-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IDBGadD09w/fkWTP7q3TTgHjTU5UBxF9VHeEQaWYCRTAa1tEHHkeM5dPPkFxwB/k t4mhzMQk/do+mrAL7sZp6Q== 0000799231-98-000003.txt : 19980720 0000799231-98-000003.hdr.sgml : 19980720 ACCESSION NUMBER: 0000799231-98-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980714 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CARETENDERS HEALTH CORP CENTRAL INDEX KEY: 0000799231 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HOME HEALTH CARE SERVICES [8082] IRS NUMBER: 061153720 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09848 FILM NUMBER: 98665844 BUSINESS ADDRESS: STREET 1: 100 MALLARD CREEK ROAD STREET 2: SUITE 400 CITY: LOUISVILLE STATE: KY ZIP: 40207 BUSINESS PHONE: 502-899-53 MAIL ADDRESS: STREET 1: 100 MALLARD CREEK ROAD STREET 2: SUITE 400 CITY: LOUISVILLE STATE: KY ZIP: 40207 FORMER COMPANY: FORMER CONFORMED NAME: SENIOR SERVICE CORP DATE OF NAME CHANGE: 19920123 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) / X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 1998 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-9848 CARETENDERS HEALTH CORP. (Exact name of registrant as specified in its charter) Delaware 06-1153720 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 100 Mallard Creek Road, Suite 400, Louisville, Kentucky 40207 (Address of principal executive offices) (Zip Code) (502) 899-5355 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of Each Class Name of Each Exchange on Which Registered - ------------------- ----------------------------------------- Common Stock NASDAQ National Market par value $.10 per share Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of regulation S-K is not contained herein, and will not be contained, to the best of the 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. ______ As of June 22, 1998, 3,130,413 shares of the Registrant's Common Stock were outstanding. The aggregate market value of Registrant's Common Stock held by non-affiliates of the Registrant as of June 22, 1998 was approximately $18,782,478 (based on the last sale price of a share of the common stock as of June 22, 1998 ($6.00), as reported by the National Association of Securities Dealers, Inc. Automated Quotation ("NASDAQ") National Market system). DOCUMENTS INCORPORATED BY REFERENCE The Registrant's definitive proxy statement, to be filed with the Commission no later than 120 days after March 31, 1998, is incorporated by reference in Part III of this report. TABLE OF CONTENTS PART I Item 1. Business Item 2. Properties Item 3. Legal Proceedings Item 4. Submission of Matters to a Vote of Security Holders PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters Item 6. Selected Financial Data Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation Item 7a. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure PART III Item 10. Directors and Executive Officers of the Registrant Item 11. Executive Compensation Item 12. Security Ownership of Certain Beneficial Owners and Management Item 13. Certain Relationships and Related Transactions PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K PART I ITEM 1. BUSINESS General Development of Business - ------------------------------- Incorporated in Delaware in November, 1985, Caretenders(r) Health Corp. and subsidiaries (collectively "Caretenders" or the "Company") is one of the first companies to provide integrated adult day health services and home health care services for seniors and others with chronic and post-acute medical conditions who wish to remain in their homes and communities. Today more than seven million senior Americans are in need of alternatives to long-term nursing home confinement and this number is expanding rapidly. These individuals desire to remain in their homes and out of nursing homes and conserve their financial resources as long as possible. The Company provides seniors in need with a lower-cost alternative to institutional care helping them gain economic security, access to health care, mobility and independence without isolation. With its experience in home health care and leadership in adult day health center operations, the Company is implementing an expansion program offering integrated home and community based health care marketed under the name Caretenders' SeniorCare Solutions(tm). The Company is positioning itself to take advantage of changes and reform activities in the healthcare industry by focusing its resources on its home and community based health care business units which consist of adult day health services and home health care (home health care includes nursing, infusion therapy and durable medical equipment). These businesses are involved with the delivery of health care in alternative settings which the Company believes are preferred by consumers and operate at lower costs than hospitals and nursing homes. The trend toward alternative site delivery of healthcare is increasing, as more payor organizations are seeking to reduce the costs of medical care. Certain changes in Medicare reimbursement for home nursing services became effective for the Company on April 1, 1998. Management believes these changes will have a significant effect on the Company's revenues and financial performance. See Government Regulations for more information. Utilizing its strengths in home health care and adult day health services, the Company is actively addressing the issue of senior care in America by its comprehensive strategy - Caretenders SeniorCare Solutions. Through care management by a Registered Nurse (RN), Caretenders helps families identify solutions for caring for loved ones who can no longer meet their own health and personal care needs. Through the Company's Care Manager, families can learn about long-term care options available for seniors and obtain assistance in choosing from Caretenders' SeniorCare Day Centers(tm) and home health care centers or, if appropriate, other available community based resources. Home Health Care Services - ------------------------- The Company's comprehensive strategy allows it to provide a full range of home health care services to a patient, enabling physicians, payors and patients to deal with a single provider. All Caretenders services are rendered through care management by a registered nurse, who coordinates nursing, home infusion and equipment services. Caretenders nursing provides a comprehensive range of both professional and para-professional services from highly-skilled infusion therapy nursing to custodial companion care. Professional staff including registered nurses, licensed practical nurses, physical, speech and occupational therapists, and medical social workers implement and monitor medical treatment plans prescribed by physicians. Professional staff are subject to state licensing requirements in the particular states in which they practice. Para-professional staff includes home health aides, homemakers and companions who assist patients with health related tasks and the activities of daily living. Home infusion therapy involves the intravenous or other administration of physician-prescribed nutrients, antibiotics, chemotherapeutic agents and other medications to patients in their homes. Such therapy generally continues a plan of treatment initiated in the hospital, or as a substitute for hospitalization. Home infusion costs are generally between 30% and 70% less than the same therapy administered in an institutional setting. There are five major categories of infusion therapy: total parenteral nutrition, enteral nutrition, antibiotic therapy, chemotherapy and pain management therapy. Caretenders sells and rents medical equipment for use in the home. While the Company provides a complete range of equipment, the businesses generally can be divided into two predominant categories: respiratory/oxygen services and rehabilitation products. Caretenders is compensated for its services through (i) private pay (paid by personal funds), (ii) Medicare, (iii) Medicaid, and (iv) other third party payors (e.g. insurance companies). See "Item 1. Business -- Payment Sources". Caretenders employs compensation specialists who advise patients as to the availability of sources of payment for its services. Adult Day Health Services - ------------------------- Adult day health services is an alternative method of providing care for seniors and other adults who without such care would likely be institutionalized. The field has grown rapidly, from just 15 centers in the United States in the early 1970s to over 4,000 today. Still in its early stages, the industry is highly fragmented with the majority operated by the non-profit sector. To the best of its knowledge and belief, Caretenders is the largest for-profit provider of adult day care services in the U.S. The Company's adult day health centers provide professional, high quality adult day health services for disabled or frail adults who require some care or supervision, but who do not require intensive medical attention or institutionalization. The average center provides care for over 60 guests per day, seven days a week. Round-trip transportation is available to each participant. The centers offer a range of therapeutic and medical services designed to promote the independence of participants and provide respite to families and caregivers. On-site staff nurses administer medications and give attention to medical care. Other services include (i) a light breakfast, a hot lunch, and an afternoon snack; (ii) a highly structured, individualized and creative activities program which includes recreation, education, field trips, sports, crafts, music and group conversations; and (iii) family counseling. Through care management by a Registered Nurse (RN), Caretenders helps families identify solutions for caring for loved ones who can no longer meet their own health and personal care needs. Through the Company's Care Manager, families can learn about their choices for long-term care for seniors and choose from Caretenders' SeniorCare Day Centers and home health care centers as well as other available community based resources. As of March 31, 1998, the Company's conducts its services in centers in the following locations:
Home Adult Day Managed Locations Health Health Agencies Total - ---------------------------------------------------------------------------- Kentucky: Louisville area 5 2 5 16 Lexington area 8 1 1 10 Elizabethtown area 1 - 7 7 Indiana: Evansville 3 1 - 4 Ohio: Cincinnati 2 1 - 3 Columbus 2 1 - 3 Cleveland 3 1 - 4 Massachusetts: Boston 3 - - 3 Connecticut: Stamford 1 1 - 2 Middlebury - 1 - 1 Danbury 1 1 - 2 Maryland: Baltimore - 10 - 10 Virginia: Richmond 2 - - 2 Alabama: Birmingham 6 1 - 7 Florida: Fort Lauderdale 3 - - 3 West Palm Beach 2 1 - 3 Fort Myers 1 - - 1 ---- ---- ---- ---- Total 43 22 13 81 ==== ==== ==== ====
Capacity for the Company's adult day health centers was 1,343 guests per day at the beginning of the year and grew by 12.3% to 1,508 guests per day by the end of the year. The Company's strategic plan calls for acquisition of home care providers and integration of its home health operations with adult day care centers to offer a fully integrated home and community based health care solution. The Company's target customers are seniors in need of care seeking to remain independent and avoid long-term institutional care. Additionally, the Company will acquire adult day care operations in markets where it also has home health operations. See "Government Regulations - Reimbursement Changes" and "Cautionary Statements - Forward Outlook and Risks", . Management will monitor the effects of such items and may consider modifications to its expansion and development strategy when and if necessary. The following table details the change in the Company's centers during 1998:
Adult Day Managed Home Health Health Agencies Total ---------------------------------------- Centers as of 3/31/97 37 18 18 73 Change: Acquired 4 1 - 5 Opened 2 3 1 5 Closed - - (6) (2) Sold - - - - ---------------------------------------- Subtotal change 6 4 (5) (2) ---------------------------------------- Centers as of 3/31/98 43 22 13 81 ========================================
Acquisitions - ------------ The Company continually considers and reviews possible acquisitions of businesses that provide health care services similar to those currently offered by Caretenders. Factors which may affect future acquisition decisions include the quality and potential profitability of the company under consideration, and the Company's profitability and ability to finance the transaction. During 1997, the Company completed three transactions to acquire two intermittent home nursing services operations and an adult day health services operation. These operations added to the Company's market presence in both Ohio and Florida. No pro forma financial information has been provided as the acquisitions, individually and in the aggregate, are not significant compared to the Company's existing operations. During 1998, the Company completed four transactions to acquire two intermittent home nursing services operations, a personal care services operation and an adult day health services operation. These operations added to the Company's market presence in Florida, Connecticut and Ohio. No pro forma financial information has been provided as the acquisitions, individually and in the aggregate, are not significant compared to the Company's existing operations. Subsequent to March 31, 1998, the Company announced a non-binding letter of intent to acquire certain home care operations of Vencor, Inc., a Louisville, KY-based healthcare provider. Vencor home care operations based in Indiana and Ohio are covered by the letter. This transaction will not be significant compared to the Company's existing operations. As of the date of this filing, no definitive purchase agreement has been executed by the Company. There can be no assurance that this transaction will be completed. Competition, Marketing and Customers - ------------------------------------ Home Health Care - ---------------- The home health care industry is highly competitive but fragmented, with competition largely focused on individual products or services. The Company's competitors can be classified into three categories: nursing services, infusion therapy, and medical equipment. The Company believes competition is based primarily on the quality of service provided, and such quality is measured by responsiveness and the technical ability of the professional staff. The scope of services offered, relationships with referral sources and price are also competitive considerations. Caretenders competes with larger home health care providers through its comprehensive strategy, which facilitates focused accountability, quality, reduced administrative burdens and convenience for patients and physicians. Another competitive factor in the home health care industry is accreditation by JCAHO (Joint Commission on Accreditation of Healthcare Organizations), a not-for-profit accreditation organization. All Caretenders offices are accredited by JCAHO. In addition to the larger national companies, Caretenders also competes with numerous local and regional companies and pharmacies. Many of the Company's competitors have greater resources than the Company. The Company's home health services are marketed by a direct sales force primarily to hospital discharge planners, physicians and insurance and managed care organizations. Referrals may also be sought through advertisements in several local specialty publications, attendance at major trade shows and voluntary participation in JCAHO. The Company also utilizes consumer-direct sales, marketing and advertising programs designed to increase its private pay business. Adult Day Health Services - ------------------------- Like the home health care industry, the adult day health services industry is also highly competitive but fragmented. Competitors include: other adult day health centers, ancillary programs provided by nursing homes and hospitals; other government-financed facilities, assisted living and retirement communities, and senior adult associations. The Company believes the primary competitive factors are quality of service and reputation among referral sources. However, competitors are increasingly focusing attention on providing alternative site health care services. Caretenders competes by offering a high quality of care and by helping families identify and access solutions for care via Caretenders' SeniorCare Solutions. Adult day care competitive advantages include transportation and superior facilities and guest activity programs. The Company markets its adult day health services through its adult day health center directors and the marketing staff. The directors contact referral sources in their areas to market the Company's services. Major referral sources include: Offices on Aging, social workers, hospital discharge planners and group living facilities. Government Regulations - ---------------------- Overview - -------- The health care industry, particularly home health, has experienced, and is expected to continue to experience, extensive and dynamic change. In addition to economic forces and regulatory influences, continuing political debate is subjecting the health care industry to significant reform. Health care reforms have been enacted as discussed elsewhere in this document and proposals for additional changes are continuously formulated by departments of the federal government, Congress, and state legislatures. Certain adverse changes in Medicare reimbursement for Medicare-certified home health services became effective for the Company on April 1, 1998. See "Reimbursement Changes" below. Government officials can be expected to continue to review and assess alternative health care delivery systems and payment methodologies. Changes in the law or new interpretations of existing laws may have a dramatic effect on the definition of permissible or impermissible activities, the relative cost of doing business, and the methods and amounts of payments for medical care by both governmental and other payors. Legislative changes to "balance the budget" and slow the annual rate of growth of Medicare and Medicaid are expected to continue. Such future changes may further impact reimbursement for home health care. There can be no assurance that future legislation or regulatory changes will not have a material adverse effect on the operations of the Company. Refer to the sections on Reimbursement Changes and Cautionary Statements - Forward Outlook and Risks below, the notes to the accompanying financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information. Reimbursement Changes - --------------------- In August of 1997, President Clinton signed into law the Balanced Budget Act of 1997 (the BBA). This bill made significant changes in the reimbursement system for Medicare certified home health services. The primary changes that affect the Company include a reduction in the reimbursement for oxygen therapy services and a restructuring of the reimbursement system related to Medicare certified home care agencies. Oxygen Reimbursement The reimbursement of certain oxygen therapy services and products was cut 25% for services provided on or after January 1, 1998. An additional cut of 5% will take affect on January 1, 1999. Future increases to the reimbursement rate have been tied to the Consumer Price Index and will not resume until 2003. Management expects the impact on the Company to be a decrease of approximately $600,000 in revenues annually (approximately $150,000 in the fourth quarter of fiscal 1998). Bonding Requirements for Medicare Providers The BBA now requires Medicare providers to purchase surety bonds in amounts generally equal to 15% of Medicare reimbursement for periods up to 10 years. The bonds must be in effect by July 7, 1998, retroactive to February 27, 1998. The Company has made arrangements to meet such bonding, the cost of the which is not expected to be material to the Company's results of operations or financial position. Under the current rules, agencies that are not able to secure the required surety bonds will be excluded from participation in the Medicare program. In June 1998 the offices of two U.S. Senators announced HCFA's agreement to defer implementation to no later than February 1999. Interim Payment System for Medicare Certified Home Health Nursing Services The BBA also includes a new Interim Payment System (IPS) for Medicare-certified home health services. IPS remains a cost-based reimbursement system. However, per visit cost limits have been reduced and a new "Per Beneficiary Limit" (PBL) has been added. IPS is effective for all home care agencies for cost reporting years beginning on or after October 1, 1997. For the Company's agencies the new system went into effect on April 1, 1998. The BBA states that IPS will remain in effect until a new prospective payment system (PPS) is implemented for cost reporting years beginning on or after October 1, 1999. The Interim Payment System, as well as other requirements imposed upon home health providers in the BBA were designed to contain the growth in home health care resulting in slower growth in Medicare home health expenditures. As a result of these changes, home health providers will be forced to reduce their costs of providing services and it is expected that utilization of home care services per beneficiary will decline. Under certain conditions, Medicare beneficiaries who had previously been entitled to services will no longer qualify under Medicare reimbursement guidelines. Approximately 42% of the Company's total revenues are subject to the Interim Payment System guidelines. The PBL places an aggregate cap on reimbursable costs based on the number of Medicare patients (beneficiaries) served during a fiscal year multiplied by an established rate. This rate is calculated using a complicated cost-based formula which blends historical data from the provider with others in the region (or in some cases uses national data). This has the effect of placing an additional limit on reimbursement. This serves to create a ceiling on the amount of care that can be provided to the average beneficiary and constrains the utilization of visits per patient. In passing these new rules Congress expressed the intent of reducing Medicare home care expenditures by approximately $16.2 billion over 5 years. However, calculations made by the Congressional Budget Office (CBO) indicate that the actual spending reductions that will result from IPS as implemented will be more than $48 billion or three times the intent of Congress. The Health Care Financing Administration (HCFA) anticipates that 93% of Medicare agencies will be reimbursed less than their cost. According to the National Association for Home Care (NAHC) agencies nationwide are experiencing an average 31% reduction in reimbursement per patient. Although Congress passed the BBA in August 1997 and it went into effect for many providers on October 1, 1997, HCFA did not publish all the rules and regulations for implementation until March 31, 1998. Due to complexities in the rules, particularly differences in the effective date and the Per Beneficiary Limit for different providers, the ultimate amount of contraction in the home care industry and the effective reduction in the Medicare home care benefit cannot yet be predicted. However, the Company believes that the reduction in the Medicare home health program is likely to equal or exceed the NAHC estimate. In late calendar 1997 and early 1998, the Company began implementing action plans to operate under IPS. However, the final rules published by HCFA on March 31, 1998 were more prohibitive than the Company or the industry expected. Accordingly, in April 1998, the Company revised its program to reduce costs further and control utilization for operation in the IPS environment. Consistent with industry estimates discussed above, the Company has, since April 1, 1998, experienced a decline in volumes, revenues and contribution from this portion of its operations compared with the same period last year. Additionally, the Balanced Budget Act reduced Medicare reimbursement for certain oxygen therapy services by 25% effective January 1, 1998. As a result of the combined impact of these reimbursement items, the Company expects a decline in revenues and earnings from recurring operations for its fiscal year ending March 31, 1999 and anticipates reporting a consolidated net operating loss for its first quarter, ending June 30, 1998. The Company is continuing its assessment of the implications of the current reimbursement environment and will, as necessary, make additional cost reductions and other adjustments to its operational and development plans in the future intended to return the Company to profitability. These actions may result in one-time charges for severance, branch office closings, impairment of long-lived assets and other restructuring activities and may significantly reduce the Company's ability to access capital and pursue development activities. As of March 31, no such restructuring activities or impairment existed and, accordingly, no provision for any liabilities or impairment charges that may result from such actions has been made in the accompanying financial statements. In addition to IPS, the Balance Budget Act mandated establishment of a prospective payment system ("PPS") for home health services by October 1, 1999 (April 1, 2000 for the Company). However, rules and regulations have not yet been developed by HCFA and there can be no assurance that such deadline will be met. In the event that home care PPS is not implemented by that date, the BBA as legislated requires cost limits then in existence to be lowered by an additional 15%. Such lower cost limits, likely would have a material effect on the operating results and cash flows of the Company. The Company is unable to predict how PPS will ultimately be designed and implemented and thus is also unable to predict its impact on the Company. However, by its prospective nature, PPS should allow providers the opportunity to earn a profit on services which they are not able to do under IPS which is cost-based. State legislative proposals continue to be introduced that could impose more limitations on payments to providers of health care services such as the Company. Many states have enacted, or are considering enacting, measures that are designed to reduce their Medicaid expenditures. The Company cannot predict what additional government regulations, if any, affecting its business may be enacted in the future, how existing or future laws and regulations might be interpreted, or whether the Company will be able to comply with such laws and regulations in its existing or future markets. Permits and Licensure - --------------------- Many states require companies providing certain home health care services to be licensed as home health agencies. The Company currently is licensed as a home health agency where required by the law of the states in which it operates. In addition, certain of the Company's pharmacy operations require state licensure and are also subject to federal and other state laws and regulations governing pharmacies and the packaging and repackaging and dispensing of drugs (including oxygen). Federal laws may require registration with the Drug Enforcement Administration of the United States Department of Justice and the satisfaction of certain requirements concerning security, record keeping, inventory controls, prescription order forms and labeling. In addition, certain health care practitioners employed by the Company require state licensure and/or registration and must comply with laws and regulations governing standards of practice. The failure to obtain, renew or maintain any of the required regulatory approvals or licenses could adversely affect the Company's business. There can be no assurance that either the states or the federal government will not impose additional regulations upon the Company's activities which might adversely affect its business, results of operations or financial condition. Certificates of Need - -------------------- Certain states require companies providing home health care services to obtain a certificate of need issued by a state health planning agency. Some states require such certificates of need only for Medicare-certified home health agencies. Where required by law, the Company has obtained certificates of need from those states in which it operates. There can be no assurance that the Company will be able to obtain any certificates of need which may be required in the future if the Company expands the scope of its services or if state laws change to impose additional certificate of need requirements, and any attempt to obtain additional certificates of need will cause the Company to incur certain expenses. Other Regulations - ----------------- A series of laws and regulations dating back to the Omnibus Budget Reconciliation Act of 1987 ("OBRA 1987") and through the Balanced Budget Act of 1997 have been enacted and apply to the Company. Periodic changes have occurred from time to time since the 1987 Act including reimbursement reduction and changes to payment rules. Changes are also expected to occur continuously for the foreseeable future. As a provider of services under the Medicare and Medicaid programs, the Company is subject to the Medicare and Medicaid anti-kickback statute, also known as the "fraud and abuse law." This law prohibits any bribe, kickback, rebate or remuneration of any kind in return for, or as an inducement for, the referral of Medicare or Medicaid patients. The Company may also be affected by the federal physician self-referral prohibition, known as the "Stark" law, which, with certain exceptions, prohibits physicians from referring patients to entities in which they have a financial interest. Many states in which the Company operates have adopted similar self-referral laws, as well as laws that prohibit certain direct or indirect payments or fee-splitting arrangements between health care providers, if such arrangements are designed to induce or to encourage the referral of patients to a particular provider. Health care is an area of extensive and dynamic regulatory change. Changes in laws or regulations or new interpretations of existing laws or regulations can have a dramatic effect on permissible activities, the relative costs associated with doing business, and the amount and availability of reimbursement by government and third-party payors. Furthermore, the Company will be required to comply with applicable regulations in each new state in which it desires to provide services. Management believes that the Company is in material compliance with applicable laws. The Company, however, is unable to predict what additional government regulations, if any, affecting its business may be enacted in the future, how existing or future laws and regulations might be interpreted or whether the Company will be able to comply with such laws and regulations either in the markets in which it presently conducts, or wishes to commence, business. The Company also is subject to routine and periodic surveys and audits by various governmental agencies. Payment Sources - --------------- The Company receives payments from Medicare, Medicaid and other cost reimbursement programs, private pay and insurance policies as detailed below. As noted above, the Company's dependence on government sponsored reimbursement programs makes it vulnerable to possible legislative and administrative regulations and budget cut-backs that could adversely affect the number of persons eligible for such programs, the amount of allowed reimbursements or other aspects of the program, any of which could materially affect the Company. In addition, loss of certification or qualification under Medicare/Medicaid programs could materially affect the ability of the Company's adult day health and home health care businesses to effectively market their services. The Company's future operating results are dependent in part upon its ability to attract customers able to pay for the Company's charges from their own and their families' financial resources. Circumstances which adversely affect the ability or desire of seniors to pay for the Company's services could have an adverse effect on the Company. The following table sets forth the Company's revenues derived from each major class of payer during the following fiscal years (by percentage of net revenues):
1998 1997 Insurance & Insurance & Business Unit Medicare Medicaid Private Pay Medicare Medicaid Private Pay Home Health Services 59.4% 12.3% 28.3% 47.3% 10.6% 42.1% Adult Day Health Services 0.0% 78.8% 21.2% 0.0% 80.2% 19.8% Total - All Services 51.3% 21.4% 27.3% 38.7% 23.3% 38.0%
Changes in payment sources from 1997 to 1998 are primarily a result of the Company's acquisition and expansion activities which included two businesses with respect to which a large portion of revenues are derived from Medicare programs. In determining charge rates for goods and services provided to customers, the Company evaluates several factors including cost and market competition. The Company also negotiates contract rates with third party providers such as insurance companies. The rates of reimbursement for a significant portion of the Company's charges are dictated by Federal or State programs such as Medicare, Medicaid and Workers Compensation. Insurance - --------- The Company and its subsidiaries carry general liability and professional liability insurance. The Company also carries product liability insurance associated with those operations requiring such coverage, including the durable medical equipment operations. The Company's properties are covered by casualty insurance policies. The Company carries directors and officers liability with a $10,000,000 limit. The Company believes that its present insurance coverage is adequate. Employees and Labor Relations - ----------------------------- As of March 31, 1998 the Company had approximately 3,400 employees. None of the Company's employees are represented by a labor organization. Management believes its relationship with the Company's employees is satisfactory. Cautionary Statements - Forward Outlook and Risks - ------------------------------------------------- Information provided herein by the Company contains, and from time to time the Company may disseminate material and make statements which may contain "forward-looking" information, as that term is defined by the Private Securities Litigation Reform Act of 1995 (the "Act"). These cautionary statements are being made pursuant to the provisions of the Act and with the intention of obtaining the benefits of "safe harbor" provisions of the Act. The Company cautions investors that any forward-looking statements made by the Company are not guarantees of future performance and that actual results may differ materially from those in the forward-looking statements as a result of various factors including but not limited to the following: (i) Regulation and Reform Legislative proposals are continually introduced or proposed in Congress and in some state legislatures that would effect major changes in the health care system, either nationally or at the state level. However, the Company cannot predict whether any of the proposals will be adopted, and if adopted, no assurance can be given that the implementation of such reforms will not have a material impact on the operations of the Company. (ii) Interim Payment System In August of 1997, President Clinton signed into law the Balanced Budget Act of 1997 (the BBA), This bill made significant changes in the reimbursement system for Medicare home health services through a new Interim Payment System (IPS) for Medicare-certified home health services. IPS remains a cost-based reimbursement system. However, per visit cost limits have been reduced and a new "Per Beneficiary Limit" (PBL) has been added. IPS is effective for all home care agencies for cost reporting years beginning on or after October 1, 1997 and went into effect on April 1, 1998, for the Company. The BBA states that IPS will remain in effect until a new prospective payment system (PPS) is implemented for cost reporting years beginning on or after October 1, 1999. The Interim Payment System, as well as other requirements imposed upon home health providers in the BBA were designed to contain the growth in home health care resulting in slower growth in Medicare home health expenditures. As a result of these changes, home health providers will be forced to reduce their costs of providing services and it is expected that utilization of home care services per beneficiary will decline. There can be no assurance that payments under the IPS and/or PPS programs will be sufficient to cover the costs allocable to Medicare patients. The Company believes that the implementation of IPS will have a significant effect on the Company's revenues and results of operations in the near term. Refer to "Government Regulations - Reimbursement Changes" for a more detailed discussion of this topic. (iii) Other Reimbursement Changes The Company derives substantial portions of its revenues from third-party payors, including government reimbursement programs such as Medicare and Medicaid, and non-government sources such as commercial insurance companies, HMOs, PPOs and contract services. These payors have undertaken cost-containment measures designed to limit payments to health care providers. There can be no assurance that payments under these programs will be sufficient to cover the costs allocable to patients eligible for reimbursement. The Company cannot predict whether and what additional proposals or cost containment measures will be adopted or, if adopted, what effect, if any, such proposals might have on the operations of the Company. (iv) Competition The Company competes with numerous well established competitors which have substantially greater financial resources than the Company. Competitors are increasingly focusing attention on providing alternative site health care services, specifically on adult day health services. Such increasing competition may adversely affect revenues and profitability of Company operations. (v) Contract Management Services The Company provides contract management services to two home health agencies in the Louisville, KY area operating under the name of Caretenders but owned by Columbia/HCA. Columbia has announced its plans to divest itself of its home care operations and the Company has expressed its interest in acquiring these operations. Due to these changes, the agencies, which previously operated under the Caretenders trade name have changed their names. The Company continues to manage these agencies; however a sale of the Columbia owned operations may result in termination of the management agreements (which generated approximately $3 million of revenues in fiscal 1998) and the payment of a termination fee by Columbia to the Company. The Company also owns and operates a competing agency in the Louisville market. Due to the current status of events, the Company is unable to predict the ultimate outcome of this matter. There can be no assurance that the ultimate resolution of this matter will not have an adverse impact on the Company. (vi) Insurance The Company believes its present insurance coverage is adequate. However, there can be no assurance that such insurance will be available, or, if available, that such insurance will be either adequate to cover the Company's liabilities or available at affordable rates. In addition, increasing insurance costs, and the increasing unwillingness of insurance companies to insure against certain types of losses, raise some questions as to whether the Company will be able to obtain or continue its present insurance coverage. The inability to obtain adequate insurance coverage at affordable rates, or a loss of existing coverage, could have a material effect on the Company. Refer to the previous discussion of surety bonds in the section "Government Regulations - Reimbursement Changes". Although the Company has made arrangements to meet the bonding requirements imposed by the BBA, there can be no assurance that the Company will be able to secure such bonds in the future. Providers which are unable to secure such bonds will be precluded from participation as a Medicare reimbursed home health provider. (vii) Private Payment Sources The Company's future operating results are dependent in part upon its ability to attract customers able to pay for the Company's charges from their own and their families' financial resources. Circumstances which adversely affect the ability or desire of seniors to pay for the Company's services could have an adverse effect on the Company. In the event that the Company encounters difficulty in attracting seniors with adequate resources to pay for the Company's services, the Company would be adversely affected. (viii) Acquisitions The Company seeks to establish and increase market share through acquisitions in existing and new markets. The Company evaluates potential acquisition candidates that would complement or expand its current services. In attempting to make acquisitions, the Company competes with other providers, some of which have greater financial resources than the Company. Management currently believes that acquisition candidates meeting the criteria of its acquisition strategy will continue to be identified in fiscal 1999 and certain of these candidates will be acquired by the Company. However, there can be no assurance that suitable acquisitions will continue to be identified or that acquisitions can be consummated on acceptable terms. (ix) Inclement Weather The Company provides its services to individuals in home and community settings. Severe winter weather may hinder the Company's ability to provide its services and thus impact operating results. (x) Financing The Company's ability to pursue its strategic plan is dependent upon its ability to obtain financing on satisfactory terms and conditions. If the Company is unable to obtain satisfactory financing it would have an adverse impact on the Company's liquidity and its ability to execute its development plans. (x) ADC Development During fiscal 1999, the Company plans to develop up to 6 new adult day health centers after which the Company plans to continue development efforts at a similar or accelerated pace. The Company's ability to achieve its development plans will depend upon a variety of factors, many of which are beyond the Company's control. There can be no assurance that the Company will not suffer delays in its development program, which could slow the Company's growth. The successful development of additional operations will involve a number of risks including the possibility that the Company may be unable to locate suitable sites at acceptable prices or may be unable to obtain, or may experience delays in obtaining, necessary zoning, land use, building, occupancy, licensing and other required governmental permits and authorizations. The implementation of the Company's development strategy is also dependent upon the Company's profitability, the financial performance of its adult day care operations, the availability of financing and the other Cautionary Statements listed above. ITEM 2. PROPERTIES The Company's executive offices are located in Louisville, Kentucky in approximately 26,000 square feet of space leased from an unaffiliated party. The Company has 57 locations that each lease from approximately 250 to 23,000 square feet of space in their respective locations. The Company believes that its facilities are adequate to meet its current needs, and that additional or substitute facilities will be available if needed. ITEM 3. LEGAL PROCEEDINGS The Company, from time to time, is subject to claims and suits arising in the ordinary course of its business, including claims for damages for personal injuries. In the opinion of management, the ultimate resolution of any of these pending claims and legal proceedings will not have a material effect on the Company's financial position or results of operations. On January 26, 1994 Franklin Capital Associates L.P., Aetna Life and Casualty Company and Aetna Casualty and Surety Company, shareholders, who at one time held approximately 320,000 shares of the Company's common stock (approximately 13% of shares outstanding) filed suit in Chancery Court of Williamson County, Tennessee claiming unspecified damages not to exceed three million dollars in connection with registration rights they received in the Company's acquisition of National Health Industries in February 1991. The suit alleges the Company failed to use its best efforts to register the shares held by the plaintiffs as required by the merger agreement. The Company believes it has meritorious defenses to the claims and does not expect that the ultimate outcome of the suit will have a material impact on the Company's results of operations, liquidity or financial position. The Company plans to vigorously defend its position in this case. No amounts have been recorded in the accompanying financial statements related to this suit. In January 1997, Aetna Life and Casualty Company withdrew its claim against the Company without prejudice. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on the National Market System of the NASDAQ Stock Market under the symbol "CTND. Set forth below are the high and low sale prices for the common stock for the periods indicated reported by NASDAQ:
Closing Common Stock Prices - --------------------------- Quarter Ended: High Low June 30, 1996 $9.63 $6.50 September 30, 1996 $7.75 $5.25 December 31, 1996 $7.00 $5.37 March 31, 1997 $6.75 $5.37 June 30, 1997 $8.88 $5.50 September 30, 1997 $8.38 $7.13 December 31, 1997 $10.69 $7.00 March 31, 1998 $8.88 $7.00
On June 22, 1998, the last reported sale price for the Common Stock reported on the NASDAQ National Market System was $6.00 and there were approximately 727 holders of record of the Company's Common Stock. No cash dividends have been paid by the Company. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected financial information derived from the consolidated financial statements of the Company for the periods and at the dates indicated. This information has been restated to reflect the Company's 1 for 5 reverse stock split as further explained in Note 1 to the consolidated financial statements of the Company. The information is qualified in its entirety by and should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this and prior year Form 10-Ks.
Consolidated Selected Financial Information ------------------------------------------- (Dollar amounts in 000's except per share data) Year Ended March 31, 1998 1997 1996 1995 1994 ------------------------------------------------- Results of Operations Net revenues $ 95,183 $ 76,773 $ 63,227 $ 60,836 $ 50,857 Net Income $ 1,412 $ 1,759 $ 1,575 $ 1,248 $ 627 Per share: Basic: Number of shares 3,120 3,119 3,119 3,119 3,119 Net Income $ .45 $ .56 $ .50 $ .40 $ .20 Diluted: Number of shares 3,162 3,142 3,149 3,145 3,175 Net Income $ .45 $ .56 $ .50 $ .40 $ .20
Balance sheet Data as of: March 31, 1998 1997 1996 1995 1994 ------------------------------------------------- Working capital $ 10,908 $ 17,471 $ 13,844 $ 11,641 $ 8,001 Total assets 49,533 38,745 33,217 31,073 30,806 Long term liabilities 11,962 10,689 6,805 7,094 7,367 Total liabilities 27,450 18,081 14,313 13,744 14,731 Stockholders' equity 22,083 20,663 18,904 17,329 16,075
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW - -------- Strategic Focus The Company is positioning itself to take advantage of healthcare reform activities by focusing its resources on its home and community based health care business units which consist of adult day health services and home health care (home health care includes nursing, infusion therapy and durable medical equipment). These businesses are involved with the delivery of health care in alternative settings which the Company believes are preferred by consumers and operate at lower costs than hospitals and nursing homes. The trend toward alternative site delivery of healthcare is increasing, as more payor organizations are seeking to reduce the costs of medical care. Today more than seven million senior Americans are in need of alternatives to long-term nursing home confinement and this number is expanding rapidly. These individuals desire to remain in their homes and out of nursing homes and conserve their financial resources as long as possible. Caretenders SeniorCare Solutions provides seniors in need with a lower-cost alternative to institutional care helping them gain economic security, access to health care, mobility and independence without isolation. Utilizing its strengths in home health care and adult day health services, the Company is actively addressing the issue of senior care in America by its comprehensive strategy - Caretenders SeniorCare Solutions. Through care management by a Registered Nurse (RN), Caretenders helps families identify solutions for caring for loved ones who can no longer meet their own health and personal care needs. Through the Company's Care Manager, families can learn about long-term care options available for seniors and obtain assistance in choosing from Caretenders' SeniorCare Day and Home Health Care Centers or, if appropriate, other available community based resources. The Company's strategic plan calls for acquisition of home care providers and integration of its home health operations with adult day care centers to offer a fully integrated home and community based health care solution. The Company's target customers are seniors in need of care seeking to remain independent and avoid long-term institutional care. Additionally, the Company will acquire adult day care operations in markets where it also has home health operations. See "Government Regulations - Reimbursement Changes" and "Cautionary Statements - Forward Outlook and Risks", . Management will monitor the effects of such items and may consider modifications to its expansion and development strategy when and if necessary. The following table details the change in the Company's operations during 1998: Adult Day Managed Home Health Health Agencies Total ---------------------------------------- Centers as of 3/31/97 37 18 18 73 Change: Acquired 4 1 - 5 Opened 2 3 - 5 Closed - - (2) (2) Sold - - - - ---------------------------------------- Subtotal change 6 4 (2) (2) ---------------------------------------- Centers as of 3/31/98 43 22 16 81 ========================================
Earnings - 1998 The Company generated a 25% increase in pre-tax income despite investing in initial operating losses related to geographic expansion. The increase in pre-tax income is primarily a result of a 16% increase in net revenues from recurring operations due to increased volumes. Income tax expense for 1997 included a non-recurring credit of approximately $634,000 or $0.20 per share related to the reduction in a previously recorded valuation allowance for net deferred taxes. As a result of these factors, reported earnings per share were $0.45 in 1998 as compared to $0.56 for 1997. Excluding the 1997 non-recurring income tax credit earnings per share increased to $0.45 in 1998 from $0.36 in 1997. 3/31/98 3/31/97 Increase % Change Net Revenues Recurring Operations $88,230,635 $75,952,252 $12,278,383 16% Start-up Operations (1) 6,951,965 820,787 6,131,178 747% ------------------------------------------- Total 95,182,600 76,773,039 18,409,561 24% ------------------------------------------- Pre-tax Income Recurring Operations $4,979,157 $3,701,535 $1,277,623 35% Start-up Operations (2,576,075) (1,786,165) (789,910) (44%) ------------------------------------------- Total 2,403,082 1,915,370 487,712 25% ------------------------------------------- Net Income as reported Recurring Operations $2,925,255 $3,400,058 $(474,803) (14%) Start-up Operations (1,513,444) (1,640,688) 127,244 8% ------------------------------------------- Total 1,411,811 1,759,370 (347,559) (20%) =========================================== Weighted Diluted Shares 3,161,706 3,141,865 19,841 Net Income Per Share as reported Recurring Operations $ 0.93 $ 1.08 $(0.16) (15%) Start-up Operations (0.48) (0.52) 0.04 9% ------------------------------------------- Total $ 0.45 $ 0.56 $ (0.11) (20%) =========================================== As Adjusted for Comparable Tax Provision Net Income as reported $1,411,811 $1,759,370 $(347,559) (20%) 1997 Non-recurring credit (634,090) 634,090 100% to tax expense (2) ------------------------------------------- Net Income as adjusted $1,411,811 $1,125,280 $286,531 25% =========================================== Net Income as adjusted Recurring Operations $2,925,255 $2,174,652 $750,604 35% Start-up Operations (1,513,444) (1,049,372) (464,073) (44%) ------------------------------------------- Total 1,411,811 1,125,280 286,531 25% =========================================== Net Income Per Share as adjusted Recurring Operations $ 0.93 $ 0.69 $ 0.24 35% Start-up Operations (0.48) (0.33) (0.15) (43%) ------------------------------------------- Total $ 0.45 $ 0.36 $ 0.09 25% ===========================================
(1) Start-up operations include those businesses started by the Company that have not been in operation for the entirety of both comparable periods (2) Reduction of previously recorded valuation allowance related to net deferred tax assets ($.20 per share) RESULTS OF OPERATIONS - ---------------------
Fiscal Year Ended March 31, 1998 Compared With Fiscal Year Ended March 31, 1997 Caretenders Health Corp. Operating Data for the Years Ended March 31, (amounts in thousands) 1998 1997 Change % of % of % of Amount Revenues Amount Revenues Amount Revenues Net Revenues Home Health Care $78,698 82.7% $62,796 81.8% 15,902 25.3% Adult Day Health Services 16,485 17.3% 13,977 18.2% 2,508 17.9% ------ ------- ------ 95,183 100.0% 76,773 100.0% 18,410 24.0% ------ ------- ------ Cost of Sales and Services Home Health Care 61,745 78.5% 49,301 78.6% 12,444 25.2% Adult Day Health Services 13,967 84.7% 10,968 78.4% 2,999 25.7% ------ ------ ------ 75,712 79.5% 60,269 78.5% 15,443 25.6% ------ ------ ------ Center Contribution Home Health Care 16,953 21.5% 13,495 21.4% 3,458 25.6% Adult Day Health Services 2,518 15.3% 3,009 21.6% (491) (16.3%) ------ ------ ------ 19,471 20.5% 16,504 21.5% 2,967 18.0% Selling, General & Admin 10,856 11.4% 9,363 12.2% 1,493 15.9% Prov for Uncollectible Accts 2,635 2.8% 2,216 2.9% 419 18.9% Depreciation and Amortization 2,583 2.7% 2,239 2.9% 344 15.4% Interest and Other, Net 994 1.0% 771 1.0% 223 28.9% ------ ------ ------ Income Before Taxes 2,403 2.5% $ 1,915 2.5% 488 25.5% ====== ====== ======
HOME HEALTH CARE REVENUES. Net revenue increases in the Company's existing markets were primarily the result of increased volume for nursing services, due in part to acquisitions completed during the year. Nursing volumes increased 31.4%. Additional volumes in respiratory and durable medical equipment and infusion therapies drove a combined 11.1% increase in net revenues for those two service lines. HOME HEALTH CARE COST OF SALES AND SERVICES. Cost of sales and services as a percent of net revenues decreased slightly primarily as a result of efficiencies gained from operating a larger number of home health care centers. Seven additional centers were acquired or opened by the Company during 1998. ADULT DAY HEALTH SERVICES NET REVENUES. The increase of $2.5 million in adult day health services revenues is primarily attributable to the improvement and growth of the centers added in conjunction with the Company's expansion strategy which started in 1996. Total days of service provided increased 17.9% from approximately 236,600 in 1997 to 279,000 in 1998. As of March 31, 1998, the Company had 22 centers in operation as compared to 18 at March 31, 1997 ADULT DAY HEALTH SERVICES COST OF SALES AND SERVICES. As a percent of net revenues, cost of sales and services increased primarily as a result of absorbing over $1 million of initial operating losses from geographic expansion. SELLING, GENERAL AND ADMINISTRATIVE. The increase of $1,493,000 is due primarily to an increase in certain administrative staff levels and costs incurred related to the Company's geographic expansion. SG&A as a percent of revenues declined due to growth in revenues. PROVISION FOR UNCOLLECTIBLE ACCOUNTS. The provision for uncollectible accounts for the year ended March 31, 1998 was recorded based on management's evaluation of collectibility. DEPRECIATION AND AMORTIZATION. The increase of $344,000 is primarily due to capital investments made by the Company. These capital investments principally relate to geographic expansion and replacement of certain medical equipment. INTEREST AND OTHER, NET. The increase in interest and other, net is primarily a result of higher average outstanding debt levels associated with the Company's acquisition and expansion activities. INCOME TAXES. As of March 31, 1998, the Company has net deferred tax assets of approximately $690,000 The net deferred tax asset is composed of $88,000 of current deferred tax assets and $602,000 of long-term deferred tax asset. Prior to 1997 the Company had provided a valuation allowance against net deferred tax assets based upon management's estimation of realizability of those assets through future taxable income. This valuation was based in large part on the Company's history of generating operating income or losses and expectations (at that time) for the future. Over time the Company demonstrated an ability to generate operating income such that it became more likely than not that the deferred tax assets would be realized through future taxable income and, in accordance with generally accepted accounting principles for income tax accounting, in 1997 the valuation allowance was removed. The Company's ability to generate the expected amounts of taxable income from future operations is dependent upon general economic conditions, competitive pressures on revenues and margins and legislation and regulation at all levels of government. There can be no assurances that the Company will meet its expectations of future taxable income. However, management has considered the above factors in reaching its conclusions that it is more likely than not that future taxable income will be sufficient to fully utilize the deferred tax assets as of March 31, 1998.
