EXHIBIT 10(b)
U.S. HOMECARE CORPORATION
000 Xxxx Xxxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
October 2, 1996
Mr. Xxxxx Xxxxx
00 Xxx Xxxx Xxxx
Xxxxxxxx, XX 00000
Dear Xx. Xxxxx:
This letter agreement sets forth the terms and conditions of your consultation
services for U.S. HomeCare Corporation (the "Company").
Term: Beginning September 23, 1996, you will devote such of
your time as you deem necessary to consulting on the
financial and operational affairs of the Company and on
the implementation of agreed upon changes at the
Company, under the direction of Xxxxx Xxx (with whom
the Company is also signing a similar letter agreement
on the date hereof). After implementation of the agreed
upon changes, you will be available on an as-needed
basis until the earlier of September 30, 1997 or the
consummation of a Realization Event (the "Term") to
work on any issues which may arise at the Company
during the Term, it being understood that you may
engage in other consulting assignments and business
pursuits during the Term. The Company will have the
right to renew this Agreement on an annual basis,
subject to renegotiation of the consulting fees set
forth herein.
Current compensation: Until the expiration of the Term, you shall receive
$5,000 for the balance of September 1996; $20,000 per
month for each month beginning October 1996 and ending
February 1997; $12,000 per month for each month
beginning March 1997 and ending June 1997; and $6,000
per month for each month beginning July 1997
Mr. Xxxxx Xxxxx October 2, 1996
Page 2
through the expiration of the Term. Such payments will
be made by the Company per its normal payment cycle
(bi-weekly). In addition, you shall be reimbursed for
reasonable travel or other out-of-pocket expenses
incurred by you, in accordance with the Company's
travel and reimbursement policy, in connection with
your engagement hereunder.
Incentive Options: You will be entitled to additional compensation for
your consulting services in accordance with the
following:
You will receive, as equity incentive an option (the
"Option") to purchase 692,000 shares of the Company's
Common Stock, $.01 par value (the "Common Stock"), at
an exercise price of $.15 per share, which will vest as
follows: (x) 230,666 shares will vest as of September
23, 1996; (y) the balance of the shares subject to the
Option will vest on September 23, 2002, provided that
you are still serving as a consultant to the Company at
that time; and provided, further that vesting of the
balance of the shares subject to the Option shall
accelerate upon the achievement of certain levels of
EBITDA if these levels are achieved on or before
September 30, 1997, as follows: (i) the vesting of
230,667 shares of the Option will accelerate in the
first month in which the trailing 3 month EBITDA (as
defined below) of the Company is greater than or equal
to $562,500; and (ii) the vesting of the remaining
230,667 shares of the Option will accelerate in the
first month (which may be the same month as in clause
(i) above) in which the trailing 3 month EBITDA of the
Company is greater than or equal to $875,000; provided,
however, that in no event will any portion of the
Option referred to in subsection (y) vest unless the
EBITDA requirements of clause (i) or (ii), as
applicable, are met on or before September 30, 1997. As
soon as the criteria set forth in the prior sentence
has been met, you shall be fully vested in the
applicable portion of the Option. The Option shall have
a 10-year term from September 23, 1996 and may be
Mr. Xxxxx Xxxxx October 2, 1996
Page 3
exercised at any time after vesting and prior to
expiration of such term. The Option will have a
cashless exercise provision.
The Option shall have anti-dilution protection (the
"Anti-Dilution Protection"), consistent with the
anti-dilution protection contained in the Company's
outstanding $35 6% Convertible Preferred Stock, $1.00
par value (the "$35.00 Preferred Stock"), except that
anti-dilution adjustments shall be triggered at
issuances less than $.15 per share (not $1.75 per
share).
If a Realization Event specified in clause (i), (ii),
(iii) or (v) of the definition thereof occurs, you
shall have the right, in your sole discretion, to (a)
sell all or any portion of your Option in such
Realization Event (or, if that is not possible, to put
all or any portion of your Option to the Company at the
price you would have received had you participated in
such Realization Event) or (b) put the Option to the
Company for cash in an amount equal to $600,000 (the
"Put"). If a Realization Event specified in clause (iv)
of the definition thereof occurs, you shall have the
right to (a) participate in such Realization Event on a
pro rata basis or (b) exercise the Put.
If a Realization Event has not occurred on or prior to
December 31, 1997, you will have the right, in your
sole discretion, to exercise the Put, provided,
however, that if the Company is unable to fund (through
cash on hand, increased borrowings or otherwise) any
portion of the Put, you may rescind all or any portion
of such Put, or in your sole discretion, require the
Company to issue you a promissory note in a principal
amount equal to the portion of the Put it is unable to
fund, bearing interest at the rate of 9% per annum.
Interest will be payable quarterly and principal shall
be payable on the earlier of consummation of a
Realization Event or December 31, 1998.
Mr. Xxxxx Xxxxx October 2, 1996
Page 4
It is understood and agreed that the Put is a debt
obligation of the Company which ranks senior to any
claim of the Equity of the Company, including the
Company's $35 Preferred Stock.
If a Realization Event occurs prior to December 31,
1996, for purposes of determining eligibility for the
Option, the EBITDA calculation for any period specified
that has not yet been completed shall be determined by
grossing-up on a pro rata basis the partial period
results which have been achieved after September 30,
1996 and prior to the consummation of the Realization
Event.
