-----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, HIscIzxCb5cPFvtLzyt6Y1waxPSUVOxrf/Zm90+5qDzjCDLl2YqsZ0+i2MWi0Ufv kbkWhuWMB7XaItSmBa13tw== 0000912057-97-031448.txt : 19970924 0000912057-97-031448.hdr.sgml : 19970924 ACCESSION NUMBER: 0000912057-97-031448 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 43 FILED AS OF DATE: 19970923 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VITAS HEALTHCARE CORP CENTRAL INDEX KEY: 0001045996 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 592318357 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-36183 FILM NUMBER: 97684258 BUSINESS ADDRESS: STREET 1: 100 SOUTH BISCAYNE BLVD. CITY: MIAMI STATE: FL ZIP: 33131 BUSINESS PHONE: 3053744143 MAIL ADDRESS: STREET 2: 100 SOUTH BISCAYNE BLVD CITY: MIAMI STATE: FL ZIP: 33131 S-1 1 FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 1997 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ VITAS HEALTHCARE CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 8050 59-2318357 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
------------------------ HUGH A. WESTBROOK VITAS HEALTHCARE CORPORATION 100 SOUTH BISCAYNE BOULEVARD 100 SOUTH BISCAYNE BOULEVARD MIAMI, FLORIDA 33131 MIAMI, FLORIDA 33131 (305) 374-4143 (305) 374-4143 (Address, including zip code, and (Name and address including zip code, telephone number, including area code of and telephone number, including area registrant's principal executive code, of agent for service) offices)
------------------------ COPIES TO: ROBERT J. WALDMAN, ESQ. WILLIAM J. GRANT, ESQ. HOGAN & HARTSON L.L.P. WILLKIE FARR & GALLAGHER 555 THIRTEENTH STREET, N.W. 153 EAST 53RD STREET WASHINGTON, D.C. 20004 NEW YORK, NEW YORK 10022 (202) 637-5600 (212) 821-8000
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. ------------------------ If any of the securities being registered on the Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE Common Stock, par value $0.01 per share 4,370,000 $16.00 $69,920,000 $21,188
(1) Includes 570,000 shares that the Underwriters have the option to purchase to cover over-allotments, if any. (2) Estimated solely for the purpose of computing the amount of the registration fee. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED SEPTEMBER 23, 1997 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PROSPECTUS 3,800,000 SHARES [LOGO] VITAS HEALTHCARE CORPORATION COMMON STOCK All of the 3,800,000 shares of Common Stock offered hereby are being sold by Vitas Healthcare Corporation ("Vitas" or the "Company"). Prior to this offering (the "Offering"), there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $14.00 and $16.00 per share. See "Underwriting" for information relating to factors considered in determining the initial public offering price. Application is being made to have the Common Stock approved for listing on The Nasdaq National Market under the symbol "VTAS". THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK. --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITING DISCOUNTS AND PROCEEDS TO PRICE TO PUBLIC COMMISSIONS (1) COMPANY (2) Per Share................................. $ $ $ Total (3)................................. $ $ $
(1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses of the Offering payable by the Company estimated at $ . (3) The Company has granted to the Underwriters a 30-day option to purchase up to an additional 570,000 shares of Common Stock on the same terms and conditions as set forth above solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ------------------------------ The shares of Common Stock are offered by the several Underwriters named herein, when, as and if delivered to and accepted by them, and subject to various prior conditions, including the right to reject orders in whole or in part. It is expected that delivery of certificates representing the shares will be made against payment therefor at the offices of Furman Selz LLC, in New York, New York on or about , 1997. FURMAN SELZ --------------- The date of this Prospectus is , 1997 [SERVICE AREA MAP ARTWORK] [A map of the continental United States representing the Company's hospice locations within the states of Florida, Texas, California, Illinois, Ohio, Pennsylvania and Wisconsin is included on the inside front cover. Hospice locations within each applicable state are represented by solid dots with a number inside the dot. A numbered legend appears below the map indicating each hospice location corresponding to each number appearing on the map.] CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF THE COMPANY, INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SEE "UNDERWRITING." 2 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY, AND THE NOTES THERETO, INCLUDED ELSEWHERE IN THIS PROSPECTUS. REFERENCES IN THIS PROSPECTUS TO A FISCAL YEAR REFER TO THE 12-MONTH PERIOD ENDED SEPTEMBER 30 OF THAT YEAR. EXCEPT AS OTHERWISE INDICATED HEREIN, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION AND HAS BEEN ADJUSTED TO GIVE EFFECT TO A 1-FOR-2.7273 REVERSE STOCK SPLIT TO BE EFFECTIVE UPON CONSUMMATION OF THIS OFFERING. THE COMPANY GENERAL Vitas is the largest provider of hospice services in the United States. Hospice services emphasize palliative medical care and related services that focus primarily on improving the quality of life of terminally ill patients and their families, as opposed to attempting to "cure" the underlying or end-stage disease. Vitas provided hospice care to more than 31,000 patients in fiscal 1996, which the Company believes is more than four times the number of patients served by the next largest U.S. hospice provider. Such care is provided in the patient's home, which could be a residence or a long-term care or assisted living facility, or in an inpatient facility, and is generally reimbursed by third-party payors on a fixed "per diem" basis. The Company's hospice operations, which were among the first in the U.S., were co-founded by the Company's current Chairman of the Board and Chief Executive Officer, who has been instrumental in the development of the legislative and clinical framework for hospice care in the U.S. The Company provides a comprehensive range of palliative services through 21 programs in 27 locations and believes it is the largest or second largest provider of hospice services in substantially all of its service areas within Florida, Texas, California, Illinois, Ohio, Pennsylvania and Wisconsin. For the nine months ended June 30, 1997, the Company served an average daily census of approximately 4,500 patients with an average length of stay of approximately 66 days. The Company expects to grow through a combination of: (i) acquisitions which will allow it to benefit from the opportunities for consolidation available in the fragmented hospice industry and (ii) greater demand for hospice services to the extent that such services become increasingly accepted as a means of caring for terminally ill patients and based on an increasingly aging population in the U.S. Since fiscal 1992, the Company's net revenue has increased from approximately $102 million to approximately $214 million in fiscal 1996. THE HOSPICE INDUSTRY The hospice movement in the U.S. began in the mid-1970s to provide terminally ill patients and their families with an alternative to hospital-based, cure-oriented care. Hospice services focus on improving the quality of life for patients and their families, such as the reduction of pain, uncomfortable symptoms, the physical and psychological stress of the terminal disease and bereavement care for the families. Care is coordinated through a team of nurses, physicians, home health aides, clergy, social workers, counselors and community volunteers, which assesses and coordinates the clinical and psychological needs of the patient and family. By providing an interdisciplinary approach to managing a terminal illness, a hospice patient avoids having to receive independent medical services from a number of providers, which may have little or no effective coordination among them. This often results in a lack of clear accountability for clinical outcomes and the cost of services provided. Various studies have indicated that hospice care is cost-effective when compared to end-of-life curative options, largely because it reduces the number of patient days in an acute care setting. According to the National Hospice Organization ("NHO"), approximately 450,000 patients in the U.S. received hospice care in 1996, compared to approximately 210,000 patients in 1990. 3 Reimbursement for hospice care was added as a Medicare benefit in 1982. As approximately 72% of all deaths in the U.S. are among people older than 65 years of age, Medicare is the payor of the vast majority of end-of-life health care, including hospice care. Hospice care became an optional state Medicaid benefit in 1986 and is currently covered by Medicaid in at least 41 states, including all of the states in which Vitas operates, and by most private insurance plans. Reimbursement by Medicare and Medicaid collectively represented approximately 94% of the Company's net revenue in fiscal 1996. According to statistics developed by the Congressional Budget Office (the "CBO"), Medicare reimbursement for hospice services grew from approximately $318 million in 1990 to approximately $1.9 billion in 1995, and is expected to grow to approximately $4.7 billion by 2000. BUSINESS STRATEGY The Company's business strategy is based on leveraging its operating model, which is designed to provide quality hospice care at the local program level supported by centralized corporate services, including financial management, clinical operations and information and telecommunications systems. Key elements of the Company's business strategy include: (i) acquisitions of hospice operations in the Company's existing markets and in new service areas; (ii) growth in utilization in the Company's existing service areas through the continued education of healthcare providers and patients designed to increase the awareness and acceptance of hospice services; and (iii) development of business arrangements with managed care organizations and other healthcare providers which desire to provide a full continuum of care for their patients. The hospice industry in the U.S. is highly fragmented, and Vitas believes that significant opportunities exist for future consolidation. Based on industry data, the Company estimates there are approximately 3,000 hospice programs in the U.S., more than 70% of which are not-for-profit or government sponsored, and which have, on average, a daily census of between 40 and 45 patients. In light of the capital requirements and competitive pressures facing many hospice providers in the current healthcare environment, the Company believes that many providers of hospice care will find it attractive to combine their operations with other providers that have greater access to capital to better fulfill their mission to provide optimal end-of-life care in their communities. The Company believes that its history of having completed such transactions and its operating model, which is designed to take advantage of the economies of scale from such acquisitions, should enable it to realize opportunities for acquisitions that may be presented in the future. Since February 1995, the Company has completed three acquisitions (two involving not-for-profit operations) which have expanded its operations into new markets in California and Central Florida and expanded its presence in Ohio. The Company believes that it has significant competitive advantages relative to other independent hospice providers and integrated healthcare service providers with hospice operations, including its: - size and position of market leadership; - unique focus and experience in providing hospice services; - centralized operating model designed to realize efficiencies from local and national economies of scale; - proprietary, enterprise-wide information and telecommunications systems, which provide integrated and comprehensive information on a real-time basis, including significant patient care, billing, payroll and other financial information; and - team of professionals dedicated to educating and communicating with healthcare professionals and patients about choices in end-of-life care and creating awareness of Vitas services. 4 OTHER DEVELOPMENTS Over the past several years, the Company's operations have undergone significant changes which have negatively affected its financial performance but which, management believes, have resulted in an improved business model and positioned the Company for future growth and profitability. Prior to fiscal 1995, the Company had attempted to diversify its operations to include non-hospice services, such as chronic disease management, through the development of large multi-functional service teams at the local program level with regional support capabilities. Developing this infrastructure to support diversification significantly increased the Company's operating expenses and affected the results of its acquired operations in California and certain DE NOVO hospice programs which were not fully incorporated into the Company's existing support operations. Beginning in fiscal 1995, the Company initiated a series of restructuring efforts (collectively, the "Restructuring") designed to return its emphasis to expanding its hospice operations and to create a more efficient operating model that emphasized a uniform structure in each of the Company's local hospice programs supported by centralized corporate functions. The Restructuring involved three key initiatives, which have been adopted and implemented in various stages since fiscal 1995 and have included: (i) the reorganization of senior management and other personnel; (ii) the reduction of the size of the local programs' patient care teams within a new structure designed to provide exclusively hospice care; and (iii) the elimination of various corporate, regional and local personnel positions no longer deemed necessary to manage the Company's operations. The Company's current operating model emphasizes the delivery of hospice services through a standardized hospice program structure supported by centralized services provided from the Company's corporate office located in Miami, Florida. The Company believes that this operating model provides significant opportunities for the Company to expand through acquisitions and to recognize operating and cost improvements in these acquired operations. In June 1996, the Company entered into a merger agreement with Apria Healthcare Group Inc. "Apria", which was terminated in November 1996 (the "Proposed Merger Transaction"). During this period, the Company experienced significant disruptions as a result of the anticipated combination of the operations of Vitas and Apria, particularly with respect to changes in the Company's admissions and education activities. In addition, the Proposed Merger Transaction caused a delay in the implementation of certain of the Company's Restructuring efforts. Although certain aspects of the Restructuring have not yet been fully implemented, the Company believes it has adequate reserves for all anticipated restructuring activities. The Restructuring and the Proposed Merger Transaction contributed significantly to the Company's losses in fiscal 1995 and fiscal 1996 and the nine months ended June 30, 1997. However, the Company has been profitable in the two most recent quarters of fiscal 1997. 5 THE OFFERING In connection with the Offering, the following events are expected to occur: (i) the redemption of 270,000 shares of the 9.0% Cumulative Nonconvertible Preferred Stock of the Company (the "9% Preferred Stock") held by a subsidiary of Chemed Corporation (such subsidiary, together with Chemed Corporation, "Chemed"), including the payment of all accrued but unpaid dividends and an early redemption premium, using a portion of the net proceeds of the Offering; (ii) the conversion of 262,500 shares of Series B Convertible Preferred Stock of the Company (the "Series B Preferred Stock"), held by an investor group including Warburg, Pincus Investors, L.P. and Galen Partners II, L.P. and certain of its affiliates, into 2,026,293 shares of Common Stock upon completion of the Offering; (iii) the issuance of 246,634 shares of Common Stock pursuant to a warrant held by Chemed for an aggregate exercise price of $3.0 million, or $12.16 per share, and the expiration of the remaining portion of such warrant upon the closing of this Offering; (iv) the repurchase in full of a second warrant originally issued to Chemed to purchase 522,289 shares at a per share purchase price equal to the excess of the public offering price over $12.19, or an aggregate of $1.5 million based on an assumed public offering price of $15.00 per share, using a portion of the net proceeds of the Offering; and (v) the issuance of 107,036 shares of Common Stock pursuant to a warrant originally issued to NationsBank, N.A. (the "Bank") on July 18, 1997 (the "First Bank Warrant") at an exercise price of $0.03 per share. Common Stock offered by the Company.......... 3,800,000 shares Common Stock to be outstanding after the Offering................................... 7,832,769 shares (1) Use of Proceeds.............................. To redeem certain outstanding Preferred Stock; to repurchase a warrant to purchase Common Stock; to repay certain indebtedness; and for general corporate purposes, including possible acquisitions. See "Use of Proceeds." Proposed Nasdaq National Market Symbol....... VTAS
- ------------------------ (1) Does not include (i) 1,817,098 shares of Common Stock issuable upon the exercise of stock options (with an average exercise price of $10.62 per share) granted under the Company's Management Equity Incentive Plans as well as pursuant to certain non-plan stock option grants, of which 1,695,755 are now or will become exercisable within 60 days after the date of this Prospectus, (ii) 148,032 shares of Common Stock eligible for future grant under the Company's Management Equity Incentive Plans, (iii) up to an additional 35,679 shares of Common Stock at an exercise price of $0.03 per share that may be issued pursuant to the First Bank Warrant if this Offering is not completed by November 29, 1997, and (iv) up to 570,000 shares of Common Stock that may be sold by the Company pursuant to the Underwriters' over-allotment option. See "Management--Management Equity Incentive Plans" and "--Non-Plan Stock Option Grants," "Capitalization," "Description of Capital Stock--Common Stock Purchase Warrant" and "Shares Eligible for Future Sale." 6 SUMMARY CONSOLIDATED FINANCIAL DATA The following table sets forth summary financial and other data of the Company. The Summary Consolidated Financial Data set forth below for the fiscal years 1992 through 1996 are derived from Consolidated Financial Statements of the Company, including related notes thereto, certain of which are contained elsewhere in this Prospectus. The summary financial data as of June 30, 1997 and for the nine month periods ended June 30, 1996 and 1997 are derived from unaudited financial statements. The unaudited financial statements include, in the opinion of management, all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair presentation of the financial position and results of operations for these periods. Operating results for the nine months ended June 30, 1997 are not necessarily indicative of the results that may be expected for the entire year. The information presented below is qualified in its entirety by, and should be read in conjunction with "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements of the Company, and notes thereto, included elsewhere in this Prospectus.
NINE MONTHS YEAR ENDED SEPTEMBER 30, ENDED JUNE 30, ----------------------------------------------------- -------------------- 1992(1) 1993 1994 1995 1996 1996 1997 --------- --------- --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) OPERATING DATA: Net revenue..................................... $ 101,737 $ 128,405 $ 148,535 $ 193,275 $ 213,856 $ 161,657 $ 150,323 Operating expenses: Hospice program expenses...................... 80,135 93,833 110,251 155,570 175,495 131,319 121,604 Central support services...................... 15,507 22,304 22,036 25,241 23,790 17,290 16,120 Provision for bad debts....................... 1,316 3,283 3,973 6,828 7,958 4,035 3,283 Depreciation.................................. 1,018 1,794 2,931 4,197 5,438 3,993 4,308 Amortization of goodwill...................... 952 717 654 1,089 1,527 1,123 1,248 Nonrecurring charges (2)...................... -- 6,708 798 -- -- -- -- Restructuring costs (3)....................... -- -- -- 2,020 2,345 -- 3,480 --------- --------- --------- --------- --------- --------- --------- Total operating expenses........................ 98,928 128,639 140,643 194,945 216,553 157,760 150,043 --------- --------- --------- --------- --------- --------- --------- Income (loss) from operations................... 2,809 (234) 7,892 (1,670) (2,697) 3,897 280 Gain on terminated merger (4)................... -- -- -- -- -- -- 1,600 Gain on sale of assets.......................... -- -- -- -- -- -- 484 Interest and other income....................... 90 97 715 329 279 222 364 Interest expense................................ -- -- (316) (3,092) (4,674) (3,391) (3,652) --------- --------- --------- --------- --------- --------- --------- Income (loss) before income taxes and other items......................................... 2,899 (137) 8,291 (4,433) (7,092) 728 (924) Provision (benefit) for income taxes............ 992 46 3,150 (1,588) -- 248 -- --------- --------- --------- --------- --------- --------- --------- Income (loss) before other items................ 1,907 (183) 5,141 (2,845) (7,092) 480 (924) Cumulative effect of change in accounting principle for income taxes.................... -- 259 -- -- -- -- -- --------- --------- --------- --------- --------- --------- --------- Net income (loss)............................... $ 1,907 $ 76 $ 5,141 ($ 2,845) ($ 7,092) $ 480 ($ 924) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Pro forma net income (loss) (5)................. $ 1,662 $ 76 $ 5,141 ($ 2,845) ($ 7,092) $ 480 ($ 924) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Net income (loss) attributable to common stockholders.................................. $ 544 ($ 3,038) $ 543 ($ 7,443) ($ 11,690) ($ 2,968) ($ 4,372) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Supplemental net loss attributable to common stockholders (6).............................. ($ 9,590) ($ 1,393) ($ 2,797) --------- --------- --------- --------- --------- --------- Supplemental net loss per common share (7)...... ($ 2.56) ($ 0.37) ($ 0.74) --------- --------- --------- --------- --------- --------- OTHER DATA: Admissions (8).................................. 13,780 15,808 17,727 23,512 26,256 19,888 19,487 Average length of stay (9)...................... 56.7 58.8 64.9 64.9 72.5 73.1 66.4 Average daily census (10)....................... 2,402 2,967 3,499 4,488 4,902 4,925 4,507 Adjusted EBITDA (11)............................ $ 4,779 $ 8,985 $ 12,275 $ 5,636 $ 6,613 $ 9,013 $ 9,318 Adjusted EBITDA as a % of net revenue........... 4.7% 7.0% 8.3% 2.9% 3.1% 5.6% 6.2%
(CONTINUED ON NEXT PAGE) 7
JUNE 30, 1997 -------------------------- ACTUAL AS ADJUSTED(12) --------- --------------- (DOLLARS IN THOUSANDS) BALANCE SHEET DATA: Cash, cash equivalents and investments.................................................. $ 9,225 $ 15,025 Working capital (deficit)............................................................... (15,653) (1,265) Total assets............................................................................ 85,859 91,659 Total long-term debt.................................................................... 31,227 22,105 Total redeemable preferred stock........................................................ 62,117 -- Stockholders' equity (deficit).......................................................... (50,244) 35,383
- ------------------------ (1) Selected consolidated financial information for the fiscal year ended September 30, 1992 has been adjusted to combine the operations of Vitas Healthcare Corporation of Florida, a wholly owned subsidiary of the Company ("Vitas-Florida"), with those of the Company for the period through December 16, 1991. The Company's purchase of the outstanding stock of Vitas-Florida on December 17, 1991 was accounted for as if a pooling of interests had occurred since the Company was affiliated with Vitas-Florida through common ownership. (2) In fiscal 1993, nonrecurring charges of $6.7 million related to the acceleration of performance bonus arrangements and vesting of non-qualified stock options. In fiscal 1994, nonrecurring charges of $0.8 million related to expenses incurred in connection with a proposed public offering of the Company's Common Stock that was not pursued due to market conditions. (3) Represents restructuring costs principally to establish severance reserves. (4) Includes a $4.0 million settlement relating to the Proposed Merger Transaction, less $2.4 million of terminated merger costs. (5) Through December 16, 1991, Vitas-Florida was an S Corporation under the Internal Revenue Code of 1986, as amended (the "Code"). Pro forma net income for the fiscal year ended September 30, 1992 represents net income after deducting the income tax expense that would have been recorded had Vitas-Florida not been exempt from taxation under the S Corporation election. (6) Gives effect to the elimination of the dividends which would have been payable under the mandatory redemption features of the Series B Preferred Stock. (7) Computed assuming the Series B Preferred Stock is converted into 2,026,293 shares of Common Stock and, pursuant to the Securities and Commission's (the "Commission's") Staff Accounting Bulletins ("SABs"), includes all Common Stock and Common Stock equivalents issued within the 12 months immediately preceding the Offering as if they were outstanding for all periods presented. (8) Admissions is defined as the number of patients admitted into the Company's programs during the period. (9) Average length of stay represents the sum of days of care of patients who have been discharged during the period divided by the total number of patients discharged in such period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (10) Average daily census is defined as the sum of the days of care of patients who have been under the Company's care during the period divided by the number of days in such period. (11) Adjusted EBITDA is defined as income before interest and other income, interest expense, taxes, depreciation and amortization, and excludes the $6.7 million and $0.8 million of nonrecurring charges in fiscal 1993 and fiscal 1994; the $2.0 million, $2.3 million and the $3.5 million in restructuring costs in fiscal 1995, fiscal 1996 and the nine months ended June 30, 1997; and the $1.6 million gain on terminated merger and the $0.5 million gain on the sale of assets in the nine months ended June 30, 1997. (12) The as adjusted data give effect to net proceeds of $52.0 million from the issuance and the sale of Common Stock in this Offering, the receipt of $3.0 million from the issuance and sale of 246,634 shares of Common Stock upon exercise of a warrant and the application of the net proceeds therefrom; also gives effect to the exercise of the First Bank Warrant and the conversion of the Series B Preferred Stock into Common Stock upon consummation of the Offering. 8 SUMMARY QUARTERLY CONSOLIDATED FINANCIAL DATA The following table presents the consolidated operating results and other operating data of the Company for each of the seven quarters in the period ended June 30, 1997. The information presented is unaudited. In the opinion of the Company's management, all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair presentation of the results of operations for the interim periods presented have been reflected herein. For further information, refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements of the Company, and notes thereto, included elsewhere in this Prospectus.
THREE MONTHS ENDED ---------------------------------------------------------------------------------- DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, 1995 1996 1996 1996 1996 1997 1997 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (DOLLARS IN THOUSANDS) OPERATING DATA: Net revenue........................... $ 54,516 $ 54,564 $ 52,577 $ 52,199 $ 51,492 $ 48,838 $ 49,993 Operating expenses: Hospice program expenses............ 44,017 44,111 43,191 44,176 42,473 39,960 39,171 Central support services............ 5,913 5,812 5,565 6,500 5,504 5,051 5,565 Provision for bad debts............. 1,453 1,250 1,332 3,923 1,360 1,004 919 Depreciation........................ 1,243 1,355 1,395 1,445 1,462 1,415 1,431 Amortization of goodwill............ 368 377 378 404 425 412 411 Restructuring costs (1)............. -- -- -- 2,345 3,480 -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Total operating expenses.............. 52,994 52,905 51,861 58,793 54,704 47,842 47,497 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) from operations......... 1,522 1,659 716 (6,594) (3,212) 996 2,496 Gain on terminated merger (2)......... -- -- -- -- 1,600 -- -- Gain on sale of assets................ -- -- -- -- 484 -- -- Interest and other income............. 94 73 48 64 89 107 168 Interest expense...................... (1,181) (1,142) (1,061) (1,290) (1,089) (1,074) (1,489) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) before income taxes..... 435 590 (297) (7,820) (2,128) 29 1,175 Provision (benefit) for income taxes.. 148 201 (101) (248) -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss)..................... $ 287 $ 389 ($ 196) ($ 7,572) ($ 2,128) $ 29 $ 1,175 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- OTHER DATA: Admissions (3)........................ 6,392 7,012 6,484 6,368 6,448 6,740 6,299 Average length of stay (4)............ 76.3 67.7 75.4 70.6 73.4 62.0 63.3 Average daily census (5).............. 4,982 4,938 4,854 4,837 4,685 4,384 4,448 Adjusted EBITDA (6)................... $ 3,133 $ 3,391 $ 2,489 ($ 2,400) $ 2,155 $ 2,823 $ 4,338 Adjusted EBITDA as a % of net revenue............................. 5.7% 6.2% 4.7% (4.6%) 4.2% 5.8% 8.7%
- ------------------------ (1) Represents restructuring costs principally to establish severance reserves. (2) Includes a $4.0 million settlement relating to the Proposed Merger Transaction, less $2.4 million of terminated merger costs. (3) Admissions is defined as the number of patients admitted into the Company's programs during the period. (4) Average length of stay represents the sum of days of care of patients who have been discharged during the period divided by the total number of patients discharged in such period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (5) Average daily census is defined as the sum of the days of care of patients who have been under the Company's care during the period divided by the number of days in such period. (6) Adjusted EBITDA is defined as income before interest and other income, interest expense, taxes, depreciation and amortization, and excludes the $2.3 million and the $3.5 million of restructuring costs in the three months ended September 30, 1996 and December 31, 1996, respectively, and the $1.6 million gain on the terminated merger and $0.5 million gain on the sale of assets in the three months ended December 31, 1996. 9 RISK FACTORS PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE SPECIFIC FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE DECIDING TO PURCHASE THE COMMON STOCK OFFERED HEREBY. THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION RELATING TO THE COMPANY THAT ARE BASED ON THE BELIEFS OF MANAGEMENT AS WELL AS ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT. SUCH FORWARD-LOOKING STATEMENTS ARE PRINCIPALLY CONTAINED IN THE SECTIONS "PROSPECTUS SUMMARY," "SUMMARY CONSOLIDATED FINANCIAL DATA," "SUMMARY QUARTERLY CONSOLIDATED FINANCIAL DATA," "RISK FACTORS," "SELECTED CONSOLIDATED FINANCIAL DATA" AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND INCLUDE, WITHOUT LIMITATION, THE COMPANY'S EXPECTATION AND ESTIMATES AS TO THE COMPANY'S BUSINESS OPERATIONS FOLLOWING THE OFFERING, INCLUDING FUTURE FINANCIAL PERFORMANCE AND THE COMPANY'S GROWTH STRATEGY. IN ADDITION, IN THOSE AND OTHER PORTIONS OF THIS PROSPECTUS, THE WORDS "ANTICIPATES," "BELIEVES," "BUDGETED," "ESTIMATES," "EXPECTS," "PLANS," "INTENDS," "SHOULD" AND SIMILAR EXPRESSIONS, AS THEY RELATE TO THE COMPANY AND ITS SUBSIDIARIES OR ITS MANAGEMENT, ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT VIEWS OF THE COMPANY WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS, INCLUDING THE RISK FACTORS DESCRIBED BELOW. IN ADDITION TO FACTORS THAT MAY BE DESCRIBED BELOW AND ELSEWHERE IN THIS PROSPECTUS GENERALLY, THE FOLLOWING FACTORS, AMONG OTHERS, COULD CAUSE THE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS MADE BY THE COMPANY. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS ANTICIPATED, BELIEVED, ESTIMATED OR EXPECTED. THE COMPANY DOES NOT INTEND TO UPDATE THESE FORWARD-LOOKING STATEMENTS. UNCERTAINTY ASSOCIATED WITH LEGISLATIVE INITIATIVES Healthcare is an area of extensive and dynamic legislative and regulatory change. Changes in the law, new interpretations of existing laws, or changes in payment methodology, may have a dramatic effect on the definition of permissible or impermissible activities, the relative costs associated with doing business and the amount of reimbursement by both government and other third-party payors. In addition to specific legislative and regulatory influences, efforts to reduce the growth of the federal budget and the Medicare and Medicaid programs have resulted in enactment of the Balanced Budget Act of 1997 (the "Balanced Budget Act"). This law contains several provisions affecting Medicare payment for and coverage of hospice services which, together with Medicaid payments, accounted for 94% of the Company's net revenue in fiscal 1996. See "Business--Legislative Considerations." Certain of these provisions are expected to have an adverse effect on the Company. In addition, state legislatures periodically consider various healthcare reform proposals. Congress and state legislatures can be expected to continue to review and assess alternative healthcare delivery systems and payment methodologies, and public debate of these issues can be expected to continue in the future. The ultimate timing or effect of such additional legislative efforts cannot be predicted and may impact Vitas in different ways. No assurance can be given that any such efforts will not have a material adverse effect on the Company. EXTENSIVE GOVERNMENT REGULATION; IMPACT OF OPERATION RESTORE TRUST AND CLAIMS REVIEWS ON THE COMPANY REIMBURSEMENT. A substantial portion of the Company's revenues is attributable to payments received from third-party payors, including the Medicare and Medicaid programs and private insurers. In fiscal 1996, approximately 94% of Vitas' net revenue was attributable to Medicare and Medicaid payments which are made on a "per diem" basis. Under the per diem reimbursement methodology, the Company is essentially at risk for the cost of eligible services provided to hospice patients. Profitability is therefore largely dependent upon the Company's ability to manage the costs of providing hospice services to patients. Increases in operating costs that are subject to inflation, such as labor and supply costs, without a compensating increase in Medicare and Medicaid rates could have a material adverse effect on the 10 Company in the future. See "Business--Payment for Services." Many payors are increasing pressure to control healthcare costs. In addition, both public and private payors are increasing pressure to decrease or limit increases in reimbursement rates for healthcare services. The levels of revenues and profitability of the Company, similar to those of other healthcare companies, will be subject to the effect of possible reductions in coverage or payment rates by third-party payors. For example, under the Balanced Budget Act, annual payment rate increases for hospice reimbursement from Medicare, which historically have been based on the "market basket" inflation rate as calculated by the Health Care Financing Administration ("HCFA"), will be reduced by one percentage point in each of fiscal years 1998 through 2002. Thus, the annual inflationary adjustment in Medicare rates as of October 1, 1997 of 2.7% will be reduced to 1.7%. In addition, under a final rule recently published by HCFA, a new wage index methodology (to be phased in over three years) was established which the Company estimates will reduce reimbursement from Medicare by approximately 0.5% in fiscal 1998, approximately 1.0% in fiscal 1999 and approximately 1.5% in fiscal 2000, subject to possible change due to, among other things, changes in the Company's utilization rates and the geographic distribution of the Company's utilization. Further, effective for cost reporting periods beginning on or after October 1, 1997, hospices are required to submit claims on the basis of the location where a service is actually furnished. The Company understands that HCFA may seek to implement this change immediately on a basis yet to be established. These and other changes could have a material adverse effect on the Company. See "Business--Legislative Considerations" for a discussion of recent legislation. Each state which maintains a Medicaid program has the option to provide reimbursement for hospice services at reimbursement rates generally required to be at least as much as Medicare rates. All states in which the Company operates cover Medicaid hospice services; however, there can be no assurance that the states in which the Company is presently operating or states into which it could expand operations will continue to cover Medicaid hospice services. In addition, the Medicare and Medicaid programs are subject to statutory and regulatory changes, retroactive and prospective rate and payment adjustments, administrative rulings, freezes and funding reductions, all of which may adversely affect the level of program payments and could have a material adverse effect on the Company. FRAUD AND ABUSE LAWS. As a provider of services under the Medicare and Medicaid programs, the Company is subject to federal and state healthcare program fraud and abuse laws. These laws include the Medicare and Medicaid anti-kickback statute, which prohibits, among other things, the offer, payment, solicitation or receipt of any remuneration in return for the referral of patients for items or services, or arranging for the furnishing of items or services, for which payment may be made under the Medicare, Medicaid or other federal healthcare programs. Violations of these provisions may result in civil and criminal penalties and exclusion from participation in Medicare and state health programs such as Medicaid. The Health Insurance Portability and Accountability Act of 1996 includes an expansion of certain fraud and abuse provisions, such as extending the application of Medicare and Medicaid fraud penalties to certain other federal healthcare programs. The Balanced Budget Act further strengthens numerous fraud and abuse provisions through expanded exclusion authority and new civil money penalties for violating the anti-kickback statute, among other provisions. See "Business--Regulatory Environment-- Fraud and Abuse Laws." In addition, several healthcare reform proposals have included an expansion of the anti-kickback laws to include referrals of any patients regardless of payor source. The broad language of the anti-kickback statute has been interpreted by the courts and governmental enforcement agencies in a manner which could impose liability on healthcare providers for engaging in a wide variety of business transactions. In addition, a number of states in which the Company operates have laws, which vary from state to state, prohibiting certain direct or indirect remuneration or fee-splitting arrangements between healthcare providers, regardless of payor source, for the referral of patients to a particular provider. Further, under separate statutes, submission of claims for items or services that are "not provided as claimed" may lead to civil money penalties, criminal fines and imprisonment and/or exclusion from participation in Medicare, Medicaid and other federally funded state healthcare programs. These false 11 claims statutes include the Federal False Claims Act, which allows any person to bring a suit, known as a QUI TAM action, alleging false or fraudulent Medicare or Medicaid claims or other violations of the statute and to share in any amounts paid by the entity to the government in fines or settlement. Finally, Congress enacted in 1993 the so-called "Stark Law," which prohibits referrals by physicians to certain entities with which they have a financial relationship unless an exception applies. Several states in which the Company operates have similar laws. Possible sanctions for violation of these laws include denial of payment, loss of licensure and civil and criminal penalties. The Company maintains an internal regulatory compliance review program and from time to time retains regulatory counsel for guidance on applicable laws and regulations. However, no assurance can be given that the practices of the Company, if reviewed, would be found to be in compliance with applicable health regulatory laws, as such laws ultimately may be interpreted, or that any non-compliance with such laws would not have a material adverse effect on the Company. OTHER FEDERAL AND STATE REGULATIONS. The federal government and all states regulate various aspects of the hospice industry. In particular, the Company's operations are subject to federal and state health regulatory laws, including those covering professional services, the dispensing of drugs, and certain types of hospice activities. Certain of the Company's employees are subject to state laws and regulations governing professional practice. The Company's operations are subject to periodic survey by governmental and private accrediting entities to assure compliance with applicable state licensing, and Medicare and Medicaid certification and accreditation standards, as the case may be. From time to time in the ordinary course of business, the Company, like other healthcare companies, receives survey reports containing deficiencies for alleged failure to comply with applicable requirements. The Company reviews such reports and takes appropriate corrective action. The failure to effect such action or to obtain, renew or maintain any of the required regulatory approvals, certifications or licenses could materially adversely affect the Company's business, and could prevent the programs involved from offering products and services to patients. In addition, laws and regulations often are adopted to regulate new products, services and industries. There can be no assurance that either the states or the federal government will not impose additional regulations upon the activities of the Company which might materially adversely affect the Company. See "Business--Regulatory Environment--Other Federal and State Regulations." OPERATION RESTORE TRUST. In recent years, federal and state enforcement agencies and private insurers have increased efforts to enforce the fraud and abuse laws. Operation Restore Trust ("ORT") is a federal/ state effort which includes audits, investigations and aggressive surveys of home health agencies, nursing homes, and certain durable medical equipment suppliers located initially in California, Florida, Illinois, Texas and New York, the five states in which Medicare spending is the highest. In June 1995, federal officials announced the expansion of ORT to include hospices in these five states. Since August 1996, the Office of Inspector General ("OIG") of the Department of Health and Human Services ("HHS") has published audit reports on its reviews of five hospice programs unrelated to the Company. These OIG audit reports focused on the hospice eligibility of long-stay patients (those who are in a hospice program for longer than 210 days). In the reports, the OIG recommended that the Medicare fiscal intermediaries recoup substantial payments previously made for allegedly ineligible, long-stay beneficiaries. The OIG also identified certain payments relating to patients for whom it could not determine eligibility, and recommended that the intermediaries conduct their own reviews. In response to several reports, one intermediary expressed reluctance and another raised concerns about the recovery of these payments, although a senior HHS official has stated subsequently that the agency still intends to seek recoveries under certain circumstances. As a part of the OIG's review of hospices under ORT, beginning in July 1995, the OIG conducted on-site medical and operational reviews at six of the Company's hospice programs and at its corporate office. No reports have been issued by the OIG on the Company's hospice programs. Although no exit conferences have been held, in response to the Company's request for information, in September 1995 OIG auditors indicated they would discuss their preliminary views regarding their initial on-site visits to 12 the three hospice programs that had been visited prior to that time, which included a review of approximately 530 records of long-stay patients (those who are in a hospice program for longer than 210 days). Based on such discussions, the Company understands that the auditors had formed a preliminary view that a vast majority of the records in the limited sample did not support the beneficiaries' eligibility for hospice services. The Company understands that the OIG has reviewed medical records on a total of approximately 1,150 of Vitas' long-stay patients. The Company understands that the activities of the OIG Office of Audit Services and the OIG Office of Investigations involving the Company are ongoing. The scope and ultimate disposition of the ORT and OIG activities, and the possible impact on the Company of such activities, cannot currently be predicted. If the OIG releases an adverse report or takes some other adverse action, the Company expects to vigorously defend its position. However, there can be no assurance that these matters, including any costs of defense, will not have a material adverse effect on the Company. The Company believes that its admissions, average length of stay and average daily census have been negatively impacted in fiscal 1996 and fiscal 1997 by several items, including implementation of new guidelines developed by NHO, in consultation with HCFA, which established more specific criteria for analyzing terminal prognoses for certain non-cancer diagnoses, and publicity resulting from, and reactions to, the ORT initiatives and other claims review activities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Operation Restore Trust and Claims Reviews." In addition, the publication of any adverse report, or any adverse publicity regarding these matters, regardless of their merit or eventual outcome, could have a material adverse effect on the Company's business and reputation for at least some period of time. See "Business--Operation Restore Trust and Claims Reviews." In September 1997, the OIG issued a report which recommends, among other things, that HCFA seek legislation to modify Medicare or Medicaid payments for hospice patients living in nursing homes. These modifications may include lowering hospice payments for patients who reside in nursing homes or revising requirements for services provided by nursing homes for terminal patients. Any such modifications could have a material adverse effect on the Company. See "Business--Operation Restore Trust and Claims Reviews." CLAIMS REVIEWS. Medicare and Medicaid fiscal intermediaries periodically conduct post-payment reviews and other audits of healthcare claims, including hospice claims. These contractors are under pressure from state and federal governments to scrutinize healthcare claims to determine their validity and appropriateness. During the past several years, the Company's previous Medicare fiscal intermediary conducted a number of reviews of hospice provider claims, including the Company's. These reviews included both focused medical reviews of claims for patients with non-cancer terminal diagnoses and long-stay patients (patients with lengths of stay greater than 210 days) and post-pay audits. In order to conduct these reviews, the intermediary requested certain documentation from the Company and then reviewed such documentation to determine technical compliance with federal rules and regulations, eligibility of the patients for hospice benefits and/or appropriateness of the documentation and the care provided. There can be no assurance that reviews and/or similar audits of the Company's claims by federal or state intermediaries will not result in material recoupments or denials which could have a material adverse effect on the Company. See "Business--Operation Restore Trust and Claims Reviews." RECENT LOSSES; IMPACT OF CHANGES IN THE COMPANY'S OPERATING MODEL; TERMINATED MERGER The Company reported net losses of $2.8 million, $7.1 million and $0.9 million for the years ended September 30, 1995 and 1996 and the nine months ended June 30, 1997, respectively. Over the past several years, the Company's operations have undergone significant changes which have negatively affected its financial performance. Prior to fiscal 1995, the Company had attempted to diversify its operations to include non-hospice services, such as chronic disease management, through the development of large multi-functional service teams at the local program level with regional support capabilities. Developing this infrastructure to support diversification significantly increased the Company's operating expenses and 13 affected the results of its acquired operations in California which were not initially incorporated into the Company's existing support operations. Beginning in fiscal 1995, the Company initiated the Restructuring, which included three key initiatives: (i) the reorganization of senior management and other personnel; (ii) the reduction of the size of the local program's patient care teams within a new structure designed to provide exclusively hospice care; and (iii) the elimination of various corporate, regional and local personnel positions no longer deemed necessary to manage the Company's operations. In June 1996, the Company entered into the Proposed Merger Transaction, which was terminated in November 1996. During this period, the Company experienced significant disruptions as a result of the anticipated combination of the operations of Vitas and Apria, particularly with respect to changes in the Company's admissions and education activities. In addition, the Proposed Merger Transaction caused a delay in the implementation of certain of the Company's Restructuring efforts. For each of the three months ended March 31, 1997 and June 30, 1997, however, the Company has reported net income of $29,000 and $1.2 million, respectively. While, to date, the Company's Restructuring efforts have had a positive impact on the Company's results of operations, there can be no assurance that such positive impact will continue, or that the Company will continue to be profitable in the future. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." NEED FOR ADDITIONAL WORKING CAPITAL Continued expansion of the Company's business, including growth through acquisitions, will require additional capital. In the past, the Company has relied on funds raised through private equity and bank financing and its own cash flow to support such growth. Although the Company expects to use approximately $5.8 million of the proceeds of this Offering, together with funds from a new credit facility currently being negotiated and cash flow from operations, to provide funds for general corporate purposes, it is possible that the Company may also require additional capital in the future to support its operations, including making acquisitions. Sources of additional capital may include cash flow from operations as well as further public and private equity and debt financings. The ability of the Company to generate additional cash flow will depend on a number of factors, including the success of the Company's admissions and education activities as well as other factors that are not within the Company's control, such as competitive conditions and government regulation. There can be no assurance that the Company will be successful in producing sufficient cash flows or raising sufficient debt or equity capital to satisfy its working capital needs or that such funds, if available at all, will be available on a timely basis on terms that are acceptable to the Company. Failure to generate or raise sufficient funds may require the Company to delay or abandon some or all of its future growth strategy, which could have a material adverse effect on the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." DEPENDENCE ON RELATIONSHIPS WITH THIRD PARTIES The profitability and growth of the Company's business depend on its ability to establish and maintain close working relationships with managed care organizations, private and governmental third-party payors, hospitals, physicians, physician groups, home health agencies, long-term care facilities and other institutional healthcare providers, and large self-insured employers. There can be no assurance that the Company's existing relationships will be successfully maintained or that additional relationships will be successfully developed and maintained in existing or future markets. The loss of such existing relationships or the failure to continue to develop such relationships in the future could have a material adverse effect on the Company. POTENTIAL IMPACT OF LARGE PAYORS Managed care organizations have grown substantially in terms of the percentage of the population that is covered by such organizations and in terms of their control over an increasing portion of the healthcare economy. Managed care plans have continued to consolidate to enhance their ability to 14 influence the delivery of healthcare services and to exert pressure to control healthcare costs. The Company has a number of contractual arrangements with managed care organizations and other similar parties. The Company provides hospice care to many Medicare beneficiaries who receive their non-hospice healthcare services from health maintenance organizations ("HMOs") under Medicare risk contracts. Under such contracts between HMOs and HHS, the Medicare payments for hospice services are excluded ("carved out") from the per member per month payment from Medicare to HMOs and, instead, are paid directly by Medicare to the hospices. As a result, the Company's payments for Medicare beneficiaries enrolled in Medicare risk HMOs are processed in the same way with the same rates as other Medicare beneficiaries. The recently-enacted Balanced Budget Act codified that reimbursement for hospice services provided to beneficiaries enrolled in Medicare HMOs and the new Medicare+Choice plans is paid by Medicare directly to hospice programs rather than to Medicare managed care plans. No assurances can be given, however, that payment for hospice services will continue to be "carved out" of the HMO payment under Medicare risk contracts and similar Medicare managed care plans or that, if not "carved out," managed care organizations or other large third-party payors would not use their power to influence and exert pressure on healthcare providers to reduce costs in a manner that could have a material adverse effect on the Company. See "Business--Payment for Services." POTENTIAL LIABILITY Participants in the hospice industry are subject to lawsuits alleging negligence, product liability or other similar legal theories, many of which involve large claims and significant defense costs. From time to time, the Company is subject to such lawsuits as a result of the nature of its business. Although the Company currently maintains liability insurance intended to cover such claims, there can be no assurance that the coverage limits of such insurance policies will be adequate or that all such claims will be covered by the insurance. In addition, these insurance policies must be renewed annually. While the Company has been able to obtain liability insurance in the past, such insurance varies in cost, is difficult to obtain and may not be available in the future on terms acceptable to the Company, if at all. A successful claim in excess of the insurance coverage could have a material adverse effect on the Company. Claims, regardless of their merit or eventual outcome, also may have a material adverse effect on the business and reputation of the Company. COMPETITION Hospice care in the U.S. is highly competitive. In many areas in which its programs are located, the Company competes with a large number of organizations, including major national and regional companies, hospital-based hospice and palliative care programs, numerous local organizations, physician groups, nursing homes, home health agencies, and infusion therapy companies and nursing agencies. Some of the current and potential competitors of the Company have or may obtain significantly greater financial and marketing resources than the Company. Various healthcare companies have diversified into the hospice market. For example, several large long-term care providers and other healthcare providers have entered into the hospice business directly or through affiliates. In addition, relatively few barriers to entry exist in the local markets served by the Company. Accordingly, other companies, including hospitals and healthcare organizations that are not currently providing hospice care, may enter the markets and expand the variety of services offered. There can be no assurance that the Company will not encounter increased competition in the future that could limit its ability to maintain or increase its market position, including competition from parties in a position to impact referrals to the Company. Such increased competition could have a material adverse effect on the Company. See "Business--Competition." 15 ACQUISITION RISKS; DIFFICULTIES OF INTEGRATION A significant element of the Company's future growth strategy is expansion through the acquisition of other hospice programs. In the normal course of business, the Company engages in acquisition discussions with a number of not-for-profit and for-profit hospice programs regarding possible acquisitions, and plans to continue expanding in selected locations. There can be no assurance that the Company's acquisition strategy will be successful. The success of the Company's acquisition program will be dependent upon a number of factors, including the Company's ability to identify suitable acquisition candidates and finance such acquisitions, competition for such acquisitions, the regulatory environment and/or regulatory enforcement initiatives such as ORT, the purchase price, the Company's compliance with any applicable covenants or restrictions in its credit facilities, the financial performance of the programs after acquisition and the ability of the Company to integrate effectively the operations of the acquired hospice programs. Acquisitions involve a number of risks related to integration, including possible adverse short-term effects on the Company's reported operating results, diversion of management's attention and dependence on retention, hiring and training of key personnel, some or all of which could have a material adverse effect on the Company. In addition, there can be no assurance that acquired operations will achieve net revenue or earnings that justify the Company's investment therein or expenses related thereto. Any failure by the Company to integrate or operate acquired programs effectively may have a material adverse effect on the Company. Since 1990 the Company has acquired hospice programs in Florida, California and Ohio, some of which involved acquisitions of hospice programs from not-for-profit entities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Since more than 70% of the hospice programs in the U.S. are not-for-profit or government-sponsored programs, it is likely that a substantial number of acquisition opportunities will involve hospice programs operated by not-for-profit entities. The Company believes that the acquisition of such programs is more complex than acquisitions from for-profit entities, since, among other things, such acquisitions are subject to provisions of the Code and, in certain states, state attorney general powers which have been interpreted to require that the consideration paid for the assets purchased be at fair market value, and, where applicable, that any fees paid for services be reasonable. In many states, there is no mechanism for state attorney general pre-clearance of transactions to assure that applicable standards have been met. Entities which acquire not-for-profit hospices could face potential liability if the acquisition transaction is not structured to comply with Code and state law requirements, and in some cases the transaction could be enjoined or subject to recission. Recently, the acquisition of not-for-profit businesses, including the fairness of the purchase price paid therefor, has received increasing regulatory scrutiny by state attorneys general and other regulatory authorities. Although the Company believes that reasonable actions have been taken to date to establish the fair market value of the assets purchased in prior acquisitions of hospice operations from not-for-profit entities and the reasonableness of fees paid for services, there can be no assurance that such transactions or any future similar transactions will not be challenged or that, if challenged, the results of such challenge would not have a material adverse effect on the Company. DEPENDENCE ON PERSONNEL AND SKILLED EMPLOYEES The Company's performance depends in large part upon the continued contributions of its senior management, and the loss of services of certain of the Company's executive officers and senior management could have an adverse effect on the Company's business. Hugh A. Westbrook, the Company's Chairman of the Board and Chief Executive Officer, has an employment agreement with the Company. In addition, the Company has entered into severance agreements with executive officers and several other officers that would provide for payments to such individuals under certain circumstances relating to a change of control of the Company. See "Management--Employment and Other Agreements." The Company's performance also depends to a significant extent on the continued service of non-management professional and other employees involved in operations and on the Company's ability to continue to attract, motivate and retain highly qualified employees. The loss of a significant number of these 16 employees could have a material adverse effect on the Company. The Company's employees may voluntarily terminate their employment with the Company at any time. Competition for certain employees is intense, and the process of locating and recruiting skilled personnel with the combination of skills and attributes required to care effectively for terminally ill patients and their families can be difficult and is often lengthy. There can be no assurance that the Company will be successful in continuing to attract or retain highly skilled nursing, management, operations, admissions and other personnel, and the Company's operating results could be materially adversely affected if the Company is unable to attract or retain these personnel. CONTROL BY EXISTING STOCKHOLDERS Upon the consummation of the Offering, the existing holders of Common Stock and Common Stock equivalents of the Company will beneficially own approximately 60.6% of the outstanding shares of the Company's Common Stock and Common Stock equivalents (including approximately 44.0% which will be beneficially owned by the Company's directors, executive officers and their affiliates) which includes approximately 4.7% to be held by the Company's Employee Stock Ownership Plan (the "ESOP"). The sole trustee of the ESOP is Hugh A. Westbrook, the Company's Chairman, Chief Executive Officer, and a significant stockholder, but Mr. Westbrook's voting of the Common Stock held by the ESOP is subject to his fiduciary duties as a trustee and additional restrictions on voting such Common Stock. Nonetheless, the existing stockholders, if they act as a group, would be able to influence the election of the Company's directors and the outcome of matters requiring approval by the stockholders of the Company. See "Principal Stockholders" and "Description of Capital Stock." ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER, BY-LAW AND STATUTORY PROVISIONS The Company's Amended and Restated Certificate of Incorporation, as amended (the "Charter"), and Amended and Restated By-laws, as amended (the "By-laws"), as well as Delaware corporate law, contain certain provisions that could have the effect of making it more difficult for a third party to acquire, or discouraging a third party from attempting to acquire, control of the Company. These provisions could limit the price that certain investors might be willing to pay in the future for shares of the Company's Common Stock. Certain of these provisions allow the Company to issue without stockholder approval preferred stock having rights senior to those of the Common Stock. Other provisions impose various procedural and other requirements that could make it more difficult for stockholders to effect certain corporate actions. In addition, the Company's Board of Directors is divided into three classes, each of which serves for a staggered three-year term, which may make it more difficult for a third party to gain control of the Company's Board of Directors. As a Delaware corporation, the Company is subject to Section 203 of the Delaware General Corporation Law which, in general, prevents an "interested stockholder" (defined generally as a person owning 15% or more of a corporation's outstanding voting stock) from engaging in a "business combination" (as defined) with a Delaware corporation for three years following the date such person became an interested stockholder unless certain conditions are satisfied. See "Description of Capital Stock." The Company intends to adopt a Stockholder Rights Agreement which will become effective upon the closing of the Offering. See "Description of Capital Stock-- Stockholder Rights Agreement" and "--Certain Anti-Takeover Provisions." NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE Prior to this Offering, there has been no public market for the Common Stock of the Company. Although the Company's Common Stock is expected to be approved for listing on the Nasdaq National Market, there can be no assurance that an active trading market will be developed or sustained after this Offering or that the market price of the Common Stock will not decline below the initial public offering price. The initial public offering price of the Common Stock has been determined by negotiations between the Company and the representative of the Underwriters and may not be indicative of the price at which the Common Stock will trade after this Offering. See "Underwriting" for a description of the factors 17 considered in determining the initial public offering price. In general, the price of the Company's Common Stock after this Offering will be determined in the marketplace and may be influenced by many factors, including variations in the quarterly operating results of the Company, changes in earnings estimates by securities analysts or the Company's ability to meet those estimates, fiscal trends in the healthcare industry (including legislative and regulatory proposals and changes), the depth and liquidity of the market for the Company's Common Stock, investor perception of the Company and general economic, legislative and market conditions. Accordingly, the market price of the Company's Common Stock may be highly volatile. The Company believes that immediately after this Offering it will be the only publicly held company principally engaged in providing hospice services. Most hospice programs operating today are not-for-profit organizations. The Company's status as a for-profit, public company engaged in the hospice business could result in unfavorable public comments or reactions which, in turn, could affect the views of government officials, members of the investment community, or others in a way that might adversely affect the Company's business and the market price of the Company's Common Stock. IMMEDIATE AND SUBSTANTIAL DILUTION Purchasers of the Common Stock offered hereby will experience immediate and substantial dilution of approximately ($16.33) per share. The net tangible book value of the Common Stock outstanding subsequent to this Offering will be substantially less than the initial per share public offering price of the Common Stock. Further dilution is likely to occur upon the exercise of outstanding stock options as well as any future equity financings conducted by the Company to augment its working capital. See "Dilution." POTENTIAL ADVERSE MARKET IMPACT OF SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS; OUTSTANDING WARRANTS AND OPTIONS Sales of substantial amounts of Common Stock into the public market following the Offering, or the perception that such sales could occur, could adversely affect the prevailing market price of the Common Stock and adversely affect the Company's ability to raise additional capital in the capital markets at a time and on terms favorable to the Company. The Company can make no prediction as to the effect, if any, that the sale or availability for future sale of shares of additional Common Stock will have on the market price of the Common Stock prevailing from time to time. In addition to the 3,800,000 shares of Common Stock offered hereby (or a maximum of 4,370,000 shares in the event the Underwriters' over-allotment option is exercised in full), approximately 663,287 shares will be eligible for sale in the public market immediately upon the date of this Prospectus without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"), unless purchased by "affiliates" of the Company as that term is defined in Rule 144 under the Securities Act. Holders of 3,320,402 outstanding shares and an additional 1,198,071 shares issuable upon the exercise of stock options are subject to certain lock-up agreements entered into between certain officers, directors, stockholders and option and warrantholders of the Company and the representative of the Underwriters. Beginning 180 days after the date of this Prospectus, upon the expiration of such lock-up agreements, 2,966,732 of these shares and all of the shares issuable upon the exercise of such stock options (1,174,697 of which would be vested and exercisable following the expiration of the 180 day lock-up period) will become available for sale, subject, in most cases, to compliance with the restrictions of Rule 144. The remaining 353,670 shares are "restricted securities" as defined under Rule 144 and were issued by the Company in private transactions in reliance upon one or more exemptions under the Securities Act. Such restricted securities may be resold in a public distribution only if registered under the Securities Act or pursuant to an exemption therefrom, including Rule 144. The holders of up to approximately 4,854,631 shares of Common Stock and certain options to purchase shares of Common Stock are entitled to certain registration rights with respect to such shares. By exercising their registration rights, such holders could cause a large number of shares to be registered and sold in the public market. See "Description of Capital Stock," "Shares Eligible For Future Sale" and "Underwriting." 18 USE OF PROCEEDS The net proceeds to the Company from the sale of 3,800,000 shares of Common Stock offered hereby (after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company) are estimated to be approximately $52.0 million (approximately $60.6 million if the Underwriters' over-allotment option is exercised in full), based upon a public offering price of $15.00 per share. In addition, the Company expects to receive $3.0 million in connection with the exercise of a warrant to purchase Common Stock upon consummation of the Offering. The Company anticipates that the net proceeds from the Offering, together with the proceeds received by the Company upon exercise of such warrant, aggregating approximately $55.0 million, will be used for the following purposes: (i) $30.0 million to redeem all of the outstanding shares of 9% Preferred Stock, including the payment of all accrued but unpaid dividends and an early redemption premium; (ii) $9.1 million to repay a portion of the outstanding borrowings under the Company's existing bank debt (as further described below); (iii) $8.6 million to repay two promissory notes issued in connection with the CHC Acquisition (as defined below); (iv) $1.5 million to repurchase a warrant for 522,289 shares at a per share price equal to the excess of the public offering price over $12.19, assuming a public offering price of $15.00 per share; and (v) the approximately $5.8 million remaining for general corporate purposes, including possible acquisitions. The Company does not have any agreements, arrangements or understandings with respect to any such acquisitions and no portion of the net proceeds has been allocated for any specific acquisition. See "Business--Business Strategy." Pending utilization of the net proceeds from this Offering for the purposes set forth herein, the Company intends to invest the net proceeds in short-term investment-grade, interest-bearing securities or certificates of deposit. The bank debt consists of a revolving credit facility and a term loan pursuant to a credit agreement dated February 17, 1995, as amended, between the Bank and the Company (the "Credit Agreement"). The revolving credit facility bears interest at variable rates (based on the London Interbank Offered Rate ("LIBOR"), the prime rate or the federal funds rate), and the interest rate on the term loan ranges from 11% to 12%. A significant portion of this debt was incurred in connection with the acquisition of substantially all of the assets and certain of the liabilities of Community Hospice Care, Inc. and its affiliated partnerships (collectively, "CHC" and sometimes referred to herein as the "CHC Acquisition"). See "Description of Indebtedness--Credit Agreement." In addition to the bank debt incurred to fund the cash portion of the purchase price in the CHC Acquisition, Vitas Healthcare Corporation of California, a wholly owned subsidiary of the Company ("Vitas-California"), issued two promissory notes to CHC as part of the purchase price. The interest rate on both promissory notes is 9%. The two promissory notes mature on March 31, 1998 and May 31, 1998, respectively. See "Description of Indebtedness--CHC Notes." The Company is negotiating a new credit facility which it expects would be in place upon consummation of this Offering. The revolving credit facility and term loan, both of which mature upon the closing of this Offering, would be replaced by a new credit facility, a portion of the funds from which would be used, together with a portion of the proceeds of this Offering, to pay off the existing credit facility and term loan. See "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." DIVIDEND POLICY The Company has never paid any cash dividends on its Common Stock and currently plans to retain earnings to finance the growth of the Company's business rather than to pay cash dividends. Payments of any cash dividends in the future will depend on the financial condition, results of operations and capital requirements of the Company as well as other factors deemed to be relevant by the Board of Directors. The Company is currently negotiating a new credit facility that is expected to contain restrictions on the Company's ability to pay cash dividends, and future borrowing arrangements may include similar restrictions. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 19 CAPITALIZATION The following table sets forth the capitalization of the Company as of June 30, 1997, and as adjusted to give effect to: (i) the automatic conversion of all outstanding shares of the Company's Series B Preferred Stock into 2,026,293 shares of Common Stock on the closing of this Offering; (ii) the issuance of 246,634 shares of Common Stock by Chemed upon exercise of a portion of a warrant to purchase Common Stock and expiration of the remaining portion of such warrant; (iii) the sale by the Company of 3,800,000 shares of Common Stock in this Offering (at an initial public offering price of $15.00 per share and after deducting the estimated underwriting discounts and offering expenses payable by the Company); (iv) the application by the Company of a portion of the net proceeds of this Offering to redeem in full all outstanding shares of 9% Preferred Stock (including the payment of all accrued but unpaid dividends and an early redemption premium) and to repurchase a warrant to purchase Common Stock following this Offering as described under "Use of Proceeds"; (v) the repayment of $17.7 million of the Company's indebtedness with a portion of the net proceeds of this Offering as described under "Use of Proceeds"; and (vi) the exercise of the First Bank Warrant for 107,036 shares of Common Stock. The table should be read in conjunction with the Consolidated Financial Statements of the Company, and related notes thereto, appearing elsewhere in this Prospectus.
JUNE 30, 1997 ------------------------- ACTUAL AS ADJUSTED(1) --------- -------------- (DOLLARS IN THOUSANDS) Cash.................................................................................... $ 9,225 $ 15,025 --------- ------- --------- ------- Debt, including current portion: Bank debt (2)......................................................................... $ 30,400 $ 21,278 Capital lease obligations............................................................. 1,772 1,772 Other debt (3)........................................................................ 8,588 -- --------- ------- Total debt.......................................................................... 40,760 23,050 --------- ------- Redeemable preferred stock: 9% Preferred Stock (4)(5)............................................................. 27,376 -- Series B Preferred Stock (4)(5)....................................................... 34,741 -- --------- ------- Total redeemable preferred stock.................................................... 62,117 -- --------- ------- Stockholders' equity: Common stock, $0.01 par value, 50,000,000 shares authorized; 1,652,806 and 7,832,769 shares issued and outstanding at June 30, 1997 and as adjusted, respectively (5).... 17 78 Additional paid-in capital............................................................ (32,403) 56,005 Loan to the ESOP...................................................................... (959) (959) Accumulated deficit................................................................... (16,899) (19,741) --------- ------- Total stockholders' equity (deficit)................................................ (50,244) 35,383 --------- ------- Total capitalization.............................................................. $ 52,633 $ 58,433 --------- ------- --------- -------
- ------------------------ (1) Excludes 1,817,098 shares of Common Stock reserved for issuance upon the exercise of options which have been granted (with an average exercise price of $10.62 per share), 1,695,755 of which are exercisable within 60 days of the date of this Prospectus, and 148,032 shares subject to stock options that may be granted in the future under the Company's stock option plans and up to 35,679 shares subject to the First Bank Warrant if this Offering is not completed by November 29, 1997. See "Management-- Management Equity Incentive Plans," "--Non-Plan Stock Option Grants," and "Description of Capital Stock." Also excludes 570,000 shares issuable to the Underwriters pursuant to the Underwriters' overallotment option. (2) As adjusted, reflects approximate amount to be outstanding under a new credit facility which the Company expects would be effective upon consummation of this Offering. (3) At the Closing of the CHC Acquisition, Vitas-California issued to CHC, as part of the purchase price, two promissory notes (the "CHC Notes") in the amounts of $6.0 million ("CHC Note A") and $5.4 million ("CHC Note B"), respectively. See "Description of Indebtedness--CHC Notes." (4) At June 30, 1997, the Company was authorized to issue 4,500,000 shares of preferred stock of which 532,500 preferred shares were issued and outstanding on that date. Such outstanding preferred shares consisted of (i) 9% Preferred Stock, cumulative, redeemable, $100 stated value, $1 par value, 270,000 shares issued and outstanding at June 30, 1997; and (ii) Series B Preferred Stock, redeemable, convertible, $100 stated value, $1 par value, 262,500 shares issued and outstanding at June 30, 1997. No preferred shares are outstanding as adjusted. (5) Pursuant to an amendment to its Charter to be effective prior to the date of this Prospectus, the Company increased its authorized shares of Common Stock from 40 million shares to 50 million shares and its authorized shares of preferred stock from 4.5 million shares to 10,270,000 shares, of which 270,000 shares will be retired upon redemption of the 9% Preferred Stock as described in this Prospectus. 20 DILUTION The Company had a deficit in net tangible book value at June 30, 1997 of approximately ($96.0) million or ($58.10) per share. Deficit in net tangible book value per share at June 30, 1997 is equal to the Company's total tangible assets less its total liabilities (including redeemable preferred stock), divided by the total number of outstanding shares of Common Stock at that date. After giving effect to the sale of the 3,800,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $15.00 per share and the application of the net proceeds therefrom, the conversion of the Series B Preferred Stock into 2,026,293 shares of Common Stock, the purchase of shares of Common Stock upon exercise of one of the warrants (and the expiration of the remaining portion of such warrant) held by Chemed, and the repurchase of the other warrant to purchase Common Stock held by Chemed, and the purchase of 107,036 shares of Common Stock upon exercise of the First Bank Warrant, the pro forma deficit in net tangible book value of the Company's Common Stock at June 30, 1997 would have been approximately ($10.4) million, or ($1.33) per share. This represents an immediate increase in net tangible book value of $56.77 per share to existing stockholders and immediate dilution of ($16.33) per share to purchasers of Common Stock in this Offering. The following table illustrates this dilution on a per share basis: Assumed initial public offering price per common share (1).......................... $15.00 Deficit in net tangible book value per common share prior to this Offering...... ($ 58.10) Increase in net tangible book value per common share attributable to purchasers of shares in this Offering (2)................................................. 28.06 Change in net tangible book value per common share attributable to the conversion of the Series B Preferred Stock and the purchase of shares of Common Stock upon exercise of two warrants and the repurchase of a third warrant to purchase Common Stock.......................................................... 28.71 --------- Pro forma deficit in net tangible book value per common share after this Offering... (1.33) --------- Dilution per common share to new investors in this Offering......................... ($ 16.33) --------- ---------
- ------------------------ (1) Before deducting underwriting discounts and commissions and offering expenses to be paid by the Company. (2) After deducting underwriting discounts and commissions and offering expenses to be paid by the Company. The following table summarizes the differences between the existing stockholders and the new investors with respect to the number of shares of Common Stock purchased from the Company in the prior five years, the total consideration paid and the average price per share paid (based upon an assumed initial public offering price of $15.00 per share):
SHARES PURCHASED IN PRIOR FIVE YEARS TOTAL CONSIDERATION ---------------------- ------------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE --------- ----------- ------------ ----------- ------------- Existing stockholders (1)............................. 2,469,796 39.4% $ 29,384,819 34.0% $ 11.90 New investors......................................... 3,800,000 60.6 57,000,000 66.0 $ 15.00 --------- ----- ------------ ----- Total................................................. 6,269,796 100.0% $ 86,384,819 100.0% --------- ----- ------------ ----- --------- ----- ------------ -----
- ------------------------ (1) Includes the shares of Common Stock to be issued on the conversion of the Series B Preferred Stock and the exercise of the warrants and the consideration paid by the related purchasers. The foregoing tables assume (i) no exercise of stock options for 1,817,098 shares of Common Stock, 1,695,755 of which are exercisable within 60 days of the date of this Prospectus, (ii) no exercise of any options that may be granted in the future under the Company's stock option plans and (iii) no exercise of the First Bank Warrant for up to an additional 35,679 shares of Common Stock which is exercisable at $0.03 per share after November 29, 1997. Outstanding options to purchase Common Stock are at exercise prices ranging from $0.25 to $19.09 per share. The weighted average exercise price for outstanding options as of June 30, 1997 was $10.62 per share. To the extent that options or additional shares subject to the First Bank Warrant are exercised, there will be further dilution to new investors. See "Management--Management Equity Incentive Plans," "--Non-Plan Stock Option Grants," and "Description of Capital Stock." 21 SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth selected consolidated financial data and other operating information of the Company for fiscal years ended September 30, 1992 through 1996 which are derived from the Consolidated Financial Statements of the Company, including the notes thereto, certain of which are contained elsewhere in this Prospectus. The selected consolidated financial data for the nine months ended June 30, 1996 and 1997 include all adjustments, consisting of normal recurring adjustments and accruals, which the Company considers necessary for a fair presentation of the financial position and the results of operations for these periods. The consolidated operating results for the nine months ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ending September 30, 1997. The selected consolidated financial data is qualified in its entirety by, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements of the Company, including the notes thereto, included elsewhere in this Prospectus.
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, JUNE 30, ----------------------------------------------------- -------------------- 1992(1) 1993 1994 1995 1996 1996 1997 --------- --------- --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) OPERATING DATA: Net revenue..................................... $ 101,737 $ 128,405 $ 148,535 $ 193,275 $ 213,856 $ 161,657 $ 150,323 Operating expenses: Hospice program expenses...................... 80,135 93,833 110,251 155,570 175,495 131,319 121,604 Central support services...................... 15,507 22,304 22,036 25,241 23,790 17,290 16,120 Provision for bad debts....................... 1,316 3,283 3,973 6,828 7,958 4,035 3,283 Depreciation.................................. 1,018 1,794 2,931 4,197 5,438 3,993 4,308 Amortization of goodwill...................... 952 717 654 1,089 1,527 1,123 1,248 Nonrecurring charges (2)...................... -- 6,708 798 -- -- -- -- Restructuring costs (3)....................... -- -- -- 2,020 2,345 -- 3,480 --------- --------- --------- --------- --------- --------- --------- Total operating expenses........................ 98,928 128,639 140,643 194,945 216,553 157,760 150,043 --------- --------- --------- --------- --------- --------- --------- Income (loss) from operations................... 2,809 (234) 7,892 (1,670) (2,697) 3,897 280 Gain on terminated merger (4)................... -- -- -- -- -- -- 1,600 Gain on sale of assets.......................... -- -- -- -- -- -- 484 Interest and other income....................... 90 97 715 329 279 222 364 Interest expense................................ -- -- (316) (3,092) (4,674) (3,391) (3,652) --------- --------- --------- --------- --------- --------- --------- Income (loss) before income taxes and other items......................................... 2,899 (137) 8,291 (4,433) (7,092) 728 (924) Provision (benefit) for income taxes............ 992 46 3,150 (1,588) -- 248 -- --------- --------- --------- --------- --------- --------- --------- Income (loss) before other items................ 1,907 (183) 5,141 (2,845) (7,092) 480 (924) Cumulative effect of change in accounting principle for income taxes......... -- 259 -- -- -- -- -- --------- --------- --------- --------- --------- --------- --------- Net income (loss)............................... $ 1,907 $ 76 $ 5,141 ($ 2,845) ($ 7,092) $ 480 ($ 924) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Pro forma net income (loss) (5)................. $ 1,662 $ 76 $ 5,141 ($ 2,845) ($ 7,092) $ 480 ($ 924) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Net income (loss) attributable to common stockholders.................................. $ 544 ($ 3,038) $ 543 ($ 7,443) ($ 11,690) ($ 2,968) ($ 4,372) --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Supplemental net loss attributable to common stockholders (6)....................... ($ 9,590) ($ 1,393) ($ 2,797) --------- --------- --------- --------- --------- --------- Supplemental net loss per common share (7)...... ($ 2.56) ($ 0.37) ($ 0.74) --------- --------- --------- --------- --------- --------- OTHER DATA: Admissions (8).................................. 13,780 15,808 17,727 23,512 26,256 19,888 19,487 Average length of stay (9)...................... 56.7 58.8 64.9 64.9 72.5 73.1 66.4 Average daily census (10)....................... 2,402 2,967 3,499 4,488 4,902 4,925 4,507 Adjusted EBITDA (11)............................ $ 4,779 $ 8,985 $ 12,275 $ 5,636 $ 6,613 $ 9,013 $ 9,318 Adjusted EBITDA as a % of net revenue........... 4.7% 7.0% 8.3% 2.9% 3.1% 5.6% 6.2% (CONTINUED ON NEXT PAGE)
22
SEPTEMBER 30, JUNE 30, ----------------------------------------------------- -------------------- 1992(1) 1993 1994 1995 1996 1996 1997 --------- --------- --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) BALANCE SHEET DATA: Cash, cash equivalents and investments.......... $ 5,711 $ 17,247 $ 13,792 $ 4,545 $ 5,351 $ 2,396 $ 9,225 Working capital (deficit)....................... 1,282 12,769 14,813 7,623 (9,754) (27,332) (15,653) Total assets.................................... 39,362 47,847 53,936 98,007 92,276 94,561 85,859 Total long-term debt............................ 4,932 1,947 2,606 41,484 39,487 9,024 31,227 Total redeemable preferred stock................ 27,053 53,987 56,155 58,323 60,491 59,949 62,117 Stockholders' equity (deficit).................. (19,227) (31,204) (30,283) (37,267) (48,475) (39,146) (50,244)
- ------------------------------ (1) Selected consolidated financial information for the fiscal year ended September 30, 1992 has been adjusted to combine the operations of Vitas-Florida with those of the Company for the period through December 16, 1991. The Company's purchase of the outstanding stock of Vitas-Florida on December 17, 1991 was accounted for as if a pooling of interests had occurred since the Company was affiliated with Vitas-Florida through common ownership. (2) In fiscal 1993, nonrecurring charges of $6.7 million related to the acceleration of performance bonus arrangements and vesting of non-qualified stock options. In fiscal 1994, nonrecurring charges of $0.8 million related to expense incurred in connection with a proposed public offering of the Company's Common Stock that was not pursued due to market conditions. (3) Represents restructuring costs principally to establish severance reserves. (4) Includes a $4.0 million settlement relating to the Proposed Merger Transaction, less $2.4 million of terminated merger costs. (5) Through December 16, 1991, Vitas-Florida was an S Corporation under the Code. Pro forma net income for the fiscal year ended September 30, 1992 represents net income after deducting the income tax expense that would have been recorded had Vitas-Florida not been exempt from taxation under the S Corporation election. (6) Gives effect to the elimination of the dividends which would have been payable under the mandatory redemption features of the Series B Preferred Stock. (7) Computed assuming the Series B Preferred Stock is converted into 2,026,293 shares of Common Stock and, pursuant to the Commission's SABs, includes all Common Stock and Common Stock equivalents issued within the 12 months immediately preceding the Offering as if they were outstanding for all periods presented. (8) Admissions is defined as the number of patients admitted into the Company's programs during the period. (9) Average length of stay represents the sum of days of care of patients who have been discharged during the period divided by the total number of patients discharged in such period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (10) Average daily census is defined as the sum of the days of care of patients who have been under the Company's care during the period divided by the number of such days in the period. (11) Adjusted EBITDA is defined as income before interest and other income, interest expense, taxes, depreciation and amortization, and excludes the $6.7 million and $0.8 million of nonrecurring charges in fiscal 1993 and fiscal 1994; the $2.0 million, $2.3 million and the $3.5 million in restructuring costs in fiscal 1995, fiscal 1996 and the nine months ended June 30, 1997; and the $1.6 million gain on terminated merger and the $0.5 million gain on the sale of assets in the nine months ended June 30, 1997. 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the Company's financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements of the Company, and related notes thereto, included elsewhere in this Prospectus. GENERAL The Company is the largest provider of hospice services in the U.S., with net revenue in fiscal 1996 of $213.9 million. Substantially all of the Company's revenues are derived from providing end-of-life care to terminally ill patients in their homes, which could be a residence or a long-term care or assisted living facility, or an inpatient facility. The vast majority of the Company's patients receive health insurance benefits under either the federal Medicare or Medicaid programs. Reimbursement from such programs represented 94% of the Company's net revenue in fiscal 1996. According to statistics developed by the CBO, Medicare reimbursement for hospice services grew from approximately $318 million in 1990 to approximately $1.9 billion in 1995, and is expected to grow to approximately $4.7 billion by 2000. The Company's revenue in any particular period is affected by a number of factors, including the average daily census and the level of hospice care provided in such period. Average daily census, which is the total number of patient days divided by the number of days in a period, is in turn impacted by the number of admissions and the average length of stay for patients. Admissions can typically affect average daily census in the period of admission as well as in future periods, depending on the length of stay of patients and the length of the period being measured. Average length of stay is affected by the timing of discharges and of the patient's decision to enroll in hospice care after diagnosis of a terminal illness. The admission decision may be influenced by the Company's efforts to increase awareness of the benefits of timely enrollment in hospice programs. Average length of stay, which is measured in any particular period by examining the length of stay for the patients discharged from the Company's hospice programs in that period, has recently been affected by the impact of various events relating to the ORT initiatives and other claims review activities, as described below. One of the Company's objectives is to increase awareness and acceptance of hospice services among medical professionals in order to increase both admissions and length of stay in its hospice programs. To receive Medicare or Medicaid payment for hospice services, a hospice physician and a patient's attending physician (if applicable), must certify that the patient has a life expectancy of six months or less if the underlying illness runs its normal course. Due to the uncertainty of such prognoses, it is contemplated that a number of the Company's patients do not die within six months of entering the hospice program. However, third party payors do not terminate payments for hospice services based on the expiration of such period or according to any other specified timetable. Continued eligibility for hospice services is based on periodic recertifications by the hospice physician or the patient's attending physician (if still involved in the patient's care) to determine whether the life expectancy of the patient continues to be six months or less. See "Business--Legislative Considerations." Various of the Company's patients may be discharged, from time to time, for reasons other than death, including discharges due to changes in their prognoses, their decisions to pursue curative treatment and transfers to other hospices. In the nine months ended June 30, 1997, approximately 88.9% of the Company's discharges were due to death. While the Company's average length of stay per patient was 66.4 days in the nine months ended June 30, 1997, there is significant variability in the number of days each of these patients spends in the Company's hospice programs. Of the patients discharged for any reason, including death, in the nine months ended June 30, 1997, 41.9% were discharged within 10 days of admission, 83.0% were discharged within 90 days of admission and 91.2% were discharged within 180 days of admission. During the same period, approximately 13.2% of the Company's total days of care was provided to patients within 10 days of 24 their admission, approximately 49.6% was provided within 90 days of admission, approximately 66.0% was provided within 180 days of admission and the balance was provided after 180 days of admission. Hospice services are generally reimbursed under a "per diem" fee schedule based on the level of care provided and adjusted based on geographic location. Routine home care, which represented 78.8% of the Company's net revenue in fiscal 1996, is reimbursed by Medicare at rates currently ranging from $95 to $114 per day (depending on location). Continuous home care, which is provided for a minimum of eight hours in any 24-hour period in the patient's home and represented 3.0% of the Company's net revenue in fiscal 1996, is reimbursed by Medicare at rates currently ranging from $555 to $664 per day (based on a 24-hour day). General inpatient care, which is provided in an appropriate inpatient facility for pain control and symptom management which cannot be managed in other settings and represented 16.9% of the Company's net revenue in fiscal 1996, is reimbursed by Medicare at rates currently ranging from $423 to $500 per day. Inpatient respite care, which is provided when the family or caregiver of the patient requires a temporary reprieve for certain reasons other than the patient's physical decline, is reimbursed by Medicare at rates currently ranging from $98 to $113 per day, and physician services, which are billed separately from hospice services and reimbursed at the lesser of the actual charge of or the allowable charge for such services, represented the remaining 1.3% of the Company's net revenue in fiscal 1996. Annual rate adjustments for Medicare are generally determined by setting annual increases based on the "market basket" inflation rate, as calculated by HCFA for each federal fiscal year, which currently coincides with the Company's fiscal year. Historically, annual payment rate increases for Medicare reimbursement of hospice services have been based on the "market basket" inflation rate, which inflation rate increases were 4.3%, 3.6%, 3.5% and 2.5% for fiscal years 1994, 1995, 1996 and 1997, respectively, subject to the following annual inflation rate percentage point reductions: 2.0%, 1.5%, 1.5% and 0.5% in fiscal years 1994, 1995, 1996 and 1997, respectively. Thus, the annual rate increases required for hospice services in these periods were 2.3%, 2.1%, 2.0% and 2.0%, respectively. Under the Balanced Budget Act, the annual inflation rate percentage point reduction required for hospice services in each of the fiscal years 1998 through 2002 is 1.0%. Therefore, the annual rate increase for fiscal 1998 will be 1.7%, which is the "market basket" inflation rate of 2.7%, minus one percentage point. In addition, HCFA has recently modified the wage index methodology (to be phased in over three years) used to adjust payment rates to account for geographic variations in labor costs. Based on these adjustments, and assuming the Company's current geographic locations and utilization rates, the Company estimates that the modifications to the wage index methodology will reduce reimbursement from Medicare by approximately 0.5% in fiscal 1998, approximately 1.0% in fiscal 1999 and approximately 1.5% in fiscal 2000. Under the per diem reimbursement methodology, the Company is essentially at risk for the cost of eligible services provided to hospice patients. Profitability is therefore largely dependent upon the Company's ability to manage the costs of providing hospice services to patients. Hospice program expenses consist of labor and supply costs related to the delivery of patient care, certain administrative costs related to the admission process as well as other local program costs. Hospice program expenses also include the cost of nursing home room and board services for Medicaid hospice patients in excess of the amount which the Company bills and collects separately under the Medicaid program. Central support services include labor and other overhead costs for centralized support services, which include financial management, information and telecommunications systems, admissions and education programs, clinical operations support and human resources. The Company has included in its analysis of its financial results adjusted EBITDA which measures its income before interest and other income, interest expense, taxes, depreciation and amortization and excludes all restructuring costs, nonrecurring charges and certain other items. The Company believes that adjusted EBITDA is a relevant measure of its recent historical operating performance due to the 25 significant impact of the Restructuring, the Proposed Merger Transaction and the goodwill resulting from its acquisitions in fiscal 1995 and 1996 on its reported financial results. BACKGROUND From fiscal 1994 to fiscal 1996, the Company's net revenue increased by 44.0% from $148.5 million to $213.9 million and its average daily census increased by 40.1% from 3,499 patients to 4,902 patients. This growth was a result of the Company's acquisitions of hospice operations in fiscal 1995 and 1996 (the "Acquisitions"), which included: - in February 1995, the acquisition of the operations of CHC, which at the time of its acquisition was the largest provider of hospice services in California and the second largest for-profit provider in the U.S., and which represented the Company's entry into California; - in November 1995, the acquisition of the operations of Hospice of the Miami Valley, Inc. ("HMV"), a not-for-profit hospice provider based in Southwest Ohio, whose operations were combined with the Company's existing operations in Cincinnati, making the Company the largest provider of hospice services in the Greater Cincinnati area (the "HMV Acquisition"); and - in August 1996, the acquisition of the operations of Hospice of Central Florida, Inc. ("HCF"), a not-for-profit provider which was one of the first providers of hospice services in the U.S., constituting the Company's initial location in Central Florida (the "HCF Acquisition"). In addition, the Company's net revenue benefited from the opening of DE NOVO sites in various locations, including Cincinnati, Ohio and Philadelphia, Pennsylvania in fiscal 1993, and San Antonio, Texas and Milwaukee, Wisconsin in fiscal 1994. In the future, the Company expects to focus on acquisitions of hospice operations with an average daily census of over 50 patients within its current areas of service or in contiguous locations. In addition, the Company will consider acquisitions of hospice providers in new regional locations which it believes provide the necessary platform for significant consolidation and opportunities for growth due to demographic characteristics. The Company believes that there are significant opportunities to acquire both independent hospice providers as well as the hospice operations of integrated service providers that meet these criteria. Based on industry data, the Company estimates there are approximately 3,000 hospice programs in the U.S., more than 70% of which are not-for-profit or government sponsored, and which have, on average, a daily census of between 40 and 45 patients. In light of the capital requirements and competitive pressures facing many hospice providers in the current healthcare environment, the Company believes that many providers of hospice care will find it attractive to combine their operations with other providers that have greater access to capital to better fulfill their mission to provide optimal end-of-life care in their communities. The Company believes that its history of having completed such transactions, including acquisitions of not-for-profit providers which are typically more difficult than acquisitions of for-profit providers, and its operating model, which is designed to take advantage of the economies of scale from such acquisitions, should enable it to realize opportunities for acquisitions that may be presented in the future. Over the past several years, the Company's operations have undergone significant changes which have negatively affected its financial performance but which, management believes, have resulted in an improved business model and positioned the Company for future growth and profitability. Prior to fiscal 1995, the Company had attempted to diversify its operations to include non-hospice services, such as chronic disease management, through the development of large multi-functional service teams at the local program level with regional support capabilities. Developing this infrastructure to support diversification significantly increased the Company's operating expenses and affected the results of its acquired operations in California which were not fully incorporated into the Company's existing support operations. Beginning in fiscal 1995, the Company initiated the Restructuring designed to return its emphasis to 26 expanding its hospice operations and to create a more efficient operating model that emphasized a uniform structure in each of the Company's local hospice programs supported by centralized corporate functions. The Restructuring involved three key initiatives, which have been adopted and implemented in various stages since fiscal 1995 and have included: (i) the reorganization of senior management and other personnel; (ii) the reduction of the size of the local program's patient care teams within a new structure designed to provide exclusively hospice care; and (iii) the elimination of various corporate, regional and local personnel positions no longer deemed necessary to manage the Company's operations. The Company's current operating model emphasizes the delivery of hospice services through a standardized hospice program structure supported by centralized services provided from the Company's corporate office located in Miami, Florida. The Company believes that this operating model provides significant opportunities for the Company to expand through acquisitions and to recognize operating and cost improvements in these acquired operations. In June 1996, the Company entered into the Proposed Merger Transaction, which was terminated in November 1996. During this period, the Company experienced significant disruptions as a result of the anticipated combination of the operations of Vitas and Apria. These disruptions included the preparation for integration of Vitas' senior management, initial communications to various Vitas personnel of the projected termination date of their employment after the closing of the Proposed Merger Transaction, communications relative to anticipated reorganization of various support functions including admissions and education activities and the need for communication to Vitas' general employee base and healthcare professionals regarding the Proposed Merger Transaction. In addition, the Proposed Merger Transaction caused a delay in the implementation of certain of the Company's Restructuring efforts. In the first quarter of fiscal 1997, the Company recognized a $1.6 million gain on terminated merger in connection with the Proposed Merger Transaction, which represented the benefit of a $4.0 million settlement offset by a $2.4 million charge for related costs. The Company incurred restructuring charges of $2.0 million, $2.3 million and $3.5 million in fiscal 1995 and 1996 and the first quarter of fiscal 1997, principally to establish severance reserves for employees terminated in connection with the Restructuring. Also, in the first quarter of fiscal 1997, the Company recognized a gain on sale of assets of $0.5 million resulting from the sale of an under-performing hospice program. Although certain aspects of the Restructuring have not yet been fully implemented, the Company believes it has adequate reserves for all anticipated restructuring activities. The Restructuring and the Proposed Merger Transaction contributed significantly to the Company's losses in fiscal 1995 and fiscal 1996 and the nine months ended June 30, 1997. However, the Company has been profitable in the two most recent quarters of fiscal 1997. 27 QUARTERLY RESULTS The following table sets forth selected operating results for each of the seven quarters in the period ended June 30, 1997. The information for each of these quarters is unaudited but includes all normal recurring adjustments and accruals that management considers necessary for a fair presentation. Future operating results may fluctuate depending on a number of factors including the timing and operating results of acquisitions, the timing and opening of new programs, and changes in the level of care, length of stay or patient census.
THREE MONTHS ENDED --------------------------------------------------------------------------- DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, 1995 1996 1996 1996 1996 1997 1997 -------- -------- -------- --------- -------- -------- -------- (DOLLARS IN THOUSANDS) OPERATING DATA: Net revenue................... $54,516 $54,564 $52,577 $52,199 $51,492 $48,838 $49,993 Operating expenses: Hospice program expenses.... 44,017 44,111 43,191 44,176 42,473 39,960 39,171 Central support services.... 5,913 5,812 5,565 6,500 5,504 5,051 5,565 Provision for bad debts..... 1,453 1,250 1,332 3,923 1,360 1,004 919 Depreciation................ 1,243 1,355 1,395 1,445 1,462 1,415 1,431 Amortization of goodwill.... 368 377 378 404 425 412 411 Restructuring costs (1)..... -- -- -- 2,345 3,480 -- -- -------- -------- -------- --------- -------- -------- -------- Total operating expenses...... 52,994 52,905 51,861 58,793 54,704 47,842 47,497 -------- -------- -------- --------- -------- -------- -------- Income (loss) from operations.................. 1,522 1,659 716 (6,594) (3,212) 996 2,496 Gain on terminated merger (2)......................... -- -- -- -- 1,600 -- -- Gain on sale of assets........ -- -- -- -- 484 -- -- Interest and other income..... 94 73 48 64 89 107 168 Interest expense.............. (1,181) (1,142) (1,061) (1,290) (1,089) (1,074) (1,489) -------- -------- -------- --------- -------- -------- -------- Income (loss) before income taxes....................... 435 590 (297) (7,820) (2,128) 29 1,175 Provision (benefit) for income taxes....................... 148 201 (101) (248) -- -- -- -------- -------- -------- --------- -------- -------- -------- Net income (loss)............. $ 287 $ 389 ($ 196) ($7,572) ($2,128) $ 29 $ 1,175 -------- -------- -------- --------- -------- -------- -------- -------- -------- -------- --------- -------- -------- -------- OTHER DATA: Admissions (3)................ 6,392 7,012 6,484 6,368 6,448 6,740 6,299 Average length of stay (4).... 76.3 67.7 75.4 70.6 73.4 62.0 63.3 Average daily census (5)...... 4,982 4,938 4,854 4,837 4,685 4,384 4,448 Adjusted EBITDA (6)........... $ 3,133 $ 3,391 $ 2,489 ($2,400) $ 2,155 $ 2,823 $ 4,338 Adjusted EBITDA as a % of net revenue..................... 5.7% 6.2% 4.7% (4.6%) 4.2% 5.8% 8.7%
- ------------------------ (1) Represents restructuring costs principally to establish severance reserves. (2) Includes a $4.0 million settlement relating to the Proposed Merger Transaction, less $2.4 million of terminated merger costs. (3) Admissions is defined as the number of patients admitted into the Company's programs during the period. (4) Average length of stay represents the sum of days of care of patients who have been discharged during the period divided by the total number of patients discharged in such period. (5) Average daily census is defined as the sum of the days of care of patients who have been under the Company's care during the period divided by the number of days in such period. (6) Adjusted EBITDA is defined as income before interest and other income, interest expense, taxes, depreciation and amortization, and excludes the $2.3 million and the $3.5 million of restructuring costs in the three months ended September 30, 1996 and December 31, 1996, respectively, and the $1.6 million gain on the terminated merger and $0.5 million gain on the sale of assets in the three months ended December 31, 1996. 28 The following table sets forth, for the quarters indicated, selected consolidated financial data expressed as a percentage of net revenue.
THREE MONTHS ENDED --------------------------------------------------------------------------- DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, 1995 1996 1996 1996 1996 1997 1997 --------- --------- --------- --------- --------- --------- --------- (AS A PERCENTAGE OF NET REVENUE) Net revenue.................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Operating expenses: Hospice program expenses................... 80.7 80.8 82.1 84.6 82.5 81.8 78.4 Central support services................... 10.8 10.7 10.6 12.5 10.7 10.3 11.1 Provision for bad debts.................... 2.7 2.3 2.5 7.5 2.6 2.1 1.8 Depreciation............................... 2.3 2.5 2.7 2.8 2.8 2.9 2.9 Amortization of goodwill................... 0.7 0.7 0.7 0.8 0.8 0.8 0.8 Restructuring costs........................ -- -- -- 4.5 6.8 -- -- --------- --------- --------- --------- --------- --------- --------- Total operating expenses..................... 97.2 97.0 98.6 112.6 106.2 97.9 95.0 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Income (loss) from operations................ 2.8% 3.0% 1.4% (12.6%) (6.2%) 2.1% 5.0% --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
The Company believes that its admissions, average length of stay and average daily census have been negatively impacted in fiscal 1996 and fiscal 1997 by several items, including (i) initial implementation of new guidelines developed by NHO, in consultation with HCFA, which established more specific criteria for analyzing terminal prognoses for certain non-cancer diagnoses; and (ii) publicity resulting from, and reactions to, the ORT initiatives and other claims review activities. See "Business--Operation Restore Trust and Claims Reviews." The Company also believes that publicity regarding allegedly ineligible long- stay patients of other hospices caused some hospice and attending physicians to be overly conservative in referring patients to hospice and in determining patients' prognoses, both at the time of admission and upon periodic recertifications. Reflecting these events, the median length of stay for all patients discharged decreased from approximately 18 days in fiscal 1996 to approximately 16 days in the nine months ended June 30, 1997. The Company believes that the length of stay data for fiscal 1996 and the beginning of fiscal 1997 is distorted by the effects of these events, including reduced admissions and increased discharges (particularly of long-stay patients) during these periods. The Company believes that the average length of stay data after the first quarter of fiscal 1997 reflects a more meaningful indication of trends regarding length of stay for the Company's patients. The Company's net revenue declined during the third and fourth quarters of fiscal 1996 from the second quarter of fiscal 1996 as the Company experienced disruptions in its admissions and other operations during the pendency of the Proposed Merger Transaction. During this period, the Company's admissions in its existing operations declined significantly, which was offset in part by the Company's acquisition of the operations of HCF in August 1996. In the first and second quarters of fiscal 1997, the Company's net revenue continued to decrease from the fourth quarter of fiscal 1996 due to a decline in average daily census and two fewer days in the second quarter compared to the first quarter. This decline in average daily census reflected lower admissions in the third and fourth quarters of fiscal 1996, and a decline in average length of stay in the second quarter of fiscal 1997. Net revenue increased in the third quarter of fiscal 1997 as compared to the previous quarter as average daily census increased primarily due to an increase in admissions in the first and second quarters of the fiscal year. Admissions declined in the third quarter of fiscal 1997 as compared to the previous quarter as changes in the Company's admissions program, designed to increase accountability of admissions personnel, led to attrition among such personnel. The Company has hired, and continues to hire, a number of experienced healthcare professionals to fill these vacant positions. 29 Average daily census in fiscal 1997 has been negatively impacted by the sale and closure of certain hospice and other operations in the first and second quarters of fiscal 1997, which collectively reduced average daily census by approximately 100 patients. Hospice program expenses remained relatively constant through each quarter of fiscal 1996, but increased as a percentage of net revenue in the third and fourth quarters of fiscal 1996 due to a decline in net revenue. Such expenses decreased in the first and second quarters of fiscal 1997 as the Company continued to implement certain of its Restructuring efforts, particularly (i) the reduction of the size of the patient care teams in the local programs within a new structure designed to provide exclusively hospice care, and (ii) the elimination of certain functions at the local programs which are now performed at the Company's corporate office. In the third quarter of fiscal 1996, central support services were reduced by the reversal of bonuses previously accrued, which management determined would not be paid. In the fourth quarter of fiscal 1996, central support services increased due to an increase in general corporate expenses. These expenses were reduced in the first and second quarter of fiscal 1997 as the Company eliminated certain redundant support functions in its corporate office. Central support services increased in the third quarter of fiscal 1997 as the Company assumed certain support services at the corporate office previously performed at the local program level. The Company believes that its current structure should enable it to increase its revenue base with modest increases in the level of support services in the near future. Provision for bad debts increased significantly in the fourth quarter of fiscal 1996. This was due to, among other things, disruptions in normal collection efforts during the Proposed Merger Transaction, which affected billing and collection procedures, and a change in the Company's estimates as a result of the Company's ongoing evaluation of collectibility of accounts receivable. The Company has instituted a number of processes which it believes has improved its billing and collections procedures and which have resulted in a reduction of its provision for bad debts in the last several quarters. As a result, the provision for bad debts as a percentage of net revenue for each successive quarter beginning in the first quarter of fiscal 1997 has decreased. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, selected consolidated financial data as a percentage of net revenue.
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, JUNE 30, ------------------------------- -------------------- 1994 1995 1996 1996 1997 --------- --------- --------- --------- --------- (AS A PERCENTAGE OF NET REVENUE) Net revenue................................................. 100.0% 100.0% 100.0% 100.0% 100.0% Operating expenses: Hospice program expenses.................................. 74.2 80.5 82.1 81.2 80.9 Central support services.................................. 14.8 13.1 11.1 10.7 10.7 Provision for bad debts................................... 2.7 3.5 3.7 2.5 2.2 Depreciation.............................................. 2.0 2.2 2.5 2.5 2.9 Amortization of goodwill.................................. 0.4 0.6 0.7 0.7 0.8 Nonrecurring charges...................................... 0.5 -- -- -- -- Restructuring costs....................................... -- 1.0 1.2 -- 2.3 --------- --------- --------- --------- --------- Total operating expenses.................................... 94.6 100.9 101.3 97.6 99.8 --------- --------- --------- --------- --------- Income (loss) from operations............................... 5.3% (0.9%) (1.3%) 2.4% 0.2% --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
30 NINE MONTHS ENDED JUNE 30, 1997 COMPARED TO NINE MONTHS ENDED JUNE 30, 1996 Net revenue decreased 7.0% or $11.4 million from $161.7 million for the nine months ended June 30, 1996 to $150.3 million for the nine months ended June 30, 1997. Excluding the benefit of the HCF Acquisition, net revenue decreased by approximately 11.5% which management attributes to the business disruption from the Proposed Merger Transaction, elimination and sale of certain underperforming operations and the impact of publicity regarding the ORT initiatives and other claims review activities on the Company's business. Net revenue for the nine months ended June 30, 1997 includes the effect of a 2.0% Medicare rate increase effective October 1, 1996. Hospice program expenses decreased 7.4% or $9.7 million from $131.3 million for the nine months ended June 30, 1996 to $121.6 million for the nine months ended June 30, 1997. The decrease in expenses resulted from the Company adjusting its staffing levels for the reduced number of patients served, the reduction of the size of the local programs' patient care teams and the elimination of regional support staff. Although revenue declined, these adjustments enabled the Company to reduce expenses as a percentage of net revenue from 81.2% during this period in 1996 to 80.9% during this period in 1997. Central support services decreased $1.2 million or 6.8% from $17.3 million for the nine months ended June 30, 1996 to $16.1 million for the nine months ended June 30, 1997. The decrease in central support services related to the elimination of various corporate personnel positions no longer deemed necessary to administer the Company's operations and a reduction in professional fees and recruiting costs, which was offset, in part, by expenses associated with the assumption of certain support services at the corporate office. Provision for bad debts decreased from $4.0 million for the nine months ended June 30, 1996 to $3.3 million for the nine months ended June 30, 1997. Provision for bad debts as a percentage of net revenue decreased from 2.5% for the nine months ended June 30, 1996 to 2.2% for the nine months ended June 30, 1997 due to process improvements in billings and collections implemented in fiscal 1997. Depreciation increased $0.3 million from $4.0 million for the nine months ended June 30, 1996 to $4.3 million for the nine months ended June 30, 1997. Amortization of goodwill increased $0.1 million from $1.1 million for the nine months ended June 30, 1996 to $1.2 million for the nine months ended June 30, 1997. For the nine months ended June 30, 1997, the Company recorded restructuring costs of $3.5 million related principally to the realignment of the composition of the local patient care teams and elimination of the regional administrative infrastructure. For the nine months ended June 30, 1997, the Company recorded a gain on terminated merger of $1.6 million, which includes a $4.0 million settlement in connection with the Proposed Merger Transaction and $2.4 million of related costs, and a gain in the amount of $0.5 million on the sale of one of the Company's hospice programs. Interest expense increased $0.3 million from $3.4 million for the nine months ended June 30, 1996 to $3.7 million for the nine months ended June 30, 1997 due to the increase in average debt outstanding as a result of the HCF Acquisition. As a result of the various changes between the periods described above, income before income taxes decreased from $0.7 million for the nine months ended June 30, 1996 to a loss of ($0.9) million for the nine months ended June 30, 1997. The Company's effective tax rate was 34.1% for the nine months ended June 30, 1996. For the nine months ended June 30, 1997, the Company did not recognize a tax benefit on its loss due to a change in its deferred tax valuation allowance. 31 As a result of the above factors, adjusted EBITDA increased from $9.0 million for the nine months ended June 30, 1996 to $9.3 million for the nine months ended June 30, 1997. As a percentage of net revenue, adjusted EBITDA increased from 5.6% for the nine months ended June 30, 1996 to 6.2% for the nine months ended June 30, 1997. FISCAL YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30, 1995 Net revenue increased 10.6% or $20.6 million from $193.3 million in fiscal 1995 to $213.9 million in fiscal 1996. The increase in net revenue was primarily attributable to the CHC Acquisition (February 1995), the HMV Acquisition (November 1995) and the HCF Acquisition (August 1996). Excluding these acquisitions, net revenue decreased in fiscal 1996 by approximately 2.7% reflecting both the disruption during the proposed Proposed Merger Transaction and the impact of the publicity regarding the ORT initiatives and other claims review activities on the Company's business. Net revenue in fiscal 1996 includes the effect of a 2.0% Medicare rate increase effective October 1, 1995. Hospice program expenses increased 12.8%, or $19.9 million, from $155.6 million in fiscal 1995 to $175.5 million in fiscal 1996. Hospice program expenses as a percentage of net revenue increased from 80.5% in fiscal 1995 to 82.1% in fiscal 1996. This increase was attributable to the higher cost structures of operations acquired in fiscal 1995 and fiscal 1996 and certain hospice program expenses which did not decrease along with the decrease in net revenue from the Company's existing operations. Central support services decreased $1.4 million or 5.7% from $25.2 million in fiscal 1995 to $23.8 million in fiscal 1996. The decrease in central support services relates principally to the reduction in personnel in fiscal 1995, including certain senior management and other corporate personnel. Provision for bad debts increased from $6.8 million in fiscal 1995 to $8.0 million in fiscal 1996. As a percentage of net revenue, provision for bad debts increased from 3.5% in fiscal 1995 to 3.7% in fiscal 1996. Depreciation increased $1.2 million from $4.2 million in fiscal 1995 to $5.4 million in fiscal 1996, which is attributable to increased fixed assets from acquired businesses and increased investment in the Company's information and telecommunications system. Amortization of goodwill increased $0.4 million from $1.1 million in fiscal 1995 to $1.5 million in fiscal 1996, which is attributable to amortization of increased goodwill from the acquired businesses. The Company recorded restructuring costs of $2.0 million in fiscal 1995 and $2.3 million in fiscal 1996 related to management and other personnel positions which were expected to be terminated. Interest expense increased $1.6 million from $3.1 million in fiscal 1995 to $4.7 million in fiscal 1996, which was due principally to increased debt incurred in connection with the Acquisitions. As a result of the various changes between the periods discussed above, the loss before income taxes increased from $4.4 million in fiscal 1995 to $7.1 million in fiscal 1996. The Company's effective tax rate was 35.8% in fiscal 1995. In fiscal 1996, the Company did not recognize a tax benefit on its loss due to a change in its deferred tax valuation allowance. As a result of the above factors, adjusted EBITDA increased from $5.6 million in fiscal 1995 to $6.6 million in fiscal 1996. As a percentage of net revenue, adjusted EBITDA increased from 2.9% in fiscal 1995 to 3.1% in fiscal 1996. FISCAL YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO FISCAL YEAR ENDED SEPTEMBER 30, 1994 Net revenue increased 30.1%, or $44.8 million, from $148.5 million in fiscal 1994 to $193.3 million in fiscal 1995. The increase in net revenue was attributable principally to the CHC Acquisition. Excluding the effect of the CHC Acquisition, net revenue increased in fiscal 1995 approximately 9.5% due to increased 32 revenue in certain Vitas programs which had initially commenced operations in fiscal 1993 and fiscal 1994. The fiscal 1995 period includes the effect of a 2.1% Medicare rate increase, effective October 1, 1994. Hospice program expenses increased 41.1%, or $45.3 million, from $110.3 million in fiscal 1994 to $155.6 million in fiscal 1995. Hospice program expenses as a percentage of net revenue increased from 74.2% in fiscal 1994 to 80.5% in fiscal 1995, due primarily to the higher cost structure of CHC's operations which are reflected in the fiscal 1995 results subsequent to the acquisition and the high cost structure of certain Vitas programs which had commenced operations in fiscal 1993 and fiscal 1994. Central support services increased 14.5%, or $3.2 million, from $22.0 million in fiscal 1994 to $25.2 million in fiscal 1995. The increase was principally due to costs associated with the termination of certain executive employee benefit programs, increased investment in the Company's business development activities, including resources dedicated to new site development and identification of acquisition candidates, and increased spending on support services. Provision for bad debts increased from $4.0 million in fiscal 1994 to $6.8 million in fiscal 1995 and as a percentage of revenue from 2.7% in fiscal 1994 to 3.5% in fiscal 1995. The increase in the provision was the result of more stringent documentation requirements by certain of Vitas' third-party payors, especially state Medicaid programs. Depreciation increased $1.3 million from $2.9 million in fiscal 1994 to $4.2 million in fiscal 1995, which is principally attributable to increases in the Company's investment in its information and telecommunications system. Amortization of goodwill increased $0.4 million from $0.7 million in fiscal 1994 to $1.1 million in fiscal 1995, which is attributable to amortization of increased goodwill from the CHC Acquisition. In fiscal 1994, the Company incurred nonrecurring charges of $0.8 million in connection with a terminated equity offering. In fiscal 1995, the Company recorded restructuring costs of $2.0 million related to the Company's efforts to reorganize senior management and other corporate personnel and eliminate various corporate personnel positions no longer deemed necessary to manage the Company's operations. Interest expense increased $2.8 million from $0.3 million in fiscal 1994 to $3.1 million in fiscal 1995, which is attributable to increased debt incurred in the CHC Acquisition. As a result of the various changes between the periods discussed above, income before income taxes and other items decreased from $8.3 million in fiscal 1994 to a loss of ($4.4) million in fiscal 1995. The Company's effective tax rate was 38.0% in fiscal 1994 and 35.8% in fiscal 1995. As a result of the above factors, adjusted EBITDA decreased from $12.3 million in fiscal 1994 to $5.6 million in fiscal 1995. As a percentage of net revenue, adjusted EBITDA decreased from 8.3% in fiscal 1994 to 2.9% in fiscal 1995. LIQUIDITY AND CAPITAL RESOURCES The Company, since its inception, has relied on funds raised through private equity and bank financing transactions and its own cash flow to support external growth through acquisitions and internal growth through DE NOVO start-ups. Current bank debt consists of a revolving credit facility and a term loan. The revolving credit facility bears interest at variable rates (based on LIBOR, the prime rate or the federal funds rate) and the term loan bears interest at rates from 11% to 12%. The maturity date of this bank debt has been extended on various occasions through a number of amendments to the Credit Agreement to accommodate the Company's working capital needs. In connection with one of the extensions, various financial covenants 33 (specifically, the Consolidated Interest Coverage, Consolidated Leverage and Consolidated Fixed Charge Ratios) and related reporting requirements were waived and, in certain circumstances, modified. The Company continues to be subject to certain other financial requirements, including minimum liquidity and quarterly EBITDA requirements, and is required to repay or refinance the debt upon consummation of this Offering. A significant portion of the bank debt was incurred in connection with the CHC Acquisition in addition to two subordinated notes (CHC Note A in an initial amount of $6.0 million and CHC Note B in an initial amount of $5.4 million) both bearing interest at 9%. The Company is negotiating a new credit facility which it expects would be in place upon consummation of this Offering. The revolving credit facility and term loan under the existing credit facility, both of which mature upon the closing of this Offering, would be replaced by a new credit facility, a portion of the funds from which would be used, together with a portion of the proceeds of this Offering, to pay off the existing credit facility and term loan, as required. See "Use of Proceeds." The Company's need for working capital is reduced through its participation in the Medicare Periodic Interim Payment ("PIP") program. Under the PIP program, the Company receives cash advances every 14 days from the Medicare fiscal intermediary based upon anticipated Medicare claim service volume. Approximately 84.7% of fiscal 1996 net revenue was from the Medicare program. In addition, the Company currently participates in electronic billing for two of its Medicaid programs. Capital expenditures were $6.7 million in fiscal 1994, $5.3 million in fiscal 1995, $5.3 million in fiscal 1996 and $2.5 million in the nine months ended June 30, 1997. Capital expenditures were made principally to purchase computer hardware, to purchase or develop computer software, to purchase telecommunications systems and for various leasehold improvements and equipment. Capital expenditures for fiscal 1998 are currently budgeted at $5.2 million for similar purposes. Capital expenditures were financed, in part, by capital leases in amounts of $2.5 million and $1.3 million in fiscal 1994 and 1995, respectively. There were no capital lease agreements entered into in fiscal 1996 or the nine months ended June 30, 1997. Cash dividend payments on the outstanding shares of 9% Preferred Stock amounted to $2.4 million in fiscal 1993 through 1996. No cash dividends were paid during the nine months ended June 30, 1997. In August 1997, the Company made a cash dividend payment on the 9% Preferred Stock amounting to approximately $0.6 million, and the balance of accrued but unpaid dividends is expected to be paid from a portion of the proceeds of the Offering. As of June 30, 1997, approximately $45.8 million of the Company's assets are intangible in nature. These intangible assets resulted principally from Vitas' acquisitions of the operations of CHC, HMV and HCF and represent costs in excess of net tangible assets acquired in those acquisitions which were accounted for as purchase transactions and are being amortized over a period of 30 years. The carrying value of costs in excess of net tangible assets acquired will be reviewed if the facts and circumstances suggest that it may be impaired. If this review indicates that these costs will not be recoverable, as determined based on the undiscounted cash flows of the entity acquired over the remaining amortization period, Vitas will reduce the carrying value by the estimated shortfall of cash flows, such shortfall to be calculated using discounted cash flows. The Company expects that certain proceeds from this Offering will be utilized to increase working capital by approximately $5.8 million and to otherwise reduce borrowings currently outstanding under its credit facility by approximately $9.1 million if it were not refinanced. The Company is currently negotiating a new credit facility in connection with this Offering and expects to have borrowings outstanding after this Offering in the approximate amount of $21.3 million. Management expects to continue its growth strategy through acquisitions and DE NOVO start-ups which in part will be financed from cash flow from operations, the new credit facility and to the extent required, additional debt or equity offerings. The Company's ability to generate or raise sufficient funds could ultimately impact its growth strategy. 34 MATTERS CONCERNING THIRD-PARTY REIMBURSEMENT For a discussion of the possible material adverse impact on the Company's business relating to third-party reimbursement and the current ORT and OIG review, see "Business--Payments for Services," "-- Regulatory Environment--Reimbursement," and "--Operation Restore Trust and Claims Reviews." EFFECT OF INFLATION The effect of inflation on Vitas' results of operations has not been material over the last three years. However, annual inflationary rate increases under the Medicare program (and as a result, state Medicaid programs) were reduced by the Omnibus Budget Reconciliation Act of 1993 ("OBRA 93") to the following annual rates: 2.3% for fiscal 1994, 2.1% for fiscal 1995, 2.0% for fiscal 1996, and 2.0% for fiscal 1997. Under the Balanced Budget Act, the annual inflation-based update allowed for hospices will be reduced by one percentage point for each of the federal fiscal years 1998 through 2002. The payment rates (except those for physician services) are adjusted by wage indices to account for geographic differences in wages. Under a final rule recently published by HCFA, a new wage index methodology (to be phased in over three years) was established which the Company estimates will reduce the Company's reimbursements from Medicare by approximately 0.5% in fiscal 1998, approximately 1.0% in fiscal 1999 and approximately 1.5% in fiscal 2000, subject to possible change due to, among other things, changes in the Company's utilization rates and the geographic distribution of the Company's utilization. See "Business--Regulatory Environment--Reimbursement." Additional future reductions in inflationary rate increases are possible and normal inflationary increases in Vitas' operating costs could in the future be at rates higher than those of Vitas' Medicare and Medicaid rate increases. 35 BUSINESS THE COMPANY Vitas is the largest provider of hospice services in the U.S. Hospice services emphasize palliative medical care and related services that focus primarily on improving the quality of life of terminally ill patients and their families, as opposed to attempting to "cure" the underlying or end-stage disease. Vitas provided hospice care to more than 31,000 patients in fiscal 1996, which the Company believes is more than four times the number of patients served by the next largest U.S. hospice provider. The Company's hospice operations, which were among the first in the U.S., were co-founded by the Company's current Chairman of the Board and Chief Executive Officer, who has been instrumental in the development of the legislative and clinical framework for hospice care in the U.S. The Company provides a comprehensive range of palliative services through 21 programs in 27 locations and believes it is the largest or second largest provider of hospice services in substantially all of its service areas within Florida, Texas, California, Illinois, Ohio, Pennsylvania and Wisconsin. For the nine months ended June 30, 1997, the Company served an average daily census of approximately 4,500 patients with an average length of stay of approximately 66 days. The Company expects to grow through a combination of: (i) acquisitions which will allow it to benefit from the opportunities for consolidation available in the fragmented hospice industry and (ii) greater demand for hospice services to the extent such services become increasingly accepted as a means of caring for terminally ill patients and based on an increasingly aging population in the U.S. Since fiscal 1992, the Company's net revenue has increased from approximately $102 million to approximately $214 million in fiscal 1996. The Company's hospice programs in South Florida began operations in 1978. The Company was incorporated in Delaware in 1983. Unless the context indicates otherwise, all references to the "Company" refer to Vitas Healthcare Corporation and its active wholly owned subsidiaries, which consist of Vitas-Florida, a Florida corporation, Vitas Healthcare Corporation of Ohio, a Delaware corporation ("Vitas-Ohio"), Vitas Healthcare Corporation of Pennsylvania, a Delaware corporation ("Vitas-Pennsylvania"), Vitas-California, a Delaware corporation and Vitas Healthcare Corporation of Central Florida, a Delaware corporation ("Vitas-Central Florida"). The Company maintains its principal executive offices at 100 South Biscayne Boulevard, Miami, Florida 33131, and its telephone number is (305) 374-4143. THE HOSPICE INDUSTRY AND END-OF-LIFE CARE The hospice movement in the U.S. began in the mid-1970s to provide terminally ill patients and their families with an alternative to hospital-based, cure-oriented care. Hospice emphasizes palliative care (I.E., medical and related care that focuses primarily on the reduction of pain, uncomfortable symptoms, the physical and psychological stress of terminal disease, bereavement care for the families and improving the quality of the life of the patient rather than attempting to cure such disease), and it focuses on care provided outside of a hospital setting with family and patient participation in the care planning and delivery. Most older people in the U.S. die in nursing homes or hospitals while receiving aggressive therapy for diseases that leave little or no hope for cure, such as distant metastasized cancers, congestive heart failure ("CHF"), chronic obstructive pulmonary disease ("COPD") or cerebrovascular disease. Medical treatment for patients with terminal illnesses often has involved technologically intense and uncoordinated clinical care, aggressive curative procedures and high-cost, acute care hospital stays. A significant benefit of hospice to patients, their family members, and payors is the comprehensive management by an interdisciplinary team of the healthcare services and products needed by a terminally ill patient and his or her family. Frequently, terminally ill patients not receiving hospice care receive medical services from physicians, hospitals, home health agencies, skilled nursing facilities, home infusion therapy companies and/or pharmacies, which may include little or no effective coordination among them. The lack of coordination often results in a lack of clear accountability for clinical outcomes and the cost of services provided. In addition, the provision of services in this manner may cause the patient and his or her family 36 further stress and dysfunction. By contrast, hospice services are coordinated through an interdisciplinary team of professionals and staff. These services include nursing care, physician services, home health aide services, pastoral care, social work, counseling services, short-term inpatient care, drugs for symptom management and pain control, medical equipment and supplies, and ancillary services such as respiratory, physical, speech and occupational therapy services. Hospice care also includes various support and psychosocial services and bereavement care to the families of patients for at least 12 months after the patient's death. The interdisciplinary team assesses the clinical and psychosocial needs of the patient and family, develops a plan of care, and delivers, monitors and coordinates that plan with the goal of assuring appropriate care for its patients and their families. This interdisciplinary model of hospice care delivery is covered under the Medicare program, which is the payor for the vast majority of end-of-life health care in the U.S. as approximately 72% of all deaths in the U.S. are among people older than 65 years of age. With bipartisan support, Congress enacted the Medicare hospice benefit in 1982. In addition to Medicare, hospice care is now covered by Medicaid in at least 41 states (including all the states in which Vitas operates) and by most private insurance plans. According to statistics developed by the CBO, Medicare reimbursement for hospice services grew from $318 million in 1990 to $1.9 billion in 1995, and is expected to grow to $4.7 billion by 2000. The Company believes, based on its own experience, that this increase reflects a wider knowledge and acceptance of the benefits to patients and families from receiving hospice care. Despite this growth, the hospice industry represents approximately 1% of Medicare total spending and less than 10% of Medicare spending for individuals during their last six months of life. Medicare spends more than $200 billion per year, with approximately $28 billion of that amount spent for patients in their last 60 days of life. Based on industry data, the Company estimates there are approximately 3,000 hospice programs in the U.S., more than 70% of which are not-for-profit or government-sponsored, and which have, on average, a daily census of between 40 and 45 patients. The Company believes that the small size of average hospice programs makes it difficult for such programs to realize significant economies of scale, to embrace up-to-date information systems and telecommunications technology, and to recruit experienced managers. Vitas, by comparison, cared for more than 31,000 patients in fiscal 1996, and for the nine months ended June 30, 1997, the Company served an average daily census of approximately 4,500 patients. VITAS OPERATING MODEL The Company has developed a distinct operating model that is designed to make it a highly efficient hospice provider. This operating model, which provides hospice care at the local program level supported by centralized corporate services, focuses on the following fundamental aspects: - INFORMATION AND TELECOMMUNICATIONS SYSTEMS INFRASTRUCTURE. After years of operating with manual systems and off-the-shelf computer programs that were principally designed for other types of healthcare providers, the Company designed and implemented its own enterprise-wide information and telecommunications system called "Vitas Exchange" or "Vx." The Vx information system is a flexible, modular client server technology using advanced relational data bases, dedicated phone lines, computer and telephonic input and remote access to create a real-time electronic record with specified data for each patient. While the Vx system is intended to store a variety of information linked to the patient, it also has the capability to report numerous other types of information in multiple formats, such as patient billing and employee payroll. For example, nurses in the field can access the Vx system from a remote location and enter information regarding their visits, which automatically updates the patient's data files and the payroll time records through the Vx system. Other Vx users have immediate real-time access to the newly entered information on the patient and the nurse. In addition to supplying clinicians with certain up to date information about their patients, the Vx information system has the ability to perform multivariate regression analyses to help determine the most efficient and efficacious ways of caring for patients. This infrastructure also gives the Company the potential capacity to test clinical protocols, experiment with new 37 treatment methods, deliver after hours care in a more cost effective manner and possibly test new palliative care drugs and therapies. Since 1993, the Company has capitalized $6.7 million in the development, implementation and improvement costs of this system. The Company believes the Vx system is the most advanced system of its kind utilized in the hospice community and can be made available for use by hospice programs the Company acquires within a reasonably short period of time after such acquisitions. In April 1997, the Company entered into an agreement with CareTools, Inc. ("CareTools") pursuant to which, in exchange for certain royalties and a warrant to purchase preferred stock of CareTools, the Company licensed to CareTools certain rights with respect to the Vx system to enable CareTools to incorporate the components of the Vx system into CareTools' software packages for use by other healthcare providers. - PIONEERING CLINICAL MANAGEMENT PROGRAMS. The Company has developed innovative clinical tools to improve the manner in which it provides end-of-life care. Specific guidelines for managing pain and symptoms have been developed by the Company after researching and analyzing many different pain and symptom protocols. The Company has also collaborated in the development of an innovative assessment tool, the Missoula-Vitas Quality of Life Index ("MVQOLI"), which is designed to measure quality of life in terminally ill patients. This tool, used in combination with the Company's Vx information system, facilitates the ability of the Vitas interdisciplinary team to adjust its care plan to reflect the needs of the patient. In addition, this tool can be used retrospectively to monitor and evaluate the Company's success in satisfying the unique needs of terminally ill patients. As another example of the Company's pioneering outcomes management initiatives, it has developed and is implementing a specialized pain measurement protocol to evaluate the effectiveness of Vitas interventions in reducing pain severity. - EXPERTISE IN EDUCATING AND COMMUNICATING WITH HEALTHCARE PROFESSIONALS, PATIENTS AND FAMILIES ABOUT END-OF-LIFE DECISIONMAKING AND PALLIATIVE CARE. The Company believes that the U.S. healthcare delivery system has found it challenging to educate medical professionals about end-of-life care, including pain and symptom management. In addition, many healthcare professionals lack training and experience difficulty in communicating with patients and families about death and dying. As a result, the Company's operating model includes a dedicated group of Vitas representatives that focuses on educating healthcare professionals about the potential benefits for their patients of Vitas services. These functions, performed by Vitas-trained employees, enhance the Company's ability to meet the needs of the patients of such healthcare professionals. - EFFICIENCIES FROM SIGNIFICANT LOCAL AND NATIONAL ECONOMIES OF SCALE. The Company realizes significant efficiencies from its ability to bill and collect from third parties (including Medicare) through a centralized operation at the Company's corporate office, to make quantity purchases of drugs, medical equipment, medical supplies, computers and certain other equipment and supplies, to provide after hours "on call" services at relatively low cost, and to purchase at a discount employee benefit programs. BUSINESS STRATEGY The Company believes that achieving a strong geographic presence in each of its locations will result in significant advantages, including strong patient care and demonstrable economies of scale. The Company's strategy for business growth includes the following: - GROWTH FROM ACQUISITIONS. The Company regularly analyzes expansion opportunities in its existing markets and in selected new areas. In determining where to expand, the Company considers factors such as local demographics, hospice utilization, existing competition, and the opportunity to become the leading hospice provider in the area. The Company has recently expanded significantly through the acquisition of three hospice organizations operating in eight locations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." The California operations of the Company began in early 1995 through the 38 acquisition of the second largest for-profit hospice operation in the U.S. operating in six locations in Southern California. In November of the same year, the assets acquired from a not-for-profit program in Ohio were added to the Company's DE NOVO program in the same area, and when combined became the largest provider of hospice care in Southwest Ohio. In August 1996, hospice operations were acquired in Central Florida through the purchase of a not-for-profit hospice program established in 1977. In addition, part of the Company's geographic expansion since 1993 has been accomplished through development of DE NOVO sites, including programs now in operation in Texas, Ohio, Pennsylvania and Wisconsin. Based upon the experience of the Company and its senior management, the Company believes that it is well positioned to acquire hospice programs in both new and existing markets. While hospices have extensive experience with end-of-life care, management believes that many community hospices, in order to continue fulfilling their organizational missions, will need and be challenged to acquire advanced information system technology, greater access to capital, and/or sophisticated relationships with large providers and payors. The Company believes that its ability to implement its scalable operating model in a variety of acquisition contexts satisfies these objectives. As continued consolidation occurs throughout the healthcare industry, the Company believes that community hospice programs will increasingly consider combining their operations with the Company to overcome these challenges. In light of the Company's leading historical role in the hospice movement and its capabilities, management believes that many community hospices will conclude that an acquisition by Vitas would provide an attractive way to seek to provide optimal end-of-life care in their communities. Since more than 70% of the hospice programs in the U.S. are not-for-profit or government-sponsored programs, it is likely that a substantial number of acquisition opportunities will involve hospice programs operated by not-for-profit entities. Unlike acquisitions of for-profit hospice businesses, the acquisition of not-for-profit hospice operations present complex and unique challenges for the acquiring entity. For example, acquisitions of not-for-profit operations are subject to provisions of the Code and, in certain states, state attorney general powers which have been interpreted to require that the consideration paid for the assets purchased be at fair market value, and, where applicable, that any fees paid for services be reasonable. These acquisitions require a thorough understanding of the legal standards that are likely to be applicable to such transactions. In addition, not-for-profit hospices are often concerned about a decline in the quality and level of patient care following the acquisition by a for-profit organization. These concerns often necessitate special efforts by the acquiring entity to work with the not-for-profit organization to assure it that the quality and level of patient care and bereavement will not be compromised. The Company believes that its recent acquisition experience, coupled with its understanding of the not-for-profit environment, distinguish the Company from other hospice providers and should favorably position the Company for future acquisition opportunities with not-for-profit organizations. In the normal course of business, the Company engages in acquisition discussions with a number of not-for-profit and for-profit hospice programs regarding possible acquisitions and plans to continue expanding in selected locations. However, the Company is currently not a party to any acquisition agreements with respect to any future acquisitions. - GROWTH IN EXISTING SERVICE AREAS. The Company believes that continued education of healthcare providers, payors, and patients combined with the Company's increasing sophistication in caring for terminal patients, including patients with noncancer diagnoses, creates opportunities for continued growth in existing markets. Even in highly penetrated areas like Broward County, Florida (where 38% of all deaths and 68% of all cancer deaths occur under the care of a hospice provider), the Company believes that further growth is achievable because of factors such as: (i) increasingly sophisticated mechanisms to serve terminally ill non-cancer (E.G., COPD and CHF) patients with services specifically adapted to their disease-specific needs; (ii) GREATER availability of inpatient care, and particularly hospice inpatient units, for patients whose clinical needs cannot be met in the home setting; (iii) greater availability of continuous care to help patients remain at home when their symptoms and conditions require intense levels of care; (iv) an aging population, and specifically the rapidly growing segment of those over 85 years of age, which Vitas' 39 experience has shown is the age segment with the highest rate of use of hospice care; and (v) an increase in the average length of stay of hospice patients as the patients and their healthcare providers are further educated about the benefits from hospice services and elect hospice care earlier in the disease process. - GROWTH FROM EXPANDED BUSINESS ARRANGEMENTS WITH MANAGED CARE ORGANIZATIONS AND OTHER HEALTHCARE PROVIDERS. The Company intends to pursue additional and more expansive business arrangements with managed care organizations, healthcare delivery systems, and other providers. Many of the regional and national providers are attempting to develop a complete continuum of care for their patients, but they often lack a depth of specialized expertise regarding end-of-life care. The Company's operating model enables it to meet the most important expectations of these providers: real-time patient information, measurable quality and outcomes, competitive pricing, innovative programs and high level business and clinician relationships. In addition, the Company believes that it has significant name recognition in the hospice industry. Since many managed care organizations and delivery systems operate regionally, the Company believes that most of these business arrangements will be regional in nature. As a result, the Company continues to expand in its service areas and continues to pursue acquisitions in and contiguous to its current markets. In addition, the Company is exploring the possibility of providing certain management, consulting and other services to hospice providers by utilizing the Company's information and telecommunications systems. The Company is also exploring the formation of network or joint venture relationships with other hospice providers for the purpose of offering hospice care to national or regional managed care providers or other healthcare delivery systems on a regional basis. HOSPICE SERVICES HOSPICE PROGRAM ORGANIZATION Since 1995, the Company has initiated a series of Restructuring efforts designed, in part, to create a more efficient operating model that emphasizes a uniform structure in each of the Company's local hospice programs supported by centralized corporate functions. Each hospice program has a general manager supported by a senior management staff including a medical director, a patient care administrator and a director of admissions. Human resources, information systems, clinical, regulatory and financial services are provided by the Company's corporate staff to support each program as needed. GENERAL DESCRIPTION OF SERVICES The capability of the Company to deliver high quality, cost-effective clinical and psychosocial care to its patients and their families rests with an interdisciplinary team that implements an individualized plan of care designed to address the patient's and family's needs. The goal of these teams is to make a patient's final stage of life as dignified and comfortable as possible. Patient care is provided by teams that are managed by a team manager and staffed with clinical and psychosocial services specialists. Together, these professionals provide 24-hour per day, 365-day per year access to the following services and supplies when required under the plan of care and related to the patient's terminal illness: - nursing services; - physician services; - home health aide services; - medical social work services; - medications for pain control and symptom management; - family counseling and intervention; - family bereavement care and survivor counseling; - pastoral care services and support; 40 - specialized therapies including respiratory, physical and speech therapy and nutritional counseling; - home medical equipment and medical supplies; - homemaking services including occasional household chores, cooking and shopping; and - volunteer services and companionship. The number of patients cared for by each specific team varies, as does the staffing of each team. A typical team is composed of approximately 12-14 individuals who provide care to approximately 40-60 patients. Hospice care teams typically serve an assigned geographic area of a community. The majority of team services are delivered by full-time employees of the Company. Services and supplies such as home medical equipment, medications, medical supplies and certain specialty therapies are obtained under arrangements with selected subcontractors and vendors. When a patient elects to receive hospice care, the interdisciplinary team establishes a plan of care with the patient and the patient's family which specifies the frequency of patient/family visits and other services according to assessed need. Patients with intense needs may receive more services, and patients requiring round-the-clock nursing in periods of medical crisis can be accommodated either by continuous (up to 24-hour per day) home care or by placement in an inpatient setting. The treatment plan of every patient/ family receiving hospice services is reviewed at least every two weeks in an interdisciplinary team conference. These services and supplies are delivered in various settings, typically in the patient's home (which could include a long-term care or assisted living facility), but are also provided, when necessary for more aggressive symptom management, in an inpatient setting. During a patient's stay in a hospice program, the patient's condition may change, necessitating management in more than one location, in which case the Company oversees such changes and manages the care in each site. The Medicare program requires a hospice program to utilize volunteers to provide administrative and patient-related services in an amount equal to at least 5% of the patient care hours for such program. Volunteers are actively involved in many phases of the Company's operations, including certain types of patient care activities, psychosocial support (non-professional), community relations, administrative activities and bereavement functions. Volunteers receive no compensation, but the Company provides volunteers with certain types of training and education. When appropriate, volunteers are assigned to tasks they request. Services provided by volunteers enhance the services performed by the Company's paid professional staff. The Company's admissions originate from a variety of sources, including physicians, nurses, discharge planners, social workers, clergy, nursing home administrators and directors of nursing and managed care organizations and other third party payors. Each of these sources contacts a Company admission coordinator at the time it is determined that the patient's and his or her family's needs may best be met through hospice care. The Company's admissions personnel are trained in the management of the psychosocial issues surrounding hospice admissions. The principal objectives of the Company's admission process are to assure that the patient and family understand the services offered by the Company and have expectations that are consistent with the Company's program, to confirm that informed consent takes place and to examine and, if appropriate, collect information for compliance with payor requirements. The Company devotes significant effort to seek to ensure the appropriateness of the patient for admission and, further, to seek to ensure that its admission personnel communicate clearly and concisely about the decision to elect hospice care. To receive Medicare or Medicaid payment for hospice services, a hospice physician and the patient's attending physician (if any) must certify that at the time of admission the patient has a life expectancy of six months or less if the illness runs its normal course. Following admission, the patient is assigned to an interdisciplinary team which is responsible for developing and delivering the patient's plan of care. 41 In order to broaden the awareness and acceptance of hospice services, Company-trained employees educate the community regarding the general benefits of hospice care and the specific advantages of the Company's services. These representatives describe the concept of hospice care and the Vitas program in individual and group formats using customized informational materials developed by the Company. In recognition of the significance of ethical issues raised by the delivery of care to terminally ill patients, the Company has organized and maintains ethics committees at the national and local levels, which may include clinical professionals, ethicists, members of the public, and representatives of the Company's management and staff to address ethical issues that arise from time to time in the operation of the Company's business. INPATIENT SERVICES On occasion, patients may require more intensive treatment in inpatient settings, or families caring for hospice patients may require respite from the demands of providing care and support in their homes. On these occasions, the Company provides access to inpatient hospice services for short periods. The Company typically offers inpatient services in one of two ways: HOSPICE INPATIENT UNITS. Under this arrangement, the Company contracts for space in a hospital or sub-acute facility and furnishes its own employees as clinical and psychosocial staff. The hospital or sub-acute facility provides dedicated space, housekeeping and dietary services, and ancillary services such as laboratory, x-ray and pharmaceuticals on a usage basis. The Company advises the institution on renovating the space to conform to regulatory and Company specifications. Many hospitals and sub-acute facilities find this arrangement attractive since they are able to offer a wider range of services in the continuum of care. From a physical standpoint, the typical hospice inpatient unit is a ten- to twenty-bed unit designed with rooms to accommodate family members who wish to remain overnight. The units, decorated in a home-like, comfortable manner, also may include eat-in kitchens and living rooms. The units typically have few or no visiting restrictions and families are encouraged to participate in patient care decisions and caregiving. From a clinical standpoint, these units incorporate intensive staffing, as well as counseling and chaplaincy personnel and an inpatient team physician. As with other hospice patients, the patient's personal physician may continue to provide primary medical care. For those patients without primary care physicians, Company physicians provide primary medical care. CONTRACT RELATIONSHIPS. In addition to its hospice inpatient units, the Company contracts with hospitals and sub-acute and other skilled nursing facilities to provide hospice inpatient care on an as-needed basis. Under this arrangement, the plan of care prepared by the interdisciplinary team is implemented through provision of services by the hospital or sub-acute or other skilled nursing facility and its employees. The members of the interdisciplinary team retain ultimate responsibility for the patient and quality of services provided and deliver those hospice services not provided by the hospital or its employees. HOME HOSPICE CARE SERVICES FOR RESIDENTS OF LONG-TERM CARE AND ASSISTED LIVING FACILITIES In 1996, approximately 17% of the 2.3 million deaths in the U.S. occurred in long-term care facilities. In accordance with federal law, hospices may provide hospice services to residents of long-term care facilities, treating the facility as the patient's home for purposes of receiving hospice care. Accordingly, the Company has entered into agreements with long-term care facilities under which it makes its hospice services available to residents of those facilities. The long-term care facility continues to render "room and board" services, while the Company's interdisciplinary team develops a plan of care and pursuant thereto provides care related to the terminal illness. For the nine months ended June 30, 1997, approximately 23.1% of the patients admitted to the Company's hospice programs were residing in long-term care facilities at the time of admission, and approximately 34.7% of the Company's net revenue is derived from 42 routine home care and continuous care provided to such patients. In a similar fashion, the Company provides hospice care services to residents of assisted living and similar facilities as permitted under state law. See "--Operation Restore Trust and Claims Reviews." CENTRAL SUPPORT SERVICES The Company's hospice operations are supported by a corporate office located in Miami, Florida which provides coordination, centralized resources and direct central support services to each hospice location. Central support services include: - FINANCIAL MANAGEMENT SYSTEMS AND PROGRAMS. Among other things, the Company's corporate office provides electronic billing to the Medicare program and certain state Medicaid programs. Company accounting personnel prepare monthly operating statements for each hospice location as well as various analyses on operating trends and performance as compared to budget. Operating budgets are prepared at least annually for each hospice program to a level of detail which includes various key elements of team-level cost. Treasury management activities including cash disbursements are also performed in the corporate office. - INFORMATION AND TELECOMMUNICATIONS SYSTEMS. The Company has developed a proprietary information system named "Vitas Exchange" or "Vx" which provides integrated access to data related to, among other things, patient admission, clinical information management, payroll and employee productivity management, service billing and collection, and financial processing and reporting. In 1997, Vitas granted to CareTools a license to, among other things, incorporate one or more of the software components of the Vx system into the company's own software package. - ADMISSIONS AND EDUCATION PROGRAMS. Each of the Company's hospices employs individuals responsible for presenting information regarding hospice care and the Company's services to members of the local healthcare community and providing logistical support in the admissions process. Professionals based in the corporate office provide orientation and ongoing training for these employees, many of whom have prior marketing experience. In addition, centralized admissions programs are developed and implemented to support these activities as well as to extend the Company's geographic reach and service capabilities. These programs include market research, admissions support, clinical education and outreach programs, communications and product development. - CLINICAL OPERATIONS SUPPORT. The corporate office includes various staff members responsible for Company-wide development, coordination and management of clinical and quality assurance programs. Quality assurance activities seek to assure compliance with governmental, professional and Company standards of care. The corporate office supports ongoing compliance activities related to the accreditation process of the Joint Commission on Accreditation of Healthcare Organizations. The Company has developed a specialized pain measurement protocol to evaluate the effectiveness of medical interventions in reducing pain severity. The Company has also collaborated for more than three years with a nationally recognized palliative care expert to develop MVQOLI. Validity of the measurement tool has been supported by a national study. The tool profiles the person's subjective experiences across multiple dimensions, including physical discomfort, functional limitations, interpersonal relationships, well-being and contentment, and the degree of feeling purpose in life. Results from these assessment tools may be used in analyzing and enhancing the quality of care provided by the Company. The Company believes that ongoing clinical training and professional education are necessary to continually update hospice professionals in advanced symptom control techniques. The Company provides educational offerings for the professional development of employees and for the benefit of healthcare professionals in the community, and is accredited by the American Nurses Credentialing Center and certain state agencies to award continuing education credit hours for these offerings to nurses. Under the guidance of a preceptor, the Company also provides lectures on palliative care and clinical experience 43 caring for hospice patients to medical students, interns, nursing students and advanced social work students. - HUMAN RESOURCES. The Company maintains an employee assistance program and has developed a specialized support program designed to address the specific emotional and other support requirements of hospice employees and their families. In addition, the Company is committed to employee ownership both at the management and direct service levels, and maintains an ESOP and various employee stock option programs. The Company also utilizes various cash-flow advantaged employee benefit programs, including a national risk-retention workers' compensation program. The various employee benefit programs are administered by the Company's human resources department. The Company believes that the provision of its benefits assists the Company in attracting and retaining qualified personnel. By assembling and using substantial technical and management talent in a centralized office, and applying centralized office resources to support local hospice programs, the Company seeks to reduce overhead, achieve a high degree of patient and family satisfaction and generate growth in its various hospice programs. 44 SERVICE AREAS AND PROPERTIES The following table sets forth a list of the Company's current hospice programs (and their respective satellite offices, if any), the approximate month and year in which each hospice program was initially licensed and/or commenced operations, each hospice program's principal or licensed service area, and the approximate square footage and expiration dates of each hospice program's administrative offices. In addition to the administrative offices listed below, the Company's corporate office is located in Miami, Florida (approximately 57,900 square feet of space under a lease which expires in 2000).