Fiscal Year Ended March 31, 1997 Compared With Fiscal Year Ended March 31, 1996 Caretenders Health Corp. Operating Data for the Years Ended March 31, (amounts in thousands) 1 9 9 7 1 9 9 6 Change ------------------- --------------------- ------------------- % of % of Amount Revenues Amount Revenues Amount % Net Revenues Home Health Care $62,796 81.8% $50,822 80.4% $11,974 23.6% Adult Day Health Services 13,977 18.2% 12,405 19.6% 1,572 12.7% ------- ------- ------- 76,773 100.0% 63,227 100.0% 13,546 21.4% ======= ======= ======= Cost of Sales and Services Home Health Care 49,301 78.6% 39,399 77.5% 9,902 25.1% Adult Day Health Services 10,968 78.4% 9,331 75.2% 1,637 17.5% ------- ------- ------- 60,269 78.5% 48,730 77.1% 11,539 23.7% ======= ======= ======= Center Contribution Home Health Care 13,495 21.4% 11,423 22.5% 2,072 18.1% Adult Day Health Services 3,009 21.6% 3,074 24.8% (65) (2.1%) ------- ------- ------- 16,504 21.5% 14,497 22.9% 2,007 13.8% Selling, General & Administrative 9,363 12.2% 8,438 13.3% 925 11.0% Provision for Uncollectible Accounts 2,216 2.9% 1,669 2.6% 547 32.8% Depreciation and Amortization 2,239 2.9% 2,057 3.3% 182 8.8% Interest and Other, Net 771 1.0% 623 1.0% 148 23.8% ------- ------- ------- Income Before Taxes $ 1,915 2.5% $ 1,710 2.7% $ 205 12.0% ======= ======= =======
HOME HEALTH CARE NET REVENUES. Net revenue increases in the Company's existing markets were primarily the result of increased volume for nursing services. Nursing volumes increased 38.7%. Additional volumes in respiratory and durable medical equipment and infusion therapies drove a combined 17.1% increase for those two service lines. HOME HEALTH CARE COST OF SALES AND SERVICES. Cost of sales and services as a percent of net revenues increased primarily as a result of incurring $770,000 of initial operating losses from geographic expansion. ADULT DAY HEALTH SERVICES NET REVENUES. The increase of $1.6 million in adult day health services revenues is primarily attributable to improved occupancy in existing markets. Total days of service provided increased 9.9% from 214,600 in 1996 to 236,000 in 1997. As of March 31, 1997, the Company had 18 centers in operation. ADULT DAY HEALTH SERVICES COST OF SALES AND SERVICES. As a percent of net revenues, cost of sales and services increased primarily as a result of absorbing $495,000 of initial operating losses from geographic expansion. SELLING, GENERAL AND ADMINISTRATIVE. The increase of $925,000 is due primarily to an increase in certain administrative staff levels and costs incurred related to the Company's geographic expansion. SG&A as a percent of revenues declined as these costs are spread over a larger operation. PROVISION FOR UNCOLLECTIBEL ACCOUNTS. The provision for uncollectible accounts for the year ended March 31, 1997 was recorded based on management's evaluation of collectibility. DEPRECIATION AND AMORTIZATION. The increase of $182,000 is primarily due to capital investments made by the Company. These capital investments principally relate to geographic expansion and replacement of certain medical equipment. INTEREST AND OTHER, NET. The increase in interest and other, net is primarily a result of higher average outstanding debt levels associated with the Company's acquisition and expansion activities. INCOME TAXES. As of March 31, 1997, the Company has net deferred tax assets of approximately $1,264,000. The net deferred tax asset is composed of $1,647,000 of deferred tax assets and $383,000 of deferred tax liabilities. Prior to 1997 the Company had provided a valuation allowance against net deferred tax assets based upon management's estimation of realizability of those assets through future taxable income. This valuation was based in large part on the Company's history of generating operating income or losses and expectations (at that time) for the future. Over time the Company demonstrated an ability to generate operating income such that it became more likely than not that the deferred tax assets would be realized through future taxable income and, in accordance with generally accepted accounting principles for income tax accounting, in 1997 the valuation allowance was removed. The Company's ability to generate the expected amounts of taxable income from future operations is dependent upon general economic conditions, competitive pressures on revenues and margins and legislation and regulation at all levels of government. There can be no assurances that the Company will meet its expectations of future taxable income. However, management has considered the above factors in reaching its conclusions that it is more likely than not that future taxable income will be sufficient to fully utilize the deferred tax assets as of March 31, 1997. LIQUIDITY AND CAPITAL RESOURCES Revolving Credit Facility - ------------------------- The Company has $18 million in revolving credit facilities, comprised of $15 million with the Healthcare Financial Services Division of Heller Financial, Inc. and $3 million with Bank One, Kentucky NA. Interest accrues on amounts drawn under the facility at a rate of 1 percent over prime for the Heller facility and at a rate of 1/2 percent over prime for the Bank One facility. Availability from the Heller facility is determined pursuant to a formula principally consisting of a percentage of accounts receivable subject to certain exclusions. At March 31, 1998, the Company had total cash and unused borrowings of approximately $4.3 million available for working capital and development. The Heller facility remains in effect until October 13, 1999 and for annual one year terms thereafter unless either party to the credit agreement provides the other with a written notice of termination one year and 60 days prior to the renewal date. The Bank One Facility will remain in effect until August 4, 1998. The Company is currently negotiating a replacement credit facility in a range of $20-$30 million. While there can be no assurance that the replacement credit facility will be obtained, management believes that it will be completed during the second quarter of its fiscal 1999 year. If the Company is unable to obtain satisfactory financing it would have an adverse impact on the Company's ability to execute its development plans. Management will continuously pursue additional capital including possible debt and equity investments in the Company to support a more rapid development of the business than would be possible with internal funds. Cash Flows and Financial Condition - ----------------------------------
Key elements to the Consolidated Statements of Cash Flows were (in thousands): Net Change in Cash and Cash Equivalents 1998 1997 1996 Provided by (used in) Operating activities $ 4,390 $ 442 $ 1,817 Investing activities (8,657) (4,257) (993) Financing activities 4,077 3,269 (528) --------------- ------------- ------------- Net Change in Cash and Cash Equivalents $ (190) $ (546) $ 296 =============== ============= =============
1998 ---- Net cash provided by operating activities of approximately $4.4 million resulted principally from current period earnings net of changes in accounts receivable and accounts payable and accrued expenses. Net cash used in investing activities of approximately $8.7 million resulted principally from amounts invested in acquisition and expansion activities and capital expenditures related to purchase of certain durable medical equipment and real estate. Net cash provided by financing activities of approximately $4.1 million resulted primarily from an increase in the Company's credit facility related to investments made in acquisitions and geographic expansion. 1997 ---- Net cash provided by operating activities of approximately $442,000 resulted principally from current period earnings net of changes in accounts receivable and accounts payable and accrued expenses. Net cash used in investing activities of approximately $4.3 million resulted principally from amounts invested in acquisition and expansion activities and capital expenditures related to purchase of certain durable medical equipment and real estate. Net cash provided by financing activities of approximately $3.3 million resulted primarily from an increase in the Company's credit facility related to investments made in acquisitions and geographic expansion. 1996 ---- Net cash provided by operating activities of approximately $1.8 million resulted principally from current period earnings net of changes in accounts receivable and accounts payable and accrued expenses. Net cash used in investing activities of approximately $993,000 resulted principally from capital expenditures. Net cash used in financing activities of approximately $528,000 resulted primarily from principal payments on term debt and capital leases. Year 2000 Computer System Issue - ------------------------------- The year 2000 issue is the result of computer programs which were written using two digits rather than four to define the applicable year. The Company's principal information systems operate in a database environment which uses four digits for the year, and, accordingly, this issue is not expected to have a significant impact on the majority of the Company's computer systems. Certain purchased systems used by the Company, and for which the Company does not control the programming code, use two digits for the year. These systems are relatively old and have been independently slated for replacement with new systems that better meet the information needs of the Company as it expands and deals with the current operating environment. The Company anticipates that these conversions will be completed to provide compliance with the requirements to handle the year 2000 issue with no significant operational concerns. Management currently believes that the financial resources necessary to accomplish such compliance will not be material to the Company's financial condition, liquidity or results of operations. However, there is no guarantee that the Company's expected results will be achieved and actual results could differ materially from those expected results. The Company depends on receipt of payment for services from its payor sources most of which utilize computer software to process those payments. The Company has over 3,000 individual payors including Medicare and Medicaid programs, insurance companies and HMO's. The Company is currently unable to predict what effect, if any, the year 2000 issue may have on the computer systems of those payors, or in turn on the Company. System maintenance and modification costs to existing software will be expensed as incurred. The costs associated with purchasing replacement software will be capitalized and amortized over the useful life of the software. Contract Management Services - ---------------------------- The Company currently provides contract management services to two home health agencies in the Louisville, KY area owned by Columbia/HCA Health Corporation (Columbia). Columbia has announced its plans to divest itself of its home care operations and the Company has expressed its interest to Columbia to acquire the managed business. Columbia has announced a transaction to sell its hospitals in the Louisville market as well. Due to these changes, the agencies, which previously operated under the Caretenders trade name have changed their names . The Company continues to manage these agencies; however a sale of the Columbia owned operations may result in termination of the management agreements (which generated approximately $3 million of revenues in fiscal 1998) and the payment of a termination fee by Columbia to the Company. The Company also owns and operates a competing agency in the Louisville market. Due to the current status of events, the Company is unable to predict the ultimate outcome of this matter. There can be no assurance that the ultimate resolution of this matter will not have an adverse impact on the Company. Health Care Reform - ------------------ The health care industry, particularly home health, has experienced, and is expected to continue to experience, extensive and dynamic change. In addition to economic forces and regulatory influences, continuing political debate is subjecting the health care industry to significant reform. Health care reforms have been enacted as discussed elsewhere in this document and proposals for additional changes are continuously formulated by departments of the federal government, Congress, and state legislatures. Certain adverse changes in Medicare reimbursement for Medicare-certified home health services became effective for the Company on April 1, 1998. See "Reimbursement Changes" below. Government officials can be expected to continue to review and assess alternative health care delivery systems and payment methodologies. Changes in the law or new interpretations of existing laws may have a dramatic effect on the definition of permissible or impermissible activities, the relative cost of doing business, and the methods and amounts of payments for medical care by both governmental and other payors. Legislative changes to "balance the budget" and slow the annual rate of growth of Medicare and Medicaid are expected to continue. Such future changes may further impact reimbursement for home health care. There can be no assurance that future legislation or regulatory changes will not have a material adverse effect on the operations of the Company. Refer to the sections on Reimbursement Changes and Cautionary Statements - Forward Outlook and Risks below, the notes to the accompanying financial statements and Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information. Reimbursement Changes - --------------------- In August of 1997, President Clinton signed into law the Balanced Budget Act of 1997 (the BBA). This bill made significant changes in the reimbursement system for Medicare certified home health services. The primary changes that affect the Company include a reduction in the reimbursement for oxygen therapy services and a restructuring of the reimbursement system related to Medicare certified home care agencies. OXYGEN REIMBURSEMENT The reimbursement of certain oxygen therapy services and products was cut 25% for services provided on or after January 1, 1998. An additional cut of 5% will take affect on January 1, 1999. Future increases to the reimbursement rate have been tied to the Consumer Price Index and will not resume until 2003. Management expects the impact on the Company to be a decrease of approximately $600,000 in revenues annually (approximately $150,000 in the fourth quarter of fiscal 1998). BONDING REQUIREMENTS FOR MEDICARE PROVIDERS The BBA now requires Medicare providers to purchase surety bonds in amounts generally equal to 15% of Medicare reimbursement for periods up to 10 years. The bonds must be in effect by July 7, 1998, retroactive to February 27, 1998. The Company has made arrangements to meet such bonding, the cost of the which is not expected to be material to the Company's results of operations or financial position. Under the current rules, agencies that are not able to secure the required surety bonds will be excluded from participation in the Medicare program. In June 1998 the offices of two U.S. Senators announced HCFA's agreement to defer implementation to no later than February 1999. INTERIM PAYMENT SYSTEM FOR MEDICARE CERTIFIED HOME HEALTH NURSING SERVICES The BBA also includes a new Interim Payment System (IPS) for Medicare-certified home health services. IPS remains a cost-based reimbursement system. However, per visit cost limits have been reduced and a new "Per Beneficiary Limit" (PBL) has been added. IPS is effective for all home care agencies for cost reporting years beginning on or after October 1, 1997. For the Company's agencies the new system went into effect on April 1, 1998. The BBA states that IPS will remain in effect until a new prospective payment system (PPS) is implemented for cost reporting years beginning on or after October 1, 1999. The Interim Payment System, as well as other requirements imposed upon home health providers in the BBA were designed to contain the growth in home health care resulting in slower growth in Medicare home health expenditures. As a result of these changes, home health providers will be forced to reduce their costs of providing services and it is expected that utilization of home care services per beneficiary will decline. Under certain conditions, Medicare beneficiaries who had previously been entitled to services will no longer qualify under Medicare reimbursement guidelines. Approximately 42% of the Company's total revenues are subject to the Interim Payment System guidelines. The PBL places an aggregate cap on reimbursable costs based on the number of Medicare patients (beneficiaries) served during a fiscal year multiplied by an established rate. This rate is calculated using a complicated cost-based formula which blends historical data from the provider with others in the region (or in some cases uses national data). This has the effect of placing an additional limit on reimbursement. This serves to create a ceiling on the amount of care that can be provided to the average beneficiary and constrains the utilization of visits per patient. In passing these new rules Congress expressed the intent of reducing Medicare home care expenditures by approximately $16.2 billion over 5 years. However, calculations made by the Congressional Budget Office (CBO) indicate that the actual spending reductions that will result from IPS as implemented will be more than $48 billion or three times the intent of Congress. The Health Care Financing Administration (HCFA) anticipates that 93% of Medicare agencies will be reimbursed less than their cost. According to the National Association for Home Care (NAHC) agencies nationwide are experiencing an average 31% reduction in reimbursement per patient. Although Congress passed the BBA in August 1997 and it went into effect for many providers on October 1, 1997, HCFA did not publish all the rules and regulations for implementation until March 31, 1998. Due to complexities in the rules, particularly differences in the effective date and the Per Beneficiary Limit for different providers, the ultimate amount of contraction in the home care industry and the effective reduction in the Medicare home care benefit cannot yet be predicted. However, the Company believes that the reduction in the Medicare home health program is likely to equal or exceed the NAHC estimate. In late calendar 1997 and early 1998, the Company began implementing action plans to operate under IPS. However, the final rules published by HCFA on March 31, 1998 were more prohibitive than the Company or the industry expected. Accordingly, in April 1998, the Company revised its program to reduce costs further and control utilization for operation in the IPS environment. Consistent with industry estimates discussed above, the Company has, since April 1, 1998, experienced a decline in volumes, revenues and contribution from this portion of its operations compared with the same period last year. Additionally, the Balanced Budget Act reduced Medicare reimbursement for certain oxygen therapy services by 25% effective January 1, 1998. As a result of the combined impact of these reimbursement items, the Company expects a decline in revenues and earnings from recurring operations for its fiscal year ending March 31, 1999 and anticipates reporting a consolidated net operating loss for its first quarter, ending June 30, 1998. The Company is continuing its assessment of the implications of the current reimbursement environment and will, as necessary, make additional cost reductions and other adjustments to its operational and development plans in the future intended to return the Company to profitability. These actions may result in one-time charges for severance, branch office closings, impairment of long-lived assets and other restructuring activities and may significantly reduce the Company's ability to access capital and pursue development activities. As of March 31, no such restructuring activities or impairment existed and, accordingly, no provision for any liabilities or impairment charges that may result from such actions has been made in the accompanying financial statements. . In addition to IPS, the Balance Budget Act mandated establishment of a prospective payment system ("PPS") for home health services by October 1, 1999 (April 1, 2000 for the Company). However, rules and regulations have not yet been developed by HCFA and there can be no assurance that such deadline will be met. In the event that home care PPS is not implemented by that date, the BBA as legislated requires cost limits then in existence to be lowered by an additional 15%. Such lower cost limits, likely would have a material effect on the operating results and cash flows of the Company. The Company is unable to predict how PPS will ultimately be designed and implemented and thus is also unable to predict its impact on the Company. However, by its prospective nature, PPS should allow providers the opportunity to earn a profit on services which they are not able to do under IPS which is cost-based. State legislative proposals continue to be introduced that would impose more limitations on payments to providers of health care services such as the Company. Many states have enacted, or are considering enacting, measures that are designed to reduce their Medicaid expenditures. The Company cannot predict what additional government regulations, if any, affecting its business may be enacted in the future, how existing or future laws and regulations might be interpreted, or whether the Company will be able to comply with such laws and regulations in its existing or future markets. Impact of Inflation - ------------------- Management does not believe that inflation has had a material effect on income during the past several years. ITEM 7a. Quantitative and Qualitative Disclosures About Market Risk Not appplicable ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CARETENDERS HEALTH CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Year Ended March 31, 1998 1997 1996 Net revenues $95,182,600 $76,773,039 $63,226,968 Cost of sales and services 75,711,768 60,268,808 48,729,847 Selling, general and administrative expenses 10,856,509 9,363,031 8,438,050 Depreciation and amortization expense 2,582,653 2,239,194 2,057,092 Provision for uncollectible accounts 2,634,985 2,215,537 1,668,844 ---------- ---------- ---------- Income before interest expense, 3,396,685 2,686,469 2,333,135 net and provision for income taxes Interest expense, net 993,602 771,099 622,852 ---------- ---------- ---------- Income before provision for income taxes 2,403,083 1,915,370 1,710,283 Provision for income taxes 991,272 156,000 135,000 ---------- ---------- ---------- Net income $ 1,411,811 $ 1,759,370 $ 1,575,283 ========== ========== ========== PER SHARE: Weighted average shares outstanding: Basic 3,120,436 3,119,436 3,119,436 Diluted 3,161,706 3,141,865 3,148,707 Net income per share: Basic $ 0.45 $ 0.56 $ 0.50 Diluted $ 0.45 $ 0.56 $ 0.50 The accompanying notes to consolidated financial statements are an integral part of these financial statements.
CARETENDERS HEALTH CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS March 31, 1998 March 31, 1997 CURRENT ASSETS: Cash and cash equivalents $ 824,293 $ 1,014,604 Accounts receivable - net of allowance for uncollectible accounts of approximately $3,691,000 and $3,153,000 respectively 23,832,574 20,436,964 Prepaid expenses and other current assets 1,649,579 1,765,168 Deferred tax assets 88,635 1,646,990 ------------ ------------ TOTAL CURRENT ASSETS 26,395,081 24,863,726 PROPERTY AND EQUIPMENT - net 7,752,103 4,959,217 COST IN EXCESS OF NET ASSETS ACQUIRED - net of accumulated amortization of approximately $1,719,000 and $1,430,000, respectively 13,514,130 7,723,263 OTHER ASSETS 1,871,309 1,198,367 ------------ ------------ TOTAL ASSETS $ 49,532,623 $ 38,744,573 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable and accrued expenses $ 12,139,101 $ 7,031,021 Current portion of term debt and capital lease obligations 3,248,185 261,716 Other current liabilities 100,000 100,000 ------------ ------------ TOTAL CURRENT LIABILITIES 15,487,286 7,392,737 ------------ ------------ LONG-TERM LIABILITIES: Revolving credit facility 11,038,646 9,754,640 Term debt and capital lease obligations 197,184 145,308 Other liabilities 726,614 788,616 ------------ ------------ TOTAL LONG-TERM LIABILITIES 11,962,444 10,688,564 ------------ ------------ TOTAL LIABILITIES 27,449,730 18,081,301 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Note 9) STOCKHOLDERS' EQUITY: Common stock, par value $.10; 10,000,000 shares authorized; 3,130,436 and 3,129,436 issued and outstanding, respectively 313,044 312,944 Treasury stock, at cost, 10,000 shares (95,975) (95,975) Additional paid-in capital 25,345,586 25,337,876 Accumulated deficit (3,479,762) (4,891,573) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 22,082,893 20,663,272 ------------ ------------ $ 49,532,623 $ 38,744,573 ============ ============ The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
CARETENDERS HEALTH CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED MARCH 31, 1998, 1997, and 1996 Additional Total Common Stock Treasury Stock Paid-in Accumulated Stockholders' Shares Amount Shares Amount Capital Deficit Equity --------- --------- -------- -------- ------------ ------------ ------------ Balance, March 31, 1995 3,129,436 $ 312,944 10,000 $ (95,975) $ 25,337,876 $ (8,226,226) $ 17,328,619 Net Income - - - - - 1,575,283 1,575,283 --------- --------- -------- -------- ------------ ------------ ------------ Balance, March 31, 1996 3,129,436 312,944 10,000 (95,975) 25,337,876 (6,650,943) 18,903,902 Net Income - - - - - 1,759,370 1,759,370 --------- --------- -------- -------- ------------ ------------ ------------ Balance, March 31, 1997 3,129,436 312,944 10,000 (95,975) 25,337,876 (4,891,573) 20,663,272 Options Exercised 1,000 100 - - 7,710 - 7,810 Net Income - - - - - 1,411,811 1,411,811 --------- --------- -------- -------- ------------ ------------ ------------ Balance, March 31, 1998 3,130,436 $ 313,044 10,000 $ (95,975) $ 25,345,586 $ (3,479,762) $ 22,082,893 ========= ========= ======== ======== ============ ============ ============ The accompanying notes to consolidated financial statements are an integral part of these financial statements.
CARETENDERS HEALTH CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended March 31, 1998 1997 1996 Cash flows from operating activities: Net income $ 1,411,811 $ 1,759,370 $ 1,575,283 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 2,582,653 2,239,194 2,057,092 Deferred income taxes 574,000 (192,000) (492,000) Provision for uncollectible accounts 2,634,985 2,215,537 1,668,844 ----------- ----------- ----------- 7,203,449 6,022,101 4,809,219 Change in certain net current assets, net of the effects of acquisitions (Increase) decrease in: Accounts receivable (6,143,660) (5,455,101) (3,588,432) Prepaid expenses and other current assets 171,743 (274,784) (551,879) Increase (decrease) in: Accounts payable and accrued expenses 3,158,029 156,628 999,625 Other liabilities - (6,985) 148,820 ----------- ----------- ----------- Net cash provided by (used in) operating activities 4,389,561 441,859 1,817,353 ----------- ----------- ----------- Cash flows from investing activities: Capital expenditures (4,017,796) (2,620,942) (1,015,161) Acquisitions, net of cash acquired (4,439,746) (1,084,846) - Other assets (199,344) (551,245) 21,827 ----------- ----------- ----------- Net cash (used in) provided by investing activities (8,656,886) (4,257,033) (993,334) ----------- ----------- ----------- Cash flows from financing activities: Principal payments on term debt and capital leases (163,549) (441,202) (607,959) Net revolving credit facility borrowings 4,302,006 3,902,932 80,206 Other (61,443) (192,993) - ----------- ----------- ----------- Net cash provided by (used in) financing activities 4,077,014 3,268,737 (527,753) ----------- ----------- ----------- Net (decrease) increase in cash (190,311) (546,437) 296,266 Cash and cash equivalents at beginning of year 1,014,604 1,561,041 1,264,775 ----------- ----------- ----------- Cash and cash equivalents at end of year $ 824,293 $ 1,014,604 $ 1,561,041 =========== =========== =========== Supplemental Information Cash paid for interest $ 1,049,000 $ 691,000 $ 611,000 =========== =========== =========== Cash paid for income taxes $ 197,000 $ 52,000 $ 671,000 =========== =========== =========== The accompanying notes to consolidated financial statements are an integral part of these financial statements.
CARETENDERS HEALTH CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- BASIS OF CONSOLIDATION AND DESCRIPTION OF BUSINESS The consolidated financial statements include the accounts of Caretenders Health Corp. and its wholly-owned subsidiaries ("the Company"). The Company provides adult day health services and home health care services to individuals in Alabama, Connecticut, Florida, Indiana, Kentucky, Maryland, Massachusetts, Ohio and Virginia. All material intercompany transactions and accounts have been eliminated in consolidation. CASH AND CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Uninsured deposits at March 31, 1998, and 1997 were approximately $724,000 and $915,000, respectively. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives. The estimated useful lives of depreciable assets are as follows: Estimated Useful Life Building and Leasehold Improvements 5 - 30 Medical and Office Equipment 3 - 8 Transportation and Other Equipment 3 - 5 Included in Property and Equipment is rental equipment which may be sold. Upon sale, the cost net of related accumulated depreciation is charged to costs of sales and services. COST IN EXCESS OF NET ASSETS ACQUIRED The costs in excess of fair value of net assets acquired are stated at cost and amortized on a straight-line basis over their estimated useful lives which range from 20 (approximately $6.8 million, net) to 40 years (approximately $6.7 million, net). Subsequent to its acquisitions, the Company evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of goodwill may warrant revision or that the remaining balance of goodwill may not be recoverable. At March 31, 1998, no such events or circumstances existed warranting such revisions to the lives or recorded amounts of recorded goodwill. When factors indicate that goodwill should be evaluated for possible impairment, the Company will utilize appropriate methods (such as discounted cash flows over the remaining life of the goodwill), in measuring whether or not the goodwill is recoverable. CAPITALIZATION POLICIES Maintenance, repairs and minor replacements are charged to expense as incurred. Major renovations and replacements are capitalized to appropriate property and equipment accounts. Upon sale or retirement of property, the cost and related accumulated depreciation are eliminated from the accounts and the related gain or loss is recognized in income. Construction costs incurred to ready a project for its intended use are capitalized for major development projects and are amortized over the lives of the related assets. These costs will be amortized over the life of the specific leases. Pre-opening costs related to the start up of new operations and facilities are deferred and amortized over two years beginning with commencement of operations. The unamortized balance of capitalized pre-opening costs as of March 31, 1998 and 1997 was approximately $651,000 and $470,000, respectively and is included in other assets on the accompanying balance sheet. During 1998, the Accounting Standards Executive Committee issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities" (SOP 98-5), The statement provides guidance on the financial reporting of start-up and organization costs to require all such costs to be expensed as incurred. SOP 98-5 is required to be adopted for financial statements for fiscal years beginning after December 15, 1998. Therefore, this statement will be required to be adopted by the Company in the fiscal year ending March 31, 2000, if not adopted earlier. Management has not yet determined the adoption date of SOP 98-5 for the Company. If adopted on April 1, 1998, the Company would report an after-tax charge of approximately $383,000 for the cumulative effect of a change in accounting principle. NET REVENUES The Company is paid for its services primarily by federal and state third-party reimbursement programs, commercial insurance companies, and patients. Revenues are recorded at established rates in the period during which the services are rendered. Appropriate allowances to give recognition to third party payment arrangements are recorded when the services are rendered. Approximately 73%, 62%, and 55%, of net revenues for the fiscal years ended March 31, 1998, 1997, and 1996, respectively, were derived under federal and state third-party reimbursement programs. These revenues are based, in part, on cost reimbursement principles and are subject to examination and retroactive adjustment by agencies administering the programs. Management continuously evaluates the outcome of these reimbursement examinations and provides allowances for losses based upon the best available information. In the opinion of management, adjustments, if any, would not be material to the financial position or the results of operations of the Company. The ability of payors to meet their obligations depends upon their financial stability, future legislation and regulatory actions. The Company does not believe there are any significant credit risks associated with receivables from federal and state third-party reimbursement programs. The allowance for doubtful accounts principally consists of management's estimate of amounts that may prove uncollectible from non-governmental payors. NET INCOME PER SHARE Net income per share is presented as a unit of basic shares outstanding and diluted shares outstanding. Diluted shares outstanding is computed based on the weighted average number of common shares and common equivalent shares outstanding. Common equivalent shares result from dilutive stock options and warrants. The following table is a reconciliation of basic to diluted shares used in the earnings per share calculation:
For the Fiscal Years Ended March 31, 1998 1997 1996 --------- --------- --------- Basic outstanding shares at year end 3,120,436 3,119,436 3,119,436 Add-common equivalent shares representing shares issuable upon exercise of dilutive options and warrants 41,270 22,429 29,271 --------- --------- --------- Diluted weighted average number of shares at year end 3,161,706 3,141,865 3,148,707 ========= ========= =========
REVERSE STOCK SPLIT On March 22, 1995, the shareholders approved and implemented a one (1) for five (5) reverse stock split. Simultaneously, the par value per common share changed from $.02 per share to $.10. Share and per share information have been restated for all periods presented to reflect this reverse stock split. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Refer also to the notes "NET REVENUES" and "HEALTHCARE REFORM LEGISLATION, REGULATIONS AND MARKET CONDITIONS" above for examples of such estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash, accounts receivable and payable and debt instruments. The book values of cash and accounts receivable and payable are considered representative of their respective fair values. The fair value of the Company's debt instruments approximate their carrying values as substantially all of such debt has rates which fluctuate with changes in market rates. NOTE 2 - HEALTHCARE REFORM LEGISLATION, REGULATIONS AND MARKET CONDITIONS - ------------------------------------------------------------------------- HEALTH CARE REFORM - ------------------ The health care industry, particularly home health, has experienced, and is expected to continue to experience, extensive and dynamic change. In addition to economic forces and regulatory influences, continuing political debate is subjecting the health care industry to significant reform. Health care reforms have been enacted as discussed elsewhere in this document and proposals for additional changes are continuously formulated by departments of the federal government, Congress, and state legislatures. Certain adverse changes in Medicare reimbursement for home nursing services became effective for the Company on April 1, 1998. BALANCED BUDGET ACT OF 1997 - --------------------------- In August of 1997, President Clinton signed into law the Balanced Budget Act of 1997 (the BBA). This bill made significant changes in the reimbursement system for Medicare home health services. The primary changes that affect the Company include a reduction in the reimbursement for oxygen therapy services and a restructuring of the reimbursement system related to Medicare certified home care agencies. OXYGEN REIMBURSEMENT The reimbursement of certain oxygen therapy services and products was cut 25% for services provided on or after January 1, 1998. An additional cut of 5% will take affect on January 1, 1999. Future increases to the reimbursement rate have been tied to the Consumer Price Index and will not resume until 2003. Management expects the impact on the Company to be a decrease of approximately $600,000 in revenues annually (approximately $150,000 in the fourth quarter of fiscal 1998). BONDING REQUIREMENTS FOR MEDICARE PROVIDERS The BBA now requires Medicare providers to purchase surety bonds in amounts generally equal to 15% of Medicare reimbursement for periods up to 10 years. The bonds must be in effect by July 7, 1998, retroactive to February 27, 1998. The Company has made arrangements to meet such bonding, the cost of the which is not expected to be material to the Company's liquidity, results of operations or financial position. Under the current rules, agencies that are not able to secure the required surety bonds will be excluded from participation in the Medicare program. In June 1998 the offices of two U.S. Senators announced HCFA's agreement to defer implementation to no later than February 1999. INTERIM PAYMENT SYSTEM FOR MEDICARE CERTIFIED HOME HEALTH NURSING SERVICES The BBA also includes a new Interim Payment System (IPS) for Medicare-certified home health services. IPS remains a cost-based reimbursement system. However, per visit cost limits have been reduced and a new "Per Beneficiary Limit" (PBL) has been added. IPS is effective for all home care agencies for cost reporting years beginning on or after October 1, 1997. For the Company's agencies the new system went into effect on April 1, 1998. The BBA states that IPS will remain in effect until a new prospective payment system (PPS) is implemented for cost reporting years beginning on or after October 1, 1999. The Interim Payment System, as well as other requirements imposed upon home health providers in the BBA were designed to contain the growth in home health care resulting in slower growth in Medicare home health expenditures. As a result of these changes, home health providers will be forced to reduce their costs of providing services and it is expected that utilization of home care services per beneficiary will decline. Under certain conditions, Medicare beneficiaries who had previously been entitled to services will no longer qualify under Medicare reimbursement guidelines. Approximately 42% of the Company's total revenues are subject to the Interim Payment System guidelines. The PBL places an aggregate cap on reimbursable costs based on the number of Medicare patients (beneficiaries) served during a fiscal year multiplied by an established rate. This rate is calculated using a complicated cost-based formula which blends historical data from the provider with others in the region (or in some cases uses national data). This has the effect of placing an additional limit on reimbursement. This serves to create a ceiling on the amount of care that can be provided to the average beneficiary and constrains the utilization of visits per patient. In late calendar 1997 and early 1998, the Company began implementing action plans to operate under IPS. However, the final rules published by HCFA on March 31, 1998 were more prohibitive than the Company or the industry expected. Accordingly, in April 1998, the Company revised its program to reduce costs further and control utilization for operation in the IPS environment. Consistent with industry estimates discussed above, the Company has, since April 1, 1998, experienced a decline in volumes, revenues and contribution from this portion of its operations compared with the same period last year. Additionally, the Balanced Budget Act reduced Medicare reimbursement for certain oxygen therapy services by 25% effective January 1, 1998. As a result of the combined impact of these reimbursement items, the Company expects a decline in revenues and earnings from recurring operations for its fiscal year ending March 31, 1999 and anticipates reporting a consolidated net operating loss for its first quarter, ending June 30, 1998. The Company is continuing its assessment of the implications of the current reimbursement environment and will, as necessary, make additional cost reductions and other adjustments to its operational and development plans in the future intended to return the Company to profitability. These actions may result in one-time charges for severance, branch office closings, impairment of long-lived assets and other restructuring activities and may significantly reduce the Company's ability to access capital and pursue development activities. As of March 31, no such restructuring activities or impairment existed and, accordingly, no provision for any liabilities or impairment charges that may result from such actions has been made in the accompanying financial statements. . In addition to IPS, the Balance Budget Act mandated establishment of a prospective payment system ("PPS") for home health services by October 1, 1999 (April 1, 2000 for the Company). However, rules and regulations have not yet been developed by HCFA and there can be no assurance that such deadline will be met. In the event that home care PPS is not implemented by that date, the BBA as legislated requires cost limits then in existence to be lowered by an additional 15%. Such lower cost limits, likely would have a material effect on the operating results and cash flows of the Company. The Company is unable to predict how PPS will ultimately be designed and implemented and thus is also unable to predict its impact on the Company. However, by its prospective nature, PPS should allow providers the opportunity to earn a profit on services which they are not able to do under IPS which is cost-based. State legislative proposals continue to be introduced that could impose more limitations on payments to providers of health care services such as the Company. Many states have enacted, or are considering enacting, measures that are designed to reduce their Medicaid expenditures. The Company cannot predict what additional government regulations, if any, affecting its business may be enacted in the future, how existing or future laws and regulations might be interpreted, or whether the Company will be able to comply with such laws and regulations in its existing or future markets. CONTRACT MANAGEMENT SERVICES - ---------------------------- The Company currently provides contract management services to two home health agencies in the Louisville, KY area owned by Columbia/HCA Health Corporation (Columbia). Columbia has announced its plans to divest itself of its home care operations and the Company has expressed its interest to Columbia to acquire the managed business. Columbia has announced a transaction to sell its hospitals in the Louisville market as well. Due to these changes, the agencies, which previously operated under the Caretenders trade name have changed their names . The Company continues to manage these agencies; however a sale of the Columbia owned operations may result in termination of the management agreements (which generated approximately $3 million of revenues in fiscal 1998) and the payment of a termination fee by Columbia to the Company. The Company also owns and operates a competing agency in the Louisville market. Due to the current status of events, the Company is unable to predict the ultimate outcome of this matter. There can be no assurance that the ultimate resolution of this matter will not have an adverse impact on the Company. NOTE 3 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES - ----------------------------------------------
Accounts payable and accrued expenses at March 31, 1998 and 1997 consisted of the following: 1998 1997 ---------- ---------- Trade payables 5,769,528 2,935,702 Wages and employee benefits 5,106,929 2,783,305 Accrued taxes 845,694 783,759 Other 416,950 528,255 ---------- ---------- 12,139,101 7,031,021 ========== ==========
NOTE 4 - PROPERTY AND EQUIPMENT - -------------------------------
Property and equipment, including equipment under capital leases, consist of the following: March 31, 1998 March 31, 1997 Buildings and improvements $ 1,407,526 $ 713,572 Leasehold improvements 3,025,895 1,894,695 Medical equipment 6,841,810 5,291,958 Office and other equipment 6,025,795 4,578,098 Transportation equipment 1,636,628 1,763,843 ------------------- ------------------- 18,937,654 14,242,166 Less accumulated depreciation (11,185,551) (9,282,949) ------------------- ------------------- $ 7,752,103 $ 4,959,217 ==================== ===================
Property and equipment acquired under capital leases consists principally of transportation, and medical equipment, of $50,000 and $720,000 at March 31, 1998 and 1997, respectively against which obligations of approximately $14,000 and $434,000 were outstanding at those dates. Depreciation expense was approximately $1.8 million for the fiscal periods ended March 31, 1998, 1997, and 1996. NOTE 5 - REVOLVING CREDIT FACILITY - ---------------------------------- The Company has a $15 million revolving credit facility with the Healthcare Financial Services Division of Heller Financial, Inc.. Interest accrues on the facility at 1 percent over prime (9.5% as of March 31, 1998). Availability is determined pursuant to a formula principally consisting of a percentage of accounts receivable subject to certain exclusions, as defined. The facility is collaterialized by accounts receivable, inventory and a lien on the stock of the Company's subsidiaries. $14.6 million was available under the formula on March 31, 1998. The balance outstanding as of March 31, 1998 was approximately $11,039,000. The credit agreement contains certain restrictive covenants. As of March 31, 1998, the Company was in technical default of certain covenants however Heller has waived these defaults. The Heller facility remains in effect until October 13, 1999 and for annual one year terms thereafter unless either party to the credit agreement provides the other with a written notice of termination one year and 60 days prior to the renewal date. Heller has waived its right to give notice of termination under this provision, and, accordingly, the facility has been extended until October 13, 1999. In addition to the Heller facility, the company has a $3 million revolving facility with Bank One, Kentucky NA. Interest accrues on the facility at 1/2 percent over prime. The facility is unsecured and will remain in effect until August 4, 1998. The balance outstanding as of March 31, 1998 was approximately $3 million. The Company is currently negotiating a replacement credit facility in a range of $20-$30 million which it expects to complete during the second quarter of its fiscal 1999 year. NOTE 6 - TERM DEBT AND CAPITAL LEASE OBLIGATIONS - ------------------------------------------------
Term debt and capital lease obligation borrowings consist of the following: March 31, 1998 March 31, 1997 The Company has various promissory notes and capital leases with interest rates ranging 8% to 10.375% due in varying monthly amounts ranging from $2,000 to $5,000, related to and collaterized by certain real property and equipment expiring at various dates through 2002. $ 427,369 $ 407,024 --------------- ------------- Less current portion (230,185) (261,716) --------------- ------------- Non-current obligations $ 197,184 $ 145,308 =============== =============
As of March 31, 1998, future net minimum lease payments under capital leases and maturities of term debt are as follows: Capital Leases Long-term Debt 1999 $ 19,692 $ 215,947 2000 - 165,012 2001 - 19,295 2002 - 12,877 2003 - - Thereafter - - ---------- ---------- Total minimum lease payments and maturities 19,692 $ 413,131 ========== Less amount representing interest (5,454) ---------- Present value of minimum lease payments 14,238 Less current portion (14,238) ---------- Long-term portion of capital lease obligations $ - ==========
NOTE 7 - INCOME TAXES - --------------------- Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109) requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the Company's book and tax bases of assets and liabilities and tax carryforwards using enacted tax rates in effect for the year in which the differences are expected to reverse. The principal tax carryforwards and temporary differences giving rise to the Company's deferred taxes consist of tax net operating loss carryforwards, differences in book and tax accounting for depreciation, bonuses, compensated absences, deferred compensation, and allowance for uncollectible accounts.
The Company's deferred tax assets and liabilities were as follows: March 31, March 31, 1998 1997 Deferred tax assets Nondeductible reserves and allowances $ 879,000 $ 496,000 Net operating loss carryforwards 116,000 202,000 Accelerated depreciation 462,000 589,000 AMT Credit 41,000 106,000 Other 254,000 ------------- ------------- 1,468,000 1,647,000 Valuation allowance - - ------------- ------------- $ 1,468,000 $ 1,647,000 ============= ============= Deferred tax liabilities Accounts receivable $ 605,000 $ - Other 173,000 $ 383,000 ------------- ------------- $ 778,000 $ 383,000 ============= ============= Net deferred tax assets $ 690,000 $ 1,264,000 ============= =============
Provision for income taxes consist of the following: Year Ended March 31, 1998 1997 1996 Federal - Current $ 267,000 $ 200,000 $ 30,000 State and local - Current 150,000 148,000 135,000 Deferred 574,000 (192,000) (30,000) ------------- ------------- ------------- $ 991,000 $ 156,000 $ 135,000 ============= ============= =============
A reconciliation of the statutory to the effective rate of the Company is as follows: March 31, 1998 1997 1996 Tax provision using statutory rate $ 817,000 $ 651,000 $ 555,900 Goodwill 79,000 75,000 71,400 Valuation Allowance and other - (1,156,000) (624,000) State and local taxes, net of federal benefit 186,000 155,000 89,100 Other, net (91,000) 431,000 42,600 ------------- ------------- ------------- $ 991,000 $ 156,000 $ 135,000 ============= ============= =============
Prior to 1997 the Company had provided a valuation allowance against net deferred tax assets based upon management's estimation (at that time) of realizability of those assets through future taxable income. This valuation was based in large part on the Company's history of generating operating income or losses and expectations for the future. Over time the Company demonstrated an ability to generate operating income such that it became more likely than not that the deferred tax assets would be realized through future taxable income and, in accordance with generally accepted accounting principles for income tax accounting, in 1997 the valuation allowance was removed. The Company's ability to generate the expected amounts of taxable income from future operations is dependent upon general economic conditions, competitive pressures on revenues and margins and legislation and regulation at all levels of government. There can be no assurances that the Company will meet its expectations of future taxable income. However, management has considered the above factors in reaching its conclusions that it is more likely than not that future taxable income will be sufficient to fully utilize the deferred tax assets as of March 31, 1998 and 1997. NOTE 8 - STOCK OPTIONS AND WARRANTS - ----------------------------------- Employee Stock Option Plans 1. The Company has a Nonqualified Stock Option Plan which provides for the granting of options to key employees, officers, and directors, to purchase up to 220,000 shares of the Company's common stock. The Board of Directors will determine the amount and terms of the options which cannot exceed ten years. 2. The Company has an Incentive Stock Option Plan providing key employees, officers, and directors, options to purchase up to 80,000 shares of the Company's common stock. Generally, these options expire ten years after the date of grant, while options held by individuals owning more than 10% of the Company's common stock expire after five years. The option price cannot be less than the fair market price of the common stock at the date granted and the options are not exercisable during the first year. 3. The Company has a Supplemental Nonqualified Stock Option Plan which provides options for the purchase up to 40,000 shares of the Company's common stock to key employees and non-employee consultants. The Board of Directors will determine the amount and terms of the options, which cannot exceed ten years. 4. The Company has a 1991 Long-term Incentive Nonqualified Stock Option Plan which provides options to purchase up to 500,000 shares of the Company's common stock to key employees, officers, and directors. The Board of Directors will determine the amount and terms of the options, which cannot exceed ten years. 5. The Company has a 1993 Stock Option Plan for Non-employee Directors which provides options to purchase up to 120,000 shares of the Company's common stock to directors who are not employees. Each newly elected director or any director who does not possess options to purchase 10,000 shares of the Company's common stock will automatically be granted options to purchase 10,000 shares of common stock at an exercise price based on the market price as of the date of grant.
Changes in qualified options, non-qualified options, and supplemental non-qualified options and warrants outstanding are summarized as follows: Warrants Options Wtd. Avg Wtd. Avg Shares Ex. Price Shares Ex. Price March 31, 1995 286,600 $12.15 551,580 $8.61 Granted - 135,000 $6.30 Exercised - - Terminated - 163,280 $9.26 ------- ------- March 31, 1996 286,600 $12.15 523,300 $7.82 Granted - 41,500 $6.30 Exercised - - Terminated 20,000 $13.75 26,000 $4.34 March 31, 1997 266,600 $12.03 538,800 $7.87 ------- ------- Granted - 46,500 $8.11 Exercised - 1,000 $7.81 Terminated - 151,300 $8.57 ------- ------- March 31, 1998 266,600 $12.03 433,000 $7.65 ======= ======= At March 31, 1998 and 1997, 266,600 warrants were exercisable. The following table details exercisable options and related information:
1998 1997 Excercisable at end of year 350,000 420,000 Weighted Average Exercise Price $7.80 $8.18 Weighted Average of Fair Value of options Granted during the year $5.01 $4.26
The Company applies APB Opinion 25 and related interpretations in accounting for its stock option plans. In 1995, Statement of Financial Accounting Standards No. 123 "Accounting for Stock Based Compensation" (SFAS 123) was issued and, if fully adopted, changes the method of recognition of costs on plans similar to the Company's. The Company adopted the disclosure-only provisions of SFAS 123. Accordingly, no compensation cost has been recognized for the Company's stock option plans. Had compensation cost for the stock option plans been determined based upon the fair value at the grant date for the awards in 1998 and 1997 consistent with the provisions of SFAS 123, the effect on net income and earnings per share would have been reduced to the following pro forma amounts: 1998 1997 1996 Net Income: As Reported $ 1,411,811 $ 1,759,370 $ 1,575,283 Pro Forma 1,274,061 1,582,801 1,505,649 Basic EPS: As Reported $ 0.45 $ 0.56 $ 0.50 Pro Forma 0.41 0.51 0.48 Diluted EPS: As Reported $ 0.45 $ 0.56 $ 0.50 Pro Forma 0.40 0.50 0.48 Because the SFAS 123 method of accounting has not been applied to options award prior to April 1, 1995, the resulting pro forma compensation cost may not be representative of that to be expected in future years.
