========== ============ =============
Net income per share (1) divided by (2)....................... $1.01 $1.23 $1.47
=========== ============ =============
</TABLE>
<PAGE> 1
Exhibit 21.1
LIST OF SUBSIDIARIES OF ARBOR HEALTH CARE COMPANY
Adult Services Unlimited, Inc.
Alternacare Plus Enterprises, Inc.
Arbors at Ft. Wayne, Inc.
Arbors at Toledo, Inc.
Arbors East, Inc.
Bay Geriatric Pharmacy, Inc.
The Druggist, Inc.
Health Poconos, Inc.
Home Care Pharmacy, Inc. of Florida
Marshall Properties, Inc.
Poly-Stat Computer Applications, Inc.
Poly-Stat Supply Corporation
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-88474) pertaining to the Arbor Health Care Company 401(k) Plan of our
report dated February 7, 1997, with respect to the consolidated financial
statements and schedule of Arbor Health Care Company included in the Annual
Report (Form 10-K) for the year ended December 31, 1996.
ERNST & YOUNG LLP
Toledo, Ohio
March 13, 1997
<PAGE> 1
Exhibit 24.1
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Pier C. Borra and Brad
C. Roush and each of them, his true and lawful attorneys-in-fact and agents, for
him and in his name, place and stead, in any and all capacities, to sign the
Annual Report on Form 10-K for Arbor Health Care Company for the year ended
December 31, 1996, and any and all amendments thereto, and to file the same with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc., granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents may lawfully do or cause to be done by virtue
hereof.
Executed this 12TH day of February, 1997.
/S/ CARL R. ADKINS, M.D.
---------------------------
CARL R. ADKINS, MD
<PAGE> 2
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Pier C. Borra and Brad
C. Roush and each of them, his true and lawful attorneys-in-fact and agents, for
him and in his name, place and stead, in any and all capacities, to sign the
Annual Report on Form 10-K for Arbor Health Care Company for the year ended
December 31, 1996, and any and all amendments thereto, and to file the same with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc., granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents may lawfully do or cause to be done by virtue
hereof.
Executed this 12TH day of February, 1997.
/S/ HOWARD E. COX
--------------------------
HOWARD E. COX, JR.
<PAGE> 3
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Pier C. Borra and Brad
C. Roush and each of them, his true and lawful attorneys-in-fact and agents, for
him and in his name, place and stead, in any and all capacities, to sign the
Annual Report on Form 10-K for Arbor Health Care Company for the year ended
December 31, 1996, and any and all amendments thereto, and to file the same with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc., granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents may lawfully do or cause to be done by virtue
hereof.
Executed this 24TH day of February, 1997.
/S/ THOMAS A. JAMES
----------------------------
THOMAS A. JAMES
<PAGE> 4
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Pier C. Borra and Brad
C. Roush and each of them, his true and lawful attorneys-in-fact and agents, for
him and in his name, place and stead, in any and all capacities, to sign the
Annual Report on Form 10-K for Arbor Health Care Company for the year ended
December 31, 1996, and any and all amendments thereto, and to file the same with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc., granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents may lawfully do or cause to be done by virtue
hereof.
Executed this 15TH day of February, 1997.
/S/ FREDRICK C. POWELL
--------------------------------
FREDRICK C. POWELL
<PAGE> 5
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Pier C. Borra and Brad
C. Roush and each of them, his true and lawful attorneys-in-fact and agents, for
him and in his name, place and stead, in any and all capacities, to sign the
Annual Report on Form 10-K for Arbor Health Care Company for the year ended
December 31, 1996, and any and all amendments thereto, and to file the same with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc., granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents may lawfully do or cause to be done by virtue
hereof.
Executed this 10TH day of February, 1997.
/S/ BRUCE G. THOMPSON
-----------------------------------
BRUCE G. THOMPSON
<PAGE> 6
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Pier C. Borra and Brad
C. Roush and each of them, his true and lawful attorneys-in-fact and agents, for
him and in his name, place and stead, in any and all capacities, to sign the
Annual Report on Form 10-K for Arbor Health Care Company for the year ended
December 31, 1996, and any and all amendments thereto, and to file the same with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and the National Association of Securities
Dealers, Inc., granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents may lawfully do or cause to be done by virtue
hereof.
Executed this 6TH day of February, 1997.
/S/ JAMES F. WHITE, JR.
----------------------------------
JAMES F. WHITE, JR.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINACIAL INFORMATION EXTRACTED FROM ARBOR HEALTH
CARE COMPANY AND SUBSIDIARIES' CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED
STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,761
<SECURITIES> 0
<RECEIVABLES> 45,967
<ALLOWANCES> 1,948
<INVENTORY> 2,963
<CURRENT-ASSETS> 58,218
<PP&E> 169,400
<DEPRECIATION> 33,564
<TOTAL-ASSETS> 209,474
<CURRENT-LIABILITIES> 43,796
<BONDS> 94,643
<COMMON> 207
0
0
<OTHER-SE> 65,809
<TOTAL-LIABILITY-AND-EQUITY> 209,474
<SALES> 0
<TOTAL-REVENUES> 218,777
<CGS> 0
<TOTAL-COSTS> 168,177
<OTHER-EXPENSES> 23,548
<LOSS-PROVISION> 2,993
<INTEREST-EXPENSE> 7,108
<INCOME-PRETAX> 16,951
<INCOME-TAX> 6,728
<INCOME-CONTINUING> 10,223
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,223
<EPS-PRIMARY> 1.47
<EPS-DILUTED> 1.47
</TABLE>