ADMINISTRATIVE OFFICE(3) -------------------------- LEASE DATE OF LICENSED PRINCIPAL OR EXPIRATION HOSPICE PROGRAM(1) OPERATION (2) LICENSED SERVICE AREA SQUARE FEET DATE - --------------------- ---------------- ---------------------------------------- ----------- ------------- FLORIDA(4) Broward County June 1978 Broward County 14,200 2007 Dade County June 1978 Dade County 2,900 2001 (Miramar) August 1996 North Dade County 15,300 2001 Orlando April 1977 Orange, Seminole and Oseola Counties 14,200 2000 TEXAS Dallas April 1984 Greater Dallas 13,900 2000 (Denison) July 1993 Granson and Fannin Counties 1,400 1999 Friendswood January 1994 South Houston 2,700 1999 Grand Prairie December 1991 Dallas/Ft. Worth 8,800 1997 (Denton) July 1993 Montague, Gainsville, Wise and Denton 2,600 2001 Counties (Ft.Worth) December 1990 Greater Ft. Worth Texas 8,500 2001 (Granbury) July 1993 Erath, Sumervelle, Hood, Johnson, 8,300 2001 Parker and Palo Pinto Counties 2,000 1998 Houston December 1989 Greater Houston 83,00 2001 San Antonio December 1993 Greater San Antonio 8,800 2002 CALIFORNIA Covina November 1993 Los Angeles County (east) 4,800 2004 Encino November 1994 Los Angeles County (northwest) 11,000 2000 Orange August 1990 Orange County 12,700 2002 San Bernardino July 1992 San Bernardino and Riverside Counties 8,500 2002 (Cathedral City) July 1992 Cathedral City 1,800 1998 San Diego November 1992 San Diego County 8,900 1997 Torrance October 1992 Los Angeles County (west) 12,100 1998 ILLINOIS Hyde Park September 1994 Central Chicago (downtown) 3,000 1999 Lincolnwood January 1998 North Chicago 7,000 2001 Lombard February 1988 West Central Chicago 22,400 2003 Matteson December 1990 South Chicago 11,600 2003 OHIO Cincinnati October 1991 Greater Cincinnati 12,000 2001 PENNSYLVANIA Philadelphia July 1993 Greater Philadelphia 4,600 1998 WISCONSIN Milwaukee March 1994 Greater Milwaukee 5,900 2000
- -------------------------- (1) Satellite offices and alternative delivery sites in parentheses. (2) Consists of the earlier of the date of licensure for the Vitas program or an acquired program in that location. (3) In addition to these administrative offices, the Company also leases an administrative office in Washington, D.C. (4) The Company also leases various warehouse space in the Miami and Ft. Lauderdale, Florida areas. 45 The Company has arrangements for use of space in its hospice inpatient units. The majority of these arrangements are renewable annually while others have terms ranging from one to five years, subject to termination by either party upon advance notice, typically 90 or 180 days, as specified in the agreements evidencing these arrangements. The following table sets forth the location and approximate square footage of such principal arrangements to which the Company is a party:
SQUARE HOSPICE INPATIENT UNIT (INSTITUTION) FEET - --------------------------------------------------------------------------------------------------------- --------- FLORIDA Hollywood (Memorial Regional).......................................................................... 5,900 Ft. Lauderdale (North Broward Medical Center).......................................................... 6,800 Ft. Lauderdale (Florida Medical Center)................................................................ 4,600 Pembroke Pines (Memorial Hospital Pembroke)............................................................ 8,600 Tamarac (University Community Hospital)................................................................ 3,400 Miami (North Shore Medical Center)..................................................................... 4,900 Miami (Columbia Adventura Hospital and Medical Center)................................................. 5,300 TEXAS Dallas (Trinity Medical Center)........................................................................ 4,800 Fort Worth (All Saints Episcopal Hospital)............................................................. 5,900 Houston (Diagnostic Center Hospital)................................................................... 10,400 San Antonio (San Antonio Community Hospital)........................................................... 7,200 CALIFORNIA Riverside (free standing inpatient unit (1))........................................................... 16,500 ILLINOIS Lincolnwood (Ravenswood Hospital and Medical Center)................................................... 5,300 Matteson (St. James Hospital).......................................................................... 10,400 Lombard (Alexian Brothers Medical Center (2)).......................................................... N/A PENNSYLVANIA Philadelphia (Graduate Hospital)....................................................................... 3,500
- ------------------------ (1) The Company's Riverside, California freestanding inpatient unit is licensed in California as a skilled nursing facility. (2) The arrangement includes the use of 12 beds in a defined area. PAYMENT FOR SERVICES The Company derived 94% of its fiscal 1996 net revenue from the Medicare and Medicaid programs. Medicare is a federally funded and administered health insurance program primarily for individuals entitled to Social Security who are 65 years of age or older or who are disabled. Coverage of hospice services was added to the Medicare program in 1982 for Medicare beneficiaries who elect and are eligible for, the hospice benefit. To receive Medicare or Medicaid payment for hospice services, a hospice physician and the patient's attending physician (if any) must certify that the patient has a life expectancy of six months or less if the illness runs its normal course. By electing the hospice benefit, the Medicare beneficiary waives all rights to other Medicare payments for services related to the terminal illness for which hospice care was elected, except for services provided by the patient's attending physician. MEDICARE. Medicare reimbursement for hospice care is made at one of several predetermined rates for each day in which a Medicare beneficiary is under the care of the hospice. The rates are prospective rates, subject to annual adjustments for inflation. Inflationary increase adjustments in Medicare rates (as adjusted by OBRA 93) were 2.3%, 2.1%, 2.0% and 2.0% at October 1, 1994, 1995, 1996, and 1997, 46 respectively. The rate paid for any particular day varies depending on which of the four levels of care, as set forth below, is being furnished to the beneficiary: ROUTINE HOME CARE. The hospice is paid the routine home care rate (for Company programs, currently $95 to $114 per day depending upon location) for each day the patient is under the care of the hospice and not receiving one of the other levels of hospice care. This rate is paid without regard to the volume or intensity of routine home care services provided on any given day. For fiscal 1996, 78.8% of net revenue was attributable to routine home care. GENERAL INPATIENT CARE. Payment at the inpatient rate (for Company programs, currently $423 to $500 per day depending upon location) is made when inpatient care is provided in an appropriate inpatient facility for pain control and symptom management which cannot be managed in other settings. For fiscal 1996, 16.9% of net revenue was attributable to general inpatient care. CONTINUOUS HOME CARE. The hospice is paid the continuous home care rate (for Company programs, currently $555 to $664 per day depending upon location) when continuous home care is provided. The daily continuous home care rate is divided by 24 in order to arrive at an hourly rate. For every hour of continuous care furnished, the hourly rate is paid for up to 24 hours a day. A minimum of eight hours must be provided in any given day. For fiscal 1996, 3.0% of net revenue was attributable to continuous home care. INPATIENT RESPITE CARE. The hospice is paid at the inpatient respite care rate (for Company programs, currently $98 to $113 per day depending upon location) for each day on which the beneficiary is in an approved inpatient facility and is receiving respite care. Respite care is provided when the family or caregiver of the patient requires a temporary reprieve for certain reasons other than the patient's physical decline. Payment for respite care may be made for up to five consecutive days; payment for the sixth day and any subsequent days is at the routine home care rate. For fiscal 1996, less than 0.1% of net revenue was attributable to inpatient respite care. With respect to direct patient care physician services, payment for such services delivered by hospice physicians is billed separately by the hospice to the Medicare intermediary and paid at the lesser of the actual charge or the Medicare allowable charge for these services. Payment for hospice physicians' administrative and general supervisory activities is included in the per diem payment rates discussed above. Payments for attending physician professional services (other than services furnished by hospice physicians) are not paid to the hospice, but rather are paid directly to the attending physician by the Medicare carrier. For fiscal 1996, 1.3% of net revenue was attributable to physician services. The Company provides hospice care to many Medicare beneficiaries who receive their non-hospice healthcare services from HMOs under Medicare risk contracts. Under such contracts between HMOs and HHS, the Medicare payments for hospice services are carved out of the per member per month payment from Medicare to HMOs and, instead, are paid directly by Medicare to the hospices. As a result, the Company's payments for Medicare beneficiaries enrolled in Medicare risk HMOs are processed in the same way with the same rates as other Medicare beneficiaries. The recently-enacted Balanced Budget Act codified that reimbursement for hospice services provided to beneficiaries enrolled in Medicare HMOs and the new Medicare+Choice plans is paid by Medicare directly to hospice programs rather than to Medicare managed care plans. For the five years ended September 30, 1996, an average of approximately 1.9% of the Company's services (based upon Medicare equivalent rates for such services) were provided on a non-compensated or charity basis, and were not included in net revenue. The Company also has recorded a provision for bad debts (which provision has averaged 3.0% of net revenue over the past five fiscal years). The Company's bad debts relate principally to the inability to collect deductibles and coinsurance under insurance plans and to certain patients who apply for Medicaid coverage at the point of admission but do not subsequently obtain such Medicaid coverage. 47 Under a Medicare rule known as the "80-20" rule, if the number of inpatient care days furnished by a hospice to Medicare beneficiaries exceeds 20% of the total days of hospice care furnished by such hospice to Medicare beneficiaries, Medicare payments to the hospice for inpatient care days exceeding the inpatient cap are reduced to the routine home care rate. Each of the Company's hospice programs is separately subject to the inpatient cap. During the Company's history, the Company has never exceeded the inpatient cap. Medicare payments to a hospice are also subject to a separate cap based on overall average payments per admission. This cap period also runs from November 1 through October 31 of each year, and any payments exceeding the overall hospice cap must be refunded by the hospice. Each of the Company's hospice programs is separately subject to the overall hospice cap. This cap was set at $13,469 per admission through the October 31, 1996 cap period and is adjusted annually using the consumer price index. While historically the Company's revenues per admissions have generally not exceeded the applicable cap, there can be no assurance that the Company's hospices will not be subject to future payment reductions or recoupments as the result of this cap. In addition to the above regulatory limitations, Medicare fiscal intermediaries also periodically conduct focused medical reviews and other audits of hospice claims. There can be no assurance that focused medical reviews and other audits of the Company's hospice programs will not result in material recoupments or denials. Further, there can be no assurance that Medicare, Medicaid and third party payments for hospice services will continue to be available at their current levels. See "--Regulatory Environment--Reimbursement," "--Operation Restore Trust and Claims Reviews" and "--Legislative Considerations." Currently, the Company's need for working capital is reduced through its participation in the Medicare PIP program which provides for cash advances every 14 days by the Medicare fiscal intermediary to the Company based upon anticipated Medicare claim service volume. Although the Company is unaware of any legislative proposals to reduce or eliminate PIP for hospices, as there are for home health agencies, it is possible that the PIP program could undergo revision or elimination. While the Company believes that it could favorably respond over time to a change in the PIP program through accelerated processing of Medicare claims by the fiscal intermediary, there is no assurance that a change in, or the elimination of, PIP would not adversely affect the Company's financial condition or the need for working capital. MEDICAID. Medicaid is a state-administered program financed by state funds and matching federal funds to provide medical assistance to the indigent and certain other eligible persons. Hospice services became an optional state Medicaid benefit in 1986. States which elect to cover hospice services under their Medicaid programs are required to pay hospice rates which are at least at the same level, and use the same methodology, as Medicare hospice rates. In addition, the Omnibus Budget Reconciliation Act of 1989 requires that for patients receiving nursing home care under a state Medicaid program who elect hospice care under Medicare or Medicaid, the state must pay to the hospice, in addition to the applicable Medicare or Medicaid hospice per diem rate, an amount equal to at least 95% of the Medicaid per diem nursing home rate, for "room and board" furnished to the patient by the nursing home (the "unified rate"). The legislative history of this provision suggests that, in enacting it, Congress intended to assure access to hospice services for individuals residing in nursing homes. Pursuant to this provision, the Company contracts with various nursing homes for the nursing homes' provision of certain "room and board" services which the nursing home would otherwise provide a Medicaid nursing home patient, and bills and collects from the applicable state Medicaid program an amount equal to 95% of the amount which would otherwise have been paid directly to the nursing home under the state's Medicaid plan. Under its standard nursing home contract, the Company reimburses nursing homes for such services furnished to Medicaid patients at the Medicaid per diem nursing home rate. 48 OTHER ISSUES. In addition, the Medicare and Medicaid programs are subject to statutory and regulatory changes, retroactive and prospective rate adjustments, administrative rulings, and freezes and funding reductions, all of which may adversely affect the level of program payments to the Company for its services. See "--Regulatory Environment--Reimbursement." In addition to reducing hospice rates, federal or state legislators or regulators could limit or restrict the availability of the current hospice benefit (such as by placing a new ceiling or cap on, or eliminating, certain benefits or categories of benefits, by changing or reducing the benefit period, or by adjusting rates based upon certain criteria), change the current payment structure, or impose additional conditions on hospice providers. Beyond recent reductions in the inflation-based update for Medicare hospice rates, the Company could be materially adversely affected by additional efforts of governmental payors to control the amount of reimbursement or change the structure or methodology of payments for healthcare or hospice services. There can be no assurance that payments under governmental reimbursement programs will continue to be based on the current methodology or remain comparable to present levels. LEGISLATIVE CONSIDERATIONS The Balanced Budget Act, signed into law on August 5, 1997, makes numerous changes in Medicare coverage of and payment for hospice care services. Regarding Medicare payment to hospices, the law limits reimbursement by setting the payment rate increases at the "market basket" inflation rate minus one percentage point for each of the fiscal years 1998 through 2002. In addition, HHS is required to collect data from participating hospices on the costs of care they provide for each fiscal year beginning with fiscal year 1999. Effective for cost reporting periods beginning on or after October 1, 1997, hospices are required to submit claims on the basis of the location where a service is actually furnished. Instructions to implement these changes have not yet been issued, and as a result, the Company cannot predict whether these changes will have a material adverse effect on the Company. Nevertheless, with respect to submitting claims based on where services are provided, the Company understands that HCFA may seek to implement this change immediately on a basis to be established. In addition, the Balanced Budget Act extends Medicare "waiver of liability" to findings of patient ineligibility for hospice, on the grounds that the patient is not terminally ill. This allows a hospice to appeal a denial based on the determination that the patient did not meet the terminal illness requirement. As with current "reasonable and necessary" denials for which waiver of liability applies, the hospice, to succeed in such appeal, would have to show that it did not know, or could not have reasonably been expected to know, that the services furnished would not be covered. This provision could benefit the Company if its Medicare intermediary or other governmental entity were to make a finding--for example, in the context of focused medical review--that one or more patients receiving services from the Company were ineligible for the Medicare hospice benefit, and the Company were held liable for the payment amount. In such a case, the Company could seek to have such liability "waived" if it did not know, and could not reasonably have been expected to know, that the hospice services were not covered due to the patient's prognosis. The Balanced Budget Act also makes certain changes affecting hospice operations and the process of assessing whether the patient is terminally ill. The law restructures hospice benefit periods to include two 90-day periods, followed by an unlimited number of 60-day periods. This provision will require more frequent reevaluation of patients to recertify that each beneficiary is terminally ill. The law also extends the period for initial physician certification of an individual's terminal illness to eliminate the current requirement that a written physician certification must be submitted within two days after hospice care begins (or eight days if a verbal certification is made within two days). Under the law, the physician must certify that the beneficiary was terminally ill at the beginning of each benefit period. HCFA is given discretion to establish specific documentation requirements for physician certifications. The law also amends the definition of hospice care to clarify that Medicare services, in addition to those specifically required, are covered hospice services as long as they are included in a patient's plan of care. This provision codifies existing HCFA policy which allows the provision of Medicare services not specifically 49 required of hospices, such as chemotherapy services and diagnostic tests, as long as they are stated in the patient's plan of care. This provision becomes effective for items and services furnished on or after April 1, 1998. The law also waives certain staffing requirements for rural hospice care programs, and grants hospices the flexibility to employ physicians or to contract with physicians or physician groups on an independent contractor basis. In addition to Medicare, the Balanced Budget Act contains a number of changes affecting the Medicaid program. Among other things, the Balanced Budget Act allows states to mandate enrollment in managed care systems without seeking approval from HHS for waivers from certain Medicaid requirements as long as certain standards are met. Although historically (as discussed below) these managed care programs have covered hospice services, no assurance can be given that these programs ultimately will not change the reimbursement system for hospice services from per diem to managed care negotiated or capitated rates or otherwise affect the levels of payment to the Company. The Company believes that its operating model and Vx information system place it in a strong position to adapt to such changes, relative to its competitors. Reductions or changes in Medicare or Medicaid funding could significantly affect the Company's results of operations. In addition, several states (including Florida, Illinois and Ohio) have considered and enacted healthcare reform legislation, including healthcare reform programs involving Medicaid waivers. HCFA has approved waiver requests for several states in which Vitas operates, including Florida, Ohio and Illinois. Hospice care is included as a covered benefit in these states. It is uncertain at this time whether any additional healthcare reform initiatives will be implemented, or whether there will be other changes in the administration of governmental healthcare programs or interpretations of governmental policies, or other changes affecting the healthcare system. The Company believes that its operations and services respond favorably to budgetary and other concerns which have been expressed with the country's existing healthcare system. In this regard, various studies have indicated that hospice care is cost-effective when compared with other end-of-life options. This savings is largely because hospice care reduces the number of acute care inpatient days. Despite these findings, there can be no assurance that future healthcare legislation or other changes will not have a material adverse effect on the results of operations of the Company, that hospice services will continue to be funded by governmental or private healthcare programs and plans, or that if so funded, funding will continue at existing levels. REGULATORY ENVIRONMENT REGULATION-GENERAL. The healthcare industry and the Company's hospice programs are subject to extensive federal and state regulation. The Company's hospices are licensed as required under state law as either hospices or home health agencies, or both, depending on the regulatory requirements of each particular state. In addition, the Company's hospices are required to meet certain conditions of participation to be eligible to receive payments under the Medicare and Medicaid programs. These requirements include, among other things: establishment, review and update of written plans of care by an interdisciplinary group; routine provision of substantially all of the "core services" (nursing, counseling, medical social services, and until recently, physician services) directly by hospice employees; in-service training; quality assurance; use of volunteers; and retention by the hospice of financial and professional management responsibility for services and for qualifications of staff. All of the Company's hospices are certified for participation in the Medicare program, and are also eligible to receive payments as hospices in each Medicaid program in the states in which the Company operates. The Company's hospices are subject to periodic survey by governmental authorities to assure compliance with both state licensing and certification requirements. From time to time in the ordinary course of its business, the Company, like other healthcare providers, receives survey reports containing statements of deficiencies for alleged failure to comply with various regulatory requirements. The Company reviews such reports and takes appropriate corrective action. The Company believes that its hospices are in substantial compliance with such licensure and certification requirements. The reviewing agency is authorized to take various adverse actions against a 50 noncomplying hospice, including the imposition of fines, or suspension or revocation of a hospice's license. If a Company hospice were found to be out of compliance and such actions were taken against a Company hospice, they could materially adversely affect the hospice's ability to continue to operate, to provide certain services, and to participate in the Medicare and Medicaid programs which could materially adversely affect the Company. Many states have enacted certificate of need ("CON") laws or similar health planning laws which require various demonstrations or determinations of service need prior to the provision, change or expansion of certain healthcare services or the undertaking of certain capital expenditures. Some states may apply such laws to certain hospice services. While several states have abolished CON laws, and other states do not apply them to certain hospice services, such laws could affect the Company's ability to provide new services or to expand to new geographic markets. To date, only one state in which the Company currently operates -Florida- has enacted a CON or similar health planning law requiring a CON as a precondition to providing hospice services. See "--Competition." REIMBURSEMENT. A substantial portion of the Company's revenues is attributable to payments received from third-party payors, including the Medicare and Medicaid programs and private insurers. In fiscal 1996, approximately 94% of the Company's net revenue was attributable to Medicare and Medicaid payments. Both public and private payors are increasing pressures to decrease or limit increases in reimbursement rates for healthcare services. In addition, reimbursement is subject to legislative and regulatory changes to the Medicare and Medicaid programs. For example, HCFA recently published a final rule to update the wage index amounts used to adjust Medicare hospice rates for geographic differences in wages. Under the rule, based on the recommendations of a negotiated rulemaking committee (on which a representative of the Company participated as a member), the new wage index (which will be updated annually) is based on the hospital wage index with certain adjustments, and will be phased in over a three-year transition period beginning October 1, 1997. While the impact on the Company is dependent upon a number of factors, the Company estimates that the new wage index methodology will reduce reimbursement from Medicare by approximately 0.5% in fiscal 1998, approximately 1.0% in fiscal 1999 and approximately 1.5% in fiscal 2000, subject to possible change due to, among other things, changes in the Medicare hospital wage index, geographic distribution and utilization rates of each Company program, and future national utilization rates for all hospice programs. Because Medicaid hospice reimbursement is generally based upon Medicare rates, the Company anticipates that state Medicaid plans may ultimately make similar adjustments in Medicaid hospice rates, although, to date, none has occurred in states where the Company operates. Various payment changes were also mandated by the Balanced Budget Act. The levels of revenues and profitability of the Company, similar to those of other healthcare companies, will be subject to the effect of such changes and possible reductions in coverage or payment rates by private third-party payors. These changes could have a material adverse effect on the Company. Each state which maintains a Medicaid program has the option to provide reimbursement for hospice services. All states in which the Company operates cover Medicaid hospice services; however, there can be no assurance that the states in which the Company is presently operating or states into which it could expand operations will cover Medicaid hospice services. In addition, the Medicare and Medicaid programs are subject to statutory and regulatory changes, retroactive and prospective rate and payment adjustments, administrative rulings, freezes and funding reductions, all of which may adversely affect the level of program payments and could have a material adverse effect on the Company. FRAUD AND ABUSE LAWS. As a provider of services under the Medicare and Medicaid programs, the Company is subject to federal and state healthcare program fraud and abuse laws. In general, these laws prohibit certain direct and indirect payments between healthcare providers that are intended to, among other things, induce or encourage the referral of patients to, or the recommendation of, a particular provider of items or services. These laws include the Medicare and Medicaid anti-kickback statute, which prohibits, among other things, the offer, payment, solicitation or receipt of any remuneration in return for the referral of patients for items or services, or arranging for the furnishing of items or services, for which 51 payment may be made under the Medicare, Medicaid or other federally funded healthcare programs, or to induce the purchase of items or services reimbursable under these programs. These provisions have been broadly interpreted by the courts and governmental enforcement agencies to apply to a wide range of business transactions, including certain contractual relationships between healthcare providers and potential sources of referrals, including persons or entities who arrange for referrals. Under current law, courts and federal regulatory authorities have stated that this law is violated if one purpose (as opposed to a sole or primary purpose) of the arrangement is to induce referrals. Violation of the anti-kickback statute may result in criminal fines and/or imprisonment, administrative exclusion from the Medicare and Medicaid programs, and in the case of a criminal conviction, mandatory exclusion from participation in the Medicare and Medicaid programs. The Health Insurance Portability and Accountability Act of 1996 includes an expansion of certain fraud and abuse provisions, such as extending the application of Medicare and Medicaid fraud penalties to certain other federal healthcare programs. The recently-enacted Balanced Budget Act also includes numerous health fraud provisions, including new civil money penalties for violating the Medicare and Medicaid anti-kickback statute and an expansion of the mandatory and permissive exclusions added by the Health Insurance Portability and Accountability Act of 1996 to any federal health care program (other than the Federal Employees Health Benefits Program). In addition, several healthcare reform proposals in recent years have included an expansion of the anti-kickback laws to include referrals of any patients regardless of payor. Limited "safe harbor" regulations exempt certain practices from enforcement action under the prohibitions, including payments for bona fide employment relationships, for certain contracts for the rental of space, and for certain personal services and management contracts. While failure to satisfy all of the criteria for a safe harbor does not necessarily mean that an arrangement is unlawful, arrangements that are of the same generic kind as those for which a safe harbor is available may be subject to scrutiny if they fail to qualify for the appropriate safe harbor. Parties to such transactions either may or may not be subject to prosecution. In addition, an increasing number of states in which the Company operates have laws, which vary from state to state, prohibiting certain direct or indirect remuneration or fee-splitting arrangements between healthcare providers, regardless of payor source, for the referral of patients to a particular provider. In addition, some state laws lack some of the explicit "safe harbors" that may be available under federal law. Sanctions under these state anti-remuneration laws may include civil money penalties, license suspension or revocation, exclusion from Medicare or Medicaid, and criminal fines or imprisonment. In addition, under separate statutes, submission of claims for items and services that are "not provided as claimed" may lead to civil money penalties, criminal fines and imprisonment, and/or exclusion from participation in Medicare, Medicaid and other federally funded state healthcare programs. These false claims statutes include the Federal False Claims Act, which allows any person to bring suit alleging false or fraudulent Medicare or Medicaid claims or other violations of the statute and to share in any amounts paid by the entity to the government in fines or settlement. Such QUI TAM actions have increased significantly in recent years and have increased the risk that a healthcare company will have to defend a false claims action, pay fines or be excluded from the Medicare and/or Medicaid programs as a result of an investigation arising out of such an action. Under the Medicare conditions of participation and some state licensure laws, the Company, because of its method of service delivery, is required to contract with numerous healthcare providers and practitioners, including hospitals, nursing homes and physicians, when it arranges for such individuals or entities to provide services to its patients. In addition, the Company has contracts with other suppliers, such as pharmacies, ambulance services, and medical equipment companies. Some of these individuals or entities may refer, or be in a position to refer, patients to the Company, and the Company may refer, or be in a position to refer, patients to certain of these individuals or entities. Such arrangements may not qualify for a safe harbor. In the event that offers to pay or payments made (or amounts retained) by the Company or such other individuals or entities under these arrangements were deemed to implicate noncompliance with the anti-remuneration laws and did not satisfy all the criteria for a safe harbor, where available, the 52 arrangements could be found to violate such laws. The Company from time to time seeks guidance from regulatory counsel as to the changing and evolving interpretations and the potential applicability of these anti-remuneration laws to its programs, including those it acquires, and in response thereto, takes such actions as it deems appropriate. The Company believes generally that its contracts and arrangements with providers, practitioners and suppliers should not be found to violate applicable anti-remuneration laws. However, there can be no assurance that such laws will ultimately be interpreted in a manner consistent with the Company's practices. Finally, in 1993 Congress enacted legislation to extend the existing prohibition against Medicare payment for clinical laboratory services referred by a physician with an ownership interest or other financial relationship with the provider, to referrals for certain additional "designated health services" rendered to patients referred by a physician with such a financial relationship. The law, which for the majority of services covered became effective for services rendered on or after December 31, 1994, applies to both Medicare and Medicaid patient referrals. Hospice care, as such, is not included in the enumerated designated health services subject to the prohibition; however, some of the designated health services (such as physical therapy, pharmacy services and certain infusion therapies) are among the specific services furnished by the Company's hospices. Various exceptions are available for financial arrangements that would otherwise prohibit physician self-referrals. These include, under certain conditions, space rental agreements, employment relationships, personal services arrangements, payments for services unrelated to the designated services, physician recruitment, and certain isolated transactions. Although implementing regulations have been issued with respect to clinical laboratory services, proposed regulations have not yet been issued with respect to other designated health services, and there can be no assurance that existing services offered by the Company, or new services, will not be interpreted to be subject to such prohibitions on physician self-referrals. Many states (including California, Florida and Illinois) have enacted physician self-referral provisions, which generally prohibit financial relationships with referral sources that are not limited to services for which Medicare or Medicaid payment may be made. Similar penalties, including loss of licensure or eligibility to participate in governmental reimbursement programs and civil and criminal fines, apply to violations of these state self-referral prohibitions. These laws vary from state to state and have seldom been interpreted by the courts or regulatory agencies. The Company from time to time seeks guidance from regulatory counsel on these self-referral prohibitions, and the Company believes that its practices should not be found to violate such provisions. In the event such prohibitions were deemed to apply to the Company's services, however, many of the Company's arrangements would likely meet an exception. If an exception were not available, the Company could, among other things, seek to modify its contractual arrangements so as to satisfy an available exception, or the physicians with whom the Company has compensation arrangements could be limited in their ability to refer patients to the Company for certain health services. OTHER FEDERAL AND STATE REGULATIONS. The federal government and all states regulate various aspects of the hospice industry. In particular, the Company's operations are subject to federal and state health regulatory laws including those covering professional services, the dispensing of drugs and certain types of hospice activities. Certain of the Company's employees are subject to state laws and regulations governing the ethics and professional practice of medicine, respiratory therapy, pharmacy and nursing. The Company's operations are subject to periodic survey by governmental and private accrediting entities to assure compliance with applicable state licensing, Medicare and Medicaid certification, and accreditation standards, as the case may be. From time to time in the ordinary course of business, Vitas, like other healthcare companies, receives survey reports containing deficiencies for alleged failure to comply with applicable requirements. The Company reviews such reports and takes appropriate corrective action. The failure to effect such action or to obtain, renew or maintain any of the required regulatory approvals, certifications or licenses could materially adversely affect the Company's business and could prevent the programs involved from offering products and services to patients. In addition, laws and regulations often are adopted to regulate new products, services and industries. There can be no assurances that either the states 53 or the federal government will not impose additional regulations upon the activities of the Company which might adversely affect its business, results of operations or financial condition. The Company maintains an internal regulatory compliance review program and from time to time retains regulatory counsel for guidance on applicable laws and regulations. However, no assurance can be given that the practices of the Company, if reviewed, would be found to be in compliance with applicable health regulatory laws, as such laws ultimately may be interpreted, or that any non-compliance with such laws would not have a material adverse effect on the Company. OPERATION RESTORE TRUST AND CLAIMS REVIEWS OPERATION RESTORE TRUST. In recent years, the federal government, some state enforcement agencies, and private insurers have all increased efforts to enforce the fraud and abuse laws. ORT is a federal/state effort, which includes audits, investigations and aggressive surveys, to focus the financial and human resources involved in such enforcement on specific geographic and subject areas. In May 1995, President Clinton announced this coordinated effort by federal and state agencies to review industry practices and regulatory compliance of home health agencies, nursing homes, and certain durable medical equipment suppliers. The initiative was initially targeted to California, Florida, Illinois, Texas and New York, the five states in which Medicare spending is the highest. In June 1995, federal officials announced the expansion of ORT to include hospices in these five states. As part of its review of hospices under ORT, the OIG has published audit reports on the OIG's reviews of five hospice programs unrelated to the Company. These OIG audit reports focused on the hospice eligibility of long-stay patients (those who are in a hospice program for longer than 210 days). In its first audit report on one unrelated Florida hospice issued in August 1996, the OIG concluded that, based upon a review of 364 medical records of certain long-stay patients, (i) 176 of the medical records did not support the beneficiaries' eligibility for hospice coverage, and (ii) for 118 beneficiaries, the OIG was not able to determine whether the beneficiaries were terminally ill. As a result of these findings, the OIG recommended that the fiscal intermediary (i) recover a minimum of $8.9 million for the beneficiaries determined by the OIG not to be eligible for Medicare hospice benefits, and (ii) conduct medical reviews of the other cases in which the OIG was unable to determine whether the beneficiaries were terminally ill, which cases, if determined to be ineligible, could result in an additional recoupment of up to $5.9 million. Since that August 1996 audit report, the OIG has issued four additional audit reports on hospice programs unrelated to the Company. These audit reports are similar in nature to the first Florida hospice audit report. Based upon reviews of 147, 60, 78 and 77 medical records, respectively, the OIG recommended that the respective fiscal intermediaries (i) recover a minimum of $4.0 million, $973,000, $2.1 million, and $1.2 million, respectively, for the beneficiaries determined by the OIG not to be eligible for Medicare hospice benefits (71, 20, 37 and 25 cases, respectively), and (ii) conduct medical reviews of the other cases in which the OIG was unable to determine whether the beneficiaries were terminally ill (45, 2 and 19 cases, respectively), which cases, if determined to be ineligible, could result in additional recoupments of up to $2.5 million, $69,000, and $1.35 million, respectively, for three of the four hospice programs (and none with respect to the fourth hospice program). Three different fiscal intermediaries serve the five hospice programs that are the subject of these audit reports, and each responded in writing to the audit reports on the hospices it serves. One fiscal intermediary raised several issues regarding the recoupment process and expressed a willingness to meet with the OIG and HCFA on these issues. Another fiscal intermediary stated that it would be "reluctant to recover payments." The third fiscal intermediary indicated that, due to the subject hospice's excellent reputation, it would need to consult with HCFA before seeking to recover any overpayments. None of these fiscal intermediaries has, to the Company's knowledge, made a final determination as to whether it will seek to follow the OIG's recommendations or demanded recoupments based on the OIG reports for the applicable hospices. Nevertheless, a senior HHS official has stated subsequently that the agency still intends to seek recoveries under certain limited circumstances. 54 In testimony before congressional subcommittees, senior OIG officials stated the OIG's belief that it has identified $83 million in overpayments as a result of the audit of 12 hospices located in Illinois, Florida, Texas and California. These officials also stated the OIG's belief that these audits had uncovered other problems regarding internal controls, questionable hospice marketing practices and potential illegal incentives to refer nursing home patients to hospices, and that the OIG has ongoing investigations. The provision of hospice care to residents of long-term care facilities has come under OIG scrutiny as part of the ORT initiatives. In September 1997, the OIG issued a report based on a sample of hospices and hospice patients unrelated to the Company entitled "Hospice Patients in Nursing Homes" in which the OIG recommended that HCFA seek legislation to modify Medicare or Medicaid payments for hospice patients living in nursing homes. The OIG report suggested that such modifications could include but are not limited to lowering hospice payments for patients who reside in nursing homes or revising requirements for services provided by nursing homes for terminal patients. The OIG report further suggested that representatives from the nursing home and hospice industry along with HCFA work in a collaborative manner to develop additional options to preserve and enhance hospice care for those who need it when living in a nursing home. Such modifications could have a material adverse effect on the Company. In addition, the Company understands that the OIG intends to issue another general report focusing on hospice eligibility issues. In May 1997, HHS announced the expansion of ORT during the next two years to include the following additional 12 states: Arizona, Colorado, Georgia, Louisiana, Massachusetts, Missouri, New Jersey, Ohio, Pennsylvania, Tennessee, Virginia, and Washington. Vitas currently operates in two of these states: Pennsylvania and Ohio. The OIG stated that it will focus on potential fraud involving additional types of health care services, reportedly to include partial hospitalization, psychiatric hospitals, and independent physiological laboratories, and it is unclear whether hospices will continue to be a focus in these additional states. The Company operates in four of the five initial ORT states. As a part of the OIG's review of hospices under ORT, beginning in July 1995, the OIG conducted on-site medical and operational reviews at six of the Company's hospice programs and at its corporate office. The medical review focused on the eligibility of long-stay patients. No reports have been issued by the OIG on the Company's hospice programs. Although no exit conferences have been held, in response to the Company's request for information, in September 1995 OIG auditors indicated they would discuss their preliminary views regarding their initial on-site visits to the three hospice programs that had been visited prior to that time. Based on such discussions, the Company understands that the auditors had formed a preliminary view that, of the 215, 211 and 106 medical records of long-stay patients reviewed in the three programs, they considered 164, 141 and 85, respectively, not to be eligible for Medicare hospice services. With respect to the first two of these programs, they considered the charts for 30 and 16 (and none with respect to the third program) to be inconclusive as to whether the beneficiaries were terminally ill. Despite repeated requests for additional information, the Company has received no further audit results from the OIG, including preliminary or final results of the audit of any of the other three Company programs audited since that time or preliminary or final results of any other issues the OIG may believe to be of regulatory concern. The OIG has reviewed medical records of a total of approximately 1,150 of the Company's patients at the six audited Company programs. The Company, through outside healthcare regulatory counsel, retained a recognized physician expert in peer review to examine a random sample of the charts reviewed by the OIG at one of the Company's programs. Based on the documentation in the patient charts, the independent physician expert concluded that, in every case in this sample, the patient's physician could reasonably have concluded that the patient was eligible for hospice services. In a 1997 report, the Institute of Medicine Committee on Care at the End of Life questioned in general the OIG's assumptions on the degree of precision expected in making terminal prognoses. The Committee pointed out that, in the case of the OIG's first audit report of a Florida hospice unrelated to the Company, the long-stay patients reviewed represented only about two percent of all patients enrolled 55 in the hospice during that period. Further, the Committee urged regulators to exercise caution in interpreting hospice stays that exceed six months as "evidence of anything other than the consequence of prognostic uncertainty." In addition, in a June 1997 letter from a representative of HHS to the Company in response to previous correspondence from the Company, the HHS representative indicated, among other things, that "it may seem ironical that a longer life (and longer length of stay in hospice) could result from a terminal diagnosis, but the Medicare program recognizes this possibility and would not penalize an individual for living longer than originally expected, nor would we penalize a hospice for caring for that same individual." The Company strongly disagrees with the OIG's apparent interpretation and application of the Medicare hospice eligibility requirements, and believes that it met applicable Medicare eligibility documentation requirements in all material respects. The Company understands that the activities of the OIG Office of Audit Services and the OIG Office of Investigations involving the Company are ongoing. The scope and ultimate disposition of the ORT and OIG activities, and the possible impact on the Company of such activities, cannot currently be predicted. Numerous factors may limit the comparability of the results of the five published OIG audit reports to any final results of the reviews of any of the Company's hospice programs, including, without limitation, the length of stay, the case mix, acuity or other circumstances of the patients, the randomness of the sampling, and the specific policies and practices of the particular hospice programs. The Company believes that its admissions, average length of stay and average daily census have been negatively impacted in fiscal 1996 and fiscal 1997 by several items, including implementation of new guidelines developed by NHO (described below), in consultation with HCFA, which established more specific criteria for analyzing terminal prognoses in certain non-cancer diagnoses, and publicity resulting from, and reactions to, the ORT initiatives and other claims review activities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Further, the Company believes that publicity regarding allegedly ineligible long-stay patients of other hospices caused some hospice and attending physicians to be overly conservative in referring patients to hospice and in determining patients' prognoses, both at the time of admission and upon periodic recertifications. If the OIG releases an adverse report or takes some other adverse action with respect to patient eligibility or other issues, the Company expects to vigorously defend its position. However, there can be no assurance that these matters, including any costs of defense, will not have a material adverse effect on the Company. In addition, the publication of any adverse report, or any adverse publicity regarding these matters, regardless of their merit or eventual outcome, could have a material adverse effect on the Company's business and reputation for a least some period of time. CLAIMS REVIEWS. Medicare and Medicaid fiscal intermediaries periodically conduct post-payment or other reviews and other audits of healthcare claims, including hospice claims. These contractors are under pressure from state and federal governments to scrutinize healthcare claims to determine their validity and appropriateness. During the past several years, the Company's previous Medicare fiscal intermediary conducted a number of reviews of hospice provider claims, including the Company's. These reviews included both focused medical reviews of claims for patients with non-cancer terminal diagnoses and long-stay patients (patients with lengths of stay greater than 210 days) and post-pay audits. In order to conduct these reviews, the intermediary requested certain documentation from the Company and then reviewed it to determine eligibility of the patients, technical compliance with federal rules and regulations and appropriateness of the documentation and the care provided. Concurrently with these reviews, industry representatives, including NHO and the Company's national medical director, developed and distributed guidelines to hospice providers with parameters for determining a terminal prognosis in selected non-cancer diseases. Working in consultation with HCFA, NHO developed these new guidelines for patients with non-cancer diagnoses which were adopted by HCFA in November 1995. Between March 1, 1996 and August 1, 1997, as part of its focused medical review, the Company's previous Medicare fiscal intermediary reviewed 3,557 claims and denied approximately 210 of such claims. 56 The Company is in the process of challenging approximately 164 of the denials through requests for reconsideration or appeals to an administrative law judge. These challenges have not been fully resolved. The other denials have either been reversed (and paid) or the Company has chosen not to challenge them. In support of the Company's view that it has materially satisfied applicable regulatory requirements, of approximately 200 patient charts reviewed by both OIG auditors pursuant to the ORT audits and Vitas' former fiscal intermediary pursuant to focused medical review, the intermediary approved for payment all of the claims reviewed for approximately 94% of these patients, and approved part of the claims for an additional 5% of these patients (and most of the denied claims are in the appeal process). Focused medical review has not had a material adverse effect on the Company, but no assurance can be given that, in the future, it will not have a material adverse effect. In May 1997, due to the decision of Aetna Life & Casualty to discontinue serving as a Medicare fiscal intermediary, the Company's fiscal intermediary changed to Palmetto Government Benefits Administrators. Several of the Company's programs have continued under focused medical review since transitioning to the new intermediary. The Company does not anticipate that the change to a new fiscal intermediary will have an impact on its reimbursement process. Florida's Medicaid program implemented a utilization review program for hospice providers in order to determine compliance with Medicaid hospice policy, to verify appropriate admission of patients, and to ensure that Medicaid beneficiaries were receiving appropriate services. The utilization review program requires each Florida hospice provider to regularly submit certain documentation for all long-stay hospice patients receiving Medicaid benefits (with lengths of stay greater than 210 days). The utilization review program also includes reviews of a random sample of all Florida Medicaid hospice patients. From February 1, 1997 through June 30, 1997, retrospective reviews of documentation for approximately 1,000 Florida hospice patients, including approximately 250 patients of the Company, were conducted by the state's peer review organization. This initial review was characterized by the Florida Medicaid intermediary as a "demonstration period," during which no denials or recoupments were to be made. The intermediary has announced that effective July 1, 1997, any charts submitted for review could be subject to denial of payment or recoupment. Since July 1, 1997, the Company's programs in Florida have been required to submit information regarding 28 long-stay patients. No results of these reviews have been provided to the Company. There can be no assurance that reviews and/or similar audits of Vitas' claims by federal or state intermediaries will not result in material recoupments or denials which could have a material adverse effect on the Company. EMPLOYEES As of June 30, 1997, the Company had approximately 2,050 full-time and 900 part-time employees, or approximately 2,310 full-time equivalent employees. Of these full-time equivalent employees, approximately 560 are registered nurses, 110 are licensed practical/vocational nurses, 560 are home health aides and homemakers, 40 are physicians, 120 are social workers and case workers, 80 are chaplains, 240 are employed as team managers or in team support activities, 230 are admissions employees (including hospice representatives, clinical employees assigned to the admissions department and admissions support employees) and admissions management engaged in admission-related activities, 170 are employed in management activities and 190 are employed in administrative or clerical activities. The Company is not a party to any collective bargaining agreements. The Company also maintains self-insured workers' compensation insurance coverage and considers its relations with its employees to be good. The Company competes with hospices, hospitals, nursing homes, home health agencies, and other healthcare providers for qualified personnel in the various medical and psychosocial professions. There is intense competition for certain medical and psychosocial specialists in certain geographic areas of the country. It is possible that the shortage of and demand for certain medical and psychosocial professionals 57 in various geographic regions could materially affect the Company's existing operations and its ability to expand and develop new sites in certain markets. COMPETITION The hospice care market is highly fragmented. Based on industry data, the Company estimates that approximately 70% of the existing hospice programs are operated as local not-for-profit or government-sponsored programs. In addition, the Company competes with hospitals, nursing homes, home health agencies, physicians and other healthcare providers, including those with which the Company presently maintains contractual relationships, that offer hospice and/or palliative care services. Many of them offer home care to patients who are terminally ill, and some actively market palliative care and "hospice-like" programs. Certain of these existing healthcare providers are significantly larger and better capitalized than the Company. Various healthcare companies have diversified into the hospice market. In addition, competition in Florida (and potentially other states) is affected by CON laws. For example, a healthcare provider recently was awarded a CON in the Orlando, Florida area, which is currently being challenged by the Company. If the Company is unsuccessful in its challenge, it will experience increased competition among hospice care providers in that area, which could have a material adverse effect on the Company's Central Florida operations. If these CON laws were to change, the Company could be subject to increased competition. See "--Regulatory Environment." The Company maintains proprietary rights to certain service marks, promotional materials, and computer software which the Company considers to be important to effective differentiation from other hospice providers. The Company does not, however, have proprietary rights to many of the items and modes of service which it uses to furnish patient care. As such, competitors may copy the Company's methods of operation and make use of the same items and modes of service. Currently there are no independent publicly traded companies that offer predominantly hospice services. LEGAL PROCEEDINGS The Company from time to time is subject to various disputes and other litigation arising in the ordinary course of business, none of which is expected to have a material adverse effect on the Company. The Company has had a relatively small number of malpractice-type claims since its inception. The Company has general and professional liability insurance in the amount of $10 million. 58 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information concerning each of the Company's directors and executive officers:
NAME AGE POSITION(S) WITH THE COMPANY - ----------------------------------------------------- --- ----------------------------------------------------- Hugh A. Westbrook (1)................................ 52 Chairman of the Board of Directors and Chief Executive Officer Esther T. Colliflower (1)............................ 71 Vice Chairperson of the Board of Directors J. R. Williams, M.D. (1)............................. 58 Executive Vice President, Chief Patient Care Officer and Director Mark A. Sterling..................................... 43 Senior Vice President-Strategic Development, Special Counsel for Regulatory Affairs and Secretary Thomas E. Combs...................................... 50 Senior Vice President-Hospice Operations Deirdre Lawe......................................... 42 Senior Vice President-Marketing and Admissions David A. Wester...................................... 38 Vice President, Chief Financial Officer, Treasurer and Assistant Secretary Donald J. Gaetz...................................... 49 Director William P. Ferretti (2)(3)........................... 53 Director Patrick T. Hackett (3)............................... 36 Director Timothy S. O'Toole (2)(3)............................ 41 Director Bruce F. Wesson (2).................................. 54 Director
- ------------------------ (1) Member of the Executive Committee. (2) Member of the Compensation Committee. (3) Member of the Audit Committee. HUGH A. WESTBROOK, a co-founder of the Company's operations in 1978, has served as Chief Executive Officer of the Company since 1983 and as Chairman of the Board since 1986. Mr. Westbrook has co-chaired the National Hospice Education Project that ultimately led to Congress passing Medicare reimbursement for hospice services in 1981. In addition, Mr. Westbrook helped author and gain passage of the statutory licensing of hospices in Florida. In November 1996, Mr. Westbrook was awarded the NHO's Founder's Award. Prior to his work with hospice, Mr. Westbrook was a pastor for ten years in North Carolina and Florida, which included being a hospital chaplain specializing in care of terminally ill patients and their families. Mr. Westbrook also served as Associate Dean of Miami-Dade Community College from 1976 to 1978. Mr. Westbrook serves the community as a board member of several organizations, including the South Florida Make-A-Wish Foundation, U.S. Coast Guard Foundation, Inner City Youth Center, Inc., and Duke University Divinity School. Mr. Westbrook received his divinity training at Duke University and a bachelor of arts from Emory University. ESTHER T. COLLIFLOWER, a co-founder of the Company's operations in 1978, has served as a director since 1983 and Vice Chairperson of the Board of Directors of the Company since 1988 and served as Senior Vice President of the Company from 1986 to 1996. Prior to 1978, Ms. Colliflower was Director of the Life Lab program at Miami-Dade Community College and later became an Associate Dean. Ms. Colliflower has a nursing degree from the University of Pennsylvania and a Master's degree with a focus on adult education from Lone Mt. College in San Francisco, California. 59 J. R. WILLIAMS, M.D., joined the Company in 1984 as Medical Director of the Dallas hospice. He has served as Executive Vice President and a director of the Company since 1990, and as Chief Patient Care Officer since January 1995. Dr. Williams was the Company's Chief Operating Officer from 1990 to 1993. Previously he served as National Medical Director and later as Regional Vice President in Texas and Chicago. Dr. Williams co-founded Texas Oncology, P.A., a statewide network of oncologists that consults and treats cancer patients. While developing the oncology network, Dr. Williams was an oncology specialist at Baylor University Medical Center in Dallas. Dr. Williams researched the production and prevention of certain cancers for the National Cancer Institute and was a research fellow in medicine for Harvard Medical School. He is board certified in both Internal Medicine and Medical Oncology. Dr. Williams has a medical degree and a master's degree in biochemistry from Tulane University and an A.B. in chemistry from Princeton University. MARK A. STERLING, who joined the Company in 1993, serves as Senior Vice President--Strategic Development, Special Counsel for Regulatory Affairs and Secretary. He previously served as Vice President--Legal and Regulatory Affairs. Prior to joining the Company, Mr. Sterling was a partner at the law firm of Hogan & Hartson L.L.P. in Washington, D.C., focusing on healthcare transactional and regulatory matters. While at Hogan & Hartson L.L.P., he also served as President and as a director of Hospice Care of the District of Columbia. He is a director of Comprehensive Care Management Corporation. THOMAS E. COMBS, who joined the Company in 1989, serves as Senior Vice President--Hospice Operations. He has served the Company in various roles, including Regional Vice President of each of four regions, Vice President of Acquisitions and Development, and began his service as General Manager of the Company's Dallas, Texas program. Mr. Combs previously held positions as President of Hospice of Southwest Florida in Sarasota and Director of Finance for Hospice Care, Inc. in Pinellas County, Florida. DEIRDRE LAWE, who joined the Company in 1987, serves as Senior Vice President--Marketing and Admissions. Ms. Lawe served as the Regional Vice President for the Southeast Region and subsequently for the West Coast Region, and she served as the General Manager of the Company's Broward County, Florida hospice program from 1989 to 1990. Prior to joining Vitas, she was the Director of Pacemaker Monitoring with Survival Technology in New York City. Ms. Lawe has clinical experience as a senior and staff nurse in the coronary care unit of Montefiore Medical Center in the Bronx, New York. DAVID A. WESTER, who joined the Company in 1997, serves as Vice President, Chief Financial Officer, Treasurer and Assistant Secretary. Prior to joining the Company, Mr. Wester was Executive Vice President for the Florida subsidiaries' operations of Foundation Health Systems, a diversified provider of managed health care benefits and related services for individuals, employers and government agencies. Prior to his work with Foundation Health Systems, Mr. Wester served in various senior capacities for companies affiliated with Foster Management, a private investment firm, and assisted in the development of several healthcare companies, involved in managed care, physical therapy and orthopedics and prosthetics. DONALD J. GAETZ, a co-founder of the Company and a director of the Company since 1983, also served as Vice Chairperson of the Board of Directors of the Company from 1991 to 1996. From 1983 to 1991, Mr. Gaetz served as Executive Vice President of the Company. WILLIAM P. FERRETTI has been a director of the Company since 1988. Mr. Ferretti is the Chairman and Chief Executive Officer of Medstar Communications, Inc., a television programming company, which he co-founded in 1982. Mr. Ferretti also is a general partner of the NEPA Venture Fund-II. He currently serves as a director of MHM Services, Inc. and U.S. PHYSICIANS, Inc. Previously, he served as a director of Access Health, Inc. and Co-Care Eye Centers. PATRICK T. HACKETT has been a director of the Company since 1993. Mr. Hackett is a Managing Director and member of E.M. Warburg, Pincus & Co., LLC ("E.M. Warburg"), and its predecessor since 1994. Mr. Hackett is a member of the Board of Directors of Transition Systems, Inc. and Coventry Corporation. 60 TIMOTHY S. O'TOOLE has been a director of the Company since 1991. Mr. O'Toole serves as Executive Vice President and Treasurer and a director of Chemed, a diversified public corporation with strategic investments in companies in various industries including healthcare services, which positions he has held since May 1992, February 1989 and 1991, respectively. He is also a director of National Sanitary Supply Co. and Patient Care, Inc., which are subsidiaries of Chemed. BRUCE F. WESSON has been a director of the Company since 1993. Mr. Wesson is a General Partner and the President of Galen Associates, a New York healthcare investment partnership. Prior to joining Galen Associates in 1991, Mr. Wesson was employed in Smith Barney Shearson Inc.'s Corporate Finance Department for 23 years, most recently as a Senior Vice President and Managing Director. He is a director of Witco Corporation. The Company's Charter and By-Laws provide that the Board of Directors of the Company, which presently consists of eight members, shall consist of that number of directors as determined by resolution of the Board of Directors. Directors are divided into three classes, each consisting of approximately one-third of the total number of directors. The term of office of each class is three years and expires in successive years at the time of the annual meeting of stockholders. Class I directors, consisting of Messrs. Ferretti and O'Toole and Ms. Colliflower, will hold office until the 2000 annual meeting of stockholders; Class II directors, consisting of Dr. Williams and Mr. Hackett, will hold office until the 1998 annual meeting of stockholders; and Class III directors, consisting of Messrs. Westbrook, Gaetz and Wesson, will hold office until the 1999 annual meeting of stockholders. Mr. O'Toole has served as a director as a designee of the holder of the 9% Preferred Stock and Messrs. Wesson and Hackett have served as directors as designees of the holders of Series B Preferred Stock. See "Description of Capital Stock--Investor Agreement" and "--Stockholders' Agreement." COMMITTEES OF THE BOARD OF DIRECTORS EXECUTIVE COMMITTEE. The members of the Executive Committee of the Company's Board of Directors are Mr. Westbrook and Dr. Williams and Ms. Colliflower. The Executive Committee has been delegated all of the powers of the Board of Directors to the extent permitted under the Delaware General Corporation Law. AUDIT COMMITTEE. The members of the Audit Committee of the Company's Board of Directors are Messrs. Ferretti, O'Toole and Hackett, all of whom are nonemployee directors. The Audit Committee, among other things, makes recommendations concerning the engagement of independent auditors and reviews the results and scope of the annual audit and other services provided by the Company's independent auditors. COMPENSATION COMMITTEE. The members of the Compensation Committee of the Company's Board of Directors are Messrs. Ferretti, O'Toole and Wesson, all of whom are nonemployee directors. The Compensation Committee makes recommendations to the full Board of Directors concerning salaries, incentive compensation and benefits for executive officers and certain other employees of and consultants to the Company, and grants options under the Company's Management Equity Incentive Plans and otherwise. In addition, the Compensation Committee reviews and makes recommendations to the full Board of Directors concerning special compensation arrangements. COMPENSATION OF DIRECTORS Except for Messrs. Ferretti and O'Toole, members of the Company's Board of Directors do not receive compensation for serving on the Board or any committee thereof. Messrs. Ferretti and O'Toole each receive a $25,000 annual fee for serving on the Board and their respective committees of the Board. All directors receive reimbursement for expenses incurred in attending Board and committee meetings. 61 Directors are eligible to receive option grants under the Company's Management Equity Incentive Plans. The terms of options granted under these plans are determined at the time of grant. See "--Management Equity Incentive Plans." No options were granted to directors under the Management Equity Incentive Plans in fiscal 1996. Pursuant to a Consulting Agreement effective as of January 1, 1997 between the Company and Ms. Colliflower, the Company has agreed to pay Ms. Colliflower $2,000 for each day that Ms. Colliflower is requested to provide and does provide consulting services to the Company in addition to any continued services she may provide as a member of the Board of Directors of the Company. These consulting services include (but are not limited to) consulting to the Patient and Family Services Department on clinical matters, design and implementation of the patient care team model, policy and procedures, visits to hospice locations regarding management issues, interdisciplinary team processes and overall employee motivation matters and other matters as directed by the Company. The agreement also provides for the reimbursement by the Company of reasonable business expenses incurred by Ms. Colliflower in furtherance of her duties and performance of consulting services. The term of the agreement began as of January 1, 1997 and expires on January 1, 1998, is subject to earlier termination upon death, for cause, or for any reason by either party upon sixty (60) days' written notice to the other party, and may be extended by mutual written agreement. The agreement was conditioned upon Ms. Colliflower entering into a Confidentiality and Non-Disclosure Agreement with the Company. With respect to any intellectual property rights or other works made for the benefit of the Company, the agreement provides that the Company shall be considered the author of the work and is regarded as the initial owner of the copyright or other intellectual property rights unless the parties have expressly agreed otherwise in a written agreement signed by them. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During fiscal 1996, Messrs. Ferretti, O'Toole and Wesson, all of whom are non-employee directors, served on the Compensation Committee of the Board of Directors. Mr. O'Toole is an executive officer and director of Chemed. Upon completion of the Offering, the Company intends to redeem all of the outstanding shares of the 9% Preferred Stock, which is owned by Chemed, at an aggregate redemption price of approximately $30.0 million. It is currently anticipated that, on the closing of this Offering, Chemed will exercise a portion of one of its two warrants and purchase 246,634 shares of Common Stock, with the remaining portion of the warrant expiring by its terms. In addition, after the Offering, the Company will use a portion of the net proceeds from the Offering to repurchase the other warrant held by Chemed for a purchase price per share equal to the excess of the public offering price over $12.19, or an aggregate of $1.5 million based on an assumed public offering price of $15.00 per share. See "Use of Proceeds." The Company has entered into a Registration Rights Agreement with certain stockholders of the Company, Chemed, the holders of Series B Preferred Stock and the Bank providing for the registration of Common Stock held by such persons under certain terms and conditions. For a description of the terms of the Registration Rights Agreement, see "Description of Capital Stock--Registration Rights." The Company has entered into an Investor Agreement with Chemed providing Chemed with board representation and other rights relating to its ownership of securities of the Company. For a description of the terms of the Investor Agreement, see "Description of Capital Stock--Investor Agreement." The Company has entered into a Stockholders' Agreement with Mr. Westbrook, Carole S. Westbrook and the holders of Series B Preferred Stock providing certain rights of first refusal relating to Common Stock owned by such parties, and other rights. This agreement terminates upon the closing of this Offering. For a description of the terms of the Stockholders' Agreement, see "Description of Capital Stock-- Stockholders' Agreement." 62 EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table sets forth certain summary information concerning the compensation paid to the Company's Chief Executive Officer and each of the three most highly compensated executive officers whose salary and bonus exceeded $100,000 in fiscal 1996 for services rendered in all capacities to the Company for fiscal 1996. All of the executive officers named below are referred to herein as the "named executive officers." SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ------------------------- OTHER ANNUAL ALL OTHER NAME AND PRINCIPAL POSITION(S) SALARY COMPENSATION COMPENSATION - ----------------------------------------------------------------------- ---------- ------------- ------------- Hugh A. Westbrook...................................................... $ 421,425 $ 42,701(2) $ 128,750(3) Chairman of the Board and Chief Executive Officer J.R. Williams, M.D..................................................... 315,000 -- 8,216(4) Executive Vice President and Chief Patient Care Officer Mark A. Sterling....................................................... 180,000 -- 2,439(5) Senior Vice President-Strategic Development, Special Counsel for Regulatory Affairs and Secretary Esther T. Colliflower (1).............................................. 200,000 -- 75,000(6) Vice Chairperson of the Board and Senior Vice President (former)
- ------------------------ (1) Ms. Colliflower was no longer employed with the Company as of December 1996, but continues to serve as the Vice Chairperson of the Board of Directors of the Company, and provides consulting services pursuant to a consulting agreement with the Company. See "--Compensation of Directors." Ms. Colliflower is also receiving severance payments pursuant to a severance arrangement with the Company. See "--Employment and Other Agreements." (2) Includes (i) $30,300 attributable to portion of salary for personal assistant and (ii) $11,701 attributable to amortization of purchase price of car furnished for Mr. Westbrook's use. (3) Consists of (i) $85,000 received in consideration of the non-compete restrictions in Mr. Westbrook's employment agreement, (ii) $37,226 representing the approximate value to Mr. Westbrook with respect to the payment of premiums by the Company in connection with a split-dollar insurance arrangement, and (iii) $6,524 representing premiums paid on behalf of Mr. Westbrook with respect to a supplemental disability insurance policy. See "--Employment and Other Agreements." (4) Consists of $8,216 representing premiums paid on behalf of Dr. Williams with respect to a supplemental disability insurance policy. (5) Includes (i) $872 representing the amount of the matching contribution made by the Company to its contributory retirement plan (the "401(k) Plan") and (ii) $1,567 representing premiums paid on behalf of Mr. Sterling with respect to a supplemental disability insurance policy. (6) Consists of an amount received in consideration of the non-compete restrictions in Ms. Colliflower's employment agreement. See "--Employment and Other Agreements." David A. Wester joined the Company as Vice President, Chief Financial Officer, Treasurer and Assistant Secretary in August 1997. Mr. Wester's initial annual salary is $198,000. OPTION GRANTS During fiscal 1996, no options were granted to any of the named executive officers of the Company. The Company granted stock options to Mr. Wester for 20,166 shares at an exercise price of $13.64 per share, upon commencement of his employment. 63 OPTION EXERCISES AND FISCAL YEAR-END VALUES The following table sets forth certain information concerning the fiscal year-end value of unexercised stock options held by the named executive officers. None of the named executive officers exercised any options during fiscal 1996. FISCAL YEAR-END OPTION VALUES
NUMBER OF SHARES OF COMMON STOCK UNDERLYING UNEXERCISED VALUE OF UNEXERCISED OPTIONS AT SEPTEMBER 30, IN-THE-MONEY OPTIONS 1996 AT SEPTEMBER 30, 1996 (1) -------------------------- --------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------------------------------------- ----------- ------------- ------------ ------------- Hugh A. Westbrook...................................... 843,325 -- $ 5,562,797 -- J.R. Williams, M.D..................................... 123,748 -- 1,644,267 -- Mark A. Sterling....................................... -- 25,666 -- $ 43,645 Esther T. Colliflower (2).............................. 128,332 -- 846,511 --
- ------------------------ (1) There was no public market for the Common Stock at September 30, 1996. These values have been calculated based on the difference between the exercise price and a valuation of the Common Stock, prepared for the Vitas ESOP by an "independent appraiser" as required by the Code, of $16.36 per share as of September 30, 1996. (2) Ms. Colliflower was no longer employed with the Company as of December 1996, but continues to serve as the Vice Chairperson of the Board of Directors of the Company, and provides consulting services pursuant to a consulting agreement with the Company. See "--Compensation of Directors." EMPLOYMENT AND OTHER AGREEMENTS WESTBROOK EMPLOYMENT AGREEMENT. Mr. Westbrook is employed pursuant to an Amended and Restated Employment Agreement, dated September 12, 1994, effective as of May 3, 1994, pursuant to which Mr. Westbrook serves as the Chairman and Chief Executive Officer of the Company. The terms of the agreement provide, among other things, for an annual base salary of $600,000 (subject to increase in the Board of Directors' sole discretion), bonuses as may be authorized, declared and paid by the Board of Directors in its sole discretion, and eligibility to participate in the various employee benefit plans that the Company has adopted or may adopt for the benefit of its employees on the same basis as other executive officers. In July 1995, Mr. Westbrook voluntarily agreed to reduce his base salary under his employment agreement to $420,000. Mr. Westbrook's current base salary is $420,000. The Company is also obligated to furnish a car for use by Mr. Westbrook. The employment agreement also obligates the Company to maintain a $5 million split dollar life insurance policy insuring the lives of Mr. Westbrook and his spouse, in accordance with the terms of a split dollar agreement (the "Split Dollar Agreement") among the Company, Mr. Westbrook, and a trust of which Mr. Westbrook is the grantor (the "Owner"). For so long as Mr. Westbrook is employed under the employment agreement, the Company is required to make annual premium payments into the policy equal to the excess of $65,000 over the premiums required to be paid by the Owner under the Split Dollar Agreement. The Company also is required to pay to Mr. Westbrook annual bonuses equal to the amount necessary to net Mr. Westbrook, after applicable state and federal taxes, the annual premiums required to be paid by the Owner each year under the Split Dollar Agreement. The Split Dollar Agreement provides for the Company to be reimbursed from any insurance proceeds or withdrawals disbursed from the policy for all premiums paid by the Company. Mr. Westbrook's employment agreement expires on June 4, 1998. Mr. Westbrook's services terminate upon his death or "disability" (as defined in the agreement), and may be terminated by the Company at any time with or without "cause" (as defined in the agreement), provided that Mr. Westbrook may not be terminated without "cause" except by the affirmative vote of two-thirds of the members of the Company's 64 entire Board of Directors. The employment agreement also provides that in the event of Mr. Westbrook's death, "disability", termination of employment by the Company without "cause" or in the event Mr. Westbrook terminates his employment with "good reason" (generally defined as (i) a proposed reduction in his annual base salary, (ii) a material reduction in his duties or authority, his failure to be elected or re-elected as a director or as Chairman or Chief Executive Officer of the Company or its successor, or his removal as a director, as Chairman or as Chief Executive Officer of the Company or its successor, in each case other than for "cause" or on account of his inability to substantially perform his duties for a specified period, or (iii) any termination by Mr. Westbrook in his sole discretion within two years after a "change in control" of the Company (as defined in the agreement)), the Company shall continue to pay Mr. Westbrook's then current base salary, commencing on the effective date of his termination of employment, for the greater of (a) the remainder of the term of the agreement or (b) six months (the "Continuation Payments"). During the period in which Mr. Westbrook is receiving any payments under the employment agreement and for a period of one year thereafter, Mr. Westbrook is prohibited from competing with the Company and, without the prior written consent of the Company, soliciting, hiring or inducing the termination of employment of persons providing services to the Company or any of its subsidiaries. In consideration for such restrictive covenants, Mr. Westbrook receives $85,000 per year for the period he is employed under the Agreement and for any period during which he is entitled to receive the Continuation Payments. In addition, Mr. Westbrook received a payment of $175,000 on July 1, 1994 and is to receive a January 2, 1998 payment to be equal to the number of days from January 1, 1998 to the end of the term of the Agreement multiplied by $233. The employment agreement also prohibits Mr. Westbrook from disclosing any confidential information of the Company or any of its subsidiaries at any time during or subsequent to the term of the agreement. Mr. Westbrook is currently negotiating a new employment agreement with the Company. COLLIFLOWER EMPLOYMENT AGREEMENT. During fiscal 1996, Ms. Colliflower was employed pursuant to an employment agreement dated December 18, 1992, as amended, pursuant to which Ms. Colliflower served as Senior Vice President of the Company. The terms of the agreement provided for, among other things, an annual base salary commencing on October 1, 1993 of $200,000 (subject to increase in the Board of Directors' sole discretion), bonuses as may be authorized, declared and paid by the Board of Directors in its sole discretion, eligibility to participate in the various employment benefit plans that the Company has adopted or may adopt for the benefit of its employees on the same basis as other executive officers. The term of Ms. Colliflower's employment pursuant to the employment agreement was to have run through June 4, 1998. During the period that Ms. Colliflower receives any payments under the employment agreement and for a period of one (1) year thereafter, Ms. Colliflower is prohibited from competing with the Company and, without the prior written consent of the Company, soliciting, hiring or inducing the termination of employment of persons providing services to the Company or any of its subsidiaries. In consideration for such restrictive covenants, Ms. Colliflower is entitled to receive $50,000 per year for the period she is employed under the agreement and for any period during which she is entitled to receive her base salary under the employment agreement. The employment agreement also prohibits Ms. Colliflower from disclosing any confidential information of the Company or any of its subsidiaries at any time during or subsequent to the term of the agreement. In December 1996, by mutual agreement between the Company and Ms. Colliflower, Ms. Colliflower terminated her employment with the Company. Pursuant to an understanding between the parties, upon termination of employment with the Company, Ms. Colliflower became entitled to severance payments through June 4, 1998, payable bi-weekly, calculated based on an annual severance of $200,000. OTHER EMPLOYMENT AGREEMENTS. Dr. Williams is employed by the Company pursuant to an agreement dated as of October 1, 1990, providing for an annual base salary of $250,000 (currently $314,999). In 65 addition, Dr. Williams' employment agreement provides for, among other things, a performance bonus plan (to be based on pre-determined qualitative and quantitative factors), comprised of a series of one-time bonuses to be paid during or at the end of a year or other measurement period, which may total 25% of his annual base salary. The employment agreement also provides for health insurance, life insurance and other customary benefits. Upon termination with "cause" (as defined in the employment agreement), Dr. Williams is entitled to receive the base salary to the date of termination and all earned benefits. Upon termination without "cause," Dr. Williams is entitled to 12 months of severance and all earned benefits. Dr. Williams' employment agreement also incorporates certain covenants restricting him from engaging in certain competitive activities during his employment and for a period of time following termination of employment. Mr. Sterling is employed by the Company pursuant to a letter agreement dated June 17, 1993, as amended by a supplemental letter agreement dated June 29, 1993, pursuant to which his annual salary is currently $180,000, and discretionary bonuses as determined by the Board of Directors, relocation expenses, a $500 car allowance and normal benefits available to Vitas employees. In addition, Mr. Sterling has received two stock option grants, each of which consists of the right to purchase 12,833 shares of Common Stock. The letter agreement also provides for 13 bi-weekly severance payments in the event of termination other than for "cause." SEVERANCE AGREEMENTS. The Company has entered into severance agreements with certain officers, including Messrs. Westbrook, Williams and Sterling, in each case dated as of January 28, 1997, and with Mr. Wester dated as of August 4, 1997. All of these severance agreements terminate on January 31, 2000. These agreements entitle the employees to severance benefits if such employee is terminated within two years after a "change in control" (as defined in the agreement) whether or not such termination is for "good reason" (as defined in the agreement) or by the Company other than for "cause" (as defined in the agreement). The amount of severance payments is to be equal to two times the employee's "current compensation" (as defined in the agreement), payable as follows: (i) a lump sum payment within five business days of the date of his or her termination equal to one times the employee's "current compensation" and (ii) the remaining amount in substantially equal installments in accordance with the Company's normal payroll practices; provided, that no severance payments are to be made if the employee terminates employment because of permanent and total disability or death. Severance payments pursuant to the severance agreements do not affect an employee's entitlement to other benefits or payments. Continuing employment with the Company or acceptance of a new position with the Company after a "change in control" is not deemed a waiver of the employee's right to terminate his or her employment, and receive severance payments, within two years after a "change in control." Employees are not obligated to seek further employment in order to mitigate the amount of severance paid be the Company. However, in the event the employee terminates employment other than for "good reason," the Company has the right to offset against the unpaid portion of any severance payments the portion of the employee's compensation from new employment received during the severance payment period. The employee is obligated to immediately inform the Company of any such new employment. EMPLOYEE STOCK OWNERSHIP PLAN Effective as of October 1, 1989, the Company adopted the ESOP, a tax-qualified employee stock ownership plan and trust for the benefit of current and former employees of the Company age 21 or over who satisfy certain annual service requirements. Upon adoption of the ESOP, the Company contributed 73,333 shares of Company Common Stock and $260,000 in cash to the ESOP. In December 1991, the ESOP purchased an additional 293,330 shares of Company Common Stock from Mr. Gaetz, who serves as a director of the Company and who immediately prior to such purchase served as both a director and an officer of the Company. The ESOP's purchase of such shares from Mr. Gaetz was financed by a 15-year term loan from the Company in the amount of $2.9 million, which has been repaid with the proceeds of the $2.9 million ESOP Loan. The ESOP Loan is being paid by contributions by the Company. Such 66 contributions totaled $396,000, $669,000, $655,000 and approximately $516,000 in 1994, 1995, 1996 and the nine months ended June 30, 1997, respectively. Mr. Westbrook is the sole trustee of the ESOP, and in such capacity may vote shares of Company Common Stock held by the ESOP, subject to his fiduciary duties as trustee; provided, however, that participants may direct the vote of such shares allocated to participant accounts in connection with certain corporate transactions. As of September 30, 1996, 240,238 shares were allocated to participant accounts. Participant account balances vest ratably over the first four years of service rendered to the Company by participants. As of September 30, 1996, there were 2,590 participants in the ESOP. All executive officers and most management employees who have received option grants under the Company's Management Equity Incentive Plans do not participate in the ESOP. MANAGEMENT EQUITY INCENTIVE PLANS Effective as of June 29, 1992, the Board of Directors of the Company adopted the Management Equity Incentive Plan (the "1992 MEIP"), which was approved by the Company's stockholders on August 21, 1992. Effective as of January 25, 1994, the Board of Directors of the Company adopted the 1994 Management Equity Incentive Plan (the "1994 MEIP"), which was approved by the Company's stockholders on February 28, 1994. The 1992 MEIP and the 1994 MEIP provide for the granting of options to acquire Common Stock ("Options"), which may be either incentive stock options (an "ISO") intended to satisfy the requirements of Section 422 of the Code or non-qualified stock options (an "NSO"). Both the 1992 MEIP and the 1994 MEIP are administered by the Compensation Committee of the Board of Directors, and all full-time employees, officers, non-employee directors and independent contractors of the Company and its subsidiaries are eligible to receive grants of Options thereunder. Neither the 1992 MEIP nor the 1994 MEIP has a termination date; however, ISOs may not be granted 10 years from the effective date of each plan. The 1992 MEIP and the 1994 MEIP provide for the grant of Options to purchase up to 470,062 shares and up to 366,663 shares, respectively, of Common Stock. Under the 1994 MEIP, the maximum number of shares subject to Options that can be granted to any person is 183,332 during the first 10 years after the effective date of the 1994 MEIP and 18,333 per year thereafter. Under both the 1992 MEIP and the 1994 MEIP, the purchase price per share of Common Stock subject to an Option is fixed by the Board of Directors when the Option is granted. The terms of Options granted under both the 1992 MEIP and the 1994 MEIP, including the vesting provisions of such Options, are established at the time of grant. Option holders who discontinue service to the Company prior to the completion of vesting of their Options forfeit any unvested Options. Options granted under both the 1992 MEIP and the 1994 MEIP cannot be exercised until the happening of certain events. Option holders may exercise Options to the extent vested on the happening of certain events, including the closing of the Offering. The 1992 MEIP, the 1994 MEIP and the Options issued thereunder terminate upon certain extraordinary corporate transactions, unless provision is made in connection with such transaction for the continuation of the plans and/or the assumption of, or substitution for, such Options. Options granted under the 1992 MEIP and 1994 MEIP are generally conditioned upon option holders executing an agreement providing for confidentiality and, except for residents of California, for non-competition for a period of one year after termination of employment. No Options have been granted to Messrs. Westbrook or Williams under either the 1992 MEIP or the 1994 MEIP. Mr. Sterling has received 12,833 Options under each of the 1992 MEIP and the 1994 MEIP, with a per share exercise price of $12.95 and $16.36, respectively. Mr. Wester has received grants of 20,166 Options under the 1994 MEIP, with a per share exercise price of $13.64. FEDERAL INCOME TAX TREATMENT OF THE MANAGEMENT EQUITY INCENTIVE PLANS An Option holder will not be deemed to have received taxable income upon the grant or exercise of any ISO (except that the alternative minimum tax may apply). Any gain realized upon a disposition of shares received pursuant to the exercise of an ISO will be taxed as a long-term capital gain, so long as the Option holder holds the shares for at least two years after the date of grant and for at least one year after the date of exercise. Upon exercise of an NSO, an Option holder will be deemed to receive ordinary 67 income in an amount equal to the difference between the exercise price and the fair market value of the underlying stock on the date of the exercise. Generally, neither gain nor loss will be recognized by the Company upon the grant or exercise of an ISO. Upon the exercise of a NSO, the Company will be entitled to a deduction for the amount recognized as ordinary income by the Option holder. If Common Stock acquired upon the exercise of an ISO is disposed of prior to satisfaction of the holding periods described above, generally the Option holder will be deemed to have realized as ordinary income, and the Company will be allowed to deduct, the excess of the market value at the date of exercise over the Option price unless the deduction is limited by Section 162(m) of the Code, discussed below. If an Option holder pays for the exercise of an Option by delivering shares of Common Stock, the exchange of shares generally will be treated as a non-taxable transaction (provided, in the case of an ISO, that the shares delivered in payment are not shares acquired upon exercise of an ISO which have not satisfied the holding period requirements discussed above). Under Section 162(m) of the Code, which was enacted in 1993, if the employer of the Option holder is a publicly held corporation and the Option holder is one of certain specified executive officers, then, unless certain exceptions apply, the employer is not entitled to deduct compensation with respect to the Option holder, including compensation related to the exercise of stock options, to the extent such compensation in the aggregate exceeds $1,000,000 for the taxable year. If Options granted pursuant to the 1992 MEIP and the 1994 MEIP are exercised by any of certain senior executive officers in an amount such that, given the then prevailing value of the Common Stock, the officer realizes total compensation for the taxable year in excess of $1,000,000, Section 162(m) may limit the total deduction allowable. Regulations under Section 162(m) contain an exception for certain plans described in the offering material for initial public offerings which exception is expected to apply to the 1992 MEIP and the 1994 MEIP. NON-PLAN STOCK OPTION GRANTS As of the date of this Prospectus, the Company has granted 1,128,405 nonqualified stock options outside of the 1992 MEIP and the 1994 MEIP to a total of seven individuals, including grants of 843,325, 123,749 and 128,332 to Mr. Westbrook, Dr. Williams and Ms. Colliflower, respectively. With the exception of 68,749 non plan options granted to Dr. Williams with an exercise price of $1.91 per share, the exercise price of all non-plan options that have been granted was equal to the fair market value per share of Company Common Stock as of the date of grant, ranging from $0.25 to $12.95 per share. All such non-plan option grants were made prior to October 1993. In general, such non-plan options vest ratably over a four-year period. Dr. Williams received a grant of a non-plan option in 1990 for 36,666 at an exercise price of $1.91 per share, which were fully vested on the date of grant. In general, the non-plan options expire 10 years after the date of grant and are nontransferable, except in the event of death or disability. If an employee's employment with the Company or a subsidiary terminates by reason of death or permanent and total disability, his or her non-plan options, whether or not then exercisable, may be exercised within one year after such death or disability (but not later than the date the option would otherwise expire). If the employee's employment terminates for any reason other than death or disability, options held by such optionee terminate three months after the date of such termination, except Mr. Westbrook's option for 843,325 shares granted December 17, 1991 expires three months after termination of provisions of services to the Company. The non-plan options also terminate upon certain extraordinary corporate transactions, unless provision is made in connection with such transaction for the assumption of the options or for the substitution for such options. In the event of such termination, all outstanding non-plan options become exercisable in full during such period immediately prior to the occurrence of such termination as the Board in its discretion determines if the option holder was employed by the Company within thirty (30) days of such termination regardless of whether they were exercisable at the time of such termination. The federal income tax treatment of non-plan options is the same as the treatment of NSOs described above in "Management Equity Incentive Plans--Federal Income Tax Treatment of the Management Equity Incentive Plans." 68 401(K) PLAN The Company has adopted the 401(k) Plan, a contributory retirement plan, for its employees age 21 and over with at least one year of service to the Company. The 401(k) Plan provides that each participant may contribute up to 10% of his or her salary (not to exceed the annual statutory limit). The Company makes a matching contribution to each participant's account equal to 20% of such participant's contribution up to 3% of such participant's annual compensation. Company matching contributions vest ratably over four years. Amounts, if any, contributed to the 401(k) Plan by the Company on behalf of its named executive officers are shown in the Summary Compensation Table. 69 PRINCIPAL STOCKHOLDERS The following table sets forth certain information with respect to beneficial ownership of Vitas Common Stock as of September 15, 1997 by (i) each person known to Vitas to be the beneficial owner of more than five percent of the outstanding shares of Vitas Common Stock or Series B Preferred Stock, (ii) by each executive officer and director of Vitas and (iii) all executive officers and directors of Vitas as a group.
BEFORE OFFERING (1) AFTER OFFERING (1)(2) ---------------------------------------------------------- -------------------------- SERIES B COMMON STOCK (3) PREFERRED STOCK COMMON STOCK -------------------------- ------------------------------ -------------------------- AMOUNT AND AMOUNT AND AMOUNT AND NATURE OF NATURE OF NATURE OF BENEFICIAL PERCENT BENEFICIAL PERCENT BENEFICIAL PERCENT OWNERSHIP OUTSTANDING OWNERSHIP OUTSTANDING OWNERSHIP OUTSTANDING ----------- ------------- ------------- --------------- ----------- ------------- Hugh A. Westbrook (4)(5)(6)(18)(20)..... 1,599,804 38.2% -- -- 1,599,804 19.9% Carole S. Westbrook (4)(6).............. 1,234,000 30.1 -- -- 1,234,000 15.7 Westbrook Family Partnership, Ltd. c/o Westbrook Family Corporation, General Partner (6)................... 106,699 2.9 -- -- 106,699 1.4 Chemed Corporation (7).................. 1,478,080 28.7 -- -- 246,634 3.1 Galen Entities (8)...................... 863,588 23.5 100,000 38.1 863,588 11.0 Warburg, Pincus Investors, L.P. (9)..... 771,922 21.0 100,000 38.1 771,922 9.9 Vitas Healthcare Corporation Employee Stock Ownership Trust (5)(6).......... 240,238 9.9 -- -- 240,238 4.7 Esther T. Colliflower (6)(10)(18)(20)... 236,537 6.2 -- -- 236,537 3.0 Colliflower Family Partnership, Ltd. c/o The Colliflower Family Corporation, General Partner (6)................... 106,699 2.9 -- -- 106,699 1.4 Thomas E. Combs (11)(20)................ 20,247 * -- -- 20,247 * Deirdre Lawe (12)(20)................... 20,937 * -- -- 20,937 * Donald J. Gaetz (13)(18)................ 186,066 5.0 -- -- 186,066 2.4 J.R. Williams, MD (14)(18)(20).......... 134,421 3.5 -- -- 134,421 1.7 Mark A. Sterling (15)(20)............... 22,458 * -- -- 22,458 * William P. Ferretti (18)................ 20,900 * -- -- 20,900 * Timothy O'Toole (16)(18)................ 7,333 * -- -- 7,333 * Patrick T. Hackett (17)(18)............. 771,922 21.0 100,000 38.1 771,922 9.9 Bruce F. Wesson(18)(19)................. 863,858 23.5 100,000 38.1 863,858 11.0 Deutsche Beteiligungsgesellschaft mbH & Co. Fonds I KG (21)................... 173,682 4.7 22,500 8.6 173,682 2.2 All executive officers and directors as a group (12 persons).................. 3,967,743 81.7 200,000 76.2 3,967,743 44.0
- ------------------------------ * Less than one percent. (1) Under Rule 13d-3 under the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), a person has beneficial ownership of any securities as to which such person, directly or indirectly, through any contract, arrangement, undertaking, relationship or otherwise has or shares voting power and/or investment power and as to which such person has the right to acquire such voting and/or investment power within 60 days. Beneficial ownership as to any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person by the sum of the number of shares outstanding as of such date and the number of shares as to which such person has the right to acquire voting and/or investment power within 60 days. (2) Upon completion of the Offering, all of the shares of Series B Preferred Stock will be automatically converted into an aggregate of 2,026,293 shares of Common Stock. These columns reflect beneficial ownership after giving effect to the conversion of all outstanding Series B Preferred Stock. Assume no exercise of the Underwriters' over-allotment option. See "Underwriting." (3) For purposes of determining beneficial ownership of Common Shares, includes all shares of Series B Preferred Stock based on the current conversion ratio with respect to each person. (4) Includes 106,699 shares owned by the Westbrook Family Partnership, Ltd., whose general partner is the Westbrook Family Corporation (a corporation owned by Hugh A. Westbrook and Carole S. Westbrook) which votes the shares held by the 70 partnership. For Mr. Westbrook, includes 843,325 shares issuable upon the exercise of options that are or become exercisable within 60 days of September 15, 1997, 240,238 shares held by the ESOP, as to which Mr. Westbrook is the sole Trustee (but see footnote 5) and 39,579 shares beneficially owned by Carole S. Westbrook. For Ms. Westbrook, includes 1,319,987 shares beneficially owned by Hugh A. Westbrook. Mr. Westbrook disclaims beneficial ownership of shares held by his wife, Carole S. Westbrook, and Carole S. Westbrook disclaims beneficial ownership of shares held by her husband, Hugh A. Westbrook. (5) Mr. Westbrook is the sole Trustee of the ESOP and as such votes the shares held by the ESOP, except in connection with certain corporate transactions, including a merger, in which case the ESOP participants direct the voting of 240,238 shares allocated as of September 30, 1996 and the unallocated shares are voted by the Trustee. (6) The business mailing address of the named person or entity is c/o Vitas Healthcare Corporation, 100 South Biscayne Boulevard, Suite 1500, Miami, Florida 33131. (7) As of September 15, 1997, Chemed held warrants to purchase 1,478,080 shares of Common Stock. Chemed also owns 270,000 shares of 9% Preferred Stock. The mailing address of Chemed is 2600 Chemed Center, 255 East Fifth Street, Cincinnati, Ohio 45202. (8) As of September 15, 1997, includes shares owned by the following Galen entities (collectively, the "Galen Entities") which are affiliates through common ownership and/or control: (i) Galen Partners II, L.P. which held 72,114 shares of Series B Preferred Stock which are convertible into 556,664 shares of Vitas Common Stock and 66,013 shares of Vitas Common Stock, or a total of 622,677 equivalent shares of Vitas Common Stock; (ii) Galen Partners International II, L.P. which held 27,591 shares of Series B Preferred Stock which are convertible into 212,981 shares of Vitas Common Stock and 25,257 shares of Vitas Common Stock, or a total of 238,508 equivalent shares of Vitas Common Stock; and (iii) Galen Employee Fund, L.P. which held 295 shares of Series B Preferred Stock which are convertible into 2,277 shares of Vitas Common Stock and 396 shares of Vitas Common Stock, or a total of 2,673 equivalent shares of Vitas Common Stock. The mailing address of the Galen Entities is 610 Rockefeller Center, New York, New York 10020. (9) The sole general partner of Warburg, Pincus Investors, L.P. ("Investors") is Warburg Pincus & Co., a New York general partnership ("WP"). Lionel I. Pincus is the Managing Partner and may be deemed to control it. E.M. Warburg manages Investors. WP has a 20% interest in the profit of Investors. Patrick T. Hackett, a director of Vitas, is a general partner of WP and a Managing Director and member of E.M. Warburg. As such, Mr. Hackett may be deemed to have an indirect pecuniary interest (within the meaning of Rule 16a-1 of the Exchange Act) in an indeterminate portion of the shares beneficially owned by Investors and WP. Mr. Hackett disclaims beneficial ownership of shares beneficially owned by Investors and WP within Rule 13d-3 under the Exchange Act. The mailing address of Investors is 466 Lexington Avenue, New York, New York 10017. (10) Includes 106,699 shares owned by the Colliflower Family Partnership, Ltd. whose general partner is The Colliflower Family Corporation (a corporation owned by Esther T. Colliflower and her husband Owen Colliflower) which votes the shares held by the partnership. Includes 128,332 shares issuable upon the exercise of options that are or become exercisable within 60 days of September 15, 1997. Includes 1,506 shares held by the ESOP allocated to Ms. Colliflower's ESOP account. (11) Consists of 20,166 shares issuable upon the exercise of options that are or become exercisable within 60 days of September 15, 1997 and 81 shares held by the ESOP allocated to Mr. Combs' ESOP account. (12) Consists of 20,166 shares issuable upon the exercise of options that are or become exercisable within 60 days of September 15, 1997 and 771 shares held by the ESOP allocated to Ms. Lawe's ESOP account. (13) Pursuant to a call agreement between Mr. Gaetz, Ms. Colliflower and Mr. Westbrook, Mr. Gaetz has the right to purchase up to 18,333 shares of Vitas Common Stock from each of Ms. Colliflower and Mr. Westbrook at $9.76 per share, which call right becomes exercisable in increments, subject to certain terms and conditions, through December 17, 1998. Under such Call Agreement, as of September 15, 1997 Mr. Gaetz has the right to purchase 18,333 shares of Vitas Common Stock from each of Mr. Westbrook and Ms. Colliflower. Includes such 36,666 shares and 1,506 shares of Vitas Common Stock held by the ESOP allocated to Mr. Gaetz' ESOP account. (14) Includes 123,748 shares issuable upon the exercise of options that are or become exercisable within 60 days of September 15, 1997 and 1,506 shares held by the ESOP allocated to Dr. Williams' ESOP account. (15) Consists of 22,458 shares issuable upon exercise of options that are or become exercisable within 60 days of September 15, 1997. (16) Consists of 7,333 shares issuable upon exercise of options that are or become exercisable within 60 days of September 15, 1997. Mr. O'Toole disclaims beneficial ownership of the shares held by Chemed. (17) Mr. Hackett disclaims beneficial ownership of the shares beneficially owned by Investors and WP within Rule 13d-3 under the Exchange Act. Mr. Hackett's mailing address is c/o Warburg, Pincus Investors, L.P., 466 Lexington Avenue, New York, New York 10017. (18) Messrs. Westbrook, Gaetz, Williams, Ferretti, O'Toole, Hackett, Wesson and Ms. Colliflower are all directors of Vitas. 71 (19) Bruce F. Wesson, a director of Vitas, is a General Partner of the General Partner of Galen Partners II, L.P. and Galen Partners International II, L.P. and a General Partner of Galen Employee Fund, L.P. Except to the extent of his partnership interest, Mr. Wesson disclaims beneficial ownership of the shares held by the Galen Entities. (20) Mr. Westbrook serves as the Chairman and Chief Executive Officer. Ms. Colliflower serves as a Vice Chairperson. Dr. Williams serves as Executive Vice President and Chief Patient Care Officer. Mr. Sterling serves as Senior Vice President-Strategic Development, Special Counsel for Regulatory Affairs and Secretary. Mr. Combs serves as Senior Vice President-Hospice Operations. Ms. Lawe serves as Senior Vice President-Marketing and Admissions. (21) The mailing address for Deutsche Beteiligungsgesellschaft mbH & Co. Fonds I KG is E mil-von-Behring-Strasse 2, D-60439 Frankfurt am Main, Frankfurt, Germany. 72 CERTAIN TRANSACTIONS INVESTOR AGREEMENT In December 1991, the Company completed a private placement of 270,000 shares of its 9% Preferred Stock for an aggregate purchase price of $27.0 million to Chemed to provide working capital to the Company and funds to expand the Company's business. In connection with this transaction, the Company also issued to Chemed two warrants to purchase Common Stock of the Company and entered into an Investor Agreement (the "Investor Agreement"), dated December 17, 1991, with Chemed. Pursuant to the terms of the Investor Agreement, as long as Chemed beneficially owns at least 10% of the outstanding shares of Company Common Stock, the Company is obligated to nominate one person designated by Chemed for election as a director of the Company. Timothy S. O'Toole, an officer and director of Chemed Corporation, was nominated to serve as a director of the Company in accordance with this provision. In addition, in the event the Company's Board of Directors is comprised of more than 10 directors, persons designated by Chemed must constitute no less than one-ninth ( 1/9) of the entire Board of Directors of the Company (rounded up to the nearest whole number). The Company anticipates that Chemed will beneficially own approximately 3.1% of the outstanding shares of Company Common Stock immediately following the Offering. See "Principal Stockholders." Under the terms of the Investor Agreement, Chemed also has agreed that it will not, directly or indirectly offer to acquire or acquire any Common Stock (other than pursuant to the exercise of two warrants), except with the prior written approval of the Company's Board of Directors. However, the Investor Agreement also provides that in the event Chemed ceases to own beneficially at least 20% of the Common Stock at any time during the term of such Agreement as a result of any action taken by the Company, Chemed will be entitled to acquire additional Common Stock without the Company's prior approval in the open market or in private transactions so as to maintain its beneficial ownership level at up to 20% provided that Chemed shall not exceed such 20% interest without the Company's prior written approval. The Investor Agreement further provides that except in tender offers or exchange offers that the Board of Directors of the Company does not oppose, Chemed will not knowingly offer, sell or transfer any shares of Common Stock beneficially owned to any person or company who would then beneficially own, control or hold proxies or options for 5% or more of the outstanding Common Stock except with the prior written approval of the Company, unless the Company or its designee is first given an opportunity to acquire such shares on certain terms and conditions, provided that in sales other than in the open market Chemed is required to obtain appropriate representations from each purchaser as to compliance with such 5% limitation. The Investor Agreement also imposes certain restrictions on sales by Chemed of Common Stock pursuant to tender offers or exchange offers that the Board of Directors of the Company opposes. Under the Investor Agreement, Chemed also has agreed that so long as it beneficially owns at least 5% of the outstanding Common Stock and no change in control (as defined therein) of the Company has occurred, Chemed will not, without the prior written approval of the Company's Board, among other things (i) propose to acquire or solicit any person or company to acquire the Company or a substantial portion of its assets or more than 10% of its Common Stock, (ii) propose directors in opposition to the nominees proposed by the management or Board of the Company, or (iii) exercise, directly or indirectly, control over the management, policies or business operations of the Company, except solely in connection with the performance of duties by Chemed's designee on the Board of the Company. The Investor Agreement terminates upon mutual agreement of the parties or when Chemed ceases to beneficially own more than 10% of the outstanding Common Stock for a period of six months. TRANSACTIONS WITH MANAGEMENT Pursuant to a registration rights agreement dated as of June 4, 1993 among the Company, certain stockholders of the Company, Chemed and the purchasers of the Series B Preferred Stock, the Company, among other things, granted certain incidental registration rights to Messrs. Westbrook, Gaetz, and Dr. Williams and Ms. Colliflower, subject to certain terms and conditions. See "Description of Capital Stock--Registration Rights." 73 DESCRIPTION OF CAPITAL STOCK The Company's authorized capital stock consists of 50,000,000 shares of Common Stock, par value $0.01 per share (the "Common Stock") and 10,270,000 shares of Preferred Stock, par value $1.00 per share (the "Preferred Stock"). At September 15, 1997 there were outstanding 1,652,806 shares of Common Stock held by 52 holders of record (as adjusted to reflect the redemption of the 9% Preferred Stock and the repurchase of one of the warrants to purchase Common Stock held by Chemed, and the conversion of all Series B Preferred Stock, the issuance of 246,634 shares of Common Stock upon exercise of a second warrant held by Chemed upon the closing of this Offering). After the sale of the shares of Common Stock in this Offering, assuming no exercise of the Underwriters' over-allotment option, 7,832,769 shares of Common Stock (not including shares issued pursuant to outstanding stock options and the First Bank Warrant) and no shares of Preferred Stock will be outstanding. All of the currently outstanding shares of Common Stock are, and all shares of Common Stock to be outstanding after this Offering, will be, validly issued, fully paid and nonassessable under the Delaware General Corporation Law. The following summary of certain provisions of the Common Stock and Preferred Stock does not purport to be complete and is subject to, and qualified in its entirety by, the provisions of the Company's Charter which, as amended, will be filed with the Delaware Secretary of State and become effective simultaneously with the closing of this Offering, and by the provisions of applicable law. A copy of the Charter, as it is proposed to be amended, is included as an exhibit to the Registration Statement on Form S-1 (the "Registration Statement") of which this Prospectus is a part. COMMON STOCK Except as provided in the Charter or in any resolutions adopted by the Board of Directors, the holders of Common Stock possess exclusively all voting power. Each holder of Common Stock is entitled to one vote for each share held by such holder. The Charter does not provide for cumulative voting, and accordingly, the holders of a majority of the shares of Common Stock entitled to vote in any election of directors may elect all of the directors standing for election. The Charter provides that whenever there is paid, or declared and set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the Common Stock as to the payment of dividends, the full amount of dividends and of sinking fund or retirement fund or other retirement payments, if any, to which such holders are entitled respectively in preference to the Common Stock, then dividends may be paid on the Common Stock and on any class or series of stock entitled to participate therewith as to dividends, out of any assets legally available for the payment of dividends; but only when and as declared by the Board of Directors of the Company. The Charter also provides that in the event of any liquidation, dissolution or winding up of the Company, after there is paid to or set aside for the holders of any class of stock having preference over the Common Stock in the event of liquidation, dissolution or winding up the full amount to which such holders are entitled respectively in preference to the Common Stock, then the holders of the Common Stock, and of any class or series of stock entitled to participate therewith, in whole or in part, as to the distribution of assets, shall be entitled, after payment or provision for payment of all debts and liabilities of the Company, to receive the remaining assets of the Company available for distribution, in cash or in kind. The payment of dividends to the holders of Common Stock or any other class or series of stock may also become subject to certain contractual restrictions in any credit facility entered into between the Company and a lender. The holders of Common Stock have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of Common Stock will be subject to the rights of the holders of any shares of any series of Preferred Stock that the Company may issue in the future. PREFERRED STOCK In December 1991, the Company issued 270,000 shares of 9% Preferred Stock, stated value $100 per share to Chemed, and received gross proceeds from such issuance of $27.0 million. Related to this placement of 9% Preferred Stock, Chemed received two warrants to purchase Common Stock. These warrants provide that they may be exercised in whole or in part either through payment by the holder of 74 cash or through the surrender of the 9% Preferred Stock. Chemed has agreed that, on the closing of this Offering, it will exercise a portion of one of the warrants to purchase 246,634 shares of Common Stock, with the remaining portion of such warrant expiring by its terms. The Company expects to use a portion of the net proceeds to the Company from the Offering to repurchase the other warrant. See "Use of Proceeds." The Company will also redeem all of the outstanding 9% Preferred Stock through use of $30.0 million of the net proceeds of this Offering. No shares of 9% Preferred Stock will be outstanding after this Offering. In June 1993, the Company issued 262,500 shares of Series B Preferred Stock, stated value $100 per share, to certain investors and received gross proceeds from such issuance of $26.25 million. Pursuant to the terms of the Certificate of Designation, Preferences and Other Rights of the Series B Convertible Preferred Stock of Vitas Healthcare Corporation, each share of Series B Preferred Stock will be converted into 7.72 shares of Common Stock upon the completion of this Offering. No shares of Series B Preferred Stock will be outstanding after this Offering. The Charter provides that the Board of Directors of the Company is authorized by resolution or resolutions from time to time adopted and by filing a certificate pursuant to the Delaware General Corporation Law to provide for the issuance of Preferred Stock in series and to fix and state the voting powers, full or limited, or no voting powers, and such designations, preferences and relative participating, optional or other special rights of the shares of each such series and the qualifications, limitations and restrictions thereof. Such action may be taken by the Board without further stockholder approval. Under the Charter, each share of each series of Preferred Stock is to have the same relative rights as, and be identical in all respects with, all other shares of the same series. A purpose of authorizing the Board of Directors to fix such powers, designations, preferences and other rights is to eliminate delays associated with a stockholder vote on specific issuances. While providing flexibility in connection with possible financings, acquisitions and other corporate purposes, the issuance of Preferred Stock, among other things, could adversely affect the voting power of the holders of Common Stock and, under certain circumstances, be used as a means of discouraging, delaying or preventing a change in control of the Company. There will be no shares of Preferred Stock outstanding after this offering and the Company has no present plan to issue shares of its Preferred Stock. COMMON STOCK PURCHASE WARRANT The Company has outstanding the First Bank Warrant, a common stock purchase warrant for up to 178,393 shares of Common Stock, which was originally issued to the Bank on July 18, 1997. The First Bank Warrant is exercisable for shares of Common Stock at a exercise price of $0.03 per share, subject to various anti-dilution adjustments. The First Bank Warrant expires on March 24, 2007. The First Bank Warrant is currently exercisable for 107,036 shares of Common Stock, subject to automatic increases to (i) 142,715 shares effective as of November 30, 1997 in the event the Company has not paid in full its obligations as set forth in the Credit Agreement on or prior to November 29, 1997 and (ii) 178,393 shares effective as of January 31, 1998 in the event the Company has not paid in full its obligations on or prior to January 30, 1998. Under the First Bank Warrant, if the Company is a party to a merger, consolidation or sale of all or substantially all of its assets in which holders of Common Stock of the Company are entitled to receive cash, stock, securities or assets in exchange for Common Stock, then the right to exercise the First Bank Warrant terminates at the close of business on the date as of which such holders are entitled to such exchange. The First Bank Warrant may be exercised upon delivery of a notice on or prior to the expiration date at a designated office of the Company, accompanied by cash in the amount of the aggregate purchase price or in lieu thereof, by exercise of a conversion right as described therein. The Company is not required to issue fractional shares of Common Stock and in lieu thereof will make an adjustment in cash based on the fair market value of the fractional share. The First Bank Warrant does not entitle the holder to any rights as a stockholder of the Company. 75 Under the First Bank Warrant, until the Company consummates a "Qualified Initial Public Offering" (as defined in the Warrant Agreement executed in connection therewith), the Company and/or its designees have, subject to certain terms and conditions, a right of first refusal on the purchase of any warrants or warrant shares prior to the assignment, transfer or sale of any such warrants or warrant shares by the Bank (other than to a sale to an Affiliate, as defined in the Warrant Agreement). A "Qualified Initial Public Offering" is defined as a public offering of the Company's Common Stock resulting in gross proceeds to the Company of not less than $12 million and at a total market capitalization of the common equity of the Company at that time of not less than $60 million. This right of first refusal will terminate upon consummation of the Offering. The First Bank Warrant provides that the Bank (and its permitted assignees) is entitled to exercise the rights of registration granted to, and shall be subject to the obligations of, "Other Stockholders" under the Registration Rights Agreement. See "--Registration Rights." In connection with a recent amendment to the Credit Agreement, the Company issued a second common stock purchase warrant to the Bank for up to 107,036 shares of Common Stock at an exercise price of $0.03 per share (the "Second Bank Warrant"). The Second Bank Warrant is currently not exercisable for any shares of Common Stock. In the event the Company has not paid in full its obligations as set forth in the Credit Agreement on or prior to April 29, 1998, the Second Bank Warrant shall become exercisable for 35,679 shares of Common Stock, subject to two subsequent automatic increases of 35,679 shares each in the event the Company has not paid in full its obligations on or prior to July 30, 1998 and September 29, 1998, respectively. The terms of the Second Bank Warrant are substantially identical to First Bank Warrant, except the expiration date of the Second Bank Warrant is September 1, 2007. Because the Company intends to repay amounts outstanding under the existing credit facility using a portion of the net proceeds from this Offering, together with funds from a new credit facility, the Company expects that the Second Bank Warrant will terminate prior to any portion of such warrant becoming exercisable. INVESTOR AGREEMENT In connection with the Company's issuance and sale of shares of its 9% Preferred Stock and the issuance of two warrants, the Company entered into the Investor Agreement. See "Certain Transactions-- Investor Agreement." STOCKHOLDERS' AGREEMENT In connection with the Company's issuance and sale of shares of its Series B Preferred Stock, the Company entered into a Stockholders' Agreement dated June 4, 1993, as amended, with Hugh A. Westbrook, Carole S. Westbrook and the purchasers of the Series B Preferred Stock (the "Stockholders' Agreement"). Pursuant to the terms of the Stockholders' Agreement, so long as certain principal purchasers of the Series B Preferred Stock (the "Principal Purchasers") each has voting power equal to at least 5% of the total votes entitled to be cast at meetings of the Company's stockholders when all classes are voting together and not as individual classes, the holders of the majority of the outstanding shares of Series B Preferred Stock will be entitled to elect two persons designated by such principal purchasers as directors of the Company. Bruce F. Wesson and Patrick T. Hackett are serving as directors of the Company in accordance with this provision. All of the Series B Preferred Stock will be converted into 2,026,293 shares of Common Stock upon completion of the Offering. The Stockholders' Agreement will terminate upon the closing of the Offering. REGISTRATION RIGHTS The Company, along with certain holders of Common Stock, Chemed, the Bank and the purchasers of the Series B Preferred Stock (collectively, the "holders") are parties to a Registration Rights Agreement, dated June 4, 1993, as amended, (the "Registration Rights Agreement"), pursuant to which the holders are entitled to certain registration rights as summarized below. The following summary of certain provisions of the Registration Rights Agreement does not purport to be complete and is subject to, and qualified in its 76 entirety by, the Registration Rights Agreement. A copy of the Registration Rights Agreement is attached as an exhibit to the Registration Statement. REGISTRATION ON REQUEST. Following this Offering, certain holders are each entitled to a one-time request that the Company register all or part of the Common Stock held by such holder. In each case, the Company is required to use its best efforts to file the registration statement at the earliest possible date, including such number of shares of registrable stock as a holder may (and is entitled to) request, subject to certain terms and conditions. INCIDENTAL REGISTRATION. The Registration Rights Agreement further provides that, subject to certain limitations, if the Company proposes to register any of its securities under the Securities Act on a form other than Form S-4 or S-8 and in a manner that would permit registration of shares of Common Stock for sale to the public under the Securities Act, it is required to include in such registration such number of shares of registrable stock as a holder may (and is entitled to) request, subject to certain terms and conditions. Such rights have been waived in connection with this Offering in accordance with the terms of the Registration Rights Agreement. FORM S-3 REGISTRATION. Under the Registration Rights Agreement, certain holders may request that the Company effect a registration on Form S-3 (or successor form) and any related qualification or compliance with respect to all or a part of the applicable Common Stock owned by such holder or holders, subject to certain terms and conditions. LIMITATION OF LIABILITY AND INDEMNIFICATION LIMITATION OF DIRECTOR LIABILITY. Section 102(b)(7) of the Delaware General Corporation Law authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breach of directors' duty of care. Although Section 102(b)(7) does not change directors' duty of care, it enables corporations to limit available relief to equitable remedies such as injunction or rescission. The Certificate limits the liability of directors to the Company or its stockholders to the full extent permitted by Section 102(b)(7). Specifically, directors of the Company are not personally liable for monetary damages to the Company or its stockholders for breach of the director's fiduciary duty as a director, except for liability: (i) for any breach of the director's duty of loyalty to the Company or its stockholders; (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; (iii) for unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or (iv) for any transaction from which the director derived an improper personal benefit. INDEMNIFICATION. To the maximum extent permitted by law and subject to certain terms and conditions, the By-laws provide for mandatory indemnification of directors and officers of the Company against any expense, liability and loss to which they may become subject, or which they may incur as a result of being or having been a director or officer of the Company. In addition, the Company must advance or reimburse directors and officers for expenses incurred by them in connection with indemnifiable claims. The Company has also entered into separate indemnification agreements with its directors and various officers. Each indemnification agreement provides for, among other things: (i) indemnification against any and all expenses, liabilities and losses (including attorneys' fees, judgments, fines, taxes, penalties and amounts paid in settlement) of any claim against an indemnified party unless it is determined, as provided in the indemnification agreement, that indemnification is not permitted under applicable law and (ii) prompt advancement of expenses to any indemnified party in connection with his or her defense against any claim. The Company also maintains directors' and officers' liability insurance. 77 CERTAIN ANTI-TAKEOVER PROVISIONS Upon completion of the Offering, the Company's Charter and the By-laws will contain, among other things, certain provisions described below that may reduce the likelihood of a change in the Company's Board of Directors or voting control of the Company without the consent of the Company's Board of Directors. These provisions could have the effect of discouraging, delaying, or preventing tender offers or takeover attempts that some or a majority of the Company's stockholders might consider to be in the stockholders' best interest, including offers or attempts that might result in a premium over the market price for the Common Stock. CLASSIFIED BOARD. The number of directors of the Company shall be such number as fixed from time to time by or in the manner provided in the By-laws of the Company. Directors are divided into three classes, each consisting of approximately one-third of the total number of directors. The term of office of each class is three years and expires in successive years at the time of the annual meeting of stockholders. FILLING OF BOARD VACANCIES; REMOVAL. Any vacancy occurring in the Board of Directors, including any vacancy created by an increase in the number of directors, shall be filled for the unexpired term by the vote of a majority of the directors then in office, whether or not a quorum, or by a sole remaining director, and any director so chosen shall hold office for the remainder of the full term of the class in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. No director may be removed except for cause and then only by the affirmative vote of the holders of at least two-thirds of the outstanding shares of stock of the Company entitled to vote thereon at a duly constituted meeting of stockholders called for such purpose. At least 30 days prior to such meeting of stockholders, written notice shall be sent to the director or directors whose removal shall be considered at such meeting. STOCKHOLDER APPROVAL OF MERGERS. Any merger or consolidation to which the Company is a constituent party for purposes of the Delaware General Corporation Law (except for a merger of the Company with or into any corporation or corporations in which at least 90 percent of the outstanding shares of each class of stock is owned by the Company, which merger shall be governed by the provisions of Section 253 of the Delaware General Corporation Law or any successor provision thereto) shall, as a condition to its effectiveness, be approved by the affirmative vote of the holders of at least two-thirds of the outstanding shares of stock of the Company entitled to vote thereon. OTHER CONSTITUENCIES. The Board of Directors of the Company, when evaluating any offer, bid, proposal, or similar communication of another party to (a) make a tender or exchange offer for any equity security of the Company, (b) merge or consolidate the Company with or into another corporation or corporations, or (c) purchase or otherwise acquire all or substantially all of the properties and assets of the Company, shall, in connection with the exercise of its judgment in determining what is in the best interests of the Company and its stockholders, give due consideration to all relevant factors, including, without limitation, the social, economic and regulatory effects on the Company, on employees, providers and payors of the Company and its subsidiaries, on patients and families served by the Company and its subsidiaries, on operations of the Company's subsidiaries and on the communities in which the Company and its subsidiaries operate or are located. STOCKHOLDER ACTION BY UNANIMOUS CONSENT. Any action required or permitted to be taken by the stockholders of the Company must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such stockholders, unless such consent is unanimous. AMENDMENT OF BY-LAWS. The Board of Directors or the stockholders may from time to time adopt, amend or repeal the By-laws of the Company. Such action by the Board of Directors shall require the affirmative vote of at least two-thirds of the directors then in office at a duly constituted meeting of the Board of Directors called for such purpose. Such action by the stockholders shall require the affirmative vote of the holders of at least two-thirds of the outstanding shares of stock of the Company entitled to vote thereon at a duly constituted meeting of stockholders called for such purpose. 78 CALL OF SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Board of Directors, the Chairman of the Board or the Chief Executive Officer of the Company, and shall be called by the Chairman of the Board, Chief Executive Officer or the Secretary of the Company at the request in writing of stockholders possessing at least 25 percent of the voting power of the issued and outstanding voting stock of the Company entitled to vote generally for the election of directors. Such request shall include a statement of the purpose or purposes of the proposed meeting. CHARTER AMENDMENTS. Except as set forth in the Charter or as otherwise specifically required by law, no amendment of any provision of the Charter shall be made unless such amendment has been first proposed by the Board of Directors for the Company upon the affirmative vote of at least two-thirds of the directors then in office at a duly constituted meeting of the Board of Directors called for such purpose and thereafter approved by stockholders of the Company by the affirmative vote of the holders of at least a majority of the outstanding shares of stock of the Company entitled to vote thereon; provided, however, if such amendment is to the provisions described above, such amendment must be approved by the affirmative vote of the holders of at least two-thirds of the outstanding shares of stock of the Company entitled to vote thereon rather than a majority of such shares. STOCKHOLDER NOMINATIONS AND PROPOSALS. With certain exceptions, the Company's By-laws require that stockholders intending to present nominations for directors or other business for consideration at a meeting of stockholders notify the Company's Secretary by the later of 60 days before the date of the meeting and 15 days after the date notice of the meeting is mailed or public notice of the meeting is given. CERTAIN STATUTORY PROVISIONS. Section 203 of the Delaware General Corporation Law provides, in general, that a stockholder acquiring more than 15% of the outstanding voting shares of a corporation subject to the statute (an "Interested Stockholder") but less than 85% of such shares may not engage in certain "Business Combinations" with the corporation for a period of three years subsequent to the date on which the stockholder became an Interested Stockholder unless (i) prior to such date the corporation's Board of Directors approved either the Business Combination or the transaction in which the stockholder became an Interested Stockholder or (ii) the Business Combination is approved by the Corporation's Board of Directors and authorized by a vote of at least two-thirds of the outstanding voting stock of the corporation not owned by the Interested Stockholder. Section 203 defines the term "Business Combination" to encompass a wide variety of transactions with or caused by an Interested Stockholder in which the Interested Stockholder receives or could receive a benefit on other than a pro rata basis with other stockholders, including mergers, certain asset sales, certain issuances of additional shares to the Interested Stockholder, transactions with the corporation which increase the proportionate interest of the Interested Stockholder or a transaction in which the Interested Stockholder receives certain other benefits. STOCKHOLDER RIGHTS AGREEMENT The Board of Directors intends to adopt a Stockholder Rights Agreement ("Rights Agreement") and declare a dividend of one preferred share purchase right (a "Right") for each outstanding share of Common Stock. All shares of Common Stock issued by the Company between the date of adoption of the Rights Agreement and the Distribution Date (as defined below), or the date, if any, on which the Rights are redeemed will have Rights attached to them. The Rights will expire ten years after adoption of the Rights Agreement, unless earlier redeemed or exchanged. Each Right, when exercisable, entitles the holder to purchase one one-thousandth of a share of Series A Junior Participating Preferred Stock at a price of $ (the "Purchase Price"). Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. The Rights Agreement will provide that the Rights initially attach to all certificates representing shares of Common Stock then outstanding. The Rights will separate from the Common Stock and a 79 distribution of Rights certificates will occur (a "Distribution Date") upon the earlier to occur of (i) 10 days following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of or more of the outstanding shares of Common Stock (the "Stock Acquisition Date") or (ii) 10 business days (or such later date as the Board of Directors may determine) following the commencement of a tender offer or exchange offer, the consummation of which would result in the beneficial ownership by a person of or more of the outstanding shares of Common Stock. If a Person becomes the beneficial owner of or more of the then outstanding shares of Common Stock (except pursuant to an offer for all outstanding shares of Common Stock which the Outside Directors determine to be fair to and otherwise in the best interests of the Company and its stockholders), each holder of a Right will, after the end of a redemption period, have the right to exercise the Right by purchasing Common Stock (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to two times such amount. If at any time following the Stock Acquisition Date, (i) the Company is acquired in a merger or other business combination transaction in which it is not the surviving corporation (other than a merger which follows an offer described in the preceding paragraph), or (ii) 50% or more of the Company's assets or earning power is sold or transferred, each holder of a Right shall have the right to receive, upon exercise, common stock of the acquiring company having a value equal to two times the purchase price of the Right. In general, the Board of Directors of the Company may redeem the Rights at a price of $ per Right at any time until ten days after an Acquiring Person has been identified as such. Under certain circumstances, the decision to redeem the Rights will require the concurrence of a majority of the Continuing Directors, defined as any member of the Board of Directors who was a member of the Board of Directors prior to the date of the Rights Agreement, and any person who is subsequently elected to the Board if such person is recommended or approved by a majority of the Continuing Directors. The term "Outside Directors" means "Continuing Directors" who are not officers of the Company. The Rights have certain anti-takeover effects. The Rights will cause substantial dilution to a person or group that attempts to acquire the Company. The Rights, however, will not interfere with any merger or other business combination approved by the Board of Directors since the Board may, at its option, at any time prior to any person becoming an Acquiring Person, redeem all rights or amend the Rights Agreement to exempt the person from the Rights Agreement. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Common Stock is . LISTING The Company has applied to have its Common Stock listed on the Nasdaq National Market under the trading symbol "VTAS". 80 DESCRIPTION OF INDEBTEDNESS CREDIT AGREEMENT On February 17, 1995, the Company entered into the Credit Agreement with the Bank. The Credit Agreement has been amended, from time to time, and currently provides for a revolving credit facility, subject to a borrowing base and other conditions, of up to $18 million (with a $2.5 million sublimit for letters of credit), and a term loan, in the current principal amount of approximately $14 million. The Company intends to use a portion of the net proceeds from the Offering, together with other funds from a new credit facility, to repay in full the term loan and all outstanding advances under the revolving credit facility. See "Use of Proceeds." As of September 15, 1997 the Company has current advances in the aggregate amount of $30.4 million under the revolving credit facility and term loan. The term loan and the revolving credit facility mature and terminate, respectively, on the earlier of October 1, 1998 or a Significant Reorganization Event (as defined in the Credit Agreement). The obligations of the Company under the Credit Agreement are secured by substantially all of the Company's inventory, accounts receivable and other assets. All of the operating subsidiaries of the Company have guaranteed such obligations, and such guarantees are secured by substantially all of the assets of such subsidiaries. The term loan bears interest at the rate of 11.5% through November 29, 1997 and 12% from November 30, 1997 thereafter until maturity. Borrowings under the revolving credit facility bear interest at the option of the Company at (i) a rate (the "Floating Rate") which is the higher of the Federal Funds Effective Rate as published by the Federal Reserve Bank of New York plus one-half of one percent or the prime commercial lending rate of the Bank, or (ii) an adjusted LIBOR plus the Applicable Interest Addition (as hereinafter defined), payable quarterly in arrears. In addition, upon the occurrence and during the continuance of any payment default, a 2% per annum penalty in excess of the rate otherwise applicable is payable upon demand. As used herein, the "Applicable Interest Addition" means, with respect to borrowings under the revolving credit facility that bear interest at a LIBOR rate, either 2.5%, 2.25% or 2% above LIBOR, based on Consolidated EBITDA (as defined in the Credit Agreement) for the two-, three- or four-quarter period ending, September 30, 1997, December 31, 1997, or March 31, 1998, as well as the four quarters ending June 30, 1998 and September 30, 1998, respectively. The Credit Agreement includes customary covenants which impose obligations or limitations on the Company with respect to, among other things: (i) delivery of financial and other information; (ii) dispositions of the Company's assets; (iii) investments, acquisitions, and mergers; (iv) dividends, stock repurchases, redemption and prepayment of other outstanding Indebtedness; (v) Indebtedness (including guarantees and other contingent obligations); (vi) loans and investments; (vii) liens; (viii) transactions with affiliates; (ix) certain financial covenants including, without limitation, covenants with respect to maintenance of minimum consolidated shareholders' equity and consolidated earnings; (x) maintenance of adequate insurance coverage; and (xi) compliance with all applicable laws and regulations, including, without limitation, environmental, tax and ERISA compliance. Certain of these covenants, obligations and limitations have been waived, and in certain circumstances, modified from time to time throughout the course of the various amendments to the credit agreement discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Credit Agreement contains customary default provisions, including without limitation, defaults for nonpayment, misrepresentation, breach of covenants, material adverse change, cross-defaults to other indebtedness, bankruptcy, ERISA liability events, judgments, change of control and change in the security granted to the Bank. In addition, any redemption of the Preferred Stock of the Company prior to October 1, 1998 constitutes an event of default. 81 The Company is negotiating a new credit facility which it expects would be in place upon consummation of this Offering. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." ESOP GUARANTY Pursuant to an Amended and Restated Guaranty and Contingent Purchase Agreement entered into by the Company dated as of February 17, 1995, which agreement has been subsequently amended (together with such amendments, the "ESOP Guaranty"), the Company has guaranteed the obligations of the ESOP and the trust related thereto with respect to the ESOP Loan from the Bank in the original principal amount of $2,386,670. As of June 30, 1997, $959,000 remains outstanding under the ESOP Loan. The ESOP Loan matures on June 30, 1999. The ESOP Guaranty contains substantially the same covenants as are described above with respect to the credit agreement with the Bank, and is cross-defaulted and collateralized with the credit agreement. CHC NOTES At the closing of the CHC Acquisition, Vitas-California issued to CHC, as part of the purchase price, the CHC Notes. CHC Note A was issued in the amount of $6.0 million, and CHC Note B was issued in the amount of $5.4 million. Under the original terms of CHC Note A, payments, including interest, totaled $100,000 per month through March 31, 1997, with the remaining principal balance of $4.6 million due on March 31, 1997. On June 16, 1997, CHC Note A was modified to provide for monthly payments of $135,000, with the remaining balance to be due on May 31, 1998 (the "Modification"). In connection with the Modification and extension of maturity, the Company paid $900,000 in principal and accrued interest on CHC Note A, and $100,000 to the holders of CHC Note A as an extension fee. In addition, in order to obtain the Bank's consent to the CHC Note A payment required in connection with the Modification, the Bank required that the Company repay approximately $1.8 million of the revolving credit facility. See "Credit Agreement." Payments on CHC Note B, including interest, were $75,000 per month through February 1996 and $50,000 per month thereafter through February 1998, with the remaining principal balance of $4.7 million due on March 31, 1998. Payment of the CHC Notes is guaranteed by the Company. Either Note may be prepaid, in whole or in part, without premium or penalty unless the prepayment is made within the last ninety (90) days of any calendar year and no more than 50% of the original principal amount is prepaid in any calendar year; provided, that these prepayment restrictions do not apply if such prepayment is made in connection with (i) a refinancing of the borrowings under the Credit Agreement and any outstanding letter of credit obligations with the Bank and/or (ii) a refinancing of the redeemable preferred stock of the Company. Further, repayment of CHC Note A is required (without penalty) under the Modification in the event of such a refinancing of the Credit Agreement debt or other Significant Reorganization Event, as defined in the Modification. The CHC Notes bear interest at an annual rate of 9%. As of June 30, 1997, the Company owed approximately $4.8 million and $3.8 million in principal and accrued interest on CHC Note A and CHC Note B, respectively. The Company plans to use a portion of the proceeds from the Offering to repay all outstanding amounts due under the CHC Notes. See "Use of Proceeds." 82 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this Offering, the Company will have outstanding 7,832,769 shares of Common Stock (8,402,769 shares if the Underwriters' over-allotment option is exercised in full), of which 4,463,287 shares (or a maximum of 5,033,287 shares in the event the Underwriters exercise the over-allotment option in full) will be freely tradable without restriction or further registration under the Securities Act, unless held by "affiliates" of the Company as that term is defined in Rule 144 under the Securities Act. In addition, the Company, all directors, executive officers, certain senior and other employees and certain other stockholders and warrantholders of the Company have agreed, at the request of the Underwriters, that they will not offer, sell or grant any option to purchase, sell or otherwise dispose of an aggregate of 4,518,473 shares of Common Stock (including 1,198,071 shares of Common Stock which they might acquire through the exercise of stock options or warrants), without the prior consent of Furman Selz LLC, the representative of the Underwriters (the "Representative of the Underwriters"), for a period of 180 days after the date of this Prospectus. After such 180-day period (or earlier if the consent of the Representative of the Underwriters is obtained), 2,966,732 shares of Common Stock currently outstanding will be eligible for sale in the public market subject, in most cases, to compliance with restrictions of Rule 144. The Company is unable to estimate the amount of restricted securities that will be sold under Rule 144 because this will depend in part on the market price for the Common Stock, the personal circumstances of the sellers and other factors. The remaining 353,670 shares outstanding are "restricted securities" as that term is defined under Rule 144 and were issued by the Company in private transactions in reliance upon one or more exemptions under the Securities Act. Such restricted securities may be resold in a public distribution only if registered under the Securities Act or pursuant to an exemption therefrom, including Rule 144. In general, under Rule 144 a person (or persons whose shares are aggregated), including an affiliate of the Company, who has beneficially owned restricted securities for at least one year is entitled to sell within any three-month period commencing 90 days after the closing of this Offering a number of shares that does not exceed the greater of the average weekly trading volume during the four calendar weeks preceding such sale and 1% of the then outstanding shares of the Common Stock (78,328 shares immediately after this Offering or 84,028 shares of the Underwriters' over-allotment option is exercised in full). A person who is deemed not to have been an "affiliate" of the Company at any time during the 90 days preceding a sale by such person, and who has beneficially owned such shares for at least two years, would be entitled to sell such shares without regard to the volume limitations described above. Such restricted shares will also be eligible for sale to "qualified institutional buyers" pursuant to Rule 144A under the Securities Act, without regard to the volume limitations contained in Rule 144. In addition to the outstanding shares of Common Stock, the Company has reserved for issuance 1,817,098 shares of Common Stock for the exercise of options which have been granted, 1,695,755 of which are exercisable within 60 days of the date of this Prospectus. Upon the completion of this Offering, 4,512,367 shares of Common Stock and options which could be exercised for the purchase of 619,027 shares of Common Stock (after the passage of applicable time vesting periods) will not be subject to the lock-up restrictions discussed above. Of such 619,027 shares of Common Stock issuable upon the exercise of such options, 521,059 options are or will become exercisable within 60 days of the completion of this Offering and 4,148 additional options will become exercisable within 180 days of the completion of this Offering. After this Offering, the holders of 3,759,226 shares of Common Stock and options which could be exercised for the purchase of 1,095,405 shares of Common Stock (after the passage of applicable time vesting periods) or their permitted transferees will be entitled to certain rights with respect to the registration of such shares for sale under the Securities Act. See "Description of Capital Stock-- Registration Rights." All of the 1,095,405 option shares subject to registration rights will be vested and exercisable upon the expiration of the above described lock-up agreements. 83 The Company intends to file a registration statement under the Securities Act to register for offer and sale the shares of Common Stock reserved for issuance pursuant to the exercise of stock options that have been and may be granted under and outside of the Company's stock option plans. Such registration statements will become effective automatically upon filing. See "Management--Management Equity Incentive Plans," and "--Non-Plan Stock Option Grants." Shares issued after the effective date of such registration statement upon exercise of stock options issued under the Company's stock option plans generally will be eligible for sale in the public market, subject to the lock-up agreements discussed above. Prior to the Offering there has been no public trading market for the Common Stock and no accurate predictions can be made as to the effect, if any, that sales of restricted shares or shares issued pursuant to the exercise of options granted by the Company may have on the prevailing market price of the Common Stock from time to time. See "Principal Stockholders," "Management--Management Equity Incentive Plans" and "--Non-Plan Stock Option Grants." Sales of significant numbers of restricted shares or shares issued pursuant to the exercise of options granted by the Company or the "overhang" resulting from the eligibility of such shares for sale into the public trading markets could adversely affect prevailing market prices and could impair the ability of the Company to raise additional capital in the future through an offering of its equity securities at a price acceptable to the Company or use its equity securities as consideration in future acquisitions. 84 UNDERWRITING The underwriters named below (the "Underwriters"), for which Furman Selz LLC is acting as the Representative of the Underwriters, have severally agreed, subject to the terms and conditions set forth in the Underwriting Agreement, to purchase from the Company the number of shares of Common Stock indicated below opposite their respective names:
NUMBER OF UNDERWRITER SHARES - ----------------------------------------------------------------------------------------------- ---------- Furman Selz LLC................................................................................ Total........................................................................................ 3,800,000
The Underwriting Agreement provides that the obligations of the Underwriters to purchase the shares of Common Stock listed above are subject to the approval of certain legal matters by counsel and various other conditions. The Underwriting Agreement also provides that the Underwriters are committed to purchase all of the shares of Common Stock offered hereby, if any are purchased (except for any shares that may be purchased through exercise of the Underwriters' over-allotment option which may be exercised by the Underwriters in whole or in part). The Representative of the Underwriters has advised the Company that the Underwriters propose to offer the shares of Common Stock to the public at the initial public offering price set forth on the cover of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. After the Offering, the public offering price and other selling terms may be changed by the Representative of the Underwriters. The Common Stock is offered subject to receipt and acceptance by the Underwriters, and to certain other conditions, including the right to reject orders in whole or in part. Prior to this Offering, there has been no public market for the Common Stock. Accordingly, the initial public offering price has been determined by negotiation between the Company and the Representative of the Underwriters. Among the factors considered in determining the initial public offering price were the Company's present and historical results of operations, the Company's current financial condition, estimates of the business potential and prospects of the Company, the condition of the Company's target market, the experience of the Company's management, the economics of the industry in general, the general condition of the equities market at the time of the Offering and other relevant factors. There can be no assurance that any active trading market will develop for the Common Stock or as to the price at which the Common Stock may trade in the public market from time to time subsequent to the Offering. Certain persons participating in this Offering may over-allot or effect transactions which stabilize, maintain or otherwise affect the market price of the Common Stock at levels above those which might otherwise prevail in the open market, including by entering stabilizing bids or effecting syndicate covering transactions. A stabilizing bid means the placing of any bid or the effecting of any purchase, for the purpose of pegging, fixing or maintaining the price of the Common Stock. A syndicate covering transaction means the placing of any bid on behalf of the underwriting syndicate or the effecting of any purchase to reduce a short position created in connection with the Offering. Such transactions may be effected on the Nasdaq National Market, in the over-the-counter market, or otherwise. Such stabilizing, if commenced, may be discontinued at any time. In general, the rules of the Commission will prohibit the Underwriters from making a market in the Common Stock during a "restricted period" extending until completion of the Offering. The Commission has, however, adopted exceptions from these rules that permit passive market making under certain conditions. These rules permit an underwriter to make a market subject to the conditions, among others, 85 that its bid not exceed the highest bid by a market maker not connected with the Offering and that its net purchases on any one trading day not exceed prescribed limits. Pursuant to these exemptions, the Underwriters may engage in passive market making in the Common Stock during the restricted period. The Company has granted the Underwriters an option, exercisable during the 30-day period after the date of this Prospectus, to purchase up to 570,000 additional shares of Common Stock at the initial public offering price set forth on the cover page of this Prospectus, less underwriting discounts and commissions. To the extent the Underwriters exercise the option, each Underwriter will have a firm commitment, subject to certain conditions, to purchase such number of additional shares of Common Stock as is proportionate to such Underwriter's initial commitment to purchase shares from the Company. The Underwriters may exercise such option solely to cover over-allotments, if any, incurred in connection with the sale of shares of Common Stock offered hereby. The Underwriting Agreement provides that the Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Underwriters may be required to make in respect thereof. The Company, its officers, directors and certain other stockholders and warrantholders of the Company, owning in the aggregate 4,854,631 shares of Common Stock and 1,198,071 options to purchase shares of Common Stock, have agreed not to offer, sell, grant any option to purchase or otherwise dispose of any shares of Common Stock or any options or warrants to purchase such shares for a period of 180 days from the date of this Prospectus without the prior consent of the Representative of the Underwriters, except that certain transfers are permitted to persons who agree to become subject to the foregoing restrictions. Following the expiration of the 180-day lock-up period, 4,032,769 shares of Common Stock will become eligible for sale, subject to the provisions of Rule 144 under the Securities Act, and holders of outstanding options to purchase 1,198,071 shares (1,174,697 of such options would be vested and exercisable following the expiration of the 180-day lock-up period) would be entitled to exercise such options and sell such shares. See "Shares Eligible for Future Sale." The Representative of the Underwriters has advised the Company that the Underwriters do not intend to confirm sales of Common Stock offered by this Prospectus made to any accounts over which they exercise discretionary authority. The Company has applied to have the Common Stock approved for quotation on the Nasdaq National Market under the symbol "VTAS." The foregoing contains, among other things, a brief summary of the provisions of the Underwriting Agreement and does not purport to be a complete statement of its terms and conditions. A copy of the form of Underwriting Agreement has been filed as an exhibit to the Registration Statement. Furman Selz LLC has served as the Company's financial advisor since 1991 and has rendered fairness opinions in connection with the Company's issuance and sale of the 9% Preferred Stock, the Series B Preferred Stock, various purchases by the Company of outstanding Common Stock and the closing of the CHC Acquisition. A venture capital fund affiliated with Furman Selz LLC owns 53,166 shares of the Common Stock. 86 LEGAL MATTERS The validity of the shares offered hereby will be passed upon by the Company by Hogan & Hartson L.L.P., Washington, D.C. Willkie Farr & Gallagher, New York, New York, is acting as counsel for the Underwriters in connection with certain legal matters relating to the sale of Common Stock offered hereby. Reed Smith Shaw & McClay, Washington, D.C., is acting as healthcare regulatory counsel for the Company in connection with this Offering. EXPERTS The consolidated financial statements and schedules for Vitas Healthcare Corporation and Subsidiaries at September 30, 1995 and 1996, and for each of the three years in the period ended September 30, 1996, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. The combined statements of income, stockholders' equity and cash flows of Community Hospice Care, Inc., Community Hospice Care of Orange County, Community Hospice Care of San Diego, Community Hospice Care--Coastal Cities, Community Hospice Care--Inland Cities, Community Hospice Care--San Gabriel Cities and Community Hospice Care of San Fernando and Riverside for the year ended December 31, 1994, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company has filed with the Commission the Registration Statement under the Securities Act, of which this Prospectus is a part, with respect to the shares of Common Stock offered hereby. This Prospectus omits certain information contained in the Registration Statement and the exhibits and schedules thereto, and reference is made to the Registration Statement and the exhibits and schedules thereto for further information with respect to the Company and the Common Stock offered hereby. Statements contained herein concerning the provisions of any documents are not necessarily complete, and in each instance reference is made to the copy of such document filed as an exhibit to the Registration Statement. Each such statement is qualified in its entirety by such reference. The Registration Statement, including exhibits and schedules filed therewith, may be inspected without charge at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the Commission located at 7 World Trade Center, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such materials may be obtained from the Public Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 upon payment of the prescribed fees. The Registration Statement, including all exhibits and schedules and such reports and other information, may also be accessed electronically by means of the Commission's site on the World Wide Web, at http:// www.sec.gov. The Company intends to furnish its stockholders with annual reports containing consolidated financial statements audited by independent certified public accountants. The Company also intends to furnish its stockholders with quarterly reports for the first three quarters of each fiscal year containing unaudited consolidated financial information. 87 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES Report of Independent Certified Public Accountants................................... F-2 Consolidated Balance Sheets at September 30, 1995 and 1996........................... F-3 Consolidated Statements of Operations for the years ended September 30, 1994, 1995 and 1996........................................................................... F-4 Consolidated Statements of Changes in Redeemable Preferred Stock and Stockholders' Deficit for the years ended September 30, 1994, 1995 and 1996...................... F-5 Consolidated Statements of Cash Flows for the years ended September 30, 1994, 1995 and 1996........................................................................... F-6 Notes to Consolidated Financial Statements........................................... F-7 Unaudited Condensed Consolidated Balance Sheet at June 30, 1997...................... F-22 Unaudited Condensed Consolidated Statements of Operations for the Nine Months Ended June 30, 1996 and 1997............................................................. F-23 Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 1996 and 1997............................................................. F-24 Notes to Unaudited Condensed Consolidated Financial Statements....................... F-25
COMMUNITY HOSPICE CARE, INC. ET AL Report of Independent Certified Public Accountants................................... F-29 Combined Statement of Income for the year ended December 31, 1994.................... F-30 Combined Statement of Stockholders' Equity for the year ended December 31, 1994...... F-31 Combined Statement of Cash Flows for the year ended December 31, 1994................ F-32 Notes to Combined Financial Statements............................................... F-33
F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Stockholders Vitas Healthcare Corporation and Subsidiaries We have audited the accompanying consolidated balance sheets of Vitas Healthcare Corporation and Subsidiaries as of September 30, 1995 and 1996, and the related consolidated statements of operations, changes in redeemable preferred stock and stockholders' deficit and cash flows for each of the three years in the period ended September 30, 1996. 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Vitas Healthcare Corporation and Subsidiaries at September 30, 1995 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1996, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP
Miami, Florida January 24, 1997, except for the third paragraph of Note 1 as to which the date is September 15, 1997, the second paragraph of Note 4 as to which the date is September 18, 1997 and Note 7 as to which the date is September 1, 1997 F-2 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30 -------------------- 1995 1996 --------- --------- ASSETS Current assets: Cash and cash equivalents................................................................... $ 4,545 $ 5,351 Accounts receivable from patient services, net of allowance for uncollectible accounts of $5,300 in 1995 and $6,000 in 1996......................................................... 30,576 16,872 Income tax receivable....................................................................... 1,322 3,108 Deferred taxes--current..................................................................... 1,997 543 Other current assets........................................................................ 2,295 3,349 --------- --------- Total current assets.......................................................................... 40,735 29,223 Property and equipment, net................................................................... 15,104 15,087 Notes receivable from stockholders and employees.............................................. 121 84 Goodwill, net................................................................................. 39,405 46,799 Other assets.................................................................................. 1,696 1,083 Deferred taxes................................................................................ 946 -- --------- --------- Total assets.................................................................................. $ 98,007 $ 92,276 --------- --------- --------- --------- LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable............................................................................ $ 18,877 $ 14,993 Accrued compensation........................................................................ 5,168 8,206 Accrued health insurance.................................................................... 768 51 Other accrued expenses...................................................................... 5,763 6,870 Current portion of long-term debt and capital lease obligations............................. 2,536 8,857 --------- --------- Total current liabilities..................................................................... 33,112 38,977 Long-term debt and revolving credit facility.................................................. 39,294 4,729 Short-term debt expected to be refinanced..................................................... -- 33,756 Capital lease obligations..................................................................... 2,190 1,002 Other long-term liabilities................................................................... 563 480 Guarantee of Employee Stock Ownership Plan loan............................................... 1,792 1,316 Commitments and contingencies Redeemable preferred stock, $100 stated value, $1 par value: Authorized shares--4,500,000 Issued and outstanding shares: 9% Preferred Stock, cumulative, nonconvertible, redeemable--270,000 shares; liquidation preference equal to stated value per share plus all accrued and unpaid dividends......... 27,257 27,325 Series B--convertible, redeemable--262,500 shares; liquidation preference equal to stated value per share plus a dividend preference amount of 8% per annum from date of issuance less any dividends paid.................................................................. 31,066 33,166 Stockholders' deficit: Common stock, $.01 par value: Authorized shares--40,000,000 Issued and outstanding shares--1,613,993 in 1995 and 1,616,559 in 1996...................... 16 16 Additional paid-in capital.................................................................. (29,059) (31,200) Indebtedness of Employee Stock Ownership Plan............................................... (1,792) (1,316) Accumulated deficit........................................................................... (6,432) (15,975) --------- --------- Total stockholders' deficit................................................................... (37,267) (48,475) --------- --------- Total liabilities and stockholders' deficit................................................... $ 98,007 $ 92,276 --------- --------- --------- ---------
See accompanying notes. F-3 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
YEAR ENDED SEPTEMBER 30 ---------------------------------- 1994 1995 1996 ---------- ---------- ---------- Net revenue.................................................................. $ 148,535 $ 193,275 $ 213,856 Operating expenses: Hospice program expenses................................................... 110,251 155,570 175,495 Central support services................................................... 22,036 25,241 23,790 Provision for bad debts.................................................... 3,973 6,828 7,958 Depreciation............................................................... 2,931 4,197 5,438 Amortization of goodwill................................................... 654 1,089 1,527 Expenses associated with terminated offering............................... 798 -- -- Restructuring costs........................................................ -- 2,020 2,345 ---------- ---------- ---------- 140,643 194,945 216,553 ---------- ---------- ---------- Income (loss) from operations................................................ 7,892 (1,670) (2,697) Interest and other income.................................................... 715 329 279 Interest expense............................................................. (316) (3,092) (4,674) ---------- ---------- ---------- Income (loss) before income taxes............................................ 8,291 (4,433) (7,092) Provision (benefit) for income taxes......................................... 3,150 (1,588) -- ---------- ---------- ---------- Net income (loss)............................................................ $ 5,141 $ (2,845) $ (7,092) ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss) attributable to common stockholders........................ $ 543 $ (7,443) $ (11,690) ---------- ---------- ---------- ---------- ---------- ---------- Supplemental net loss attributable to common stockholders.................... $ (9,590) ---------- ---------- Supplemental loss per share.................................................. $ (2.56) ---------- ---------- Supplemental weighted average number of common and common stock equivalents................................................................ 3,749,888 ---------- ----------
See accompanying notes F-4 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT (AMOUNTS IN THOUSANDS)
9% SERIES B PREFERRED PREFERRED COMMON STOCK STOCK STOCK ---------------------- ---------------------- ------------------------ SHARES DOLLARS SHARES DOLLARS SHARES DOLLARS ----------- --------- ----------- --------- ----------- ----------- Balance at October 1, 1993............................. 270 $ 27,121 263 $ 26,866 1,596 $ 16 Net reduction of ESOP indebtedness................... -- -- -- -- -- -- 9% Preferred Stock dividends paid.................... -- -- -- -- -- -- Accretion of Preferred Stock......................... -- 68 -- 2,100 -- -- Exercise of stock options and related income tax benefits........................................... -- -- -- -- 18 -- Net income........................................... -- -- -- -- -- -- --- --------- --- --------- ----- --- Balance at September 30, 1994.......................... 270 27,189 263 28,966 1,614 16 Net reduction of ESOP indebtedness................... -- -- -- -- -- -- 9% Preferred Stock dividends paid.................... -- -- -- -- -- -- Accretion of Preferred Stock......................... -- 68 -- 2,100 -- -- Exercise of stock options and related income tax benefits........................................... -- -- -- -- 1 1 Common Stock purchased by the Company and retired.... -- -- -- -- (1) (1) Net loss............................................. -- -- -- -- -- -- --- --------- --- --------- ----- --- Balance at September 30, 1995.......................... 270 27,257 263 31,066 1,614 16 Net reduction of ESOP indebtedness................... -- -- -- -- -- -- 9% Preferred Stock dividends paid.................... -- -- -- -- -- -- Accretion of Preferred Stock......................... -- 68 -- 2,100 -- -- Exercise of stock options and related income tax benefits........................................... -- -- -- -- 4 -- Common Stock purchased by the Company and retired.... -- -- -- -- (1) -- Net loss............................................. -- -- -- -- -- -- --- --------- --- --------- ----- --- Balance at September 30, 1996.......................... 270 $ 27,325 263 $ 33,166 1,617 $ 16 --- --------- --- --------- ----- --- --- --------- --- --------- ----- --- ADDITIONAL TOTAL PAID-IN INDEBTEDNESS ACCUMULATED STOCKHOLDERS' CAPITAL OF ESOP DEFICIT DEFICIT ----------- ------------ ------------ ------------ Balance at October 1, 1993............................. $ (24,852) $ (2,529) $ (3,839) $ (31,204) Net reduction of ESOP indebtedness................... -- 262 -- 262 9% Preferred Stock dividends paid.................... -- -- (2,430) (2,430) Accretion of Preferred Stock......................... (2,168) -- -- (2,168) Exercise of stock options and related income tax benefits........................................... 116 -- -- 116 Net income........................................... -- -- 5,141 5,141 ----------- ------------ ------------ ------------ Balance at September 30, 1994.......................... (26,904) (2,267) (1,128) (30,283) Net reduction of ESOP indebtedness................... -- 475 -- 475 9% Preferred Stock dividends paid.................... -- -- (2,430) (2,430) Accretion of Preferred Stock......................... (2,168) -- -- (2,168) Exercise of stock options and related income tax benefits........................................... 13 -- -- 14 Common Stock purchased by the Company and retired.... -- -- (29) (30) Net loss............................................. -- -- (2,845) (2,845) ----------- ------------ ------------ ------------ Balance at September 30, 1995.......................... (29,059) (1,792) (6,432) (37,267) Net reduction of ESOP indebtedness................... -- 476 -- 476 9% Preferred Stock dividends paid.................... -- -- (2,430) (2,430) Accretion of Preferred Stock......................... (2,168) -- -- (2,168) Exercise of stock options and related income tax benefits........................................... 27 -- -- 27 Common Stock purchased by the Company and retired.... -- -- (21) (21) Net loss............................................. -- -- (7,092) (7,092) ----------- ------------ ------------ ------------ Balance at September 30, 1996.......................... $ (31,200) $ (1,316) $ (15,975) $ (48,475) ----------- ------------ ------------ ------------ ----------- ------------ ------------ ------------
See accompanying notes. F-5 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (AMOUNTS IN THOUSANDS)
YEAR ENDED SEPTEMBER 30 ------------------------------- 1994 1995 1996 --------- --------- --------- OPERATING ACTIVITIES Net income (loss).................................................................... $ 5,141 $ (2,845) $ (7,092) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation..................................................................... 2,931 4,197 5,438 Amortization of goodwill and deferred financing costs............................ 654 1,656 2,410 Deferred income taxes............................................................ (379) (2,200) -- Provision for losses on accounts receivable...................................... 3,973 6,828 7,958 (Increase) decrease in assets: Accounts receivable from patient services...................................... (8,398) (17,817) 5,746 Income tax receivable.......................................................... -- (1,322) 614 Other current assets........................................................... (799) 666 (1,054) (Decrease) increase in liabilities: Accounts payable and accrued expenses.......................................... (630) 9,128 (1,396) Income taxes payable........................................................... 656 (220) -- Other long-term liabilities.................................................... (47) (414) (85) --------- --------- --------- Net cash provided by (used in) operating activities.................................. 3,102 (2,343) 12,539 INVESTING ACTIVITIES Purchase of property and equipment, net.............................................. (4,230) (3,932) (5,264) Cash paid for net assets of business acquired........................................ -- (27,466) (6,306) (Purchase) sale of investments....................................................... (8,077) 8,077 -- Increase in intangible assets........................................................ (219) (567) (2,739) Decrease in notes receivable......................................................... 178 273 38 (Increase) decrease in other assets.................................................. (795) (416) 614 Decrease in indebtedness of Employee Stock Ownership Plan............................ 262 475 476 --------- --------- --------- Net cash used in investing activities................................................ (12,881) (23,556) (13,181) FINANCING ACTIVITIES Proceeds from long-term debt and revolving credit facility........................... $ -- $ 36,000 $ 6,750 Principal payments on long-term debt and capital lease obligations................... (1,706) (8,350) (2,403) Dividends on 9% Preferred Stock...................................................... (2,430) (2,430) (2,430) Purchase of Common Stock............................................................. -- (30) (21) Proceeds from exercise of stock options and related income tax benefits.............. 116 14 28 Proceeds from repayment of ESOP loan (ESOP contribution)............................. 2,267 (475) (476) --------- --------- --------- Net cash (used in) provided by financing activities.................................. (1,753) 24,729 1,448 --------- --------- --------- Net (decrease) increase in cash...................................................... (11,532) (1,170) 806 Cash and cash equivalents, beginning of period....................................... 17,247 5,715 4,545 --------- --------- --------- Cash and cash equivalents, end of period............................................. $ 5,715 $ 4,545 $ 5,351 --------- --------- --------- --------- --------- --------- SUPPLEMENTAL CASH FLOW INFORMATION Cash interest paid................................................................... $ 316 $ 1,464 $ 3,153 --------- --------- --------- --------- --------- --------- Cash income taxes paid............................................................... $ 2,753 $ 1,962 $ -- --------- --------- --------- --------- --------- --------- Property and equipment financed by capital leases.................................... $ 2,460 $ 1,325 $ -- --------- --------- --------- --------- --------- --------- Noncash aspects of the acquisitions of Hospice of the Miami Valley, Inc. and Hospice of Central Florida, Inc. in 1996 and Community Hospice Care, Inc. in 1995 are as follows: Fair value of assets acquired (including goodwill of $38,881 and $7,065 in 1995 and 1996, respectively)......................................................... $ 39,795 $ 7,223 Liabilities assumed.............................................................. (929) (917) Notes issued in connection with acquisition...................................... (11,400) -- --------- --------- Cash paid at acquisition......................................................... $ 27,466 $ 6,306 --------- --------- --------- ---------