The following table summarizes information about stock options outstanding at March 31, 1998: Options Outstanding Options Exercisable Outstanding Wtd. Avg. Exercisable Range of As of Remaining Wt. Avg. As of Wt. Avg. Ex. Price March 31, 1998 Contractual Life Ex. Price March 31, 1998 Ex. Price ------------------------------------------------- -------------------------------------------- $1.95 19,500 1.9 $ 1.95 19,500 $ 1.95 $ 5.50 - 6.50 138,000 6.2 $ 6.15 93,240 $ 6.15 $ 7.00 - 8.13 90,800 7.5 $ 7.97 52,425 $ 7.91 $ 8.75 - 9.69 181,100 3.7 $ 9.06 181,100 $ 9.06 $16.55 - 20.00 3,600 1.4 $ 17.01 3,600 $ 17.01 -------- -------- $ 1.95 - 20.00 433,000 5.2 $ 7.65 349,865 $ 7.80 ======== ========
The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for awards in 1998 and 1997 respectively: risk-free interest rates of 5.8% and 6.5%, expected volatility of approximately 51% and 59%, expected lives of 7.5 years for both 1998 and 1997, and no expected dividend yields for both 1998 and 1997 NOTE 9 - COMMITMENTS AND CONTINGENCIES - -------------------------------------- (a) Operating Leases The Company leases certain real estate, office space, vehicles and equipment under noncancellable operating leases expiring at various dates through 2008. Rent expense amounted to approximately $4.5, $3.5, and $2.6 million for 1998, 1997, and 1996, respectively. At March 31, 1998 the minimum rental payments under these leases are as follows: 1999 $4,822,000 2000 3,571,000 2001 3,088,000 2002 2,058,000 2003 1,459,000 (b) Employment Contracts The Company has entered into an employment contract with an officer. In connection with this contract, the Company is contractually obligated to pay an annual base salary of $190,000 for three years. In addition, the agreement contains contingent obligations associated with performance bonuses and severance. (c) Medical Malpractice Claims The Company has insurance coverage with respect to medical malpractice risks. The malpractice insurance coverage provides coverage up to $1,000,000 per occurrence, and has no deductible for which the Company would be responsible. It is the Company's policy to record losses from asserted and unasserted claims identified by the Company and unreported claims based on estimates that incorporate the Company's past experience, as well as other considerations including the nature of each claim or incident and relevant trend factors. Based on these factors and the Company's insurance coverage, no accrual for potential losses attributable to asserted and unasserted claims has been recorded in the accompanying financial statements. (d) Legal Proceedings The Company is currently, and from time to time, subject to claims and suits arising in the ordinary course of its business, including claims for damages for personal injuries. In the opinion of management, the ultimate resolution of any of these pending claims and legal proceedings will not have a material effect on the Company's financial position or results of operations. On January 26, 1994 Franklin Capital Associates, Aetna Casualty and Surety and Aetna Life and Casualty, shareholders, who at one time held approximately 320,000 shares of the Company's common stock (approximately 13% of shares outstanding) filed suit in Chancery Court of Williamson County, Tennessee claiming unspecified damages not to exceed three million dollars in connection with registration rights they received in the Company's acquisition of National Health Industries in February 1991. The suit alleges the Company failed to use its best efforts to register the shares held by the plaintiffs as required by the merger agreement. The Company believes it has meritorious defenses to the claims and does not expect that the ultimate outcome of the suit will have a material impact on the Company's results of operation, liquidity or financial position. The Company plans to vigorously defend its position in this case. No amounts have been recorded in the accompanying financial statements related to this suit. In January 1997, Aetna Life & Casualty withdrew its claim against the Company without prejudice. NOTE 10 - QUARTERLY FINANCIAL DATA (UNAUDITED) - ---------------------------------------------
Summarized quarterly financial data for years ended March 31, 1998 and 1997 are as follows (in thousands expect per share data): 1998 1997 ------------------------------------- ------------------------------------- First Second Third Fourth First Second Third Fourth ------------------------------------- ------------------------------------- Net Revenues $21,521 $22,834 $23,436 $27,392 $17,746 $19,158 $19,630 $20,239 Gross Profit 4,443 4,882 4,744 5,402 3,699 4,305 4,253 4,247 Net Income 293 415 410 294 368 465 512 414 Per Share Basic $ 0.09 $ 0.13 $ 0.13 $ 0.09 $ 0.12 $ 0.15 $ 0.16 $ 0.13 Diluted $ 0.09 $ 0.13 $ 0.13 $ 0.09 $ 0.12 $ 0.15 $ 0.16 $ 0.13
NOTE 11 - ACQUISITIONS - ---------------------- In the fourth quarter of fiscal 1998 the Company completed four separate acquisitions of home and community-based health care businesses in transactions accounted for as purchases. The results of operations for these business have been included in the accompanying financial statements from the date of each acquisition. The aggregate purchase was approximately $10 million of which approximately $4.4 million was paid in cash with the balance assumed in liabilities. The transactions resulted in approximately $6 million of cost in excess of net assets acquired (goodwill) which is being amortized on a straight line basis over its estimated useful life (twenty years). The allocation of purchase price for these acquisitions has been based on estimates and information currently available, and, in accordance with generally accepted accounting principles is subject to change as additional information becomes available. The impact of the above acquisitions were not significant for any of the periods presented and, accordingly, proforma amounts are not presented illustrating the effects of such acquisitions. Report of Independent Public Accountants To the Stockholders of Caretenders Health Corp.: We have audited the accompanying consolidated balance sheets of Caretenders Health Corp. (a Delaware corporation) and subsidiaries as of March 31, 1998 and 1997 and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended March 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Caretenders Health Corp. and subsidiaries as of March 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1998 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Louisville, Kentucky June 5, 1998 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item is set forth the Registrants definitive proxy materials of the Company to be filed with the Commission no later than 120 days after March 31, 1998, except for the information regarding executive officers of the Company, which is contained in Item 1 of Part I report. The information required by this Item contained in such definitive proxy materials is incorporated herein by reference. The following table sets forth certain information with respect to the Company's directors and executive officers. Name Age Position with the Company - ----------------------------------------------------------------- William B. Yarmuth (1) 46 Chairman of the Board President and Chief Executive Officer C. Steven Guenthner (2) 37 Senior Vice President and Chief Financial Officer Mary A. Yarmuth (3) 51 Senior Vice President - Service Development Ric Pritchard (4) 43 Senior Vice President -- Operations Todd Lyles (5) 35 Senior Vice President - Planning and Development Steven B. Bing (6) 51 Director Patrick B. McGinnis (7) 51 Director Donald G. McClinton (8) 64 Director Tyree G. Wilburn (9) 46 Director Jonathan Goldberg (10) 46 Director Wayne T. Smith (11) 52 Director *Such individuals are not deemed to be executive officers of the Company pursuant to Rule 16-a(1)(f) promulgated under Section 16 of the Securities Exchange Act of 1934 Executive officers of the Company are elected by the Board of Directors for one year and serve at the pleasure of the Board of Directors with the exception of William B. Yarmuth who has an employment agreement with the Company. See Item 11 -- William B. Yarmuth Employment Agreement. Mary A. Yarmuth is married to William B. Yarmuth. There are no other family relationships between any director or executive officer. Each Director is elected to hold office until the next annual meeting of stockholders and until a successor is elected and qualified. (1) William B. Yarmuth has been a director of the Company since 1991, when the Company acquired National, where Mr. Yarmuth was Chairman, President and Chief Executive Officer. After the acquisition, Mr. Yarmuth became the President and Chief Operating Officer of the Company. Mr. Yarmuth became Chairman and CEO in 1992. He was Chairman of the Board, President and Chief Executive Officer of National from 1981 to 1991. (2) C. Steven Guenthner has been Senior Vice President and Chief Financial Officer of the Company since 1992. From 1983 through 1992 Mr. Guenthner was employed as a C.P.A. with Arthur Andersen LLP. Prior to joining the Company he served as a Senior Manager in the firm's Accounting and Audit division specializing in mergers and acquisitions, public companies and the healthcare industry. (3) Mary A. Yarmuth has served as Senior Vice President of the Company since 1991, currently as Senior Vice President of Service Development. From 1985 to 1991 Ms. Yarmuth served as President of the Company's Nursing Division. Ms.Yarmuth joined National in 1981. (4) Ric Pritchard has served as Senior Vice President Operations of the Company since February of this year. Ric has been in the field of Home Healthcare since 1981 in the areas of Home Infusion, HME, Managed Care and Home health Nursing. His functional responsibilities have encompassed sales, sales management, operations, operations management, managed care contracting and management and senior management with American Hospital Supply Corp./Baxter, Healthdyne/ HNS/ NMC Homecare and Olsten Health Services, Inc. (5) P. Todd Lyles joined the Company as Senior Vice President Planning and Development in October 1997. Prior to joining the Company Mr. Lyles was Vice President Development for the Kentucky Division of Columbia/HCA, a position he had held since 1993. Mr. Lyles experience also includes includes 8 years with Humana Inc. in various financial and hospital management positions. (6) Steven B. Bing was elected a Director in January 1992. Mr. Bing is an employee of R. Gene Smith, Inc., a private investment company located in Louisville, Kentucky. From 1989 to March 1992, Mr. Bing was President of ICH Corporation, an insurance holding company. From 1984 to 1989, he served as Senior Vice President of ICH Corporation. He is also a director of the University of Louisville, First Alliance Corporation, and various closely-held business entities. (7) Patrick B. McGinnis was elected a director in October 1994. Mr. McGinnis is the co-founder of Healthcare Recoveries, Inc. and serves as the company's chairman and CEO. Healthcare Recoveries, Inc. is a provider of subrogation and other claims recovery services to the healthcare industry. From 1979 to 1988, Mr. McGinnis was Vice President-Finance and Planning for Humana, Inc. (8) Donald G. McClinton was elected a director in October 1994. From 1986 to 1994, Mr. McClinton was co-chairman of Interlock Industries, Inc., a privatelyheld company engaged in metal fabrication, corrugated container manufacturing, aluminum processing and transportation. Presently, Mr. McClinton is President and part owner of Skylight Thoroughbred Training Center. Inc., a thoroughbred course training center. He is also a director of Jewish Hospital Systems,Inc., and Mid-America Bancorp. (9) Tyree G. Wilburn was elected a director in January 1996. Mr. Wilburn is a private investor. From 1992 to 1996, Mr. Wilburn was Chief Development Officer of Community Health Systems, Inc. and, most recently, Executive Vice President and Chief Financial and Development Officer. From 1974 to 1992 Mr. Wilburn was with Humana Inc. where he held senior and executive positions in mergers and acquisitions, finance, planning, hospital operations, audit and investor relations. He is also a director of Health Directions, Inc. (10) Jonathan Goldberg was elected a director in February 1997. Mr. Goldberg is the managing partner of the law firm of Goldberg and Simpson and has served in that capacity for the last five years. (11) Wayne T. Smith was elected a director in March 1997. Mr. Smith is President and Chief Executive Officer of Community Health Systems, Inc. Mr. Smith was President and Chief Operating Officer of Humana, Inc. from 1993 to 1996 and has served with Humana from 1973 to 1993 in various capacities,including numerous vice president and divisional president positions. ITEMS 11, 12 AND 13. EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Registrant intends to file a definitive proxy statement with the Commission pursuant to Regulation 14A (17 CFR 240.14a) not later than 120 days after the close of the fiscal year covered by this report. In accordance with General Instruction G(3) to Form 10-K, the information called for by Items 11, 12 and 13 is incorporated herein by reference to the definitive proxy statement. Neither the report on Executive Compensation nor the performance graph included in the Company's definitive proxy statement shall be deemed incorporated herein by reference. PART IV Item 14. Exhibits and Financial Statement Schedules and Reports on Form 8-K. Page Number (a)(1) Index to Consolidated Financial Statements Consolidated Statements of Income for the three years ended March 31, 1998, 1997, and 1996 31 Consolidated Balance Sheets - March 31, 1998 and 1997 32 Consolidated Statements of Stockholders' Equity for the three years ended March 31, 1998, 1997, and 1996 33 Consolidated Statements of Cash Flows for the three years ended March 31, 1998, 1997, and 1996 34 Notes to Consolidated Financial Statements 35-48 Report of Independent Public Accountants 49 (a)(2) Index to Financial Statement Schedule Report of Independent Public Accountants 58 Schedule II - Valuation and Qualifying Accounts S-1 All other Schedules have been omitted because they are either not required, not applicable or, the information has otherwise been supplied in the financial statements or notes thereto. (a)(3) Exhibits (* denotes filed herein) Exhibit Number Description of Exhibit - ------- ---------------------- 3.1 Certificate of Incorporation, as amended 3.2 Amended and Restated By-laws 4.1 Credit Agreement by and between the Company and First National Bank of Louisville and AmSouth Bank, N.A., and HEALTHSOUTH Rehabilitation Corporation, as guarantor, dated as of June 29, 1992 with exhibits (incorporated by reference to Exhibit 10.88 to the Registrant's Form S-1 Reg.33-46565 dated April 23, 1993) 4.2 Medical Claims, Revolving Loan Agreement, Revolving Credit Note and exhibits between the Company and Heller Financial dated June 20, 1994 4.3 Other Debt Instruments -- copies of other debt instruments for which the total debt is less than 10% of assets will be furnished to the Commission upon request. 10.1 Form of Lender's Notes and Lenders' Warrants (Incorporated by Reference to Exhibit 10.3 to the Registrant's Registration Statement on Form S-1 Reg. No. 33-8158 effective December 2, 1986) 10.2 Stockholders and Noteholders Agreement, dated February 5, 1991, by and among the Company, Senior Kentucky, Inc., National Health Industries,Inc., Franklin Capital Associates, L.P., Aetna Life and Casualty Company, The Standard Fire Insurance Company and the holders of National's common stock(Incorporated by reference to Exhibit 2.3 to the Registrant's Report on Form 8-K, dated February 5, 1991) 10.3 Nonqualified Stock Option Plan, as amended (Incorporated by reference to the Registrant's Registration Statement on Form S-8 Reg. No. 33-20815) 10.4 Supplemental Nonqualified Stock Option Plan (Incorporated by reference to Exhibit 19.4 to the Registrant's Report on Form 10-Q for the Quarter Ended November 30, 1987 Commission File No. 15342) 10.5 Incentive Stock Option Plan, as amended (Incorporated by reference to the Registrant's Registration Statement on Form S-8 Reg. No. 33-20815) 10.6 Indemnity Agreement, effective as of October 15, 1987, between Senior Service Corporation and Robert S. Shulman (Incorporated by Reference to Exhibit 10.46 to the Registrant's Post-Effective Amendment No. 3 to its Registration Statement on Form S-1 Reg. No. 33-8158) 10.7 Amendment to the Senior Service Corporation 1987 Nonqualified Stock Option Plan (Incorporated by reference to Exhibit 19.3 to the Registrant's Report on Form 10-Q for the quarter ended November 30, 1989) 10.9 Provider Agreement, dated May 24, 1989, between the Maryland State Department of Health and Mental Hygiene and Towson Community Adult Day Care (Incorporated by reference to Exhibit 10.70 to the Registrant's Post-Effective Amendment No. 4 to its Registration Statement on Form S-1 File No. 33-8158) 10.22 1991 Long-Term Incentive Plan 10.23 Warrant Agreement, dated June 29, 1991, between the Company and HEALTHSOUTH Rehabilitation Corporation (incorporated by reference to Exhibit 10.88 to the Registrant's Form S-1 Reg. 33-46565 dated April 23, 1993) 10.24 Employment Agreement, dated January 1. 1996, between the Company and William B. Yarmuth 10.25 Asset Sale Agreements between the Company and Columbia/HCA Healthcare Corporation 10.26* Management Services Agreement between the Company and Columbia/HCA Healthcare Corporation 10.27* Asset Purchase Agreement between the Company and Home Care Solutions, Inc. 10.28* Asset Purchase Agreement between the Company and Metro Home Care, Inc. 10.29* Asset Purchase Agreement between the Company and Visiting Nurse Association of Palm Beach County, Inc. 22* List of Subsidiaries of Caretenders Health Corp. 24.1* Consent of Arthur Andersen LLP 27* Financial Data Schedule (b) Reports on Form 8-K None. (c) Exhibits Described in Item 14(a)(3) of this report (d) Financial Statement Schedules Described in Item 14(a)(2) of this report SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CARETENDERS HEALTH CORP. July 10, 1998 By /s/ William B. Yarmuth William B. Yarmuth Chairman, President and Chief Executive Officer By /s/ C. Steven Guenthner C. Steven Guenthner Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated: By /s/ William B. Yarmuth July 10, 1998 William B. Yarmuth Date Director By /s/ Patrick B. McGinnis July 10, 1998 Patrick B. McGinnis Date Director By /s/ Donald G. McClinton July 10, 1998 Donald G. McClinton Date Director By /s/ Steven B. Bing July 10, 1998 Steven B. Bing Date Director By /s/ Tyree Wilburn July 10, 1998 Tyree Wilburn Date Director By /s/ Jonathan Goldberg July 10, 1998 Jonathan Goldberg Date Director By /s/ Waynt T. Smith July 10, 1998 Wayne T. Smith Date Director Report of Independent Public Accountants ---------------------------------------- To the Stockholders of Caretenders Health Corp.: Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to Financial Statement Schedule is presented for purposes of complying with the Securities and Exchange Commissions rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Louisville, Kentucky June 5, 1998
CARETENDERS HEALTH CORP AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS SCHEDULE II Col. A Col. B Col. C Col. D Col. E Additions (1) Balance at Charged to Charged to Beginning of Costs Other (2) Balance at Description Period and Expenses Accounts Deductions End of Period Year ended March 31, 1998: Allowance for bad debts $ 3,153,145 $ 2,634,985 $ - $ 2,096,793 $ 3,691,337 Year ended March 31, 1997: Allowance for bad debts $ 2,884,743 $ 2,215,537 $ - $ 1,947,135 $ 3,153,145 Year ended March 31, 1996: Allowance for bad debts $ 2,910,272 $ 1,668,844 $ - $ 1,694,373 $ 2,884,743 (1) Charged to bad debt expense. (2) Write-off of accounts.
CARETENDERS HEALTH CORP LIST OF SUBSIDIARIES AS OF MARCH 31, 1998 EXHIBIT 22 Subsidiaries of Caretenders Health Corp - --------------------------------------- Adult Day Care of America, Inc. Adult Day Care of Louisville, Inc. Adult Day Care of Maryland, Inc. HouseCalls, Inc. Adult Day Clubs of America Joint Venture, Ltd. SEI Publishing Corporation National Health Industries, Inc. HHJC Holdings, Inc. Pro-Care Home Health of Broward, Inc. Subsidiaries of National Health Industries, Inc. - ------------------------------------------------ Freelife Medical Equipment, Inc. Caretenders Homecare,Inc. Caretenders Infusion of Birmingham, Inc. Caretenders of Birmingham, Inc. Caretenders of Boston, Inc. Caretenders of Cincinnati, Inc. Caretenders of Columbus, Inc. Caretenders of Elizabethtown, Inc. Caretenders of Indiana, Inc. Caretenders of Indianapolis, Inc. Caretenders of Lincoln Trail, Inc. Caretenders of Louisville, Inc. Caretenders of New Jersey, Inc. Caretenders of Northern Kentucky, Inc. Caretenders of Richmond, Inc. Caretenders of the Bluegrass, Inc. Caretenders Visiting Services of Richmond, Inc. House Calls of America, Inc. Caretenders Infusion Corp. Metro Home Care, Inc. National Orthopedic & Rehabilitation Services, Inc. Physician Affiliates, Inc. Special Healthcare Services, Inc. Reliable Home Healthcare, Inc. Caretenders Visiting Services of Cincinnati, Inc. Caretenders of Cleveland, Inc. Caretenders Visiting Services of Columbus, Inc. Caretenders of Fort Lauderdale, Inc. Caretenders of Evansville, Inc. Caretenders of West Palm Beach, Inc. Caretenders Visiting Services of Indianapolis, Inc. Caretenders of Charlotte, Inc. Caretenders Visiting Services of Southwest FL, Inc. Caretenders of Southwest Florida, Inc. Caretenders Visiting Services of Southeast FL, Inc. Subsidiary of HHJC Holdings, Inc. - --------------------------------- Home Health of Jefferson County, Inc. Caretenders of Marshall County, Inc. EXIBIT 24.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS - ----------------------------------------- As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statement File No. 33-33601 relating to the Company's Incentive Stock Option Plan, Registration Statement File No. 33-81122 related to the 1987 Nonqualified Stock Option Plan, Registration Statement No. 33-881100 related to the 1993 Non-Employee Directors Stock Option Plan, and Registration Statement No. 33-81124 related to the 1991 Long-Term Incentive Plan. ARTHUR ANDERSEN LLP Louisville, Kentucky July 13, 1998 EX-10.26 2 AGREEMENT AGREEMENT made as of the 1st of July, 1994, between NATIONAL HEALTH INDUSTRIES, INC., a Delaware corporation, with its principal office at 9200 Shelbyville Road, Louisville, Kentucky 40222 (hereinafter referred to as "Management Co."), and GALEN OF KENTUCKY, INC. d/b/a AUDUBON REGIONAL MEDICAL CENTER, a Kentucky corporation, with its principal office at One Audubon Plaza Drive, Louisville, Kentucky 40217 (hereinafter referred to as the "Hospital"). W I T N E S S E T H: WHEREAS, the Hospital maintains a department which operates as a home health agency known as "Caretenders". (the "Agency"); WHEREAS, Management Co. and it's subsidiaries (collectively, "Management Co.") provide management services suited to and designed for the operation of home health agencies; and WHEREAS, Management Co. desires to provide management services to the Agency, and the Hospital desires to procure such services from Management Co. for the Agency, pursuant to the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements hereinafter contained, the parties hereto agree as follows: 1. RETENTION OF MANAGEMENT CO.: AUTHORITY Subject to the terms and conditions of this Agreement, the Hospital hereby retains Management Co. to provide management services for the Agency, and Management Co. hereby accepts such retention by the Hospital. Pursuant to this Agreement, Management Co. shall have the authority and responsibility to manage, supervise and administer the day-to-day operations of the Agency subject at all times to the Hospital's ultimate responsibility for and authority over the governance, management and operations of the Agency, and Management Co.'s compliance with (a) the policies and procedures adopted by the Hospital and the Agency from time to time, (b) specific and general directives from the Hospital's and the Agency's governing board(s) and management and (c) all applicable laws, rules and regulations, including, without limitation, the Medicare Conditions of Participation for Home Health Agencies, now set forth at 42 C.F.R. 484.1 et seq., as amended or recodified from time to time or any substitute or successor regulations (the "Conditions"). 2. OBLIGATIONS OF MANAGEMENT CO. During the term of this Agreement, subject to the limitations set forth in Section 1 and subject to the obligations of the Hospital set forth herein, Management Co. shall, as requested perform the services set forth below: (a) Supervise the general operations of the Agency, as follows: (i) Provide on-site consultation for management regarding policy development; (ii) Provide strategic planning and analysis of the Agency's integration into the Hospital's mainstream operations; (iii) Assist in maintaining, renewing and supplementing all local, state and federal applications, certifications, licenses, forms and permits necessary or appropriate for the operation of the Agency; (iv) Assist in maintaining the Agency's compliance with all governmental laws, rules and regulations, including the Conditions; (v) Supervise the preparation for and assist in the conduct of the Agency's regulatory surveys and inspections, as follows: (1) Assist the Agency in maintaining appropriate state licensure as a home health agency. Management Co. will use its best efforts to the Agency in remedying any deficiencies identified by the state licensing authority. (2) Assist the Agency in maintaining certification to participate in Medicare, Medicaid and other reimbursement programs in which the Agency participates. Management Co. will use its best efforts to assist the Agency in remedying any deficiencies identified by such programs. (3) Assist the Agency in maintaining certification by the Joint Commission the Accreditation of Healthcare Organizations ("JCAHO"). Management Co. will use its best efforts to assist the Agency in remedying any deficiencies identified by JCAHO; (vi) Assist in the negotiation and maintenance of the Agency's contractual arrangements with service providers and lessors; (vii)Supervise plant and equipment maintenance and (viii)Assist in the design, implementation and maintenance of operating, organizational, office and personnel policies and procedures for the Agency; (ix) Assist and advise the Agency regarding administrative personnel matters; and (x) Provide assistance with other daily administrative functions, as requested; (xi) Provide on-site training for home care coordinators and on generally accepted methodologies for conducting the services of the Agency; (xii)Provide tracking, analysis and reporting for all referrals, categorized by physician, hospital and hospital department; and (xiii)Participate in public, marketing and educational, business plan preparation and the development of the Agency's services by providing formats for community awareness and other activities. (b) Assist in the development of the Agency's business, services and relations, as follows: (i) Provide on-site training for home care coordinators and general on accepted methodologies for promoting the services of the Agency; (ii) Provide tracking, analysis and reporting for all referrals, categorized by physician, hospital and hospital department; and (iii)Assist in public, marketing and educational, business plan preparation and the development of the Agency's services by providing formats for community awareness and other activities. (c) Oversee and manage the clinical staff and clinical operations of the Agency, as follows: (i) Assist the Agency in the recruiting of clinical personnel and assist and advise the Agency with respect to other clinical personnel matters; (ii) Provide on-site consultation regarding the development and implementation of clinical policies; (iii)Design and assist in the implementation of Continuous Quality Improvement Strategies (CQI) and patient satisfaction measures for the Agency; (iv) Assist in the development and implementation of quality assurance and utilization review policies; (v) Provide staff to conduct training programs and seminars for professional and non-professional administrative and clinical personnel of the Agency, as necessary, and provide staff development and staff training modules for clinical staff; Hold staff development and departmental meetings with applicable Agency and Management Co. personnel, as necessary; Provide analyses and evaluations of staffing patterns in relation to patient mix, scope of services and number of disciplines; Assist and advise the Agency regarding the maintenance of a medical records system, and Perform, directly or under arrangement, medical record/utilization review audits, as necessary. (d) Assist the Hospital in managing the financial affairs of the Agency, as follows: (i) Perform all billing and collecting activities in a manner consistent with that utilized by the Management Co. for its other agencies. Management Co. shall perform those services in accordance with applicable Medicare and Medicaid guidelines, including, without limitation, requirements for the timely submission of claims; (ii) Monitor payments to the Agency and oversee the Agency's collection system; (iii)Monitor and review the posting of cash receipts; (iv) Maintain, review and monitor Medicare/Medicaid logs; (v) Supervise the follow-up on outstanding receivables; (vi) Review and monitor transaction logs; (vii) Consult in the processing and payment of the Agency's accounts payable and payroll; (viii) Assist in the preparation of the annual budget of the Agency; and (ix) Consult with and assist the Hospital's accounting staff and outside accountants, as necessary. (x) Provide billing and collecting activities with monthly reconciliations. (e) Manage the aspects of the operations of the Agency that are affected by third party reimbursement, as follows. Management Co. agrees to continue to provide the services described in Subsections (vi) - (ix) below as may be reasonably requested by the Agency following expiration or termination of this Agreement by either party, without additional charge to the Hospital, until all cost reports pertaining to patient visits provided prior to the expiration or termination of this Agreement have been filed. Management Co. will also provide reasonable billing, collection and computer services pertaining to visits performed prior to the expiration or termination of this Agreement for the period ending six (6) months after expiration or termination of this Agreement without additional charge to the Hospital. Management Co. will, after the date of expiration or termination of this Agreement and upon reasonable request of the Hospital provide other services of the type and nature specified in this Agreement in return for which Management Co. will be compensated at a rate of one hundred fifty dollars ($150.00) per hour. Management Co. shall not be required to provide any services under this Agreement after the Agency has reached final settlement of all cost reports pertaining to patient visits provided prior to the expiration or termination of this agreement: (i) Review and assist in preparation of monthly cost reports for purposes of internal management information; (ii) Review and assist the Hospital's reimbursement staff in the preparation of all quarterly interim rate computations, periodic reimbursement reports, annual cost reports and other required data and reports for the Hospital's submission to the Agency's Medicare fiscal intermediary, Medicaid and other third party payors, as may be necessary under the provision of laws, rules, regulations and general instructions of Medicare, Medicaid or any other local, state, federal or other program in which the Agency participates; (iii)Provide on-site reimbursement consulting, as necessary and periodic reimbursement reports; (iv) Assist the Hospital's reimbursement staff in developing specific reimbursement policies for the Agency; (v) Monitor all cost cap and therapy 1imitations published by third party payors in light of applicable requirements; (vi) Assist in the preparation for and conduct of Medicare and Medicaid audits, and attend all exit conferences; (vii)Review initial reimbursement settlements and proposed audit adjustments and prepare commentary for submission to the relevant authorities (e.g., the Medicare fiscal intermediary), as necessary; (viii)Provide consultation regarding correspondence with governmental agencies and fiscal intermediaries, and provide primary advice and research on reimbursement matters affecting the Agency; (ix) Provide advice and assistance to the Agency in connection with the pursuit and prosecution of reimbursement appeals; and (x) Assist the Agency in maintaining and updating an appropriate charge structure. (f) Provide the following standby services: (i) Provide clinical, administrative or financial consulting personnel as may be necessary from time to time to assist in the operation of the Agency; (ii) Provide data to the Hospital related to local, regional and national trends in home care as well as market research data to which Management Co. may have access; and (iii) Participate with the Hospital in the conducting of feasibility studies, as necessary. (g) Throughout the term of this Agreement, Management Co. shall submit monthly and annual progress reports to the Hospital for the Agency. Management Co.'s progress reports will address, among other things, Management Co.'s success in meeting defined goals and objectives for services and the Agency's operations, as set forth in this Agreement, the Agency's business plan or as otherwise agreed upon by the Hospital and Management Co. (h) Management Co. shall provide Computer Services to the Hospital and/or Agency according to the following terms and conditions: (i) The system as defined by this document includes the hardware supplied by Management Co. and all system and application software residing on the hardware as supplied; (ii) Management Co. is responsible for the maintenance of the system in good operating condition throughout the term of this Agreement through routine maintenance and repair. Management Co. will provide twenty-four (24) hour per day, seven (7) day per week, repair and maintenance services for the Hardware; (iii) The cost associated with the correction of hardware malfunctions shall be borne at all times by Management Co. (iv) Management Co. will furnish the Agency with access to any and all updates, modifications, improvements, revisions and enhancements to the system software. (v) Management Co. will provide assistance with development of the interfaces between the system and the Hospital's computer system. (vi) Management Co. will provide upon reasonable request by the Hospital, from time to time, and subject to any requirements imposed on Management Co. by its hardware and software vendors, routine minor modifications to the system. Services related to customization and/or major modifications will be paid for by the Hospital at Management Co.'s standard charges for time and materials. (vii) Any and all customized and/or modified software shall remain the property of Management Co. or its software vendors as an integral part of the system. (viii) The components of the system located in the Agency's offices shall be used for operating the system as described in this agreement and for no other purpose. No software other than the software furnished by Management Co. shall be utilized on the system without prior written consent of Management Co. (ix) The Hospital and the Agency shall ensure that the management and data entry personnel working in the Agency's offices cooperate with Management Co. in the discharge of Management Co.'s duties under this Agreement and comply with the reasonable instructions provided by Management Co. from time to time as to the proper use and functioning of the system. (x) Under no circumstances shall the Hospital make any modifications, customizations or other revisions to the System or any component of the system without prior written consent of Management Co. (xi) The Hospital acknowledges that the system and all of its component parts (including, without limitation, specifications, manuals and other documentation) are, and shall remain, the sole and exclusive property of Management Co. At no time during the term of this agreement or thereafter shall the Hospital assign, sell, license, lease, duplicate, transfer, pledge or encumber the system or any component part of the system. Upon termination of this agreement, all of the Hospital's rights with respect to the system shall terminate and Management Co. shall be entitled to remove the components of the system located in the Agency's offices. 3. OBLIGATIONS OF THE HOSPITAL (a) The Hospital agrees that the Agency is and will continue to be, subject to the obligations of Management Co. to provide the management services set forth herein, operated and maintained as a duly certified, licensed and accredited home health agency in accordance with: (i) the Conditions; (ii) the provisions contained in the Medicare "Home Health Agency Manual", HIM-ll, and other applicable Medicare or Medicaid manuals and general instructions; (iii) any and all other applicable federal, state or local laws, rules or regulations; and (iv) all supplements, amendments, substitutions or additions to any of the foregoing.. (b) The Hospital shall employ for the Agency, directly or under arrangement, adequate clinical and administrative staff who are capable of providing all of the Agency's clinical services and performing its administrative duties, all in conformity with the standards now or hereafter prescribed by any law, rule or regulation which may be applicable to the operation of the Agency, including the Conditions. Hospital shall consult with the Management Co., from time to time, to determine whether there is adequate clinical and administrative staff, and shall use its best efforts to comply with Management Co.'s recommendations. Hospital's failure to provide adequate clinical and administrative staff will preclude the Management Co. from performing its duties hereunder. (c) The Hospital shall, at all times, be ultimately responsible for the direction and control of the Agency, including, but not limited to, all professional and ethical affairs, all fiscal affairs and all general operating policies. (d) The Hospital and the advisory board of the Agency shall request and receive recommendations from Management Co. and shall duly consider all such recommendations concerning operations of the Agency prior to adopting any changes in the policies, procedures, directives or bylaws applicable to the Agency. A representative of Management Co. shall be entitled to receive notice of and to attend all meetings of the Agency's advisory board, other than meetings or portions thereof devoted to a review of the performance of Management Co. hereunder. At meetings or portions thereof attended by Management Co., representatives of Management Co. shall be permitted to participate in discussions of Agency operations, but shall not be entitled to vote. The Hospital shall promptly deliver or communicate to Management Co. a copy of resolutions, directives and authorizations which in any way affect the services provided by Management Co. under this Agreement. 4. FEES (a) In consideration of the services to be provided by Management Co. pursuant to this Agreement, the Hospital shall pay to Management Co. fees as set forth in Exhibit A attached hereto. (b) Management Co. will bill the Hospital monthly by itemized invoice for services provided during the preceding month. The Hospital will pay invoices for fees within thirty (30) days of receipt. All amounts not paid to Management Co. when due should bear interest at the rate of 1 1/2 % per month until paid in full. (c) In the event that Hospital or any of its affiliates acquires, operates or affiliates with another home health agency in the counties covered by this Agreement, and Hospital or any of its affiliates do not engage Management Co. to manage said agency(s), the management fee payable during any contract year to Management Co. under this Agreement shall be the greater of the fee required by Paragraph 4(a) or One Million Four Hundred Thousand Dollars ($1,400,000) per year, beginning in the year that this provision is triggered and for each year thereafter until the expiration or termination of the Agreement. (d) Disallowance of Fees. Any fees paid to Management Co. by Hospital pursuant to this Agreement that are not allowed by the Medicare Program because they are not comparable with marketplace prices for similar services, shall be forgiven or repaid by Management Co. to the Hospital, and Hospital shall have no liability to Management Co. for such disallowed fees; provided, however, that such forgiveness or repayment shall not occur until thirty (30) days after the later of (1) such time as the parties have exhausted such administrative and legal remedies that they deem appropriate to pursue to challenge the disallowance of such fees by the Medicare Program, or (2) the completion of any arbitration as provided herein. (e) Challenge of Disallowance of Fees. In any challenge to a disallowance of Management Co.'s fees, Management Co. shall be entitled to participate fully in the challenge through counsel of its own choosing. In the event that one hundred percent (100%) of the disallowed amount results from the Medicare Program's determination that the Management Co. fees were not comparable with marketplace prices for similar services, Management Co. shall be entitled to assume control of the challenge in the Agency's name. If the Hospital elects not to pursue the matter or if, in the reasonable judgment of Management Co., the Hospital is not vigorously pursuing the challenge, Management Co. shall be entitled to assume control of the challenge in the Agency's name. (f) Settlement. The Hospital shall not be entitled, without the prior written consent of Management Co., to enter into any settlement or compromise of any such claim, where either (i) fifty percent (50%) or more of the disallowed amount results from the Medicare Program's determination that the Management Co. fees were not comparable with marketplace prices for similar services; or (ii) where the disallowance results in an indemnification liability of Management Co. of greater than one hundred thousand dollars ($100,000.00) to Hospital. (g) Allocation of Settlement. In the event that a global settlement is reached, the parties will attempt to agree on a reasonable allocation of the total disallowances, as settled. If the parties are unable to reach agreement on the allocation within ninety (90) days of the settlement, either party may submit the dispute to arbitration as provided in Section 22. (h) Costs of Appeals. Each party shall be responsible for its own fees and expenses, including those of its legal counsel, in pursuant reimbursement appeals hereunder. (i) Effect of Termination. The rights and obligations of the parties under Subsections (c) - (g) shall survive the termination of this Agreement. (j) Damages. Under section 4(c), Hospital may have to pay liquidated damages to Management Co. To the extent that liquidated damages are paid under section 4(c), Hospital will not enforce the indemnification provision under section 4(d) of the Management Contrct. 5. PROPRIETARY MATERIALS AND INFORMATION; COVENANT NOT TO HIRE AWAY EMPLOYEES (a) The Hospital acknowledges and agrees that the various policy and procedure manuals developed by Management Co. and used by Management Co. in the provision of management services to home health agencies, are proprietary in nature, shall be and remain (along with any corresponding copyrights, patents or similar rights) the sole property of Management Co. and shall not at any time be directly or indirectly used, distributed, disclosed, copied or otherwise employed by the Hospital, except in the operation of the Agency under Management Co.'s management during the term of this Agreement. Upon termination of this Agreement, the Hospital shall return to Management Co. all such manuals (including all portions and copies thereof) in the Hospital's possession or within its control, shall use reasonable efforts to ensure that its employees have not retained any such manuals or portions or copies thereof and, upon request by Management Co., shall confirm compliance with the foregoing in writing. (b) The Hospital acknowledges that Management Co. has spent a great deal of time, money and effort to recruit, hire and train qualified personnel to provide management services to home health agencies such as the Agency. Accordingly, during the term of this Agreement and for a period of one (1) year thereafter, the Hospital shall not, directly or indirectly, alone or with others, solicit, attempt to solicit or otherwise induce or attempt to induce to leave Management Co.'s employ, without the prior written consent of Management Co., any of the employees of Management Co. who performed services on behalf of Management Co. for the Agency at any time during the term of this Agreement. (c) The Management Co. acknowledges that the Hospital has spent a great deal of time, money and effort to recruit, hire and train qualified personnel to work for the Agency. Accordingly, during the term of this Agreement and for a period of one (1) year thereafter, Management Co. shall not, directly or indirectly, alone or with others, solicit, attempt to solicit or otherwise induce or attempt to induce to leave the Hospital's employ, without the prior written consent of the Hospital, any of the employees of the Hospital who worked for the Agency at any time during the term of this Agreement. (d) In the event of a breach or threatened breach of Subsections (a) or (b) by the Hospital, the Hospital acknowledges and agrees that Management Co. will be entitled to injunctive relief in order to prevent the breach or continuing breach thereof, without having to post bond, in addition to any and all other rights and remedies available to Management Co. at law or in equity. (e) In the event of a breach or threatened breach of Subsection (c) by Management Co., Management Co. acknowledges and agrees that the Hospital will be entitled to injunctive relief in order to prevent the breach or continuing breach thereof, without having to post bond, in addition to any and all other rights and remedies available to the Hospital at law or in equity. (f) The rights and obligations of the. parties under this Section 5 shall survive termination of this Agreement. (g) Subsection (b) and (c) shall not apply to an employee who is terminated or voluntarily leaves the employ of the Hospital or Management Co., as the case may be, and is not employed by the other party to this Agreement within sixty (60) days after the last day of employment. 6. OWNERSHIP AND CONFIDENTIALTY OF AGENCY INFORMATION AND DATA Management Co. acknowledges that it will obtain and/or have access to various confidential information concerning the business and affairs of the Agency in connection with the performance of Management Co.'s obligations hereunder. Such confidential information includes, but is not limited to, patient information and records, employee and financial information ("Confidential Information"). Management Co. agrees (1) to hold the Confidential Information in strict confidence, (2) not to use the Confidential Information for any purpose other than the performance of Management Co.'s obligations hereunder, (3) not to disclose any of the Confidential Information to any third party or any of Management Co.'s employees, agents or representatives other than those who need to know and/or have access to such Confidential Information in connection with the performance of their duties on behalf of Management Co., and (4) to return to the Hospital or destroy or delete, at the Hospital's election, all or the relevant portions of any of the documents and other materials embodying Confidential Information (including all copies thereof) in Management Co.'s possession upon termination of this Agreement. The foregoing restrictions shall not, however apply to information which (1) is generally known to and available for use within the trade or by the public at the time of disclosure to Management Co., (2) becomes generally known to and available for use within the trade or by the public other than as a result of a breach of Management Co. 's duty of confidentiality hereunder, (3) was in the possession or knowledge of Management Co. free of Confidentiality restrictions prior to the time of disclosure to Management Co. by the Hospital, or becomes available to Management Co. from a third party who or which is not bound by confidentiality restrictions, (4) is required to be disclosed by law or pursuant to a court order, subject to prompt prior written notice by Management Co. to the Hospital of such potential disclosure and the Hospital's right to prevent or otherwise limit such disclosure with the bounds of the law or court order, or (5) is authorized to be used and/or disclosed to third parties by the Hospital in writing, subject to execution of a confidentiality agreement acceptable to the Hospital by the third party. Management Co. further agrees to comply with any and all laws and regulations and procedures relating to patient and all other information which is disclosed to Management Co. or to which Management Co. has, and to comply with the Hospital's applicable reasonable security and confidentiality policies and procedures relative to the Agency's facilities, communications and information. The Hospital shall have the right to deny Management Co. access to the Agency's facilities, communications and information at such times when Management Co. fails to comply with the Hospital's applicable reasonable policies and procedures. The provisions of this Section 6 shall survive termination of this Agreement. Management Co. acknowledges and agrees that any breach or threatened breach by it of the provisions of this Section would cause the Hospital irreparable injury for which the Hospital would have no remedy at law and that, in addition to any other remedies which it may have, the Hospital shall be entitled to preliminary and permanent injunctive relief against any such breach or threatened breach. 7. TERM AND TERMINATION (a) Subject to Subsections (b) through (d) below, this Agreement shall have a term of five (5) years beginning July 1, 1994 and terminating on June 30, 1999. Within one hundred eighty (180) days prior to the expiration of the term of this Agreement, the Hospital shall notify Management Co. of the Hospital's plans regarding management of the Agency thereafter in order to allow Management Co. sufficient time to make appropriate plans and arrangements. (b) The Hospital shall have the power to terminate this Agreement as follows: (i) If Management Co. breaches or defaults in the performance of any material term, condition or undertaking set forth herein and fails to cure such breach or default within thirty (30) days of its receipt of written notice from the Hospital describing in detail the occurrence and nature of the breach or default, or fails to submit a plan reasonably acceptable to Hospital for curing the breach or default within such thirty (30) day period and to thereafter diligently cure the breach or default pursuant to the plan if the breach or default cannot reasonably be cured within the thirty (30) day period; (ii) Immediately upon written notice if Management Co. becomes insolvent, has a petition in bankruptcy filed with respect to it which is not dismissed or discharged within thirty (30) days or makes an assignment for the benefit of creditors; (iii) Immediately upon written notice if Management Co. shall commit or be involved in any act involving fraud or shall misappropriate Agency funds; and (iv) Immediately upon written notice if Management Co. is barred or suspended from involvement in the Medicare or Medicaid Programs. (c) Management Co. shall have the power to terminate this Agreement as follows: (i) If the Hospital breaches or defaults in the performance of any material term, condition or undertaking set forth herein and fails to cure such breach or default within thirty (30) days of its receipt of written notice from Management Co. describing in detail the occurrence and nature of the breach or default, or fails to provide a plan reasonably acceptable to Management Co. for curing the breach or default within such thirty (30) day period and to thereafter diligently cure the breach or default pursuant to the plan if the breach or default cannot reasonably be cured within the thirty (30) day period; provided, however, that for a breach or default involving the payment of money, the cure period shall be limited to ten (10) days; (ii) Immediately upon written notice if the Hospital has a petition in bankruptcy filed with respect to it which is not dismissed or discharged within thirty (30) days or makes an assignment for the benefit of creditors; and (iii) Immediately upon written notice in the event of the actual or threatened revocation, termination or suspension of any certification (including Medicare and Medicaid certification), license, permit or accreditation of the Hospital or the Agency which shall or may materially and adversely affect the Agency's business, or in the event of the actual or threatened cancellation or lapsing of the Agency's professional liability insurance. (d) Either party shall have the power to terminate the Agreement as follows: (i) In the event there is a change in Medicare, Medicaid or other Federal or state statutes or regulations or in the interpretation thereof, or in the event a claim is threatened, made or filed by a government agency, which renders any of the material terms of this Agreement unlawful, or asserts that any such terms are unlawful, the parties shall promptly and in good faith renegotiate the affected term to remedy such condition in such a manner that will preserve, in all material respects, the underlying economic, financia1 and business relationship of the parties. In the event the parties cannot renegotiate the agreement within sixty (60) days following notice of the intent to renegotiate, either party may terminate this Agreement upon written notice to the other. (ii) In the event there is a material change in the methodology of Medicare or Medicaid reimbursement for home health services, the parties shall promptly and in good faith renegotiate the affected term(s) to remedy such condition in such a manner that will preserve, in all material respects, the underlying economic, financial and business relationship of the parties. In the event the parties cannot renegotiate the agreement within sixty (60) days following notice of the intent to renegotiate, either party may terminate this Agreement upon written notice to the other. (e) (i) Termination of this Agreement shall not release the Hospital from its obligation to pay any sum, which may be due and owing to Management Co. for services rendered prior to termination, and such obligation shall survive termination. (ii) In the event that the Agreement is terminated by Hospital pursuant to Paragraph 7(d), Hospital shall make payment to Management Co. in an amount equal to the fifty percent (50%) of the management fee remaining to be paid for the term of the Agreement had it not been terminated. For purposes of this Subsection, the annual management fee shall be the greater of the management fee paid pursuant to 4(a) for the year immediately preceding the termination of the Agreement, or One Million Four Hundred Thousand Dollars ($1,400,000.00). (iii) In the event that the Agreement is terminated by Management Co. pursuant to Paragraphs 7(d), Management Co. shall make payment to Hospital in an amount of Five Hundred Thousand Dollars ($500,000.00). 