Definitions: For purposes of this agreement, a "Realization Event"
shall have occurred if: (i) all or substantially all of
the assets of the Company are sold or the Company is
merged or consolidated with or into another entity;
(ii) the Company sells a number of shares equal to 30%
or more of the Fully Diluted Equity outstanding after
the transaction (or an option to purchase such shares
is granted) in one or a series of transactions; (iii)
one or more stockholders of the Company sell a number
of shares equal to 30% or more of the Fully Diluted
Equity outstanding, other than in "brokers'
transactions" (as such term is defined in Rule 144);
(iv) the Equity of the Company receives a distribution
of $3,000,000 or more pursuant to a recapitalization of
the Company; or (v) the Company sells equity to the
public pursuant to a public offering or sells $10
million or more of equity pursuant to a private
placement.
For purposes of this agreement, "Equity" shall mean (i)
the Common Stock of the Company, (ii) any other capital
stock of the Company, including any preferred stock of
the Company (including the $35 Preferred Stock), (iii)
all common stock equivalents and capital stock
equivalents of the Company including, without
limitation, any options, warrants, conversions or
similar rights to purchase or receive any Common Stock
or other capital
Mr. Xxxxx Xxxxx October 2, 1996
Page 5
stock of the Company, and (iv) any other securities of
the Company which are issued to one or more holders of
the Common Stock or other capital stock of the Company
or that are issued in exchange for or in replacement of
any Common Stock or other capital stock of the Company.
"Fully-Diluted Equity" shall mean the Equity of the
Company on an as-converted basis, assuming conversion
of any options, warrants, convertible preferred stock
or similar securities of the Company (including the
Option and the $35 Preferred Stock) irrespective of
whether the holders of any such option, warrant,
preferred stock or similar security would in fact so
convert.
For purposes of this agreement, "EBITDA" of the Company
shall mean, for any period, the net income of the
Company for such period, (x) plus any interest
(including any banking, securitization or financing
costs, fees or charges, irrespective of whether such
costs, fees or charges are classified as interest);
taxes; depreciation; amortization; transaction fees;
your compensation pursuant to this letter agreement;
and advisory, investment banking, management or
monitoring fees (including any fees paid to Xxxxxxx &
Co. or Xxxxxxx Xxxxxx Xxxxx Inc.) which were deducted
from revenues in determining net income for such
period, and (y) less, for any period or portion thereof
in which the Company does not have employed a complete
management team, a salary provision per quarter as set
forth on Schedule A. In addition, any of the following
amounts included in net income after September 30, 1996
shall be excluded from the calculation of EBITDA for
the period in question: (a) any unusual, nonrecurring
or nonoperating items (including any costs associated
with litigation), (b) any items which relate to the
restructuring of the Company's business (e.g.,
severance payments or legal fees) or any items which
relate to infusion therapy or the discontinuance of a
segment of the business, (c) any expenses which relate
either to inadequate reserves from
Mr. Xxxxx Xxxxx October 2, 1996
Page 6
prior periods, or errors in accounts or estimates from
prior periods (including any adjustments to reserves or
net revenues which relate to Medicare or Medicaid) or
(d) any adjustments to EBITDA which are a result of
negotiations between (1) the Company and (2) a
potential purchaser of the Company.
Registration Rights: You will have the right to participate in the
registration rights provided to the $35.00 Preferred
Stock holders. A registration statement on Form S-1 or
S-3 including any shares of Common Stock that you
request to be included therein will, in any event, be
filed with the Securities and Exchange Commission no
later than 30 days following completion of the
Company's audit for the year ending December 31, 1996
(which shall be no later than April 30, 1997), and the
Company will diligently pursue obtaining the
effectiveness thereof.
Miscellaneous: In the event that the structure of the Option or the
Put would (x) prevent the Company's purchaser from
achieving "pooling" treatment in a purchase of the
Company through a transaction that would otherwise
qualify as a pooling transaction, or (y) cause you to
recognize income for state or federal income tax
purposes upon the vesting of the Option, you and the
Company shall change the structure of the Option and/or
the Put to alleviate such issue(s) in a manner that
fully preserves the economics inherent in the Option
and the Put.
Indemnification: The Company shall indemnify, defend and hold you and
anyone who works with you in connection with the
services you perform pursuant to this letter agreement
harmless from and against any and all liability,
claims, expenses, damages or losses, including
reasonable fees of legal counsel and related
disbursements (such legal fees to be reimbursed as
expended) incurred by you and anyone who works with
you, or arising out of or relating to the services
performed pursuant to this letter
Mr. Xxxxx Xxxxx October 2, 1996
Page 7
agreement. In addition, the Company shall cause you and
anyone who works with you to be covered by the
Company's directors' and officers' liability insurance
policy if such policy can be amended to include you and
such other persons. Nothing herein is intended to, nor
shall, relieve you or anyone who works for you from
liability for your own willful misconduct or gross
negligence.
U.S. Homecare Corporation
/s/ Xxx Xxxxxxx
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Xxx Xxxxxxx
Chairman
Accepted and Agreed:
/s/ Xxxxx Xxxxx
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Xxxxx Xxxxx