See accompanying notes. F-6 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES COMPANY Vitas Healthcare Corporation and its subsidiaries (collectively Vitas or the Company) provides palliative medical care and related services to terminally ill patients through state-licensed and federally-certified hospice programs. Palliative medical care is care that focuses primarily on improving the quality of life of terminally ill patients and their families, as opposed to attempting to "cure" the underlying or end-stage disease. Services provided by the Company include nursing care, physician services, home health aide services, social work, counseling services and pastoral care, short-term inpatient care, drugs for symptom management and pain control, medical equipment and supplies, and ancillary services, such as respiratory, physical, speech and occupational therapy. In addition, the Company provides various support and psychosocial services and bereavement care to the families of its patients. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Vitas Healthcare Corporation and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. PROPOSED REVERSE STOCK SPLIT On September 15, 1997, the Company's Board of Directors approved a 1-for-2.7273 reverse stock split, subject to stockholder approval and consummation of the Company's proposed initial public offering (the Offering). As a result, all references in the financial statements to number of shares, per share amounts and stock option and warrant data have been restated to give retroactive recognition to such reverse stock split. Also on that date, the Company's Board of Directors approved an increase, subject to stockholder approval, in the authorized shares of common stock from 40 million shares to 50 million shares, changed the par value of common stock to $.01 per share and increased the authorized shares of preferred stock from 4.5 million shares to 10.27 million shares. CONCENTRATIONS OF CREDIT RISK Deposits in banks may exceed the amount of insurance provided on such deposits. The Company performs reviews of the credit worthiness of its depository banks. The Company has not experienced any losses on its deposits of cash. The Company grants credit without collateral to its patients, most of whom are residents of Florida, Illinois, Texas and California and are insured under third-party payor agreements. The mix of receivables from patients and third-party payors at September 30, 1995 and 1996 was as follows:
1995 1996 ----- ----- Medicare..................................................................... 41% 49% Medicaid..................................................................... 45% 37% Commercial insurors.......................................................... 13% 13% Patients..................................................................... 1% 1% --- --- 100% 100% --- --- --- ---
F-7 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES The preparation of these consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents include currency, checks on hand and overnight repurchase agreements of government securities. FINANCIAL INSTRUMENTS The carrying amount of financial instruments including cash and cash equivalents, accounts receivable from patient services, notes receivable from stockholders and employees and accounts payable approximate fair value as of September 30, 1996. The carrying amounts of the Company's borrowings, as amended, approximate their fair value due to the recent modification which represents current market value. It is not practicable to estimate the fair value of the Company's preferred stock because of the lack of a quoted market price and the inability to estimate fair value without incurring excessive costs. CHARITY CARE The Company has a policy of providing charity care to patients who are unable to pay and maintains records to identify and monitor the level of charity care it provides. These records include the amount of charges for services provided which are computed using established rates. Because the Company does not pursue collection of amounts determined to qualify as charity care, they are not reported as revenue. Charity care amounted to $2.9 million, $3.4 million and $4.0 million for the years ended September 30, 1994, 1995 and 1996, respectively. NET REVENUE Net revenue is reported at the estimated net realizable amounts from patients, third-party payors (primarily Medicare and Medicaid), and others for services rendered. Payors may determine that the services provided are not covered and do not qualify for reimbursement. Management has provided an estimate for such adjustments. Changes in the estimate will be adjusted in future periods as final settlements are determined. There were no material changes to net revenue as a result of final settlements in 1994, 1995 or 1996. The percentage of net revenue derived under the Medicare and Medicaid programs was 95% in 1994, 93% in 1995, and 94% in 1996. START-UP COSTS The Company expenses costs incident to the start-up of hospice operations in new locations as incurred. F-8 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) GOODWILL Goodwill represents costs in excess of net tangible assets acquired and is being amortized on a straight-line basis over thirty years. Accumulated amortization on intangible assets is $5.3 million at September 30, 1995 and $6.8 million at September 30, 1996. The carrying value of costs in excess of net tangible assets acquired will be reviewed if the facts and circumstances suggest that it may be impaired. If this review indicates that these costs will not be recoverable, as determined based on the undiscounted cash flows of the entity acquired over the remaining amortization period, the Company's carrying value will be reduced by the estimated shortfall of cash flows, such shortfall to be calculated using discounted cash flows. PROPERTY AND EQUIPMENT Property and equipment, including improvements to existing facilities, are recorded at cost. Amortization of assets recorded under capital lease obligations is included in depreciation expense. Certain software development costs are capitalized. Capitalization of software development costs begins upon the establishment of technological feasibility. Amortization of capitalized software costs begins when the software is placed into service and is included in amortization expense. Depreciation and amortization are calculated principally using the straight-line method over the estimated useful lives of the assets. Estimated useful lives for major asset categories are 4 to 5 years for leasehold improvements, 3 to 5 years for equipment, 5 years for software development costs, and 5 years for office furniture. In March 1995, the Financial Accounting Standards Board issued Statement No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Statement No. 121 is effective for fiscal years beginning after December 15, 1995. The Company believes that the effect of adopting Statement No. 121, based on current circumstances, will not be material. SUPPLEMENTAL NET LOSS PER SHARE (UNAUDITED) Supplemental net loss per share is computed by dividing the supplemental net loss, after reduction for dividends on the 9% Preferred Stock by the supplemental weighted average number of common shares outstanding. Supplemental net loss used in the calculation gives effect to the elimination of the dividends which would have been payable under the mandatory redemption features of the Series B Preferred Stock. Common stock equivalents are excluded from the calculation of supplemental weighted average common shares outstanding since their effect is antidilutive, except that, pursuant to the Securities and Exchange Commission's Staff Accounting Bulletins, such computations include all common and common stock equivalents issued within the 12 months preceding the Offering as if they were outstanding for all periods presented. In addition, all outstanding preferred stock that converts in connection with the Offering is included in the computation as common equivalent shares even when the effect is antidilutive. F-9 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ADVERTISING COSTS Advertising costs, included in Hospice Program Expenses and Central Support Services, are expensed as incurred and totaled $281,000, $298,000 and $260,000 for 1994, 1995 and 1996, respectively. CAPITAL LEASES Assets and related obligations for equipment under capital leases are initially recorded at an amount equal to the present value of the future minimum lease payments using interest rates implicit within the leases. Equipment under capital leases is amortized over the estimated useful lives of the assets. INCOME TAXES The Company accounts for income taxes using the liability method in accordance with the provisions of Statement of Financial Accounting Standards No. 109, ACCOUNTING FOR INCOME TAXES. STOCK BASED COMPENSATION The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company plans to adopt Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, in 1997, and will continue to account for stock option grants in accordance with APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and, accordingly, recognizes no compensation expense for the stock option grants. RECLASSIFICATIONS Certain reclassifications have been made to the prior year financial statements to conform with the 1996 presentation. 2. TERMINATED MERGER On June 6, 1996, the Company signed a letter of intent to merge with a subsidiary of Apria Healthcare Group Inc. (Apria) and entered into a merger agreement with Apria and one of Apria's subsidiaries dated as of June 28, 1996. On November 12, 1996, Apria announced its intention to terminate the merger agreement. Between the date the letter of intent was executed and the announcement of the termination, the Company incurred costs of approximately $2.4 million related to the terminated merger transaction of which $1.5 million were incurred through September 30, 1996. On November 26, 1996, the Company entered into a settlement agreement whereby Apria agreed to pay the Company $4 million to settle and discharge any and all disputes and controversies between the companies arising from or relating to the merger or related activities. The Company received payment on November 27, 1996. Consequently, the $1.5 million of deferred costs incurred through September 30, 1996 are classified as other current assets in the accompanying consolidated balance sheet and were offset against the settlement received on November 27, 1996. 3. ACQUISITIONS On February 17, 1995, Vitas Healthcare Corporation of California (Vitas-California), a wholly owned subsidiary of the Company, acquired substantially all of the assets and assumed certain liabilities of F-10 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. ACQUISITIONS (CONTINUED) Community Hospice Care, Inc. and its affiliated limited partnerships (CHC) which offered hospice and other related healthcare and support services through hospice programs in several communities in Southern California. The acquisition was accounted for as a purchase and the results of operations of CHC have been included in the consolidated financial statements since the date of acquisition. The cost of the acquisition totaled approximately $38.9 million, including expenses associated with the acquisitions of approximately $3.6 million. The purchase price was paid with $27.5 million in cash and the issuance of $11.4 million in subordinated notes payable due in monthly installments through 1998. Cost in excess of net assets acquired was approximately $38.9 million and is being amortized over thirty years. Included in the costs associated with the acquisitions were $800,000 related to lease termination costs of an inpatient hospice unit assumed in connection with the acquisition and approximately $665,000 to involuntarily terminate employees of the acquired company. During 1996, the involuntary termination costs were paid and charged against the accrual. In addition, the accrual to terminate the inpatient hospice unit lease was increased by $200,000. This amount is included in restructuring charges in the 1996 consolidated statement of operations. As of September 30, 1996, the Company has been unable to negotiate a sublease of the inpatient hospice unit. Effective November 3, 1995, the Company acquired substantially all of the assets and assumed certain liabilities of the Hospice of the Miami Valley, Inc. (HMV) for approximately $3.0 million, including associated expenses of approximately $355,000. Cost in excess of net assets acquired were approximately $3.0 million and are being amortized over thirty years. The acquisition was accounted for as a purchase and the results of operations of HMV have been included in the consolidated financial statements since the date of acquisition. On August 8, 1996, the Company acquired substantially all of the assets and assumed certain liabilities of Hospice of Central Florida, Inc. (HCF) for approximately $5.2 million, including associated expenses of approximately $659,000. The acquisition was accounted for as a purchase and the results of operations of HCF have been included in the consolidated financial statements since the date of acquisition. Cost in excess of net assets acquired were approximately $5.2 million and are being amortized over thirty years. The following unaudited pro forma information presents a summary of the consolidated results of operations of the Company, CHC and HCF, assuming the acquisitions occurred on October 1, 1994 after giving effect to certain pro forma adjustments, including, among others, adjustments to owner's compensation and amortization of goodwill, together with the related income tax effects. Pro forma results of operations of HMV have not been presented because the effects are not significant. This pro forma financial information is presented for informational purposes only and may not be indicative of the results of operations as they would have been if the Company, CHC and HCF had been a single entity during 1995 F-11 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. ACQUISITIONS (CONTINUED) and 1996, nor is it necessarily indicative of the results of operations which may occur in the future (in thousands except per share data):
SEPTEMBER 30 ---------------------- 1995 1996 ---------- ---------- Net revenue........................................................... $ 204,127 $ 220,894 Net loss.............................................................. (2,531) (6,485) Net loss attributable to common stockholders--historical............................................ (7,129) (11,083) Net loss per common share and common stock equivalent outstanding--historical............................ (4.42) (6.78)
4. REDEEMABLE PREFERRED STOCK The 9% Preferred Stock has a stated value of $100 per share, accrues cumulative dividends, is nonvoting and mandatorily redeemable. In connection with the issuance of the 9% Preferred Stock, the Company initially issued to the preferred stockholder two Common Stock purchase warrants covering a total of 937,247 (Series A) and 512,156 (Series B) shares of Common Stock, respectively. The holder of the warrants is entitled to purchase each share of Common Stock thereunder at an exercise price of approximately $12.41 (approximately $11.6 million total purchase price) and $12.44 per share (approximately $6.4 million total purchase price), respectively, subject to various anti-dilution adjustments. The warrants may be exercised at any time, unless previously repurchased, through December 16, 1999. The warrant for 937,247 shares would expire earlier upon the completion of a public offering of the Company's Common Stock which meets certain minimum requirements. The Company and the preferred stockholder have, over time, agreed to defer the redemption date of the 9% Preferred Stock. On September 18, 1997 the Company and the preferred stockholder again agreed to defer the mandatory redemption date of the 9% Preferred Stock. The amended redemption schedule is as follows:
NUMBER OF REDEMPTION SHARES TO BE PRICE PER MANDATORY REDEMPTION DATE REDEEMED SHARE - ------------------------------------------------------------------- ------------- ------------- October 1, 1998.................................................... 81,000 $ 102 October 1, 1998.................................................... 81,000 101 October 1, 1998.................................................... 54,000 100 December 31, 1998.................................................. 54,000 100
As a part of the agreement to extend the redemption dates of the 9% Preferred Stock, contemporaneously with the Offering the preferred stockholder agreed to exercise at least $3 million (but no more than $5 million) of Series A warrants. The issuance of warrants in connection with the amendment to the revolving credit facility (see Note 7), results in an adjustment to the number of shares of common stock which can be acquired and the related exercise price to 955,789 shares at $12.16 per share for Series A and 522,289 shares at $12.19 per share for Series B. The Company has agreed to repurchase Series B for the difference between the Offering price and the exercise price, but not less than $700,000. If the 9% Preferred Stock is not redeemed on or prior to March 31, 1998, the expiration date of both Series A and Series B will be extended by that number of days equal to the number of days beyond March 31, 1998 that any portion of F-12 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. REDEEMABLE PREFERRED STOCK (CONTINUED) the 9% Preferred Stock is outstanding but not later than December 16, 2005. The Company also agreed to extend through December 31, 1998 the payment of the redemption price of $101 per share for the 9% Preferred Stock if redeemed at the Company's option. Cumulative unpaid dividends on the 9% Preferred Stock totaled approximately $608,000 at September 30, 1995 and 1996, respectively. The Series B Preferred Stock, which is subject to redemption at the option of the holders in certain circumstances, has a stated value of $100 per share, a par value of $1 per share and a cumulative dividend preference of 8%. Dividends may not be paid on the Company's Common Stock prior to the payment of dividends on the Series B Preferred Stock from the original issue date. However, unless dividends are paid on the Company's Common Stock, no dividends are payable on the Series B Preferred Stock unless the Series B Preferred Stock is redeemed. The carrying amount of the Series B Preferred Stock has been increased for amounts representing dividends not currently declared or paid, but which would be payable upon redemption. Costs related to the issuance of the Series B Preferred Stock totaled approximately $2.1 million and were charged to additional paid in capital. Shares of Series B Preferred Stock are redeemable (including dividends from the original issue date not previously paid) at the option of the holder at the earlier of six months after the redemption in full of the Company's 9% Preferred Stock or June 30, 1999. The Company has certain rights to effect the redemption of the Series B Preferred Stock in three annual installment payments. The Series B Preferred Stock is convertible into 2,026,293 shares of the Company's Common Stock, or approximately 28% of the Company's Common Stock on a fully diluted basis, subject to adjustment under certain circumstances. Such conversion may be made at the election of the holder of the Series B Preferred Stock and will be mandatory and automatic should the Company complete a public offering of its Common Stock which meets certain minimum requirements. The Series B Preferred Stock has certain voting rights along with the holders of the Company's Common Stock. As a result, the holders of the Series B Preferred Stock are currently entitled to cast that number of votes equal to approximately 28% of the total shares of Common Stock entitled to vote at a meeting of stockholders. Holders of the Series B Preferred Stock also have the right to elect two directors of the Company's Board of Directors. Registration rights were also granted to the purchasers of the Series B Preferred Stock which rights allow registration of the Common Stock obtained through the conversion of the Series B Preferred Stock under certain circumstances. 5. STOCK OPTIONS AND WARRANTS The Company has granted nonqualified stock options (NQSOs) to purchase the Company's Common Stock to various employees, officers, directors and consultants in conjunction with their employment or service with the Company. All NQSOs expire between five and ten years after the initial grant and are nontransferable. Proceeds from the issuance of shares under these plans are included in stockholders' equity. On June 29, 1992 and January 25, 1994, the Company adopted the 1992 Management Equity Incentive Plan (MEIP) and the 1994 MEIP, respectively. MEIP options are issued at prices not less than market value at date of grant and generally become nonforfeitable at 25% per year beginning the year subsequent to the grant, but currently are not exercisable. At September 30, 1995 and 1996, 1,494,372 and 1,895,284 options, respectively, are vested under these plans. F-13 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. STOCK OPTIONS AND WARRANTS (CONTINUED) Transactions under the option plans and certain other option grants are as follows:
1992 1994 OPTION PRICE MEIP MEIP OTHER TOTAL PER SHARE --------- --------- ---------- ---------- --------------- Outstanding at October 1, 1994................... 465,845 218,898 1,491,271 2,176,014 $0.25-$16.36 Granted........................................ -- 138,965 -- 138,965 $16.36-$19.09 Exercised...................................... -- -- (1,833) (1,833) $0.27 Canceled....................................... (54,625) (64,349) (54,999) (173,973) $10.64-$19.09 --------- --------- ---------- ---------- Outstanding at September 30, 1995................ 411,220 293,514 1,434,439 2,139,173 $0.25-$19.09 Granted........................................ -- 52,616 -- 52,616 $19.09 Exercised...................................... -- -- (3,667) (3,667) $0.25 Canceled....................................... (13,933) (29,883) -- (43,816) $10.64-$19.09 --------- --------- ---------- ---------- Outstanding at September 30, 1996................ 397,287 316,247 1,430,772 2,144,306 $0.25-$19.09 --------- --------- ---------- ---------- --------- --------- ---------- ----------
At September 30, 1996, the Company had reserved Common Stock for future issuance under warrant and option agreements and upon conversion of the Series B Preferred Stock as follows: Stock option plans and other option grants....................... 2,144,306 Ungranted options under 1992 MEIP and 1994 MEIP.................. 120,258 Common Stock purchase warrants................................... 1,449,403 Conversion of Series B Preferred Stock........................... 2,026,293 --------- Total............................................................ 5,740,260 --------- ---------
6. PROPERTY AND EQUIPMENT Property and equipment, net consisted of the following (in thousands):
SEPTEMBER 30 ---------------------- 1995 1996 ---------- ---------- Leasehold improvements................................................ $ 2,146 $ 2,507 Equipment (including equipment under capital lease)................... 15,906 16,122 Software development costs............................................ 4,191 8,536 Office furniture...................................................... 3,148 3,623 ---------- ---------- 25,391 30,788 Less accumulated depreciation and amortization........................ (10,287) (15,701) ---------- ---------- $ 15,104 $ 15,087 ---------- ---------- ---------- ----------
7. DEBT On August 11, 1994, the Company obtained a revolving credit facility of up to $15.0 million, including a revolving letter of credit sub-facility of up to $2.5 million. In connection with the CHC acquisition described in Note 3, effective February 17, 1995, the credit agreement was amended and restated to increase the revolving credit facility from $15 million to $20 million and to provide for a $25 million term F-14 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. DEBT (CONTINUED) loan facility secured by substantially all of the assets of the Company. The credit agreement requires, among other things, payment of a fee of 0.5% annually on the unused portion of the revolving credit facility commitment. Interest is payable quarterly. Both the term loan and revolving credit facility bore interest at a rate of 8.32% and 8.44% at September 30, 1995 and 1996, respectively. The Company has entered into a number of amendments to the revolving credit agreement, with the latest amendment dated as of September 1, 1997. As a result of these amendments, the maturity date of the credit facilities has been extended to the earlier of a significant recapitalization event, as defined by the agreement, or October 1, 1998. Also, approximately $11.0 million of the term loan was reallocated to the revolving credit facility, creating a new total revolving credit facility amount of $18.0 million and leaving a term loan balance of $14.0 million. The revolving credit facility bears interest at LIBOR plus 2.5% (8.13% at September 1, 1997) with the additional interest component adjustable based on EBITDA levels, as defined by the agreement. The remaining $14 million due under the term loan bears interest at 11% from March 24, 1997 through August 30, 1997; 11.5% from August 31, 1997 through November 29, 1997 and 12% thereafter until maturity. Finally, under the amended credit facilities, the Company is prohibited from making dividend payments on its common stock, and is required to, among other things, maintain a minimum net worth, meet quarterly EBITDA requirements and maintain a minimum liquidity, defined as cash or cash equivalents and amounts available under the revolving credit facility of $4 million. Also, in connection with the last two extensions of the revolving credit agreement, dated as of March 24, 1997 and September 1, 1997, the Company issued two warrants to the lender to purchase up to an aggregate of 285,429 shares of the Company's Common Stock at an exercise price of $.03 per share. The warrants are exercisable at certain dates if amounts due under the revolving credit facility or term loan are still outstanding at those dates. The issue dates and the number of shares which may be acquired are as follows:
DATE EXERCISABLE AMOUNT - ------------------------------------------------------------------------------------- --------- July 18, 1997........................................................................ 71,358 August 31, 1997...................................................................... 35,678 November 30, 1997.................................................................... 35,679 January 31, 1998..................................................................... 35,678 April 30, 1998....................................................................... 35,679 July 31, 1998........................................................................ 35,678 September 30, 1998................................................................... 35,679
The warrants are valued at the date they become exercisable. The warrant to purchase 71,358 shares of the Company's Common Stock had a value of approximately $712,000 on July 18, 1997, the date it became exercisable, and the warrant to purchase 35,678 shares of the Company's common stock had a value of approximately $534,000 on August 31, 1997. These amounts are being amortized over the period from the date of exercisability to the next date of exercisability. The amount of amortization is being charged to interest expense. On June 16, 1997, the terms of the 9% subordinated note payable, with a balance of $4.9 million at September 30, 1996, were modified to provide for monthly payments of $135,000, with the remaining balance to be paid at the earlier of May 31, 1998 or a significant recapitalization event, as defined in the F-15 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. DEBT (CONTINUED) agreement. In connection with the modification, the Company made a $900,000 payment of principal and accrued interest on the note and also paid an extension fee of $100,000. The fee is being amortized using the interest method. As a result of the amendments, the amounts due under the revolving credit facility, term loan and the long-term portion of the 9% subordinated note payable that have been extended have been excluded from current liabilities since these extensions result in the amounts under these agreements being outstanding for an uninterrupted period extending beyond one year from the balance sheet date. Including the effects of these amendments, debt is as follows (in thousands):
SEPTEMBER 30 -------------------- 1995 1996 --------- --------- Term loan, payments of principal and interest are due as described above.................... $ 25,000 $ 25,000 Revolving credit facility................................................................... 4,500 11,250 Subordinated note payable, bearing interest at 9% per annum. Principal and interest payable commencing on March 31, 1995 as follows: twenty-four monthly installments of $135,000 each with the unpaid principal balance plus all accrued and unpaid interest due on May 31, 1998...................................................................................... 5,623 4,900 Subordinated note payable, bearing interest at 9% per annum. Principal and interest payable commencing on March 31, 1995 as follows: twelve monthly installments of $75,000 each, followed by twenty-four monthly installments of $50,000 each with the unpaid principal balance plus all accrued and unpaid interest due on March 31, 1998........................ 5,169 4,894 Other debt.................................................................................. 105 54 --------- --------- 40,397 46,098 Less current portion........................................................................ (1,103) (7,613) --------- --------- $ 39,294 $ 38,485 --------- --------- --------- ---------
Scheduled maturities of long-term debt outstanding at September 30, 1996, after giving effect to the above amendments, are: 1997--$7.6 million; 1998--$38.5 million. At September 30, 1996, the Company has outstanding a standby letter of credit under the revolving credit facility of $1.6 million, in favor of the Company's workers compensation program administrator, which is maintained as security for the obligation for unpaid claims. F-16 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. CAPITAL LEASE OBLIGATIONS The Company leases certain of its equipment under capital leases. Obligations under capital lease agreements are payable as follows (in thousands): Year ended September 30: 1997............................................................. $ 1,244 1998............................................................. 722 1999............................................................. 405 --------- 2,371 Less amounts representing interest............................... (125) --------- 2,246 Current portion.................................................. (1,244) --------- Long-term capitalized lease obligations.......................... $ 1,002 --------- ---------
9. HISTORICAL EARNINGS (LOSS) PER SHARE The historical earnings (loss) per share amounts, as required by Generally Accepted Accounting Principles, are as follows (in thousands, except per share data):
YEAR ENDED SEPTEMBER 30 ---------------------------------------- 1994 1995 1996 ------------ ------------ ------------ Historical net income (loss)............................................ $5,141 $(2,845) $ (7,092) Historical net income (loss) attributable to common stockholders.......................................................... 543 (7,443) (11,690) Earnings (loss) per share............................................... $ .40 $ (4.61) $ (6.78) Weighted average number of common and common stock equivalents.......................................... 4,587,185 1,613,993 1,723,595
Earnings (loss) per share is computed by dividing net income (loss), after reduction for dividends on the 9% Preferred Stock and dividends which would have been payable under the mandatory redemption features of the Series B Preferred Stock by the weighted average number of common and common equivalent shares outstanding. Common equivalent shares included in the computation represent shares issuable upon assumed exercise of stock options and warrants (calculated using the modified treasury stock method) in years where the assumed exercise has a dilutive effect. Common stock equivalents are antidilutive in 1994 and 1996. Fully diluted earnings per share are antidilutive for all periods presented. 10. DEFERRED RENT The Company entered into lease agreements for office space in which monthly rental payments are deferred for a specific period of time. The resulting liability for deferred rent of $688,000 and $645,000 at September 30, 1995 and 1996, respectively, represents the difference between the monthly expense accrued on a straight-line basis from the date of occupancy through the expiration of the lease terms and the actual payments in accordance with the lease agreement. F-17 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. INCOME TAXES Significant components of the provision (benefit) for income taxes are as follows (in thousands):
1994 1995 1996 --------- --------- --------- Current: Federal...................................................... $ 3,050 $ 522 $ (1,500) State........................................................ 479 90 -- Deferred: Federal...................................................... (326) (1,894) 1,206 State........................................................ (53) (306) 294 --------- --------- --------- $ 3,150 $ (1,588) $ -- --------- --------- --------- --------- --------- ---------
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows (in thousands):
SEPTEMBER 30 -------------------- 1995 1996 --------- --------- Deferred tax liabilities: Tax over book depreciation.............................................. $ 374 $ 507 Prepaid insurance....................................................... 9 24 --------- --------- Total deferred tax liabilities............................................ 383 531 Deferred tax assets: Book over tax amortization.............................................. 50 276 Deferred compensation amortization...................................... 515 491 Accrued expenses........................................................ 1,045 1,446 Bad debt reserves....................................................... 610 -- Restructuring reserves.................................................. 1,061 765 Other................................................................... 45 278 Valuation allowance..................................................... -- (2,182) --------- --------- Total deferred tax assets............................................... 3,326 1,074 --------- --------- Net deferred tax assets................................................... $ 2,943 $ 543 --------- --------- --------- ---------
F-18 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. INCOME TAXES (CONTINUED) The reconciliation of income tax attributable to continuing operations computed at the U.S. federal statutory tax rates to income tax expense (benefit) is (in thousands):
1994 1995 1996 --------- --------- --------- Tax at U.S. statutory rate..................................... $ 2,819 $ (1,507) $ (2,411) State income tax--net of federal tax benefit................... 278 (160) (257) Permanent differences.......................................... 33 166 190 Other items, net............................................... 20 (87) 296 Change in valuation allowance.................................. -- -- 2,182 --------- --------- --------- $ 3,150 $ (1,588) $ -- --------- --------- --------- --------- --------- ---------
12. EMPLOYEE BENEFIT PLANS Effective October 1, 1989, the Company formed an Employee Stock Ownership Plan (ESOP) covering all employees who meet service period requirements. Effective October 1, 1992, the Company amended the ESOP to exclude certain management employees from participation. The Company, at its option, may make annual contributions to the ESOP in the form of Common Stock or cash. The ESOP initially obtained a loan for approximately $2.9 million from the Company to acquire its shares. On August 11, 1994, the Company refinanced the ESOP loan. Under the terms of the new agreement, the ESOP trust is directly liable for principal and interest payments, with the Company serving as guarantor. The Company will make contributions to the ESOP equal to the required principal and interest payments on the note. Interest accrues at the prime rate or certain LIBOR rates plus 2%. Contribution expense related to the ESOP was approximately $396,000 in 1994, $669,000 in 1995 and $655,000 in 1996. The outstanding balance of the ESOP loan was approximately $1.8 million and $1.3 million at September 30, 1995 and 1996, respectively. The Company also has a voluntary 401(k) savings plan covering all eligible employees. Contributions made by the Company to the 401(k) plan are based on a specified percentage of employee contributions. The Company's contributions to the plan totaled approximately $180,000, $234,000 and $294,000 in 1994, 1995 and 1996, respectively. During 1993, the Company entered into agreements with certain officers pursuant to which the Company will provide annual supplemental retirement benefits for life upon retirement, or for ten years upon death. The projected benefit obligation accrued at September 30, 1994 was $309,000. During 1995, this program was terminated and the related life insurance policies were thereafter distributed to the participants. As a result of the termination, the Company realized a reduction of benefit costs of approximately $120,000 in 1995. 13. RELATED PARTY TRANSACTIONS The Company has engaged in the following transactions with related parties: - At September 30, 1994, 1995 and 1996, notes receivable from stockholders, employees and officers were approximately $394,000, $121,500 and $84,000, respectively. The notes bear interest ranging from five to nine percent and are due through October 1997. F-19 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 13. RELATED PARTY TRANSACTIONS (CONTINUED) - The Company has noncompete agreements with two principal stockholders, executive officers and directors providing for aggregate future payments of $270,000. The agreements expire in June 1998. Payments made under the noncompete agreements totaled $375,000 in 1994, $135,000 in 1995 and $160,000 in 1996. At September 30, 1995 and 1996, $520,000 and $447,000, respectively, of previously paid noncompete payments are being deferred over future periods. - The Company has employment agreements with certain key employees totaling approximately $1,100,000 annually. 14. RESTRUCTURING COSTS During the third quarter of 1995, as a result of the Company's review of its operating strategies and in order to improve competitiveness and future profitability, the Company recorded a restructuring charge of $2.0 million in connection with the establishment of a severance reserve for the involuntary termination of 15 home office employees. During 1996, employees were terminated under the plan at a total cost of $2.0 million. During the fiscal year ended 1996, the Company recorded a $2.1 million restructuring charge related to the reorganization of its regional and corporate operations. The charge was for the establishment of a severance reserve for approximately 13 employees terminated during the reorganization. During 1996, the Company paid approximately $600,000 of severance costs. The remaining amount will be paid out during the first half of fiscal 1997. 15. COMMITMENTS AND CONTINGENCIES The Company contracts with various health care providers for inpatient services for its patients. In most cases, the Company is charged for inpatient services at negotiated rates determined on a per diem basis. In some instances, the Company leases or makes arrangements for the use of the space and operates inpatient units using its own employees. These lease costs are included in hospice program expenses in the accompanying consolidated financial statements. The Company also leases office space at its various locations. Total rental expense was approximately $4.1 million, $5.7 million and $6.9 million for the years ended September 30, 1994, 1995 and 1996, respectively. Future minimum rental commitments under noncancelable operating leases for the years subsequent to September 30, 1996 through July 31, 2001 (expiration) are as follows (in thousands): 1997............................................................... $ 5,015 1998............................................................... 4,069 1999............................................................... 3,631 2000............................................................... 2,233 2001............................................................... 1,296 --------- $ 16,244 --------- ---------
F-20 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. COMMITMENTS AND CONTINGENCIES (CONTINUED) The Company is self-insured for workers compensation insurance coverages. The Company records an accrual for the self-insured portion of these costs and maintains certain per occurrence and aggregate stop-loss insurance for this self-insured program. In May 1995, President Clinton announced a coordinated effort by federal and state agencies, named Operation Restore Trust (ORT), to review industry practices and regulatory compliance of home health agencies, nursing homes, and certain durable medical equipment suppliers. This initiative was targeted to California, Florida, Illinois, Texas, and New York, the five states in which Medicare spending is the highest. In June 1995, federal officials announced the expansion of ORT in these five states to hospice issues. As a part of its review of hospices under ORT, the OIG has conducted on-site reviews at various of the Company's hospice programs and at the Company's corporate office. The OIG has reviewed the charts on a total of 1,150 patients at six of the Company's locations. The sample selected by the auditors was comprised of patients whose participation in the hospice program exceeded 210 days. Based on discussions with the OIG, the Company understands that as of September 1995 the auditors had formed a preliminary view that of the 215, 211, and 106 medical records of patients reviewed in the three programs, they considered 164, 141 and 85, respectively, not to be eligible for Medicare hospice services. With respect to the first two of these programs, they considered the charts for 30 and 16 (and none with respect to the third program) to be inconclusive as to whether the beneficiaries were terminally ill. No formal reports have been issued by the OIG on the outcome of the audits at the Company locations. The Company strongly disagrees with the OIG's apparent interpretation and application of the Medicare hospice eligibility requirements, and believes that it met applicable Medicare eligibility documentation requirements in all material respects. The Company understands that the activities of the OIG Office of Audit Services and Office of Investigations involving the Company are ongoing. The scope and ultimate disposition of the ORT and OIG activities, and the possible impact on the Company of such activities cannot currently be predicted. The Company is also involved in various disputes and litigation arising in the ordinary course of business. After consultation with legal counsel, management estimates that these matters will be resolved without material adverse effect on the Company's future financial position or results from operations. 16. FOURTH QUARTER ADJUSTMENTS In the fourth quarter of 1996, the Company increased the allowance for uncollectible accounts receivable by $2,500,000 in addition to the normal monthly charge. Also during the fourth quarter of 1996, the Company recorded a restructuring charge of $2,345,000 (see Note 14). F-21 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (AMOUNTS IN THOUSANDS) JUNE 30, 1997
(UNAUDITED) ASSETS Current assets: Cash and cash equivalents.......................................................................... $ 9,225 Accounts receivable from patient services, net..................................................... 14,484 Income tax receivable.............................................................................. 306 Deferred taxes--current............................................................................ 543 Other current assets............................................................................... 1,216 ----------- Total current assets................................................................................. 25,774 Property and equipment, net.......................................................................... 13,206 Notes receivable from stockholders and employees..................................................... 62 Intangible assets, net............................................................................... 45,783 Other assets......................................................................................... 1,034 ----------- Total assets......................................................................................... $ 85,859 ----------- ----------- LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable................................................................................... $ 15,220 Accrued compensation............................................................................... 8,096 Accrued health insurance........................................................................... 494 Other accrued expenses............................................................................. 8,084 Current portion of long-term debt and capital lease obligations.................................... 9,533 ----------- Total current liabilities............................................................................ 41,427 Short-term debt and revolving credit facility expected to be refinanced.............................. 30,400 Capital lease obligations............................................................................ 827 Other long-term liabilities.......................................................................... 373 Guarantee of Employee Stock Ownership Plan loan...................................................... 959 Commitments and contingencies 9% preferred stock................................................................................... 27,376 Series B preferred stock............................................................................. 34,741 Stockholders' deficit: Common Stock....................................................................................... 17 Additional paid-in capital......................................................................... (32,403) Indebtedness of Employee Stock Ownership Plan...................................................... (959) Accumulated deficit.................................................................................. (16,899) ----------- Total stockholders' deficit.......................................................................... (50,244) ----------- Total liabilities and stockholders' deficit.......................................................... $ 85,859 ----------- -----------
See accompanying notes. F-22 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
NINE MONTHS ENDED JUNE 30 ------------------------ 1996 1997 ------------ ---------- (UNAUDITED) Net revenue............................................................................ $ 161,657 $ 150,323 Operating expenses: Hospice program expenses............................................................. 131,319 121,604 Central support services............................................................. 17,290 16,120 Provision for bad debts.............................................................. 4,035 3,283 Depreciation......................................................................... 3,993 4,308 Amortization of goodwill............................................................. 1,123 1,248 Restructuring costs.................................................................. -- 3,480 ------------ ---------- 157,760 150,043 ------------ ---------- Income from operations................................................................. 3,897 280 Gain on terminated merger.............................................................. -- 1,600 Gain on sale of assets................................................................. -- 484 Interest and other income.............................................................. 222 364 Interest expense....................................................................... (3,391) (3,652) ------------ ---------- Income (loss) before income taxes...................................................... 728 (924) Provision for income taxes............................................................. 248 -- ------------ ---------- Net income (loss)...................................................................... $ 480 $ (924) ------------ ---------- ------------ ---------- Net loss attributable to common stockholders........................................... $ (2,968) $ (4,372) ------------ ---------- ------------ ---------- Supplemental net loss attributable to common stockholders.............................. $ (1,393) $ (2,797) ------------ ---------- ------------ ---------- Supplemental net loss per share........................................................ $ (0.37) $ (0.74) ------------ ---------- ------------ ---------- Supplemental weighted average number of common and common stock equivalents............ 3,748,888 3,759,526 ------------ ---------- ------------ ----------
See accompanying notes. F-23 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (AMOUNTS IN THOUSANDS)
NINE MONTHS ENDED JUNE 30 -------------------- 1996 1997 --------- --------- (UNAUDITED) OPERATING ACTIVITIES Net income (loss)............................................................................ $ 480 $ (924) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation............................................................................. 3,993 4,308 Amortization of goodwill and deferred financing costs.................................... 1,784 1,273 Deferred income taxes.................................................................... 493 -- Provision for losses on accounts receivable.............................................. 4,035 3,283 Gain on sale of assets................................................................... -- (484) (Increase) decrease in assets: Accounts receivable from patient services.............................................. (71) (895) Income tax receivable.................................................................. 832 2,802 Other current assets................................................................... (1,795) 2,108 Increase (decrease) in liabilities: Accounts payable and accrued expenses.................................................. (2,886) 1,773 Other long-term liabilities............................................................ (9) (106) --------- --------- Net cash provided by operating activities.................................................... 6,856 13,138 INVESTING ACTIVITIES Purchase of property and equipment, net...................................................... (4,359) (2,498) Cash paid for net assets of business acquired................................................ (1,770) -- Proceeds from sale of assets................................................................. -- 555 Increase in intangible assets................................................................ (1,982) (232) Decrease in notes receivable................................................................. -- 22 Decrease in other assets..................................................................... 101 50 Decrease in indebtedness of Employee Stock Ownership Plan.................................... 357 357 --------- --------- Net cash used in investing activities........................................................ (7,653) (1,746) FINANCING ACTIVITIES Proceeds from long-term debt and line of credit.............................................. 2,751 -- Principal payments on long-term debt and capital lease obligations........................... (2,538) (7,586) Dividends on 9% preferred stock.............................................................. (1,215) -- Purchase of common stock..................................................................... (21) -- Proceeds from exercise of stock options and related income tax benefits...................... 28 801 Warrants granted............................................................................. -- (376) Proceeds from repayment of ESOP loan (ESOP contribution)..................................... (357) (357) --------- --------- Net cash used in financing activities........................................................ (1,352) (7,518) --------- --------- Net (decrease) increase in cash.............................................................. (2,149) 3,874 Cash and cash equivalents, beginning of period............................................... 4,545 5,351 --------- --------- Cash and cash equivalents, end of period..................................................... $ 2,396 $ 9,225 --------- --------- --------- ---------
See accompanying notes. F-24 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1997 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine month period ended June 30, 1997 are not necessarily indicative of the result that may be expected for the year ended September 30, 1997. For further information, refer to the Company's consolidated financial statements and footnotes thereto for the year ended September 30, 1996. The condensed consolidated financial statements include the accounts of Vitas Healthcare Corporation and its subsidiaries (the Company). All significant intercompany accounts and transactions have been eliminated in consolidation. On September 15, 1997, the Company's Board of Directors approved a 1 for 2.7273 reverse stock split, subject to stockholders approval and the Company's proposed initial public offering (the Offering). As a result, all references in the financial statements to number of shares, per share amounts and stock options and warrant data have been restated to give retroactive recognition to such reverse stock split. Supplemental net loss per share is computed by dividing the supplemental net loss, after reduction for dividends on the 9% Preferred Stock, by the supplemental weighted average number of common shares outstanding. Supplemental net loss used in the calculation gives effect to the elimination of the dividends which would have been payable under the mandatory redemption features of the Series B Preferred Stock. Common stock equivalents are excluded from the calculation of supplemental weighted average shares outstanding and, pursuant to the Securities and Exchange Commission's Staff Accounting Bulletins, such computations include all common and common stock equivalents issued within the 12 months preceding the Offering as if they were outstanding for all periods presented. In addition, all outstanding preferred stock that converts in connection with the Offering are included in the computation as common equivalent shares even when the effect is antidilutive. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings per Share (FASB No. 128). FASB No. 128, which applies to entities with publicly held common stock, simplifies the standards for computing earnings per share previously found in Accounting Principles Board Opinion No. 15, Earnings per Share, and makes such computation comparable to international earnings per share standards. FASB No. 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods, earlier adoption is not permitted. The statement requires restatement of all prior period earnings per share data presented in the period of adoption. Management is currently reviewing the provision of FASB No. 128; however, it does not believe that adoption of this new accounting pronouncement will have a material impact on the calculation and presentation of earnings per share. 2. TERMINATED MERGER On June 6, 1996, the Company signed a letter of intent to merge with a subsidiary of Apria Healthcare Group, Inc. (Apria) and entered into a merger agreement with Apria and one of Apria's subsidiaries dated as of June 28, 1996. On November 12, 1996, Apria announced its intention to terminate the merger agreement. Between the date the letter of intent was executed and the announcement of termination, the F-25 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) JUNE 30, 1997 2. TERMINATED MERGER (CONTINUED) Company incurred costs of approximately $2.4 million related to the terminated merger transaction, of which $1.5 million were incurred through September 30, 1996. On November 26, 1996, the Company entered into a settlement agreement whereby Apria agreed to pay the Company $4 million to settle and discharge any and all disputes and controversies between the companies arising from or relating to the merger or related activities. The Company received payment on November 27, 1996. Consequently, the settlement amount, net of costs incurred, has been recorded as a gain on terminated merger. 3. INCOME TAXES Income taxes have been provided at the effective tax rate expected for the year. The Company's effective tax rate differs from statutory rates primarily as a result of certain costs which are not deductible for income tax purposes and state income taxes, net of federal benefit. 4. CONTINGENCIES The Company contracts with various health care providers for inpatient services for its patients. In most cases, the Company is charged for inpatient services at negotiated rates determined on a per diem basis. In some instances, the Company leases or makes arrangements for the use of the space and operates inpatient units using its own employees. These lease costs are included in hospice program expenses in the accompanying condensed consolidated financial statements. The Company also leases office space at its various locations. The Company is self-insured for workers compensation insurance coverages. The Company records an accrual for the self-insured portion of these costs and maintains certain per occurrence and aggregate stop-loss insurance for this self-insured program. In May 1995, President Clinton announced a coordinated effort by federal and state agencies, named Operation Restore Trust (ORT), to review industry practices and regulatory compliance of home health agencies, nursing homes, and certain durable medical equipment suppliers. This initiative initially was targeted to California, Florida, Illinois, Texas, and New York, the five states in which Medicare spending is the highest. In June 1995, federal officials announced the expansion of ORT in these five states to hospice issues In May, 1997, HHS announced the expansion of ORT during the next two years to include 12 additional states. As a result, the Company operates in six of the seventeen ORT states. As a part of its review of hospices under ORT, the OIG has conducted on-site reviews at various of the Company's hospice programs and at the Company's corporate office. The OIG has reviewed the charts on a total of 1,150 patients at six of the Company's locations. The sample selected by the auditors was comprised of patients whose participation in the hospice program exceeded 210 days. Based on discussions with the OIG, the Company understands that as of September 1995, the auditors had formed a preliminary view that of the 215, 211, and 106 medical records of patients reviewed in the three programs, they considered 164, 141 and 85, respectively, not to be eligible for Medicare hospice services. With respect to the first two of these programs, they considered the charts for 30 and 16 (and none with respect to the third program) to be inconclusive as to whether the beneficiaries were terminally ill. No formal reports have been issued by the OIG on the outcome of the audits at the Company locations. The Company strongly disagrees with the apparent interpretation and application of the Medicare hospice eligibility requirements, and believes that it met applicable Medicare eligibility documentation F-26 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) JUNE 30, 1997 4. CONTINGENCIES (CONTINUED) requirements in all material respects. The Company understands that the activities of the OIG Office of Audit Services and Office of Investigations involving the Company are ongoing. The scope and ultimate disposition of the ORT and OIG activities, and the possible impact on the Company of such activities cannot currently be predicted. The Company is also involved in various disputes and litigation arising in the ordinary course of business. After consultation with legal counsel, management estimates that these matters will be resolved without material adverse effect on the Company's future financial position or results from operations. 5. DEBT The Company has entered into a number of amendments to the revolving credit agreement with the latest amendment dated as of September 1, 1997. As a result of these amendments, the maturity date of the credit facilities was extended to the earlier of a significant recapitalization event, as defined by the agreement, or October 1, 1998. The amended credit facilities prohibit the Company from making dividend payments on its common stock, and requires, among other things, that the Company maintain a minimum net worth, meet quarterly EBITDA requirements and maintain a minimum liquidity, defined as cash or cash equivalents and amounts available under the revolving credit facility of $4 million. Also, in connection with the last two extensions of the revolving credit agreement, dated as of March 24, 1997 and September 1, 1997, the Company issued two warrants to the lender purchase up to an aggregate of 285,429 shares of the Company's Common Stock at an exercise price of $.03 per share. The warrants are exercisable at certain dates if amounts due under the revolving credit facility or term loan are still outstanding at those dates. The issue dates and the number of shares which may be acquired with each warrant are as follows:
DATE EXERCISABLE AMOUNT - ----------------------------------------------------------------------------------------------- --------- July 18, 1997.................................................................................. 71,358 August 31, 1997................................................................................ 35,678 November 30, 1997.............................................................................. 35,679 January 31, 1998............................................................................... 35,678 April 30, 1998................................................................................. 35,679 July 31, 1998.................................................................................. 35,678 September 30, 1998............................................................................. 35,679
The warrants are valued at the date they become exercisable. The warrant to purchase 71,358 shares of the Company's Common Stock had a value of approximately $712,000 at July 18, 1997, the date it became exercisable, and the warrant to purchase 35,678 shares of the Company's common stock had a value of approximately $534,000 on August 31, 1997. These amounts are being amortized over the period from the date of exercisability to the next date of exercisability. The amount of amortization is being charged to interest expense. On June 16, 1997, the terms of a 9% subordinated note payable were modified to provide for monthly payments of $135,000, with the remaining balance to be paid at the earlier of May 31, 1998 or a significant recapitalization event, as defined in the agreement. In connection with the modification, the Company made a $900,000 payment of principal and accrued interest on the note and also paid an extension fee of $100,000. The fee is being amortized using the interest method. F-27 VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) JUNE 30, 1997 6. REDEEMABLE PREFERRED STOCK The Company and the preferred stockholder have, over time, agreed to defer the redemption date of the 9% Preferred Stock. On September 18, 1997 the Company and the preferred stockholder again agreed to defer the mandatory redemption date of the 9% Preferred Stock. The amended redemption schedule is as follows:
MANDATORY NUMBER OF REDEMPTION REDEMPTION SHARES TO BE PRICE PER DATE REDEEMED SHARE - ----------------------------------------------------------------------------- ------------- ------------- October 1, 1998.............................................................. 81,000 $ 102 October 1, 1998.............................................................. 81,000 101 October 1, 1998.............................................................. 54,000 100 December 31, 1998............................................................ 54,000 100
As a part of the agreement to extend the redemption dates of the 9% Preferred Stock, contemporaneously with the Offering the preferred stockholder agreed to exercise at least $3 million (but no more than $5 million) of Series A warrants. The issuance of warrants in connection with the amendment to the revolving credit facility (see Note 7), results in an adjustment to the number of shares of common stock which can be acquired and the related exercise price to 955,789 shares at $12.16 per share for Series A and 522,289 shares at $12.19 per share for Series B. The Company has agreed to repurchase Series B for the difference between the Offering price and the exercise price, but not less than $700,000. If the 9% Preferred Stock is not redeemed on or prior to March 31, 1998, the expiration date of both Series A and Series B will be extended by that number of days equal to the number of days beyond March 31, 1998 that any portion of the 9% Preferred Stock is outstanding but not later than December 16, 2005. The Company also agreed to extend through December 31, 1998 the payment of the redemption price of $101 per share for the 9% Preferred Stock if redeemed at the Company's option. In August 1997, the Company made cash dividend payment on the 9% Preferred Stock amounting to approximately $600,000. 7. RESTRUCTURING COSTS During the first quarter of 1997, management approved a plan to restructure its local program's patient care teams and eliminate certain regional positions. The charge of approximately $3.5 million relates to the establishment of a severance reserve for approximately 300 employees to be involuntarily terminated during the restructuring. As of June 30, 1997, the Company has paid out approximately $1.5 million of severance costs. F-28 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Community Hospice Care, Inc. Anaheim Hills, California We have audited the accompanying combined statements of income, stockholders' equity and cash flows of Community Hospice Care, Inc., Community Hospice Care of Orange County, Community Hospice Care of San Diego, Community Hospice Care--Coastal Cities, Community Hospice Care--Inland Cities, Community Hospice Care--San Gabriel Cities and Community Hospice Care of San Fernando and Riverside (the Partnership) for the year ended December 31, 1994. These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined results of operations and cash flows of Community Hospice Care, Community Hospice Care of Orange County, Community Hospice Care of San Diego, Community Hospice Care--Coastal Cities, Community Hospice Care--Inland Cities, Community Hospice Care--San Gabriel Cities and Community Hospice Care of San Fernando and Riverside Inc. for the year ended December 31, 1994, in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG, LLP
Miami, Florida February 20, 1995 F-29 COMMUNITY HOSPICE CARE, INC. ET AL. COMBINED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1994 Net revenue.................................................................... $55,090,562 Operating expenses: Hospice program expenses..................................................... 47,284,968 Central support services..................................................... 3,713,992 Provision for bad debts...................................................... 534,196 Depreciation and amortization................................................ 279,897 ---------- 51,813,053 Income from operations......................................................... 3,277,509 Interest and other income...................................................... 105,039 Interest expense............................................................... (341,157) ---------- Income before income taxes..................................................... 3,041,391 Provision for income taxes..................................................... (6,400) ---------- Net income..................................................................... $3,034,991 ---------- ----------
See accompanying notes. F-30 COMMUNITY HOSPICE CARE, INC. ET AL. COMBINED STATEMENT OF STOCKHOLDERS' EQUITY YEAR ENDED DECEMBER 31, 1994
GENERAL LIMITED TOTAL COMMON ACCUMULATED PARTNERS' PARTNERS' EQUITY STOCK DEFICIT EQUITY EQUITY ELIMINATION (DEFICIT) ----------- ------------- ----------- ------------ ------------- ------------- Balance at January 1, 1994.......... $ 1,000 $ (4,821,406) $ 457,543 $ 2,592,749 $ (457,543) $ (2,227,657) Net (loss) income for the year...... -- (2,642,301) 1,001,875 5,677,292 (1,001,875) 3,034,991 ----------- ------------- ----------- ------------ ------------- ------------- Balance at December 31, 1994........ $ 1,000 $ (7,463,707) $ 1,459,418 $ 8,270,041 $ (1,459,418) $ 807,334 ----------- ------------- ----------- ------------ ------------- ------------- ----------- ------------- ----------- ------------ ------------- -------------
See accompanying notes. F-31 COMMUNITY HOSPICE CARE, INC. ET AL. COMBINED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1994 OPERATING ACTIVITIES Net income...................................................................... $ 3,034,991 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................................................. 279,897 Provision for losses on accounts receivable................................... 534,196 (Increase) decrease in assets: Accounts receivable from patient services................................... (5,195,010) Amounts due from affiliates................................................. 11,538 Other current assets........................................................ (217,557) Other assets................................................................ (147,471) Increase in liabilities: Accounts payable and accrued expenses....................................... 3,210,735 ----------- Net cash provided by operating activities....................................... 1,511,319 INVESTING ACTIVITIES Purchase of property and equipment, net......................................... (214,700) ----------- Net cash used in investing activities........................................... (214,700) FINANCING ACTIVITIES Proceeds from line of credit.................................................... 947,548 Proceeds from short-term debt................................................... 1,400,000 Proceeds from stockholder loan.................................................. 100,000 Principal payments on line of credit............................................ (1,135,527) Principal payments on note payable.............................................. (50,000) Principal payments on stockholder loan.......................................... (100,000) Amounts due from stockholders................................................... (1,900,000) ----------- Net cash used in financing activities........................................... (737,979) Net increase in cash............................................................ 558,640 Cash, beginning of period....................................................... 468,291 ----------- Cash, end of period............................................................. 1,026,931 ----------- ----------- SUPPLEMENTAL CASH FLOW INFORMATION Cash interest paid.............................................................. $ 266,587 ----------- ----------- Cash income taxes paid.......................................................... $ 6,400 ----------- -----------
See accompanying notes. F-32 COMMUNITY HOSPICE CARE, INC. ET AL. NOTES TO COMBINED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying combined financial statements include the accounts of Community Hospice Care, Inc. (the "Company"), a California S corporation, and the accounts of Community Hospice Care of Orange County, Community Hospice Care of San Diego, Community Hospice Care--Coastal Cities, Community Hospice Care--Inland Cities, Community Hospice Care--San Gabriel Cities and Community Hospice Care of San Fernando and Riverside, a 31-bed inpatient facility, all of which are California Limited Partnerships (the "Partnerships"). The Company is the sole general partner holding a 15% interest in each of the Partnerships and exercises exclusive control over their operations. The stockholders of the Company hold the remaining 85% limited partnership interest. All significant intercompany transactions and balances have been eliminated. SALE OF COMPANY OPERATIONS On February 17, 1995, the Company sold their combined hospice operations, in an asset sale, to Vitas Healthcare Corporation of California (Vitas-California), a newly formed wholly-owned subsidiary of Vitas Healthcare Corporation located in Miami, Florida. Certain assets and their operations were purchased for a total of $36 million, of which $24.6 million was cash and $11.4 million was subordinated notes receivable due in various monthly installments through 1998, plus the assumption of certain liabilities. Amounts due from stockholders and affiliates were settled on the purchase date using the proceeds from the sale. Assets sold included all of the combined tangible and intangible assets of the Company and the Partnerships, except for their cash, accounts receivable, certain refundable deposits and accounts payable. Liabilities of approximately $929,000 assumed by Vitas-California in connection with the sale included accrued compensation for vacation and sick time, building and equipment lease obligations and health insurance obligations. As of February 18, 1995, the Company and the Partnerships ceased operations and are liquidating their accounts receivable and retained obligations. COMPANY The Partnerships provides palliative medical care and related services to terminally ill patients through state-licensed and federally-certified hospice programs. Palliative medical care is care that focuses primarily on improving the quality of life of terminally ill patients and their families, as opposed to attempting to "cure" the underlying or end stage disease. Services provided by the Partnerships include physician services, nursing care, social services, counseling services and pastoral care, short-term inpatient and respite care, drugs for symptom management and pain control, medical equipment and supplies, home health aide and homemaker services, bereavement counseling and ancillary services, such as physical, speech and occupational therapy. In addition, the Partnerships provides various support and psychosocial services and bereavement care to families of its patients. The Company provides administrative support and management services to the Partnerships. NET REVENUE Net revenue is reported at the estimated net realizable amounts from patients, third-party payors (primarily Medicare and Medi-Cal), and others for services rendered. Payors may determine that the F-33 COMMUNITY HOSPICE CARE, INC. ET AL. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) services provided are not covered and do not qualify for reimbursement. Management has provided an estimate for such adjustments. Changes in the estimate will be adjusted in future periods as final settlements are determined. The percentage of net revenue derived under the Medicare and Medi-Cal programs was 95% in 1994. START-UP COSTS The Company expenses costs incident to the start-up of hospice operations in new locations as incurred. PROPERTY AND EQUIPMENT Property and equipment, including improvements to existing facilities, are recorded at cost. Depreciation and amortization are calculated principally using the straight-line method over the estimated useful lives of the assets. Estimated useful lives for major asset categories are 10 years for leasehold improvements and 5 to 7 years for furniture and equipment. 2. INCOME TAXES The Company and the Partnerships file separate federal and California income tax returns. In January 1993, the Company elected by consent of its stockholders to be taxed under the provisions of Subchapter S of the Internal Revenue Code. Under those provisions, the Company will not pay federal corporate income taxes. Instead, the stockholders will be responsible for individual federal income taxes on the Company's taxable income. Subchapter S is recognized in the state of California; however, California still taxes corporate income. Therefore, the Company will continue to be responsible for state income taxes on the Company's taxable income. 3. EMPLOYEE BENEFIT PLAN The Company and the Partnerships have a profit sharing plan (the "Plan") qualifying under Section 401(k) of the Internal Revenue Code. The Plan covers substantially all employees. Employees become eligible to participate in the Plan upon ninety days after employment. The Plan allows participants to make voluntary contributions to the Plan on a pre-tax basis. The voluntary contributions must not be less than 1% or more than 15% of the participants' compensation. The Company and the Partnerships match 50% of employee contributions to the Plan up to $500 per participant annually. Additionally, the Company and the Partnerships may make discretionary contributions to the Plan for the benefit of the participants. Total contributions charged to operations for the year ended December 31, 1994 approximated $120,000. 4. RELATED PARTY TRANSACTIONS During the year ended December 31, 1994, the Company paid management fees to its stockholders totaling $642,937. The above fees are included in central support services in the combined statement of income. F-34 COMMUNITY HOSPICE CARE, INC. ET AL. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 4. RELATED PARTY TRANSACTIONS (CONTINUED) During 1994, the Partnerships paid approximately $199,000, included in hospice program expenses, to nursing homes owned by a shareholder. 5. COMMITMENTS AND CONTINGENCIES The Company and the Partnerships lease their principal offices and the 31-bed inpatient facility under noncancellable operating lease agreements expiring at various dates through 2001. Certain of the lease agreements provide for renewal options of up to six additional years. Two of the stockholders have personally guaranteed these operating leases. Future minimum rental commitments under noncancelable operating leases for the years subsequent to December 31, 1994 are as follows: 1995............................................................. 1,538,257 1996............................................................. 1,417,585 1997............................................................. 1,219,851 1998............................................................. 788,939 1999............................................................. 449,509 Thereafter....................................................... 280,542 --------- 5,694,683 --------- ---------
Future minimum rental payments required for equipment leased under noncancellable lease agreements are not significant. Total rental expense for the year ended December 31, 1994 approximated $1,684,000. The Company and the Partnerships maintain a $1,000,000 per occurrence, $3,000,000 aggregate malpractice insurance policy. Occurrence basis insurance covers claims that occur during the policy term regardless of when the claim was reported. As of December 31, 1994, the Company and the Partnerships have no malpractice loss accrual and there is no deductible liability for claims made. Additionally, neither management nor the insurance carrier are aware of any claims made against the Company or Partnerships. F-35 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. ------------------------ TABLE OF CONTENTS
PAGE ----- Prospectus Summary........................................................ 3 Risk Factors.............................................................. 10 Use of Proceeds........................................................... 19 Dividend Policy........................................................... 19 Capitalization............................................................ 20 Dilution.................................................................. 21 Selected Consolidated Financial Data...................................... 22 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 24 Business.................................................................. 36 Management................................................................ 59 Principal Stockholders.................................................... 70 Certain Transactions...................................................... 73 Description of Capital Stock.............................................. 74 Description of Indebtedness............................................... 81 Shares Eligible for Future Sale........................................... 83 Underwriting.............................................................. 85 Legal Matters............................................................. 87 Experts................................................................... 87 Additional Information.................................................... 87 Index to Consolidated Financial Statements................................ F-1
------------------------ UNTIL , 1997 (25 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 3,800,000 SHARES [LOGO] [LOGO] VITAS HEALTHCARE CORPORATION COMMON STOCK --------------------- PROSPECTUS --------------------- FURMAN SELZ , 1997 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the various expenses in connection with the sale and distribution of the securities being registered hereby, other than underwriting discounts and commissions. All amounts are estimated except for the Securities and Exchange Commission registration fee and the National Association of Securities Dealers, Inc. ("NASD") filing fee.
PAYABLE BY REGISTRANT ----------- SEC registration fee.............................................................. $ 21,188 NASD filing fee................................................................... 7,492 Nasdaq National Market entry fee.................................................. 26,850 Blue Sky fees and expenses........................................................ * Accounting fees and expenses...................................................... * Legal fees and expenses........................................................... * Printing and engraving expenses................................................... * Registrar and transfer agent's fees............................................... * Miscellaneous fees and expenses................................................... * ----------- Total........................................................................... $ * ----------- -----------
- ------------------------ * To be supplied by amendment. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Under Section 145 of the Delaware General Corporation Law (the "Delaware Law"), a corporation may indemnify its directors, officers, employees and agents and its former directors, officers, employees and agents and those who serve, at the corporation's request, in such capacities with another enterprise, against expenses (including attorneys' fees), as well as judgments, fines and settlements in nonderivative lawsuits, actually and reasonably incurred in connection with the defense of any action, suit or proceeding in which they or any of them were or are made parties or are threatened to be made parties by reason of their serving or having served in such capacity. The Delaware Law provides, however, that such person must have acted in good faith and in a manner he or she reasonably believed to be in (or not opposed to) the best interests of the corporation and, in the case of a criminal action, such person must have had no reasonable cause to believe his or her conduct was unlawful. In addition, the Delaware Law does not permit indemnification in an action or suit by or in the right of the corporation, where such person has been adjudged liable to the corporation, unless, and only to the extent that, a court determines that such person fairly and reasonably is entitled to indemnity for expenses the court deems proper in light of liability adjudication. With respect to present or former directors and officers, indemnity is mandatory to the extent a claim, issue or matter has been successfully defended. The Company's Amended and Restated By-laws (the "By-laws") provide for mandatory indemnification of directors and officers generally to the same extent authorized by the Delaware Law. Under the By-laws, the Company shall advance expenses incurred by an officer or director in defending any such action if the director or officer undertakes to repay such amount if it is determined that he or she is not entitled to indemnification. Insofar as indemnification for liabilities under the Securities Act may be permitted to directors, officers or controlling persons of the Company pursuant to the Charter and Bylaws, as amended, of the Company and the Delaware Law, the Company has been informed that in the opinion of the II-1 Securities and Exchange Commission such indemnification is against public policy as expressed in such Securities Act and is, therefore, unenforceable. The Charter limits the personal liability of the Company's directors to the fullest extent permitted by the Delaware Law. Therefore, the directors of the Company are not personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability: (i) for any breach of the director's duty of loyalty to the Company or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the Delaware Law, relating to prohibited dividends or distributions or the repurchase or redemption of stock; or (iv) for any transaction from which the director derives an improper personal benefit. As a result of this provision, the Company and its stockholders may be unable to obtain monetary damages from a director for breach of his or her duty of care. Additionally, the Company has entered into indemnification agreements, in the form attached hereto as Exhibit 10.37 with certain of its directors, officers and other key personnel, which may, in certain cases, be broader than the specific indemnification provisions contained under applicable law. The indemnification agreement may require the Company, among other things, to indemnify such officers, directors and key personnel against certain liabilities that may arise by reason of their status or service as directors, officers or employees of the Company, to advance the expenses incurred by such parties as a result of any threatened claims or proceedings brought against them as to which they could be indemnified and to cover such officers, directors and key employees under the Company's directors' and officers' liability insurance policies to the maximum extent that insurance coverage is maintained. The Company maintains an insurance policy, providing an aggregate of $5 million in coverage, insuring all of its directors and officers against certain liabilities arising from actions taken in their official capacities as directors and officers. The Underwriting Agreement provides for indemnification by the Underwriters of the directors, officers and controlling persons of the Company against certain liabilities, including liabilities under the Securities Act, under certain circumstances. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. In March 1997, the Company issued and sold 54,999 shares of Common Stock to Earl Collier, Jr. and received gross proceeds from such sale of $105,000 (resulting from the exercise price of $1.91 per share) pursuant to a Stock Option Agreement, dated as of October 28, 1991, between the Company and Mr. Collier. The Common Stock was issued in reliance upon an exemption from registration pursuant to Section 4(2) of the Securities Act. In April 1997, the Company issued and sold 11,000 shares of Common Stock to Mark Ohlendorf and received gross proceeds from such sale of $21,000 (resulting from the exercise price of $1.91 per share) pursuant to a Stock Option Agreement, dated as of October 16, 1990, between the Company and Mr. Ohlendorf. The Common Stock was issued in reliance upon an exemption from registration pursuant to Section 4(2) of the Securities Act. The above references to numbers of shares of Common Stock (and per share purchase prices of warrants and exercise price of options) are adjusted to give effect to a 1-for-2.7273 reverse stock split intended to be effective prior to the date the Registration Statement is declared effective. II-2 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits.
EXHIBIT NUMBER DESCRIPTION - --------- ------------------------------------------------------------------------------------------------------- * 1.1 Form of Underwriting Agreement. 3.1 Amended and Restated Certificate of Incorporation of Vitas Healthcare Corporation ("Vitas") (formerly known as Hospice Care Incorporated ("HCI")), as amended. 3.2 Amended and Restated By-laws of Vitas. * 3.3 Form of Certificate of Amendment to Amended and Restated Certificate of Incorporation of Vitas. * 3.4 Form of Amended and Restated By-laws of Vitas. * 4.1 Form of Common Stock certificate. 4.2 Registration Rights Agreement, dated as of June 4, 1993, among Vitas, certain stockholders of Vitas identified therein, Chemed and certain investors identified therein. 4.3 Amendment to Registration Rights Agreement, dated as of July 20, 1997, among Vitas, Chemed Corporation, the Investors identified therein, and NationsBank. 4.4 Investor Agreement, dated as of December 17, 1991, between HCI, Chemed and OCR. 4.5 Stockholders Agreement, dated as of June 4, 1993, among Vitas, Hugh A. Westbrook, Carole S. Westbrook, and certain investors identified therein. * 5.1 Opinion of Hogan & Hartson, L.L.P., regarding legality of shares being registered. * 10.1 Preferred Stock Purchase Agreement, dated as of December 17, 1991, by and among HCI, Chemed Corporation ("Chemed") and OCR Holding Company ("OCR"). * 10.2 Warrant A, dated December 17, 1991, issued by HCI to OCR. * 10.3 Warrant B, dated December 17, 1991, issued by HCI to OCR. * 10.4 Agreement of Waiver and Stock Restriction, dated as of December 17, 1991, between HCI and Hugh A. Westbrook. * 10.5 Agreement of Stock Restriction, dated as of December 17, 1991, between HCI and Esther T. Colliflower. * 10.6 OCR and Chemed Acknowledgment, Stipulation and Waiver, dated as of July 18, 1997. 10.7 Agreement, dated September 18, 1997, among Vitas, Chemed and OCR. * 10.8 Preferred Stock Purchase Agreement, dated as of June 4, 1993, by and among Vitas and certain investors (identified therein). * 10.9 Amended and Restated Employment Agreement, dated September 12, 1994, between Vitas and Hugh A. Westbrook. * 10.10 Employment Agreement, dated as of October 1, 1990, between HCI and J. Richard Williams, Jr. * 10.11 Employment Agreement, dated as of June 7, 1990, between HCI and Thomas E. Combs.
II-3
EXHIBIT NUMBER DESCRIPTION - --------- ------------------------------------------------------------------------------------------------------- * 10.12 Employment Agreement, dated as of October 9, 1989, between Hospice, Incorporated ("HI") and Deirdre Lawe. * 10.13 Confirmation of employment letter, dated June 17, 1993, between Vitas and Mark A. Sterling. * 10.13.1 Supplemental employment letter, dated June 29 1993, from Vitas to Mark A. Sterling. * 10.14 Confirmation of employment letter, dated July 16, 1997, accepted August 15, 1997, between Vitas and David Wester. * 10.15 Consulting Agreement, dated as of January 1, 1997, between Vitas and Esther Colliflower. * 10.16 Stockholder--Founder Agreement, dated as of October 14, 1983, between HCI and Hugh A. Westbrook. * 10.17 Stockholder--Founder Agreement, dated as of October 14, 1983, between HCI and Donald J. Gaetz. * 10.18 Supplementary Shareholder Founder Agreement, dated as of January 30, 1984, among HCI, Hugh A. Westbrook and Donald J. Gaetz. * 10.19 Amendment No. 1 to Supplementary Shareholder Founder Agreement, dated as of December 17, 1991, among HCI, Hugh A. Westbrook and Donald J. Gaetz. * 10.20 Stockholder--Employee Agreement, dated as of April 11, 1984, between HCI and Esther T. Colliflower. * 10.21 Stockholder--Employee Agreement, dated as of January 15, 1985, between HCI and Jonathan R. Williams, M.D. * 10.22 Call Agreement, dated as of December 17, 1991, among Esther T. Colliflower, Hugh A. Westbrook and Donald J. Gaetz. * 10.23 Non-incentive Stock Option Agreement, dated as of October 1, 1989, between HCI and William P. Ferretti. * 10.24 Non-incentive Stock Option Agreement, dated as of October 1, 1990, between HCI and J.R. Williams. * 10.25 Non-incentive Stock Option Agreement, dated as of October 14, 1991, between HCI and J.R. Williams. * 10.26 Non-incentive Stock Option Agreement, dated as of December 17, 1991, between HCI and J.R. Williams. * 10.27 Waiver of Limitation on Exercise of Option, dated as of September 28, 1993, between the Company and J.R. Williams. * 10.28 Non-incentive Stock Option Agreement, dated as of December 17, 1991, between HCI and Hugh A. Westbrook. * 10.29 Non--incentive Stock Option Agreement, dated as of December 17, 1991, between HCI and Esther T. Colliflower. * 10.30 Non-incentive Stock Option Agreement, dated as of June 30, 1992, between Vitas and Timothy S. O'Toole. 10.31 Management Equity Incentive Plan ("1992 MEIP"), adopted June 30, 1992.
II-4
EXHIBIT NUMBER DESCRIPTION - --------- ------------------------------------------------------------------------------------------------------- 10.32 Form of 1992 MEIP Stock Option Agreement. 10.33 1994 Management Equity Incentive Plan ("1994 MEIP"), adopted January 25, 1994. 10.34 Form of 1994 MEIP Non-Incentive Stock Option Agreement (Performance Vesting). 10.35 Form of 1994 MEIP Non-Incentive Stock Option Agreement (Time Vesting). * 10.36 Form of Special Severance Agreement used by Vitas for certain officers and directors, including Hugh A. Westbrook, J.R. Williams, M.D., Thomas E. Combs, Deirdre Lawe, Mark A. Sterling and David A. Wester. * 10.37 Form of Indemnification Agreement used by Vitas for officers and directors, including Hugh A. Westbrook, Esther T. Colliflower., J.R. Williams, M.D., Thomas E. Combs, Deirdre Lawe, Mark A. Sterling, David A. Wester, Bruce F. Wesson, Patrick T. Hackett, Timothy O'Toole, Donald Gaetz and William Ferretti. 10.38 Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement, dated as of February 17, 1995, between Vitas and NationsBank of Florida, National Association ("NationsBank"). 10.39 Amended and Restated Revolving Credit Note, dated February 17, 1995, by Vitas to the order of NationsBank. 10.40 Term Note, dated February 17, 1995, by Vitas to the order of NationsBank. 10.41 Amended and Restated LC Account Agreement, dated as of February 17, 1995, between Vitas and NationsBank. 10.42 Amendment No. 1 to Amended and Restated Revolving Credit and Reimbursement Agreement between Vitas and NationsBank, dated as of June 30, 1995. 10.43 Amendment No. 2 to Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement between Vitas and NationsBank, dated as of March 28, 1996. 10.44 Amendment No. 3 to Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement by and between Vitas and NationsBank, dated September 30, 1996. 10.45 Amendment No. 4 to Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement and Related Documents between Vitas and NationsBank, dated as of November 1, 1996. 10.46 Amendment No. 5 to Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement and Related Documents between Vitas and NationsBank, dated as of February 15, 1997. 10.47 Amendment No. 6 to Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement and Related Documents between Vitas and NationsBank, dated as of March 24, 1997. 10.48 Amendment No. 7 to Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement and Related Documents between Vitas and NationsBank, dated as of September 1, 1997. 10.49 Amended and Restated Pledge and Security Agreement, dated February 17, 1995, between Vitas, as Borrower, and NationsBank.
II-5
EXHIBIT NUMBER DESCRIPTION - --------- ------------------------------------------------------------------------------------------------------- 10.50 Pledge and Security Agreement between Vitas Healthcare Corporation of California ("Vitas-California") and NationsBank, dated February 17, 1995. 10.51 Amended and Restated Pledge and Security Agreement between Vitas Healthcare Corporation of Florida ("Vitas-Florida") and NationsBank, dated February 17, 1995. 10.52 Amended and Restated Pledge and Security Agreement between Vitas Healthcare Corporation of Ohio ("Vitas-Ohio") and NationsBank, dated February 17, 1995. 10.53 Amended and Restated Pledge and Security Agreement between Vitas Healthcare Corporation of Pennsylvania ("Vitas-Pennsylvania") and NationsBank, dated February 17, 1995. * 10.54 Amended and Restated Pledge and Security Agreement between Vitas Healthcare Corporation of Central Florida ("Vitas-Central Florida") and NationsBank. 10.55 Guaranty and Suretyship Agreement, dated as of February 17, 1995, by Vitas-California. 10.56 Amended and Restated Guaranty and Suretyship Agreement, dated as of February 17, 1995, by Vitas-Florida. 10.57 Amended and Restated Guaranty and Suretyship Agreement, dated as of February 17, 1995, by Vitas-Ohio. 10.58 Amended and Restated Guaranty and Suretyship Agreement, dated as of February 17, 1995, by Vitas-Pennsylvania. * 10.59 Guaranty and Suretyship Agreement by Vitas-Central Florida. 10.60 Amended and Restated Guaranty and Contingent Purchase Agreement, dated as of February 17, 1995, between Vitas and NationsBank related to a term loan to Vitas Employee Stock Ownership Trust. 10.61 Warrant Agreement between NationsBank and Vitas, dated as of July 18, 1997. 10.62 Warrant Certificate issued by Vitas to NationsBank, dated July 18, 1997. 10.63 Letter Agreement between NationsBank and Vitas, dated July 18, 1997, relating to a warrant to purchase shares of Vitas Common Stock. 10.64 Warrant Agreement, dated as of September 1, 1997, between Vitas and NationsBank. 10.65 Warrant Certificate issued by Vitas to NationsBank, dated September 1, 1997 * 10.66 Asset Purchase Agreement, dated as of December 27, 1994, among Vitas, Vitas-California, CHC and its Affiliated Partnerships, Connie A. Black and Dennis Rezendez. * 10.67 Promissory Note (Note A), dated February 17, 1995, made by Vitas-California payable to the order of CHC. * 10.68 Order of U.S. Bankruptcy Court for the District of Arizona, dated June 16, 1997, authorizing Modification of Promissory Note A made by and between Thomas E. Arnold, Jr., as Chapter 11 Trustee for the bankruptcy estate of Wilcare Corporation, Vitas-California, and Vitas. * 10.69 Modification of Promissory Note A, dated June 16, 1997, made by and between Thomas E. Arnold, Jr., as Chapter 11 Trustee for the bankruptcy estate of Wilcare Corporation, Vitas-California, and Vitas.
II-6
EXHIBIT NUMBER DESCRIPTION - --------- ------------------------------------------------------------------------------------------------------- * 10.70 Promissory Note (Note B), dated February 17, 1995, made by Vitas-California payable to the order of CHC. * 10.71 Subordination Agreement-A, dated as of February 17, 1995, among Community Hospice Care, Inc. ("CHC"), certain partnerships identified therein ("CHC Affiliated Partnerships"), and NationsBank, including Acknowledgment and Agreement, dated February 17, 1995, by Vitas, Vitas-California and Wilcare Corporation and Vernon R. Will. * 10.72 Letter Agreement, dated May 21, 1997, between Vitas, Vitas-California, Wilcare Corporation and NationsBank modifying Subordination Agreement-A . * 10.73 Subordination Agreement-B, dated as of February 17, 1995, among CHC, the CHC Affiliated Partnerships and NationsBank, including Acknowledgment and Agreement, dated February 17, 1995, by Vitas, Vitas-California and Connie A. Black. * 10.74 Guaranty, dated as of February 17, 1995, made by Vitas in favor of CHC and the CHC Affiliated Partnerships. * 10.75 Noncompetition Agreement, dated February 17, 1995, among CHC and CHC Affiliated Partnerships, Vitas, Vitas-California, Connie A. Black and Dennis Rezendez. * 10.76 Asset Purchase Agreement, dated as of July 20, 1995, among Vitas, Vitas-Ohio, and Hospice of the Miami Valley, Inc. ("HMV"). * 10.77 Amendment to Asset Purchase Agreement, dated as of November 2, 1995, among Vitas, Vitas-Ohio and HMV. * 10.78 Asset Purchase Agreement dated as of June 12, 1996, between Vitas, Vitas--Central Florida, Hospice of Central Florida, Inc. ("HCF") and Hospice of Central Florida Foundation, Inc. * 10.79 Lease and sublease for Beverly Manor of Riverside, dated as of July 1, 1993, among Dart-L ("Dart-L"), Jacob Friedman ("Friedman") and Community Hospice Care-InLand Cities ("CHC--Inland Cities"). * 10.80 Assignment and Assumption of Lease, Consent and Estoppel Agreement, dated as of February 14, 1995, among Consolidated Industries, Inc. ("Consolidated"), Beverly Health and Rehabilitation Services, Inc. ("Beverly Health"), CHC-Inland cities, Vitas-California and Vitas. * 10.81 First Amendment to Lease, dated as of February 14, 1995, among Dart-L, Jacob Friedman, Consolidated, Beverly Health, Vitas-California and Vitas. * 10.82 Lease Agreement, dated as of August 21, 1989, between Florida East Coast Properties, Inc., ("Florida East") and HCI. * 10.83 First Amendment to Lease, dated August 21, 1989, between Florida East and HCI. * 10.84 Second Amendment to Lease, dated July 10, 1991, between Northwestern Capital Corporation ("Northwestern"), as successor to Florida East, and HCI. * 10.85 Third Amendment to Lease, dated April 1, 1994, between Northwestern and Vitas. * 10.86 Business Lease, dated as of August 23, 1995, between Vitas-Florida and Sunbeam Properties, Inc., together with Guaranty, dated as of September 5, 1995, by Vitas for the benefit of Sunbeam Properties, Inc. * 10.87 Lease, dated as of October 31, 1995, between Vitas and LaSalle National Trust, N.A.
II-7
EXHIBIT NUMBER DESCRIPTION - --------- ------------------------------------------------------------------------------------------------------- 11.1 Computation of Per Share Earnings. 21.1 Subsidiaries of Vitas. 23.1 Consent of Ernst & Young LLP. * 23.2 Consent of Hogan & Hartson, L.L.P. (included in Exhibit 5.1). 24.1 Power of attorney (included on the signature page). 27.1 Financial Data Schedule.
- ------------------------ * To be filed by amendment. (b) Financial Statement Schedules. The following financial statement schedule is filed herewith: II Valuation and Qualifying Accounts Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Company hereby further undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-8 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Company has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Miami, State of Florida, on the 23nd day of September, 1997. VITAS HEALTHCARE CORPORATION BY /S/ HUGH A. WESTBROOK ----------------------------------------- Hugh A. Westbrook CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitute and appoint Hugh A. Westbrook and J. R. Williams, M. D., their true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for them and in their name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, or any registration statement relating to this Registration Statement under Rule 462 and to file the same, with the Securities and Exchange Commission, granting unto said attorneys- in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as they might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agent, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the dates indicated. SIGNATURES TITLE DATE - ------------------------------ --------------------------- ------------------- /s/ HUGH A. WESTBROOK September 23, 1997 - ------------------------------ Hugh A. Westbrook Director, Chairman Of the Board Of Directors and Chief Executive Officer (Principal Executive Officer) /s/ ESTHER T. COLLIFLOWER September 23, 1997 - ------------------------------ Esther T. Colliflower Director /s/ J. R. WILLIAMS, M. D. September 23, 1997 - ------------------------------ J. R. Williams, M. D. Director II-9 SIGNATURES TITLE DATE - ------------------------------ --------------------------- ------------------- /s/ DAVID A. WESTER September 23, 1997 - ------------------------------ David A. Wester Vice President, Chief Financial Officer, Treasurer and Assistant Secretary (Principal Financial Officer and Principal Accounting Officer) /s/ DONALD J. GAETZ September 23, 1997 - ------------------------------ Donald J. Gaetz Director /s/ WILLIAM P. FERRETTI September 23, 1997 - ------------------------------ William P. Ferretti Director /s/ PATRICK T. HACKETT September 23, 1997 - ------------------------------ Patrick T. Hackett Director /s/ TIMOTHY S. O'TOOLE September 23, 1997 - ------------------------------ Timothy S. O'Toole Director /s/ BRUCE F. WESSON September 23, 1997 - ------------------------------ Bruce F. Wesson Director II-10 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We have audited the consolidated financial statements of Vitas Healthcare Corporation and Subsidiaries as of September 30, 1996 and 1995, and for each of the three years in the period ended September 30, 1996, and have issued our report thereon dated January 24, 1997, except for the third paragraph of Note 1 as to which the date is September 15, 1997, the second paragraph of Note 4 as to which the date is September 1, 1997 and Note 7 as to which the date is September 1, 1997, (included elsewhere in this Registration Statement). Our audits also included the financial statement schedules listed in Item 16(b) of this Registration Statement. These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Ernst & Young LLP Miami, Florida September 19, 1997 S-1 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS VITAS HEALTHCARE CORPORATION AND SUBSIDIARIES
BALANCE AT CHARGED TO CHARGED BALANCE AT BEGINNING OF COSTS AND TO OTHER END OF DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD - ------------------------------ ------------ ----------- ----------- ---------- ---------- YEAR ENDED SEPTEMBER 30, 1994 Reserves and allowances deducted from asset accounts: Allowance for uncollectible accounts.................... $ 2,474,000 $ 3,973,000 $2,931,000(1) $3,516,000 ------------ ----------- ---------- ---------- ------------ ----------- ---------- ---------- YEAR ENDED SEPTEMBER 30, 1995 Reserves and allowances deducted from asset accounts: Allowance for uncollectible accounts.................... $ 3,516,000 $ 6,828,000 $5,044,000(1) $5,300,000 ------------ ----------- ---------- ---------- ------------ ----------- ---------- ---------- YEAR ENDED SEPTEMBER 30, 1996 Reserves and allowances deducted from asset accounts: Allowance for uncollectible accounts.................... $ 5,300,000 $ 7,958,000 $7,258,000(1) $6,000,000 Tax valuation allowance....... -- 2,182,000 -- 2,182,000 ------------ ----------- ---------- ---------- $ 5,300,000 $10,140,000 $7,258,000 $8,182,000 ------------ ----------- ---------- ---------- ------------ ----------- ---------- ----------
- ------------------------ (1) Uncollectible accounts written off, net of recoveries. S-2 INDEX OF EXHIBITS
EXHIBIT NUMBER DESCRIPTION - --------------- ------------------------------------------------------------------------------------------------- *1.1 Form of Underwriting Agreement. 3.1 Amended and Restated Certificate of Incorporation of Vitas Healthcare Corporation ("Vitas") (formerly known as Hospice Care Incorporated ("HCI")), as amended. 3.2 Amended and Restated By-laws of Vitas. *3.3 Form of Certificate of Amendment to Amended and Restated Certificate of Incorporation of Vitas. *3.4 Form of Amended and Restated By-laws of Vitas. *4.1 Form of Common Stock certificate. 4.2 Registration Rights Agreement, dated as of June 4, 1993, among Vitas, certain stockholders of Vitas identified therein, Chemed and certain investors identified therein. 4.3 Amendment to Registration Rights Agreement, dated as of July 20, 1997, among Vitas, Chemed Corporation, the Investors identified therein, and NationsBank. 4.4 Investor Agreement, dated as of December 17, 1991, between HCI, Chemed and OCR. 4.5 Stockholders Agreement, dated as of June 4, 1993, among Vitas, Hugh A. Westbrook, Carole S. Westbrook, and certain investors identified therein. *5.1 Opinion of Hogan & Hartson, L.L.P., regarding legality of shares being registered. *10.1 Preferred Stock Purchase Agreement, dated as of December 17, 1991, by and among HCI, Chemed Corporation ("Chemed") and OCR Holding Company ("OCR"). *10.2 Warrant A, dated December 17, 1991, issued by HCI to OCR. *10.3 Warrant B, dated December 17, 1991, issued by HCI to OCR. *10.4 Agreement of Waiver and Stock Restriction, dated as of December 17, 1991, between HCI and Hugh A. Westbrook. *10.5 Agreement of Stock Restriction, dated as of December 17, 1991, between HCI and Esther T. Colliflower. *10.6 OCR and Chemed Acknowledgment, Stipulation and Waiver, dated as of July 18, 1997. 10.7 Agreement, dated September 18, 1997, among Vitas, Chemed and OCR. *10.8 Preferred Stock Purchase Agreement, dated as of June 4, 1993, by and among Vitas and certain investors (identified therein). *10.9 Amended and Restated Employment Agreement, dated September 12, 1994, between Vitas and Hugh A. Westbrook. *10.10 Employment Agreement, dated as of October 1, 1990, between HCI and J. Richard Williams, Jr. *10.11 Employment Agreement, dated as of June 7, 1990, between HCI and Thomas E. Combs.
i
EXHIBIT NUMBER DESCRIPTION - --------------- ------------------------------------------------------------------------------------------------- *10.12 Employment Agreement, dated as of October 9, 1989, between Hospice, Incorporated ("HI") and Deirdre Lawe. *10.13 Confirmation of employment letter, dated June 17, 1993, between Vitas and Mark A. Sterling. *10.13.1 Supplemental employment letter, dated June 29, 1993, from Vitas to Mark A. Sterling. *10.14 Confirmation of employment letter, dated July 16, 1997, accepted August 15, 1997, between Vitas and David Wester. *10.15 Consulting Agreement, dated as of January 1, 1997, between Vitas and Esther Colliflower. *10.16 Stockholder--Founder Agreement, dated as of October 14, 1983, between HCI and Hugh A. Westbrook. *10.17 Stockholder--Founder Agreement, dated as of October 14, 1983, between HCI and Donald J. Gaetz. *10.18 Supplementary Shareholder Founder Agreement, dated as of January 30, 1984, among HCI, Hugh A. Westbrook and Donald J. Gaetz. *10.19 Amendment No. 1 to Supplementary Shareholder Founder Agreement, dated as of December 17, 1991, among HCI, Hugh A. Westbrook and Donald J. Gaetz. *10.20 Stockholder--Employee Agreement, dated as of April 11, 1984, between HCI and Esther T. Colliflower. *10.21 Stockholder--Employee Agreement, dated as of January 15, 1985, between HCI and Jonathan R. Williams, M.D. *10.22 Call Agreement, dated as of December 17, 1991, among Esther T. Colliflower, Hugh A. Westbrook and Donald J. Gaetz. *10.23 Non-incentive Stock Option Agreement, dated as of October 1, 1989, between HCI and William P. Ferretti. *10.24 Non-incentive Stock Option Agreement, dated as of October 1, 1990, between HCI and J.R. Williams. *10.25 Non-incentive Stock Option Agreement, dated as of October 14, 1991, between HCI and J.R. Williams. *10.26 Non-incentive Stock Option Agreement, dated as of December 17, 1991, between HCI and J.R. Williams. *10.27 Waiver of Limitation on Exercise of Option, dated as of September 28, 1993, between the Company and J.R. Williams. *10.28 Non-incentive Stock Option Agreement, dated as of December 17, 1991, between HCI and Hugh A. Westbrook. *10.29 Non--incentive Stock Option Agreement, dated as of December 17, 1991, between HCI and Esther T. Colliflower. *10.30 Non-incentive Stock Option Agreement, dated as of June 30, 1992, between Vitas and Timothy S. O'Toole. 10.31 Management Equity Incentive Plan ("1992 MEIP"), adopted June 30, 1992.
ii
EXHIBIT NUMBER DESCRIPTION - --------------- ------------------------------------------------------------------------------------------------- 10.32 Form of 1992 MEIP Stock Option Agreement. 10.33 1994 Management Equity Incentive Plan ("1994 MEIP"), adopted January 25, 1994. 10.34 Form of 1994 MEIP Non-Incentive Stock Option Agreement (Performance Vesting). 10.35 Form of 1994 MEIP Non-Incentive Stock Option Agreement (Time Vesting). *10.36 Form of Special Severance Agreement used by Vitas for certain officers and directors, including Hugh A. Westbrook, J.R. Williams, M.D., Thomas E. Combs, Deirdre Lawe, Mark A. Sterling and David A. Wester. *10.37 Form of Indemnification Agreement used by Vitas for officers and directors, including Hugh A. Westbrook, Esther T. Colliflower., J.R. Williams, M.D., Thomas E. Combs, Deirdre Lawe, Mark A. Sterling, David A. Wester, Bruce F. Wesson, Patrick T. Hackett, Timothy O'Toole, Donald Gaetz and William Ferretti. 10.38 Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement, dated as of February 17, 1995, between Vitas and NationsBank of Florida, National Association ("NationsBank"). 10.39 Amended and Restated Revolving Credit Note, dated February 17, 1995, by Vitas to the order of NationsBank. 10.40 Term Note, dated February 17, 1995, by Vitas to the order of NationsBank. 10.41 Amended and Restated LC Account Agreement, dated as of February 17, 1995, between Vitas and NationsBank. 10.42 Amendment No. 1 to Amended and Restated Revolving Credit and Reimbursement Agreement between Vitas and NationsBank, dated as of June 30, 1995. 10.43 Amendment No. 2 to Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement between Vitas and NationsBank, dated as of March 28, 1996. 10.44 Amendment No. 3 to Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement by and between Vitas and NationsBank, dated September 30, 1996. 10.45 Amendment No. 4 to Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement and Related Documents between Vitas and NationsBank, dated as of November 1, 1996. 10.46 Amendment No. 5 to Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement and Related Documents between Vitas and NationsBank, dated as of February 15, 1997. 10.47 Amendment No. 6 to Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement and Related Documents between Vitas and NationsBank, dated as of March 24, 1997. 10.48 Amendment No. 7 to Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement and Related Documents between Vitas and NationsBank, dated as of September 1, 1997. 10.49 Amended and Restated Pledge and Security Agreement, dated February 17, 1995, between Vitas, as Borrower, and NationsBank.
iii
EXHIBIT NUMBER DESCRIPTION - --------------- ------------------------------------------------------------------------------------------------- 10.50 Pledge and Security Agreement between Vitas Healthcare Corporation of California ("Vitas-California") and NationsBank, dated February 17, 1995. 10.51 Amended and Restated Pledge and Security Agreement between Vitas Healthcare Corporation of Florida ("Vitas-Florida") and NationsBank, dated February 17, 1995. 10.52 Amended and Restated Pledge and Security Agreement between Vitas Healthcare Corporation of Ohio ("Vitas-Ohio") and NationsBank, dated February 17, 1995. 10.53 Amended and Restated Pledge and Security Agreement between Vitas Healthcare Corporation of Pennsylvania ("Vitas-Pennsylvania") and NationsBank, dated February 17, 1995. *10.54 Amended and Restated Pledge and Security Agreement between Vitas Healthcare Corporation of Central Florida ("Vitas-Central Florida") and NationsBank. 10.55 Guaranty and Suretyship Agreement, dated as of February 17, 1995, by Vitas-California. 10.56 Amended and Restated Guaranty and Suretyship Agreement, dated as of February 17, 1995, by Vitas-Florida. 10.57 Amended and Restated Guaranty and Suretyship Agreement, dated as of February 17, 1995, by Vitas-Ohio. 10.58 Amended and Restated Guaranty and Suretyship Agreement, dated as of February 17, 1995, by Vitas-Pennsylvania. *10.59 Guaranty and Suretyship Agreement by Vitas-Central Florida. 10.60 Amended and Restated Guaranty and Contingent Purchase Agreement, dated as of February 17, 1995, between Vitas and NationsBank related to a term loan to Vitas Employee Stock Ownership Trust. 10.61 Warrant Agreement between NationsBank and Vitas, dated as of July 18, 1997. 10.62 Warrant Certificate issued by Vitas to NationsBank, dated July 18, 1997. 10.63 Letter Agreement between NationsBank and Vitas, dated July 18, 1997, relating to a warrant to purchase shares of Vitas Common Stock. 10.64 Warrant Agreement, dated as of September 1, 1997, between Vitas and NationsBank. 10.65 Warrant Certificate issued by Vitas to NationsBank, dated September 1, 1997 *10.66 Asset Purchase Agreement, dated as of December 27, 1994, among Vitas, Vitas-California, CHC and its Affiliated Partnerships, Connie A. Black and Dennis Rezendez. *10.67 Promissory Note (Note A), dated February 17, 1995, made by Vitas-California payable to the order of CHC. *10.68 Order of U.S. Bankruptcy Court for the District of Arizona, dated June 16, 1997, authorizing Modification of Promissory Note A made by and between Thomas E. Arnold, Jr., as Chapter 11 Trustee for the bankruptcy estate of Wilcare Corporation, Vitas-California, and Vitas. *10.69 Modification of Promissory Note A, dated June 16, 1997, made by and between Thomas E. Arnold, Jr., as Chapter 11 Trustee for the bankruptcy estate of Wilcare Corporation, Vitas-California, and Vitas.
iv
EXHIBIT NUMBER DESCRIPTION - --------------- ------------------------------------------------------------------------------------------------- *10.70 Promissory Note (Note B), dated February 17, 1995, made by Vitas-California payable to the order of CHC. *10.71 Subordination Agreement-A, dated as of February 17, 1995, among Community Hospice Care, Inc. ("CHC"), certain partnerships identified therein ("CHC Affiliated Partnerships"), and NationsBank, including Acknowledgment and Agreement, dated February 17, 1995, by Vitas, Vitas-California and Wilcare Corporation and Vernon R. Will. *10.72 Letter Agreement, dated May 21, 1997, between Vitas, Vitas-California, Wilcare Corporation and NationsBank modifying Subordination Agreement-A . *10.73 Subordination Agreement-B, dated as of February 17, 1995, among CHC, the CHC Affiliated Partnerships and NationsBank, including Acknowledgment and Agreement, dated February 17, 1995, by Vitas, Vitas-California and Connie A. Black. *10.74 Guaranty, dated as of February 17, 1995, made by Vitas in favor of CHC and the CHC Affiliated Partnerships. *10.75 Noncompetition Agreement, dated February 17, 1995, among CHC and CHC Affiliated Partnerships, Vitas, Vitas-California, Connie A. Black and Dennis Rezendez. *10.76 Asset Purchase Agreement, dated as of July 20, 1995, among Vitas, Vitas-Ohio, and Hospice of the Miami Valley, Inc. ("HMV"). *10.77 Amendment to Asset Purchase Agreement, dated as of November 2, 1995, among Vitas, Vitas-Ohio and HMV. *10.78 Asset Purchase Agreement dated as of June 12, 1996, between Vitas, Vitas--Central Florida, Hospice of Central Florida, Inc. ("HCF") and Hospice of Central Florida Foundation, Inc. *10.79 Lease and sublease for Beverly Manor of Riverside, dated as of July 1, 1993, among Dart-L ("Dart-L"), Jacob Friedman ("Friedman") and Community Hospice Care-InLand Cities ("CHC--Inland Cities"). *10.80 Assignment and Assumption of Lease, Consent and Estoppel Agreement, dated as of February 14, 1995, among Consolidated Industries, Inc. ("Consolidated"), Beverly Health and Rehabilitation Services, Inc. ("Beverly Health"), CHC-Inland cities, Vitas-California and Vitas. *10.81 First Amendment to Lease, dated as of February 14, 1995, among Dart-L, Jacob Friedman, Consolidated, Beverly Health, Vitas-California and Vitas. *10.82 Lease Agreement, dated as of August 21, 1989, between Florida East Coast Properties, Inc., ("Florida East") and HCI. *10.83 First Amendment to Lease, dated August 21, 1989, between Florida East and HCI. *10.84 Second Amendment to Lease, dated July 10, 1991, between Northwestern Capital Corporation ("Northwestern"), as successor to Florida East, and HCI. *10.85 Third Amendment to Lease, dated April 1, 1994, between Northwestern and Vitas. *10.86 Business Lease, dated as of August 23, 1995, between Vitas-Florida and Sunbeam Properties, Inc., together with Guaranty, dated as of September 5, 1995, by Vitas for the benefit of Sunbeam Properties, Inc.
v
EXHIBIT NUMBER DESCRIPTION - --------------- ------------------------------------------------------------------------------------------------- *10.87 Lease, dated as of October 31, 1995, between Vitas and LaSalle National Trust, N.A. 11.1 Computation of Per Share Earnings. 21.1 Subsidiaries of Vitas. 23.1 Consent of Ernst & Young LLP. *23.2 Consent of Hogan & Hartson, L.L.P. (included in Exhibit 5.1). 24.1 Power of attorney (included on the signature page). 27.1 Financial Data Schedule.
- ------------------------ * To be filed by amendment. vi EX-3.1 2 EXHIBIT 3.1 EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF HOSPICE CARE INCORPORATED Hospice Care Incorporated, a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. Hospice Care Incorporated was originally incorporated under the same name, and its original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on August 24, 1983. 2. Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware, this Amended and Restated Certificate of Incorporation restates and integrates and further amends the provisions of the Restated Certificate of Incorporation of Hospice Care Incorporated previously filed with the Secretary of State of the State of Delaware on August 20, 1984. 3. The text of the Restated Certificate of Incorporation of Hospice Care Incorporated hereby is restated and further amended to read in its entirety as follows: FIRST: The name of the corporation is Hospice Care Incorporated (hereinafter called the "Corporation"). SECOND: The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801, County of New Castle. The name of the Corporation's registered agent at said address is The Corporation Trust Company. THIRD: The purpose of the Corporation is to engage in any lawful acts or activities for which corporations may be organized under the Delaware General Corporation Law. FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is twenty-four million five hundred thousand (24,500,000), of which twenty million (20,000,000) shall be common stock, par value of $.001 per share ("Common Stock"), and four million five hundred thousand (4,500,000) shall be preferred stock, par value of $1.00 per share ("Preferred Stock"). A description of the different classes and series of the Corporation's stock and a statement of the designations, powers, preferences, rights, qualifications, limitations and restrictions of the shares of each class and series of the Corporation's stock are as follows: (a) Common Stock. Except as provided in this Article Fourth (or in any resolution or resolutions adopted by the Board of Directors of the Corporation pursuant hereto), the holders of the Common Stock shall possess exclusively all voting power. Each holder of shares of Common Stock shall be entitled to one vote for each share held by such holder. Each share of Common Stock shall have the same relative rights as, and be identical in all respects with, all -2- other shares of Common Stock. Whenever there shall have been paid, or declared and set aside for payment, to the holders of the outstanding shares of any class of stock having preference over the Common Stock as to the payment of dividends, the full amount of dividends and of sinking fund or retirement fund or other retirement payments, if any, to which such holders are entitled respectively in preference to the Common Stock, then dividends may be paid on the Common Stock and on any class or series of stock entitled to participate therewith as to dividends, out of any assets legally available for the payment of dividends; but only when and as declared by the Board of Directors of the Corporation. In the event of any liquidation, dissolution or winding up of the Corporation, after there shall have been paid to or set aside for the holders of any class of stock having preference over the Common Stock in the event of liquidation, dissolution or winding up the full amount to which such holders are entitled respectively in preference to the Common Stock, then the holders of the Common Stock, and of any class or series of stock entitled to participate therewith, in whole or in part, as to the distribution of assets, shall be entitled, after payment or provision for payment of all debts and liabilities of the Corporation, to receive the remaining assets of the Corporation available for distribution, in cash or in kind. -3- (b) Preferred Stock. Except as provided in this Article Fourth, the Board of Directors of the Corporation is authorized by resolution or resolutions from time to time adopted and by filing a certificate pursuant to the Delaware General Corporation Law to provide for the issuance of Preferred Stock in series and to fix and state the voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights of the shares of each such series and the qualifications, limitations and restrictions thereof. Each share of each series of Preferred Stock shall have the same relative rights as, and be identical in all respects with, all other shares of the same series. FIFTH: The number of directors of the Corporation shall be such number as from time to time shall be fixed by, or in the manner provided in, the by-laws of the Corporation. Unless and except to the extent that the by-laws of the Corporation shall otherwise require, the election of directors of the Corporation need not be by written ballot. SIXTH: In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors of the Corporation is expressly authorized and empowered to adopt, amend, and repeal by-laws of the Corporation. -4- SEVENTH: No director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that nothing contained in this Article Seventh shall eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of this Article Seventh shall be prospective only and shall not adversely affect any right or protection of, or any limitation on the liability of, a director of the Corporation existing at the time of, or arising out of facts or incidents prior to the time of, the effectiveness of such repeal or modification. EIGHTH: The Corporation reserves the right at any time, and from time to time, to amend, alter, change, or repeal any provision contained in this Restated Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences, and privileges of any nature conferred upon stockholders, directors, or any other persons by and -5- pursuant to this Restated Certificate of Incorporation in its present form or as hereafter amended are granted subject to the rights reserved in this Article Eighth. 4. The Board of Directors of the Corporation, at a meeting duly called and held in accordance with the By-laws of the Corporation and Section 141 of the Delaware General Corporation Law, duly adopted resolutions proposing and declaring advisable the amendment to the Restated Certificate of Incorporation of the Corporation as set forth above. 5. Holders of at least a majority of the outstanding shares of Common Stock of the Corporation, constituting the only outstanding voting securities of the Corporation, acting by written consent in accordance with Section 228 of the Delaware General Corporation Law, duly approved the amendment to the Restated Certificate of Incorporation of the Corporation as set forth above, and written notice of the approval and adoption of said amendment without a meeting has been given to those stockholders who did not consent in writing as provided in Section 228(d) of the Delaware General Corporation Law. 6. This Amended and Restated Certificate of Incorporation as set forth above was duly adopted in accordance with the requirements of Sections 242 and 245 of the Delaware General Corporation Law. -6- IN WITNESS WHEREOF, Hospice Care Incorporated has caused this Amended and Restated Certificate of Incorporation to be signed and attested by its duly authorized officers, this 31st day of October, 1991. HOSPICE CARE INCORPORATED By /s/ Earl M. Collier, Jr. --------------------------- Earl M. Collier, Jr. President ATTEST: /s/ Donald J. Gaetz - ----------------------- Donald J. Gaetz Secretary The undersigned affirm and acknowledge under penalty of perjury that they have read the foregoing Amended and Restated Certificate of Incorporation, that the instrument is the act and deed of the Corporation, and that the facts stated therein are true. Executed at Miami, Florida, on October 31, 1991. /s/ Earl M. Collier, Jr. ---------------------------- Earl M. Collier, Jr. /s/ Donald J. Gaetz ---------------------------- Donald J. Gaetz -7- CERTIFICATE OF DESIGNATION, PREFERENCES AND OTHER RIGHTS OF 9.0% CUMULATIVE NONCONVERTIBLE PREFERRED STOCK OF HOSPICE CARE INCORPORATED Pursuant to Section 151(g) of the Delaware General Corporation Law Hospice Care Incorporated, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies that, pursuant to the authority conferred upon the Board of Directors of the Corporation (the "Board of Directors") by the Amended and Restated Certificate of Incorporation of the Corporation and in accordance with Section 151(g) of the Delaware General Corporation Law, the Board of Directors on December 16, 1991 duly adopted the following resolution, which resolution remains in full force and effect as of the date hereof: RESOLVED, that pursuant to the authority vested in the Board of Directors and in accordance with the provisions of its Amended and Restated Certificate of Incorporation, there is hereby created and authorized a series of Preferred Stock of the Corporation, and the designation and amount thereof and the powers, preferences and rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows: 9.0% CUMULATIVE NONCONVERTIBLE PREFERRED STOCK 1. Designation and Amount. The designation of this series of preferred stock shall be "9.0% Cumulative Nonconvertible Preferred Stock," of the par value of $1.00 per share (hereinafter called this "Class"). The number of shares constituting this Class is 270,000. Shares of this Class shall have a stated value of $100.00 per share (the "Stated Value"). 2. Dividend Provisions. 2(a) The dividend rate on the shares of this Class shall be 9.0% per annum, calculated on the Stated Value thereof. 2(b) Dividends on the shares of this Class shall accrue semiannually with respect to the period ending on the last day of each June and December (the "Dividend Period"), and shall cumulate (whether or not earned or paid) from the original issue date of shares of this Class (the "Original Issue Date"). Dividends payable on shares of this Class shall be computed on the basis of a 360-day year of 30-day months and, for any period less than a Dividend Period, the actual number of days elapsed in the period for which a dividend is payable. Dividends on shares of this Class shall be payable on the 15th day (or, if not a business day, the first business day thereafter) of July and January with respect to the Dividend Period ending on the last day of the next preceding June and December, respectively. 2(c) Dividends calculated as described in Sections 2(a) and 2(b) shall be payable from funds legally available therefor, when, as, and if declared by the Board of Directors or by a committee of the Board of Directors authorized to declare such dividends, on the last day of each Dividend Period, or if such date is not a business day, on the next succeeding day which is a business day. Each such dividend shall be paid to the holders of record of the shares of this Class as such holders appear in the stock register of the Corporation on the date that is 30 days before such payment date. Any dividends not paid on any dividend payment date shall accumulate thereafter and shall be considered "accrued and unpaid" for all purposes hereunder until paid. Dividends for any past Dividend Period that are accrued and unpaid may be declared and paid at any time, without reference to any regular dividend payment date, to the holders of record on such record date, not exceeding 30 days preceding the payment date thereof, as may be fixed by the Board of Directors or by a committee of the Board of Directors authorized to fix such record date. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on this Class that may be accrued and unpaid. 2(d) So long as any shares of this Class are outstanding, the Corporation shall not (i) declare, pay, or set aside for payment any dividend upon any Junior Securities (as defined in Section 6) (other than a dividend paid in Common Stock or in any other stock ranking junior to this Class as to dividends) or upon any Parity Securities (as defined in Section 6) (other than a dividend paid in Parity Securities or Junior Securities or a dividend paid in accordance with the requirements of Section 2(e)); (ii) make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the repurchase, redemption, or other retirement of any Junior Securities or Parity Securities or any warrants, rights, or options exercisable for or convertible into any Junior Securities or Parity Securities or (iii) make any distribution in respect of any Junior Securities or Parity Securities, either directly or indirectly, and whether in cash, obligations or shares of the Corporation, or other property -2- (other than distributions in Junior Securities to the holders thereof or distributions of Parity Securities to the holders thereof), unless, in each case, prior to or concurrently with such declaration, payment, setting apart for payment, repurchase, redemption, or distribution, as the case may be, (A) the full cumulative dividends on all outstanding shares of this Class for all past Dividend Periods shall have been or be declared and paid in cash, (B) full dividends on all outstanding shares of this Class to the end of the then current Dividend Period shall have been declared and paid in cash, or a sum in cash sufficient for the payment thereof set apart for payment, and (C) the Corporation shall have redeemed the aggregate number of shares of this Class required under Section 3(b) to be redeemed as of the end of such Dividend Period. Notwithstanding the provisions of this Section 2(d), the Corporation may redeem or purchase shares of Common Stock from employees, consultants or directors or former employees, consultants or directors of the Corporation or of any direct or indirect subsidiary of the Corporation now or hereafter acquired, upon or in connection with their death, disability, termination of their employment with or service to the Corporation or any such subsidiary, or exercise of rights of first refusal by the Corporation, or otherwise. 2(e) (i) So long as any shares of this Class are outstanding, the Corporation shall not declare or pay or set apart for payment full cumulative dividends (the payment of less than full cumulative dividends being treated in Section 2(e)(ii)), including all accrued and unpaid dividends and all dividends accruing with respect to the most recently ended Dividend Period, on any class or series of Parity Securities unless full cumulative dividends have been or contemporaneously are declared and paid, or declared and a sum set apart sufficient for payment, on the shares of this Class for all Dividend Periods ending on or before the date of payment of such full cumulative dividends on such Parity Securities. 2(e) (ii) So long as any shares of this Class are outstanding, if any dividends are not declared in full, as provided in Section 2(e)(i), upon the shares of this Class and any class or series of Parity Securities, but the Corporation determines to declare or pay or set aside for payment dividends that are less than full cumulative dividends on such Parity Securities, then as a condition precedent thereto the Corporation shall declare and pay, or declare and set apart for payment, cash dividends on shares of this Class in such amounts that (A) the sum of the aggregate amount of such cash dividends to be so paid or set apart for payment on the shares of this -3- Class bears the same ratio to (B) the sum of the aggregate amount of accrued and unpaid dividends on the shares of this Class then outstanding plus the aggregate amount of dividends accruing on the shares of this Class then outstanding for the Dividend Period ending on or before the date of payment of such dividends as (C) the aggregate amount of dividends to be so declared or paid or set apart for payment on such class or series of Parity Securities bears to (D) the sum of the aggregate amount of accrued and unpaid dividends on the shares of such class or series then outstanding plus the aggregate amount of dividends accruing on such class or series of Parity Security for the most recent dividend period ending on or before before the payment date for such dividends. 2(f) The holders of shares of this Class shall not be entitled to any dividends or distributions, whether payable in cash, property, or stock, in excess of full cumulative dividends, as provided in this Section 2, on this Class. Any dividend payment made on shares of this Class shall first be credited against the earliest accrued but unpaid dividend due with respect to shares of this Class. 3. Redemption Provisions. 3(a) Redemption at the Corporation's Option. At any time and from time to time, the Corporation may redeem at its option all or any portion of the shares of this Class at the price per share set forth below (subject to appropriate adjustments for stock splits, stock dividends, combinations or other recapitalizations affecting such shares) plus an amount equal to all accrued and unpaid dividends thereon to the date fixed for redemption, out of funds legally available for such redemption. During Years Ending Redemption Price (After Original Issuance Date) Per Share ------------------------------ ---------------- December 31, 1992 $107.00 December 31, 1993 $106.00 December 31, 1994 $105.00 December 31, 1995 $103.00 December 31, 1996 $102.00 December 31, 1997 $101.00 December 31, 1998 $100.00 -4- 3(b) Mandatory Redemption. Subject to the last sentence of this Section 3(b), the Corporation shall redeem the shares of this Class, in the manner hereinafter provided, at the redemption prices (subject to appropriate adjustment for stock splits, stock dividends, combinations or other similar recapitalizations affecting such shares) and on the redemption dates as follows: Mandatory Number of Redemption Shares to Date be Redeemed Redemption Price Per Share ---------- ----------- -------------------------- June 30, 1995 13,500 $103.00 December 31, 1995 13,500 $103.00 June 30, 1996 27,000 $102.00 December 31, 1996 27,000 $102.00 June 30, 1997 40,500 $101.00 December 31, 1997 40,500 $101.00 June 30, 1998 54,000 $100.00 December 31, 1998 54,000 $100.00 All accrued and unpaid dividends with respect to such shares being redeemed shall be paid at the time of such redemption. In the event that the Corporation shall effect a registered public offering of any of its securities in which gross proceeds received by the Corporation from the offering are not less than $12 million (which registered public offering shall also be based upon a market capitalization of the common equity of the Corporation of not less than $60 million), the Corporation shall be obligated to redeem $9.0 million of the shares of this Class at a price equal to Stated Value plus accrued but unpaid dividends on or promptly following the closing of such offering. Optional redemptions made under Section 3(a) and mandatory redemptions made pursuant to the immediately preceding sentence shall reduce the extent to which the Corporation is required to make any mandatory redemptions required under this Section 3(b). -5- 3(c) All shares to be redeemed shall be redeemed pro rata from all holders, unless otherwise required by law. If any redemption date falls on a day which is not a business day, the redemption date shall be the next business day. 3(d) In the event that the Corporation shall redeem shares of this Class, notice of such redemption shall be mailed, first class postage prepaid, to each holder of record of the shares of this Class, at such holder's address as it appears in the stock register of the Corporation, not less than 10 nor more than 60 days prior to the date fixed for redemption. No failure to give such notice nor any defect therein shall affect the validity of the proceeding for the redemption of any shares of this Class to be redeemed except as to the holder to whom the Corporation has failed to give notice or except as to the holder whose notice was defective. Each such notice shall state the redemption date, the aggregate number of shares of this Class to be redeemed and, if less than all shares are to be redeemed, the number to be redeemed from such holder, the redemption price applicable to the shares to be redeemed, the place where certificates for such shares are to be surrendered for payment of the redemption price, and that dividends on shares to be redeemed will cease to accrue on the redemption date. 3(e) Notice having been mailed as provided in Section 3(d), from and after the redemption date (unless the Corporation defaults in providing money for the payment of the redemption price) dividends on shares of this Class so called for redemption shall cease to accrue, such shares shall no longer be deemed to be outstanding, and all rights of the holder of the shares so redeemed, as such (except the right to receive the redemption price thereof), shall terminate. Upon surrender, in accordance with such notice, of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors shall so require), such shares shall be redeemed by the Corporation at the redemption prices set forth above. If fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. 3(f) Any shares of this Class that shall at any time have been redeemed or repurchased shall, after such redemption or repurchase, be cancelled by the Corporation and shall not be available for reissuance. 3(g) If the funds of the Corporation legally available for redemption of the shares of this Class on any -6- mandatory redemption date are insufficient to pay accrued and unpaid dividends with respect to the shares being redeemed and to redeem the number of shares required to be redeemed on that date, those funds that are legally available shall be used first to pay such accrued and unpaid dividends and then to redeem the maximum possible number of such shares, ratably on the basis of the number of shares that would be redeemed on such date if the funds of the Corporation legally available therefor had been sufficient to redeem all shares required to be redeemed on that date. At any time thereafter, when additional funds of the Corporation become legally available for the redemption of shares, such funds shall be used, at the end of the next succeeding fiscal quarter, to pay any remaining accrued and unpaid dividends with respect to the shares of this Class that the Corporation was theretofore obligated to redeem and then to redeem the balance of such shares, ratably on the basis set forth in the preceding sentence. 4. Voting and Meetings with the Corporation. 4(a) The holders of record of the shares of this Class shall not, except as otherwise required by law or as specified in Section 4(b), have any right or power to vote on any question or in any proceeding or to be represented at or to receive notice of any meeting of the Corporation's stockholders or to express consent or dissent to any action taken without a meeting (including without limitation, any election or removal of the directors of the Corporation). 4(b) So long as any shares of this Class are outstanding, the Corporation shall not, without the affirmative vote or consent of the holders of at least a majority of the shares of this Class outstanding at the time, given in person or by proxy, either in writing or at a meeting at which the holders of the shares of this Class shall vote separately as a class, (i) authorize, issue or assume the obligations under, or increase the stated or par value of, any Senior Securities (as defined in Section 6) or any obligation or security convertible into or evidencing the right to purchase any Senior Securities; (ii) authorize, issue or assume the obligations under, or increase the stated or par value of, any Parity Securities or any obligation or security convertible into or evidencing the right to purchase any Parity Securities; (iii) amend the Amended and Restated Certificate of Incorporation of the Corporation or the certificate of designations relating to the shares of this Class so as to alter or change the powers, preferences, or special rights of the shares of this Class so as to affect them adversely or authorize additional shares of this Class or increase or decrease the par value of the shares -7- of this Class; or (iv) sell all or substantially all of the assets of the Corporation in a transaction that is to be submitted to a vote of stockholders of the Corporation. 5. Liquidation Rights. 5(a) Subject to the rights of the holders of shares of any series or class or classes of Senior Securities upon dissolution or liquidation, upon the liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, the holders of record of the shares of this Class then outstanding shall be entitled to receive out of the assets of the Corporation available for distribution to its stockholders, before any distribution or payment is made with respect to the Common Stock or any other class or series of stock ranking junior to this Class upon liquidation, an amount per share in cash equal to the Stated Value plus an amount in cash equal to all accrued and unpaid dividends (whether or not earned or declared) on the shares of this Class as provided in Section 2 to the date of final distribution. 5(b) After the payment, in cash, to the holders of the shares of this Class of the full preferential amount provided for in this Section 5, the holders of shares of this Class as such shall have no right or claim to any of the remaining assets of the Corporation. 5(c) Neither the merger or consolidation of the Corporation into or with any other corporation, nor the merger or consolidation of any other corporation into or with the Corporation, nor a voluntary sale, transfer, lease, or other disposition of all or any part of the assets of the Corporation, shall, without further corporate action, be deemed to be a liquidation, dissolution, or winding up of the Corporation within the meaning of this Section 5. 5(d) Subject to the rights of the holders of shares of any series or class or classes of Senior Securities upon dissolution or liquidation, in the event the remaining assets of the Corporation upon any dissolution, liquidation, or winding up of the Corporation are not sufficient to pay in full all amounts to which the holders of this Class are entitled pursuant to Section 5(a) and liquidating payments on any Parity Securities, then such assets, or the proceeds thereof, shall be distributed among the holders of shares of this Class and such Parity Securities ratably in accordance with the respective amounts which would be paid on such shares of this Class and such other Parity Securities if all amounts thereon were paid in full. -8- 5(e) Subject to the rights of the holders of shares of any series or class or classes of Parity Securities or Senior Securities upon any dissolution or liquidation of the Corporation, after payment shall have been made in full to the holders of shares of this Class as provided in this Section 5, but not prior thereto, any other series or class or classes of stock ranking junior to this Class upon dissolution or liquidation shall, subject to the respective terms and provisions (if any) applying thereto, be entitled to receive any and all assets remaining to be paid or distributed, and the holders of this Class shall not be entitled to share therein. 6. Ranking. The shares of this Class shall rank, both as to dividends and upon liquidation, senior and prior to the Common Stock. Any stock of any other class or classes or series shall be deemed to rank: 6(a) senior and prior to the shares of this Class, to be "Senior Securities," if the holders of such stock shall be entitled to the receipt of dividends or amounts paid in or set aside for redemption, or the receipt of amounts distributable upon dissolution, liquidation, or winding up of the Corporation, as the case may be, in preference or priority to the holders of shares of this Class; 6(b) on a parity with shares of this Class, to be "Parity Securities," whether or not the dividend rates, dividend payment dates, redemption or liquidation prices per share, or sinking fund provisions, if any, be different from those of this Class, if the holders of such stock shall be entitled to the receipt of dividends or amounts paid in or set aside for redemption, or the receipt of amounts distributable upon dissolution, liquidation, or winding up of the Corporation, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of the shares of this Class; and 6(c) junior to shares of this Class, to be "Junior Securities," if the holders of shares of this Class shall be entitled to the receipt of dividends or of amounts paid in or set aside for redemption, or to the receipt of amounts distributable upon dissolution, liquidation, or winding up of the Corporation, as the case may be, in preference or priority to the holders of such stock. -9- 7. Restrictions on Transfer. The shares of this Class may not be transferred without the prior written approval of the Corporation. 8. Consolidation, Merger, etc. 8(a) In the event that the Corporation shall consummate any consolidation or merger or similar transaction, however named, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged solely for or changed, reclassified or converted solely into shares of any successor or resulting company and, if applicable, for a cash payment in lieu of fractional shares, if any, then in such event, the terms of such consolidation or merger or similar transaction shall provide that the shares of this Class shall be substituted for and shall become preferred shares of such successor or resulting company, having in respect of such company insofar as possible the same powers, preferences and relative, participating, optional or other special rights (including the redemption rights provided by Section 3 hereof) and the qualifications, limitations or restrictions thereon, that the shares of this Class had immediately prior to such transaction. The Corporation shall not consummate any such merger, consolidation or similar transaction unless all the terms of this paragraph 8(a) are complied with. 8(b) In the event the Corporation shall enter into any agreement providing for any consolidation or merger or similar transaction described in paragraph (a) of this Section 8, then the Corporation shall as soon as practicable thereafter (and in any event at least twenty (20) business days before consummation of such transaction) give notice of such agreement and the material terms thereof to each holder of shares of this Class, and each such holder shall have the right to elect, by written notice to the Corporation, to receive upon consummation of such transaction (if and when such transaction is consummated), from the Corporation or the successor of the Corporation, in redemption and retirement of such shares, a cash payment equal to the Stated Value plus all accrued (whether or not accumulated) and unpaid dividends. No such notice of redemption shall be effective unless given to the Corporation prior to the close of business on the fifth business day prior to consummation of such transaction, unless the Corporation or the successor of the Corporation shall waive such prior notice, but any notice of redemption so given prior to such time may be withdrawn by notice of withdrawal given to the Corporation prior to the close of business on the fifth business day prior to consummation of such transaction. -10- IN WITNESS WHEREOF, Hospice Care Incorporated has caused this Certificate of Designation to be executed on its behalf on December 16, 1991. HOSPICE CARE INCORPORATED By: /s/ Earl M. Col1ier, Jr. ---------------------------- Earl M. Col1ier, Jr. President Attest: /s/ Pamela Ventura - ---------------------- Pamela Ventura Assistant Secretary -11- STATE OF DELAWARE CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF HOSPICE CARE INCORPORATED Hospice Care Incorporated, a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. That by unanimous written consent in lieu of a meeting, the Board of Directors of said corporation duly adopted resolutions setting forth a proposed amendment to the Amended and Restated Certificate of Incorporation of said corporation, declaring said amendment to be advisable and directing that it be submitted to stockholders for approval and adoption. The resolution setting forth the proposed amendment is as follows: RESOLVED, that Article FIRST of the Corporation's Amended and Restated Certificate of Incorporation is hereby amended to read as follows: "FIRST: The name of the corporation is Vitas Healthcare Corporation (hereinafter called the "Corporation")." 2. That thereafter holders of at least a majority of the outstanding shares of common stock of said corporation acting by written consent in accordance with Section 228 of the Delaware General Corporation Law, duly approved and adopted the amendment to the Amended and Restated Certificate of Incorporation as set forth above, and written notice of the approval and adoption of said amendment without a meeting has been given to those stockholders who did not consent in writing as provided in Section 228(d) of the Delaware General Corporation Law. 3. That the aforesaid amendment was duly approved and adopted in accordance with applicable provisions of Section 242 of the Delaware General Corporation Law. IN WITNESS WHEREOF, said Hospice Care Incorporated has caused this certificate to be signed by Earl M. Collier, Jr., its President, and attested by Mark Ohlendorf, its Secretary, this 11th day of May, 1992. ATTEST: HOSPICE CARE INCORPORATED By: /s/ Mark Ohlendorf By: /s/ Earl M. Collier, Jr. ---------------------- ---------------------------- Mark Ohlendorf Earl M. Collier, Jr. Secretary President CERTIFICATE OF AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF VITAS HEALTHCARE CORPORATION Vitas Healthcare Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: FIRST: The Board of Directors of the Corporation, at a meeting duly called and held in accordance with the By-Laws of the Corporation and Section 141 of the Delaware General Corporation Law, duly adopted resolutions proposing and declaring advisable the amendment to the Amended and Restated Certificate of Incorporation, as amended, of the Corporation as set forth below. SECOND: Article FOURTH of the Amended and Restated Certificate of Incorporation, as amended, hereby is further amended by deleting in its entirety the first sentence of the first paragraph of Article FOURTH and replacing it with the following: FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is forty-four million five hundred thousand (44,500,000), of which forty million (40,000,000) shall be common stock, par value of $1.00 per share ("Common Stock"), and four million five hundred thousand (4,500,000) shall be preferred stock, par value of $1.00 per share ("Preferred Stock"). THIRD: Holders of at least a majority of the outstanding shares of Common Stock of the Corporation, constituting the only outstanding securities of the Corporation entitled to vote in respect of the amendment to the Amended and Restated Certificate of Incorporation of the Corporation, as amended, as set forth above, acting by written consent in accordance with Section 228 of the Delaware General Corporation Law, duly approved said amendment, and written notice of the approval and adoption of said amendment without a meeting has been given to those stockholders who did not consent in writing as provided in Section 228(d) of the Delaware General Corporation Law. FOURTH: The amendment to the Amended and Restated Certificate of Incorporation of the Corporation, as amended, set forth above was duly adopted and approved in accordance with the requirements of Section 242 of the Delaware General Corporation Law. -2- IN WITNESS WHEREOF, Vitas Healthcare Corporation has caused this Certificate of Amendment to be signed and attested by its duly authorized officers, as of the 27th day of May, 1993. VITAS HEALTHCARE CORPORATION By /s/ Earl M. Collier, Jr. --------------------------- Earl M. Collier, Jr. President ATTEST: /s/ Mark Ohlendorf - ----------------------- Mark Ohlendorf Secretary The undersigned affirm and acknowledge under penalty of perjury that they have read the foregoing Certificate of Amendment, that the instrument is the act and deed of the Corporation, and that the facts stated therein are true. Executed at Washington, D.C. as of May 27, 1993. /s/ Earl M. Collier, Jr. ----------------------------- Earl M. Collier, Jr. /s/ Mark Ohlendorf ----------------------------- Mark Ohlendorf -3- CERTIFICATE OF DESIGNATION, PREFERENCES AND OTHER RIGHTS OF THE SERIES B CONVERTIBLE PREFERRED STOCK OF VITAS HEALTHCARE CORPORATION ----------------------- Pursuant to Section 151(g) of the Delaware General Corporation Law ----------------------- Vitas Healthcare Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies that, pursuant to the authority conferred upon the Board of Directors of the Corporation (the "Board of Directors") by the Amended and Restated Certificate of Incorporation, as amended, of the Corporation and in accordance with Section 151(g) of the Delaware General Corporation Law, the Board of Directors on June 3, 1993, duly adopted the following resolution, which resolution remains in full force and effect as of the date hereof: RESOLVED, that pursuant to the authority vested in the Board of Directors and in accordance with the provisions of its Amended and Restated Certificate of Incorporation, as amended, there is hereby created and authorized a series of Preferred Stock of the Corporation, and the designation and amount thereof and the powers, preferences and rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows: SERIES B CONVERTIBLE PREFERRED STOCK 1. Designation and Amount. The designation of this series of preferred stock shall be "Series B Convertible Preferred Stock," of the par value of $1.00 per share (hereinafter called this "Class"). The number of shares constituting this Class is 262,500. Shares of this Class shall have a stated value of $100.00 per share (the "Stated Value"). 2. Dividend Provisions. 2(a) Dividend Rights. The holders of shares of this Class shall not be entitled to any dividends or distributions, whether payable in cash, property or stock, except as otherwise provided in this Section 2. 2(b) Dividend Preference. So long as any shares of this Class are outstanding and subject to the provisions of Section 2(d) hereof, the Corporation shall not (i) declare, pay, or set aside for payment any dividend upon any Junior Securities (as defined in Section 7 hereof) (other than a dividend paid in the Corporation's common stock, par value $.00l per share ("Common Stock"), or in any other stock ranking junior to this Class as to dividends) or upon any Parity Securities (as defined in Section 7 hereof) (other than a dividend paid in Parity Securities or Junior Securities); (ii) make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the repurchase, redemption, or other retirement of any Junior Securities or Parity Securities or any warrants, rights, or options exercisable for or convertible into any Junior Securities or Parity Securities (other than the Stock Repurchases as defined in that certain Preferred Stock Purchase Agreement, dated as of the Original Issue Date, among the Corporation and the holders of shares of this Class on the Original Issue Date (as hereinafter defined) (the "Preferred Stock Purchase Agreement")); or (iii) make any distribution in respect of any Junior Securities or Parity Securities, either directly or indirectly, and whether in cash, obligations or shares of the Corporation or any other person, or any other property other than cash, or any combination thereof (other than distributions in Junior Securities to the holders thereof or distributions in Parity Securities to the holders thereof), unless (A) in each case, prior to or concurrently with such declaration, payment, setting apart for payment, repurchase, redemption, or distribution, as the case may be, dividends (including dividends previously declared and paid in cash) on the outstanding shares of this Class equal to 8% per annum, compounded annually (computed on the basis of a 360-day year of 30-day months and, for any period less than a month, the actual number of days elapsed in such month), calculated for each of the then outstanding shares of this Class on the Stated Value from the original issue date of the shares of this Class (the "Original Issue Date") to the payment date established for such dividend, payment or distribution (the "Series B Dividend Preference Amount"), shall have been declared and paid in cash, and (B) the Corporation shall have made all payments required to be made by it (if any) pursuant to Section 3 hereof. Notwithstanding the provisions of this Section 2(b), without declaring or paying any dividend upon shares of this Class, the Corporation may, subject to applicable law and the provisions of Section 5(b)(viii) hereof, redeem or purchase shares of Common Stock (or securities exchangeable for or convertible into Common Stock) from current or former directors, officers, employees or consultants of the Corporation or of any direct or indirect subsidiary of the Corporation upon or in connection with their death, disability, termination of their employment -2- with or service to the Corporation or any such subsidiary, or exercise of rights of first refusal by the Corporation, or under any circumstances approved or consented to by the holders of a majority of the outstanding shares of this Class. 2(c) Participation in Dividends on Common Stock. So long as any shares of this Class are outstanding, in the event the Corporation declares, pays or sets aside for payment any dividend or distribution upon the shares of Common Stock in accordance with Section 2(b) hereof (other than a dividend paid in Common Stock or in any other stock ranking junior to this Class as to dividends), the outstanding shares of this Class shall be entitled to participate equally (as if such shares had been converted into shares of Common Stock pursuant to Section 4 hereof) with the shares of Common Stock to the extent that such dividend or distribution, together with all other dividends or distributions paid upon the shares of Common Stock subsequent to the Original Issue Date, exceeds the sum of all amounts paid with respect to the Series B Dividend Preference Amount pursuant to Sections 2(b) and 3(a) hereof, without giving effect to annual compounding. 2(d) Payment of Dividends on Parity Securities. (i) So long as any shares of this Class are outstanding, the Corporation shall not declare or pay or set apart for payment full cumulative dividends (the payment of less than full cumulative dividends being treated in Section 2(d)(ii) hereof), including all accrued and unpaid dividends, on any class or series of Parity Securities unless the Series B Dividend Preference Amount has been or contemporaneously is declared and paid. (ii) So long as any shares of this Class are outstanding, if any dividends are not declared in full, as provided in Section 2(d)(i) hereof, upon any class or series of Parity Securities, but the Corporation determines to declare or pay or set aside for payment dividends that are less than full cumulative dividends on such Parity Securities, then as a condition precedent thereto the Corporation shall declare and pay cash dividends on the outstanding shares of this Class in such amounts that (A) the sum of the aggregate amount of such cash dividends to be so paid on the shares of this Class bears the same ratio to (B) the Series B Dividend Preference Amount for all then outstanding shares of this Class (less any dividends declared and paid on the shares of this Class prior to the payment date for such dividend) as of the record date for such dividend as (A) the aggregate amount of dividends to be so declared or paid or set apart for payment on such class or series of Parity Securities bears to (B) the sum of the aggregate amount of accrued and unpaid dividends on the shares -3- of such class or series then outstanding plus the aggregate amount of dividends accruing on such class or series of Parity Securities for the most recent dividend period ending on or before the payment date for such dividends. 2(e) Payment of Dividends. Dividends on the shares of this Class calculated as described in Sections 2(b), 2(c) and 2(d) hereof shall be payable from funds legally available therefor, only when, as, and if declared by the Board of Directors or by a committee of the Board of Directors authorized to declare such dividends. Each such dividend shall be paid to the holders of record of the shares of this Class as such holders appear in the stock register of the Corporation on the date that is thirty (30) days before the payment date fixed by the Board of Directors or by a committee of the Board of Directors authorized to fix such payment date. No interest, or sum of money in lieu of interest, shall be payable in respect of any dividend payment or payments on this Class. 2(f) Restriction on Cash Dividends. Notwithstanding any other provision of this Section 2 to the contrary, the Corporation shall not pay any cash dividends on the shares of this Class or on any Junior Securities or Parity Securities if, on the proposed payment date established for such dividend and after giving effect to such dividend, the aggregate amount of all cash dividends paid by the Corporation since the original Issue Date to holders of the shares of this Class and the holders of any Junior Securities and Parity Securities exceeds 50% of the Cumulative Consolidated Net Income of the Company. For purposes of this Section 2(f), the term "Cumulative Consolidated Net Income" shall mean the consolidated net income earned by the Company during the period from March 31, 1993 through the month end immediately preceding the proposed payment date established for such dividend. The provisions of this Section 2(f) shall remain in full force and effect as long as at least one-third (1/3) of the shares of this Class outstanding on the Original Issue Date continue to be outstanding. 3. Redemption Provisions. 3(a) Redemption at the Option of the Holders. Subject to the provisions of Section 3(d) hereof, at the earlier of June 30, 1999, or six months following the redemption in full of the 9.0% Cumulative Nonconvertible Preferred Stock of the Corporation, but in no event prior to June 30, 1996, any holder of shares of this Class may, by notice to the Corporation as provided in Section 3(c) hereof, require the Corporation to redeem all of such holder's shares at a price per share equal to the Stated Value plus the Series B Dividend Preference Amount as of the Redemption Date (as -4- hereinafter defined) (less any dividends declared and paid on the shares of this Class prior to the Redemption Date), out of funds legally available for such redemption (the "Redemption Price"). 3(b) Involuntary Redemption. In the event that the cumulative effect of any redemption of shares of this Class pursuant to Section 3(a) hereof causes two-thirds (2/3) of the shares of this Class outstanding on the Original Issue Date to have been redeemed, the Corporation shall redeem all of the remaining outstanding shares of this Class held by all holders on the Involuntary Redemption Date (as hereinafter defined) at the Redemption Price. 3(c) Redemption Procedures. (i) In the case of a redemption pursuant to Section 3(a) hereof, each holder of shares of this Class electing to redeem all of such shares shall mail, first class postage prepaid, written notice of such election to the Corporation not less than thirty (30) business days prior to the date on which such holder requests that the redemption be made (the "Redemption Date"). Each such notice shall include the certificate or certificates representing the shares to be redeemed (properly endorsed or assigned for transfer) and shall specify the Redemption Date and the aggregate number of shares to be redeemed. If any Redemption Date falls on a day that is not a business day, the Redemption Date shall be the next business day. (ii) In the case of a redemption pursuant to Section 3(b) hereof, at least twenty (20) business days prior to the Involuntary Redemption Date, the Corporation shall mail, first class postage prepaid, written notice (the "Involuntary Redemption Notice") to each holder of record (at the close of business on the business day next preceding the day on which the Involuntary Redemption Notice is given) of this Class (A) notifying such holders that two-thirds (2/3) of the shares of this Class outstanding on the Original Issue Date have been redeemed and that the shares held by each such holder, unless surrendered for conversion pursuant to Section 4 hereof prior to the Involuntary Redemption Date, shall be redeemed pursuant to Section 3(b) hereof, and (B) specifying the Redemption Price, the date that the Corporation has designated as the date on which such redemption will be made (which date shall not be more than thirty (30) business days after the Redemption Date of the redemption triggering such involuntary redemption) (the "Involuntary Redemption Date"), the number of shares of this Class to be redeemed and the place -5- where the Redemption Price shall be payable. The Involuntary Redemption Notice shall be addressed to each holder of this Class at its address shown in the Corporation's records. (iii) Upon surrender of the certificate or certificates representing the shares redeemed pursuant to this Section 3, the Corporation shall remit the Redemption Price to the holders thereof (subject to the provisions of Section 3(d) hereof). If fewer than all the shares represented by any such certificate or certificates are to be redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. 3(d) Installment Election by Corporation. Upon receipt of the notice of redemption provided in Section 3(c)(i) hereof or upon the occurrence of a redemption triggering an involuntary redemption pursuant to Section 3(b) hereof, the Corporation may elect to effect any such redemption in three annual installments by mailing, first class postage prepaid, written notice of such installment election to each holder of record (at the close of business on the business day next preceding the day on which such installment election notice is given) of this Class entitled to redemption under Section 3(a) or 3(b) hereof not less than ten (10) business days prior to the Redemption Date or Involuntary Redemption Date, as the case may be. Pursuant to such installment election, the Corporation shall redeem the shares to be redeemed on such Redemption Date or Involuntary Redemption Date in three equal installments, one-third (1/3) of such shares to be redeemed on such Redemption Date or Involuntary Redemption Date and one-third (1/3) of such shares to be redeemed on each of the first and second anniversaries of such Redemption Date or Involuntary Redemption Date, respectively; provided, however, that any shares of this Class to be redeemed pursuant to this Section 3(d) shall not be deemed to have been redeemed until the Redemption Price installment (which shall include the Series B Dividend Preference Amount as of the date of each installment with respect to the shares to be redeemed by such installment) relating to such shares has been remitted to the holder thereof; provided, further, in the event that (i) the Corporation fails to remit any installment of the Redemption Price within five (5) business days after the date such payment is due, (ii) any of the events specified in clauses (iv), (v), (vi) or (viii) of Section 5(b) hereof shall occur, (iii) (A) there has been a filing by or against the Corporation of any case, proceeding, or other action seeking reorganization, liquidation, dissolution, or adjustment of the Corporation or its debts under any law relating to bankruptcy, insolvency, or reorganization, (B) the Corporation has made any general assignment for the benefit of creditors or (C) a receiver or trustee has been appointed for the Corporation or for any -6- assets of the Corporation, or (iv) a judgment or decree has been entered against the Corporation involving a liability in excess of $2,500,000 or more, and such judgment or decree has not been vacated, discharged, stayed or bonded pending appeal within forty-five (45) days following the entry thereof, then the Corporation shall be required promptly to redeem all outstanding shares of this Class to be redeemed pursuant to this Section 3(d) and remit the entire remaining amount (if any) of the Redemption Price to the holders of all such shares. Notwithstanding any provision of this Section 3(d) to the contrary, the Corporation may redeem any shares of this Class to be redeemed pursuant to this Section 3(d) at any time following the Redemption Date or Involuntary Redemption Date, as the case may be, prior to the first or second anniversary thereof. 3(e) Rights After the Redemption Date. From and after the close of business on the Redemption Date or Involuntary Redemption Date, as the case may be, unless there shall have been a default in the payment of the Redemption Price or any installment thereof, all rights of holders of the shares of this Class redeemed pursuant to this Section 3 (except the right to receive the Redemption Price and except as otherwise provided in Section 3(d) hereof) shall cease with respect to such shares, and thereafter such shares shall not be deemed to be outstanding for any purpose whatsoever. 3(f) Insufficient Funds. Subject to the rights of holders of shares of any series or class or classes of Senior Securities (as defined in Section 7 hereof) with respect to redemption, if the funds of the Corporation legally available for redemption of the shares of this Class on any Redemption Date or the Involuntary Redemption Date, as the case may be, are insufficient to pay the Redemption Price, those funds that are legally available shall be used first to pay the Series B Dividend Preference Amount with respect to the shares being redeemed and then to redeem the maximum possible number of such shares, ratably on the basis of the number of shares that would be redeemed on such date if the funds of the Corporation legally available therefor had been sufficient to redeem all shares required to be redeemed on that date. Subject to the rights of holders of shares of any series or class or classes of Senior Securities with respect to redemption, at any time thereafter, when additional funds of the Corporation become legally available for the redemption of shares, such funds shall be used, at the end of the next succeeding fiscal quarter, to pay any remaining Series B Dividend Preference Amount with respect to the shares of this Class that the Corporation theretofore was obligated to redeem and then to redeem the balance of such shares, ratably on the -7- basis set forth in the preceding sentence, until all shares of this Class required to be redeemed have been redeemed. 3(g) Cancellation of Redeemed Shares. Any shares of this Class that shall at any time have been redeemed or repurchased shall, after such redemption or repurchase, be cancelled by the Corporation and shall not be available for reissuance. 4. Conversion Provisions. 4(a) Conversion at the Option of the Holders. Subject to and upon compliance with the provisions of this Section 4 and subject to compliance with any required notification or expiration of any notice or waiting period under applicable laws or regulations (including, without limitation, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended), the holder of any shares of this Class shall have the right, at such holder's option, at any time (and from time to time) to convert any of such shares of this Class into that number of fully paid and nonassessable shares of Common Stock (calculated as to each conversion to the nearest 1/100th of a share) equal to the then applicable Conversion Rate (as defined in Section 4(e) hereof) multiplied by the number of shares of this Class to be converted pursuant to this Section 4(a), by surrendering the certificate or certificates representing shares to be converted in the manner provided in Section 4(c) hereof. 4(b) Automatic Conversion. Upon the consummation of either a Qualified Public Offering or a Qualified Demand Offering (each as hereinafter defined), all shares of this Class shall, by virtue of and simultaneous with the closing of such offering and without any action on the part of the holder thereof or the Corporation, be deemed automatically converted into a number of fully paid and nonassessable shares of Common Stock (calculated as to each conversion to the nearest 1/100th of a share) equal to the then applicable Conversion Rate multiplied by the number of shares of this Class then outstanding. For purposes of this Section 4(b), (i) "Qualified Public Offering" shall mean a public offering of Common Stock (A) at a price per share of (1) $8.50 or more in the event such offering is consummated on or prior to June 30, 1995 or (2) $10.00 or more in the event such offering is consummated subsequent to June 30, 1995 (in each case, and subject to adjustment from time to time as provided in Section 4(f) hereof, the "Qualified Public Offering Price"), and (B) with gross proceeds (before underwriting discounts and commissions, if any) to the Corporation in excess of $25,000,000, and (ii) "Qualified Demand Offering" shall mean a public offering of Common Stock effected pursuant to that certain Registration -8- Rights Agreement among the Corporation and certain stockholders of the Corporation dated as of the Original Issue Date (together with any prior public offerings of Common Stock effected pursuant to such Registration Rights Agreement) in which holders of a majority of the outstanding shares of this Class on a cumulative basis shall have participated in requesting registration in connection with such offering. 4(c) Conversion Procedures. (i) In order to exercise the optional conversion privilege pursuant to Section 4(a) hereof, the holder of each share of this Class to be converted shall deliver to the Corporation during regular business hours, at the principal office of the Corporation or at the office of any transfer agent of the Corporation for this Class or at such other place as may be designated by the Corporation, the certificate or certificates representing the shares of this Class to be converted, duly endorsed or assigned in blank (or to the Corporation if so requested), accompanied by written notice stating that the holder elects to convert such shares. Unless the shares of Common Stock issuable upon conversion are to be issued in the same name as the name in which the shares of this Class are registered, each share surrendered for conversion shall be accompanied by an instrument of transfer, in form satisfactory to the Corporation, duly executed by the holder or such holder's duly authorized attorney and by funds in an amount sufficient to pay any transfer or similar tax. (ii) As promptly as practicable after the surrender by a holder of the certificate or certificates representing shares of this Class in accordance with this Section 4(c), the Corporation shall issue and shall deliver to the holder a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of those shares in accordance with the provisions of this Section 4, and a certificate representing any shares of this Class that were represented by the certificate or certificates surrendered to the Corporation in connection with such conversion but were not converted. Any fractional interest in respect of a share of Common Stock arising out of such conversion shall be settled as provided in Section 4(d) hereof. The Corporation shall pay all expenses, taxes (other than stock transfer taxes) and other charges required to be paid by the Corporation in order to issue the shares of Common Stock pursuant to this Section 4(c). (iii) Conversion shall be deemed to have been effected (A) with respect to conversion pursuant to Section 4(a) hereof, on the date on which all of the conditions specified in Section 4(c)(i) hereof have been satisfied, and (B) with respect to conversion pursuant to Section 4(b) hereof, -9- on the date of the closing of a Qualified Public Offering or a Qualified Demand Offering, as the case may be (in each case, the "Conversion Date"), and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares of Common Stock represented by those certificates on the Conversion Date and such conversion shall be at the Conversion Rate in effect on the Conversion Date, unless the stock transfer books of the Corporation shall be closed on the Conversion Date, in which case such person or persons shall be deemed to have become such holder or holders of record at the close of business on the next succeeding day on which such stock transfer books are open, but such conversion shall be at the Conversion Rate in effect on the Conversion Date. All shares of Common Stock delivered upon conversion of the shares of this Class will upon delivery be duly and validly issued and fully paid and nonassessable, and not subject to any preemptive rights. Upon the surrender of certificates representing shares of this Class to be converted, such shares no longer shall be deemed to be outstanding and all rights of a holder with respect to the shares surrendered for conversion shall immediately terminate except the right to receive the Common Stock as provided herein and except as set forth in Section 4(c)(iv) hereof. (iv) The Corporation shall make no payment or adjustment regarding the Series B Dividend Preference Amount with respect to any shares of this Class converted pursuant to this Section 4 unless the shares of this Class surrendered for conversion are surrendered subsequent to the record date preceding a date fixed by the Board of Directors as the payment date for dividends on the shares of this Class (a "Dividend Payment Date") but on or prior to such Dividend Payment Date, in which case the holder of such shares at the close of business on such record date shall be entitled to receive the dividend payable on such shares on such Dividend Payment Date notwithstanding the conversion thereof. 4(d) Fractional Shares. No fractional shares or securities representing fractional shares of Common Stock shall be issued upon conversion of the shares of this Class. Any fractional interest in a share of Common Stock resulting from conversion of a share of this Class shall be paid in cash (computed to the nearest cent) based upon the Fair Market Value (as defined in Section 4(f)(vi) hereof) of a share of Common Stock on the Conversion Date. 4(e) Conversion Rate. The "Conversion Rate" per share of this Class shall be 21.052632 shares of Common Stock -10- for each share of this Class, subject to adjustment from time to time as provided in Section 4(f) hereof. 