8. INSURANCE AND INDEMNITY (a) Management Co. shal1 carry and maintain in force insurance to cover liabilities arising out of the services provided by Management Co. hereunder, including general liability insurance with limits of at least $1.0 million per occurrence and $2.0 million in the aggregate and workers' compensation insurance with the limits required by law. The Hospital shall carry and maintain in force insurance to cover liabilities arising out of the operation of the Agency, including liability, general liability insurance and workers' insurance, in reasonable amounts given the nature of the Agency's business. (b) The Hospital shall indemnify and hold harmless Management Co. (including its directors, officers, employees and agents, individually and collectively) from and against any and all claims, liabilities, damages, fines, penalties, taxes, costs and expenses, including reasonable attorneys' fees and of settlement, which any such party may suffer, sustain or become subject to as a result of: (i) the negligence or other wrongful conduct (including, without limitation, misrepresentation, fraud, willful misconduct, violations of law or breach of contract) of the Hospital, the Agency or their directors, officers, employees or agents in the operation of the Agency's business or the performance of the Hospital's obligations hereunder; (ii) any existing or future debts, liabilities or obligations of the Hospital relative to the Agency; or (iii) any acts or omissions of Management Co. or any of its officers, employees or agents taken or not taken pursuant to the directives of the Hospital or the Agency, their governing board(s), officers or employees. (c) Management Co. shall indemnify and hold harmless the Hospital (including its directors, officers, employees and agents, individua1ly and collectively) from and against any and all claims, liabilities, damages, fines, penalties, taxes, costs and expenses, including reasonable attorneys' fees and costs of settlement, which any such party may suffer, sustain or become subject to as a result of the negligence or other wrongful conduct (including, without limitation, misrepresentation, fraud, willful, violations of law or breach of contract) of the Management Co. or its directors, officers, employees or agents in the performance of Management Co.'s obligations hereunder. (d) The obligations of the parties under Subsections (b) and (c) shall survive termination of this Agreement. 9. ASSIGNMENT Neither party may assign any of its rights or obligations under this Agreement to any other person, firm or corporation without the express written consent of the other party; provided, however, that Management Co. may delegate some or all of its duties described in Section 2 to any of its subsidiaries and, to that extent, such subsidiaries are third party beneficiaries of this Agreement; and further provided that the Hospital may assign all of its rights and obligations under this Agreement upon written notice to Management Co. (a) to any affiliate of the Hospital which acquires the Agency pursuant to a corporate reorganization, or, (b) to a third party purchaser of all or substantially all of the assets of the Hospital or the Agency or a third party which acquires control of the Hospital or the Agency pursuant to a merger, consolidation or other similar transaction, and any such affiliate, purchaser or other acquirer shall assume and agree to be bound by the terms of this Agreement. Agreement shall inure to the benefit of and be binding upon the legal representatives, permitted assigns and successors of the parties hereto. 10. NOTICES Notices required hereunder shall be in writing and delivered in person or sent by Certified Mail, postage prepaid, to the President and Chief Executive Officer of the Hospital or the President of Management Co. at the appropriate address set forth in the preamble of this Agreement or such other addresses as either party may designate in writing to the other party in accordance with this Section 10. If mailed, such notices shall be effective as of the date of delivery or the date of attempted delivery if delivery is refused. 11. ACCESS TO BOOKS AND RECORDS (a) For a period of four (4) years following the last date Management Co. furnishes services pursuant to this Agreement, Management Co. shall make available upon written request of the Secretary of the United States Department of Health and Human Services, the United States Comptroller General and their duly authorized representatives, all contracts, books, documents and records of Management Co. to the extent required by 42 U.S.C. 1395x(v)(1)(I) (as amended or recodified from time to time or any substitute or successor statute) and lawful regulations promulgated thereunder. Management Co. shall notify the Hospital within ten (10) days of its receipt of such a request and of Management Co.'s proposed response to the request. (b) If Management Co. carries out any of its duties under this Agreement through a subcontract with a value of $10,000.00 or more over a twelve (12) month period with a related organization, such subcontract shall contain a clause to the effect that until four (4) years after the furnishing of such services pursuant to such subcontract, such related organization shall make available, upon written request of the Secretary of the United States Department of Health and Human Services, the United Comptroller General or any of their duly authorized representatives, the sub-contract and the books, documents and records of such organization to the extent required by 42 U.S.C. 1395x(v)(l)(I) (as amended or recodified from time to time or any substitute or successor statute) and lawful regulations promulgated thereunder. 12. ENTIRE AGREEMENT This instrument contains the entire agreement of the parties with respect to the subject matter hereof. Any and all prior agreements, promises, inducements, negotiations or representations not expressly set forth in this Agreement are superseded hereby and are void and of no force and effect. 13. AMENDMENTS Agreement cannot be altered or amended except pursuant to an instrument in writing signed by both of the parties hereto. 14. SEVERABlLlTY In the event that any provision of this Agreement is rendered illegal, invalid or unenforceable by a federal or state law, rule or regulation, or declared illegal, invalid or unenforceable by any court of competent jurisdiction, the remaining provisions hereof shall remain in full force and effect. 15. HEADINGS Headings are used herein solely for the convenience of the parties and are not part of this Agreement. 16. APPLICABLE LAW This Agreement shall be construed and interpreted in accordance with the laws of the Commonwealth of Kentucky, notwithstanding its conflict of laws rules. 17. WAIVER OF BREACH The waiver by a party of a breach of or default under any term or provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach or default under the same or any other term or provision of this Agreement by that party. 18. STATUS OF RELATIONSHIP It is understood and agreed that the parties to this Agreement are independent contractors, and nothing herein shall be construed to establish a partnership or joint venture relationship between the parties. Each party has sole responsibility for the payment of each of its employee's wages, payroll taxes and benefits. By virtue hereof, neither party assumes, directly or by implication, the debts, obligations, taxes or liabilities of the other party. 19. FORCE MAJEURE If either the Hospital or Management Co. is delayed or prevented from fulfilling any of its obligations under this Agreement by force majeure, such party shall not be liable under this Agreement for the delay or failure. "Force Majeure" means any cause beyond the reasonable control of a party, including but not limited to an act of God, act or omission of civil or military authorities of a state or nation, fire, strike, flood, riot, war, delay of transportation, or inability due to any of these causes to provide or obtain necessary labor, materials or facilities. 20. EXCLUSIVITY The relationship between Management Co. and the Hospital with respect to the Agency shall be exclusive in that neither Management Co. nor any of its subsidiaries will, directly or indirectly, during the term of this Agreement, manage, own or affiliate or consult with any home health agency providing services in any of the counties for which the Agency (or any additional agency managed by Management Co. pursuant to Section 21) has a license to provide home health services. Such exclusivity will not, however, apply (a) after termination or non-renewal of this Agreement, (b) to management services provided by Management Co. to home health agencies not doing business inside the identified geographic area, (c) to management services provided by Management Co. to entities other than home health agencies, (d) any other business ventures of Management Co. not encompassed within the foregoing provision, or (e) to Management Co.'s ownership, operation, or management of, consulting for or affiliation with House Calls of America, Inc. 21. ADDITIONAL COUNTIES AND HOME HEALTH AGENCIES The Hospital hereby grants Management Co. the right to manage, pursuant to the terms set forth herein, the operations of the Agency in any additional counties added to the Hospital's license and any additional home health agencies acquired by the Hospital during the term of this Agreement. The parties will execute such amendments to this Agreement as may be necessary or appropriate to document Management Co.'s management of such additional counties or agencies. 22. DISPUTE RESOLUTION Any material dispute between the parties arising under this Agreement which is not resolved by good faith negotiation (including, without limitation, disputes under Subsection 4(d), Section 19 or Exhibit A) may be submitted by either party to binding arbitration in Louisville, Kentucky in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award may be entered in any court with jurisdiction thereof. The costs of arbitration shall be borne by the parties in proportions decided by the arbitrator(s). IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. NATIONAL HEALTH INDUSTRIES, INC. By: _________________________________ Title:________________________________ GALEN OF KENTUCKY, INC. d/b/a AUDUBON REGIONAL MEDICAL CENTER By:___________________________________ Title:__________________________________ EXHIBIT A MANAGEMENT FEES CHARGE/VISIT AND CHARGE/WAIVER UNIT Home Health Waiver Services (Visits) Services (Units) GENERAL MANAGEMENT GENERAL MANAGEMENT 0 - l50,000 Visits $2.55 0 - 75,000 Units $1.30 l50,001 + Visits $1.70 75,001 + Units $0.80 CLINICAL CLINICAL 0 - l50,000 Visits $1.35 0 - 75,000 Units $0.70 l50,001 + Visits $0.90 75,001 + Units $0.40 FINANCIAL FINANCIAL 0 - l50,000 Visits $1.05 0 - 75,000 Units $0.50 l50,001 + Visits $0.70 75,001 + Units $0.30 REIMBURSEMENT REIMBURSEMENT 0 - l50,000 Visits $1.05 0 - 75,000 Units $0.50 l50,001 + Visits $0.70 75,001 + Units $0.30 COMPUTER COMPUTER 0 - l50,000 Visits $3.00 0 - 75,000 Units $2.00 l50,001 + Visits $2.00 75,001 + Units $1.20 TOTAL TOTAL 0 - l50,000 Visits $9.00 0 - 75,000 Units $5.00 l50,001 + Visits $6.00 75,001 + Units $3.00 AGREEMENT AGREEMENT made as of the 1st of April, 1995, between NATIONAL HEALTH INDUSTRIES, INC., a Delaware corporation, with its principal office at 9200 Shelbyville Road, Louisville, Kentucky 40222 (hereinafter referred to as "Management Co."), and GALEN OF KENTUCKY, INC. d/b/a AUDUBON REGIONAL MEDICAL CENTER, a Kentucky corporation, with its principal office at One Audubon Plaza Drive, Louisville, Kentucky 40217 (hereinafter referred to as the "Hospital"). W I T N E S S E T H: WHEREAS, the Hospital maintains a department which operates as a home health agency known as "Caretenders" (the "Agency"); WHEREAS, the Hospital desires to open a new branch in Scottsburg, Indiana to provide home health services; WHEREAS, Management Co. and its subsidiaries (collectively, "Management Co.") provide management services suited to and designed for the operation of home health agencies; and WHEREAS, Management Co. desires to provide management services to the Agency, and the Hospital desires to procure such services from Management Co. for the Agency, pursuant to the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements hereinafter contained, the parties hereto agree as follows: 1. RETENTION OF MANAGEMENT CO.: AUTHORITY Subject to the terms and conditions of this Agreement, the Hospital hereby retains Management Co. to provide management services for the Agency, and Management Co. hereby accepts such retention by the Hospital. Pursuant to this Agreement, Management Co. shall have the authority and responsibility to manage, supervise and administer the day-to-day operations of the Agency subject at all times to the Hospital's ultimate responsibility for and authority over the governance, management and operations of the Agency, and Management Co.'s compliance with (a) the policies and procedures adopted by the Hospital and the Agency from time to time, (b) specific and general directives from the Hospital's and the Agency's governing board(s) and management and (c) all applicable laws, rules and regulations, including, without limitation, the Medicare Conditions of Participation for Home Health Agencies, now set forth at 42 C.F.R. 484.1 et seq., as amended or recodified from time to time or any substitute or successor regulations (the "Conditions"). 2. OBLIGATIONS OF MANAGEMENT CO. During the term of this Agreement, subject to the limitations set forth in Section 1 and subject to the obligations of the Hospital set forth herein, Management Co. shall, as requested perform the services set forth below: (a) Supervise the general operations of the Agency, as follows: (i) Provide on-site consultation for management regarding policy development; (ii) Provide strategic planning and analysis of the Agency's integration into the Hospital's mainstream operations; (iii) Assist in maintaining, renewing and supplementing all local, state and federal applications, certifications, licenses, forms and permits necessary or appropriate for the operation of the Agency; (iv) Assist in maintaining the Agency's compliance with all governmental laws, rules and regulations, including the Conditions; (v) Supervise the preparation for and assist in the conduct of the Agency's regulatory surveys and inspections, as follows: (1) Assist the Agency in maintaining appropriate state licensure as a home health agency. Management Co. will use its best efforts to the Agency in remedying any deficiencies identified by the state licensing authority. (2) Assist the Agency in maintaining certification to participate in Medicare, Medicaid and other reimbursement programs in which the Agency participates. Management Co. will use its best efforts to assist the Agency in remedying any deficiencies identified by such programs. (3) Assist the Agency in maintaining certification by the Joint Commission the Accreditation of Healthcare Organizations ("JCAHO"). Management Co. will use its best efforts to assist the Agency in remedying any deficiencies identified by JCAHO; (vi) Assist in the negotiation and maintenance of the Agency's contractual arrangements with service providers and lessors; (vii) Supervise plant and equipment maintenance and (viii) Assist in the design, implementation and maintenance of operating, organizational, office and personnel policies and procedures for the Agency; (ix) Assist and advise the Agency regarding administrative personnel matters; and (x) Provide assistance with other daily administrative functions, as requested; (xi) Provide on-site training for home care coordinators and on generally accepted methodologies for conducting the services of the Agency; (xii) Provide tracking, analysis and reporting for all referrals, categorized by physician, hospital and hospital department; and (xiii) Participate in public, marketing and educational, business plan preparation and the development of the Agency's services by providing formats for community awareness and other activities. (b) Assist in the development of the Agency's business, services and relations, as follows: (i) Provide on-site training for home care coordinators and general on accepted methodologies for promoting the services of the Agency; (ii) Provide tracking, analysis and reporting for all referrals, categorized by physician, hospital and hospital department; and (iii) Assist in public, marketing and educational, business plan preparation and the development of the Agency's services by providing formats for community awareness and other activities. (c) Oversee and manage the clinical staff and clinical operations of the Agency, as follows: (i) Assist the Agency in the recruiting of clinical personnel and assist and advise the Agency with respect to other clinical personnel matters; (ii) Provide on-site consultation regarding the development and implementation of clinical policies; (iii) Design and assist in the implementation of Continuous Quality Improvement Strategies (CQI) and patient satisfaction measures for the Agency; (iv) Assist in the development and implementation of quality assurance and utilization review policies; (v) Provide staff to conduct training programs and seminars for professional and non-professional administrative and clinical personnel of the Agency, as necessary, and provide staff development and staff training modules for clinical staff; Hold staff development and departmental meetings with applicable Agency and Management Co. personnel, as necessary; Provide analyses and evaluations of staffing patterns in relation to patient mix, scope of services and number of disciplines; Assist and advise the Agency regarding the maintenance of a medical records system, and Perform, directly or under arrangement, medical record/utilization review audits, as necessary. (d) Assist the Hospital in managing the financial affairs of the Agency, as follows: (i) Perform all billing and collecting activities in a manner consistent with that utilized by the Management Co. for its other agencies. Management Co. shall perform those services in accordance with applicable Medicare and Medicaid guidelines, including, without limitation, requirements for the timely submission of claims; (ii) Monitor payments to the Agency and oversee the Agency's collection system; (iii)Monitor and review the posting of cash receipts; (iv) Maintain, review and monitor Medicare/Medicaid logs; (v) Supervise the follow-up on outstanding receivables; (vi) Review and monitor transaction logs; (vii)Consult in the processing and payment of the Agency's accounts payable and payroll; (viii)Assist in the preparation of the annual budget of the Agency; and (ix) Consult with and assist the Hospital's accounting staff and outside accountants, as necessary. (x) Provide billing and collecting activities with monthly reconciliations (e) Manage the aspects of the operations of the Agency that are affected by third party reimbursement, as follows. Management Co. agrees to continue to provide the services described in Subsections (vi) - (ix) below as may be reasonably requested by the Agency following expiration or termination of this Agreement by either party, without additional charge to the Hospital, until all cost reports pertaining to patient visits provided prior to the expiration or termination of this Agreement have been filed. Management Co. will also provide reasonable billing, collection and computer services pertaining to visits performed prior to the expiration or termination of this Agreement for the period ending six (6) months after expiration or termination of this Agreement without additional charge to the Hospital. Management Co. will, after the date of expiration or termination of this Agreement and upon reasonable request of the Hospital provide other services of the type and nature specified in this Agreement in return for which Management Co. will be compensated at a rate of one hundred fifty dollars ($150.00) per hour. Management Co. shall not be required to provide any services under this Agreement after the Agency has reached final settlement of all cost reports pertaining to patient visits provided prior to the expiration or termination of this agreement: (i) Review and assist in preparation of monthly cost reports for purposes of internal management information; (ii) Review and assist the Hospital's reimbursement staff in the preparation of all quarterly interim rate computations, periodic reimbursement reports, annual cost reports and other required data and reports for the Hospital's submission to the Agency's Medicare fiscal intermediary, Medicaid and other third party payors, as may be necessary under the provision of laws, rules, regulations and general instructions of Medicare, Medicaid or any other local, state, federal or other program in which the Agency participates; (iii) Provide on-site reimbursement consulting, as necessary and periodic reimbursement reports; (iv) Assist the Hospital's reimbursement staff in developing specific reimbursement policies for the Agency; (v) Monitor all cost cap and therapy 1imitations published by third party payors in light of applicable requirements; (vi) Assist in the preparation for and conduct of Medicare and Medicaid audits, and attend all exit conferences; (vii) Review initial reimbursement settlements and proposed audit adjustments and prepare commentary for submission to the relevant authorities (e.g., the Medicare fiscal intermediary), as necessary; (viii) Provide consultation regarding correspondence with governmental agencies and fiscal intermediaries, and provide primary advice and research on reimbursement matters affecting the Agency; (ix) Provide advice and assistance to the Agency in connection with the pursuit and prosecution of reimbursement appeals; and (x) Assist the Agency in maintaining and updating an appropriate charge structure. (f) Provide the following standby services: (i) Provide clinical, administrative or financial consulting personnel as may be necessary from time to time to assist in the operation of the Agency; (ii) Provide data to the Hospital related to local, regional and national trends in home care as well as market research data to which Management Co. may have access; and (iii) Participate with the Hospital in the conducting of feasibility studies, as necessary. (g) Throughout the term of this Agreement, Management Co. shall submit monthly and annual progress reports to the Hospital for the Agency. Management Co.'s progress reports will address, among other things, Management Co.'s success in meeting defined goals and objectives for services and the Agency's operations, as set forth in this Agreement, the Agency's business plan or as otherwise agreed upon by the Hospital and Management Co. (h) Management Co. shall provide Computer Services to the Hospital and/or Agency according to the following terms and conditions: (i) The system as defined by this document includes the hardware supplied by Management Co. and all system and application software residing on the hardware as supplied; (ii) Management Co. is responsible for the maintenance of the system in good operating condition throughout the term of this Agreement through routine maintenance and repair. Management Co. will provide twenty-four (24) hour per day, seven (7) day per week, repair and maintenance services for the Hardware; (iii) The cost associated with the correction of hardware malfunctions shall be borne at all times by Management Co. (iv) Management Co. will furnish the Agency with access to any and all updates, modifications, improvements, revisions and enhancements to the system software. (v) Management Co. will provide assistance with development of the interfaces between the system and the Hospital's computer system. (vi) Management Co. will provide upon reasonable request by the Hospital, from time to time, and subject to any requirements imposed on Management Co. by its hardware and software vendors, routine minor modifications to the system. Services related to customization and/or major modifications will be paid for by the Hospital at Management Co.'s standard charges for time and materials. (vii) Any and all customized and/or modified software shall remain the property of Management Co. or its software vendors as an integral part of the system. (viii) The components of the system located in the Agency's offices shall be used for operating the system as described in this agreement and for no other purpose. No software other than the software furnished by Management Co. shall be utilized on the system without prior written consent of Management Co. (ix) The Hospital and the Agency shall ensure that the management and data entry personnel working in the Agency's offices cooperate with Management Co. in the discharge of Management Co.'s duties under this Agreement and comply with the reasonable instructions provided by Management Co. from time to time as to the proper use and functioning of the system. (x) Under no circumstances shall the Hospital make any modifications, customizations or other revisions to the System or any component of the system without prior written consent of Management Co. (xi) The Hospital acknowledges that the system and all of its component parts (including, without limitation, specifications, manuals and other documentation) are, and shall remain, the sole and exclusive property of Management Co. At no time during the term of this agreement or thereafter shall the Hospital assign, sell, license, lease, duplicate, transfer, pledge or encumber the system or any component part of the system. Upon termination of this agreement, all of the Hospital's rights with respect to the system shall terminate and Management Co. shall be entitled to remove the components of the system located in the Agency's offices. 3. OBLIGATIONS OF THE HOSPITAL (a) The Hospital agrees that the Agency is and will continue to be, subject to the obligations of Management Co. to provide the management services set forth herein, operated and maintained as a duly certified, licensed and accredited home health agency in accordance with: (i) the Conditions; (ii) the provisions contained in the Medicare "Home Health Agency Manual", HIM-ll, and other applicable Medicare or Medicaid manuals and general instructions; (iii) any and all other applicable federal, state or local laws, rules or regulations; and (iv) all supplements, amendments, substitutions or additions to any of the foregoing.. (b) The Hospital shall employ for the Agency, directly or under arrangement, adequate clinical and administrative staff who are capable of providing all of the Agency's clinical services and performing its administrative duties, all in conformity with the standards now or hereafter prescribed by any law, rule or regulation which may be applicable to the operation of the Agency, including the Conditions. Hospital shall consult with the Management Co., from time to time, to determine whether there is adequate clinical and administrative staff, and shall use its best efforts to comply with Management Co.'s recommendations. Hospital's failure to provide adequate clinical and administrative staff will preclude the Management Co. from performing its duties hereunder. (c) The Hospital shall, at all times, be ultimately responsible for the direction and control of the Agency, including, but not limited to, all professional and ethical affairs, all fiscal affairs and all general operating policies. (d) The Hospital and the advisory board of the Agency shall request and receive recommendations from Management Co. and shall duly consider all such recommendations concerning operations of the Agency prior to adopting any changes in the policies, procedures, directives or bylaws applicable to the Agency. A representative of Management Co. shall be entitled to receive notice of and to attend all meetings of the Agency's advisory board, other than meetings or portions thereof devoted to a review of the performance of Management Co. hereunder. At meetings or portions thereof attended by Management Co., representatives of Management Co. shall be permitted to participate in discussions of Agency operations, but shall not be entitled to vote. The Hospital shall promptly deliver or communicate to Management Co. a copy of resolutions, directives and authorizations which in any way affect the services provided by Management Co. under this Agreement. 4. FEES (a) In consideration of the services to be provided by Management Co. pursuant to this Agreement, the Hospital shall pay to Management Co. fees as set forth in Exhibit A attached hereto. (b) Management Co. will bill the Hospital monthly by itemized invoice for services provided during the preceding month. The Hospital will pay invoices for fees within thirty (30) days of receipt. All amounts not paid to Management Co. when due should bear interest at the rate of 1 1/2 % per month until paid in full. (c) In the event that Hospital or any of its affiliates acquires, operates or affiliates with another home health agency in the counties covered by this Agreement, and Hospital or any of its affiliates do not engage Management Co. to manage said agency(s), the management fee payable during any contract year to Management Co. under this Agreement shall be the greater of the fee required by Paragraph 4(a) or One Million Four Hundred Thousand Dollars ($1,400,000) per year, beginning in the year that this provision is triggered and for each year thereafter until the expiration or termination of the Agreement. (d) Disallowance of Fees. Any fees paid to Management Co. by Hospital pursuant to this Agreement that are not allowed by the Medicare Program because they are not comparable with marketplace prices for similar services, shall be forgiven or repaid by Management Co. to the Hospital, and Hospital shall have no liability to Management Co. for such disallowed fees; provided, however, that such forgiveness or repayment shall not occur until thirty (30) days after the later of (1) such time as the parties have exhausted such administrative and legal remedies that they deem appropriate to pursue to challenge the disallowance of such fees by the Medicare Program, or (2) the completion of any arbitration as provided herein. (e) Challenge of Disallowance of Fees. In any challenge to a disallowance of Management Co.'s fees, Management Co. shall be entitled to participate fully in the challenge through counsel of its own choosing. In the event that one hundred percent (100%) of the disallowed amount results from the Medicare Program's determination that the Management Co. fees were not comparable with marketplace prices for similar services, Management Co. shall be entitled to assume control of the challenge in the Agency's name. If the Hospital elects not to pursue the matter or if, in the reasonable judgment of Management Co., the Hospital is not vigorously pursuing the challenge, Management Co. shall be entitled to assume control of the challenge in the Agency's name. (f) Settlement. The Hospital shall not be entitled, without the prior written consent of Management Co., to enter into any settlement or compromise of any such claim, where either (i) fifty percent (50%) or more of the disallowed amount results from the Medicare Program's determination that the Management Co. fees were not comparable with marketplace prices for similar services; or (ii) where the disallowance results in an indemnification liability of Management Co. of greater than one hundred thousand dollars ($100,000.00) to Hospital. (g) Allocation of Settlement. In the event that a global settlement is reached, the parties will attempt to agree on a reasonable allocation of the total disallowances, as settled. If the parties are unable to reach agreement on the allocation within ninety (90) days of the settlement, either party may submit the dispute to arbitration as provided in Section 22. (h) Costs of Appeals. Each party shall be responsible for its own fees and expenses, including those of its legal counsel, in pursuant reimbursement appeals hereunder. Effect of Termination. The rights and obligations of the parties under Subsections (c) - (g) shall survive the termination of this Agreement. (i) Damages. Under section 4(c), Hospital may have to pay liquidated damages to Management Co. To the extent that liquidated damages are paid under section 4(c), Hospital will not enforce the indemnification provsion under section 4(d) of the Management Contract. 5. PROPRIETARY MATERIALS AND INFORMATION; COVENANT NOT TO HIRE AWAY EMPLOYEES (a) The Hospital acknowledges and agrees that the various policy and procedure manuals developed by Management Co. and used by Management Co. in the provision of management services to home health agencies, are proprietary in nature, shall be and remain (along with any corresponding copyrights, patents or similar rights) the sole property of Management Co. and shall not at any time be directly or indirectly used, distributed, disclosed, copied or otherwise employed by the Hospital, except in the operation of the Agency under Management Co.'s management during the term of this Agreement. Upon termination of this Agreement, the Hospital shall return to Management Co. all such manuals (including all portions and copies thereof) in the Hospital's possession or within its control, shall use reasonable efforts to ensure that its employees have not retained any such manuals or portions or copies thereof and, upon request by Management Co., shall confirm compliance with the foregoing in writing. (b) The Hospital acknowledges that Management Co. has spent a great deal of time, money and effort to recruit, hire and train qualified personnel to provide management services to home health agencies such as the Agency. Accordingly, during the term of this Agreement and for a period of one (1) year thereafter, the Hospital shall not, directly or indirectly, alone or with others, solicit, attempt to solicit or otherwise induce or attempt to induce to leave Management Co.'s employ, without the prior written consent of Management Co., any of the employees of Management Co. who performed services on behalf of Management Co. for the Agency at any time during the term of this Agreement. (c) The Management Co. acknowledges that the Hospital has spent a great deal of time, money and effort to recruit, hire and train qualified personnel to work for the Agency. Accordingly, during the term of this Agreement and for a period of one (1) year thereafter, Management Co. shall not, directly or indirectly, alone or with others, solicit, attempt to solicit or otherwise induce or attempt to induce to leave the Hospital's employ, without the prior written consent of the Hospital, any of the employees of the Hospital who worked for the Agency at any time during the term of this Agreement. (d) In the event of a breach or threatened breach of Subsections (a) or (b) by the Hospital, the Hospital acknowledges and agrees that Management Co. will be entitled to injunctive relief in order to prevent the breach or continuing breach thereof, without having to post bond, in addition to any and all other rights and remedies available to Management Co. at law or in equity. (e) In the event of a breach or threatened breach of Subsection (c) by Management Co., Management Co. acknowledges and agrees that the Hospital will be entitled to injunctive relief in order to prevent the breach or continuing breach thereof, without having to post bond, in addition to any and all other rights and remedies available to the Hospital at law or in equity. (f) The rights and obligations of the. parties under this Section 5 shall survive termination of this Agreement. (g) Subsection (b) and (c) shall not apply to an employee who is terminated or voluntarily leaves the employ of the Hospital or Management Co., as the case may be, and is not employed by the other party to this Agreement within sixty (60) days after the last day of employment. 6. OWNERSHIP AND CONFIDENTIALTY OF AGENCY INFORMATION AND DATA Management Co. acknowledges that it will obtain and/or have access to various confidential information concerning the business and affairs of the Agency in connection with the performance of Management Co.'s obligations hereunder. Such confidential information includes, but is not limited to, patient information and records, employee and financial information ("Confidential Information"). Management Co. agrees (1) to hold the Confidential Information in strict confidence, (2) not to use the Confidential Information for any purpose other than the performance of Management Co.'s obligations hereunder, (3) not to disclose any of the Confidential Information to any third party or any of Management Co.'s employees, agents or representatives other than those who need to know and/or have access to such Confidential Information in connection with the performance of their duties on behalf of Management Co., and (4) to return to the Hospital or destroy or delete, at the Hospital's election, all or the relevant portions of any of the documents and other materials embodying Confidential Information (including all copies thereof) in Management Co.'s possession upon termination of this Agreement. The foregoing restrictions shall not, however apply to information which (1) is generally known to and available for use within the trade or by the public at the time of disclosure to Management Co., (2) becomes generally known to and available for use within the trade or by the public other than as a result of a breach of Management Co. 's duty of confidentiality hereunder, (3) was in the possession or knowledge of Management Co. free of Confidentiality restrictions prior to the time of disclosure to Management Co. by the Hospital, or becomes available to Management Co. from a third party who or which is not bound by confidentiality restrictions, (4) is required to be disclosed by law or pursuant to a court order, subject to prompt prior written notice by Management Co. to the Hospital of such potential disclosure and the Hospital's right to prevent or otherwise limit such disclosure with the bounds of the law or court order, or (5) is authorized to be used and/or disclosed to third parties by the Hospital in writing, subject to execution of a confidentiality agreement acceptable to the Hospital by the third party. Management Co. further agrees to comply with any and all laws and regulations and procedures relating to patient and all other information which is disclosed to Management Co. or to which Management Co. has, and to comply with the Hospital's applicable reasonable security and confidentiality policies and procedures relative to the Agency's facilities, communications and information. The Hospital shall have the right to deny Management Co. access to the Agency's facilities, communications and information at such times when Management Co. fails to comply with the Hospital's applicable reasonable policies and procedures. The provisions of this Section 6 shall survive termination of this Agreement. Management Co. acknowledges and agrees that any breach or threatened breach by it of the provisions of this Section would cause the Hospital irreparable injury for which the Hospital would have no remedy at law and that, in addition to any other remedies which it may have, the Hospital shall be entitled to preliminary and permanent injunctive relief against any such breach or threatened breach. 7. TERM AND TERMINATION (a) Subject to Subsections (b) through (d) below, this Agreement shall have a term of five (5) years beginning July 1, 1994 and terminating on June 30, 1999. Within one hundred eighty (180) days prior to the expiration of the term of this Agreement, the Hospital shall notify Management Co. of the Hospital's plans regarding management of the Agency thereafter in order to allow Management Co. sufficient time to make appropriate plans and arrangements. (b) The Hospital shall have the power to terminate this Agreement as follows: (i) If Management Co. breaches or defaults in the performance of any material term, condition or undertaking set forth herein and fails to cure such breach or default within thirty (30) days of its receipt of written notice from the Hospital describing in detail the occurrence and nature of the breach or default, or fails to submit a plan reasonably acceptable to Hospital for curing the breach or default within such thirty (30) day period and to thereafter diligently cure the breach or default pursuant to the plan if the breach or default cannot reasonably be cured within the thirty (30) day period; (ii) Immediately upon written notice if Management Co. becomes insolvent, has a petition in bankruptcy filed with respect to it which is not dismissed or discharged within thirty (30) days or makes an assignment for the benefit of creditors; (iii) Immediately upon written notice if Management Co. shall commit or be involved in any act involving fraud or shall misappropriate Agency funds; and (iv) Immediately upon written notice if Management Co. is barred or suspended from involvement in the Medicare or Medicaid Programs. (c) Management Co. shall have the power to terminate this Agreement as follows: (i) If the Hospital breaches or defaults in the performance of any material term, condition or undertaking set forth herein and fails to cure such breach or default within thirty (30) days of its receipt of written notice from Management Co. describing in detail the occurrence and nature of the breach or default, or fails to provide a plan reasonably acceptable to Management Co. for curing the breach or default within such thirty (30) day period and to thereafter diligently cure the breach or default pursuant to the plan if the breach or default cannot reasonably be cured within the thirty (30) day period; provided, however, that for a breach or default involving the payment of money, the cure period shall be limited to ten (10) days; (ii) Immediately upon written notice if the Hospital has a petition in bankruptcy filed with respect to it which is not dismissed or discharged within thirty (30) days or makes an assignment for the benefit of creditors; and (iii) Immediately upon written notice in the event of the actual or threatened revocation, termination or suspension of any certification (including Medicare and Medicaid certification), license, permit or accreditation of the Hospital or the Agency which shall or may materially and adversely affect the Agency's business, or in the event of the actual or threatened cancellation or lapsing of the Agency's professional liability insurance. (d) Either party shall have the power to terminate the Agreement as follows: (i) In the event there is a change in Medicare, Medicaid or other Federal or state statutes or regulations or in the interpretation thereof, or in the event a claim is threatened, made or filed by a government agency, which renders any of the material terms of this Agreement unlawful, or asserts that any such terms are unlawful, the parties shall promptly and in good faith renegotiate the affected term to remedy such condition in such a manner that will preserve, in all material respects, the underlying economic, financia1 and business relationship of the parties. In the event the parties cannot renegotiate the agreement within sixty (60) days following notice of the intent to renegotiate, either party may terminate this Agreement upon written notice to the other. (ii) In the event there is a material change in the methodology of Medicare or Medicaid reimbursement for home health services, the parties shall promptly and in good faith renegotiate the affected term(s) to remedy such condition in such a manner that will preserve, in all material respects, the underlying economic, financial and business relationship of the parties. In the event the parties cannot renegotiate the agreement within sixty (60) days following notice of the intent to renegotiate, either party may terminate this Agreement upon written notice to the other. (e) (i) Termination of this Agreement shall not release the Hospital from its obligation to pay any sum, which may be due and owing to Management Co. for services rendered prior to termination, and such obligation shall survive termination. (ii) In the event that the Agreement is terminated by Hospital pursuant to Paragraph 7(d), Hospital shall make payment to Management Co. in an amount equal to the fifty percent (50%) of the management fee remaining to be paid for the term of the Agreement had it not been terminated. For purposes of this Subsection, the annual management fee shall be the greater of the management fee paid pursuant to 4(a) for the year immediately preceding the termination of the Agreement, or One Million Four Hundred Thousand Dollars ($1,400,000.00). (iii) In the event that the Agreement is terminated by Management Co. pursuant to Paragraphs 7(d), Management Co. shall make payment to Hospital in an amount of Five Hundred Thousand Dollars ($500,000.00). 8. INSURANCE AND INDEMNITY (a) Management Co. shal1 carry and maintain in force insurance to cover liabilities arising out of the services provided by Management Co. hereunder, including general liability insurance with limits of at least One Million ($1,000,000) per occurrence and Two Million ($2,000,000) in the aggregate and workers' compensation insurance with the limits required by law. The Hospital shall carry and maintain in force insurance to cover liabilities arising out of the operation of the Agency, including liability, general liability insurance and workers' insurance, in reasonable amounts given the nature of the Agency's business. (b) The Hospital shall indemnify and hold harmless Management Co. (including its directors, officers, employees and agents, individually and collectively) from and against any and all claims, liabilities, damages, fines, penalties, taxes, costs and expenses, including reasonable attorneys' fees and of settlement, which any such party may suffer, sustain or become subject to as a result of: (i) the negligence or other wrongful conduct (including, without limitation, misrepresentation, fraud, willful misconduct, violations of law or breach of contract) of the Hospital, the Agency or their directors, officers, employees or agents in the operation of the Agency's business or the performance of the Hospital's obligations hereunder; (ii) any existing or future debts, liabilities or obligations of the Hospital relative to the Agency; or (iii) any acts or omissions of Management Co. or any of its officers, employees or agents taken or not taken pursuant to the directives of the Hospital or the Agency, their governing board(s), officers or employees. (c) Management Co. shall indemnify and hold harmless the Hospital (including its directors, officers, employees and agents, individua1ly and collectively) from and against any and all claims, liabilities, damages, fines, penalties, taxes, costs and expenses, including reasonable attorneys' fees and costs of settlement, which any such party may suffer, sustain or become subject to as a result of the negligence or other wrongful conduct (including, without limitation, misrepresentation, fraud, willful, violations of law or breach of contract) of the Management Co. or its directors, officers, employees or agents in the performance of Management Co.'s obligations hereunder. (d) The obligations of the parties under Subsections (b) and (c) shall survive termination of this Agreement. 9. ASSIGNMENT Neither party may assign any of its rights or obligations under this Agreement to any other person, firm or corporation without the express written consent of the other party; provided, however, that Management Co. may delegate some or all of its duties described in Section 2 to any of its subsidiaries and, to that extent, such subsidiaries are third party beneficiaries of this Agreement; and further provided that the Hospital may assign all of its rights and obligations under this Agreement upon written notice to Management Co. (a) to any affiliate of the Hospital which acquires the Agency pursuant to a corporate reorganization, or, (b) to a third party purchaser of all or substantially all of the assets of the Hospital or the Agency or a third party which acquires control of the Hospital or the Agency pursuant to a merger, consolidation or other similar transaction, and any such affiliate, purchaser or other acquirer shall assume and agree to be bound by the terms of this Agreement. Agreement shall inure to the benefit of and be binding upon the legal representatives, permitted assigns and successors of the parties hereto. 10. NOTICES Notices required hereunder shall be in writing and delivered in person or sent by Certified Mail, postage prepaid, to the President and Chief Executive Officer of the Hospital or the President of Management Co. at the appropriate address set forth in the preamble of this Agreement or such other addresses as either party may designate in writing to the other party in accordance with this Section 10. If mailed, such notices shall be effective as of the date of delivery or the date of attempted delivery if delivery is refused. 11. ACCESS TO BOOKS AND RECORDS (a) For a period of four (4) years following the last date Management Co. furnishes services pursuant to this Agreement, Management Co. shall make available upon written request of the Secretary of the United States Department of Health and Human Services, the United States Comptroller General and their duly authorized representatives, all contracts, books, documents and records of Management Co. to the extent required by 42 U.S.C. 1395x(v)(1)(I) (as amended or recodified from time to time or any substitute or successor statute) and lawful regulations promulgated thereunder. Management Co. shall notify the Hospital within ten (10) days of its receipt of such a request and of Management Co.'s proposed response to the request. (b) If Management Co. carries out any of its duties under this Agreement through a subcontract with a value of $10,000.00 or more over a twelve (12) month period with a related organization, such subcontract shall contain a clause to the effect that until four (4) years after the furnishing of such services pursuant to such subcontract, such related organization shall make available, upon written request of the Secretary of the United States Department of Health and Human Services, the United Comptroller General or any of their duly authorized representatives, the sub-contract and the books, documents and records of such organization to the extent required by 42 U.S.C. 1395x(v)(l)(I) (as amended or recodified from time to time or any substitute or successor statute) and lawful regulations promulgated thereunder. 12. ENTIRE AGREEMENT This instrument contains the entire agreement of the parties with respect to the subject matter hereof. Any and all prior agreements, promises, inducements, negotiations or representations not expressly set forth in this Agreement are superseded hereby and are void and of no force and effect. 13. AMENDMENTS Agreement cannot be altered or amended except pursuant to an instrument in writing signed by both of the parties hereto. 14. SEVERABlLlTY In the event that any provision of this Agreement is rendered illegal, invalid or unenforceable by a federal or state law, rule or regulation, or declared illegal, invalid or unenforceable by any court of competent jurisdiction, the remaining provisions hereof shall remain in full force and effect. 15. HEADINGS Headings are used herein solely for the convenience of the parties and are not part of this Agreement. 16. APPLICABLE LAW This Agreement shall be construed and interpreted in accordance with the laws of the Commonwealth of Kentucky, notwithstanding its conflict of laws rules. 17. WAIVER OF BREACH The waiver by a party of a breach of or default under any term or provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach or default under the same or any other term or provision of this Agreement by that party. 18. STATUS OF RELATIONSHIP It is understood and agreed that the parties to this Agreement are independent contractors, and nothing herein shall be construed to establish a partnership or joint venture relationship between the parties. Each party has sole responsibility for the payment of each of its employee's wages, payroll taxes and benefits. By virtue hereof, neither party assumes, directly or by implication, the debts, obligations, taxes or liabilities of the other party. 19. FORCE MAJEURE If either the Hospital or Management Co. is delayed or prevented from fulfilling any of its obligations under this Agreement by force majeure, such party shall not be liable under this Agreement for the delay or failure. "Force Majeure" means any cause beyond the reasonable control of a party, including but not limited to an act of God, act or omission of civil or military authorities of a state or nation, fire, strike, flood, riot, war, delay of transportation, or inability due to any of these causes to provide or obtain necessary labor, materials or facilities. 20. EXCLUSIVITY The relationship between Management Co. and the Hospital with respect to the Agency shall be exclusive in that neither Management Co. nor any of its subsidiaries will, directly or indirectly, during the term of this Agreement, manage, own or affiliate or consult with any home health agency providing services in any of the counties for which the Agency (or any additional agency managed by Management Co. pursuant to Section 21) has a license to provide home health services. Such exclusivity will not, however, apply (a) after termination or non-renewal of this Agreement, (b) to management services provided by Management Co. to home health agencies not doing business inside the identified geographic area, (c) to management services provided by Management Co. to entities other than home health agencies, (d) any other business ventures of Management Co. not encompassed within the foregoing provision, or (e) to Management Co.'s ownership, operation, or management of, consulting for or affiliation with House Calls of America, Inc. 21. ADDITIONAL COUNTIES AND HOME HEALTH AGENCIES The Hospital hereby grants Management Co. the right to manage, pursuant to the terms set forth herein, the operations of the Agency in any additional counties added to the Hospital's license and any additional home health agencies acquired by the Hospital during the term of this Agreement. The parties will execute such amendments to this Agreement as may be necessary or appropriate to document Management Co.'s management of such additional counties or agencies. 22. DISPUTE RESOLUTION Any material dispute between the parties arising under this Agreement which is not resolved by good faith negotiation (including, without limitation, disputes under Subsection 4(d), Section 19 or Exhibit A) may be submitted by either party to binding arbitration in Louisville, Kentucky in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award may be entered in any court with jurisdiction thereof. The costs of arbitration shall be borne by the parties in proportions decided by the arbitrator(s). IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. NATIONAL HEALTH INDUSTRIES, INC. By: _________________________________ Title:________________________________ GALEN OF KENTUCKY, INC. d/b/a AUDUBON REGIONAL MEDICAL CENTER By:___________________________________ Title:__________________________________ Exhibit A MANAGEMENT FEES Development Fee The Hospital will pay to the Management Company a one-time fee of Twenty Five Thousand Dollars ($25,000) for the development, administration and initial management services provided in the establishment of the new agency in Scottsburg, Indiana. Management Fee The Hospital will pay the Management Company a fee per home health visit based on the following fee schedule: Home Health Visit 0-10,000 visits $ 11.50 per visit 10,000+ visits $ 6.00 per visit AGREEMENT AGREEMENT made as of the 15th of February, 1995, between NATIONAL HEALTH INDUSTRIES, INC., a Delaware corporation, with its principal office at 9200 Shelbyville Road, Louisville, Kentucky 40222 (hereinafter referred to as "Management Co."), and GALEN OF KENTUCKY, INC. d/b/a SOUTHWEST HOSPITAL, , a Kentucky corporation, with its principal office at 9820 Third Street Road, Louisville, KY 40272 (hereinafter referred to as the "Hospital"). W I T N E S S E T H: WHEREAS, the Hospital maintains a department which operates as a home health agency known as "Caretenders". (the "Agency"); WHEREAS, Management Co. and it's subsidiaries (collectively, "Management Co.") provide management services suited to and designed for the operation of home health agencies; and WHEREAS, Management Co. desires to provide management services to the Agency, and the Hospital desires to procure such services from Management Co. for the Agency, pursuant to the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements hereinafter contained, the parties hereto agree as follows: 1. RETENTION OF MANAGEMENT CO.: AUTHORITY Subject to the terms and conditions of this Agreement, the Hospital hereby retains Management Co. to provide management services for the Agency, and Management Co. hereby accepts such retention by the Hospital. Pursuant to this Agreement, Management Co. shall have the authority and responsibility to manage, supervise and administer the day-to-day operations of the Agency subject at all times to the Hospital's ultimate responsibility for and authority over the governance, management and operations of the Agency, and Management Co.'s compliance with (a) the policies and procedures adopted by the Hospital and the Agency from time to time, (b) specific and general directives from the Hospital's and the Agency's governing board(s) and management and (c) all applicable laws, rules and regulations, including, without limitation, the Medicare Conditions of Participation for Home Health Agencies, now set forth at 42 C.F.R. 484.1 et seq., as amended or recodified from time to time or any substitute or successor regulations (the "Conditions"). 2. OBLIGATIONS OF MANAGEMENT CO. During the term of this Agreement, subject to the limitations set forth in Section 1 and subject to the obligations of the Hospital set forth herein, Management Co. shall, as requested perform the services set forth below: (a) Supervise the general operations of the Agency, as follows: (i) Provide on-site consultation for management regarding policy development; (ii) Provide strategic planning and analysis of the Agency's integration into the Hospital's mainstream operations; (iii) Assist in maintaining, renewing and supplementing all local, state and federal applications, certifications, licenses, forms and permits necessary or appropriate for the operation of the Agency; (iv) Assist in maintaining the Agency's compliance with all governmental laws, rules and regulations, including the Conditions; (v) Supervise the preparation for and assist in the conduct of the Agency's regulatory surveys and inspections, as follows: (1) Assist the Agency in maintaining appropriate state licensure as a home health agency. Management Co. will use its best efforts to the Agency in remedying any deficiencies identified by the state licensing authority. (2) Assist the Agency in maintaining certification to participate in Medicare, Medicaid and other reimbursement programs in which the Agency participates. Management Co. will use its best efforts to assist the Agency in remedying any deficiencies identified by such programs. (3) Assist the Agency in maintaining certification by the Joint Commission the Accreditation of Healthcare Organizations ("JCAHO"). Management Co. will use its best efforts to assist the Agency in remedying any deficiencies identified by JCAHO; (vi) Assist in the negotiation and maintenance of the Agency's contractual arrangements with service providers and lessors; (vii)Supervise plant and equipment maintenance and (viii)Assist in the design, implementation and maintenance of operating, organizational, office and personnel policies and procedures for the Agency; (ix) Assist and advise the Agency regarding administrative personnel matters;and (x) Provide assistance with other daily administrative functions, as requested; (xi) Provide on-site training for home care coordinators and on generally accepted methodologies for conducting the services of the Agency; (xii)Provide tracking, analysis and reporting for all referrals, categorized by physician, hospital and hospital department; and (xiii)Participate in public, marketing and educational, business plan preparation and the development of the Agency's services by providing formats for community awareness and other activities. (b) Assist in the development of the Agency's business, services and relations, as follows: (i) Provide on-site training for home care coordinators and general on accepted methodologies for promoting the services of the Agency; (ii) Provide tracking, analysis and reporting for all referrals, categorized by physician, hospital and hospital department; and (iii) Assist in public, marketing and educational, business plan preparation and the development of the Agency's services by providing formats for community awareness and other activities. (c) Oversee and manage the clinical staff and clinical operations of the Agency, as follows: (i) Assist the Agency in the recruiting of clinical personnel and assist and advise the Agency with respect to other clinical personnel matters; (ii) Provide on-site consultation regarding the development and implementation of clinical policies; (iii)Design and assist in the implementation of Continuous Quality Improvement Strategies (CQI) and patient satisfaction measures for the Agency; (iv) Assist in the development and implementation of quality assurance and utilization review policies; (v) Provide staff to conduct training programs and seminars for professional and non-professional administrative and clinical personnel of the Agency, as necessary, and provide staff development and staff training modules for clinical staff; Hold staff development and departmental meetings with applicable Agency and Management Co. personnel, as necessary; Provide analyses and evaluations of staffing patterns in relation to patient mix, scope of services and number of disciplines; Assist and advise the Agency regarding the maintenance of a medical records system, and Perform, directly or under arrangement, medical record/utilization review audits, as necessary. (d) Assist the Hospital in managing the financial affairs of the Agency, as follows: (i) Perform all billing and collecting activities in a manner consistent with that utilized by the Management Co. for its other agencies. Management Co. shall perform those services in accordance with applicable Medicare and Medicaid guidelines, including, without limitation, requirements for the timely submission of claims; (ii) Monitor payments to the Agency and oversee the Agency's collection system; (iii)Monitor and review the posting of cash receipts; (iv) Maintain, review and monitor Medicare/Medicaid logs; (v) Supervise the follow-up on outstanding receivables; (vi) Review and monitor transaction logs; (vii)Consult in the processing and payment of the Agency's accounts payable and payroll; (viii)Assist in the preparation of the annual budget of the Agency; and (ix) Consult with and assist the Hospital's accounting staff and outside accountants, as necessary. (x) Provide billing and collecting activities with monthly reconciliations. (e) Manage the aspects of the operations of the Agency that are affected by third party reimbursement, as follows. Management Co. agrees to continue to provide the services described in Subsections (vi) - (ix) below as may be reasonably requested by the Agency following expiration or termination of this Agreement by either party, without additional charge to the Hospital, until all cost reports pertaining to patient visits provided prior to the expiration or termination of this Agreement have been filed. Management Co. will also provide reasonable billing, collection and computer services pertaining to visits performed prior to the expiration or termination of this Agreement for the period ending six (6) months after expiration or termination of this Agreement without additional charge to the Hospital. Management Co. will, after the date of expiration or termination of this Agreement and upon reasonable request of the Hospital provide other services of the type and nature specified in this Agreement in return for which Management Co. will be compensated at a rate of one hundred fifty dollars ($150.00) per hour. Management Co. shall not be required to provide any services under this Agreement after the Agency has reached final settlement of all cost reports pertaining to patient visits provided prior to the expiration or termination of this agreement: (i) Review and assist in preparation of monthly cost reports for purposes of internal management information; (ii) Review and assist the Hospital's reimbursement staff in the preparation of all quarterly interim rate computations, periodic reimbursement reports, annual cost reports and other required data and reports for the Hospital's submission to the Agency's Medicare fiscal intermediary, Medicaid and other third party payors, as may be necessary under the provision of laws, rules, regulations and general instructions of Medicare, Medicaid or any other local, state, federal or other program in which the Agency participates; (iii) Provide on-site reimbursement consulting, as necessary and periodic reimbursement reports; (iv) Assist the Hospital's reimbursement staff in developing specific reimbursement policies for the Agency; (v) Monitor all cost cap and therapy 1imitations published by third party payors in light of applicable requirements; (vi) Assist in the preparation for and conduct of Medicare and Medicaid audits, and attend all exit conferences; (vii) Review initial reimbursement settlements and proposed audit adjustments and prepare commentary for submission to the relevant authorities (e.g., the Medicare fiscal intermediary), as necessary; (viii) Provide consultation regarding correspondence with governmental agencies and fiscal intermediaries, and provide primary advice and research on reimbursement matters affecting the Agency; (ix) Provide advice and assistance to the Agency in connection with the pursuit and prosecution of reimbursement appeals; and (x) Assist the Agency in maintaining and updating an appropriate charge structure. (f) Provide the following standby services: (i) Provide clinical, administrative or financial consulting personnel as may be necessary from time to time to assist in the operation of the Agency; (ii) Provide data to the Hospital related to local, regional and national trends in home care as well as market research data to which Management Co. may have access; and (iii)Participate with the Hospital in the conducting of feasibility studies, as necessary. (g) Throughout the term of this Agreement, Management Co. shall submit monthly and annual progress reports to the Hospital for the Agency. Management Co.'s progress reports will address, among other things, Management Co.'s success in meeting defined goals and objectives for services and the Agency's operations, as set forth in this Agreement, the Agency's business plan or as otherwise agreed upon by the Hospital and Management Co. (h) Management Co. shall provide Computer Services to the Hospital and/or Agency according to the following terms and conditions: (i) The system as defined by this document includes the hardware supplied by Management Co. and all system and application software residing on the hardware as supplied; (ii) Management Co. is responsible for the maintenance of the system in good operating condition throughout the term of this Agreement through routine maintenance and repair. Management Co. will provide twenty-four (24) hour per day, seven (7) day per week, repair and maintenance services for the Hardware; (iii) The cost associated with the correction of hardware malfunctions shall be borne at all times by Management Co. (iv) Management Co. will furnish the Agency with access to any and all updates, modifications, improvements, revisions and enhancements to the system software. (v) Management Co. will provide assistance with development of the interfaces between the system and the Hospital's computer system. (vi) Management Co. will provide upon reasonable request by the Hospital, from time to time, and subject to any requirements imposed on Management Co. by its hardware and software vendors, routine minor modifications to the system. Services related to customization and/or major modifications will be paid for by the Hospital at Management Co.'s standard charges for time and materials. (vii) Any and all customized and/or modified software shall remain the property of Management Co. or its software vendors as an integral part of the system. (viii) The components of the system located in the Agency's offices shall be used for operating the system as described in this agreement and for no other purpose. No software other than the software furnished by Management Co. shall be utilized on the system without prior written consent of Management Co. (ix) The Hospital and the Agency shall ensure that the management and data entry personnel working in the Agency's offices cooperate with Management Co. in the discharge of Management Co.'s duties under this Agreement and comply with the reasonable instructions provided by Management Co. from time to time as to the proper use and functioning of the system. (x) Under no circumstances shall the Hospital make any modifications, customizations or other revisions to the System or any component of the system without prior written consent of Management Co. (xi) The Hospital acknowledges that the system and all of its component parts (including, without limitation, specifications, manuals and other documentation) are, and shall remain, the sole and exclusive property of Management Co. At no time during the term of this agreement or thereafter shall the Hospital assign, sell, license, lease, duplicate, transfer, pledge or encumber the system or any component part of the system. Upon termination of this agreement, all of the Hospital's rights with respect to the system shall terminate and Management Co. shall be entitled to remove the components of the system located in the Agency's offices. 3. OBLIGATIONS OF THE HOSPITAL (a) The Hospital agrees that the Agency is and will continue to be, subject to the obligations of Management Co. to provide the management services set forth herein, operated and maintained as a duly certified, licensed and accredited home health agency in accordance with: (i) the Conditions; (ii) the provisions contained in the Medicare "Home Health Agency Manual", HIM-ll, and other applicable Medicare or Medicaid manuals and general instructions; (iii) any and all other applicable federal, state or local laws, rules or regulations; and (iv) all supplements, amendments, substitutions or additions to any of the foregoing.. (b) The Hospital shall employ for the Agency, directly or under arrangement, adequate clinical and administrative staff who are capable of providing all of the Agency's clinical services and performing its administrative duties, all in conformity with the standards now or hereafter prescribed by any law, rule or regulation which may be applicable to the operation of the Agency, including the Conditions. Hospital shall consult with the Management Co., from time to time, to determine whether there is adequate clinical and administrative staff, and shall use its best efforts to comply with Management Co.'s recommendations. Hospital's failure to provide adequate clinical and administrative staff will preclude the Management Co. from performing its duties hereunder. (c) The Hospital shall, at all times, be ultimately responsible for the direction and control of the Agency, including, but not limited to, all professional and ethical affairs, all fiscal affairs and all general operating policies. (d) The Hospital and the advisory board of the Agency shall request and receive recommendations from Management Co. and shall duly consider all such recommendations concerning operations of the Agency prior to adopting any changes in the policies, procedures, directives or bylaws applicable to the Agency. A representative of Management Co. shall be entitled to receive notice of and to attend all meetings of the Agency's advisory board, other than meetings or portions thereof devoted to a review of the performance of Management Co. hereunder. At meetings or portions thereof attended by Management Co., representatives of Management Co. shall be permitted to participate in discussions of Agency operations, but shall not be entitled to vote. The Hospital shall promptly deliver or communicate to Management Co. a copy of resolutions, directives and authorizations which in any way affect the services provided by Management Co. under this Agreement. 4. FEES (a) In consideration of the services to be provided by Management Co. pursuant to this Agreement, the Hospital shall pay to Management Co. fees as set forth in Exhibit A attached hereto. (b) Management Co. will bill the Hospital monthly by itemized invoice for services provided during the preceding month. The Hospital will pay invoices for fees within thirty (30) days of receipt. All amounts not paid to Management Co. when due should bear interest at the rate of 1 1/2 % per month until paid in full. (c) In the event that Hospital or any of its affiliates acquires, operates or affiliates with another home health agency in the counties covered by this Agreement, and Hospital or any of its affiliates do not engage Management Co. to manage said agency(s), the management fee payable during any contract year to Management Co. under this Agreement shall be the greater of the fee required by Paragraph 4(a) or One Million Four Hundred Thousand Dollars ($1,400,000) per year, beginning in the year that this provision is triggered and for each year thereafter until the expiration or termination of the Agreement. (d) Disallowance of Fees. Any fees paid to Management Co. by Hospital pursuant to this Agreement that are not allowed by the Medicare Program because they are not comparable with marketplace prices for similar services, shall be forgiven or repaid by Management Co. to the Hospital, and Hospital shall have no liability to Management Co. for such disallowed fees; provided, however, that such forgiveness or repayment shall not occur until thirty (30) days after the later of (1) such time as the parties have exhausted such administrative and legal remedies that they deem appropriate to pursue to challenge the disallowance of such fees by the Medicare Program, or (2) the completion of any arbitration as provided herein. (e) Challenge of Disallowance of Fees. In any challenge to a disallowance of Management Co.'s fees, Management Co. shall be entitled to participate fully in the challenge through counsel of its own choosing. In the event that one hundred percent (100%) of the disallowed amount results from the Medicare Program's determination that the Management Co. fees were not comparable with marketplace prices for similar services, Management Co. shall be entitled to assume control of the challenge in the Agency's name. If the Hospital elects not to pursue the matter or if, in the reasonable judgment of Management Co., the Hospital is not vigorously pursuing the challenge, Management Co. shall be entitled to assume control of the challenge in the Agency's name. (f) Settlement. The Hospital shall not be entitled, without the prior written consent of Management Co., to enter into any settlement or compromise of any such claim, where either (i) fifty percent (50%) or more of the disallowed amount results from the Medicare Program's determination that the Management Co. fees were not comparable with marketplace prices for similar services; or (ii) where the disallowance results in an indemnification liability of Management Co. of greater than one hundred thousand dollars ($100,000.00) to Hospital. (g) Allocation of Settlement. In the event that a global settlement is reached, the parties will attempt to agree on a reasonable allocation of the total disallowances, as settled. If the parties are unable to reach agreement on the allocation within ninety (90) days of the settlement, either party may submit the dispute to arbitration as provided in Section 22. (h) Costs of Appeals. Each party shall be responsible for its own fees and expenses, including those of its legal counsel, in pursuant reimbursement appeals hereunder. Effect of Termination. The rights and obligations of the parties under Subsections (c) - (g) shall survive the termination of this Agreement. (i) Damages. Hospital and Management Co. entered into a Management Contract dated July 1, 1994. Under section 4(c), Hospital may have to pay liquidated damages to Management Co. To the extent that liquidated damages are paid under section 4(c), Hospital will not enforce the indemnification provsion under section 4(d) of the Management Contract. 5. PROPRIETARY MATERIALS AND INFORMATION; COVENANT NOT TO HIRE AWAY EMPLOYEES (a) The Hospital acknowledges and agrees that the various policy and procedure manuals developed by Management Co. and used by Management Co. in the provision of management services to home health agencies, are proprietary in nature, shall be and remain (along with any corresponding copyrights, patents or similar rights) the sole property of Management Co. and shall not at any time be directly or indirectly used, distributed, disclosed, copied or otherwise employed by the Hospital, except in the operation of the Agency under Management Co.'s management during the term of this Agreement. Upon termination of this Agreement, the Hospital shall return to Management Co. all such manuals (including all portions and copies thereof) in the Hospital's possession or within its control, shall use reasonable efforts to ensure that its employees have not retained any such manuals or portions or copies thereof and, upon request by Management Co., shall confirm compliance with the foregoing in writing. (b) The Hospital acknowledges that Management Co. has spent a great deal of time, money and effort to recruit, hire and train qualified personnel to provide management services to home health agencies such as the Agency. Accordingly, during the term of this Agreement and for a period of one (1) year thereafter, the Hospital shall not, directly or indirectly, alone or with others, solicit, attempt to solicit or otherwise induce or attempt to induce to leave Management Co.'s employ, without the prior written consent of Management Co., any of the employees of Management Co. who performed services on behalf of Management Co. for the Agency at any time during the term of this Agreement. (c) The Management Co. acknowledges that the Hospital has spent a great deal of time, money and effort to recruit, hire and train qualified personnel to work for the Agency. Accordingly, during the term of this Agreement and for a period of one (1) year thereafter, Management Co. shall not, directly or indirectly, alone or with others, solicit, attempt to solicit or otherwise induce or attempt to induce to leave the Hospital's employ, without the prior written consent of the Hospital, any of the employees of the Hospital who worked for the Agency at any time during the term of this Agreement. (d) In the event of a breach or threatened breach of Subsections (a) or (b) by the Hospital, the Hospital acknowledges and agrees that Management Co. will be entitled to injunctive relief in order to prevent the breach or continuing breach thereof, without having to post bond, in addition to any and all other rights and remedies available to Management Co. at law or in equity. (e) In the event of a breach or threatened breach of Subsection (c) by Management Co., Management Co. acknowledges and agrees that the Hospital will be entitled to injunctive relief in order to prevent the breach or continuing breach thereof, without having to post bond, in addition to any and all other rights and remedies available to the Hospital at law or in equity. (f) The rights and obligations of the. parties under this Section 5 shall survive termination of this Agreement. (g) Subsection (b) and (c) shall not apply to an employee who is terminated or voluntarily leaves the employ of the Hospital or Management Co., as the case may be, and is not employed by the other party to this Agreement within sixty (60) days after the last day of employment. 6. OWNERSHIP AND CONFIDENTIALTY OF AGENCY INFORMATION AND DATA Management Co. acknowledges that it will obtain and/or have access to various confidential information concerning the business and affairs of the Agency in connection with the performance of Management Co.'s obligations hereunder. Such confidential information includes, but is not limited to, patient information and records, employee and financial information ("Confidential Information"). Management Co. agrees (1) to hold the Confidential Information in strict confidence, (2) not to use the Confidential Information for any purpose other than the performance of Management Co.'s obligations hereunder, (3) not to disclose any of the Confidential Information to any third party or any of Management Co.'s employees, agents or representatives other than those who need to know and/or have access to such Confidential Information in connection with the performance of their duties on behalf of Management Co., and (4) to return to the Hospital or destroy or delete, at the Hospital's election, all or the relevant portions of any of the documents and other materials embodying Confidential Information (including all copies thereof) in Management Co.'s possession upon termination of this Agreement. The foregoing restrictions shall not, however apply to information which is generally known to and available for use within the trade or by the public at the time of disclosure to Management Co., (2) becomes generally known to and available for use within the trade or by the public other than as a result of a breach of Management Co. 's duty of confidentiality hereunder, (3) was in the possession or knowledge of Management Co. free of Confidentiality restrictions prior to the time of disclosure to Management Co. by the Hospital, or becomes available to Management Co. from a third party who or which is not bound by confidentiality restrictions, (4) is required to be disclosed by law or pursuant to a court order, subject to prompt prior written notice by Management Co. to the Hospital of such potential disclosure and the Hospital's right to prevent or otherwise limit such disclosure with the bounds of the law or court order, or (5) is authorized to be used and/or disclosed to third parties by the Hospital in writing, subject to execution of a confidentiality agreement acceptable to the Hospital by the third party. Management Co. further agrees to comply with any and all laws and regulations and procedures relating to patient and all other information which is disclosed to Management Co. or to which Management Co. has, and to comply with the Hospital's applicable reasonable security and confidentiality policies and procedures relative to the Agency's facilities, communications and information. The Hospital shall have the right to deny Management Co. access to the Agency's facilities, communications and information at such times when Management Co. fails to comply with the Hospital's applicable reasonable policies and procedures. The provisions of this Section 6 shall survive termination of this Agreement. Management Co. acknowledges and agrees that any breach or threatened breach by it of the provisions of this Section would cause the Hospital irreparable injury for which the Hospital would have no remedy at law and that, in addition to any other remedies which it may have, the Hospital shall be entitled to preliminary and permanent injunctive relief against any such breach or threatened breach. 7. TERM AND TERMINATION (a) Subject to Subsections (b) through (d) below, this Agreement shall have a term of five (5) years beginning July 1, 1994 and terminating on June 30, 1999. Within one hundred eighty (180) days prior to the expiration of the term of this Agreement, the Hospital shall notify Management Co. of the Hospital's plans regarding management of the Agency thereafter in order to allow Management Co. sufficient time to make appropriate plans and arrangements. (b) The Hospital shall have the power to terminate this Agreement as follows: (i) If Management Co. breaches or defaults in the performance of any material term, condition or undertaking set forth herein and fails to cure such breach or default within thirty (30) days of its receipt of written notice from the Hospital describing in detail the occurrence and nature of the breach or default, or fails to submit a plan reasonably acceptable to Hospital for curing the breach or default within such thirty (30) day period and to thereafter diligently cure the breach or default pursuant to the plan if the breach or default cannot reasonably be cured within the thirty (30) day period; (ii) Immediately upon written notice if Management Co. becomes insolvent, has a petition in bankruptcy filed with respect to it which is not dismissed or discharged within thirty (30) days or makes an assignment for the benefit of creditors; (iii) Immediately upon written notice if Management Co. shall commit or be involved in any act involving fraud or shall misappropriate Agency funds; and (iv) Immediately upon written notice if Management Co. is barred or suspended from involvement in the Medicare or Medicaid Programs. (c) Management Co. shall have the power to terminate this Agreement as follows: (i) If the Hospital breaches or defaults in the performance of any material term, condition or undertaking set forth herein and fails to cure such breach or default within thirty (30) days of its receipt of written notice from Management Co. describing in detail the occurrence and nature of the breach or default, or fails to provide a plan reasonably acceptable to Management Co. for curing the breach or default within such thirty (30) day period and to thereafter diligently cure the breach or default pursuant to the plan if the breach or default cannot reasonably be cured within the thirty (30) day period; provided, however, that for a breach or default involving the payment of money, the cure period shall be limited to ten (10) days; (ii) Immediately upon written notice if the Hospital has a petition in bankruptcy filed with respect to it which is not dismissed or discharged within thirty (30) days or makes an assignment for the benefit of creditors; and (iii) Immediately upon written notice in the event of the actual or threatened revocation, termination or suspension of any certification (including Medicare and Medicaid certification), license, permit or accreditation of the Hospital or the Agency which shall or may materially and adversely affect the Agency's business, or in the event of the actual or threatened cancellation or lapsing of the Agency's professional liability insurance. (d) Either party shall have the power to terminate the Agreement as follows: (i) In the event there is a change in Medicare, Medicaid or other Federal or state statutes or regulations or in the interpretation thereof, or in the event a claim is threatened, made or filed by a government agency, which renders any of the material terms of this Agreement unlawful, or asserts that any such terms are unlawful, the parties shall promptly and in good faith renegotiate the affected term to remedy such condition in such a manner that will preserve, in all material respects, the underlying economic, financia1 and business relationship of the parties. In the event the parties cannot renegotiate the agreement within sixty (60) days following notice of the intent to renegotiate, either party may terminate this Agreement upon written notice to the other. (ii) In the event there is a material change in the methodology of Medicare or Medicaid reimbursement for home health services, the parties shall promptly and in good faith renegotiate the affected term(s) to remedy such condition in such a manner that will preserve, in all material respects, the underlying economic, financial and business relationship of the parties. In the event the parties cannot renegotiate the agreement within sixty (60) days following notice of the intent to renegotiate, either party may terminate this Agreement upon written notice to the other. (e) (i) Termination of this Agreement shall not release the Hospital from its obligation to pay any sum, which may be due and owing to Management Co. for services rendered prior to termination, and such obligation shall survive termination. (ii) In the event that the Agreement is terminated by Hospital pursuant to Paragraph 7(d), Hospital shall make payment to Management Co. in an amount equal to the fifty percent (50%) of the management fee remaining to be paid for the term of the Agreement had it not been terminated. For purposes of this Subsection, the annual management fee shall be the greater of the management fee paid pursuant to 4(a) for the year immediately preceding the termination of the Agreement, or One Million Four Hundred Thousand Dollars ($1,400,000.00). (iii) In the event that the Agreement is terminated by Management Co. pursuant to Paragraphs 7(d), Management Co. shall make payment to Hospital in an amount of Five Hundred Thousand Dollars ($500,000.00). 8. INSURANCE AND INDEMNITY (a) Management Co. shal1 carry and maintain in force insurance to cover liabilities arising out of the services provided by Management Co. hereunder, including general liability insurance with limits of at least One Million ($1,000,000) per occurrence and Two Million ($2,000,000) in the aggregate and workers' compensation insurance with the limits required by law. The Hospital shall carry and maintain in force insurance to cover liabilities arising out of the operation of the Agency, including liability, general liability insurance and workers' insurance, in reasonable amounts given the nature of the Agency's business. (b) The Hospital shall indemnify and hold harmless Management Co. (including its directors, officers, employees and agents, individually and collectively) from and against any and all claims, liabilities, damages, fines, penalties, taxes, costs and expenses, including reasonable attorneys' fees and of settlement, which any such party may suffer, sustain or become subject to as a result of: (i) the negligence or other wrongful conduct (including, without limitation, misrepresentation, fraud, willful misconduct, violations of law or breach of contract) of the Hospital, the Agency or their directors, officers, employees or agents in the operation of the Agency's business or the performance of the Hospital's obligations hereunder; (ii) any existing or future debts, liabilities or obligations of the Hospital relative to the Agency; or (iii) any acts or omissions of Management Co. or any of its officers, employees or agents taken or not taken pursuant to the directives of the Hospital or the Agency, their governing board(s), officers or employees. (c) Management Co. shall indemnify and hold harmless the Hospital (including its directors, officers, employees and agents, individua1ly and collectively) from and against any and all claims, liabilities, damages, fines, penalties, taxes, costs and expenses, including reasonable attorneys' fees and costs of settlement, which any such party may suffer, sustain or become subject to as a result of the negligence or other wrongful conduct (including, without limitation, misrepresentation, fraud, willful, violations of law or breach of contract) of the Management Co. or its directors, officers, employees or agents in the performance of Management Co.'s obligations hereunder. (d) The obligations of the parties under Subsections (b) and (c) shall survive termination of this Agreement. 9. ASSIGNMENT Neither party may assign any of its rights or obligations under this Agreement to any other person, firm or corporation without the express written consent of the other party; provided, however, that Management Co. may delegate some or all of its duties described in Section 2 to any of its subsidiaries and, to that extent, such subsidiaries are third party beneficiaries of this Agreement; and further provided that the Hospital may assign all of its rights and obligations under this Agreement upon written notice to Management Co. (a) to any affiliate of the Hospital which acquires the Agency pursuant to a corporate reorganization, or, (b) to a third party purchaser of all or substantially all of the assets of the Hospital or the Agency or a third party which acquires control of the Hospital or the Agency pursuant to a merger, consolidation or other similar transaction, and any such affiliate, purchaser or other acquirer shall assume and agree to be bound by the terms of this Agreement. Agreement shall inure to the benefit of and be binding upon the legal representatives, permitted assigns and successors of the parties hereto. 10. NOTICES Notices required hereunder shall be in writing and delivered in person or sent by Certified Mail, postage prepaid, to the President and Chief Executive Officer of the Hospital or the President of Management Co. at the appropriate address set forth in the preamble of this Agreement or such other addresses as either party may designate in writing to the other party in accordance with this Section 10. If mailed, such notices shall be effective as of the date of delivery or the date of attempted delivery if delivery is refused. 11. ACCESS TO BOOKS AND RECORDS (a) For a period of four (4) years following the last date Management Co. furnishes services pursuant to this Agreement, Management Co. shall make available upon written request of the Secretary of the United States Department of Health and Human Services, the United States Comptroller General and their duly authorized representatives, all contracts, books, documents and records of Management Co. to the extent required by 42 U.S.C. 1395x(v)(1)(I) (as amended or recodified from time to time or any substitute or successor statute) and lawful regulations promulgated thereunder. Management Co. shall notify the Hospital within ten (10) days of its receipt of such a request and of Management Co.'s proposed response to the request. (b) If Management Co. carries out any of its duties under this Agreement through a subcontract with a value of $10,000.00 or more over a twelve (12) month period with a related organization, such subcontract shall contain a clause to the effect that until four (4) years after the furnishing of such services pursuant to such subcontract, such related organization shall make available, upon written request of the Secretary of the United States Department of Health and Human Services, the United Comptroller General or any of their duly authorized representatives, the sub-contract and the books, documents and records of such organization to the extent required by 42 U.S.C. 1395x(v)(l)(I) (as amended or recodified from time to time or any substitute or successor statute) and lawful regulations promulgated thereunder. 12. ENTIRE AGREEMENT This instrument contains the entire agreement of the parties with respect to the subject matter hereof. Any and all prior agreements, promises, inducements, negotiations or representations not expressly set forth in this Agreement are superseded hereby and are void and of no force and effect. 13. AMENDMENTS Agreement cannot be altered or amended except pursuant to an instrument in writing signed by both of the parties hereto. 14. SEVERABlLlTY In the event that any provision of this Agreement is rendered illegal, invalid or unenforceable by a federal or state law, rule or regulation, or declared illegal, invalid or unenforceable by any court of competent jurisdiction, the remaining provisions hereof shall remain in full force and effect. 15. HEADINGS Headings are used herein solely for the convenience of the parties and are not part of this Agreement. 16. APPLICABLE LAW This Agreement shall be construed and interpreted in accordance with the laws of the Commonwealth of Kentucky, notwithstanding its conflict of laws rules. 17. WAIVER OF BREACH The waiver by a party of a breach of or default under any term or provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach or default under the same or any other term or provision of this Agreement by that party. 18. STATUS OF RELATIONSHIP It is understood and agreed that the parties to this Agreement are independent contractors, and nothing herein shall be construed to establish a partnership or joint venture relationship between the parties. Each party has sole responsibility for the payment of each of its employee's wages, payroll taxes and benefits. By virtue hereof, neither party assumes, directly or by implication, the debts, obligations, taxes or liabilities of the other party. 19. FORCE MAJEURE If either the Hospital or Management Co. is delayed or prevented from fulfilling any of its obligations under this Agreement by force majeure, such party shall not be liable under this Agreement for the delay or failure. "Force Majeure" means any cause beyond the reasonable control of a party, including but not limited to an act of God, act or omission of civil or military authorities of a state or nation, fire, strike, flood, riot, war, delay of transportation, or inability due to any of these causes to provide or obtain necessary labor, materials or facilities. 20. EXCLUSIVITY The relationship between Management Co. and the Hospital with respect to the Agency shall be exclusive in that neither Management Co. nor any of its subsidiaries will, directly or indirectly, during the term of this Agreement, manage, own or affiliate or consult with any home health agency providing services in any of the counties for which the Agency (or any additional agency managed by Management Co. pursuant to Section 21) has a license to provide home health services. Such exclusivity will not, however, apply (a) after termination or non-renewal of this Agreement, (b) to management services provided by Management Co. to home health agencies not doing business inside the identified geographic area, (c) to management services provided by Management Co. to entities other than home health agencies, (d) any other business ventures of Management Co. not encompassed within the foregoing provision, or (e) to Management Co.'s ownership, operation, or management of, consulting for or affiliation with House Calls of America, Inc. 21. ADDITIONAL COUNTIES AND HOME HEALTH AGENCIES The Hospital hereby grants Management Co. the right to manage, pursuant to the terms set forth herein, the operations of the Agency in any additional counties added to the Hospital's license and any additional home health agencies acquired by the Hospital during the term of this Agreement. The parties will execute such amendments to this Agreement as may be necessary or appropriate to document Management Co.'s management of such additional counties or agencies. 22. DISPUTE RESOLUTION Any material dispute between the parties arising under this Agreement which is not resolved by good faith negotiation (including, without limitation, disputes under Subsection 4(d), Section 19 or Exhibit A) may be submitted by either party to binding arbitration in Louisville, Kentucky in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award may be entered in any court with jurisdiction thereof. The costs of arbitration shall be borne by the parties in proportions decided by the arbitrator(s). IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. NATIONAL HEALTH INDUSTRIES, INC. By: _________________________________ Title:________________________________ GALEN OF KENTUCKY, INC. d/b/a SOUTHWEST HOSPITAL By:___________________________________ Title:__________________________________ MANAGEMENT FEES CHARGE/VISIT AND CHARGE/WAIVER UNIT Home Health Services (Visits) Services Waiver Units GENERAL MANAGEMENT GENERAL MANAGEMENT 0 - 30,000 Visits $8.00 0 - 5,000 Units $1.30 30,001 + Visits $5.33 5,000 + Units $2.67 COMPUTER COMPUTER 0 - 30,000 $1.00 0 - 5,000 Units $0.50 30,001 + Visits $0.67 5,000 + $0.33 TOTAL TOTAL 0 - 30,000 Visits $9.00 0 - 5,000 Units $5.00 30,001 + Visits $6.00 5,001 + Units $3.00 EX-10.27 3 ASSETS PURCHASE AGREEMENT This is an Assets Purchase Agreement dated as of January 26, 1998 (the "Agreement"), by and among (i) Adult Daycare of America, Inc., a Delaware corporation (the "Buyer"), (ii) Home Care Solutions, Inc., a Connecticut corporation (the "Seller"), and (iii) Thomas R. Nolan (the "Shareholder"). The Seller and the Shareholder are referred to collectively as the "Selling Parties". Recitals A. The Seller is engaged in the business of providing home care, companion, chore, personal and health care services (the "Business") based in Danbury, Connecticut, serving the State of Connecticut (the "Territory"). B. The Seller desire to sell and the Buyer desires to purchase certain assets used in the Business. THE PARTIES, INTENDING TO BE LEGALLY BOUND, AGREE AS FOLLOWS: Article 1 - Purchase and Sale of Assets 1.1 Purchased Assets. The Seller hereby agrees to sell, assign, transfer and convey to the Buyer, and the Buyer hereby agrees to purchase from the Seller, all of the assets of the Seller used in the Business (the "Purchased Assets"), other than the excluded assets described on Schedule 1.1. The Purchased Assets include without limitation the following assets and properties: (a) All furniture, fixtures, machinery, equipment and other tangible personal property (to the extent such property is owned by the Seller); (b) All of the Seller's goodwill relating to the Business; all customer and client lists and files, records and similar sales and marketing information in the Seller's possession relating to the Business; records of the customers and clients serviced by the Business and in the Seller's possession; personnel records; and the Seller's right and interest in the trade names, trademarks, trade secrets, licenses, know-how, specifications, telephone numbers, literature, and all other intangible property relating to the Business, including without limitation, all of the Seller's right, title and interest in and to the name "Home Care Solutions"; (c) All transferable licenses, permits, licenses, certificates, authorizations, accreditations, orders, ratings and approvals of all federal, state, or local governmental or regulatory authorities which relate to the Business and which are held by the Seller, but only to the extent the same are transferable; and (d) Any and all rights of the Seller which by their terms are transferable and which arise under or pursuant to warranties, representations and guarantees made by suppliers in connection the Purchased Assets. 1.2 No Assumption of Liabilities. Except for prospective obligations under the Assumed Contracts, the Seller shall retain, and the Buyer shall have no obligation or liability with respect to, any liabilities or obligations, actual or contingent, of the Seller or the Business, or any claims by any person, firm or organization, arising out of any liabilities or obligations of the Seller, or the operation of the Business prior to the Closing. Notwithstanding anything in this Agreement to the contrary, the Buyer is not assuming or taking any of the Purchased Assets or the Business subject to (i) any liabilities or obligations of the Seller or the Business to the Seller's shareholders, or (ii) any liabilities or obligations of the Seller or the Business to any affiliate or related entity of the Seller. 1.3 Assumed Contracts. The Seller will assign or cause to be assigned to the Buyer, and the Buyer will assume (i) the Seller's prospective obligation to provide services to the Seller's customers and clients, (ii) the Seller's prospective obligations under the contracts and leases described on Schedule 1.3, (iii) the Shareholder's or the Seller's confidentiality agreements with prospective purchaser's of the Seller's assets or stock (collectively, the "Assumed Contracts"). 1.4 Employees. The Seller agrees that the Buyer will not be obligated to hire any of the Seller's employees, but that the Buyer, in its sole discretion, may hire some or all of such employees on such terms as the Buyer and the employees so hired may agree. The Seller acknowledges that the Buyer is not purchasing, recognizing, assuming or otherwise acquiring any rights, obligations, assets or liabilities under, arising from or resulting from any employment agreement or arrangement in existence between the Seller and any employee, or any person employed to consult with or perform services for the Seller, or otherwise. The Buyer will not be responsible to the Seller or to any current or former employee of the Sellers for any employee benefits (whether earned, accrued or vested) due to the Seller's employees with respect to their employment prior to the Closing. 1.5 Confidentiality, Nonsolicitation and Noncompetition Agreement. Each of the Selling Parties agrees to enter into a Confidentiality, Nonsolicitation and Noncompetition Agreement at the Closing, in the form of the agreement attached as Annex A (the "Noncompetition Agreement"). 1.6 Right to Use "Home Care Solutions" Name. The Buyer will have the right, by giving the Seller written notice, to require the Seller to change its corporate name to a name dissimilar to the "Home Care Solutions" name and to otherwise require the Seller to cease using the name "Home Care Solutions" or any other confusingly similar derivation of "Home Care Solutions". Article 2 - Purchase Price and Payment 2.1 Purchase Price. In consideration of the transfer of the Purchased Assets and the Business, and the entering into of the Noncompetition Agreement, the Buyer agrees to pay the Seller $1,000,000.00 in cash in the aggregate, payable at the Closing by wire transfer to an account designated by the Seller ( the "Purchase Price"). 2.2 Proration Expenses. The Buyer and the Seller agree that the expenses described on Schedule 2.2 will be prorated among the parties and will adjust the Purchase Price as described on Schedule 2.2. 2.3 Allocation of Purchase Price. The Purchase Price will be allocated among the Purchased Assets as set forth on Schedule 2.3. Schedule 2.3 will be prepared by the Seller. Article 3 - The Closing 3.1 Time and Place. The Closing ("Closing") shall take place on February 2, 1998 (the "Closing Date"), or on such earlier date as each of the conditions to the parties' obligations to close is either satisfied or waived. The Closing will be effective as of 12:01 a.m. on February 1, 1998. 3.2 Execution and Delivery of Documents of Title by the Seller. (a) At the Closing, the Seller shall execute and deliver to the Buyer such conveyances, bills of sale, certificates of title, assignments, assurances and other instruments and documents as the Buyer may reasonably request in order to effect the sale, conveyance, and transfer of the Purchased Assets from the Seller to the Buyer, and the Buyer will execute such instruments and agreements as the Seller may reasonably request to effect an assumption of the Assumed Contracts by the Buyer. Such instruments and documents shall be sufficient to convey to the Buyer good title to the Purchased Assets and to effect an assumption of the Assumed Contracts by the Buyer. Also at the Closing, the parties shall cause the Noncompetition Agreement and the Lease to be executed and delivered as of the Closing. (b) The Sellers agree that they will, from time to time after the Closing Date, take such additional action and execute and deliver such further documents as the Buyer may reasonably request in order to effectively sell, transfer and convey the Purchased Assets to the Buyer and to place the Buyer in position to operate and control all of the Purchased Assets. Article 4 - Representations and Warranties of the Selling Parties As a material inducement to the Buyer to enter into and perform this Agreement, each of the Selling Parties represents and warrants to the Buyer as follows: 4.1 Authority. (a) Each of the Selling Parties has full legal power and capacity to execute and deliver this Agreement and the Noncompetition Agreement, and to perform such Selling Party's respective obligations under this Agreement and the documents contemplated by this Agreement. This Agreement and the Noncompetition Agreement constitute valid and legally binding obligations of each of the Selling Parties, enforceable in accordance with their terms. The execution and delivery of this Agreement and the instruments called for by this Agreement by or on behalf of the Seller and the consummation of the transactions contemplated hereunder and thereunder, subject to the terms of this Agreement, have each been duly authorized by all necessary corporate action, including the requisite Board of Director and shareholder approvals. (b) The execution and delivery of this Agreement and the Noncompetition Agreement, the consummation of the transactions contemplated hereby and thereby, and the performance and fulfillment of their respective obligations and undertakings hereunder and thereunder by the Selling Parties will not, (i) violate any provision of, or result in the breach of or accelerate or permit the acceleration of any performance required by the terms of, any contract, agreement, arrangement or undertaking to which any of the Selling Parties is a party or by which any of them may be bound; any judgment, decree, writ, injunction, order or award of any arbitration panel, court or governmental authority; or any applicable law, ordinance, rule or regulation of any governmental body; or the Seller's Certificate of Incorporation or Bylaws; (ii) result in the creation of any claim, lien, charge or encumbrance upon any of the properties or assets (whether real or personal, tangible or intangible) of the Seller; (iii) terminate or cancel, or result in the termination or cancellation of, any agreement or undertaking to which the Seller is a party; or (iv) in any way affect or violate the terms or conditions of, or result in the cancellation, modification, revocation or suspension of, any of the Seller's permits or licenses. (c) The Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Connecticut with full power and authority (corporate or otherwise) to execute, deliver and perform its obligations under this Agreement. 4.2 Financial Statements. The Financial Statements have been prepared from the books and records of account of the Business and presents fairly the results of operations and the financial condition of the Business as of the date of such financial information. For purposes of this Agreement, "Financial Statements" means the Seller's income statements and balance sheets for the past three fiscal years, along with any interim financial statements for periods after the Seller's last fiscal year-end. 4.3 Environmental Standards. The Seller has operated the Business in material compliance with all limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in or required under the common law or any federal, state, local or foreign law, regulations, ordinances, permits, licenses, consent decrees, orders and clearances relating to pollution, the environment, or the use, storage, transportation or disposal of pollutants, dangerous substances, toxic substances, hazardous wastes, medical wastes, infectious wastes or hazardous substances. 4.4 Tax Matters. (a) As used in this Agreement, the term "Code" means the Internal Revenue Code of 1986, as amended. The term "Tax" means any federal, state, local or foreign tax, including any interest, penalty, or addition thereto, whether disputed or not. The term "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. (b) The Seller has filed all Tax Returns that it was required to file as of the Closing Date; all such Tax Returns were correct and complete in all material respects; all Taxes owed by the Seller which are due as of the Closing Date have been paid; the Seller currently is not the beneficiary of any extension of time within which to file any Tax Return; no claim has ever been made by an authority in a jurisdiction where the Seller does not file Tax Returns that it is or may be subject to taxation by that jurisdiction; and there are no liens on any of the assets of the Seller that arose in connection with any failure (or alleged failure) to pay any Tax. (c) There is no dispute or claim concerning any Tax liability of the Seller either (A) claimed or raised by any authority in writing, or (B) as to which the Shareholders have knowledge based upon personal contact with any agent of such authority. The Seller has not been informed in writing that the Tax Returns of the Seller are to be examined by the Internal Revenue Service or any other state or local taxing authority for past years. There are no unpaid Tax deficiencies; no examinations are pending; and, to the best of the Seller's knowledge, no basis for any Tax deficiencies exists. (d) The Seller has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. (e) The Seller has remitted all sales and use taxes due to any state or local jurisdiction. (f) Proper and accurate amounts have been withheld by the Seller from its employees for all periods in full and complete compliance with the tax withholding provisions of applicable federal, state and local law. Proper and accurate federal, state and local returns have been filed by the Seller for all periods for which returns were due with respect to employee income tax withholding, social security and unemployment taxes and the amounts shown thereon to be due and payable have been paid in full. (g) The Seller's recent sales tax audit by the State of Connecticut has been completed and the Seller has no deficiency or other liability to the State of Connecticut with respect to those years under audit. The Purchased Assets are subject to no tax lien arising out of the State of Connecticut's sales tax audit. 4.5 Title. The Seller has and will transfer to the Buyer at the Closing good title to all of the assets included among the Purchased Assets, free and clear of any mortgages, security interests, pledges, liens, claims or encumbrances. 