4(f) Anti-Dilution Provisions and Adjustment of Conversion Price. (i) Subject to the provisions of Section 4(f)(iii) hereof, in the event the Corporation shall, at any time or from time to time while any of the shares of this Class are outstanding, (a) pay a dividend or make a distribution in respect of Common Stock in shares of Common Stock or (b) subdivide or combine the outstanding shares of Common Stock into a greater or lesser number of shares, in each case whether by reclassification of shares, recapitalization of the Corporation, or otherwise, then, in such event, each share of this Class will automatically, without any action on the part of the holder thereof or the Corporation, become convertible into that number of shares of Common Stock equal to the number of shares of Common Stock into which a share of this Class could be converted immediately prior to such event multiplied by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock outstanding immediately before such event. An adjustment pursuant to this Section 4(f)(i) shall be effective upon payment of such dividend or distribution in respect of the Common Stock and in the case of a subdivision or combination shall become effective immediately as of the effective date thereof. Concurrently with the automatic adjustment pursuant to this Section 4(f)(i), the Qualified Public Offering Price and the Conversion Price (as hereinafter defined) each shall be adjusted by multiplying the Qualified Public Offering Price and the Conversion Price in effect immediately before such event by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately before such event, and the denominator of which is the number of shares of Common Stock outstanding immediately after such event (rounded to the nearest whole cent). (ii) Subject to the provisions of Section 4(f)(iii) hereof, in the event the Corporation shall, at any time or from time to time while any of the shares of this Class are outstanding, sell or issue shares of Common Stock (other than in a transaction subject to Section 4(f)(i) hereof), any security convertible into shares of Common Stock or any option, right or warrant to purchase shares of Common Stock for no consideration or at a purchase price per share of Common Stock, or conversion price in the case of a security convertible into Common Stock, less than the Conversion Price in effect on the date of sale or issuance of such Common Stock, security convertible into Common Stock, option, right or -11- warrant, then, in such event (or in the event of any change in the terms of any security convertible into Common Stock or option, right or warrant that has a similar effect on the date of such change), each share of this Class will automatically, without any action on the part of the holder thereof or the Corporation, become convertible into that number of shares of Common Stock equal to the number of shares of Common Stock into which a share of this Class could be converted immediately before such sale or issuance of Common Stock, securities convertible into Common Stock, options, rights or warrants (or change in terms) multiplied by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately before such sale or issuance of Common Stock, securities convertible into Common Stock, options, rights or warrants (or change in terms) plus the maximum number of shares of Common Stock that could be acquired upon the sale or issuance of the Common Stock or upon exercise in full of all such conversion rights, options, rights and warrants, and the denominator of which is the number of shares of Common Stock outstanding immediately before such sale or issuance of Common Stock, securities convertible into Common Stock, options, rights or warrants (or change in terms) plus the number of shares of Common Stock that could be purchased at the Conversion Price at the time of such sale or issuance (or change in terms) for the maximum aggregate consideration payable upon the sale or issuance of the Common Stock or upon exercise in full of all such conversion rights, options, rights or warrants. Concurrently with the automatic adjustment pursuant to this Section 4(f)(ii), the Qualified Public Offering Price and the Conversion Price each shall be adjusted by multiplying the Qualified Public Offering Price and the Conversion Price in effect immediately before such sale or issuance of Common Stock, securities convertible into Common Stock, options, rights or warrants (or change in terms) by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately before such sale or issuance of Common Stock, securities convertible into Common Stock, options, rights or warrants (or change in terms) plus the number of shares of Common Stock that could be purchased at the Conversion Price at the time of such sale or issuance (or change in terms) for the maximum aggregate consideration payable upon the sale or issuance of the Common Stock or upon exercise in full of all such conversion rights, options or warrants, and the denominator of which is the number of shares of Common Stock outstanding immediately before such sale or issuance of Common Stock, securities convertible into Common Stock, options, rights or warrants (or change in terms) plus the maximum number of shares that could be acquired upon the sale or issuance of the Common Stock or upon the exercise in full of all such conversion rights, options, rights and warrants. For purposes of this Section 4(f)(ii), all shares of -12- Common Stock issuable upon the conversion of such convertible securities or upon exercise of such options, rights or warrants shall be deemed to have been issued for the purpose of computing the number of shares of Common Stock into which a share of this Class could be converted and the Qualified Public Offering Price and the Conversion Price hereunder, as of the time such convertible securities, options, rights or warrants are issued or sold (or the terms thereof are changed). If any rights of conversion or exercise of such convertible securities, options, rights or warrants shall expire without having been exercised (except in the case where the Corporation has redeemed such convertible security, option, right or warrant or made any payment on account of the holder thereof not converting or exercising such convertible security, option, right or warrant), the number of shares of Common Stock into which a share of this Class could be converted and the Qualified Public Offering Price and the Conversion Price shall forthwith be automatically adjusted to be the number of shares of Common Stock into which a share of this Class could be converted and the Qualified Public Offering Price and the Conversion Price that would have been in effect had an adjustment been made on the basis that the only shares of Common Stock issued or sold were those actually issued upon the conversion or exercise of such convertible securities, options, rights or warrants. For purposes of this Section 4(f)(ii), the date of issuance of options for shares of Common Stock shall mean the date of their grant. (iii) Notwithstanding any other provision herein to the contrary, the following events shall not be deemed to constitute an issuance of Common Stock or other security of the Corporation for purposes of this Section 4(f): (A) the issuance of any shares of Common Stock pursuant to options, rights or warrants (including the common stock purchase warrants issued in connection with the issuance of the 9.0% Cumulative Nonconvertible Preferred Stock of the Corporation) previously granted, outstanding or issued prior to the Original Issue Date (whether pursuant to the Vitas Healthcare Corporation Management Equity Incentive Plan or otherwise), (B) the issuance of any shares of Common Stock pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Company and the investment of additional optional amounts in shares of Common Stock under any such plan, and (C) the issuance of any warrants or rights to purchase shares of Common Stock as part of the terms of any borrowings, direct or indirect, from financial institutions or other persons (excluding directors and officers of the Corporation (or any direct or indirect subsidiary of the Corporation) or their affiliates), as -13- approved by the Board of Directors, and the issuance of shares of Common Stock pursuant to the exercise of any such warrants or rights. (iv) Notwithstanding any other provisions of this Section 4(f), the Corporation shall not be required to make (A) any adjustment of the number of shares of Common Stock into which each share of this Class can be converted unless such adjustment would require an increase or decrease of at least one percent (1%) in the aggregate number of shares of Common Stock into which shares of this Class can be converted at that time, or (B) any adjustment of the Qualified Public Offering Price or the Conversion Price unless such adjustment would require an increase or decrease of at least one percent (1%) in the Qualified Public Offering Price or the Conversion Price. Any lesser adjustment shall be carried forward and shall be made no later than the time of, and together with, the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least one percent (1%) of the number of shares of Common Stock into which shares of this Class can be converted at that time or an increase or decrease of at least one percent (1%) of the Qualified Public Offering Price or the Conversion Price, whichever the case may be. If any action would require adjustment of the Qualified Public Offering Price or the Conversion Price pursuant to more than one paragraph of this Section 4(f), only one adjustment shall be made as determined in good faith by the Board of Directors of the Corporation. (v) If the Corporation shall make any dividend or distribution on shares of Common Stock, sell or issue any Common Stock, other capital stock or other security of the Corporation or sell or issue any rights or warrants to purchase or acquire any such security that is not expressly addressed by the terms of this Section 4(f) and does not result in an adjustment to the number of shares of Common Stock into which a share of this Class can be converted or to the Qualified Public Offering Price and the Conversion Price pursuant to this Section 4(f), the Board of Directors may, in its sole discretion, consider whether such dividend, distribution, sale or issuance is of a nature that some type of equitable adjustment should be made in respect of such dividend, distribution, sale or issuance for the protection of the holders of shares of this Class. If in such case the Board of Directors determines that some type of adjustment should be made, an equitable adjustment not repugnant to applicable law and for the protection of the holders of shares of this Class shall be made effective as of the date of such dividend, distribution, sale or issuance, as determined in good faith by the Board of Directors in its sole discretion. The -14- determination of the Board of Directors as to whether some type of adjustment should be made pursuant to the provisions of this Section 4(f)(v), and if so, as to what adjustment should be made and when, shall be final and binding on the Corporation and all stockholders of the Corporation. The Corporation shall be entitled to make such additional adjustments, in addition to those required by the provisions of this Section 4(f)(v), as shall be necessary so that any dividend or distribution in shares of capital stock of the Corporation shall not be taxable to holders of Common Stock. (vi) For purposes of this Section 4(f), the following definitions shall apply: (A) As used in this Section 4(f), the term "consideration" shall mean, in the case of an issuance or sale of any security for cash, the cash received therefor, and in the case of an issuance or sale of any security for consideration other than cash, the Fair Market Value of such consideration. (B) "Conversion Price" shall mean $4.75 per share of Common Stock, subject to adjustment from time to time as provided in Section 4(f) hereof. (C) "Fair Market Value" shall mean, as to shares of Common Stock or any other class of capital stock or securities of the Corporation or any other issuer which are publicly traded, the average of the Current Market Prices (as hereinafter defined) of such shares of securities for each day of the Adjustment Period (as hereinafter defined). "Current Market Price" of publicly traded shares of Common Stock or any other class of capital stock or other security of the Corporation or any other issuer for a day shall mean the last reported sales price, regular way, or, in case no sale takes place on such day, the average reported closing bid and asked prices, regular way, in either case as reported on the principal national securities exchange on which such security is listed or admitted for trading or, if such security is not listed or admitted to trading on any national securities exchange, on the NASDAQ National Market System or, if such security is not quoted on such National Market System, the average of the closing bid and asked prices on each such day in the over-the-counter market as reported by NASDAQ, or, if bid and asked prices for such security on each such day shall not have been reported through NASDAQ, the average of the bid and asked prices for each such day as furnished by any New York Stock Exchange member firm regularly making a market in such security selected for such purpose by the Board of Directors of the Corporation on each trading day during the Adjustment Period. "Adjustment Period" shall mean the period during the -15- twenty (20) trading days preceding, and including, the date as of which the Fair Market Value of a security is to be determined. The "Fair Market Value" of any security which is not publicly traded or of any other property shall mean the fair value thereof as determined in good faith by the Board of Directors in the exercise of its reasonable business judgment. (vii) Whenever an adjustment to the Qualified Public Offering Price or the Conversion Price or the number of shares of Common Stock into which each share of this Class can be converted is required pursuant to this Section 4(f), the Corporation shall forthwith place on file with the transfer agent for Common Stock, if any, and with the Treasurer (or Chief Financial Officer) of the Corporation, a statement signed by the Treasurer (or Chief Financial Officer) or Assistant Treasurer of the Corporation stating the adjusted number of shares of Common Stock into which each share of this Class can be converted or the Qualified Public Offering Price or the Conversion Price determined as provided herein. Such statement shall set forth in reasonable detail such facts as shall be necessary to show the reason and the manner of computing such adjustment, including any determination of Fair Market Value involved in such computation. Within forty-five (45) days after each adjustment to the number of shares of Common Stock into which each share of this Class can be converted or the Qualified Public Offering Price or the Conversion Price, the Company shall mail a notice thereof and of the then prevailing number of shares of Common Stock into which each share of this Class can be converted and the Qualified Public Offering Price and the Conversion Price to each holder of shares of this Class. 4(g) Termination of Right to Convert in Connection With Fundamental Corporate Changes. Notwithstanding anything herein to the contrary, and subject to the notice requirements of this Section 4(g), if the Corporation shall be a party to any transaction that involves any consolidation or merger of the Corporation with or into another corporation, or any sale of all or substantially all of the assets of the Corporation to another corporation, and which is effected in such a way that the holders of Common Stock shall be entitled to receive cash, stock, securities or other assets with respect to or in exchange for Common Stock, then the right to convert the shares of this Class shall terminate at the close of business on the date as of which the holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for cash, securities or other assets deliverable upon such consolidation, merger or sale of all or substantially all of the assets of the Corporation. In case the Corporation shall enter into any agreement or understanding or the Board of Directors shall adopt any resolution authorizing or proposing -16- any transaction of the type described in this Section 4(g), then in any such event the Corporation promptly shall cause to be mailed, by registered or certified mail, postage prepaid, to the holders of shares of this Class at each such holder's last address appearing on the records of the Corporation, thirty (30) days prior to the date on which the Corporation closes its books or takes a record for determining rights to vote with respect to any consolidation, merger or sale, a notice of such agreement, understanding or resolution stating the expected record date for determining holders of Common Stock entitled to exchange their shares with respect to a transaction described in this Section 4(g); provided, however, that the Corporation shall not be liable or responsible if the actual dates of any such events shall be different from the expected dates set forth in such notice. 4(h) Sufficient Authorized Shares of Common Stock. The Corporation shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of shares of this Class, such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding shares of this Class. The Corporation shall, from time to time, subject to and in accordance with applicable law, increase the authorized shares of Common Stock if at any time the number of authorized shares of Common Stock remaining unissued shall not be sufficient to permit the conversion at such time of all then outstanding shares of this Class. 5. Voting Rights. 5(a) Voting with Common Stock. (i) Except as otherwise required by law or when a class vote is required pursuant to Section 5(b) hereof, each holder of shares of this Class shall be entitled to vote on all matters together with the holders of shares of Common Stock and in so voting shall be entitled to that number of votes equal to the Total Series B Common Votes (as hereinafter defined) allocated to each holder of shares of this Class ratably on the basis of the number of shares of this Class held by each holder in proportion to the total number of shares of this Class outstanding on the record date for the determination of stockholders entitled to vote on such matters. (ii) For purposes of this Section 5(a), the following definitions shall apply: (A) "Voting Percentage" shall mean a fraction, the numerator of which is the sum of (1) the number of shares of Common Stock into which the shares of this Class -17- could be converted on such record date plus (2) the number of outstanding shares of Common Stock issued upon conversion of the shares of this Class prior to such record date (after giving effect to proportionate adjustments for stock splits, subdivisions and the like), and the denominator of which is the sum of (1) the number of shares of Common Stock outstanding on such record data plus (2) the number of shares of Common Stock into which the shares of this Class could be converted on such record date plus (3) the number of shares of Common Stock issuable upon the conversion or exchange of all securities convertible into or exchangeable for shares of Common Stock (other than the shares of this Class) and upon the exercise of all options, rights or warrants to purchase shares of Common Stock outstanding on such record date (the "Voting Percentage Denominator"); provided, however, that if on such record date the Voting Percentage Denominator is less than 18,826,634 (as adjusted for stock splits, subdivisions and the like), the Voting Percentage shall be calculated using a Voting Percentage Denominator equal to (1) the sum of (x) 18,826,634 (as adjusted for stock splits, subdivisions and the like) plus (y) the number of shares of Common Stock issued after the Original Issue Date, if any, plus (z) the number of shares of Common Stock issuable upon the conversion or exchange of all securities convertible into or exchangeable for shares of Common Stock issued after the Original Issue Date, if any, and upon the exercise of all options, rights or warrants to purchase shares of Common Stock issued after the Original Issue Date, if any, minus (2) the sum of (w) the number of outstanding shares of Common Stock repurchased or redeemed by the Corporation after the Original Issue Date, if any, plus (x) the number of shares of Common Stock issuable upon the exercise of any of the common stock purchase warrants issued in connection with the issuance of the 9.0% Cumulative Nonconvertible Preferred Stock of the Corporation that have expired or have been cancelled or repurchased by the Corporation after the Original Issue Date, if any, plus (y) the number of shares of Common Stock issuable upon the conversion or exchange of any securities convertible into or exchangeable for shares of Common Stock issued after the Original Issue Date that have expired or have been cancelled or repurchased by the Corporation after the Original Issue Date, if any, and upon the exercise of any options, rights or warrants to purchase shares of Common Stock issued after the Original Issue Date that have expired or have been cancelled or repurchased by the Corporation after the Original Issue Date, if any, plus (z) the number of shares of this Class cancelled pursuant to the terms of the Preferred Stock Purchase Agreement, if any. The Voting Percentage calculated as of the Original Issue Date is 29.354%. (B) "Total Common Votes" shall mean a fraction, the numerator of which is equal to (1) the number of -18- shares of Common Stock outstanding on such record date minus (2) the number of outstanding shares of Common Stock issued upon conversion of the shares of this Class prior to such record date (after giving effect to proportionate adjustments for stock splits, subdivisions and the like), and the denominator of which is equal to one (1) minus the Voting Percentage. (C) "Total Series B Common Votes" shall mean the Total Common Votes multiplied by the Voting Percentage. 5(b) Voting as a Class. So long as any shares of this Class are outstanding, the Corporation shall not, without the affirmative vote or consent of the holders of at least a majority of the shares of this Class outstanding at the time, given in person or by proxy, either in writing or at a meeting at which holders of the shares of this Class shall vote separately as a class, (i) authorize, issue or assume the obligations under, or increase the stated or par value of, any Senior Securities or any obligation or security convertible into or evidencing the right to purchase any Senior Securities; (ii) authorize, issue or assume the obligations under, or increase the stated or par value of, any Parity Securities or any obligation or security convertible into or evidencing the right to purchase any Parity Securities; (iii) amend the Amended and Restated Certificate of Incorporation of the Corporation or the certificate of designation relating to the shares of this Class in either case so as to alter or change the powers, preferences, or special rights of the shares of this Class so as to affect them adversely or authorize additional shares of this Class or increase or decrease the par or stated value of the shares of this Class; (iv) sell all or substantially all of the assets of the Corporation in a transaction that is to be submitted to a vote of stockholders of the Corporation; (v) merge or consolidate the Corporation with or into any other corporation in a transaction that is to be submitted to a vote of stockholders of the Corporation; (vi) acquire the assets or stock of another entity in a transaction for consideration having a Fair Market Value in excess of $20,000,000; (vii) issue or transfer shares of any class or series of capital stock of the Corporation to the Corporation's Employee Stock Ownership Plan/Trust unless such issuance or transfer has been approved or recommended by a disinterested majority of the members of the Compensation Committee of the Board of Directors of the Corporation; and (viii) redeem or repurchase outstanding shares of any class or series of capital stock of the Corporation except for (A) shares repurchased at or less than Fair Market Value from current or former directors, officers, employees or consultants of the Corporation or of any direct or indirect subsidiary of the Corporation up to an aggregate of $1,000,000, (B) shares of -19- this Class, (C) shares redeemed pursuant to the redemption provisions of the 9.0% Cumulative Nonconvertible Preferred Stock of the Corporation, (D) shares purchased pursuant to a right of first refusal, call, option or similar right to purchase granted to the Corporation and (E) the Stock Repurchases as defined in the Preferred Stock Purchase Agreement. 5(c) Election of Certain Directors as a Class. So long as any shares of this Class are outstanding and subject to the terms and conditions of that Certain Stockholders' Agreement, dated as of the Original Issue Date, among the Corporation, the holders of shares of this Class on the Original Issue Date and certain stockholders of the Corporation (the "Stockholders' Agreement"), the holders of shares of this Class, acting by the affirmative vote or consent of at least a majority of the shares of this Class outstanding at the time, given in person or by proxy, either in writing or at a meeting at which holders of the shares of this Class shall vote separately as a class, shall be entitled to vote for and elect as directors to the Board of Directors only those persons whom holders are entitled to designate pursuant to and in accordance with the terms of the Stockholders' Agreement. 6. Liquidation Rights. 6(a) Liquidation Preference. Subject to the rights of the holders of shares of any series or class or classes of Senior Securities upon dissolution or liquidation, upon the liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, the holders of record of the shares of this Class then outstanding shall be entitled to receive out of the assets of the Corporation available for distribution to its stockholders, before any distribution or payment is made with respect to the Common Stock or any other class or series of stock ranking junior to this Class upon liquidation, an amount per share in cash equal to the Stated Value plus an amount in cash equal to the Series B Dividend Preference Amount as of the date of final distribution (less any dividends declared and paid (or sums sufficient for the payment thereof set aside for payment) on the shares of this Class prior to the date of final distribution) (the "Series B Liquidation Preference Amount"). 6(b) Participation in Common Stock Liquidation Rights. After the payment, in cash, to the holders of the shares of this Class of the Series B Liquidation Preference Amount as provided in Section 6(a) hereof, the holders of shares of Common Stock and any other class or series of capital stock (other than the shares of this Class) entitled to participate with the Common Stock in the event of liquidation, -20- dissolution or winding up of the Corporation shall be entitled to receive, in the aggregate, out of assets of the Corporation available for distribution to its stockholders, cash in an amount equal to the aggregate Stated Value of the shares of this Class on the Original Issue Date. Thereafter, the holders of shares of this Class shall participate equally (as if the shares of this Class had been converted into shares of Common Stock pursuant to Section 4 hereof) with the holders of shares of Common Stock and any other class or series of stock entitled to participate with the Common Stock in the distribution of any remaining assets of the Corporation in the event of liquidation, dissolution or winding up of the Corporation. 6(c) Transactions Not Deemed Liquidation. Neither the merger or consolidation of the Corporation into or with any other corporation, nor the merger or consolidation of any other corporation into or with the Corporation, nor a voluntary sale, transfer, lease, or other disposition of all or any part of the assets of the Corporation, shall, without further corporate action, be deemed to be a liquidation, dissolution, or winding up of the Corporation within the meaning of this Section 6. 6(d) Insufficient Assets in Liquidation. Subject to the rights of the holders of shares of any series or class or classes of Senior Securities upon dissolution or liquidation, in the event the remaining assets of the Corporation upon any dissolution, liquidation, or winding up of the Corporation are not sufficient to pay in full the Series B Preferred Liquidation Preference Amount and liquidating payments on any Parity Securities, then such assets, or the proceeds thereof, shall be distributed among the holders of shares of this Class and such Parity Securities ratably in accordance with the respective amounts which would be paid on such shares of this Class and such other Parity Securities if all amounts thereon were paid in full. 7. Ranking. The shares of this Class shall rank, both as to dividends and upon liquidation, senior and prior to the Common Stock. The shares of the 9.0% Cumulative Nonconvertible Preferred Stock of the Corporation shall rank, as to dividends, redemption and upon liquidation, senior and prior to the shares of this Class. Any stock of any other class or classes or series shall be deemed to rank: 7(a) senior and prior to the shares of this Class, to be "Senior Securities," if the holders of such stock shall be entitled to the receipt of dividends or amounts paid in or set aside for redemption, or the receipt of amounts distributable upon dissolution, liquidation, or winding up of -21- the Corporation, as the case may be, in preference or priority to the holders of shares of this Class; 7(b) on a parity with shares of this Class, to be "Parity Securities," whether or not the dividend rates, dividend payment dates, redemption or liquidation prices per share, or sinking fund provisions, if any, be different from those of this Class, if the holders of such stock shall be entitled to the receipt of dividends or amounts paid in or set aside for redemption, or the receipt of amounts distributable upon dissolution, liquidation, or winding up of the Corporation, as the case may be, in proportion to their respective dividend rates or liquidation prices, without preference or priority, one over the other, as between the holders of such stock and the holders of the shares of this Class; and 7(c) junior to shares of this Class, to be "Junior Securities," if the holders of shares of this Class shall be entitled to the receipt of dividends or of amounts paid in or set aside for redemption, or to the receipt of amounts distributable upon dissolution, liquidation, or winding up of the Corporation, as the case may be, in preference or priority to the holders of such stock. 8. Restrictions on Transfer. The shares of this Class may not be transferred, except in compliance with the provisions of the Stockholders' Agreement. 9. Certificates. Upon the surrender of any certificate representing shares of this Class at the principal office of the Corporation or at the office of any transfer agent of the Corporation for this Class or at such other place as may be designated by the Corporation, the Corporation will, at the request of the record holder of such certificate, execute and deliver (at the Corporation's expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of shares represented by the surrendered certificate. 10. Certain Other Rights. The holders of the shares of this Class shall be entitled to certain rights to purchase newly-issued securities of the Company as, and to the extent, set forth in Section 3.9 of the Stockholders' Agreement, as long as the Stockholders' Agreement is in effect. -22- IN WITNESS WHEREOF, Vitas Healthcare Corporation has caused this Certificate of Designation to be executed on its behalf on June 3, 1993. VITAS HEALTHCARE CORPORATION By: /s/ Huge A. Westbrook ------------------------- Huge A. Westbrook Chairman and Chief Executive Officer Attest: /s/ Mark Ohlendorf - ----------------------- Mark Ohlendorf Secretary -23- CERTIFICATE OF AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF VITAS HEALTHCARE CORPORATION Vitas Healthcare Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: FIRST: The Board of Directors of the Corporation, by unanimous written consent in lieu of a meeting in accordance with the Delaware General Corporation Law (the "Delaware Corporation Law") and the Amended and Restated By-Laws of the Corporation duly adopted resolutions proposing and declaring advisable the amendment to the Amended and Restated Certificate of Incorporation of the Corporation, as amended, as set forth below. SECOND: The Certificate of Designation, Preferences and Other Rights of the Series B Convertible Preferred Stock of the Corporation hereby is amended by substituting in the fifth line of the first sentence of Section 3(a) thereof the date "December 31, 1996" for the date "June 30, 1996." THIRD: The amendment to the Amended and Restated Certificate of Incorporation of the Corporation, as amended, as set forth above was duly approved and adopted (i) by at least a majority of the total votes eligible to be cast by the holders of the outstanding stock of the Corporation entitled to vote thereon and (ii) by the holders of at least a majority of the Series B Convertible Preferred Stock of the Corporation voting separately as a class, in each case acting by written consent in accordance with Section 228 of the Delaware Corporation Law, and written notice of the approval and adoption of such amendment without a meeting has been given to those stockholders who did not consent in writing as provided in Section 228(d) of the Delaware Corporation Law. FOURTH: The amendment to the Amended and Restated Certificate of Incorporation of the Corporation, as amended, set forth above was duly adopted and approved in accordance with the requirements of Section 242 of the Delaware Corporation Law. IN WITNESS WHEREOF, Vitas Healthcare Corporation has caused this Certificate of Amendment to be signed by its duly authorized officer, as of the 10th day of August, 1994. VITAS HEALTHCARE CORPORATION By: /s/ Earl M. Collier, Jr. ---------------------------- Earl M. Collier, Jr. President -2- CERTIFICATE OF AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF VITAS HEALTHCARE CORPORATION Vitas Healthcare Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: FIRST: The Board of Directors of the Corporation, by unanimous written consent in lieu of a meeting in accordance with the Delaware General Corporation Law (the "Delaware Corporation Law") and the Amended and Restated By-Laws of the Corporation, duly adopted resolutions proposing and declaring advisable the amendment to the Amended and Restated Certificate of Incorporation of the Corporation, as amended, as set forth below. SECOND: The Certificate of Designation. Preferences and Other Rights of 9.0% Cumulative Nonconvertible Preferred Stock of the Corporation hereby is amended by deleting in its entirety the first paragraph of Section 3(b) thereof and replacing it with the following: 3(b) Mandatory Redemption. Subject to the last sentence of this Section 3(b), the Corporation shall redeem the shares of this Class, in the manner hereinafter provided, at the redemption prices (subject to appropriate adjustment for stock splits, stock dividends, combinations or other similar recapitalizations affecting such shares) and on the redemption dates as follows: Number of Shares Mandatory Redemption Date to be Redeemed Redemption Price Per Share - ------------------------- ---------------- -------------------------- December 31, 1996 81,000 $102.00 June 30, 1997 40,500 $101.00 December 31, 1997 40,500 $10l.00 June 30, 1998 54,000 $100.00 December 31, 1998 54,000 $100.00 THIRD: The amendment to the Amended and Restated Certificate of Incorporation of the Corporation, as amended, as set forth above was duly approved and adopted (i) by at least a majority of the total votes eligible to be cast by the holders of the outstanding stack of the Corporation entitled to vote thereon, (ii) by the holders of at least a majority of the 9.0% Cumulative Nonconvertible Preferred Stock voting separately as a class and (iii) by the holders of at least a majority of the Series B Convertible Preferred Stock of the Corporation voting separately as a class, in each case acting by written consent in accordance with Section 228 of the Delaware Corporation Law, and written notice of the approval and adoption of such amendment without a meeting has been given to those stockholders who did not consent in writing as provided in Section 228(d) of the Delaware Corporation Law. FOURTH: The amendment to the Amended and Restated Certificate of Incorporation of the Corporation, as amended, set forth above was duly adopted and approved in accordance with the requirements of Section 242 of the Delaware Corporation Law. IN WITNESS WHEREOF, Vitas Healthcare Corporation has caused this Certificate of Amendment to be signed by its duly authorized officer, as of the 10th day of August, 1994. VITAS HEALTHCARE CORPORATION By: /s/ Earl M. Collier, Jr. ---------------------------- Earl M. Collier, Jr. President -2- CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED OFFICE AND REGISTERED AGENT OF VITAS HEALTHCARE CORPORATION ----------------------------------------------- The Board of Directors of: VITAS HEALTHCARE CORPORATION a Corporation of the State of Delaware, on this 25th day of October, A.D. 1994, do hereby resolve and order that the location of the Registered Office of this Corporation within this State be, and the same hereby is: 1013 Centre Road, in the City of Wilmington, in the County of New Castle, Delaware, 19805. The name of the Registered Agent therein and in charge thereof upon whom process against the Corporation may be served, is: CORPORATION SERVICE COMPANY. VITAS HEALTHCARE CORPORATION a Corporation of the State of Delaware, does hereby certify that the foregoing is a true copy of a resolution adopted by the Board of Directors at a meeting held as herein stated. IN WITNESS WHEREOF, said corporation has caused this Certificate to be signed by Mark A. Sterling, Secretary this 27th day of October A.D. 1994. /s/ Mark A. Sterling ---------------------------- Authorized Officer Mark A. Sterling, Secretary CERTIFICATE OF AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF VITAS HEALTHCARE CORPORATION Vitas Healthcare Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: FIRST: The Board of Directors of the Corporation, by unanimous written consent in lieu of a meeting in accordance with the Delaware General Corporation Law (the "Delaware Corporation Law") and the Amended and Restated By-Laws of the Corporation, as amended, duly adopted resolutions proposing and declaring advisable the amendment to the Amended and Restated Certificate of Incorporation of the Corporation, as amended, as set forth below. SECOND: The Certificate of Designation, Preferences and Other Rights of 9.0% Cumulative Nonconvertible Preferred Stock of the Corporation hereby is amended by deleting in its entirety the first paragraph of Section 3(b) thereof and replacing it with the following: 3(b) Mandatory Redemption. Subject to the last sentence of this Section 3(b), the Corporation shall redeem the shares of this Class, in the manner hereinafter provided, at the redemption prices (subject to appropriate adjustment for stock splits, stock dividends, combinations or other similar recapitalizations affecting such shares) and on the redemption dates as follows: Number of Shares Mandatory Redemption Date to be Redeemed Redemption Price Per Share - ------------------------- ---------------- -------------------------- June 30, 1997 81,000 $102.00 June 30, 1997 40,500 $101.00 December 31, 1997 40,500 $101.00 June 30, 1998 54,000 $100.00 December 31, 1998 54,000 $100.00 THIRD: The amendment to the Amended and Restated Certificate of Incorporation of the Corporation, as amended, as set forth above was duly approved and adopted (i) by at least a majority of the total votes eligible to be cast by the holders of the outstanding stock of the Corporation entitled to vote thereon, (ii) by the holders of as least a majority of the 9.0% Cumulative Nonconvertible Preferred Stock voting separately as a class and (iii) by the holders of at least a majority of the Series B Convertible Preferred Stock of the Corporation voting separately as a class, in each case acting by written consent, in accordance with Section 228 of the Delaware Corporation Law. FOURTH: The amendment to the Amended and Restated Certificate of Incorporation of the Corporation, as amended, set forth above was duly adopted and approved in accordance with the requirements of Section 242 of the Delaware Corporation Law. IN WITNESS WHEREOF, Vitas Healthcare Corporation has caused this Certificate of Amendment to be signed by its duly authorized officer, as of the 31st day of December, 1996. VITAS HEALTHCARE CORPORATION By: /s/ Hugh A. Westbrook ------------------------- Hugh A. Westbrook Chairman of the Board and Chief Executive Officer -2- CERTIFICATE OF AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF VITAS HEALTHCARE CORPORATION Vitas Healthcare Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: FIRST: The Board of Directors of the Corporation, by unanimous written consent in lieu of a meeting in accordance with the Delaware General Corporation Law (the "Delaware Corporation Law") and the Amended and Restated By-Laws of the Corporation, as amended, duly adopted resolutions proposing and declaring advisable the amendment to the Amended and Restated Certificate of Incorporation of the Corporation, as amended, as set forth below. SECOND: The Certificate of Designation, Preferences and Other Rights of 9.0% Cumulative Nonconvertible Preferred Stock of the Corporation hereby is amended by deleting in its entirety the first paragraph of Section 3(b) thereof and replacing it with the following: 3(b) Mandatory Redemption. Subject to the last sentence of this Section 3(b), the Corporation shall redeem the shares of this Class, in the manner hereinafter provided, at the redemption prices (subject to appropriate adjustment for stock splits, stock dividends, combinations or other similar recapitalizations affecting such shares) and on the redemption dates as follows: Number of Shares Mandatory Redemption Date to be Redeemed Redemption Price Per Share - ------------------------- ---------------- -------------------------- July 31, 1997 81,000 $102.00 July 31, 1997 40,500 $101.00 December 31, 1997 40,500 $101.00 June 30, 1998 54,000 $100.00 December 31, 1998 54,000 $100.00 THIRD: The amendment to the Amended and Restated Certificate of Incorporation of the Corporation, as amended, as set forth above was duly approved and adopted (i) by at least a majority of the total votes eligible to be cast by the holders of the outstanding stock of the Corporation entitled to vote thereon, (ii) by the holders of at least a majority of the 9.0% Cumulative Nonconvertible Preferred Stock voting separately as a class and (iii) by the holders of at least a majority of the Series B Convertible Preferred Stock of the Corporation voting separately as a class, in each case acting by written consent in accordance with Section 228 of the Delaware Corporation Law. FOURTH: The amendment to the Amended and Restated Certificate of Incorporation of the Corporation, as amended, set forth above was duly adopted and approved in accordance with the requirements of Section 242 of the Delaware Corporation Law. IN WITNESS WHEREOF, Vitas Healthcare Corporation has caused this Certificate of Amendment to be signed by its duly authorized officer, as of the 30 day of June 1997. VITAS HEALTHCARE CORPORATION By: /s/ Hugh A. Westbrook ------------------------- Hugh A. Westbrook Chairman of the Board and Chief Executive Officer -2- CERTIFICATE OF AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF VITAS HEALTHCARE CORPORATION Vitas Healthcare Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: FIRST: The Board of Directors of the Corporation, by unanimous written consent in lieu of a meeting in accordance with the Delaware General Corporation Law (the "Delaware Corporation Law") and the Amended and Restated By-Laws of the Corporation, as amended, duly adopted resolutions proposing and declaring advisable the amendment to the Amended and Restated Certificate of Incorporation of the Corporation, as amended, as set forth below. SECOND: The Certificate of Designation, Preferences and Other Rights of 9.0% Cumulative Nonconvertible Preferred Stock of the Corporation hereby is amended by deleting in its entirety the first paragraph of Section 3(b) thereof and replacing it with the following: 3(b) Mandatory Redemption. Subject to the last sentence of this Section 3(b), the Corporation shall redeem the shares of this Class, in the manner hereinafter provided, at the redemption prices (subject to appropriate adjustment for stock splits, stock dividends, combinations or other similar recapitalizations affecting such shares) and on the redemption dates as follows: Number of Shares Mandatory Redemption Date to be Redeemed Redemption Price Per Share - ------------------------- ---------------- -------------------------- August 31, 1997 81,000 $102.00 August 31, 1997 40,500 $101.00 December 31, 1997 40,500 $101.00 June 30, 1998 54,000 $100.00 December 31, 1998 54,000 $100.00 THIRD: The amendment to the Amended and Restated Certificate of Incorporation of the Corporation, as amended, as set forth above was duly approved and adopted (i) by at least a majority of the total votes eligible to be cast by the holders of the outstanding stock of the Corporation entitled to vote thereon, (ii) by the holders of at least a majority of the 9.0% Cumulative Nonconvertible Preferred Stock voting separately as a class and (iii) by the holders of at least a majority of the Series B Convertible Preferred Stock of the Corporation voting separately as a class, in each case acting by written consent in accordance with Section 228 of the Delaware Corporation Law. FOURTH: The amendment to the Amended and Restated Certificate of Incorporation of the Corporation, as amended, set forth above was duly adopted and approved in accordance with the requirements of Section 242 of the Delaware Corporation Law. IN WITNESS WHEREOF, Vitas Healthcare Corporation has caused this Certificate of Amendment to be signed by its duly authorized officer, as of the 31st day of July, 1997. VITAS HEALTHCARE CORPORATION By: /s/ Hugh A. Westbrook ------------------------- Hugh A. Westbrook Chairman of the Board and Chief Executive Officer -2- CERTIFICATE OF AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF VITAS HEALTHCARE CORPORATION Vitas Healthcare Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: FIRST: The Board of Directors of the Corporation, by unanimous written consent in lieu of a meeting in accordance with the Delaware General Corporation Law (the "Delaware Corporation Law") and the Amended and Restated By-Laws of the Corporation, as amended, duly adopted resolutions proposing and declaring advisable the amendment to the Amended and Restated Certificate of Incorporation of the Corporation, as amended, as set forth below. SECOND: The Certificate of Designation, Preferences and Other Rights of 9.0% Cumulative Nonconvertible Preferred Stock of the Corporation hereby is amended by deleting in its entirety the first paragraph of Section 3(b) thereof and replacing it with the following: 3(b) Mandatory Redemption. Subject to the last sentence of this Section 3(b), the Corporation shall redeem the shares of this Class, in the manner hereinafter provided, at the redemption prices (subject to appropriate adjustment for stock splits, stock dividends, combinations or other similar recapitalizations affecting such shares) and on the redemption dates as follows: Number of Shares Mandatory Redemption Date to be Redeemed Redemption Price Per Share - ------------------------- ---------------- -------------------------- September 30, 1997 81,000 $102.00 September 30, 1997 40,500 $101.00 December 31, 1997 40,500 $101.00 June 30, 1998 54,000 $100.00 December 31, 1998 54,000 $100.00 THIRD: The amendment to the Amended and Restated Certificate of Incorporation of the Corporation, as amended, as set forth above was duly approved and adopted (i) by at least a majority of the total votes eligible to be cast by the holders of the outstanding stock of the Corporation entitled to vote thereon, (ii) by the holders of at least a majority of the 9.0% Cumulative Nonconvertible Preferred Stock voting separately as a class and (iii) by the holders of at least a majority of the Series B Convertible Preferred Stock of the Corporation voting separately as a class, in each case acting by written consent in accordance with Section 228 of the Delaware Corporation Law. FOURTH: The amendment to the Amended and Restated Certificate of Incorporation of the Corporation, as amended, set forth above was duly adopted and approved in accordance with the requirements of Section 242 of the Delaware Corporation Law. IN WITNESS WHEREOF, Vitas Healthcare Corporation has caused this Certificate of Amendment to be signed by its duly authorized officer, as of the 29th day of August, 1997. VITAS HEALTHCARE CORPORATION By: /s/ Hugh A. Westbrook --------------------- Hugh A. Westbrook Chairman of the Board and Chief Executive Officer -2- EX-3.2 3 EXHIBIT 3.2 EXHIBIT 3.2 AMENDED AND RESTATED BY-LAWS OF VITAS HEALTHCARE CORPORATION 1. Offices. 1.1 Registered Office. The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware, and the registered agent in charge thereof shall be the Corporation Service Company, 1013 Centre Road, Wilmington, Delaware 19805. 1.2 Other Offices. The corporation may also have offices at such other places, both within and without the State of Delaware, as the board of directors may from time to time determine or the business of the corporation may require. 2. Meetings of Stockholders. 2.1 Place of Meetings. All meetings of the stockholders for the election of directors shall be held in the City of Miami, State of Florida, at such place as may be fixed from time to time by the board of directors, or at such other place, within or without the State of Delaware, as shall be designated from time to time by the board of directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. 2.2 Annual Meetings. Annual meetings of stockholders shall be held at such date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof, at which stockholders shall elect a board of directors and transact such other business as may properly be brought before the meeting. 2.3 Special Meetings. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the board of directors, by the chairman of the board or by the president, and shall be called by the president or secretary at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote generally for the election of directors. Such request shall include a statement of the purpose or purposes of the proposed meeting. 2.4 Notice of Meetings. Written notice of the annual meeting, stating the place, date and hour of the meeting, shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. Written notice of a special meeting of stockholders, stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. 2.5 Business at Special Meetings. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. 2.6 List of Stockholders. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose -2- germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this section or the books of the corporation, or to vote in person or by proxy at any meeting of stockholders. 2.7 Quorum at Meetings. Except as otherwise provided by statute or by the certificate of incorporation, the holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. If, however, such quorum shall not be present or represented at any such meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time to another time and place, without notice other than announcement at the meeting of such other time and place. At the adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.8 Voting and Proxies. Unless otherwise provided in the certificate of incorporation, and subject to the provisions of Section 6.4 of these by-laws, each stockholder shall be entitled to one vote on each matter, in person or by -3- proxy, for each share of the corporation's capital stock having voting power which is held by such stockholder. No proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. 2.9 Required Vote. When a quorum is present at any meeting of stockholders, all matters shall be determined, adopted and approved by the vote (which need not be by ballot) of a majority of the votes cast with respect to the matter, unless the proposed action is one upon which, by express provision of statutes or of the certificate of incorporation, a different vote is specified and required, in which case such express provision shall govern and control the decision of such question. Notwithstanding the foregoing, candidates for election as members of the board of directors who receive the highest number of votes, up to the number of directors to be chosen, shall stand elected, and an absolute majority of the votes cast shall not be a prerequisite to the election of any candidate to the board of directors. 2.10 Conduct of Meetings. Annual and special meetings shall be conducted in accordance with the rules specified by the chairperson presiding at the meeting unless otherwise prescribed by law. The board of directors shall designate, when present, the chairman of the board, the president, or another officer to preside at such meetings. 2.11 Action Without a Meeting. Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be -4- taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, are (a) signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted; and (b) delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered in the manner required in clause (b) of this paragraph, written consents signed by a sufficient number of stockholders to take action are delivered to the corporation in the manner required in clause (b) of this paragraph. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who shall not have consented in writing. 3. Directors. 3.1 Powers. The business and affairs of the corporation shall be managed by or under the direction of the board of directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws directed or required to be exercised or done by the stockholders. The board of directors shall annually elect a chairman of the board from among its members and shall -5- designate, when present, either the chairman of the board or the president to preside at its meetings. If neither the chairman of the board nor the president is present, the board of directors may designate another director to preside at such meeting. The chairman of the board and the president may be the same person. The board of directors may also annually elect one or more vice chairpersons from among its members, with such duties as the board of directors shall from time to time prescribe. 3.2 Number, Classes, Election and Term of Office. As of the date of adoption of these amended and restated by-laws, the number of directors which shall constitute the full board of directors shall be seven. Thereafter, the number of directors constituting the full board of directors shall be determined by resolution of the board of directors. Directors shall be divided into three classes, each consisting of approximately one-third of the total number of directors. The term of office of each class shall be three years and shall expire in successive years at the time of the annual meeting of stockholders. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 3.3 hereof, and each director elected shall hold office until his successor is elected and qualified or until his earlier death, resignation or removal. Directors need not be stockholders. 3.3 Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled, for the unexpired term, by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and each director so chosen shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until his successor is elected and qualified, or until his earlier death, resignation or removal. If there are no directors in office, then an election of directors may be held in the manner -6- provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery of the State of Delaware may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the then outstanding shares having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office, in accordance with the General Corporation Law of the State of Delaware. In the event that one or more directors resigns from the board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office for the remainder of the full term of the class of directors in which the vacancy or vacancies is or are to occur and until his successor is elected and qualified, or until his earlier death, resignation or removal. 3.4 Place of Meetings. The board of directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. 3.5 Annual Meetings. Annual meetings of the board of directors shall be held each year at the same place as and immediately after the annual meeting of stockholders, or at such other place and time as shall theretofore have been determined by the board. At its regular annual meeting, the board of directors shall organize itself and elect the officers of the corporation for the ensuing year, and may transact any other business. Except as otherwise expressly required by law, notice of the annual meeting of the board of directors need not be given. -7- 3.6 Regular Meetings. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board of directors. 3.7 Special Meetings. Special meetings of the board may be called by the chairman of the board or the president on 24 hours' notice to each director, either personally or by telephone, by telecopy, by telex or by telegram, or on three days' notice, if by mail; special meetings shall be called by the president or secretary in like manner and on like notice on the written request of a majority of the total number of directors. 3.8 Quorum and Vote at Meetings. At all meetings of the board, one director if a board of one director is authorized, or such greater number of directors as is not less than a majority of the total number of directors, shall constitute a quorum for the transaction of business. The vote of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the meeting to another time and place, without notice other than announcement at the meeting of such other time and place. 3.9 Telephone Meetings. Members of the board of directors or any committee designated by the board may participate in a meeting of such board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this section shall constitute presence in person at such meeting. 3.10 Action Without Meeting. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted -8- to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board of directors or committee. 3.11 Committees of Directors. The board of directors may by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. If a member of a committee shall be absent from any meeting, or disqualified from voting thereat, the remaining member or members present and not disqualified from voting, whether or not such member or members constitute a quorum, may, by unanimous vote, appoint another member of the board of directors to act at the meeting in the place of such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors pursuant to Section 151(a) of the General Corporation Law of the State of Delaware [hereinafter the "GCL"], fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of -9- the corporation), adopting an agreement of merger or consolidation pursuant to Sections 251 or 252 of the GCL, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the by-laws of the corporation; and, unless the resolution, by-laws or certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the GCL. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Unless otherwise specified in the resolution of the board of directors designating the committee, at all meetings of each such committee of directors, a majority of the total number of members of the committee shall constitute a quorum for the transaction of business, and the vote of a majority of the members of the committee present at any meeting at which there is a quorum shall be the act of the committee. Each committee shall keep regular minutes of its meetings and report the same to the board of directors, when required. 3.12 Compensation of Directors. Unless otherwise restricted by the certificate of incorporation, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be paid like compensation for attending committee meetings. - 10 - 3.13 Resignation. A director may resign by submitting his written resignation to the chairman of the board or president. Unless otherwise specified therein, the resignation of a director need not be accepted to make it effective and shall be effective immediately upon its receipt by the chairman of the board or the president or as otherwise specified therein. If the resignation of a director specifies that it shall be effective at some time later than receipt, until that time the resigning director shall be competent to act on all matters before the board of directors. 4. Notices of Meetings. 4.1 Notice Procedure. Whenever, whether under the provisions of any statute or of the certificate of incorporation or of these by-laws, notice is required to be given to any director or stockholder, such requirement shall not be construed to require the giving of personal notice. Such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same is deposited in the United States mail. Notice to directors may also be given by telecopy, telex, telegram or telephone. 4.2 Waivers of Notice. Whenever the giving of any notice is required by statute, the certificate of incorporation or these by-laws, a waiver thereof, in writing, signed by the person or persons entitled to said notice, whether before or after the event as to which such notice is required, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the - 11 - business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or members of a committee of directors need be specified in any written waiver of notice, unless so required by the certificate of incorporation, by statute or by these by-laws. 5. Officers. 5.1 Positions. The officers of the corporation shall be a president, a secretary and a treasurer, and such other officers as the board of directors may appoint, including a chairman of the board, and one or more vice presidents, assistant secretaries and assistant treasurers, who shall exercise such powers and perform such duties as shall be determined from time to time by the board. Any number of offices may be held by the same person, unless the certificate of incorporation or these by-laws otherwise provide; provided, however, that in no event shall the president and the secretary be the same person. 5.2 Appointment. The officers of the corporation shall be chosen by the board of directors at its first meeting after each annual meeting of stockholders. 5.3 Compensation. The compensation of all officers of the corporation shall be fixed by the board of directors. 5.4 Term of Office. The officers of the corporation shall hold office until their successors are chosen and qualify or until their earlier death, resignation or removal. Any officer may resign at any time upon written notice to the corporation. Any officer elected or appointed by the board of directors may be removed at any time, with or without cause, by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the corporation shall be filled by the board of directors. - 12 - 5.5 Fidelity Bonds. The corporation may secure the fidelity of any or all of its officers or agents by bond or otherwise. 5.6 President. The president shall be ex officio a member of all standing committees, shall have general and active management of the business of the corporation, shall ensure that all orders and resolutions of the board of directors are carried into effect, and, unless otherwise provided by the board of directors, shall preside at all meetings of the stockholders and the board of directors. The president shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. The president shall also be the chief executive officer of the corporation, unless the board of directors shall designate the chairman of the board as the chief executive officer. 5.7 Vice President. In the absence of the president or in the event of the president's inability or refusal to act, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall perform such other duties and have such other powers and titles as the board of directors may from time to time prescribe. 5.8 Chairman of the Board. If the directors shall appoint a chairman of the board, the chairman shall, when present, preside at all meetings of the board of directors and shall perform such other duties and have such other powers as may be vested in the chairman by the board of directors. - 13 - 5.9 Secretary. The secretary, or an assistant secretary, shall attend all meetings of the board of directors and all meetings of the stockholders, and shall record all the proceedings of the meetings of the stockholders and of the board of directors in a book to be kept for that purpose, and shall perform like duties for the standing committees, when required. The secretary, or an assistant secretary, shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or by the president, under whose supervision the secretary shall be. The secretary shall have custody of the corporate seal of the corporation, and the secretary, or an assistant secretary, shall have authority to affix the same to any instrument requiring it, and when so affixed it may be attested by the signature of the secretary or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by such officer's signature. The secretary or an assistant secretary may also attest all instruments signed by the chairman of the board, the president or any vice president. 5.10 Assistant Secretary. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors (or if there shall have been no such determination, then in the order of their election), shall, in the absence of the secretary or in the event of the secretary's inability or refusal to act or when requested by the chairman of the board or the president, perform the duties and exercise the powers of the secretary, and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. - 14 - 5.11 Treasurer. 5.11.1 Duties. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. The treasurer shall disburse the funds of the corporation as ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the president, and to the board of directors at its regular meetings, or when the board of directors so requires, an account of all transactions as treasurer and of the financial condition of the corporation. 5.11.2 Bond. If required by the board of directors, the treasurer shall give the corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of the treasurer's office and for the restoration to the corporation, in case of the treasurer's death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind, in the treasurer's possession or under the treasurer's control and belonging to the corporation. 5.12 Assistant Treasurer. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors (or if there shall have been no such determination, then in the order of their election), shall, in the absence of the treasurer or in the event of the treasurer's inability or refusal to act, perform the duties and exercise the powers of the treasurer, and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. - 15 - 6. Capital Stock. 6.1 Certificates of Stock; Uncertificated Shares. The shares of the corporation shall be represented by certificates, provided that the board of directors may provide by resolution or resolutions that some or all of any or all classes or series of the corporation's stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice chairman of the board of directors, or the president or vice president, and by the treasurer and/or assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all the signatures on the certificate may be facsimile. In case any officer, transfer agent or registrar whose signature or facsimile signature appears on a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. 6.2 Lost Certificates. The board of directors may direct a new certificate or certificates of stock or uncertificated shares to be issued in place of any certificate or certificates theretofore issued by the corporation and alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming that the certificate of stock has been lost, stolen or destroyed. When authorizing such issuance of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or - 16 - certificates, or such owner's legal representative, to advertise the same in such manner as the board shall require and/or to give the corporation a bond, in such sum as the board may direct, as indemnity against any claim that may be made against the corporation on account of the certificate alleged to have been lost, stolen or destroyed or on account of the issuance of such new certificate or uncertificated shares. 6.3 Transfers. The transfer of stock and certificates that represent the stock and the transfer of uncertificated shares shall be effected in accordance with the laws of the State of Delaware. Any restriction on the transfer of a security imposed by the corporation shall be noted conspicuously on the security. 6.4 Fixing Record Date. 6.4.1 Meetings. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the board of directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meetings. - 17 - 6.4.2 Consents. In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no record date has been fixed by the board of directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent to the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the board of directors and prior action by the board of directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the board of directors adopts the resolution taking such prior action. 6.4.3 Payments. In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such - 18 - action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. 6.5 Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, to receive notifications, to vote as such owner, and to exercise all the rights and powers of an owner; and the corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware. 7. Indemnification. 7.1 Authorization of Indemnification. Each person who was or is a party or is threatened to be made a party to or is involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative and whether by or in the right of the corporation or otherwise (a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan, shall be (and shall be deemed to have a contractual right to be) indemnified and held harmless by the corporation (and any successor to the corporation by merger or otherwise) to the fullest extent authorized by, and subject to the conditions and (except as provided herein) procedures set forth in the GCL, as the same exists or may hereafter be amended (but any such - 19 - amendment shall not be deemed to limit or prohibit the rights of indemnification hereunder for past acts or omissions of any such person insofar as such amendment limits or prohibits the indemnification rights that said law permitted the corporation to provide prior to such amendment), against all expenses, liabilities and losses (including attorney's fees, judgments, fines, ERISA taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith; provided, however, that the corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person (except for a suit or action pursuant to Section 7.2) only if such proceeding (or part thereof) was authorized by the board of directors of the corporation. Persons who are not directors or officers of the corporation may be similarly indemnified in respect of such service to the extent authorized at any time by the board of directors of the corporation. The indemnification conferred in this Section 7.1 also shall include the right to be paid by the corporation (and such successor) the expenses (including attorney's fees) incurred in the defense of or other involvement in any such proceeding in advance of its final disposition (including in the case of a director or former director expenses of separate legal counsel, up to a maximum of $50,000, but only in the event that the director or former director as the indemnified party reasonably determines, assuming an outcome unfavorable to such indemnified party, that there is a reasonable probability that such proceeding may materially and adversely affect such indemnified party, or that there may be legal defenses available to such indemnified party that are different from or in addition to those available to the corporation); provided, however, that, if and to the extent the GCL requires, the payment of such expenses (including attorney's fees) incurred by a director or officer in advance of the final disposition of a proceeding shall be made only upon delivery to the corporation of an - 20 - undertaking by or on behalf of such director or officer to repay all amounts so paid in advance if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section 7.1 or otherwise; and provided further, that, such expenses incurred by other employees and agents may be so paid in advance upon such terms and conditions, if any, as the board of directors deems appropriate. 7.2 Right of Claimant to Bring Action against the Corporation. If a claim under Section 7.1 is not paid in full by the corporation within sixty days after a written claim has been received by the corporation, the claimant may at any time thereafter bring an action against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the GCL for the corporation to indemnify the claimant for the amount claimed or is otherwise not entitled to indemnification under Section 7.1 but the burden of proving such defense shall be on the corporation. The failure of the corporation (in the manner provided under the GCL) to have made a determination prior to or after the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the GCL shall not be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. An actual determination by the corporation (in the manner provided under the GCL) after the commencement of such action that the claimant has not met such applicable standard of conduct - 21 - shall not be a defense to the action, but shall create a presumption that the claimant has not met the applicable standard of conduct. 7.3 Non-exclusivity. The rights to indemnification and advance payment of expenses provided by Section 7.1 shall not be deemed exclusive of any other rights to which those seeking indemnification and advance payment of expenses may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding such office. 7.4 Survival of Indemnification. The indemnification and advance payment of expenses and rights thereto provided by, or granted pursuant to, Section 7.1 shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the personal representatives, heirs, executors and administrators of such person. 7.5 Insurance. The corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, against any liability asserted against such person or incurred by such person in any such capacity, or arising out of such person's status as such, and related expenses, whether or not the corporation would have the power to indemnify such person against such liability under the provisions of the GCL. 8. General Provisions. 8.1 Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation and the - 22 - laws of the State of Delaware, may be declared by the board of directors at any regular or special meeting. Subject to the provisions of the General Corporation Law of the State of Delaware, such dividends may be paid either out of surplus, as defined in the General Corporation Law of the State of Delaware, or in the event that there shall be no such surplus, out of the net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Dividends may be paid in cash, in property, or in shares of the corporation's capital stock, subject to the provisions, if any, of the certificate of incorporation. 8.2 Execution of Instruments. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. 8.3 Fiscal Year. The fiscal year of the corporation shall begin on the first day of October and end on the last day of September each year, unless otherwise determined by resolution of the board of directors. 8.4 Seal. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced. 9. Amendments. These by-laws may be altered, amended or repealed and new by-laws may be adopted by the stockholders or the board of directors. * * * * The foregoing amended and restated by-laws were adopted in substantial part by the board of directors on October 14, 1991 and were ratified in their entirety by the board of directors on November 12, 1991. Sections 7.1 and 1.1 were further amended on December 16, 1991 and October 24-25, 1994, - 23 - respectively. A Certificate of Amendment of Amended and Restated Certificate of Incorporation changing the name of the corporation to Vitas Healthcare Corporation was filed with the Secretary of State of the State of Delaware on May 13, 1992. Certain technical and corrective revisions, including a change in the registered agent of the Corporation, were approved and adopted by the board of directors on May 2, 1995. - 24 - EX-4.2 4 EXHIBIT 4.2 EXHIBIT 4.2 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT AMONG VITAS HEALTHCARE CORPORATION, CERTAIN STOCKHOLDERS OF VITAS HEALTHCARE CORPORATION, CHEMED CORPORATION AND THE INVESTORS IDENTIFIED HEREIN ------------------------------------- JUNE 4, 1993 ------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement is dated as of June 4, 1993 and is among Vitas Healthcare Corporation, a Delaware corporation (the "Company"), and certain stockholders of the Company, Chemed Corporation, a Delaware corporation ("Chemed"), and the Investors, in each case identified on schedule A attached hereto. 1. BACKGROUND; DEFINITIONS. 1.1 Background. A. The Company and the persons and entities set forth on Schedule A under the heading Investors (collectively, "Investors") are parties to a Preferred Stock Purchase Agreement dated as of the date hereof (the "Stock Purchase Agreement") pursuant to which the Investors will purchase the number of shares of Series B Convertible Preferred Stock, par value $1.00 per share, of the Company (the "Preferred Stock") set forth opposite their respective names on Schedule A attached hereto. Each share of Preferred Stock is convertible into shares of common stock of the Company, par value $.001 per share (the "Common Stock"), in accordance with the terms of the Certificate of Designation, Preferences and Other Rights of the Series B Preferred Stock. As a condition to the execution of the Stock Purchase Agreement, the Investors have required that the Company grant to them registration rights as set forth herein. B. The Company, Chemed and OCR Holding Company, a Nevada corporation and wholly owned subsidiary of Chemed ("OCR"), entered into a Registration Rights Agreement (the "Old Registration Agreement") dated as of December 17, 1991 in connection with the purchase by OCR of 270,000 shares of 9% cumulative nonconvertible preferred stock, par value $1.00 per share, and the issuance by the Company to OCR of two warrants (the "Warrants") entitling OCR to purchase certain shares of the Common Stock, subject to the terms and conditions of the Warrants (the "Warrant Shares"). The Company desires, and Chemed and OCR have agreed, to terminate the Old Registration Agreement and include Chemed and OCR as parties to this Agreement. Upon the execution of this Agreement by the Company, Chemed and OCR, the Old Registration Agreement shall be deemed terminated and of no further force and effect. C. The Company has deemed it advisable and in its best interest to grant to certain existing security holders of the Company having a significant equity interest in the Company, other than OCR, as set forth in Schedule A attached hereto (collectively, the "Other Stockholders") registration rights in order to enable the Company to have an orderly and integrated approach to registration rights for certain stockholders, including OCR, at the same time that such rights are granted to the Investors. 1.2 Certain Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below: (a) The terms "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the "Securities Act"), and the declaration of effectiveness of such registration statement. (b) The term "Investor Registrable Securities" means: (i) the Common Stock issued or issuable upon conversion of the Preferred Stock (the "Conversion Shares"); (ii) the Common Stock of the Company acquired by the Investors or a Transferee (as hereafter defined), including pursuant to the Stockholders' Agreement dated the date hereof among the Company, Hugh A. Westbrook and Carole S. Westbrook (the "Principal Stockholders"), and the Investors (the "Stockholders' Agreement"); and (iii) any Common Stock of the Company or any subsidiary of the Company issued as or issuable upon the conversion or exercise of any right or security which is issued as a dividend or other distribution with respect to, or in exchange for or in replacement of, the Preferred Stock or the Common Stock referred to in subsections (i) and (ii) above, or in connection with a stock split, combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise, other than shares of capital stock distributed to the public pursuant to an effective registration statement or Rule 144 (or successor thereto) under the Securities Act, or the subject of a transaction permitted by Section 4(1) of the Securities Act, and excluding in all cases, however, any Investor Registrable Securities sold by a person in a transaction in which its rights under this Agreement are not assigned. (c) The number of shares of "Investor Registrable Securities then outstanding" shall be the number of shares of Common Stock outstanding which are Investor Registrable Securities, and the number of shares of Common Stock which would be Investor Registrable Securities upon issuance upon conversion or exercise of, or in exchange for, any of the securities referred to in Section 1.2(b). (d) The term "Holder" means any person owning or having the right to acquire Investor Registrable Securities or any assignee thereof in accordance with the terms of the Stockholders' Agreement. -2- (e) The term "Other Registrable Securities" means: (i) the Common Stock owned or hereafter acquired by the Principal Stockholders and the Other Stockholders; (ii) the Common Stock issued or issuable upon exercise of stock options currently outstanding or granted to the Principal Stockholders and the Other Stockholders after the date hereof by the Board of Directors or any other right or security held by such Principal Stockholders and Other Stockholders; (iii) any Common Stock of the Company or any subsidiary of the Company issued as or issuable upon the conversion or exercise of any right or security which is issued as a dividend or other distribution with respect to, or in exchange for or in replacement of, the Common Stock referred to in subsections (i) and (ii) above, or in connection with a stock split, combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise, other than shares of capital stock distributed to the public pursuant to an effective registration statement or Rule 144 (or successor thereto) under the Securities Act or the subject of a transaction permitted by Section 4(1) of the Securities Act. (f) The term "OCR Registrable Securities" means (i) the Warrant Shares; (ii) any Common Stock owned or hereafter acquired by OCR; and (iii) any Common Stock of the Company or any subsidiary of the Company issued as or issuable upon the conversion or exercise of any right or security which is issued as a dividend or other distribution with respect to, or in exchange for or in replacement of the Warrant Shares or the Common Stock referred to in subsection (ii) above, or in connection with a stock split, combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise, other than shares of capital stock distributed to the public pursuant to an effective registration statement or Rule 144 (or successor thereto) under the Securities Act or the subject of a transaction permitted by Section 4(1) of the Securities Act. (g) The term "Common Stock on a fully diluted basis" means, at the time of determination, the number of shares of Common Stock equal to the sum of (i) the number of outstanding shares of Common Stock, (ii) the number of Conversion Shares, (iii) the number of Warrant Shares, (iv) the number of shares of Common Stock issuable upon the conversion or exchange of all outstanding securities convertible or exchangeable for shares of Common Stock (other than the Preferred Stock) and upon the exercise of all outstanding options, rights or warrants (other than the Warrants) to purchase shares of Common Stock outstanding, in each case on the date of determination. (h) The term "registrable stock" means, in any particular context herein, collectively (i) the Investor Registrable Securities held by the Holders, (ii) the Other -3- Registrable Securities held by the Principal Stockholders and the Other Stockholders, and (iii) the OCR Registrable Securities held by OCR, in each case entitled to the registration rights that are the subject of the provision in which such term is used. 2. REGISTRATION. 2.1 Registration on Request. (a) If at any time prior to the closing of a Qualified Public Offering (as defined in the Certificate of Designation, Preferences and Other Rights of the Preferred Stock) but after January 1, 1996, the Holders and/or any securityholders, together or individually, with other securityholders of the Company holding in the aggregate a majority of the Common Stock on a fully diluted basis (collectively, "Requesting Holders") deem it appropriate that the Company offer to the public its Common Stock pursuant to a registration statement under the Securities Act (the "Initial Public Offering"), the Requesting Holders shall provide written notice to the Company. The Company will promptly give written notice of such requested offering by certified or registered mail to all Holders, OCR, the Principal Stockholders and the Other Stockholders (collectively, "holders"). The holders may thereupon request the registration of all or part of the registrable stock held by the holders concurrently with such Initial Public Offering, which request shall specify the intended method or methods of disposition of such registrable stock. The Company will use its best efforts to file (at the earliest possible date and if possible within ninety (90) days after the giving of such written notice by the Company) the registration statement for the Initial public Offering including therein: (i) Investor Registrable Securities, OCR Registrable Securities and Other Registrable Securities which the Company has been so requested to register by a Holder or Holders, OCR, the Principal Stockholders and the Other Stockholders for disposition in accordance with the intended method of disposition stated in such request; and (ii) other registrable stock which the Company has been requested to register by other holders, by written request delivered to the Company within 30 days after the giving of such written notice by the Company (which request shall specify the intended method of disposition of such registrable stock), provided that if the Company shall have previously effected a registration of which notice has been given to holders pursuant to Section 2.2, the Company shall not be required to effect a registration pursuant to this Section 2.1(a) until a period of nine (9) months shall have -4- elapsed from the termination of effectiveness of the most recent such previous registration. (b) At any time after the earlier of (x) the Initial Public Offering and (y) the date the Company becomes a reporting company under Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), Galen Partners II, L.P. and Warburg, Pincus Investors, L.P. (each a "Principal Holder") shall each be entitled to request, one time, in writing that the Company effect the registration under the Securities Act of all or part of the Investor Registrable Securities held by such Principal Holder, which request shall specify the intended method or methods of disposition of such Investor Registrable Securities. The Company will promptly give written notice of such requested registration by certified or registered mail to all holders and thereupon will use its best efforts to file (at the earliest possible date and if possible within 90 days after the giving of such written notice by the Company) the registration, under the Securities Act, of: (i) the Investor Registrable Securities which the Company has been so requested to register by such principal Holder, for disposition in accordance with the intended method of disposition stated in such request; and (ii) all other Investor Registrable Securities which the Company has been requested to register by a Holder or Holders, by written request delivered to the Company within 30 days after the giving of such written notice by the Company (which request shall specify the intended method of disposition of such Investor Registrable Securities), provided that: (A) if the Company shall have previously effected a registration pursuant to Section 2.1(a), or shall have previously effected a registration of which notice has been given to all holders pursuant to Section 2.2, the Company shall not be required to effect another registration pursuant to this Section 2.1(b) until a period of nine (9) months shall have elapsed from the termination of effectiveness of the most recent such previous registration; (B) the Company shall not be required to effect any registration pursuant to this Section 2.1(b) unless the Principal Holder and Holders requesting registration pursuant to clauses (i) and (ii) above have requested to include in the applicable registration Investor Registrable Securities owned by them representing an anticipated aggregate value of at least $5,000,000; and -5- (C) if the Board of Directors determines in good faith and in the exercise of its reasonable business judgment that the registration and distribution of all or a specified portion of Investor Registrable Securities will result in a twenty-five percent (25%) or more decrease in the market price of the then outstanding Common Stock, then the Company shall not be required to effect the registration requested pursuant to this Section 2.1(b) until such time as shall be reasonably determined by the Board of Directors to permit such registration and distribution without resulting in such a decrease in price; provided that in the event the Principal Holder requesting registration under this Section 2.1(b) is Warburg, Pincus Investors, L.P. ("Warburg") and Warburg provides written notice to the Company that it requests registration under this Section 2.1(b) in order to make a distribution of Investor Registrable Securities held by Warburg to its limited partners, then notwithstanding anything contained in this Section 2.1(b)(ii)(C) to the contrary, the Company shall be required to effect the registration of Investor Registrable Securities held by Warburg (and no other holders) for such purpose only in accordance with the terms of this Section 2.1(b) (a "Warburg Distribution Demand") If any registration requested by the holders pursuant to Section 2.1 is for an underwritten offering, the Company shall have the right to designate the underwriter, who shall be an investment banking firm of nationally recognized standing. (c) The Company will pay all Registration Expenses in connection with the registration effected by the Company of registrable stock (including in connection with the Initial Public Offering) pursuant to Section 2.1(a) and the registration of Investor Registrable Securities pursuant to Section 2.1(b). The term "Registration Expenses" shall mean all expenses incident to the Company's performance of or compliance with this Section 2 including, without limitation, all registration and filing fees; all printing expenses; the fees and disbursements of counsel for the Company and of its independent public accountants, including the expenses of any special audits required by or incident to such performance and compliance. Registration Expenses shall exclude underwriting discounts and/or commissions (or similar payments), transfer taxes, if any, on registrable stock sold by the holders, all fees and expenses of compliance with state securities or blue sky laws attributable to such registrable stock, and the fees and disbursements of counsel for the holders, all of which shall be borne by the holders. -6- (d) If any registrable stock included by any holder in a registration pursuant to this Section 2.1 are to be sold in an underwritten offering, then each other holder who is registering registrable stock in the same registration shall have the right, at its election, to demand that all registrable stock be sold in such underwritten offering on the same terms and conditions, including price, subject, however, to the provisions of Section 2.3(b). (e) A registration requested pursuant to this Section 2.1 shall not be deemed to have been effected (i) unless a registration statement with respect thereto has become effective, provided that a registration which does not become effective after the Company has filed a registration statement with respect thereto solely by reason of the refusal to proceed of the holders or Holders, as the case may be, requesting such registration (the "Initiating Holders") shall be deemed to have been effected by the Company at the request of such Initiating Holders unless the Initiating Holders shall have elected to pay all Registration Expenses in connection with such registration that does not become effective; provided, however, that if at the time of such refusal to proceed (A) the Initiating Holders have learned of a material adverse change in the business, condition or prospects of the Company not known to the Initiating Holders at the time of their request, (B) the existence of such material adverse change was known to the Company at the time of the Initiating Holders' request for registration, and (C) the Initiating Holders have notified the Company of their refusal to proceed with reasonable promptness following disclosure by the Company of such material adverse change, then such registration shall not be deemed to have been effected and the Initiating Holders shall not be required to pay any Registration Expenses in connection therewith; (ii) if, after it has become effective, such registration is the subject of any stop order, injunction or other order or requirement of the Securities and Exchange Commission (the "Commission") or other governmental agency or court for any reason which cannot be cured within five (5) business days of the issuance of such stop order, injunction, order or requirement; or (iii) if the conditions to closing specified in any underwriting agreement entered into in connection with such registration are not satisfied and the closing does not occur, other than by reason of some act or omission by any such Initiating Holders. 2.2. Incidental Registration. (a) If the Company at any time proposes to register any of its securities under the Securities Act, whether or not for sale for its own account, other than pursuant to Section 2.3(b) and other than in connection with a Warburg Distribution Demand, on a form (other than Form S-4 or S-8) and in a manner which would permit registration of shares of Common Stock for sale to the -7- public under the Securities Act, it will, each such time, give prompt written notice to all Holders, OCR, the Principal Stockholders and the Other Stockholders (collectively, "holders") of its intention to do so, describing such securities and specifying the form and manner and the other relevant facts involved in such proposed registration. Upon the written request of any holder delivered to the Company within 30 days after the giving of any such notice (which request shall specify the number of shares of registrable stock intended to be disposed of by such holder and the intended method of disposition thereof), the Company will include in such registration such number of shares of registrable stock as a holder may specify in its request, provided that: (i) if, at any time after giving such written notice of its intention to register any of its securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register such securities, the Company may, at its election, give written notice of such determination to each holder and thereupon shall be relieved of its obligation to register any registrable stock in connection with such registration (but not from its obligation to pay the Registration Expenses already incurred in connection therewith as provided in subsection (b) of this Section 2.2), without prejudice, however, to the rights of any one or more holders to request registration pursuant to Section 2.1; (ii) if (A) the registration so proposed by the Company involves an underwritten offering of the securities so being registered, whether or not for sale for the Company's own account, other than pursuant to Section 2.1 or Section 2.3(b), (B) the registrable stock so requested to be registered for sale for the account of any holder are not also to be included in such underwritten offering, and (C) the managing underwriter of such underwritten offering shall notify the Board of Directors of the Company in writing that the registration and distribution of all or a specified portion of registrable stock concurrently with the securities being distributed by such underwriters would materially interfere with the successful marketing of such securities by such underwriters (such notice to summarize the reasons therefor), then the Company will promptly furnish each holder who has requested registration of such registrable stock not to be included in such underwritten offering pursuant to this Section 2.2 with a copy of such notice. The Company may require, by written request accompanying such copy of such notice to each such holder, that the registrable stock requested to be included in such registration statement be -8- included in such underwritten offering or be excluded from such registration; and (iii) the Company shall not be obligated to effect any registration of registrable stock under this section 2.2 incidental to the registration of any of its securities in connection with mergers, exchange offers, dividend reinvestment plans, employee stock ownership plans or stock option plans, thrift plans, pension plans or other employee benefit plans. (b) The Company will pay all Registration Expenses (including for purposes of this Section 2.2, the reasonable fees and disbursements of one counsel for the holders, as a group, on whose behalf securities are being registered) in connection with each registration of registrable stock requested by a holder pursuant to this Section 2.2. 2.3. Registration Procedures. (a) If and whenever the Company is requested or required to effect the registration of any registrable stock under the Securities Act as provided in Sections 2.1, 2.2 or 2.3(b), the Company will as expeditiously as possible: (i) prepare and file with the Commission a registration statement on the appropriate form with respect to such registrable stock and use its reasonable best efforts to cause such registration statement to become effective as promptly as practicable; (ii) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to use its reasonable best efforts to comply with the provisions of the Securities Act applicable to the Company with respect to the disposition of all securities covered by such registration statement until the earlier of such time as all registrable stock has been disposed of in accordance with the intended methods of disposition by the holders thereof set forth in such registration statement or the expiration of 180 days after such registration statement becomes effective; (iii) furnish to each holder participating in the registration such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus -9- and any summary prospectus), in conformity with the requirements of the Securities Act, such documents incorporated by reference in such registration statement or prospectus, and such other documents of the Company, as such holder may reasonably request to facilitate the disposition of registrable stock owned by it; (iv) use its reasonable best efforts to register or qualify all securities covered by such registration statement under such other securities or blue sky laws of such jurisdictions within the United States and its territories as each holder participating in the registration shall reasonably request, and do any and all other reasonable acts and things which may be reasonably necessary or advisable to enable such holder to consummate the disposition in such jurisdictions of its registrable stock covered by such registration statement, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it is not so qualified, or to consent to general service of process in any such jurisdiction; (v) furnish to each Holder of 25% of more of Investor Registrable Securities covered by such registration statement, and use its reasonable best efforts to furnish to each other holder of registrable stock covered by such registration statement, a signed counterpart, addressed to such holder, of (A) an opinion of counsel for the Company, dated the effective date of such registration statement (or, if such registration includes an underwritten public offering, dated the date of the closing under the underwriting agreement), and (B) a "cold comfort" letter signed by the independent public accountants who have certified the Company's financial statements included in such registration statement, covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants' letter, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities of issuers in the health-care industry; (vi) promptly notify each holder of registrable stock covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required -10- to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and at the request of any such holder prepare and furnish to such holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such registrable stock, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (vii) notify each holder of registrable stock covered by such registration statement promptly after the Company shall receive notice or obtain knowledge of the issuance of any stop order by the Commission suspending the effectiveness of any such registration statement or amendment thereto or of the initiation or threatening of any proceeding for that purpose, and promptly use reasonable best efforts to prevent the issuance of any stop order or obtain its withdrawal promptly if such stop order should be issued; (viii) use its reasonable best efforts to comply with all applicable rules and regulations of the Commission, and make available to its securities holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months, but not more than eighteen months, beginning with the first month of the first fiscal quarter after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act; and (ix) use its reasonable best efforts to effectuate the listing of the registrable stock to be sold on any exchange on which the Common Stock is then listed. The Company may require each holder as to which any registration is being effected to furnish the Company with such information regarding such holder and the distribution of its registrable stock as the Company may from time to time request in writing, for inclusion in the applicable registration statement, as reasonably determined by the Company to be required by law, or by the Commission, in connection therewith and each holder shall furnish such information as promptly as practicable after such request. (b) If requested by the underwriters for any underwritten offering with respect to an Initial Public Offering or on behalf of a holder or holders pursuant to a registration requested under Section 2.1, the Company will enter into an -11- underwriting agreement upon mutually satisfactory terms with such underwriters for such offering, such agreement to contain such representations and warranties by the Company and the holders and such other terms and provisions as are customarily contained in underwriting agreements, including, without limitation, customary indemnities. Whenever a registration requested by one or more holders pursuant to Section 2.1 is for an underwritten offering, and the underwriters shall determine that the inclusion of all or a specified portion of registrable stock requested to be included in such offering would materially interfere with the successful marketing of such offering, to the extent determined to be necessary by the underwriters, (i) in the case of a registration pursuant to Section 2.1(a), the registrable stock requested to be registered by the holders shall be excluded on a pro rata basis based upon the respective numbers of registrable stock proposing to participate in such underwritten offering, and (ii) in the case of a registration pursuant to Section 2.1(b), the Other Registrable Securities requested to be registered by the Principal Stockholders and the Other Stockholders shall be excluded first, and to the extent reasonably determined to be necessary by the underwriters, the Investor Registrable Securities and the OCR Registrable Securities requested to be registered by the Holders and OCR, respectively, shall be excluded next on a pro rata basis based upon the respective numbers of Investor Registrable Securities and OCR Registrable Securities proposing to participate in such underwritten offering (the shares excluded in an Initial Public Offering or in a secondary offering shall be referred to herein as the "Deferred Demand Securities"). The exclusions in the preceding sentence shall apply until the completion of the distribution of such securities by such underwriters, but in no event for a period of more than 150 days after the effective date of such registration. In the event that, in accordance with this Section 2.3(b), any registrable stock held by a holder proposing to participate in such underwritten offering pursuant to Section 2.1 shall have been excluded, the Company shall, not later than the end of the 150 day period referred to above, register such Deferred Demand Securities to the extent required to permit the distribution thereof in accordance with the intended method of disposition previously disclosed to the Company pursuant to Section 2.1, unless such holder shall have withdrawn its request to register its Deferred Demand Securities, and no such deferred registration hereunder shall be deemed to be a registration pursuant to Section 2.1 hereof. The registration of such Deferred Demand Securities pursuant to an underwritten offering shall again be subject to exclusion as set forth in the second sentence of this Section 2.3(b); provided that in no event will the Company be required to effect more than one registration of Deferred Demand Securities in connection with any exercise of demand registration rights pursuant to Section 2.1. The Company will pay all Registration Expenses in connection with the registration of Deferred Demand Securities -12- pursuant to this Section 2.3(b), if the proposed underwritten offering with respect to which such Securities were deferred was an offering in respect of which the Company was required to pay Registration Expenses pursuant to Section 2.1(c) hereof. (c) If the Company at any time proposes to register any of its securities under the Securities Act whether or not for sale for its own account as contemplated by Section 2.2, but in circumstances in which Section 2.1 and Section 2.3(b) do not apply, and such securities are to be distributed by or through one or more underwriters, the Company will make reasonable efforts, if requested by any holder who requests incidental registration of registrable stock in connection therewith pursuant to Section 2.2, to arrange for such underwriters to include such registrable stock among those securities to be distributed by or through such underwriters; provided, however, that if the underwriters shall determine that the inclusion of all or a specified portion of such registrable stock would materially interfere with the successful marketing of such offering, all registrable stock requested to be included shall be excluded, pro rata, based upon the respective numbers of registrable stock proposing to participate in such underwritten offering. The holders on whose behalf registrable stock is to be distributed by such underwriters shall be parties to any such underwriting agreement and the representations and warranties by, and the other agreements on the part of, the Company to and for the benefit of such underwriters, shall also be made to and for the benefit of such holders. Any such holder of registrable stock shall not be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such holder, such holder's registrable stock and such holder's intended method of distribution and any other representations reasonably required and customary in connection with the registration. (d) Whenever a deferred registration required pursuant to Section 2.3(b) is for an underwritten offering, or if the Company at any time proposes to register any of its securities under the Securities Act for sale for its own account and such securities are to be distributed by or through one or more underwriters, the Company shall have the right to select the managing underwriter to administer the offering subject to the approval of the holders of a majority of the registrable stock included in such registration, such approval not to be unreasonably withheld. (e) If any registration pursuant to Sections 2.1, 2.2 or 2.3(b) shall be in connection with an underwritten offering, each holder agrees, if so timely required in writing by the managing underwriters, not to sell or otherwise dispose of (other than to donees who agree to be similarly bound) registrable stock (other -13- than as part of such underwritten public offering) within the period commencing seven days prior to the effective date of such registration statement and ending 180 days after the effective date of such registration statement, unless otherwise consented to by the managing underwriters. Each holder of registrable stock agrees that the Company may instruct its transfer agent to place stop transfer notations in its records to enforce this Section 2.3(e). (f) Each holder agrees by acquisition of the registrable stock that, upon receipt of any notice from the Company of the occurrence of any event of the kind described in subsection (a)(vi) of this Section 2.3, such holder will forthwith discontinue the disposition of registrable stock pursuant to the registration statement relating to such registrable stock until such holder's receipt of the copies of the supplemented or amended prospectus contemplated by subsection (a)(vi) of this Section 2.3 and, if so directed by the Company, will deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such holder's possession of the prospectus relating to such securities at the time of receipt of such notice; provided, that if the registration statement is for an underwritten offering, such holder will use all reasonable efforts to cause the underwriters of such offering to discontinue the disposition of the registrable stock. In the event the Company shall give any such notice, the period referred to in subsection (a)(ii) of this Section 2.3 shall be extended by the length of the period from and including the date when each seller of any registrable stock covered by such registration statement shall have received such notice to the date on which each such seller has received the copies of the supplemented or amended prospectus contemplated by subsection (a)(vi) of this Section 2.3. 2.4. Preparation; Reasonable Investigation. In connection with the preparation and filing of each registration statement registering registrable stock, the Company will give the holders on whose behalf such securities are to be so registered and their underwriters, if any, and their respective counsel and accountants, the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, and will give each of them such access to its books and records and such opportunities to discuss the business of the Company and its subsidiaries with its officers and the independent public accountants who have certified its financial statements as shall be necessary, in the opinion of such holders and such underwriters or their respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. -14- 2.5. Indemnification. (a) In the event of any registration of any securities of the Company pursuant to Sections 2.1, 2.2 or 2.3(b), the Company will indemnify and hold harmless each selling holder, its directors, officers, partners, employees, representatives and affiliates, and each other person, if any, who controls such holder within the meaning of the Securities Act (each an "Indemnified Person") against any losses, claims, damages, liabilities and expenses (including reasonable legal fees and expenses and costs of investigation), joint or several, to which such Indemnified Person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such securities were registered or qualified under the Securities Act or otherwise, any final prospectus or summary prospectus included therein, or any amendment or supplement thereto, or any document incorporated by reference therein or incident to any such registration or qualification, or (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act or any rule or regulation promulgated thereunder and relating to action or inaction required of the Company in connection with any such registration or qualification or compliance thereunder; and the Company will reimburse each Indemnified Person for any legal or any other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim, liability, action or proceeding; provided that the Company shall not be liable to such Indemnified Person for indemnification or reimbursement in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof) or expense arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such final prospectus, summary prospectus, amendment or supplement or any documents incorporated by reference in any of the above in reliance upon and in conformity with written information furnished by such Indemnified Person to the Company and designated in writing by such person to be specifically for use in the preparation thereof, provided, further that the Company shall not be liable to any Indemnified Person who participates as an underwriter in the offering or sale of registrable stock or to any other Indemnified Person, if any, who controls such underwriter within the meaning of the Securities Act, in any such case to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof), or expense arises out of such Indemnified Person's failure to send or give a copy of the final prospectus, as the same -15- may be then supplemented or amended, to the person asserting the existence of an untrue statement or alleged untrue statement or omission or alleged omission at or prior to the written confirmation of the sale of registrable stock to such person if such statement or omission was corrected in full in such final prospectus. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Person and shall survive the transfer of such securities by such Indemnified Person. (b) The Company may require, as a condition to including any registrable stock in any registration statement filed pursuant to Section 2.3(a)(i), that the Company shall have received an undertaking satisfactory to it from the holder of registrable stock included in such registration, to indemnify and hold harmless (in the same manner and to the same extent as set forth in subsection (a) of this Section 2.5) the Company, each director of the Company, each officer of the Company who shall sign such registration statement, and each other person, if any, who controls the Company within the meaning of the Securities Act, with respect to any statement in or omission from such registration statement, any final prospectus or summary prospectus included therein, or any amendment or supplement thereto or any documents incorporated by reference in any of the above, if such statement or omission was made solely in reliance upon and in conformity with written information furnished to the Company through an instrument duly executed by such holder stating that it is specifically for use in the preparation of such registration statement, final prospectus, summary prospectus, amendment or supplement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any such director, officer or controlling person and shall survive the transfer of registrable stock by such holder; provided, however, that a holder's liability hereunder shall not exceed the aggregate net proceeds received by such holder from the sale of its registrable stock in such offering. (c) If the indemnification provided for in this Section 2.5 is unavailable or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages, liabilities, expenses or action in respect thereof referred to herein, then the indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities, expenses or actions in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand, and the indemnified party on the other, in connection with the statement or omission which resulted in such losses, claims, damages, liabilities, expenses or actions as well as any other relevant equitable considerations, including the failure to give the notice required hereunder. The relative fault -16- of the indemnifying party and the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact relates to information supplied by the indemnifying party or the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the holders agree that it would not be just and equitable if contributions pursuant to this Section were determined by pro rata allocation or by any other method of allocation which did not take account the equitable considerations referred to herein. The amount paid or payable to an indemnified party as a result of the losses, claims, damages, liabilities or action in respect thereof, referred to above, shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the contribution provisions of this Section, in no event shall the amount contributed by any holder exceed the aggregate net offering proceeds received by such holder from the sale of its registrable stock. No person guilty of fraudulent misrepresentations (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. (d) Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in this Section 2.5, such indemnified party will give written notice to the latter of the commencement of such action, provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under the preceding subsections of this Section 2.5, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof; provided, however, that if the indemnified party or parties reasonably determine that there may be a conflict between the positions of the indemnifying party or parties and of the indemnified party or parties in conducting the defense of such action or proceeding or that there may be legal defenses available to such indemnified party or parties different from or in addition to those available to the indemnifying party or parties, then counsel for the indemnified party or parties shall be entitled to conduct the defense to the extent reasonably determined by such -17- counsel to be necessary to protect the interests of the indemnified party or parties (and the indemnifying party or parties shall bear the reasonable legal and other expenses incurred in connection therewith). No indemnifying party will, without the consent of the indemnified party, consent to entry of any judgment or enter into any settlement which does not include as a term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation. No indemnified party shall consent to entry of any judgment or enter into any settlement of any such action the defense of which has been assumed by an indemnifying party without the prior consent of such indemnifying party. (e) Indemnification (and, if appropriate, contribution) similar to that specified in the preceding subsections of this Section 2.5 (with appropriate modifications) shall be given by the Company and each holder of registrable stock with respect to any required registration or other qualification of such securities under any applicable federal securities law (other than the Securities Act) or state securities or blue sky law or regulation. 2.6. Form S-3 Registration. In case the Company shall receive from any Holder or Holders who own at least ten percent (10%) of the Investor Registrable Securities then outstanding a written request or requests that the Company effect a registration on Form S-3 (or successor form) and any related qualification or compliance with respect to all or a part of the Investor Registrable Securities owned by such Holder or Holders, the Company will: (a) Promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and (b) As soon as practicable, use its best efforts to effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Investor Registrable Securities as are specified in such request, together with all or such portion of the Investor Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within thirty (30) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 2.6: (i) if Form S-3 (or successor form) is not available for such offering by the Holders, (ii) if the Holders, together with any other holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Investor Registrable Securities and other registrable stock (if any) at an aggregate price to the -18- public of less than $1,000,000, (iii) if the Company has, within the six (6) month period preceding the date of such request, already effected a registration on Form S-3 (or successor form) for the Holders pursuant to this Section 2.6 or a registration pursuant to Sections 2.1, 2.2 or 2.3(b) in which Investor Registrable Securities of such Holders were included, or (iv) in any particular jurisdiction in which the Company would be required to qualify generally to do business wherein it is not so qualified or to consent to general service of process in any such jurisdiction in effecting such registration, qualification or compliance. (c) Subject to the foregoing, the Company shall file a registration statement covering the Investor Registrable Securities and other registrable stock pursuant to this Section 2.6 as soon as practicable after receipt of the request or requests of the Holders. The Company shall use its reasonable best efforts to keep such registration statement effective and comply with the provisions of the Securities Act applicable to the Company with respect to the disposition of all securities covered by such registration statement until all the Investor Registrable Securities covered by such registration statement have been sold. (d) All Registration Expenses incurred in connection with the first two (2) registrations requested pursuant to this Section 2.6 shall be borne by the Company. After the first two (2) registrations, all such Expenses shall be borne pro rata by the holders participating in the Form S-3 registration. Registrations effected pursuant to this Section 2.6 shall not be counted as demands for registration effected pursuant to Section 2.1. 2.7. Other Registrations. The Company hereby agrees that if it has previously filed a registration statement with respect to registrable stock pursuant to Section 2.2, and if such previous registration has not been withdrawn or abandoned, the Company will not file or cause to be effected any other registration of any of its equity securities or securities convertible or exchangeable into or exercisable for its equity securities under the Securities Act (except on Form S-4 or Form S-8 or any other similar form for employee benefit plans), whether on its own behalf or at the request of any holder or holders of such securities, until a period of at least six (6) months has elapsed from the effective date of such previous registration or, if sooner, until all registrable stock included in such previous registration have been sold. 3. MISCELLANEOUS. 3.1 Rule 144. If the Company shall have filed a registration statement pursuant to the requirements of Section 12 of the Exchange Act or a registration statement pursuant to the -19- requirements of the Securities Act, the Company will use its reasonable best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act (or, if the Company is not required to file such reports, upon the request of any Holder, will use its reasonable best efforts to make publicly available such information), and will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell Investor Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. Upon the request of any Holder, the Company will deliver to such Holder (i) a written statement as to whether it has complied with such requirements; (ii) if applicable, a copy of the most recent annual or quarterly report of the Company; and (iii) such other reports and documents as a Holder may reasonably request to avail itself of Rule 144 or any other rule or regulation of the Commission allowing a Holder to sell Common Stock without registration. 3.2. Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of: (i) in the event the amendment or waiver relates to Section 2.1(b) or Section 2.6, the Company and the Holders of two-thirds (2/3) or more of the Investor Registrable Securities then outstanding; (ii) in the event the amendment or waiver relates to Section 2.1(a), the Company and the holders of a majority of the Investor Registrable Securities, the OCR Registrable Securities and the Other Registrable Securities; and (iii) in all other events, the Company and the holders of a majority of the registrable stock then outstanding. For purposes of this Section 3.2, "registrable stock then outstanding" shall be the number of shares of Common Stock outstanding which are registrable stock, and the number of shares of Common Stock which would be registrable stock upon conversion or exercise of, or in exchange for, any registrable stock. Each holder shall be bound by any consent authorized by this Section 3.2. 3.3. Assignment of Investors' Registration Rights. The rights to cause the Company to register Investor Registrable Securities pursuant to this Agreement may be assigned by a Holder to a transferee or assignee ("Transferee") of such securities in accordance with the terms of the Stockholders' Agreement who, after such assignment or transfer, holds at least 250,000 shares of Investor Registrable Securities (subject to appropriate adjustments for stock splits, stock dividends, combinations and other recapitalizations), provided that the 250,000 share threshold -20- referenced above shall not apply to transfers to Permitted Transferees as defined in the Stockholders' Agreement; provided further that all such assignees and transferees who do not meet the 250,000 share threshold shall appoint a single Holder as their attorney-in-fact for the purpose of exercising any rights, receiving notices or taking any action under this Agreement. No transfer of Investor Registrable Securities by a Holder shall be effective unless the Transferee shall have executed a counterpart to this Agreement, as amended or supplemented. 3.4. Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not enter into any agreement with any person or entity holding or proposing to hold any securities of the Company which would provide such person or entity with registration rights more favorable than the rights granted to the holders under this Agreement, in any case, without the written consent of the holders of a majority of the registrable stock entitled to the type of registration rights to be provided to such person or entity. 3.5. Specific Performance. Inasmuch as the shares of capital stock of the Company are closely held and the market therefor is limited, irreparable damage would result if this Agreement were not specifically enforced. Therefore, the rights granted to holders hereunder shall be enforceable in a court of equity by a decree of specific performance, and appropriate injunctive relief may be applied for and granted in connection therewith. Such remedies shall, however, be cumulative and not exclusive and shall be in addition to any other remedies which any party may have under this Agreement or otherwise. 3.6. Notices. Except as otherwise provided in this Agreement, notices and other communications under this Agreement shall be in writing and shall be delivered, if to the Company, a Principal Stockholder or an Investor, to such party in the manner set forth in the Stockholders' Agreement, or if to any other party, to such party at the address specified below its name on the signature pages hereof, or in any case at such other address as such party shall have furnished to the Company in writing (or in the case of the Company, at such other address, or to the attention of such other officer, as the Company shall have furnished to each holder). 3.7. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective successors and permitted assigns of the parties hereto. 3.8. Entire Agreement. This Agreement embodies the entire agreement and understanding between each holder and the Company and supersedes all prior agreements and understandings relating to the subject matter hereof. -21- 3.9. Termination. This Agreement shall terminate as to any stockholder who is a party to this Agreement on the date that such stockholder is entitled to sell all of the registrable stock then beneficially owned by such stockholder pursuant to the terms of Rule 144(k) under the Securities Act (or successor thereto), and shall survive the earlier termination of the Stockholders' Agreement, provided that any indemnification obligations hereunder shall survive the termination of this Agreement. 3.10. Gender; Number. Unless the context of this Agreement otherwise requires, the masculine, feminine or neuter gender shall include the other genders, and the singular shall include the plural. 3.11. Governing Law. This Agreement shall be construed and enforced in accordance with and governed by the law of the State of Delaware (excluding choice of law provisions thereof). 3.12. Headings. The headings in this Agreement are for purposes of reference only and shall not limit or otherwise affect the meaning hereof. 3.13. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. -22- IN WITNESS WHEREOF, the parties hereto have executed or caused to be duly executed this Agreement on the date first written above. VITAS HEALTHCARE CORPORATION By: /s/ [ILLEGIBLE] ---------------------------------------- President /s/ Hugh A. Westbrook -------------------------------------------- HUGH A. WESTBROOK /s/ Carole S. Westbrook -------------------------------------------- CAROLE S. WESTBROOK /s/ Esther T. Colliflower -------------------------------------------- ESTHER T. COLLIFLOWER /s/ Donald Gaetz -------------------------------------------- DONALD GAETZ Address: 923 East Choctawhatchee Road East Niceville, Florida 32578 /s/ Earl M. Collier, Jr. -------------------------------------------- EARL M. COLLIER, JR. Address: c/o Vitas Healthcare Corporation 100 South Biscayne Blvd. Suite 1500 Miami, Florida 33131 -23- /s/ J.R. Williams -------------------------------------------- J.R. WILLIAMS Address: c/o Vitas Healthcare Corporation 100 South Biscayne Blvd. Suite 1500 Miami, Florida 33131 VITAS HEALTHCARE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN/TRUST By: /s/ Hugh A. Westbrook ---------------------------------------- Hugh A. Westbrook, Trustee Address: c/o Vitas Healthcare Corporation 100 South Biscayne Blvd. Suite 1500 Miami, Florida 33131 OCR HOLDING COMPANY By: ---------------------------------------- Treasurer Address: c/o Chemed Corporation 2600 Chemed Center 225 East 5th Street Cincinnati, OH 45202 With a copy (which shall not constitute notice) to: Dinsmore & Shohl 1900 Chemed Center Suite 16 225 East 5th Street Cincinnati, OH 45202 Attention: Clifford A. Roe, Jr., Esq. -24- ---------------------------------------- J.R. WILLIAMS Address: c/o Vitas Healthcare Corporation 100 South Biscayne Blvd. Suite 1500 Miami, Florida 33131 VITAS HEALTHCARE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN/TRUST By: ---------------------------------------- Hugh A. Westbrook, Trustee Address: c/o Vitas Healthcare Corporation 100 South Biscayne Blvd. Suite 1500 Miami, Florida 33131 OCR HOLDING COMPANY By: /s/ Timothy S. O'Toole ---------------------------------------- Treasurer Address: c/o Chemed Corporation 2600 Chemed Center 225 East 5th Street Cincinnati, OH 45202 With a copy (which shall not constitute notice) to: Dinsmore & Shohl 1900 Chemed Center Suite 16 225 East 5th Street Cincinnati, OH 45202 Attention: Clifford A. Roe, Jr., Esq. -24- CHEMED CORPORATION By: /s/ Timothy S. O'Toole ---------------------------------------- Executive VP & Treasurer Address: 2600 Chemed Center 225 East 5th Street Cincinnati, OH 45202 GALEN PARTNERS, II, L.P. By: GWW Partners, L.P., its General Partner By: ---------------------------------------- General Partner GALEN PARTNERS INTERNATIONAL, II, L.P. By: GWW Partners, L.P., its General Partner By: ---------------------------------------- General Partner -25- CHEMED CORPORATION By: ---------------------------------------- President Address: 2600 Chemed Center 225 East 5th Street Cincinnati, OH 45202 GALEN PARTNERS, II, L.P. By: GWW Partners, L.P., its General Partner By: /s/ Bruce F. Wesson ---------------------------------------- General Partner GALEN PARTNERS INTERNATIONAL, II, L.P. By: GWW Partners, L.P., its General Partner By: /s/ Bruce F. Wesson ---------------------------------------- General Partner -25- GALEN ASSOCIATES By: Wesson Enterprises, Inc., a General Partner By: /s/ Bruce F. Wesson ---------------------------------------- President WARBURG, PINCUS INVESTORS, L.P. By: Warburg Pincus & Co., its General Partner By: ---------------------------------------- Partner HARVEST PARTNERS INTERNATIONAL, L.P. By: Harvest Associates International, L.P., its General Partner By: ---------------------------------------- General Partner DEUTSCHE BETEILIGUNGSGESELLSCHAFT By: ---------------------------------------- Managing Director -26- GALEN ASSOCIATES By: Wesson Enterprises, Inc., a General Partner By: ---------------------------------------- President WARBURG, PINCUS INVESTORS, L.P. By: Warburg Pincus & Co., its General Partner By: /s/ [SIGNATURE ILLEGIBLE] ---------------------------------------- Partner HARVEST PARTNERS INTERNATIONAL, L.P. By: Harvest Associates International, L.P., its General Partner By: ---------------------------------------- General Partner DEUTSCHE BETEILIGUNGSGESELLSCHAFT By: ---------------------------------------- Managing Director -26- GALEN ASSOCIATES By: Wesson Enterprises, Inc., a General Partner By: ---------------------------------------- President WARBURG, PINCUS INVESTORS, L.P. By: Warburg Pincus & Co., its General Partner By: ---------------------------------------- Partner HARVEST PARTNERS INTERNATIONAL, L.P. By: Harvest Associates International, L.P., its General Partner By: /s/ [SIGNATURE ILLEGIBLE] ---------------------------------------- General Partner DEUTSCHE BETEILIGUNGSGESELLSCHAFT By: ---------------------------------------- Managing Director -26- GALEN ASSOCIATES By: Wesson Enterprises, Inc., a General Partner By: ---------------------------------------- President WARBURG, PINCUS INVESTORS, L.P. By: Warburg Pincus & Co., its General Partner By: ---------------------------------------- Partner HARVEST PARTNERS INTERNATIONAL, L.P. By: Harvest Associates International, L.P., its General Partner By: ---------------------------------------- General Partner DEUTSCHE BETEILIGUNGSGESELLSCHAFT By: /s/ [SIGNATURE ILLEGIBLE] ---------------------------------------- Managing Director -26- FRANKLIN CAPITAL ASSOCIATES II L.P. By: Franklin Ventures II L.P., its General Partner By: Franklin Venture Capital Inc., its General Partner By: /s/ [SIGNATURE ILLEGIBLE] ---------------------------------------- Vice President HLM PARTNERS II L.P. By: HLM Associates II, L.P., its General Partner By: ---------------------------------------- General Partner THE FORMANEK INVESTMENT TRUST By: ---------------------------------------- Peter Formanek, Trustee -------------------------------------------- HOWARD E. COX, JR. -------------------------------------------- DAVID BELLET -27- FRANKLIN CAPITAL ASSOCIATES II L.P. By: Franklin Ventures II L.P., its General Partner By: Franklin Venture Capital Inc., its General Partner By: ---------------------------------------- President HLM PARTNERS II L.P. By: HLM Associates II, L.P., its General Partner By: /s/ [SIGNATURE ILLEGIBLE] ---------------------------------------- General Partner THE FORMANEK INVESTMENT TRUST By: ---------------------------------------- Peter Formanek, Trustee -------------------------------------------- HOWARD E. COX, JR. -------------------------------------------- DAVID BELLET -27- FRANKLIN CAPITAL ASSOCIATES II L.P. By: Franklin Ventures II L.P., its General Partner By: Franklin Venture Capital Inc., its General Partner By: ---------------------------------------- President HLM PARTNERS II L.P. By: HLM Associates II, L.P., its General Partner By: ---------------------------------------- General Partner THE FORMANEK INVESTMENT TRUST By: /s/ Peter Formanek, Trustee ---------------------------------------- Peter Formanek, Trustee -------------------------------------------- HOWARD E. COX, JR. -------------------------------------------- DAVID BELLET -27- FRANKLIN CAPITAL ASSOCIATES II L.P. By: Franklin Ventures II L.P., its General Partner By: Franklin Venture Capital Inc., its General Partner By: ---------------------------------------- President HLM PARTNERS II L.P. By: HLM Associates II, L.P., its General Partner By: ---------------------------------------- General Partner THE FORMANEK INVESTMENT TRUST By: ---------------------------------------- Peter Formanek, Trustee /s/ HOWARD E. COX, JR. -------------------------------------------- HOWARD E. COX, JR. -------------------------------------------- DAVID BELLET -27- FRANKLIN CAPITAL ASSOCIATES II L.P. By: Franklin Ventures II L.P., its General Partner By: Franklin Venture Capital Inc., its General Partner By: ---------------------------------------- President HLM PARTNERS II L.P. By: HLM Associates II, L.P., its General Partner By: ---------------------------------------- General Partner THE FORMANEK INVESTMENT TRUST By: ---------------------------------------- Peter Formanek, Trustee -------------------------------------------- HOWARD E. COX, JR. /s/ DAVID BELLET -------------------------------------------- DAVID BELLET -27- SCHEDULE A STOCKHOLDERS Hugh A. Westbrook Carole S. Westbrook Esther T. Colliflower Donald Gaetz Earl Collier J.R. Williams Vitas Healthcare Corporation Employee Stock Ownership Plan/Trust OCR Holding Company Number of Shares of Investors Preferred Stock - --------- ------------------- Galen Partners II, L.P. 81,391 Galen Partners International II, L.P. 18,314 Galen Associates 295 Warburg, Pincus Investors, L.P. 100,000 Harvest Partners International, L.P. 12,500 Deutsche Beteiligungsgesellschaft 22,500 Franklin Capital Associates II L.P. 11,250 HLM Partners II L.P. 10,000 The Formanek Investment Trust 3,750 Howard E. Cox, Jr. 2,000 David Bellet 500 -28- EX-4.3 5 EXHIBIT 4.3 EXHIBIT 4.3 AMENDMENT TO REGISTRATION RIGHTS AGREEMENT AMENDMENT TO REGISTRATION RIGHTS AGREEMENT ("Amendment") dated as of July 20, 1997, by and among VITAS HEALTHCARE CORPORATION, a Delaware corporation (the "Corporation"), certain stockholders of the Corporation, Chemed Corporation, a Delaware corporation ("Chemed"), and the Investors, in each case identified on Schedule A hereto (collectively, the "Original Parties"), and NationsBank, N.A. ("NationsBank"). WHEREAS, each of the Original Parties are parties to a Registration Rights Agreement dated as of June 4, 1993 (the "Registration Rights Agreement"); WHEREAS, the Corporation and NationsBank executed and delivered a certain Amendment No. 6 dated as of March 24, 1997 (the "Credit Agreement Amendment") to the Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement dated as of February 17, 1995 between the Corporation and NationsBank of Florida, National Association (predecessor in interest to NationsBank), as amended (the "Credit Agreement"); WHEREAS, in connection with the execution and delivery of the Credit Agreement Amendment, the Corporation proposes to execute and deliver or has executed and delivered to NationsBank a Warrant Agreement and a Warrant Certificate, copies of which are attached hereto as Exhibits A and B (the "Warrant Agreement" and the "Warrant Certificate," respectively), evidencing NationsBank's right to purchase 486,532 shares (the "NationsBank Warrant Shares") of the Corporation's common stock, par value $.001 per share ("Common Stock"), at an exercise price of $.01 per share, subject to the terms and conditions thereof (the "NationsBank Warrants"), including, without limitation, the limitations on the exercise of the NationsBank Warrants, which provide that (i) as of the date of the Warrant Agreement and the issuance of the Warrant Certificate, the number of NationsBank Warrants which may be exercised pursuant to the Warrant Agreement, and the number of NationsBank Warrant Shares issuable upon exercise of such NationsBank Warrants, shall be 194,613; (ii) in the event the Corporation shall not have paid in full its Obligations (as defined in the Credit Agreement) on or prior to August 30, 1997, the number of NationsBank Warrants which may be exercised pursuant to the Warrant Agreement, and the number of NationsBank Warrant Shares issuable upon exercise of such NationsBank Warrants, shall be automatically increased to 291,919 effective as of August 31, 1997; (iii) in the event the Corporation shall not have paid in full its Obligations (as defined in the Credit Agreement) on or prior to November 29, 1997, the number of NationsBank Warrants which may be exercised pursuant to the Warrant Agreement, and the number of NationsBank Warrant Shares issuable upon exercise of such NationsBank Warrants, shall be automatically increased to 389,226 effective as of November 30, 1997; and (iv) in the event the Corporation shall not have paid in full its Obligations (as defined in the Credit Agreement) on or prior to January 30, 1998, the number of NationsBank Warrants which may be exercised pursuant to the Warrant Agreement, and the number of NationsBank Warrant Shares issuable upon exercise of such NationsBank Warrants, shall be automatically increased to 486,532 effective as of January 31, 1998; WHEREAS, the Warrant Agreement contemplates that upon execution and delivery of a counterpart signature page to the Registration Rights Agreement, NationsBank (and its permitted transferees and assignees of the Warrant Agreement that also execute and deliver a counterpart signature page to the Registration Rights Agreement) shall have and be entitled to exercise the rights of registration granted to, and shall be subject to the obligations of, "Other Stockholders" under the Registration Rights Agreement; and WHEREAS, the addition of NationsBank (and each such permitted transferee and assignee of the Warrant Agreement) as an "Other Stockholder" constitutes an amendment of the Registration Rights Agreement. NOW, THEREFORE, in consideration of the foregoing, the parties hereto agree as follows: 1. Pursuant to Section 3.2 of the Registration Rights Agreement, each of the undersigned hereby consents to the addition of NationsBank (and each such permitted transferee and assignee of the Warrant Agreement) as an "Other Stockholder" for purposes of the Registration Rights Agreement, and that upon execution and delivery of a counterpart signature page to the Registration Rights Agreement, NationsBank and each such permitted transferee and assignee shall have and be entitled to exercise the rights of registration granted to, and shall be subject to the obligations of, "Other Stockholders" under the Registration Rights Agreement. 2. NationsBank's execution and delivery of this Amendment shall also constitute its execution and delivery of a counterpart signature page to the Registration Rights Agreement. 3. Capitalized terms used but not defined herein shall have the meaning given to them in the Registration Rights Agreement. 4. Except as expressly amended by this Amendment, all terms of the Registration Rights Agreement shall remain in full force and effect. 5. This Amendment may be signed in any number of counterparts each of which shall constitute an original and all of which shall constitute one and the same agreement. -2- IN WITNESS WHEREOF, each of the undersigned has executed and delivered this Amendment, or has caused this Amendment to be duly executed and delivered on its behalf, as of the date set forth above. VITAS HEALTHCARE CORPORATION By: /s/ Hugh A. Westbrook ------------------------------------- Name: Hugh A. Westbrook Title: Chairman & CEO ----------------------------------------- HUGH A. WESTBROOK ----------------------------------------- CAROLE S. WESTBROOK ----------------------------------------- ESTHER T. COLLIFLOWER ----------------------------------------- DONALD GAETZ ----------------------------------------- EARL M. COLLIER, JR. /s/ J.R. Williams ----------------------------------------- J.R. WILLIAMS VITAS HEALTHCARE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN/TRUST By: /s/ Hugh A. Westbrook ------------------------------------- Hugh A. Westbrook Trustee -3- IN WITNESS WHEREOF, each of the undersigned has executed and delivered this Amendment, or has caused this Amendment to be duly executed and delivered on its behalf, as of the date set forth above. VITAS HEALTHCARE CORPORATION By: ------------------------------------- Name: Title: ----------------------------------------- HUGH A. WESTBROOK /s/ Carole S. Westbrook ----------------------------------------- CAROLE S. WESTBROOK ----------------------------------------- ESTHER T. COLLIFLOWER ----------------------------------------- DONALD GAETZ ----------------------------------------- EARL M. COLLIER, JR. ----------------------------------------- J.R. WILLIAMS VITAS HEALTHCARE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN/TRUST By: ------------------------------------- Hugh A. Westbrook Trustee -3- IN WITNESS WHEREOF, each of the undersigned has executed and delivered this Amendment, or has caused this Amendment to be duly executed and delivered on its behalf, as of the date set forth above. VITAS HEALTHCARE CORPORATION By: ------------------------------------- Name: Title: ----------------------------------------- HUGH A. WESTBROOK ----------------------------------------- CAROLE S. WESTBROOK ----------------------------------------- ESTHER COLLIFLOWER /s/ Esther T. Colliflower ----------------------------------------- COLLIFLOWER FAMILY PARTNERSHIP, LTD. ----------------------------------------- DONALD GAETZ ----------------------------------------- EARL M. COLLIER, JR. ----------------------------------------- J.R. WILLIAMS VITAS HEALTHCARE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN/TRUST By: ------------------------------------- Hugh A. Westbrook Trustee -3- IN WITNESS WHEREOF, each of the undersigned has executed and delivered this Amendment, or has caused this Amendment to be duly executed and delivered on its behalf, as of the date set forth above. VITAS HEALTHCARE CORPORATION By: ------------------------------------- Name: Title: ----------------------------------------- HUGH A. WESTBROOK ----------------------------------------- CAROLE S. WESTBROOK ----------------------------------------- ESTHER T. COLLIFLOWER /s/ Donald Gaetz ----------------------------------------- DONALD GAETZ ----------------------------------------- EARL M. COLLIER, JR. ----------------------------------------- J.R. WILLIAMS VITAS HEALTHCARE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN/TRUST By: ------------------------------------- Hugh A. Westbrook Trustee -3- IN WITNESS WHEREOF, each of the undersigned has executed and delivered this Amendment, or has caused this Amendment to be duly executed and delivered on its behalf, as of the date set forth above. VITAS HEALTHCARE CORPORATION By: ------------------------------------- Name: Title: ----------------------------------------- HUGH A. WESTBROOK ----------------------------------------- CAROLE S. WESTBROOK ----------------------------------------- ESTHER COLLIFLOWER ----------------------------------------- COLLIFLOWER FAMILY PARTNERSHIP, LTD. ----------------------------------------- DONALD GAETZ /s/ Earl M. Collier ----------------------------------------- EARL M. COLLIER, JR. ----------------------------------------- J.R. WILLIAMS VITAS HEALTHCARE CORPORATION EMPLOYEE STOCK OWNERSHIP PLAN/TRUST By: ------------------------------------- Hugh A. Westbrook Trustee -3- OCR HOLDING COMPANY By: /s/ Mark W. Stephens ------------------------------------- Name: Mark W. Stephens Title: Assistant Treasurer CHEMED CORPORATION By: /s/ Timothy S. O'Toole ------------------------------------- Name: Timothy S. O'Toole Title: Executive Vice President & Treasurer -4- GALEN PARTNERS II, L.P. By: GWW Partners, L.P. (its General Partner) By: /s/ Bruce F. Wesson ------------------------------------- General Partner GALEN PARTNERS INTERNATIONAL II, L.P. By: GWW Partners, L.P. (its General Partner) By: /s/ Bruce F. Wesson ------------------------------------- General Partner GALEN EMPLOYEE FUND, L.P. By: /s/ Bruce F. Wesson ------------------------------------- General Partner -5- WARBURG, PINCUS INVESTORS, L.P. By: Warburg Pincus & Co. (its General Partner) By: /s/ [SIGNATURE ILLEGIBLE] ------------------------------------- Name: Title: HARVEST PARTNERS INTERNATIONAL, L.P. By: Harvest Associates International, L.P. (its General Partner) By: ------------------------------------- General Partner DEUTSCHE BETEILIGUNGSGESELLSCHAFT MBH & CO. FONDS I KG By: ------------------------------------- Name: Title: -6- WARBURG, PINCUS INVESTORS, L.P. By: Warburg Pincus & Co. (its General Partner) By: ------------------------------------- Name: Title: HARVEST PARTNERS INTERNATIONAL, L.P. By: Harvest Associates International, L.P. (its General Partner) By: /s/ [SIGNATURE ILLEGIBLE] ------------------------------------- General Partner DEUTSCHE BETEILIGUNGSGESELLSCHAFT MBH & CO. FONDS I KG By: ------------------------------------- Name: Title: -6- FRANKLIN CAPITAL ASSOCIATES II L.P. By: Franklin Ventures II L.P. (its General Partner) By: Franklin Venture Capital Inc. (its General Partner) By: /s/ Larry H. Coleman ------------------------------------- Name: Larry H. Coleman Title: President HLM PARTNERS II L.P. By: HLM Associates II, L.P. (its General Partner) By: ------------------------------------- General Partner THE FORMANEK INVESTMENT TRUST By: ------------------------------------- Peter Formanek Trustee /s/ Howard E. Cox, Jr. ----------------------------------------- HOWARD E. COX, JR. ----------------------------------------- DAVID BELLET -7- FRANKLIN CAPITAL ASSOCIATES II L.P. By: Franklin Ventures II L.P. (its General Partner) By: Franklin Venture Capital Inc. (its General Partner) By: ------------------------------------- Name: Title: HLM PARTNERS II L.P. By: HLM Associates II, L.P. (its General Partner) By: /s/ [SIGNATURE ILLEGIBLE] ------------------------------------- General Partner THE FORMANEK INVESTMENT TRUST By: ------------------------------------- Peter Formanek Trustee /s/ Howard E. Cox, Jr. ----------------------------------------- HOWARD E. COX, JR. ----------------------------------------- DAVID BELLET -7- NATIONSBANK, N.A. By: /s/ Allison Freeland ------------------------------------- Name: Allison Freeland Title: Senior Vice President -8- SCHEDULE A Stockholders Hugh A. Westbrook Carole S. Westbrook Esther T. Colliflower Donald Gaetz Earl M. Collier, Jr. J.R. Williams Vitas Healthcare Corporation Employee Stock Ownership Plan/Trust OCR Holding Company Investors Galen Partners II, L.P. Galen Partners International II, L.P. Galen Employee Fund, L.P. Warburg, Pincus Investors, L.P. Harvest Partners International, L.P. Deutsche Beteiligungsgesellschaft mbH & Co. Fonds I KG Franklin Capital Associates II L.P. HLM Partners II L.P. The Formanek Investment Trust Howard E. Cox, Jr. David Bellet EX-4.4 6 EXHIBIT 4.4 EXHIBIT 4.4 INVESTOR AGREEMENT Investor Agreement, dated as of December 17, 1991, between Hospice Care Incorporated, a Delaware corporation ("HCI" or the "Company"), Chemed Corporation, a Delaware corporation ("Chemed"), and OCR Holding Company (the "Investor"), a Nevada corporation, which is a direct, wholly owned subsidiary of Chemed. WHEREAS, Chemed, the Investor and their associates and affiliates do not currently beneficially own any securities of HCI; WHEREAS, HCI has agreed, subject to the terms and conditions of a Preferred Stock Purchase Agreement dated as of December 17, 1991 (the "Preferred Stock Agreement"), to issue to the Investor 270,000 shares of HCI 9% Cumulative Nonconvertible Preferred Stock, par value $1.00 per share (the "HCI Preferred Stock"); WHEREAS, in conjunction with the issuance of such HCI Preferred Stock to the Investor, HCI has also agreed to issue two warrants (the "Warrants") to the Investor which entitle the Investor to purchase in the aggregate up to 28.3% of the fully diluted shares of HCI common stock, par value $.001 per share ("HCI Common Stock"), for an aggregate exercise price of $18 million (the "Warrant Shares"), subject to the terms and conditions of the Warrants (the HCI Preferred Stock, the Warrants and the Warrant Shares sometimes collectively referred to herein as the "HCI Securities"); WHEREAS, the Investor has represented that it is acquiring the HCI Preferred Stock and the Warrants (and, if it exercises the Warrants, will be acquiring the Warrant Shares) for investment and not for the purpose or effect of changing or influencing the control of HCI or in connection with or as a participant in any transaction having such purpose or effect; NOW THEREFORE, in consideration of the provisions and mutual covenants hereinafter set forth, and for other valuable consideration, HCI, Chemed and the Investor agree as follows: 1. Increase in Size of Board of Directors. (a) Promptly following the issuance of HCI Preferred Stock to the Investor, one designee of the Investor shall be appointed as a director of HCI in Class I, the directors of which would, when elected at a stockholders' meeting expected to be held promptly after the date hereof, have terms expiring in 1994. The Board of Directors of HCI shall thereupon take appropriate action in accordance with the Company's Bylaws to fix at eight the number of directors constituting the entire Board of Directors, subject to Section l(c) hereof. As long as this Agreement is in effect and the Investor beneficially owns at least 10 percent of the outstanding HCI Common Stock (or, if the Warrants have not been exercised, beneficially owns at least a majority of the outstanding HCI Preferred Stock), HCI agrees to renominate such designee, or to nominate an alternative person selected by the Investor, for election as a director of HCI. Such designee or alternative person selected by -2- the Investor to serve as director of HCI will be Timothy S. O' Toole or such other person as may be reasonably acceptable to HCI. As long as this Agreement is in effect, Chemed and the Investor agree not to seek or accept the election or appointment of more than one designee of the Investor as director of HCI, except as set forth in Section 1(c) hereof or as otherwise agreed to in writing by Chemed, the Investor and HCI. (b) In the event that the Investor shall cease to beneficially own at least 10 percent of the outstanding HCI Common Stock (or, if the Warrants have not been exercised, cease to beneficially own at least a majority of the outstanding HCI Preferred Stock), the Investor, if requested by a majority of the other directors of HCI excluding the Investor's designee, will cause its designee on the Board of Directors of HCI promptly to resign as director. (c) It is understood and agreed that HCI contemplates the appointment or election of another non-employee director to its Board of Directors as soon as practicable after the closing of the Preferred Stock Agreement and other transactions expected to occur at or about the same time, which would thereby increase the size of the Board of Directors of HCI to nine. As long as this Agreement is in effect and the Investor beneficially owns at least 10 percent of the outstanding HCI Common Stock, HCI agrees that Investor's designees will constitute no less than one ninth (1/9) of the entire HCI Board of Directors (rounded up to the nearest full number); provided, however, that as long as the HCI Board of Directors is comprised of ten or fewer directors, the Investor shall be entitled to only one designee. -3- 2. Restriction on Acquisitions of HCI Common Stock. As long as this Agreement is in effect, Chemed and the Investor, on behalf of themselves and their affiliates and associates, individually and collectively, agree not to, directly or indirectly, through one or more transactions or acting in concert with one or more persons or companies or otherwise, offer to acquire or acquire any HCI Common Stock (other than the Warrant Shares), except with the prior written approval of HCI's Board of Directors. The foregoing restriction shall also cover any agreement, arrangement, understanding, right or option to acquire shares of HCI Common Stock (other than the Warrant Shares). Notwithstanding the foregoing, in the event that the Investor ceases to beneficially own at least 20 percent of HCI Common Stock at any time during the term of this Agreement as a result of any action taken by HCI, the Investor shall be entitled to acquire additional HCI Common Stock without the prior approval of HCI in the open market or in private transactions so as to maintain its beneficial ownership level at up to 20 percent provided that the Investor shall not exceed such 20 percent interest without HCI's prior written approval. 3. Restrictions on Dispositions of HCI Preferred Stock, Warrants and Shares. (a) The Investor acknowledges and agrees that by its terms, the HCI Preferred Stock is nontransferable without the prior written approval of the Company. The Investor also acknowledges and agrees that, except as permitted under paragraph 14, the Warrants are nontransferable without the prior written approval of the Company. Subject to -4- the terms and conditions of this Agreement, the Investor agrees that until the earlier of (i) December 17, 1993 or (ii) such date that is six months (or such other period of time as determined by the underwriters for such Offering to be appropriate) after the closing of a Qualified Initial Public Offering (as defined below), if any, by HCI, the Investor will not sell, hypothecate, transfer or dispose (or agree to sell, hypothecate, transfer or dispose) of the Warrant Shares or any other shares of HCI Common Stock hereafter acquired by the Investor without the prior written approval of HCI; provided, however, that it is understood and agreed that the foregoing time limitation in clause (a)(i) above shall not apply at such time as (i) there has been a material adverse change in the consolidated financial condition, results of operation or business of HCI after the date hereof; (ii) there has been a "change in control of HCI" (as defined below); or (iii) the Investor shall be entitled to have its HCI Common Stock registered under that certain Registration Agreement dated as of December __, 1991 among HCI, the Investor and Chemed. For purposes of this Agreement, a "Qualified Initial Public Offering" means a public offering of HCI Common Stock which (i) results in gross proceeds to HCI from such offering in an amount not less than $12 million, and (ii) results in a market capitalization of the common equity of HCI of at least $60 million; and a "change in control of HCI" shall be deemed to have taken place if after the date hereof (i) any person (excluding Hugh A. Westbrook) becomes a beneficial owner of 50% or more of the total number of outstanding shares of HCI Common Stock; (ii) any liquidation of HCI, sale of all or substantially all of the Company's assets or other similar extraordinary corporate transaction shall have occurred; or (iii) as a result of, or in connection with, any cash tender or exchange -5- offer, merger or other business combination, or contested election, the persons who were directors of HCI before such transaction shall cease to constitute at least a majority of the Board of Directors of the Company. (b) Notwithstanding any other provisions in this Agreement but subject to the provisions of paragraph 14 hereof, until completion of a Qualified Initial Public Offering the Investor will not sell, hypothecate, transfer or dispose (or agree to sell, hypothecate, transfer or dispose) of the Warrants, Warrant Shares and any other shares of HCI Common Stock hereafter acquired by the Investor, in one private transaction or a series of private transactions (a "Proposed Sale Transaction") unless HCI or its designee is first given an opportunity to acquire such Warrants, Warrant Shares and any such shares of HCI Common Stock hereafter acquired by the Investor during the period of 90 days after HCI receives written notice from the Investor of the Proposed Sale Transaction or agreement evidencing such Transaction on the same terms and conditions as the Proposed Sale Transaction. Such notice shall include the identity of the potential purchaser, the number of Warrants, Warrant Shares or other shares of HCI Common Stock proposed to be sold, hypothecated, transferred or disposed of, and the material terms of such Proposed Sale Transaction, including (if applicable) the price and form of consideration to be paid. In the event HCI or its designee does not purchase the Warrants, Warrant Shares or shares of HCI Common Stock proposed to be included in the Proposed Sale Transaction within such 90-day period, then, subject to compliance by the Investor with applicable federal and state securities laws and the terms of this Agreement, (including, if applicable, compliance with Section -6- 3(c)), the Investor shall be permitted to sell, hypothecate or dispose (at the same or higher price) of such Warrants, Warrant Shares or HCI Common Stock to such proposed purchaser or transferee; provided, however, that if such Warrants, Warrant Shares or HCI Common Stock are not sold or transferred by the Investor to such proposed purchaser or transferee within 60 days after the end of such 90-day period, then HCI or its designee shall continue to be entitled to one or more further rights of first refusal as described above; and provided, further, that as a condition to any sale, hypothecation, transfer or disposition, the Investor shall take steps to ensure that the proposed transferee becomes bound by and subject to the provisions of this Agreement as evidenced by the execution and delivery by such proposed transferee as a condition precedent to such transfer of a counterpart to this Agreement to which the proposed transferee will become an additional party. HCI in its sole discretion may assign its rights of first refusal to any person or entity so designated by HCI. Subject to paragraph 14, in the event of a Payment Default (as hereafter defined), the 90-day period referred to herein shall be 45 days during such time that such Payment Default has not been cured; provided, however, that with respect to a Proposed Sale Transaction of which HCI receives notice at a time when a Payment Default exists, the 90-day period referred to herein shall be in any event 45 days. (c) Notwithstanding any other provision hereof but subject to the provisions of paragraph 14, until completion of a Qualified Initial Public Offering, the Investor agrees not to sell, hypothecate, transfer or dispose (or agree to sell, hypothecate, transfer or dispose) of the Warrant Shares or any other shares of HCI Common Stock -7- hereafter acquired by the Investor to any person or entity without the prior written approval of HCI, which approval shall not be unreasonably withheld. (d) In the event HCI completes a Qualified Initial Public Offering for the shares of HCI Common Stock, Chemed and the Investor agree as follows with respect to any sale, hypothecation, transfer or other disposition of Warrant Shares or any other shares of HCI Common Stock beneficially owned by Chemed, the Investor, their affiliates and associates: (i) Open Market Sales. Open market sales of Warrant Shares or any other HCI Common Stock may only be made pursuant to an effective registration statement under the Securities Act of 1933 or pursuant to an available exemption from registration as evidenced by a written opinion from Investor's counsel, which counsel shall be experienced in securities law matters and which opinion shall be reasonably satisfactory in form and substance to HCI and its counsel. (ii) Overall Limitation on Dispositions. Except as provided in paragraph (iii) below, Chemed and the Investor, each on behalf of itself and its affiliates and associates, will not knowingly offer, sell or transfer any Warrant Shares or any other shares of the HCI Common Stock beneficially owned by them to any person or company who then or, as a result of such sale or transfer, would, directly or indirectly, beneficially own, control or hold proxies or options for five percent or more of the outstanding HCI Common Stock -8- except with the prior written approval of HCI unless prior thereto, HCI or its designee is first given an opportunity to acquire such shares on the same terms and conditions as set forth in paragraph 3(b) above except that the 90-day period provided for in paragraph 3(b) shall be 45 days for purposes of this paragraph (ii). In sales other than in the open market, the Investor, on behalf of itself and its affiliates and associates, shall obtain appropriate representations from each purchaser as to compliance with this five percent limitation. (iii) Sales Pursuant to Tender Offers. Chemed and the Investor, each on behalf of itself and its affiliates and associates, shall be entitled to participate without restriction in any tender or exchange offer made to all stockholders of HCI; provided, however, that if such tender or exchange offer is one which the HCI Board of Directors opposes, the Investor agrees that no HCI Common Stock beneficially owned by Chemed and the Investor, or any of its respective affiliates or associates, will be tendered unless 50 percent of all outstanding shares of HCI Common Stock (which for the purpose of this calculation shall include all shares beneficially owned by the bidder) have previously been tendered by stockholders other than Chemed, the Investor, and their respective affiliates and associates, and that, in such event, no tender or indication or arrangement to tender any of the HCI Common Stock beneficially owned by them may be made until 48 hours prior to the scheduled expiration of the tender or exchange offer. -9- 4. Repurchase of HCI Preferred Stock. In the event of a change in control of Chemed and/or the Investor as defined in Section 5 hereof, the Investor hereby agrees, upon at least 15 days' prior written notice and subject to appropriate documentation and compliance with all applicable legal requirements, to sell and deliver to any designee of HCI all or a portion of the shares of HCI Preferred Stock which such designee wishes to acquire so long as such designee tenders to the Investor the same price that the Investor would receive if HCI were to redeem at the option of HCI such shares pursuant to Section 3 of the Certificate of Designation, Preferences and Other Rights to HCI's Certificate of Incorporation. 5. Change in Control of Chemed and/or the Investor. In the event of a "change in control of Chemed and/or the Investor" (as defined below) during the term of this Agreement, HCI or its designee shall have the right to repurchase the Warrants, the Warrant Shares and/or the HCI Common Stock then owned by Chemed and the Investor, and Chemed and the Investor hereby grant HCI or its designee such right and agree to sell the Warrants, the Warrant Shares and/or the HCI Common Stock pursuant to the exercise of such right, on the following terms and conditions: (i) The repurchase price for the Warrants shall be an amount equal to the product of (x) the aggregate exercise price of all Warrants which remain unexercised at the date of repurchase; (y) 1%; and (z) the number of full months elapsed from the date of this Agreement to the date of repurchase; provided, however, that in no event shall such repurchase price exceed the - 10 - difference (if any) between (A) the aggregate Fair Market Value of the HCI Common Stock covered by the Warrants to be repurchased minus (B) the aggregate exercise price of such Warrants. (ii) The repurchase price for the HCI Common Stock shall be an amount equal to the product of (x) the purchase price paid by Chemed and/or the Investor for such HCI Common Stock; (y) 1%; and (z) the number of full months elapsed from the date of this Agreement to the date of repurchase; provided, however, that in no event shall such repurchase price exceed the aggregate Fair Market Value of such HCI Common Stock. (iii) For purposes of (i) and (ii) above, the Fair Market Value of the HCI Common Stock, if shares of HCI Common Stock are publicly traded, shall mean the average of the Current Market Prices (as hereinafter defined) of such shares for each day of the Adjustment Period (as hereinafter defined). "Current Market Price" of publicly traded shares of HCI Common Stock for a day shall mean the last reported sales price, regular way, or, in case no sale takes place on such day, the average reported closing bid and asked prices, regular way, in either case as reported on the New York Stock Exchange Composite Tape or, if such shares are not listed or admitted to trading on any national securities exchange, on the NASDAQ National Market System or, if such shares are not - 11 - quoted on such National Market System, the average of the closing bid and asked prices on each such day in the over-the-counter market as reported by NASDAQ, or, if bid and asked prices for such shares on each such day shall not have been reported through NASDAQ, the average of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm regularly making a market in such shares selected for such purpose by the Board of Directors of the Company on each trading day during the Adjustment Period. "Adjustment Period" shall mean the period of five (5) consecutive trading days, selected by the Board of Directors of the Company in its sole discretion, during the twenty (20) trading days preceding, and including, the date as of which the Fair Market Value of such shares is to be determined. The Fair Market Value of HCI Common Stock which is not publicly traded shall mean the fair market value thereof as determined in good faith by the Board of Directors of the Company in its sole discretion. For purposes of this Section 5, a "change in control of Chemed and/or the Investor" shall be deemed to have taken place if after the date hereof (i) any person not now such a beneficial owner becomes a beneficial owner of 50% of more of the total number of voting shares of capital stock of Chemed and/or the Investor; (ii) any person (other than the persons named as proxies solicited on behalf of the Board of Directors of Chemed) holds revocable or irrevocable proxies, as to the election or removal of more than one third of the - 12 - entire Board of Directors of Chemed, for 50% or more of a total number of voting shares of capital stock of Chemed; (iii) for any reason, the Board of Directors of Chemed and/or the Investor (but, in the case of the Investor, only if the Investor is no longer affiliated with Chemed) is comprised of persons a majority of whom have not served on such Board of Directors of Chemed and/or the Investor during the immediately preceding two year period; or (iv) any liquidation of Chemed and/or the Investor, sale of all or substantially all of Chemed's assets or other similar extraordinary corporate transaction shall have occurred, which liquidation, sale or other similar transactions results in the persons who were directors of Chemed and/or the Investor before such transaction ceasing to constitute at least a majority of the Board of Directors of Chemed and/or the Investor. HCI of its designee may exercise its rights under this Paragraph 5 after a change in control of Chemed and/or the Investor shall have occurred by (i) providing written notice to the Investor no later than 30 days after ascertaining that a change in control of Chemed and/or the Investor has occurred of its intention to exercise its rights hereunder and (ii) consummating the purchase of the Warrants, Warrant Shares and/or HCI Common Stock, as the case may be, specified in the aforesaid notice, within 90 days after such notice is given. 6. Representations of Chemed and the Investor. Chemed and the Investor represent and warrant as follows: (a) Chemed and the Investor have the requisite power and authority to enter into this Agreement, and that this Agreement is a valid, binding and - 13 - enforceable obligation of Chemed and the Investor enforceable in accordance with its terms, except as (i) the enforceability thereof may be limited by bankruptcy, reorganization, insolvency or similar laws affecting the enforcement of creditors' rights generally and (ii) the availability of equitable remedies may be limited by equitable principles of general applicability. (b) The statements contained in this Agreement, pertaining to Chemed and the Investor are true and correct in all respects. 7. Representation of HCI. HCI represents and warrants that it has the power and authority to enter into this Agreement and this Agreement is a valid, binding and enforceable obligation of HCI, enforceable in accordance with its terms, except as (i) the enforceability thereof may be limited by bankruptcy, reorganization, insolvency or similar laws affecting the enforcement of creditors' rights generally and (ii) the availability of equitable remedies may be limited by equitable principles of general applicability. 8. Additional Covenants of the Investor. The Investor agrees that for as long as the Investor and its affiliates and associates beneficially own at least five percent of the outstanding HCI Common Stock and no change in control of HCI (as defined in Section 3(a) hereof) has occurred, without the prior written approval of HCI's Board of Directors, neither Chemed or the Investor nor any of their affiliates or associates will (i) call a special - 14 - meeting of stockholders other than a special meeting of stockholders, the call of which is supported by HCI's board of directors; (ii) institute, encourage or participate in any proxy solicitation with respect to any matter submitted or proposed to be submitted to a vote of HCI stockholders; provided, however, that it is understood and agreed that this subparagraph shall not limit in any manner the ability of the Investor to vote its shares of HCI Common Stock; (iii) announce, publicly propose or solicit any person or company to acquire, offer to acquire or agree to acquire, by merger, tender offer, purchase or otherwise, HCI or a substantial portion of its assets or more than ten percent of HCI Common Stock; (iv) have or seek to have any designee of Chemed and/or the Investor serve as the Chairman of the Board of Directors of HCI; (v) propose a director or directors in opposition to the nominees proposed by the management of HCI or the Board of Directors of HCI, other than as permitted in this Agreement; or (vi) except as necessary or advisable solely in connection with the performance of duties by the Investor's designee as a member of HCI's Board of Directors, exercise or attempt to exercise, directly or indirectly, control or controlling influence over the management, policies or business operations of HCI. The Investor further agrees that the Investor, its affiliates and associates will not act in concert with any person or entity or assist, and or abet any affiliate or associate to act, or act in concert, with any person or entity, in a manner which is inconsistent with the terms hereof or which attempts to evade any provision or requirement of this Agreement. - 15 - 9. Injunctive and Other Relief. The parties hereto agree that in the event either HCI, on the one hand, and Chemed or the Investor, on the other hand, breaches or threatens to breach this Agreement, the other will be irreparably harmed and will be entitled to injunctive relief and specific enforcement (without proof of actual damage) in addition to any other legal rights which it or they may have. 10. Termination. This Agreement shall terminate (i) if after the issuance by HCI to the Investor of the HCI Preferred Stock and Warrants, the Investor and its respective affiliates and associates, cease to be the beneficial owners of more than ten percent of the outstanding shares of HCI Common Stock for a period of six months, or (ii) upon mutual written agreement by HCI, Chemed and the Investor. 11. Definitions. For purposes of this Agreement, the term "beneficial ownership" shall have the meaning ascribed to such term in Rule 13d-3 under the 1934 Act, the terms "associate", "affiliate", and "control" shall have the meanings ascribed to such terms in Rule 12b-2 under the 1934 Act. The percentage of outstanding shares of the HCI Common Stock beneficially owned by the Investor shall be calculated hereunder in accordance with the provisions of Rule 13d-3(d) under the 1934 Act. 12. Entire Agreement; Modification. This Agreement, the Preferred Stock Agreement (including all exhibits and schedules thereto), the Registration Agreement dated - 16 - December __, 1991 (the "Registration Agreement") and the letter agreement dated July 23, 1991 between Chemed and Furman Selz Incorporated related to confidentiality (the "Confidentiality Agreement") set forth the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and the purchase of the HCI Securities and merges and supersedes any and all prior discussions, agreements, and understandings between or among them with respect thereto, and no party shall be bound by any condition, definition, warranty or representation, other than those expressly set forth or provided for in this Agreement, the Preferred Stock Agreement, the Registration Agreement and the Confidentiality Agreement or in any document or instrument delivered pursuant to such agreements, or as may be set forth in writing and signed by the party or parties to be bound thereby on or subsequent to the date hereof. This Agreement may not be changed or modified, except by an agreement in writing executed by HCI, Chemed and the Investor. This Agreement, and the rights and obligations hereunder, may not be assigned to any person or entity except as otherwise specifically permitted herein. 13. Governing Law. This Agreement and the rights and obligations of the parties hereunder shall be governed by Delaware law (excluding the choice of law provisions). 14. Certain Default Provisions. In the event HCI defaults in any obligation to pay dividends on the HCI Preferred Stock or to make any mandatory redemption payment - 17 - in accordance with the terms of the Certificate of Designation relating to the HCI Preferred Stock (a "Payment Default") and such Payment Default remains uncured for five business days after the date of such Payment Default, during the time that such Payment Default continues the following provisions of this Agreement shall be suspended and shall not be operative: (i) the restrictions imposed on dispositions of Warrants, Warrant Shares and any other shares of HCI Common Stock beneficially owned by the Investor imposed under paragraph 3(a) hereof; (ii) the provisions of paragraph 3(b) if such Payment Default continues for more than 120 days; (iii) the provisions of paragraph 3(c); (iv) the provisions of paragraph 3(d)(ii) and 3(d)(iii); and (v) the provisions of paragraph 8. Such provisions shall immediately again become operative at such time as the Payment Default has been cured. 15. Counterparts. This Agreement may be executed in one or more counterparts. 16. Severability. If any provision contained in this Agreement operates or would operate prospectively to invalidate this Agreement in whole or in part, then only such - 18 - provision shall be held ineffective as though not herein contained and the remainder of this Agreement shall remain operative and in full force and effect. If any provision contained in this Agreement is invalidated, the parties hereto will use their best efforts to adopt an appropriate substitute for the invalidated provision consistent with the intent of the parties. 17. Binding Effect of Agreement. The terms of this Agreement shall be binding on and inure to the benefit of the parties hereto and their respective subsidiaries, parents or other affiliated entities, successors, agents, representatives and permitted assigns. 18. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or certified or registered mail, return receipt requested, to the addresses set forth below the signatures of the respective parties hereto. In the case of communications to Chemed and the Investor, to Chemed Corporation, 2600 Chemed Center, 225 E. Fifth Street, Cincinnati, OH 45202, and a copy (which shall not constitute notice) shall be delivered concurrently to Dinsmore & Shohl, 1900 Chemed Center, 225 E. Fifth Street, Suite 16, Cincinnati, OH 45202-3172, Attention: Clifford A. Roe, Esq. In the case of communications to HCI, to Hospice Care Incorporated, Suite 1500, 100 South Biscayne Boulevard, Miami, Fl 33131 and a copy (which shall not constitute notice) shall be delivered concurrently to Hogan & Hartson; 555 Thirteenth Street, N.W.; Washington, D.C. 20004, Attention: Robert J. Waldman, Esq. - 19 - 19. Headings. The headings in the sections of this Agreement are inserted for convenience only and shall not constitute a part hereof. - 20 - IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. HOSPICE CARE INCORPORATED CHEMED CORPORATION By: /s/ Earl M. Collier, Jr. By: /s/ Thomas C. Hutton -------------------------------- ---------------------------- President Vice President OCR HOLDING COMPANY By: /s/ [Signature Illegible] ---------------------------- Vice President - 21 - EX-4.5 7 EXHIBIT 4.5 EXHIBIT 4.5 ================================================================================ STOCKHOLDERS' AGREEMENT AMONG VITAS HEALTHCARE CORPORATION, HUGH A. WESTBROOK, CAROLE S. WESTBROOK AND THE INVESTORS IDENTIFIED HEREIN ------------------------------- June 4, 1993 ------------------------------- ================================================================================ TABLE OF CONTENTS Page ---- ARTICLE I - BOARD OF DIRECTORS ......................................... 2 1.1 Designees of Investors ..................................... 2 1.1.1 Principal Investors of Investor Group Each Entitled to Designate One Director .................. 2 1.1.2 Certain Resignations or Removals .................... 2 1.1.3 Filling Vacancies ................................... 3 1.1.4 Notice of Meetings; Expenses ........................ 3 1.2 Covenant to Vote ........................................... 3 1.3 No Voting or Conflicting Agreements ........................ 4 1.4 Actions Consistent with Agreement .......................... 4 ARTICLE II - LIMITATION OF CONVERSION SHARES VOTING POWER .............. 4 Limitation of Voting Power ....................................... 4 a. Definitions ................................................ 4 i. Voting Percentage .................................... 5 ii. Total Common Votes ................................... 6 iii. Total Conversion Share Common Votes .................. 6 b. Application of Restrictions ................................ 6 ARTICLE III - RESTRICTIONS ON TRANSFERS AND ISSUANCES OF STOCK ......... 6 3.1 General Prohibition on Transfers by Investors ............... 6 3.1.1 Transfers in Accordance with Agreement ............ 6 3.1.2 Transferee to Execute a Counterpart of this Agreement ......................................... 6 3.1.3 Legend on Stock Certificate ....................... 6 3.2 Compliance with Securities Laws ............................. 7 3.3 Permitted Transfers ......................................... 7 3.4 Right of First Refusal ...................................... 8 3.5 Investor Group's Right to Purchase .......................... 9 3.5.1 Company Notice .................................... 9 3.5.2 Designation of Investor Group as Designee ......... 10 3.5.3 Allocation of Right to Purchase ................... 11 3.5.3.1 Notice of Final Allocation of Investor First Refusal Shares ............ 12 3.5.4 Seller's Right to Transfer ....................... 12 3.5.5 First Refusal Shares Other Than Investor First Refusal Shares .............................. 12 3.5.6 Representations and Covenant of the Company ........................................... 12 3.5.6.1 Representations .......................... 12 3.5.6.2 Covenants ................................ 13 3.6 Sales of Restricted Stock .................................. 13 3.6.1 "Tag Along" Rights ................................ 14 3.6.1.1 Delivery of Investor Purchase Offer ...... 14 3.6.1.2 Reduction in Offered Shares .............. 15 3.6.1.3 Failure to Consummate Transfer ........... 15 (i) 3.6.1.4 Right to Abandon Transfer ................ 16 3.6.1.5 Provisions Inapplicable to Section 3.5 Transfers ............................ 16 3.6.1.6 Closing of Purchase ...................... 17 3.6.2 Definition ........................................ 17 3.7 Form of Consideration for Stock ............................ 17 3.8 Merger Transaction ......................................... 17 3.9 Issuance of New Securities ................................. 18 3.9.1 Definitions ....................................... 18 3.9.2 Notice ............................................ 19 3.9.3 Closing ........................................... 19 3.10 Conflict ................................................... 19 3.11 Agreement on File .......................................... 20 ARTICLE IV - INFORMATION RIGHTS ........................................ 20 4.1 Investor Financial Information ............................. 20 4.1.1 Quarterly Statements .............................. 20 4.1.2 Annual Statements ................................. 20 4.1.3 Other Reports ..................................... 20 4.2 Director Materials ......................................... 21 4.2.1 Monthly Financial Statements ...................... 21 4.2.2 Business Plan; Projections ........................ 21 4.2.3 Audit Reports ..................................... 21 4.2.4 Requested Information ............................. 21 ARTICLE V - REPRESENTATIONS, WARRANTIES AND ADDITIONAL COVENANTS .................................................. 21 5.1 Representations of the Investors ........................... 21 5.2 Representation of the Company .............................. 22 5.3 Additional Covenants of the Investors ...................... 22 ARTICLE VI - MISCELLANEOUS ............................................. 23 6.1 Term ....................................................... 23 6.2 Injunctive Relief .......................................... 23 6.3 Notices .................................................... 23 6.4 Successors and Assigns ..................................... 24 6.5 Governing Law .............................................. 24 6.6 Headings; Schedules ........................................ 24 6.7 Gender; Number ............................................. 25 6.8 Entire Agreement; Modification ............................. 25 6.9 Certain Definitions ........................................ 25 6.10 Counterparts ............................................... 25 SCHEDULE A ............................................................. 30 SCHEDULE B ............................................................. 31 SCHEDULE 1 ............................................................. 32 SCHEDULE 2 ............................................................. 33 (ii) STOCKHOLDERS' AGREEMENT THIS STOCKHOLDERS' AGREEMENT (the "Agreement") is dated June 4, 1993 by and among VITAS HEALTHCARE CORPORATION, a Delaware corporation (the "Company"), HUGH A. WESTBROOK, a resident of the State of Florida ("Westbrook"), CAROLE S. WESTBROOK, a resident of the State of Florida ("Carole Westbrook"), and the INVESTORS identified on Schedule A attached hereto (individually, an "Investor" and collectively, the "Investors" or the "Investor Group"). This Agreement shall become effective on the date of, and simultaneously with, the closing of the transactions under the Stock Purchase Agreement (as defined below) (the "Closing Date"). R E C I T A L S A. The Company is, as of the date hereof, issuing to the Investor Group, subject to the terms and conditions of a Preferred Stock Purchase Agreement of even date herewith (the "Stock Purchase Agreement"), 262,500 shares of the Company's Series B Convertible Preferred Stock, par value $1.00 per share (the "Series B Preferred Stock") B. The Series B Preferred Stock may be converted into shares of the Company's common stock, par value $.001 per share ("Common Stock") (the shares of Common Stock issued and issuable upon conversion of the Series B Preferred Stock are referred to herein as "Conversion Shares"). The Investor Group has agreed to restrict the voting of certain voting securities of the Company as provided herein and in the Certificate of Designation, Preferences and Other Rights of the Series B Preferred Stock, and to restrict the sale or other disposition of certain voting securities of the Company as provided herein. C. Westbrook is one of the Company's co-founders, directors and executive officers, and Westbrook and Carole Westbrook are among the principal stockholders of the Company (Westbrook and Carole Westbrook are referred to herein as the "Principal Stockholders"). The Principal Stockholders have agreed to restrict the sale or other disposition of capital stock of the Company owned or hereafter acquired by them as provided herein. In consideration of the premises and of the terms and conditions herein contained, the parties hereto mutually agree as follows: ARTICLE I BOARD OF DIRECTORS 1.1 Designees of Investors. 