4.6 The Purchased Assets. (a) The Seller has good title to all of the Purchased Assets, free and clear of any claims, liens, charges, mortgages, security interests or encumbrances whatsoever. The execution and delivery of this Agreement, and the consummation of the transactions contemplated by this Agreement, will not result in the creation of any lien or encumbrance on the Purchased Assets. (b) Except as set forth in Schedule 4.6(b), the Purchased Assets, the Assumed Contracts, and the real and personal property to be leased pursuant to the Lease are (A) sufficient and adequate in all material respects to carry on the Seller 's business as presently conducted, and (B) comply in all material respects with the terms and conditions of all existing licenses, permits, approvals, leases, franchises, charters and other agreements or authorizations effecting or relating to any such Asset, and comply in all material respects with all applicable federal, state and local laws, ordinances, rules and regulations (including without limitation, fire, safety, environmental and pollution control). (c) The Seller owns no machinery, equipment, furniture, furnishings, office supplies, vehicles, tools, supplies or computer hardware (collectively, "FFE"). The Seller leases all FFE necessary for the operation of the Business from TR Nolan Associates, Inc., pursuant to lease agreements included among the Assumed Contracts. All of the FFE leased from TR Nolan Associates, Inc. is in good condition and repair, ordinary wear and tear excepted; and (D) is in the state of maintenance, repair and operating condition required for the proper operation and use thereof in the ordinary course of business. The FFE leased from TR Nolan Associates, Inc. constitutes all of the machinery, equipment, furniture, furnishings, office supplies, vehicles, tools, supplies and computer hardware used in the operation of the Seller's business. (d) The operation of the Business does not require the Seller to hold any inventory. (e) The Seller does not currently own and has never owned real estate. (f) No instrument of record, easement, license, grant, applicable zoning or building law, ordinance, administrative regulation, urban redevelopment law or other impediment of any kind prohibits or materially interferes with, limits or impairs, or would, if not permitted by a prior nonconforming use, prohibit or materially interfere with, limit or impair, the use, operation, maintenance of or access to, or materially affects the value of, the Seller 's leased real property, as now used, operated or maintained by the Seller . No notice of any violation of any applicable zoning or building law or ordinance or administrative regulation has been received by the Seller, and the Seller does not know of any threat of any such notice. No condemnation proceeding has been instituted or is to the Selling Parties' knowledge threatened with respect to any of the Seller's leased real property. (g) Prior to or in conjunction with the Closing, the Seller will have fully disclosed to the Buyer all customer lists, trade secrets, pro-cesses, inven-tions, formulas, methods, know-how and other propri-etary informa-tion used or developed by the Seller or its employees in connection with the Business. The Seller has not disclosed or per-mitted the disclosure of any such proprietary information to any other person (other than prospective purchasers of the Seller's stock or assets, all of whom have executed confidentiality agreements in favor of the Shareholder and/or the Seller), and the use by the Seller of such proprietary information does not violate any other person's pro-prietary rights. (h) The Seller has not caused or permitted any hazardous substance, as that term is now defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. 9601, et seq.), medical wastes or petroleum substances to be disposed on, under or at the premises of the Business, or any part thereof, and no part thereof has ever been used by the Seller as a permanent storage or disposal site for any such hazardous substances, medical wastes, or petroleum substances. 4.7 Insurance. The Seller has provided the Buyer with a true and correct list of all policies of insurance which insure the Purchased Assets or the Business, setting forth the types and amounts of coverage. Such policies will remain in effect until the Closing Date. Schedule 4.7 is a true and correct list of all claims against such insurance policies during the past two years. 4.8 Disclosure. No representation or warranty made by the Selling Parties in this Agreement and no statement made in or any amount set forth on any schedule called for by and incorporated into this Agreement is false or misleading in any material respect or omits to state any fact necessary to make any such representation or statements not misleading in any material respect. 4.9 Governmental and Industrial Approvals. Except as set forth in Schedule 4.9, there are no permits, licenses, accreditations, authorizations, orders, ratings or approvals of any federal, state, local or foreign governmental or regulatory bodies necessary under current laws and regulations for the Seller's operation of the Business as presently conducted. 4.10 Intentionally Omitted. 4.11 Contracts and Commitments. Except for the Assumed Contracts, the Seller is not a party to any written or material oral contract or commitment relating to the Business, and neither the Business nor the Purchased Assets are the subject of any contract or commitment. Each of the Assumed Contracts is the valid and binding agreement of the parties to such contracts, and no party to the Assumed Contracts is in default under such contracts, subject to bankruptcy, insolvency and other laws affecting creditors' rights generally. Except as set forth on Schedule 4.11, no consents are required in connection with the consummation of the transactions contemplated by this Agreement. The Selling Parties have not been made aware of any decision by the parties to the Assumed Contracts of any intention to terminate or not renew such Assumed Contracts. The Selling Parties have no knowledge of any facts relating to the Assumed Contracts that would have a material adverse affect on the Buyer's operation of the Business after the Closing Date. 4.12 No Violation of Law. Except as disclosed on Schedule 4.12, the Seller is not in default or violation of, has received no notice of default or violation of, and none of the Selling Parties has knowledge of any fact or event which with the lapse of time or giving of notice would constitute a default or violation of, any statute, ordinance, regulation, order, writ, injunction or decree of any court or governmental agency or authority applicable to the Business or the Purchased Assets. 4.13 Litigation. Except as disclosed on Schedule 4.13, there are no actions, suits, claims, demands, investigations or proceedings pending, or, to the Selling Parties' knowledge, after due inquiry, threatened before any court, commission, agency or other administrative authority against, or affecting the Business or the Purchased Assets or which would in any way affect the transactions contemplated by this Agreement, and, after due inquiry, the Seller is not the subject of any order or decree relating to or affecting the Business or the Purchased Assets other than those of general application. The Seller has not been subject to any bankruptcy or other insolvency proceedings. 4.14 Labor. There is no collective bargaining or other union contract relating to the Business to which the Seller is a party. To the Selling Parties' knowledge, after due inquiry, there is not pending or threatened against the Seller any grievance, labor dispute, organizational activity, union trouble, strike or work stoppage which materially affects or which may materially disrupt the Buyer or the Business. The Seller has complied with all applicable laws, rules and regulations pertaining to the employment of labor, including those relating to wages, hours, collective bargaining and the payment of or withholding of taxes. The Seller has withheld all amounts required by law or agreement to be withheld from the wages or salaries of the Business' employees and they are not liable for any arrears of wages or any tax or penalties for failure to comply with any of the foregoing. 4.15 Employment Contracts. There are no written or oral contracts for employment of any personnel of the Business. 4.16 Employee Benefit and Retirement Plans. Except as disclosed on Schedule 4.16, the Seller does not now maintain any "employee pension benefit plan" or any "employee welfare benefit plan" (as defined respectively in Section 3(2) and 3(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) on behalf of the Business's employees, and the Seller does not maintain any retirement plans, bonus arrangements, life insurance or medical insurance programs or any other fringe benefit arrangements for any employees whether written or unwritten. 4.17 Employees and Independent Contractors. The Seller has provided the Buyer prior to the Closing Date with a true and correct list including the name, salary or compensation (including without limitation all commission, override or bonus arrangements), vacation and sick leave policies or other benefits, job description and original employment or contract date of all current employees and independent contractors of the Business based upon the most recently processed information, and the accrued and/or earned vacation time of all employees and, to the Selling Parties' knowledge, the dates and information concerning any previous salary or compensation change or adjustment and the reasons therefor for each such current employee. 4.18 Workers' Compensation. The Seller is in full compliance with all workers' compensation laws with respect to the Business and has workers' compensation insurance coverage in full force and effect with respect to the Business, where any such non-compliance or lack of coverage would have a material adverse effect on the Buyer's ownership, possession or use of the Business or the Purchased Assets, or on the consummation of the transactions contemplated under this Agreement. 4.19 Adverse Action. The Seller has not received any written notice of any judicial or administrative action against the Seller, the Business or the Purchased Assets. 4.20 Consents. Except as described on Schedule 4.20, no consents, approvals or authorizations of, or declaration, filing or registration with, any governmental or regulatory authority is required in connection with the execution and delivery of this Agreement by the Seller and consummation by the Seller of the transactions contemplated hereby. 4.21 Commissions. Neither of the Selling Parties has authorized any person to act in such a manner as to give rise to any valid claim against the Buyer for a brokerage commission, finder's fee, or similar payment as a result of the transactions contemplated under this Agreement. The Selling Parties shall defend, indemnify and hold harmless the Buyer from any claim for commissions or fees alleged to have arisen from a contractual relationship or cooperation in connection with the transactions contemplated under this Agreement. 4.22 Licenses, Permits and Payment Programs. The Seller has obtained and holds all required licenses, permits, certificates, and authorizations necessary for the Seller to operate the Business as conducted prior to the Closing. A copy of each of the foregoing is attached to Schedule 4.22. Article 5 - Representations of the Buyer As a material inducement to the Seller to enter into this Agreement, the Buyer hereby represents and warrants to the Seller as follows: 5.1 Authority. (a) The execution and delivery of this Agreement and the instruments called for by this Agreement by or on behalf of the Buyer and the consummation of the transactions contemplated hereunder and thereunder, subject to the terms of this Agreement, have each been duly authorized by all necessary corporate actions. This Agreement and each of the instruments called for by this Agreement will be a valid and binding obligation of the Buyer, each enforceable against the Buyer in accordance with their respective terms. (b) The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware with full power and authority (corporate or otherwise) to execute, deliver and perform its obligations under this Agreement and the documents contemplated by this Agreement. 5.2 No Violation of Law; Other Agreements. Neither the execution and delivery of this Agreement or the instruments called for by this Agreement, nor consummation of the transaction herein or therein contemplated, nor compliance with the terms, conditions and provisions hereof or thereof, will conflict with or violate any provision of law or of the Certificate of Incorporation or Bylaws of the Buyer, or result in a violation or default in any provision or any regulation, order, writ, injunction or decree of any court or governmental agency or authority, or of any agreement or instrument to which the Buyer is a party or by which the Buyer is bound or subject. 5.3 Commissions. The Buyer has not authorized any person to act in such a manner as to give rise to any valid claim against the Seller for a brokerage commission, finder's fee, or similar payment as a result of the transactions contemplated under this Agreement. The Buyer shall defend, indemnify and hold harmless the Seller from any claim for commissions or fees alleged to have arisen from a contractual relationship or cooperation in connection with the transactions contemplated under this Agreement. 5.4 Litigation. There is no action, suit, claim, demand, investigation or proceedings pending or, to the knowledge of the Buyer, threatened by any corporation, person or entity against the Buyer or which would in any way affect the transactions contemplated by this Agreement. No order, writ, injunction or decree has been issued by, or to the knowledge of the Buyer, requested of, any court or governmental agency which reasonably could be expected to result in any adverse change in the business, property or assets or in the condition, financial or otherwise, of the Buyer or which could reasonably be expected to adversely affect the transactions contemplated by this Agreement. The Buyer has not been subject to any bankruptcy or other insolvency proceedings. Article 6 - Covenants of the Selling Parties 6.1 Conduct of Business. From the date of this Agreement until the Closing Date, the Seller shall operate the Business and otherwise conduct its business relating to the Business only in the ordinary course of business, and in substantial compliance with all statutory and regulatory requirements of any applicable federal, state or local authority, and shall enter into no material contract or other transaction relating to the Business other than in the ordinary course of business without the prior written consent of the Buyer. Between the date hereof and the Closing Date, the Seller shall use its best efforts to retain its present employees and preserve the goodwill and business of its customers, suppliers, and others having business relations with it, and shall conduct the financial operations of the Business in accordance with its existing business practices. From the date of this Agreement to the Closing Date, the Seller shall not do any of the following in connection with its ownership and operation the Business and the Purchased Assets without the Buyer's prior written consent: (a) cancel or permit any insurance, bond, surety instrument or letter of credit to lapse or terminate, except in the ordinary course of business or unless renewed or replaced by like coverage; (b) default in any respect under any loan, material contract, agreement, lease or commitment; (c) enter into any contract, agreement, lease or other commitment, except in the ordinary course of business; (d) sell or agree to sell the Business or any of the Purchased Assets; (e) hire any employees, increase any compensation to employees, enter into any employment arrangement, agreement or undertaking, or pay or promise to pay any fringe benefit, bonus or special compensation to employees, except in the ordinary course of business; (f) impede the Buyer, its counsel, accountants and other representatives from reasonable access, during normal business hours and upon reasonable advance notice, to the Business and the Purchased Assets so that the Buyer may have the opportunity to investigate same; or (g) encumber any of the Purchased Assets or incur any liabilities with respect to the Business, except in the ordinary course of business. 6.2 Sales, Etc. The Seller shall not sell, lease, remove or otherwise dispose of any of the Purchased Assets, which are located or used in the Business (except for retirements and replacements in the ordinary course of business, provided that all items which are retired or replaced are contemporaneously replaced by items of substantially equivalent value), or liquidate or dissolve. 6.3 Insurance. The Seller shall maintain the insurance described in Article 4. 6.4 Notice. From the date hereof to the Closing Date, the Seller shall promptly advise the Buyer of the occurrence of any governmental inspections, investigations, citations with respect to the Business or the Purchased Assets, and of which the Seller has received written notification. 6.5 Access to Personnel and Records. From the date of this Agreement until the Closing Date, the Seller and the Business shall give the Buyer, and the Buyer's counsel, accountants, consultants and other agents and representatives, reasonable access, during normal business hours and upon reasonable request, to its properties, books, contracts, commitments and records relating to the Assets and the operations of the Business. 6.6 Financial Information. The Seller shall provide the Buyer with such financial information relating to the operations of the Business as the Buyer may reasonably request. 6.7 Collection Practices. The Seller shall not deviate from its current lawful practices with respect to the collection of accounts receivable from the customers of the Business and clients to the extent that any such change in collection practices would impair or adversely affect the ability of the Business to continue its relationships with those customers and clients after Closing. 6.8 Cooperation. From the date hereof to the Closing Date, each of the Selling Parties shall cooperate in good faith with the Buyer in order to obtain all governmental, regulatory and other third party consents and approvals which are necessary or desirable to consummate the transactions contemplated under this Agreement. Each of the Selling Parties agrees to cooperate fully with Buyer with respect to the Buyer's due diligence investigation of the Seller's Business. The Shareholder agrees to vote all of such Shareholder's shares of the Seller's stock in favor of the transactions contemplated by this Agreement. The Shareholder also agrees to use such Shareholder's best efforts to cause each of the conditions to the Buyer's obligation to close the transactions contemplated by this Agreement set forth in Article 8 to be satisfied on or prior to the Closing Date. 6.9 Approval of Transfer. From the date hereof to the Closing Date, the Seller shall use its best efforts, including the filing and submission of all necessary and appropriate applications and documents, to obtain the approvals and consents of all applicable governmental and regulatory authorities and the landlord, and any other third party identified as necessary in order to transfer the Purchased Assets to the Buyer. 6.10 Consents. The Selling Parties shall use their best efforts to procure the consents of any third parties necessary for the assignment to the Buyer of any contract, agreement or lease hereunder. 6.11 No-Shop Clause. From and after the date of the execution and delivery of this Agreement by the Selling Parties until the Closing or the termination of this Agreement (unless the Closing Date is extended beyond such date by the parties), neither of the Selling Parties shall, without the prior written consent of the Buyer: (i) offer for sale any material portion of the Business or assets, (ii) solicit offers to buy all or any material portion of the Business, (iii) hold discussions with any party (other than the Buyer) looking toward such an offer or solicitation or looking toward a merger or consolidation of the Seller, or (iv) enter into any agreement with any party (other than the Buyer) with respect to the sale or other disposition of any material portion of the Business or the Seller's stock, or with respect to any merger, consolidation, or similar transaction involving the Seller or the Seller's stock. Article 7 - Covenants of the Buyer 7.1 Access to Records. For a period extending to the greater of five years from and after the Closing Date or the date of final settlement of cost reports for any period prior to the Closing Date, the Buyer shall retain the records of the clients and customers serviced by the Business on and prior to the Closing Date, and will give the Seller, and the Seller's counsel, accountants, consultants and other agents and representatives, full and complete access, during reasonable business hours and upon reasonable request. 7.2 Cooperation. From the date hereof until the Closing Date, the Buyer shall cooperate in good faith with the Seller in order to obtain all governmental, regulatory and other third party consents and approvals which are necessary or desirable to consummate the transactions contemplated under this Agreement. 7.3 Approval of Transfer. From the date hereof until the Closing Date, the Buyer shall use its best efforts, including the filing and submission of all necessary and appropriate applications and documents, to obtain the approvals and consents of all applicable governmental and regulatory authorities and other third parties required or necessary in order to transfer the Purchased Assets to the Buyer. 7.4 Publicity. Except as required by applicable law, without the prior written consent of the Selling Parties, the Buyer will not disclose or publish, or permit the disclosure or publication of, any information concerning the execution and delivery of this Agreement, or the transactions contemplated by this Agreement. The Selling Parties acknowledge that the Buyer's parent is a publicly traded corporation and disclosure of the entering into and terms of this Agreement may be required by applicable securities disclosure and exchange laws, regulations and rules. 7.5 Sales Tax Clearance Certificate. The Seller agrees to obtain as soon as possible after the Closing and deliver to the Buyer a State of Connecticut sales tax clearance release for the Seller for the period through the Closing Date. Article 8 - Conditions Precedent to the Buyer's Obligations The Buyer's obligation to close shall be subject to the satisfaction of the following conditions before or at Closing, unless waived by the Buyer: 8.1 Representations and Warranties True at Closing. The representations, warranties and covenants made by the Seller in this Agreement shall be true in all material respects at and as of Closing as if made on and as of Closing. 8.2 Compliance with Agreement. The Seller shall have performed and complied in all material respects with all of its covenants and obligations under this Agreement which are to be performed or complied with by it before or at Closing. 8.3 The Seller's Certificate. The Seller shall have delivered to Buyer a certificate stating that (i) the representations, warranties and covenants made by the Seller in the Agreement are true in all material respects at and as of Closing as if made on and as of Closing, and (ii) the Seller has performed and complied in all material respects with all of its covenants and obligations under this Agreement which are to be performed or complied with by it before or at Closing. 8.4 Adverse Proceedings. No suit, action, claim or governmental proceeding shall be pending against, and no order, decree or judgment of any court, agency or other governmental authority shall have been rendered against the parties or any party hereto which would render it unlawful, as of the Closing Date, to effect the transactions contemplated by this Agreement in accordance with its terms or otherwise have a material adverse effect on the Buyer's ownership, use or enjoyment of the Purchased Assets. 8.5 Approvals. All necessary federal, state and local governmental and regulatory and other third party consents, waivers, and other approvals or determinations required to be obtained with respect to the sale and/or transfer of the Purchased Assets to the Buyer and Buyer's operation of the Business thereafter shall have been obtained, with the form and substance of such consents, etc. satisfactory to the Buyer in its reasonable discretion. The consents to assignment of the Assumed Contracts must be in a form satisfactory to the Buyer. 8.6 Closing Documents. The Selling Parties must have delivered the Noncompetition Agreement, and the other documents required to be delivered by the Selling Parties to the Buyer pursuant to this Agreement shall be executed in a form reasonably acceptable to the Buyer. 8.7 Opinion of Counsel. The Seller's counsel must have delivered a satisfactory opinion of counsel to the Buyer, substantially in the form of the opinion attached as Annex B. 8.8 The Lease. The Buyer must have entered into a lease with 85 West Street Associates and TR Nolan Associates, Inc. of the premises currently occupied by the Seller, and the personal property used by the Seller in the operation of the Business, such lease to be in the form attached to this Agreement as Annex C (the "Lease"). 8.9 Jeffrey G. Nolan Noncompetition Agreement. Jeffrey G. Nolan must have entered into the Confidentiality, Nonsolicitation and Noncompetition Agreement in the form of the agreement attached as Annex E (the "Jeffrey Nolan Noncompetition Agreement"). 8.10 Termination of New Milford Bank & Trust Co. Lien. The New Milford Bank & Trust Co. lien must be terminated. Article 9 - Conditions Precedent to the Seller's Obligations The Seller's obligation to close shall be subject to the satisfaction of the following conditions prior to or at Closing, unless waived by the Seller: 9.1 Representations and Warranties True at Closing. The representations and warranties made by the Buyer in this Agreement shall be true in all material respects at and as of Closing with the same effect as though such representations and warranties had been made or given on and as of Closing. 9.2 Compliance with Agreement. The Buyer shall have performed and complied in all material respects with all its covenants and obligations under this Agreement which are to be performed or complied with by it before or at the Closing. 9.3 Buyer's Certificate. The Buyer shall have delivered to the Seller a certificate stating that (i) the representations, warranties and covenants made by the Buyer in the Agreement are true in all material respects at and as of Closing as if made on and as of the Closing, and (ii) the Buyer has performed and complied in all material respects with all of its covenants and obligations under this Agreement which are to be performed or complied with by it before or at Closing. 9.4 Adverse Proceedings. No suit, action, claim or governmental proceeding shall be pending against, and no order, decree or judgment of any court, agency or other governmental authority shall have been rendered against the parties or any party hereto which would render it unlawful, as of the Closing Date, to effect the transactions contemplated by this Agreement in accordance with its terms. 9.5 Approvals. All necessary federal, state and local governmental and regulatory and other third party consents, waivers, and other approvals and determinations required to be obtained with respect to the sale and/or transfer of the Assets to the Buyer shall have been obtained. 9.6 Closing Documents and Payment of Consideration. The documents required to be delivered by Buyer to Seller pursuant to this Agreement shall be executed and delivered in a form reasonably acceptable to the Seller, and the Buyer must have paid the Purchase Price and the consideration contemplated under the Noncompetition Agreement. 9.7 Opinion of Counsel. The Buyer's counsel must have delivered to the Selling Parties a satisfactory opinion of counsel, substantially in the form of the opinion attached as Annex D. 9.8 Lease. The Buyer must have executed and delivered the Lease. Article 10 - Termination of Agreement 10.1 Termination Events. This Agreement may, by notice given prior to or at the Closing, be terminated: (a) by either the Buyer or the Seller if a material breach of any provision of this Agreement has been committed by the other party and such breach has not been either cured or waived prior to the Closing Date or any extension thereof; (b) (i) by the Buyer if any of the conditions in Article 8 has not been satisfied as of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of the Buyer to comply with its obligations under this Agreement) and the Buyer has not waived such condition on or before the Closing Date; or (ii) by the Seller, if any of the conditions in Article 9 has not been satisfied of the Closing Date or if satisfaction of such a condition is or becomes impossible (other than through the failure of the Seller to comply with their obligations under this Agreement) and the Seller has not waived such condition on or before the Closing Date; (c) by mutual consent of the Buyer and the Seller; or (d) by either the Buyer or the Seller if the Closing has not occurred (other than through the failure of any party seeking to terminate this Agreement to comply fully with its obligations under this Agreement) on or before February 6, 1998, or such later date as the parties may agree upon. 10.2 Effect of Termination. Each party's right of termination under paragraph 10.1 is in addition to any other rights it may have under this Agreement or otherwise, and the exercise of a right of termination will not be an election of remedies. If this Agreement is terminated pursuant to paragraph 10.1, all further obligations of the parties under this Agreement will terminate; provided, however, that if this Agreement is terminated by a party because of the breach of the Agreement by the other party or because one or more of the conditions to the terminating party's obligations under this Agreement is not satisfied as a result of the other party's failure to comply with its obligations under this Agreement, the terminating party's right to pursue all legal remedies will survive such termination unimpaired. Article 11 - Indemnification 11.1 Survival; Right to Indemnification not Affected by Knowledge. (a) All representations, warranties, covenants and obligations in this Agreement will survive the Closing. The representations of the parties in paragraphs 4.1, 4.5 and 5.1 will survive indefinitely. The representation of the Seller in paragraph 4.4 will survive for the applicable statute of limitations. All other representations and warranties of the parties will survive for a period of two years after the Closing Date. (b) The right to indemnification, payment of damages or other remedy based on the representations, warranties, covenants, and obligations of the parties will not be affected by any investigation conducted with respect to, or any knowledge acquired (or capable of being acquired) at any time, whether before or after the execution and delivery of this Agreement or the Closing Date, with respect to the accuracy or inaccuracy of or compliance with, any such representation, warranty, covenant, or obligation. 11.2 Indemnification of the Buyer. Each of the Selling Parties, jointly and severally, agrees to indemnify, defend, and hold the Buyer harmless from and against, and agrees to pay to the Buyer the full amount of, any loss, claim, damage, liability or expense (including reasonable attorneys' fees) resulting to the Buyer, either directly or indirectly, from (i) any inaccuracy in any representation or warranty, or any breach of any covenant or agreement, made by the Seller, or actions, suits, proceedings, claims, demands, assessments, judgments, costs and expenses (including reasonable attorneys' fees) relating to the foregoing, (ii) any liability arising out of the sales tax audit of the Seller by the State of Connecticut, (iii) the claims described on Schedule 4.13, (iv) any claims by the Seller's employees that such employees are entitled as a result of representations made by the Seller's management prior to the Closing Date to any additional compensation, bonuses or benefits arising out of the transactions contemplated by this Agreement, (v) any audit or investigation by Medicaid or federal Medicare authorities concerning the operation of the Seller's business before the Closing or any amounts paid to the Seller before the Closing, or any assessment, adjustments or offsets made against the Seller or its Assets as a result of such an audit or investigation, (vi) any federal or state income tax audit or payment of any tax deficiency, additional tax due, interest or penalties, in each case with respect to tax periods ending on or before the Closing Date, or (vii) any default by the Selling Parties under their Noncompetition Agreement, or any default by Jeffrey Nolan under the Jeffrey Nolan Noncompetition Agreement. 11.3 Indemnity of the Seller. The Buyer agrees to indemnify, defend and hold the Seller harmless from and against, and agrees to pay to the Seller the full amount of, any loss, claim, damage, liability or expense (including reasonable attorneys' fees) resulting to the Seller, either directly or indirectly, from (i) any inaccuracy in any representation or warranty, or any breach of any covenant or agreement, made by the Buyer and contained in this Agreement, or actions, suits, proceedings, claims, demands, assessments, judgments, costs and expenses (including reasonable attorneys' fees) relating to the foregoing, (ii) any claim arising out of or related to the conduct of the Business after the Closing, (iii) the Buyer's failure to pay, discharge or perform any liabilities or obligations assumed by the Buyer with respect to the Assumed Contracts or otherwise, or (iv) any breach by the Buyer of its obligations under this Agreement or the Lease. 11.4 Indemnification Limitations. Except for indemnification claims arising from a breach of a representation and warranty in paragraphs 4.1, 4.5 and 5.1, or the indemnification obligations set forth in items (ii) through (vii) in paragraph 11.2, no claim for indemnification under this Agreement will be made by either party unless and until the aggregate amount of indemnifiable losses exceeds $25,000.00, and then for only the amount in excess of $25,000.00. The Seller's liability to the Buyer for indemnification will not exceed the Purchase Price. Except for claims made prior to the expiration of the applicable survival period, (i) the Buyer's right to indemnification with respect to a breach of a representation and warranty shall terminate upon expiration of the applicable survival period in paragraph 11.1(a), (ii) the Buyer's right to indemnification with respect to the indemnification obligations set forth in items (ii) through (iv) in paragraph 11.2 will survive indefinitely, (iii) the Buyer's right to indemnification with respect to the indemnification obligation set forth in item (vi) of paragraph 11.2 will expire upon expiration of the applicable statute of limitations, and (iv) the Buyer's right to indemnification with respect to the indemnification obligation set forth in item (vii) of paragraph 11.2 will expire upon expiration of the term of the applicable noncompetition agreement. 11.5 Notice of Claim. If any claim is made against a party hereto that, if sustained, would give rise to a right of indemnity under this Article 11, the party having the claim made against it ("Indemnitee") shall give the other party ("Indemnitor") notice thereof (specifying the nature and amount of the claim and giving Indemnitor the right to contest the claim) within 15 days of becoming aware of such claim ("Notice of Claim"). 11.6 Right to Contest. Indemnitee shall afford Indemnitor the opportunity, at Indemnitor's own expense, to assume the defense or settlement of any such claim, with its own counsel. In connection therewith, the Indemnitee shall cooperate fully to make available all pertinent information under its control and shall have the right to join in the defense, at its own expense, with its own counsel. If Indemnitor does not elect to undertake the defense of a claim on the terms provided below, Indemnitee shall be entitled to undertake the defense or settlement of the claim at the expense of and for the account and risk of Indemnitor. Indemnitor shall have the right to assume the entire defense of a claim hereunder provided that (i) Indemnitor gives written notice of such desire (the "Notice of Defense") to Indemnitee within 15 days after Indemnitor's receipt of the Notice of Claim; (ii) Indemnitor's defense of such claim shall be without cost to Indemnitee or prejudice to Indemnitee's rights under this Article 11; (iii) counsel chosen by Indemnitor to defend such claim shall be reasonably acceptable to Indemnitee; and (iv) Indemnitor shall bear all costs and expenses in connection with the defense and settlement of such claim; (v) Indemnitee shall have the right to receive periodic reports from Indemnitor and Indemnitor's counsel; and (vi) Indemnitor will not, without Indemnitee's written consent, settle or compromise any claim or consent to any entry of judgment which does not include the unconditional release by claimant or plaintiff of all liability with respect to the claim. 11.7 Exclusive Remedy. Subject to the next succeeding sentence, all claims made by virtue of the representations, warranties, covenants and agreements contained in, or otherwise made in connection with, this Agreement shall be made under, and subject to the limitations set forth in, this Article 11, which, from and after the Closing Date, will be the exclusive remedy for any party hereto for any breach of this Agreement or other claim arising hereunder or in connection with the transactions contemplated hereby or the conduct of the Business, and each party hereby waives the right to assert any other remedy. The immediately preceding sentence will not limit any right of any party under the Lease or the Noncompetition Agreement or any right of any party hereto to seek equitable relief (including, without limitation, specific performance) in respect of any breach of any covenant or other agreement contained herein or in the Noncompetition Agreement or Jeffrey Nolan Noncompetition Agreement, and will not limit the Seller's right to seek damages under this Article 11 for a default in the Buyer's obligation, subject to the terms and conditions of this Agreement, to pay the Purchase Price. Article 12 - Other Provisions 12.1 Notices. All notices, consents, waivers, and other communications under this Agreement must be in writing and will be deemed to have been duly given when (a) delivered by hand (with written confirmation of receipt), (b) sent by facsimile (with written confirmation of receipt), provided that a copy is mailed by registered mail, return receipt requested, or (c) when received by the addressee, if sent by a nationally recognized overnight delivery service (receipt requested), in each case to the appropriate addresses and facsimile numbers set forth below (or to such other addresses and facsimile numbers as a party may designate by notice to the other parties): If to any of the Selling Parties: Thomas R. Nolan 85 West Street Danbury, Connecticut 06810 Facsimile No.: (203) 792-8508 with a copy to: Tyler Cooper & Alcorn, LLP City Place 35th Floor Hartford, Connecticut 06103 Attention: Thomas S. Marrion Facsimile No.: (860) 278-3802 If to the Buyer: 100 Mallard Creek Road Suite 400 Louisville, Kentucky 40207 Attention: President Facsimile No.: (502) 891-8067 with a copy to: Brown, Todd & Heyburn PLLC 400 West Market Street, 32nd Floor Louisville, Kentucky 40202-3363 Attention: Scott W. Dolson Facsimile No.: (502) 581-1087 12.2 Waivers. The rights and remedies of the parties to this Agreement are cumulative and not alternative. Neither the failure nor any delay by any party in exercising any right, power, or privilege under this Agreement will operate as a waiver of such right, power, or privilege, and no single or partial exercise of any such right, power, or privilege will preclude any other or further exercise of such right, power, or privilege or the exercise of any other right, power, or privilege. To the maximum extent permitted by applicable law, (a) no claim or right arising out of this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party; (b) no waiver that may be given by a party will be applicable except in the specific instance for which it is given; and (c) no notice to or demand on one party will be deemed to be a waiver of any obligation of such party or of the right of the party giving such notice or demand to take further action without notice or demand as provided in this Agreement. 12.3 Expenses. Each party will be responsible for its respective expenses incurred in connection with the transactions contemplated by this Agreement. 12.4 Headings; Interpretation. The headings in this Agreement have been included solely for ease of reference and will not be considered in the interpretation or construction of this Agreement. All references herein to the masculine, neuter or singular will be construed to include the masculine, feminine, neuter or plural, as appropriate. 12.5 Annexes and Schedules. The Schedules to this Agreement are incorporated herein by reference and expressly made a part hereof. 12.6 Entire Agreement. All prior negotiations and agreements by and among the parties hereto with respect to the subject matter hereof are superseded by this Agreement, and there are no representations, warranties, understandings or agreements with respect to the subject matter hereof other than those expressly set forth in this Agreement or on any Schedule delivered in connection with this Agreement. No change, modification, addition or amendment of this Agreement shall be enforceable unless in writing and signed by the party against whom enforcement is sought. 12.7 Governing Law. This Agreement will be governed by, and construed and interpreted in accordance with, the laws of the Commonwealth of Kentucky, without regard to or application of its conflicts of law principles. 12.8 Brokers. The parties covenant and agree with one another that they have not dealt with any broker or finder in connection with any of the transactions contemplated in this Agreement and, insofar as they know, no broker or other person is entitled to a commission or finders' fee in connection with these transactions. Each party will indemnify and hold the other parties harmless from and against any claim by any agent or broker claiming by or through it for any fee or other compensation due or allegedly due that broker or agent. 12.9 Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original copy of this Agreement and all of which, when taken together, will be deemed to constitute one and the same agreement. 12.10 Severability. If any provision of this Agreement or its application will be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of all other applications of that provision, and of all other provisions and applications hereof, will not in any way be affected or impaired. If any court will determine that any provision of this Agreement is in any way unenforceable, such provision will be reduced to whatever extent is necessary to make such provision enforceable. 12.11 Benefit and Binding Effect. This Agreement will be binding upon and will inure to the benefit of the parties to this Agreement and, as applicable, their respective heirs, executors, administrators, personal representatives, successors and assigns; provided, however, that no party to this Agreement will assign his or its rights or obligations hereunder without the express written consent of the other parties, which consent will not be unreasonably withheld. Nothing expressed or referred to in this Agreement will be construed to give any person other than the parties to this Agreement any legal or equitable right, remedy, or claim under or with respect to this Agreement or any provision of this Agreement. This Agreement and all of its provisions and conditions are for the sole and exclusive benefit of the parties to this Agreement and their successors and assigns. 12.12 Submission to Jurisdiction. The parties to this Agreement hereby irrevocably submit to the non-exclusive jurisdiction of any State or Federal court sitting in Jefferson County, Kentucky and Hartford County, Connecticut in any action or proceeding arising out of or relating to this Agreement, and hereby irrevocably agree that all claims in respect of such action or proceeding may be heard and determined in such court. The parties acknowledge and agree that the Buyer may bring and maintain an action in the courts in Jefferson County, Kentucky and the Seller may bring and maintain an action in the courts in Hartford County, Connecticut. The parties hereby irrevocably waive, to the fullest extent they may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding. The parties irrevocably consent to the service of any and all process in any such action or proceeding by the delivery of copies of such process at their respective addresses specified in paragraph 18. The parties agree that a final judgment in any such action or proceeding may be enforced in other jurisdictions by suit on the judgement or in any other manner provided by law. 12.13 Further Assurances. From time to time after the Closing at another party's request and without further consideration, a party will execute and deliver such further instruments of conveyance, assignment and transfer, and take such other actions as the requesting party may reasonably request, in order to more effectively convey and transfer any of the Assets. In addition, any monies collected by a party which are due and payable to another party will be promptly remitted to such party upon receipt thereof. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first set forth above, but actually on the dates set forth below. ADULT DAYCARE OF AMERICA, INC. By___________________________________ Title:_________________________________ Date:_________________________________ HOME CARE SOLUTIONS, INC. By__________________________________ Title:________________________________ Date:________________________________ _____________________________________ Thomas R. Nolan Date:_________________________________ LIST OF ANNEXES AND SCHEDULES Annex A - Noncompetition Agreement Annex B - Opinion of Seller's Counsel Annex C - Lease Annex D - Opinion of Buyer's Counsel Annex E - Jeffrey Nolan Noncompetition Agreement Schedule 1.1 - Excluded Assets Schedule 1.3 - Contracts Schedule 2.2 - Prorated Expenses Schedule 2.3 - Purchase Price Allocation Schedule 4.6(b) - Operation of Business Schedule 4.7 - Insurance Schedule 4.9 - Governmental Approvals Schedule 4.11 - Contracts, Consents Schedule 4.12 - Violations of Law Schedule 4.13 - Litigation Schedule 4.16 - ERISA Matters Schedule 4.20 - Consent Schedule 4.22 - Licenses, Etc. AMENDMENT NO. 1 TO THE ASSETS PURCHASE AGREEMENT This is an Amendment No. 1 to the Assets Purchase Agreement dated as of January 26, 1998 (the "Agreement"), by and among (i) Adult Daycare of America, Inc., a Delaware corporation (the "Buyer"), (ii) Home Care Solutions, Inc., a Connecticut corporation (the "Seller"), and (iii) Thomas R. Nolan (the "Shareholder"). The Seller and the Shareholders will be referred to collectively as the "Selling Parties"). THE PARTIES INTENDING TO BE LEGALLY BOUND, AGREE AS FOLLOWS: 1. Article 4 of the Agreement is amended to add the following representation: "4.23 Solvency. The Seller is currently solvent and will be solvent after the consummation of the transactions contemplated by this Agreement. The consummation of the transactions contemplated by this Agreement will not constitute a fraudulent conveyance." 2. Article 11 is amended to add the following indemnification obligation of each of the Selling Parties to paragraph 11.2: "(viii) any claim against the Buyer by creditors of the Seller, or a trustee in bankruptcy with respect to the Seller." The indemnification obligation in the previous sentence will survive the Closing indefinitely and will not be subject to the indemnification limitations in paragraph 11.4 of the Agreement. 3. The Agreement, as modified by this Amendment No. 1, remains in full force and effect and is a binding obligation of the parties to such Agreement. IN WITNESS WHEREOF, the parties have executed this Amendment as of February 1, 1998. ADULT DAYCARE OF AMERICA, INC. By___________________________________ Todd Lyles, Vice-President HOME CARE SOLUTIONS, INC. By__________________________________ Thomas R. Nolan, President _____________________________________ Thomas R. Nolan EX-10.28 4 AMENDED AND RESTATED ASSETS PURCHASE AGREEMENT This is an Amended and Restated Assets Purchase Agreement dated as of November 20, 1997 (the "Agreement"), by and among (i) Caretenders Visiting Services of Southwest Florida, Inc., a Kentucky corporation (the "Buyer"), (ii) Debtor in Possession, Metro Home Care Incorporated, a Florida corporation (the "Seller"), (iii) Metro Home Health Management, Inc. ("Metro") and (iv) George W. Shannon III, Janet Muth Shannon and Jerry M. Hollander, Jr. (each a "Shareholder" and collectively, the "Shareholders"). The Seller, Metro and the Shareholders are referred to collectively as the "Selling Parties". Recitals A. The parties to this Agreement entered into an Assets Purchase Agreement dated October 21, 1997 (the "Original Agreement"). This Agreement amends, restates and supersedes the Original Agreement in its entirety. B. The Seller is engaged in the business of operating a home health agency (the "Business") based in Fort Myers, Florida, serving Sarasota, De Soto, Charlotte, Glades, Hendry, Lee and Collier Counties, Florida (the "Territory"). C. The Seller is the holder of a license issued by the Agency for Health Care Administration of the State of Florida, and a Medicare provider agreement issued by the U.S. Department of Health and Human Services, all of which authorize the Seller to provide Medicare certified home health care services and home and community based waiver services in the Territory (collectively, the "Licenses"). D. Metro Home Care Incorporated filed for reorganization on November 6, 1997, in the United States Bankruptcy Court for the Middle District of Florida (the "Bankruptcy Court"), Case No. 97-18449-9P1. Metro Home Care Incorporated is operating as a debtor in possession and no trustee has been appointed. E. Pursuant to the terms of a Management Agreement dated as of November 20, 1997, among the Seller and the Buyer (the "Management Agreement"), the Buyer has assumed the management of the Business. On November 20, 1997, the Bankruptcy Court approved the Seller's application to employ the Buyer as the manager of the Business. F. Subject to the satisfaction of various conditions set forth in this Agreement and Bankruptcy Court approval, the Debtor has agreed to sell and the Buyer has agreed to purchase the assets used in the Business. THE PARTIES, INTENDING TO BE LEGALLY BOUND, AGREE AS FOLLOWS: Article 1 - Purchase and Sale of Assets 1.1 Purchased Assets. The Seller hereby agrees to sell, assign, transfer and convey to the Buyer, and the Buyer hereby agrees to purchase from the Seller, all of the assets of the Seller used in the Business (the "Purchased Assets"), other than the excluded assets described on Schedule 1.1. The Purchased Assets include without limitation the following assets and properties: (a) All furniture, fixtures, machinery, equipment and other tangible personal prop-erty, including such items as are described on Schedule 1.1(a), together with all manu-facturers' warranties pertaining to the same, to the extent that such warranties may exist and be assignable; (b) All of the Seller's goodwill relating to the Business; all customer, patient and lists and files, records and similar sales and marketing information in the Seller's possession relating to the Business; medical records of the patients serviced by the Business and in the Seller's possession; personnel records; and the Seller's right and interest in the trade names, trademarks, trade secrets, licenses, know-how, specifications, literature, and all other intangible property which relate specifically to the Business; (c) All transferable Licenses, permits, licenses, certificates, authorizations, accreditations, orders, ratings and approvals of all federal, state, or local governmental or regulatory authorities which relate to the Business and which are held by the Seller, but only to the extent the same are transferable, including without limitation the provider agreement relating to the Seller's right to participate in the Medicare Program, and all rights of the Seller to reimbursement or other payments from HCFA for the period prior to the Closing Date; (d) Any and all rights of the Seller which by their terms are transferable and which arise under or pursuant to warranties, representations and guarantees made by suppliers in connection the Purchased Assets; (e) All accounts receivable arising out of the operation of the Business (the "Accounts Receivable"). The Selling Parties agree to cooperate with the Buyer in connection with the Buyer's efforts to collect the Accounts Receivable. The Selling Parties agree to immediately remit to the Buyer any payments received by any of the Selling Parties that constitute Accounts Receivable; and (f) All raw materials, supplies, packaging materials, purchased products, fin-ished goods and all other goods, merchandise and materials owned by the Sel-ler. 1.2 Assumed Liabilities. (a) Subject to the limitation in paragraph 1.2(b), the Buyer will assume the following liabilities: (i) accounts payable described on Schedule 1.2(a) (which Schedule will include all accounts payable relating to the operation of the Seller's Business and arising in the ordinary course of the Seller's Business) (the "Accounts Payable"); (ii) accrued payroll for services performed by the Seller's employees in connection with the operation of the Business; (iii) promissory notes relating to the Seller's purchase of furniture, fixtures and equipment included among the Purchased Assets described on Schedule 1.2(a); and (iii) prospective obligations under the Assumed Contracts. (b) Except for liabilities assumed pursuant to paragraph 1.2(a), and for the prospective obligations under the contracts and leases referred to in paragraph 1.3, the Seller will retain, and the Buyer will have no obligation or liability with respect to, any liabilities or obligations, actual or contingent, of the Seller or the Business, or any claims by any person, firm or organization, arising out of any liabilities or obligations of the Seller, or the operation of the Business prior to the Closing. Notwithstanding anything in this Agreement to the contrary, the Buyer is not assuming or taking any of the Purchased Assets or the Business subject to (i) any liabilities or obligations of the Seller or the Business to the Seller's shareholders, or (ii) any liabilities or obligations of the Seller or the Business to any affiliate or related entity of the Seller (collectively, the "Affiliated Corporations"), including without limitation, the following affiliated corporations: Metro Home Health Care Agency, Inc. (a Louisiana corporation); Metro Home Health Care Agency, Inc. (a Texas corporation); Metro Home Health Care Agency, Inc. (a New Mexico corporation); Metro Home Health Care Agency, Inc. (an Arizona corporation); Metro Home Health Care Agency, Inc. (a Colorado corporation); Metro Home Health Care Agency, Northshore, Inc. (a Louisiana corporation); and Metro Home Health Management, Inc. (a Florida corporation). 1.3 Assumed Contracts and Leases. The Buyer will assume (i) the Seller's prospective obligation to provide services to the Seller's patients, (ii) the Seller's prospective obligations under the equipment leases listed on Schedule 1.3 , and (iii) the Punta Gorda Lease (collectively, the "Assumed Contracts"). 1.4 Employees. (a) The Buyer agrees to offer employment to each of the Seller's employees. The Buyer will offer Mark Rogers, Debbie Moriconi, Paula Wunderlich, Colletta Dunn, Karen Townley, and Vicki Bartlow employment for a term of at least six months and Kim Eckland, Isabel McIntre, Neva Schneider, Sue Alessi, Troy Mitchell and Kelly Studenwalt employment for a term of at least three months, in each case with compensation comparable to those received by such employee prior to the Closing. Each such employee with execute a written employment agreement setting forth the terms of such employment arrangement and in addition will execute an agreement substantially similar to the Confidentiality, Nonsolicitation and Noncompetition Agreement, except that the term of the agreement's noncompetition covenant shall continue until the later of (i) the date 12 months from the Closing Date, with respect to those employees with six month employment terms, or the date six months from the Closing Date, with respect to those employees with three month employment terms, or (ii) with respect to those employees with six month employment terms, the date six months after termination of employment (whether voluntary or involuntary), and with respect to those employees with three month employment terms, the date three months after termination of employment (whether voluntary or involuntary). Notwithstanding the preceding sentence, if an employee is terminated without cause, then such employee's Confidentiality, Nonsolicitation and Noncompetition Agreement will terminate effective as of such date of employment termination. (b) The Buyer and Janet Shannon will enter into a consulting arrangement, effective as of the Closing Date, whereby Janet Shannon will provide full-time administrative consulting and/or physical therapy services for a period of up to six months for aggregate compensation of $8,333.33 per month. Janet Shannon may terminate her services prior to the end of the six month period upon the giving of 30 days advance written notice. Janet Shannon acknowledges that she will not be treated as an employee for tax and other purposes. (c) The Seller acknowledges that the Buyer is not purchasing, recognizing, assuming or otherwise acquiring any rights, obligations, assets or liabilities under, arising from or resulting from any employment agreement or arrangement in existence between the Seller and any employee, or any person employed to consult with or perform services for the Seller, or otherwise, except for the accrued payroll liability assumed pursuant to paragraph 1.2(a)(ii). The Seller agrees that the Buyer shall not be obligated to hire any of the Seller's employees, but that the Buyer, in its sole discretion, may hire some or all of such employees on such terms as the Buyer and the employees so hired may agree. (d) Except as included on Schedule 1.2(a), the Buyer shall not be responsible to the Seller or to any current or former employee of the Seller for any employee benefits (whether earned, accrued or vested) due to the Seller's employees with respect to their employment prior to the Closing. 1.5 Confidentiality, Nonsolicitation and Noncompetition Agreement. Each of the Selling Parties agrees to enter into a Confidentiality, Nonsolicitation and Noncompetition Agreement at or prior to the Closing, in the form of the Confidentiality, Nonsolicitation and Noncompetition Agreement attached as Annex A (the "Noncompetition Agreement"). 1.6 Acquisition or Lease of the Seller's Business Premises. (a) The Buyer and George Shannon agree that they will enter into a contract of sale regarding the Seller's business premises at 15550 McGregor Boulevard, Fort Myers, Florida (the "Premises"), pursuant to which George Shannon will transfer good and marketable title to the Premises to the Buyer free from liens and encumbrances except those relating to the indebtedness offsetting the purchase price (as described in the next sentence). Subject to satisfaction of customary conditions to closing (including the Buyer's due diligence investigation), the Buyer will agree to purchase the Premises for $400,000.00, minus the amount of the debt that the Premises is taken subject to (e.g., approximately $392,000.00 as of the date of this Agreement) and closing costs. The contract of sale relating to the Premises will be substantially on the terms of the Contract of Sale attached as Annex B (the "Contract of Sale"). (b) From the Closing Date until the closing of the purchase of the Premises described in paragraph 1.6(a), the Buyer will lease the Premises from George Shannon on the same terms and conditions as currently enjoyed by the Seller (as described in writing by George Shannon to the Buyer prior to the execution of this Agreement). (c) If the Buyer does not purchase the Premises due to a failure in a condition to the Buyer's obligation to close, then the Buyer and George Shannon agree that the Buyer will lease the Premises pursuant to a triple net lease arrangement, with a lease rate of $9.00 per square foot, for a term of not less than three years. (d) The Buyer will assume the existing lease (i.e., with rental rate of $1821.13 per month, plus sales tax) of the Punta Gorda building at 260 Olympia from Acme Partnership (a copy of which has been provided by the Seller to the Buyer prior to the date of this Agreement), except that the term of the lease will be amended to provide that the term will extend for two years from the Closing Date (the "Punta Gorda Lease"). 1.7 Transition Assistance. From the date of the Closing through December 31, 1997, the Buyer will cause the employees of the Business to spend up to 25% of their working time (at the written request of the Seller) providing transition services to the Affiliated Corporations. The Buyer will be compensated by Metro or the applicable Affiliated Corporation at the rate of three times the base salary of the employees utilized by the Seller, plus reimbursement for all out-of-pocket expenses (e.g., travel, telephone) incurred in connection with the providing of such services. In addition, the Buyer will provide the Seller, as Metro's cost, with other transition management services for a period of six months after the Closing Date. Metro, the Seller and the Buyer agree that the Buyer will bill Metro bi-weekly for the cost of the employee services and out-of-pocket expenses provided pursuant to this paragraph 1.7, and Metro shall pay or cause the Affiliated Corporations to pay in full the amount billed by the Buyer within seven days after the date of the bill. The Buyer will have no obligation to provide further services pursuant to this paragraph 1.7 if Metro or the applicable Affiliated Corporation fails to pay any bill within seven days after the date of the bill. 1.8 Right to Use "Metro" Name. The Buyer will have the right, by giving the Seller written notice, to require the Seller to change its corporate name to a name dissimilar to the "Metro" name and to otherwise require the Seller to cease using the name "Metro" or any other confusingly similar derivation of "Metro". Article 2 - Purchase Price and Payment 2.1 Purchase Price. In consideration of the transfer of the Purchased Assets and the Business, the Buyer agrees to pay the following (collectively, the "Purchase Price") : (a) $125,000.00 in cash at the Closing, payable to the Seller by wire transfer (to be used by the Seller for funding of the bankruptcy plan (i.e., administrative expenses, payment of priority claims, and payment of claims not assumed by the Buyer); (b) $1,100,000.00 in cash at the Closing, payable to Capital Healthcare Financing, a division of Capital Factors, Inc. ("Capital"), in consideration of Capital's release of its claim against the Seller (but not against any of the Affiliated Corporations) and its lien on, and security interest in, the Purchased Assets; (c) $370,000.00 in cash at the Closing, payable to Capital, in consideration of Capital's post-petition loan to the Seller to fund the Seller's November 7, 1997 payroll, plus interest in such amount at the annual rate of 2% above the prime rate as published in The Wall Street Journal, accruing from November 7, 1997, through the Closing Date; and (d) The amount of any post-Closing payments by the Buyer to HCFA as payment for settlement of the Seller's cost reporting periods through and including the Closing Date. 2.2 Allocation of Purchase Price. The Purchase Price shall be allocated among the Purchased Assets as set forth on Schedule 2.2. The Seller and the Buyer agree that all tax and information returns shall be prepared on a basis consistent with such allocation of the Purchase Price. Article 3 - The Closing 3.1 Time and Place. The Closing ("Closing") shall take place on or before December 31, 1997 (the "Closing Date"), or on such earlier or later date as each of the conditions to the parties' obligations to close are satisfied or waived. 3.2 Execution and Delivery of Documents of Title by the Seller. (a) At the Closing, the Seller shall execute and deliver to the Buyer such conveyances, bills of sale, certificates of title, assignments, assurances and other instruments and documents as the Buyer may reasonably request in order to effect the sale, conveyance, and transfer of the Purchased Assets from the Seller to the Buyer. Such instruments and documents shall be sufficient to convey to the Buyer good title to the Purchased Assets. Also at the Closing, the parties shall cause the following items to be executed and delivered the Noncompetition Agreement. (b) The Seller agrees that it will, from time to time after the Closing Date, take such additional action and execute and deliver such further documents as the Buyer may reasonably request in order to effectively sell, transfer and convey the Purchased Assets to the Buyer and to place the Buyer in position to operate and control all of the Purchased Assets. Article 4 - Representations and Warranties of the Selling Parties As a material inducement to the Buyer to enter into and perform this Agreement, each of the Selling Parties represents and warrants to the Buyer as follows: 4.1 Authority as to Execution. (a) Each of the Selling Parties has full legal capacity to execute and deliver this Agreement and the Noncompetition Agreement, and to perform such Selling Party's respective obligations under this Agreement and the Noncompetition Agreement. This Agreement and the Noncompetition Agreement constitute valid and legally binding obligations of each of the Selling Parties, enforceable in accordance with their terms. The execution and delivery of this Agreement and the instruments called for by this Agreement by or on behalf of the Seller and the consummation of the transactions contemplated hereunder and thereunder, subject to the terms of this Agreement, have each been duly authorized by all necessary corporate action, including the requisite Board of Director, shareholder and Bankruptcy Court approvals. (b) The execution and delivery of this Agreement and the Noncompetition Agreement, the consummation of the transactions contemplated hereby and thereby, and the performance and fulfillment of their respective obligations and undertakings hereunder and thereunder by the Selling Parties will not, (i) violate any provision of, or result in the breach of or accelerate or permit the acceleration of any performance required by the terms of, any contract, agreement, arrangement or undertaking to which any of the Selling Parties is a party or by which any of them may be bound; any judgment, decree, writ, injunction, order or award of any arbitration panel, court or governmental authority; or any applicable law, ordinance, rule or regulation of any governmental body; (ii) result in the creation of any claim, lien, charge or encumbrance upon any of the properties or assets (whether real or personal, tangible or intangible) of the Seller; (iii) terminate or cancel, or result in the termination or cancellation of, any agreement or undertaking to which the Seller is a party; or (iv) in any way affect or violate the terms or conditions of, or result in the cancellation, modification, revocation or suspension of, any of the Seller's permits or licenses. (c) The Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida with full power and authority (corporate or otherwise) to execute, deliver and perform its obligations under this Agreement. 4.2 Financial Statements. Any financial information provided by the Selling Parties to the Buyer in connection with the transactions contemplated by this Agreement has been prepared from the books and records of account of the Business and presents fairly the results of operations and the financial condition of the Business as of the date of such financial information. 4.3 Environmental Standards. The Seller has operated the Business in full compliance with all limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in or required under the common law or any federal, state, local or foreign law, regulations, ordinances, permits, licenses, consent decrees, orders and clearances relating to pollution, the environment, or the use, storage, transportation or disposal of pollutants, dangerous substances, toxic substances, hazardous wastes, medical wastes, infectious wastes or hazardous substances. 4.4 Taxes. The Seller has timely filed all federal, state, local and other tax returns and paid all taxes shown as due on such returns or otherwise due from, assessed against or owed by the Seller solely with respect to the Purchased Assets or the Business, the failure of which returns to be filed or the failure of which taxes to be paid could result in a lien upon any of the Purchased Assets or with respect to which the Buyer could have successor liability under applicable laws. Present taxes which the Seller is required by law to withhold or collect with respect to the Business have been withheld or collected and have been paid over to the proper governmental authorities or are properly held by the Seller for such payment. No deficiency for any taxes or claim for additional tax assessment by any taxing authority, which if unsatisfied could result in a lien upon any of the Purchased Assets or could result in the Buyer incurring successor liability under applicable laws, has been proposed, asserted, or assessed against the Seller, nor has the Seller granted any extension or waiver of any limitation period applicable to any tax claims relating to the Business which has not been closed. 4.5 Title. The Seller has and will transfer to the Buyer at the Closing good title to all of the assets included among the Purchased Assets, free and clear of any mortgages, security interests, pledges, liens, claims or encumbrances. Except as disclosed on Schedule 1.1(a), none of the Purchased Assets are leased. 4.6 Property, Equipment and Operations. (a) The Purchased Assets are, in all material respects, in serviceable condition for their intended purposes in the operation of the Business, ordinary wear and tear excepted. The Purchased Assets are all of the assets which are reasonably necessary for the operation of the Business by the Buyer. (b) The Seller has not caused or permitted any hazardous substance, as that term is now defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. 9601, et seq.), medical wastes or petroleum substances to be disposed on, under or at the premises of the Business, or any part thereof, and no part thereof has ever been used by the Seller as a permanent storage or disposal site for any such hazardous substances, medical wastes, or petroleum substances. 4.7 Insurance. The Seller has provided the Buyer with a true and correct list of all policies of insurance which insure the Purchased Assets or the Business, setting forth the types and amounts of coverage. Such policies will remain in effect until the Closing Date. Schedule 4.7 is a true and correct list of all claims against such insurance policies during the past two years. 4.8 Disclosure. No representation or warranty made by the Selling Parties in this Agreement and no statement made in or any amount set forth on any schedule called for by and incorporated into this Agreement is false or misleading in any material respect or omits to state any fact necessary to make any such representation or statements not misleading in any material respect. 4.9 Governmental and Industrial Approvals. Other than the Licenses, there are no permits, licenses, accreditations, authorizations, orders, ratings or approvals of any federal, state, local or foreign governmental or regulatory bodies necessary under current laws and regulations for the Seller's operation of the Business as presently conducted. Except as described on Schedule 4.9, the Licenses are in full force and effect and, to the best of the Seller's knowledge and belief, after due inquiry, (i) no default or violation exists under any of the Licenses, (ii) no suspension or cancellation of any of the Licenses is threatened, and (iii) there is no reason to believe that but for the transaction contemplated by this Agreement on expiration the Licenses would not be renewed. 4.10 Compliance with Healthcare Regulations. Except as disclosed on Schedule 4.10, the Seller has timely filed all requisite cost reports, claims and other reports required to be filed in connection with all state and Federal Medicare and Medicaid programs due on or before the date hereof, all of which to the Seller's knowledge, are complete and correct. True and correct copies of all such reports for the most recent fiscal years of the Seller have been furnished to Buyer on or before the date hereof. Except as specifically described on Schedule 4.10, there are no claims, actions, appeals, reviews or audits pending before any commission, board or agency (including, without limitation, any intermediary or carrier, the Provider Reimbursement Review Board or the Administrator of the Health Care Financing Administration) with respect to any state or Federal Medicare or Medicaid cost reports or claims filed by the Seller on or before the date hereof, or any pending disallowances by any commission, board or agency in connection with any audit of such cost reports, which could adversely or materially affect any of the Purchased Assets, the operation or the utility thereof, or the consummation of the transactions contemplated hereby, and Seller has attached to Schedule 4.10 true and correct copies of any such claims, actions or appeals. 4.11 Contracts and Commitments. Except for the Assumed Contracts, the Seller is not a party to any contract or commitment relating to the Business, and neither the Business nor the Purchased Assets are the subject of any contract or commitment. Each of the Assumed Contracts are valid and binding agreements of the parties to such contracts, and no party to the Assumed Contracts is in default under such contracts. 4.12 No Violation of Law. Except as disclosed on Schedule 4.12, the Seller is not in default or violation of, have received no notice of default or violation of, and have no knowledge of any fact or event which with the lapse of time or giving of notice would constitute a default or violation of any statute, ordinance, regulation, order, writ, injunction or decree of any court or governmental agency or authority applicable to the Business or the Purchased Assets. 4.13 Litigation. Except as disclosed on Schedule 4.13, there are no actions, suits or proceedings, pending, or, to the Selling Parties' knowledge, after due inquiry, threatened before any court, commission, agency or other administrative authority against, or affecting the Business or the Purchased Assets and, after due inquiry, the Seller is not the subject of any order or decree relating to or affecting the Business or the Purchased Assets other than those of general application. 4.14 Labor. There is no collective bargaining or other union contract relating to the Business to which the Seller is a party. To the Selling Parties' knowledge, after due inquiry, there is not pending or threatened against the Seller any grievance, labor dispute, organizational activity, union trouble, strike or work stoppage which materially affects or which may materially disrupt the Buyer or the Business. The Seller has complied with all applicable laws, rules and regulations pertaining to the employment of labor, including those relating to wages, hours, collective bargaining and the payment of or withholding of taxes. The Seller has withheld all amounts required by law or agreement to be withheld from the wages or salaries of the Business' employees and they are not liable for any arrears of wages or any tax or penalties for failure to comply with any of the foregoing. 4.15 Employment Contracts. There are no written or oral contracts for employment of any personnel of the Business. 4.16 Employee Benefit and Retirement Plans. Except as disclosed on Schedule 4.16, the Seller does not now maintain any "employee pension benefit plan" or any "employee welfare benefit plan" (as defined respectively in Section 3(2) and 3(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") on behalf of the Business's employees, and the Seller does not maintain any retirement plans, bonus arrangements, life insurance or medical insurance programs or any other fringe benefit arrangements (collectively "fringe benefit arrangements") for any employees whether written or unwritten. 4.17 Employees and Independent Contractors. The Seller has provided the Buyer prior to the Closing Date with a true and correct list including the name, salary or compensation (including without limitation all commission, override or bonus arrangements), vacation and sick leave policies or other benefits, job description and original employment or contract date of all current employees and independent contractors of the Business based upon the most recently processed information, and the accrued and/or earned vacation time of all employees and, to the Selling Parties' knowledge, the dates and information concerning any previous salary or compensation change or adjustment and the reasons therefor for each such current employee. 4.18 Worker's Compensation. The Seller is in full compliance with all worker's compensation laws with respect to the Business and have worker's compensation insurance coverage in full force and effect with respect to the Business, where any such non-compliance or lack of coverage would have a material adverse effect on the Buyer's ownership, possession or use of the Business or the Purchased Assets, or on the consummation of the transactions contemplated under this Agreement. 4.19 Adverse Action. The Seller has not received any written notice of any judicial or administrative action against the Seller, the Business or the Purchased Assets. 4.20 Consents. Except as described on Schedule 4.20, no consents, approvals or authorizations of, or declaration, filing or registration with, any governmental or regulatory authority is required in connection with the execution and delivery of this Agreement by the Seller and consummation by the Seller of the transactions contemplated hereby. 4.21 Commissions. None of the Selling Parties has authorized any person to act in such a manner as to give rise to any valid claim against the Buyer for a brokerage commission, finder's fee, or similar payment as a result of the transactions contemplated under this Agreement. The Selling Parties shall defend, indemnify and hold harmless the Buyer from any claim for commissions or fees alleged to have arisen from a contractual relationship or cooperation in connection with the transactions contemplated under this Agreement. 4.22 Licenses, Permits and Payment Programs. The Seller has obtained and holds all required licenses, permits, certificates, and authorizations necessary for the Seller to operate the Business as conducted prior to the Closing. A copy of each of the foregoing is attached to Schedule 4.22. The Business is certified for participation in, and is a party to valid provider agreements for payment by, the federal Medicare program (the "Program"). Except as described on Schedule 4.22, neither the Seller nor the Business has received any notice of any pending, or to the best of Seller's knowledge, any threatened investigations by, or loss of participation in, any of the Program. Article 5 - Representations of the Buyer As a material inducement to the Seller to enter into this Agreement, the Buyer hereby represents and warrants to the Seller as follows: 5.1 Authority as to Execution. The execution and delivery of this Agreement and the instruments called for by this Agreement by or on behalf of the Buyer and the consummation of the transactions contemplated hereunder and thereunder, subject to the terms of this Agreement, have each been duly authorized by all necessary corporate actions. This Agreement and each of the instruments called for by this Agreement will be a valid and binding obligation of the Buyer, each enforceable against the Buyer in accordance with their respective terms. 5.2 Organization and Corporate Authority. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Kentucky with full power and authority (corporate or otherwise) to execute, deliver and perform its obligations under this Agreement. 5.3 No Violation of Law; Other Agreements. Neither the execution and delivery of this Agreement or the instruments called for by this Agreement, nor consummation of the transaction herein or therein contemplated, nor compliance with the terms, conditions and provisions hereof or thereof, will conflict with or violate any provision of law or of the Articles of Incorporation or Bylaws of the Buyer, or result in a violation or default in any provision or any regulation, order, writ, injunction or decree of any court or governmental agency or authority, or of any agreement or instrument to which the Buyer is a party or by which the Buyer is bound or subject. 5.4 Commissions. The Buyer has not authorized any person to act in such a manner as to give rise to any valid claim against the Seller for a brokerage commission, finder's fee, or similar payment as a result of the transactions contemplated under this Agreement. The Buyer shall defend, indemnify and hold harmless the Seller from any claim for commissions or fees alleged to have arisen from a contractual relationship or cooperation in connection with the transactions contemplated under this Agreement. 5.5 Adequate Funds. The Buyer has adequate funds to pay the Purchase Price and otherwise perform the terms of this Agreement. Article 6 - Covenants of the Selling Parties 6.1 Conduct of Business. From the date of this Agreement until the Closing Date, the Seller shall operate the Business and otherwise conduct its business relating to the Business only in the ordinary course of business, and in substantial compliance with all statutory and regulatory requirements of any applicable federal, state or local authority, and shall enter into no material contract or other transaction relating to the Business other than in the ordinary course of business without the prior written consent of Buyer. Between the date hereof and the Closing Date, the Seller shall use its best efforts to retain its present employees and preserve the goodwill and business of its customers, suppliers, and others having business relations with it, and shall conduct the financial operations of the Business in accordance with its existing business practices. From the date of this Agreement to the Closing Date, the Seller shall not do any of the following in connection with its ownership and operation the Business and the Purchased Assets without the Buyer's prior written consent: (a) cancel or permit any insurance, bond, surety instrument or letter of credit to lapse or terminate, except in the ordinary course of business or unless renewed or replaced by like coverage; (b) default in any respect under any loan, material contract, agreement, lease or commitment; (c) enter into any contract, agreement, lease or other commitment, except in the ordinary course of business; (d) sell or agree to sell the Business or any of the Purchased Assets; (e) hire any employees, increase any compensation to employees, enter into any employment arrangement, agreement or undertaking, or pay or promise to pay any fringe benefit, bonus or special compensation to employees, except in the ordinary course of business; (f) impede the Buyer, its counsel, accountants and other representatives from reasonable access, during normal business hours and upon reasonable advance notice, to the Business and the Purchased Assets so that the Buyer may have the opportunity to investigate same; and (g) encumber any of the Purchased Assets or incur any liabilities with respect to the Business, except in the ordinary course of business. 6.2 Sales, Etc. The Seller shall not sell, lease, remove or otherwise dispose of any of the Purchased Assets, which are located or used in the Business (except for retirements and replacements in the ordinary course of business, provided that all items which are retired or replaced are contemporaneously replaced by items of substantially equivalent value), or liquidate or dissolve. 6.3 Insurance. The Seller shall maintain the insurance described in Article 4. 6.4 Notice. From the date hereof to the Closing Date, the Seller shall promptly advise the Buyer of the occurrence of any governmental inspections, investigations, citations with respect to the Business or the Purchased Assets, and of which the Seller has received written notification. 6.5 Access to Personnel and Records. From the date of this Agreement until the Closing Date, the Seller and the Business shall give the Buyer, and the Buyer's counsel, accountants, consultants and other agents and representatives, reasonable access, during normal business hours and upon reasonable request, to its properties, books, contracts, commitments and records relating to the Purchased Assets and the operations of the Business. 6.6 Financial Information. The Seller shall provide the Buyer with such financial information relating to the operations of the Business as the Buyer may reasonably request. 6.7 Collection Practices. The Seller shall not deviate from its current lawful practices with respect to the collection of accounts receivable from the Business's patients to the extent that any such change in collection practices would impair or adversely affect the Business's ability to continue its relationships with those patients after Closing. 6.8 Cooperation. From the date hereof to the Closing Date, each of the Selling Parties shall cooperate in good faith with the Buyer in order to obtain all governmental, regulatory and other third party consents and approvals which are necessary or desirable to consummate the transactions contemplated under this Agreement, including without limitation, obtaining the release from Capital referred to in paragraph 8.10. Each of the Selling Parties agrees to cooperate fully with Buyer with respect to the Buyer's due diligence investigation of the Seller's Business. Each of the Shareholders agrees to vote all of such Shareholder's shares of the Seller's stock in favor of the transactions contemplated by this Agreement. Each of the Shareholders also agrees to use such Shareholder's best efforts to cause each of the conditions to the Buyer's obligation to close the transactions contemplated by this Agreement set forth in Article 8 to be satisfied on or prior to the Closing Date. 6.9 Approval of Transfer. From the date hereof to the Closing Date, the Seller shall use its best efforts, including the filing and submission of all necessary and appropriate applications and documents, to obtain the approvals and consents of all applicable governmental and regulatory authorities and the landlord, and any other third party identified as necessary in order to transfer the Purchased Assets to the Buyer. 6.10 Consents. The Selling Parties shall use their best efforts to procure the consents of any third parties necessary for the assignment to the Buyer of any contract, agreement or lease hereunder. Article 7 - Covenants of the Buyer 7.1 Access to Records. For a period extending to the greater of five years from and after the Closing Date or the date of final settlement of cost reports for any period prior to the Closing Date, the Buyer shall retain the patient and medical records of the patients serviced by the Business on and prior to the Closing Date, and will give the Seller, and the Seller's counsel, accountants, consultants and other agents and representatives, full and complete access, during reasonable business hours and upon reasonable request. 7.2 Cooperation. From the date hereof until the Closing Date, the Buyer shall cooperate in good faith with the Seller in order to obtain all governmental, regulatory and other third party consents and approvals which are necessary or desirable to consummate the transactions contemplated under this Agreement. 7.3 Approval of Transfer. From the date hereof until the Closing Date, the Buyer shall use its best efforts, including the filing and submission of all necessary and appropriate applications and documents, to obtain the approvals and consents of all applicable governmental and regulatory authorities and other third parties required or necessary in order to transfer the Purchased Assets to the Buyer. Article 8 - Conditions Precedent to the Buyer's Obligations The Buyer's obligation to close shall be subject to the satisfaction of the following conditions before or at Closing, unless waived by the Buyer: 8.1 Representations and Warranties True at Closing. The representations, warranties and covenants made by the Seller in this Agreement shall be true in all material respects at and as of Closing as if made on and as of Closing. 8.2 Compliance with Agreement. The Seller shall have performed and complied with all of its covenants and obligations under this Agreement in all material respects which are to be performed or complied with by it before or at Closing. 8.3 The Seller's Certificate. The Seller shall have delivered to Buyer a certificate stating that (i) the representations, warranties and covenants made by the Seller in the Agreement are true at and as of Closing as if made on and as of Closing, and (ii) the Seller has performed and complied with all of its covenants and obligations under this Agreement in all material respects which are to be performed or complied with by it before or at Closing. 8.4 Adverse Proceedings. No suit, action, claim or governmental proceeding shall be pending against, and no order, decree or judgment of any court, agency or other governmental authority shall have been rendered against the parties or any party hereto which would render it unlawful, as of the Closing Date, to effect the transactions contemplated by this Agreement in accordance with its terms or otherwise have a material adverse effect on the Buyer's ownership, use or enjoyment of the Purchased Assets. 8.5 Approvals. All necessary federal, state and local governmental and regulatory and other third party consents, waivers, and other approvals or determinations required to be obtained with respect to the sale and/or transfer of the Purchased Assets to the Buyer and Buyer's operation of the Business thereafter shall have been obtained (including without limitation approval from HCFA), with the form and substance of such consents, etc. satisfactory to the Buyer in its sole discretion, including without limitation, approval by the Bankruptcy Court. 8.6 Closing Documents. The documents required to be delivered by the Selling Parties to the Buyer pursuant to this Agreement shall be executed in a form reasonably acceptable to the Buyer. 8.7 Board of Directors Approval. The Boards of Directors of Caretenders Health Corp. must have approved the transactions contemplated by this Agreement. 8.8 Due Diligence Investigation. The Buyer and its agents must have completed its due diligence investigation of the Seller, the Purchased Assets and Business, including without limitation, the validity and collectibility of the Seller's accounts receivable, and the magnitude of the potential reimbursement liability to HCFA, with the results of such investigation satisfactory to the Buyer in its sole discretion. 8.9 Key Employees. The Buyer must have entered into employment agreements with those employees identified in paragraph 1.4, on terms and conditions as described in paragraph 1.4 and as otherwise satisfactory to the Buyer in its sole discretion. 8.10 Release from Capital. Capital must have released all liens and encumbrances on the Purchased Assets in favor of Capital and its affiliates and divisions. Capital and the Buyer must have entered into a mutual release, pursuant to which Capital releases any and all claims against the Seller (but not against any of the Affiliated Corporations), the Buyer and the Purchased Assets. 8.11 Agreement with HCFA. The Buyer and HCFA must have entered into an agreement setting forth among other things HCFA's agreement to process claims of the Business, substantially in the form of the agreement attached as Annex C. 8.12 The Premises. The Buyer and the George Shannon must, simultaneously with the Closing, with respect to the Premises, enter into the Contract of Sale and otherwise perform as contemplated by paragraph 1.6. 8.13 Punta Gorda Lease. The Buyer and Acme Partnership must have entered into the lease arrangement (assignment of the existing lease with a modified lease term) described in paragraph 1.6(d) with respect to the Punta Gorda facility. 8.14 Release of Intercompany Obligations. The Seller shall have obtained from each of the Affiliated Corporations a release of any and all intercompany obligations or liabilities. 8.15 Release of the Buyer. Each of the Selling Parties (other than the Seller with respect to the Buyer's obligations under this Agreement) and the Affiliated Corporations must have executed general releases in favor of the Buyer, the terms of which must be satisfactory to the Buyer, which release shall include, without limitation, (i) a release of the Buyer from any obligation or liability with respect to intercompany liabilities or obligations with respect to the Affiliated Corporations, (ii) a release of the Buyer from and against any liabilities or obligations to the Shareholders with respect to shareholder loans or obligations, and (iii) a release of the Buyer from and against any liabilities or obligations that the Business or Purchased Assets may be subject to. Article 9 - Conditions Precedent to the Seller's Obligations The Seller's obligation to close shall be subject to the satisfaction of the following conditions prior to or at Closing, unless waived by the Seller: 9.1 Representations and Warranties True at Closing. The representations and warranties made by the Buyer in this Agreement shall be true in all material respects at and as of Closing with the same effect as though such representations and warranties had been made or given on and as of Closing. 9.2 Compliance with Agreement. The Buyer shall have performed and complied with all its covenants and obligations under this Agreement in all material respects which are to be performed or complied with by it before or at the Closing. 9.3 Buyer's Certificate. The Buyer shall have delivered to the Seller a certificate stating that (i) the representations, warranties and covenants made by the Buyer in the Agreement are true at and as of Closing as if made on and as of the Closing, and (ii) the Buyer has performed and complied with all of its covenants and obligations under this Agreement in all material respects which are to be performed or complied with by it before or at Closing. 9.4 Adverse Proceedings. No suit, action, claim or governmental proceeding shall be pending against, and no order, decree or judgment of any court, agency or other governmental authority shall have been rendered against the parties or any party hereto which would render it unlawful, as of the Closing Date, to effect the transactions contemplated by this Agreement in accordance with its terms. 9.5 Approvals. All necessary federal, state and local governmental and regulatory and other third party consents, waivers, and other approvals and determinations required to be obtained with respect to the sale and/or transfer of the Purchased Assets to the Buyer shall have been obtained. 9.6 Closing Documents. The documents required to be delivered by Buyer to Seller pursuant to this Agreement shall be executed and delivered in a form reasonably acceptable to the Seller. 9.7 The Seller's Premises. The Buyer and George Shannon must, simultaneously with the Closing, with respect to the Premises, enter into the Contract of Sale and otherwise perform as contemplated by paragraph 1.6. 9.8 The Seller's Employees. The Buyer must have offered employment to the Seller's employees and offered employment agreements to those employees described in paragraph 1.4. Notwithstanding the above, the failure of an employee to accept employment or enter into an employment agreement with the Buyer will not be condition to the Seller's obligations under this Agreement. Article 10 - Termination of Agreement 10.1 Termination. (a) This Agreement and the transactions contemplated hereby may be terminated or abandoned at any time before the Closing Date: (i) by mutual consent of the Seller and the Buyer; (ii) by the Buyer, if there has been a material misrepresentation in this Agreement by the Seller, or a material breach by the Seller of any of their warranties or covenants set forth herein, or a failure of any condition to which the obligations of the Buyer are subject; or (iii) by the Seller, if there has been a material misrepresentation in this Agreement by the Buyer, or a material breach by the Buyer of any of the warranties or covenants of the Buyer set forth herein, or a failure of any condition to which the obligations of the Seller are subject. (b) This Agreement will be terminated if Closing does not occur on or before January 31, 1998, unless extended by mutual agreement of the parties. Article 11 - Indemnification 11.1 Survival of Representations and Warranties. All of the representations, warranties and covenants and indemnities made by the Selling Parties and the Buyer under this Agreement shall survive the closing of the transactions contemplated by this Agreement. 11.2 Indemnification of the Buyer (1) General. Each of Metro and the Shareholders shall indemnify, defend and hold the Buyer harmless from and against, and reimburse the Buyer on demand for, any damage, loss, cost or expense (including reasonable attorneys' fees) incurred by the Buyer resulting from (i) any breach of the Selling Parties' representations, warranties or covenants in this Agreement, or from any misrepresentation in, or omission by the Selling Parties under this Agreement, and (ii) any brokerage or similar fee due to any agent of the Selling Parties. (2) Audits, Investigations, Refund Obligations and Other Pre-Closing Liabilities. Each of Metro and the Shareholders shall indemnify, defend and hold the Buyer harmless from and against, and reimburse the Buyer on demand for, any actual damage, loss, cost, refund obligation, or expense (including reasonable attorneys' fees incurred in defending any claim for such damage, loss, cost or expense) resulting from, or in any way related to, any of the following: (i) any audit or investigation by Medicaid or federal Medicare authorities or third party payors concerning the operation of the Business by the Seller before Closing or any amounts paid to the Seller before Closing; (ii) any assessment, adjustments, suspensions or offsets made against the Buyer or the Purchased Assets as a result of such an audit or investigation; (iii) any costs of defense of, and any judgment against the Buyer with respect to, any litigation relating to the operation of the Business before Closing; (iv) any mortgage, security interest, lease, obligation, claim, liability, debt, lien, charge or encumbrance relating to matters prior to Closing asserted against the Purchased Assets, other than the Permitted Obligations; and (v) any other personal liability, property damage, personal injury, cost, claim, expense or assessment asserted against the Buyer or the Purchased Assets as a result of, or with respect to, the operation of the Business before the Closing. 11.3 Indemnification of the Selling Parties. (1) General. The Buyer shall indemnify and hold the Shareholders harmless against, and reimburse the Selling Parties on demand for, any actual damage, loss, cost or expense (including reasonable attorneys' fees) incurred by the Selling Parties resulting from (i) any breach of the Buyer's representations, warranties, or covenants contained in this Agreement, or from any misrepresentation in, or omission by the Buyer under this Agreement, and (ii) any brokerage or similar fee due to any agent of the Buyer. (2) Audits, Investigations, Refund Obligations and Other Post-Closing Liabilities. The Buyer shall indemnify and hold the Shareholders harmless from and against, and reimburse the Selling Parties on demand for, any actual damage, loss, cost, refund obligation or expense (including reasonable attorneys' fees incurred in defending any claim for such damage, loss, cost or expense) resulting from, or in any way related to, any of the following: (i) any audit or investigation by Medicaid or federal Medicare authorities or third party payors concerning the operation of the Business by the Buyer after Closing or any amounts paid to the Buyer after Closing (excluding amounts paid for services delivered prior to the Closing); (ii) any assessment, adjustments, suspensions or offsets made against the Selling Parties as a result of such an audit or investigation; (iii) any costs of defense of, and any judgment against the Selling Parties with respect to, any litigation relating to the operation of the Business after Closing; (iv) any mortgage, security interest, lease, obligation, claim, liability, debt, lien, charge or encumbrance relating to matters after Closing asserted against the Purchased Assets; and (v) any other personal liability, property damage, personal injury, cost, claim, expense or assessment asserted against the Selling Parties as a result of, or with respect to, the operation of the Business by the Buyer after Closing, including but not limited to any liability, damage, injury, cost, claim, expense or assessment asserted against the Selling Parties as a result of any breach of or default under any of the contracts, leases or agreements assigned to the Buyer in connection with the consummation of the transactions contemplated under this Agreement. 11.4 Notice of Claim. If any claim is made against a party hereto that, if sustained, would give rise to a right of indemnity under this Article 11, the party having the claim made against it ("Indemnitee") shall give the other party ("Indemnitor") notice thereof (specifying the nature and amount of the claim and giving Indemnitor the right to contest the claim) within 15 days of becoming aware of such claim ("Notice of Claim"). 11.5 Right to Contest. Indemnitee shall afford Indemnitor the opportunity, at Indemnitor's own expense, to assume the defense or settlement of any such claim, with its own counsel. In connection therewith, the Indemnitee shall cooperate fully to make available all pertinent information under its control and shall have the right to join in the defense, at its own expense, with its own counsel. If Indemnitor does not elect to undertake the defense of a claim on the terms provided below, Indemnitee shall be entitled to undertake the defense or settlement of the claim at the expense of and for the account and risk of Indemnitor. Indemnitor shall have the right to assume the entire defense of a claim hereunder provided that (i) Indemnitor gives written notice of such desire (the "Notice of Defense") to Indemnitee within 15 days after Indemnitor's receipt of the Notice of Claim; (ii) Indemnitor's defense of such claim shall be without cost to Indemnitee or prejudice to Indemnitee's rights under this Article 11; (iii) counsel chosen by Indemnitor to defend such claim shall be reasonably acceptable to Indemnitee; and (iv) Indemnitor shall bear all costs and expenses in connection with the defense and settlement of such claim; (v) Indemnitee shall have the right to receive periodic reports from Indemnitor and Indemnitor's counsel; and (vi) Indemnitor will not, without Indemnitee's written consent, settle or compromise any claim or consent to any entry of judgment which does not include the unconditional release by claimant or plaintiff of all liability with respect to the claim. Article 12 - Other Provisions 12.1 Further Assurances. The parties agree to execute and deliver any and all papers and documents which may be reasonably necessary to carry out the terms of this Agreement. 12.2 Entire Agreement; Amendment. All schedules hereto shall be deemed to be incorporated into and made part of this Agreement. This Agreement together with the schedules, contains the entire agreement between the parties and there are no agreements, representations, or warranties which are not set forth herein. This Agreement may not be amended or revised except by a writing signed by the parties to this Agreement. This Agreement amends, restates and supersedes the Original Agreement in its entirety. 12.3 Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns; provided, however, that other than an assignment by the Buyer of its rights under this Agreement to an affiliate of the Buyer which does not relieve the Buyer of its obligations under this Agreement, neither this Agreement nor any rights hereunder shall be assignable nor transferable without the prior written consent of the other party. This Agreement is not intended and shall not be construed to create any rights in any parties other than the Buyer and the Selling Parties and no person shall assert any rights as a third party beneficiary. 12.4 Separate Counterparts. This Agreement may be executed in several identical counterparts, all of which when taken together shall constitute but one instrument, and it shall not be necessary in any court of law to introduce more than one executed counterpart in proving this Agreement. 12.5 Transaction Costs. Each party to this Agreement shall be responsible for its own costs for any legal, accounting and other services, if any, attendant to the transactions contemplated by this Agreement. Each party hereto agrees to indemnify and hold the other party harmless from any claim or demand for commission or other compensation by any broker, finder or similar agent, whether or not a current or former employee of such party, claiming to have been employed by such party in connection with the transactions contemplated by this Agreement and to bear the cost of legal expenses incurred in defending against any such claim. 12.6 Notices. Any notice, request, instruction or documents required or permitted hereunder shall be in writing and shall be deemed given if delivered personally or by certified mail, U.S. mail, national recognized overnight courier service or sent by telex, telecopy or other telecommunication device capable of creating a written record (and promptly confirmed by hard copy delivery) to a party at the address set forth below: (i) If to any of the Selling Parties: c/o Metro Home Care Incorporated 15550 McGregor Boulevard Fort Myers, Florida 33908 Fax: (941 481 5522) With a copies to: Russell M. Blain Stichter, Riedel, Blain & Prosser, P.A. 110 E. Madison Street, Suite 200 Tampa, Florida 33602 Capital Healthcare Financing Attention: Michael Levine 120 East Palmetto Park Road, 5th Floor Boca Raton, Florida 33432 Lance H. Baker Ruden, McCloskey, Smith, Schuster & Russell Post Office Box 1900 Ft. Lauderdale, Florida 33302-1900 (ii) If to the Buyer: 100 Mallard Creek Road Suite 400 Louisville, Kentucky 40207 Fax: (502) 423-9501 Attn: President With a copies to: Brown, Todd & Heyburn PLLC 3200 Providian Center Louisville, Kentucky 40202-3363 Fax: (502) 581-1087 Attn: Scott W. Dolson Capital Healthcare Financing Attention: Michael Levine 120 East Palmetto Park Road, 5th Floor Boca Raton, Florida 33432 Lance H. Baker Ruden, McCloskey, Smith, Schuster & Russell Post Office Box 1900 Ft. Lauderdale, Florida 33302-1900 unless and until notice of another or different address shall be given as provided herein. 12.7 Severability. The provisions of this Agreement are severable, and the invalidity of any provision shall not affect the validity of any other provision. 12.8 Captions. The captions herein have been inserted solely for convenience of reference and in no way define, limit or describe the scope or substance of any provision of this Agreement. 12.9 Gender. All pronouns used herein shall include both the masculine and feminine gender as the context requires. 12.10 Governing Law; Joint Preparation. The execution, interpretation, and performance of this Agreement shall be governed by the laws of the Commonwealth of Kentucky, without regard to or application of its conflicts of law principles. This Agreement shall be deemed to have been prepared jointly by the parties. Any ambiguity herein shall not be interpreted against either party and shall be interpreted as if each of the parties hereto had prepared this Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. CARETENDERS VISITING SERVICES OF SOUTHWEST FLORIDA, INC. By_______________________________________ Title:_____________________________________ DEBTOR IN POSSESSION, METRO HOME CARE INCORPORATED By_______________________________________ Title:_____________________________________ METRO HOME HEALTH MANAGEMENT, INC. By_______________________________________ Title:_____________________________________ _________________________________________ George W. Shannon, III _________________________________________ Janet Muth Shannon _________________________________________ Jerry M. Hollander, Jr. LIST OF ANNEXES AND SCHEDULES Annex A - Noncompetition Agreement Annex B - Contract of Sale Annex C - Agreement with HCFA Schedule 1.1 - Excluded Assets Schedule 1.1(a) - List of Equipment, Etc.; Leased Assets Schedule 1.2(a) - Liabilities Schedule 1.3 - Assumed Contracts Schedule 2.2 - Allocation of Purchase Price Schedule 4.7 - Insurance Schedule 4.9 - Governmental Approvals Schedule 4.10 - Regulatory Compliance Schedule 4.12 - Violations of Law Schedule 4.13 - Litigation Schedule 4.16 - ERISA Matters Schedule 4.20 - Consent Schedule 4.22 - Licenses, Etc. EX-10.29 5 ASSETS PURCHASE AGREEMENT This is an Assets Purchase Agreement dated as of January 9, 1998 (the "Agreement"), by and among (i) Caretenders Visiting Services of Southeast Florida, Inc., a Kentucky corporation (the "Buyer"), and (ii) Visiting Nurse Association of Palm Beach County, Inc., a Florida nonprofit corporation, Visiting Nurse Services of Palm Beach County, Inc., a Florida nonprofit corporation, Visiting Nurse Extracare, Inc., a Florida nonprofit corporation, and Visiting Nurse Corporation of South Florida, Inc., a Florida nonprofit corporation (individually a "Selling Party" and collectively, the "Selling Parties"). Recitals A. The Selling Parties are engaged in the business of operating a home health agency (the "Business") in Palm Beach, Broward, Indian River, Martin, St. Lucie, and Okeechobee Counties, Florida (the "Territory"). B. The Selling Parties are the holders of one or more licenses issued by the Agency for Health Care Administration of the State of Florida, Medicare provider agreements issued by the U.S. Department of Health and Human Services, and Medicaid provider agreements issued by the Agency for Health Care Administration of the State of Florida, all of which authorize the Seller to provide Medicare and Medicaid certified home health care services in the Territory (collectively, the "Licenses"). C. The Selling Parties desire to sell and the Buyer desires to purchase the assets used in the Business. THE PARTIES, INTENDING TO BE LEGALLY BOUND, AGREE AS FOLLOWS: Article 1 - Purchase and Sale of Assets 1.1 Purchased Assets. The Selling Parties hereby agree to sell, assign, transfer and convey to the Buyer, and the Buyer hereby agrees to purchase from the Selling Parties, all of the assets of the Selling Parties used in the Business (the "Purchased Assets"), other than the excluded assets described on Schedule 1.1. The Purchased Assets include without limitation the following assets and properties: (a) All furniture, fixtures, machinery, equipment and other tangible personal property, including such items as are described on Schedule 1.1(a), together with all manufacturers' warranties pertaining to the same, to the extent that such warranties may exist and be assignable; (b) All of the Selling Parties' goodwill relating to the Business; all customer and patient lists and files, records and similar sales and marketing information in the Selling Parties' possession relating to the Business; medical records of the patients serviced by the Business and in the Selling Parties' possession; personnel records; and the Selling Parties' right and interest in the trade names, trademarks, trade secrets, licenses, know-how, specifications, literature, and all other intangible property which relate specifically to the Business, including without limitation all rights to the name "Visiting Nurse Association of Palm Beach County"; (c) All transferable Licenses, permits, licenses, certificates, authorizations, accreditations, orders, ratings and approvals of all federal, state, or local governmental or regulatory authorities which relate to the Business and which are held by the Selling Parties, but only to the extent the same are transferable, including without limitation any provider agreements relating to the Selling Parties' right to participate in the Medicare and Medicaid Programs, and all rights of the Selling Parties to reimbursement or other payments from HCFA for the period prior to the Closing Date; (d) Any and all rights of the Selling Parties which by their terms are transferable and which arise under or pursuant to warranties, representations and guarantees made by suppliers in connection with the Purchased Assets; (e) All accounts receivable arising out of the operation of the Business (the "Accounts Receivable"). The Selling Parties agree to reasonably cooperate with the Buyer, at the Buyer's expense, in connection with the Buyer's efforts to collect the Accounts Receivable. The Selling Parties agree to immediately remit to the Buyer any payments received after the Closing by any of the Selling Parties that constitute Accounts Receivable; (f) All raw materials, supplies, packaging materials, purchased products, finished goods and all other goods, merchandise and materials owned by the Selling Parties; and (g) The Selling Parties' real property leases at (i) 560 Village Boulevard #250, West Palm Beach, Florida, and (ii) 6600 North Andrews Avenue, Suite 250, Fort Lauderdale, Florida (collectively, the "Real Property Leases"). 