1.1.1 Principal Investors of Investor Group Each Entitled to Designate One Director. Concurrently with the closing of the Stock Purchase Agreement, one designee of Galen Partners II, L.P. and Galen Partners International II, L.P. (together "Galen") and one designee of Warburg, Pincus Investors, L.P. ("Warburg Pincus", together with Galen, the "Principal Investors"), on behalf of the Investor Group, shall each be appointed as directors of the Company, one in Class II, the directors of which have terms expiring in 1995, and one in Class III, the directors of which have terms expiring in 1993. The Board of Directors of the Company (the "Board") shall take appropriate action in accordance with the Company's By-Laws to increase the number of directors constituting the entire Board and to create new directorships to permit the appointment of such designees to the Board by filling such newly created directorships as provided in this Section 1.1.1. As long as this Agreement is in effect and provided each of the Principal Investors has voting power through its ownership of voting securities of the Company ("Voting Power") equal to at least 5 percent of the total votes entitled to be cast at meetings of the Company's stockholders when all classes are voting together and not as individual classes (the "Outstanding Votes"), the holders of a majority of the outstanding shares of Series B Preferred Stock shall be entitled to vote for and elect both of such designees (provided, that if one of the Principal Investors has Voting Power equal to 5% of the Outstanding Votes and the other Principal Investor has Voting Power of less than 5% of the Outstanding Votes, a majority of the outstanding shares of Series B Preferred Stock shall be entitled to elect only the designee of the Principal Investor with Voting Power equal to 5% of the Outstanding Votes), or to elect an alternative person or persons selected by such Principal Investors, as directors of the Company. Galen's designee to serve as director of the Company will be Bruce F. Wesson and Warburg Pincus's designee will be Patrick Hackett or, in each case, such other persons as may be reasonably acceptable to the Company. 1.1.2 Certain Resignations or Removals. In the event that any director would not continue to be entitled to be elected a director pursuant to Section 1.1.1, the Investor Group, if requested by a majority of the other directors of the Company excluding the Investor Group's designees, will cause any such designee on the Board promptly to resign. The Investor Group, acting by majority of the then outstanding shares of Series B Preferred Stock, shall at all times have the right to remove with or without cause, a director designated by the Principal Investors. -2- If such director shall fail to resign as required by the first sentence of this Section 1.1.2, the Company may cause a special meeting of the holders of Series B Preferred Stock to be called for the purpose of removing such director and the Investor Group shall vote all shares of Series B Preferred Stock over which each Investor has voting power entitled to vote at such meeting in favor of removal. 1.1.3 Filling Vacancies. In the event of the death, removal or resignation (other than a resignation pursuant to Section 1.1.2) of any director elected in accordance with Section 1.1.1, at the written request of the Principal Investor which designated such director or holders of a majority of the outstanding shares of Series B Preferred Stock, unless the Board shall have previously filled such vacancy with a director selected in accordance with Section 1.1.1, the Company shall call a special meeting of the holders of Series B Preferred Stock for the purpose of electing the director selected in accordance with Section 1.1.1 to fill the vacancy created by such death, removal or resignation. 1.1.4 Notice of Meetings; Expenses. Notice shall be given to each member of the Board prior to any meeting of the Board in accordance with the Company's By-Laws. To the extent permitted by Company policy, the Company shall reimburse each member of the Board for the reasonable out-of-pocket expenses, including, without limitation, travel and lodging expenses, incurred by him in attending any meeting of the Board. The parties hereto acknowledge that the Company's existing policy permits such reimbursement, and there is no present intention on the part of the Company to change such policy. 1.2 Covenant to Vote. Each Investor shall appear in person or by proxy at any annual or special meeting of stockholders of the Company called for the purpose of voting on the election or removal of any director and shall vote (a) the shares of Series B Preferred Stock held by such Investor at such meeting in favor of (i) the election of the directors designated in accordance with Section 1.1.1, (ii) the removal of directors in accordance with Section 1.1.2, (iii) the election of directors to fill vacancies in accordance with Section 1.1.3., and (b) the shares of Series B Preferred Stock, the Conversion Shares and any shares of any other voting securities of the Company held by such Investor at such meeting in favor of the election of directors nominated by management of the Company or the Board consistent with the terms of this Agreement, provided that the Investors shall be obligated to appear in person or by proxy and vote as provided in this clause (b) only for as long as the Investor Group has Voting Power of less than fifty-one percent (51%) of the Outstanding Votes. Any action required to be taken by the Investors as stockholders of the -3- Company pursuant to this Article I may be effected by written consent in accordance with applicable Delaware law. 1.3 No Voting or Conflicting Agreements. After the date hereof, no Investor shall grant any proxy, or enter into, or agree to be bound by, any voting trust with respect to the voting of any voting securities of the Company held by such Investor, nor shall any Investor enter into any shareholder agreements or arrangements of any kind with any person with respect to the voting of any voting securities of the Company held by such Investor inconsistent with the provisions of this Article I (whether or not such agreements and arrangements are with other stockholders of the Company that are not parties to this Agreement). No Investor shall act, for any reason, as a member of a group or in concert with any other persons in connection with the voting of shares of voting securities of the Company in any manner which is inconsistent with the provisions of this Article I. 1.4 Actions Consistent with Agreement. The Company and the Board shall not circumvent this Agreement by taking any action through a subsidiary that would be prohibited under this Agreement if taken directly by the Company. ARTICLE II LIMITATION OF CONVERSION SHARES VOTING POWER 2.1 Limitation of Voting Power. Notwithstanding the number of votes to which the holders of Issued Conversion Shares (as defined below) may otherwise be entitled, each Investor holding shares of Common Stock issued upon conversion of shares of Series B Preferred Stock ("Issued Conversion Shares") shall be entitled to vote on all matters together with the holders of shares of Common Stock and in so voting shall be entitled to exercise Voting Power equal to the Total Conversion Share Common Votes (as defined below) allocated to each Investor ratably on the basis of the number of Issued Conversion Shares held by each Investor in proportion to the total number of Issued Conversion Shares outstanding on the record date for the determination of stockholders entitled to vote on such matters. The remaining votes attributable to the Issued Conversion Shares in excess of the Total Conversion Share Common Votes shall be voted on such matters pro rata based on the total votes cast on such matters, excluding Total Conversion Share Common Votes. a. Definitions. For purposes of this Article II, the following definitions shall apply: -4- i. Voting Percentage. "Voting Percentage" shall mean a fraction, the numerator of which is the sum of (a) the number of Issued Conversion Shares outstanding on such record date (after giving effect to proportionate adjustments for stock splits, subdivisions and the like) plus (b) the number of shares of Common Stock into which the shares of Series B Preferred Stock could be converted on such record date, and the denominator of which is the sum of (a) the number of shares of Common Stock (including Issued Conversion Shares) outstanding on such record date plus (b) the number of shares of Common Stock into which the shares of Series B Preferred Stock could be converted on such record date plus (c) the number of shares of Common Stock issuable upon the conversion or exchange of all securities convertible into or exchangeable for shares of Common Stock (other than Series B Preferred Stock) and upon the exercise of all options, rights or warrants to purchase shares of Common Stock outstanding on such record date (the "Voting Percentage Denominator"); provided, however, that if on such record date the Voting Percentage Denominator is less than 18,826,634 (as adjusted for stock splits, subdivisions and the like), the Voting Percentage shall be calculated using a Voting Percentage Denominator equal to (1) the sum of (x) 18,826,634 (as adjusted for stock splits, subdivisions and the like) plus (y) the number of shares of Common Stock issued after the date hereof, if any, plus (z) the number of shares of Common Stock issuable upon the conversion or exchange of all securities convertible into or exchangeable for shares of Common Stock issued after the date hereof, if any, and upon the exercise of all options, rights or warrants to purchase shares of Common Stock issued after the date hereof, if any, minus (2) the sum of (w) the number of outstanding shares of Common Stock repurchased or redeemed by the Company after the date hereof, if any, plus (x) the number of shares of Common Stock issuable upon the exercise of any of the common stock purchase warrants issued in connection with the issuance of the 9.0% Cumulative Nonconvertible Preferred Stock of the Company that have expired or have been cancelled or repurchased by the Company after the date hereof, if any, plus (y) the number of shares of Common Stock issuable upon conversion or exchange of any securities convertible or exchangeable for shares of Common Stock issued after the date hereof that have expired or have been cancelled or repurchased by the Company after the date hereof, if any, and upon the exercise of options, rights or warrants to purchase Common Stock issued after the date hereof that have expired or have been cancelled or repurchased by the Company after the date hereof, if any, plus (z) the number of shares of Series B Preferred Stock cancelled pursuant to the terms of the Stock Purchase Agreement, if any. The Voting Percentage calculated as of the date hereof is 29.354%. ii. Total Common Votes. "Total Common Votes" shall mean a fraction, the numerator of which is the number of Issued Conversion Shares outstanding on such record date (after giving effect to proportionate adjustments for stock splits, subdivisions -5- and the like), and the denominator of which is equal to one (1) minus the Voting Percentage. iii. Total Conversion Share Common Votes. "Total Conversion Share Common Votes" shall mean the Total Common Votes multiplied by the Voting Percentage. b. Application of Restrictions. The obligations of the Investors contained in this Article II shall apply only to the Issued Conversion Shares held by the Investors and shall not apply to the shares of the Series B Preferred Stock (which are subject to and governed by the Certificate of Designation, Preferences and Other Rights of the Series B Preferred Stock) or to any other voting securities of the Company acquired by the Investors after the date hereof. ARTICLE III RESTRICTIONS ON TRANSFERS AND ISSUANCES OF STOCK 3.1 General Prohibition on Transfers by Investors. 3.1.1 Transfers in Accordance with Agreement. No Investor shall, at any time, directly or indirectly, sell, assign, pledge or encumber or otherwise transfer (any such transaction, whether or not for consideration, being referred to hereinafter as a "Transfer") any shares of Series B Preferred Stock, Conversion Shares or any Common Stock or other voting securities of the Company hereafter acquired by such Investor (collectively, "Company Securities"), or the right to acquire any Company Securities, to any person (any such person, regardless of the method of transfer, shall be referred to individually as a "Transferee" and collectively as "Transferees") unless such Transfer shall have been effected in accordance with the terms of this Agreement. The Company shall not record upon its books any Transfer of Company Securities held or owned by any of the Investors to any person except a Transfer in accordance with the terms of this Agreement. 3.1.2 Transferee to Execute a Counterpart of this Agreement. No Transfer of Company Securities by an Investor shall be effective unless the Transferee shall have executed a counterpart to this Agreement, as amended or supplemented. 3.1.3 Legend on Stock Certificate. The certificates representing Series B Preferred Stock and the Issued Conversion Shares shall bear legends on their face, or on the reverse thereof with a reference thereto on the face, as follows: -6- " (i) The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"), or under the securities or "blue sky" laws of any state. Accordingly, such securities may not be transferred, sold, pledged, encumbered or otherwise disposed of (a "Transfer") except (A) pursuant to an effective registration statement under the Act or (B) upon receipt of an opinion of counsel reasonably satisfactory to the Company to the effect that such transfer is exempt from registration under the Act and under any applicable state securities or "blue sky" laws. (ii) The securities represented by this certificate may not be Transferred unless such Transfer complies with the terms and conditions set forth in a Stockholders' Agreement, dated June 4, 1993, a copy of which is on file with the Secretary of the Company and which will be furnished by the Company to the holder hereof upon written request and without charge. No Transfer of such securities will be made on the books of the Company unless accompanied by evidence of compliance with the terms of such Agreement." 3.2 Compliance with Securities Laws. No Investor shall Transfer any Company Securities at any time if such action would constitute a violation of any federal or state securities or blue sky laws or a breach of the conditions to any exemption from registration of any Transfer of any Company Securities under any such laws or a breach of any undertaking or agreement of such Investor entered into pursuant to such laws or in connection with obtaining an exemption thereunder. 3.3 Permitted Transfers. The restrictions contained in Section 3.4 of this Agreement with respect to Transfers by Investors of Company Securities shall not apply to: (a) any Transfers (i) between any members of the Investor Group or their affiliates, (ii) to or between the respective partners or retired partners of an Investor which is a partnership (including spouses and ancestors, lineal descendants and siblings of such partners or spouses) or affiliates of such partners, or (iii) to beneficiaries of an Investor which is a trust; (b) any Transfer by an individual Investor to the spouse or a child, lineal descendant, parent, grandparent, brother, sister, niece or nephew (collectively, a "Relative") of such Investor or spouse, or to a trust of which there are no principal (i.e. corpus) beneficiaries other than the -7- grantor and/or one or more of such described Relatives and provided, in the case of a trust, that the existing beneficiaries and/or trustee(s) and/or grantor(s) of such trust have the power to act with respect to the trust's assets without court approval; (c) any Transfer to a legal representative of an individual Investor in the event such Investor becomes mentally incompetent; (d) any Transfer to the personal representative of a deceased individual Investor; (e) any Transfer by an individual Investor or Relative of such Investor to any other Investor or Relative of such other Investor; or (f) any Transfer by will or by the laws of intestacy by an individual Investor (each Transferee described in (a) through (f) above hereafter referred to individually as a "Permitted Transferee" and collectively as "Permitted Transferees"). 3.4 Right of First Refusal. Notwithstanding any other provisions in this Agreement, except as otherwise permitted in Section 3.3, until the earlier of the completion of a Qualified Public Offering (as hereinafter defined) and January 1, 1997, no Investor will Transfer (or agree to Transfer) any Company Securities, in one private transaction or a series of private transactions (a "Proposed Sale Transaction") unless the Company or its designee is first given an opportunity to acquire such Company Securities during the period of 90 days after the Company receives written notice from such Investor of the proposed Sale Transaction, or a copy of the agreement evidencing such transaction, on the same terms and conditions as the Proposed Sale Transaction. Such notice shall include the identity of the Proposed Transferee, the number of shares of Company Securities proposed to be Transferred, and the material terms of such proposed Sale Transaction, including (if applicable) the price and form of consideration to be paid. In the event the Company or its designee does not purchase the Company Securities proposed to be included in the Proposed Sale Transaction within such 90-day period, then, subject to compliance by such Investor with the terms of this Agreement, such Investor shall be permitted to Transfer (at the same or higher price) such Company Securities to the proposed Transferee; provided, that if such Company Securities are not Transferred within 60 days after the end of such 90-day period, then the Company or its designee shall continue to be entitled to one or more further rights of first refusal as described above; and provided further that, as a condition to any Transfer, such Investor shall take steps to ensure that the proposed Transferee becomes bound by and subject to the provisions of this Agreement as evidenced by the execution and delivery by such proposed Transferee as a condition precedent to such Transfer of a counterpart to this Agreement, pursuant to which the proposed Transferee shall become an additional party, as provided in Section 3.1.2. The Company in its sole discretion may assign its rights of first refusal to any person or entity so designated by the Company. For purposes of this Agreement, "Qualified Public Offering" shall mean a public offering of Common -8- Stock (a) at a price per share of (i) $8.50 (as proportionately adjusted for stock splits, subdivisions and the like) or more in the event such offering is consummated on or prior to June 30, 1995 or (ii) $10.00 (as proportionately adjusted for stock splits, subdivisions and the like) or more in the event such offering is consummated subsequent to June 30, 1995, and (b) with gross proceeds (before underwriting discounts and commissions, if any) to the Company in excess of $25,000,000. Notwithstanding any other provisions of this Agreement, until completion of a Qualified Public Offering, each Investor agrees not to Transfer (or agree to Transfer) any Company Securities to any person or entity (i) who is a competitor of the Company or any subsidiary, or (ii) whose ownership of Company Securities (or rights related thereto) is reasonably likely to result in (A) the loss of, or failure to obtain, a certificate of need, license, permit or other regulatory approval or authorization of or reimbursement to or for the Company or any subsidiary material to the operations of the Company or any subsidiary, or (B) the imposition of any condition, modification, or limitation on such certificate, license, permit, approval, authorization or reimbursement that would be materially adverse to the operations of the Company or any subsidiary, or (iii) who, upon request by the Company, is unable in writing in connection with such Transfer to make the representations and warranties set forth in Section 5.13 of the Stock Purchase Agreement (provided that for purposes of this Section 3.4, clause (ii) of the first sentence of said Section 5.13 shall be amended as set forth in Schedule 2 attached to this Agreement) as of the date immediately following the date of such Transfer, which representations and warranties may be updated in good faith from time to time as may be reasonably necessary to reflect changes in applicable laws, regulations and policies; or (iv) which would cause the Company to become a reporting company pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). For purposes of this Section 3.4, the good faith determination of a majority of the entire Board (excepting any directors designated by the proposed Transferor), made within thirty (30) days of written notice to the Board of the proposed Transfer, that a proposed Transferee is within the categories described in clauses (i), (ii) or (iii) above, shall in all respects be conclusive. 3.5 Investor Group's Right to Purchase. 3.5.1 Company Notice. If at any time the Company has a first right to purchase or offer to purchase shares of capital stock of the Company (including without limitation, the Series B preferred Stock or any class or other series of preferred stock, any security convertible into shares of Common Stock or preferred stock, any option, right or warrant to purchase shares of -9- Common Stock or preferred stock) (collectively, "First Refusal Shares") from any holder of capital stock of the Company (including the Principal Stockholders and the Investors) (a "Selling Stockholder") prior to a Transfer (whether by operation of law or otherwise) by such Selling Stockholder to a person or entity, regardless of whether such person or entity is then a holder of capital stock of the Company, or similar opportunity or right of first refusal or first offer, pursuant to a written agreement, arrangement, policy or plan (a "Selling Document," which shall include, without limitation, the Company's Employee Stock Ownership Plan/Trust (the "ESOP") and the Company's Management Equity Incentive Plan) (collectively, "Company First Refusal Right"), the Company shall promptly give written notice to the Investors upon the occurrence of the event (a "First Refusal Event") giving rise to the Company First Refusal Right (the "Company Notice"), together with a copy of the Selling Document. In the event that the First Refusal Event is the receipt of written notice from the Selling Stockholder, the Company Notice shall also be accompanied by a copy of such Selling Stockholder's notice (the "Seller's Notice"). 3.5.2 Designation of Investor Group as Designee. Within five (5) business days of receipt of the Seller's Notice (or if no Seller's Notice was received, five (5) business days of the First Refusal Event), the Company shall give written notice to the Investors as to whether the Company will exercise the Company First Refusal Right (the "Company Election Notice"). In the event (i) the Company notifies the Investors that the Company will elect not to exercise in full or in part the Company First Refusal Right or (ii) the Company notifies the Investors that the Company will exercise the Company First Refusal Right, but elects not to do so prior to the expiration of the period within which the Company or its designee (or assignee) is entitled to exercise the Company First Refusal Right pursuant to the terms of the Selling Document (the "Stated Exercise Period"), the Company shall, subject to the proviso contained in the last sentence of this Section 3.5.2, designate the Investor Group as its designee (or assign to the Investor Group the Company First Refusal Right) for that number of First Refusal Shares equal to the product of the number of First Refusal Shares with respect to which the Company has elected to not exercise the Company First Refusal Right multiplied by the Voting Percentage (the "Investor First Refusal Shares"). Upon such designation (or assignment), the Investor Group shall be entitled to exercise the Company First Refusal Right with respect to the Investor First Refusal Shares as provided in Section 3.5.3 and upon the terms and conditions set forth in the Selling Document (the "Investor Purchase Right"); provided, that the Company shall designate the Investor Group (or assign to the Investor Group the Company First Refusal Right) only in the event that the Selling Stockholder proposes to Transfer or Transfers an aggregate of at least 400,000 First Refusal Shares (as adjusted proportionately for -10- stock splits, subdivisions and the like) (if other than shares of Common Stock or preferred stock, determined as if converted into shares of Common Stock or preferred stock at the time of the Company Notice), whether in a single transaction or series of transactions, whether to the same or different Transferees (such 400,000 First Refusal Shares referred to herein as the "First Refusal Exemption Threshold"), provided further that Transfers of First Refusal Shares by the Selling Stockholder to its or his Permitted Stockholder Transferees (as defined in Section 3.6.1.5) shall not be included in determining whether the First Refusal Exemption Threshold has been met (but Transfers of First Refusal Shares by the Selling Stockholder and/or its or his Permitted Stockholder Transferees, individually or in the aggregate, to Transferees other than Permitted Stockholder Transferees shall be included in such determination). 3.5.3 Allocation of Right to Purchase. The Company Election Notice shall state the number of Investor First Refusal Shares that each Investor would have the right to purchase upon the exercise by the Investor Group of the Investor Purchase Right, which number shall in each case be calculated as the product of (i) the number of Investor First Refusal Shares multiplied by (ii) a fraction, the numerator of which shall be the number of Conversion Shares beneficially owned by such Investor and the denominator of which shall be the number of Conversion Shares beneficially owned by all the Investors (the "Proportionate Share"). Within five (5) business days of receipt of the Company Election Notice, each Investor shall deliver to the Company a written notice (the "Investor Election Notice") stating its election to participate and the maximum number of First Refusal Shares (up to all the Investor First Refusal Shares) that such Investor is willing to purchase, and such Investor Election Notice shall constitute an irrevocable commitment to purchase such number of Investor First Refusal Shares, if any, as are allocated to such Investor pursuant to this Section 3.5.3 up to such maximum number of Investor First Refusal Shares. To the extent that the number of Investor First Refusal Shares allocated to an Investor exceeds the number such Investor indicated it was willing to purchase in its Investor Election Notice, the Company shall allocate all Investor First Refusal Shares not subscribed for to the Investors who subscribed for more Investor First Refusal Shares than their Proportionate Share (the "Fully Participating Investors") in the proportion that the number of Conversion Shares each Fully Participating Investor beneficially owns bears to the total number of Conversion Shares beneficially owned by all Fully Participating Investors. If the number of Investor First Refusal Shares so allocated to a Fully Participating Investor exceeds the maximum number of Investor First Refusal Shares that it indicated in its Investor Election Notice to the Company it was willing to subscribe for, then the Company shall allocate any such excess among all -11- Fully Participating Investors who have subscribed for a maximum number of Investor First Refusal Shares which exceeds the number of Investor First Refusal Shares allocated to them pursuant to the preceding sentence, in the proportion that the number of Conversion Shares each Fully Participating Investor beneficially owns bears to the total number of Conversion Shares beneficially owned by all such Fully Participating Investors, and the Company shall follow this procedure, if necessary, until all Investor First Refusal Shares available for purchase by the Investors have been allocated to them; provided, that any such excess may be allocated in such other manner as may otherwise be agreed by the Company and the Fully Participating Investors. 3.5.3.1 Notice of Final Allocation of Investor First Refusal Shares. The Company shall, within thirty (30) days of receipt of the Seller's Notice (or if no Seller's Notice was received, the First Refusal Event), notify the Selling Stockholder and each Investor in writing setting forth the final allocation of the Investor First Refusal Shares. Such notice to the Selling Stockholder shall be deemed the irrevocable exercise of the respective Investor Purchase Right on behalf of each purchaser named therein. 3.5.4 Seller's Right to Transfer. If the Company and the Investor Group shall not exercise the Company First Refusal Right and the Investor Purchase Right, respectively, to purchase in the aggregate all of the First Refusal Shares as provided herein and within the Stated Exercise Period, then the Selling Stockholder shall be free to Transfer all (but not less than all) of the First Refusal Shares to its proposed Transferee upon the terms and conditions set forth in the Selling Document. If the Transfer of any First Refusal Shares to a proposed Transferee is not consummated in accordance with the terms and conditions of the Selling Document, then the Company shall be required to again comply with all of the provisions of this Section 3.5 as a condition to a Transfer of any such First Refusal Shares to a proposed Transferee. 3.5.5 First Refusal Shares Other Than Investor First Refusal Shares. The Company shall have sole discretion over the exercise of or election with respect to any Company First Refusal Right relating to First Refusal Shares not included in the Investor First Refusal Shares. 3.5.6 Representations and Covenant of the Company. 3.5.6.1 Representations. The Company represents and warrants to the Investors that, except as set forth in Schedule 1 attached hereto: (i) all of the Company's Company -12- First Refusal Rights are set forth in the documents described in Schedule 4.2 to the Stock Purchase Agreement; (ii) the Company is entitled to designate a designee (or assign to an assignee the Company First Refusal Right) under each Selling Document in each instance in which the Company has a Company First Refusal Right; (iii) nothing contained in the Selling Documents or to the Company's best knowledge otherwise prohibits the Company from designating the Investor Group as its designee (or assigning to the Investor Group the Company First Refusal Right as its assignee) as provided in this Section 3.5; (iv) the time periods provided in this Section 3.5 for the exercise of the Investor Purchase Right are within the Stated Exercise Periods expressly provided in the Selling Documents so as to permit the Investor Group to exercise the Investor Purchase Right in accordance with the terms and conditions set forth in this Section 3.5; and (v) upon the designation of the Investor Group (or the assignment to the Investor Group of the Company First Refusal Right) as provided herein, the Investor Group shall be entitled to exercise the Company First Refusal Right as contemplated in this Section 3.5 and in accordance with the terms of the Selling Documents. 3.5.6.2 Covenants. (i) In the event that the actual operation of any Stated Exercise Period is not sufficient to permit the exercise by the Investors of an Investor Purchase Right as contemplated in this Section 3.5, the Company will use its best efforts to obtain any necessary waiver of or modification to such Stated Exercise Period to enable the Investors to exercise the Investor Purchase Right. (ii) For as long as this Agreement shall remain in effect, the Company will not (A) terminate any Company First Refusal Right, or (B) amend or modify the terms and conditions contained in any Selling Document or otherwise relating to the Company First Refusal Right or seek or enter into any understanding or arrangement to amend or modify, or waive (or agree or enter into any understanding or arrangement to waive) the observance of any such term or condition, in each case specified in this clause (B), in any manner that may adversely affect the Investor Purchase Right or the exercise thereof by the Investors, in each case without the prior written consent of Investors beneficially owning at least 66 2/3% of the Conversion Shares. For purposes of this Section 3.5.6.2, the Company's consent to a Transfer by any of the Principal Stockholders, Donald Gaetz, Esther T. Colliflower or Earl M. Collier, Jr. to a Permitted Stockholder Transferee of such individuals as expressly contemplated to be permitted in the relevant Selling Document shall not be deemed an amendment, modification or waiver of the Company First Refusal Right with respect to such person. -13- 3.6 Sales of Restricted Stock. Except as otherwise permitted in Section 3.6.1.5 of this Agreement, any Transfers by either Principal Stockholder of capital stock of the Company, including without limitation, any class or series of preferred stock, any security convertible into shares of Common Stock or preferred stock, and any option, right or warrant to purchase shares of Common Stock or preferred stock (collectively, "Restricted Stock"), owned by said persons (collectively, the "Restricted Persons") are subject to the following provisions of this Section 3.6: 3.6.1 "Tag Along" Rights. If at any time during the term of this Agreement a Restricted Person proposes to Transfer to any Transferee Restricted Stock (the shares proposed to be Transferred being referred to herein as the "Offered Shares" and the proposed Transferee being referred to as an "Offeree"), no such Transfer shall be consummated by the Restricted Person seeking to sell such Restricted Stock (the "Selling Restricted Stockholder"), unless in connection with such Transfer the Offeree shall offer, in writing to each Investor, to purchase the Sale Percentage (as hereinafter defined) of the Company Securities then beneficially owned by each Investor (the "Investor Purchase Offer"). The Investor Purchase Offer shall be at the same purchase price per share for the Offered Shares (the "Offering Price") and on the same terms and conditions set forth in the Offeree's offer to purchase (the "Offer"). Notwithstanding anything contained herein to the contrary, the "Tag Along Rights" granted to the Investors in this Section 3.6 shall be exercisable only (a) in the event that (i) the Company (or its designee or assignee) shall have failed to exercise its Right of First Refusal under Section 3.4 hereof, and (ii) the Selling Restricted Stockholder and/or his or her Permitted Stockholder Transferees, individually or in the aggregate, shall have, from the date hereof, Transferred (taking into account the Offered Shares, but not taking into account Transfers of Restricted Stock to Permitted Stockholder Transferees of the Selling Restricted Stockholder) in the aggregate (whether in a single transaction or multiple transactions, related or unrelated) thirty percent (30%) of the Restricted Stock beneficially owned by such Selling Restricted Stockholder and/or his or her Permitted Stockholder Transferees as of the date immediately following the date of this Agreement (the "Permitted Sale Amount"); and (b) with respect to Offered Shares in excess of the Permitted Sale Amount. 3.6.1.1 Delivery of Investor Purchase Offer. The Selling Restricted Stockholder shall within five (5) business days of receipt of the Offer, deliver to the Investors written notice thereof, together with a copy of such Offer (the "Sale Notice"), and shall have delivered the Investor Purchase Offer to the Investors within ten (10) days of the date of the Sale Notice. Such Sale Notice shall specify the aggregate Sale Percentage of the -14- Company Securities entitled to be sold by the Investors. Each Investor shall have the right to sell its pro rata share of such Sale Percentage based upon the number of Conversion Shares beneficially owned by such Investor at the time of the proposed Transfer. Each Investor shall have a right of over-allotment such that if any Investor fails to exercise its right to sell its pro rata portion of Company Securities, the other Investors may sell the non-selling Investor's portion on a pro rata basis determined in the same manner as provided in Section 3.5.3 (except that "Investor First Refusal Shares" shall be deemed to mean the "Sale Percentage of the Company Securities" and the terms "purchase" and "subscribe for" shall be deemed to mean "sell"). For purposes of this Section 3.6, the "Sale Percentage" shall mean the same percentage of the shares of Company Securities then beneficially owned by the Investors as the Offered Shares represent with respect to the shares of Restricted Stock beneficially owned by the Selling Restricted Stockholder immediately prior to the Transfer of the Offered Shares. Each Investor which desires to accept the Purchase Offer (a "Selling Investor") shall notify the Offeree in writing of its acceptance and the number of shares of Company Securities it elects to sell within twenty (20) days from receipt of the Investor Purchase Offer. 3.6.1.2 Reduction in Offered Shares. In the event that the Offeree does not wish to purchase all of the Offered Shares and the Company Securities that the Investors have elected to sell under Section 3.6.1, the Selling Restricted Stockholder shall reduce the number of Offered Shares to be sold to the Offeree to the extent necessary so that the Selling Restricted Stockholder and the Selling Investors shall sell Restricted Stock and Company Securities, respectively, pro rata, to the Offeree. For purposes of this Section 3.6.1.2, the pro rata share of the Selling Restricted Stockholder shall be based upon the ratio that the number of Offered Shares bears to the aggregate number of Offered Shares and the number of shares of Company Securities equal to the Sale Percentage of Company Securities entitled to be sold under Section 3.6.1 (the "Total Purchase Shares"), and the pro rata share of the Selling Investors shall be based upon the ratio that the number of shares of Company Securities equal to the Sale Percentage of Company Securities entitled to be sold under Section 3.6.1 bears to the Total Purchase Shares. 3.6.1.3 Failure to Consummate Transfer. (a) In the event that none of the Investors elect to participate in the Transfer to the Offeree, the Selling Restricted Stockholder shall be free to Transfer all or less than the number of shares of Restricted Stock to the Offeree at a purchase price per share at or less than the Offering Price and on the other terms and conditions set forth in the Offer; provided, that in the event -15- of any increase in purchase price or any change in other terms and conditions, the Selling Restricted Stockholder shall again comply with the requirements of Section 3.6.1. (b) If the Transfer of the Offered Shares and the shares of Company Securities to be Transferred from Selling Investors as set forth in any notices provided under Section 3.6.1.1 is not consummated within sixty (60) days of receipt of the Sale Notice, then the Selling Restricted Stockholder shall be required to cause the Offeree to again comply with the provisions of this Section 3.6 as to any proposed Transfer; provided, that, if the Transfer of Company Securities from any Selling Investor is not so consummated due to any action or failure to act on the part of such Investor then the Offeree shall not be required to purchase such Selling Investor's allocable share of Company Securities or again comply with the provisions of this Section 3.6 with respect to such Investor. 3.6.1.4 Right to Abandon Transfer. The Selling Restricted Stockholder reserves the right not to proceed with any proposed Transfer to an Offeree for any reason whatsoever. The Selling Restricted Stockholder also reserves the right to seek an increase from the Offeree in the number of shares of Restricted Stock that the Offeree is willing to purchase or more favorable terms and conditions; provided, that in the event of any such increase or change in terms and conditions the Selling Restricted Stockholder shall again comply with the requirements of Section 3.6.1. 3.6.1.5 Provisions Inapplicable to Section 3.5 Transfers. Notwithstanding anything contained herein to the contrary, the provisions of this Section 3.6.1 shall not apply with respect to the Principal Stockholders to (i) any Transfer to the Company or an Investor as a result of the exercise by the Company or an Investor of the Company First Refusal Right or the Investor Purchase Right pursuant to Section 3.5 or through the Stock Repurchases (as defined in the Stock Purchase Agreement), (ii) any Transfers to (a) a charitable organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), (b) a charitable remainder trust under the Code and the applicable regulations thereunder or (c) the spouses or lineal descendants of the transferor or (iii) any transfer by will or by the laws of intestacy (collectively, "Permitted Stockholder Transferees"), even if such Transfer would result in a Transfer of Restricted Stock in excess of the Permitted Sale Amount (provided that all Transfers of Restricted Stock to Transferees other than Permitted Stockholder Transferees of the Principal Stockholders and all Transfers of Restricted Stock by Permitted Stockholder Transferees of the Principal Stockholders to Transferees other than Permitted Stockholder Transferees shall be subject to the provisions of this Section 3.6.1). No Transfer of Restricted Stock -16- by a Restricted Person shall be effective unless the Transferee shall have executed a counterpart to this Agreement, as amended or supplemented. 3.6.1.6 Closing of Purchase. In the case of a purchase of Restricted Stock by an Offeree pursuant to this Section 3.6, the parties to such purchase shall mutually determine a closing date which shall not be later than 60 days after the anticipated closing date set forth in the Sale Notice (or on the first business day after the expiration of such 60 day period if expiration occurs on a day other than a business day). The closing shall be held at 11:00 a.m. local time, at the principal executive office of the Company or at such other time or place as the Offeree may require. The Offeree shall deliver to the Selling Investor(s) the purchase price for the securities being purchased in cash by wire transfer (or if agreed to by the selling Investor(s), by certified or cashier's check), or if other than cash, in the form of consideration to be delivered by the Offeree. 3.6.2 Definition. Proposed "Transferee" means a person or group of persons, as defined in Section 13(d)(3) of the Exchange Act, to whom Restricted Stock is proposed to be Transferred pursuant to the terms of this Agreement; provided that two or more Restricted Persons shall not be deemed a "group" for purposes of this definition solely because they are parties to this Agreement. 3.7 Form of Consideration for Stock. No offer from any proposed Transferee shall be deemed to be a valid or bona fide offer under any Section of this Article III unless the purchase price of such offer is payable in cash or marketable securities that can be readily valued by reference to quoted trading prices. In determining whether consideration offered under any Section of this Article III is greater than, less than, or equal to the purchase price in a proposed Transfer or Transfer, only the per share value of the cash consideration or such marketable securities shall be considered. 3.8 Merger Transaction. The Company may enter into any agreement of merger to merge with or into any other corporation or adopt any other plan of recapitalization, consolidation, reorganization or other restructuring transaction, if approved by (i) a majority vote of the entire Board, and (ii) the holders of more than fifty percent (50%) of the outstanding shares of each class of stock then outstanding entitled to vote pursuant to the terms of the Company's Amended and Restated Certificate of Incorporation (the "Voting Classes"). In such event, Sections 3.4, 3.5 and 3.6 of this Agreement shall not be applicable to the Transfer, conversion or exchange in such merger or other plan for such consideration as approved by the Board, and the Voting -17- Classes; provided that, in the event that the Investors continue to hold shares of Common Stock of the Company or capital stock of any other entity succeeding thereto or surviving such merger or other plan representing a majority of the voting power of the Company or such entity, this Agreement shall remain in full force and effect and shall be applicable to any shares of capital stock (including common stock into or for which securities may be convertible, exchangeable or exercisable) of the Company or other entity issued with respect to, upon conversion of, or in exchange for, the shares of stock in connection with such merger or other plan. 3.9 Issuance of New Securities. Until the completion of a Qualified Public Offering, the Investor Group shall have the right to purchase, pro rata, all (or any part) of any New Securities (as defined in this Section 3.9) which the Company may, from time to time, sell or issue. The pro rata share of the Investor Group shall be determined by multiplying the number of shares of New Securities to be issued or sold by the Company by a fraction, the numerator of which is the number of Conversion Shares beneficially owned by all the Investors and the denominator of which is the sum of (i) the number of shares of Common Stock (including Issued Conversion Shares) then outstanding plus (ii) the number of shares of Common Stock issuable upon the conversion or exchange of all securities convertible into or exchangeable for shares of Common Stock (including Series B Preferred Stock) and upon the exercise of all options, rights or warrants to purchase shares of Common Stock then outstanding (the "Pro Rata Amount"). The pro rata share of each Investor shall be equal to the Proportionate Share of the Pro Rata Amount as determined in Section 3.5.3 (as if the Pro Rata Amount were the Investor First Refusal Shares) at the time of sale or issuance. Each Investor shall have a right of over-allotment such that if any Investor fails to exercise its right hereunder to purchase its pro rata portion of the Pro Rata Amount of New Securities, the other Investors may purchase the non-purchasing Investor's portion on a pro rata basis in the same manner as provided in Section 3.5.3 (as if the Pro Rata Amount were the Investor First Refusal Shares) within seven (7) days from the date such non-purchasing Investor fails to exercise its right to purchase its pro rata share of the Pro Rata Amount of New Securities. 3.9.1 Definitions. "New Securities" shall mean any capital stock (including the Common Stock or the preferred stock) of the Company whether now authorized or not, and rights, options or warrants to purchase capital stock, and securities of any type whatsoever that are, or may become, convertible or exercisable into or exchangeable for capital stock; provided that the term "New Securities" does not include: (i) Series B Preferred Stock purchased under the Stock Purchase Agreement; (ii) the Conversion Shares; (iii) securities offered to the public pursuant -18- to a registration statement filed pursuant to the Securities Act of 1933, as amended; (iv) securities issued pursuant to the acquisition of another corporation by the Company by merger, purchase of substantially all the assets or other reorganization whereby either the Company owns, or the stockholders of the Company existing immediately prior to such acquisition own, in the aggregate, not less than fifty-one percent (51%) of the voting power of such corporation; (v) securities described in Section 4(f)(iii) of the Company's Certificate of Designations, Preferences and Other Rights of the Series B Preferred Stock; (vi) options, warrants or rights to purchase Company Securities granted or issued after the date hereof to current or former directors, officers, employees or consultants of the Company or of any subsidiary of the Company (other than those individuals listed on Schedule B attached hereto, unless the grant or issuance to such listed individuals has been approved or recommended by a majority of the disinterested directors serving on the Compensation Committee of the Board) pursuant to any stock option, purchase or bonus plan or similar plans or arrangements, and any Company Securities issued or issuable pursuant to such options, warrants or rights; or (vii) Common Stock issued to the ESOP, provided such issuance is approved or recommended by a majority of disinterested directors serving on the Compensation Committee of the Board. 3.9.2 Notice. In the event the Company proposes to undertake an issuance of New Securities, it shall give each Investor written notice of its intention, describing the type of New Securities, the price, the general terms upon which the Company proposes to issue the same and the number of shares allocable to such Investor. Such notice shall be given no more than ninety (90) days before the date for the issuance or sale of New Securities. Each Investor shall have ten (10) business days from the date of receipt of any such notice to agree in writing to purchase, in whole or in part, the Investor's pro rata share of such New Securities for the price and upon the general terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. 3.9.3 Closing. The Investors shall purchase and pay for the New Securities at the time and place the Company sells the New Securities not being purchased by such Investors pursuant to agreements which are substantially identical in form and substance. In the event the Company sells such New Securities in a series of transactions, the Investors will purchase and pay for such of their respective portions of New Securities sold by the Company at each such seriatim transaction at the time and place of each such seriatim transaction. 3.10 Conflict. If the provisions of this Article III conflict with any provisions contained in any agreements executed -19- between the Company and Westbrook and Carole Westbrook (including under any stock option plan or agreement adopted by the Board of Directors of the Company), the provisions of this Agreement shall control. 3.11 Agreement on File. A copy of this Agreement shall be filed with the Secretary of the Company and kept with the records of the Company. ARTICLE IV INFORMATION RIGHTS 4.1 Investor Financial Information. From and after the date hereof until the Company becomes a reporting company pursuant to Section 12 of the Exchange Act, the Company shall deliver to each Investor so long as such Investor continues to beneficially own at least 5,000 Conversion Shares, except for the annual statements referred to in Section 4.1.2 below, which shall be delivered to each Investor as long as such Investor owns any shares of Common Stock: 4.1.1 Quarterly Statements. As soon as practicable, and in any event within 45 days after the close of each of the first three fiscal quarters of each fiscal year of the Company, a consolidated balance sheet, statement of income and statement of changes in cash flow of the Company and its subsidiaries as of the close of such quarter and the portion of the Company's fiscal year ending on the last day of such quarter, all in reasonable detail and prepared in accordance with generally accepted accounting principles, consistently applied, subject to audit and normal year-end adjustments, setting forth in each case in comparative form the figures for the comparable period of the previous year. 4.1.2 Annual Statements. As soon as practicable after the end of each fiscal year of the Company, and in any event within 90 days thereafter, a copy of the consolidated balance sheet and consolidated statement of income, stockholders' equity and changes in cash flow of the Company and its subsidiaries for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and accompanied by an opinion thereon of independent certified public accountants of recognized national standing selected by the Company. 4.1.3 Other Reports. Promptly upon their becoming available, one copy of each financial statement, report, -20- notice or proxy statement sent by the Company to its stockholders generally, of each financial statement, report, notice or proxy statement sent by the Company or any of its subsidiaries to the Securities and Exchange Commission or any successor agency, if applicable (the "Commission"), of any registration statement, prospectus or written communication (other than transmittal letters) in respect thereof filed by the Company or any of its subsidiaries with any securities exchange or the Commission, and of any press release issued by the Company or any of its subsidiaries. 4.2 Director Materials. The Company shall prepare and deliver to each director of the Company: 4.2.1 Monthly Financial Statements. As soon as practicable, and in any event within 20 days after the close of each month of each fiscal year of the Company, a consolidated balance sheet, statement of income and statement of changes in cash flow of the Company and its subsidiaries as of the close of such month and the portion of the Company's fiscal year ending on the last day of such month, all in reasonable detail and prepared in accordance with generally accepted accounting principles, consistently applied, subject to audit and normal year-end adjustments, setting forth in each case in comparative form the figures for the comparable period of the previous year. 4.2.2 Business Plan; Projections. As promptly as practicable consistent with past practices but in no event later than sixty (60) days after the end of the prior fiscal year of the Company, an annual business plan of the Company and projections of operating results, prepared on a monthly basis. Within 45 days of the close of each fiscal quarter of the Company, the Company shall provide its directors with a comparison of actual year-to-date results with the corresponding budgeted figures. 4.2.3 Audit Reports. As soon as practicable after the receipt thereof, one copy of each other financial report and internal control letter submitted to the Company by its independent certified public accountants in connection with any annual, interim or special audit made by them of the books of the Company and its subsidiaries. 4.2.4 Requested Information. With reasonable promptness, the Company shall furnish each director with such other data and information as from time to time may be reasonably requested. ARTICLE V -21- REPRESENTATIONS, WARRANTIES AND ADDITIONAL COVENANTS 5.1 Representations of the Investors. Each Investor hereby severally represents and warrants as follows: (a) the Investor has the requisite power and authority to enter into this Agreement, and this Agreement is a valid, binding and enforceable obligation of the Investor enforceable in accordance with its terms, except as (i) the enforceability thereof may be limited by bankruptcy, reorganization, insolvency or similar laws affecting the enforcement of creditors' rights generally and (ii) the availability of equitable remedies may be limited by equitable principles of general applicability; (b) the Investor is acquiring the Series B Preferred Stock (and, if it converts the Series B Preferred Stock, will be acquiring the Conversion Shares) for investment purposes only and not for the purpose or effect of changing or influencing the control of the Company or in connection with or as a participant in any transaction having such purpose or effect; and (c) the statements contained in this Article V pertaining to the Investor are true and correct as of the date hereof in all respects. 5.2 Representation of the Company. The Company represents and warrants that it has the power and authority to enter into this Agreement, and that this Agreement is a valid, binding and enforceable obligation of the Company, enforceable in accordance with its terms, except as (i) the enforceability thereof may be limited by bankruptcy, reorganization, insolvency or similar laws affecting the enforcement of creditors' rights generally and (ii) the availability of equitable remedies may be limited by equitable principles of general applicability. 5.3 Additional Covenants of the Investors. Each Investor severally agrees that neither such Investor nor any of his or its associates or affiliates (a) until completion of a Qualified Public Offering will announce, publicly propose or solicit any person or company to acquire, offer to acquire or agree to acquire by merger, tender offer, purchase or otherwise, the Company or a substantial portion of its assets or more than ten percent (10%) of the Common Stock; (b) for as long as the Investor Group has Voting Power of less than fifty-one percent (51%) of the Outstanding Votes, (i) will have or seek to have any designee of the Investor Group serve as the Chairman of the Board, (ii) will propose a director or directors in opposition to the nominees proposed by the management of the Company or the Board, other than as permitted in this Agreement, or (iii) except in the course of performing duties by the Investor Group's designees as members of the Board, will exercise or attempt to exercise, directly or indirectly, control or controlling influence over the management, policies or business operations of the Company. Each Investor further severally agrees that as long as this Agreement is in effect, the Investor and his -22- or its associates and affiliates will not act in concert with any person or entity or assist, aid or abet any associate or affiliate to act, or act in concert, with any person or entity, in a manner which is inconsistent with the terms hereof or which attempts to evade any provision or requirement of this Agreement. ARTICLE VI MISCELLANEOUS 6.1 Term. This Agreement shall terminate on the date when any of the following events first occurs: (a) upon the closing date of a Qualified Public Offering, (b) upon the mutual written agreement by the Company and the Investors, or (c) the tenth (10th) anniversary of the date of this Agreement. 6.2 Injunctive Relief. It is acknowledged that it will be impossible to measure in money the damages that would be suffered if the parties fail to comply with any of the obligations herein imposed on them and that in the event of any such failure, an aggrieved person will be irreparably damaged and will not have an adequate remedy at law. Any such person shall, therefore, be entitled to injunctive relief, including specific performance, to enforce such obligations, and if any action shall be brought in equity to enforce any of the provisions of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law. 6.3 Notices. All notices, statements, instructions or other documents required to be given hereunder shall be in writing (including telex or fax) and shall be given either personally, or by mailing the same in a sealed envelope, first-class mail, postage prepaid and either certified or registered, return receipt requested, addressed as follows: If to the Company: Vitas Healthcare Corporation 100 South Biscayne Blvd. Suite 1500 Miami, Florida 33131 Attention: Chairman of the Board With a copy (which shall not constitute notice) to: Hogan & Hartson 555 13th Street, N.W. Washington, D.C. 20004 Att: Robert J. Waldman, Esq. -23- If to Westbrook or Vitas Healthcare Corporation Carole Westbrook: 100 South Biscayne Blvd. Suite 1500 Miami, Florida 33131 Attention: Chairman of the Board With a copy (which Greenberg, Traurig, Hoffman, shall not constitute Lipoff, Rosen & Quentel, P.A. notice) to: 1221 Brickell Avenue Miami, Florida 33131 Attention: Martin Kalb, Esq. If to an Investor: To such Investor at the address specified below its name on the signature pages hereof With a copy (which Lowenthal, Landau, Fischer & Bring, P.C. shall not constitute 250 Park Avenue notice) to: New York, New York 10177 Att: George N. Abrahams, Esq. Each party, by written notice given to the Company in accordance with this Section 6.3, may change the address to which notices, statements, instructions or other documents are to be sent to such party. All notices, statements, instructions and other documents hereunder shall be deemed to have been given (i) on the date of delivery, if delivered personally; (ii) on the same day as dispatch if by telex or fax; (iii) one business day after delivery to a nationally recognized courier service if marked for next business day delivery; or (iv) three (3) days after the date of mailing, if mailed. 6.4 Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of the parties and their respective successors and assigns. If any party or any Transferee of any party shall acquire any Company Securities or Restricted Stock, as applicable, in any manner, whether by operation of law or otherwise, such Company Securities or Restricted Stock shall be held subject to all of the terms of this Agreement, and by taking and holding such Company Securities or Restricted Stock such person shall be conclusively deemed to have agreed to be bound by and to perform all of the terms and provisions of this Agreement. 6.5 Governing Law. Regardless of the place of execution, this Agreement shall be governed by, and construed in accordance -24- with, the laws of the State of Delaware (excluding choice of law provisions thereof). 6.6 Headings; Schedules. Section headings are inserted herein for convenience only and do not form a part of this Agreement. Unless otherwise indicated, references in this Agreement to a Section shall be deemed to refer to such Section of this Agreement, and a reference to a Schedule shall be to such Schedule, if any, to this Agreement which Schedule is incorporated herein by reference. 6.7 Gender; Number. Unless the context of this Agreement otherwise requires, the masculine, feminine or neuter gender each shall include the other genders, and the singular shall include the plural. 6.8 Entire Agreement; Modification. This Agreement, the Stock purchase Agreement (including all exhibits and schedules thereto), a certain letter dated the date of the Stock purchase Agreement and delivered therewith, the Registration Rights Agreement and the letter agreements related to confidentiality between Furman Selz Incorporated and Galen Associates, Harvest Ventures Inc., and Warburg, Pincus Ventures, Inc. dated October 29, 1992, November 2, 1992 and February 22, 1993, respectively, as deemed amended by and as provided in the Stock Purchase Agreement (the "Confidentiality Agreements"), set forth the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and the purchase of the Series B Preferred Stock and merges and supersedes any and all prior discussions, agreements and understandings between or among them with respect thereto, and no party shall be bound by any condition, definition, warranty or representation, other than those expressly set forth or provided for in this Agreement, the Stock Purchase Agreement, that certain letter, the Registration Rights Agreement and the Confidentiality Agreements or in any document or instrument delivered pursuant to such agreements, or as may be set forth in writing and signed by the party or parties to be bound thereby on or subsequent to the date hereof. This Agreement may not be changed or modified, except by an agreement in writing executed by the Company, the Principal Stockholders and the Investors beneficially owning two-thirds (2/3) of the Conversion Shares. This Agreement, and the rights and obligations hereunder, may not be assigned to any person or entity except as otherwise specifically permitted herein. 6.9 Certain Definitions. For purposes of this Agreement, the terms "affiliate," "associate" and "control" shall have the meanings ascribed to such terms in Rule 12b-2 under the Exchange Act. -25- 6.10 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed or caused to be duly executed this Agreement on the date first written above VITAS HEALTHCARE CORPORATION By: /s/ Earl M. Collier, Jr. ------------------------------------- President /s/ Hugh A. Westbrook ----------------------------------------- HUGH A. WESTBROOK /s/ Carole S. Westbrook ----------------------------------------- CAROLE S. WESTBROOK -26- GALEN PARTNERS II, L.P. By GWW Partners, L.P. (its General Partner) By: /s/ Bruce F. Wesson ------------------------------------- General Partner Address: 666 Third Avenue New York, New York 10017 GALEN PARTNERS INTERNATIONAL II, L.P. By GWW Partners, L.P. (its General Partner) By: /s/ Bruce F. Wesson ------------------------------------- General Partner Address: 666 Third Avenue New York, New York 10017 GALEN ASSOCIATES By: Wesson Enterprises, Inc. By: /s/ Bruce F. Wesson ------------------------------------- President Address: 666 Third Avenue New York, New York 10017 WARBURG, PINCUS INVESTORS, L.P. By: Warburg Pincus & Co. (its General Partner) By: ------------------------------------- Partner Address: 466 Lexington Avenue New York, New York 10017 -27- GALEN PARTNERS II, L.P. By GWW Partners, L.P. (its General Partner) By: ------------------------------------- General Partner Address: 666 Third Avenue New York, New York 10017 GALEN PARTNERS INTERNATIONAL II, L.P. By GWW Partners, L.P. (its General Partner) By: ------------------------------------- General Partner Address: 666 Third Avenue New York, New York 10017 GALEN ASSOCIATES By: Wesson Enterprises, Inc. By: ------------------------------------- President Address: 666 Third Avenue New York, New York 10017 WARBURG, PINCUS INVESTORS, L.P. By: Warburg Pincus & Co. (its General Partner) By: /s/ [SIGNATURE ILLEGIBLE] ------------------------------------- Partner Address: 466 Lexington Avenue New York, New York 10017 -27- HARVEST PARTNERS INTERNATIONAL, L.P. By: Harvest Associates International, L.P. (its General Partner) By: /s/ [SIGNATURE ILLEGIBLE] ------------------------------------- General Partner Address: 767 Third Avenue 7th Floor New York, New York 10017 DEUTSCHE BETEILIGUNGSGESELLSCHAFT By: ------------------------------------- Managing Director Address: Bockenheimer Landstrasse 42 D-6000 Frankfurt am Main 1 Germany 841 FRANKLIN CAPITAL ASSOCIATES II L.P. By: Franklin Ventures II L.P. (its General Partner) By: Franklin Venture Capital Inc. (its General Partner) By: -------------------------------------- Vice President Address: 237 Second Avenue South Franklin, TN 37064 -28- HARVEST PARTNERS INTERNATIONAL, L.P. By: Harvest Associates International, L.P. (its General Partner) By: ------------------------------------- General Partner Address: 767 Third Avenue 7th Floor New York, New York 10017 DEUTSCHE BETEILIGUNGSGESELLSCHAFT By: /s/ [SIGNATURE ILLEGIBLE] ------------------------------------- Managing Director Address: Bockenheimer Landstrasse 42 D-6000 Frankfurt am Main 1 Germany 841 FRANKLIN CAPITAL ASSOCIATES II L.P. By: Franklin Ventures II L.P. (its General Partner) By: Franklin Venture Capital Inc. (its General Partner) By: -------------------------------------- Vice President Address: 237 Second Avenue South Franklin, TN 37064 -28- HARVEST PARTNERS INTERNATIONAL, L. P. By: Harvest Associates International, L.P. (its General Partner) By: ------------------------------------- General Partner Address: 767 Third Avenue 7th Floor New York, New York 10017 DEUTSCHE BETEILIGUNGSGESELLSCHAFT By: ------------------------------------- Managing Director Address: Bockenheimer Landstrasse 42 D-6000 Frankfurt am Main 1 Germany 841 FRANKLIN CAPITAL ASSOCIATES II L.P. By: Franklin Ventures II L.P. (its General Partner) By: Franklin Venture Capital Inc. (its General Partner) By: /s/ [SIGNATURE ILLEGIBLE] ------------------------------------ Vice President Address: 237 Second Avenue South Franklin, TN 37064 -28- HLM PARTNERS II L.P. By: HLM Associates, II, L.P. (its General Partner) By: /s/ [SIGNATURE ILLEGIBLE] ------------------------------------- General Partner Address: 222 Berkeley Street Boston, MA 02116 THE FORMANEK INVESTMENT TRUST By: -------------------------------------- Peter R. Formanek, Trustee Address: 3030 Poplar Avenue Memphis, TN 38111 ----------------------------------------- HOWARD E. COX, JR. Address: Greylock One Federal Street 26th Floor Boston, MA 02110 ----------------------------------------- DAVID BELLET Address: 125 East 72nd Street New York, New York 10021 -29- HLM PARTNERS II L.P. By: HLM Associates, II, L.P. (its General Partner) By: ------------------------------------- General Partner Address: 222 Berkeley Street Boston, MA 02116 THE FORMANEK INVESTMENT TRUST By: /s/ Peter R. Formanek -------------------------------------- Peter R. Formanek, Trustee Address: 3030 Poplar Avenue Memphis, TN 38111 ----------------------------------------- HOWARD E. COX, JR. Address: Greylock One Federal Street 26th Floor Boston, MA 02110 ----------------------------------------- DAVID BELLET Address: 125 East 72nd Street New York, New York 10021 -29- HLM PARTNERS II L.P. By: HLM Associates, II, L.P. (its General Partner) By: ------------------------------------- General Partner Address: 222 Berkeley Street Boston, MA 02116 THE FORMANEK INVESTMENT TRUST By: -------------------------------------- Peter R. Formanek, Trustee Address: 3030 Poplar Avenue Memphis, TN 38111 /s/ Howard E. Cox, Jr. ----------------------------------------- HOWARD E. COX, JR. Address: Greylock One Federal Street 26th Floor Boston, MA 02110 ----------------------------------------- DAVID BELLET Address: 125 East 72nd Street New York, New York 10021 -29- HLM PARTNERS II L.P. By: HLM Associates, II, L.P. (its General Partner) By: ------------------------------------- General Partner Address: 222 Berkeley Street Boston, MA 02116 THE FORMANEK INVESTMENT TRUST By: -------------------------------------- Peter R. Formanek, Trustee Address: 3030 Poplar Avenue Memphis, TN 38111 ----------------------------------------- HOWARD E. COX, JR. Address: Greylock One Federal Street 26th Floor Boston, MA 02110 /s/ David Bellet ----------------------------------------- DAVID BELLET Address: 125 East 72nd Street New York, New York 10021 -29- SCHEDULE A INVESTORS Galen Partners II, L.P. Galen Partners International II, L.P. Galen Associates Warburg, Pincus Investors, L.P. Harvest Partners International, L.P. Deutsche Beteiligungsgesellschaft Franklin Capital Associates II L.P. HLM Partners II L.P. The Formanek Investment Trust Howard E. Cox, Jr. David Bellet -30- SCHEDULE B NON-EXEMPT INDIVIDUALS Hugh A. Westbrook Esther T. Colliflower Donald E. Gaetz Earl M. Collier, Jr. J.R. Williams SCHEDULE 1 Exceptions to Certain Company Representations 1. Section 16 of the Company's Employee Stock Ownership Plan (the "Plan") provides that to the extent the Company is entitled to a right of first refusal with respect to proposed transfers of Company Stock (as defined in the Plan) by ESOP participants, such right must be exercised during a period not exceeding fourteen (14) days after receipt of a written offer from the ESOP participant proposing to transfer Company Stock. 2. Under the terms of Stock Option Agreements entered into pursuant to the Company's Management Equity Incentive Plan (the "MEIP"), the Company may assign its right of first refusal to (i) any stockholder of the Company who owns stock or securities having more than 35% of the combined voting power of all classes of stock of the Company, (ii) certain employee benefit plans (as defined therein), and (iii) an affiliate (as defined therein) of the Company. SCHEDULE 2 (a) The phrase "to the best knowledge of such Investor" shall be deleted. (b) The phrase "an indirect ownership interest (as that term is defined" shall be deleted and the phrase "a direct or indirect ownership interest (as those terms are defined" shall be substituted therefor. EX-10.7 8 EX-10.7 Exhibit 10.7 AGREEMENT THIS AGREEMENT ("Agreement") dated as of September 18, 1997 among VITAS HEALTHCARE CORPORATION, a Delaware corporation ("Vitas"), CHEMED CORPORATION, a Delaware corporation ("Chemed"), and OCR HOLDING COMPANY, a Nevada corporation and a wholly owned subsidiary of Chemed ("OCR"). WHEREAS, OCR is the holder of (i) 270,000 shares of 9.0% Cumulative Nonconvertible Preferred Stock, par value $1.00 per share ("9% Preferred Stock"), of Vitas, (ii) Warrant No. A-1 dated December 17, 1991 to purchase 2,556,153 shares of the common stock, par value $.001 per share ("Common Stock"), of Vitas, at an initial exercise price of $4.55 per share ("Warrant A"), and (iii) Warrant No. B-1 dated December 17, 1991 to purchase 1,396,805 shares of Common Stock of Vitas, at an initial exercise price of $4.56 per share ("Warrant B", and together with Warrant A, the "Chemed Warrants"); WHEREAS, the number of shares of Common Stock issuable under each Chemed Warrant and the exercise price thereof has been adjusted pursuant to that certain Acknowledgment, Stipulation and Waiver dated as of July 18, 1997 executed by each of Chemed and OCR (the "AS&W"); WHEREAS, Vitas is currently contemplating an initial public offering of its Common Stock that, if consummated, would qualify as a "Qualified Initial Public Offering" as such term is defined in Warrant A (the "Contemplated Offering"); WHEREAS, in connection with the Contemplated Offering, Vitas has requested that OCR and Chemed (i) consent to certain amendments to the Certificate of Designation, Preferences and Other Rights of 9.0% Cumulative Nonconvertible Preferred Stock of Vitas (the "9% Certificate of Designation") as described in the form of Certificate of Amendment to Amended and Restated Certificate of Incorporation of Vitas Healthcare Corporation attached as Exhibit A hereto (the "Certificate of Amendment") and (ii) agree to waive certain rights under, and take certain actions with respect to, each of the Chemed Warrants, as more fully described herein; WHEREAS, as an inducement to OCR's and Chemed's consent to the amendments set forth in the Certificate of Amendment and OCR's and Chemed's agreement to waive certain rights under, and take certain actions with respect to, each of the Chemed Warrants as more fully described herein, OCR and Chemed have requested that Vitas agree to take certain actions with respect to, and/or modify the terms and provisions of, the 9% Preferred Stock and each of the Chemed Warrants, as more fully described herein. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained and other good and valuable consideration given and received by each party, receipt of which is hereby acknowledged, the parties hereto agree as follows: 1. Certificate of Amendment. OCR and Chemed hereby agree to execute and deliver all consents, waivers or approvals required to be executed by either or both of them in connection with the Certificate of Amendment. Chemed and OCR hereby acknowledge that Vitas intends to file the Certificate of Amendment with the Secretary of State of Delaware as soon as practicable following Vitas' receipt of all consents, waivers or approvals required to be obtained for the execution, delivery and filing thereof. 2. Waiver of Adjustments. OCR and Chemed hereby agree that notwithstanding the terms of the Chemed Warrants, OCR and Chemed hereby waive any adjustment to the number of shares of Common Stock issuable under each Chemed Warrant and any adjustment to the Purchase Price per share (as such term is defined in the Chemed Warrants) as a result of the issuance of a new warrant to NationsBank, N.A. ("NationsBank") to purchase up to 291,918 shares of the Corporation's Common Stock (the "NationsBank Warrants") pursuant to an amendment to the Corporation's existing credit facility with NationsBank. Vitas, OCR and Chemed hereby agree that promptly following the issuance of the NationsBank Warrants, and in any event no later than 20 days following the date of such issuance, Vitas, OCR and Chemed shall enter into a mutually acceptable acknowledgment, stipulation and waiver as to the effect on the Chemed Warrants of such NationsBank Warrants becoming exercisable, if at all, such acknowledgment, stipulation and waiver to be in a form substantially similar to the AS&W. 3. Redemption of 9% Preferred Stock. Vitas hereby agrees to redeem all of the issued and outstanding shares of 9% Preferred Stock held by OCR immediately upon and subject to the closing of the Contemplated Offering using a portion of the net proceeds thereof, such redemption to be effected by Vitas pursuant to the terms of the 9% Certificate of Designation, as amended by the Certificate of Amendment. 4. Exercise of Warrant A. (a) OCR and Chemed hereby agree that immediately prior and subject to the closing of the Contemplated Offering, OCR shall exercise, and Chemed shall cause OCR to exercise, Warrant A, for cash or by delivery of shares of 9% Preferred Stock in accordance with the terms thereof, for such number of shares of Common Stock, at the then-current exercise price therefor, such that the aggregate exercise price for such shares paid to Vitas by OCR in respect of such shares equals at least $3,000,000. (b) OCR and Chemed hereby agree to notify Vitas in writing as soon as practicable, and in any event at least three (3) business days prior to the date Amendment No. 1 to the Registration Statement on Form S-1 is filed by Vitas with the 2 Securities and Exchange Commission with respect to the Contemplated Offering (which is expected to occur on or about October 20, 1997), in the event OCR intends to exercise Warrant A for a number of shares of Common Stock in excess of the minimum number required to be exercised by OCR pursuant to the terms of Section 4(a) of this Agreement. OCR and Chemed hereby agree that notwithstanding the terms of Warrant A, the terms of Section 4(a) of this Agreement or anything else to the contrary, in no event shall OCR be entitled to exercise Warrant A for such number of shares of Common Stock, at the then-current exercise price therefor, such that the aggregate exercise price for such shares paid to Vitas by OCR in respect of such shares exceeds $5,000,000 until the earlier of (1) a decision by the Board of Directors of Vitas to abandon the Contemplated Offering and (2) April 1, 1998, unless pursuant to Section 6 of Warrant A Vitas provides or is required to provide a notice to the holder of Warrant A of a transaction of the type described in Section 6 of Warrant A or as Vitas may otherwise approve in writing. (c) OCR and Chemed acknowledge that pursuant to the terms of Section 2(c) of Warrant A, as modified by Section 6(a) below, Warrant A shall expire upon the closing of the Contemplated Offering to the extent not exercised prior to its expiration. 5. Payment in Respect of Warrant B. Vitas, Chemed and OCR hereby agree that notwithstanding the terms of Warrant B, immediately prior and subject to the closing of the Contemplated Offering (i) Vitas (using a portion of the net proceeds of the Contemplated Offering) shall repurchase Warrant B from OCR, and OCR shall sell Warrant B to Vitas, for an amount equal to the greater of (x) (A) the spread value (if a positive number) as measured by the difference of (I) the offering price to the public of a share of Common Stock in the Contemplated Offering minus (II) the then-current exercise price of a share of Common Stock pursuant to Warrant B, multiplied by (B) the number of shares of Common Stock for which Warrant B is exercisable as of the closing of the Contemplated Offering, and (y) $700,000, and (ii) upon such payment, OCR shall surrender, and Chemed shall cause OCR to surrender, to Vitas Warrant B for cancellation. Chemed and OCR hereby further agree that notwithstanding the terms of Warrant B, OCR shall not be entitled exercise Warrant B until the earlier of (1) a decision by the Board of Directors of Vitas to abandon the Contemplated Offering and (2) April 1, 1998, unless pursuant to Section 6 of Warrant B Vitas provides or is required to provide a notice to the holder of Warrant B of a transaction of the type described in Section 6 of Warrant B or as Vitas may otherwise approve in writing. 6. Amendment of Chemed Warrants. (a) Vitas, Chemed and OCR hereby agree that Warrant A hereby is amended by deleting in its entirety Section 2(c) thereof and replacing it with the following: "(c) Expiration of Warrant. Subject to the terms and conditions hereof, including Sections 6 and 7 hereof, this Warrant, or any portion of this Warrant then outstanding, shall expire at the earlier of (1) eight years from the date it is first issued, as set forth on page 1 above (the "Expiration 3 Date")(provided that if all of the issued and outstanding shares of the Company's 9% Preferred Stock have not been redeemed on or prior to March 31, 1998, the Expiration Date shall automatically be extended by that number of days equal to the number of days beyond March 31, 1998 that all or any portion of the issued and outstanding shares of the 9% Preferred Stock remain outstanding, but in no event shall the Expiration Date be extended beyond December 16, 2005), or (2) upon the closing of a public offering of the Company's Common Stock resulting in gross proceeds of not less than $12 million and at a total market capitalization of the common equity of the Company at that time of not less than $60 million (a "Qualified Initial Public Offering")." (b) Vitas, Chemed and OCR hereby agree that Warrant B hereby is amended by deleting in its entirety Section 2(c) thereof and replacing it with the following: "(c) Expiration of Warrant. Subject to the terms and conditions hereof, including Sections 6 and 7 hereof, this Warrant, or any portion of this Warrant then outstanding, shall expire, unless it is exercised in full prior to its expiration, eight years from the date it is first issued, as set forth on page 1 above (the "Expiration Date")(provided that if all of the issued and outstanding shares of the Company's 9% Preferred Stock have not been redeemed on or prior to March 31, 1998, the Expiration Date shall automatically be extended by that number of days equal to the number of days beyond March 31, 1998 that all or any portion of the issued and outstanding shares of the 9% Preferred Stock remain outstanding, but in no event shall the Expiration Date be extended beyond December 16, 2005)." 7. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with, the laws of the State of Delaware (excluding the choice of law provisions thereof). 8. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be considered an original, but all of which together shall constitute one and the same instrument. 4 IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be duly executed and delivered on its behalf as of the date set first set forth above. VITAS HEALTHCARE CORPORATION By: /s/ Hugh A. Westbrook ----------------------------- Name: Hugh A. Westbrook Title: Chairman and Chief Executive Officer CHEMED CORPORATION By: /s/ Timothy S. O'Toole ----------------------------- Name: Timothy S. O'Toole Title: Executive Vice President & Treasurer OCR HOLDING COMPANY By: /s/ Kevin J. McNamara ----------------------------- Name: Kevin J. McNamara Title: Vice President 5 Exhibit A VITAS AGREES TO PROVIDE A COPY OF THIS EXHIBIT TO THE COMMISSION UPON REQUEST. EX-10.31 9 EXHIBIT 10.31 EXHIBIT 10.31 VITAS HEALTHCARE CORPORATION MANAGEMENT EQUITY INCENTIVE PLAN VITAS HEALTHCARE CORPORATION, a Delaware corporation (formerly named Hospice Care International) (the "Corporation"), sets forth herein the terms of this Management Equity Incentive Plan (the "Plan") as follows: 1. PURPOSE The Plan is intended to advance the interests of the Corporation and any "subsidiary corporation" thereof within the meaning of Section 424(f) of the Internal Revenue Code of 1986 (a "Subsidiary") by providing eligible individuals (as designated pursuant to Section 4 below) with incentives to improve business results, by providing an opportunity to acquire or increase a proprietary interest in the Corporation, which thereby will create a stronger incentive to expend maximum effort for the growth and success of the Corporation and its Subsidiaries, and will encourage such eligible individuals to continue to serve the Corporation and its Subsidiaries, whether as an employee, as a director, as an independent contractor or in some other capacity. To this end, the Plan provides for the grant of stock options, as set out herein. This Plan provides for the grant of stock options (each of which is an "Option") in accordance with the terms of the Plan. An Option may be an incentive stock option (an "ISO") intended to satisfy the applicable requirements under Section 422 of the Internal Revenue Code of 1986, as amended from time to time, or the corresponding provision of any subsequently-enacted tax statute (the "Code"), or a nonqualified stock option (an "NSO"). An Option is an NSO to the extent that the Option would exceed the limitations set forth in Section 7 below. An Option is also an NSO if either (i) the Option is specifically designated at the time of grant as not being an ISO or (ii) the Option does not otherwise satisfy the requirements of Code Section 422 at the time of grant. Each Option shall be evidenced by a written agreement between the Corporation and the recipient individual that sets out the terms and conditions of the grant as further described in Section 8. 2. ADMINISTRATION (a) Board. The Plan shall be administered by the Board of Directors of the Corporation (the "Board"), which shall have the full power and authority to take all actions and to make all determinations required or provided for under the Plan or any Option granted or Option Agreement (as defined in Section 8 below) entered into hereunder and all such other actions and determinations not inconsistent with the specific terms and provisions of the Plan deemed by the Board to be necessary or appropriate to the administration of the Plan or any Option granted or Option Agreement entered into hereunder. The interpretation and construction by the Board of any provision of the Plan or of any Option granted or Option Agreement entered into hereunder shall be final and conclusive. (b) Action by Committee. The Board may from time to time appoint a Stock Option Committee (the "Committee") consisting of two or more members of the Board of Directors who, in the sole discretion of the Board, may be the same Directors who serve on the Compensation Committee, subject to Section 2(d). The Board, in its sole discretion, may provide that the role of the Committee shall be limited to making recommendations to the Board concerning any determinations to be made and actions to be taken by the Board pursuant to or with respect to the Plan, or the Board may delegate to the Committee such powers and authorities related to the administration of the Plan, as set forth in Section 2(a) above, as the Board shall determine, consistent with the Certificate of Incorporation and By-laws of the Corporation and applicable law. In the event that the Plan or any Option granted or Option Agreement entered into hereunder provides for any action to be taken by or determination to be made by the Board, such action may be taken by or such determination may be made by the Committee if the power and authority to do so has been delegated to the Committee by the Board as provided for in this Section. Unless otherwise expressly determined by the Board, any such action or determination by the Committee shall be final and conclusive. (c) No Liability. No member, of the Board or of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted or Option Agreement entered into hereunder. (d) Applicability of Rule 16b-3. Those provisions of the Plan that make express reference to Rule 16b-3 shall apply to the Corporation only at such time as the Corporation's Stock (as defined in Section 3) is registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and then only to such persons as are required to file reports under Section 16(a) of the Exchange Act (each of whom is a "Reporting Person"). From and after such time as -2- the Corporation's Stock is registered under the Exchange Act (the "Registration Date"), the Board may act under the Plan (i) only if all members of the Board are "disinterested persons" as defined in Rule 16b-3 or (ii) by the determination of the Committee constituted as set forth in the following sentence. From and after the Registration Date, the Committee appointed pursuant to Section 2(b) shall consist of not fewer than two members of the Board none of whom, during the period of service on such Committee, and the twelve months prior thereto, shall have been granted or awarded an Option under this Plan or been granted or awarded an option or other security under any plan of the Corporation other than as permitted under Rule 16b-3(c)(2)(i), and each of whom shall qualify (at the time of appointment to the Committee and during all periods of service on the Committee) in all respects as a "disinterested person" as defined in Rule 16b-3. 3. STOCK The stock that may be issued pursuant to Options under the Plan shall be shares of common stock, par value $.00l per share, of the Corporation (the "Stock"), which shares may be treasury shares or authorized but unissued shares. The number of shares of Stock that may be issued pursuant to Options under the Plan shall not exceed, in the aggregate, One Million Two Hundred Eighty-Two Thousand (1,282,000) shares. If any Option expires, terminates, or is terminated or cancelled for any reason prior to exercise, the shares of Stock that were subject to the unexercised, forfeited, terminated or cancelled portion of such Option shall be available immediately for future grants of Options under the Plan; provided, however, shares of Stock that were subject to an Option that has been purchased pursuant to Section 11(c) shall not be available for future grants of Options under the Plan. 4. ELIGIBILITY (a) Designated Recipients. Subject to the next sentence, Options may be granted under the Plan to (i) any full-time employee of the Corporation or any Subsidiary (including any such individual who is an officer or director of the Corporation or any Subsidiary) as the Board shall determine and designate from time to time or (ii) any other individual (including a non-employee director of, or independent contractor providing services to, the Corporation or any Subsidiary) whose participation in the Plan is determined by the Board to be in the best interests of the Corporation and is -3- so designated by the Board. Options granted to a full-time employee shall be either ISOs or NSOs, as determined in the sole discretion of the Board, and Options granted to any other individual shall be NSOs. (b) Successive Grants. An individual may hold more than one Option, subject to such restrictions as are provided herein. 5. EFFECTIVE DATE AND TERM OF THE PLAN (a) Effective Date. The Plan shall be effective as of the date of adoption by the Board, subject to approval of the Plan within one year of such effective date by the affirmative vote of holders of a majority of the outstanding Stock entitled to vote, voting either in person or by proxy, at a duly held meeting of the stockholders or by written consent as permitted by law and in a manner that satisfies the requirements of Rule 16b-3(b) of the Exchange Act. Upon approval of the Plan by the stockholders of the Corporation as set forth above, however, all Options granted under the Plan on or after the effective date shall be fully effective as if the stockholders of the Corporation had approved the Plan on the Plan's effective date. If the stockholders fail to approve the Plan within one year of such effective date, any Options granted hereunder shall be null and void and of no effect. (b) Term. The Plan shall have no termination date, but no grant of an ISO may occur after the date that is ten years after the effective date. 6. GRANT OF OPTIONS Options. Subject to the terms and conditions of the Plan, the Board may, at any time and from time to time, grant to such eligible individuals as the Board may determine (each of the whom is an "Optionee"), Options to purchase such number of shares of Stock on such terms and conditions as the Board may determine, including any terms or conditions that may be necessary to qualify such Options as ISOs under Section 422 of the Code. Such authority specifically includes the authority, in order to effectuate the purposes of the Plan but without amending the Plan, to modify grants to eligible individuals who are foreign nationals or are individuals who are employed outside the United States to recognize differences in local law, tax policy, or custom. -4- 7. LIMITATIONS ON INCENTIVE STOCK OPTIONS (a) Price and Dollar Limitations. An Option that is designated as being one that is intended to qualify as an ISO shall qualify for treatment as an ISO only to the extent that the aggregate fair market value (determined at the time the Option is granted) of the Stock with respect to which all options that are intended to constitute "incentive stock options," within the meaning of Code Section 422, are exercisable for the first time by any Optionee during any calendar year (under the Plan and all other plans of the Optionee's employer corporation and its parent and subsidiary corporations within the meaning of Section 422(d) of the Code) does not exceed $100,000. (b) Parachute Limitations. Notwithstanding any other provision of this Plan or of any other agreement, contract, or understanding heretofore or hereafter entered into by the Optionee with the Corporation, except an agreement, contract, or understanding hereafter entered into that expressly modifies or excludes application of this paragraph (an "Other Agreement"), and notwithstanding any formal or informal plan or other arrangement for the direct or indirect provision of compensation to the Optionee (including groups or classes of participants or beneficiaries of which the Optionee is a member), whether or not such compensation is deferred, is in cash, or is in the form of a benefit to or for the Optionee (a "Benefit Arrangement"), if the Optionee is a "disqualified individual," as defined in Section 280G(c) of the Code, any Option held by that Optionee and any right to receive any payment or other benefit under this Plan shall not become exercisable or vested (i) to the extent that such right to exercise, vesting, payment, or benefit, taking into account all other rights, payments, or benefits to or for the Optionee under this Plan, all Other Agreements, and all Benefit Arrangements, would cause any payment or benefit to the Optionee under this Plan to be considered a "parachute payment" within the meaning of Section 280G(b)(2) of the Code as then in effect (a "Parachute Payment") and (ii) if, as a result of receiving a Parachute Payment, the aggregate after-tax amounts received by the Optionee from the Corporation under this Plan, all Other Agreements, and all Benefit Arrangements would be less than the maximum after-tax amount that could be received by him without causing any such payment or benefit to be considered a Parachute Payment. In the event that the receipt of any such right to exercise, vesting, payment, or benefit under this Plan, in conjunction with all other rights, payments, or benefits to or for the Optionee under any Other Agreement or any Benefit Arrangement would cause the Optionee -5- to be considered to have received a Parachute Payment under this Plan that would have the effect of decreasing the after-tax amount received by the Optionee as described in clause (ii) of the preceding sentence, then the Optionee shall have the right, in the Optionee's sole discretion, to designate those rights, payments, or benefits under this Plan, any Other Agreements, and any Benefit Arrangements that should be reduced or eliminated so as to avoid having the payment or benefit to the Optionee under this Plan be deemed to be a Parachute Payment. 8. OPTION AGREEMENTS All Options granted pursuant to the Plan shall be evidenced by agreements ("Option Agreements"), to be executed by the Corporation and by the Optionee, in such form or forms as the Board shall from time to time determine. Option Agreements covering Options granted from time to time or at the same time need not contain similar provisions; provided, however, that all such Option Agreements shall comply with all terms of the Plan. 9. OPTION PRICE The purchase price of each share of the Stock subject to an Option (the "Option Price") shall be fixed by the Board and stated in each Option Agreement. In the case of an Option intended to constitute an ISO, the Option Price shall be not less than the greater of par value or 100 percent of the fair market value of a share of Stock on the date on which the Option is granted (as determined in good faith by the Board); provided, however, that in the event the Optionee would otherwise be ineligible to receive an ISO by reason of the provisions of Sections 422(b)(6) and 424(d) of the Code (relating to stock ownership of more than ten percent), the Option Price of an Option that is intended to be an ISO shall not be less than the greater of par value or 110 percent of the fair market value of a share of Stock at the time such Option is granted. In the event that the Stock is listed on an established national or regional stock exchange, is admitted to quotation on the National Association of Securities Dealers Automated Quotation System, or is publicly traded in an established securities market, in determining the fair market value of the Stock, the Board shall use the closing price of the Stock on such exchange or system or in such market (the highest such closing price if there is more than one such exchange or market) on the trading date immediately before the -6- Option is granted (or, if there is no such closing price, then the Board shall use the mean between the highest bid and lowest asked prices or between the high and low prices on such date), or, if no sale of the Stock has been made on such day, on the next preceding day on which any such sale shall have been made. In the case of an Option that is an NSO, the Option Price shall not be less than par value. 10. TERM AND EXERCISE OF OPTIONS (a) Term. Upon the expiration of ten years from the date on which an ISO is granted or on such date prior thereto as may be fixed by the Board and stated in the Option Agreement relating to such Option, that ISO shall be ineligible for treatment as an "incentive stock option," as defined in Section 422 of the Code, and shall be exercisable only as an NSO. In the event the Optionee otherwise would be ineligible to receive an "incentive stock option" by reason of the provisions of Sections 422(b)(6) and 424(d) of the Code (relating to stock ownership of more than 10 percent), such ten year restriction on exercisability as an ISO shall be read to impose a five year restriction on such exercisability. If an Optionee shall terminate employment prior to the ten-year or five-year limitation described in the immediately preceding sentences, any outstanding ISO shall be ineligible for treatment as an "incentive stock option," as defined in Section 422 of the Code, and shall be exercisable only as an NSO, unless exercised within three months after such termination or, in the case of termination on account of "permanent and total disability" (within the meaning of Section 22(e)(3) of the Code), within one year after such termination. (b) Option Period and Limitations on Exercise. Each Option granted under the Plan shall be exercisable, in whole or in part, at any time and from time to time, over a period commencing on or after the date of grant and, to the extent that the Board determines and sets forth a termination date for such Option in the Option Agreement (including any amendment thereto), ending upon the stated expiration or termination date. The Board in its sole discretion may specify events or circumstances, including the giving of notice, which will cause an Option to terminate as set forth in the Option Agreement or in this Plan. No Option granted to a Reporting Person shall be exercisable during the first six months after the date of grant. Without limiting the foregoing but subject to the terms and conditions of the Plan, the Board may in its sole discretion provide that an Option may not be exercised in -7- whole or in part for any period or periods of time during which such Option is outstanding and may condition exercisability of an Option upon the attainment of performance objectives, upon continued service, upon certain events or transactions, or a combination of one or more of such factors, or otherwise, as set forth in the Option Agreement. Subject to the parachute payment restrictions under Section 7(b), however, the Board, in its sole discretion, may rescind, modify, or waive any such limitation or condition on the exercise of an Option contained in any Option Agreement, so as to accelerate the time at which the Option may be exercised. Notwithstanding any other provisions of the Plan, no Option granted to an Optionee under the Plan shall be exerisable in whole or in part prior to the date on which the stockholders of the Corporation approve the Plan, as provided in Section 5 above. (c) Method of Exercise. An Option that is exercisable hereunder may be exercised by delivery to the Corporation on any business day, at the Corporation's principal office, addressed to the attention of the President, of written notice of exercise, which notice shall specify the number of shares with respect to which the Option is being exercised and shall be accompanied by payment in full of the Option Price of the shares for which the Option is being exercised. The minimum number of shares of Stock with respect to which an Option may be exercised, in whole or in part, at any time shall be the lesser of (i) 100 shares or such lesser number set forth in the applicable Option Agreement and (ii) the maximum number of shares available for purchase under the Option at the time of exercise. Payment of the Option Price for the shares of Stock purchased pursuant to the exercise of an Option shall be made (i) in cash or in cash equivalents; (ii) to the extent permitted by applicable law and under the terms of the Option Agreement with respect to such Option, through the tender to the Corporation of shares of Stock, which shares shall be valued, for purposes of determining the extent to which the Option Price has been paid thereby, at their fair market value (determined in accordance with Section 9) on the date of exercise; (iii) to the extent permitted by applicable law and under the terms of the Option Agreement with respect to such Option, by the delivery of a promissory note of the person exercising the Option to the Corporation on such terms as shall be set out in such Option Agreement; (iv) to the extent permitted by applicable law and under the terms of the Option Agreement with respect to such Option, by causing the Corporation to withhold shares of Stock otherwise issuable pursuant to the exercise of an Option equal in value to the Option Price or portion thereof to be satisfied pursuant to this clause (iv); or (v) by a combination of the methods -8- described in (i), (ii), (iii), and (iv). An attempt to exercise any Option granted hereunder other than as set forth above shall be invalid and of no force and effect. Promptly after the exercise of an Option and the payment in full of the Option Price of the shares of Stock covered thereby, the individual exercising the Option shall be entitled to the issuance of a Stock certificate or Stock certificates evidencing his ownership of such shares. A separate Stock certificate or separate Stock certificates shall be issued for any shares purchased pursuant to the exercise of an Option that is an ISO, which certificate or certificates shall not include any shares that were purchased pursuant to the exercise of an Option that is an NSO. Unless otherwise stated in the applicable Option Agreement, an individual holding or exercising an Option shall have none of the rights of a stockholder (for example, the right to receive cash or stock dividend payments attributable to the subject shares or to direct the voting of the subject shares) until the shares of Stock covered thereby are fully paid and issued to him. Except as provided in Section 16 below, no adjustment shall be made for dividends or other rights for which the record date is prior to the date of such issuance. Shares issued pursuant to the exercise of any Option shall be subject to the applicable restrictions set out in Section 11 hereof. (d) Date of Grant. The date of grant of an Option under this Plan shall be the later of (i) the date as of which the Board approves the grant and (ii) the date as of which the Optionee and the Corporation or Subsidiary enter the relationship resulting in the Optionee being eligible for grants. 11. TRANSFERABILITY OF STOCK AND OPTIONS (a) Limitations on Transfer. During the lifetime of an Optionee, only such Optionee (or, in the event of legal incapacity or incompetency, the guardian or legal representative of the Optionee) may exercise the Option, except as otherwise specifically permitted by this Section 11(a). No ISO shall be assignable or transferable other than by will, in accordance with the laws of descent and distribution. Subject to the terms of the applicable Option Agreement, and to the extent the transfer is in compliance with the requirements of Rule 16b-3 and any other applicable restrictions on transfers, an Optionee who is not a Reporting Person may transfer an NSO to a family member of the Optionee (defined as an individual who is related to the Optionee by blood or adoption), to a trust established and maintained for the benefit of the -9- Optionee or a family member of the Optionee (as determined under applicable state law and the Code), or to a charitable organization to which contributions are deductible under Code Section 170 (without regard to any percentage limitations thereon). (b) Repurchase Rights. In the Board's sole discretion, the Board may provide in an Option Agreement that upon the termination of an Optionee's employment or other relationship with the Corporation or a Subsidiary (whether as an employee, a director, an independent contractor providing services to the Corporation or a Subsidiary, or otherwise), the Corporation shall have the right, for a period of up to twelve months following such termination, to repurchase any or all of the shares acquired by the individual pursuant to this Plan under an Option (including shares that were previously transferred pursuant to Section 11(d) below, unless otherwise specified in the Option Agreement), at a price equal to the fair market value of such shares on the date of termination (or at such other price or the fair market value on such other date as shall have been specified by the Board at the time of grant and set out in the appropriate Option Agreement with respect to the grant). In the Board's sole discretion and pursuant to the terms of Section 12, the Board may also provide in an Option Agreement that upon the exercise of an Option following termination of an Optionee's employment or other relationship with the Corporation or a Subsidiary (whether as an employee, a director, an independent contractor providing services to the Corporation or a Subsidiary, or otherwise), the Corporation shall have the right, for a period of up to twelve months following such exercise, to repurchase any or all such shares of Stock acquired by the Optionee pursuant to such exercise of such Option at a price that is equal to the fair market value of such shares (including shares that were previously transferred pursuant to Section 11(d) below, unless otherwise specified in the Option Agreement) on the date of exercise (or at such other price or the fair market value on such other date as shall have been specified by the Board at the time of grant and set out in the appropriate Option Agreement with respect to the grant). In the event that the Corporation determines that it cannot or will not exercise its rights to purchase Stock under this Section 11(b) and the applicable Option Agreement, in whole or in part, the Corporation may assign its rights, in whole or in part, to (i) any stockholder of the Corporation who owns stock or securities of the Corporation having more than 35 percent of the combined voting power of all classes of stock of the Corporation (a "Stockholder"), (ii) any employee benefit plan (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended) maintained - 10 - by the Corporation or a Subsidiary for the benefit of employees of the Corporation or a Subsidiary (a "Benefit Plan"), or (iii) any corporation or other trade or business that is controlled by or under common control with the Corporation (determined in accordance with the principles of Sections 414(b) and (c) of the Code and regulations thereunder) (an "Affiliate"). The Corporation shall give reasonable written notice to the individual of any assignment of its rights. "Fair market value," for purposes of this Section 11(b), shall be determined by the Board in the same manner used by it in good faith to determine fair market value for purposes of determining the Option Price pursuant to Section 9. (c) Purchase of Options. In the Board's sole discretion, the Board may provide in an Option Agreement that upon or after the termination of an Optionee's employment or other relationship with the Corporation or a Subsidiary (whether as an employee, a director, an independent contractor providing services to the Corporation or a Subsidiary, or otherwise), the Corporation shall have the right, at all times before the Option is exercised, to purchase in whole or in part each Option held by the Optionee (and each Option transferred by the Optionee pursuant to Section 11(a) above unless otherwise specified in the Option Agreement), at a price equal to the value of such Option on the date the Corporation delivers to the Optionee a notice that it is exercising such purchase rights. For this purpose, the value of the Option (or portion thereof being purchased) is equal to the excess (if any) of the fair market value of the shares of Stock that are subject to the Option, (determined by the Board in the same manner used by it in good faith to determine fair market value for purposes of determining the Option Price pursuant to Section 9) as of the date of such notice, over the aggregate Option Price of such shares. Upon payment (or tender of payment) of the applicable amount to the Optionee (or transferee of the Option), the Option shall be terminated and, if payment has been tendered but not made, shall only represent the right to receive such payment without interest. (d) Nontransferability of Shares. In the Board's sole discretion, the Board may provide in an Option Agreement that an Optionee (or such other individual who is entitled to exercise an Option) shall not sell, pledge, assign, gift, transfer, or otherwise dispose of any shares of Stock acquired pursuant to an Option to anyone without first offering such shares to the Corporation for purchase on the same terms and conditions as those offered the proposed transferee. If such a restriction applies to an individual pursuant to an Option Agreement, an individual who proposes such a transfer - 11 - (the "Transferor") shall notify the Corporation, in writing, of the identity of the proposed transferee and the terms and conditions of such proposed transfer. The Corporation may exercise its right of first refusal within 90 days after receiving such notice of the proposed transfer. The Corporation may assign its right of first refusal under this Section 11(d), in whole or in part, to a Stockholder, a Benefit Plan, or an Affiliate. The Corporation shall give reasonable written notice to the Transferor of any such assignment of its rights. If the Corporation (or its permitted assignee) fails to exercise such right of first refusal during this 90-day period, the Transferor may proceed with the proposed transfer at any time within the next 45 days, and if he does not do so, the restrictions of this Section 11(d) shall re-apply. The Option Agreement may provide that the restrictions of this Section 11(d) re-apply to any person to whom Stock that was originally acquired pursuant to an Option is sold, pledged, assigned, bequeathed, gifted, transferred or otherwise disposed of, without regard to the number of such subsequent transferees or the manner in which they acquire the Stock, but the Option Agreement may provide that the restrictions of this Section 11(d) do not apply to a transfer of Stock that occurs as a result of the death of the Transferor or of any subsequent transferee (but shall apply to the executor, the administrator or personal representative, the estate, and the legatees, beneficiaries and assigns thereof). (e) Legend. In order to enforce the restrictions imposed upon shares of Stock under this Plan or as provided in an Option Agreement, the Board may cause a legend or legends to be placed on any certificate representing shares issued pursuant to this Plan that complies with the applicable securities laws and regulations and makes appropriate reference to the restrictions imposed under it. (f) Put Rights. The Board, by inclusion of appropriate language in the Option Agreement, may grant the person acquiring shares of Stock thereunder the right to put such shares to the Corporation at the fair market value of such shares (as determined hereunder) at the time of exercise of such put, or at such other value as shall be specified in the Option Agreement, subject to such further terms and conditions as the Board shall include in the Option Agreement. 12. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP OF OPTIONEE In the Board's sole discretion, the Board may include language in an Option Agreement providing for the termination - 12 - of any unexercised Option in whole or in part upon or at any time after the termination of employment or other relationship of the Optionee with the Corporation or a Subsidiary (whether as an employee, a director, an independent contractor providing services to the Corporation or a Subsidiary, or otherwise). Whether a leave of absence or leave on military or government service shall constitute a termination of employment or other relationship of the Optionee with the Corporation or a Subsidiary for purposes of the Plan shall be determined by the Board, which determination shall be final and conclusive. 13. USE OF PROCEEDS The proceeds received by the Corporation from the sale of Stock pursuant to the exercise of Options granted under the Plan shall constitute general funds of the Corporation. 14. REQUIREMENTS OF LAW The Corporation shall not be required to sell or issue any shares of Stock under any Option if the sale or issuance of such shares would constitute a violation by the Optionee, the individual exercising the Option, or the Corporation of any provisions of any law or regulation of any governmental authority, including without limitation any federal or state securities laws or regulations. If at any time the Corporation shall determine, in its discretion, that the listing, registration, or qualification of any shares subject to the Option upon any securities exchange or under any state or federal law, or the consent or approval of any government regulatory or self-regulatory body is necessary or desirable as a condition of, or in connection with, the issuance or purchase of shares, the Option may not be exercised in whole or in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Corporation, and any delay caused thereby shall in no way affect the date of termination of the Option. Specifically in connection with the Securities Act of 1933 (as now in effect or as hereafter amended), upon the exercise of any Option, unless a registration statement under such Act is in effect with respect to the shares of Stock covered thereby, the Corporation shall not be required to sell or issue such shares unless the Board has received evidence satisfactory to it that the holder of such Option may acquire such shares pursuant to an exemption from registration under such Act. Any determination in this connection by the Board shall be final, binding, and conclusive. The Corporation may, - 13 - but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act of 1933 (as now in effect or as hereafter amended). The Corporation shall not be obligated to take any affirmative action in order to cause the exercise of an Option or the issuance of shares pursuant thereto to comply with any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes the requirement that an Option shall not be exercisable unless and until the shares of Stock covered by such Option are registered or are subject to an available exemption from registration, the exercise of such Option (under circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption. 15. AMENDMENT AND TERMINATION OF THE PLAN The Board may, at any time and from time to time, amend, suspend, or terminate the Plan as to any shares of Stock as to which Options have not been granted; provided, however, that no amendment by the Board shall, without approval by the affirmative vote of stockholders who hold at least a majority of the outstanding shares of stock of the Corporation entitled to vote thereon and who vote in person or by proxy at a duly constituted stockholders' meeting, or by consent as permitted by law, cause the Plan to not comply with Rule 16b-3 (or any successor rule or other regulatory requirements) or the Code. The Corporation, however, may retain the right in an Option Agreement to convert an ISO into an NSO. The Corporation may also retain the right in an Option Agreement to cause a forfeiture of the shares or gain realized by a holder of an Option on account of the holder taking actions in "competition with the Corporation," as defined in the applicable Option Agreement. Furthermore, the Corporation may, in the Option Agreement, retain the right to annul the grant of an Option, if the holder of such grant was an employee of the Corporation or a Subsidiary and is terminated "for cause," as defined in the applicable Option Agreement. Except as permitted under this Section 15 or Section 16 hereof, no amendment, suspension, or termination of the Plan shall, without the consent of the holder of the Option, alter or impair rights or obligations under any Option theretofore granted under the Plan. 16. EFFECT OF CHANGES IN CAPITALIZATION (a) Changes in Stock. If the number of outstanding shares of Stock is increased or decreased or the - 14 - shares of Stock are changed into or exchanged for a different number or kind of shares or other securities of the Corporation on account of any recapitalization, reclassification, stock split-up, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or decrease in such shares effected without receipt of consideration by the Corporation, occurring after the effective date of the Plan, the number and kind of shares for the acquisition of which Options may be granted under the Plan shall be adjusted proportionately and accordingly by the Corporation. In addition, the number and kind of shares for which Options are outstanding shall be adjusted proportionately and accordingly so that the proportionate interest of the holder of the Option immediately following such event shall, to the extent practicable, be the same as immediately before such event. Any such adjustment in outstanding Options shall not change the aggregate Option Price payable with respect to shares that are subject to the unexercised portion of the Option outstanding but shall include a corresponding proportionate adjustment in the Option Price per share. (b) Reorganization in Which the Corporation Is the Surviving Corporation. Subject to Subsection (c)(iv) hereof, if the Corporation shall be the surviving corporation in any reorganization, merger, or consolidation of the Corporation with one or more other corporations, any Option theretofore granted pursuant to the Plan shall pertain to and apply to the securities to which a holder of the number of shares of Stock subject to such Option would have been entitled immediately following such reorganization, merger, or consolidation, with a corresponding proportionate adjustment of the Option Price per share so that the aggregate Option Price thereafter shall be the same as the aggregate Option Price of the shares remaining subject to the Option immediately prior to such reorganization, merger, or consolidation. (c) Dissolution, Liquidation, Sale of Assets, Reorganization in which the Corporation Is Not the Surviving Corporation, Etc. The Plan and all Options outstanding hereunder shall terminate (i) upon the dissolution or liquidation of the Corporation, or (ii) upon a merger, consolidation, or reorganization of the Corporation with one or more other corporations in which the Corporation is not the surviving corporation, or (iii) upon a sale of substantially all of the assets of the Corporation to another person or entity, or (iv) upon a merger, consolidation or reorganization (or other transaction if so determined by the Board in its sole discretion) in which the Corporation is the surviving - 15 - corporation, that is approved by the Board and that results in any person or entity (other than persons who are holders of Stock of the Corporation at the time the Plan is approved by the stockholders and other than an Affiliate) owning 80 percent or more of the combined voting power of all classes of stock of the Corporation, except to the extent provision is made in writing in connection with any such transaction covered by clauses (i) through (iv) for the continuation of the Plan or the assumption of such Options theretofore granted, or for the substitution for such Options of new options covering the stock of a successor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and exercise prices, in which event the Plan and Options theretofore granted shall continue in the manner and under the terms so provided. In the event of any such termination of the Plan, each individual holding an Option shall have the right (subject to the general limitations on exercise set forth in Section 10(b) above), during such period occurring before such termination as the Board in its sole discretion shall determine and designate, and in any event immediately before the occurrence of such termination, to exercise such Option in whole or in part, to the extent that such Option was otherwise exercisable at the time such termination occurs, except that, by inclusion of appropriate language in an Option Agreement, the Board may provide that the Option may be exercised before termination without regard to any installment limitation or other condition on exercise imposed pursuant to Section 10(b) above. The Corporation shall send written notice of a transaction or event that will result in such a termination to all individuals who hold Options not later than the time at which the Corporation gives notice thereof to its stockholders. (d) Adjustments. Adjustments under this Section 16 related to stock or securities of the Corporation shall be made by the Board, whose determination in that respect shall be final, binding, and conclusive. No fractional shares of Stock or units of other securities shall be issued pursuant to any such adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole share or unit. (e) No Limitations on Corporation. The grant of an Option pursuant to the Plan shall not affect or limit in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure or to merge, consolidate, dissolve, or liquidate, or to sell or transfer all or any part of its business or assets. - 16 - 17. DISCLAIMER OF RIGHTS No provision in the Plan or in any Option granted or Option Agreement entered into pursuant to the Plan shall be construed to confer upon any individual the right to remain in the employ or service of or to maintain a relationship with the Corporation or any Subsidiary, or to interfere in any way with any contractual or other right or authority of the Corporation or any Subsidiary either to increase or decrease the compensation or other payments to any individual at any time, or to terminate any employment or other relationship between any individual and the Corporation or any Subsidiary. The obligation of the Corporation to pay any benefits pursuant to this Plan shall be interpreted as a contractual obligation to pay only those amounts described herein, in the manner and under the conditions prescribed herein. The Plan shall in no way be interpreted to require the Corporation to transfer any amounts to a third party trustee or otherwise hold any amounts in trust or escrow for payment to any participant or beneficiary under the terms of the Plan. 18. NONEXCLUSIVITY OF THE PLAN Neither the adoption of the Plan nor the submission of the Plan to the stockholders of the Corporation for approval shall be construed as creating any limitations upon the right and authority of the Board to adopt such other incentive compensation arrangements (which arrangements may be applicable either generally to a class or classes of individuals or specifically to a particular individual or particular individuals) as the Board in its discretion determines desirable, including, without limitation, the granting of stock options otherwise than under the Plan. 19. CAPTIONS The use of captions in this Plan or any Option Agreement is for the convenience of reference only and shall not affect the meaning of any provision of the Plan or such Option Agreement. 20. DISQUALIYING DISPOSITIONS If Stock acquired by exercise of an ISO granted under this Plan is disposed of within two years following the date of grant of the ISO or one year following the transfer of the - 17 - subject Stock to the Optionee (a "disqualifying disposition"), the holder of the Stock shall, immediately prior to such disqualifying disposition, notify the Corporation in writing of the date and terms of such disposition and provide such other information regarding the disposition as the Corporation may reasonably require. 21. WITHHOLDING TAXES (a) The Corporation shall have the right to deduct from payments of any kind otherwise due to an Optionee any Federal, state, or local taxes of any kind required by law to be withheld with respect to any shares issued upon the exercise of an Option under the Plan. At the time of exercise, the Optionee shall pay to the Corporation any amount that the Corporation may reasonably determine to be necessary to satisfy such withholding obligation. The Board in its sole discretion may provide in the Option Agreement that, subject to the prior approval of the Corporation, which may be withheld by the Corporation in its sole discretion, the Optionee may elect to satisfy such obligations, in whole or in part, (i) by causing the Corporation to withhold shares of Stock otherwise issuable pursuant to the exercise of an Option or (ii) by delivering to the Corporation shares of Stock already owned by the Optionee. The shares so delivered or withheld shall have a fair market value equal to such withholding obligations. The fair market value of the shares used to satisfy such withholding obligation shall be determined by the Corporation as of the date that the amount of tax to be withheld is to be determined. An Optionee who has made an election pursuant to this Section 21(a) may only satisfy his or her withholding obligation with shares of Stock that are not subject to any repurchase, forfeiture, unfulfilled vesting, or other similar requirements. (b) Notwithstanding the foregoing, in the case of a Reporting Person, no election to use shares for the payment of withholding taxes shall be effective unless made in compliance with any applicable requirements under Rule 16b-3(e) or any successor rule under the Exchange Act. 22. OTHER PROVISIONS Each Option granted under the Plan may be subject to, and the Option Agreement relating to such Option may contain, such other terms and conditions not inconsistent with the Plan as may be determined by the Board, in its sole discretion. Notwithstanding the foregoing, each ISO granted under the Plan - 18 - shall include those terms and conditions that are necessary to qualify the ISO as an "incentive stock option" within the meaning of the Section 422 of the Code or the regulations thereunder and shall not include any terms or conditions that are inconsistent therewith. 23. NUMBER AND GENDER With respect to words used in this Plan, the singular form shall include the plural form, the masculine gender shall include the feminine gender, etc., as the context requires. 24. SEVERABILITY If any provision of the Plan or any Option Agreement shall be determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining provisions hereof and thereof shall be severable and enforceable in accordance with their terms, and all provisions shall remain enforceable in any other jurisdiction. 25. GOVERNING LAW The validity and construction of this Plan and the instruments evidencing the Options granted hereunder shall be governed by the laws of the State of Delaware (excluding its choice of law rules). - 19 - The Plan was duly adopted and approved by the Board of Directors of the Corporation on the 30th day of June, 1992. ---------------------------- Secretary of the Corporation This Plan was duly approved by the Stockholders of the Corporation on the _______ day of _____, 1992. ---------------------------- Secretary of the Corporation - 20 - EX-10.32 10 EXHIBIT 10.32 FORM EXHIBIT 10.32 VITAS HEALTHCARE CORPORATION STOCK OPTION AGREEMENT This Stock Option Agreement (the "Option Agreement") is made as of June 30, 1992, by and between Vitas Healthcare Corporation, a Delaware corporation (the "Corporation"), and ____________, an individual who is employed by or otherwise has a relationship with the Corporation or its subsidiaries (the "Optionee"). WHEREAS, the Board of Directors of the Corporation has duly adopted and approved the Vitas Healthcare Corporation Management Equity Incentive Plan (the "Plan"), subject to approval by the stockholders of the Corporation, which Plan authorizes the Corporation to grant to eligible individuals options for the purchase of shares of the Corporation's common stock, par value $.001 per share, (the "Stock"); and WHEREAS, the Corporation has determined that it is desirable and in its best interests to grant to the Optionee, pursuant to the Plan (including Section 4(a) of the Plan), an option to purchase a certain number of shares of Stock, in order to provide the Optionee with an incentive to advance the interests of the Corporation and any "subsidiary corporation" thereof within the meaning of Section 424(f) of the Internal Revenue Code of 1986 (a "Subsidiary"), all according to the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties hereto do hereby agree as follows: 1. Grant of Option. Subject to the terms of the Plan (attached hereto as Exhibit A), and to the requisite approval of the Plan by the stockholders of the Corporation, the Corporation hereby grants to the Optionee the right and option (the "Option") to purchase from the Corporation, on the terms and subject to the conditions set forth in the Plan and in this Option Agreement, ___________ (___) shares of Stock. This Option shall not constitute an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The date of grant of this Option is June 30, 1992, the date on which the grant of the Option was approved by the Board of Directors of the Corporation (the "Board"). 2. Terms of Plan. The Option granted pursuant to this Option Agreement is granted subject to the terms and conditions set forth in the Plan. All terms and conditions of the Plan, as it may be amended from time to time, are hereby incorporated into this Option Agreement by reference and shall be deemed to be part of this Option Agreement, without regard to whether such terms and conditions are not otherwise set forth in this Option Agreement. In the event that there is any inconsistency between the provisions of this Option Agreement and of the Plan, the provisions of the Plan shall govern. 3. Price. The purchase price (the "Option Price") for the shares of Stock subject to the Option granted by this Option Agreement is $3.90 per share. 4. Vesting in Options. The Option becomes vested (i.e., nonforfeitable) as to 25% of the shares of Stock purchasable pursuant to the Option on or after June 30, 1993 (the "Anniversary Date"), if Optionee has been providing services to the Corporation or a Subsidiary continuously from the date of grant to the Anniversary Date. Thereafter, so long as continuous service has not been interrupted, the Option becomes vested (i.e., nonforfeitable) as to an additional 25% of the shares of Stock subject to the Option on or after each of the next three anniversaries of the Anniversary Date. Service for this purpose includes service as an employee, director or independent contractor providing services to the Corporation or a Subsidiary. For purposes of the Option Agreement, termination of service would not be deemed to occur if the Optionee, after terminating service in one capacity, continues to provide service to the Corporation or any Subsidiary in another capacity. Termination of service is sometimes also referred to herein as termination of employment or other relationship with the Corporation or its Subsidiaries. Termination of service (regardless of whether with or without cause or by reason of death, disability or voluntary resignation) results in forfeiture of that portion of the Option (if any) that has not yet vested (i.e., become nonforfeitable) but does not affect the exercisability of that portion of the Option (if any) that has vested and which continues to be subject to the limitations on exercise set forth in this Option Agreement and the Plan. 5. Exercise of Option. Except as otherwise provided herein, and subject to the provisions of the Plan, the Option granted pursuant to this Option Agreement shall be subject to exercise as follows: (a) Time of Exercise of Option. The Optionee may exercise the Option (subject to the limitations on exercise set forth in this Option Agreement and in the Plan), to the extent the Option is vested (i.e., nonforfeitable) and has not terminated under Section 5(b), on the earliest of the following: (i) nine years and ten months after the date of grant; (ii) the closing of a bona fide, firm commitment underwritten public offering of the Common Stock of the Corporation pursuant to a registration statement declared effective under the Securities Act of -2- 1933, as amended, and (iii) receipt by the Optionee of notice from the Corporation that the Corporation has entered into a definitive agreement or the Board has adopted definitive resolutions calling for the Corporation, subject to certain terms and conditions, to effect a transaction or event described in Section 7(c). No single exercise of the Option shall be for less than 100 shares of Stock, unless the number of shares purchased is the total number at the time available for purchase under this Option. (b) Termination of Option. The Option shall terminate upon the earliest of (i) the expiration of a period of ten years from the date of grant of the Option, as set forth in Section 1 above, (ii) the occurrence of a transaction or event described in Section 7(c) which causes termination of the Option, (iii) the Optionee's termination of employment or other relationship with the Corporation or a Subsidiary to the extent the Option has not become vested (i.e., nonforfeitable) in accordance with Section 4 or (iv) the purchase of the Option by the Corporation pursuant to Section 6(d). (c) Limitations on Exercise of Option. Notwithstanding the foregoing Subsections, in no event may the Option be exercised, in whole or in part, prior to the date the Plan is approved by the stockholders of the Corporation and in the event the stockholders fail to approve the Plan within one year of the date of its adoption by the Board, the Option shall be null and void and of no effect. (d) Method of Exercise of Option. Subject to the terms and conditions of this Option Agreement, the Option may be exercised by delivering written notice of exercise to the Corporation, at its principal office, addressed to the attention of the President, which notice shall specify the number of shares for which the Option is being exercised, and shall be accompanied by payment in full of the Option Price of the shares of Stock for which the Option is being exercised. Payment of the Option Price for the shares of Stock purchased pursuant to the exercise of the Option shall be made in cash or by certified check payable to the order of the Corporation. If the person exercising the Option is not the Optionee, such person shall also deliver with the notice of exercise appropriate proof of his or her right to exercise the Option. An attempt to exercise the Option granted hereunder other than as set forth above shall be invalid and of no force and effect. Promptly after exercise of the Option as provided for above, the Corporation shall deliver to the person exercising the Option a certificate or certificates for the shares of Stock being purchased. (e) Parachute Limitations. Notwithstanding any other provision of this Option Agreement or of any other agreement, contract, or understanding heretofore or hereafter entered into by the Optionee with the Corporation or any Subsidiary or Affiliate (as defined in Section 6(b)), except an agreement, contract, or understanding hereafter entered into that expressly -3- modifies or excludes application of this Section (the "Other Agreements"), and notwithstanding any formal or informal plan or other arrangement heretofore or hereafter adopted by the Corporation (or any such Subsidiary or Affiliate) for the direct or indirect compensation of the Optionee (including groups or classes of participants or beneficiaries of which the Optionee is a member), whether or not such compensation is deferred, is in cash, or is in the form of a benefit to or for the Optionee (a "Benefit Arrangement"), if the Optionee is a "disqualified individual," as defined in Section 280G(c) of the Code, the Option and any right to receive any payment or other benefit under the Plan shall not become exercisable or vested (i) to the extent that such right to exercise, vesting, payment, or benefit, taking into account all other rights, payments, or benefits to or for Optionee under the Plan, all Other Agreements, and all Benefit Arrangements, would cause any payment or benefit to the Optionee under this Option to be considered a "parachute payment" within the meaning of Section 280G(b)(2) of the Code as then in effect (a "Parachute Payment") and (ii) if, as a result of receiving a Parachute Payment, the aggregate after-tax amounts received by the Optionee from the Corporation under this Plan, all Other Agreements, and all Benefit Arrangements would be less than the maximum after-tax amount that could be received by Optionee without causing any such payment or benefit to be considered a Parachute Payment. In the event that the receipt of any such right to exercise, vesting, payment, or benefit under this Option, in conjunction with all other rights, payments, or benefits to or for the Optionee under the Plan, any Other Agreement or any Benefit Arrangement would cause the Optionee to be considered to have received a Parachute Payment under the Option that would have the effect of decreasing the after-tax amount received by the Optionee as described in clause (ii) of the preceding sentence, then the Optionee shall have the right, in the Optionee's sole discretion, to designate those rights, payments, or benefits under the Option, the Plan, any Other Agreements, and any Benefit Arrangements that should be reduced or eliminated so as to avoid having the payment or benefit to the Optionee under the Option be deemed to be a Parachute Payment. 6. Transferability. (a) Transferability of Options. During the lifetime of an Optionee, only such Optionee (or, in the event of legal incapacity or incompetency, the Optionee's guardian or legal representative) may exercise the Option. No Option shall be assignable or transferable by the Optionee to whom it is granted, other than by will or the laws of descent and distribution. (b) Nontransferability of Shares. An Optionee (or any other person who is entitled to exercise an Option pursuant to the terms of the Plan and this Option Agreement) shall not sell, pledge, assign, gift, transfer or otherwise dispose of any shares of Stock acquired pursuant to an Option to anyone without first offering such Stock to the Corporation for purchase on the same terms and conditions as those offered to the proposed transferee. Any individual who -4- proposes such a transfer (the "Transferor") shall notify the Corporation, in writing, of the identity of the proposed transferee and the terms and conditions of such proposed transfer. The Corporation may exercise its right of first refusal under this Subsection within 90 days after receiving such notice of the proposed transfer. The Corporation may assign its right of first refusal under this Subsection, in whole or in part, to (1) any stockholder of the Corporation who owns stock or securities of the Corporation having more than 35% of the combined voting power of all classes of stock of the Corporation (a "Stockholder"), (2) any employee benefit plan (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended) maintained by the Corporation or a Subsidiary for the benefit of employees of the Corporation or a Subsidiary (a "Benefit Plan"), or (3) any corporation or other trade or business that is controlled by or under common control with the Corporation (determined in accordance with the principles of Section 414(b) and Section 414(c) of the Code and the regulations thereunder) (an "Affiliate"). The Corporation shall give reasonable written notice to the Transferor of any such assignment of its rights. If the Corporation (or its permitted assignee) fails to exercise such right of first refusal during this 90-day period, the Transferor may proceed with the proposed transfer at any time within the next 45 days, and if he does not do so, the restrictions of this Subsection shall re-apply. These restrictions also shall re-apply to any person to whom Stock that was originally acquired pursuant to an Option is sold, pledged, assigned, bequeathed, gifted, transferred or otherwise disposed of without regard to the number of such subsequent transferees or the manner in which they acquire the Stock. Notwithstanding the foregoing, the restrictions of this Subsection shall not apply to a transfer of Stock that occurs as a result of the death of the Transferor or of any subsequent transferee but such restrictions shall apply to the executor, administrator or personal representative, the estate and the legatees, beneficiaries and assigns thereof. (c) Repurchase Rights. Upon the termination of employment or other relationship of the Optionee with the Corporation or a Subsidiary, the Corporation shall have the right, for a period of twelve months following such termination, to repurchase any or all of the shares of Stock acquired pursuant to such Option, at a price equal to the fair market value of such shares on the date the Corporation delivers to the Optionee, or other holder of such shares of Stock, notice that it is exercising its repurchase rights. Upon the exercise of the Option granted hereunder following the termination of employment or other relationship of the Optionee with the Corporation or a Subsidiary, the Corporation shall have the right, for a period of twelve months following such exercise, to repurchase any or all of the shares of Stock acquired by the Optionee pursuant to such exercise of such Option, at a price equal to the fair market value of such shares on the date the Corporation delivers to the Optionee, or other holder of such shares of Stock, notice that it is exercising its repurchase rights. In the event that the Corporation determines that it cannot or will not exercise its rights to purchase Stock pursuant to this Subsection, in whole or in part, the Corporation may assign its rights -5- hereunder, in whole or in part, to a Stockholder, a Benefit Plan or an Affiliate. The Corporation shall give reasonable written notice to the Optionee of any assignment of its rights. "Fair market value", for purposes of this Subsection, shall be determined by the Board in the same manner specified in the Plan for determining the Option Price. A notice of repurchase given pursuant to this Subsection shall specify the price and date of closing of such repurchase, which shall be no later than 30 days from the date of such notice. In the event any such repurchase rights are exercised in accordance with this Subsection, the holder of the Stock being repurchased shall be obligated to sell such Stock pursuant to the exercise of such rights. (d) Purchase of Option. Upon the termination of employment or other relationship of the Optionee with the Corporation or a Subsidiary, the Corporation shall have the right, at all times before the Option is exercised, to purchase the vested (i.e., nonforfeitable) portion of the Option, in whole or in part, at a price equal to the value of such Option on the date the Corporation delivers to the Optionee (or transferee of the Option pursuant to Section 6(a)), notice that it is exercising such purchase rights. For this purpose, the value of the Option is equal to the excess (if any) of the fair market value of the shares of Stock that are subject to the Option, determined by the Board in the same manner specified in the Plan for determining the Option Price as of the date of notice, over the aggregate Option Price of such shares. Upon payment (or tender of payment) in the applicable amount to the Optionee (or transferee of the Option), the vested (i.e. nonforfeitable) portion of the Option shall be terminated and, if payment has been tendered but not made, shall only represent the right to receive such payment without interest. A notice of purchase given pursuant to this Subsection shall specify the price and date of closing of such purchase which shall be no later than 30 days from the date of such notice. In the event any such purchase right is exercised in accordance with this Subsection, the Optionee (or holder of the Option) being purchased shall be obligated to sell such Option pursuant to the exercise of such rights. (e) Publicly Traded Stock. If the Stock is listed on an established national or regional stock exchange or is admitted to quotation on the National Association of Securities Dealers Automated Quotation System, or is publicly traded in an established securities market, the foregoing restrictions, purchase and repurchase rights of Sections 6(b), 6(c) and 6(d) shall terminate as of the first date that the Stock is so listed, quoted or publicly traded. (f) Installment Payments. In the case of any purchase of Stock or an Option under this Section 6, at the option of the Corporation or its permitted assignee the Corporation or its permitted assignee may pay the Optionee, transferee of the Option or other registered owner of the Stock the purchase price in three or fewer annual installments. Interest shall be credited on the installments at the applicable federal rate (as determined for purposes of Section -6- 1274 of the Code) in effect on the date on which the purchase is made. The Corporation or its permitted assignee shall pay at least one-third of the total purchase price each year, plus interest on the unpaid balance, with the first payment being made on or before the 60th day after the purchase. (g) Legend Describing Restrictions and Obligations. The Board may cause a legend to be placed prominently on certificates representing Stock issued pursuant to this Plan in order to give notice of the transferability restrictions, repurchase rights and other obligations imposed by this Section. 7. Effect of Changes in Capitalization (a) Changes in Stock. If the number of outstanding shares of Stock is increased or decreased or the shares of Stock are changed into or exchanged for a different number or kind of shares or other securities of the Corporation on account of any recapitalization, reclassification, stock split-up, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or decrease in such shares effected without receipt of consideration by the Corporation, occurring after the date of grant of the Option, the number and kind of shares of Stock for which the Option was granted shall be adjusted proportionately and accordingly so that the proportionate interest of the Optionee immediately following such event shall, to the extent practicable, be the same as immediately before such event. Any such adjustment in the Option shall not change the aggregate Option Price payable with respect to shares that are subject to the unexercised portion of the Option but shall include a corresponding proportionate adjustment in the Option Price per share. (b) Reorganization in Which the Corporation Is the Surviving Corporation. Subject to Subsection 7(c)(iv) hereof, if the Corporation shall be the surviving corporation in any reorganization, merger, or consolidation of the Corporation with one or more other corporations, the Option shall pertain to and apply to the securities to which a holder of the number of shares of Stock subject to the Option would have been entitled immediately following such reorganization, merger, or consolidation, with a corresponding proportionate adjustment of the Option Price per share so that the aggregate Option Price thereafter shall be the same as the aggregate Option Price of the shares remaining subject to the Option immediately prior to such reorganization, merger, or consolidation. (c) Dissolution, Liquidation, Sale of Assets, Reorganization in Which the Corporation Is Not the Surviving Corporation, Etc. The Option shall terminate (i) upon the dissolution or liquidation of the Corporation, or (ii) upon a merger, consolidation, or reorganization of the Corporation with one or more other corporations in which the Corporation is not the surviving corporation, -7- or (iii) upon a sale of substantially all of the assets of the Corporation to another person or entity, or (iv) upon a merger, consolidation or reorganization (or other transaction if so determined by the Board in its sole discretion) in which the Corporation is the surviving corporation, that is approved by the Board and that results in any person or entity (other than persons who are holders of Stock of the Corporation at the time the Plan is approved by the stockholders and other than an Affiliate) owning 80 percent or more of the combined voting power of all classes of stock of the Corporation, except to the extent provision is made in writing in connection with any such transaction covered by clauses (i) through (iv) for the assumption of the Option or for the substitution for the Option of a new option(s) covering the stock of a successor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and exercise prices, in which event the Option theretofore granted shall continue in the manner and under the terms so provided. In the event of any such termination of the Option, the Optionee shall have the right (subject to the general limitations on exercise set forth in Section 5), during such period occurring before such termination as the Board in its sole discretion shall determine and designate, and in any event immediately before the occurrence of such termination, to exercise such Option in whole or in part, to the extent that such Option was otherwise exercisable at the time such termination occurs. The Corporation shall send written notice of a transaction or event that will result in such a termination to Optionee not later than the time at which the Corporation gives notice thereof to its stockholders. (d) Adjustments. Adjustments under this Section 7 related to stock or securities of the Corporation shall be made by the Board, whose determination in that respect shall be final, binding, and conclusive. No fractional shares of Stock or units of other securities shall be issued pursuant to any such adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole share or unit. (e) No Limitations on Corporation. The grant of the Option shall not affect or limit in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure or to merge, consolidate, dissolve, or liquidate, or to sell or transfer all or any part of its business or assets. 8. Requirements of Law. The Corporation shall not be required to sell or issue any shares of Stock under the Option if the sale or issuance of such shares would constitute a violation by the Optionee, the individual exercising the Option, or the Corporation of any provisions of any law or regulation of any governmental authority, including without limitation any federal or state securities laws or regulations. If at any time the Corporation shall determine, in its discretion, that the listing, registration, or qualification of any shares subject to the Option upon any securities exchange or under any state or federal law, or the -8- consent or approval of any government regulatory or self-regulatory body is necessary or desirable as a condition of, or in connection with the issuance or purchase of shares, the Option may not be exercised in whole or in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Corporation, and any delay caused thereby shall in no way affect the date of termination of the Option. Specifically in connection with the Securities Act of 1933 (as now in effect or as hereafter amended), upon the exercise of any Option, unless a registration statement under such Act is in effect with respect to the shares of Stock covered thereby, the Corporation shall not be required to sell or issue such shares unless the Board has received evidence satisfactory to it that the holder of such Option may acquire such shares pursuant to an exemption from registration under such Act. Any determination in this connection by the Board shall be final, binding, and conclusive. The Corporation may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act of 1933 (as now in effect or as hereafter amended). The Corporation shall not be obligated to take any affirmative action in order to cause the exercise of an Option or the issuance of shares pursuant thereto to comply with any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes the requirement that an Option shall not be exercisable unless and until the shares of Stock covered by such Option are registered or are subject to an available exemption from registration, the exercise of such Option (under circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption. 9. Rights as Stockholder. Neither the Optionee nor any executor, administrator, distributee or legatee of the Optionee's estate shall be, or have any of the rights or privileges of, a stockholder of the Corporation in respect of any shares of Stock issuable hereunder unless and until such shares have been fully paid and certificates representing such shares have been endorsed, transferred and delivered, and the name of the Optionee (or of such personal representative, administrator, distributee or legatee of the Optionee's estate) has been entered as the stockholder of record on the books of the Corporation. 10. Withholding of Taxes. The parties hereto recognize that the Corporation or a Subsidiary may be obligated to withhold federal, state and local income taxes and Social Security taxes to the extent that the Optionee realizes ordinary income in connection with the exercise of the Option or in connection with a disposition of any shares of Stock acquired by exercise of the Option. The Optionee agrees that the Corporation or a Subsidiary may withhold amounts needed to cover such taxes from payments otherwise due and owing to the Optionee, and also agrees that upon demand the Optionee will promptly pay to the Corporation or a Subsidiary having such obligation any additional amounts as may be necessary to satisfy such withholding tax obligation. Such payment shall -9- be made in cash or by certified check payable to the order of the Corporation or a Subsidiary. 11. Disclaimer of Rights. No provision in this Option Agreement shall be construed to confer upon the Optionee the right to remain in the employ or service of or to maintain a relationship with the Corporation or any Subsidiary, or to interfere in any way with any contractual or other right or authority of the Corporation or any Subsidiary either to increase or decrease the compensation of the Optionee at any time, or to terminate any employment or other relationship between the Optionee and the Corporation or any Subsidiary. 12. Interpretation of this Option Agreement. All decisions and interpretations made by the Board or the Stock Option Committee thereof with regard to any question arising under the Plan or this Option Agreement shall be binding and conclusive on the Corporation and the Optionee and any other person entitled to exercise the Option as provided for herein. 13. Governing Law. This Option Agreement shall be governed by the laws of the State of Delaware (excluding its choice of law rules). 14. Approval by Stockholders. This Option Agreement and the issuance of any shares under it are expressly subject to the approval of the Plan by the stockholders of the Corporation as provided for therein. The Option shall not in any event be exercisable in whole or in part prior to the date the Plan is approved by the stockholders of the Corporation as provided for therein. 15. Binding Effect. Subject to all restrictions provided for in this Option Agreement, the Plan and by applicable law limiting assignment and transfer of this Option Agreement and the Option provided for herein, this Option Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors, and assigns. 16. Notice. Any notice hereunder by the Optionee to the Corporation shall be in writing and shall be deemed duly given if mailed or delivered to the Corporation at its principal office, addressed to the attention of the President, or if so mailed or delivered to such other address as the Corporation may hereafter designate by notice to the Optionee. Any notice hereunder by the Corporation to the Optionee shall be in writing and shall be deemed duly given if mailed or delivered to the Optionee at the address specified below by the Optionee for such purpose, or if so mailed or delivered to such other address as the Optionee may hereafter designate by written notice given to the Corporation. 17. Entire Agreement. This Option Agreement and the Plan together constitute the entire agreement and supersede all prior understandings and agreements, written or oral, of the parties hereto with respect to the subject -10- matter hereof. Neither this Option Agreement nor any term hereof may be amended, waived, discharged or terminated except by a written instrument signed by the Corporation and the Optionee; provided, however, that the Corporation unilaterally may waive any provision hereof in writing to the extent that such waiver does not adversely affect the interests of the Optionee hereunder, but no such waiver shall operate as or be construed to be a subsequent waiver of the same provision or a waiver of any other provision hereof. IN WITNESS WHEREOF, the parties hereto have duly executed this Option Agreement, or caused this Option Agreement to be duly executed in their name and on their behalf, as of the day and year first above written. VITAS HEALTHCARE CORPORATION By: --------------------------------- Title: ------------------------------ OPTIONEE: ------------------------------------ ADDRESS FOR NOTICE TO OPTIONEE: ------------------------------------ Number Street ------------------------------------ City State Zip Code -11- EX-10.33 11 EXHIBIT 10.33 EXHIBIT 10.33 VITAS HEALTHCARE CORPORATION 1994 MANAGEMENT EQUITY INCENTIVE PLAN VITAS HEALTHCARE CORPORATION, a Delaware corporation (the "Corporation"), sets forth herein the terms of this 1994 Management Equity Incentive Plan (the "Plan") as follows: 1. PURPOSE The Plan is intended to advance the interests of the Corporation and any "subsidiary corporation" thereof within the meaning of Section 424(f) of the Internal Revenue Code of 1986 (a "Subsidiary") by providing eligible individuals (as designated pursuant to Section 4 below) with incentives to improve business results, by providing an opportunity to acquire or increase a proprietary interest in the Corporation, which thereby will create a stronger incentive to expend maximum effort for the growth and success of the Corporation and its Subsidiaries, and will encourage such eligible individuals to continue to serve the Corporation and its Subsidiaries, whether as an employee, as a director, as an independent contractor or in some other capacity. To this end, the Plan provides for the grant of stock options, as set out herein. This Plan provides for the grant of stock options (each of which is an "Option") in accordance with the terms of the Plan. An Option may be an incentive stock option (an "ISO") intended to satisfy the applicable requirements under Section 422 of the Internal Revenue Code of 1986, as amended from time to time, or the corresponding provision of any subsequently-enacted tax statute (the "Code"), or a nonqualified stock option (an "NS0"). An Option is an NSO to the extent that the Option would exceed the limitations set forth in Section 7 below. An Option is also an NSO if either (i) the Option is specifically designated at the time of grant as an NSO or not being an ISO or (ii) the Option does not otherwise satisfy the requirements of Code Section 422 at the time of grant. Each Option shall be evidenced by a written agreement between the Corporation and the recipient individual that sets out the terms and conditions of the grant as further described in Section 8. 2. ADMINISTRATION (a) Board. The Plan shall be administered by the Board of Directors of the Corporation (the "Board"), which shall have the full power and authority to take all actions and to make all determinations required or provided for under the Plan or any Option granted or Option Agreement (as defined in Section 8 below) entered into hereunder and all such other actions and determinations not inconsistent with the specific terms and provisions of the Plan deemed by the Board to be necessary or appropriate to the administration of the Plan or any Option granted or Option Agreement entered into hereunder. The interpretation and construction by the Board of any provision of the Plan or of any Option granted or Option Agreement entered into hereunder shall be final and conclusive. (b) Action by Committee. The Board from time to time may appoint a Stock Option Committee consisting of two or more members of the Board of Directors who, in the sole discretion of the Board, may be the same Directors who serve on the Compensation Committee, subject to Section 2(d), or may appoint the Compensation Committee to serve as the Stock Option Committee (the "Committee"), subject to Section 2(d). The Board, in its sole discretion, may provide that the role of the Committee shall be limited to making recommendations to the Board concerning any determinations to be made and actions to be taken by the Board pursuant to or with respect to the Plan, or the Board may delegate to the Committee such powers and authorities related to the administration of the Plan, as set forth in Section 2(a) above, as the Board shall determine, consistent with the Certificate of Incorporation and By-laws of the Corporation and applicable law. In the event that the Plan or any Option granted or Option Agreement entered into hereunder provides for any action to be taken by or determination to be made by the Board, such action may be taken by or such determination may be made by the Committee if the power and authority to do so has been delegated to the Committee by the Board as provided for in this Section. Unless otherwise expressly determined by the Board, any such action or determination by the Committee shall be final and conclusive. (c) No Liability. No member of the Board or of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted or Option Agreement entered into hereunder. (d) Applicability of Rule 16b-3. Those provisions of the Plan that make express reference to Rule 16b-3 shall apply to the Corporation only at such time as the Corporation's Stock (as defined in Section 3) or any other equity security of the Corporation is registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and then only to such persons as -2- are required to file reports under Section 16(a) of the Exchange Act (each of whom is a "Reporting Person"). From and after such time as the Corporation's Stock or any other equity security of the Corporation is registered under the Exchange Act (the "Registration Date"), the Board may act under the Plan (i) only if all members of the Board are "disinterested persons" as defined in Rule 16b-3 or (ii) by the determination of the Committee constituted as set forth in the following sentence. From and after the Registration Date, the Committee appointed pursuant to Section 2(b) shall consist of not fewer than two members of the Board each of whom shall qualify (at the time of appointment to the Committee and during all periods of service on the Committee) in all respects as a "disinterested person" as defined in Rule 16b-3. 3. STOCK The stock that may be issued pursuant to Options under the Plan shall be shares of common stock, par value $.001 per share, of the Corporation (the "Stock"), which shares may be treasury shares or authorized but unissued shares. The number of shares of Stock that may be issued pursuant to Options under the Plan shall not exceed, in the aggregate, one million (1,000,000) shares. If any Option expires, terminates, or is terminated or cancelled for any reason prior to exercise, the shares of Stock that were subject to the unexercised, forfeited, terminated or cancelled portion of such Option shall be available immediately for future grants of Options under the Plan; provided, however, shares of Stock that were subject to an Option that has been purchased pursuant to Section 11(c) shall not be available for future grants of Options under the Plan. 4. ELIGIBILITY (a) Designated Recipients. Subject to the next sentence, Options may be granted under the Plan to (i) any full-time employee of the Corporation or any Subsidiary (including any such individual who is an officer or director of the Corporation or any Subsidiary) as the Board shall determine and designate from time to time or (ii) any other individual (including a non-employee director of, or independent contractor providing services to, the Corporation or any Subsidiary) whose participation in the Plan is determined by the Board to be in the best interests of the Corporation and is so designated by the Board. Options granted to a full-time employee shall be either ISOs or NSOs, as determined in the sole discretion of the Board, and Options granted to any other individual shall be NSOs. (b) Successive Grants. An individual may hold more than one Option, subject to such restrictions as are provided herein. -3- 5. EFFECTIVE DATE AND TERM OF THE PLAN (a) Effective Date. The Plan shall be effective as of the date of adoption by the Board, subject to approval of the Plan within one year of such effective date by the affirmative vote of stockholders who hold more than fifty percent (50%) of the combined voting power of the outstanding shares of voting stock of the Corporation present or represented, and entitled to vote thereon at a duly constituted stockholders' meeting, or by consent as permitted by law and in a manner that satisfies the requirements of Rule 16b-3(b) of the Exchange Act. Upon approval of the Plan by the stockholders of the Corporation as set forth above, however, all Options granted under the Plan on or after the effective date shall be fully effective as if the stockholders of the Corporation had approved the Plan on the Plan's effective date. If the stockholders fail to approve the Plan within one year of such effective date, any Options granted hereunder shall be null and void and of no effect. (b) Term. The Plan shall have no termination date, but no grant of an ISO may occur after the date that is ten years after the effective date. 6. GRANT OF OPTIONS (a) General. Subject to the terms and conditions of the Plan, the Board may, at any time and from time to time, grant to such eligible individuals as the Board may determine (each of the whom is an "Optionee"), Options to purchase such number of shares of Stock on such terms and conditions as the Board may determine, including any terms or conditions that may be necessary to qualify such Options as ISOs under Section 422 of the Code. Such authority specifically includes the authority, in order to effectuate the purposes of the Plan but without amending the Plan, to modify grants to eligible individuals who are foreign nationals or are individuals who are employed outside the United States to recognize differences in local law, tax policy, or custom. (b) Limitation on Grants of Options. The maximum number of shares subject to Options that can be granted under the Plan to any executive officer of the Company or a Subsidiary, or to any other person eligible for a grant of an Option under Section 4, is 500,000 shares during the first ten years after the effective date of the Plan and 50,000 shares per year thereafter. -4- 7. LIMITATIONS ON INCENTIVE STOCK OPTIONS (a) Price and Dollar Limitations. An Option that is designated as being one that is intended to qualify as an ISO shall qualify for treatment as an ISO only to the extent that the aggregate fair market value (determined at the time the Option is granted) of the Stock with respect to which all options that are intended to constitute "incentive stock options," within the meaning of Code Section 422, are exercisable for the first time by any Optionee during any calendar year (under the Plan and all other plans of the Optionee's employer corporation and its parent and subsidiary corporations within the meaning of Section 422(d) of the Code) does not exceed $100,000. (b) Parachute Limitations. Notwithstanding any other provision of this Plan or of any other agreement, contract, or understanding heretofore or hereafter entered into by the Optionee with the Corporation, except an agreement, contract, or understanding hereafter entered into that expressly modifies or excludes application of this paragraph (an "Other Agreement"), and notwithstanding any formal or informal plan or other arrangement for the direct or indirect provision of compensation to the Optionee (including groups or classes of participants or beneficiaries of which the Optionee is a member), whether or not such compensation is deferred, is in cash, or is in the form of a benefit to or for the Optionee (a "Benefit Arrangement"), if the Optionee is a "disqualified individual," as defined in Section 280G(c) of the Code, any Option held by that Optionee and any right to receive any payment or other benefit under this Plan shall not become exercisable or vested (i) to the extent that such right to exercise, vesting, payment, or benefit, taking into account all other rights, payments, or benefits to or for the Optionee under this Plan, all Other Agreements, and all Benefit Arrangements, would cause any payment or benefit to the Optionee under this Plan to be considered a "parachute payment" within the meaning of Section 280G(b)(2) of the Code as then in effect (a "Parachute Payment") and (ii) if, as a result of receiving a Parachute Payment, the aggregate after-tax amounts received by the Optionee from the Corporation under this Plan, all Other Agreements, and all Benefit Arrangements would be less than the maximum after-tax amount that could be received by him without causing any such payment or benefit to be considered a Parachute Payment. In the event that the receipt of any such right to exercise, vesting, payment, or benefit under this Plan, in conjunction with all other rights, payments, or benefits to or for the Optionee under any Other Agreement or any Benefit Arrangement would cause the Optionee to be considered to have received a Parachute Payment under this Plan that would have the effect of decreasing the after-tax amount received by the Optionee as described in clause (ii) of the preceding sentence, then the Optionee shall have the right, in the Optionee's sole discretion, to designate those rights, payments, or benefits under this Plan, any Other Agreements, and any Benefit Arrangements that should be reduced -5- or eliminated so as to avoid having the payment or benefit to the Optionee under this Plan be deemed to be a Parachute Payment. 8. OPTION AGREEMENTS All Options granted pursuant to the Plan shall be evidenced by agreements ("Option Agreements"), to be executed by the Corporation and by the Optionee, in such form or forms as the Board shall from time to time determine. Option Agreements covering Options granted from time to time or at the same time need not contain similar provisions; provided, however, that all such Option Agreements shall comply with all terms of the Plan. 9. OPTION PRICE The purchase price of each share of the Stock subject to an Option (the "Option Price") shall be fixed by the Board and stated in each Option Agreement. In the case of an Option intended to constitute an ISO, the Option Price shall be not less than the greater of par value or 100 percent of the fair market value of a share of Stock on the date on which the Option is granted (as determined in good faith by the Board); provided, however, that in the event the Optionee would otherwise be ineligible to receive an ISO by reason of the provisions of Sections 422(b) and 424(d) of the Code (relating to stock ownership of more than ten percent), the Option Price of an Option that is intended to be an ISO shall not be less than the greater of par value or 110 percent of the fair market value of a share of Stock at the time such Option is granted. In the event that the Stock is listed on an established national or regional stock exchange, is admitted to quotation on the National Association of Securities Dealers Automated Quotation System, or is publicly traded in an established securities market, in determining the fair market value of the Stock, the Board shall use the closing price of the Stock on such exchange or system or in such market (the highest such closing price if there is more than one such exchange or market) on the trading date immediately before the Option is granted (or, if there is no such closing price, then the Board shall use the mean between the highest bid and lowest asked prices or between the high and low prices on such date), or, if no sale of the Stock has been made on such day, on the next preceding day on which any such sale shall have been made. In the case of an Option that is an NSO, the Option Price shall not be less than par value. -6- 10. TERM AND EXERCISE OF OPTIONS (a) Term. Upon the expiration of ten years from the date on which an ISO is granted or on such date prior thereto as may be fixed by the Board and stated in the Option Agreement relating to such Option, that ISO shall be ineligible for treatment as an "incentive stock option," as defined in Section 422 of the Code, and shall be exercisable only as an NSO. In the event the Optionee otherwise would be ineligible to receive an "incentive stock option" by reason of the provisions of Sections 422(b)(6) and 424(d) of the Code (relating to stock ownership of more than 10 percent), such ten year restriction on exercisability as an ISO shall be read to impose a five year restriction on such exercisability. If an Optionee shall terminate employment prior to the ten-year or five-year limitation described in the immediately preceding sentences, any outstanding ISO shall be ineligible for treatment as an "incentive stock option," as defined in Section 422 of the Code, and shall be exercisable only as an NSO, unless exercised within three months after such termination or, in the case of termination on account of "permanent and total disability" (within the meaning of Section 22(e)(3) of the Code), within one year after such termination. (b) Option Period and Limitations on Exercise. Each Option granted under the Plan shall be exercisable, in whole or in part, at any time and from time to time, over a period commencing on or after the date of grant and, to the extent that the Board determines and sets forth a termination date for such Option in the Option Agreement (including any amendment thereto), ending upon the stated expiration or termination date. The Board in its sole discretion may specify events or circumstances, including the giving of notice, which will cause an Option to terminate as set forth in the Option Agreement or in this Plan. No Option granted to a Reporting Person shall be exercisable during the first six months after the date of grant. Without limiting the foregoing but subject to the terms and conditions of the Plan, the Board may in its sole discretion provide that an Option may not be exercised in whole or in part for any period or periods of time during which such Option is outstanding and may condition exercisability (or vesting i.e., non-forfeiture) of an Option upon the attainment of performance objectives, upon continued service, upon certain events or transactions, or a combination of one or more of such factors, or otherwise, as set forth in the Option Agreement. Subject to the parachute payment restrictions under Section 7(b), however, the Board, in its sole discretion, may rescind, modify, or waive any such limitation or condition on the exercise of an Option contained in any Option Agreement, so as to accelerate the time at which the Option may be exercised. Notwithstanding any other provisions of the Plan, no Option granted to an Optionee under the Plan shall be exercisable in whole or in part prior to the date on which the stockholders of the Corporation approve the Plan, as provided in Section 5 above. -7- (c) Method of Exercise. An Option that is exercisable hereunder may be exercised by delivery to the Corporation on any business day, at the Corporation's principal office, addressed to the attention of the President, of written notice of exercise, which notice shall specify the number of shares with respect to which the Option is being exercised and shall be accompanied by payment in full of the Option Price of the shares for which the Option is being exercised. The minimum number of shares of Stock with respect to which an Option may be exercised, in whole or in part, at any time shall be the lesser of (i) 100 shares or such lesser number set forth in the applicable Option Agreement and (ii) the maximum number of shares available for purchase under the Option at the time of exercise. Payment of the Option Price for the shares of Stock purchased pursuant to the exercise of an Option shall be made (i) in cash or in cash equivalents; (ii) to the extent permitted by applicable law and under the terms of the Option Agreement with respect to such Option, through the tender to the Corporation of shares of Stock, which shares shall be valued, for purposes of determining the extent to which the Option Price has been paid thereby, at their fair market value (determined in accordance with Section 9) on the date of exercise; (iii) to the extent permitted by applicable law and under the terms of the Option Agreement with respect to such Option, by the delivery of a promissory note of the person exercising the Option to the Corporation on such terms as shall be set out in such Option Agreement; (iv) to the extent permitted by applicable law and under the terms of the Option Agreement with respect to such Option, by causing the Corporation to withhold shares of Stock otherwise issuable pursuant to the exercise of an Option equal in value to the Option Price or portion thereof to be satisfied pursuant to this clause (iv); or (v) by a combination of the methods described in (i), (ii), (iii), and (iv). An attempt to exercise any Option granted hereunder other than as set forth above shall be invalid and of no force and effect. Promptly after the exercise of an Option and the payment in full of the Option Price of the shares of Stock covered thereby, the individual exercising the Option shall be entitled to the issuance of a Stock certificate or Stock certificates evidencing his ownership of such shares. A separate Stock certificate or separate Stock certificates shall be issued for any shares purchased pursuant to the exercise of an Option that is an ISO, which certificate or certificates shall not include any shares that were purchased pursuant to the exercise of an Option that is an NSO. Unless otherwise stated in the applicable Option Agreement, an individual holding or exercising an Option shall have none of the rights of a stockholder (for example, the right to receive cash or stock dividend payments attributable to the subject shares or to direct the voting of the subject shares) until the shares of Stock covered thereby are fully paid and issued to him. Except as provided in Section 16 below, no adjustment shall be made for dividends or other rights for which the record date is prior to the date of such issuance. Shares issued pursuant to the exercise of any Option shall be subject to the applicable restrictions set out in Section 11 hereof. -8- (d) Date of Grant. The date of grant of an Option under this Plan shall be the later of (i) the date as of which the Board approves the grant and (ii) the date as of which the Optionee and the Corporation or Subsidiary enter the relationship resulting in the Optionee being eligible for grants. 11. TRANSFERABILITY OF STOCK AND OPTIONS (a) Limitations on Transfer. During the lifetime of an Optionee, only such Optionee (or, in the event of legal incapacity or incompetency, the guardian or legal representative of the Optionee) may exercise the Option, except as otherwise specifically permitted by this Section 11(a). No Option shall be assignable or transferable other than by will, in accordance with the laws of descent and distribution; provided, however, subject to the terms of the applicable Option Agreement, and to the extent the transfer is in compliance with any applicable restrictions on transfers, an Optionee who is not, and during the preceding six months has not been, a Reporting Person may transfer an NSO to a family member of the Optionee (defined as an individual who is related to the Optionee by blood or adoption), to a trust established and maintained for the benefit of the Optionee or a family member of the Optionee (as determined under applicable state law and the Code), or to a charitable organization to which contributions are deductible under Code Section 170 (without regard to any percentage limitations thereon). (b) Repurchase Rights. In the Board's sole discretion, the Board may provide in an Option Agreement that upon the termination of an Optionee's employment or other relationship with the Corporation or a Subsidiary (whether as an employee, a director, an independent contractor providing services to the Corporation or a Subsidiary, or otherwise), the Corporation shall have the right, for a period of up to twelve months following such termination, to repurchase any or all of the shares acquired by the individual pursuant to this Plan under an Option (including shares that were previously transferred pursuant to Section 11(d) below, unless otherwise specified in the Option Agreement), at a price equal to the fair market value of such shares on the date of termination (or at such other price or the fair market value on such other date as shall have been specified by the Board at the time of grant and set out in the appropriate Option Agreement with respect to the grant). In the Board's sole discretion and pursuant to the terms of Section 12, the Board may also provide in an Option Agreement that upon the exercise of an Option following termination of an Optionee's employment or other relationship with the Corporation or a Subsidiary (whether as an employee, a director, an independent contractor providing services to the Corporation or a Subsidiary, or otherwise), the Corporation shall have the right, for a period of up to twelve months following such exercise, to repurchase any or all such shares of Stock acquired by the Optionee pursuant to such exercise of such -9- Option at a price that is equal to the fair market value of such shares (including shares that were previously transferred pursuant to Section 11(d) below, unless otherwise specified in the Option Agreement) on the date of exercise (or at such other price or the fair market value on such other date as shall have been specified by the Board at the time of grant and set out in the appropriate Option Agreement with respect to the grant). In the event that the Corporation determines that it cannot or will not exercise its rights to purchase Stock under this Section 11(b) and the applicable Option Agreement, in whole or in part, the Corporation may assign its rights, in whole or in part, to (i) any holder of stock or securities of the Corporation (a "Stockholder"), (ii) any employee benefit plan (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended) maintained by the Corporation or a Subsidiary for the benefit of employees of the Corporation or a Subsidiary (a "Benefit Plan"), or (iii) any corporation or other trade or business that is controlled by or under common control with the Corporation (determined in accordance with the principles of Sections 414(b) and (c) of the Code and regulations thereunder) (an "Affiliate"). The Corporation shall give reasonable written notice to the individual of any assignment of its rights. "Fair market value," for purposes of this Section 11(b), shall be determined by the Board in the same manner used by it in good faith to determine fair market value for purposes of determining the Option Price pursuant to Section 9. (c) Purchase of Options. In the Board's sole discretion, the Board may provide in an Option Agreement that upon or after the termination of an Optionee's employment or other relationship with the Corporation or a Subsidiary (whether as an employee, a director, an independent contractor providing services to the Corporation or a Subsidiary, or otherwise), the Corporation shall have the right, at all times before the Option is exercised, to purchase in whole or in part each Option held by the Optionee (and each Option transferred by the Optionee pursuant to Section 11(a) above unless otherwise specified in the Option Agreement), at a price equal to the value of such Option on the date the Corporation delivers to the Optionee a notice that it is exercising such purchase rights. For this purpose, the value of the Option (or portion thereof being purchased) is equal to the excess (if any) of the fair market value of the shares of Stock that are subject to the Option, (determined by the Board in the same manner used by it in good faith to determine fair market value for purposes of determining the Option Price pursuant to Section 9) as of the date of such notice, over the aggregate Option Price of such shares. Upon payment (or tender of payment) of the applicable amount to the Optionee (or transferee of the Option), the Option shall be terminated and, if payment has been tendered but not made, shall only represent the right to receive such payment without interest. (d) Nontransferability of Shares. In the Board's sole discretion, the Board may provide in an Option Agreement that an Optionee (or such other -10- individual who is entitled to exercise an Option) shall not sell, pledge, assign, gift, transfer, or otherwise dispose of any shares of Stock acquired pursuant to an Option to anyone without first offering such shares to the Corporation for purchase on the same terms and conditions as those offered the proposed transferee. If such a restriction applies to an individual pursuant to an Option Agreement, an individual who proposes such a transfer (the "Transferor") shall notify the Corporation, in writing, of the identity of the proposed transferee and the terms and conditions of such proposed transfer. The Corporation may exercise its right of first refusal within 90 days after receiving such notice of the proposed transfer. The Corporation may assign its right of first refusal under this Section 11(d), in whole or in part, to a Stockholder, a Benefit Plan, or an Affiliate. The Corporation shall give reasonable written notice to the Transferor of any such assignment of its rights. If the Corporation (or its permitted assignee) fails to exercise such right of first refusal during this 90-day period, the Transferor may proceed with the proposed transfer at any time within the next 45 days, and if he does not do so, the restrictions of this Section 11(d) shall re-apply. The Option Agreement may provide that the restrictions of this Section 11(d) re-apply to any person to whom Stock that was originally acquired pursuant to an Option is sold, pledged, assigned, bequeathed, gifted, transferred or otherwise disposed of, without regard to the number of such subsequent transferees or the manner in which they acquire the Stock, but the Option Agreement may provide that the restrictions of this Section 11(d) do not apply to a transfer of Stock that occurs as a result of the death of the Transferor or of any subsequent transferee (but shall apply to the executor, the administrator or personal representative, the estate, and the legatees, beneficiaries and assigns thereof). (e) Legend. In order to enforce the restrictions imposed upon shares of Stock under this Plan or as provided in an Option Agreement, the Board may cause a legend or legends to be placed on any certificate representing shares issued pursuant to this Plan that complies with the applicable securities laws and regulations and makes appropriate reference to the restrictions imposed under it. (f) Put Rights. The Board, by inclusion of appropriate language in the Option Agreement, may grant the person acquiring shares of Stock thereunder the right to put such shares to the Corporation at the fair market value of such shares (as determined hereunder) at the time of exercise of such put, or at such other value as shall be specified in the Option Agreement, subject to such further terms and conditions as the Board shall include in the Option Agreement. -11- 12. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP OF OPTIONEE In the Board's sole discretion, the Board may include language in an Option Agreement providing for the termination of any unexercised Option in whole or in part upon or at any time after the termination of employment or other relationship of the Optionee with the Corporation or a Subsidiary (whether as an employee, a director, an independent contractor providing services to the Corporation or a Subsidiary, or otherwise). Whether a leave of absence or leave on military or government service shall constitute a termination of employment or other relationship of the Optionee with the Corporation or a Subsidiary for purposes of the Plan shall be determined by the Board, which determination shall be final and conclusive. 13. USE OF PROCEEDS The proceeds received by the Corporation from the sale of Stock pursuant to the exercise of Options granted under the Plan shall constitute general funds of the Corporation. 14. REQUIREMENTS OF LAW The Corporation shall not be required to sell or issue any shares of Stock under any Option if the sale or issuance of such shares would constitute a violation by the Optionee, the individual exercising the Option, or the Corporation of any provisions of any law or regulation of any governmental authority, including without limitation any federal or state securities laws or regulations. If at any time the Corporation shall determine, in its discretion, that the listing, registration, or qualification of any shares subject to the Option upon any securities exchange or under any state or federal law, or the consent or approval of any government regulatory or self-regulatory body is necessary or desirable as a condition of, or in connection with, the issuance or purchase of shares, the Option may not be exercised in whole or in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Corporation, and any delay caused thereby shall in no way affect the date of termination of the Option. Specifically in connection with the Securities Act of 1933 (as now in effect or as hereafter amended), upon the exercise of any Option, unless a registration statement under such Act is in effect with respect to the shares of Stock covered thereby, the Corporation shall not be required to sell or issue such shares unless the Board has received evidence satisfactory to it that the holder of such Option may acquire such shares pursuant to an exemption from registration under -12- such Act. Any determination in this connection by the Board shall be final, binding, and conclusive. The Corporation may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act of 1933 (as now in effect or as hereafter amended). The Corporation shall not be obligated to take any affirmative action in order to cause the exercise of an Option or the issuance of shares pursuant thereto to comply with any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes the requirement that an Option shall not be exercisable unless and until the shares of Stock covered by such Option are registered or are subject to an available exemption from registration, the exercise of such Option (under circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption. 15. AMENDMENT AND TERMINATION OF THE PLAN The Board may, at any time and from time to time, amend, suspend, or terminate the Plan as to any shares of Stock as to which Options have not been granted; provided, however, that any amendment by the Board which, if not approved by the Corporation's stockholders in accordance with Rule 16b-3, would cause the Plan to not comply with Rule 16b-3 (or any successor rule or other regulatory requirements) or the Code shall not be effective unless approved by the affirmative vote of stockholders who hold more than fifty percent (50%) of the combined voting power of the outstanding shares of voting stock of the Corporation present or represented, and entitled to vote thereon at a duly constituted stockholders' meeting, or by consent as permitted by law. The Corporation, however, may retain the right in an Option Agreement to convert an ISO into an NSO. The Corporation may also retain the right in an Option Agreement to cause a forfeiture of the shares or gain realized by a holder of an Option on account of the holder taking actions in "competition with the Corporation," as defined in the applicable Option Agreement. Furthermore, the Corporation may, in the Option Agreement, retain the right to annul the grant of an Option, if the holder of such grant was an employee of the Corporation or a Subsidiary and is terminated "for cause," as defined in the applicable Option Agreement. Except as permitted under this Section 15 or Section 16 hereof, no amendment, suspension, or termination of the Plan shall, without the consent of the holder of the Option, alter or impair rights or obligations under any Option theretofore granted under the Plan. 16. EFFECT OF CHANGES IN CAPITALIZATION (a) Changes in Stock. If the number of outstanding shares of Stock is increased or decreased or the shares of Stock are changed into or -13- exchanged for a different number or kind of shares or other securities of the Corporation on account of any recapitalization, reclassification, stock split-up, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or decrease in such shares effected without receipt of consideration by the Corporation, occurring after the effective date of the Plan, the number and kind of shares for the acquisition of which Options may be granted under the Plan shall be adjusted proportionately and accordingly by the Corporation. In addition, the number and kind of shares for which Options are outstanding shall be adjusted proportionately and accordingly so that the proportionate interest of the holder of the Option immediately following such event shall, to the extent practicable, be the same as immediately before such event. Any such adjustment in outstanding Options shall not change the aggregate Option Price payable with respect to shares that are subject to the unexercised portion of the Option outstanding but shall include a corresponding proportionate adjustment in the Option Price per share. (b) Reorganization in Which the Corporation Is the Surviving Corporation. Subject to Subsection (c) (iv) hereof, if the Corporation shall be the surviving corporation in any reorganization, merger, or consolidation of the Corporation with one or more other corporations, any Option theretofore granted pursuant to the Plan shall pertain to and apply to the securities to which a holder of the number of shares of Stock subject to such Option would have been entitled immediately following such reorganization, merger, or consolidation, with a corresponding proportionate adjustment of the Option Price per share so that the aggregate Option Price thereafter shall be the same as the aggregate Option Price of the shares remaining subject to the Option immediately prior to such reorganization, merger, or consolidation. (c) Dissolution, Liquidation, Sale of Assets, Reorganization in Which the Corporation Is Not the Surviving Corporation, Etc. The Plan and all Options outstanding hereunder shall terminate (i) upon the dissolution or liquidation of the Corporation, or (ii) upon a merger, consolidation, or reorganization of the Corporation with one or more other corporations in which the Corporation is not the surviving corporation, or (iii) upon a sale of substantially all of the assets of the Corporation to another person or entity, or (iv) upon a merger, consolidation or reorganization (or other transaction if so determined by the Board in its sole discretion) in which the Corporation is the surviving corporation, that is approved by the Board and that results in any person or entity (other than persons who are holders of Stock of the Corporation at the time the Plan is approved by the stockholders and other than an Affiliate) owning 80 percent or more of the combined voting power of all classes of stock of the Corporation, except to the extent provision is made in writing in connection with any such transaction covered by clauses (i) through (iv) for the continuation of the Plan or the assumption of such Options theretofore granted, or for the substitution for such Options of new options -14- covering the stock of a successor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and exercise prices, in which event the Plan and Options theretofore granted shall continue in the manner and under the terms so provided. In the event of any such termination of the Plan, each individual holding an Option shall have the right (subject to the general limitations on exercise set forth in Section 10(b) above), during such period occurring before such termination as the Board in its sole discretion shall determine and designate, and in any event immediately before the occurrence of such termination, to exercise such Option in whole or in part, to the extent that such Option was otherwise exercisable at the time such termination occurs, except that, by inclusion of appropriate language in an Option Agreement, the Board may provide that the Option may be exercised before termination without regard to any installment limitation or other condition on exercise imposed pursuant to Section 10(b) above. The Corporation shall send written notice of a transaction or event that will result in such a termination to all individuals who hold Options not later than the time at which the Corporation gives notice thereof to its stockholders. (d) Adjustments. Adjustments under this Section 16 related to stock or securities of the Corporation shall be made by the Board, whose determination in that respect shall be final, binding, and conclusive. No fractional shares of Stock or units of other securities shall be issued pursuant to any such adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole share or unit. (e) No Limitations on Corporation. The grant of an Option pursuant to the Plan shall not affect or limit in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure or to merge, consolidate, dissolve, or liquidate, or to sell or transfer all or any part of its business or assets. 17. DISCLAIMER OF RIGHTS No provision in the Plan or in any Option granted or Option Agreement entered into pursuant to the Plan shall be construed to confer upon any individual the right to remain in the employ or service of or to maintain a relationship with the Corporation or any Subsidiary, or to interfere in any way with any contractual or other right or authority of the Corporation or any Subsidiary either to increase or decrease the compensation or other payments to any individual at any time, or to terminate any employment or other relationship between any individual and the Corporation or any Subsidiary. The obligation of the Corporation to pay any benefits pursuant to this Plan shall be interpreted as a contractual obligation to pay only those amounts -15- described herein, in the manner and under the conditions prescribed herein. The Plan shall in no way be interpreted to require the Corporation to transfer any amounts to a third party trustee or otherwise hold any amounts in trust or escrow for payment to any participant or beneficiary under the terms of the Plan. 18. NONEXCLUSIVITY OF THE PLAN Neither the adoption of the Plan nor the submission of the Plan to the stockholders of the Corporation for approval shall be construed as creating any limitations upon the right and authority of the Board to adopt such other incentive compensation arrangements (which arrangements may be applicable either generally to a class or classes of individuals or specifically to a particular individual or particular individuals) as the Board in its discretion determines desirable, including, without limitation, the granting of stock options otherwise than under the Plan. 19. CAPTIONS The use of captions in this Plan or any Option Agreement is for the convenience of reference only and shall not affect the meaning of any provision of the Plan or such Option Agreement. 20. DISQUALIFYING DISPOSITIONS If Stock acquired by exercise of an ISO granted under this Plan is disposed of within two years following the date of grant of the ISO or one year following the transfer of the subject Stock to the Optionee (a "disqualifying disposition"), the holder of the Stock shall, immediately prior to such disqualifying disposition, notify the Corporation in writing of the date and terms of such disposition and provide such other information regarding the disposition as the Corporation may reasonably require. 21. WITHHOLDING TAXES (a) The Corporation shall have the right to deduct from payments of any kind otherwise due to an Optionee any Federal, state, or local taxes of any kind required by law to be withheld with respect to any shares issued upon the exercise of an Option under the Plan. At the time of exercise, the Optionee shall pay to the Corporation any amount that the Corporation may reasonably determine to be necessary to satisfy such withholding obligation. The Board in -16- its sole discretion may provide in the Option Agreement that, subject to the prior approval of the Corporation, which may be withheld by the Corporation in its sole discretion, the Optionee may elect to satisfy such obligations, in whole or in part, (i) by causing the Corporation to withhold shares of Stock otherwise issuable pursuant to the exercise of an Option or (ii) by delivering to the Corporation shares of Stock already owned by the Optionee. The shares so delivered or withheld shall have a fair market value equal to such withholding obligations. The fair market value of the shares used to satisfy such withholding obligation shall be determined by the Corporation as of the date that the amount of tax to be withheld is to be determined. An Optionee who has made an election pursuant to this Section 21(a) may only satisfy his or her withholding obligation with shares of Stock that are not subject to any repurchase, forfeiture, unfulfilled vesting, or other similar requirements. (b) Notwithstanding the foregoing, in the case of a Reporting Person, no election to use shares for the payment of withholding taxes shall be effective unless made in compliance with any applicable requirements under Rule 16b-3(e) or any successor rule under the Exchange Act. 22. OTHER PROVISIONS Each Option granted under the Plan may be subject to, and the Option Agreement relating to such Option may contain, such other terms and conditions not inconsistent with the Plan as may be determined by the Board, in its sole discretion. Notwithstanding the foregoing, each ISO granted under the Plan shall include those terms and conditions that are necessary to qualify the ISO as an "incentive stock Option" within the meaning of the Section 422 of the Code or the regulations thereunder and shall not include any terms or conditions that are inconsistent therewith. 23. NUMBER AND GENDER With respect to words used in this Plan, the singular form shall include the plural form, the masculine gender shall include the feminine gender, etc., as the context requires. 24. SEVERABILITY If any provision of the Plan or any Option Agreement shall be determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining provisions hereof and thereof shall be severable and enforceable in accordance with their terms, and all provisions shall remain enforceable in any other jurisdiction. -17- 25. GOVERNING LAW The validity and construction of this Plan and the instruments evidencing the Options granted hereunder shall be governed by the laws of the State of Delaware (excluding its choice of law rules). * * * The Plan was duly adopted and approved by the Board of Directors of the Corporation on the 25th day of January, 1994. /s/ Mark Ohlendorf ---------------------------- Secretary of the Corporation This Plan was duly approved by the stockholders of the Corporation on the 28th day of February, 1994. /s/ Mark Ohlendorf ---------------------------- Secretary of the Corporation -18- EX-10.34 12 EXHIBIT 10.34 EXHIBIT 10.34 VITAS HEALTHCARE CORPORATION 1994 MANAGEMENT EQUITY INCENTIVE PLAN NON-INCENTIVE STOCK OPTION AGREEMENT [Performance Vesting] VITAS HEALTHCARE CORPORATION 1994 MANAGEMENT EQUITY INCENTIVE PLAN STOCK OPTION AGREEMENT TABLE OF CONTENTS 1. Grant of Option ...................................................... 1 2. Terms of Plan ........................................................ 2 3. Price ................................................................ 2 4. Vesting in Options ................................................... 2 5. Exercise of Option ................................................... 2 5(a) Time of Exercise of Option ...................................... 2 5(b) Termination of Option ........................................... 3 5(c) Limitations on Exercise of Option ............................... 3 5(d) Method of Exercise of Option .................................... 3 5(e) Parachute Limitations ........................................... 3 6. Transferability ...................................................... 4 6(a) Transferability of Options ...................................... 4 6(b) Nontransferability of Shares .................................... 4 6(c) Repurchase Rights ............................................... 5 6(d) Purchase of Option .............................................. 6 6(e) Publicly Traded Stock ........................................... 6 6(f) Installment Payments ............................................ 6 6(g) Legend Describing Restrictions and Obligations ................................................... 7 7. Effect of Changes in Capitalization .................................. 7 7(a) Changes in Stock ................................................ 7 7(b) Reorganization in Which the Corporation Is the Surviving Corporation .................................. 7 -i- 8. Requirements of Law .................................................. 9 9. Rights as Stockholder ................................................ 10 10. Withholding of Taxes ................................................. 10 11. Disclaimer of Rights ................................................. 10 12. Interpretation of this Option Agreement .............................. 10 13. Governing Law ........................................................ 11 14. Approval by Stockholders ............................................. 11 15. Binding Effect ....................................................... 11 16. Notice ............................................................... 11 17. Entire Agreement ..................................................... 11 -ii- Performance Vesting VITAS HEALTHCARE CORPORATION 1994 MANAGEMENT EQUITY INCENTIVE PLAN NON-INCENTIVE STOCK OPTION AGREEMENT This Stock Option Agreement (the "Option Agreement") is made as of January 25, 1994, by and between Vitas Healthcare Corporation, a Delaware corporation (the "Corporation"), and ______________, an individual who is employed by or otherwise has a relationship with the Corporation or its subsidiaries (the "Optionee"). WHEREAS, the Board of Directors of the Corporation has duly adopted and approved the Vitas Healthcare Corporation 1994 Management Equity Incentive Plan (the "Plan"), subject to approval by the stockholders of the Corporation, which Plan authorizes the Corporation to grant to eligible individuals options for the purchase of shares of the Corporation's common stock, par value $.001 per share, (the "Stock"); and WHEREAS, the Corporation has determined that it is desirable and in its best interests to grant to the Optionee, pursuant to the Plan (including Section 4(a) of the Plan), an option to purchase a certain number of shares of Stock, in order to provide the Optionee with an incentive to advance the interests of the Corporation and any "subsidiary corporation" thereof within the meaning of Section 424(f) of the Internal Revenue Code of 1986 (a "Subsidiary"), all according to the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties hereto do hereby agree as follows: 1. Grant of Option. Subject to the terms of the Plan (attached hereto as Exhibit A), and to the requisite approval of the Plan by the stockholders of the Corporation, the Corporation hereby grants to the Optionee the right and option (the "Option") to purchase from the Corporation, on the terms and subject to the conditions set forth in the Plan and in this Option Agreement, ____________ (____) shares of Stock. This Option shall not constitute an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The date of grant of this Option is January 25, 1994, the date on which the grant of the Option was approved by the Compensation Committee (the "Committee") of the Board of Directors of the Corporation (the "Board"). 2. Terms of Plan. The Option granted pursuant to this Option Agreement is granted subject to the terms and conditions set forth in the Plan. All terms and conditions of the Plan, as it may be amended from time to time, are hereby incorporated into this Option Agreement by reference and shall be deemed to be part of this Option Agreement, without regard to whether such terms and conditions are not otherwise set forth in this Option Agreement. In the event that there is any inconsistency between the provisions of this Option Agreement and of the Plan, the provisions of the Plan shall govern. 3. Price. The purchase price (the "Option Price") for the shares of Stock subject to the Option granted by this Option Agreement is $____ per share. 4. Vesting in Options. (a) General. The Option becomes vested (i.e., nonforfeitable) upon the earlier of satisfying the service requirements contained in (b) or any of the performance target determinations in (c), as set forth in this Section 4, as follows: (b) Service Requirement. The Option becomes vested (i.e., nonforfeitable) as to 25% of the shares of Stock purchasable pursuant to the Option on or after January 25, 1996: (the "Anniversary Date"), if Optionee has been providing services to the Corporation or a Subsidiary continuously from the date of grant to the Anniversary Date. Thereafter, so long as continuous service has not been interrupted, the Option becomes vested (i.e., nonforfeitable) as to an additional 25% of the shares of Stock subject to the Option on or after each of the next three anniversaries of the Anniversary Date. Service for this purpose includes service as an employee, director or independent contractor providing services to the Corporation or a Subsidiary. For purposes of the Option Agreement, termination of service would not be deemed to occur if the Optionee, after terminating service in one capacity, continues to provide service to the Corporation or any Subsidiary in another capacity. Termination of service is sometimes also referred to herein as termination of employment or other relationship with the Corporation or its Subsidiaries. Termination of service (regardless of whether with or without cause or by reason of death, disability or voluntary resignation) results in forfeiture of that portion of the Option (if any) that has not yet vested (i.e., become nonforfeitable) but does not affect the exercisability of that portion of the Option (if any) that has vested and which continues to be subject to the limitations on exercise set forth in this Option Agreement and the Plan. (c) Performance Targets. The Option becomes vested (i.e., nonforfeitable) as to 100% of the shares of Stock purchasable pursuant to the -2- Option on the date that the Committee, or if there is no duly constituted Committee, the Board determines that (a) the Corporation's consolidated net income before provision for income taxes for the fiscal year ending September 30, 1994 is at least $11.4 million, (b) the Corporation's consolidated net income before provision for income taxes for the fiscal year ending September 30, 1995 is at least $13.7 million or (c) the Corporation's consolidated net income before provision for income taxes for the fiscal year ending September 30, 1996 is at least $16.4 million. Such determination shall be made based on the audited financial statements of the Corporation and its Subsidiaries no later than 120 days after the end of each such fiscal year, or if there are no such audited financial statements for such fiscal year, based on the unaudited financial statements of the Corporation and its Subsidiaries, as certified by the Chief Executive Officer or Chief Financial Officer of the Corporation. In making such determination, the Committee or the Board, as the case may be, shall have the authority to determine if such performance targets have been satisfied or deemed satisfied after taking into account such accounting adjustments or other factors that are considered by the Committee or the Board, as the case may be, to be appropriate under then existing circumstances. 5. Exercise of Option. Except as otherwise provided herein, and subject to the provisions of the Plan, the Option granted pursuant to this Option Agreement shall be subject to exercise as follows: (a) Time of Exercise of Option. The Optionee may exercise the Option (subject to the limitations on exercise set forth in this Option Agreement and in the Plan), to the extent the Option is vested (i.e., nonforfeitable) and has not terminated under Section 5(b), on the earliest of the following: (i) nine years and ten months after the date of grant; (ii) the closing of a bona fide, firm commitment underwritten public offering of the Common Stock of the Corporation pursuant to a registration statement declared effective under the Securities Act of 1933, as amended, and (iii) receipt by the Optionee of notice from the Corporation that the Corporation has entered into a definitive agreement or the Board has adopted definitive resolutions calling for the Corporation, subject to certain terms and conditions, to effect a transaction or event described in Section 7(c). No single exercise of the Option shall be for less than 100 shares of Stock, unless the number of shares purchased is the total number at the time available for purchase under this Option. (b) Termination of Option. The Option shall terminate upon the earliest of (i) the expiration of a period of ten years from the date of grant of the Option, as set forth in Section 1 above, (ii) the occurrence of a transaction or event described in Section 7(c) which causes termination of the Option, (iii) the Optionee's termination of employment or other relationship with the Corporation or a Subsidiary to the extent the Option has not become vested (i.e., nonforfeitable) in accordance with Section 4 or (iv) the purchase of the Option by the Corporation pursuant to Section 6(d). -3- (c) Limitations on Exercise of Option. Notwithstanding the foregoing Subsections, in no event may the Option be exercised, in whole or in part, prior to the date the Plan is approved by the stockholders of the Corporation and in the event the stockholders fail to approve the Plan within one year of the date of its adoption by the Board, the Option shall be null and void and of no effect. (d) Method of Exercise of Option. Subject to the terms and conditions of this Option Agreement, the Option may be exercised by delivering written notice of exercise to the Corporation, at its principal office, addressed to the attention of the President, which notice shall specify the number of shares for which the Option is being exercised, and shall be accompanied by payment in full of the Option Price of the shares of Stock for which the Option is being exercised. Payment of the Option Price for the shares of Stock purchased pursuant to the exercise of the Option shall be made in cash or by certified check payable to the order of the Corporation. If the person exercising the Option is not the Optionee, such person shall also deliver with the notice of exercise appropriate proof of his or her right to exercise the Option. An attempt to exercise the Option granted hereunder other than as set forth above shall be invalid and of no force and effect. Promptly after exercise of the Option as provided for above, the Corporation shall deliver to the person exercising the Option a certificate or certificates for the shares of Stock being purchased. (e) Parachute Limitations. Notwithstanding any other provision of this Option Agreement or of any other agreement, contract, or understanding heretofore or hereafter entered into by the Optionee with the Corporation or any Subsidiary or Affiliate (as defined in Section 6(b)), except an agreement, contract, or understanding hereafter entered into that expressly modifies or excludes application of this Section (the "Other Agreements"), and notwithstanding any formal or informal plan or other arrangement heretofore or hereafter adopted by the Corporation (or any such Subsidiary or Affiliate) for the direct or indirect compensation of the Optionee (including groups or classes of participants or beneficiaries of which the Optionee is a member), whether or not such compensation is deferred, is in cash, or is in the form of a benefit to or for the Optionee (a "Benefit Arrangement"), if the Optionee is a "disqualified individual," as defined in Section 280G(c) of the Code, the Option and any right to receive any payment or other benefit under the Plan shall not become exercisable or vested (i) to the extent that such right to exercise, vesting, payment, or benefit, taking into account all other rights, payments, or benefits to or for Optionee under the Plan, all Other Agreements, and all Benefit Arrangements, would cause any payment or benefit to the Optionee under this Option to be considered a "parachute payment" within the meaning of Section 280G(b)(2) of the Code as then in effect (a "Parachute Payment") and (ii) if, as a result of receiving a Parachute Payment, the aggregate after-tax amounts received by the Optionee from the -4- Corporation under this Plan, all Other Agreements, and all Benefit Arrangements would be less than the maximum after-tax amount that could be received by Optionee without causing any such payment or benefit to be considered a Parachute Payment. In the event that the receipt of any such right to exercise, vesting, payment, or benefit under this Option, in conjunction with all other rights, payments, or benefits to or for the Optionee under the Plan, any Other Agreement or any Benefit Arrangement would cause the Optionee to be considered to have received a Parachute Payment under the Option that would have the effect of decreasing the after-tax amount received by the Optionee as described in clause (ii) of the preceding sentence, then the Optionee shall have the right, in the Optionee's sole discretion, to designate those rights, payments, or benefits under the Option, the Plan, any Other Agreements, and any Benefit Arrangements that should be reduced or eliminated so as to avoid having the payment or benefit to the Optionee under the Option be deemed to be a Parachute Payment. 6. Transferability. (a) Transferability of Options. During the lifetime of the Optionee, only such Optionee (or, in the event of legal incapacity or incompetency, the Optionee's guardian or legal representative) may exercise the Option. No Option shall be assignable or transferable by the Optionee to whom it is granted, other than by will or the laws of descent and distribution. (b) Nontransferability of Shares. The Optionee (or any other person who is entitled to exercise an Option pursuant to the terms of the Plan and this Option Agreement) shall not sell, pledge, assign, gift, transfer or otherwise dispose of any shares of Stock acquired pursuant to the Option to anyone without first offering such Stock to the Corporation for purchase on the same terms and conditions as those offered to the proposed transferee. Any individual who proposes such a transfer (the "Transferor") shall notify the Corporation, in writing, of the identity of the proposed transferee and the terms and conditions of such proposed transfer. The Corporation may exercise its right of first refusal under this Subsection within 90 days after receiving such notice of the proposed transfer. The Corporation may assign its right of first refusal under this Subsection, in whole or in part, to (1) any stockholder of the Corporation who owns stock or securities of the Corporation (a "Stockholder"), (2) any employee benefit plan (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended) maintained by the Corporation or a Subsidiary for the benefit of employees of the Corporation or a Subsidiary (a "Benefit Plan"), or (3) any corporation or other trade or business that is controlled by or under common control with the Corporation (determined in accordance with the principles of Section 414(b) and Section 414(c) of the Code and the regulations thereunder) (an "Affiliate"). The Corporation shall give reasonable written notice to the Transferor of any such assignment of its rights. If the Corporation (or its permitted assignee) fails to exercise such right of first refusal during this 90-day -5- period, the Transferor may proceed with the proposed transfer at any time within the next 45 days, and if he does not do so, the restrictions of this Subsection shall re-apply. These restrictions also shall re-apply to any person to whom Stock that was originally acquired pursuant to an Option is sold, pledged, assigned, bequeathed, gifted, transferred or otherwise disposed of without regard to the number of such subsequent transferees or the manner in which they acquire the Stock. Notwithstanding the foregoing, the restrictions of this Subsection shall not apply to a transfer of Stock that occurs as a result of the death of the Transferor or of any subsequent transferee but such restrictions shall apply to the executor, administrator or personal representative, the estate and the legatees, beneficiaries and assigns thereof. (c) Repurchase Rights. Upon the termination of employment or other relationship of the Optionee with the Corporation or a Subsidiary, the Corporation shall have the right, for a period of twelve months following such termination, to repurchase any or all of the shares of Stock acquired pursuant to such Option, at a price equal to the fair market value of such shares on the date the Corporation delivers to the Optionee, or other holder of such shares of Stock, notice that it is exercising its repurchase rights. Upon the exercise of the Option granted hereunder following the termination of employment or other relationship of the Optionee with the Corporation or a Subsidiary, the Corporation shall have the right, for a period of twelve months following such exercise, to repurchase any or all of the shares of Stock acquired by the Optionee pursuant to such exercise of such Option, at a price equal to the fair market value of such shares on the date the Corporation delivers to the Optionee, or other holder of such shares of Stock, notice that it is exercising its repurchase rights. In the event that the Corporation determines that it cannot or will not exercise its rights to purchase Stock pursuant to this Subsection, in whole or in part, the Corporation may assign its rights hereunder, in whole or in part, to a Stockholder, a Benefit Plan or an Affiliate. The Corporation shall give reasonable written notice to the Optionee of any assignment of its rights. "Fair market value", for purposes of this Subsection, shall be determined by the Board in the same manner specified in the Plan for determining the Option Price. A notice of repurchase given pursuant to this Subsection shall specify the price and date of closing of such repurchase, which shall be no later than 30 days from the date of such notice. In the event any such repurchase rights are exercised in accordance with this Subsection, the holder of the Stock being repurchased shall be obligated to sell such Stock pursuant to the exercise of such rights. (d) Purchase of Option. Upon the termination of employment or other relationship of the Optionee with the Corporation or a Subsidiary, the Corporation shall have the right, at all times before the Option is exercised, to purchase the vested (i.e., nonforfeitable) portion of the Option, in whole or in part, at a price equal to the value of such Option on the date the Corporation delivers to the Optionee (or transferee of the Option pursuant to -6- Section 6(a)), notice that it is exercising such purchase rights. For this purpose, the value of the Option is equal to the excess (if any) of the fair market value of the shares of Stock that are subject to the Option, determined by the Board in the same manner specified in the Plan for determining the Option Price as of the date of notice, over the aggregate Option Price of such shares. Upon payment (or tender of payment) in the applicable amount to the Optionee (or transferee of the Option), the vested (i.e. nonforfeitable) portion of the Option shall be terminated and, if payment has been tendered but not made, shall only represent the right to receive such payment without interest. A notice of purchase given pursuant to this Subsection shall specify the price and date of closing of such purchase which shall be no later than 30 days from the date of such notice. In the event any such purchase right is exercised in accordance with this Subsection, the Optionee (or holder of the Option being purchased) shall be obligated to sell such Option pursuant to the exercise of such rights. (e) Publicly Traded Stock. If the Stock is listed on an established national or regional stock exchange or is admitted to quotation on the National Association of Securities Dealers Automated Quotation System, or is publicly traded in an established securities market, the foregoing restrictions, purchase and repurchase rights of Sections 6(b), 6(c) and 6(d) shall terminate as of the first date that the Stock is so listed, quoted or publicly traded. (f) Installment Payments. In the case of any purchase of Stock or an Option under this Section 6, at the option of the Corporation or its permitted assignee the Corporation or its permitted assignee may pay the Optionee, transferee of the Option or other registered owner of the Stock the purchase price in three or fewer annual installments. Interest shall be credited on the installments at the applicable federal rate (as determined for purposes of Section 1274 of the Code) in effect on the date on which the purchase is made. The Corporation or its permitted assignee shall pay at least one-third of the total purchase price each year, plus interest on the unpaid balance, with the first payment being made on or before the 60th day after the purchase. (g) Legend Describing Restrictions and Obligations. The Board or Committee may cause a legend to be placed prominently on certificates representing Stock issued pursuant to this Plan in order to give notice of the transferability restrictions, repurchase rights and other obligations imposed by this Section. 7. Effect of Changes in Capitalization (a) Changes in Stock. If the number of outstanding shares of Stock is increased or decreased or the shares of Stock are changed into or exchanged for a different number or kind of shares or other securities of the Corporation on account of any recapitalization, reclassification, stock split-up, -7- combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or decrease in such shares effected without receipt of consideration by the Corporation, occurring after the date of grant of the Option, the number and kind of shares of Stock for which the Option was granted shall be adjusted proportionately and accordingly so that the proportionate interest of the Optionee immediately following such event shall, to the extent practicable, be the same as immediately before such event. Any such adjustment in the Option shall not change the aggregate Option Price payable with respect to shares that are subject to the unexercised portion of the Option but shall include a corresponding proportionate adjustment in the Option Price per share. (b) Reorganization in Which the Corporation Is the Surviving Corporation. Subject to Subsection 7(c)(iv) hereof, if the Corporation shall be the surviving corporation in any reorganization, merger, or consolidation of the Corporation with one or more other corporations, the Option shall pertain to and apply to the securities to which a holder of the number of shares of Stock subject to the Option would have been entitled immediately following such reorganization, merger, or consolidation, with a corresponding proportionate adjustment of the Option Price per share so that the aggregate Option Price thereafter shall be the same as the aggregate Option Price of the shares remaining subject to the Option immediately prior to such reorganization, merger, or consolidation. (c) Dissolution, Liquidation, Sale of Assets, Reorganization in Which the Corporation Is Not the Surviving Corporation, Etc. The Option shall terminate (i) upon the dissolution or liquidation of the Corporation, or (ii) upon a merger, consolidation, or reorganization of the Corporation with one or more other corporations in which the Corporation is not the surviving corporation, or (iii) upon a sale of substantially all of the assets of the Corporation to another person or entity, or (iv) upon a merger, consolidation or reorganization (or other transaction if so determined by the Board in its sole discretion) in which the Corporation is the surviving corporation, that is approved by the Board and that results in any person or entity (other than persons who are holders of Stock of the Corporation at the time the Plan is approved by the stockholders and other than an Affiliate) owning 80 percent or more of the combined voting power of all classes of stock of the Corporation, except to the extent provision is made in writing in connection with any such transaction covered by clauses (i) through (iv) for the assumption of the Option or for the substitution for the Option of a new option(s) covering the stock of a successor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and exercise prices, in which event the Option theretofore granted shall continue in the manner and under the terms so provided. In the event of any such termination of the Option, the Optionee shall have the right (subject to the general limitations on exercise set forth in Section 5), during -8- such period occurring before such termination as the Board in its sole discretion shall determine and designate, and in any event immediately before the occurrence of such termination, to exercise such Option in whole or in part, to the extent that such Option was otherwise exercisable at the time such termination occurs. The Corporation shall send written notice of a transaction or event that will result in such a termination to Optionee not later than the time at which the Corporation gives notice thereof to its stockholders. (d) Adjustments. Adjustments under this Section 7 related to stock or securities of the Corporation shall be made by the Board, whose determination in that respect shall be final, binding, and conclusive. No fractional shares of Stock or units of other securities shall be issued pursuant to any such adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole share or unit. (e) No Limitations on Corporation. The grant of the Option shall not affect or limit in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure or to merge, consolidate, dissolve, or liquidate, or to sell or transfer all or any part of its business or assets. 8. Requirements of Law. The Corporation shall not be required to sell or issue any shares of Stock under the Option if the sale or issuance of such shares would constitute a violation by the Optionee, the individual exercising the Option, or the Corporation of any provisions of any law or regulation of any governmental authority, including without limitation any federal or state securities laws or regulations. If at any time the Corporation shall determine, in its discretion, that the listing, registration, or qualification of any shares subject to the Option upon any securities exchange or under any state or federal law, or the consent or approval of any government regulatory or self- regulatory body is necessary or desirable as a condition of, or in connection with the issuance or purchase of shares, the Option may not be exercised in whole or in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Corporation, and any delay caused thereby shall in no way affect the date of termination of the Option. Specifically in connection with the Securities Act of 1933 (as now in effect or as hereafter amended), upon the exercise of any Option, unless a registration statement under such Act is in effect with respect to the shares of Stock covered thereby, the Corporation shall not be required to sell or issue such shares unless the Board has received evidence satisfactory to it that the holder of such Option may acquire such shares pursuant to an exemption from registration under such Act. Any determination in this connection by the Board shall be final, binding, and conclusive. The Corporation may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act of 1933 (as now in effect or as hereafter amended). The Corporation shall not be obligated to -9- take any affirmative action in order to cause the exercise of an Option or the issuance of shares pursuant thereto to comply with any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes the requirement that an Option shall not be exercisable unless and until the shares of Stock covered by such Option are registered or are subject to an available exemption from registration, the exercise of such Option (under circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption. 9. Rights as Stockholder. Neither the Optionee nor any executor, administrator, distributee or legatee of the Optionee's estate shall be, or have any of the rights or privileges of, a stockholder of the Corporation in respect of any shares of Stock issuable hereunder unless and until such shares have been fully paid and certificates representing such shares have been endorsed, transferred and delivered, and the name of the Optionee (or of such personal representative, administrator, distributee or legatee of the Optionee's estate) has been entered as the stockholder of record on the books of the Corporation. 10. Withholding of Taxes. The parties hereto recognize that the Corporation or a Subsidiary may be obligated to withhold federal, state and local income taxes and Social Security taxes to the extent that the Optionee realizes ordinary income in connection with the exercise of the Option or in connection with a disposition of any shares of Stock acquired by exercise of the Option. The Optionee agrees that the Corporation or a Subsidiary may withhold amounts needed to cover such taxes from payments otherwise due and owing to the Optionee, and also agrees that upon demand the Optionee will promptly pay to the Corporation or a Subsidiary having such obligation any additional amounts as may be necessary to satisfy such withholding tax obligation. Such payment shall be made in cash or by certified check payable to the order of the Corporation or a Subsidiary. 11. Disclaimer of Rights. No provision in this Option Agreement shall be construed to confer upon the Optionee the right to remain in the employ or service of or to maintain a relationship with the Corporation or any Subsidiary, or to interfere in any way with any contractual or other right or authority of the Corporation or any Subsidiary either to increase or decrease the compensation of the Optionee at any time, or to terminate any employment or other relationship between the Optionee and the Corporation or any Subsidiary. 12. Interpretation of this Option Agreement. All decisions and interpretations made by the Board or the Committee thereof with regard to any question arising under the Plan or this Option Agreement shall be binding and conclusive on the Corporation and the Optionee and any other person entitled to exercise the Option as provided for herein. -10- 13. Governing Law. This Option Agreement shall be governed by the laws of the State of Delaware (excluding its choice of law rules). 14. Approval by Stockholders. This Option Agreement and the issuance of any shares under it are expressly subject to the approval of the Plan by the stockholders of the Corporation as provided for therein. The Option shall not in any event be exercisable in whole or in part prior to the date the Plan is approved by the stockholders of the Corporation as provided for therein. 15. Binding Effect. Subject to all restrictions provided for in this Option Agreement, the Plan and by applicable law limiting assignment and transfer of this Option Agreement and the Option provided for herein, this Option Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors, and assigns. 16. Notice. Any notice hereunder by the Optionee to the Corporation shall be in writing and shall be deemed duly given if mailed or delivered to the Corporation at its principal office, addressed to the attention of the President, or if so mailed or delivered to such other address as the Corporation may hereafter designate by notice to the Optionee. Any notice hereunder by the Corporation to the Optionee shall be in writing and shall be deemed duly given if mailed or delivered to the Optionee at the address specified below by the Optionee for such purpose, or if so mailed or delivered to such other address as the Optionee may hereafter designate by written notice given to the Corporation. 17. Entire Agreement. This Option Agreement and the Plan together constitute the entire agreement and supersede all prior understandings and agreements, written or oral, of the parties hereto with respect to the subject matter hereof. Neither this Option Agreement nor any term hereof may be amended, waived, discharged or terminated except by a written instrument signed by the Corporation and the Optionee; provided, however, that the Corporation unilaterally may waive any provision hereof in writing to the extent that such waiver does not adversely affect the interests of the Optionee hereunder, but no such waiver shall operate as or be construed to be a subsequent waiver of the same provision or a waiver of any other provision hereof. -11- IN WITNESS WHEREOF, the parties hereto have duly executed this Option Agreement, or caused this Option Agreement to be duly executed in their name and on their behalf, as of the day and year first above written. VITAS HEALTHCARE CORPORATION By:_________________________________ Title:______________________________ OPTIONEE: ____________________________________ ADDRESS FOR NOTICE TO OPTIONEE: ____________________________________ Number Street ____________________________________ City State Zip Code -12- EX-10.35 13 EXHIBIT 10.35 EXHIBIT 10.35 VITAS HEALTHCARE CORPORATION 1994 MANAGEMENT EQUITY INCENTIVE PLAN NON-INCENTIVE STOCK OPTION AGREEMENT [Time Vesting] VITAS HEALTHCARE CORPORATION 1994 MANAGEMENT EQUITY INCENTIVE PLAN STOCK OPTION AGREEMENT TABLE OF CONTENTS 1. Grant of Option ...................................................... 1 2. Terms of Plan ........................................................ 2 3. Price ................................................................ 2 4. Vesting in Options ................................................... 2 4(a) General ......................................................... 2 4(b) Service Requirement ............................................. 2 4(c) Performance Targets ............................................. 2 5. Exercise of Option ................................................... 3 5(a) Time of Exercise of Option ...................................... 3 5(b) Termination of Option ........................................... 3 5(c) Limitations on Exercise of Option ............................... 4 5(d) Method of Exercise of Option .................................... 4 5(e) Parachute Limitations ........................................... 4 6. Transferability ...................................................... 5 6(a) Transferability of Options ...................................... 5 6(b) Nontransferability of Shares .................................... 5 6(c) Repurchase Rights ............................................... 6 6(d) Purchase of Option .............................................. 6 6(e) Publicly Traded Stock ........................................... 7 6(f) Installment Payments ............................................ 7 6(g) Legend Describing Restrictions and Obligations ................................................... 7 7. Effect of Changes in Capitalization .................................. 7 7(a) Changes in Stock ................................................ 7 7(b) Reorganization in Which the Corporation Is the Surviving Corporation .................................. 8 7(c) Dissolution, Liquidation, Sale of Assets, Reorganization in Which the Corporation Is Not the Surviving Corporation, Etc. ........................ 8 7(d) Adjustments ..................................................... 9 7(e) No Limitations on Corporation ................................... 9 -i- 7(c) Dissolution, Liquidation, Sale of Assets, Reorganization in which the Corporation Is Not the Surviving Corporation, Etc. ........................ 7 7(d) Adjustments ..................................................... 8 7(e) No Limitations on Corporation ................................... 8 8. Requirements of Law .................................................. 8 9. Rights as Stockholder ................................................ 9 10. Withholding of Taxes ................................................. 9 11. Disclaimer of Rights ................................................. 10 12. Interpretation of this Option Agreement .............................. 10 13. Governing Law ........................................................ 10 14. Approval by Stockholders ............................................. 10 15. Binding Effect ....................................................... 10 16. Notice ............................................................... 10 17. Entire Agreement ..................................................... 10 -ii- Time Vesting VITAS HEALTHCARE CORPORATION 1994 MANAGEMENT EQUITY INCENTIVE PLAN NON-INCENTIVE STOCK OPTION AGREEMENT This Stock Option Agreement (the "Option Agreement") is made as of ______________, 199__, by and between Vitas Healthcare Corporation, a Delaware corporation (the "Corporation"), and _______________, an individual who is employed by or otherwise has a relationship with the Corporation or its subsidiaries (the "Optionee"). WHEREAS, the Board of Directors of the Corporation has duly adopted and approved the Vitas Healthcare Corporation 1994 Management Equity Incentive Plan (the "Plan"), subject to approval by the stockholders of the Corporation, which Plan authorizes the Corporation to grant to eligible individuals options for the purchase of shares of the Corporation's common stock, par value $.001 per share, (the "Stock"); and WHEREAS, the Corporation has determined that it is desirable and in its best interests to grant to the Optionee, pursuant to the Plan (including Section 4(a) of the Plan), an option to purchase a certain number of shares of Stock, in order to provide the Optionee with an incentive to advance the interests of the Corporation and any "subsidiary corporation" thereof within the meaning of Section 424(f) of the Internal Revenue Code of 1986 (a "Subsidiary"), all according to the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties hereto do hereby agree as follows: 1. Grant of Option. Subject to the terms of the Plan (attached hereto as Exhibit A), and to the requisite approval of the Plan by the stockholders of the Corporation, the Corporation hereby grants to the Optionee the right and option (the "Option") to purchase from the Corporation, on the terms and subject to the conditions set forth in the Plan and in this Option Agreement, ____________ (____) shares of Stock. This Option shall not constitute an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The date of grant of this Option is _______________ 199__, the date on which the grant of the Option was approved by the Compensation Committee (the "Committee") of the Board of Directors of the Corporation (the "Board"). 2. Terms of Plan. The Option granted pursuant to this Option Agreement is granted subject to the terms and conditions set forth in the Plan. All terms and conditions of the Plan, as it may be amended from time to time, are hereby incorporated into this Option Agreement by reference and shall be deemed to be part of this Option Agreement, without regard to whether such terms and conditions are not otherwise set forth in this Option Agreement. In the event that there is any inconsistency between the provisions of this Option Agreement and of the Plan, the provisions of the Plan shall govern. 3. Price. The purchase price (the "Option Price") for the shares of Stock subject to the Option granted by this Option Agreement is $____ per share. 4. Vesting in Options. The Option becomes vested (i.e., nonforfeitable) as to 25% of the shares of Stock purchasable pursuant to the Option on or after ___________, 199__ (the "Anniversary Date"), if Optionee has been providing services to the Corporation or a Subsidiary continuously from the date of grant to the Anniversary Date. Thereafter, so long as continuous service has not been interrupted, the Option becomes vested (i.e., nonforfeitable) as to an additional 25% of the shares of Stock subject to the Option on or after each of the next three anniversaries of the Anniversary Date. Service for this purpose includes service as an employee, director or independent contractor providing services to the Corporation or a Subsidiary. For purposes of the Option Agreement, termination of service would not be deemed to occur if the Optionee, after terminating service in one capacity, continues to provide service to the Corporation or any Subsidiary in another capacity. Termination of service is sometimes also referred to herein as termination of employment or other relationship with the Corporation or its Subsidiaries. Termination of service (regardless of whether with or without cause or by reason of death, disability or voluntary resignation) results in forfeiture of that portion of the Option (if any) that has not yet vested (i.e., become nonforfeitable) but does not affect the exercisability of that portion of the Option (if any) that has vested and which continues to be subject to the limitations on exercise set forth in this Option Agreement and the Plan. 5. Exercise of Option. Except as otherwise provided herein, and subject to the provisions of the Plan, the Option granted pursuant to this Option Agreement shall be subject to exercise as follows: (a) Time of Exercise of Option. The Optionee may exercise the Option (subject to the limitations on exercise set forth in this Option Agreement and in the Plan), to the extent the Option is vested (i.e., nonforfeitable) and has not terminated under Section 5(b), on the earliest of the following: (i) nine years and ten months after the date of grant; (ii) the closing of a bona fide, firm commitment underwritten public offering of the Common Stock of the Corporation pursuant to a registration statement declared effective under the Securities Act of -2- 1933, as amended, and (iii) receipt by the Optionee of notice from the Corporation that the Corporation has entered into a definitive agreement or the Board has adopted definitive resolutions calling for the Corporation, subject to certain terms and conditions, to effect a transaction or event described in Section 7(c). No single exercise of the Option shall be for less than 100 shares of Stock, unless the number of shares purchased is the total number at the time available for purchase under this Option. (b) Termination of Option. The Option shall terminate upon the earliest of (i) the expiration of a period of ten years from the date of grant of the Option, as set forth in Section 1 above, (ii) the occurrence of a transaction or event described in Section 7(c) which causes termination of the Option, (iii) the Optionee's termination of employment or other relationship with the Corporation or a Subsidiary to the extent the Option has not become vested (i.e., nonforfeitable) in accordance with Section 4 or (iv) the purchase of the Option by the Corporation pursuant to Section 6(d). (c) Limitations on Exercise of Option. Notwithstanding the foregoing Subsections, in no event may the Option be exercised, in whole or in part, prior to the date the Plan is approved by the stockholders of the Corporation and in the event the stockholders fail to approve the Plan within one year of the date of its adoption by the Board, the Option shall be null and void and of no effect. (d) Method of Exercise of Option. Subject to the terms and conditions of this Option Agreement, the Option may be exercised by delivering written notice of exercise to the Corporation, at its principal office, addressed to the attention of the President, which notice shall specify the number of shares for which the Option is being exercised, and shall be accompanied by payment in full of the Option Price of the shares of Stock for which the Option is being exercised. Payment of the Option Price for the shares of Stock purchased pursuant to the exercise of the Option shall be made in cash or by certified check payable to the order of the Corporation. If the person exercising the Option is not the Optionee, such person shall also deliver with the notice of exercise appropriate proof of his or her right to exercise the Option. An attempt to exercise the Option granted hereunder other than as set forth above shall be invalid and of no force and effect. Promptly after exercise of the Option as provided for above, the Corporation shall deliver to the person exercising the Option a certificate or certificates for the shares of Stock being purchased. (e) Parachute Limitations. Notwithstanding any other provision of this Option Agreement or of any other agreement, contract, or understanding heretofore or hereafter entered into by the Optionee with the Corporation or any Subsidiary or Affiliate (as defined in Section 6(b)), except an agreement, contract, or understanding hereafter entered into that expressly -3- modifies or excludes application of this Section (the "Other Agreements"), and notwithstanding any formal or informal plan or other arrangement heretofore or hereafter adopted by the Corporation (or any such Subsidiary or Affiliate) for the direct or indirect compensation of the Optionee (including groups or classes of participants or beneficiaries of which the Optionee is a member), whether or not such compensation is deferred, is in cash, or is in the form of a benefit to or for the Optionee (a "Benefit Arrangement"), if the Optionee is a "disqualified individual," as defined in Section 280G(c) of the Code, the Option and any right to receive any payment or other benefit under the Plan shall not become exercisable or vested (i) to the extent that such right to exercise, vesting, payment, or benefit, taking into account all other rights, payments, or benefits to or for Optionee under the Plan, all Other Agreements, and all Benefit Arrangements, would cause any payment or benefit to the Optionee under this Option to be considered "a parachute payment" within the meaning of Section 280G(b)(2) of the Code as then in effect (a "Parachute Payment") and (ii) if, as a result of receiving a Parachute Payment, the aggregate after-tax amounts received by the Optionee from the Corporation under this Plan, all Other Agreements, and all Benefit Arrangements would be less than the maximum after- tax amount that could be received by Optionee without causing any such payment or benefit to be considered a Parachute Payment. In the event that the receipt of any such right to exercise, vesting, payment, or benefit under this Option, in conjunction with all other rights, payments, or benefits to or for the Optionee under the Plan, any Other Agreement or any Benefit Arrangement would cause the Optionee to be considered to have received a Parachute Payment under the Option that would have the effect of decreasing the after-tax amount received by the Optionee as described in clause (ii) of the preceding sentence, then the Optionee shall have the right, in the Optionee's sole discretion, to designate those rights, payments, or benefits under the Option, the Plan, any Other Agreements, and any Benefit Arrangements that should be reduced or eliminated so as to avoid having the payment or benefit to the Optionee under the Option be deemed to be a Parachute Payment. 6. Transferability. (a) Transferability of Options. During the lifetime of the Optionee, only such Optionee (or, in the event of legal incapacity or incompetency, the Optionee's guardian or legal representative) may exercise the Option. No Option shall be assignable or transferable by the Optionee to whom it is granted, other than by will or the laws of descent and distribution. (b) Nontransferability of Shares. The Optionee (or any other person who is entitled to exercise an Option pursuant to the terms of the Plan and this Option Agreement) shall not sell, pledge, assign, gift, transfer or otherwise dispose of any shares of Stock acquired pursuant to the Option to anyone without first offering such Stock to the Corporation for purchase on the same terms and conditions as those offered to the proposed transferee. Any individual who -4- proposes such a transfer (the "Transferor") shall notify the Corporation, in writing, of the identity of the proposed transferee and the terms and conditions of such proposed transfer. The Corporation may exercise its right of first refusal under this Subsection within 90 days after receiving such notice of the proposed transfer. The Corporation may assign its right of first refusal under this Subsection, in whole or in part, to (1) any stockholder of the Corporation who owns stock or securities of the Corporation (a "Stockholder"), (2) any employee benefit plan (within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended) maintained by the Corporation or a Subsidiary for the benefit of employees of the Corporation or a Subsidiary (a "Benefit Plan"), or (3) any corporation or other trade or business that is controlled by or under common control with the Corporation (determined in accordance with the principles of Section 414(b) and Section 414(c) of the Code and the regulations thereunder) (an "Affiliate"). The Corporation shall give reasonable written notice to the Transferor of any such assignment of its rights. If the Corporation (or its permitted assignee) fails to exercise such right of first refusal during this 90-day period, the Transferor may proceed with the proposed transfer at any time within the next 45 days, and if he does not do so, the restrictions of this Subsection shall re-apply. These restrictions also shall re-apply to any person to whom Stock that was originally acquired pursuant to an Option is sold, pledged, assigned, bequeathed, gifted, transferred or otherwise disposed of without regard to the number of such subsequent transferees or the manner in which they acquire the Stock. Notwithstanding the foregoing, the restrictions of this Subsection shall not apply to a transfer of Stock that occurs as a result of the death of the Transferor or of any subsequent transferee but such restrictions shall apply to the executor, administrator or personal representative, the estate and the legatees, beneficiaries and assigns thereof. (c) Repurchase Rights. Upon the termination of employment or other relationship of the Optionee with the Corporation or a Subsidiary, the Corporation shall have the right, for a period of twelve months following such termination, to repurchase any or all of the shares of Stock acquired pursuant to such Option, at a price equal to the fair market value of such shares on the date the Corporation delivers to the Optionee, or other holder of such shares of Stock, notice that it is exercising its repurchase rights. Upon the exercise of the Option granted hereunder following the termination of employment or other relationship of the Optionee with the Corporation or a Subsidiary, the Corporation shall have the right, for a period of twelve months following such exercise, to repurchase any or all of the shares of Stock acquired by the Optionee pursuant to such exercise of such Option, at a price equal to the fair market value of such shares on the date the Corporation delivers to the Optionee, or other holder of such shares of Stock, notice that it is exercising its repurchase rights. In the event that the Corporation determines that it cannot or will not exercise its rights to purchase Stock pursuant to this Subsection, in whole or in part, the Corporation may assign its rights hereunder, in whole or in part, to a Stockholder, a Benefit Plan or an Affiliate. -5- The Corporation shall give reasonable written notice to the Optionee of any assignment of its rights. "Fair market value", for purposes of this Subsection, shall be determined by the Board in the same manner specified in the Plan for determining the Option Price. A notice of repurchase given pursuant to this Subsection shall specify the price and date of closing of such repurchase, which shall be no later than 30 days from the date of such notice. In the event any such repurchase rights are exercised in accordance with this Subsection, the holder of the Stock being repurchased shall be obligated to sell such Stock pursuant to the exercise of such rights. (d) Purchase of Option. Upon the termination of employment or other relationship of the Optionee with the Corporation or a Subsidiary, the Corporation shall have the right, at all times before the Option is exercised, to purchase the vested (i.e., nonforfeitable) portion of the Option, in whole or in part, at a price equal to the value of such Option on the date the Corporation delivers to the Optionee (or transferee of the Option pursuant to Section 6(a)), notice that it is exercising such purchase rights. For this purpose, the value of the Option is equal to the excess (if any) of the fair market value of the shares of Stock that are subject to the Option, determined by the Board in the same manner specified in the Plan for determining the Option Price as of the date of notice, over the aggregate Option Price of such shares. Upon payment (or tender of payment) in the applicable amount to the Optionee (or transferee of the Option), the vested (i.e. nonforfeitable) portion of the Option shall be terminated and, if payment has been tendered but not made, shall only represent the right to receive such payment without interest. A notice of purchase given pursuant to this Subsection shall specify the price and date of closing of such purchase which shall be no later than 30 days from the date of such notice. In the event any such purchase right is exercised in accordance with this Subsection, the Optionee (or holder of the Option being purchased) shall be obligated to sell such Option pursuant to the exercise of such rights. (e) Publicly Traded Stock. If the Stock is listed on an established national or regional stock exchange or is admitted to quotation on the National Association of Securities Dealers Automated Quotation System, or is publicly traded in an established securities market, the foregoing restrictions, purchase and repurchase rights of Sections 6(b), 6(c) and 6(d) shall terminate as of the first date that the Stock is so listed, quoted or publicly traded. (f) Installment Payments. In the case of any purchase of Stock or an Option under this Section 6, at the option of the Corporation or its permitted assignee the Corporation or its permitted assignee may pay the Optionee, transferee of the Option or other registered owner of the Stock the purchase price in three or fewer annual installments. Interest shall be credited on the installments at the applicable federal rate (as determined for purposes of Section 1274 of the Code) in effect on the date on which the purchase is made. The -6- Corporation or its permitted assignee shall pay at least one-third of the total purchase price each year, plus interest on the unpaid balance, with the first payment being made on or before the 60th day after the purchase. (g) Legend Describing Restrictions and Obligations. The Board or Committee may cause a legend to be placed prominently on certificates representing Stock issued pursuant to this Plan in order to give notice of the transferability restrictions, repurchase rights and other obligations imposed by this Section. 7. Effect of Changes in Capitalization (a) Changes in Stock. If the number of outstanding shares of Stock is increased or decreased or the shares of Stock are changed into or exchanged for a different number or kind of shares or other securities of the Corporation on account of any recapitalization, reclassification, stock split-up, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or decrease in such shares effected without receipt of consideration by the Corporation, occurring after the date of grant of the Option, the number and kind of shares of Stock for which the Option was granted shall be adjusted proportionately and accordingly so that the proportionate interest of the Optionee immediately following such event shall, to the extent practicable, be the same as immediately before such event. Any such adjustment in the Option shall not change the aggregate Option Price payable with respect to shares that are subject to the unexercised portion of the Option but shall include a corresponding proportionate adjustment in the Option Price per share. (b) Reorganization in which the Corporation Is the Surviving Corporation. Subject to Subsection 7(c)(iv) hereof, if the Corporation shall be the surviving corporation in any reorganization, merger, or consolidation of the Corporation with one or more other corporations, the Option shall pertain to and apply to the securities to which a holder of the number of shares of Stock subject to the Option would have been entitled immediately following such reorganization, merger, or consolidation, with a corresponding proportionate adjustment of the Option Price per share so that the aggregate Option Price thereafter shall be the same as the aggregate Option Price of the shares remaining subject to the Option immediately prior to such reorganization, merger, or consolidation. (c) Dissolution, Liquidation, Sale of Assets, Reorganization in Which the Corporation Is Not the Surviving Corporation, Etc. The Option shall terminate (i) upon the dissolution or liquidation of the Corporation, or (ii) upon a merger, consolidation, or reorganization of the Corporation with one or more other corporations in which the Corporation is not the surviving corporation, -7- or (iii) upon a sale of substantially all of the assets of the Corporation to another person or entity, or (iv) upon a merger, consolidation or reorganization (or other transaction if so determined by the Board in its sole discretion) in which the Corporation is the surviving corporation, that is approved by the Board and that results in any person or entity (other than persons who are holders of Stock of the Corporation at the time the Plan is approved by the stockholders and other than an Affiliate) owning 80 percent or more of the combined voting power of all classes of stock of the Corporation, except to the extent provision is made in writing in connection with any such transaction covered by clauses (i) through (iv) for the assumption of the Option or for the substitution for the Option of a new option(s) covering the stock of a successor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and exercise prices, in which event the Option theretofore granted shall continue in the manner and under the terms so provided. In the event of any such termination of the Option, the Optionee shall have the right (subject to the general limitations on exercise set forth in Section 5), during such period occurring before such termination as the Board in its sole discretion shall determine and designate, and in any event immediately before the occurrence of such termination, to exercise such Option in whole or in part, to the extent that such Option was otherwise exercisable at the time such termination occurs. The Corporation shall send written notice of a transaction or event that will result in such a termination to Optionee not later than the time at which the Corporation gives notice thereof to its stockholders. (d) Adjustments. Adjustments under this Section 7 related to stock or securities of the Corporation shall be made by the Board, whose determination in that respect shall be final, binding, and conclusive. No fractional shares of Stock or units of other securities shall be issued pursuant to any such adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole share or unit. (e) No Limitations on Corporation. The grant of the Option shall not affect or limit in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure or to merge, consolidate, dissolve, or liquidate, or to sell or transfer all or any part of its business or assets. 8. Requirements of Law. The Corporation shall not be required to sell or issue any shares of Stock under the Option if the sale or issuance of such shares would constitute a violation by the Optionee, the individual exercising the Option, or the Corporation of any provisions of any law or regulation of any governmental authority, including without limitation any federal or state securities laws or regulations. If at any time the Corporation shall determine, in its discretion, that the listing, registration, or qualification of any shares subject to the Option upon any securities exchange or under any state or federal law, or the -8- consent or approval of any government regulatory or self-regulatory body is necessary or desirable as a condition of, or in connection with the issuance or purchase of shares, the Option may not be exercised in whole or in part unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Corporation, and any delay caused thereby shall in no way affect the date of termination of the Option. Specifically in connection with the Securities Act of 1933 (as now in effect or as hereafter amended), upon the exercise of any Option, unless a registration statement under such Act is in effect with respect to the shares of Stock covered thereby, the Corporation shall not be required to sell or issue such shares unless the Board has received evidence satisfactory to it that the holder of such Option may acquire such shares pursuant to an exemption from registration under such Act. Any determination in this connection by the Board shall be final, binding, and conclusive. The Corporation may, but shall in no event be obligated to, register any securities covered hereby pursuant to the Securities Act of 1933 (as now in effect or as hereafter amended). The Corporation shall not be obligated to take any affirmative action in order to cause the exercise of an Option or the issuance of shares pursuant thereto to comply with any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes the requirement that an Option shall not be exercisable unless and until the shares of Stock covered by such Option are registered or are subject to an available exemption from registration, the exercise of such Option (under circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption. 9. Rights as Stockholder. Neither the Optionee nor any executor, administrator, distributee or legatee of the Optionee's estate shall be, or have any of the rights or privileges of, a stockholder of the Corporation in respect of any shares of Stock issuable hereunder unless and until such shares have been fully paid and certificates representing such shares have been endorsed, transferred and delivered, and the name of the Optionee (or of such personal representative, administrator, distributee or legatee of the Optionee's estate) has been entered as the stockholder of record on the books of the Corporation. 10. Withholding of Taxes. The parties hereto recognize that the Corporation or a Subsidiary may be obligated to withhold federal, state and local income taxes and Social Security taxes to the extent that the Optionee realizes ordinary income in connection with the exercise of the Option or in connection with a disposition of any shares of Stock acquired by exercise of the Option. The Optionee agrees that the Corporation or a Subsidiary may withhold amounts needed to cover such taxes from payments otherwise due and owing to the Optionee, and also agrees that upon demand the Optionee will promptly pay to the Corporation or a Subsidiary having such obligation any additional amounts as may be necessary to satisfy such withholding tax obligation. Such payment shall -9- be made in cash or by certified check payable to the order of the Corporation or a Subsidiary. 11. Disclaimer of Rights. No provision in this Option Agreement shall be construed to confer upon the Optionee the right to remain in the employ or service of or to maintain a relationship with the Corporation or any Subsidiary, or to interfere in any way with any contractual or other right or authority of the Corporation or any Subsidiary either to increase or decrease the compensation of the Optionee at any time, or to terminate any employment or other relationship between the Optionee and the Corporation or any Subsidiary. 12. Interpretation of this Option Agreement. All decisions and interpretations made by the Board or the Committee thereof with regard to any question arising under the Plan or this Option Agreement shall be binding and conclusive on the Corporation and the Optionee and any other person entitled to exercise the Option as provided for herein. 13. Governing Law. This Option Agreement shall be governed by the laws of the State of Delaware (excluding its choice of law rules). 14. Approval by Stockholders. This Option Agreement and the issuance of any shares under it are expressly subject to the approval of the Plan by the stockholders of the Corporation as provided for therein. The Option shall not in any event be exercisable in whole or in part prior to the date the Plan is approved by the stockholders of the Corporation as provided for therein. 15. Binding Effect. Subject to all restrictions provided for in this Option Agreement, the Plan and by applicable law limiting assignment and transfer of this Option Agreement and the Option provided for herein, this Option Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors, and assigns. 16. Notice. Any notice hereunder by the Optionee to the Corporation shall be in writing and shall be deemed duly given if mailed or delivered to the Corporation at its principal office, addressed to the attention of the President, or if so mailed or delivered to such other address as the Corporation may hereafter designate by notice to the Optionee. Any notice hereunder by the Corporation to the Optionee shall be in writing and shall be deemed duly given if mailed or delivered to the Optionee at the address specified below by the Optionee for such purpose, or if so mailed or delivered to such other address as the Optionee may hereafter designate by written notice given to the Corporation. 17. Entire Agreement. This Option Agreement and the Plan together constitute the entire agreement and supersede all prior understandings and agreements, written or oral, of the parties hereto with respect to the subject -10- matter hereof. Neither this Option Agreement nor any term hereof may be amended, waived, discharged or terminated except by a written instrument signed by the Corporation and the Optionee; provided, however, that the Corporation unilaterally may waive any provision hereof in writing to the extent that such waiver does not adversely affect the interests of the Optionee hereunder, but no such waiver shall operate as or be construed to be a subsequent waiver of the same provision or a waiver of any other provision hereof. IN WITNESS WHEREOF, the parties hereto have duly executed this Option Agreement, or caused this Option Agreement to be duly executed in their name and on their behalf, as of the day and year first above written. VITAS HEALTHCARE CORPORATION By:_________________________________ Title:______________________________ OPTIONEE: ____________________________________ ADDRESS FOR NOTICE TO OPTIONEE: ____________________________________ Number Street ____________________________________ City State Zip Code -11- EX-10.38 14 EXHIBIT 10.38 EXHIBIT 10.38 AMENDED AND RESTATED REVOLVING CREDIT, TERM LOAN AND REIMBURSEMENT AGREEMENT by and among VITAS HEALTHCARE CORPORATION, as Borrower, and NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION, as Lender and NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION, as Agent February 17, 1995 TABLE OF CONTENTS Page ---- ARTICLE I Definitions and Terms 1.01 Definitions ..................................................... 2 1.02 Accounting Terms ................................................ 27 1.03 UCC Terms ....................................................... 28 ARTICLE II The Loans 2.01 Revolving Credit Facility ....................................... 29 2.02 Term Loan ....................................................... 31 2.03 Rate Selection and Interest Periods ............................. 31 2.04 Payment of Interest ............................................. 31 2.05 Payment of Principal ............................................ 32 2.06 Notes ........................................................... 35 2.07 Pro Rata Payments ............................................... 35 2.08 Reductions ...................................................... 35 2.09 Increase and Decrease in Amounts ................................ 36 2.10 Conversions and Elections of Subsequent Interest Periods ................................................ 36 2.11 Unused Fee ...................................................... 37 2.12 Deficiency Advances ............................................. 37 2.13 Use of Proceeds ................................................. 38 2.14 Extension of Revolving Credit Termination Date and Term Loan Maturity Date ................................ 38 ARTICLE III Letters of Credit 3.01 Letters of Credit ............................................... 39 3.02 Reimbursement ................................................... 39 3.03 Letter of Credit Fee ............................................ 43 3.04 Administrative Fees and Reserves ................................ 43 ARTICLE IV Yield Protection and Illegality 4.01 Additional Costs ................................................ 44 4.02 Suspension of Loans ............................................. 46 4.03 Illegality ...................................................... 46 4.04 Compensation .................................................... 47 4.05 Alternate Loans ................................................. 47 4.06 Taxes ........................................................... 47 i Page ---- ARTICLE V Conditions to Making Loans and Issuing Letters of Credit 5.01 Conditions of Closing ........................................... 50 5.02 Conditions of Loans and Issuance of Letters of Credit ....................................................... 53 5.03 Supplements to Schedules ........................................ 53 ARTICLE VI Security 6.01 Security ........................................................ 55 6.02 Further Assurances .............................................. 55 6.03 Property Location ............................................... 55 6.04 Chief Executive Offices ......................................... 55 ARTICLE VII Representations and Warranties 7.01 Representations and Warranties .................................. 57 ARTICLE VIII Affirmative Covenants 8.01 Financial Reports, Etc .......................................... 66 8.02 Maintain Properties ............................................. 67 8.03 Existence, Qualification, Etc ................................... 68 8.04 Regulations and Taxes ........................................... 68 8.05 Insurance ....................................................... 68 8.06 True Books ...................................................... 68 8.07 Pay Indebtedness to Lenders and Perform Other Covenants ................................................. 69 8.08 Right of Inspection ............................................. 69 8.09 Observe all Laws ................................................ 69 8.10 Governmental Licenses ........................................... 69 8.11 Covenants Extending to Subsidiaries ............................. 69 8.12 Officer's Knowledge of Default .................................. 69 8.13 Suits or Other Proceedings ...................................... 70 8.14 Notice of Discharge of Hazardous Material or Environmental Complaint ...................................... 70 8.15 Environmental Compliance ........................................ 70 8.16 Indemnification ................................................. 70 8.17 Further Assurances .............................................. 71 8.18 ERISA Requirement ............................................... 71 8.19 Continued Operations ............................................ 71 8.20 Use of Proceeds ................................................. 71 ii Page ---- 8.21 Trade Names ..................................................... 71 8.22 New Guarantors .................................................. 72 ARTICLE IX Negative Covenants 9.01 Consolidated Shareholders' Equity ............................... 74 9.02 Current Ratio ................................................... 74 9.03 Consolidated Interest Coverage Ratio ............................ 74 9.04 Consolidated Leverage Ratio ..................................... 74 9.05 Consolidated Fixed Charge Ratio ................................. 75 9.06 Indebtedness .................................................... 75 9.07 Liens ........................................................... 76 9.08 Transfer of Assets .............................................. 77 9.09 Investments; Acquisitions ....................................... 77 9.10 Dividends or Distributions ...................................... 78 9.11 Merger or Consolidation ......................................... 79 9.12 Change in Control ............................................... 79 9.13 Transactions with Affiliates .................................... 79 9.14 ERISA ........................................................... 80 9.15 Fiscal Year ..................................................... 80 9.16 Dissolution, etc ................................................ 81 9.17 Rate Hedging Obligations ........................................ 81 9.18 Subordinated Obligations ........................................ 81 ARTICLE X Events of Default and Acceleration 10.01 Events of Default ............................................... 82 10.02 Agent to Act .................................................... 86 10.03 Cumulative Rights ............................................... 86 10.04 No Waiver ....................................................... 86 10.05 Allocation of Proceeds .......................................... 87 ARTICLE XI The Agent 11.01 Appointment ..................................................... 88 11.02 Attorneys-in-fact ............................................... 88 11.03 Limitation on Liability ......................................... 88 11.04 Reliance ........................................................ 89 11.05 Notice of Default ............................................... 89 11.06 No Representations .............................................. 89 11.07 Indemnification ................................................. 90 11.08 Lender .......................................................... 90 11.09 Resignation ..................................................... 90 11.10 Sharing of Payments, etc ........................................ 91 11.11 Fees ............................................................ 92 iii Page ---- 11.12 One Lender ...................................................... 92 ARTICLE XII Miscellaneous 12.01 Assignments and Participations ................................. 93 12.02 Notices ........................................................ 95 12.03 Setoff ......................................................... 97 12.04 Survival ....................................................... 97 12.05 Expenses ....................................................... 98 12.06 Amendments ..................................................... 99 12.07 Counterparts ................................................... 100 12.08 Waivers by Borrower ............................................ 100 12.09 Termination .................................................... 100 12.10 Governing Law .................................................. 101 12.11 Indemnification ................................................ 101 12.12 Headings and References ........................................ 103 12.13 Severability ................................................... 103 12.14 Entire Agreement ............................................... 103 12.15 Agreement Controls ............................................. 103 12.16 Usury Savings Clause ........................................... 103 12.17 Confidentiality ................................................ 104 12.18 Savings Clause ................................................. 104 12.19 Consents ....................................................... 105 EXHIBIT A Applicable Commitment Percentages ........................... 108 EXHIBIT B Form of Assignment and Acceptance ........................... 109 EXHIBIT C Notice of Appointment (or Revocation) of Authorized Representative ................................ 112 EXHIBIT D Form of Borrowing Base Certificate .......................... 113 EXHIBIT E Form of Borrowing Notice--Loans ............................. 114 EXHIBIT F Form of Interest Rate Selection Notice ...................... 116 EXHIBIT G Form of Amended and Restated Revolving Credit Notes ................................................ 118 EXHIBIT H Form of Term Notes .......................................... 121 EXHIBIT I Compliance Certificate ...................................... 124 EXHIBIT J Form of Subsidiary Guaranty ................................. 131 EXHIBIT K Form of Subsidiary Security Agreement ....................... 132 SCHEDULE 1.01 Existing Letters of Credit SCHEDULE 6.03 Locations of Inventory and Equipment SCHEDULE 6.04 Chief Executive Offices SCHEDULE 7.01(d) Subsidiaries adn Investments SCHEDULE 7.01(f) Contingent and Other Obligations SCHEDULE 7.01(g) Existing Liens on the Collateral SCHEDULE 7.01(h) Taxes SCHEDULE 7.01(j) Litigation SCHEDULE 7.01(m) Exceptions Regarding Patents iv Page ---- SCHEDULE 7.01(o) Consents and Notices SCHEDULE 7.01(r) Hazardous Materials SCHEDULE 7.01(t) Pending Administrative Matters SCHEDULE 8.05 Existing Insurance SCHEDULE 9.06 Indebtedness VITAS AGREES TO PROVIDE A COPY OF THE EXHIBITS AND SCHEDULES LISTED ABOVE TO THE COMMISSION UPON REQUEST. v AMENDED AND RESTATED REVOLVING CREDIT, TERM LOAN AND REIMBURSEMENT AGREEMENT THIS AMENDED AND RESTATED REVOLVING CREDIT, TERM LOAN AND REIMBURSEMENT AGREEMENT, dated as of February 17, 1995 (the "Agreement"), is made by and among: VITAS HEALTHCARE CORPORATION, a Delaware corporation having its principal place of business in Miami, Florida (the "Borrower"); and NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America and having its principal place of business in Tampa, Florida ("NationsBank"), and each other lender which may hereafter execute and deliver an instrument of assignment with respect to this Agreement pursuant to Section 12.01 (hereinafter NationsBank and such other lenders may be referred to individually as a "Lender" or collectively as the "Lenders"); and NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION, in its capacity as agent for the Lenders (in such capacity, the "Agent"); W I T N E S S E T H: WHEREAS, pursuant to a Revolving Credit and Reimbursement Agreement dated as of August 11, 1994 among the Borrower, NationsBank and NationsBank as agent (the "Prior Agreement"), NationsBank as lender made available to the Borrower a revolving credit facility of up to $15,000,000 which included thereunder a revolving letter of credit facility of up to $2,500,000, for working capital needs and general corporate purposes; and WHEREAS, the Borrower and Vitas Healthcare Corporation of California, a Subsidiary of the Borrower ("Vitas California"), have entered into an Asset Purchase Agreement with the Sellers (as hereinafter defined) dated as of December 27, 1994 (the "Asset Purchase Agreement") pursuant to which Vitas California has agreed to purchase substantially all of the operating assets of the CHC Entities (as hereinafter defined) pursuant to the terms and subject to the conditions set forth therein and, in connection therewith, the Borrower has requested that the Prior Agreement be amended and restated to increase the revolving credit facility from $15,000,000 to $20,000,000, to provide for a $25,000,000 term loan facility, and to make certain other modifications set forth herein; and WHEREAS, the Lenders are willing to amend and increase such revolving credit facility and make such term loan available to the Borrower upon the terms and conditions set forth herein; NOW, THEREFORE, the Borrower, the Lenders and the Agent hereby agree as follows: ARTICLE I Definitions and Terms 1.01 Definitions. For the purposes of this Agreement, in addition to the definitions set forth above, the following terms shall have the respective meanings set forth below: "Accounts" of any Person means all accounts, accounts receivable, contract rights, general intangibles, notes, bills, acceptances, choses in action, chattel paper, instruments, documents, and other forms of obligations at any time owing to such Person, the proceeds thereof and all of such Person's rights with respect to any goods represented thereby, whether or not delivered, goods returned by customers and all rights as an unpaid vendor or lienor, including rights of stoppage in transit and of recovering possession by proceedings including replevin and reclamation, together with all customer lists, books and records, ledger and account cards, computer tapes, software, disks, printouts and records, whether now in existence or hereafter created, relating to Accounts; "Advance" means a borrowing under the Revolving Credit Facility consisting of the aggregate principal amount of a Floating Rate Loan or a LIBOR Loan, as the case may be; "Affiliate" means a Person, other than a Subsidiary, (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with the Borrower; (ii) which is the beneficial owner (as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of 10% or more of any class of the outstanding voting stock of the Borrower; (iii) 10% or more of any class of the outstanding voting stock (or in the case of a Person which is not a corporation, 10% or more of the equity interest) of which is beneficially owned or held by the Borrower. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting stock, by contract or otherwise; provided, however, that when the Borrower registers any security issued by it pursuant to the Securities Act of 1933, as amended, the figure 10% used throughout this definition shall automatically be changed to 5%; "Applicable Commitment Percentage" means, for each Lender, with respect to the Obligations hereunder (each a type of "credit exposure"), including its Participations and its obligations hereunder to NationsBank to acquire Participations, a fraction (expressed as a percentage) of each of the Total Revolving Loan Commitment and the Total Term Loan Commitment, the numerator of which shall be the then amount of 2 such Lender's Revolving Loan Commitment or Term Loan Commitment, as the case may be, and the denominator of which shall be the Total Revolving Loan Commitment or Total Term Loan Commitment, as the case may be, which Revolving Loan Commitment, Term Loan Commitment and respective Applicable Commitment Percentages for each Lender as of the Closing Date are as set forth in Exhibit A attached hereto and incorporated herein by this reference; provided that the Applicable Commitment Percentages of each Lender shall be increased or decreased to reflect any assignments to or by such Lender effected in accordance with Section 12.01 hereof; "Applicable Interest Addition" means, for each type of Loan outstanding during any portion of any of the periods set forth below, the amount set forth for such type of Loan opposite such period: Term Loan Revolving Credit Loan --------- --------------------- Floating Floating LIBOR Rate LIBOR Rate ----- ---- ----- ---- Closing Date to 2.50% 1.00% 2.50% 1.00% and including January 31, 1996 February 1, 1996 2.75% 1.25% 2.50% 1.00% to and including April 30, 1996 May 1, 1996 and thereafter 3.00% 1.50% 2.50% 1.00%; provided, however, if on or before January 31, 1996 the Borrower shall make a prepayment of not less than $6,000,000 principal amount of the Term Loan from the proceeds of an offering of Qualified Equity Securities, then (i) the Applicable Interest Addition for all LIBOR Loans shall be 2.50% and (ii) the Applicable Interest Addition for all Floating Rate Loans shall be 1.00%; "Applications and Agreements for Letters of Credit" means, collectively, the Applications and Agreements for Letters of Credit executed by the Borrower from time to time and delivered to NationsBank to support the issuance of Letters of Credit; "Assignment and Acceptance" shall mean an Assignment and Acceptance in the form of Exhibit B (with blanks appropriately filled in) delivered to the Agent in connection with an assignment of a Lender's interest under this Agreement pursuant to Section 12.01; 3 "Authorized Representative" means any of the President, chief executive officer or chief financial officer of the Borrower or, with respect to financial matters, the Treasurer, any Assistant Treasurer or chief financial officer of the Borrower or any other person expressly designated by the Board of Directors of the Borrower (or the appropriate committee thereof) as an Authorized Representative of the Borrower, as set forth from time to time in a certificate in the form attached hereto as Exhibit C; "Base Rate" means for any LIBOR Loan, in respect of the Interest Period specified by the Authorized Representative in the Borrowing Notice for such LIBOR Loan, the rate (expressed as a percentage and rounded upward if necessary to the nearest 1/100 of 1%) (which shall be the same for each day of such Interest Period) determined by the Agent in good faith in accordance with its usual procedures for its customers generally to be the average of the rates per annum for deposits in Dollars offered to major banks in the London interbank market at approximately 11:00 A.M. Charlotte time two (2) LIBOR Business Days prior to the commencement of the applicable Interest Period in an amount approximately equal to the principal amount of, and for a period comparable to the Interest Period for, such LIBOR Loan; "Board" means the Board of Governors of the Federal Reserve System (or any successor body); "Borrowing Base" means, as of any date of determination thereof, (i) from the Closing Date through April 30, 1995, 90%, (ii) from May 1, 1995 through July 31, 1995, 80%, and (iii) thereafter, 70%, of the gross amount of Eligible Accounts; "Borrowing Base Certificate" means a certificate of an Authorized Representative in the form attached hereto as Exhibit D; "Borrowing Notice" means the notice delivered by an Authorized Representative in connection with an Advance, in the form attached hereto as Exhibit E; "Business Day" means any day which is not a Saturday, Sunday or a day on which banks in the States of North Carolina or Florida are authorized or obligated by law, executive order or governmental decree to be closed; "Capital Expenditures" means, for any period, the sum of (without duplication) (i) all expenditures (whether paid in cash or accrued as liabilities) by the Borrower or any Subsidiary during that period that are for items that would be classified as "property, plant or equipment" or comparable items on the consolidated balance sheet of the Borrower, plus 4 (ii) with respect to any Capital Lease entered into by the Borrower or its Subsidiaries during such period, the present value of the lease payments due under such Capital Lease over the term of such Capital Lease, applying a discount rate equal to the interest rate provided in such lease (or in the absence of a stated interest rate that rate used in the preparation of the financial statements described in Section 8.01(a) hereof), excluding, however, the amount of any Capital Expenditures paid for with proceeds of casualty insurance; "Capital Leases" means all leases which have been or should be capitalized in accordance with Generally Accepted Accounting Principles as in effect from time to time including Statement No. 13 of the Financial Accounting Standards Board and any successor thereof; "CHC Entities" means, collectively, Community and the following limited partnerships, of each of which Community is the sole general partner as of the Closing Date: Community Hospice Care of Orange County, Ltd. L.P., Community Hospice Care of San Diego Limited Partnership, Community Hospice Care - Coastal Cities Limited Partnership, Community Hospice Care - Inland Cities Limited Partnership, Community Hospice Care - San Gabriel Valley Limited Partnership, Community Hospice Care - Valley Cities, L. P., and Community Hospice Care - Los Angeles Cities, L.P; "CHC Transaction" means the acquisition by Vitas California of substantially all of the operating assets of the CHC Entities in accordance with the terms of the Asset Purchase Agreement; "CHC Transaction Documents" means, collectively, the Asset Purchase Agreement, the Seller Notes, the Subordination Agreements, and the Bill of Sale, Assumption Agreement, Guaranty, Will Agreement, Joint Account Agreement, Non-Competition Agreement and Will Non-Competition Agreement referred to in the Asset Purchase Agreement (including in each case all exhibits and schedules thereto); "Closing Date" means the date as of which this Agreement is executed and delivered by the Borrower, the Lenders and the Agent and on which the conditions set forth in Section 5.01 hereof have been satisfied; "Code" means the Internal Revenue Code of 1986, as amended, any successor provision or provisions and any regulations promulgated thereunder; "Collateral" means, collectively, all collateral or security granted to the Agent for the ratable benefit of the Lenders by the Borrower, the Subsidiaries or any other Person pursuant to the Security Documents; 5 "Community" means Community Hospice Care, Inc., a California corporation; "Consistent Basis" in reference to the application of Generally Accepted Accounting Principles means the accounting principles observed in the period referred to are comparable in all material respects to those applied in the preparation of the audited financial statements of the Borrower referred to in Section 7.O1(f)(i) hereof, subject to Section 1.02 hereof; "Consolidated Current Assets" means cash and all other assets of the Borrower and its Subsidiaries which are expected to be realized in cash, sold in the ordinary course of business, or consumed within one year or which would be classified as a current asset, all determined in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis; "Consolidated Current Liabilities" means all liabilities of the Borrower and its Subsidiaries which by their terms are payable within one year (including all Indebtedness payable on demand or maturing not more than one year from the date of computation and the current portion of Indebtedness having a maturity date in excess of one year, but excluding in all cases the Revolving Credit Debit Balance, the Term Loan and Seller Notes), all determined in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis; "Consolidated EBITDAR" means, with respect to the Borrower and its Subsidiaries for any period of computation thereof, the sum of, without duplication, (i) Consolidated Net Income, plus (ii) Consolidated Interest Expense accrued during such period, plus (iii) taxes on income accrued during such period, plus (iv) amortization accrued during such period, plus (v) any depreciation during such period, plus (vi) all contributions to the ESOP made or accrued by the Borrower during such period, plus (vii) Consolidated Rentals, all determined on a consolidated basis in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis; "Consolidated Fixed Charge Ratio" means, with respect to the Borrower and its Subsidiaries for the Four-Quarter Period ending on the date of computation thereof, the ratio of (a) Consolidated EBITDAR minus Capital Expenditures (other than (i) Capital Expenditures of up to $2,300,000 in the aggregate incurred in connection with the operation of the business acquired in the CHC Transaction and (ii) Capital Expenditures incurred under Capital Leases) to (b) Consolidated Fixed Charges; 6 "Consolidated Fixed Charges" means, with respect to Borrower and its Subsidiaries, for any period of computation thereof, the sum of, without duplication, (i) Consolidated Interest Expense accrued during such period, (ii) dividends and distributions (other than dividends payable solely in capital stock of the Borrower) paid during such period, including Preferred Stock Redemptions, but excluding redemptions of Preferred Stock effected in connection with, and funded with proceeds of the Borrower's offering of Qualified Equity Securities, (iii) principal payments of Consolidated Funded Indebtedness required to be paid during such period (but excluding any principal payments that might be required under this Agreement), and (iv) Consolidated Rentals; "Consolidated Funded Indebtedness" means Indebtedness for Money Borrowed of the Borrower and its Subsidiaries and the ESOP Debt; "Consolidated Indebtedness" means all Indebtedness of the Borrower and its Subsidiaries, all determined on a consolidated basis and including the ESOP Debt; "Consolidated Interest Coverage Ratio" means, with respect to the Borrower and its Subsidiaries for the Four-Quarter Period ending on the date of computation thereof, the ratio of (a) Consolidated Net Income plus to the extent deducted in determining Consolidated Net Income (i) taxes based on income accrued during such period, (ii) Consolidated Interest Expense, plus (iii) all contributions to the ESOP made or accrued by the Borrower during such period related to (b) Consolidated Interest Expense; "Consolidated Interest Expense" means, with respect to any period of computation thereof, the gross interest expense of the Borrower and its Subsidiaries accrued during such period and including interest expense payable in respect of the ESOP Debt, including without limitation (i) the amortization of debt discounts, (ii) the amortization of all fees (including, without limitation, fees payable in respect of a Swap Agreement) payable in connection with the incurrence of Indebtedness to the extent included in interest expense and (iii) the portion of any liabilities incurred in connection with Capital Leases allocable to interest expense, all determined on a consolidated basis in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis; "Consolidated Leverage Ratio" means the ratio of Consolidated Funded Indebtedness to Consolidated Total Capital; 7 "Consolidated Net Income" means, for any period of computation thereof, the gross revenues from operations of the Borrower and its Subsidiaries (including payments received by the Borrower and its Subsidiaries of (i) interest income, and (ii) dividends and distributions made in the ordinary course of their businesses by Persons in which investment is permitted pursuant to Section 9.09 and not related to an extraordinary event) less all operating and non-operating expenses of the Borrower and its Subsidiaries including taxes on income (excluding, however, up to $800,000 of expenses incurred in connection with preparation of a proposed public offering of the Borrower's capital stock that was not pursued due to market conditions) all determined on a consolidated basis in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis; but excluding as income: (i) net gains on the sale, conversion or other disposition of capital assets, (ii) net gains on the acquisition, retirement, sale or other disposition of capital stock and other securities of the Borrower or its Subsidiaries, (iii) net gains on the collection of proceeds of life insurance policies, (iv) any write-up of any asset, and (v) any other net gain or credit of an extraordinary nature as determined in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis; "Consolidated Rentals" means and includes with respect to any period of determination thereof, the aggregate amount of all fixed payments (including as such all payments which the lessee is obligated to make to the lessor on termination of the lease or surrender of the leased property) payable by the Borrower or any of its Subsidiaries, as lessee or sublessee under any lease of real property, or with respect to inpatient facilities, any lease of real or personal property, and shall include any amounts required to be paid by the Borrower or any of its Subsidiaries (whether or not designated as rents or additional rents) on account of maintenance, repairs, insurance, taxes and similar charges; "Consolidated Shareholders' Equity" means, at any time as of which the amount thereof is to be determined, the sum of the following in respect of the Borrower and its Subsidiaries (determined on a consolidated basis and excluding intercompany items among the Borrower and its Subsidiaries and any upward adjustment after the Closing Date due to revaluation of assets): (i) the amount of issued and outstanding capital stock, plus (ii) the amount of additional paid-in capital and retained income (or, in the case of a deficit, minus the amount of such deficit), minus, without duplication, (iii) the amount of any deferred compensation or other contra-equity account in respect of the ESOP Debt), in each case as determined in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis, except that regardless of the treatment thereof under Generally Accepted 8 Accounting Principles, the Preferred Stock and Qualified Equity Securities shall be considered part of Consolidated Shareholders' Equity for purposes of this Agreement; "Consolidated Total Capital" means the sum of Consolidated Funded Indebtedness and Consolidated Shareholders' Equity; "Contingent Obligation" of any Person means all contingent liabilities required (or which, upon the creation or incurring thereof, would be required) to be included in the consolidated financial statements (including footnotes) of such Person in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis, including Statement No. 5 of the Financial Accounting Standards Board, and any obligation of such Person guaranteeing or in effect guaranteeing any Indebtedness, dividend or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including obligations of such Person however incurred: (1) to purchase such Indebtedness or other obligation or any property or assets constituting security therefor; (2) to advance or supply funds in any manner (i) for the purchase or payment of such Indebtedness or other obligation, or (ii) to maintain a minimum working capital, net worth or other balance sheet condition or any income statement condition of the primary obligor; (3) to grant or convey any lien, security interest, pledge, charge or other encumbrance on any property or assets of such Person to secure payment of such Indebtedness or other obligation; (4) to lease property or to purchase securities or other property or services primarily for the purpose of assuring the owner or holder of such Indebtedness or obligation of the ability of the primary obligor to make payment of such Indebtedness or other obligation; or (5) otherwise to assure the owner of the Indebtedness or such obligation of the primary obligor against loss in respect thereof; with respect to Contingent Obligations, such liabilities shall be computed at the amount which, in light of all the facts and circumstances existing at the time, represent the present value of the amount which can reasonably be expected to become an actual or matured liability; 9 "Cost of Acquisition" means the sum of the purchase price, as reflected in any definitive agreement to acquire all or any portion of the stock or all or any portion of the assets of any Person plus, without duplication, any Indebtedness assumed by the Borrower or its Subsidiaries in connection with such acquisition; "Default" means any event or condition which, with the giving or receipt of notice or lapse of time or both, would constitute an Event of Default hereunder; "Dollars" and the symbol "$" means dollars constituting legal tender for the payment of public and private debts in the United States of America; "Eligible Accounts" means those Accounts, of the Borrower or any Guarantor (other than inter-company accounts among the Borrower and any Guarantor ) arising from the delivery by Borrower or any Guarantor of healthcare or other services in the ordinary course of business, in which the Agent has a perfected first priority security interest pursuant to the other Loan Documents (or, in the case of Government Receivables, in which the Agent has a first priority security interest to the extent that such may be granted under applicable law), which (i) in the case of Accounts due from third party payors are reduced by discounts, disallowances, claims, bad debts, and credits in accordance with those adjustments applied by Borrower and Guarantors on a Consistent Basis, and (ii) in the case of Accounts which are directly payable by the recipient of services (typically known as self-pay) are not more than 180 days old; "Eligible Securities" means the following obligations and any other obligations previously approved in writing by the Agent: (a) Government Securities; (b) the following debt securities of the following agencies or instrumentalities of the United States of America if at all times the full faith and credit of the United States of America is pledged to the full and timely payment of all interest and principal thereof: (i) all direct or fully guaranteed obligations of the United States Treasury; and (ii) mortgage-backed securities and participation certificates guaranteed by the Government National Mortgage Association or any successor thereto; 10 (c) the following obligations of the following agencies or instrumentalities of the United States of America: (i) participation certificates and debt obligations of the Federal Home Loan Mortgage Corporation or any successor thereto; (ii) consolidated debt obligations, and obligations secured by a letter of credit, of any of the Federal Home Loan Banks; and (iii) debt obligations and mortgage-backed securities of the Federal National Mortgage Association or any successor thereto which have not had the interest portion thereof severed therefrom; (d) obligations of any corporation organized under the laws of any state of the United States of America or under the laws of any other nation, payable in the United States of America, expressed to mature not later than one year following the date of purchase thereof and rated in an investment grade rating category by S&P and Moody's; (e) interest bearing demand or time deposits issued by NationsBank or certificates of deposit maturing within one year from the date of acquisition issued by a bank or trust company organized under the laws of the United States or of any state thereof having capital surplus and undivided profits aggregating at least $400,000,000 and being rated A-3 or better by S&P or A or better by Moody's; (f) Repurchase Agreements; (g) Pre-Refunded Municipal Obligations; (h) shares of mutual funds which invest in obligations described in paragraphs (a) through (g) above, the shares of which mutual funds are at all times rated "AAA" by S&P; (i) asset-backed remarketed certificates of participation representing a fractional undivided interest in the assets of a trust, which certificates are rated at least "A-l" by S&P and "P-l" by Moody's; and (j) any other obligation or security, the investment in which is consistent with the Borrower's written investment policies, a copy of which has been delivered by the Borrower to the Agent on or prior to the Closing Date. 11 Obligations which are in book-entry form must be held in a book-entry custody account with any Federal Reserve Bank or with a clearing corporation or chain of clearing corporations which has an account with any Federal Reserve Bank; "Environmental Laws" means, collectively, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the Toxic Substances Control Act, as amended, the Clean Air Act, as amended, the Clean Water Act, as amended, any other "Superfund" or "Superlien" law or any other federal, or applicable state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic or dangerous waste, substance or material; "ERISA" means, at any date, the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder, all as the same shall be in effect at such date; "ESOP" means The Vitas Healthcare Corporation Employee Stock Ownership Plan and the trust related thereto, as in effect as of the Closing Date and as thereafter modified, supplemented or amended; "ESOP Debt" means, as of any date of computation thereof, the aggregate principal amount of the indebtedness outstanding under the ESOP Loan Documents; "ESOP Guaranty" means the Amended and Restated Guaranty and Contingent Purchase Agreement of the Borrower dated as of the date hereof pursuant to which the Borrower guarantees the obligations and liabilities of the ESOP under the ESOP Loan Documents, as the same may be amended, modified or supplemented as therein permitted; "ESOP Guaranty Obligations" means the obligations and liabilities of the Borrower under the ESOP Guaranty; "ESOP Loan Documents" means the Loan Agreement dated as of August 11, 1994, between the ESOP and NationsBank providing for a term loan to the ESOP in the original principal amount of $2,386,670, the ESOP Guaranty, and all promissory notes, pledge agreements and other documents, instruments and agreements now or hereafter delivered to NationsBank evidencing or relating to such indebtedness, as any of such documents may hereafter be amended, modified or supplemented as therein permitted; "Event of Default" means any of the occurrences set forth as such in Section 10.01 hereof; 12 "Excess Cash Flow" means with respect to any period of computation thereof, the positive difference, if any, resulting from subtracting from Consolidated EBITDAR the sum of the following: (i) Capital Expenditures, (ii) Consolidated Interest Expense, (iii) required principal payments on Consolidated Funded Indebtedness (including without limitation deferred compensation contributions utilized to fund payments of principal of the ESOP Debt), (iv) the aggregate amount of all dividends, distributions, redemptions or other purchases paid or declared during such period in respect of the Preferred Stock, (v) taxes on income accrued during such period, and (vi) Consolidated Rentals; "Existing L/Cs" means, collectively, the letters of credit issued under the Prior Agreement and remaining outstanding as of the Closing Date, as more particularly described on Schedule 1.01 attached hereto and all renewals or replacements thereof, which Existing L/Cs shall not exceed $1,500,000 in aggregate stated amount outstanding; "Federal Funds Effective Rate" for any day, as used herein, means the rate per annum (rounded upward to the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or any successor) on such day as being the weighted average of the rates on overnight Federal funds transactions arranged by Federal funds brokers on the previous trading day, as computed and announced by such Federal Reserve Bank (or any successor) in substantially the same manner as such Federal Reserve Bank computes and announces the weighted average it refers to as the "Federal Funds Effective Rate" as of the date of this Agreement; provided, if such Federal Reserve Bank (or its successor) does not announce such rate on any day, the "Federal Funds Effective Rate" for such day shall be the Federal Funds Effective Rate for the last day on which such rate was announced; "Fiscal Year" means the 12 month period of the Borrower ending on September 30 of each calendar year and commencing on October 1 of each calendar year, subject to change pursuant to Section 9.15 hereof; "Floating Rate" means the sum of (A) the greater of (i) the Prime Rate or (ii) the Federal Funds Effective Rate plus one-half of one percent (1/2%), plus (B) the Applicable Interest Addition, each change in the Floating Rate to be effective as of the effective date of any change in the Prime Rate or the Federal Funds Effective Rate giving rise thereto; "Floating Rate Loan" means a Loan for which the rate of interest is determined by reference to the Floating Rate; 13 "Four-Quarter Period" means a period of four full consecutive quarterly periods, taken together as one accounting period; "Generally Accepted Accounting Principles" means generally accepted accounting principles in effect in the United States of America as applied by nationally recognized accounting firms; "Government Receivables" means Accounts of the Borrower or any Subsidiary as to which the United States of America or any State or agency or instrumentality thereof (including, without limitation, any agent, fiscal intermediary or carrier acting on behalf or under the direction of the United States of America or any State or agency or instrumentality thereof) is the account obligor; "Government Securities" means direct obligations of, or obligations the timely payment of principal and interest on which are fully and unconditionally guaranteed by, the United States of America; "Governmental Authority" shall mean any Federal, state, municipal, national or other governmental department, commission, board, bureau, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative or judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether of a state, territory or possession of the United States, the United States, a foreign governmental entity or the District of Columbia; "Guarantors" means, collectively, (i) Vitas California, Vitas Healthcare Corporation of Florida, a Florida corporation, Vitas Healthcare Corporation of Ohio, a Delaware corporation, Vitas Healthcare Corporation of Pennsylvania, a Delaware corporation, (ii) every other Subsidiary of the Borrower, existing as of the Closing Date, and every Strategic Investment Subsidiary, which (x) in any calendar month shall have operating revenues of $50,000 or more and (y) shall have executed and delivered a Guaranty pursuant to Section 8.22 hereof, and (iii) every other Subsidiary (excluding Strategic Investment Subsidiaries) of the Borrower hereafter organized or acquired which shall have executed and delivered a Guaranty pursuant to Section 8.22 hereof; "Guaranty" means (i) as to all Persons who executed and delivered a "Guaranty" under and as defined in the Prior Agreement, each Amended and Restated Guaranty and Suretyship Agreement of a Guarantor of even date herewith, (ii) as to Vitas California, the Guaranty and Suretyship Agreement of Vitas California of even date herewith, and (iii) as to Persons delivering a Guaranty pursuant to Section 8.22 hereof, 14 each Guaranty and Suretyship Agreement dated as of the date of delivery thereof, in favor of the Agent, as the same may be amended, modified or supplemented; "Hazardous Material" means and includes any hazardous, toxic or dangerous waste, substance or material, the generation, handling, storage, disposal, treatment or emission of which is subject to any Environmental Law; "Indebtedness" means with respect to any Person, without duplication, all Indebtedness for Money Borrowed, all indebtedness of such Person for the acquisition of property, all indebtedness secured by any Lien on the property of such Person whether or not such indebtedness is assumed (but if not assumed, then the amount of such indebtedness shall be the lower of the amount thereof or the book value of such property), all liability of such Person by way of endorsements (other than for collection or deposit in the ordinary course of business), all Contingent Obligations; but excluding all accounts payable in the ordinary course of business so long as payment therefor is due within one year; provided that in no event shall the term Indebtedness include shareholders' capital, surplus and retained earnings, minority interest in Subsidiaries, lease obligations (other than pursuant to Capital Leases), the Preferred Stock, obligations to pay dividends on or to redeem the Preferred Stock, Qualified Equity Securities, reserves for deferred income taxes and investment credits, other deferred credits and reserves, including, without limitation, unearned Medicare prospective payments, and deferred compensation obligations (except that deferred compensation obligations relating to the ESOP Debt shall constitute Indebtedness); "Indebtedness for Money Borrowed" means all indebtedness in respect of money borrowed, including without limitation all Capital Leases and the deferred purchase price of any property or asset, evidenced by a promissory note, bond or similar written obligation for the payment of money (including, but not limited to, conditional sales or similar title retention agreements) and shall include the ESOP Debt; "Individual Sellers" means, collectively, Connie A. Black, a resident of the State of California, and Dennis Rezendes, a resident of the State of Colorado, each a signatory to the Asset Purchase Agreement; "Interest Period" for each LIBOR Loan means a period commencing on the date such LIBOR Loan is made or converted and each subsequent period commencing on the last day of the immediately preceding Interest Period for such LIBOR Loan, and ending, at the Borrower's option, on the date one, two, three or six months thereafter as notified to the Agent by the 15 Authorized Representative three (3) LIBOR Business Days prior to the beginning of such Interest Period; provided, that, (i) if the Authorized Representative fails to notify the Agent of the length of an Interest Period three (3) LIBOR Business Days prior to the first day of such Interest Period, the Loan for which such Interest Period was to be determined shall be deemed to be a Floating Rate Loan as of the first day thereof; (ii) if an Interest Period for a LIBOR Loan would end on a day which is not a LIBOR Business Day such Interest Period shall be extended to the next LIBOR Business Day (unless such extension would cause the applicable Interest Period to end in the succeeding calendar month, in which case such Interest Period shall end on the next preceding LIBOR Business Day); (iii) there shall not be more than 5 (five) Interest Periods in effect on any day; and (iv) during the first three (3) months and three (3) Business Days following the Closing Date (the "Initial Period"), the Borrower shall not be entitled to elect or maintain any Interest Period ending after the Initial Period, and for the next four (4) months following the Initial Period, the Borrower shall only be entitled to have Interest Periods of one month duration in effect; "Interest Rate Selection Notice" means the telephonic request of an Authorized Representative to elect a subsequent Interest Period for, or to convert, a Loan or Loans of any type hereunder, as such election or conversion shall be otherwise permitted herein. Any Interest Rate Selection Notice shall be binding on and irrevocable by the Borrower and shall be confirmed by facsimile transmission delivered to the Agent, effective upon receipt, on the same Business Day upon which the telephonic request is made, by the Authorized Representative in the form attached hereto as Exhibit F; "LC Account Agreement" means the Amended and Restated LC Account Agreement dated as of the date hereof between the Borrower and the Agent, as amended or modified from time to time; "Lending Office" means, as to each Lender, the Lending Office of such Lender designated on the signature pages hereof or in an Assignment and Acceptance or such other office of such Lender (or of an affiliate of such Lender) as such Lender may from time to time specify to the Authorized Representative and the Agent as the office by which its Loans are to be made and maintained; 16 "Letter of Credit" means a standby letter of credit issued by NationsBank for the account of the Borrower in favor of a Person advancing credit or securing an obligation on behalf of the Borrower, and shall include the Existing L/Cs; "Letter of Credit Commitment" means with respect to each Lender, the obligation of such Lender to acquire Letter of Credit Participations up to an aggregate stated amount at any one time outstanding equal to such Lender's Applicable Commitment Percentage of the Total Letter of Credit Commitment as the same may be increased or decreased from time to time pursuant to this Agreement; "Letter of Credit Facility" means the facility described in Article III hereof providing for the issuance by NationsBank for the account of the Borrower of Letters of Credit in an aggregate stated amount at any time outstanding not exceeding the Total Letter of Credit Commitment; "LIBOR Business Day" means a Business Day on which the relevant international financial markets are open for the transaction of the business contemplated by this Agreement in London, England and New York, New York; "LIBOR Loan" means a Loan for which the rate of interest is determined by reference to the LIBOR Rate; "LIBOR Rate" means, for the Interest Period for any LIBOR Loan, the rate of interest per annum determined pursuant to the following formula: Base Rate --------------------- LIBOR Rate = 1-Reserve Requirement + Applicable Interest Addition "Lien" means any interest in property securing any obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on the common law, statute or contract, and including but not limited to the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. For the purposes of this Agreement, the Borrower and its Subsidiaries shall be deemed to be the owners of any property which any of them have acquired or hold subject to a conditional sale agreement, financing lease, or other arrangement pursuant to which title to the property has been retained by or vested in some other Person for security purposes; 17 "Loan" or "Loans" means any of the LIBOR Loans or Floating Rate Loans constituting all or part of the Revolving Credit Loan or the Term Loan, as the context may require; "Loan Documents" means this Agreement, the Notes, the Guaranties, the Subordination Agreements, Applications and Agreements for Letters of Credit, the LC Account Agreement, the Security Documents and all other instruments and documents heretofore or hereafter executed or delivered to and in favor of any Lender or the Agent in connection with the Loans or the Letters of Credit made, issued or created under this Agreement as the same may be amended, modified or supplemented from time to time; "Maturity Extension Conditions" means all of the following: (i) No Default or Event of Default shall exist or have occurred and not have been waived; (ii) In the good faith judgment of the Lenders, no material adverse change shall have occurred in the business, financial condition or operations of the Borrower and its Subsidiaries, taken as a whole, since the Closing Date; (iii) The Borrower shall have redeemed all of the 9% Preferred Stock through consummation of an offering of Qualified Equity Securities, shall have applied net proceeds therefrom to the prepayment of not less than $6,000,000 principal amount of the Term Loan and, immediately after giving effect to such redemption, offering and prepayment, shall have effected a net increase in its equity of not less than $11,000,000; and (iv) Each of the Lenders shall have received payment from the Borrower of an extension fee equal to .25% (twenty-five basis points) of the sum of its Revolving Credit Commitment and Term Loan Commitment as in effect on the effective date of any extension of the Revolving Credit Termination Date or Term Loan Maturity Date as provided in Section 2.14 hereof; "Moody's" means Moody's Investors Service, Inc., a Delaware corporation, or any successor thereto; "Multi-employer Plan" means an employee pension benefit plan covered by Title IV of ERISA and in respect of which the Borrower or any Subsidiary is an "employer" as described in Section 4001(b) of ERISA, which is also a multi-employer plan as defined in Section 4001(a)(3) of ERISA; 18 "NCMI" means NationsBanc Capital Markets, Inc., and its successors; "9% Preferred Stock" means the 9.0% Cumulative Nonconvertible Preferred Stock, par value $1.00 per share, issued by the Borrower, of which 270,000 shares are issued and outstanding as of the Closing Date; "New Guaranty Event" shall have the meaning provided in Section 8.22; "Notes" means, collectively, the Revolving Credit Notes and the Term Notes; "Obligations" means the obligations, liabilities and Indebtedness of the Borrower with respect to (i) the principal and interest on the Loans as evidenced by the Notes, (ii) the Reimbursement Obligations, (iii) all liabilities of Borrower to any Lender which arise under a Swap Agreement, and (iv) the payment and performance of all other obligations, liabilities and Indebtedness of the Borrower to the Lenders or the Agent hereunder, under any one or more of the other Loan Documents or with respect to the Loans; "Outstanding Letters of Credit" means all undrawn amounts of Letters of Credit plus Reimbursement Obligations; "Participation" means, with respect to any Lender (other than NationsBank), the extension of credit represented by the participation of such Lender hereunder in the liability of NationsBank in respect of a Letter of Credit issued by NationsBank in accordance with the terms hereof; "Permitted Acquisition" means the acquisition by the Borrower or a Guarantor of any Person or the assets of any Person, which satisfies the following: (i) such Person is or the assets of such Person are used in the same or similar line of business as that engaged in by the Borrower, (ii) the Person acquired does not oppose such acquisition, (iii) such Person (to the extent a separate entity is acquired or results) becomes a Guarantor and is consolidated with the Borrower for financial reporting purposes or the assets acquired from such Person are owned by the Borrower or a Guarantor, (iv) if the Cost of Acquisition exceeds $2,500,000, the Required Lenders shall have consented thereto, and (v) no Default or Event of Default exists immediately after giving effect to such acquisition; "Permitted Liens" means those Liens described in subsections (i) through (vii) of Section 9.07 hereof; 19 "Person" means an individual, partnership, corporation, trust, unincorporated organization, association, joint venture or a government or agency or political subdivision thereof; "Preferred Stock" means, collectively, the 9% Preferred Stock and the Series B Preferred Stock; "Preferred Stock Redemption" means (i) with respect to the 9% Preferred Stock, redemptions made by the Borrower pursuant to Section 3(b) of the Certificate of Designation, Preferences and Other Rights of 9.0% Cumulative Nonconvertible Preferred Stock of the Borrower, and (ii) with respect to the Series B Preferred Stock, redemptions made by the Borrower pursuant to Sections 3(a) and 3(b) of the Certificate of Designation, Preferences and Other Rights of the Series B Convertible Preferred Stock of the Borrower; "Pre-Refunded Municipal Obligations" means obligations of any state of the United States of America or of any municipal corporation or other public body Organized under the laws of any such state which are rated, based on the escrow, in the highest investment rating category by both S&P and Moody's and which have been irrevocably called for redemption and advance refunded through the deposit in escrow of Government Securities or other debt securities which are (i) not callable at the option of the issuer thereof prior to maturity, (ii) irrevocably pledged solely to the payment of all principal and interest and other charges on such obligations as the same becomes due and (iii) in a principal amount and bear such rate or rates of interest as shall be sufficient to pay in full all principal of, interest, and premium, if any, on such obligations as the same becomes due as verified by a nationally recognized firm of certified public accountants; "Prime Rate" means the rate of interest per annum announced publicly by the Agent as its prime rate from time to time. The Prime Rate is not necessarily the best or the lowest rate of interest offered by the Agent; "Principal Office" means the office of the Agent at One Independence Center, 101 North Tryon Street, NC1-O01-15-04, Charlotte, North Carolina 28255, Attention: Corporate Banking, Agency Services, or such other office and address as the Agent may from time to time designate; "Prior Notes" means, collectively, the promissory notes issued under the Prior Agreement evidencing the Borrower's obligations in respect of the Revolving Credit Facility prior to the date hereof; "Projection of Combined Entities" means the Vitas Healthcare Corporation Analysis of Community Hospice Care, Inc. dated as of January 24, 1995; 20 "Qualified Equity Securities" means either of the following types of equity securities of the Borrower sold in a public or private offering (other than securities issued as a result of the exercise of stock options): (i) common stock; or (ii) preferred stock having no right to the payment of cash dividends or other similar cash distributions and as to which the Borrower has no obligation to redeem, repurchase or otherwise retire any of such securities during the period from the date of issuance thereof until not earlier than 91 days following the full payment and satisfaction of the Obligations and termination of this Agreement, the net proceeds of which preferred stock are used to the extent necessary to redeem in whole the 9% Preferred Stock; provided that in either case such securities are issued substantially simultaneously with or following either (x) the redemption in full of the Series B Preferred Stock or (y) amendment of the Series B Preferred Stock (and related Certificate of Designation, Preferences and Other Rights) in form and substance reasonably acceptable to the Agent in order to eliminate any obligation of the Borrower to redeem, repurchase or otherwise retire any of such securities until not earlier than 91 days following the full payment and satisfaction of the Obligations and termination of this Agreement; "Ratable Benefit" means, as to each Lender, such Lender's share of the Collateral, determined by dividing (a) the outstanding principal amount of the Obligations owing to such Lender by (b) the sum of the outstanding principal amount of the Obligations owing to all the Lenders; "Rate Hedging Obligations" means any and all obligations of the Borrower, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any and all agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts, warrants and those commonly known as interest rate "swap" agreements; and (b) any and all cancellations, buybacks, reversals, terminations or assignments of any of the foregoing; 21 "Regulation D" means Regulation D of the Board as the same may be amended or supplemented from time to time; "Regulatory Change" means any change effective after the Closing Date in United States federal or state laws or regulations (including Regulation D and capital adequacy regulations) or foreign laws or regulations or the adoption or making after such date of any interpretations, directives or requests applying to a class of banks, which includes any of the Lenders, under any United States federal or state or foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof or compliance by any Lender with any request or directive regarding capital adequacy, including with respect to "highly leveraged transactions" having the force of law, whether or not published or proposed prior to the date hereof; "Reimbursement Obligation" shall mean at any time, the obligation of the Borrower with respect to any Letter of Credit to reimburse NationsBank and the Lenders to the extent of their respective Participations (including by the receipt by NationsBank of proceeds of Loans pursuant to Section 3.02) for amounts theretofore paid by NationsBank pursuant to a drawing under such Letter of Credit; "Repurchase Agreement" means a repurchase agreement entered into with any financial institution whose debt obligations or commercial paper are rated "A" by either of S&P or Moody's or "A-l" by S&P or "P-l" by Moody's; "Required Lenders" means, as of any date, Lenders on such date having Credit Exposures (as defined below) aggregating at least (i) so long as there shall be fewer than three (3) Lenders, 100%, and (ii) thereafter 66-2/3% of the aggregate Credit Exposures of all the Lenders on such date. For purposes of the preceding sentence, the amount of the "Credit Exposure" of each Lender shall be equal to the aggregate principal amount of the Loans owing to such Lender plus the aggregate unutilized amounts of such Lender's Revolving Credit Commitment plus the amount of such Lender's Applicable Commitment Percentage of Outstanding Letters of Credit; provided that, if any Lender shall have failed to pay to NationsBank its Applicable Commitment Percentage of any drawing under any Letter of Credit resulting in an outstanding Reimbursement Obligation, such Lender's Credit Exposure attributable to Letters of Credit, Reimbursement Obligations and the Letter of Credit Commitment shall be deemed to be held by NationsBank for purposes of this definition; "Required New Guarantor" shall have the meaning therefor provided in Section 8.22; 22 "Reserve Requirement" means, for any LIBOR Loan with respect thereto, the maximum aggregate rate at which reserves (including, without limitation, any marginal, supplemental or emergency reserves) are required to be maintained with respect thereto under Regulation D by the Lenders with respect to Dollar funding in the London interbank market. Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by the Lenders by reason of any Regulatory Change against (i) any category of liabilities which includes deposits by reference to which the Base Rate is to be determined or (ii) any category of extensions of credit or other assets which include LIBOR Loans; "Revolving Credit Advance Account" means an account on the books of the Agent in which (i) each Advance by the Agent pursuant to Section 2.01 shall be debited thereto by recording therein on the date of such Advance a debit entry in the amount of such Advance; and (ii) each payment made to the Agent for credit to the Revolving Credit Advance Account shall be credited thereto by recording therein on the date paid to the Agent a credit entry in the amount of such payment; "Revolving Credit Commitment" means with respect to each Lender, the obligation of such Lender to make Loans to the Borrower up to an aggregate principal amount at any one time outstanding equal to such Lender's percentage as set forth on Exhibit A hereto of the Total Revolving Credit Commitment as the same may be increased or decreased from time to time pursuant to this Agreement; "Revolving Credit Debit Balance" means an amount equal to the excess, if any, of all debit entries over all credit entries required to be recorded pursuant to Section 2.01 hereof in a Revolving Credit Advance Account of the Agent up to and including the date of computation; "Revolving Credit Facility" means the facility described in Section 2.01 hereof providing for Loans to the Borrower by the Lenders in the aggregate principal amount of Total Revolving Credit Commitment less the aggregate amount of Outstanding Letters of Credit; "Revolving Credit Loan" means a Loan or Loans made available to the Borrower pursuant to the Revolving Credit Facility; "Revolving Credit Notes" means, collectively, the promissory notes of the Borrower evidencing the Revolving 23 Credit Loans executed and delivered to the Lenders as provided in Section 2.06 hereof substantially in the form attached hereto as Exhibit G, with appropriate insertions as to amounts, dates and names of Lenders; "Revolving Credit Termination Date" means (i) September 30, 1996 or, upon satisfaction of the conditions for extension provided in Section 2.14 hereof, September 30, 1998, (ii) such earlier date of termination of Lenders' obligations pursuant to Section 10.01 upon the occurrence of an Event of Default, or (iii) such date as the Borrower may voluntarily permanently terminate the Revolving Credit Facility by payment in full of all Obligations (including the discharge of all Obligations of NationsBank and the Lenders with respect to Letters of Credit and Participations); "S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill, or any successor thereto; "Secured Interest Rate Management Facility" means any Rate Hedging Obligation arising under a Swap Agreement between the Borrower and one or more of the Lenders which is secured by the Collateral; "Security Agreement" means the Amended and Restated Pledge and Security Agreement dated as of the date hereof by the Borrower to the Agent pursuant to which the Borrower, inter alia, grants a security interest in the Collateral (i) to the Agent for the ratable benefit of the Lenders as security for the Obligations and (ii) to NationsBank as security for the ESOP Guaranty Obligations, as the same may be modified, amended or supplemented from time to time as herein and therein permitted; "Security Agreements" means, collectively, the Security Agreement and the Subsidiary Security Agreements; "Security Documents" means the Security Agreement, the Subsidiary Security Agreements, the financing statements required to perfect a security interest in the Collateral, the stock certificates evidencing the Borrower's equity interests in all Subsidiaries with duly executed stock powers in blank affixed thereto ("Subsidiary Stock"), and such other documents and instruments as the Agent may require to create or perfect a security interest in the Collateral; "Seller Notes" means the promissory notes of even date herewith made by Vitas California to the order of one or more of the CHC Entities in the initial aggregate principal amount of $11,400,000, which are subordinated in right of payment to the Obligations pursuant to the Subordination Agreements; 24 "Sellers" means, collectively, the CHC Entities and the Individual Sellers; "Series B Preferred Stock" means the Series B Convertible Preferred Stock, par value $1.00 per share, issued by the Borrower, of which 262,500 shares are issued and outstanding as of the Closing Date; "Single Employer Plan" means any employee pension benefit plan covered by Title IV of ERISA and in respect of which the Borrower or any Subsidiary is an "employer" as described in Section 4001(b) of ERISA, which is not a Multi-employer Plan; "Solvent" means, when used with respect to any Person, that at the time of determination: (i) the fair value of its assets (both at fair valuation and at present fair saleable value on an orderly basis) is in excess of the total amount of its liabilities, including, without limitation, Contingent Obligations; and (ii) it is then able and expects to be able to pay its debts as they mature; and (iii) it has capital sufficient to carry on its business as presently conducted; "Strategic Investment" means an equity investment not constituting a Permitted Acquisition by the Borrower or any Subsidiary in, or any loan or advance by the Borrower or any Subsidiary to, a Person (i) not constituting a Subsidiary at the time of such investment and (ii) who is engaged in the same or similar line of business as the Borrower, which investment (a) is not opposed by the Person in whom such investment is made, (b) is made pursuant to an interest or plan reflected in the minutes of the board of directors (or appropriate committee thereof) of the Borrower or Subsidiary making such investment, either to acquire all or substantially all of the stock or assets of such Person or to enter into a joint venture, co-ownership or similar arrangement through such investment, and (c) does not, and so far as can reasonably be foreseen will not, give rise to or result in any Indebtedness (including any Contingent Obligation) or other liability of or claim against the assets of Borrower or any Subsidiary (other than claims against the related Strategic Investment itself), whether as a result of being a general partner or joint venturer, an owner or operator of any facility or property, or otherwise by operation of any contract, commitment, statute or principle of law; 25 "Strategic Investment Subsidiary" means any Subsidiary used for the primary purpose of making one or more Strategic Investments; "Subordination Agreements" means, collectively, the Subordination Agreement-A and the Subordination Agreement-B, each of even date herewith from the CHC Entities for the benefit of the Agent and Lenders subordinating the Seller Notes and certain other rights to payment under the Asset Purchase Agreement to the payment and satisfaction of the Obligations, as the same may be amended, modified or supplemented from time to time as therein permitted; "Subordinated Obligations" has the meaning provided in the Subordination Agreements; "Subsidiary" means any corporation or other entity in which more than 50% of its outstanding voting stock or more than 50% of all equity interests is owned directly or indirectly by the Borrower and/or by one or more of the Borrower's Subsidiaries; "Subsidiary Security Agreement" means (i) as to all Persons who executed and delivered a "Subsidiary Security Agreement" under and as defined in the Prior Agreement, the Amended and Restated Pledge and Security Agreement of each Guarantor dated as of the date hereof, (ii) as to Vitas California, the Pledge and Security Agreement of Vitas California of even date herewith, and (iii) as to Persons delivering a Pledge and Security Agreement pursuant to Section 8.22 hereof, each Pledge and Security Agreement dated the date of such delivery, by a Subsidiary of the Borrower to the Agent pursuant to which such Subsidiary, inter alia, grants a security interest in the Collateral (i) to the Agent for the ratable benefit of the Lenders and (ii) to NationsBank as security for the obligations of such Subsidiary under its Guaranty, as the same may be modified, amended or supplemented from time to time as herein and therein permitted; "Successor Preferred Stock" means preferred stock of the Borrower (a) described in clause (ii) of the definition of "Qualified Equity Securities" in this Section 1.01 issued in connection with (and the net proceeds of which issue are utilized to fund) the redemption in full or in part of the 9% Preferred Stock, or (b) having terms which are approved by the Agent and the Required Lenders. "Swap Agreement" means one or more agreements with respect to Indebtedness evidenced by the Notes between the Borrower and another Person, on terms mutually acceptable to such Borrower and such Person, which agreements create Rate Hedging Obligations; 26 "Term Loan" means the Loan or Loans made available to the Borrower pursuant to Section 2.02 hereof; "Term Loan Commitment" means with respect to each Lender, the obligation of such Lender to make on the Closing Date a Term Loan to the Borrower in an initial principal amount equal to such Lender's percentage as set forth on Exhibit A hereto of the Total Term Loan Commitment; "Term Loan Maturity Date" means (i) September 30, 1996 or, upon satisfaction of the conditions for extension provided in Section 2.14 hereof, September 30, 1998, or (ii) such earlier date as the Term Loan shall become due and payable pursuant to Section 10.01 upon the occurrence of an Event of Default; "Term Notes" means, collectively, the promissory notes of the Borrower evidencing the Term Loan executed and delivered to the Lenders as provided in Section 2.06 hereof substantially in the form attached hereto as Exhibit H, with appropriate insertions as to amounts, dates and names of Lenders; "Total Letter of Credit Commitment" means a principal amount not to exceed $2,500,000; "Total Revolving Credit Commitment" means a principal amount equal to $20,000,000, as reduced from time to time in accordance with Section 2.08; "Total Term Loan Commitment" means the several obligations of the Lenders to make a Term Loan on the Closing Date in the aggregate initial principal amount of $25,000,000; "Will Agreement" has the meaning therefor provided in the Asset Purchase Agreement; "Will Entities" means, collectively, Vernon R. Will and Wilcare Corporation, a California corporation, signatories to the Will Agreement. 1.02 Accounting Terms. All accounting terms not specifically defined herein shall have the meanings assigned to such terms and shall be interpreted in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis; provided, however, if any change in Generally Accepted Accounting Principles or, if applicable, Regulation S-X promulgated pursuant to the Securities Act of 1933, as amended, in effect on the Closing Date shall result in a change in any calculation (or the meaning or effect of any calculation) required to determine compliance with any provision contained in this Agreement, the Borrower and the Required Lenders will amend such provision in a manner to reflect 27 such change such that the determination of compliance with such provision shall yield the same result as would have been obtained prior to such change in Generally Accepted Accounting Principles or Regulation S-X. Until an amendment is entered into covenants shall be calculated in accordance with Generally Accepted Accounting Principles as in effect immediately preceding such change. 1.03 UCC Terms. Each term defined in Article 1 or 9 of the Florida Uniform Commercial Code shall have the meaning herein given therein unless otherwise defined herein, except to the extent that the Uniform Commercial Code of another jurisdiction is controlling, in which case such terms shall have the meaning given in the Uniform Commercial Code of the applicable jurisdiction. 28 ARTICLE II The Loans 2.01 Revolving Credit Facility (a) Commitment. Subject to the terms and conditions of this Agreement, each Lender severally agrees to make Advances to the Borrower, from time to time from the Closing Date until the Revolving Credit Termination Date on a pro rata basis as to the total borrowing requested by the Borrower on any day determined by its Applicable Commitment Percentage up to but not exceeding the Revolving Credit Commitment of such Lender, provided, however, that the Lenders will not be required and shall have no obligation to make any Advance (i) so long as a Default or an Event of Default has occurred and is continuing or (ii) if the Agent has accelerated the maturity of the Notes as a result of an Event of Default; provided further, however, that immediately after giving effect to each Advance, the principal amount of outstanding Revolving Credit Loans plus the amount of all Outstanding Letters of Credit shall not exceed the lesser of the Total Revolving Credit Commitment or the Borrowing Base. Within such limits, the Borrower may borrow, repay and reborrow hereunder, on a Business Day in the case of a Floating Rate Loan and on a LIBOR Business Day in the case of a LIBOR Loan, from the Closing Date until, but (as to borrowings and reborrowings) not including, the Revolving Credit Termination Date; provided, however, that (x) no LIBOR Loan shall be made which has an Interest Period that extends beyond the Revolving Credit Termination Date and (y) each LIBOR Loan may, subject to the provisions of Section 2.10, be repaid only on the last day of the Interest Period with respect thereto. (b) Amounts. Except as otherwise permitted by the Lenders from time to time, the aggregate unpaid principal amount of the Revolving Credit Loans and Outstanding Letters of Credit shall not exceed at any time, an amount equal to the lesser of the Total Revolving Credit Commitment or the Borrowing Base. Each Revolving Credit Loan hereunder and each conversion under Section 2.10 shall be in an amount of at least $500,000, and, if greater than $500,000, an integral multiple of $100,000. (c) Advances. (i) An Authorized Representative shall give the Agent (1) at least three (3) LIBOR Business Days' irrevocable telefacsimile or other written notice of each Revolving Credit Loan that is to be a LIBOR Loan (whether representing an additional borrowing hereunder or the conversion of borrowing hereunder from Floating Rate Loans to LIBOR Loans) prior to 10:30 A.M., Charlotte, North Carolina time; and (2) irrevocable telefacsimile or other written notice of each Revolving Credit Loan that is to be a Floating Rate Loan representing an additional borrowing hereunder prior to 10:30 A.M. Charlotte, North Carolina time on the day of such proposed Floating Rate Loan. Each Borrowing Notice, which shall be effective upon receipt by the Agent, shall specify the 29 amount of the borrowing, the type (Floating or LIBOR) of Revolving Credit Loan, the date of borrowing and, if a LIBOR Loan, the Interest Period to be used in the computation of interest. Each Borrowing Notice shall be in the form attached hereto as Exhibit E or F, as applicable, with appropriate insertions. Notice of receipt of such Borrowing Notice or Interest Rate Selection Notice shall be provided by the Agent to each Lender by telefacsimile with reasonable promptness, but not later than 1:00 P.M., Charlotte, North Carolina time on the same day as Agent's receipt of such notice. (ii) Not later than 3:00 P.M., Charlotte, North Carolina time on the date specified for each borrowing under this Section 2.01, each Lender shall, pursuant to the terms and subject to the conditions of this Agreement, make the amount of the Revolving Credit Loan or Revolving Credit Loans to be made by it on such day available to the Agent, by depositing or transferring the proceeds thereof in immediately available funds at the Principal Office. The amount so received by the Agent shall, subject to the terms and conditions of this Agreement, be made available to the Borrower by delivery of the proceeds thereof as shall be directed in the applicable Borrowing Notice by the Authorized Representative. (iii) Notwithstanding the foregoing, if a drawing is made under any Letter of Credit prior to the Revolving Credit Termination Date, the drawing shall be paid by the Agent without the requirement of notice from the Borrower from immediately available funds which shall be advanced by the Lenders under the Revolving Credit Facility. If a drawing is presented under any Letter of Credit in accordance with the terms thereof and if Borrower shall not immediately reimburse NationsBank for the amount of such draw or payment then notice of such drawing or payment shall be provided promptly by NationsBank to the Agent and the Agent shall provide notice to each Lender by telephone. If notice to the Lenders of a drawing under any Letter of Credit is given by the Agent at or before 12:00 noon Charlotte, North Carolina time on any Business Day, each Lender shall, pursuant to the conditions of this Agreement, make a Floating Rate Loan under the Revolving Credit Facility in the amount of such Lender's Applicable Commitment Percentage of such drawing or payment and shall pay such amount to the Agent for the account of NationsBank at the Principal Office in Dollars and in immediately available funds before 2:30 P.M. Charlotte, North Carolina time on the same Business Day. If notice to the Lenders of a drawing under a Letter of Credit is given by the Agent after 12:00 noon Charlotte, North Carolina time on any Business Day, each Lender shall, pursuant to the terms and subject to the conditions of this Agreement, make a Floating Rate Loan under the Revolving Credit Facility in the amount of such Lender's Applicable Commitment Percentage of such drawing or payment and shall pay such amount to the Agent for the account of NationsBank at the Principal Office in Dollars and in immediately available funds before 12:00 noon Charlotte, North Carolina time on the next following Business Day. Such Floating Rate Loan shall 30 continue unless and until the Borrower converts such Floating Rate Loan in accordance with the terms of Section 2.10 hereof. 2.02 Term Loan. (a) Commitment. Subject to the terms and conditions of this Agreement, each Lender severally agrees to make a Term Loan to the Borrower on the Closing Date in an amount equal to the product of such Lender's Applicable Commitment Percentage (expressed as a decimal) multiplied by $25,000,000. (b) Interest Selection. An Authorized Representative shall give the Agent (i) at least three (3) LIBOR Business Days' irrevocable telephonic notice of selection of a LIBOR Loan for all or part of the Term Loan (representing the conversion of a Floating Rate Loan to a LIBOR Loan or of one LIBOR Loan to another LIBOR Loan) prior to 10:30 A.M., Charlotte, North Carolina time; and (iii) irrevocable telephonic notice of each Floating Rate Loan for all or part of the Term Loan (representing a conversion from a LIBOR Loan) prior to 10:30 A.M. Charlotte, North Carolina time on the day of the proposed change in interest rate. An Authorized Representative shall give the Agent written confirmation of each such telephone notice by telefacsimile transmission in the form of the Interest Rate Selection Notice, but failure to provide such confirmation shall not affect the validity of such telephonic notice. Notwithstanding the foregoing, no part of the Term Loan shall be a LIBOR Loan unless such LIBOR Loan shall be made in an amount at least equal to the lesser of $5,000,000 and 20% of the then outstanding principal balance of the Term Loan or, if greater, an integral multiple of $1,000,000. 2.03 Rate Selection and Interest Periods. Each Loan shall be, at the option of the Borrower as specified in the applicable Borrowing Notice or Interest Selection Notice, as appropriate, furnished to the Agent pursuant to Sections 2.01 or 2.02 hereof, either a Floating Rate Loan or a LIBOR Loan, which shall in each case be made or maintained by each Lender at its applicable Lending Office. Floating Rate Loans and LIBOR Loans may be outstanding at the same time, provided, however, (x) there shall not be outstanding at any one time LIBOR Loans having more than five (5) different Interest Periods and (y) LIBOR Loans constituting part of the Term Loan shall at no time have Interest Periods in effect such that giving effect to any required payment or prepayment of principal of the Term Loan hereunder would require the prepayment of any of such LIBOR Loans. 2.04 Payment of Interest. (a) The Borrower shall pay interest to the Agent for the account of each Lender on the outstanding and unpaid principal amount of each Loan made by such Lender for the period commencing on the date of such Loan until such Loan shall be due at the then applicable Floating Rate for Floating Rate Loans or applicable LIBOR Rate for LIBOR Loans, as designated by the Authorized Representative pursuant to Sections 31 2.01 and 2.02 hereof or as otherwise provided herein; provided, however, that if any amount shall not be paid when due (at maturity, by acceleration or otherwise), all amounts outstanding hereunder shall bear interest thereafter (i) in the case of a LIBOR Loan, until the end of the Interest Period with respect to such LIBOR Loan, at a rate of two percent (2%) above such LIBOR Rate and (ii) thereafter, and with respect to Floating Rate Loans, at a rate of interest per annum which shall be two percent (2%) above the Floating Rate or the maximum rate permitted by applicable law, whichever is lower, from the date such amount was due and payable until the date such amount is paid in full. (b) Interest on each Loan shall be computed on the basis of a year of 360 days and calculated for the actual number of days elapsed. Interest on each Loan shall be paid (i) quarterly in arrears on the last Business Day of each March, June, September and December, commencing March 31, 1995, on each Floating Rate Loan, (ii) on the last day of the applicable Interest Period for each LIBOR Loan and, if any Interest Period extends for more than three months, at intervals of three months after the first day of the Interest Period in respect of the related LIBOR Loan, and (iii) upon the principal amount of such Loan being paid or otherwise becoming due and payable in full. The duration of the initial Interest Period for each Loan that is a LIBOR Loan shall be as specified in the initial Borrowing Notice. The Borrower shall have the option to elect the duration of subsequent Interest Periods and to convert the Loans in accordance with Section 2.10 hereof. If the Agent does not receive a notice of election of duration of an Interest Period or to convert by the time prescribed by Section 2.10 hereof, the Borrower shall be deemed to have elected to convert such Loan to (or continue such Loan as) a Floating Rate Loan until the Borrower notifies the Agent in accordance with Section 2.10. 2.05 Payment of Principal. (a) The principal amount of each Revolving Credit Loan shall be due and payable to the Agent for the benefit of each Lender in full on the Revolving Credit Termination Date. (b) The entire outstanding principal amount of the Term Loan shall be due and payable to the Agent for the benefit of each Lender in full on the Term Loan Maturity Date. In addition, in the event that the Term Loan Maturity Date shall be extended to September 30, 1998 pursuant to the provisions of Section 2.14 hereof, a principal payment in the amount of forty percent (40%) of the then outstanding principal balance of the Term Loan shall be due and payable to the Agent for the benefit of the Lenders on September 30, 1997. (c) In addition to the required payments of principal of the Term Loan set forth in Section 2.05(b) above, the Borrower shall make the following required prepayments of the Term Loan, each such 32 payment to be made to the Agent for the benefit of the Lenders within the time period specified below: (i) the Borrower shall make a prepayment from the proceeds of each offering of Qualified Equity Securities in an amount equal to (1) $6,000,000 plus (2) after giving effect to the Preferred Stock Redemption of the 9% Preferred Stock and crediting proceeds received by the Borrower from the exercise of the Borrower's Warrant A dated December 17, 1991 or Warrant B dated December 17, 1991, as applicable, fifty percent (50%) of any additional proceeds reduced by the amount, not to exceed $10,000,000 in the aggregate, applied to (w) underwriting discounts (if applicable), commissions (if applicable) and issuance expenses, (x) working capital, (y) in the case of a public offering, the amount necessary to prepay the Seller Notes to the extent required pursuant to Section 10.2(b) of the Asset Purchase Agreement, and (z) such other purposes as shall be reasonably acceptable to the Agent, each such prepayment to be made within ten (10) Business Days of receipt of such proceeds and upon not less than five (5) Business Days' written notice to the Agent, which notice shall include a certificate of an Authorized Representative setting forth in reasonable detail the calculations utilized in computing the amount of such prepayment; (ii) without limiting the prohibition on dispositions of assets set forth in Section 9.08 hereof, the Borrower shall make a prepayment in an amount equal to 100% of the net cash proceeds received by Borrower or any Subsidiaries from each sale, lease or other disposition of assets (whether disposed of singly or in a series of related transactions) having a market value greater than $50,000, such prepayment to be made within ten (10) Business Days of receipt of such proceeds and upon not less than five (5) Business Days written notice to the Agent, which notice shall include a certificate of an Authorized Representative setting forth in reasonable detail the calculations utilized in computing the amount of such prepayment; (iii) the Borrower shall make a prepayment in an amount equal to 100% of the net cash proceeds received by Borrower or any Subsidiaries from each liquidation of any overfunded pension plan, such prepayment to be made within ten (10) Business Days of receipt of such proceeds and upon not less than five (5) Business Days written notice to the Agent, which notice shall include a certificate of an Authorized Representative setting forth in reasonable detail the calculations utilized in computing the amount of such prepayment; and 33 (iv) the Borrower shall make a prepayment in an amount equal to the Applicable Percentage of Excess Cash Flow (as defined below) as at the end of each Fiscal Year of Borrower, such prepayment to be made on the date financial statements of the Borrower and its Subsidiaries for such fiscal period are required to be delivered (or if earlier, the date such financial statements are delivered) pursuant to Section 8.01 hereof, which payment shall be accompanied by a certificate of an Authorized Representative (which may be incorporated within the certificate regarding compliance with certain covenants otherwise required to be delivered under Section 8.01) setting forth in reasonable detail the calculations utilized in computing Excess Cash Flow and the amount of such prepayment (for purposes of this clause (iv), the "Applicable Percentage of Excess Cash Flow" with respect to each Fiscal Year means 75% or, for any Fiscal Year in which both the Consolidated Leverage Ratio and the Consolidated Fixed Charge Ratio shall be as set forth below, the percentage set forth opposite such ratios: Consolidated Leverage Consolidated Fixed Applicable Percentage Ratio Charge Ratio of Excess Cash Flow - --------------------- ------------------ ---------------------- Less than .55 to 1.00 Greater than 1.25 50% but greater than or to 1.00 but less equal to .50 to 1.00 than or equal to 1.50 to 1.00. Less than .50 to 1.00 Greater than 1.50 to 1.00 0%) The Agent shall give each Lender, within one (1) Business Day, telefacsimile notice of each notice of prepayment described in clauses (i), (ii) and (iii) of this Section 2.05(c). (d) Each payment of principal (including any prepayment) and payment of interest shall be made to the Agent at the Principal Office, for the account of each Lender's applicable Lending Office, in Dollars and in immediately available funds before 12:30 P.M. Charlotte, North Carolina time on the date such payment is due. The Agent may, but shall not be obligated to, debit the amount of any such payment which is not made by such time to any ordinary deposit account, if any, of the Borrower with the Agent. The Borrower shall give the Agent prior telefacsimile notice of any payment of principal on Revolving Credit Loans, such notice to be given by not later than 11:00 a.m. Charlotte, North Carolina time, on the date of such payment. (e) The Agent shall deem any payment by or on behalf of the Borrower hereunder that is not made both (i) in Dollars and in immediately available funds and (ii) prior to 12:30 P.M. Charlotte, North Carolina time to be a non-conforming payment. Any such payment shall not be deemed to be received by the Agent until the 34 time such funds become available funds. Any non-conforming payment may constitute or become a Default or Event of Default. The Agent shall give prompt telefacsimile notice to the Authorized Representative and each of the Lenders if any payment is non-conforming. Interest shall continue to accrue on any principal as to which a non-conforming payment is made until such funds become available funds (but in no event less than the period from the date of such payment to the next succeeding Business Day) at a rate of interest per annum which shall be two percent (2%) above the Floating Rate or the maximum rate permitted by applicable law, whichever is lower, from the date such amount was due and payable until the date such amount is paid in full. (f) In the event that any payment hereunder or under the Notes becomes due and payable on a day other than a Business Day, then such due date shall be extended to the next succeeding Business Day; provided that interest shall continue to accrue during the period of any such extension at the applicable rate hereunder. 2.06 Notes. Loans made by each Lender shall be evidenced by, and be repayable with interest in accordance with the terms of, the promissory notes payable to the order of such Lender in the respective amounts of its Applicable Commitment Percentage of (i) in the case of a Term Note, the Total Term Loan Commitment, and (ii) in the case of a Revolving Credit Note, the Total Revolving Credit Commitment, which Notes shall be dated the Closing Date or such later date pursuant to an Assignment and Acceptance and shall be duly completed, executed and delivered by the Borrower. 2.07 Pro Rata Payments. Except as otherwise provided herein, (a) each payment on account of the principal of and interest on the Loans and the fees described in Section 2.11 hereof shall be made to the Agent for the account of the Lenders pro rata based on their Applicable Commitment Percentages, (b) all payments to be made by the Borrower for the account of each of the Lenders on account of principal, interest and fees, shall be made without set-off or counterclaim, and (c) the Agent will promptly distribute payments received to the Lenders. 2.08 Reductions. (a) The Borrower shall, by notice from an Authorized Representative, have the right from time to time (but not more frequently than once during each fiscal quarter), upon not less than five (5) Business Days' written notice to the Agent, to reduce the Total Revolving Credit Commitment. The Agent shall give each Lender, within one (1) Business Day, telefacsimile notice of such reduction. Each such reduction shall be in the aggregate amount of $2,500,000 or such greater amount which is in an integral multiple of $500,000, and shall permanently reduce the Total Revolving Credit Commitment of the Lenders pro rata. No such reduction shall result in the payment of any LIBOR Loan other than on the last day of the Interest Period of such Loan unless such prepayment is accompanied by amounts due, if any, under Section 35 4.04. Each reduction of the Total Revolving Credit Commitment shall be accompanied by payment of the Revolving Credit Notes to the extent that the sum of the Revolving Credit Debit Balance and the Outstanding Letters of Credit exceeds the lesser of the Total Revolving Credit Commitment or the Borrowing Base, after giving effect to such reduction, together with accrued and unpaid interest on the amounts prepaid. (b) The Term Loan may be prepaid at the option of the Borrower in whole or in part (but if in part only in a minimum amount of $1,000,000 or such greater amount which is an integral multiple of $100,000) without penalty or premium (but subject to the provisions of Section 4.04 hereof), together with unpaid and accrued interest on the amount so prepaid, upon not less than five (5) Business Days written notice to the Agent (which shall be irrevocable) specifying the amount and date of such prepayment; provided, however, no such optional prepayment may be made which shall cause a LIBOR Loan to be repaid in whole or in part prior to the end of the Interest Period of such Loan unless such prepayment is accompanied by amounts due, if any, under Section 4.04. The Agent shall give each Lender, within one (1) Business Day, telephonic notice (confirmed in writing) of such notice of prepayment. Each optional or mandatory payment or prepayment of principal of the Term Loan shall permanently reduce the Total Term Loan Commitment of the Lenders pro rata. 2.09 Increase and Decrease in Amounts. The amount of the Total Revolving Credit Commitment which shall be available to the Borrower shall be reduced by the aggregate amount of all Outstanding Letters of Credit. The amount of the Total Revolving Credit Commitment available to the Borrower shall be automatically increased by the stated amount remaining available to be drawn thereunder of each Letter of Credit upon the expiration or cancellation thereof and, without duplication, by the amount by which any Letter of Credit is reduced to the extent no Reimbursement Obligation arising from such reduction shall be outstanding. 2.10 Conversions and Elections of Subsequent Interest Periods. Provided that no Default or Event of Default shall have occurred and be continuing and subject to the limitations set forth below and in Sections 4.01(b), 4.02 and 4.03 hereof, the Borrower may: (a) upon notice to the Agent on or before 10:30 A.M. Charlotte, North Carolina time on any Business Day, convert all or a part of LIBOR Loans to Floating Rate Loans on the last day of the Interest Period for such LIBOR Loans; (b) on three (3) LIBOR Business Days' notice to the Agent on or before 10:30 A.M. Charlotte, North Carolina time: 36 (i) elect a subsequent Interest Period for all or a portion of LIBOR Loans to begin on the last day of the current Interest Period for such LIBOR Loans; (ii) convert Floating Rate Loans to LIBOR Loans on any date. Notice of any such elections or conversions shall be in the form of Exhibit F attached hereto and shall specify the effective date of such election or conversion and the Interest Period to be applicable to the Loan as continued or converted. Each election and conversion pursuant to this Section 2.10 shall be subject to the limitations on LIBOR Loans set forth in the definition of "Interest Period" herein and in Sections 2.01, 2.02 and 2.03 and Article IV hereof. All such continuations or conversions of Loans shall be effected pro rata based on the Applicable Commitment Percentages of the Lenders. 2.11 Unused Fee. For the period beginning on the Closing Date and ending on the Revolving Credit Termination Date (or such earlier date on which the Revolving Credit Facility has terminated), the Borrower agrees to pay to the Agent, for the pro rata benefit of the Lenders based on their Applicable Commitment Percentages, an unused fee equal to one half percent (1/2%) per annum on the sum of the daily amount by which the Total Revolving Credit Commitment exceeds the average daily Revolving Credit Debit Balance. Such payments of fees provided for in this Section 2.11 shall be due in arrears on the last Business Day of each March, June, September and December beginning March 31, 1995 to and on the Revolving Credit Termination Date (or such earlier date on which the Revolving Credit Facility has terminated). Notwithstanding the foregoing, so long as any Lender fails to make available any portion of its Revolving Credit Commitment when requested, such Lender shall not be entitled to receive, and the Borrower shall not be required to make, payment of its pro rata share of such fee until such Lender shall make available such portion. Such fee shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. 2.12 Deficiency Advances. No Lender shall be responsible for any default of any other Lender in respect of such other Lender's obligation to make any Loan hereunder nor shall the Revolving Credit Commitment or Term Loan Commitment of any Lender hereunder be increased as a result of such default of any other Lender. Without limiting the generality of the foregoing, in the event any Lender shall fail to make an Advance to the Borrower as herein provided, the Agent may in its discretion, but shall not be obligated to, advance under the Revolving Credit Note in its favor as a Lender all or any portion of such amount or amounts (each, a "deficiency advance") and shall thereafter be entitled to payments of principal of and interest on such deficiency advance in the same manner and at the same interest rate or rates to which such other Lender would have been entitled had it made such advance under its 37 Revolving Credit Note; provided that, upon payment to the Agent from such other Lender of the entire outstanding amount of each such deficiency advance, together with accrued and unpaid interest thereon, from the most recent date or dates interest was paid to the Agent by the Borrower on each Loan comprising the deficiency advance at the interest rate per annum for overnight borrowing by the Agent from the Federal Reserve Bank, then such payment shall be credited against the applicable Revolving Credit Note of the Agent in full payment of such deficiency advance and the Borrower shall be deemed to have borrowed the amount of such deficiency advance from such other Lender as of the most recent date or dates, as the case may be, upon which any payments of interest were made by the Borrower thereon. 