1.2 Assumed Liabilities. (a) The Buyer will assume the following liabilities: (i) the accounts payable arising in the ordinary course of the Selling Parties' operation of the Business (the "Accounts Payable"), letters of credit and independent contractor obligations, all as described on Schedule 1.2(a); (ii) accrued payroll for services performed by the Selling Parties' employees in connection with the Business, including all related obligations for withholdings, all as described on Schedule 1.2(a); (iii) the promissory notes described on Schedule 1.2(a); (iv) prospective obligations under equipment leases for equipment included among the Purchased Assets; (v) prospective obligations under the Real Property Leases; (vi) any liabilities or obligations of the Selling Parties arising with respect to the Medicare provider agreements with the U.S. Department of Health and Human Services ("HCFA"), so long as those liabilities or obligations (A) arose in operation of the Business in the ordinary course, and (B) relate to the Selling Parties' 1995 through 1998 cost reporting periods; and (vii) up to $149,000.00 in the aggregate for expenses incurred by the Selling Parties with respect to the payment by the Selling Parties of paid time off to employees employed in the Business (collectively, the "Assumed Liabilities"). (b) Except for the Assumed Liabilities, the Selling Parties agree to retain, and the Buyer will have no obligation or liability with respect to, except as otherwise provided in this Agreement, any liabilities or obligations, actual or contingent, of the Selling Parties or the Business, or any claims by any person, firm or organization, arising out of any liabilities or obligations of the Selling Parties, or the operation of the Business prior to the Closing. The Selling Parties acknowledge that the Buyer is not assuming, nor is it responsible for the Selling Parties' liabilities and obligations under, the employment agreement with Ann Zielinski. 1.3 Assumed Contracts and Leases. The Buyer will assume (i) the Selling Parties' prospective obligations to provide services to the Selling Parties' patients, (ii) the Selling Parties' prospective obligations under the equipment leases referred to in paragraph 1.2(a)(iv), (iii) the Selling Parties' prospective obligations under the contracts described on Schedule 1.3, and (iv) the Selling Parties' prospective obligations under the Real Property Leases (collectively, the "Assumed Contracts"). 1.4 Employees. Except for the Assumed Liabilities, the Selling Parties acknowledge that the Buyer is not purchasing, recognizing, assuming or otherwise acquiring any rights, obligations, assets or liabilities under, arising from or resulting from any employment agreement or arrangement in existence between the Selling Parties and any employee, or any person employed to consult with or perform services for the Selling Parties, or otherwise, except for the accrued payroll liability assumed pursuant to paragraph 1.2(a)(ii). The Selling Parties agree that the Buyer will not be obligated to hire any of the Selling Parties' employees, but that the Buyer, in its sole discretion, may hire some or all of such employees on such terms as the Buyer and the employees so hired may agree. The Buyer will not be responsible to the Selling Parties or to any current or former employee of the Selling Parties for any employee benefits (whether earned, accrued or vested) due to the Selling Parties' employees with respect to their employment prior to the Closing. The Buyer agrees that all employees of the Selling Parties hired by the Buyer and currently participating in a health insurance plan will be provided with health insurance coverage with any waiting period requirement waived. The Buyer agrees to make an offer of employment to Ann Zielinski, with the terms of such employment to be mutually agreeable terms. 1.5 Confidentiality, Nonsolicitation and Noncompetition Agreement. Each of the Selling Parties agrees to enter into a Confidentiality, Nonsolicitation and Noncompetition Agreement at or prior to the Closing, in the form of the Confidentiality, Nonsolicitation and Noncompetition Agreement attached as Annex A (the "Noncompetition Agreement"). 1.6 Right to Use Name. The name "Visiting Nurse" and all variations thereof held by the Selling Parties is included among the Purchased Assets. Each of the Selling Parties agrees that, at the Buyer's expense, it will change its name to a name dissimilar to "Visiting Nurse" immediately after the Closing and will assign to the Buyer at the Closing all of its right, title and interest in and to the name "Visiting Nurse", provided, however, that the Selling Parties make no representation or warranty regarding the Selling Parties' right to the name "Visiting Nurse." 1.7 Release. The Buyer agrees to execute and deliver a Release of Visiting Nurse Foundation of Palm Beach County, Inc., in the form of the Release attached as Annex B (the "Release") 1.8 The Schedules. The parties are executing this Agreement prior to the delivery of the Selling Parties' Schedules. The Selling Parties agree to deliver complete Schedules to the Buyer on or before January 13, 1998. Upon delivery of the complete Schedules to the Buyer, the Buyer will have until the end of the first full business day after receipt of complete Schedules by UPS or Federal Express to accept the Schedules or reject the Schedules on the basis that such Schedules contain disclosure of material adverse facts that were not previously disclosed to the Buyer by the Selling Parties If the Buyer notifies the Selling Parties in writing that the Buyer rejects the Schedules on such basis, then the obligations of the parties to this Agreement will terminate with the exception that the Selling Parties will be obligated to immediately return the Deposit in full to the Buyer. If the Buyer fails to notify the Selling Parties that the Buyer has rejected the Schedules on or before the third business day after receipt of such Schedules, then the Schedules will be deemed to be accepted by the Buyer. Article 2 - Purchase Price and Payment 2.1 Purchase Price. In consideration of the transfer of the Purchased Assets and the Business, the Buyer agrees to pay the following (collectively, the "Purchase Price") : (a) $25,000.00 in cash upon execution of this Agreement, to be held by Quarles & Brady in its trust account (the "Deposit"). After the Closing, the Deposit will be used towards reimbursement of those expenses of the Selling Parties referred to in paragraph 2.3. Should the Closing not occur as a result of the material breach of this Agreement by the Buyer and (i) the Selling Parties have not materially breached this Agreement, and (ii) all conditions to the Buyer's obligation to close in Article 8 are satisfied prior to January 31, 1998 unless the failure to satisfy a condition was a result of the Buyer's breach of this Agreement, then the Selling Parties may retain the Deposit and the Selling Parties agree that the Buyer will have no further liability under or as a result of this Agreement; in all other cases, if the Agreement is terminated pursuant to Article 10 or otherwise, then the Selling Parties agree to immediately return the Deposit to the Buyer; (b) The amount of any post-Closing payments by the Buyer to HCFA as payment for settlement of the Selling Parties' 1995 through 1997 cost reporting periods through and including the Closing Date. The Buyer acknowledges that the Selling Parties have previously received payments in the aggregate not more than $159,204.36 from HCFA with respect to the amounts reported on the Selling Parties' 1996 cost reports as being paid into the Selling Parties' employee profit sharing plan and that the Selling Parties have not contributed such amounts to the profit sharing plan. The Buyer agrees that it will assume the obligation to either pay, in its discretion, such amount to HCFA in reimbursement of the payments previously received by the Selling Parties, or to the Selling Parties' employees (subject to the Buyer's determination in its sole discretion that it will not be required to reimburse such amount to HCFA). (c) The assumption of the Assumed Liabilities; and (d) The additional consideration described in paragraph 2.3. 2.2 Allocation of Purchase Price. The Purchase Price will be allocated among the Purchased Assets as set forth on Schedule 2.2. The Selling Parties and the Buyer agree that all tax and information returns will be prepared on a basis consistent with such allocation of the Purchase Price. 2.3 Additional Consideration. The Buyer agrees to reimburse the Selling Parties, upon the presentation of reasonable documentation, for the following expenses: (i) up to $50,000.00 in the aggregate of expenses incurred by the Selling Parties in connection with the winding up of the business operations of one or more of the Selling Parties; (ii) up to $50,000.00 in the aggregate of attorney's fees incurred by the Selling Parties through the Closing Date; (iii) up to $25,000.00 in the aggregate of amounts reimbursed by the Selling Parties to state and local health care agencies (excluding HCFA) for liabilities arising out of the operation of the Business through the Closing Date; and (iv) the prorated expense amounts described on Schedule 2.3, which expenses shall have arisen in the ordinary course of the Selling Parties' business and with respect to which reasonable documentation will be provided to the Buyer prior to the Closing. Article 3 - The Closing 3.1 Time and Place. The closing ("Closing") will take place on or before January 31, 1998, on a date mutually agreed upon by the parties and upon satisfaction or waiver of each of the conditions to the parties' obligations to close (the "Closing Date") 3.2 Execution and Delivery of Documents by the Selling Parties and the Buyer. (a) At the Closing, the Selling Parties will execute and deliver to the Buyer such conveyances, bills of sale, certificates of title, assignments, assurances and other instruments and documents as the Buyer may reasonably request in order to effect the sale, conveyance, and transfer of the Purchased Assets from the Selling Parties to the Buyer. Such instruments and documents must be sufficient to convey to the Buyer good title to the Purchased Assets. Also at the Closing, the parties will cause the Noncompetition Agreement to be executed and delivered. (b) The Selling Parties agree that they will, from time to time after the Closing Date, take such additional action and execute and deliver such further documents as the Buyer may reasonably request in order to effectively sell, transfer and convey the Purchased Assets to the Buyer and to place the Buyer in position to operate and control all of the Purchased Assets. (c) At the Closing, the Buyer will execute and deliver to the Selling Parties and to other appropriate parties such assignments, assumptions, undertakings and other instruments and documents as are necessary to effect the Buyer's assumption of the Assumed Liabilities and the Assumed Contracts. Also at the Closing, the Buyer will execute the Release. Article 4 - Representations and Warranties of the Selling Parties As a material inducement to the Buyer to enter into and perform this Agreement, each of the Selling Parties represents and warrants to the Buyer as follows: 4.1 Authority as to Execution. (a) Each of the Selling Parties has full legal capacity to execute and deliver this Agreement and the Noncompetition Agreement, and to perform such Selling Party's respective obligations under this Agreement and the Noncompetition Agreement. This Agreement and the Noncompetition Agreement constitute valid and legally binding obligations of each of the Selling Parties, enforceable in accordance with their terms. The execution and delivery of this Agreement and the instruments called for by this Agreement by or on behalf of the Selling Parties and the consummation of the transactions contemplated hereunder and thereunder, subject to the terms of this Agreement, have each been duly authorized by all necessary corporate action, including the requisite Board of Director and shareholder approvals. (b) Except as disclosed on Schedule 4.1, the execution and delivery of this Agreement and the Noncompetition Agreement, the consummation of the transactions contemplated hereby and thereby, and the performance and fulfillment of their respective obligations and undertakings hereunder and thereunder by the Selling Parties will not, (i) violate any provision of, or result in the breach of or accelerate or permit the acceleration of any performance required by the terms of, any contract, agreement, arrangement or undertaking to which any of the Selling Parties is a party or by which any of them may be bound; any judgment, decree, writ, injunction, order or award of any arbitration panel, court or governmental authority; or any applicable law, ordinance, rule or regulation of any governmental body; (ii) result in the creation of any claim, lien, charge or encumbrance upon any of the properties or assets (whether real or personal, tangible or intangible) of the Selling Parties; (iii) terminate or cancel, or result in the termination or cancellation of, any agreement or undertaking to which a Selling Party is a party; or (iv) in any way affect or violate the terms or conditions of, or result in the cancellation, modification, revocation or suspension of, any of the Selling Parties' permits or licenses. (c) Each of the Selling Parties is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida with full power and authority (corporate or otherwise) to execute, deliver and perform its obligations under this Agreement. 4.2 Dismissal of Bankruptcy Proceedings. The bankruptcy petitions of Visiting Nurse Association of Palm Beach County, Inc., Visiting Nurse Services of Palm Beach County, Inc. and Visiting Nurse Extracare, Inc. filed with the United States Bankruptcy Court for the Southern District of Florida, (Case Nos. 97-35478, 97-35479 and 97-35480) were dismissed on December 19, 1997 by the Court. 4.3 Environmental Standards. The Selling Parties have, to the best of the Selling Parties' knowledge, operated the Business in full compliance with all limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules and timetables contained in or required under the common law or any federal, state, local or foreign law, regulations, ordinances, permits, licenses, consent decrees, orders and clearances relating to pollution, the environment, or the use, storage, transportation or disposal of pollutants, dangerous substances, toxic substances, hazardous wastes, medical wastes, infectious wastes or hazardous substances (collectively, the "Environmental Laws"). 4.4 Taxes. The Selling Parties, to the best of the Selling Parties' knowledge, has timely filed all federal, state, local and other tax returns and paid all taxes shown as due on such returns or otherwise due from, assessed against or owed by the Selling Parties solely with respect to the Purchased Assets or the Business, the failure of which returns to be filed or the failure of which taxes to be paid could result in a lien upon any of the Purchased Assets or with respect to which the Buyer could have successor liability under applicable laws. Present taxes which the Selling Parties are required by law to withhold or collect with respect to the Business have been, to the best of the Selling Parties' knowledge, withheld or collected and have been paid over to the proper governmental authorities or are properly held by the Selling Parties for such payment. No deficiency for any taxes or claim for additional tax assessment by any taxing authority, which if unsatisfied could result in a lien upon any of the Purchased Assets or could result in the Buyer incurring successor liability under applicable laws, has been, to the best of the Selling Parties' knowledge, proposed, asserted, or assessed against the Seller, nor have the Selling Parties granted any extension or waiver of any limitation period applicable to any tax claims relating to the Business which has not been closed. 4.5 Title. Except as described on Schedule 4.5, the Selling Parties have and will transfer to the Buyer at the Closing good title to all of the assets included among the Purchased Assets, free and clear of any mortgages, security interests, pledges, liens, claims or encumbrances. Except as disclosed on Schedule 1.1(a), none of the Purchased Assets are leased. 4.6 Property, Equipment and Operations. (a) The furniture, fixtures and equipment included in the Purchased Assets are, in all material respects, in serviceable condition for their intended purposes in the operation of the Business, ordinary wear and tear excepted. The Purchased Assets are, to the best of the Selling Parties' knowledge, all of the assets which are reasonably necessary for the operation of the Business by the Buyer. (b) The Selling Parties have not, to the best of the Selling Parties' knowledge, caused or permitted any hazardous substance, as that term is now defined in the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. 9601, et seq.), medical wastes or petroleum substances to be disposed on, under or at the premises of the Business, or any part thereof, and, to the best of the Selling Parties' knowledge, no part thereof has ever been used by the Selling Parties as a permanent storage or disposal site for any such hazardous substances, medical wastes, or petroleum substances. 4.7 Insurance. The Selling Parties have provided the Buyer with a true and correct list of all policies of insurance which insure the Purchased Assets or the Business, setting forth the types and amounts of coverage. The Selling Parties will use their best effort to ensure that such policies will remain in effect until the Closing Date. Schedule 4.7 is a true and correct list of all claims against such insurance policies during the past two years. 4.8 Disclosure. No representation or warranty made by the Selling Parties in this Agreement and no statement made in or any amount set forth on any schedule called for by and incorporated into this Agreement is false or misleading in any material respect or omits to state any fact necessary to make any such representation or statements not misleading in any material respect. 4.9 Governmental and Industrial Approvals. Except as described on Schedule 4.9, there are no permits, licenses, accreditations, authorizations, orders, ratings or approvals of any federal, state, local or foreign governmental or regulatory bodies necessary under current laws and regulations for the Selling Parties' operation of the Business as presently conducted. Except as described on Schedule 4.9, the Licenses are in full force and effect and, to the best of the Selling Parties' knowledge, except as described on Schedule 4.9, (i) no default or violation exists under any of the Licenses, (ii) no suspension, notice of deficiency, or cancellation of any of the Licenses has been received or is threatened, and (iii) there is no reason to believe that but for the transaction contemplated by this Agreement on expiration the Licenses would not be renewed. 4.10 Compliance with Healthcare Regulations. Except as disclosed on Schedule 4.10, the Selling Parties have timely filed all requisite cost reports, claims and other reports required to be filed in connection with all state and Federal Medicare and Medicaid programs due on or before the date hereof, all of which to the best of the Selling Parties' knowledge, are complete and correct. True and correct copies of all such reports for the most recent fiscal years of the Selling Parties have been furnished to Buyer on or before the date hereof. Except as specifically described on Schedule 4.10, there are no claims, actions, appeals, reviews or audits pending before any commission, board or agency (including, without limitation, any intermediary or carrier, the Provider Reimbursement Review Board or the Administrator of the Health Care Financing Administration) with respect to any state or Federal Medicare or Medicaid cost reports or claims filed by the Selling Parties on or before the date hereof, or any pending disallowances by any commission, board or agency in connection with any audit of such cost reports, which could adversely or materially affect any of the Purchased Assets, the operation or the utility thereof, or the consummation of the transactions contemplated hereby, and the Selling Parties have made available to the Buyer true and correct copies of any such claims, actions or appeals. 4.11 Contracts and Commitments. Except for the Real Property Leases and the Assumed Contracts, and as described on Schedule 4.11, the Selling Parties are not a party to any contract or commitment relating to the Business, and neither the Business nor the Purchased Assets are the subject of any contract or commitment. Each of the Real Property Leases and the Assumed Contracts are valid and binding agreements of the parties to such contracts, and, to the best of the Selling Parties' knowledge, no party to the Real Property Leases or the Assumed Contracts is in default under such contracts. 4.12 No Violation of Law. Except as disclosed on Schedule 4.12, the Selling Parties are not in default or violation of, have received no notice of default or violation of, and have no knowledge of any fact or event which with the lapse of time or giving of notice would constitute a default or violation of any statute, ordinance, regulation, order, writ, injunction or decree of any court or governmental agency or authority applicable to the Business or the Purchased Assets. 4.13 Litigation. Except as disclosed on Schedule 4.13, there are no actions, suits or proceedings, pending, or, to the best of the Selling Parties' knowledge, after due inquiry, threatened before any court, commission, agency or other administrative authority against, or affecting the Business or the Purchased Assets and, after due inquiry, except as disclosed on Schedule 4.13, the Selling Parties are not the subject of any order or decree relating to or affecting the Business or the Purchased Assets other than those of general application. 4.14 Labor. There is no collective bargaining or other union contract relating to the Business to which the Selling Parties are a party. To the Selling Parties' knowledge, after due inquiry, there is not pending or threatened against the Selling Parties any grievance, labor dispute, organizational activity, union trouble, strike or work stoppage which materially affects or which may materially disrupt the Buyer or the Business. The Selling Parties have complied with all applicable laws, rules and regulations pertaining to the employment of labor, including those relating to wages, hours, collective bargaining and the payment of or withholding of taxes. The Selling Parties have withheld all amounts required by law or agreement to be withheld from the wages or salaries of the Business' employees and they are not liable for any arrears of wages or any tax or penalties for failure to comply with any of the foregoing. 4.15 Employment Contracts. Except for the employment agreement with Ann Zielinski, there are no written or oral contracts for employment of any personnel of the Business. 4.16 Employee Benefit and Retirement Plans. Except as disclosed on Schedule 4.16, the Selling Parties do not now maintain any "employee pension benefit plan" or any "employee welfare benefit plan" (as defined respectively in Section 3(2) and 3(1) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") on behalf of the Business's employees, and, except as disclosed on Schedule 4.16, the Selling Parties do not maintain any retirement plans, bonus arrangements, life insurance or medical insurance programs or any other fringe benefit arrangements (collectively "fringe benefit arrangements") for any employees whether written or unwritten. 4.17 Employees and Independent Contractors. The Selling Parties have provided the Buyer prior to the Closing Date with a true and correct list including the name, salary or compensation (including without limitation all commission, override or bonus arrangements), vacation and sick leave policies or other benefits, job description and original employment or contract date of all current employees and independent contractors of the Business based upon the most recently processed information, and the accrued and/or earned vacation time of all employees and, to the best of the Selling Parties' knowledge, the dates and information concerning any previous salary or compensation change or adjustment and the reasons therefor for each such current employee. 4.18 Worker's Compensation. Except as disclosed on Schedule 4.13, the Selling Parties are, to the best of the Selling Parties' knowledge, in full compliance with all worker's compensation laws with respect to the Business and have worker's compensation insurance coverage in full force and effect with respect to the Business, where any such non-compliance or lack of coverage would have a material adverse effect on the Buyer's ownership, possession or use of the Business or the Purchased Assets, or on the consummation of the transactions contemplated under this Agreement. 4.19 Adverse Action. Except as described on Schedule 4.13 and Schedule 4.19, the Selling Parties have not received any written notice of any judicial or administrative action against the Selling Parties, the Business or the Purchased Assets. 4.20 Consents. Except as described on Schedule 4.20, to the best of the Selling Parties' knowledge, no consents, approvals or authorizations of, or declaration, filing or registration with, any governmental or regulatory authority is required in connection with the execution and delivery of this Agreement by the Selling Parties and consummation by the Selling Parties of the transactions contemplated hereby. 4.21 Commissions. None of the Selling Parties has authorized any person to act in such a manner as to give rise to any valid claim against the Buyer for a brokerage commission, finder's fee, or similar payment as a result of the transactions contemplated under this Agreement. The Selling Parties will defend, indemnify and hold harmless the Buyer from any claim for commissions or fees alleged to have arisen from a contractual relationship or cooperation in connection with the transactions contemplated under this Agreement. 4.22 Licenses, Permits and Payment Programs. The Selling Parties have obtained and hold all required licenses, permits, certificates, and authorizations necessary for the Selling Parties to operate the Business as conducted prior to the Closing, except that the Medicaid provider agreements are currently pending and the Home Health Agency License is currently in process for renewal. A copy of each of the foregoing is attached to Schedule 4.22. The Business is certified for participation in, and is a party to valid provider agreements for payment by, the federal Medicare and Medicaid programs (the "Programs"). Except as described on Schedule 4.22, neither the Selling Parties nor the Business has received any notice of any pending, or to the best of Selling Parties' knowledge, any threatened investigations by, or loss of participation in, the Programs. Article 5 - Representations of the Buyer As a material inducement to the Selling Parties to enter into this Agreement, the Buyer hereby represents and warrants to the Selling Parties as follows: 5.1 Authority as to Execution. The execution and delivery of this Agreement and the instruments called for by this Agreement by or on behalf of the Buyer and the consummation of the transactions contemplated hereunder and thereunder, subject to the terms of this Agreement, have each been duly authorized by all necessary corporate actions. This Agreement and each of the instruments called for by this Agreement will be a valid and binding obligation of the Buyer, each enforceable against the Buyer in accordance with their respective terms. 5.2 Organization and Corporate Authority. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Kentucky with full power and authority (corporate or otherwise) to execute, deliver and perform its obligations under this Agreement and the instruments called for by this Agreement. The Buyer is a member of the Caretenders Health Corp. consolidated group. 5.3 No Violation of Law; Other Agreements. Neither the execution and delivery of this Agreement or the instruments called for by this Agreement, nor consummation of the transaction herein or therein contemplated, nor compliance with the terms, conditions and provisions hereof or thereof, will conflict with or violate any provision of law or of the Articles of Incorporation or Bylaws of the Buyer, or result in a violation or default in any provision or any regulation, order, writ, injunction or decree of any court or governmental agency or authority, or of any agreement or instrument to which the Buyer is a party or by which the Buyer is bound or subject. 5.4 Commissions. The Buyer has not authorized any person to act in such a manner as to give rise to any valid claim against the Selling Parties for a brokerage commission, finder's fee, or similar payment as a result of the transactions contemplated under this Agreement. The Buyer will defend, indemnify and hold harmless the Selling Parties from any claim for commissions or fees alleged to have arisen from a contractual relationship or cooperation in connection with the transactions contemplated under this Agreement. 5.5 Adequate Funds. The Buyer has adequate funds to pay the Purchase Price and otherwise perform the terms of this Agreement. 5.6 Consents. To the best of the Buyer's knowledge, the consents listed on Schedule 5.6 constitutes all of the consents required for the Buyer to close the transactions contemplated by this Agreement. 5.7 Due Diligence. In the course of the Buyer's examination of the Selling Parties' Business through the date of this Agreement, the Buyer has not become aware of any actions or liabilities of the Selling Parties that, to the best of the Buyer's knowledge, did not arise in the ordinary course of the Selling Parties business or would constitute health care fraud. Article 6 - Covenants of the Selling Parties 6.1 Conduct of Business. From the date of this Agreement until the Closing Date, the Selling Parties agree to operate the Business and otherwise conduct its business relating to the Business only in the ordinary course of business, and in substantial compliance with all statutory and regulatory requirements of any applicable federal, state or local authority, and agrees to enter into no material contract or other transaction relating to the Business other than in the ordinary course of business without the prior written consent of Buyer. Between the date hereof and the Closing Date, the Selling Parties agree to use their best efforts to retain their present employees and preserve the goodwill and business of their customers, suppliers, and others having business relations with them, and agree to conduct the financial operations of the Business in accordance with its existing business practices. From the date of this Agreement to the Closing Date, the Selling Parties agree to not do any of the following in connection with its ownership and operation the Business and the Purchased Assets without the Buyer's prior written consent: (a) cancel or permit any insurance, bond, surety instrument or letter of credit to lapse or terminate, except in the ordinary course of business or unless renewed or replaced by like coverage; (b) default in any respect under any loan, material contract, agreement, lease or commitment; (c) enter into any contract, agreement, lease or other commitment, except in the ordinary course of business; (d) sell or agree to sell the Business or any of the Assets; (e) hire any employees, increase any compensation to employees, enter into any employment arrangement, agreement or undertaking, or pay or promise to pay any fringe benefit, bonus or special compensation to employees, except in the ordinary course of business; (f) impede the Buyer, its counsel, accountants and other representatives from reasonable access, during normal business hours and upon reasonable advance notice, to the Business and the Purchased Assets so that the Buyer may have the opportunity to investigate same; and (g) encumber any of the Purchased Assets or incur any liabilities with respect to the Business, except in the ordinary course of business. 6.2 Sales, Etc. The Selling Parties agree to not sell, lease, remove or otherwise dispose of any of the Purchased Assets, which are located or used in the Business (except for retirements and replacements in the ordinary course of business, provided that all items which are retired or replaced are contemporaneously replaced by items of substantially equivalent value), or liquidate or dissolve. 6.3 Insurance. The Selling Parties agree to maintain the insurance described in Article 4. 6.4 Notice. From the date hereof to the Closing Date, the Selling Parties agree to promptly advise the Buyer of the occurrence of any governmental inspections, investigations, citations with respect to the Business or the Purchased Assets, and of which the Selling Parties have received written or oral notification. 6.5 Access to Personnel and Records. From the date of this Agreement until the Closing Date, the Selling Parties agree to give the Buyer, and the Buyer's counsel, accountants, consultants and other agents and representatives, reasonable access, during normal business hours and upon reasonable request, to its properties, books, contracts, commitments and records relating to the Assets and the operations of the Business. 6.6 Financial Information. The Selling Parties agree to provide the Buyer with such financial information available to the Selling Parties relating to the operations of the Business as the Buyer may reasonably request. 6.7 Collection Practices. The Selling Parties agree to not deviate from its current lawful practices with respect to the collection of accounts receivable from the Business's patients to the extent that any such change in collection practices would impair or adversely affect the Business's ability to continue its relationships with those patients after Closing. 6.8 Cooperation. From the date hereof to the Closing Date, each of the Selling Parties agrees to cooperate in good faith with the Buyer in order to obtain all governmental, regulatory and other third party consents and approvals which are necessary or desirable to consummate the transactions contemplated under this Agreement. Each of the Selling Parties agrees to cooperate fully with Buyer with respect to the Buyer's due diligence investigation of the Selling Parties' Business. Each of the Selling Parties agrees to use its best efforts to cause each of the conditions to the Buyer's obligation to close the transactions contemplated by this Agreement set forth in Article 8 to be satisfied on or prior to the Closing Date. 6.9 Approval of Transfer. From the date hereof to the Closing Date, each of the Selling Parties agrees to use its best efforts, at the Buyer's expense, including the filing and submission of all necessary and appropriate applications and documents, to obtain the approvals and consents of all applicable governmental and regulatory authorities and the landlord, and any other third party identified as necessary in order to transfer the Purchased Assets to the Buyer. 6.10 Consents. Each of the Selling Parties agrees to use its best efforts to procure, at the Buyer's expense, the consents of any third parties necessary for the assignment to the Buyer of any contract, agreement or lease hereunder. 6.11 No-Shop Clause. From and after the date of the execution and delivery of this Agreement until the termination of this Agreement (unless the Closing Date is extended beyond such date by the parties), each of the Selling Parties agrees to not, without the prior written consent of the Buyer: (i) offer for sale any material portion of the Business or assets, (ii) solicit offers to buy all or any material portion of the Business, (iii) hold discussions with any party (other than the Buyer) looking toward such an offer or solicitation or looking toward a merger or consolidation of the Selling Parties, or (iv) enter into any agreement with any party (other than the Buyer) with respect to the sale or other disposition of any material portion of the Business or the Selling Parties' membership rights, or with respect to any merger, consolidation, or similar transaction involving the Selling Parties or the Selling Parties' membership rights. Article 7 - Covenants of the Buyer 7.1 Access to Records. For a period extending to the greatest of five years from and after the Closing Date, any longer period required by law, or the date of final settlement of cost reports for any period prior to the Closing Date, the Buyer agrees to retain the patient and medical records of the patients serviced by the Business on and prior to the Closing Date, and will give the Selling Parties, and the Selling Parties' counsel, accountants, consultants and other agents and representatives, full and complete access, during reasonable business hours and upon reasonable request. 7.2 Cooperation. From the date hereof until the Closing Date, the Buyer agrees to cooperate in good faith with the Selling Parties in order to obtain all governmental, regulatory and other third party consents and approvals which are necessary or desirable to consummate the transactions contemplated under this Agreement. 7.3 Approval of Transfer. From the date hereof until the Closing Date, the Buyer agrees to use its best efforts, including the filing and submission of all necessary and appropriate applications and documents, to obtain the approvals and consents of all applicable governmental and regulatory authorities and other third parties required or necessary in order to transfer the Purchased Assets to the Buyer. Article 8 - Conditions Precedent to the Buyer's Obligations The Buyer's obligation to close is subject to the satisfaction of the following conditions before or at Closing, unless waived by the Buyer: 8.1 Representations and Warranties True at Closing. The representations, warranties and covenants made by the Selling Parties in this Agreement must be true in all material respects at and as of Closing as if made on and as of Closing. 8.2 Compliance with Agreement. The Selling Parties must have performed and complied with all of their covenants and obligations under this Agreement in all material respects which are to be performed or complied with by them before or at Closing. 8.3 The Selling Parties' Certificate. Each of the Selling Parties must have delivered to Buyer a certificate stating that (i) the representations, warranties and covenants made by the Selling Party in the Agreement are true in all material respects at and as of Closing as if made on and as of Closing, and (ii) the Selling Party has performed and complied with all of its covenants and obligations under this Agreement in all material respects which are to be performed or complied with by it before or at Closing. 8.4 Adverse Proceedings. As of the Closing Date, no suit, action, claim or governmental proceeding is pending or threatened against, and no order, decree or judgment of any court, agency or other governmental authority has been rendered against the parties or any party hereto which would render it unlawful, as of the Closing Date, to effect the transactions contemplated by this Agreement in accordance with its terms or otherwise have a material adverse effect on the Buyer's ownership, use or enjoyment of the Purchased Assets. 8.5 Approvals. Except for various equipment lessor consents, all necessary material federal, state and local governmental and regulatory and other third party consents, waivers, and other approvals or determinations required to be obtained with respect to the sale and/or transfer of the Purchased Assets to the Buyer and Buyer's operation of the Business thereafter must have been obtained (including without limitation approval from HCFA and the Health Care Administrator of the State of Florida), with the form and substance of such consents, etc. satisfactory to the Buyer in its sole discretion. 8.6 Closing Documents. The documents required to be delivered by the Selling Parties to the Buyer pursuant to this Agreement must be executed in a form reasonably acceptable to the Buyer. Article 9 - Conditions Precedent to the Selling Parties' Obligations The Selling Parties' obligation to close is subject to the satisfaction of the following conditions prior to or at Closing, unless waived by the Selling Parties: 9.1 Representations and Warranties True at Closing. The representations and warranties made by the Buyer in this Agreement must be true in all material respects at and as of Closing with the same effect as though such representations and warranties had been made or given on and as of Closing. 9.2 Compliance with Agreement. The Buyer must have performed and complied with all its covenants and obligations under this Agreement in all material respects which are to be performed or complied with by it before or at the Closing. 9.3 Buyer's Certificate. The Buyer must have delivered to the Selling Parties a certificate stating that (i) the representations, warranties and covenants made by the Buyer in the Agreement are true at and as of Closing as if made on and as of the Closing, and (ii) the Buyer has performed and complied with all of its covenants and obligations under this Agreement in all material respects which are to be performed or complied with by it before or at Closing. 9.4 Adverse Proceedings. As of the Closing Date, no suit, action, claim or governmental proceeding is pending against, and no order, decree or judgment of any court, agency or other governmental authority has been rendered against the parties or any party hereto which would render it unlawful, as of the Closing Date, to effect the transactions contemplated by this Agreement in accordance with its terms. 9.5 Approvals. All necessary federal, state and local governmental and regulatory and other third party consents, waivers, and other approvals and determinations required to be obtained with respect to the sale and/or transfer of the Assets to the Buyer must have been obtained. 9.6 Closing Documents. The documents required to be delivered by the Buyer to the Selling Parties pursuant to this Agreement must be executed and delivered in a form reasonably acceptable to the Selling Parties. Article 10 - Termination of Agreement 10.1 Termination. (a) This Agreement and the transactions contemplated hereby may be terminated or abandoned at any time before the Closing Date: (i) by mutual consent of the Selling Parties and the Buyer; (ii) by the Buyer, if there has been a material misrepresentation in this Agreement by the Selling Parties, or a material breach by the Selling Parties of any of their warranties or covenants set forth herein, or an uncured failure of any condition to which the obligations of the Buyer are subject; or (iii) by the Selling Parties, if there has been a material misrepresentation in this Agreement by the Buyer, or a material breach by the Buyer of any of the warranties or covenants of the Buyer set forth herein, or an uncured failure of any condition to which the obligations of the Selling Parties are subject. (b) This Agreement will be terminated if Closing does not occur on or before January 31, 1998, unless extended by mutual agreement of the parties. Article 11 - Indemnification 11.1 Survival of Representations and Warranties. All of the representations, warranties and covenants and indemnities made by the Selling Parties and the Buyer under this Agreement will survive the closing of the transactions contemplated by this Agreement. 11.2 Indemnification of the Buyer (a) General. Each of the Selling Parties, jointly and severally, will indemnify, defend and hold the Buyer harmless from and against, and reimburse the Buyer on demand for, any damage, loss, cost or expense (including reasonable attorneys' fees) incurred by the Buyer resulting from (i) any breach of the Selling Parties' representations, warranties or covenants in this Agreement, or from any misrepresentation in, or omission by the Selling Parties under this Agreement, (ii) any brokerage or similar fee due to any agent of the Selling Parties, (iii) the failure to operate the Business in full compliance with all Environmental Laws, (iv) any federal, state or local tax liability or obligation arising with respect to the Selling Parties or the operation of the Business prior to the Closing Date (other than withholding taxes included among the Assumed Liabilities), and (v) any liability of the Selling Parties not included among the Assumed Liabilities or obligation under the Assumed Contracts arising prior to the Closing Date. (b) Audits, Investigations, Refund Obligations and Other Pre-Closing Liabilities. Each of the Selling Parties, jointly and severally, will indemnify, defend and hold the Buyer harmless from and against, and reimburse the Buyer on demand for, any actual damage, loss, cost, refund obligation, or expense (including reasonable attorneys' fees incurred in defending any claim for such damage, loss, cost or expense) resulting from, or in any way related to, any of the following: (i) any audit or investigation by Medicaid or federal Medicare authorities or third party payors concerning the operation of the Business by the Selling Parties before Closing or any amounts paid to the Selling Parties before Closing; (ii) any assessment, adjustments, suspensions or offsets made against the Buyer or the Assets as a result of such an audit or investigation; (iii) any costs of defense of, and any judgment against the Buyer with respect to, any litigation relating to the operation of the Business before Closing; (iv) any mortgage, security interest, lease, obligation, claim, liability, debt, lien, charge or encumbrance relating to matters prior to Closing asserted against the Purchased Assets; and (v) any other personal liability, property damage, personal injury, cost, claim, expense or assessment asserted against the Buyer or the Purchased Assets as a result of, or with respect to, the operation of the Business before the Closing, except that notwithstanding any of the foregoing, the Selling Parties will have no liability under this paragraph 11.2 with respect to the Assumed Liabilities, or prospective obligations under the Assumed Contracts. 11.3 Indemnification of the Selling Parties. The Buyer will indemnify and hold the Selling Parties harmless against, and reimburse the Selling Parties on demand for, any actual damage, loss, cost or expense (including reasonable attorneys' fees) incurred by the Selling Parties resulting from (i) any breach of the Buyer's representations, warranties, or covenants contained in this Agreement, or from any misrepresentation in, or omission by the Buyer under this Agreement, (ii) any brokerage or similar fee due to any agent of the Buyer, and (iii) any liability included among the Assumed Liabilities or prospective obligation under the Assumed Contracts. 11.4 Notice of Claim. If any claim is made against a party hereto that, if sustained, would give rise to a right of indemnity under this Article 11, the party having the claim made against it ("Indemnitee") will give the other party ("Indemnitor") notice thereof (specifying the nature and amount of the claim and giving Indemnitor the right to contest the claim) within 15 days of becoming aware of such claim ("Notice of Claim"). 11.5 Right to Contest. Indemnitee agrees to afford Indemnitor the opportunity, at Indemnitor's own expense, to assume the defense or settlement of any such claim, with its own counsel. In connection therewith, the Indemnitee agrees to cooperate fully to make available all pertinent information under its control and will have the right to join in the defense, at its own expense, with its own counsel. If Indemnitor does not elect to undertake the defense of a claim on the terms provided below, Indemnitee will be entitled to undertake the defense or settlement of the claim at the expense of and for the account and risk of Indemnitor. Indemnitor will have the right to assume the entire defense of a claim hereunder provided that (i) Indemnitor gives written notice of such desire (the "Notice of Defense") to Indemnitee within 15 days after Indemnitor's receipt of the Notice of Claim; (ii) Indemnitor's defense of such claim will be without cost to Indemnitee or prejudice to Indemnitee's rights under this Article 11; (iii) counsel chosen by Indemnitor to defend such claim must be reasonably acceptable to Indemnitee; and (iv) Indemnitor must bear all costs and expenses in connection with the defense and settlement of such claim; (v) Indemnitee will have the right to receive periodic reports from Indemnitor and Indemnitor's counsel; and (vi) Indemnitor will not, without Indemnitee's written consent, settle or compromise any claim or consent to any entry of judgment which does not include the unconditional release by claimant or plaintiff of all liability with respect to the claim. Article 12 - Other Provisions 12.1 Further Assurances. The parties agree to execute and deliver any and all papers and documents which may be reasonably necessary to carry out the terms of this Agreement. 12.2 Entire Agreement; Amendment. All schedules to this Agreement are deemed to be incorporated into and made part of this Agreement. This Agreement together with the schedules, contains the entire agreement between the parties and there are no agreements, representations, or warranties which are not set forth herein. This Agreement may not be amended or revised except by a writing signed by both parties hereto. 12.3 Binding Effect; Assignment. This Agreement is binding upon and inures to the benefit of the parties and their respective successors and assigns; provided, however, that other than an assignment by the Buyer of its rights under this Agreement to an affiliate of the Buyer which does not relieve the Buyer of its obligations under this Agreement, neither this Agreement nor any rights hereunder are assignable nor transferable without the prior written consent of the other party. This Agreement is not intended and must not be construed to create any rights in any parties other than the Buyer and the Selling Parties and no person may assert any rights as a third party beneficiary. 12.4 Separate Counterparts. This Agreement may be executed in several identical counterparts, all of which when taken together constitutes but one instrument, and it will not be necessary in any court of law to introduce more than one executed counterpart in proving this Agreement. This Agreement may be executed and delivered by fax counterpart signatures, and upon exchange of fax counterpart signatures, this Agreement will be binding upon the parties. 12.5 Transaction Costs. Except as provided for in paragraph 2.3, each party to this Agreement agrees to be responsible for its own costs for any legal, accounting and other services, if any, attendant to the transactions contemplated by this Agreement. Each party hereto agrees to indemnify and hold the other party harmless from any claim or demand for commission or other compensation by any broker, finder or similar agent, whether or not a current or former employee of such party, claiming to have been employed by such party in connection with the transactions contemplated by this Agreement and to bear the cost of legal expenses incurred in defending against any such claim. The Buyer will bear the cost of transfer of the Licenses and any regulatory approvals necessary to complete the transaction. 12.6 Notices. Any notice, request, instruction or documents required or permitted hereunder must be in writing and will be deemed given if delivered personally or by certified mail, U.S. mail, national recognized overnight courier service or sent by telex, telecopy or other telecommunication device capable of creating a written record (and promptly confirmed by hard copy delivery) to a party at the address set forth below: (i) If to the Selling Parties: Hodgson, Ross, Andrews, Woods & Goodyear LLP 2000 Glades Road, Suite 400 Boca Raton, Florida 33431 Fax: (561) 394 3862 Attn: Chairman of the Board With a copy to: Quarles & Brady One Lincoln Place 1900 Glades Road, Suite 280 Boca Raton, Florida 33431 Fax: (561) 368-1996 Attn: Ned R. Nashban (ii) If to the Buyer: 100 Mallard Creek Road Suite 400 Louisville, Kentucky 40207 Fax: (502) 891-8067 Attn: President With a copy to: Brown, Todd & Heyburn PLLC 3200 Providian Center Louisville, Kentucky 40202-3363 Fax: (502) 581-1087 Attn: Scott W. Dolson unless and until notice of another or different address is given as provided herein. 12.7 Severability. The provisions of this Agreement are severable, and the invalidity of any provision will not affect the validity of any other provision. 12.8 Captions. The captions herein have been inserted solely for convenience of reference and in no way define, limit or describe the scope or substance of any provision of this Agreement. 12.9 Gender. All pronouns used herein will include both the masculine and feminine gender as the context requires. 12.10 Governing Law; Joint Preparation. The execution, interpretation, and performance of this Agreement will be governed by the laws of the Commonwealth of Kentucky, without regard to or application of its conflicts of law principles. This Agreement is deemed to have been prepared jointly by the parties. Any ambiguity in this Agreement will not be interpreted against either party and will be interpreted as if each of the parties hereto had prepared this Agreement. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first above written. CARETENDERS VISITING SERVICES OF SOUTHEAST FLORIDA, INC. By_______________________________________ Title:_____________________________________ VISITING NURSE ASSOCIATION OF PALM BEACH COUNTY, INC. By_______________________________________ Title:_____________________________________ VISITING NURSE SERVICES OF PALM BEACH COUNTY, INC. By_______________________________________ Title:_____________________________________ VISITING NURSE EXTRACARE, INC. By_______________________________________ Title:_____________________________________ VISITING NURSE CORPORATION OF SOUTH FLORIDA, INC. By_______________________________________ Title:_____________________________________ LIST OF ANNEXES AND SCHEDULES Annex A - Noncompetition Agreement Annex B - Release Schedule 1.1 - Excluded Assets Schedule 1.1(a) - List of Equipment, Etc.; Leased Assets Schedule 1.2(a) - Assumed Liabilities Schedule 1.3 - Assumed Contracts Schedule 2.2 - Allocation of Purchase Price Schedule 2.3 - Prorated Expenses Schedule 4.1 - Authority Schedule 4.5 - Liens Schedule 4.7 - Insurance Schedule 4.9 - Governmental Approvals Schedule 4.10 - Regulatory Compliance Schedule 4.11 - Contracts Schedule 4.12 - Violations of Law Schedule 4.13 - Litigation Schedule 4.16 - ERISA Matters Schedule 4.19 - Adverse Actions Schedule 4.20 - Consent Schedule 4.22 - Licenses, Etc. EX-27 6
5 1,000 12-MOS MAR-31-1998 MAR-31-1998 824 0 27,524 (3,691) 0 1,738 18,938 (11,186) 49,533 15,487 0 22,083 0 0 0 49,533 95,183 95,183 75,712 91,786 0 0 994 2,403 991 1,412 0 0 0 1,411 0.45 0.45
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