2.13 Use of Proceeds. The proceeds of the Loans made pursuant to the Revolving Credit Facility and the Term Loan shall be used by the Borrower solely (i) to pay the cash portion of the purchase price to be paid by Vitas California or the Borrower pursuant to the Asset Purchase Agreement, (ii) to pay the fees and expenses incurred by Vitas California or the Borrower in connection with the negotiation and consummation of the CHC Transaction, and (iii) for Borrower's and/or any Guarantor's working capital and/or general corporate purposes. 2.14 Extension of Revolving Credit Termination Date and Term Loan Maturity Date. In the event that (i) all Maturity Extension Conditions shall have been satisfied on or before August 30, 1996, and (ii) the Borrower shall have given not less than thirty (30) days' written notice to the Agent of its election to extend the Revolving Credit Termination Date and the Term Loan Maturity Date under the provisions of this Section 2.14, then, provided that all Maturity Extension Conditions continue to be satisfied on September 30, 1996, clause (i) of the definitions of "Revolving Credit Termination Date" and "Term Loan Maturity Date" in Article I hereof shall on such date be deemed deleted and the date "September 30, 1998" substituted in lieu thereof without further action. The Agent shall give each Lender notice of the Borrower's notice of election to extend described above within one (1) Business Day of its receipt thereof. Following the consummation by the Borrower of a public or private offering of Qualified Equity Securities constituting one of the Maturity Extension Conditions, the Borrower and the Lenders shall negotiate in good faith to amend this Agreement to reflect the Borrower's financial condition after giving effect to such offering. 38 ARTICLE III Letters of Credit 3.01 Letters of Credit. NationsBank agrees, subject to the terms and conditions of this Agreement, upon request of Borrower to issue from time to time for the account of Borrower Letters of Credit upon delivery to NationsBank of its Application and Agreement for Letter of Credit in NationsBank's then current form; provided, that the Outstanding Letters of Credit shall not exceed the Total Letter of Credit Commitment. No Letter of Credit shall be issued by NationsBank with an expiry date or payment date occurring subsequent to the earlier to occur of one year from the date of its issuance or the fifth Business Day preceding the Revolving Credit Termination Date unless the Borrower shall have furnished cash collateral therefor under the LC Account Agreement. NationsBank shall not be required to issue any Letter of Credit if the Outstanding Letters of Credit when added to the face amount of any requested Letter of Credit and the Revolving Credit Debit Balance exceeds the lesser of the Total Revolving Credit Commitment or the Borrowing Base. 3.02 Reimbursement. (a) The Borrower hereby unconditionally agrees immediately to pay to NationsBank on demand at the Principal Office all amounts required to pay all drafts drawn or purporting to be drawn under the Letters of Credit and all reasonable expenses incurred by NationsBank in connection with the Letters of Credit and in any event and without demand to place in possession of NationsBank (which shall include Advances under the Revolving Credit Facility if permitted by Section 2.01(c) hereof) subject to and after presentation of a draft sufficient funds to pay all debts and liabilities arising under any Letter of Credit. The Borrower's obligations to pay NationsBank under this Section 3.02, and NationsBank's right to receive the same, shall be absolute and unconditional and shall not be affected by any circumstance whatsoever; provided, however, that nothing contained herein shall be deemed to release NationsBank or any other Lender of any liability for actual loss arising as a result of its gross negligence, bad faith or willful misconduct or out of the wrongful dishonor by NationsBank of a proper demand for payment made under and in strict compliance with the terms of any Letter of Credit. NationsBank agrees to give the Borrower prompt notice of any request for a draw under a Letter of Credit. NationsBank may charge any account the Borrower may have with it for any and all amounts NationsBank pays under a Letter of Credit, plus reasonable charges and expenses as from time to time agreed to by NationsBank and the Borrower in writing; provided that to the extent permitted by Section 2.01(c) (iii), amounts shall be paid pursuant to Advances under the Revolving Credit Facility. The Borrower agrees that NationsBank may, in its sole discretion, accept or pay, as complying with the terms of any Letter of Credit, any drafts or 39 other documents otherwise in order which may be signed or issued by an administrator, executor, trustee in bankruptcy, debtor in possession, assignee for the benefit of creditors, liquidator, receiver, attorney in fact or other legal representative of a party who is authorized under such Letter of Credit to draw or issue any drafts or other documents. The Borrower agrees to pay NationsBank interest on any amounts not paid when due hereunder at the Floating Rate plus two percent (2%), or the maximum rate permitted by applicable law, if lower. (b) In accordance with the provisions of Section 2.01(c) hereof, NationsBank shall notify the Agent (and shall also notify the Borrower) of any drawing under any Letter of Credit as promptly as practicable following the receipt by NationsBank of such drawing. (c) Each Lender (other than NationsBank) shall automatically acquire on the date of issuance thereof, a Participation in the liability of NationsBank in respect of each Letter of Credit in an amount equal to such Lender's Applicable Commitment Percentage of such liability, and to the extent that the Borrower is obligated to pay NationsBank under Section 3.02(a), each Lender (other than NationsBank) thereby shall absolutely, unconditionally and irrevocably assume, and shall be unconditionally obligated to pay to NationsBank as hereinafter described, its Applicable Commitment Percentage of the liability of NationsBank under such Letter of Credit. Prior to the Revolving Credit Termination Date, each Lender (including NationsBank in its capacity as a Lender) shall, subject to the terms and conditions of Article II, make a Floating Rate Loan to the Borrower by paying to the Agent for the account of NationsBank at the Principal Office in Dollars and in immediately available funds, an amount equal to its Applicable Commitment Percentage of any drawing under a Letter of Credit, all as described and pursuant to Section 2.01(c). With respect to drawings under any of the Letters of Credit, each Lender, upon receipt from the Agent of notice of a drawing in the manner described in Section 2.01(c), shall promptly pay to the Agent for the account of NationsBank, prior to the applicable time set forth in Section 2.0l(c), its Applicable Commitment Percentage of such drawing. Simultaneously with the making of each such payment by a Lender to NationsBank, such Lender shall, automatically and without any further action on the part of NationsBank or such Lender, acquire a Participation in an amount equal to such payment (excluding the portion thereof constituting interest) in the related Reimbursement Obligation of the Borrower. The Reimbursement Obligations of the Borrower shall be immediately due and payable whether by Advances made in accordance with Section 2.01(c) or otherwise. Each Lender's obligation to make payment to the Agent for the account of NationsBank pursuant to this Section 3.02(c), and the right of NationsBank to receive the same, shall be absolute and unconditional, shall not be affected by any circumstance whatsoever and shall be made without any offset, abatement, withholding or reduction whatsoever. If any Lender is 40 obligated to pay but does not pay amounts to the Agent for the account of NationsBank in full upon such request as required by this Section 3.02(c), such Lender shall, on demand, pay to the Agent for the account of NationsBank interest on the unpaid amount for each day during the period commencing on the date of notice given to such Lender pursuant to Section 2.01(c) until such Lender pays such amount to the Agent for the account of NationsBank in full at the interest rate per annum for overnight borrowing by NationsBank from the Federal Reserve Bank. (d) Promptly following the end of each calendar quarter, NationsBank shall deliver to the Agent and the Borrower, and the Agent shall deliver to each Lender, a notice describing the aggregate undrawn amount of all Letters of Credit at the end of such quarter. Upon the request of any Lender from time to time, NationsBank shall deliver to the Agent, and the Agent shall deliver to such Lender, any other information reasonably requested by such Lender with respect to each Outstanding Letter of Credit. (e) The issuance by NationsBank of each Letter of Credit shall, in addition to the conditions precedent set forth in Section 5.01 hereof, be subject to the conditions that such Letter of Credit be in such form and contain such terms as shall be reasonably satisfactory to NationsBank consistent with the then current practices and procedures of NationsBank with respect to similar letters of credit, and the Borrower shall have executed and delivered such other instruments and agreements relating to such Letters of Credit as NationsBank shall have reasonably requested consistent with such practices and procedures. All Letters of Credit shall be issued pursuant to and subject to the Uniform Customs and Practice for Documentary Credits, 1993 revision, International Chamber of Commerce Publication No. 500 and all subsequent amendments and revisions thereto. (f) Without duplication of Section 11.07 hereof, the Borrower hereby agrees to indemnify and hold harmless NationsBank, each other Lender and the Agent from and against any and all claims and damages, losses, liabilities, reasonable costs and expenses which NationsBank, such other Lender or the Agent may incur (or which may be claimed against NationsBank, such other Lender or the Agent by any Person) by reason of or in connection with the issuance or transfer of or payment or failure to pay under any Letter of Credit; provided that the Borrower shall not be required to indemnify NationsBank, any other Lender or the Agent for any claims, damages, losses, liabilities, costs or expenses to the extent, but only to the extent, (i) caused by the bad faith, willful misconduct or gross negligence of the party to be indemnified or (ii) caused by the failure of NationsBank to pay under any Letter of Credit after the presentation to it of a proper demand strictly complying with the terms and conditions of such Letter of Credit, unless such payment is prohibited by any law, regulation, court order or decree. The indemnification and hold harmless provisions of this Section 3.02(f) shall survive repayment 41 of the Obligations, occurrence of the Revolving Credit Termination Date and expiration or termination of this Agreement. (g) Without limiting Borrower's rights as set forth in Section 3.02(f) above, the obligation of the Borrower to immediately reimburse Agent for drawings made under Letters of Credit shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement and such Letters of Credit and the related applications for any Letter of Credit, under all circumstances whatsoever, including, without limitation, the following circumstances: (i) any lack of validity or enforceability of the Letter of Credit, the obligation supported by the Letter of Credit or any other agreement or instrument relating thereto (collectively, the "Related Documents"); (ii) any amendment or waiver of or any consent to or departure from all or any of the Related Documents; (iii) the existence of any claim, setoff, defense (other than the defense of payment in accordance with the terms of this Agreement) or other rights which the Borrower may have at any time against any beneficiary or any transferee of a Letter of Credit (or any persons or entities for whom any such beneficiary or any such transferee may be acting), Agent, Lenders or any other person or entity, whether in connection with the Loan Documents, the Related Documents or any unrelated transaction; (iv) any breach of contract or other dispute between the Borrower and any beneficiary or any transferee of a Letter of Credit (or any persons or entities for whom such beneficiary or any such transferee may be acting), Agent, Lenders or any other Person; (v) any draft, statement or any other document appearing genuine on its face presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; (vi) any delay, extension of time, renewal, compromise or other indulgence or modification granted or agreed to by Agent, with or without notice to or approval by the Borrower in respect of any of Borrower's Obligations under this Agreement; or (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing; provided, however, that nothing contained herein shall be deemed to release NationsBank or any other Lender of any liability for actual loss arising as a result of its gross negligence, bad faith or willful misconduct or out of the wrongful dishonor by NationsBank 42 of a proper demand for payment made under and strictly complying with the terms of any Letter of Credit. 3.03 Letter of Credit Fee. The Borrower agrees to pay to the Agent, for the pro rata benefit of the Lenders based on their Applicable Commitment Percentages, a fee on the aggregate amount available to be drawn on each Outstanding Letter of Credit at a rate equal to (i) with respect to the Existing L/C issued for the benefit of Reliance National Indemnity Company (NationsBank Letter of Credit No. 40940), 2.00% per annum, and (ii) with respect to all other Letters of Credit, the Applicable Interest Addition applicable to LIBOR Loans under the Revolving Credit Facility. Such payment of fees provided for in this Section 3.03 shall be due with respect to each Letter of Credit quarterly in arrears on the last day of each March, June, September and December, the first such payment to be made on March 31, 1995. Such fee shall be calculated on the basis of a year of 360 days for the actual number of days elapsed. In addition, the Borrower shall pay to the Agent for the benefit of NationsBank as issuer of the Letters of Credit a Letter of Credit fronting fee of one-eighth of one percent (1/8%) per annum, such fee to be paid quarterly in arrears on the dates set forth above in this Section 3.03. 3.04 Administrative Fees and Reserves. The Borrower shall pay to NationsBank such administrative fee and other fees, if any, in connection with the Letters of Credit in such amounts and at such times as NationsBank and the Borrower shall agree in writing from time to time. 43 ARTICLE IV Yield Protection and Illegality 4.01 Additional Costs. (a) The Borrower shall promptly pay to the Agent for the account of a Lender from time to time, without duplication, such amounts as such Lender may determine to be necessary to compensate it for any increased costs incurred by such Lender which it reasonably determines are attributable to its making or maintaining any Loan or its obligation to make any Loans, or the issuance or maintenance by NationsBank of or any other Lender's Participation in any Letter of Credit issued hereunder, or any reduction in any amount receivable by such Lender under this Agreement, the Notes or the Letters of Credit in respect of any of such Loans or such obligation or the Letters of Credit, including reductions in the rate of return on a Lender's capital (such increases in costs and reductions in amounts receivable and returns being herein called "Additional Costs"), resulting from any Regulatory Change which: (i) changes the basis of taxation of any amounts payable to such Lender under this Agreement or the Notes in respect of any of such Loans or Letters of Credit (other than taxes imposed on or measured by income, revenues or assets); or (ii) imposes or modifies any reserve, special deposit, or similar requirements relating to any extensions of credit or other assets of, or any deposits with or other liabilities of, such Lender (other than any such reserve, deposit or requirement reflected in the Prime Rate, the Federal Funds Effective Rate or the LIBOR Rate, in each case computed in accordance with the respective definitions of such terms set forth in Section 1.01 hereof); or (iii) imposes any other condition adversely affecting the Agent or the Lenders under this Agreement, the Notes or the issuance or maintenance of, or any Lender's Participation in, the Letters of Credit (or any of such extensions of credit or liabilities), in each case, the effect of which is to reduce the rate of return on capital of any such Lender to a level below that which the Lender could have achieved but for such Regulatory Change (taking into consideration such Lender's policies with respect to capital adequacy). Each Lender will notify the Authorized Representative and the Agent of any event occurring after the Closing Date which would entitle it to compensation pursuant to this Section 4.01(a) as promptly as practicable after it obtains knowledge thereof and determines to request such compensation. Notwithstanding anything contained in this Agreement to the contrary, the Borrower shall have no obligations under this Section 4.01 unless any Lender seeking payment of Additional Costs shall have required similar payments from its other similarly situated customers. (b) Without limiting the effect of the foregoing provisions of this Section 4.01, in the event that, by reason of any Regulatory Change, any Lender either (i) incurs Additional Costs based on or measured by the excess above a specified level of the amount of a category of deposits or other liabilities of the Lender which includes deposits by reference to which the interest rate on 44 LIBOR Loans is determined as provided in this Agreement or a category of extensions of credit or other assets of any Lender which includes LIBOR Loans or (ii) becomes subject to restrictions on the amount of such a category of liabilities or assets which it may hold, then, if the Lender so elects by notice to the Borrower and the other Lenders, the obligation hereunder of such Lender to make, and to convert Floating Rate Loans into, LIBOR Loans that are the subject of such restrictions shall be suspended until the date such Regulatory Change ceases to be in effect and the Borrower shall, on the last day(s) of the then current Interest Period(s) for outstanding LIBOR Loans convert such LIBOR Loans into Floating Rate Loans; Provided, however, that the suspension of such obligation and the conversion of any LIBOR Loans into Floating Rate Loans shall apply only to any Lender who is affected by such restrictions and who has provided such notice to the Borrower and the other Lenders, and the obligation of the other Lenders to make, and to convert Floating Rate Loans into, LIBOR Loans shall not be affected by such restrictions. In the event that the obligation of some, but not all of the Lenders to make, or to convert Floating Rate Loans into, LIBOR Loans is suspended, then any request by the Borrower during the pendency of such suspension for a LIBOR Loan shall be deemed a request for such LIBOR Loan from the Lender(s) not subject to such suspension and for a Floating Rate Loan from the Lender(s) who are subject to such suspension, in each case in the respective amounts based on the Lenders' respective Revolving Credit Commitments. (c) Determinations by any Lender for purposes of this Section 4.01 of the effect of any Regulatory Change on its costs of making or maintaining, or being committed to make, Loans or by NationsBank as issuer of any Letter of Credit of the effect of any Regulatory Change on its costs in connection with the issuance or maintenance of, or any other Lender's Participation in, any Letter of Credit issued hereunder, or on amounts receivable by any Lender in respect of Loans or Letters of Credit, and of the additional amounts required to compensate the Lender in respect of any Additional Costs, shall be conclusive absent manifest error, provided that such determinations are made on a reasonable basis taking into account such Lender's reasonable policies as to the allocation of capital, costs and other items. The Lender requesting such compensation shall furnish to the Authorized Representative and the Agent within one hundred and eighty (180) days of the incurrence of any Additional Costs for which compensation is sought an explanation of the Regulatory Change and calculations, in reasonable detail, setting forth such Lender's determination of any such Additional Costs. Each Lender will use its best efforts, consistent with its bank policies and procedures, to minimize or eliminate the obligation of the Borrower to pay any Additional Costs by booking Loans in a different Lending Office or taking other reasonable and appropriate actions; provided, however, that no Lender will be obligated to suffer or incur any economic, financial or regulatory costs, expenses or other disadvantages by reason of its obligation contained in this Section 4.01(c), except 45 in the case of costs and expenses which are reimbursed by the Borrower. 4.02 Suspension of Loans. Anything herein to the contrary notwithstanding, if, on or prior to the determination of any interest rate for any LIBOR Loan for any Interest Period, the Agent determines (which determination made on a reasonable basis shall be conclusive absent manifest error) that: (a) quotations of interest rates for the relevant deposits referred to in the definition of "LIBOR Rate" in Section 1.01 hereof are not being provided in the relevant amounts or for the relevant maturities for purposes of determining the rate of interest for such LIBOR Loan as provided in this Agreement; or (b) the relevant rates of interest referred to in the definition of "Base Rate" in Section 1.01 hereof upon the basis of which the LIBOR Rate for such Interest Period is to be determined do not adequately reflect the cost to the Lenders of making or maintaining such LIBOR Loan for such Interest Period (which determination shall be made on a reasonable basis and in good faith by the Agent, and the Person making such determination shall furnish the Authorized Representative evidence of the facts leading to such determination); then the Agent shall give the Authorized Representative prompt notice thereof, and so long as such condition remains in effect, the Lenders shall be under no obligation to make LIBOR Loans that are subject to such condition, or to convert Loans into LIBOR Loans, and the Borrower shall on the last day(s) of the then current Interest Period(s) for outstanding LIBOR Loans, as applicable, convert such LIBOR Loans into a LIBOR Loan if such LIBOR Loan is not subject to the same or similar condition and is available hereunder, or to Floating Rate Loans. The Agent shall give the Authorized Representative not less than fifteen (15) days prior notice describing in reasonable detail any event or condition described in this Section 4.02 promptly following the determination by the Agent that the availability of LIBOR Loans is, or is to be, suspended as a result thereof. 4.03 Illegality. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender to honor its obligation to make or maintain LIBOR Loans hereunder, then such Lender shall promptly notify the Borrower thereof (with a copy to the Agent) and such Lender's obligation to make or continue LIBOR Loans, or convert Floating Rate Loans into LIBOR Loans, shall be suspended, effective upon the respective maturities of the Interest Periods currently in effect unless sooner required by law, until such time as such Lender may again make and maintain LIBOR Loans, and such Lender's outstanding LIBOR Loans shall be 46 converted into Floating Rate Loans in accordance with Section 2.10 hereof. 4.04 Compensation. The Borrower shall promptly pay to each Lender, upon the request of such Lender, such amount or amounts as shall be sufficient (in the reasonable determination of Lender) to compensate it for any loss, cost or expense incurred by it as a result of: (a) any payment, prepayment or conversion of a LIBOR Loan on a date other than the last day of the Interest Period for such LIBOR Loan, including without limitation any conversion required pursuant to Section 4.03; or (b) any failure by the Borrower to borrow a LIBOR Loan on the date for such borrowing specified in the relevant Borrowing Notice under Article II hereof; such compensation to include, without limitation, an amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the principal amount so paid, prepaid or converted or not borrowed for the period from the date of such payment, prepayment or conversion or failure to borrow or convert to the last day of the then current Interest Period for such Loan (or, in the case of a failure to borrow or convert, the Interest Period for such Loan which would have commenced on the date scheduled for such borrowing or conversion) at the applicable rate of interest for such LIBOR Loan provided for herein over (ii) the Base Rate (as reasonably determined by the Agent) for Dollar deposits of amounts comparable to such principal amount and maturities comparable to such period. A determination of a Lender as to the amounts payable pursuant to this Section 4.04 shall be conclusive, absent manifest error, provided that such determinations are made on a reasonable basis. The Lender requesting compensation under this Section 4.04 shall furnish to the Authorized Representative and the Agent calculations in reasonable detail setting forth such Lender's determination of the amount of such compensation. 4.05 Alternate Loans. In the event any Lender suspends the making of any LIBOR Loan pursuant to this Article IV (herein a "Restricted Lender"), the Restricted Lender's Commitment Percentage of any LIBOR Loan shall bear interest at either the Floating Rate or the LIBOR Rate for which the suspension does not apply, as selected by Borrower, until the Restricted Lender once again makes available the applicable LIBOR Loan. Notwithstanding the provisions of Section 2.04(b), interest shall be payable to the Restricted Lender at the time and manner as paid to those Lenders making available LIBOR Loans. 4.06 Taxes. All payments by the Borrower of principal of, and interest on, the Loans and all other amounts payable hereunder shall be made free and clear of and without deduction for any present or future excise, stamp or other taxes, fees, duties, 47 levies, imposts, charges, deductions, withholdings or other charges of any nature whatsoever imposed by any taxing authority, but excluding (i) franchise taxes, (ii) any taxes (other than withholding taxes) that would not be imposed but for a connection or former connection between a Lender or the Agent and the jurisdiction imposing such taxes (other than a connection arising solely by virtue of the activities of such Lender or the Agent pursuant to or in respect of this Agreement or any other Loan Document), (iii) any withholding taxes payable with respect to payments hereunder or under any other Loan Document under laws (including, without limitation, any statute, treaty, ruling, determination or regulation), (iv) any taxes imposed on or measured by any Lender's assets, net income, receipts or branch profits and (v) any taxes arising after the Closing Date solely as a result of or attributable to Lender changing its designated Lending Office after the date such Lender becomes a party hereto (such non-excluded items being collectively called "Taxes"). In the event that any withholding or deduction from any payment to be made by the Borrower hereunder is required in respect of any Taxes pursuant to any applicable law, rule or regulation, then the Borrower will (a) pay directly to the relevant authority the full amount required to be so withheld or deducted; (b) promptly forward to the Agent an official receipt or other documentation satisfactory to the Agent evidencing such payment to such authority; and (c) pay to the Agent for the account of the Lender such additional amount or amounts as is necessary to ensure that the net amount actually received by each Lender will equal the full amount such Lender would have received had no such withholding or deduction been required, unless such Lender fails to deliver to the Borrower any certificate, document or evidence referred to in the next following sentence, in which case such obligation to pay shall be suspended until such item is delivered by such Lender. Prior to the date that any Lender organized under the laws of a jurisdiction outside the United States becomes a party hereto, such Person shall deliver to the Borrower and the Agent such certificates, documents or other evidence, as required by the Code or Treasury Regulations issued pursuant thereto or as otherwise reasonably requested by the Borrower, properly completed, currently effective and duly executed by such Lender establishing that such payment is (i) not subject to United States Federal backup withholding tax and (ii) not subject to United States Federal withholding tax under the Code because such payment is either effectively connected with the conduct by such Lender of a trade or business in the United States or totally exempt from United States Federal withholding tax by reason of the application of the provisions of a treaty to which the United States is a party or such Lender is otherwise exempt. 48 If the Borrower shall be required to make any payment to the Agent for the account of any Lender under this Section 4.06, and if such Lender is able, in its reasonable opinion, to claim any deduction, credit, offset, allowance, reduction in net tax payable or similar tax benefit by reason of such payment, such Lender will promptly reimburse the Borrower for the amount of such benefit upon its realization of the economic benefit thereof. As and to the extent that the Borrower may be able to mitigate or deduct the amount of any such payments under the provisions of any treaty, law or other governmental regulation, such Lender will render whatever reasonable assistance at the request and expense of the Borrower, may be required to effect such mitigation or reduced payment. If the Borrower fails to pay any Taxes when due to the appropriate taxing authority or fails to remit to the Agent, for the account of the respective Lender, the required receipts or other required documentary evidence, the Borrower shall indemnify the Lenders for any incremental Taxes, interest or penalties that may become payable by any Lender as a result of any such failure. For purposes of this Section 4.06, a distribution hereunder by the Agent or any Lender to or for the account of any Lender shall be deemed a payment by the Borrower. 49 ARTICLE V Conditions to Making Loans and Issuing Letters of Credit 5.01 Conditions of Closing. The obligations of the Lenders hereunder are subject to the conditions precedent that: (a) the Agent shall have received on the Closing Date, in form and substance satisfactory to the Agent and Lenders, the following: (i) executed originals of each of this Agreement, the Notes, the Security Documents, the Subordination Agreements and the other Loan Documents, together with all schedules and exhibits thereto; (ii) executed originals, or copies of executed originals certified by the secretary or assistant secretary of the Borrower, of the CHC Transaction Documents, which shall evidence (i) the consummation of the CHC Transaction as of the Closing Date on the terms provided in the Asset Purchase Agreement (without further amendment) and (ii) the placement on the Subordinated Transaction Documents (as defined in the Subordination Agreements) of the restrictive legend required by the Subordination Agreements; (iii) the written opinion with respect to the Loan Documents, the CHC Transaction Documents and the respective transactions contemplated thereby of special counsel to the Borrower and the Guarantors dated the Closing Date, addressed to the Agent and the Lenders and satisfactory to Smith Helms Mulliss & Moore, special counsel to the Agent; (iv) the written opinion or opinions with respect to the Subordination Agreements and the other CHC Transaction Documents and the transactions contemplated thereby of counsel for the Sellers (which opinion or opinions may be in the form of a letter or letters stating that the Agent and the Lenders may rely upon the opinion or opinions of such counsel delivered to the Borrower or any of its Subsidiaries as if the same were addressed to them), dated the Closing Date, addressed to the Agent and the Lenders and satisfactory to Smith Helms Mulliss & Moore, special counsel to the Agent; (v) copies of resolutions of the boards of directors or other appropriate governing body (or of the appropriate committee thereof) of the Borrower and each of the Guarantors certified by its secretary or assistant secretary as of the Closing Date, appointing (in the case of the Borrower) the Authorized Representative and approving and adopting the Loan Documents and CHC Transaction Documents to be executed by such Person, and authorizing the execution and delivery thereof; 50 (vi) specimen signatures of officers of the Borrower and each Guarantor executing the Loan Documents on behalf of such Person, certified by the secretary or assistant secretary of the Borrower or Guarantor, as applicable; (vii) the charter documents of the Borrower and each Guarantor certified as of a recent date by the Secretary of State of its state of incorporation; (viii) the by-laws of the Borrower and each Guarantor certified as of the Closing Date as true and correct by the secretary or assistant secretary of the Person to whom such by-laws relate; (ix) certificates issued as of a recent date by the Secretaries of State of the jurisdiction of incorporation of the Borrower and each Guarantor, as the case may be, as to the due existence and good standing of the Borrower and each Guarantor therein; (x) appropriate certificates of qualification to do business, good standing and, where appropriate, authority to conduct business under assumed name, issued in respect of the Borrower and each Guarantor as of a recent date by the Secretary of State or comparable official of each jurisdiction in which the failure to be qualified to do business or authorized so to conduct business could materially adversely affect the business, operations or conditions, financial or otherwise, of the Borrower or any Guarantor; (xi) notice of appointment of the Authorized Representative; (xii) a certificate of an Authorized Representative dated the Closing Date demonstrating compliance with the financial covenants contained in Sections 9.01 through 9.05 and 9.09(v) as of the Closing Date, substantially in the form of Exhibit I attached hereto; (xiii) a certificate of Borrower's President, chief executive officer or chief financial officer dated the Closing Date certifying that as of the Closing Date and immediately after giving effect to the CHC Transaction, the Term Loan and Advances made as of the Closing Date (A) there does not exist any Default or Event of Default and (B) the Borrower and the Guarantors are Solvent; (xiv) a Borrowing Base Certificate dated as of the Closing Date; (xv) evidence of insurance required by the Loan Documents; 51 (xvi) if the Borrower shall request an Advance on the Closing Date, a Borrowing Notice with respect to such Advance; (xvii) all fees payable by the Borrower on the Closing Date to the Agent, NationsBank, the Lenders and NCMI; and (xviii) such other documents, instruments and certificates as the Agent or any Lender may reasonably request on or prior to the Closing Date in connection with the consummation of the CHC Transaction and the transactions contemplated hereby; and (b) In the good faith judgment of the Agent and the Lenders: (i) there shall not have occurred or become known to the Agent or the Lenders any material adverse change in the business, financial condition, operations, properties or prospects of the Borrower or its Subsidiaries or Affiliates since September 30, 1994; (ii) no litigation shall be pending or threatened which would be likely to materially and adversely affect the business, financial condition, operations, properties or prospects of the Borrower or its Subsidiaries or Affiliates, or which could reasonably be expected to restrain or enjoin, impose burdensome conditions on, or otherwise materially and adversely (A) affect the ability of the Borrower and its Subsidiaries to fulfill their respective obligations under the Loan Documents or the CHC Transaction Documents, or (B) impair any interests or rights of the Agent or any Lender under the Loan Documents; and (iii) the Borrower, its Subsidiaries and the Sellers shall have received all approvals, consents and waivers, and shall have made or given all necessary filings and notices as shall be required to consummate the transactions contemplated hereby and by the CHC Transaction Documents without the occurrence of any default under, conflict with or violation of (A) any applicable law, rule, regulation, order or decree of any Governmental Authority or arbitral authority or (B) any agreement, document or instrument to which any of the Borrower, any Subsidiary or any of the Sellers is a party or by which any of them or their properties is bound, except for such approvals, consents, waivers, filings and notices the receipt, making or giving of which is not material to the financial condition, business or operations of the Borrower and its Subsidiaries taken as a whole after giving effect to the CHC Transaction. Upon satisfaction of the conditions described in Section 5.01, the Prior Agreement shall be superseded by this Agreement, and with reasonable promptness thereafter the Agent will surrender the Prior Notes to the Borrower. 52 5.02 Conditions of Loans and Issuance of Letters of Credit. The obligation of the Lenders to make any Revolving Credit Loans, and NationsBank to issue Letters of Credit hereunder on or subsequent to the Closing Date are subject to the satisfaction of the following conditions: (a) the Agent shall have received a notice of such borrowing or request if required by Article II hereof; (b) the representations and warranties of the Borrower and each Guarantor set forth in Article VII hereof and in each of the other Loan Documents shall be true and correct in all material respects on and as of the date of such Advance or issuance of such Letters of Credit, as the case may be, with the same effect as though such representations and warranties had been made on and as of such date, except (i) to the extent that such representations and warranties expressly relate to an earlier date and (ii) the financial statements referred to in Section 7.0l(f)(i) shall be deemed to be those financial statements most recently delivered to the Agent and the Lenders pursuant to Section 8.01 hereof; (c) in the case of the issuance of a Letter of Credit, Borrower shall have executed and delivered to NationsBank NationsBank's then current form of Application and Agreement for Letter of Credit together with such other instruments and documents as it shall reasonably request; (d) at the time of each such Advance or issuance of each Letter of Credit, as the case may be, no Default or Event of Default specified in Article X hereof, shall have occurred and be continuing; (e) immediately after giving effect to a Revolving Credit Loan or Letter of Credit the aggregate principal balance of all outstanding Revolving Credit Loans and Participations for each Lender and in the aggregate shall not exceed, respectively, (i) such Lender's Revolving Credit Commitment or Letter of Credit Commitment or (ii) the Total Revolving Credit Commitment or the Total Letter of Credit Commitment; and (f) immediately after giving effect to a Revolving Credit Loan or Letter of Credit, the aggregate principal amount of Revolving Credit Loans and Outstanding Letters of Credit shall not exceed the lesser of the Total Revolving Credit Commitment or the Borrowing Base. 5.03 Supplements to Schedules. The Borrower may, from time to time, amend or supplement the Schedules to this Agreement by delivering (effective upon receipt) to the Agent and each Lender a copy of such revised Schedule or Schedules which shall (i) be dated the date of delivery, (ii) be certified by an Authorized 53 Representative as true, complete and correct as of such date and as delivered in replacement for the corresponding Schedule or Schedules previously in effect, and (iii) show in reasonable detail (by blacklining or other appropriate graphic means) the changes from each such corresponding predecessor Schedule. Notwithstanding anything to the contrary contained herein or in any of the other Loan Documents, in the event that the Required Lenders determine based upon such revised Schedule (whether individually or in the aggregate or cumulatively) that there has been a material adverse change since the Closing Date in the financial condition, business or operations of the Borrower and its Subsidiaries, taken as a whole, the Lenders shall have no further obligation to fund additional Advances hereunder. 54 ARTICLE VI Security 6.01 Security. As security for the full and timely payment and performance of the Obligations, the Borrower and each Guarantor shall execute and deliver to the Agent on the Closing Date the Security Documents. The Borrower shall (i) do all things necessary in the opinion of the Agent and its counsel to create in the Agent for the benefit of the Lenders a perfected first priority security interest in all Collateral subject to no prior liens or encumbrances other than Permitted Liens and (ii) cause each Guarantor to do all things necessary in the opinion of the Agent and its counsel to grant to the Agent for the benefit of the Lenders a perfected first priority security interest in all Collateral, as security for the obligations of such Guarantor under its Guaranty, in each case subject to no prior liens or encumbrances other than Permitted Liens and subject to limitations under applicable law which may limit the creation, perfection or priority of Liens on Government Receivables. 6.02 Further Assurances. At the request of the Agent, the Borrower will execute, or cause the Guarantors to execute, by their respective duly authorized officers, alone or with the Agent, any certificate, instrument, statement or document and will procure any such certificate, instrument, statement or document or (subject to the limitations stated in the last sentence of Section 6.01) take such other action (and pay all connected reasonable costs) which the Agent reasonably deems necessary to create, continue or preserve the liens and security interests (and the perfection and priority thereof) of the Agent contemplated hereby and by the other Loan Documents. 6.03 Property Location. Schedule 6.03 delivered to the Agent simultaneously with the execution of this Agreement sets forth the true and complete address of each location where Collateral constituting equipment or inventory is located and where books and records relating to Accounts are maintained. The Borrower shall advise the Agent at the time of delivery of each certificate described in Section 8.0l(a)(ii) and Section 8.0l(b)(ii) of any change in or addition to the location or locations of such property. The information provided to the Agent shall include the address of each such location, the identity (including legal name and any trade name, if different) of the Person in whose facilities or custody such property is located, and such additional information as the Agent shall reasonably deem necessary or advisable in connection with perfecting or maintaining the perfection of a Lien on such property pursuant to the Loan Documents. 6.04 Chief Executive Offices. The Borrower represents, warrants and covenants that (i) the chief executive office of the 55 Borrower is at the Closing Date located at 100 South Biscayne Boulevard, Miami, Florida 33131 and the address of the chief executive office of each Guarantor is as set forth on Schedule 6.04 delivered to the Agent simultaneously with the execution of this Agreement, and (ii) Schedule 6.04 contains a true and complete list of (a) the name and address of Borrower and each Guarantor and of each other Person which has effected any merger or consolidation with Borrower or any Guarantor or contributed or transferred to Borrower or any Guarantor (other than by sales of inventory in the ordinary course of business of the seller or) any property constituting Collateral at any time since January 1, 1989, (b) each location of the chief executive office of Borrower or any Guarantor at any time since January 1, 1989, and (c) each trade name currently used by Borrower or any Guarantor in connection with the creation or billing of Accounts. Borrower shall not change, or permit any Guarantor to change, the location of its chief executive office except upon giving not less than thirty (30) days prior written notice to the Agent and taking or causing to be taken all such action at Borrower's expense as may be reasonably requested by the Agent to perfect or maintain the perfection of the security interest of the Agent in Accounts (to the extent contemplated hereunder), general intangibles and related Collateral. 56 ARTICLE VII Representations and Warranties 7.01 Representations and Warranties. The Borrower represents and warrants with respect to itself and to its Subsidiaries (which representations and warranties shall survive the delivery of the documents mentioned herein and the making of Loans), after giving effect to the CHC Transaction, that: (a) Organization and Authority. (i) the Borrower and each Subsidiary is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation; (ii) the Borrower and each Subsidiary (x) has the requisite power and authority to own its properties and assets and to carry on its business as now being conducted and as contemplated in the Loan Documents and the CHC Transaction Documents, and (y) is qualified to do business in every jurisdiction in which failure so to qualify would have a material adverse effect on the business or operations of the Borrower or any Subsidiary; (iii) the Borrower has the power and authority to execute, deliver and perform this Agreement, the Notes, and the Security Agreement, and to borrow hereunder, and to execute, deliver and perform each of the other Loan Documents and CHC Transaction Documents to which it is a party; (iv) each Guarantor has the power and authority to execute, deliver and perform the Guaranty Agreement, the Subsidiary Security Agreement and the other Loan Documents and CHC Transaction Documents to which it is a party; and (v) when executed and delivered, each of the Loan Documents and CHC Transaction Documents to which Borrower or any Guarantor is a party will be the legal, valid and binding obligation or agreement, as the case may be, of the Borrower or such Guarantor, enforceable against the Borrower or such Guarantor in accordance with its terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors' rights generally and to the effect of general principles of equity which may limit the availability of equitable remedies (whether in a proceeding at law or in equity); (b) Loan Documents and CHC Transaction Documents. The execution, delivery and performance by the Borrower and each 57 Guarantor of each of the Loan Documents and each of the CHC Transaction Documents to which the Borrower or a Guarantor is a party: (i) have been duly authorized by all requisite corporate action (including any required shareholder approval) of the Borrower or Guarantor signatory thereto required for the lawful execution, delivery and performance thereof; (ii) do not violate any provisions of (1) applicable law, rule or regulation, (2) any order of any court or other agency of government binding on the Borrower, any Guarantor or any other Subsidiary of Borrower, or their respective properties, or (3) the charter documents or by-laws of Borrower or any Guarantor; (iii) will not be in conflict with, result in a breach of or constitute an event of default, or an event which, with notice or lapse of time, or both, would constitute an event of default, under any indenture, agreement or other instrument to which Borrower, any Guarantor or any other Subsidiary is a party, or by which the properties or assets of Borrower, any Guarantor or any other Subsidiary are bound, the effect of which would have any material adverse effect on the ability of the Borrower or any Guarantor to observe the covenants and agreements contained herein or in any other Loan Document or any of the CHC Transaction Documents or to pay the Obligations; (iv) will not result in the creation or imposition of any Lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of Borrower, any Guarantor or any other Subsidiary of Borrower except any liens in favor of the Agent and the Lenders created by the Loan Documents; (c) Solvency. Borrower and each Guarantor are Solvent after giving effect to the transactions contemplated by this Agreement and the other Loan Documents, assuming, with respect to each Guarantor, that the Borrower's past practice of making capital contributions to such Guarantor as necessary will continue; provided that with respect to any date after the date hereof on which this representation and warranty is deemed to be made or reaffirmed hereunder, the Borrower represents and warrants that as of such later date the Borrower and the Guarantors, taken as a whole, are Solvent; (d) Subsidiaries and Stockholders. Borrower has no Subsidiaries other than those Persons listed as Subsidiaries in Schedule 7.01(d) delivered to the Agent simultaneously with the execution of this Agreement; such Schedule 7.01(d) states 58 as of the date hereof the authorized and issued capitalization of each Subsidiary listed thereon, the number of shares or other equity interests of each class of capital stock or interest issued and outstanding of each such Subsidiary and the number and/or percentage of outstanding shares or other equity interest (including options, warrants and other rights to acquire any interest) of each such class of capital stock or equity interest owned by Borrower or by any such Subsidiary; the outstanding shares or other equity interests of each such Subsidiary have been duly authorized and validly issued and are fully paid and nonassessable; and Borrower and each such Subsidiary own beneficially and of record all the shares and other interests it is listed as owning in Schedule 7.01(d), free and clear of any Lien other than the Lien arising under the Loan Documents and applicable restrictions on transfer of such securities in effect on the Closing Date or otherwise imposed by applicable law; (e) Ownership Interests. Borrower owns no interest in any Person other than the Persons listed in Schedule 7.0l(d); (f) Financial Condition. (i) The Borrower has heretofore furnished to the Agent an audited consolidated balance sheet of the Borrower and its Subsidiaries as at September 30, 1994 and the notes thereto and the related consolidated statements of income, stockholders' equity and cash flows for the Fiscal Year then ended as audited by Ernst & Young. Except as set forth therein, such financial statements (including the notes thereto) present fairly the financial condition of the Borrower and its Subsidiaries as of the end of such Fiscal Year and results of their operations and the changes in their stockholders' equity for the Fiscal Year then ended, all in conformity with Generally Accepted Accounting Principles applied on a Consistent Basis; (ii) since September 30, 1994, there has been no material adverse change in the financial condition of the Borrower and its Subsidiaries or in the businesses, properties and operations of the Borrower or any of its Subsidiaries (for purposes of this clause (ii), a change in the business, properties and operations of the Borrower or any Subsidiary shall not be deemed to be a material adverse change unless such change reduces net income of the affected entity in an amount not less than an amount equal to two and one-half percent (2 1/2%) of Consolidated Net Income of the Borrower and its Subsidiaries for the Four-Quarter Period immediately preceding the date on which this representation and warranty is made or deemed made or reaffirmed), nor have such businesses or properties, taken as a whole, been materially adversely affected as a result of any fire, explosion, earthquake, accident, strike, lockout, combination of workers, flood, embargo or act of God; nor has any event occurred, the effect of which would have any material adverse effect on the 59 ability of the Borrower or any Guarantor to observe the covenants and agreements contained herein or in any other Loan Document or the CHC Transaction Documents or to pay the Obligations; (iii) except as set forth in the financial statements referred to in Section 7.0l(f)(i) or in Schedule 7-01(f) or Schedule 7.01(j) delivered to the Agent simultaneously with the execution of this Agreement, neither Borrower nor any Subsidiary has incurred, other than in the ordinary course of business, any material indebtedness, obligations, commitments or other liability, contingent or otherwise, which remains outstanding or unsatisfied; (iv) the Projection of Combined Entities provided to the Agent and the Lenders was prepared by the Borrower in good faith and is based upon assumptions which the Borrower believes to have been reasonable as of the time of preparation thereof and as of the Closing Date; (g) Title to Properties. The Borrower and its Subsidiaries have title to all their respective real and personal properties, subject to no transfer restrictions or Liens of any kind, except for (x) the transfer restrictions and Liens described in Schedule 7.0l(g)-Liens delivered to the Agent simultaneously with the execution of this Agreement, and (y) Permitted Liens; (h) Taxes. Except as set forth in Schedule 7.01(h) delivered to the Agent simultaneously with the execution of this Agreement, the Borrower and its Subsidiaries have filed or caused to be filed all federal, state and local tax returns which are required to be filed by them and except for taxes and assessments being contested in good faith and against which reserves satisfactory to the Borrower's independent certified public accountants have been established, have paid or caused to be paid all taxes as shown on said returns or on any assessment received by them, to the extent that such taxes have become due; (i) Other Agreements. Neither the Borrower nor any Subsidiary is (i) a party to any judgment, order, decree or any agreement or instrument or subject to restrictions materially adversely affecting the ability of the Borrower or any Guarantor to observe the covenants and agreements contained herein or any other Loan Document or the CHC Transaction Documents or to pay the Obligations; or (ii) in default in the performance, observance or fulfillment of any of the obligations, covenants or 60 conditions contained in any agreement or instrument to which the Borrower or any Subsidiary is a party, which default has, or if not remedied within any applicable grace period would reasonably be likely to have a material adverse effect on the ability of the Borrower or any Guarantor to observe the covenants and agreements contained herein or any other Loan Document or the CHC Transaction Documents or to pay the Obligations; (j) Litigation. Except as set forth in Schedule 7.O1(j) or Schedule 7.01(t) delivered to the Agent simultaneously with the execution of this Agreement, other than proposed legislation or regulation or other governmental proceedings affecting the healthcare or hospice industries generally, there is no action, suit or proceeding at law or in equity or by or before any governmental instrumentality or agency or arbitral body pending against the Borrower or any Subsidiary or affecting any properties or rights of the Borrower or any Subsidiary, or to the knowledge of the Borrower, pending against any of the Sellers or affecting any properties or rights of any of the Sellers, which would reasonably be expected to (i) materially adversely affect the financial condition, business or operations of the Borrower or any of its Subsidiaries, or (ii) restrain, enjoin, impose burdensome conditions upon or otherwise materially and adversely affect the consummation of the CHC Transaction in accordance with the CHC Transaction Documents or the exercise of rights and powers by the Agent and the Lenders under the Loan Documents or, to the knowledge of the Borrower, threatened in writing against the Borrower or any Subsidiary affecting the Borrower or any Subsidiary or any properties or rights of the Borrower or any Subsidiary, or, to the knowledge of the Borrower, threatened in writing against any Seller affecting any Seller or any properties or rights of any Seller, which reasonably is expected to (i) materially adversely affect the financial condition, business or operations of the Borrower or any of its Subsidiaries, or (ii) restrain, enjoin, impose burdensome conditions upon or otherwise materially and adversely affect the consummation of the CHC Transaction in accordance with the CHC Transaction Documents or the exercise of rights and powers by the Agent and the Lenders under the Loan Documents; (k) Margin Stock. Neither the Borrower nor any Subsidiary owns any "margin stock" as such term is defined in Regulation U, as amended (12 C.F.R. Part 221), of the Board. The proceeds of the borrowings made pursuant to Article II hereof will be used by the Borrower only for the purposes set forth in Section 2.13 hereof. None of such proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin stock or for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry margin stock or for any other purpose which might constitute any of the Loans under this Agreement a 61 "purpose credit" within the meaning of said Regulation U or Regulation X (12 C.F.R. Part 224) of the Board. Neither the Borrower nor any agent acting in its behalf has taken or will take any action which might cause this Agreement or any of the documents or instruments delivered pursuant hereto to violate any regulation of the Board or to violate the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, or any state securities laws, in each case as in effect on the date hereof; (l) Investment Company. Neither the Borrower nor any Subsidiary is an "investment company," or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended (15 U.S.C. (S) 80a-l, et seq.). The application of the proceeds of the Loans and repayment thereof by the Borrower and the performance by the Borrower of the transactions contemplated by this Agreement will not violate any provision of said Act, or any rule, regulation or order issued by the Securities and Exchange Commission thereunder, in each case as in effect on the date hereof; (m) Patents, Etc. Except as set forth in Schedule 7.01(m) delivered to the Agent simultaneously with the execution of this Agreement, the Borrower and its Subsidiaries own or have the right to use, under valid license agreements or otherwise, all material patents, licenses, franchises, trademarks, trademark rights, trade names, trade name rights, trade secrets and copyrights necessary to the conduct of their businesses as now conducted, without known conflict with any patent, license, franchise, trademark, trade secrets and confidential commercial or proprietary information, trade name, copyright, rights to trade secrets or other proprietary rights of any other Person; (n) No Untrue Statement. Neither this Agreement nor any other Loan Document or certificate or document executed and delivered by or on behalf of the Borrower or any Guarantor in accordance with or pursuant to any Loan Document contains any misrepresentation or untrue statement of material fact or omits to state a material fact necessary, in light of the circumstance under which it was made, in order to make any such representation or statement contained therein not misleading in any material respect; (o) No Consents, Etc. Except as set forth in Schedule 7.01(o) or Schedule 7.0l(g) delivered to the Agent simultaneously with the execution of this Agreement, neither the respective businesses or properties of the Borrower or any Subsidiary, nor any relationship between the Borrower or any Subsidiary and any other Person, nor any circumstance in connection with the execution, delivery and performance of the 62 Loan Documents or the CHC Transaction Documents and the transactions contemplated hereby and thereby is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any governmental or other authority or any other Person on the part of the Borrower or any Subsidiary as a condition to the execution, delivery and performance of, or consummation of the transactions contemplated by, this Agreement or the other Loan Documents or the CHC Transaction Documents by the Borrower or the Guarantors or if so, such consent, approval, authorization, filing, registration or qualification has been obtained or effected, as the case may be; (p) ERISA. (i) None of the employee benefit plans maintained at any time by the Borrower or any Subsidiary or the trusts created thereunder has engaged in a prohibited transaction which could subject any such employee benefit plan or trust to a material tax or penalty on prohibited transactions imposed under Internal Revenue Code Section 4975 or ERISA; (ii) None of the employee benefit plans maintained at any time by the Borrower or any Subsidiary which are employee pension benefit plans and which are subject to Title IV of ERISA or the trusts created thereunder has been terminated so as to result in a material liability of the Borrower under ERISA nor has any such employee benefit plan of the Borrower or any Subsidiary incurred any material liability to the Pension Benefit Guaranty Corporation established pursuant to ERISA, other than for required insurance premiums which have been paid or are not yet due and payable; neither the Borrower nor any Subsidiary has withdrawn from or caused a partial withdrawal to occur with respect to any Multi-employer Plan resulting in any assessed and unpaid withdrawal liability; the Borrower and the Subsidiaries have made or provided for all contributions to all such employee pension benefit plans which they maintain and which are required as of the end of the most recent fiscal year under each such plan; neither the Borrower nor any Subsidiary has incurred any accumulated funding deficiency with respect to any such plan, whether or not waived; nor has there been any reportable event, or other event or condition, which presents a material risk of termination of any such employee benefit plan by such Pension Benefit Guaranty Corporation; (iii) The present value of all vested accrued benefits under the employee pension benefit plans which are subject to Title IV of ERISA, maintained by the Borrower or any Subsidiary, did not, as of the most recent valuation date for each such plan, exceed the then current value of the assets of such employee benefit plans allocable to such benefits; 63 (iv) The consummation of the Loans and the issuance of the Letters of Credit provided for in Article II and Article III will not involve any prohibited transaction under ERISA which is not subject to a statutory or administrative exemption; (v) To the best of the Borrower's knowledge, each employee pension benefit plan subject to Title IV of ERISA, maintained by the Borrower or any Subsidiary, has been administered in accordance with its terms in all material respects and is in compliance in all material respects with all applicable requirements of ERISA and other applicable laws, regulations and rules; (vi) There has been no withdrawal liability incurred and unpaid with respect to any Multi-employer Plan to which the Borrower or any Subsidiary is or was a contributor; (vii) As used in this Agreement, the terms "employee benefit plan," "employee pension benefit plan," "accumulated funding deficiency," "reportable event," and "accrued benefits" shall have the respective meanings assigned to them in ERISA, and the term "prohibited transaction" shall have the meaning assigned to it in Code Section 4975 and ERISA; (viii) Neither the Borrower nor any Subsidiary has any liability not disclosed on any of the financial statements furnished to the Lenders pursuant to Section 7.01(f) hereof, contingent or otherwise, under any plan or program or the equivalent for unfunded post-retirement benefits, including pension, medical and death benefits, which liability would have a material adverse effect on the financial condition of the Borrower or any Subsidiary. (q) No Default. As of the date hereof, and after giving effect to the CHC Transaction, there does not exist any Default or Event of Default hereunder; (r) Hazardous Materials. Except as set forth on Schedule 7.01(r), the Borrower and each Subsidiary is in compliance with all applicable Environmental Laws in all material respects and neither the Borrower nor any Subsidiary has been notified of any action, suit, proceeding or investigation which calls into question compliance by the Borrower or any Subsidiary with any Environmental Laws or which seeks to suspend, revoke or terminate any license, permit or approval necessary for the generation, handling, storage, treatment or disposal of any Hazardous Material; (s) RICO. Neither the Borrower nor any Subsidiary is engaged in or has engaged in any course of conduct that could subject any of their respective properties to any Lien, seizure or other forfeiture under any criminal law, racketeer 64 influenced and corrupt organizations law, civil or criminal, or other similar laws; (t) Employment Matters. Except as disclosed on Schedule 7.01(t) delivered to the Agent simultaneously with the execution of this Agreement, the Borrower and all Subsidiaries are in compliance in all material respects with all applicable laws, rules and regulations pertaining to labor or employment matters, including without limitation those pertaining to wages, hours, occupational safety and taxation and there is neither pending or to the Borrower's knowledge threatened any material litigation, administrative proceeding nor, to the knowledge of the Borrower, any investigation, in respect of such matters. 65 ARTICLE VIII Affirmative Covenants Until the Obligations have been paid and satisfied in full and this Agreement has been terminated in accordance with the terms hereof, unless the Required Lenders shall otherwise consent in writing, the Borrower will and will, where applicable, cause each Subsidiary to: 8.01 Financial Reports, Etc. (a) as soon as practicable and in any event within one hundred and five (105) days (or, at all times after the Borrower shall become subject to the financial reporting requirements of the Securities Exchange Act of 1934, as amended, ninety (90) days) after the end of each Fiscal Year of the Borrower, deliver or cause to be delivered to the Agent (together with sufficient copies for the Lenders) (i) a consolidated balance sheet of the Borrower and its Subsidiaries, and the notes thereto, and the related consolidated statements of income, stockholders' equity and cash flows and the respective notes thereto, for such Fiscal Year, setting forth comparative financial statements for the preceding Fiscal Year, all prepared in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis and containing, with respect to the consolidated financial reports, opinions of Ernst & Young, or other such independent certified public accountants of nationally recognized standing selected by the Borrower, which are unqualified as to the scope of the audit performed and as to the "going concern" status of the Borrower; and (ii) a certificate of an Authorized Representative demonstrating compliance with Sections 9.01, 9.02, 9.03, 9.04, 9.05, and 9.09(v) of this Agreement, which certificate shall be in the form attached hereto as Exhibit I; (b) as soon as practicable and in any event within thirty (30) days after the end of each calendar month, other than the last month of each Fiscal Year (except the last month of each fiscal quarter, as to which forty-five (45) days shall apply), deliver to the Agent (together with sufficient copies for the Lenders) (i) a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such reporting period, the related consolidated statement of income and in the case of quarterly statements a statement of cash flows for such reporting period and for the period from the beginning of the Fiscal Year through the end of such reporting period, accompanied by a certificate of an Authorized Representative to the effect that such financial statements present fairly the financial position of the Borrower and its Subsidiaries as of the end of such reporting period and the results of their operations and the changes in their financial position for such reporting period, in conformity with the standards set forth in Section 7.01(f) (i) with respect to interim financials, (ii) a Borrowing Base Certificate as of the end of such calendar month, and (iii) a certificate of an Authorized Representative (which shall be required to be delivered only in 66 connection with the interim financial statements delivered as at the end of each three, six and nine month period in each Fiscal Year) containing computations for such quarter comparable to that required pursuant to Section 8.01(a) (ii); (c) together with each delivery of the financial statements required by Section 8.01(a)(i) hereof, deliver to the Agent (with sufficient copies for each Lender) a letter from the Borrower's accountants specified in Section 8.01(a) (i) hereof stating that in performing the audit necessary to render an opinion on the financial statements delivered under Section 8.0l(a)(i), nothing has come to their attention that has caused them to believe that there exists any Default or Event of Default by the Borrower in the fulfillment of the terms and provisions of this Agreement insofar as they relate to financial matters (which at the date of such statement remains uncured); and if the accountants have obtained knowledge of such Default or Event of Default, a statement specifying the nature and period of existence thereof; (d) promptly upon their becoming available to the Borrower, the Borrower shall deliver to the Agent and each Lender a copy of (i) all regular or special reports or effective registration statements which Borrower or any Subsidiary shall file with the Securities and Exchange Commission (or any successor thereto) (including without limitation filings on Forms 10-K, l0-Q and 8-K) or any securities exchange, (ii) at any time after becoming subject to the Securities Exchange Act of 1934, as amended, any proxy statement distributed by the Borrower to its shareholders, bondholders or the financial community in general, and (iii) any management letter or other similar report submitted to the Borrower or any of its Subsidiaries by independent accountants presenting in final form any results of, deficiencies discovered during or recommendations arising from any annual, interim or special audit of the Borrower or any of its Subsidiaries; and (e) promptly, from time to time, deliver or cause to be delivered to the Agent (with sufficient copies for each Lender) such other information regarding Borrower's and each Subsidiary's operations, business affairs and financial condition as the Agent or any Lender may reasonably request. The Agent and the Lenders are hereby authorized to deliver a copy of any financial information delivered hereunder to the Lenders (or any affiliate of any Lender) or to the Agent, to any regulatory authority having jurisdiction over any of the Lenders pursuant to any written request therefor, or, subject to Section 12.01(a) or 12.01(e) hereof, to any other Person who shall acquire or consider the acquisition of a participation interest in or assignment of any Loan or Letter of Credit permitted by this Agreement and provided, that such Person shall agree to be bound by the confidentiality provisions set forth in Section 12.17. 8.02 Maintain Properties. Maintain all properties necessary to its operations in good working order and condition (ordinary 67 wear and tear excepted) and make all needed repairs, replacements and renewals as are necessary to conduct its business in accordance with customary business practices. 8.03 Existence, Qualification, Etc. Do or cause to be done all things necessary to preserve and keep in full force and effect its existence and all material rights and material franchises, trade names, trademarks and permits, and, except as otherwise expressly permitted by this Agreement, maintain its license or qualification to do business as a foreign corporation and good standing in each jurisdiction in which its ownership or lease of property or the nature of its business makes such license or qualification necessary and failure to maintain qualification or good standing would reasonably be likely to have a material adverse effect on the Borrower or any of its Subsidiaries; except that the Borrower may effect the dissolution of Vitas Healthcare Corporation of Texas so long as it remains an inactive Subsidiary of the Borrower prior to such dissolution. 8.04 Regulations and Taxes. Comply with, in all material respects, or contest in good faith, all statutes and governmental regulations applicable to the Borrower or its Subsidiaries and pay all taxes, assessments, governmental charges, claims for labor, supplies, rent and any other obligation which, if unpaid, might become a Lien against any of its properties, except liabilities being contested in good faith and against which adequate reserves have been established. 8.05 Insurance. (i) Keep all of its insurable properties adequately insured in all material respects at all times with responsible insurance carriers against loss or damage by fire and other hazards to the extent and in the manner required by the Security Agreement and otherwise as are customarily insured against by similar businesses owning such properties similarly situated, (ii) maintain general public liability insurance and medical malpractice insurance at all times with responsible insurance carriers against liability on account of damage to persons and property having such limits, deductibles, exclusions and coinsurance and other provisions providing no less coverage than that specified in Schedule 8.05 delivered to the Agent simultaneously with the execution of this Agreement, such insurance policies to be in form reasonably satisfactory to the Agent, and (iii) maintain insurance under all applicable workers' compensation laws (or in the alternative, maintain required reserves if self-insured for workers' compensation purposes). Without limiting any additional requirement contained in the Security Agreement, each of the policies of insurance described in this Section 8.05 shall provide that the insurer shall give the Agent not less than thirty (30) days' prior written notice before any such policy shall be terminated, lapse or be altered in any manner. 8.06 True Books. Keep true books of record and account in accordance with commercially reasonable business practices in which 68 full, true and correct entries will be made of all of its dealings and transactions in all material respects, and set up on its books such reserves as may be required by Generally Accepted Accounting Principles with respect to doubtful accounts and all taxes, assessments, charges, levies and claims and with respect to its business in general, and include such reserves in quarterly as well as year-end financial statements. 8.07 Pay Indebtedness to Lenders and Perform Other Covenants. (a) Make full and timely payment of the principal of and interest on the Notes and all other Obligations whether now existing or hereafter arising; and (b) duly comply with all the terms and covenants contained in all Loan Documents and other instruments and documents given to the Agent or the Lenders pursuant hereto or thereto. 8.08 Right of Inspection. Permit any Person designated by any Lender or the Agent at the Lender's or Agent's expense, as the case may be, to visit and inspect any of the properties, corporate books and financial reports of the Borrower and its Subsidiaries, and to discuss their respective affairs, finances and accounts with their principal officers and independent auditors, all at reasonable times, at reasonable intervals and with reasonable prior notice, and all subject to the limitations set forth in Section 12.17 hereof (but such limitations shall not continue to apply to Collateral upon the same becoming subject to sale or other disposition under the Loan Documents following the occurrence of an Event of Default). 8.09 Observe all Laws. Conform to and duly observe in all material respects all laws, rules and regulations of any applicable regulatory authority with respect to the conduct of its business. 8.10 Governmental Licenses. To the extent the Borrower or any Subsidiaries provides goods or services giving rise to Accounts constituting Government Receivables, maintain all licenses, permits, certifications and approvals and take such other necessary action as shall entitle such Person to obtain payment or reimbursement of such Account. 8.11 Covenants Extending to Subsidiaries. Cause each of its Subsidiaries to do with respect to itself, its business and its assets, each of the things required of the Borrower in Sections 8.02 through 8.10, inclusive. 8.12 Officer's Knowledge of Default. Upon the President, the chief executive officer, the chief financial officer, the Treasurer or the Vice President for Legal and Regulatory Affairs of the Borrower obtaining knowledge of any Default or Event of Default hereunder or any default under any other obligation of the Borrower or any Subsidiary when the amount of such other obligation or obligations aggregates $250,000 or more, cause such officer or an Authorized Representative to promptly notify the Agent of the 69 nature thereof, the period of existence thereof, and what action the Borrower proposes to take with respect thereto. 8.13 Suits or Other Proceedings. Upon the President, the chief executive officer, the chief financial officer, the Treasurer or the Vice President for Legal and Regulatory Affairs of the Borrower obtaining knowledge of any litigation or other proceedings being instituted against the Borrower or any Subsidiary, or any attachment, levy, execution or other process being instituted against any assets of the Borrower or any Subsidiary, in an aggregate amount greater than $500,000 and not otherwise covered by insurance (or, in the alternative, not otherwise reserved against if self-insured), promptly deliver to the Agent written notice thereof stating the nature and status of such litigation, dispute, proceeding, levy, execution or other process. 8.14 Notice of Discharge of Hazardous Material or Environmental Complaint. Promptly provide to the Agent true, accurate and complete copies of any and all notices, complaints, orders, directives, claims, or citations received by the Borrower or any Subsidiary relating to any material (a) violation or alleged violation by the Borrower or any Subsidiary of any applicable Environmental Laws or OSHA; (b) release or threatened release by the Borrower or any Subsidiary of any Hazardous Material, except where occurring legally; or (c) liability or alleged liability of the Borrower or any Subsidiary for the costs of cleaning up, removing, remediating or responding to a release of Hazardous Materials. 8.15 Environmental Compliance. If the Borrower or any Subsidiary shall receive written notice from any Governmental Authority that the Borrower or any Subsidiary has violated any applicable Environmental Laws, the Borrower shall promptly (and in any event within the time period permitted by the applicable governmental authority) remove or remedy, or cause the applicable Subsidiary to remove or remedy, such violation, unless the Borrower in good faith is disputing such claim of violation by appropriate proceedings promptly commenced and diligently pursued and such claim does not give rise to or result in the imposition of any Lien against property of the Borrower or any Subsidiary. 8.16 Indemnification. The Borrower hereby agrees to defend, indemnify and hold the Agent and the Lenders harmless from and against any and all claims, losses, liabilities, damages and expenses (including, without limitation, cleanup costs and reasonable attorneys' fees) arising directly or indirectly from, out of or by reason of the handling, storage, treatment, emission or disposal of any Hazardous Material by or in respect of the Borrower or any Subsidiary or property owned or leased or operated by the Borrower or any Subsidiary. The provisions of this Section 8.16 shall survive repayment of the Obligations, occurrence of the Revolving Credit Termination Date and expiration or termination of this Agreement. 70 8.17 Further Assurances. At its cost and expense, upon request of the Agent, duly execute and deliver or cause to be duly executed and delivered, to the Agent such further instruments, documents, certificates, financing and continuation statements, and do and cause to be done such further acts that may be reasonably necessary or advisable in the reasonable opinion of the Agent to carry out more effectively the provisions and purposes of this Agreement and the other Loan Documents. 8.18 ERISA Requirement. Comply in all material respects with all requirements of ERISA applicable to it and furnish to the Agent as soon as possible and in any event (i) within thirty (30) days after the President or chief executive officer of the Borrower or, with respect to financial matters, the Treasurer, any Assistant Treasurer or the chief financial officer of the Borrower knows or has reason to know that any reportable event with respect to any employee benefit plan maintained by the Borrower or any Subsidiary which could give rise to termination or the imposition of any material tax or penalty has occurred, written statement of an Authorized Representative describing in reasonable detail such reportable event and any action which the Borrower or applicable Subsidiary proposes to take with respect thereto, together with a copy of the notice of such reportable event given to the PBGC or a statement that said notice will be filed with the annual report of the United States Department of Labor with respect to such plan if such filing has been authorized, (ii) promptly after receipt thereof, a copy of any notice that the Borrower or any Subsidiary may receive from the PBGC relating to the intention of the PBGC to terminate any employee benefit plan or plans of the Borrower or any Subsidiary or to appoint a trustee to administer any such plan, and (iii) within 10 days after a filing with the PBGC pursuant to Section 412(n) of the Code of a notice of failure to make a required installment or other payment with respect to a plan, a certificate of an Authorized Representative setting forth details as to such failure and the action that the Borrower or its affected Subsidiary, as applicable, proposes to take with respect thereto, together with a copy of such notice given to the PBGC. 8.19 Continued Operations. Continue at all times (i) to conduct its business and engage principally in the same or similar line or lines of business substantially as heretofore conducted, and (ii) preserve, protect and maintain free from Liens its material patents, copyrights, licenses, trademarks, trademark rights, trade names, trade name rights, trade secrets and know-how necessary or useful in the conduct of its operations. 8.20 Use of Proceeds. Use the proceeds of the Loans solely for the purposes specified in Section 2.13 hereof. 8.21 Trade Names. (a) Conduct, and cause each Guarantor to conduct, its business in all respects and obtain and maintain title to all 71 Collateral solely in the names set forth in Schedule 6.04 delivered to the Agent simultaneously with the execution of this Agreement and not operate under any other name unless the Borrower shall have (i) given (or caused the appropriate Guarantor to give) the Agent ten (10) days prior written notice of its intention to operate under another name, and (ii) caused to be delivered to the Agent any additional financing statements necessary to perfect a security interest in the Collateral to the extent contemplated herein; (b) Cause at its expense all filings to be made and other action to be taken as the Agent may reasonably request to continue the perfection of the Agent's first priority security interest in the Collateral (to the extent contemplated hereunder); and (c) Except as may be otherwise set forth in Schedule 7.01(m), at all times have the lawful right, power and authority, and cause each Guarantor to have the lawful right, power and authority, to utilize all trade names or trade styles employed by Borrower or such Guarantor to provide services giving rise to Accounts or to bill such Accounts. 8.22 New Guarantors. Upon the occurrence of a New Guaranty Event, the Borrower shall, as soon as practicable but in any event within fifteen (15) Business Days of such event, cause to be delivered to the Agent by each Required New Guarantor for the benefit of the Lenders each of the following: (i) a Guaranty substantially in the form attached hereto as Exhibit J duly executed by such Required New Guarantor; (ii) a Subsidiary Security Agreement in the form attached hereto as Exhibit K duly executed by such Required New Guarantor; (iii) an opinion of counsel to the Required New Guarantor dated as of the date of delivery of the Guaranty provided in the foregoing clause (i) and addressed to the Agent and the Lenders, substantially in the form of the opinion of special counsel for the Borrower and the Guarantors delivered on the Closing Date (the "Initial Opinion") with respect to paragraphs (b), (g), (k) and (n) thereof regarding the organization, good standing and foreign qualification of such Required New Guarantor, the authorization of such Required New Guarantor to execute, deliver and perform its obligations under the Guaranty and the Subsidiary Security Agreement, the due execution and delivery of the Guaranty and the Subsidiary Security Agreement on behalf of such Required New Guarantor as valid and binding obligations of such Required New Guarantor, enforceable against such Required New Guarantor in accordance with their respective terms (subject to the exceptions set forth in paragraph (k) of the Initial Opinion), and the 72 creation and perfection of a security interest in the collateral described in the Subsidiary Security Agreement (subject to the exceptions set forth in paragraph (n) of the Initial Opinion); (iv) current copies of the charter documents, including partnership agreements and certificate of limited partnership, if applicable, and bylaws of such Required New Guarantor, minutes of duly called and conducted meetings (or duly effected consent actions) of the Board of Directors, partners, or appropriate committees thereof (and, if required by such charter documents, by-laws or by applicable laws, of the shareholders or partners) of such Required New Guarantor authorizing the actions and the execution and delivery of documents described in clauses (i) and (ii) of this Section 8.22 and evidence satisfactory to the Agent (confirmation of the receipt of which will be provided by the Agent to the Lenders) that such Required New Guarantor is Solvent as of such date and after giving effect to the Guaranty and applicable Subsidiary Security Agreement; (v) such duly executed Uniform Commercial Code financing statements and other documents and instruments, each in form and content acceptable to the Agent, as shall be necessary to perfect the Liens created under the applicable Subsidiary Security Agreement to the extent contemplated hereunder; and (vi) the Subsidiary Stock (described in the definition of "Security Documents" in Article I hereof) evidencing ownership of such Required New Guarantor, together with duly executed stock powers in blank affixed thereto. For purposes of this Section 8.22, (i) "New Guaranty Event" means each occurrence of any of the following: (A) the acquisition or creation after the Closing Date of any Subsidiary (other than Strategic Investment Subsidiaries), or (B) any Subsidiary in existence (but not a Guarantor) as of the Closing Date or any Strategic Investment Subsidiary (whenever created or acquired) satisfying the criteria in clause (ii) (x) of the definition of "Guarantors" in Article I hereof, or (C) the aggregate operating revenues of all Subsidiaries who are not Guarantors exceeding in any calendar month ten percent (10%) of the consolidated operating revenues of the Borrower and its Subsidiaries, and (ii) "Required New Guarantor" means (A) in the case of a New Guaranty Event described in clauses (i) (A) or (i) (B) immediately above, the Subsidiary giving rise to such New Guaranty Event, and (B) in the case of a New Guaranty Event described in clause (i) (C) immediately above, the Subsidiary (or Subsidiaries, to the extent necessary to eliminate the occurrence of the New Guaranty Event) not then Guarantors having the largest operating revenues in the relevant calendar month. 73 ARTICLE IX Negative Covenants Until the Obligations have been paid and satisfied in full and this Agreement has been terminated in accordance with the terms hereof, unless the Required Lenders shall otherwise consent in writing, the Borrower will not, nor will it permit any Subsidiary to: 9.01 Consolidated Shareholders' Equity. Permit Consolidated Shareholders' Equity to be less than (i) $22,000,000 at the Closing Date and (ii) as at the last day of each fiscal quarter of the Borrower and until (but excluding) the last day of the next following fiscal quarter of the Borrower, the sum of (A) the amount of Consolidated Shareholders' Equity required to be maintained pursuant to this Section 9.01 as at the end of the immediately preceding fiscal quarter, plus (B) 50% of positive Consolidated Net Income during the immediately preceding fiscal quarter of the Borrower ending on such day (including in Consolidated Net Income for purposes of this Section 9.01 only any net gain or credit of an extraordinary nature) plus (C) 80% of the net proceeds (less, only in connection with the consummation of the Borrower's offering of Qualified Equity Securities, an amount equal to the lesser of (i) the amount required to redeem the 9% Preferred Stock, reduced by the net proceeds to the Borrower from the exercise of Warrant A dated December 17, 1991 or Warrant B dated December 17, 1991, as applicable, and (ii) $17,000,000) of each sale of equity interest (or securities other than those constituting Indebtedness exchangeable, convertible or exercisable into equity interests) in the Borrower or any Subsidiary. 9.02 Current Ratio. Permit at any time the ratio of Consolidated Current Assets to Consolidated Current Liabilities (before giving effect to any prepayment obligation arising under Section 2.05(c) (iv)) to be less than 1.00 to 1.00. 9.03 Consolidated Interest Coverage Ratio. Permit at any time during the periods set forth below the Consolidated Interest Coverage Ratio to be less than the respective amount set forth opposite each such period: Period Ratio - ------ ----- From the Closing Date through 1.75 to 1.00 December 31, 1996 From January 1, 1997 and thereafter 2.25 to 1.00 9.04 Consolidated Leverage Ratio. Permit at any time during the periods set forth below the Consolidated Leverage Ratio to be more than the respective amount set forth opposite each such period: 74 Period Ratio - ------ ----- From the Closing Date through December 31, 1995 .75 to 1.00 From and including January 1, 1996 through December 31, 1996 .70 to 1.00 From and including January 1, 1997 through December 31, 1997 .55 to 1.00 From and including January 1, 1998 and thereafter .50 to 1.00 9.05 Consolidated Fixed Charge Ratio. Permit at any time during the respective periods set forth below the Consolidated Fixed Charge Ratio to be less than the respective amount set forth opposite such period: Period Ratio - ------ ----- From the Closing Date through December 31, 1995 1.00 to 1.00 From and including January 1, 1996 through December 31, 1996 1.10 to 1.00 From and including January 1, 1997 through December 31, 1997 1.25 to 1.00 From and including January 1, 1998 and thereafter 1.40 to 1.00 9.06 Indebtedness. Incur, create, assume or permit to exist any Indebtedness, howsoever evidenced, except (i) Indebtedness existing as of the date hereof and as set forth in Schedule 9.06 delivered to the Agent simultaneously with the execution of this Agreement and incorporated herein by reference; (ii) Indebtedness owed the Agent or the Lenders in connection with this Agreement or under the ESOP Loan Documents; (iii) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; (iv) additional Indebtedness not to exceed in the aggregate $3,000,000 during each of the Fiscal Years ending 75 September 30, 1995 and 1996 (on a non-cumulative basis, so that amounts not incurred in one Fiscal Year may not be carried over to a subsequent Fiscal Year) incurred to acquire computer hardware and software and related components or telecommunications equipment, systems and services and other equipment; (v) Indebtedness of the Borrower or Vitas California evidenced by the Seller Notes and the Borrower's guaranty thereof or otherwise arising under the CHC Transaction Documents; and (vi) the guaranty by the Borrower of lease obligations of Vitas California. 9.07 Liens. Incur, create or permit to exist any pledge, Lien, charge or other encumbrance of any nature whatsoever with respect to any property or assets now owned or hereafter acquired by the Borrower or any of its Subsidiaries, other than (i) Liens existing as of the date hereof and as set forth in Schedule 7.01(g) delivered to the Agent simultaneously with the execution of this Agreement; (ii) Liens imposed by law for taxes, assessments or charges of any Governmental Authority for claims not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with Generally Accepted Accounting Principles; (iii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by law or created in the ordinary course of business and in existence less than 120 days from the date of creation thereof for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with Generally Accepted Accounting Principles; (iv) Liens incurred or deposits made in the ordinary course of business (including, without limitation, surety bonds and appeal bonds) in connection with workers' compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, leases, contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations or arising as a result of progress payments under government contracts; (v) easements (including, without limitation, reciprocal easement agreements and utility agreements), rights-of-way, 76 covenants, consents, reservations, encroachments, variations and zoning and other restrictions, charges or encumbrances (whether or not recorded), which do not interfere materially with the ordinary conduct of the business of the Borrower or any Subsidiary and which do not materially detract from the value of the property to which they attach or materially impair the use thereof to the Borrower or any Subsidiary; (vi) Liens arising under the Loan Documents and the ESOP Loan Documents in favor of the Agent and the Lenders; (vii) purchase money Liens to secure Indebtedness permitted under Section 9.06(iv) hereof so long as such Indebtedness is incurred to purchase computer hardware and software, the Indebtedness represents not less than 75% of the purchase price of such assets, and no other property other than the property acquired with the proceeds of such Indebtedness secures such Indebtedness; and (viii) the right of the Sellers to payments from certain accounts and funds pursuant to Sections 2.6 and 2.7 of the Asset Purchase Agreement and the Joint Account Agreement (as such term is defined in the Asset Purchase Agreement). 9.08 Transfer of Assets. Sell, lease, transfer or otherwise dispose of (i) any interest in any Guarantor, or (ii) any other asset of Borrower or any Guarantor except, in each case, (a) assets sold in the ordinary course of business, (b) assets which are worn out, obsolete or no longer necessary or (c) assets transferred by the Borrower to any Guarantor, by one Guarantor to another Guarantor, or by any Guarantor to the Borrower. 9.09 Investments; Acquisitions. Purchase, own, invest in or otherwise acquire, directly or indirectly, any stock or other securities or all or substantially all of the assets, or make or permit to exist any interest whatsoever in any other Person other than a Guarantor or permit to exist any loans or advances to any Person; provided, Borrower and its Subsidiaries may consummate the CHC Transaction in accordance with the CHC Transaction Documents and otherwise may maintain investments or invest in, own, make loans or advances to, or acquire (i) Eligible Securities; (ii) loans, advances and investments existing as of the date hereof and as set forth in Schedule 7.01(d) delivered to the Agent simultaneously with the execution of this Agreement; (iii) accounts receivable arising and trade credit granted in the ordinary course of business and any securities received in satisfaction or partial satisfaction thereof in connection with accounts of financially troubled Persons to the extent reasonably necessary in order to prevent or limit loss; 77 (iv) loans and advances to other Persons in an aggregate outstanding amount not exceeding at any time $750,000, except the dollar limit restriction contained in this clause (iv) shall not apply to non-cash loans and advances made to Persons in connection with the exercise of stock options or other equity interests in the Borrower so long as such loan or advance is repaid within five (5) Business Days; (v) Strategic Investments (including Strategic Investment Subsidiaries not constituting Guarantors), provided that no such Strategic Investment shall be made if after giving effect thereto (W) the aggregate investment in any one Person shall exceed $1,000,000 (valued at cost), (X) the aggregate amount of Strategic Investments made in any Fiscal Year (on a noncumulative basis, with the effect that amounts not expended in any Fiscal Year may not be expended in any subsequent Fiscal Year) shall exceed $2,000,000, (Y) the aggregate amount of Strategic Investments made in any Fiscal Year (on a noncumulative basis, with the effect that amounts not expended in any Fiscal Year may not be expended in any subsequent Fiscal Year), together with the aggregate amount of Costs of Acquisitions (excluding the CHC Transaction) incurred during such Fiscal Year (similarly computed on a noncumulative basis), shall exceed $5,000,000 or (Z) the aggregate amount of Strategic Investments shall exceed five percent (5%) of Consolidated Shareholders' Equity, provided that each of the limitations described in this Section 9.09(v) shall be applied after giving effect to reductions in Strategic Investments from receipt of cash distributions and cash management fees; and (vi) Permitted Acquisitions, provided that if the Cost of Acquisition exceeds $2,500,000 the Borrower shall have furnished to the Agent a certificate in the form of Exhibit I prepared on a historical pro forma basis giving effect to such Permitted Acquisition which certificate shall demonstrate that no Default or Event of Default will exist; provided, further, the aggregate Costs of Acquisitions (excluding the CHC Transaction) in any Fiscal Year (on a noncumulative basis, with the effect that amounts not expended in any Fiscal Year may not be expended in any subsequent Fiscal Year), together with the aggregate amount of Strategic Investments in such Fiscal Year (similarly computed on a non-cumulative basis), shall not exceed $5,000,000. 9.10 Dividends or Distributions. Declare or pay any dividends (other than those payable solely in capital stock) or distribution in reduction of capital or otherwise in respect of any equity interest, or purchase, redeem or otherwise retire any such equity interest except (i) dividends paid with respect to Preferred Stock, (ii) Preferred Stock Redemptions, (iii) redemptions of the Preferred Stock with the net proceeds from the issuance and sale of Qualified Equity Securities, (iv) payments to purchase stock of the 78 Borrower pursuant to the exercise by beneficiaries of the Plan (as defined in the ESOP Loan Documents) of put rights under Section 16(b) of the Plan, and (v) pursuant to the exercise of rights of first refusal or similar rights relating to stock options or securities issuable upon the exercise of stock options in an aggregate amount in any Fiscal Year not exceeding $300,000 (on a non-cumulative basis, with the effect that amounts not expended in any Fiscal Year may not be expended in a subsequent Fiscal Year), provided that after giving effect to payment of such dividend or Preferred Stock Redemption no Default or Event of Default exist hereunder; provided further that, without limiting other rights of the Agent and the Lenders under the Loan Documents, the provisions of this Section 9.10 shall not prohibit any Preferred Stock Redemption after December 30, 1996. 9.11 Merger or Consolidation. (a) Consolidate with or merge into any other Person, or permit any other Person to merge into it; or (b) liquidate, wind-up or dissolve or sell, transfer or lease or otherwise dispose of all or a substantial part of its assets (other than sales in the ordinary course of business or transfers from a Guarantor to the Borrower or another Guarantor or from the Borrower to a Guarantor); provided, however, (i) any Subsidiary of the Borrower may merge into or transfer all or substantially all of its assets to or consolidate with any wholly-owned Subsidiary of the Borrower, and (ii) any Person may merge with the Borrower or any wholly-owned Subsidiary of the Borrower (whether or not such Subsidiary is the survivor, provided such Person becomes a Subsidiary and, if required, a Guarantor) if the Borrower or such wholly-owned Subsidiary shall be the survivor thereof and, if required, a Guarantor, and such merger shall not cause, create or result in the occurrence of any Default or Event of Default hereunder. 9.12 Change in Control. Cause, suffer or permit any Person or group of Persons, other than the owners existing as of the Closing Date, to own beneficially more than 49% (and after an initial public offering of the Borrower's capital stock, 25%) of the outstanding securities of (on a fully diluted basis and taking into account any outstanding securities or contract rights exercisable, exchangeable or convertible into equity interests) the Borrower having voting rights in the election of directors. 9.13 Transactions with Affiliates. Enter into any transaction after the date hereof, including, without limitation, the purchase, sale, leasing or exchange of property, real or personal, or the rendering of any service with any Affiliate of the Borrower, except for the following: (a) such Persons may render services to the Borrower or its Subsidiaries for compensation at the same rates generally paid by Persons engaged in the same or similar businesses for the same or similar services, and (b) such transactions may be entered into in the ordinary course of and pursuant to the reasonable requirements of the Borrower's (or any Subsidiary's) business and upon fair and 79 reasonable terms no less favorable to the Borrower (or any Subsidiary) than would be obtained in a comparable arm's-length transaction with a Person not an Affiliate and (C) the limitation contained in the Section does not apply to compensation arrangements (present and deferred) for Affiliates who are or were officers or employees of the Borrower or any Subsidiary as of or prior to the Closing Date if such compensation arrangements are (i) approved by a majority of the non-employee directors of the Board of Directors or the Compensation Committee of the Board of Directors and (ii) such compensation is paid for services rendered to the Borrower or such Subsidiary in the ordinary course of business. 9.14 ERISA. With respect to all employee pension benefit plans maintained by the Borrower or any Subsidiary: (i) terminate any of such employee pension benefit plans so as to incur any liability to the Pension Benefit Guaranty Corporation established pursuant to ERISA; (ii) allow or suffer to exist any prohibited transaction involving any of such employee pension benefit plans or any trust created thereunder which would subject the Borrower or a Subsidiary to a tax or penalty or other liability on prohibited transactions imposed under Internal Revenue Code Section 4975 or ERISA; (iii) fail to pay to any such employee pension benefit plan any contribution which it is obligated to pay under the terms of such plan; (iv) allow or suffer to exist any accumulated funding deficiency, whether or not waived, with respect to any such employee pension benefit plan; (v) allow or suffer to exist any occurrence of a reportable event or any other event or condition, which presents a material risk of termination by the Pension Benefit Guaranty Corporation of any such employee pension benefit plan that is a Single Employer Plan, which termination could result, in any liability to the Pension Benefit Guaranty Corporation; or (vi) incur any withdrawal liability with respect to any Multi-employer Plan. 9.15 Fiscal Year. Change its Fiscal Year unless the Borrower demonstrates compliance with the covenants contained herein for both the Fiscal Year in effect prior to any change and the new fiscal year period by delivery to the Agent (together with sufficient copies for the Lenders) of appropriate interim and annual pro forma historical and current compliance certificates for 80 such periods and such other information as the Agent or any Lender may reasonably request. 9.16 Dissolution, etc. Wind up, liquidate or dissolve (voluntarily or involuntarily) or commence or suffer any proceedings seeking any such winding up, liquidation or dissolution, except in connection with (i) the merger or consolidation of Subsidiaries into each other or into the Borrower permitted pursuant to Section 9.11 and (ii) the dissolution of Vitas Healthcare Corporation of Texas so long as it remains an inactive Subsidiary of the Borrower prior to such dissolution). 9.17 Rate Hedging Obligations. Incur any Rate Hedging Obligations or enter into any agreements, arrangements, devices or instruments relating to Rate Hedging Obligations, except Swap Agreements. 9.18 Subordinated Obligations. Cause, suffer or permit to be made any payments in respect of Subordinated Obligations except to the extent expressly permitted by the Subordination Agreements. 81 ARTICLE X Events of Default and Acceleration 10.01 Events of Default. If any one or more of the following events (herein called "Events of Default") shall occur for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body), that is to say: (a) if default shall be made in the due and punctual payment of the principal of any Loan or Reimbursement Obligation, when and as the same shall be due and payable whether pursuant to any provision of Article II or Article III hereof, at maturity, by acceleration or otherwise; or (b) if default shall be made in the due and punctual payment of any amount of interest on any Loan or of any fees or other amounts payable to the Lenders, the Agent or NationsBank under the Loan Documents on the date on which the same shall be due and payable; or (c) if default shall be made in the performance or observance of any covenant set forth in Sections 8.06, 8.07(a), 8.08, 8.12, 8.13, 8.22 or Article IX hereof and, in the case of Sections 9.01 through 9.05, 9.07 and 9.14 only, such default shall continue for a period of five (5) days; (d) if a default shall be made in the performance or observance of, or shall occur under, any covenant, agreement or provision contained in this Agreement or the Notes (other than as described in clauses (a), (b) or (c) above) and such default shall continue for 30 or more days after the earlier of receipt of notice of such default by the Authorized Representative from the Agent or the President, the chief executive officer, the chief financial officer, the Treasurer or the Vice President for Legal and Regulatory Affairs of the Borrower becomes aware of such default, or if a default shall be made in the performance or observance of, or shall occur under, any covenant, agreement or provision contained in any of the other Loan Documents (beyond any applicable grace period, if any, contained therein) or in any instrument or document evidencing or creating any obligation, guaranty, or Lien in favor of the Agent or the Lenders or delivered to the Agent or the Lenders in connection with or pursuant to this Agreement or any of the Obligations, or if any Loan Document ceases to be in full force and effect (other than by reason of any action by the Agent or any Lender), or if without the written consent of the Agent, this Agreement or any other Loan Document shall be disaffirmed or shall terminate, be terminable or be terminated or become void or unenforceable 82 for any reason whatsoever (other than in accordance with its terms in the absence of default or by reason of any action by the Agent or any Lender); or (e) if a default shall occur, which is not waived, (i) in the payment of any principal, interest, premium or other amounts with respect to any Indebtedness (other than the Loans) of the Borrower or of any Subsidiary in an amount not less than $250,000 in the aggregate outstanding, or (ii) in the performance, observance or fulfillment of any term or covenant contained in any agreement or instrument under or pursuant to which any such Indebtedness may have been issued, created, assumed, guaranteed or secured by the Borrower or any subsidiary, and such default shall continue for more than the period of grace, if any, therein specified, or if such default shall permit the holder of any such Indebtedness to accelerate the maturity thereof; or (f) if any representation, warranty or other statement of fact contained herein or any other Loan Document or in any writing, certificate, report or statement at any time furnished to the Agent or any Lender by or on behalf of the Borrower or any Guarantor pursuant to or in connection with this Agreement or the other Loan Documents, or otherwise, shall be false or misleading in any material respect when given; or (g) if the Borrower or any Subsidiary shall be unable to pay its debts generally as they become due; file a petition to take advantage of any insolvency statute; make an assignment for the benefit of its creditors; commence a proceeding for the appointment of a receiver, trustee, liquidator or conservator of itself or of the whole or any substantial part of its property; file a petition or answer seeking reorganization or arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute; or (h) if a court of competent jurisdiction shall enter an order, judgment or decree appointing a custodian, receiver, trustee, liquidator or conservator of the Borrower or any Subsidiary or of the whole or any substantial part of its properties and such order, judgment or decree continues unstayed and in effect for a period of sixty (60) days, or approve a petition filed against the Borrower or any Subsidiary seeking reorganization or arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state, which petition is not dismissed within sixty (60) days; or if, under the provisions of any other law for the relief or aid of debtors, a court of competent jurisdiction shall assume custody or control of the Borrower or any Subsidiary or of the whole or any substantial part of its 83 properties, which control is not relinquished within sixty (60) days; or if there is commenced against the Borrower or any Subsidiary any proceeding or petition seeking reorganization, arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state which proceeding or petition remains undismissed for a period of thirty (30) days; or if the Borrower or any Subsidiary takes any action to indicate its consent to or approval of any such proceeding or petition; or (i) if (i) any final, non-appealable judgment where the amount not covered by insurance (or the amount as to which the insurer denies liability) is in excess of $250,000 is rendered against the Borrower or any Subsidiary, or (ii) there is any attachment, injunction or execution against any of the Borrower's or any Subsidiary's properties for any amount in excess of $250,000; and in either case such judgment, attachment, injunction or execution remains unpaid, unstayed, undischarged, unbonded or undismissed for a period of sixty (60) days; or (j) if the Borrower or any Subsidiary shall, other than in the ordinary course of business (as determined by past practices), suspend all or any part of its operations material to the conduct of the business of the Borrower and its Subsidiaries, taken as a whole; or (k) if (i) the Borrower or any Subsidiary shall engage in any prohibited transaction (as described in Section 9.14(ii) hereof), which is not subject to a statutory or administrative exemption, involving any employee pension benefit plan of the Borrower or any Subsidiary, (ii) any accumulated funding deficiency (as referred to in Section 9.14(iv) hereof), whether or not waived, shall exist with respect to any Single Employer Plan, (iii) a reportable event (as referred to in Section 9.14(v) hereof) (other than a reportable event for which the statutory notice requirement to the Pension Benefit Guaranty Corporation has been waived by regulation) shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed to administer or to terminate, any Single Employer Plan, which reportable event or institution or proceedings is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Single Employer Plan for purposes of Title IV of ERISA, and in the case of such a reportable event, the continuance of such reportable event shall be unremedied for sixty (60) days after notice of such reportable event pursuant to Section 4043(a), (c) or (d) of ERISA is given, as the case may be, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, and such termination results in a material liability of the Borrower or any Subsidiary to such Single Employer Plan or the 84 Pension Benefit Guaranty Corporation, or (v) the Borrower or any Subsidiary shall withdraw from a Multi-employer Plan for purposes of Title IV of ERISA, and, as a result of any such withdrawal, the Borrower or any Subsidiary shall incur withdrawal liability to such Multi-employer Plan; and in each case in clauses (i) through (v) of this Section 10.01(k), such event or condition, together with all other such events or conditions, if any, would subject the Borrower or any Subsidiary to any tax, penalty or other liabilities, and in each such case the event or condition is not remedied to the satisfaction of the Required Lenders within ninety (90) days after the earlier of (i) receipt of notice of such event or condition by the Authorized Representative from the Agent or (ii) the Borrower becomes aware of such event or condition; or (l) if the Borrower or any Subsidiary shall breach any of the terms or conditions of any agreement under which any Rate Hedging Obligation permitted pursuant to Section 9.17 is created and such breach shall continue beyond any grace period, if any, relating thereto pursuant to the terms of such Obligation, or the Borrower or any Subsidiary shall disaffirm or seek to disaffirm any such agreement or any of its obligations thereunder; or (m) if there shall occur and not be waived an Event of Default as defined in any of the other Loan Documents or in any of the ESOP Loan Documents; or (n) if there shall occur any loss of any permits, licenses, authorizations, certifications or approvals from any federal, state or local governmental or administrative authority or termination of any contract with any such authority, which loss or termination (i) continues for a period greater than 60 days and (ii) results in the suspension or termination of operations of the Borrower or any Subsidiary which produces 5% or more of the Borrower's gross revenues; then, and in any such event and at any time thereafter, if such Event of Default or any other Event of Default shall have not been waived, (A) either or both of the following actions may be taken: (i) the Agent, with the consent of the Required Lenders, may, and at the direction of the Required Lenders shall, declare any obligation of the Lenders to make further Revolving Credit Loans or issue Letters of Credit terminated, whereupon the obligation of each Lender to make further Revolving Credit Loans or issue Letters of Credit, hereunder shall terminate immediately, and (ii) the Agent shall at the direction of the Required Lenders, at their option, declare by notice to the Borrower any or all of the Obligations to be immediately due and payable, and the same, including all interest 85 accrued thereon and all other obligations of the Borrower to the Agent and the Lenders, shall forthwith become immediately due and payable without presentment, demand, protest, notice or other formality of any kind, all of which are hereby expressly waived, anything contained herein or in any instrument evidencing the Obligations to the contrary notwithstanding; provided, however, that notwithstanding the above, if there shall occur an Event of Default under clause (g) or (h) above, then the obligation of the Lenders to lend and issue Letters of Credit hereunder shall automatically terminate and any and all of the Obligations shall be immediately due and payable without the necessity of any action by the Agent or the Required Lenders or notice to the Agent or the Lenders; (B) the Borrower shall, upon demand of the Agent or the Required Lenders, deposit cash with the Agent in accordance with the LC Account Agreement in an amount equal to the amount of any Letters of Credit remaining undrawn or unpaid, as collateral security for the repayment of any future drawings or payments under such Letters of Credit and the Borrower shall forthwith deposit and pay such amounts and such amounts shall be held by the Agent pursuant to the terms of the applicable Application and Agreement for Letter of Credit; (C) the Agent and the Lenders shall have all of the rights and remedies available under the Loan Documents or under any applicable law. 10.02 Agent to Act. In case any one or more Events of Default shall occur and not have been waived, the Agent may, and at the direction of the Required Lenders shall, proceed to protect and enforce their rights or remedies either by suit in equity or by action at law, or both, whether for the specific performance of any covenant, agreement or other provision contained herein or in any other Loan Document, or to enforce the payment of the Obligations or any other legal or equitable right or remedy. 10.03 Cumulative Rights. No right or remedy herein conferred upon the Lenders or the Agent is intended to be exclusive of any other rights or remedies contained herein or in any other Loan Document, and every such right or remedy shall be cumulative and shall be in addition to every other such right or remedy contained herein and therein or now or hereafter existing at law or in equity or by statute, or otherwise. 10.04 No Waiver. No course of dealing between the Borrower and any Lender or the Agent or any failure or delay on the part of any Lender or the Agent in exercising any rights or remedies under any Loan Document or otherwise available to it shall operate as a waiver of any rights or remedies and no single or partial exercise 86 of any rights or remedies shall operate as a waiver or preclude the exercise of any other rights or remedies hereunder or of the same right or remedy on a future occasion. 10.05 Allocation of Proceeds. If an Event of Default has occurred and not been waived, and the maturity of the Notes has been accelerated pursuant to Article X hereof, all payments received by the Agent hereunder, in respect of any principal of or interest on the Obligations or any other amounts payable by the Borrower hereunder shall be applied by the Agent in the following order: (i) amounts due to the Lenders pursuant to Sections 2.11, 3.03, 8.16, 12.05 and 12.11 hereof; (ii) amounts due to (A) NationsBank pursuant to Section 3.04 hereof, and (B) the Agent pursuant to Section 11.11 hereof; (iii) payments of interest on Loans, to be applied for the ratable benefit of the Lenders; (iv) payments of principal on Loans, to be applied for the ratable benefit of the Lenders; (v) payment of cash amounts to the Agent in respect of Outstanding Letters of Credit pursuant to Section 10.01(B) hereof; (vi) payment of Obligations owed a Lender or Lenders pursuant to Swap Agreements on a pro rata basis according to amounts owed; (vii) payments of all other Obligations due under the Loan Documents, if any, to be applied for the ratable benefit of the Lenders; and (viii) any surplus remaining after application as provided for herein, to the Borrower or otherwise as may be required by applicable law. 87 ARTICLE XI The Agent 11.01 Appointment. Each Lender (including NationsBank in its capacity as issuer of the Letters of Credit) hereby irrevocably designates and appoints NationsBank as the Agent of the Lenders under this Agreement, and each of the Lenders hereby irrevocably authorizes NationsBank as the Agent for such Lender, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers as are expressly delegated to the Agent by the terms of this Agreement, together with such other powers as are reasonably incidental thereto. The Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any of the Lenders, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Agent. 11.02 Attorneys-in-fact. The Agent may execute any of its duties under this Agreement by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence, gross negligence or willful misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 11.03 Limitation on Liability. Neither the Agent nor any of its officers, directors, employees, agents or attorneys-in-fact shall be liable to the Lenders for any action lawfully taken or omitted to be taken by it or them under or in connection with this Agreement except for its or their own gross negligence or willful misconduct. Neither the Agent nor any of its affiliates shall be responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower or any of its Subsidiaries, or any officer or representative thereof contained in this Agreement or in any of the other Loan Documents, or in any certificate, report, statement or other document referred to or provided for in or received by the Agent under or in connection with this Agreement, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any of the other Loan Documents, or for any failure of the Borrower or any Guarantor to perform its obligations thereunder, or for any recitals, statements, representations or warranties made, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of any collateral. The Agent shall not be under any obligation to any of the Lenders to ascertain or to inquire as to the observance or performance of any of the terms, covenants or conditions of this Agreement or any of the other Loan Documents on the part of the Borrower or any Guarantor or to inspect the properties, books or records of the Borrower or its Subsidiaries. 88 11.04 Reliance. The Agent shall be entitled to rely, and shall be fully protected in relying, upon any Note, writing, resolution, notice, consent certificate, affidavit, letter, cablegram, telegram, telecopy or telex message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Borrower), independent accountants and other experts selected by the Agent. The Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless an Assignment shall have been filed with and accepted by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement unless it shall first receive advice or concurrence of the Lenders or the Required Lenders as provided in this Agreement or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders, and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all present and future holders of the Notes. 11.05 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Agent has received notice from a Lender, the Authorized Representative or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Agent receives such a notice, the Agent shall promptly give notice thereof to the Lenders. The Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders; provided that, unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Event of Default as it shall deem advisable in the best interests of the Lenders. 11.06 No Representations. Each Lender expressly acknowledges that neither the Agent nor any of its affiliates has made any representations or warranties to it and that no act by the Agent hereafter taken, including any review of the affairs of the Borrower or any of its Subsidiaries, shall be deemed to constitute any representation or warranty by the Agent to any Lender. Each Lender represents to the Agent that it has, independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the financial condition, creditworthiness, affairs, status and nature of the Borrower and its Subsidiaries and made its own decision to enter into this Agreement. Each Lender also represents that it will, 89 independently and without reliance upon the Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and to make such investigation as it deems necessary to inform itself as to the status and affairs, financial or otherwise, of the Borrower and its Subsidiaries. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the affairs, financial condition or business of the Borrower or any of its Subsidiaries which may come into the possession of the Agent or any of its affiliates. 11.07 Indemnification. The Lenders agree to indemnify the Agent in its capacity as such (to the extent not reimbursed by the Borrower or its Subsidiaries and without limiting any obligations of the Borrower or any Subsidiary so to do), ratably according to the respective principal amount of the Notes held by them (or, if no Notes are outstanding, ratably in accordance with their respective Applicable Commitment Percentages as then in effect) from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may at any time (including without limitation at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Agent in any way relating to or arising out of this Agreement or any other document contemplated by or referred to herein or the transactions contemplated hereby or any action taken or omitted by the Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct. The agreements in this Section 11.07 shall survive the payment of the Obligations and the termination of this Agreement. 11.08 Lender. The Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with the Borrower and its Subsidiaries as though it were not the Agent hereunder. With respect to its Loans made or renewed by it and any Note issued to it, the Agent shall have the same rights and powers under this Agreement as any Lender and may exercise the same as though it were not the Agent, and the terms "Lender" and "Lenders" shall, unless the context otherwise indicates, include the Agent in its individual capacity. 11.09 Resignation. If the Agent shall resign as Agent under this Agreement, then the Required Lenders may appoint, with the consent, so long as there shall not have occurred and be continuing a Default or Event of Default, of the Borrower, which consent shall 90 not be unreasonably withheld, a successor Agent for the Lenders, which successor Agent shall be a commercial bank Organized under the laws of the United States or any state thereof, having a combined surplus and capital of not less than $500,000,000, whereupon such successor Agent shall succeed to the rights, powers and duties of the former Agent and the obligations of the former Agent shall be terminated and canceled, without any other or further act or deed on the part of such former Agent or any of the parties to this Agreement; provided, however, that the former Agent's resignation shall not become effective until such successor Agent has been appointed and has succeeded of record to all right, title and interest in any collateral held by the Agent; provided, further, that if the Required Lenders and, if applicable, the Borrower cannot agree as to a successor Agent within ninety (90) days after such resignation, the Agent shall appoint a successor Agent which satisfies the criteria set forth above in this Section 11.09 for a successor Agent and the parties hereto agree to execute whatever documents are necessary to effect such action under this Agreement or any other document executed pursuant to this Agreement; provided, however that in such event all provisions of this Agreement and the Loan Documents, shall remain in full force and effect. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article XI shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. 11.10 Sharing of Payments. etc. Each Lender agrees that if it shall, through the exercise of a right of banker's lien, set-off, counterclaim or otherwise, obtain payment with respect to its Obligations (other than pursuant to Article IV) which results in its receiving more than its pro rata share of the aggregate payments with respect to all of the Obligations (other than any payment pursuant to Article IV), then (A) such Lender shall be deemed to have simultaneously purchased from the other Lenders a share in their Obligations so that the amount of the Obligations held by each of the Lenders shall be pro rata and (B) such other adjustments shall be made from time to time as shall be equitable to insure that the Lenders share such payments ratably; provided, however, that for purposes of this Section 11.10 the term "pro rata" shall be determined with respect to both the Revolving Credit Commitment of each Lender and to the Total Revolving Credit Commitments after subtraction in each case of amounts, if any, by which any such Lender has not funded its share of the outstanding Loans and Reimbursement Obligations. If all or any portion of any such excess payment is thereafter recovered from the Lender which received the same, the purchase provided in this Section 11.10 shall be rescinded to the extent of such recovery, without interest. The Borrower expressly consents to the foregoing arrangements and agrees that each Lender so purchasing a portion of the other Lenders' Obligations may exercise all rights of payment (including, without limitation, all rights of set-off, banker's lien or counterclaim) with respect to such portion as fully as if such Lender were the direct holder of such portion. 91 11.11 Fees. The Borrower agrees to pay to the Agent, for its individual account, an annual Agent's fee in such amount as the Borrower and the Agent may agree to in writing from time to time. 11.12 One Lender. Notwithstanding anything to the contrary contained herein or in any of the Loan Documents, so long as NationsBank shall be the sole Lender, all references to and rights, powers and privileges exercisable by the "Agent" shall be deemed to refer to NationsBank. 92 ARTICLE XII Miscellaneous 12.01 Assignments and Participations. (a) At any time after the Closing Date each Lender may, with the prior consent of the Agent and the Borrower, which consents shall not be unreasonably withheld (it being understood that consent may be withheld by the Borrower if such assignment would subject the Borrower to the payment of any additional amounts pursuant to the provisions of Section 4.06 hereof), assign to one or more banks or financial institutions all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of the Note payable to its order); provided, that (i) each such assignment shall be of a constant, and not a varying, percentage of all of the assigning Lender's rights and obligations (including Loans and Participations) under this Agreement, (ii) for each assignment involving the issuance and transfer of Notes, the assigning Lender shall execute an Assignment and Acceptance and the Borrower hereby consents to execute replacement Notes to give effect to the assignment, (iii) the minimum aggregate Revolving Credit Commitment (together with which the assigning Lender's applicable portion of Participations and the Letter of Credit Commitment shall also be assigned) and Term Loan Commitment which shall be assigned is $5,000,000 (with any aggregate assigned amount being applied ratably to the Revolving Credit Commitment and the Term Loan Commitment), and (iv) such assignee shall have an office located in the United States. Upon such execution, delivery, approval and acceptance, from and after the effective date specified in each Assignment and Acceptance, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder or under such Notes have been assigned or negotiated to it pursuant to such Assignment and Acceptance have the rights and obligations of a Lender hereunder and a holder of such Notes and (y) the assignor thereunder shall, to the extent that rights and obligations hereunder or under such Notes have been assigned or negotiated by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement, but no Lender shall be released from any claims arising from actions that occur prior to the date of such assignment. No assignee shall have the right to further assign its rights and obligations pursuant to this Section 12.01. Any Lender who makes an assignment shall pay to the Agent a one-time administrative fee of $3,000.00 which fee shall not be reimbursed by the Borrower. (b) By executing and delivering an Assignment and Acceptance, the Lender assignor thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) the assignment made under such Assignment and Acceptance is made under such Assignment and Acceptance without recourse; (ii) such assigning Lender makes no representation or 93 warranty and assumes no responsibility with respect to the financial condition of the Borrower or any Subsidiary or the performance or observance by the Borrower or any Subsidiary of any of its obligations under any Loan Document or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements delivered pursuant to Section 7.01(f) or Section 8.01, as the case may be, and such other Loan Documents and other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Agreement, the Notes and the other Loan Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender and a holder of such Notes. (c) The Agent shall maintain at its address referred to herein a copy of each Assignment and Acceptance delivered to and accepted by it. (d) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender, the Agent shall give prompt notice thereof to Borrower. (e) Each Lender may sell participations at its expense, and subject to the prior written approval by Borrower of such participant, which approval shall not be unreasonably withheld, to one or more banks or other financial institutions as to all or a portion of its rights and obligations under this Agreement; provided, that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any Note issued to it for the purpose of this Agreement, (iv) such participations shall be in a minimum amount of $1,000,000 and shall include an allocable portion of such Lender's Participation, and (v) Borrower, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and with regard to any and all payments to be made under this Agreement; provided, that the participation agreement between a Lender and its participants may provide that such Lender will obtain the approval of such participant prior to such Lender's agreeing to any amendment or waiver of any provisions of this Agreement which would (A) extend the maturity of any Note, (B) reduce the interest rate 94 hereunder, (C) increase the Revolving Credit Commitment or Term Loan Commitment of the Lender granting the participation other than as permitted by Section 2.07 or (D) release any Guarantor, and (vi) the sale of any such participations which require Borrower to file a registration statement with the United States Securities and Exchange Commission or under the securities regulations or laws of any state shall not be permitted. The participation of any portion of the rights and obligations hereunder shall not give rise to any obligation of the Borrower to pay an Agent fee under Section 11.11. Notwithstanding anything to the contrary contained herein or in any of the other Loan Documents, any Lender may assign all or any portion of its rights and obligations under the Loan Documents and the Notes to any Affiliate of such Lender, and any Lender may pledge all or any portion of its interest under the Loan Documents and the Notes to the Board as security for obligations of such Lender to the Board, without the consent of the Borrower, the Agent or any other Lender and without the payment of the administrative fee referred to in Section 11.01(a). 12.02 Notices. Except as otherwise provided with respect to Borrowing Notices and Interest Rate Selection Notices, all notices, demands or requests provided for or permitted to be given pursuant to this Agreement shall be deemed to have been properly given or served by personal delivery, by telecopy with telephone or telecopied confirmation of receipt, or by depositing in the United States mail, postpaid and registered or certified, return receipt requested, and addressed to the parties at their addresses set forth below. All notices, demands and requests shall be effective upon being personally delivered at the address specified herein, upon confirmation of receipt by telecopy, or three (3) Business Days after being deposited in the United States mail. The time period for which a response to any notice, demand or request must be given, if any, shall commence to run from the date of delivery at the address specified herein, the date of receipt of telecopy notice, or the date of receipt of the notice, demand, or request, by the addressees thereof as disclosed by the return receipt. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given shall be deemed to be receipt of the notice, demand or request sent. Any party hereto shall have the right from time to time and at any time during the term of this Agreement to change its address or addressee and each shall have the right to specify as its address any other address within the United States by giving notice in accordance with the terms hereof. For the purposes of this Agreement, the addresses of the parties are as follows: (a) if to the Borrower: Vitas Healthcare Corporation 100 South Biscayne Boulevard Miami, Florida 33131 Attention: Mark Ohlendorf, Chief Financial Officer 95 Telephone: 305/350-5922 Telefacsimile: 305/374-4765 with a copy (which shall not constitute notice) to: Vitas Healthcare Corporation 100 South Biscayne Boulevard Miami, Florida 33131 Attention: Mark A. Sterling Vice President for Legal and Regulatory Affairs Telephone: 305/350-6044 Telefacsimile: 305/350-6059 (b) if to the Agent: NationsBank of Florida, National Association 150 S.E. Third Avenue Miami, Florida 33131 Attention: Corporate Banking Department Allison Freeland Telephone: 305/577-5992 Telefacsimile: 305/577-5745 with a copy to: NationsBank of Florida, National Association One Independence Center 101 North Tryon Street NCl-001-15-04 Charlotte, North Carolina 28255 Attention: Margaret Lydon Agency Services Telephone: 704/386-9371 Telefacsimile: 704/386-9923 96 (c) if to NationsBank in its capacity as issuer of the Letters of Credit: NationsBank of Florida, National Association One NationsBank Plaza, T21-3 Charlotte, North Carolina 28255 Attention: Rozaland Smith, Letter of Credit Department Telephone: 704/386-6266 Telefacsimile: 704/386-2149 (d) if to the Lenders: At the addresses set forth on the signature pages hereof and on the signature page of each Assignment and Acceptance. 12.03 Setoff. The Borrower agrees that the Agent and each Lender shall have a lien for all the Obligations of the Borrower upon all deposits or deposit accounts, of any kind (other than deposits identified as for the benefit of third parties), or any interest in any such deposits or deposit accounts thereof, now or hereafter pledged, mortgaged, transferred or assigned to the Agent or such Lender or otherwise in the possession or control of the Agent or such Lender (other than for safekeeping) for any purpose for the account or benefit of the Borrower and including any balance of any deposit account or of any credit of the Borrower with the Agent or such Lender, whether now existing or hereafter established, hereby authorizing the Agent and each Lender at any time or times with or without prior notice (but if prior notice is not given then notice following such setoff shall be given with reasonable promptness) to apply such balances or any part thereof to such of the Obligations of the Borrower to the Lenders then past due and in such amounts as they may elect, and whether or not the collateral or the responsibility of other Persons primarily, secondarily or otherwise liable may be deemed adequate. For the purposes of this paragraph, all remittances and property shall be deemed to be in the possession of the Agent or such Lender as soon as the same may be put in transit to it by mail or carrier or by other bailee. 12.04 Survival. All covenants, agreements, representations and warranties made herein shall survive the making by the Lenders of the Loans and the expiration of the Letters of Credit and the execution and delivery to the Lenders of this Agreement and the Notes and shall continue in full force and effect so long as any of Obligations remain outstanding or any Lender has any commitment hereunder or the Borrower has continuing obligations hereunder unless otherwise provided herein. Whenever in this Agreement, any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party and all covenants, provisions and agreements by or on behalf 97 of the Borrower which are contained in this Agreement, the Notes and the other Loan Documents shall inure to the benefit of the successors and permitted assigns of the Lenders or any of them. 12.05 Expenses. The Borrower agrees (a) to pay or reimburse the Agent and NCMI for all its reasonable and customary out-of-pocket costs and expenses incurred in connection with the preparation, negotiation and execution of, this Agreement or any of the other Loan Documents (including travel expenses relating to closing), and the consummation of the transactions contemplated hereby and thereby, including, without limitation, the reasonable and customary fees and disbursements of counsel to the Agent, as well as all such expenses and costs arising in connection with any amendment, supplement or modification to this Agreement or any other Loan Documents and the ESOP Loan Documents, (b) to pay or reimburse the Agent and the Lenders for all their reasonable costs and expenses incurred in connection with the enforcement (only from and after the occurrence of a Default or Event of Default) or preservation of any rights under this Agreement and the other Loan Documents, including without limitation, the reasonable fees and disbursements of their counsel and any payments in indemnification or otherwise payable by the Lenders to the Agent pursuant to the Loan Documents, (c) to pay, indemnify and hold the Agent and the Lenders harmless from any and all recording and filing fees and any and all liabilities with respect to, or resulting from any failure to pay or delay in paying, documentary, stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of this Agreement or any other Loan Documents, or consummation of any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement or any other Loan Documents, and (d) to pay, indemnify, and hold the Agent, NCMI and the Lenders harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement and the other Loan Documents or in any respect relating to the transactions contemplated hereby or thereby, including without limitation the transactions contemplated by the CHC Transaction Documents (all the foregoing, collectively, the "indemnified liabilities"); provided, however, that the Borrower shall have no obligation hereunder with respect to indemnified liabilities arising from (i) the willful misconduct, bad faith or gross negligence of or the willful breach of the Loan Documents by the party seeking indemnification, (ii) legal proceedings commenced against the Agent, NCMI or any Lender by any security holder or creditor thereof arising out of and based upon rights afforded any such security holder or creditor solely in its capacity as such, (iii) any taxes imposed upon the Agent or any Lender other than the documentary, stamp, excise and similar taxes described in clause (c) above or any tax resulting from any Regulatory Change, which tax would be payable to Lenders by Borrower pursuant to Article IV hereof, (iv) taxes imposed and 98 costs and expenses incurred as a result of a transfer or assignment of any Note, participation or assignment of a portion of its rights or (v) any taxes imposed upon or any costs or expenses incurred by any transferee of any Note. The agreements in this subsection shall survive repayment of the Notes and all other Obligations hereunder and termination of this Agreement. 12.06 Amendments. No amendment, modification or waiver of any provision of this Agreement or any of the Loan Documents and no consent by the Lenders to any departure therefrom by the Borrower shall be effective unless such amendment, modification or waiver shall be in writing and signed by the Agent, but only upon having received the written consent of the Required Lenders, and the same shall then be effective only for the period and on the conditions and for the specific instances and purposes specified in such writing; provided, however, that, no such amendment, modification or waiver (i) which changes, extends or waives any provision of Section 11.10 or this Section 12.06, the amount of or the due date of any scheduled installment of or the rate of interest payable on any Obligation, changes the definition of Required Lenders, which permits an assignment by Borrower of its Obligations hereunder, which reduces the required consent of Lenders provided hereunder (other than as provided in Section 4.05 hereof), which increases, decreases or extends the Revolving Credit Commitment or Term Loan Commitment of any Lender or which increases or extends the Letter of Credit Facility or which waives any condition to the making of any Loan shall be effective unless in writing and signed by each of the Lenders; provided, however, the Required Lenders may in their sole discretion waive any Default or Event of Default (other than any Event of Default under Section 10.01(a), (b), (g) or (h)); (ii) which releases Collateral or the obligation of any Guarantor shall be effective unless with the written consent of each of the Lenders; or (iii) which affects the rights, privileges, immunities or indemnities of the Agent or NCMI shall be effective unless in writing and signed by the Agent or NCMI, as the case may be. Notwithstanding any provision of the other Loan Documents to the contrary, as between the Agent and the Lenders, execution by the Agent shall not be deemed conclusive evidence that the Agent has obtained the written consent of the Required Lenders. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances, except as otherwise expressly provided herein. No delay or omission on any Lender's or the Agent's part in exercising any right, remedy or option shall operate as a waiver of such or 99 any other right, remedy or option or of any Default or Event of Default. 12.07 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such fully-executed counterpart. 12.08 Waivers by Borrower. In any litigation in any court with respect to, in connection with, or arising out of this Agreement, the Loans, any of the Notes, any of the other Loan Documents, the Obligations, or any instrument or document delivered pursuant to this Agreement or the other Loan Documents, or the validity, protection, interpretation, collection or enforcement thereof, or any other claim or dispute howsoever arising between the Borrower and the Lenders or the Agent, the Borrower and each Lender and the Agent hereby waive, to the extent permitted by applicable law, trial by jury in connection with any such litigation. 12.09 Termination. The termination of this Agreement shall not affect any rights of the Borrower, the Lenders or the Agent or any obligation of the Borrower, the Lenders or the Agent, arising prior to the effective date of such termination, and the provisions hereof shall continue to be fully operative until all transactions entered into or rights created or obligations incurred prior to such termination have been fully disposed of, concluded or liquidated and the Obligations arising prior to or after such termination have been irrevocably paid in full. The rights granted to the Agent for the benefit of the Lenders hereunder and under the other Loan Documents shall continue in full force and effect, notwithstanding the termination of this Agreement, until all of the Obligations have been paid in full after the termination hereof (other than Obligations in the nature of continuing indemnities or expense reimbursement obligations not yet due and payable) or the Borrower has furnished the Lenders and the Agent with an indemnification satisfactory to the Agent and each Lender with respect thereto. All representations, warranties, covenants, waivers and agreements contained herein shall survive termination hereof until payment in full of the Obligations unless otherwise provided herein. Notwithstanding the foregoing, if after receipt of any payment of all or any part of the Obligations, any Lender is for any reason compelled to surrender such payment to any Person because such payment is determined to be void or voidable as a preference, impermissible setoff, a diversion of trust funds or for any other reason, this Agreement shall continue in full force and the Borrower shall be liable to, and shall indemnify and hold such Lender harmless for, the amount of such payment surrendered until such Lender shall have been finally and irrevocably paid in full. The provisions of the foregoing sentence shall be and remain effective notwithstanding any contrary action which may have been taken by the Lenders in reliance upon such payment, and any such 100 contrary action so taken shall be without prejudice to the Lenders' rights under this Agreement and shall be deemed to have been conditioned upon such payment having become final and irrevocable. 12.10 Governing Law. All documents executed pursuant to the transactions contemplated herein, including, without limitation, this Agreement and each of the Loan Documents shall be deemed to be contracts made under, and for all purposes shall be construed in accordance with, the internal laws and judicial decisions of the State of Florida; provided that this section 12.10 shall not affect the applicability of, and interpretation or construction of appropriate terms and provisions under the Uniform Commercial Code of any jurisdiction which govern the Liens on any of the Collateral. The Borrower hereby submits to the jurisdiction and venue of the state and federal courts of Florida for the purposes of resolving disputes hereunder or for the purposes of collection. 12.11 Indemnification. (a) In consideration of the execution and delivery of this Agreement by the Agent and each Lender and the extension of the Revolving Credit Commitments and the Term Loan Commitments, the Borrower hereby indemnifies, exonerates and holds the Agent, NCMI and each Lender and each of their respective officers, directors, employees and agents (collectively, the "Indemnified Parties") free and harmless from and against any and all actions, causes of action, suits, losses, costs, liabilities and damages, and expenses incurred in connection therewith (irrespective of whether any such Indemnified Party is a party to the action for which indemnification hereunder is sought), including reasonable attorneys' fees and disbursements (collectively, the "Indemnified Liabilities"), incurred by the Indemnified Parties or any of them as a result of, or arising out of, or relating to any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of any Loan or supported by any Letter of Credit, except for any such Indemnified Liabilities arising for the account of a particular Indemnified Party by reason of the bad faith, gross negligence or willful misconduct of, or willful breach of the Loan Documents by, such Indemnified Party or an officer, co-officer, director, co-director, employee, co-employee, agent or co-agent of such Indemnified Party or a transfer or disposition of a Note by an Indemnified Party, and if and to the extent that the foregoing undertaking may be unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. (b) If a claim is to be made by a party entitled to indemnification under this Section 12.11 or Section 8.16 against the indemnifying party, the party entitled to such indemnification shall give written notice to the indemnifying party promptly after the party entitled to indemnification receives actual notice of any claim, action, suit, loss, cost, liability, damage or expense incurred or instituted for which the indemnification is sought. If 101 requested by Borrower in writing, and so long as no Default or Event of Default shall have occurred and be continuing, such indemnitee shall contest the validity, applicability and/or amount of such suit, action, or cause of action to the extent such contest may be conducted in good faith on legally supportable grounds. If any lawsuit or enforcement action is filed against any party entitled to the benefit of indemnity under this Section 12.11, written notice thereof shall be given to the indemnifying party as soon as practicable (and in any event within 15 days after the service of the citation or summons). Notwithstanding the foregoing, the failure so to notify the indemnifying party as provided in this Section 12.11 will relieve the indemnifying party from liability hereunder only if and to the extent that such failure results in the forfeiture by the indemnifying party of substantive rights and defenses. After such notice, if the indemnifying party shall acknowledge in writing to the indemnified party that the indemnifying party shall be obligated under the terms of its indemnity hereunder in connection with such lawsuit or action, then, so long as no Default or Event of Default shall occur and be continuing, the indemnifying party shall be entitled, if it so elects, to take control of the defense and investigation of such lawsuit or action and to employ and engage counsel of its own choice reasonably acceptable to the indemnified party to handle and defend the same, at the indemnifying party's cost, risk and expense, provided, however, that the indemnifying party and its counsel shall proceed with diligence and in good faith with respect thereto. If (i) the engagement of such counsel by the indemnifying party would present a conflict of interest which would prevent such counsel from effectively defending such action on behalf of the indemnified party, (ii) the defendants in, or targets of, any such lawsuit or action include both the indemnified party and indemnifying party, and the indemnified party reasonably concludes that there may be legal defenses available to it that are different from or in addition to those available to the indemnifying party, (iii) the indemnifying party fails to assume the defense of the lawsuit or action or to employ counsel reasonably satisfactory to such indemnified party, in either case in a timely manner, or (iv) a Default or Event of Default shall occur and be continuing, then such indemnified party may employ separate counsel to represent or defend it in any such action or proceeding and the indemnifying party will pay the fees and disbursements of such counsel, provided, however, that each indemnitee shall endeavor, but shall not be obligated, in connection with any matter covered by this Section 12.11 which also involves other indemnities, to use reasonable efforts to avoid unnecessary duplication of efforts by counsel for all indemnities and provided further, that in no event shall the Borrower be liable for the fees and expenses of more than one separate firm for the indemnified parties. The indemnified party shall cooperate (with all out of pocket costs and expenses associated therewith to be paid by the indemnifying party) in all reasonable respects with the indemnifying party and such attorneys in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom; provided, however, that the 102 indemnified party may, at its own cost (except as set forth in, and in accordance with, the foregoing sentence), participate in the investigation, trial and defense of such lawsuit or action and any appeal arising therefrom. If the indemnifying party has acknowledged to the indemnified party its obligation to indemnify hereunder, the indemnified party, so long as no Default or Event of Default shall have occurred and be continuing, shall not settle such lawsuit or enforcement action without the prior written consent of the indemnifying party and, if the indemnifying party has not so acknowledged its obligation, the indemnified party shall not settle such lawsuit or enforcement action within 20 days' prior written notice to the indemnifying party. (c) The provisions of this Section 12.11 shall survive the payment of the Obligations and the termination of this Agreement. 12.12 Headings and References. The headings of the Articles and Sections of this Agreement are inserted for convenience of reference only and are not intended to be a part of, or to affect the meaning or interpretation of this Agreement. Words such as "hereof", "hereunder", "herein" and words of similar import shall refer to this Agreement in its entirety and not to any particular Section or provisions hereof, unless so expressly specified. As used herein, the singular shall include the plural, and the masculine shall include the feminine or a neutral gender, and vice versa, whenever the context requires. 12.13 Severability. If any provision of this Agreement or the other Loan Documents shall be determined to be illegal or invalid as to one or more of the parties hereto, then such provision shall remain in effect with respect to all parties, if any, as to whom such provision is neither illegal nor invalid, and in any event all other provisions hereof shall remain effective and binding on the parties hereto. 12.14 Entire Agreement. This Agreement, together with the other Loan Documents, constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all previous proposals, negotiations, representations, commitments and other communications between or among the parties, both oral and written, with respect thereto. 12.15 Agreement Controls. In the event that any term of any of the Loan Documents other than this Agreement conflicts with any term of this Agreement, the terms and provisions of this Agreement shall control. 12.16 Usury Savings Clause. Notwithstanding any other provision herein, the aggregate interest rate charged under any of the Notes, including all charges or fees in connection therewith deemed in the nature of interest under Florida law, shall not exceed the Highest Lawful Rate (as such term is defined below). If the rate of interest (determined without regard to the preceding 103 sentence) under this Agreement at any time exceeds the Highest Lawful Rate (as defined below), the outstanding amount of the Loans made hereunder shall bear interest at the Highest Lawful Rate until the total amount of interest due hereunder equals the amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect. In addition, if when the Loans made hereunder are repaid in full the total interest due hereunder (taking into account the increase provided for above) is less than the total amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect, then to the extent permitted by law, the Borrower shall pay to the Agent an amount equal to the difference between the amount of interest paid and the amount of interest which would have been paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding the foregoing, it is the intention of the Lenders and the Borrower to conform strictly to any applicable usury laws. Accordingly, if any Lender contracts for, charges, or receives any consideration which constitutes interest in excess of the Highest Lawful Rate, then any such excess shall be cancelled automatically and, if previously paid, shall at such Lender's option be applied to the outstanding amount of the Loans made hereunder or be refunded to the Borrower. As used in this paragraph, the term "Highest Lawful Rate" means the maximum lawful interest rate, if any, that at any time or from time to time may be contracted for, charged, or received under the laws applicable to such Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. 12.17 Confidentiality. Except as provided in Section 8.01(e) hereof, the Lenders shall hold all non-public information obtained pursuant to the requirements of this Agreement in accordance with their reasonable and customary procedures for handling confidential information of this nature but may, in any event, make disclosures reasonably required in connection with the contemplated transfer or assignment of any of the Loans or participations or as required or requested by any legal process; provided that, unless specifically prohibited by applicable law or court order, each Lender shall notify the Borrower of any request under legal process by any governmental agency or representative thereof for disclosure of such information with reasonable promptness after receiving such written request. The covenants in this Section 12.17 shall survive the termination of this Agreement, payment in full of the Obligations and the occurrence of the Revolving Credit Termination Date and the Term Loan Maturity Date. 12.18 Savings Clause. Notwithstanding anything to the contrary contained in this Agreement, in any other Loan Document, or in the ESOP Loan Documents, the Borrower or its Subsidiaries shall not be required, in order to fulfill its obligations hereunder and thereunder, to breach or violate any law, rule, 104 regulation or policy having the force of law of any Governmental Authority, including, without limitation, any such laws, rules, regulations or policies relating to rights of privacy, confidentiality of patient or family-related information or records, or privileged information (collectively, "Governmental Restraints"); provided, however, that in the event that there shall occur any Default or Event of Default by reason of any Governmental Restraint, the Agent and the Lenders shall nevertheless have all rights, privileges and powers available to them under the Loan Documents, at law or in equity upon the occurrence of any such Default or Event of Default, to the same extent as in the case of any such occurrence not arising from a Governmental Restraint. The provisions of this Section 12.18 shall survive the termination of this Agreement, payment in full of the Obligations hereunder and under the ESOP Loan Documents and the occurrence of the Revolving Credit Termination Date and the Term Loan Maturity Date. 12.19 Consents. Whenever pursuant to the terms of the Loan Documents the consent of a party to the Loan Documents shall be required for any other Person to take any action or obtain any right, privilege or other benefit thereunder, the party entitled to give or withhold consent shall respond to any such request for consent duly made hereunder within the time for such response expressly provided therefor in the Loan Documents or, if no such time is so provided, within a reasonable time following receipt thereof; provided that (i) nothing in this section shall impair the effect of any other provision of the Loan Documents expressly providing in certain circumstances that the failure to give consent shall constitute a refusal to consent, (ii) in no event shall the Agent or the Lenders be required to respond to any such request for consent more rapidly than thirty (30) days following the latest date upon which the Agent or any Lender receives such request for consent and all information relating thereto which the Agent or any Lender may request in connection therewith, and (iii) failure of the Agent or any Lender to respond to any request for consent as provided in this Section 12.19 shall not discharge, diminish or constitute a defense to enforcement of the Obligations. 105 IN WITNESS WHEREOF, the parties hereto have caused this instrument to be made, executed and delivered by their duly authorized officers as of the day and year first above written. VITAS HEALTHCARE CORPORATION BY: /s/ Mark W. Ohlendorf --------------------------- Mark W. Ohlendorf, Vice President WITNESS: /s/ Meganne Cusato - ----------------------- /s/ Terry L. Scaggs - ----------------------- 106 WITNESS: NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION as Agent for the Lenders /s/ Meganne Cusato By: /s/ Allison S. Freeland - -------------------- ---------------------------------- Allison S. Freeland Vice President /s/ Terry L. Scaggs - -------------------- WITNESS: NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION /s/ Meganne Cusato By: /s/ Allison S. Freeland - -------------------- -------------------------------------- Allison S. Freeland Vice President /s/ Terry L. Scaggs - -------------------- Lending Office: One NationsBank Plaza, T-17 Charlotte, North Carolina 28255 Wire Transfer Instructions: NationsBank of Florida, National Association Miami, Florida ABA# 063100277 Reference Vitas Healthcare Attention: Specialized Loan Support, Margaret Lydon Account No.: 1366212163 REF. VITAS 107 EX-10.39 15 EXHIBIT 10.39 EXHIBIT 10.39 Amended and Restated Revolving Credit Note $20,000,000.00 Charlotte, North Carolina February 17, 1995 FOR VALUE RECEIVED, VITAS HEALTHCARE CORPORATION, a Delaware corporation having its principal place of business located in Miami, Florida (the "Borrower"), hereby promises to pay to the order of NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION (the "Lender"), in its individual capacity, at the office of NationsBank of Florida, National Association, as agent for the Lender (the "Agent"), located at One Independence Center, 101 North Tryon Street, 15th Floor, Charlotte, North Carolina 28255 (or at such other place or places as the Agent may designate) at the times set forth in the Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement dated as of February 17, l995 among the Borrower, the financial institutions party thereto (collectively, the "Lenders") and the Agent (the "Agreement" - all capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Agreement) in lawful money of the United States of America, in immediately available funds, the principal amount of TWENTY MILLION AND NO/100 DOLLARS ($20,000,000.00) or, if less than such principal amount, the aggregate unpaid principal amount of all Revolving Credit Loans made by the Lender to the Borrower pursuant to the Agreement on the Revolving Credit Termination Date or such earlier date as may be required pursuant to the terms of the Agreement; and to pay interest thereon from the date of each such Revolving Credit Loan, in like money, at said office, on the dates and at the rates provided in Article II of the Agreement. All or any portion of the principal amount of Revolving Credit Loans may be prepaid as provided in the Agreement. If payment of all sums due hereunder is accelerated under the terms of the Agreement or under the terms of the other Loan Documents executed in connection with the Agreement, the then remaining principal amount and accrued but unpaid interest shall bear interest which shall be payable on demand (i) in the case of a LIBOR Loan, until the end of the Interest Period with respect to such LIBOR Loan, at a rate of two percent (2%) above the LIBOR Rate applicable to such LIBOR Loan, and (ii) thereafter, and with respect to Floating Rate Loans, at a rate two percent (2%) per annum in excess of the Floating Rate or the maximum rate permitted under applicable law, if lower, until such principal and interest have been paid in full. Further, in the event of such acceleration, this Revolving Credit Note, and all other indebtedness of the Borrower to the Lenders shall become immediately due and payable, without presentation, demand, protest or notice of any kind, all of which are hereby waived by the Borrower. In the event this Revolving Credit Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to the principal and interest, all costs of collection, including reasonable attorneys' fees, and interest thereon at the rates set forth above. Interest hereunder shall be computed on the basis of a 360 day year for the actual number of days elapsed in the interest period. This Revolving Credit Note is one of the Revolving Credit Notes in the aggregate principal amount of $20,000,000 referred to in the Agreement and is issued pursuant to and entitled to the benefits and security of the Agreement to which reference is hereby made for a more complete statement of the terms and conditions upon which the Revolving Credit Loans evidenced hereby were or are made and are to be repaid. This Revolving Credit Note is subject to certain restrictions on transfer or assignment as provided in the Agreement. The obligations evidenced by this Revolving Credit Note are secured, inter alia, by an Amended and Restated Pledge and Security Agreement of even date with the Agreement from the Borrower to the Agent for the benefit of the Lenders. All Persons bound on this obligation, whether primarily or secondarily liable as principals, sureties, guarantors, endorsers or otherwise, hereby waive to the full extent permitted by law the benefits of all provisions of law for stay or delay of execution or sale of property or the satisfaction of judgment against any of them on account of liability hereon until judgment be obtained and execution issues against any other of them and returned satisfied or until it can be shown that the maker or any other party hereto had no property available for the satisfaction of the debt evidenced by this instrument, or until any other proceedings can be had against any of them, also their right, if any, to require the holder hereof to hold as security for this Revolving Credit Note any collateral deposited by any of said Persons as security. Protest, notice of protest, notice of dishonor, diligence or any other formality are hereby waived by all parties bound hereon. 2 IN WITNESS WHEREOF, the Borrower has caused this Revolving Credit Note to be made, executed and delivered by its duly authorized representative as of the date and year first above written, all pursuant to authority duly granted. VITAS HEALTHCARE CORPORATION WITNESS: /s/ [Signature Illegible] By: /s/ Mark W. Ohlendorf - ------------------------- --------------------------------- Name: Mark W. Ohlendorf /s/ [Signature Illegible] Title: Vice President - ------------------------- 3 ACKNOWLEDGEMENT OF EXECUTION ON BEHALF OF VITAS HEALTHCARE CORPORATION STATE OF NORTH CAROLINA COUNTY OF MECKLENBURG Before me, the undersigned, a Notary Public in and for said County and State on this 13th day of February, 1995, personally appeared Mark W. Ohlendorf, being by me duly sworn says he works at 100 S. Biscayne Boulevard, Miami, Florida, known to be the Vice President of Vitas Healthcare Corporation, (the "Company"), who, being by me duly sworn, says that by authority duly given by, and as the act of the Company, the foregoing and annexed Note dated February 17, 1995, was signed by him as said Vice President on behalf of the Company. Witness my hand and official seal this 13th day of February, 1995. /s/ Sharon Williams ------------------------ Notary Public (SEAL) My Commission Expires: 11-18-98 4 AFFIDAVIT OF ALLISON S. FREELAND The undersigned, being first duly sworn, deposes and says that: 1. She is a Vice President with NationsBank of Florida, National Association and works at 150 S.E. Third Avenue, Miami, Florida 33131. 2. The Promissory Note of Vitas Healthcare Corporation to NationsBank of Florida, National Association (the "Bank") in the principal amount of $20,000,000 dated February 17, 1995 was executed before her and delivered to her on behalf of the Bank in Charlotte, North Carolina on February 17, 1995. This the 17th day of February, 1995. /s/ Allison S. Freeland ------------------------- Allison S. Freeland Vice President Acknowledgement of Execution STATE OF NORTH CAROLINA COUNTY OF MECKLENBURG Before me, the undersigned, a Notary Public in and for said County and State on the 13th day of February, 1995, A.D., personally appeared Allison S. Freeland being and by me duly sworn affixed her signature to the above Affidavit. Witness my hand and official seal this 13th day of February, 1995. /s/ Sharon Williams ------------------------ Notary Public (SEAL) My Commission Expires: 11-18-98 5 EX-10.40 16 EXHIBIT 10.40 EXHIBIT 10.40 Term Note $25,000,000.00 Charlotte, North Carolina February 17, 1995 FOR VALUE RECEIVED, VITAS HEALTHCARE CORPORATION, a Delaware corporation having its principal place of business located in Miami, Florida (the "Borrower"), hereby promises to pay to the order of NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION (the "Lender"), in its individual capacity, at the office of NationsBank of Florida, National Association, as agent for the Lender (the "Agent"), located at One Independence Center, 101 North Tryon Street, 15th Floor, Charlotte, North Carolina 28255 (or at such other place or places as the Agent may designate at the times set forth in the Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement dated as of February 17, 1995 among the Borrower, the financial institutions party thereto (collectively, the "Lenders") and the Agent (the "Agreement" - all capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Agreement) in lawful money of the United States of America, in immediately available funds, the principal amount of TWENTY-FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00), together with interest thereon as herein provided. The principal amount of this Term Note shall be due and payable (a) if the Term Loan Maturity Date shall not be extended pursuant to Section 2.14 of the Agreement, in full on the Term Loan Maturity Date, and (b) if the Term Loan Maturity Date shall be extended pursuant to Section 2.14 of the Agreement, then an amount of principal equal to forty percent (40%) of the then outstanding principal balance hereunder shall be due and payable on September 30, 1997, and the entire remaining outstanding principal balance outstanding hereunder shall be due and payable in full on the Term Loan Maturity Date. In addition, payments or prepayments of all or a portion of the principal amount outstanding hereunder shall be due and payable on such earlier date or dates as otherwise may be required pursuant to the terms of the Agreement. The Borrower further agrees to pay interest on the outstanding principal balance hereunder from time to time from the date hereof in like money, at said office, on the dates and at the rates provided in Article II of the Agreement. All or any portion of the principal amount of the Term Loan evidenced hereby may be prepaid as provided in and subject to the terms of the Agreement. If payment of all sums due hereunder is accelerated under the terms of the Agreement or under the terms of the other Loan Documents executed in connection with the Agreement, the then remaining principal amount and accrued but unpaid interest shall bear interest which shall be payable on demand (i) in the case of a LIBOR Loan, until the end of the Interest Period with respect to such LIBOR Loan, at a rate of two percent (2%) above the LIBOR Rate applicable to such LIBOR Loan, and (ii) thereafter, and with respect to Floating Rate Loans, at a rate two percent (2%) per annum in excess of the Floating Rate or the maximum rate permitted under applicable law, if lower, until such principal and interest have been paid in full. Further, in the event of such acceleration, this Term Note, and all other indebtedness of the Borrower to the Lenders shall become immediately due and payable, without presentation, demand, protest or notice of any kind, all of which are hereby waived by the Borrower. In the event this Term Note is not paid when due at any stated or accelerated maturity, the Borrower agrees to pay, in addition to the principal and interest, all costs of collection, including reasonable attorneys' fees, and interest thereon at the rates set forth above. Interest hereunder shall be computed on the basis of a 360 day year for the actual number of days elapsed in the interest period. This Term Note is one of the Term Notes in the aggregate principal amount of $25,000,000 referred to in the Agreement and is issued pursuant to and entitled to the benefits and security of the Agreement to which reference is hereby made for a more complete statement of the terms and conditions upon which the Loans evidenced hereby were or are made and are to be repaid. This Term Note is subject to certain restrictions on transfer or assignment as provided in the Agreement. The obligations evidenced by this Term Note are secured, inter alia, by an Amended and Restated Pledge and Security Agreement of even date with the Agreement from the Borrower to the Agent for the benefit of the Lenders. All Persons bound on this obligation, whether primarily or secondarily liable as principals, sureties, guarantors, endorsers or otherwise, hereby waive to the full extent permitted by law the benefits of all provisions of law for stay or delay of execution or sale of property or other satisfaction of judgment against any of them on account of liability hereon until judgment be obtained and execution issues against any other of them and returned satisfied or until it can be shown that the maker or any other party hereto had no property available for the satisfaction of the debt evidenced by this instrument, or until any other proceedings can be had against any of them, also their right, if any, to require the holder hereof to hold as security for this Term Note any collateral deposited by any of said Persons as security. Protest, notice of protest, notice of dishonor, diligence or any other formality are hereby waived by all parties bound hereon. 2 IN WITNESS WHEREOF, the Borrower has caused this Term Note to be made, executed and delivered by its duly authorized representative as of the date and year first above written, all pursuant to authority duly granted. VITAS HEALTHCARE CORPORATION WITNESS: /s/ [Illegible] By: /s/ Mark W. Ohlendorf - ------------------------ --------------------------------- Name: Mark W. Ohlendorf /s/ Illegible] Title: Vice President - ------------------------ 3 ACKNOWLEDGEMENT OF EXECUTION ON BEHALF OF VITAS HEALTHCARE CORPORATION STATE OF NORTH CAROLINA COUNTY OF MECKLENBURG Before me, the undersigned, a Notary Public in and for said County and State on this 13th day of February, 1995, personally appeared Mark W. Ohlendorf, being by me duly sworn says he works at 100 S. Biscayne Boulevard, Miami, Florida, known to be the Vice President of Vitas Healthcare Corporation, (the "Company"), who, being by me duly sworn, says that by authority duly given by, and as the act of the Company, the foregoing and annexed Note dated February 17, 1995, was signed by him as said Vice President on behalf of the Company. Witness my hand and official seal this 13th day of February, 1995. /s/ Sharon Williams ------------------------ Notary Public (SEAL) My Commission Expires: 11-18-98 4 AFFIDAVIT OF ALLISON S. FREELAND The undersigned, being first duly sworn, deposes and says that: 1. She is a Vice President with NationsBank of Florida, National Association and works at 150 S.E. Third Avenue, Miami, Florida 33131. 2. The Promissory Note of Vitas Healthcare Corporation to NationsBank of Florida, National Association (the "Bank") in the principal amount of $25,000,000 dated February 17, 1995 was executed before her and delivered to her on behalf of the Bank in Charlotte, North Carolina on February 17, 1995. This the 17th day of February, 1995. /s/ Allison S. Freeland ------------------------- Allison S. Freeland Vice President Acknowledgement of Execution STATE OF NORTH CAROLINA COUNTY OF MECKLENBURG Before me, the undersigned, a Notary Public in and for said County and State on the 13th day of February, 1995, A.D., personally appeared Allison S. Freeland being and by me duly sworn affixed her signature to the above Affidavit. Witness my hand and official seal this 13th day of February, 1995. /s/ Sharon Williams ------------------------ Notary Public (SEAL) My Commission Expires: 11-18-98 5 EX-10.41 17 EXHIBIT 10.41 EXHIBIT 10.41 AMENDED AND RESTATED LC ACCOUNT AGREEMENT THIS AMENDED AND RESTATED LC ACCOUNT AGREEMENT (the "Agreement") dated as of February 17, 1995, is made between VITAS HEALTHCARE CORPORATION, a Delaware corporation (the "Pledgor"), and NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION ("NationsBank"), as Agent (in such capacity herein and together with any successors in such capacity, the "Agent") for the Lenders (the "Lenders") party to the Credit Agreement (as hereinafter defined). RECITALS WHEREAS, Pledgor, NationsBank as lender and NationsBank as agent entered into a Revolving Credit and Reimbursement Agreement dated as of August 11, 1994 (the "Prior Credit Agreement") providing, inter alia, for the issuance of letters of credit for the account of the Pledgor and, in connection therewith, the Pledgor entered into an LC Account Agreement of even date with the Prior Agreement between Pledgor and NationsBank as agent under the Prior Agreement (the "Prior LC Account Agreement"); and WHEREAS, Pledgor, the Lenders and the Agent are entering into an Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement of even date herewith (as the same may be amended, modified or restated from time to time, the "Credit Agreement") amending the Prior Credit Agreement to, inter alia, increase the credit facility made available to Pledgor thereunder and to extend to Pledgor a term loan facility; and WHEREAS, as a condition precedent to the Lenders' obligations to make the Loans or to issue Letters of Credit under the Credit Agreement, Pledgor is required to amend and restate the Prior LC Account Agreement by executing and delivering to the Agent a copy of this Agreement on or before the Effective Time (as hereinafter defined); NOW, THEREFORE, in consideration of the foregoing and the agreements, provisions and covenants contained herein, Pledgor and the Agent hereby agree as follows: Section 1. Capitalized terms used in this Agreement shall have the following meanings: "Collateral" means (a) all funds from time to time on deposit in the LC Account; (b) all Investments and all certificates and instruments from time to time representing or evidencing such Investments; (c) all notes, certificates of deposit, checks and other instruments from time to time hereafter delivered to or otherwise possessed by the Agent for or on behalf of Pledgor in substitution for or in addition to any or all of the Collateral described in clause (a) or (b) above; (d) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Collateral described in clause (a), (b) or (c) above; and (e) to the extent not covered by clauses (a) through (d) above, all proceeds of any or all of the foregoing Collateral. "Effective Time" means the Closing Date as defined in the Credit Agreement. "Investments" means those investments, if any, made by the Agent pursuant to Section 5 hereof. "LC Account" means the cash collateral account established and maintained pursuant to Section 2 hereof. "Secured Obligations" means (i) all obligations of Pledgor now existing or hereafter arising under or in respect of the Credit Agreement or the Notes (including, without limitation, Pledgor's obligations to pay principal and interest and all other charges, fees, expenses, reimbursements, indemnities and other payments related to or in respect of the obligations contained in the Credit Agreement or the Notes) or any of the other Loan Documents; and (ii) without duplication, all obligations of Pledgor now or hereafter existing under or in respect of this Agreement, including, without limitation, with respect to all charges, fees, expenses, reimbursements, indemnities and other payments related to or in respect of the obligations contained in this Agreement. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement. Section 2. LC Account; Cash Collateralization of Letters of Credit. (i) Upon the earlier to occur of (i) the occurrence of an Event of Default which shall not have been waived or (ii) the existence on the Revolving Credit Termination Date of a Letter of Credit having an expiry date later than the Revolving Credit Termination Date, the Agent shall establish and maintain at the offices of NationsBank of North Carolina, National Association at 100 North Tryon Street, Charlotte, North Carolina, in the name of the Agent and under the sole dominion and control of the Agent, a cash collateral account designated as NationsBank/Vitas Healthcare Cash LC Account, (the "LC Account"). Pledgor is delivering to the Agent, substantially simultaneously with the delivery of this Agreement, a duly authorized and executed signature card, with account number left blank, authorizing the opening of the LC Account. Without limiting the provisions of Section 9 hereof, Pledgor hereby constitutes and appoints the Agent as its true and lawful attorney-in-fact to complete such signature card, and to deliver and utilize the same to open and administer the LC Account as herein provided. The appointment in the next 2 preceding sentence is coupled with an interest and shall be irrevocable as long as any Letter of Credit or any Secured Obligations shall remain outstanding or NationsBank remains obligated to issue Letters of Credit. (ii) In the event that an Event of Default has occurred and is continuing and Pledgor is required to pay, to Agent, without further demand, an amount equal to the maximum amount remaining undrawn or unpaid under the Letters of Credit in accordance with Article X of the Credit Agreement, the Agent may (and if required by the Credit Agreement, the Agent shall), upon receipt of any such amounts, exercise the remedies set forth in Section 12 hereof and shall apply the proceeds as provided in the Credit Agreement. In addition, in the event that on the Revolving Credit Termination Date any Letter of Credit shall be outstanding having an expiry date later than the Revolving Credit Termination Date, Pledgor shall without further demand pay to the Agent, on or before the Revolving Credit Termination Date, an amount equal to the maximum amount available to be drawn under each such Letter of Credit. Any such amounts received by the Agent shall be deposited in the LC Account. Upon a drawing under the Letters of Credit in respect of which any amounts described above have been deposited in the LC Account, the Agent shall apply such amounts to reimburse NationsBank for the amount of such drawing. In the event the Letters of Credit are cancelled or expire or in the event of any reduction in the maximum amount available at any time for drawing under such Letters of Credit (the "Maximum Available Amount"), the Agent shall apply the amount then in the LC Account designated to reimburse NationsBank for any drawings under the Letters of Credit less the Maximum Available Amount immediately after such cancellation, expiration or reduction, if any, first, to the cash collateralization of the Letters of Credit if Pledgor has failed to pay all or a portion of the maximum amounts described above and, second, to the payment in full of the outstanding Secured obligations in the manner provided in the Credit Agreement. (iii) Interest and other income received in respect of Investments of any amounts deposited in the LC Account pursuant to clause (ii) of this Section 2 shall be delivered by Agent to Pledgor on the last Business Day of each calendar month or, if earlier, upon cancellation or expiration of or full drawing and full reimbursement to NationsBank by the Pledgor of the Maximum Available Amount for drawing under the Letters of Credit, as the case may be, in respect of which such amounts were so deposited; provided, however, that the Agent shall not deliver to Pledgor any such interest or other income received in respect of Investments of any amounts deposited in the LC Account pursuant to this Section 2 if an Event of Default has occurred and is continuing or there 3 remain outstanding any Secured Obligations which have not been indefeasibly paid in full in cash. (iv) In the event that an Event of Default shall have occurred, at such time as there shall be Collateral on deposit with the Agent credited to the LC Account, all Events of Default shall have been fully and effectively waived, cured or rescinded pursuant to the terms of the Credit Agreement and no Letters of Credit having an expiry date later than the Revolving Credit Termination Date shall be outstanding, then such Collateral credited to the LC Account shall be returned to the Pledgor, except as otherwise required by applicable law. Section 3. Pledge; Security for Secured Obligations. Pledgor hereby pledges to the Agent (for itself and on behalf of the Lenders) a first priority lien and security interest in the Collateral, as collateral security for the prompt payment in full when due, whether at stated maturity, by acceleration or otherwise (including, without limitation, the payment of interest and other amounts which would accrue and become due but for the filing of a petition in bankruptcy or the operation of the automatic stay under Section 362(a) of the Bankruptcy Code), of all Secured Obligations. Section 4. Delivery of Collateral. All certificates or instruments, if any, representing or evidencing the Collateral shall be delivered to and held by the Agent pursuant hereto and shall be in suitable form for transfer by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank, all in form and substance reasonably satisfactory to the Agent. In the event any Collateral is not evidenced by a certificate, a notation, reflecting title in the name of the Agent or the security interest of the Agent, shall be made in the records of the issuer of such Collateral or in such other appropriate records as the Agent may require, all in form and substance reasonably satisfactory to the Agent. The Agent shall have the right, at any time and without notice to the Pledgor, to transfer to or to register in the name of the Agent or any of its nominees any or all of the Collateral. In addition, the Agent shall have the right at any time to exchange certificates or instruments representing or evidencing Collateral for certificates or instruments of smaller or larger denominations to the extent permitted by the agreements governing such certificates or instruments. Section 5. Investing of Amounts in the LC Account; Amounts held by the Agent. Cash held by the Agent in the LC Account shall not be invested or reinvested except as provided in this Section 5. (i) Except as otherwise provided in Section 12 hereof, any funds on deposit in the LC Account may, at the request of Pledgor, be invested by the Agent so long as no Event of Default shall have occurred and be continuing, in readily 4 marketable cash equivalents (including without limitation certificates of deposit of NationsBank); provided that no such investment shall be permitted unless the first priority security interest of the Agent hereunder shall be maintained at all times on terms acceptable to NationsBank. (ii) The Agent is hereby authorized to sell, and shall sell, all or any designated part of the Collateral (A) so long as no Default or Event of Default shall have occurred and be continuing, upon the receipt of appropriate written instructions from an Authorized Representative or (B) in any event if such sale is necessary to permit the Agent to perform its duties hereunder or under the Credit Agreement. The Agent shall have no responsibility for any loss in the value of the Collateral resulting from Investments made pursuant hereto, including without limitation from fluctuations in interest rates. Any interest on securities constituting part of the Collateral and the net proceeds of the sale or payment of any such securities shall be held in the LC Account by the Agent. Section 6. Representations and Warranties. In addition to its representations and warranties made pursuant to the Credit Agreement, Pledgor represents and warrants to the Agent (for itself and as agent on behalf of the Lenders) that Pledgor will be the legal and beneficial owner of the Collateral free and clear of any Lien except for the lien and security interest created by this Agreement. Section 7. Further Assurances. Pledgor agrees that at any time and from time to time, at its expense, it will promptly execute and deliver to the Agent any further instruments and documents, and take any further actions, that may be necessary or that the Agent may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable the Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Section 8. Transfers and Other Liens. Pledgor agrees that it will not (a) sell or otherwise dispose of any of the Collateral or any interest therein, or (b) create or permit to exist any Lien upon or with respect to any of the Collateral, except for the lien and security interest created by this Agreement. Section 9. The Agent Appointed Attorney-in Fact. Pledgor hereby appoints the Agent as its attorney-in-fact, with full authority in the place and stead of Pledgor and in the name of Pledgor or otherwise, from time to time in the Agent's reasonable discretion to take any action and to execute any instrument which the Agent may reasonably deem necessary or advisable to accomplish the purposes of the Agreement, including, without limitation, to receive, endorse and collect all instruments made payable to Pledgor representing any payment, dividend, or other distribution in respect of the Collateral or any part thereof and to give full 5 discharge for the same. In performing its functions and duties under this Agreement, the Agent shall act solely for itself and as the agent of the Lenders and the Agent has not assumed nor shall be deemed to have assumed any obligation towards or relationship of agency or trust with or for Pledgor. Section 10. The Agent May Perform. If Pledgor fails to perform within the prescribed time period any agreement of Pledgor contained herein, or if no time period is prescribed, within three days of request therefor, then after notice to Pledgor, the Agent may itself perform, or cause performance of, such agreement, and the reasonable expenses of the Agent incurred in connection therewith shall be payable by Pledgor under Section 13 hereof. Section 11. Standard of Care; No Responsibility For Certain Matters. In dealing with the Collateral in its possession, the Agent shall exercise the same care which it would exercise in dealing with its own property of a similar nature, but it shall not be responsible for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not the Agent has or is deemed to have knowledge of such matters, (b) taking any steps to preserve rights against any parties with respect to any Collateral (other than steps taken in accordance with the standard of care set forth above to maintain possession of the Collateral), (c) the collection of any proceeds, (d) any loss resulting from Investments made pursuant to Section 5 hereof, or (e) determining (x) the correctness of any statement or calculation made by Pledgor in any written or telex (tested or otherwise) instructions, or (y) whether any deposit in the LC Account is proper. Section 12. Remedies upon Event of Default; Application of Proceeds. If any Event of Default shall have occurred and be continuing: (i) The Agent may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code (the "Code") as in effect in the State of Florida at that time, and the Agent may, without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any exchange or broker's board or at any of the Agent's offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices, and upon such other terms as the Agent may deem commercially reasonable. Pledgor agrees that, to the extent notice of sale shall be required by law, at least ten (10) days' notice to Pledgor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Agent shall not be obligated to make any sale of the Collateral regardless of notice of sale having been given. The Agent may adjourn any public or 6 private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (ii) Subject to the provisions of Section 2(ii) hereof, any cash held by the Agent as Collateral and all cash proceeds received by the Agent in respect of any sale of, collection from, or other realization upon all or part of the Collateral shall be applied (after payment of any amounts payable to the Agent pursuant to Section 13 hereof) by the Agent to pay the Secured Obligations. Any surplus of such cash or cash proceeds held by the Agent and remaining after payment in full of all Secured Obligations shall be paid over to Pledgor or to whomsoever may be lawfully entitled to receive such surplus. Section 13. Expenses. In addition to any payments of expenses of Agent pursuant to the Credit Agreement or the other Loan Documents, Pledgor agrees to pay promptly to the Agent all the reasonable costs and reasonable expenses, including reasonable attorneys fees and expenses, which the Agent may incur in connection with (a) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, (b) the exercise or enforcement of any of the rights of the Agent hereunder, or (c) the failure by Pledgor to perform or observe any of the provisions hereof. Section 14. No Delay's Waiver, etc. No delay or failure on the part of the Agent in exercising, and no course of dealing with respect to, any power or right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise by the Agent of any power or right hereunder preclude other or further exercise thereof or the exercise of any other power or right. The remedies herein provided are to the fullest extent permitted by law cumulative and are not exclusive of any remedies provided by law. Section 15. Amendments, Etc. No amendment, modification, termination or waiver of any provision of this Agreement, or consent to any departure by Pledgor therefrom, shall in any event be effective without the written concurrence of the Agent. Section 16. Notices. Except as otherwise specifically provided herein, all notices which are to be sent to Pledgor or Agent shall be given in accordance with the Credit Agreement. Section 17. Continuing Security Interest; Termination. This Agreement shall create a continuing security interest in the Collateral (subject to the provisions of Section 2(iv)) and shall (a) remain in full force and effect until all Secured Obligations (other than Secured Obligations in the nature of continuing indemnities or expense reimbursement obligations not yet due and payable) shall have been indefeasibly paid in full in cash, the commitments or other obligations of the Agent or any Lender to make 7 any Loan under the Credit Agreement shall have expired and the Letters of Credit shall have expired, (b) be binding upon Pledgor, its successors and assigns, and (c) inure to the benefit of the Agent, the Lenders and their respective successors, transferees and assigns. Without limiting the generality of the foregoing clause (c) and subject to the provisions of the Credit Agreement, any Lender may assign or otherwise transfer any Note held by it to any other person or entity, and such other person or entity shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise. Upon the indefeasible payment in full in cash of the Secured Obligations (other than Secured Obligations in the nature of continuing indemnities or expense reimbursement obligations not yet due and payable) and the cancellation or expiration of the Letters of Credit and termination or expiration of all commitments and other obligations of the Agent and any Lender to make any Loan, Pledgor shall be entitled, subject to the provisions of Section 12 hereof, to the return, upon its request and at its expense, of such of the Collateral as shall not have been sold or otherwise applied pursuant to the terms hereof. Section 18. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF FLORIDA WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS, EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF FLORIDA. UNLESS OTHERWISE DEFINED HEREIN OR IN THE CREDIT AGREEMENT, TERMS DEFINED IN ARTICLE 9 OF THE CODE ARE USED HEREIN AS THEREIN DEFINED. Section 19. CONSENT TO JURISDICTION. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST PLEDGOR WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF FLORIDA AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, PLEDGOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT SUBJECT TO RIGHT OF APPEAL. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE PLEDGOR IN THE COURTS OF ANY OTHER JURISDICTION. Section 20. Successors and Assigns. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party and all covenants, promises, and agreements by or on behalf of Pledgor or by and on behalf of the Agent shall bind and inure to the benefit of the successors and assigns of Pledgor, the Agent and the Lenders. 8 Section 21. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by the different parties on separate counterparts and each such counterpart shall for all purposes be deemed an original, but all such counterparts shall together constitute but one and the same Agreement. Pledgor and the Agent hereby acknowledge receipt of a true, correct, and complete counterpart of this Agreement. Section 22. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such provision and such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Section 23. Headings. The section headings in this Agreement are inserted for convenience of reference and shall not be considered a part of this Agreement or used in its interpretation. Section 24. Agency. Notwithstanding the foregoing references to the Agent, Pledgor acknowledges and agrees that so long as NationsBank shall be the sole Lender under the Credit Agreement, the term "Agent" shall mean NationsBank as Lender. When and if there shall be more than one Lender party to the Credit Agreement, then the term "Agent" shall refer to the Agent under the Credit Agreement pursuant to the provisions of Article XI of the Credit Agreement, to which reference is hereby made. 9 IN WITNESS WHEREOF, Pledgor and the Agent have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. WITNESS: VITAS HEALTHCARE CORPORATION /s/ [Signature Illegible] By: /s/ Mark W. Ohlendorf - ------------------- ----------------------------- Mark W. Ohlendorf /s/ [Signature Illegible] Vice President - ------------------- NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION, as Agent By: /s/ Allison S. Freeland ------------------------------ Allison S. Freeland Vice President 10 EX-10.42 18 EXHIBIT 10.42 EXHIBIT 10.42 AMENDMENT NO. 1 TO AMENDED AND RESTATED REVOLVING CREDIT AND REIMBURSEMENT AGREEMENT THIS AMENDMENT NO. 1 TO AMENDED AND RESTATED REVOLVING CREDIT AND REIMBURSEMENT AGREEMENT (the "Amendment") dated as of June 30, 1995, is made by and among VITAS HEALTHCARE CORPORATION, a Delaware corporation (the "Borrower"), and NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION, a national banking association, (the "Lender") and NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION, as Agent for the Lender; W I T N E S S E T H: WHEREAS, the Lender by an Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement dated as of February 17, 1995 (the "Agreement"), has agreed to make available and has made available to Borrower a Revolving Credit Facility (as defined in the Agreement) of up to $20,000,000; and WHEREAS, the Lender and the Borrower have agreed to amend the Agreement in the manner set forth herein; NOW, THEREFORE, in consideration of the mutual covenants, promises and conditions herein set forth, it is hereby agreed as follows: 1. The term "Agreement" as used herein and in the Agreement, the Guaranties, the Notes and the other Loan Documents (as defined in the "Agreement") shall mean the Agreement as hereby amended and modified. Unless the context otherwise requires, all capitalized terms used herein and in the other Loan Documents without definition shall have the respective meanings provided therefor in the Agreement, as hereby amended. 2. Subject to the conditions set forth in paragraph 5 hereof, the Agreement shall be and hereby is amended, effective as of June 30, 1995, as follows: (a) Section 1.01 is hereby amended by adding a new definition "Consolidated EBITDA" immediately following the definition of "Consolidated Current Liabilities" which definition shall read as follow: "'Consolidated EBITDA' means, with respect to the Borrower and its Subsidiaries for any period of computation thereof, the sum of, without duplication, (i) Consolidated Net Income, plus (ii) Consolidated Interest Expense accrued during such period, plus (iii) amortization accrued during such period, plus (iv) any depreciation during such period, plus (v) all contributions to the ESOP made or accrued by the Borrower during such period, plus (vi) all taxes on income, all determined on a consolidated basis in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis;" (b) The definition of "Consolidated Leverage Ratio" in Section 1.01 is amended in its entirety to read as follows: "'Consolidated Leverage Ratio' means the ratio of Consolidated Funded Indebtedness to Consolidated EBITDA;" (c) The definition of "Consolidated Net Income" in Section 1.01 is amended in its entirety to read as follows: "'Consolidated Net Income' means, for any period of computation thereof, the gross revenues from operations of the Borrower and its Subsidiaries (including payments received by the Borrower and its Subsidiaries of (i) interest income, and (ii) dividends and distributions made in the ordinary course of their businesses by Persons in which investment is permitted pursuant to Section 9.09 and not related to an extraordinary event) less all operating and non-operating expenses of the Borrower and its Subsidiaries including taxes on income (excluding, however, (a) the $6,700,000 of restructuring charges incurred in Fiscal Year 1993, (b) up to $800,000 of expenses incurred in connection with preparation of a proposed public offering of the Borrower's capital stock that was not pursued due to market conditions and (c) up to $6,312,000 of restructuring charges incurred in the fiscal quarter ended June 30, 1995) all determined on a consolidated basis in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis; but excluding as income: (i) net gains on the sale, conversion or other disposition of capital assets, (ii) net gains on the acquisition, retirement, sale or other disposition of capital stock and other securities of the Borrower or its Subsidiaries, (iii) net gains on the collection of proceeds of life insurance policies, (iv) any write-up of any asset, and (v) any other net gain or credit of an extraordinary nature as determined in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis;" (d) The definition of "Revolving Credit Termination Date" in Section 1.01 is amended by deleting the date "September 30, 1996" appearing therein and inserting in lieu thereof the date "October 1, 1996;" (e) Clause (i) of Section 9.01 is amended to read as follows: "(i) $21,000,000 at June 30, 1995, and" 2 (f) Section 9.04 is hereby amended in its entirety so that as amended it shall read as follows: "9.04 Consolidated Leverage Ratio. Permit at any time during the periods set forth below the Consolidated Leverage Ratio to be more than the respective amount set forth opposite each such period: Period Ratio ------ ----- From the Closing Date through 5.00 to 1.00 September 30, 1995 From and including October 1, 4.50 to 1.00 1995 through December 31, 1995 From and including January 1, 1996 through March 31, 1996 4.00 to 1.00 From and including April 1, 1996 3.00 to 1.00 through June 30, 1996 From and including July 1, 1996 2.50 to 1.00 and thereafter 3. Each of the Subsidiaries of the Borrower who has previously delivered a Guaranty to the Agent has joined in the execution of this Amendment Agreement for the purpose of consenting to this Amendment Agreement and affirming its respective guaranty of the Obligations of Borrower arising under the Agreement as amended by this Amendment Agreement. 4. The Borrower hereby represents and warrants to the Agent and the Lender that as of the date hereof the Agreement has been re-examined by the Borrower and: (i) The representations and warranties made by the Borrower therein and in the other Loan Documents (including the Schedules to the Agreement and the other Loan Documents) are true, complete and correct in all material respects on and as of the date hereof, are hereby reaffirmed, and shall survive the execution and delivery of the Amendment Agreement; (ii) The execution, delivery and performance of this Amendment Agreement will not conflict with or result in the breach of any of the provisions of, or cause a default under, the Articles of Incorporation or Bylaws of the Borrower, or any applicable law, rule or regulation, or any judgment, order, writ, injunction or decree of any court, administrative agency or other government instrumentality to which the Borrower or any Subsidiary is subject or any agreement or instrument to which the Borrower or any Subsidiary is a party, the effect of which would have any material adverse effect on 3 the ability of the Borrower or any Guarantor to observe the covenants and agreements contained in the agreement, as amended hereby, or in any other Loan Document or any of the CHC Transaction Documents or to pay the Obligations, and will not result in the creation or imposition of any security interest, lien, charge or encumbrance on any of the assets of the Borrower or any Subsidiary. 5. As conditions to the effectiveness of this Amendment Agreement there shall not have occurred either (i) any Default or Event of Default which shall not have been waived or (ii) any material adverse change in the business, financial condition or operations of the Borrower or any Subsidiary since June 30, 1995. 6. This Amendment Agreement sets forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relative to such subject matter. No promise, condition, representation or warranty, express or implied, not herein set forth shall bind any party hereto, and none of them has relied on any such promise, condition, representation or warranty. Each of the parties hereto acknowledges that, except as in this Amendment Agreement otherwise expressly stated, no representations, warranties or commitments, express or implied, have been made by any party to the other. 7. Except as specifically amended, modified or supplemented by this Amendment Agreement, all of the other documents delivered in connection with the Loans, as heretofore amended, are hereby confirmed and ratified in all respects and shall remain in full force and effect according to their respective terms. 8. Should any stamp or excise tax become payable under the laws of the United States or of any state or any subdivision thereof or municipality therein in respect of the Amendment Agreement, the Borrower shall pay the same (including interest penalties, if any) and shall hold the Bank and the Agent harmless with respect thereto. 9. This Amendment Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. [remainder of page intentionally left blank] 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement to be duly executed by their duly authorized officers, all as of the day and year first above written. VITAS HEALTHCARE CORPORATION WITNESS: /s/ [Signature Illegible] By: /s/ Mark W. Ohlendorf - ------------------------ --------------------------------- Name: Mark W. Ohlendorf /s/ [Signature Illegible] Title: Vice President - ------------------------ 5 NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION, as Agent By: /s/ Allison Freeland ------------------------------- Name: Allison Freeland ----------------------------- Title: Vice President NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION, as Lender By: /s/ Allison Freeland ------------------------------- Name: Allison Freeland ----------------------------- Title: Vice President 6 GUARANTORS: VITAS HEALTHCARE CORPORATION OF FLORIDA By: /s/ Mark W. Ohlendorf ---------------------------- Name: Mark W. Ohlendorf Title: Vice President VITAS HEALTHCARE CORPORATION OF OHIO By: /s/ Mark W. Ohlendorf ---------------------------- Name: Mark W. Ohlendorf Title: Vice President VITAS HEALTHCARE CORPORATION OF PENNSYLVANIA By: /s/ Mark W. Ohlendorf ---------------------------- Name: Mark W. Ohlendorf Title: Vice President VITAS HEALTHCARE CORPORATION OF CALIFORNIA By: /s/ Mark W. Ohlendorf ---------------------------- Name: Mark W. Ohlendorf Title: Vice President 7 EX-10.43 19 EXHIBIT 10.43 EXHIBIT 10.43 AMENDMENT NO. 2 TO AMENDED AND RESTATED REVOLVING CREDIT, TERM LOAN AND REIMBURSEMENT AGREEMENT THIS AMENDMENT NO. 2 TO AMENDED AND RESTATED REVOLVING CREDIT, TERM LOAN AND REIMBURSEMENT AGREEMENT (the "Amendment Agreement") dated March 28, 1996, is made by and among VITAS HEALTHCARE CORPORATION, a Delaware corporation (the "Borrower") , and NATIONSBANK, NATIONAL ASSOCIATION (SOUTH) (successor by merger of NationsBank of Florida, National Association), a national banking association, (the "Lender") and NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), as Agent for the Lender; W I T N E S S E T H: WHEREAS, the Lender by an Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement dated as of February 17, 1995, as amended by Amendment No. 1 dated July 21, 1995 as so amended (the "Agreement"), has agreed to make available and has made available to Borrower a Revolving Credit Facility (as defined in the Agreement) of up to $20,000,000 and a Term Loan (as defined in the Agreement) of $25,000,000; and WHEREAS, the Lender and the Borrower have agreed to amend the Agreement in the manner set forth herein; NOW, THEREFORE, in consideration of the mutual covenants, promises and conditions herein set forth, it is hereby agreed as follows: 1. The term "Agreement" as used herein and in the Agreement, the Guaranties, the Notes and the other Loan Documents (as defined in the "Agreement") shall mean the Agreement as hereby amended and modified. Unless the context otherwise requires, all capitalized terms used herein and in the other Loan Documents without definition shall have the respective meanings provided therefor in the Agreement, as hereby amended. 2. Subject to the conditions set forth in paragraph 5 hereof, the Agreement shall be and hereby is amended, effective as of December 31, 1995, as follows: (a) The definition of "Consolidated Fixed Charge Ratio" appearing in Section 1.01 is amended in its entirety to read as follows: "'Consolidated Fixed Charge Ratio' means, with respect to the Borrower and its Subsidiaries, the ratio of (i) Consolidated EBITDAR minus Capital Expenditures (other than (a) Capital Expenditures of up to $2,300,000 in the aggregate incurred in connection with the operation of the business acquired in the CHC Transaction and (b) Capital Expenditures incurred under Capital Leases) to (ii) Consolidated Fixed Charges; which ratio shall be calculated (x) for each fiscal quarter ending on December 31, 1995, March 31, 1996 and June 30, 1996 based on the annualized operations of the Borrower and its Subsidiaries for the period beginning October 1, 1995 and ending as of the end of each such quarter period, as the case may be, and (y) after June 30, 1996 for the Four-Quarter Period ending on the date of computation." (b) The definition of "Consolidated Interest Coverage Ratio" appearing in Section 1.01 is amended in its entirety to read as follows: "'Consolidated Interest Coverage Ratio' means, with respect to the Borrower and its Subsidiaries, the ratio of (a) Consolidated Net Income plus to the extent deducted in determining Consolidated Net Income (i) taxes based on income accrued during such period, (ii) Consolidated Interest Expense, and (iii) all contributions to the ESOP made or accrued by the Borrower during such period related to the ESOP Debt to (b) Consolidated Interest Expense; which ratio shall be calculated (x) for each fiscal quarter ending on December 31, 1995, March 31, 1996 and June 30, 1996 based on the annualized operations of the Borrower and its Subsidiaries for the period beginning October 1, 1995 and ending as of the end of each such quarter period, as the case may be, and (y) after June 30, 1996 for the Four-Quarter Period ending on the date of computation." (c) The definition of "Consolidated Leverage Ratio" appearing in Section 1.01 is amended in its entirety to read as follows: "'Consolidated Leverage Ratio' means the ratio of Consolidated Funded Indebtedness to Consolidated EBITDA (i) for each fiscal quarter ending on December 31, 1995, March 31, 1996 and June 30, 1996 based on the annualized operations of the Borrower and its Subsidiaries for the period beginning October 1, 1995 and ending as of the end of each such quarter period, as the case may be, and (ii) after June 30, 1996 for the Four-Quarter Period ending on the date of computation." (d) Clause (i) of Section 9.01 is amended in its entirety to read as follows: "***(i) $20,000,000 at December 31, 1995 and ****" (e) Section 9.03 through Section 9.05 are hereby amended in their entirety to read as follows: "9.03 Consolidated Interest Coverage Ratio. Permit at any time during the periods set forth below the 2 Consolidated Interest Coverage Ratio to be less than the respective amount set forth opposite each such period: Period Ratio ------ ----- October 1, 1995 through 1.50 to 1.00 December 31, 1995 January 1, 1996 through 1.75 to 1.00 March 31, 1996 April 1, 1996 through 1.75 to 1.00 June 30, 1996 July 1, 1996 and thereafter 2.00 to 1.00 9.04 Consolidated Leverage Ratio. Permit at any time during the periods set forth below the Consolidated Leverage Ratio to be more than the respective amount set forth opposite each such period: Period Ratio ------ ----- October 1, 1995 through 3.75 to 1.00 December 31, 1995 January 1, 1996 through 3.75 to 1.00 March 31, 1996 April 1, 1996 through 3.50 to 1.00 June 30, 1996 July 1, 1996 and thereafter 3.00 to 1.00 9.05 Consolidated Fixed Charge Ratio. Permit at any time during the respective periods set forth below the Consolidated Fixed Charge Ratio to be less than the respective amount set forth opposite such period: Period Ratio ------ ----- October 1, 1995 through 1.00 to 1.00 December 31, 1995 January 1, 1996 through 1.00 to 1.00 March 31, 1996 April 1, 1996 through 1.10 to 1.00 June 30, 1996 July 1, 1996 and thereafter 1.10 to 1.00 3. Each of the Subsidiaries of the Borrower who has previously delivered a Guaranty to the Agent has joined in the execution of this Amendment Agreement for the purpose of consenting to this Amendment Agreement and affirming its respective guaranty of the Obligations of Borrower arising under the Agreement as amended by this Amendment Agreement. 4. The Borrower hereby represents and warrants to the Agent and the Lender that as of the date hereof the Agreement has been re-examined by the Borrower and: 3 (i) The representations and warranties made by the Borrower therein and in the other Loan Documents (including the Schedules to the Agreement and the other Loan Documents) are true, complete and correct in all material respects on and as of the date hereof, are hereby reaffirmed, and shall survive the execution and delivery of this Amendment Agreement; (ii) The execution, delivery and performance of this Amendment Agreement will not conflict with or result in the breach of any of the provisions of, or cause a default under, the Articles of Incorporation or Bylaws of the Borrower, or any applicable law, rule or regulation, or any judgment, order, writ, injunction or decree of any court, administrative agency or other government instrumentality to which the Borrower or any Subsidiary is subject or any agreement or instrument to which the Borrower or any Subsidiary is a party, the effect of which would have any material adverse effect on the ability of the Borrower or any Guarantor to observe the covenants and agreements contained in the Agreement, as amended hereby, or in any other Loan Document or any of the CHC Transaction Documents or to pay the Obligations, and will not result in the creation or imposition of any security interest, lien, charge or encumbrance on any of the assets of the Borrower or any Subsidiary. 5. As conditions to the effectiveness of this Amendment Agreement there shall not have occurred either (i) any Default or Event of Default which shall not have been waived or (ii) any material adverse change in the business, financial condition or operations of the Borrower or any Subsidiary since September 30, 1996. 6. This Amendment Agreement sets forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relative to such subject matter. No promise, condition, representation or warranty, express or implied, not herein set forth shall bind any party hereto, and none of them has relied on any such promise, condition, representation or warranty. Each of the parties hereto acknowledges that, except as in this Amendment Agreement otherwise expressly stated, no representations, warranties or commitments, express or implied, have been made by any party to the other. 7. Except as specifically amended, modified or supplemented by this Amendment Agreement, all of the other documents delivered in connection with the Loans, as heretofore amended, are hereby confirmed and ratified in all respects and shall remain in full force and effect according to their respective terms. 8. Should any stamp or excise tax become payable under the laws of the United States or of any state or any subdivision 4 thereof or municipality therein in respect of this Amendment Agreement, the Borrower shall pay the same (including interest penalties, if any) and shall hold the Bank and the Agent harmless with respect thereto. 9. This Amendment Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. [remainder of page intentionally left blank] 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement to be duly executed by their duly authorized officers, all as of the day and year first above written. VITAS HEALTHCARE CORPORATION WITNESS: /s/ [Signature Illegible] By: /s/ Mark W. Ohlendorf - ------------------------ --------------------------------- Name: Mark W. Ohlendorf /s/ [Signature Illegible] Title: Vice President - ------------------------ 6 NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), as Agent By: /s/ Sugeet Manchanda ------------------------------- Name: Sugeet Manchanda ----------------------------- Title: Vice President NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), as Lender By: /s/ Sugeet Manchanda ------------------------------- Name: Sugeet Manchanda ----------------------------- Title: Vice President 7 GUARANTORS: VITAS HEALTHCARE CORPORATION OF FLORIDA By: /s/ Mark W. Ohlendorf ---------------------------- Name: Mark W. Ohlendorf Title: Vice President VITAS HEALTHCARE CORPORATION OF OHIO By: /s/ Mark W. Ohlendorf ---------------------------- Name: Mark W. Ohlendorf Title: Vice President VITAS HEALTHCARE CORPORATION OF PENNSYLVANIA By: /s/ Mark W. Ohlendorf ---------------------------- Name: Mark W. Ohlendorf Title: Vice President VITAS HEALTHCARE CORPORATION OF CALIFORNIA By: /s/ Mark W. Ohlendorf ---------------------------- Name: Mark W. Ohlendorf Title: Vice President 8 EX-10.44 20 EXHIBIT 10.44 EXHIBIT 10.44 AMENDMENT NO. 3 TO AMENDED AND RESTATED REVOLVING CREDIT, TERM LOAN AND REIMBURSEMENT AGREEMENT THIS AMENDMENT NO. 3 TO AMENDED AND RESTATED REVOLVING CREDIT, TERM LOAN AND REIMBURSEMENT AGREEMENT (the "Amendment") dated September 30, 1996, is made by and among VITAS HEALTHCARE CORPORATION, a Delaware corporation (the "Borrower") , and NATIONSBANK, NATIONAL ASSOCIATION (SOUTH) (successor by merger of NationsBank of Florida, National Association) , a national banking association (the "Lender") and NATIONSBANK, NATIONAL ASSOCIATION (SOUTH) , as Agent for the Lender; W I T N E S S E T H: WHEREAS, the Lender, by an Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement dated as of February 17, 1995, as amended by Amendment No. 1 dated as of June 30, 1995, by Amendment No. 2 dated March 28, 1996, and by a letter agreement dated August 5, 1996 (the "Agreement") , has agreed to make available and has made available to Borrower a Revolving Credit Facility (as defined in the Agreement) of up to $20,000,000 and a Term Loan (as defined in the Agreement) of $25,000,000; and WHEREAS, the Borrower has requested that the Revolving Credit Termination Date and the Term Loan Maturity Date (each as defined in the Agreement) provided for in the Agreement be extended as herein specified; and WHEREAS, the Lender and the Borrower have agreed to amend the Agreement in the manner set forth herein; NOW, THEREFORE, in consideration of the mutual covenants, promises and conditions herein set forth, it is hereby agreed as follows: 1. The term "Agreement" as used herein and in the Agreement, the Guaranties, the Notes and the other Loan Documents (each as defined in the Agreement) shall mean the Agreement as hereby amended and modified. Unless the context otherwise requires, all capitalized terms used herein and in the other Loan Documents without definition shall have the respective meanings provided therefor in the Agreement. 2. Subject to and upon satisfaction of the conditions set forth in paragraph 6 hereof, the Agreement shall be and hereby is amended as follows: (a) Two new definitions are added to Section 1.01 which shall read as follows: "'Apria Acquisition Agreement' means that certain Agreement and Plan of Merger among Apria Healthcare Group Inc., Apria Number Two, Inc. and the Borrower dated as of June 28, 1996, as amended, a copy of which Apria Acquisition Agreement has been delivered to the Agent and the Lender;" "'Apria Transaction' means the acquisition of the Borrower as provided for in the Apria Acquisition Agreement;" (b) The definitions of each of "Revolving Credit Termination Date" and "Term Loan Maturity Date" are amended by deleting clause (i) and substituting in lieu thereof the following clause (i): "(i) November 15, 1996 or such earlier date upon which the Apria Transaction shall be consummated, or cancelled or otherwise terminated,"; (c) Sections 9.02, 9.03, 9.04 and 9.05 are amended by deleting the phrase "Permit at any time" in each of such Sections and substituting in lieu thereof the phrase "Permit as at the end of any fiscal quarter of the Borrower"; and (d) Section 8.l2 is hereby amended by inserting the following proviso at the end thereof: "; provided, however, that with respect to any Default or Event of Default under Sections 9.02 through 9.05, in no event shall any such notification be required to be made prior to the earlier to occur of (i) delivery of any financial report pursuant to Section 8.01(b) hereof or (ii) the day upon which the Apria Transaction shall be terminated or cancelled." 3. Each of the Subsidiaries of the Borrower who has previously delivered a Guaranty to the Agent has joined in the execution of this Amendment for the purposes of consenting to this amendment and affirming its guaranty of the Obligations of Borrower arising under the Agreement and the other Loan Documents as amended by this Amendment. 4. The Borrower hereby represents and warrants to the Agent and the Lender that as of the date hereof the Agreement has been re-examined by the Borrower and: (i) The representations and warranties made by the Borrower therein and in the other Loan Documents (including the Schedules to the Agreement and the other Loan Documents) as modified to give effect to the information contained in the disclosure schedules delivered by the Borrower (the "Vitas Disclosure Schedules") in connection with its execution and delivery of the Apria Acquisition Agreement, are true, complete and correct in all material respects on and as of the 2 date hereof, and shall survive the execution and delivery of this Amendment; (ii) The execution, delivery and performance of this Amendment will not conflict with or result in the breach of any of the provisions of, or cause a default under, the Articles of Incorporation or Bylaws of the Borrower, or any applicable law, rule or regulation, or any judgment, order, writ, injunction or decree of any court, administrative agency or other government instrumentality to which the Borrower or any Subsidiary is subject or any agreement or instrument to which the Borrower or any Subsidiary is a party, the effect of which would have any material adverse effect on the ability of the Borrower or any Guarantor to observe the covenants and agreements contained in the Agreement or in any other Loan Document or any of the CHC Transaction Documents or to pay the Obligations, and will not result in the creation or imposition of any security interest, lien, charge or encumbrance on any of the assets of the Borrower or any Subsidiary. 5. The Borrower acknowledges that consummation of the Apria Transaction would constitute a violation of Section 9.12 of the Agreement and Section 5.12 of the ESOP Guaranty, and the Borrower agrees that it shall cause the ESOP Debt and all interest accrued thereon and other liabilities owing to the Lenders (as defined in the ESOP Guaranty) and the Agent (as defined in the ESOP Guaranty) arising under or in connection with the ESOP Loan Documents to be paid and satisfied in full substantially simultaneously with the consummation of the Apria Transaction. 6. As conditions to the effectiveness of this Amendment Agreement: A. the Borrower shall have delivered to the Agent: (a) duly executed counterparts of this Amendment; and (b) the Vitas Disclosure Schedules and such other documents, certifications and opinions as the Agent may reasonably request; and B. there shall not have occurred either (i) any Default or Event of Default which shall not have been waived or (ii) any material adverse change in the business, financial condition or operations of the Borrower or any Subsidiary since June 30, 1900, except as disclosed in the Vitas Disclosure Schedules. 7. This Amendment sets forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relative to such subject matter. No promise, condi- 3 tion, representation or warranty, express or implied, not herein set forth shall bind any party hereto, and none of them has relied on any such promise, condition, representation or warranty. Each of the parties hereto acknowledges that, except as in this Amendment otherwise expressly stated, no representations, warranties or commitments, express or implied, have been made by any party to the other. 8. Except as specifically amended, modified or supplemented by this Amendment, all of the other documents delivered in connection with the Loans, as heretofore amended, shall remain in full force and effect according to their respective terms. 9. Should any stamp or excise tax become payable under the laws of the United States or of any state or any subdivision thereof or municipality therein in respect of this Amendment, the Borrower shall pay the same (including interest penalties, if any) and shall hold the Lender and the Agent harmless with respect thereto. 10. This Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. [remainder of page intentionally left blank] 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their duly authorized officers, all as of the day and year first above written. VITAS HEALTHCARE CORPORATION WITNESS: /s/ [Signature Illegible] By: /s/ Hugh A. Westbrook - ------------------------ --------------------------------- Name: Hugh A. Westbrook /s/ [Signature Illegible] Title: Chairman and Chief Executive Officer - ------------------------ 5 NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), as Agent By: /s/ Allison S. Freeland --------------------------------- Name: Allison S. Freeland Title: Vice President NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), as Lender By: /s/ Allison S. Freeland --------------------------------- Name: Allison S. Freeland Title: Vice President 6 GUARANTORS: VITAS HEALTHCARE CORPORATION OF FLORIDA By: /s/ Hugh A. Westbrook ---------------------------- Name: Hugh A. Westbrook Title: Chairman, President and Chief Executive Officer VITAS HEALTHCARE CORPORATION OF OHIO By: /s/ Hugh A. Westbrook ---------------------------- Name: Hugh A. Westbrook Title: Chairman, President and Chief Executive Officer VITAS HEALTHCARE CORPORATION OF PENNSYLVANIA By: /s/ Hugh A. Westbrook ---------------------------- Name: Hugh A. Westbrook Title: Chairman, President and Chief Executive Officer VITAS HEALTHCARE CORPORATION OF CALIFORNIA By: /s/ Hugh A. Westbrook ---------------------------- Name: Hugh A. Westbrook Title: Chairman, President and Chief Executive Officer VITAS HEALTHCARE CORPORATION OF CENTRAL FLORIDA By: /s/ Hugh A. Westbrook ---------------------------- Name: Hugh A. Westbrook Title: Chairman, President and Chief Executive Officer 7 EX-10.45 21 EXHIBIT 10.45 EXHIBIT 10.45 AMENDMENT NO. 4 TO AMENDED AND RESTATED REVOLVING CREDIT, TERM LOAN AND REIMBURSEMENT AGREEMENT AND RELATED DOCUMENTS THIS AMENDMENT NO. 4 TO AMENDED AND RESTATED REVOLVING CREDIT, TERM LOAN AND REIMBURSEMENT AGREEMENT AND RELATED DOCUMENTS (the "Amendment") dated as of November 1, 1996, is made by and among VITAS HEALTHCARE CORPORATION, a Delaware corporation (the "Borrower"), and NATIONSBANK, NATIONAL ASSOCIATION (SOUTH) (successor by merger of NationsBank of Florida, National Association), a national banking association (the "Lender"), and NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), as Agent for the Lender; W I T N E S S E T H: WHEREAS, the Lender, by an Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement dated as of February 17, 1995, as amended by Amendment No. 1 dated as of June 30, 1995, by Amendment No. 2 dated March 28, 1996, by a letter agreement dated August 5, 1996, and by Amendment No. 3 dated September 30, 1996 (the "Agreement"), has agreed to make available and has made available to Borrower a Revolving Credit Facility (as defined in the Agreement) of up to $20,000,000 and a Term Loan (as defined in the Agreement) of $25,000,000; and WHEREAS, in connection with the loan by the Lender to the ESOP (as defined in the Agreement), the Borrower executed and delivered to the Lender the ESOP Guaranty (as defined in the Agreement); and WHEREAS, each of the Revolving Credit Termination Date and the Term Loan Maturity Date (each as defined in the Agreement) has occurred and the Apria Transaction has been terminated, and the Borrower has requested that the Revolving Credit Termination Date and the Term Loan Maturity Date provided for in the Agreement be extended as herein specified; and WHEREAS, the Lender and the Borrower have agreed to amend the Agreement in the manner set forth herein; NOW, THEREFORE, in consideration of the mutual covenants, promises and conditions herein set forth, it is hereby agreed as follows: 1. The term "Agreement" as used herein and in the Agreement, the Guaranties, the Notes and the other Loan Documents (each as defined in the Agreement), and the term "Revolving Credit Agreement" as used in the ESOP Guaranty and the other ESOP Loan Documents (as defined in the Agreement) shall mean the Agreement as heretofore and hereby amended and modified. Unless the context otherwise requires, all capitalized terms used herein and in the other Loan Documents without definition shall have the respective meanings provided therefor in the Agreement. 2. Subject to and upon satisfaction of the conditions set forth in paragraph 6 hereof, the Agreement shall be and hereby is amended as follows: (a) The definitions of each of "Revolving Credit Termination Date" and "Term Loan Maturity Date" are amended by deleting clause (i) and substituting in lieu thereof the following clause (i): "(i) February 15, 1997,"; (b) The definition of "Total Revolving Credit Commitment" is amended by deleting the amount "$20,000,000" and substituting in lieu thereof the amount "$11,600,000"; (c) Section 8.01(b) is amended by (x) deleting from lines 2 and 3 thereof the phrase "other than the last month of each Fiscal Year", (y) deleting the parenthetical from clause (iii) thereof; and (z) substituting the word "month" for the word "quarter" in the next to last line thereof; (d) Section 9.01 is amended to read as follows: "9.01 Consolidated Shareholders' Equity. Permit Consolidated Shareholders' Equity to be less than $10,000,000 as at the last day of each calendar month."; (e) The provisions of Sections 9.02, 9.03, 9.04 and 9.05 (together with the related requirements in Sections 8.01(a)(ii) and 8.0l(b)(iii) to furnish compliance calculations and certifications with respect to such Sections) are suspended to and including the Revolving Credit Termination Date; (f) The text of clause (iv) of Section 9.06 is deleted in its entirety and the reference "[reserved]" is substituted in lieu thereof; (g) The text of each of clauses (iv), (v) and (vi) of Section 9.09 is deleted in its entirety and the reference "[reserved]" is substituted in lieu thereof; and (h) Section 9.10 is amended by (w) inserting in the text of clause (i) after the phrase "Preferred Stock", the phrase "after February 15, 1997"; (x) inserting in the text of clause (ii) after the phrase "Preferred Stock Redemptions" the phrase "after February 15, 1997"; (y) inserting in the text of clause (iii) after the phrase "Qualified Equity Securities", the phrase "after February 15, 1997"; and (z) inserting a "." after the word "hereunder" in the proviso of such section and deleting all text after the word "hereunder" in such proviso. 3. Subject to and upon satisfaction of the conditions set forth in paragraph 6 hereof; the ESOP Guaranty shall be and hereby is amended as follows: 2 (a) Section 4.01(b) is amended by (x) deleting from lines 2 and 3 thereof the phrase "other than the last month of each fiscal year", (y) deleting the first parenthetical from clause (ii) thereof; and (z) substituting the word "month" for the word "quarter" in clause (iii) thereof; (b) Section 5.01 is amended to read as follows: "5.01 Consolidated Shareholders' Equity. Permit Consolidated Shareholders' Equity to be less than $10,000,000 at any time." (c) The provisions of Sections 5.02, 5.03, 5.04 and 5.05 (together with the related requirements in Sections 4.01(a)(ii) and 4.01(b)(ii) to furnish compliance calculations and certifications with respect to such Sections) are suspended to and including the Revolving Credit Termination Date (as defined in the Revolving Credit Agreement); (d) The text of clause (iv) of Section 5.06 is deleted in its entirety and the reference "[reserved]" is substituted in lieu thereof; (e) The text of each of clauses (iv), (v) and (vi) of Section 5.09 is deleted in its entirety and the reference "[reserved]" is substituted in lieu thereof; and (f) Section 5.10 is amended by (w) inserting in the text of clause (i) after the phrase "Preferred Stock", the phrase "after February 15, 1997"; (x) inserting in the text of clause (ii) after the phrase "Preferred Stock Redemptions" the phrase "after February 15, 1997"; (y) inserting in the text of clause (iii) after the phrase "Qualified Equity Securities", the phrase "after February 15, 1997"; and (z) inserting a"." after the word "hereunder" in the proviso of such section and deleting all text after the word "hereunder" in such proviso. 4. Each of the Subsidiaries of the Borrower who has previously delivered a Guaranty to the Agent has joined in the execution of this Amendment for the purposes of consenting to this Amendment and affirming its guaranty and of the Obligations of Borrower arising under the Agreement and the other Loan Documents as amended by this Amendment, and of its other undertakings and obligations under each of the other Loan Documents and ESOP Loan Documents to which it is a signatory. 5. The Borrower hereby represents and warrants to the Agent and the Lender that as of the date hereof the Agreement has been re-examined by the Borrower and: (i) The representations and warranties made by the Borrower therein and in the other Loan Documents (including the Schedules to the Agreement and the other Loan Documents) as modified to give effect to the information contained in the disclosure schedules delivered by the Borrower (the "Vitas Disclosure Schedules") in connection with its execution and delivery of the Apria Acquisition Agreement and the financial and other information previously provided to the Agent and the Lender by the Borrower in writing (the "Vitas 3 Information"), are true, complete and correct in all material respects on and as of the date hereof, and shall survive the execution and delivery of this Amendment; (ii) The execution, delivery and performance of this Amendment will not conflict with or result in the breach of any of the provisions of; or cause a default under, the Articles of Incorporation or Bylaws of the Borrower, or any applicable law, rule or regulation, or any judgment, order, writ, injunction or decree of any court, administrative agency or other government instrumentality to which the Borrower or any Subsidiary is subject or any agreement or instrument to which the Borrower or any Subsidiary is a party, the effect of which would have any material adverse effect on the ability of the Borrower or any Guarantor to observe the covenants and agreements contained in the Agreement or in any other Loan Document or any of the CHC Transaction Documents or to pay the Obligations, and will not result in the creation or imposition of any security interest, lien, charge or encumbrance on any of the assets of the Borrower or any Subsidiary. 6. As conditions to the effectiveness of this Amendment Agreement: A. the Borrower shall have delivered to the Agent: (a) counterparts of this Amendment duly executed by the Borrower and each of the Guarantors; (b) a copy of a Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Vitas Healthcare Corporation providing for a new redemption schedule for the 9% Cumulative Non-Convertible Preferred Stock of Borrower; (c) such other documents and certifications as the Agent or the Lender may reasonably request; (d) $4,000,000 (which may include funds received in connection with the termination of the Apria Transaction) to be applied to the reduction of the outstanding principal amount of the Revolving Credit Loans; and (e) all accrued and unpaid interest previously billed by the Agent and not heretofore paid. B. there shall not have occurred either (i) any Default or Event of Default which shall not have been waived or (ii) any material adverse change in the business, financial condition or operations of the Borrower or any Subsidiary since September 30, 1996, except as disclosed in the Vitas Disclosure Schedules, the Vitas Information and other than the termination of the Apria Transaction. 7. This Amendment sets forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements 4 among the parties relative to such subject matter. No promise, condition, representation or warranty, express or implied, not herein set forth shall bind any party hereto, and none of them has relied on any such promise, condition, representation or warranty. Each of the parties hereto acknowledges that, except as in this Amendment otherwise expressly stated, no representations, warranties or commitments, express or implied, have been made by any party to the other. 8. Except as specifically amended, modified or supplemented by this Amendment, all of the other documents delivered in connection with the Loans, as heretofore amended, shall remain in full force and effect according to their respective terms. 9. Should any stamp or excise tax become payable under the laws of the United States or of any state or any subdivision thereof or municipality therein in respect of this Amendment, the Borrower shall pay the same (including interest penalties, if any) and shall hold the Lender and the Agent harmless with respect thereto. 10. This Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. [remainder of page intentionally left blank] 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their duly authorized officers, all as of the day and year first above written. VITAS HEALTHCARE CORPORATION WITNESS: /s/ [Signature Illegible] By: /s/ Mark W. Ohlendorf - ------------------------ --------------------------------- Name: Mark W. Ohlendorf /s/ [Signature Illegible] Title: Vice President, Chief Financial - ------------------------ Officer and Treasurer 6 NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION (SOUTH), as Agent By: /s/ Michael Sylvester ------------------------------- Name: Michael B. Sylvester ----------------------------- Title: Officer ----------------------------- NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION (SOUTH), as Lender By: /s/ Michael Sylvester ------------------------------- Name: Michael B. Sylvester ----------------------------- Title: Officer ----------------------------- 7 GUARANTORS: VITAS HEALTHCARE CORPORATION OF FLORIDA By: /s/ Mark W. Ohlendorf ---------------------------- Name: Mark W. Ohlendorf Title: VP VITAS HEALTHCARE CORPORATION OF OHIO By: /s/ Mark W. Ohlendorf ---------------------------- Name: Mark W. Ohlendorf Title: VP VITAS HEALTHCARE CORPORATION OF PENNSYLVANIA By: /s/ Mark W. Ohlendorf ---------------------------- Name: Mark W. Ohlendorf Title: VP VITAS HEALTHCARE CORPORATION OF CALIFORNIA By: /s/ Mark W. Ohlendorf ---------------------------- Name: Mark W. Ohlendorf Title: VP VITAS HEALTHCARE CORPORATION OF CENTRAL FLORIDA By: /s/ Mark W. Ohlendorf ---------------------------- Name: Mark W. Ohlendorf Title: VP 8 EX-10.46 22 EXHIBIT 10.46 EXHIBIT 10.46 AMENDMENT NO. 5 TO AMENDED AND RESTATED REVOLVING CREDIT, TERM LOAN AND REIMBURSEMENT AGREEMENT AND RELATED DOCUMENTS THIS AMENDMENT NO. 5 TO AMENDED AND RESTATED REVOLVING CREDIT, TERM LOAN AND REIMBURSEMENT AGREEMENT AND RELATED DOCUMENTS (the "Amendment") dated as of February 15, 1997, is made by and among VITAS HEALTHCARE CORPORATION, a Delaware Corporation (the "Borrower"), and NATIONSBANK, NATIONAL ASSOCIATION (SOUTH) (successor by merger of NationsBank of Florida, National Association), a national banking association (the "Lender"), and NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), as Agent for the Lender; W I T N E S S E T H: WHEREAS, the Lender, by an Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement dated as of February, 17, 1995, as amended by Amendment No. 1 dated as of June 30, 1995, by Amendment No. 2 dated March 28, 1996, by a letter agreement dated August 5, 1996, by Amendment No. 3 dated September 30, 1996 and by Amendment No. 4 dated as of November 1, 1996 (the "Agreement"), has agreed to make available and has made available to Borrower a Revolving Credit Facility (as defined in the Agreement) of up to $11,600,000 and a Term Loan (as defined in the Agreement) of $25,000,000; and WHEREAS, in connection with the loan by the Lender to the ESOP (as defined in the Agreement), the Borrower executed and delivered to the Lender the ESOP Guaranty (as defined in the Agreement); and WHEREAS, the Borrower has requested that the Revolving Credit Termination Date and the Term Loan Maturity Date provided for in the Agreement be extended as herein specified; and WHEREAS, the Lender is willing to extend the maturity dates on a short-term basis so long as certain payments to holders of preferred stock are deferred and certain other provisions of the Agreement are further amended; and WHEREAS, the Lender and the Borrower have agreed to amend the Agreement in the manner set forth herein; NOW, THEREFORE, in consideration of the mutual covenants, promises and conditions herein set forth, it is hereby agreed as follows: 1. The term "Agreement" as used herein and in the Agreement, the Guaranties, the Notes and the other Loan Documents (each as defined in the Agreement), and the term "Revolving Credit Agreement" as used in the ESOP Guaranty and the other ESOP Loan Documents (as defined in the Agreement) shall mean the Agreement as heretofore and hereby amended and modified. Unless the context otherwise requires, all capitalized terms used herein and in the other Loan Documents without definition shall have the respective meanings provided therefor in the Agreement. 2. Subject to and upon satisfaction of the conditions set forth in paragraph 6 hereof, the Agreement shall be and hereby is amended as follows: (a) The definitions of each of "Revolving Credit Termination Date" and "Term Loan Maturity Date" are amended by deleting clause (i) and substituting in lieu thereof the following clause (i): "(i) March 24, 1997,"; (b) The definition of "Total Revolving Credit Commitment" is amended by deleting the amount "$11,600,000" and substituting in lieu thereof the amount "$8,850,000; and (c) Section 9.10 is amended by (w) inserting in the text of clause (i) after the phrase "Preferred Stock", the phrase "after March 31, 1997"; (x) inserting in the text of clause (ii) after the phrase "Preferred Stock Redemptions" the phrase "after March 31, 1997"; and (y) inserting in the text of clause (iii) after the phrase "Qualified Equity Securities", the phrase "after March 31, 1997". 3. Subject to and upon satisfaction of the conditions set forth in paragraph 6 hereof, Section 5.10 of the ESOP Guaranty shall be and hereby is amended by (w) inserting in the text of clause (i) after the phrase "Preferred Stock", the phrase "after March 31, 1997"; (x) inserting in the text of clause (ii) after the phrase "Preferred Stock Redemptions" the phrase "after March 31,1997"; and (y) inserting in the text of clause (iii) after the phrase "Qualified Equity Securities", the phrase "after March 31, 1997". 4. Each of the Subsidiaries of the Borrower who has previously delivered a Guaranty to the Agent has joined in the execution of this Amendment for the purposes of consenting to this Amendment and affirming its guaranty and of the Obligations of Borrower arising under the Agreement and the other Loan Documents as amended by this Amendment, and of its other undertakings and obligations under each of the other Loan Documents and ESOP Loan Documents to which it is a signatory. 5. The Borrower hereby represents and warrants to the Agent and the Lender that as of the date hereof the Agreement has been re-examined by the Borrower and: (i) The representations and warranties made by the Borrower therein and in the other Loan Documents (including the Schedules to the Agreement and the other Loan Documents) as modified to give effect to the information contained in the disclosure schedules delivered by the Borrower (the "Vitas Disclosure Schedules") in connection with its execution and delivery of the Apria Acquisition Agreement and the financial and other information 2 previously provided to the Agent and the Lender by the Borrower in writing (the "Vitas Information"), are true, complete and correct in all material respects on and as of the date hereof, and shall survive the execution and delivery of this Amendment; (ii) The execution, delivery and performance of this Amendment will not conflict with or result in the breach of any of the provisions of, or cause a default under, the Articles of Incorporation or Bylaws of the Borrower, or any applicable law, rule or regulation, or any judgment, order, writ, injunction or decree of any court, administrative agency or other government instrumentality, to which the Borrower or any Subsidiary is subject or any agreement or instrument to which the Borrower or any Subsidiary is a party, the effect of which would have any material adverse effect on the ability of the Borrower or any Guarantor to observe the covenants and agreements contained in the Agreement or in any other Loan Document or any of the CHC Transaction Documents or to pay the Obligations, and will not result in the creation or imposition of any security interest, lien, charge or encumbrance on any of the assets of the Borrower or any Subsidiary. 6. As conditions to the effectiveness of this Amendment Agreement: A. the Borrower shall have delivered to the Agent: (a) counterparts of this Amendment duly executed by the Borrower and each of the Guarantors, (b) a copy of a Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Vitas Healthcare Corporation providing for a new redemption schedule for the 9% Cumulative Non-Convertible Preferred Stock of Borrower; (c) such other documents and certifications as the Agent or the Lender may reasonably request; and (d) all accrued and unpaid interest previously billed by the Agent and not heretofore paid. B. there shall not have occurred either (i) any Default or Event of Default which shall not have been waived or (ii) any material adverse change in the business, financial condition or operations of the Borrower or any Subsidiary since September 30, 1996, except as disclosed in the Vitas Disclosure Schedules, the Vitas Information and other than the termination of the Apria Transaction. 7. This Amendment sets forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relative to such subject matter. No promise, condition, representation or warranty, express or implied, not herein set forth shall bind any party hereto, and none of them has relied on any such promise, condition, representation or warranty. Each of the parties hereto acknowledges that, 3 except as in this Amendment otherwise expressly stated, no representations, warranties or commitments, express or implied, have been made by any party to the other. 8. Except as specifically amended, modified or supplemented by this Amendment, all of the other documents delivered in connection with the Loans, as heretofore amended, shall remain in full force and effect according to their respective terms. 9. Should any stamp or excise tax become payable under the laws of the United States or of any state or any subdivision thereof or municipality therein in respect of this Amendment, the Borrower shall pay the same (including interest penalties, if any) and shall hold the Lender and the Agent harmless with respect thereto. 10. This Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. [remainder of page intentionally left blank] 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their duly authorized officers, all as of the day and year first above written. VITAS HEALTHCARE CORPORATION WITNESS: /s/ [Signature Illegible] By: /s/ Mark W. Ohlendorf - ------------------------ --------------------------------- Name: Mark W. Ohlendorf /s/ Melissa Smith Title: Vice President, Chief Financial - ------------------------ Officer and Treasurer 5 NATIONSBANK NATIONAL ASSOCIATION (SOUTH), as Agent By: /s/ S. Manchanda ------------------------------- Name: S. Manchanda ----------------------------- Title: Vice President NATIONSBANK NATIONAL ASSOCIATION (SOUTH), as Lender By: /s/ S. Manchanda ------------------------------- Name: S. Manchanda ----------------------------- Title: Vice President 6 GUARANTORS: VITAS HEALTHCARE CORPORATION OF FLORIDA By: /s/ Mark W. Ohlendorf ---------------------------- Name: Mark W. Ohlendorf Title: Vice President VITAS HEALTHCARE CORPORATION OF OHIO By: /s/ Mark W. Ohlendorf ---------------------------- Name: Mark W. Ohlendorf Title: Vice President VITAS HEALTHCARE CORPORATION OF PENNSYLVANIA By: /s/ Mark W. Ohlendorf ---------------------------- Name: Mark W. Ohlendorf Title: Vice President VITAS HEALTHCARE CORPORATION OF CALIFORNIA By: /s/ Mark W. Ohlendorf ---------------------------- Name: Mark W. Ohlendorf Title: Vice President VITAS HEALTHCARE CORPORATION OF CENTRAL FLORIDA By: /s/ Mark W. Ohlendorf ---------------------------- Name: Mark W. Ohlendorf Title: Vice President 7 EX-10.47 23 EXHIBIT 10.47 EXHIBIT 10.47 AMENDMENT NO. 6 TO AMENDED AND RESTATED REVOLVING CREDIT, TERM LOAN AND REIMBURSEMENT AGREEMENT AND RELATED DOCUMENTS THIS AMENDMENT NO. 6 TO AMENDED AND RESTATED REVOLVING CREDIT, TERM LOAN AND REIMBURSEMENT AGREEMENT AND RELATED DOCUMENTS (the "Amendment") dated as of March 24, 1997, is made by and among VITAS HEALTHCARE CORPORATION, a Delaware corporation (the "Borrower"), and NATIONSBANK, NATIONAL ASSOCIATION (SOUTH) (successor by merger of NationsBank of Florida, National Association), a national banking association (the "Lender"), and NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), as Agent for the Lender; W I T N E S S E T H: WHEREAS, the Lender, by an Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement dated as of February 17, 1995, as amended by Amendment No. 1 dated as of June 30, 1995, by Amendment No. 2 dated March 28, 1996, by a letter agreement dated August 5, 1996, by Amendment No. 3 dated September 30, 1996, by Amendment No. 4 dated as of November 1, 1996 and by Amendment No. 5 dated as of February 15, 1997 (the "Agreement"), has agreed to make available and has made available to Borrower a Revolving Credit Facility (as defined in the Agreement) of up to $8,850,000 and a Term Loan (as defined in the Agreement) of $25,000,000; and WHEREAS, in connection with the loan by the Lender to the ESOP (as defined in the Agreement), the Borrower executed and delivered to the Lender the ESOP Guaranty (as defined in the Agreement); and WHEREAS, the Borrower has requested that the Revolving Credit Termination Date and the Term Loan Maturity Date provided for in the Agreement be extended as herein specified and that certain other terms and conditions of the Agreement be further amended as herein provided; and WHEREAS, the Lender is willing to extend the maturity dates on a short-term basis so long as certain provisions of the Agreement are further amended; and WHEREAS, the Lender and the Borrower have agreed to amend the Agreement in the manner set forth herein; NOW, THEREFORE, in consideration of the mutual covenants, promises and conditions herein set forth, it is hereby agreed as follows: 1. The term "Agreement" as used herein and in the Agreement, the Guaranties, the Notes and the other Loan Documents (each as defined in the Agreement), and the term "Revolving Credit Agreement" as used in the ESOP Guaranty and the other ESOP Loan Documents (as defined in the Agreement) shall mean the Agreement as heretofore and hereby amended and modified. Unless the context otherwise requires, all capitalized terms used herein and in the other Loan Documents without definition shall have the respective meanings provided therefor in the Agreement. 2. Subject to and upon satisfaction of the conditions set forth in paragraph 6 hereof, the Agreement shall be and hereby is amended as follows: (a) The definition of "Applicable Interest Addition" in Section 1.01 is amended in its entirety so that as amended it shall read as follows: "'Applicable Interest Addition' means, for each Revolving Credit Loan that bears interest at a LIBOR Rate that percent per annum, which shall be based upon the Consolidated EBITDA for the one, two and three quarter periods ending on the dates specified below: Quarter Two Quarters Three Quarters Ending Ending Ending Interest 6/30/97 9/30/97 12/31/97 Addition ----------------------------------------------------------------- Consolidated a) Less than a) Less than a) Less than 2 1/2% EBITDA $4,000,000 $6,500,000 $10,000,000 is b) Equal to or b) Equal to or b) Equal to or 2 1/4% Greater than Greater than Greater than $4,000,000 $6,500,000 $10,000,000 but Less than but Less than $8,000,000 $12,000,000 c) N/A c) Equal to or c) Equal to or 2% Greater than Greater than $8,000,000 $12,000,000 The Applicable Interest Addition shall be established at the end of each of the above periods (the "Determination Date") beginning June 30, 1997. Any change in the Applicable Interest Addition shall be determined based upon the computations set forth in the certificate furnished to the Agent pursuant to Section 8.01, subject to review and approval of such computations by the Agent, and shall be effective commencing on the day following the date such certificate is received, until the day following the date on which a new certificate is delivered or is required to be delivered, whichever shall first occur. If the Borrower shall fail to deliver any such certificate within the time period required by Section 8.01, then the Applicable 2 Interest Addition shall be 2 1/2% until the appropriate certificate is delivered. From the date of Amendment No. 6 to this Agreement until the receipt of the certificate for the period ending June 30, 1997, the Applicable Interest Addition shall 2 1/2%." (b) The definitions of each of "Revolving Credit Termination Date" and "Term Loan Maturity Date" in Section 1.01 are amended by deleting clause (i) and substituting in lieu thereof the following clause (i): "(i) February 28, 1998"; (c) The definition of "Total Revolving Credit Commitment" in Section 1.01 is amended by deleting the amount "$8,850,000" and substituting in lieu thereof the amount "$18,000,000"; (d) The definition of "Total Term Loan Commitment" in Section 1.01 is amended by deleting the amount "$25,000,000" and substituting in lieu thereof the amount "$14,000,000"; (e) A new definition, "Consolidated EBITDA", is added to Section 1.01 immediately following the definition of "Consolidated Current Liabilities" which definition shall read as follows: "'Consolidated EBITDA' means, with respect to the Borrower and its Subsidiaries, for any period of computation thereof Consolidated EBITDAR less Consolidated Rentals;" (f) Section 2.02 is hereby amended in its entirety so that as amended it shall read as follows: "2.02 Term Loan. (a) Amount. Subject to the terms and conditions of this Agreement, the Borrower and Lender agree that effective March 24, 1997 a $11,000,000 portion of the outstanding Term Loan shall be converted to a Revolving Credit Loan to bear interest in accordance with Section 2.01, so long as after giving effect to such transfer and the borrowing of such amount pursuant to Section 2.01, the amount of outstanding Revolving Credit Loans plus the amount of all Outstanding Letters of Credit shall not exceed the Borrowing Base. On March 24, 1997, the Term Loan amount shall be $14,000,000. (b) Interest. The principal amount of the Term Loan shall bear interest from March 24, 1997 through August 30, 1997 at a rate of 11% per annum, from August 31, 1997 through November 29, 1997 at a rate of 11 1/2% and from and after November 30, 1997 at a rate of 12% per annum. Interest shall be paid to the Agent for the account of each Lender on the outstanding and unpaid principal amount of the Term Loan on the last Business Day of March, June, September and December, commencing March 31, 1997." 3 (g) Section 2.03 and Section 2.04 are hereby amended by (i) inserting the words "Revolving Credit" before the word "Loan" in the first line of Section 2.03, (ii) inserting the words "Revolving Credit" before the word "Loan" in the third, fourth and fifth lines of Section 2.04, and (iii) by adding a new sentence to the end of Section 2.04 which sentence shall read as follows: "If any amount of the Term Loan shall not be paid when due (at maturity, by acceleration or otherwise) all outstanding amounts of the Term Loan shall bear interest at the lesser of rate set forth in Section 2.02(b) plus two percent (2%) or the maximum rate permitted by applicable law." (h) Section 9.01 is hereby amended in its entirety so that as amended it shall read as follows: "9.01 Consolidated Shareholders' Equity. Permit Consolidated Shareholders' Equity to be less than (i) $10,000,000 at March 24, 1997 and (ii) as at the last day of each fiscal quarter of the Borrower and until (but excluding) the last day of the next following fiscal quarter of the Borrower, the sum of (A) the amount of Consolidated Shareholders' Equity required to be maintained pursuant to this Section 9.01 as at the end of the immediately preceding fiscal quarter, plus (B) 50% of positive Consolidated Net Income during the immediately preceding fiscal quarter of the Borrower ending on such day (including in Consolidated Net Income for purposes of this Section 9.01 only any net gain or credit of an extraordinary nature)." (i) Section 9.02 is hereby reinstated and is amended in its entirety, so that as amended it shall read as follows: "9.02 Consolidated EBITDA. Permit for each of the fiscal quarters set forth below Consolidated EBITDA to be less than that amount set forth opposite such quarter: Consolidated Fiscal Quarter Ending EBITDA --------------------- ------------ June 30, 1997 $3,200,000 September 30, 1997 $3,400,000 December 31, 1997 $3,800,000" (j) Section 9.10 is hereby amended in its entirety, so that as amended it shall read as follows: "9.10 Dividends or Distributions. Declare or pay any dividends (other than those payable solely in capital stock) or distribution in reduction of capital or otherwise in respect of any equity interest, or purchase, redeem or otherwise retire any common stock except (i) dividends paid with respect to Preferred Stock so long 4 as such dividends have accrued and after giving effects to such payment and the required increase in Consolidated Shareholders' Equity pursuant to Section 9.01, Consolidated Net Income for the most recently completed fiscal quarter is a positive number, provided that after giving effect to payment of such dividend no Default or Event of Default exists hereunder, (ii) payments to purchase stock of the Borrower pursuant to the exercise by beneficiaries of the Plan (as defined in the ESOP Loan Documents) of put rights under Section 16(b) of the Plan, and (iii) pursuant to the exercise of rights of first refusal or similar rights relating to stock options or securities issued upon the exercise of stock options in an aggregate amount in any Fiscal Year not exceeding $300,000 (on a non-cumulative basis, with the effect that amounts not expended in any Fiscal Year may not be expended in a subsequent Fiscal Year." (k) Section 10.01 hereby is amended in order to add the following new clauses (o) and (p) hereto: "(o) if the Borrower shall have redeemed, repurchased or retired any shares of Preferred Stock of Borrower, prior to February 28, 1998, provided, however, that any such failure by Borrower, or consequence of Borrower's failure, to redeem repurchase, or retire any such shares of preferred stock of Borrower, shall not constitute an Event of Default so long as any holder of such Preferred Stock shall not take any action to enforce any right arising by reason of failure to redeem, repurchase or retire any such shares. (p) if the Borrower shall not have executed and delivered to the Agent by July 3, 1997 a Warrant Certificate and a Warrant Agreement evidencing the Agent's right to purchase up to 486,532 shares of the Borrower's common stock, par value $.001 per share ("Common Stock"), subject to the terms and conditions thereof" 3. Subject to and upon satisfaction of the conditions set forth in paragraph 6 hereof, Section 5.10 of the ESOP Guaranty shall be and hereby is amended as follows: (a) Section 5.01 is hereby amended in its entirety so that as amended it shall read as follows: "5.01 Consolidated Shareholders' Equity. Permit Consolidated Shareholders' Equity to be less than (i) $10,000,000 at March 24, 1997 and (ii) as at the last day of each fiscal quarter of the Borrower and until (but excluding) the last day of the next following fiscal quarter of the Borrower, the sum of (A) the amount of Consolidated Shareholders' Equity required to be maintained pursuant to this Section 5.01 as at the end of the immediately preceding fiscal quarter, plus (B) 50% of positive Consolidated Net Income during the immediately preceding fiscal quarter of the Borrower ending on such day (including in Consolidated Net Income for purposes of this Section 5.0l only any net gain or credit of an extraordinary nature)." 5 (b) Section 5.02 is hereby reinstated and is amended and restated in its entirety, so that as amended it shall read as follows: "5.02 Consolidated EBITDA. Permit for each of the fiscal quarters set forth below Consolidated EBITDA to be less than that amount set forth opposite such quarter: Consolidated Fiscal Quarter Ending EBITDA --------------------- ------------ June 30, 1997 $3,200,000 September 30, 1997 $3,400,000 December 31, 1997 $3,800,000" (c) Section 5.10 is hereby amended in its entirety, so that as amended it shall read as follows: "5.10 Dividends or Distributions. Declare or pay any dividends (other than those payable solely in capital stock) or distribution in reduction of capital or otherwise in respect of any equity interest, or purchase, redeem or otherwise retire any common stock except (i) dividends paid with respect to Preferred Stock so long as such dividends have accrued and after giving effects to such payment and the required increase in Consolidated Shareholders' Equity pursuant to Section 5.01, Consolidated Net Income for the most recently completed fiscal quarter is a positive number, provided that after giving effect to payment of such dividend no Default or Event of Default exists hereunder, (ii) payments to purchase stock of the Guarantor pursuant to the exercise by Plan beneficiaries of put rights under Section 16(b) of the Plan, and (iii) pursuant to the exercise of rights of first refusal or similar rights relating to stock options or securities issued upon the exercise of stock options in an aggregate amount in any Fiscal Year not exceeding $300,000 (on a non-cumulative basis, with the effect that amounts not expended in any Fiscal Year may not be expended in a subsequent Fiscal Year." (d) Section 6.01 hereby is amended in order to add the following new clauses (n) and (o) thereto: "(n) if the Guarantor shall have redeemed, repurchased or retired any shares of Preferred Stock of Guarantor, prior to February 28, 1998, provided, however, that any such failure by Guarantor, or consequence of Guarantor's failure, to redeem, repurchase, or retire any such shares of preferred stock of Guarantor, shall not constitute an Event of Default so long as any holder of such Preferred Stock shall not take any action to enforce any right arising by reason of failure to redeem, repurchase or retire any such shares. 6 (o) if the Guarantor shall not have executed and delivered to the Agent by July 3, 1997 a Warrant Certificate and a Warrant Agreement evidencing the Agent's right to purchase up to 486,532 shares of the Guarantor's common stock, par value $.001 per share ("Common Stock"), subject to the terms and conditions thereof" 4. Each of the Subsidiaries of the Borrower who has previously delivered a Guaranty to the Agent has joined in the execution of this Amendment for the purposes of consenting to this Amendment and affirming its guaranty and of the Obligations of Borrower arising under the Agreement and the other Loan Documents as amended by this Amendment, and of its other undertakings and obligations under each of the other Loan Documents and ESOP Loan Documents to which it is a signatory. 5. The Borrower hereby represents and warrants to the Agent and the Lender that as of the date hereof the Agreement has been re-examined by the Borrower and: (i) The representations and warranties made by the Borrower therein and in the other Loan Documents (including the Schedules to the Agreement and the other Loan Documents) as modified to give effect to the information contained in the disclosure schedules delivered by the Borrower (the "Vitas Disclosure Schedules") in connection with its execution and delivery of the Apria Acquisition Agreement and the financial and other information previously provided to the Agent and the Lender by the Borrower in writing (the "Vitas Information"), are true, complete and correct in all material respects on and as of the date hereof, and shall survive the execution and delivery of this Amendment; (ii) The execution, delivery and performance of this Amendment will not conflict with or result in the breach of any of the provisions of, or cause a default under, the Articles of Incorporation or Bylaws of the Borrower, or any applicable law, rule or regulation, or any judgment, order, writ, injunction or decree of any court, administrative agency or other government instrumentality to which the Borrower or any Subsidiary is subject or any agreement or instrument to which the Borrower or any Subsidiary is a party, the effect of which would have any material adverse effect on the ability of the Borrower or any Guarantor to observe the covenants and agreements contained in the Agreement or in any other Loan Document or any of the CHC Transaction Documents or to pay the Obligations, and will not result in the creation or imposition of any security interest, lien, charge or encumbrance on any of the assets of the Borrower or any Subsidiary. 6. As conditions to the effectiveness of this Amendment Agreement: A. the Borrower shall have delivered to the Agent: (a) counterparts of this Amendment duly executed by the Borrower and each of the Guarantors; 7 (b) evidence acceptable to the Agent of the extension of the date for payment of Subordinated Note A on terms and conditions acceptable to the Agent; (c) such other documents and certifications as the Agent or the Lender may reasonably request; and (d) all accrued and unpaid interest previously billed by the Agent and not heretofore paid. B. there shall not have occurred either (i) any Default or Event of Default which shall not have been waived or (ii) any material adverse change in the business, financial condition or operations of the Borrower or any Subsidiary since September 30, 1996, except as disclosed in the Vitas Disclosure Schedules, the Vitas Information and other than the termination of the Apria Transaction. 7. This Amendment sets forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relative to such subject matter. No promise, condition, representation or warranty, express or implied, not herein set forth shall bind any party hereto, and none of them has relied on any such promise, condition, representation or warranty. Each of the parties hereto acknowledges that, except as in this Amendment otherwise expressly stated, no representations, warranties or commitments, express or implied, have been made by any party to the other. 8. Except as specifically amended, modified or supplemented by this Amendment, all of the other documents delivered in connection with the Loans, as heretofore amended, shall remain in full force and effect according to their respective terms. 9. Should any stamp or excise tax become payable under the laws of the United States or of any state or any subdivision thereof or municipality therein in respect of this Amendment, the Borrower shall pay the same (including interest penalties, if any) and shall hold the Lender and the Agent harmless with respect thereto. 10. This Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. 8 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their duly authorized officers, all as of the day and year first above written. VITAS HEALTHCARE CORPORATION WITNESS: /s/ [Signature Illegible] By: /s/ Hugh A. Westbrook - ----------------------------- ------------------------------------- Name: Hugh A. Westbrook Title: Chairman and Chief Executive Officer /s/ [Signature Illegible] - ----------------------------- 9 NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), as Agent By: /s/ Allison Freeland ------------------------------------- Name: Allison Freeland Title: Senior Vice President NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), as Lender By: /s/ Allison Freeland ------------------------------------- Name: Allison Freeland Title: Senior Vice President 10 GUARANTORS VITAS HEALTHCARE CORPORATION OF FLORIDA By: /s/ Hugh A. Westbrook -------------------------------------- Name: Hugh A. Westbrook Title: Chairman, President and Chief Executive Officer VITAS HEALTHCARE CORPORATION OF OHIO By: /s/ Hugh A. Westbrook -------------------------------------- Name: Hugh A. Westbrook Title: Chairman, President and Chief Executive Officer VITAS HEALTHCARE CORPORATION OF PENNSYLVANIA By: /s/ Hugh A. Westbrook -------------------------------------- Name: Hugh A. Westbrook Title: Chairman, President and Chief Executive Officer VITAS HEALTHCARE CORPORATION CALIFORNIA By: /s/ Hugh A. Westbrook -------------------------------------- Name: Hugh A. Westbrook Title: Chairman, President and Chief Executive Officer VITAS HEALTHCARE CORPORATION OF CENTRAL FLORIDA By: /s/ Hugh A. Westbrook -------------------------------------- Name: Hugh A. Westbrook Title: Chairman, President and Chief Executive Officer 11 EX-10.48 24 EXHIBIT 10.48 EXHIBIT 10.48 AMENDMENT NO. 7 TO AMENDED AND RESTATED REVOLVING CREDIT, TERM LOAN AND REIMBURSEMENT AGREEMENT AND RELATED DOCUMENTS THIS AMENDMENT NO. 7 TO AMENDED AND RESTATED REVOLVING CREDIT, TERM LOAN AND REIMBURSEMENT AGREEMENT AND RELATED DOCUMENTS (the "Amendment") dated as of September 1, 1997, is made by and among VITAS HEALTHCARE CORPORATION, a Delaware corporation (the "Borrower"), and NATIONSBANK, NATIONAL ASSOCIATION (successor by merger of NationsBank, National Association (South)), a national banking association (the "Lender"), and NATIONSBANK, NATIONAL ASSOCIATION (SOUTH), as Agent for the Lender; W I T N E S S E T H: WHEREAS, the Lender, by an Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement dated as of February 17, 1995, as amended by Amendment No. 1 dated as of June 30, 1995, by Amendment No. 2 dated March 28, 1996, by a letter agreement dated August 5, 1996, by Amendment No. 3 dated September 30, 1996, by Amendment No. 4 dated as of November 1, 1996, by Amendment No. 5 dated as of February 15, 1997 and by Amendment No. 6 dated as of March 24, 1997, as amended by letter dated June 30, 1997 (the "Agreement"), has agreed to make available and has made available to Borrower a Revolving Credit Facility (as defined in the Agreement) of up to $18,000,000 and a Term Loan (as defined in the Agreement) of $14,000,000; and WHEREAS, in connection with the loan by the Lender to the ESOP (as defined in the Agreement), the Borrower executed and delivered to the Lender the ESOP Guaranty (as defined in the Agreement); and WHEREAS, the Borrower has requested that the Revolving Credit Termination Date and the Term Loan Maturity Date provided for in the Agreement be extended as herein specified and that certain other terms and conditions of the Agreement be further amended as herein provided; and WHEREAS, the Lender is willing to extend the maturity dates on a short-term basis so long as certain provisions of the Agreement are further amended; and WHEREAS, the Lender and the Borrower have agreed to amend the Agreement in the manner set forth herein; NOW, THEREFORE, in consideration of the mutual covenants, promises and conditions herein set forth, it is hereby agreed as follows: 1. The term "Agreement" as used herein and in the Agreement, the Guaranties, the Notes and the other Loan Documents (each as defined in the Agreement), and the term "Revolving Credit Agreement" as used in the ESOP Guaranty and the other ESOP Loan Documents (as defined in the Agreement) shall mean the Agreement as heretofore and hereby amended and modified. Unless the context otherwise requires, all capitalized terms used herein and in the other Loan Documents without definition shall have the respective meanings provided therefor in the Agreement. 2. Subject to and upon satisfaction of the conditions set forth in paragraph 6 hereof, the Agreement shall be and hereby is amended as follows: (a) The definition of "Applicable Interest Addition" in Section 1.01 is amended in its entirety so that as amended it shall read as follows: "'Applicable Interest Addition'" means, for each Revolving Credit Loan that bears interest at a LIBOR Rate that percent per annum, which shall be based upon the Consolidated EBITDA for the two, three and four quarter periods ending on the dates specified below:
TWO THREE FOUR FOUR FOUR QUARTERS QUARTERS QUARTERS QUARTERS QUARTERS ENDING ENDING ENDING ENDING ENDING INTEREST 9/30/97 12/31/97 3/31/98 6/30/98 9/30/98 ADDITION ---------------- ---------------- ---------------- ---------------- ---------------- ----------- Consolidated a) Less than a) Less than a) Less than a) Less than a) Less than 2 1/2% EBITDA $6,500,000 $10,000,000 $14,000,000 $16,000,000 $18,000,000 is b) Equal to or b) Equal to or b) Equal to or b) Equal to or b) Equal to or 2 1/4% Greater than Greater than Greater than Greater than Greater than $6,500,000 $10,000,000 $14,000,000 $16,000,000 $18,000,000 but Less than but Less than but Less than but Less than but Less than $8,000,000 $12,000,000 $16,000,000 $18,000,000 $20,000,000 c) Equal to or c) Equal to or c) Equal to or c) Equal to or c) Equal to or 2% Greater than Greater than Greater than Greater than Greater than $8,000,000 $12,000,000 $16,000,000 $18,000,000 $20,000,000
The Applicable Interest Addition shall be established at the end of each of the above periods (the "Determination Date") beginning September 30, 1997. Any change in the Applicable Interest Addition shall be determined based upon the computations set forth in the certificate furnished to the Agent pursuant to Section 8.01, subject to review and approval of such computations by the Agent, and shall be effective commencing on the day following the date such certificate is received, until the day following the date on which a new certificate is delivered or is required to be delivered, whichever shall first occur. If the Borrower shall fail to deliver any such certificate within the time period required by Section 8.01, then the Applicable Interest Addition shall be 2 1/2% until the appropriate certificate is delivered. From the date of Amendment No. 7 to this Agreement until the receipt of the certificate for 2 the period ending September 30, 1997, the Applicable Interest Addition shall be 2.5%." (b) The definitions of "Revolving Credit Termination Date" in Section 1.01 is hereby amended in its entirety so that as amended it shall read as follows: "'Revolving Credit Termination Date' means the earlier of (i) October 1, 1998, (ii) the occurrence of a Significant Recapitalization Event, (iii) termination of Lenders' obligations pursuant to Section 10.01 upon the occurrence of an Event of Default, or (iv) such date as the Borrower may voluntarily permanently terminate the Revolving Credit Facility by payment in full of all Obligations (including the discharge of all Obligations of NationsBank and the Lenders with respect to the Letters of Credit and Participation);" (c) The definition of "Term Loan Maturity Date" in Section 1.01 is hereby amended in its entirety so that as amended it shall read as follows: "'Term Loan Maturity Date' means the earlier of (i) October 1, 1998, (ii) the occurrence of a Significant Recapitalization Event or (iii) such date as the Term Loans shall become due and payable pursuant to Section 10.01 upon the occurrence of an Event of Default or (iv) such date as the Borrower shall pay in full the Term Loan;" (d) A new definition, "Significant Recapitalization Event", is added to Section 1.01 immediately following the definition of "Single Employer Plan" which definition shall read as follows: "'Significant Recapitalization Event' means, with respect to the Borrower and its Subsidiaries, a debt or equity offering generating minimum gross proceeds of $15,000,000;" (e) A new definition, "Minimum Liquidity", is added to Section 1.01 immediately following the definition of "Maturity Extension Conditions" which definition shall read as follows: "'Minimum Liquidity' means, with respect to the Borrower and its Subsidiaries, the sum of cash or cash equivalents and amounts available under the Revolving Credit Facility;" (f) Section 9.02 is hereby amended by deleting the quarterly Consolidated EBITDA chart and substituting in lieu thereof the following: Consolidated "Fiscal Quarter Ending EBITDA ---------------------- ------------- September 30, 1997 $ 3,400,000 3 December 31, 1997 $ 3,800,000 March 31, 1998 $ 4,000,000 June 30, 1998 $ 4,200,000 September 30, 1998 $ 4,400,000" (g) Article IX is hereby amended by adding a new financial covenant after Section _________ which financial covenant shall read as follows: "9._______ Minimum Liquidity. Permit Minimum Liquidity to be less than $4,000,000." (h) Section 10.01(o) is hereby amended by deleting the clause "February 28, 1998" and substituting in lieu thereof the clause "October 1, 1998". (i) Section 10.01(p) is hereby amended in its entirety so that as amended it shall read as follows: (p) if the Borrower shall not have executed and delivered to the Agent by September 30, 1997 a second Warrant Certificate and a second Warrant Agreement evidencing the Agent's right to purchase up to 291,918 shares of the Borrower's common stock, par value $.001 per share ("Common Stock"), subject to the terms and conditions thereof." 3. (a) Notwithstanding the terms and conditions of the Warrant Agreement and Warrant Certificate executed and delivered by Borrower to Lender in connection with Amendment No. 6 to the Agreement (the "Amendment No. 6 Warrants"), Lender hereby (i) irrevocably waives any adjustments to the number of shares of Borrower's common stock issuable under the amendment No. 6 Warrants and any adjustments to the exercise price therefor in connection with the issuance by Borrower of any additional warrants to Lender in connection with this Amendment (the "Amendment No. 7 Warrants") or in connection with the exercisability of the Amendment No. 7 Warrants and (ii) agrees and stipulates that to the extent any provisions of the Amendment No. 6 Warrants may be interrupted in any manner inconsistent with the waiver set forth in clause (i) above, Lender hereby irrevocably waives any rights to any adjustments based upon any such interpretations. (b) Further, for purposes of the terms and conditions of the Amendment No. 6 Warrants and the Amendment No. 7 Warrants, any substantial amendment and restatement of the terms of the Credit Agreement which, in effect and operation, is the substantial equivalent of the establishment of a new credit facility, shall operate as a satisfaction of, and not an amendment to, the Obligations hereunder. 4. Subject to and upon satisfaction of the conditions set forth in paragraph 6 hereof, Section 5.10 of the ESOP Guaranty shall be and hereby is amended as follows: (a) Section 5.02 is hereby amended by deleting the quarterly Consolidated EBITDA chart and substituting in lieu thereof the following: 4 Consolidated "Fiscal Quarter Ending EBITDA ---------------------- ------------- September 30, 1997 $ 3,400,000 December 31, 1997 $ 3,800,000 March 31, 1998 $ 4,000,000 June 30, 1998 $ 4,200,000 September 30, 1998 $ 4,400,000" (b) Section 6.01(n) is hereby amended by deleting the clause "February 28, 1998" and substituting in lieu thereof the clause "October 1, 1998". (c) Section 6.01(o) hereby in is amended in its entirety so that as amended it shall read as follows: "(o) if the Guarantor shall not have executed and delivered to the Agent by September 30, 1997 a Warrant Certificate and a Warrant Agreement evidencing the Agent's right to purchase up to 291,918 shares of the Guarantor's common stock, par value $.001 per share ("Common Stock"), subject to the terms and conditions thereof." 5. Each of the Subsidiaries of the Borrower who has previously delivered a Guaranty to the Agent has joined in the execution of this Amendment for the purposes of consenting to this Amendment and affirming its guaranty and of the Obligations of Borrower arising under the Agreement and the other Loan Documents as amended by this Amendment, and of its other undertakings and obligations under each of the other Loan Documents and ESOP Loan Documents to which it is a signatory. 6. The Borrower hereby represents and warrants to the Agent and the Lender that as of the date hereof the Agreement has been re-examined by the Borrower and: (i) The representations and warranties made by the Borrower therein and in the other Loan Documents (including the Schedules to the Agreement and the other Loan Documents) as modified to give effect to the information contained in the disclosure schedules delivered by the Borrower (the "Vitas Disclosure Schedules") in connection with its execution and delivery of the Apria Acquisition Agreement and the financial and other information previously provided to the Agent and the Lender by the Borrower in writing (the "Vitas Information"), are true, complete and correct in all material respects on and as of the date hereof, and shall survive the execution and delivery of this Amendment; (ii) The execution, delivery and performance of this Amendment will not conflict with or result in the breach of any of the provisions of, or cause a default under, the Articles of Incorporation or Bylaws of the Borrower, or any applicable law, rule or regulation, or any judgment, order, writ, injunction or decree of any court, administrative agency or other government instrumentality to which the Borrower or any Subsidiary is subject or any 5 agreement or instrument to which the Borrower or any Subsidiary is a party, the effect of which would have any material adverse effect on the ability of the Borrower or any Guarantor to observe the covenants and agreements contained in the Agreement or in any other Loan Document or any of the CHC Transaction Documents or to pay the Obligations, and will not result in the creation or imposition of any security interest, lien, charge or encumbrance on any of the assets of the Borrower or any Subsidiary. 7. As conditions to the effectiveness of this Amendment: A. the Borrower shall have delivered to the Agent: (a) counterparts of this Amendment duly executed by the Borrower and each of the Guarantors; and (b) such other documents and certifications as the Agent or the Lender may reasonably request. B. there shall not have occurred either (i) any Default or Event of Default which shall not have been waived or (ii) any material adverse change in the business, financial condition or operations of the Borrower or any Subsidiary since September 30, 1996, except as disclosed in the Vitas Disclosure Schedules, the Vitas Information and other than the termination of the Apria Transaction. 8. This Amendment sets forth the entire understanding and agreement of the parties hereto in relation to the subject matter hereof and supersedes any prior negotiations and agreements among the parties relative to such subject matter. No promise, condition, representation or warranty, express or implied, not herein set forth shall bind any party hereto, and none of them has relied on any such promise, condition, representation or warranty. Each of the parties hereto acknowledges that, except as in this Amendment otherwise expressly stated, no representations, warranties or commitments, express or implied, have been made by any party to the other. 9. Except as specifically amended, modified or supplemented by this Amendment, all of the other documents delivered in connection with the Loans, as heretofore amended, shall remain in full force and effect according to their respective terms. 10. Should any stamp or excise tax become payable under the laws of the United States or of any state or any subdivision thereof or municipality therein in respect of this Amendment, the Borrower shall pay the same (including interest penalties, if any) and shall hold the Lender and the Agent harmless with respect thereto. 11. This Amendment may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. 6 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their duly authorized officers, all as of the day and year first above written. VITAS HEALTHCARE CORPORATION WITNESS: By: /s/ David Wester - ------------------------- ------------------------------- Name: David Wester ----------------------------- - ------------------------- Title: Chief Financial Officer ---------------------------- 7 GUARANTORS: VITAS HEALTHCARE CORPORATION OF FLORIDA By: /s/ David Wester ------------------------------- Name: David Wester ----------------------------- Title: Vice President ---------------------------- VITAS HEALTHCARE CORPORATION OF OHIO By: /s/ David Wester ------------------------------- Name: David Wester ----------------------------- Title: Vice President ---------------------------- VITAS HEALTHCARE CORPORATION OF PENNSYLVANIA By: /s/ David Wester ------------------------------- Name: David Wester ----------------------------- Title: Vice President ---------------------------- VITAS HEALTHCARE CORPORATION OF CALIFORNIA By: /s/ David Wester ------------------------------- Name: David Wester ----------------------------- Title: Vice President ---------------------------- VITAS HEALTHCARE CORPORATION OF CENTRAL FLORIDA By: /s/ David Wester ------------------------------- Name: David Wester ----------------------------- Title: Vice President ---------------------------- 9 NATIONSBANK, NATIONAL ASSOCIATION, as Agent By: /s/ Allison Freeland ----------------------------------- Name: Allison Freeland --------------------------------- Title: Senior Vice President -------------------------------- NATIONSBANK, NATIONAL ASSOCIATION, as Lender By: /s/ Allison Freeland ----------------------------------- Name: Allison Freeland --------------------------------- Title: Senior Vice President -------------------------------- 6 EX-10.49 25 EXHIBIT 10.49 EXHIBIT 10.49 AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT THIS AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (this "Security Agreement") is made as of this 17th day of February, 1995, by and between VITAS HEALTHCARE CORPORATION, a Delaware corporation having its principal place of business in Miami, Dade County, Florida (the "Borrower"), and NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION, a national banking association ("NationsBank"), for itself and as agent (in such agency capacity and together with any successor agent, the "Agent") for certain lenders (the "Lenders") party to the Credit Agreement described below (in such capacities as described below and together with any successor agent acting as such under the Credit Agreement described below, the "Secured Party"). W I T N E S S E T H: WHEREAS, (i) pursuant to a Revolving Credit and Reimbursement Agreement dated as of August 11, 1994 (the "Prior Credit Agreement") among the Borrower, NationsBank and NationsBank as agent, NationsBank made available to the Borrower a revolving credit facility in the aggregate principal amount of up to $15,000,000, including within such revolving credit facility the issuance of letters of credit for the account of the Borrower and (ii) pursuant to a Guaranty and Contingent Purchase Agreement of even date with the Prior Credit Agreement between the Borrower and NationsBank (the "Prior Guaranty" and, together with the Prior Credit Agreement, the "Prior Agreements"), NationsBank extended a term loan of $2,386,670 to the Vitas Healthcare Corporation Employee Stock Ownership Trust (the "Trust") to refinance certain indebtedness owing from the Trust to the Borrower, the repayment of which loan was, inter alia, guaranteed under the Prior Guaranty; and WHEREAS, as security for its obligations and liabilities under the Prior Agreements, the Borrower entered into a Pledge and Security Agreement of even date with the Prior Credit Agreement granting to the agent under the Prior Credit Agreement and to NationsBank upon the occurrence of certain events therein specified a security interest in certain property of the Borrower; and WHEREAS, the Borrower and Vitas Healthcare Corporation of California, a Subsidiary of the Borrower ("Vitas California"), have entered into an Asset Purchase Agreement with the Sellers (as hereinafter defined) dated as of December 27, 1994 (the "Asset Purchase Agreement") pursuant to which Vitas California has agreed to purchase substantially all of the operating assets of the CHC Entities (as defined in the Credit Agreement) pursuant to the terms and subject to the conditions set forth therein and, in connection therewith, the Borrower has requested that the Prior Credit Agreement be amended and restated to increase the revolving credit facility from $15,000,000 to $20,000,000, to provide for a $25,000,000 term loan facility, and to make certain other modifications, and that the Prior Guaranty be amended and restated to reflect the agreement of the parties; and WHEREAS, at the request of the Borrower and to effect the modifications referred to above, (i) the Borrower, the Agent and the Lenders are entering into an Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement of even date herewith (as the same may be modified, amended or restated from time to time, the "Credit Agreement") and (ii) the Borrower and NationsBank are entering into an Amended and Restated Guaranty and Contingent Purchase Agreement of even date herewith (as the same may be modified, amended or restated from time to time, the "Guaranty" and, together with the Credit Agreement, the "Agreements"); and WHEREAS, the Lenders are unwilling to extend the amend and increase the revolving credit facility or make such term loan pursuant to the Credit Agreement, and NationsBank is unwilling to amend the Prior Agreements as reflected in the Agreements to permit the consummation of the CHC Transaction, unless the Borrower enters into this Security Agreement pursuant to which it secures all of its obligations and liabilities arising under the Agreements; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and promises herein contained, the parties hereto agree as follows: 1. Certain Definitions. Unless otherwise defined herein, capitalized terms used in this Security Agreement shall have the respective meanings therefor provided in the Credit Agreement. 2. Grant of Security Interest. As collateral security for the full and prompt payment, satisfaction and performance of (i) all Obligations under the Credit Agreement and (ii) all obligations and liabilities of the Borrower under the Guaranty, whether now existing or hereafter arising (the "Guaranty Obligations" and, collectively with the Obligations, the "Secured Obligations"), Borrower hereby grants to the Secured Party a continuing security interest in all of its right, title and interest in and to all of the following property in which Borrower now has or hereafter acquires an interest, whether now owned or existing or hereafter acquired or arising and wheresoever located: (A) All accounts, accounts receivable, notes, bills, acceptances, choses in action, chattel paper, instruments, documents, and other forms of obligations at any time owing to Borrower, the proceeds thereof and all of Borrower's rights with respect to any goods represented thereby, whether or not delivered, goods returned by customers and all rights as an unpaid vendor or lienor, including rights of stoppage in transit and of recovering possession by proceedings including replevin and reclamation, together with all customer lists, 2 books and records, ledger and account cards, computer tapes, software, disks, printouts and records, whether now in existence or hereafter created, relating thereto (collectively referred to hereinafter as "Accounts"); (B) All goods of Borrower, including without limitation, all machinery, equipment, motor vehicles, parts, supplies, apparatus, appliances, tools, patterns, molds, dies, blueprints, fittings, furniture, furnishings, fixtures and articles of tangible personal property of every description now or hereafter owned by Borrower or in which Borrower may have or may hereafter acquire any interest, but as to leasehold interests in personal property, only to the extent assignable (collectively referred to hereinafter as "Equipment"); (C) All general intangibles of Borrower, now existing or hereafter owned or acquired or arising or in which Borrower now has or hereafter acquires any rights, including but not limited to causes of action, corporate or business records, inventions, designs, patents, patent applications, trademarks, trademark registrations and applications therefor, goodwill, trade names, trade secrets, trade processes, copyrights, copyright registrations and applications therefor, licenses (to the extent assignable), permits (to the extent assignable), franchises, customer lists (to the extent permitted by law), computer programs, all claims under guaranties, tax refund claims, rights and claims against carriers and shippers, leases (to the extent assignable), claims under insurance policies, all rights to indemnification and all other intangible personal property of every kind and nature (collectively referred to hereinafter as "General Intangibles"); (D) All inventory of Borrower wherever located, including without limitation, all goods manufactured or acquired for sale or lease, and any piece goods, raw materials, work in process and finished merchandise, findings or component materials, and all supplies, goods, incidentals, office supplies, packaging materials and any and all items used or consumed in the operation of the business of Borrower or which may contribute to the finished product or to the sale, promotion and shipment thereof, in which Borrower now or at any time hereafter may have an interest, whether or not the same is in transit or in the constructive, actual or exclusive occupancy or possession of Borrower or is held by Borrower or by others for Borrower's account (collectively referred to hereinafter as "Inventory"); (E) To the extent assignable, all rights now or hereafter arising to any Borrower under contracts, leases, agreements or other instruments of every character and description, and all rights of enforcement thereunder 3 (collectively referred to as hereinafter as "Contract Rights"); (F) All monies, certificates of deposit, commercial paper, cash equivalents, account balances, notes, options, interests, and securities (certificated or uncertificated), wheresoever located; excluding, however, the equity interests (other than interests in money market funds) of the Borrower in Persons not constituting Subsidiaries; (G) All accessions to, substitutions for and all replacements, products and proceeds of the foregoing including, without limitation, proceeds of insurance policies insuring the Collateral (as hereinafter defined); and (H) All books and records (including without limitation, customer data, credit files, computer programs, printouts, and other computer materials and records of the Borrower and all documents) pertaining to any of the foregoing. All of the property and interests in property described in subsections (A) through (H) and all other property and interests in personal property which shall, from time to time, secure the Secured Obligations are herein collectively referred to as the "Collateral". 3. Financing Statements. At the time of execution of this Security Agreement, Borrower shall have (i) furnished the Secured Party with financing statements, approved by the Secured Party and executed by the Borrower, as prescribed by the Uniform Commercial Code as presently in effect in the states of California, Florida, Texas, Illinois, Wisconsin and Indiana, and the District of Columbia, and where other Collateral is located, as may be reasonably requested by the Secured Party, in form and number sufficient to perfect in favor of the Secured Party the security interest in the Collateral, and (ii) delivered to Secured Party's possession certificated securities (with duly executed stock powers in blank affixed thereto) representing the Borrower's interests in Subsidiaries, in order that the Secured Party shall have a perfected security interest in the Collateral following such filing of such financing statements with the appropriate local and state governmental authorities and the delivery of such securities (to the extent that a security interest in such Collateral is capable of perfection by such filing or possession), and subject only to (a) permitted liens described in the Credit Agreement, (b) such other security interests, liens and encumbrances currently existing and set forth in Exhibit A attached hereto and by reference made a part hereof, or as shall otherwise be acceptable to the Secured Party in its sole discretion, and (c) limitations under applicable law which may limit the creation, perfection or priority of liens on Government Receivables (collectively referred to hereinafter as "Permitted Liens"); provided, however, that with respect to the items of property described in clause (F) of Section 2, the 4 security interest in such property will not be perfected until the Secured Party or any Lender takes possession thereof or otherwise obtains perfection in accordance with the applicable requirements of the Uniform Commercial Code. Borrower shall execute as reasonably required by the Secured Party any additional financing statements or other documents to effect a perfected security interest in the Collateral to the extent contemplated hereby, together with any necessary continuation statements so long as this Security Agreement remains in effect. 4. Maintenance of Security Interest. Borrower will, from time to time, upon the request of the Secured Party, deliver specific assignments of Collateral, together with such other instruments and documents, financing statements, amendments thereto, assignments or other writings as the Secured Party or any Lender may reasonably request to carry out the terms of this Security Agreement or to protect or enforce the Secured Party's security interest in the Collateral. With respect to any and all Collateral as to which a security interest is granted under this Security Agreement, Borrower agrees to do and cause to be done all things necessary to perfect and keep in full force the security interest granted in favor of the Secured Party, including, but not limited to, the prompt payment of all fees and expenses incurred in connection with any filings made to perfect a security interest in the Collateral in favor of the Secured Party. Borrower agrees to make appropriate entries upon its financial statements and books and records disclosing the Secured Party's security interest in the Collateral. 5. Collections; Secured Party's Right to Notify Account Debtors and to Endorse Each Borrower's Name. Borrower hereby authorizes Secured Party at any time after the occurrence and during the continuation of an Event of Default subject, with respect to the Guaranty Obligations, to Section 2.08 of the Guaranty, (a) to open Borrower's mail and collect any and all amounts due to Borrower from persons obligated on any Accounts ("Account Debtors"), but only to the extent permitted by law with respect to Government Receivables; (b) to take over Borrower's post office boxes or make other arrangements as Secured Party deems necessary to receive Borrower's mail, including notifying the post office authorities to change the address for delivery of Borrower's mail to such address as Secured Party may designate; and (c) to notify any or all Account Debtors, but only to the extent permitted by law with respect to Government Receivables, that the Accounts have been assigned to Secured Party and that Secured Party has a security interest therein. Borrower irrevocably makes, constitutes and appoints Secured Party and all Persons designated by Secured Party for that purpose as Borrower's true and lawful attorney (and agent-in-fact) after the occurrence and during the continuation of an Event of Default subject to the limitations set forth in the 5 immediately preceding sentence and, with respect to the Guaranty Obligations, to Section 2.08 of the Guaranty, to endorse Borrower's name on any checks, notes, drafts or any other payment relating to and/or proceeds of the Collateral which comes into Secured Party's possession or Secured Party's control, and apply the same on account of the Secured Obligations as provided herein and in the Agreements, in such order as Secured Party may elect. Secured Party shall promptly furnish Borrower with a copy of any such notice sent with respect to Accounts of Borrower and Borrower hereby agrees that any such notice, in Secured Party's sole discretion, may be sent on Borrower's stationery, in which event Borrower shall co-sign such notice with Secured Party. 6. Collateral. Borrower covenants with Lender that: (A) Inspection. Secured Party and any Lender (by any of its officers, employees and agents) shall have the right, at any time or times during Borrower's usual business hours, to inspect the Collateral, all records related thereto (and to make extracts or copies from such records), and the premises upon which any of the Collateral is located, to discuss Borrower's affairs and finances with its principal officers and independent auditors and to verify the amount, quality, quantity, value and condition of, or any other matter relating to, the Collateral. Upon or after the occurrence of a Default or an Event of Default, Secured Party may at any time and from time to time employ and maintain at Borrower's premises a custodian selected by Secured Party who shall have full authority to do all acts necessary to protect Secured Party's interest. All reasonable expenses incurred by Secured Party by reason of the employment of such custodian shall be paid by the Borrower, added to the Secured Obligations and secured by the Collateral. (B) Assignments, Records and Schedules of Accounts. Borrower shall keep accurate and complete records of its Accounts ("Account Records") and, upon Secured Party's request from time to time at intervals acceptable to Secured Party, Borrower shall reasonably provide Secured Party and each Lender with a Schedule of Accounts in form and substance reasonably acceptable to the Secured Party describing all Accounts created or acquired by Borrower ("Schedule of Accounts") and shall at the request of Secured Party execute and deliver further written assignments of such Accounts to Secured Party; provided however, that Borrower's failure to execute and deliver any such Schedule of Accounts or assignments shall not affect or limit Secured Party's security interest or other rights in and to any Accounts. If requested by Secured Party, Borrower shall furnish Secured Party with copies of proof of delivery of invoices and the original copy of all documents, including, without limitation, repayment histories and present status reports, relating to the Accounts so scheduled (collectively, "Account Documents") and such 6 other matter and information relating to the status of then existing Accounts as Secured Party shall reasonably request. (C) Notice Regarding Disputed Accounts. In the event any amounts due and owing in excess of $100,000 are in dispute between any Account Debtor and Borrower (which shall include, without limitation, any dispute in which an offset claim or counterclaim may result), Borrower shall provide the Secured Party with written notice thereof promptly, explaining in detail the reason for the dispute, all claims related thereto and the amount in controversy. (D) Verification of Accounts. Whether or not a Default or an Event of Default has occurred, any of Secured Party's officers, employees, or agents shall have the right, at any time or times hereafter, to verify under reasonable procedures the validity, amount or any other matter relating to any Accounts by mail, telephone, telegraph or otherwise. (E) Change of Trade Styles. Borrower shall not change, amend, alter, terminate, or cease using its trade names or styles under which it provides services giving rise to Accounts as of the date of this Agreement ("Trade Styles"), or use additional Trade Styles, except upon giving not less than ten (10) days prior written notice to the Secured Party and taking or causing to be taken all such action at Borrower's expense as may be reasonably requested by the Secured Party (including the furnishing of additional financing statements) to enable the Secured Party to perfect or maintain the perfection of the security interest of the Secured Party in Accounts, General Intangibles, Contract Rights and related Collateral. (F) Safekeeping of Inventory. Borrower shall be responsible for the safekeeping of its Inventory, and in no event shall Secured Party or any Lender have any responsibility for: (i) Any loss or damage to Inventory or destruction thereof occurring or arising in any manner or fashion from any cause other than as a result of gross negligence, bad faith or willful misconduct of the Agent or any Lender; (ii) Any diminution in the value of Inventory; or (iii) Any act or default of any carrier, warehouseman, bailee or forwarding agency thereof or other Person in any way dealing with or handling Inventory. (G) Records and Schedules of Inventory. Borrower shall keep correct and accurate records on a perpetual basis, itemizing and describing the kind, type, location, quality and 7 quantity of Inventory owned by it, if any, from time to time, and such Borrower's cost therefor and selling price thereof, and at the reasonable request of the Secured Party shall furnish to the Secured Party a current Schedule of Inventory ("Schedule of Inventory"). Borrower shall conduct a physical inventory, of which Secured Party shall be given prior written notice and shall have the right to be present, no less than annually, and shall furnish to Secured Party such other documents and reports as Secured Party shall reasonably request with respect to the Inventory, including, without limitation, invoices relating to Borrower's purchase of Inventory. (H) Evidence of Ownership of Equipment. Borrower, promptly on request therefor by the Secured Party, shall deliver to the Secured Party any and all evidence of ownership of any of the Equipment (including without limitation certificates of title and applications for title). (I) Records and Schedules of Equipment. Borrower shall maintain accurate, itemized records describing in reasonable detail its Equipment and shall furnish the Secured Party upon reasonable request with a current schedule containing the foregoing information ("Schedule of Equipment"). (J) Administration of Collateral. So long as no Event of Default shall have occurred and be continuing, Borrower may (to the extent not inconsistent with the provisions of the Loan Documents or the ESOP Loan Documents) (i) sell, transfer or dispose of any asset owned by it or (ii) collect or compromise Accounts and General Intangibles in the ordinary course of business in any lawful manner. (K) Voting Rights, Consensual Rights, Dividends and Distributions. A. So long as no Event of Default shall have occurred and be continuing: 1. the Borrower shall be entitled to exercise any and all voting and other consensual rights pertaining to the Collateral or any part thereof for any purpose not inconsistent with the terms of this Security Agreement, the Credit Agreement, the other Loan Documents or the other ESOP Loan Documents; 2. the Borrower shall be entitled to receive and retain any and all cash distributions or dividends paid on the Collateral which they are otherwise entitled to receive, notwithstanding the assignment and transfer of the Collateral and the grant of security interest in Section 2 of this Security Agreement (provided that any cash distributions or dividends received upon the occurrence and during the continuance of a Default shall remain segregated from all other funds of the Borrower 8 and deposited with the Secured Party), but any and all stock dividends, liquidating dividends, distributions in property, returns of capital or other distributions made on or in respect of any of the Collateral, whether resulting from a subdivision, combination or reclassification of the outstanding capital stock of any issuer of the Collateral or received in exchange for the Collateral or any part thereof or as a result of any merger, consolidation, acquisition or other exchange of assets to which any issuer of any Collateral may be a party or otherwise, and any and all cash and other property received in exchange for any of the Collateral shall be and become part of the Collateral hereunder and, if received by the Borrower, shall forthwith be delivered to the Secured Party, to the extent the Collateral for which it was exchanged was held or required to be held by the Secured Party; and 3. the Secured Party shall execute and deliver (or cause to be executed and delivered) to the Borrower all such proxies and other instruments as the Borrower may reasonably request for the purpose of enabling the Borrower to exercise the voting, consensual and other rights which the Borrower are entitled to exercise pursuant to subparagraph (1) above and to receive such distributions and dividends which it is authorized to receive and retain pursuant to subparagraph (2) above. B. Upon the occurrence and during the continuance of an Event of Default: 1. subject, with respect to Guaranty Obligations to Section 2.08 of the Guaranty, all rights of the Borrower to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 6(K)A.1 and to receive and retain the distributions and dividends which it would otherwise be authorized to receive and retain pursuant to Section 6(K)A.2, shall become vested in the Secured Party, which shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and hold as Collateral such distributions and dividends (whether or not the relevant Collateral shall have been transferred into the name of the Secured Party or any of its nominees, the Borrower hereby irrevocably appointing and constituting the Secured Party as proxy and attorney-in-fact of Borrower, which appointment is coupled with an interest and is irrevocable, with full power of substitution, to act as if the Secured Party were the outright owner thereof); and 2. all distributions and dividends which are received by the Borrower contrary to the provisions of 9 Section 6(K)A.2 or Section 6(K)B.l shall be received in trust for the benefit of the Secured Party, shall be segregated from other funds of Borrower and shall be paid over to the Secured Party forthwith as Collateral in the same form as so received (with any necessary endorsement). 7. Warranties Regarding Collateral. Borrower warrants and represents that it is and will continue to be the owner of the Collateral, now owned and upon the acquisition of the same, free and clear of all encumbrances and security interests other than the security interest in favor of Secured Party hereunder and Permitted Liens, and that it will defend the Collateral and the Secured Party's security interest therein and any products and proceeds thereof against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to the Secured Party or any Lender. 8. Account Warranties and Representations. With respect to its Accounts, Borrower warrants and represents to the Secured Party and the Lenders that they may rely on all statements or representations made by Borrower on or with respect to any Schedule of Accounts prepared and delivered by Borrower and, unless otherwise indicated in writing by Borrower, that: (A) All Account Records and Account Documents are located and shall be kept only at Borrower's location as set forth in Section 6.04 of the Credit Agreement; (B) They are genuine, are in all material respects what they purport to be, are not evidenced by a judgment instrument or document or, if evidenced by an instrument or document, are only evidenced by one original instrument or document, which has been delivered to the Secured Party; (C) They cover the bona fide rendition of services, or the bona fide sales and deliveries of Inventory usually dealt in by Borrower, in the ordinary course of business; (D) Each Account is actually and absolutely owing to Borrower in the face value thereof, is valid and enforceable against the applicable Account Debtor, and is not subject to any setoffs, discounts, allowances, claims, counterclaims, disputes or doubtful collectibility except (i) as is customary for Accounts of the type represented by such Account (including the nature of the Account Debtor) of the Borrower in the ordinary course of Borrower's business and consistent with past practices, and (ii) as is reflected by reserves and reductions in the stated value of such Account, computed in a manner consistent with Borrower's policies and practices in preparing the financial statements described in Sections 7.01 and 8.01 of the Credit Agreement and Sections 3.01(f) and 4.01 of the Guaranty, included in such financial statements, in the 10 Schedule of Accounts and in any report or certificate including financial information regarding such Account furnished to the Secured Party pursuant to the Loan Documents or the ESOP Loan Documents. (E) The goods or services giving rise thereto are not, and were not at the time of the sale or performance thereof, subject to any lien, claim, encumbrance or security interest, except those of the Secured Party and those removed or terminated prior to the date hereof; (F) They have not been pledged to any Person other than to Secured Party under this Security Agreement and will be owned by Borrower free and clear of any liens, claims or encumbrances except Permitted Liens; and (G) Secured Party's security interest therein will not be subject to any offset, deduction, counterclaim, lien or other adverse condition, other than Permitted Liens or as is consistent with Section 8(D) above. 9. Inventory Warranties and Representations. With respect to Inventory, Borrower warrants and represents to the Secured Party and the Lenders that they may rely on all statements or representations made by Borrower on or with respect to any Inventory and, unless otherwise indicated in writing by Borrower, that: (A) Except for the relocation of Inventory from time to time in the ordinary course of business not aggregating more than $100,000 at any one time in any location other than those set forth in Schedules 6.03 and 6.04 delivered pursuant to the Credit Agreement or Schedule 4.22 delivered pursuant to the Guaranty, the Borrower shall not locate or relocate inventory to any location other than those set forth in Schedules 6.03 and 6.04 delivered pursuant to the Credit Agreement or Schedule 4.22 delivered pursuant to the Guaranty without giving the Secured Party not less than thirty (30) days prior written notice and taking or causing to be taken at its expense all steps as may be reasonably requested by the Secured Party (including the furnishing of additional financing statements) to enable the Secured Party to perfect or continue the perfection of its security interest in such property. (B) No Inventory is or will be subject to any lien, claim, encumbrance or security interest whatsoever, except for the security interest of Secured Party hereunder and Permitted Liens; (C) No Inventory having an aggregate value in excess of $100,000 is now, and shall not at any time or times hereafter be, stored with a bailee, warehouseman, or similar party 11 without Secured Party's prior written consent and, if Secured Party gives such consent, Borrower will concurrently therewith cause any such bailee, warehouseman, or similar party to issue and deliver to Secured Party in form and substance acceptable to Secured Party, warehouse receipts therefor in Secured Party's name; and (D) No Inventory is under consignment to any Person. 10. Equipment Warranties and Representations. With respect to Equipment, Borrower warrants and represents to the Secured Party and each Lender that: (A) Except for the relocation of Equipment from time to time in the ordinary course of business not aggregating more than $100,000 at any one time in any location other than those set forth in Schedules 6.03 and 6.04 delivered pursuant to the Credit Agreement or Schedule 4.22 delivered pursuant to the Guaranty, the Borrower shall not locate or relocate Equipment to any location other than those set forth in Schedules 6.03 and 6.04 delivered pursuant to the Credit Agreement or Schedule 4.22 delivered pursuant to the Guaranty without giving the Secured Party not less than thirty (30) days prior written notice and taking or causing to be taken at their expense all steps as may be reasonably requested by the Secured Party (including the furnishing of additional financing statements) to enable the Secured Party to perfect or continue the perfection of its security interest in such property; and (B) Borrower has and at all times will have good and marketable title to and ownership of the Equipment free and clear of any lien, claim, encumbrance, or security interest whatsoever, except for (i) the security interest of Secured Party created hereunder and (ii) Permitted Liens. 11. Casualty and Liability Insurance Required. (A) Borrower will keep the Collateral continuously insured as may be expressly required by the Agreements. (B) Each insurance policy obtained in satisfaction of the requirements of Section 11(A) hereof: (i) shall be by such insurer (or insurers) as shall be financially responsible and qualified to do business in the applicable jurisdictions; (ii) shall be in such form and have such provisions (including, without limitation, the loss payable clause, the waiver of subrogation clause, the deductible amount, if any, and the standard mortgagee endorsement clause), as are generally considered standard provisions for the type of 12 insurance involved and are acceptable in all respects to Secured Party; (iii) shall prohibit cancellation or substantial modification, termination or lapse in coverage by the insurer without at least 30 days' prior written notice to Secured Party; (iv) shall provide that the interest of Secured Party shall not be impaired or invalidated by any act or neglect of Borrower nor by the occupation of the premises wherein such Collateral is located for purposes more hazardous than are permitted by said policy; (v) without limiting the generality of the foregoing, all insurance policies covering loss or damage to the Collateral shall name Secured Party as mortgagee, loss payee and a party insured thereunder and any loss thereunder shall be paid directly to Secured Party. (C) Prior to expiration of any such policy, Borrower shall furnish Secured Party with evidence reasonably satisfactory to Secured Party that the policy or certificate has been renewed or replaced or is no longer required by this Security Agreement. (D) Borrower hereby irrevocably makes, constitutes and appoints Secured Party (and all officers, employees or agents designated by Secured Party), effective upon the occurrence of an Event of Default which has not been waived or cured, as Borrower's true and lawful attorney (and agent-in-fact) for the purpose of making, settling and adjusting claims under such policies of insurance, endorsing the name of Borrower on any check, draft, instrument or other item or payment for the proceeds of such policies of insurance and for making all determinations and decisions with respect to such policies of insurance. (E) In the event Borrower shall fail to maintain, or cause to be maintained, the full insurance coverage required hereunder or shall fail to keep any Collateral in good repair and good operating condition, the Secured Party may (but shall be under no obligation to), without waiving or releasing any Secured Obligation or Event of Default, after giving notice to the Borrower, contract for the required policies of insurance and pay the premiums on the same or make any required repairs, renewals and replacements; and all sums so disbursed by Secured Party, including reasonable attorneys' fees, court costs, expenses and other charges related thereto, shall be payable on demand by Borrower to Secured Party and shall be additional Secured Obligations secured by the Collateral. (F) In case of any material damage to or destruction of all or any part of the Collateral, Borrower shall give prompt notice thereof to Secured Party. Each such notice shall describe generally 13 the nature and extent of such damage, destruction, taking, loss, proceeding or negotiations. 12. Rights and Remedies Upon Default. Subject, with respect to the Guaranty Obligations, to Section 2.08 of the Guaranty, upon and after an Event of Default which has not been waived or cured, the Secured Party shall have the following rights and remedies, all of which may be exercised with or without notice to Borrower: (A) All of the rights and remedies of a secured party under the Uniform Commercial Code of the state where such rights and remedies are asserted, or under other applicable law, all of which rights and remedies shall be cumulative, and none of which shall be exclusive, to the extent permitted by law, in addition to any other rights and remedies contained in this Security Agreement, the Agreements, or any of the other Loan Documents or ESOP Loan Documents; (B) The right to foreclose the liens and security instruments created under this Security Agreement or any of the other Loan Documents or ESOP Loan Documents by any available judicial procedure or without judicial process; (C) The right to (i) enter upon the premises of Borrower through self-help and without judicial process, without first obtaining a final judgment or giving Borrower notice and opportunity for a hearing on the validity of Secured Party's claim and without any obligation to pay rent to Borrower, or any other place or places where any Collateral is located and kept, and remove the Collateral therefrom to the premises of Secured Party or any agent of Secured Party, for such time as Secured Party may desire, in order to effectively collect or liquidate the Collateral, and/or (ii) require Borrower to assemble the Collateral and make it available to Secured Party at a place to be designated by Secured Party in its sole discretion; (D) The right (to the extent permissible by law with respect to Government Receivables) to (i) demand payment of the Accounts; (ii) enforce payment of the Accounts and General Intangibles and enforce all Contract Rights, by legal proceedings or otherwise; (iii) exercise all or any of Borrower's rights and remedies with respect to the collection of the Accounts and General Intangibles and in respect of Contract Rights; (iv) settle, adjust, compromise, extend or renew the Accounts; (v) settle, adjust or compromise any legal proceedings brought to collect the Accounts or General Intangibles or to enforce Contract Rights; (vi) sell or assign the Accounts, General Intangibles, Contract Rights or other Collateral upon such terms, for such amounts and at such time or times as Secured Party deems advisable; (vii) discharge and release the Accounts; (viii) take control, in any manner, of any item of payment or proceeds; (ix) prepare, file and sign 14 Borrower's name on a Proof of Claim in bankruptcy or similar document against any account obligor; (x) prepare, file and sign Borrower's name on any notice of lien, assignment or satisfaction of lien or similar document in connection with the Accounts; (xi) endorse the name of Borrower upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating to the Accounts or Inventory; (xii) use Borrower's stationery for verifications of the Accounts and notices thereof to account obligors; (xiii) use the information recorded on or contained in any data processing equipment and computer hardware and software relating to the Accounts, General Intangibles, Equipment, Contract Rights or Inventory to which Borrower has access; and (xiv) do all acts and things and execute all documents necessary, in Secured Party's sole discretion, to collect the Accounts and General Intangibles; (E) The right to sell, assign, lease or to otherwise dispose of all or any Collateral in its then condition, or after any further manufacturing or processing thereof, at public or private sale or sales, with such notice as may be required by law, in lots or in bulk, for cash or on credit, with or without representations and warranties, all as Secured Party, in its sole discretion, may deem advisable (except, in the case of Government Receivables, to the extent such sales or other disposition are prohibited by applicable law). Secured Party shall have the right to conduct such sales on Borrower's premises or elsewhere and shall have the right to use Borrower's premises without charge for such sales for such time or times as Secured Party may see fit. Secured Party may, if it deems it reasonable, postpone or adjourn any sale of the Collateral from time to time by an announcement at the time and place of such postponed or adjourned sale, without being required to give a new notice of sale. Borrower agrees that Secured Party has no obligation to preserve rights to the Collateral against prior parties or to marshall any Collateral for the benefit of any Person. Secured Party is hereby granted a license or other right to use, without charge, Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, trade names, trademarks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale and selling any Collateral and Borrower's rights under any license and any franchise agreement shall inure to Secured Party's benefit. If any of the Collateral shall require repairs, maintenance, preparation or the like, or is in process or other unfinished state, Secured Party shall have the right, but shall not be obligated to perform such repairs, maintenance, preparation, processing or completion of manufacturing for the purpose of putting the same in such saleable form as Secured Party shall deem appropriate, but Secured Party shall have the right to sell or dispose of the Collateral without such processing. In addition, Borrower 15 agrees that in the event notice is necessary under applicable law, written notice mailed to Borrower in the manner specified in either of the Agreements ten (10) days prior to the date of public sale of any of the Collateral or prior to the date after which any private sale or other disposition of the Collateral will be made shall constitute commercially reasonable notice to Borrower. Secured Party or any Lender may purchase all or any part of the Collateral at public or, if permitted by law, private sale, free from any right of redemption which is hereby expressly waived by Borrower and, in lieu of actual payment of such purchase price, may set off the amount of such price against the Secured Obligations. The net cash proceeds resulting from the collection, liquidation, sale, lease or other disposition of the Collateral shall be applied first to the reasonable expenses (including all reasonable attorneys' fees) of retaking, holding, storing, processing and preparing for sale, selling, collecting, liquidating and the like (collectively, the "Administration Expenses"), and then to the satisfaction of all Secured Obligations, application as to particular Secured Obligations or against principal or interest to be in subject to the terms of Section 13 hereof and of the Agreements. Borrower shall be liable to Secured Party and the Lenders and shall pay to the Secured Party on demand any deficiency which may remain after such sale, disposition, collection or liquidation of the Collateral. Borrower recognizes that the Secured Party may be unable to effect a public sale of securities constituting Collateral by reason of certain prohibitions contained in the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities or Blue Sky laws, and as a consequence may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Borrower agrees and acknowledges that private sales so made may be at prices and upon terms less favorable to Borrower than if such Collateral were sold at public sales and that the Secured Party has no obligation to delay the sale of any of the Collateral for the period of time necessary to permit the issuer of such Collateral to register or otherwise qualify them, even if such issuer would agree to register or otherwise qualify such Collateral for public sale under the Securities Act and applicable state securities or Blue Sky laws. Borrower further agrees, to the extent permitted by applicable law, that the use of private sales made under the foregoing circumstances to dispose of the Collateral shall be deemed to be dispositions in a commercially reasonable manner; (F) The rights and remedies provided to Secured Party or any Lender under this Security Agreement or any of the other Loan Documents or ESOP Loan Documents. 16 13. Pari Passu Secured Obligations. The parties hereto acknowledge that the Obligations and the Guaranty Obligations shall rank pari passu with respect to the application of proceeds of Collateral to satisfy the same and, in accordance therewith, agree that the proceeds of Collateral, after payment of all Administration Expenses, shall be applied ratably to Obligations and Guaranty Obligations in accordance with the respective amounts thereof outstanding as of the date of any application of proceeds of Collateral for such purpose. 14. Anti-Marshalling Provisions. The right is hereby given by Borrower to Secured Party and the Lenders to make releases (whether in whole or in part) of all or any part of the Collateral agreeable to Secured Party and the Lenders without notice to, or the consent, approval or agreement of other parties and interests, including junior lienors, which releases shall not impair in any manner the validity of or priority of the liens and security interest in the remaining Collateral conferred under such documents, nor release Borrower from personal liability for the indebtedness hereby secured. Notwithstanding the existence of any other security interest in the Collateral held by Secured Party or any Lender, Secured Party and the Lenders shall have the right to determine the order in which any or all of the Collateral shall be subjected to the remedies provided in this Security Agreement. The proceeds realized upon the exercise of the remedies provided herein shall be applied as provided herein and in the Agreements. Borrower hereby waives any and all right to require the marshalling of assets in connection with the exercise of any of the remedies permitted by applicable law or provided herein. 15. Appointment of Secured Party as Borrower's Lawful Attorney. Upon and after an Event of Default which has not been waived or cured, Borrower irrevocably designates, makes, constitutes and appoints Secured Party (and all Persons designated by Lender) as Borrower's true and lawful attorney (and agent-in-fact). To the extent permitted by law, all acts of Secured Party or its designee lawfully taken pursuant to Section 13 are hereby ratified and confirmed and Secured Party or its designee shall not be liable for any acts of omission or commission nor for any error of judgment or mistake of fact or law which does not constitute bad faith, willful misconduct or gross negligence. This power, being coupled with an interest, is irrevocable by Borrower until all Secured Obligations are finally paid in full. 16. Rights and Remedies Cumulative; Non-Waiver; Etc. The enumeration of Secured Party's and Lenders' rights and remedies set forth in this Security Agreement is not intended to be exhaustive and the exercise by the Secured Party or any Lender of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative, and shall be in addition to any other right or remedy given hereunder, or under any other agreement between Borrower and Secured Party or any Lender or which may now or hereafter exist in law or in equity or by suit or 17 otherwise. No delay or failure to take action on the part of Lender in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude other or further exercise thereof or the exercise of any other right, power or privilege or be construed to be a waiver of any Event of Default. No waiver by a party hereunder shall be effective unless it is in writing and signed by the party making such waiver, and then only to the extent specifically stated in such writing. No course of dealing between Borrower and the Secured Party or any Lender or their respective agents or employees shall be effective to change, modify or discharge any provision of this Security Agreement or to constitute a waiver of any Event of Default. 17. Waivers. In addition to the other waivers contained herein and in any other agreement between Borrower and Secured Party or any Lender, Borrower hereby expressly waives, to the extent permitted by law: presentment for payment, demand, protest, notice of demand, notice of protest, notice of default or dishonor, notice of payments and nonpayments and all other notices and consents that Secured Party may release, compromise, settle, extend or renew any commercial paper, instruments or guaranties at any time held by Secured Party or any Lender on which Borrower may in any way be liable and notice of any action taken by Secured Party or any Lender unless expressly required by this Security Agreement, the Agreements or by law. 18. Notice. Except as otherwise provided herein, all notices, requests and demands to or upon a party hereto shall be effective as provided (i) as among the Borrower, the Agent and the Lenders, for the giving of notices to such parties in the Credit Agreement and (ii) as between the Borrower and NationsBank, for the giving of notices to such parties in the Guaranty. 19. Applicable Law. This Security Agreement shall be governed in all respects by, and construed in accordance with, the internal laws of the State of Florida without reference to choice of laws principles. 20. References to Credit Agreement Definitions. In the event that the Credit Agreement shall no longer be in effect at any time while the Guaranty shall continue in effect or there shall otherwise continue to remain outstanding Secured Obligations, all references to the Credit Agreement, including terms defined by reference to their respective definitions contained in the Credit Agreement, shall be deemed to refer to the Credit Agreement as in effect as of the date hereof, with such amendments thereto to which the Secured Party shall have given its express consent in accordance with the Loan Documents and the ESOP Loan Documents. 21. Entire Agreement. This Security Agreement, together with the Agreements and other Loan Documents and ESOP Loan Documents, constitute and express the entire understanding between the parties 18 hereto with respect to the subject matter hereof, and supersede all prior agreements and understandings, inducements, commitments or conditions, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof. Neither this Security Agreement nor any portion or provision hereof may be changed, altered, waived, modified, supplemented, discharged, canceled, terminated, or amended orally or in any manner other than (i) as to the Agent, as provided in the Credit Agreement and (ii) as to NationsBank, by the express written consent of NationsBank in each instance. 22. Section Headings. The Section headings in this Security Agreement are for convenience of reference only; they form no part of this Security Agreement and shall not affect its interpretation. 23. Severability. The provisions of this Security Agreement are independent of and separable from each other. If any provision hereof shall for any reason be held invalid or unenforceable, such invalidity or unenforceability shall not affect the validity or enforceability of any other provision hereof, but this Security Agreement shall be construed as if much invalid or unenforceable provision had never been contained herein. 24. Successors and Assigns. This Security Agreement shall be binding upon the successors and assigns of Borrower and shall inure to the benefit of and be enforceable by the Secured Party and its successors and assigns; provided, however, the obligations of Borrower hereunder may not be assigned or delegated to any other Person without the prior written consent of the Secured Party. 25. Agency. Notwithstanding the foregoing references to the Secured Party, Borrower acknowledges and agrees that so long as NationsBank shall be the sole Lender under the Credit Agreement, the term "Agent" shall mean NationsBank as Lender. When and if there shall be more than one Lender party to the Credit Agreement, then the term "Agent" shall refer to the Agent under the Credit Agreement pursuant to the provisions of Article XI of the Credit Agreement, to which reference is hereby made. 26. Termination. In the event that all of the Secured Obligations shall be fully, finally and indefeasibly paid and satisfied in full (subject to provisions of the Agreements that expressly survive), the Agreements shall be terminated and there shall be no Outstanding Letters of Credit, the Secured Party shall, at the request and at the expense of the Borrower, terminate the security interest and powers of attorney herein conferred and, in furtherance thereof, execute such Uniform Commercial Code termination statements and such other documents in form and substance reasonably satisfactory to the Secured Party to release and terminate the Lien hereof of record. Notwithstanding the foregoing provisions of this Section 26, in the event that any payment made or deemed made to the Secured Party or any Lender in 19 payment of any Secured Obligation shall be rescinded or declared to be or become void, voidable or otherwise recoverable from the Secured Party or such Lender for any reason whatsoever, the Lien in favor of the Secured Party created hereunder shall be and become reinstituted in respect of such Secured Obligations until the same shall be thereafter fully and finally paid, satisfied and discharged. [Remainder of page intentionally left blank] 20 IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed by authority duly given as of the day and year first above written. WITNESS: VITAS HEALTHCARE CORPORATION /s/ Terry L. Scaggs By: /s/ Mark W. Ohlendorf - ----------------------------- ----------------------------------- /s/ Meganne Cusato Mark W. Ohlendorf - ----------------------------- Vice President SECURED PARTY: WITNESS: NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION, as Agent /s/ Terry L. Scaggs By: /s/ Allison S. Freeland - ----------------------------- ----------------------------------- /s/ Meganne Cusato Allison S. Freeland Vice President WITNESS: NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION /s/ Terry L. Scaggs By: /s/ Allison S. Freeland - ----------------------------- ----------------------------------- /s/ Meganne Cusato Allison S. Freeland - ----------------------------- Vice President 21 EXHIBIT A Permitted Encumbrances Schedule 7.01(g) delivered pursuant to the Credit Agreement as in effect on the Closing Date is incorporated by reference herein. EX-10.50 26 EXHIBIT 10.50 EXHIBIT 10.50 PLEDGE AND SECURITY AGREEMENT THIS PLEDGE AND SECURITY AGREEMENT (this "Security Agreement") is made this 17th day of February, 1995, by and between VITAS HEALTHCARE CORPORATION OF CALIFORNIA, a Delaware corporation having its principal place of business in Miami, Dade County, California, (the "Pledgor"), and NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION, a national banking association ("NationsBank"), for itself and as agent (in such agency capacity and together with any successor agent, the "Agent") for certain lenders (the "Lenders") party to the Credit Agreement described below (in such capacities as described below and together with any successor agent acting as such under the Credit Agreement described below, the "Secured Party"). W I T N E S S E T H: WHEREAS, (i) pursuant to a Revolving Credit and Reimbursement Agreement dated as of August 11, 1994 (the "Prior Credit Agreement") among Vitas Healthcare Corporation (the "Company"), NationsBank as agent and NationsBank as the lender thereunder, NationsBank has extended to the Company a revolving credit facility in the aggregate principal amount of up to $15,000,000, including within such revolving credit facility the issuance of letters of credit for the account of the Company and (ii) pursuant to a Guaranty and Contingent Purchase Agreement of even date with the Prior Credit Agreement between the Company and NationsBank (the "Prior Company Guaranty" and, together with the Prior Credit Agreement, the "Prior Agreements"), NationsBank extended a term loan of $2,386,670 to the Vitas Healthcare Corporation Employee Stock Ownership Trust (the "Trust") to refinance certain indebtedness owing from the Trust to the Company, the repayment of which loan has been, inter alia, guaranteed under the Prior Guaranty; and WHEREAS, the Company and Pledgor, a Subsidiary of the Company, have entered into an Asset Purchase Agreement with the Sellers (as defined in the Credit Agreement) dated as of December 27, 1994 (the "Asset Purchase Agreement") pursuant to which the Pledgor has agreed to purchase substantially all of the operating assets of the CHC Entities (as defined in the Credit Agreement) pursuant to the terms and subject to the conditions set forth therein and, in connection therewith, the Company has requested that the Prior Credit Agreement be amended and restated to increase the revolving credit facility from $15,000,000 to $20,000,000, to provide for a $25,000,000 term loan facility, and to make certain other modifications, and that the Prior Company Guaranty be amended and restated to reflect the agreement of the parties; and WHEREAS, at the request of the Company and to effect the modifications referred to above, (i) the Company, the Agent and the Lenders are entering into an Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement of even date herewith (as the same may be modified, amended or restated from time to time, the "Credit Agreement"), and (ii) the Company and NationsBank are entering into an Amended and Restated Guaranty and Contingent Purchase Agreement of even date herewith (as the same may be modified, amended or restated from time to time, the "Company Guaranty" and, together with the Credit Agreement, the "Agreements"); and WHEREAS, pursuant to the Agreements, the Pledgor has executed and delivered its Guaranty and Suretyship Agreement of even date herewith (as the same may be amended, modified or restated from time to time, the "Pledgor Guaranty") guaranteeing the payment and performance by the Company, inter alia, of its obligations under the Agreements; and WHEREAS, the Lenders are unwilling to extend the amend and increase the revolving credit facility or make such term loan pursuant to the Credit Agreement, and NationsBank is unwilling to amend the Prior Agreements as reflected in the Agreements to permit the consummation of the CHC Transaction, unless the Pledgor enters into this Security Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and promises herein contained, the parties hereto agree as follows: 1. Certain Definitions. Unless otherwise defined herein, capitalized terms used in this Security Agreement shall have the respective meanings therefor provided in the Credit Agreement. 2. Grant of Security Interest. As collateral security for the full and prompt payment, satisfaction and performance of all obligations and liabilities of the Pledgor under the Pledgor Guaranty, whether now existing or hereafter arising (the "Secured Obligations"), Pledgor hereby grants to the Secured Party a continuing security interest in all of its right, title and interest in and to all of the following property in which Pledgor now has or hereafter acquires an interest, whether now owned or existing or hereafter acquired or arising and wheresoever located: (A) All accounts, accounts receivable, notes, bills, acceptances, choses in action, chattel paper, instruments, documents, and other forms of obligations at any time owing to Pledgor, the proceeds thereof and all of Pledgor's rights with respect to any goods represented thereby, whether or not delivered, goods returned by customers and all rights as an unpaid vendor or lienor, including rights of stoppage in transit and of recovering possession by proceedings 2 including replevin and reclamation, together with all customer lists, books and records, ledger and account cards, computer tapes, software, disks, printouts and records, whether now in existence or hereafter created relating thereto (collectively referred to hereinafter as "Accounts"); (B) All goods of Pledgor, including without limitation, all machinery, equipment, motor vehicles, parts, supplies, apparatus, appliances, tools, patterns, molds, dies, blueprints, fittings, furniture, furnishings, fixtures and articles of tangible personal property of every description now or hereafter owned by Pledgor or in which Pledgor may have or may hereafter acquire any interest, but as to leasehold interests in personal property, only to the extent assignable (collectively referred to hereinafter as "Equipment"); (C) All general intangibles of Pledgor, now existing or hereafter owned or acquired or arising or in which Pledgor now has or hereafter acquires any rights, including but not limited to causes of action, corporate or business records, inventions, designs, patents, patent applications, trademarks, trademark registrations and applications therefor, goodwill, trade names, trade secrets, trade processes, copyrights, copyright registrations and applications therefor, licenses (to the extent assignable), permits (to the extent assignable), franchises, customer lists (to the extent permitted by law), computer programs, all claims under guaranties, tax refund claims, rights and claims against carriers and shippers, leases (to the extent assignable), claims under insurance policies, all rights to indemnification and all other intangible personal property of every kind and nature (collectively referred to hereinafter as "General Intangibles"); (D) All inventory of Pledgor wherever located, including without limitation, all goods manufactured or acquired for sale or lease, and any piece goods, raw materials, work in process and finished merchandise, findings or component materials, and all supplies, goods, incidentals, office supplies, packaging materials and any and all items used or consumed in the operation of the business of Pledgor or which may contribute to the finished product or to the sale, promotion and shipment thereof, in which Pledgor now or at any time hereafter may have an interest, whether or not the same is in transit or in the constructive, actual or exclusive occupancy or possession of Pledgor or is held by Pledgor or by others for Pledgor's account (collectively referred to hereinafter as "Inventory"); 3 (E) To the extent assignable, all rights now or hereafter arising to any Pledgor under contracts, leases, agreements or other instruments of every character and description, and all rights of enforcement thereunder (collectively referred to as hereinafter as "Contract Rights"); (F) All monies, certificates of deposit, commercial paper, cash equivalents, account balances, notes, options, interests, and securities (certificated or uncertificated), wheresoever located; excluding, however, (x) the equity interests (other than interests in money market funds) of the Pledgor in Persons not constituting Subsidiaries and (y) the Joint Account established under the Joint Account Agreement (as defined in the Asset Purchase Agreement) and all funds deposited therein or investments credited thereto; (G) All accessions to, substitutions for and all replacements, products and proceeds of the foregoing including, without limitation, proceeds of insurance policies insuring the Collateral (as hereinafter defined); and (H) All books and records (including without limitation, customer data, credit files, computer programs, printouts, and other computer materials and records of the Pledgor and all documents) pertaining to any of the foregoing. All of the property and interests in property described in subsections (A) through (H) and all other property and interests in personal property which shall, from time to time, secure the Secured Obligations are herein collectively referred to as the "Collateral". 3. Financing Statements. At the time of execution of this Security Agreement, Pledgor shall have (i) furnished the Secured Party with financing statements, approved by the Secured Party and executed as prescribed by the Uniform Commercial Code as presently in effect in the states of California and Florida, and where other Collateral is located, as may be reasonably requested by the Secured Party, in form and number sufficient to perfect in favor of the Secured Party the security interest in the Collateral, and (ii) delivered to Secured Party's possession certificated securities (with duly executed stock powers in blank affixed thereto) representing the Pledgor's interests in Subsidiaries, in order that the Secured Party shall have a perfected security interest in the Collateral following such filing of such financing statements with the appropriate local and state governmental authorities and the delivery of such securities (to the extent that a security interest in such Collateral is capable of perfection by such filing or possession), and subject only to (a) permitted liens described in 4 the Credit Agreement, (b) such other security interests, liens and encumbrances currently existing and set forth in Exhibit A attached hereto and by reference made a part hereof, or as shall otherwise be acceptable to the Secured Party in its sole discretion, and (c) limitations under applicable law which may limit the creation, perfection or priority of liens on Government Receivables (collectively referred to hereinafter as "Permitted Liens"); provided, however, that with respect to the items of property described in clause (F) of Section 2, the security interest in such property will not be perfected until the Secured Party or any Lender takes possession thereof or otherwise obtains perfection in accordance with the applicable requirements of the Uniform Commercial Code. Pledgor shall execute as reasonably required by the Secured Party any additional financing statements or other documents to effect a perfected security interest in the Collateral to the extent contemplated hereby, together with any necessary continuation statements so long as this Security Agreement remains in effect. 4. Maintenance of Security Interest. Pledgor will, from time to time, upon the request of the Secured Party, deliver specific assignments of Collateral, together with such other instruments and documents, financing statements, amendments thereto, assignments or other writings as the Secured Party or any Lender may reasonably request to carry out the terms of this Security Agreement or to protect or enforce the Secured Party's security interest in the Collateral. With respect to any and all Collateral as to which a security interest is granted under this Security Agreement, Pledgor agrees to do and cause to be done all things necessary to perfect and keep in full force the security interest granted in favor of the Secured Party, including, but not limited to, the prompt payment of all fees and expenses incurred in connection with any filings made to perfect a security interest in the Collateral in favor of the Secured Party. Pledgor agrees to make appropriate entries upon its financial statements and books and records disclosing the Secured Party's security interest in the Collateral. 5. Collections: Secured Party's Right to Notify Account Debtors and to Endorse Each Pledgor's Name. Pledgor hereby authorizes Secured Party at any time after the occurrence and during the continuation of an Event of Default subject, with respect to the Secured Obligations relating to the Company's obligations under the Company Guaranty, to Section 2.08 of the Company Guaranty, (a) to open Pledgor's mail and collect any and all amounts due to Pledgor from persons obligated on any Accounts ("Account Debtors"), but only to the extent permitted by law with respect to Government Receivables; (b) to take over Pledgor's post office boxes or make other arrangements as Secured Party deems necessary to receive Pledgor's mail, including notifying 5 the post office authorities to change the address for delivery of Pledgor's mail to such address as Secured Party may designate; and (c) to notify any or all Account Debtors, but only to the extent permitted by law with respect to Government Receivables, that the Accounts have been assigned to Secured Party and that Secured Party has a security interest therein. Pledgor irrevocably makes, constitutes and appoints Secured Party and all Persons designated by Secured Party for that purpose as Pledgor's true and lawful attorney (and agent-in-fact) after the occurrence and during the continuation of an Event of Default, subject to the limitations set forth in the immediately preceding sentence and, with respect to the Secured Obligations relating to the Company's obligations under the Company Guaranty, to Section 2.08 of the Company Guaranty, to endorse such Pledgor's name on any checks, notes, drafts or any other payment relating to and/or proceeds of the Collateral which comes into Secured Party's possession or Secured Party's control, and apply the same on account of the Secured Obligations as provided herein and in the Agreements, in such order as Secured Party may elect. Secured Party shall promptly furnish Pledgor with a copy of any such notice sent with respect to Accounts of Pledgor and Pledgor hereby agrees that any such notice, in Secured Party's sole discretion, may be sent on Pledgor's stationery, in which event Pledgor shall co-sign such notice with Secured Party. 6. Collateral. Pledgor covenants with Lender that: (A) Inspection. Secured Party and any Lender (by any of its officers, employees and agents) shall have the right, at any time or times during Pledgor's usual business hours, to inspect the Collateral, all records related thereto (and to make extracts or copies from such records), and the premises upon which any of the Collateral is located, to discuss Pledgor's affairs and finances with its principal officers and independent auditors and to verify the amount, quality, quantity, value and condition of, or any other matter relating to, the Collateral. Upon or after the occurrence of a Default or an Event of Default, Secured Party may at any time and from time to time employ and maintain at Pledgor's premises a custodian selected by Secured Party who shall have full authority to do all acts necessary to protect Secured Party's interest. All reasonable expenses incurred by Secured Party by reason of the employment of such custodian shall be paid by the Pledgor, added to the Secured Obligations and secured by the Collateral. (B) Assignments, Records and Schedules of Accounts. Pledgor shall keep accurate and complete records of its Accounts ("Account Records") and, upon Secured Party's request from time to time at intervals acceptable to Secured Party, Pledgor shall reasonably provide Secured Party and each Lender with a Schedule of Accounts in form and 6 substance reasonably acceptable to the Secured Party describing all Accounts created or acquired by such Pledgor ("Schedule of Accounts") and shall at the request of Secured Party execute and deliver further written assignments of such Accounts to Secured Party; provided however, that Pledgor's failure to execute and deliver any such Schedule of Accounts or assignments shall not affect or limit Secured Party's security interest or other rights in and to any Accounts. If requested by Secured Party, Pledgor shall furnish Secured Party with copies of proof of delivery of invoices and the original copy of all documents, including, without limitation, repayment histories and present status reports, relating to the Accounts so scheduled (collectively, "Account Documents") and such other matter and information relating to the status of then existing Accounts as Secured Party shall reasonably request. (C) Notice Regarding Disputed Account. In the event any amounts due and owing in excess of $100,000 are in dispute between any Account Debtor and Pledgor (which shall include, without limitation, any dispute in which an offset claim or counterclaim may result), Pledgor shall provide the Secured Party with written notice thereof promptly, explaining in detail the reason for the dispute, all claims related thereto and the amount in controversy. (D) Verification of Accounts. Whether or not a Default or an Event of Default has occurred, any of Secured Party's, employees, or agents shall have the right, at any time or times hereafter, to verify under reasonable procedures the validity, amount or any other matter relating to any Accounts by mail, telephone, telegraph or otherwise. (E) Change of Trade Styles. Set forth on Schedule 6(E) delivered to the Secured Party simultaneously with the execution of this Security Agreement are all tradenames and trade styles under which Pledgor provides services giving rise to Accounts as of the date of this Agreement ("Trade Styles"). Pledgor shall not change, amend, alter, terminate, or cease using its Trade Styles, or use additional Trade Styles, except upon giving not less than ten (10) days prior written notice to the Secured Party and taking or causing to be taken all such action at Pledgor's expense as may be reasonably requested by the Secured Party (including the furnishing of additional financing statements) to enable the Secured Party to perfect or maintain the perfection of the security interest of the Secured Party in Accounts, General Intangibles, Contract Rights and related Collateral. (F) Safekeeping of Inventory. Pledgor shall be responsible for the safekeeping of its Inventory, and in no event shall Secured Party or any Lender have any responsibility for: 7 (i) Any loss or damage to Inventory or destruction thereof occurring or arising in any manner or fashion from any cause other than as a result of gross negligence, bad faith or willful misconduct of the Agent or any Lender; (ii) Any diminution in the value of Inventory; or (iii) Any act or default of any carrier, warehouse-man, bailee or forwarding agency thereof or other Person in any way dealing with or handling Inventory. (G) Records and Schedules of Inventory. Pledgor shall keep correct and accurate records on a perpetual basis, itemizing and describing the kind, type, location, quality and quantity of Inventory owned by it, if any, from time to time, and such Pledgor's cost therefor and selling price thereof, and at the reasonable request of the Secured Party shall furnish to the Secured Party, a current Schedule of Inventory ("Schedule of Inventory"). Pledgor shall conduct a physical inventory, of which Secured Party shall be given prior written notice and shall have the right to be present no less than annually, and shall furnish to Secured Party such other documents and reports as Secured Party shall reasonably request with respect to the Inventory, including, without limitation, invoices relating to Pledgor's purchase of Inventory. (H) Evidence of Ownership of Equipment. Pledgor, promptly on request therefor by the Secured Party, shall deliver to the Secured Party any and all evidence of ownership of any of the Equipment (including without limitation certificates of title and applications for title) (I) Records and Schedules of Equipment. Pledgor shall maintain accurate, itemized records describing in reasonable detail its Equipment and shall furnish the Secured Party upon reasonable request with a current schedule containing the foregoing information ("Schedule of Equipment"). (J) Administration of Collateral. So long as no Event of Default shall have occurred and be continuing, Pledgor may (to the extent not inconsistent with the provisions of the Loan Documents or the ESOP Loan Documents) (i) sell, transfer or dispose of any asset owned by it or (ii) collect or compromise Accounts and General Intangibles in the ordinary course of business in any lawful manner. (K) Voting Rights, Consensual Rights, Dividends and Distributions. So long as no Event of Default shall have occurred and be continuing: 8 1. the Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Collateral or any part thereof for any purpose not inconsistent with the terms of this Security Agreement, the Credit Agreement, the other Loan Documents or the other ESOP Loan Documents; 2. the Pledgor shall be entitled to receive and retain any and all cash distributions or dividends paid on the Collateral which they are otherwise entitled to receive, notwithstanding the assignment and transfer of the Collateral and the grant of security interest in Section 2 of this Security Agreement (provided that any cash distributions or dividends received upon the occurrence and during the continuance of a Default shall remain segregated from all other funds of the Pledgor and deposited with the Secured Party), but any and all stock dividends, liquidating dividends, distributions in property, returns of capital or other distributions made on or in respect of any of the Collateral, whether resulting from a subdivision, combination or reclassification of the outstanding capital stock of any issuer of the Collateral or received in exchange for the Collateral or any part thereof or as a result of any merger, consolidation, acquisition or other exchange of assets to which any issuer of any Collateral may be a party or otherwise, and any and all cash and other property received in exchange for any of the Collateral shall be and become part of the Collateral hereunder and, if received by the Pledgor, shall forthwith be delivered to the Secured Party, to the extent the Collateral for which it was exchanged was held or required to be held by the Secured Party; and 3. the Secured Party shall execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting, consensual and other rights which the Pledgor are entitled to exercise pursuant to subparagraph (1) above and to receive such distributions and dividends which it is authorized to receive and retain pursuant to subparagraph (2) above. B. Upon the occurrence and during the continuance of an Event of Default: 1. subject, with respect to the Secured Obligations relating to the Company's obligations under the Company Guaranty to Section 2.08 of the Company Guaranty, all rights of the Pledgor to exercise the voting and other consensual rights which it would 9 otherwise be entitled to exercise pursuant to Section 6(K)A.1 and to receive and retain the distributions and dividends which it would otherwise be authorized to receive and retain pursuant to Section 6(K)A.2, shall become vested in the Secured Party, which shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and hold as Collateral such distributions and dividends (whether or not the relevant Collateral shall have been transferred into the name of the Secured Party or any of its nominees, the Pledgor hereby irrevocably appointing and constituting the Secured Party as proxy and attorney-in-fact of Pledgor, which appointment is coupled with an interest and is irrevocable, with full power of substitution, to act as if the Secured Party were the outright owner thereof); and 2. all distributions and dividends which are received by the Pledgor contrary to the provisions of Section 6(K)A.2 or Section 6(K)B.1 shall be received in trust for the benefit of the Secured Party, shall be segregated from other funds of Pledgor and shall be paid over to the Secured Party forthwith as Collateral in the same form as so received (with any necessary endorsement). 7. Warranties Regarding Collateral. Pledgor warrants and represents that it is and will continue to be the owner of the Collateral, now owned and upon the acquisition of the same, free and clear of all encumbrances and security interests other than the security interest in favor of Secured Party hereunder and Permitted Liens, and that it will defend the Collateral and the Secured Party's security interest therein and any products and proceeds thereof against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to the Secured Party or any Lender. 8. Account Warranties and Representation. With respect to its Accounts, Pledgor warrants and represents to the Secured Party and the Lenders that they may rely on all statements or representations made by Pledgor on or with respect to any Schedule of Accounts prepared and delivered by Pledgor and, unless otherwise indicated in writing by Pledgor, that: (A) All Account Records and Account Documents are located and shall be kept only at Pledgor's chief executive offices located at the locations described in Schedule 6.04 delivered to the Agent pursuant to the Credit Agreement and Schedule 4.22 delivered to the Bank pursuant to the Company Guaranty; (B) They are genuine, are in all material respects what they purport to be, are not evidenced by a judgment 10 instrument or document or, if evidenced by an instrument or document, are only evidenced by one original instrument or document, which has been delivered to the Secured Party; (C) They cover the bona fide rendition of services, or the bona fide sales and deliveries of Inventory usually dealt in by Pledgor, in the ordinary course of business; (D) Each Account is actually and absolutely owing to Pledgor in the face value thereof, is valid and enforceable against the applicable Account Debtor, and is not subject to any setoffs, discounts, allowances, claims, counterclaims, disputes or doubtful collectibility except (i) as is customary for Accounts of the type represented by such Account (including the nature of the Account Debtor) of the Pledgor in the ordinary course of Pledgor's business and consistent with past practices, and (ii) as is reflected by reserves and reductions in the stated value of such Account, computed in a manner consistent with the Company's policies and practices in preparing the financial statements described in Sections 7.01 and 8.01 of the Credit Agreement and Sections 3.01(f) and 4.01 of the Company Guaranty, included in such financial statements, in the Schedule of Accounts and in any report or certificate including financial information regarding such Account furnished to the Secured Party pursuant to the Loan Documents or the ESOP Loan Documents. (E) The goods or services giving rise thereto are not, and were not at the time of the sale or performance thereof, subject to any lien, claim, encumbrance or security interest, except those of the Secured Party and those removed or terminated prior to the date hereof; (F) They have not been pledged to any Person other than to Secured Party under this Security Agreement and will be owned by Pledgor free and clear of any liens, claims or encumbrances except Permitted Liens; and (G) Secured Party's security interest therein will not be subject to any offset, deduction, counterclaim, lien or other adverse condition, other than Permitted Liens or as is consistent with Section 8(D) above. 9. Inventory Warranties and Representations. With respect to Inventory, Pledgor warrants and represents to the Secured Party and the Lenders that they may rely on all statements or representations made by Pledgor on or with respect to any Inventory and, unless otherwise indicated in writing by Pledgor, that (A) Except for the relocation of Inventory from time to time in the ordinary course of business not aggregating 11 more than $100,000 at any one time in any location other than those set forth in Schedules 6.03 and 6.04 delivered pursuant to the Credit Agreement or Schedules 4.22 and 4.23 delivered pursuant to the Company Guaranty, the Pledgor shall not locate or relocate inventory to any location other than those set forth in Section 8(A) above or Schedules 6.03 and 6.04 delivered pursuant to the Credit Agreement or Schedules 4.22 and 4.23 delivered pursuant to the Company Guaranty without giving the Secured Party not less than thirty (30) days prior written notice and taking or causing to be taken at its expense all steps as may be reasonably requested by the Secured Party (including the furnishing or additional financing statements) to enable the Secured Party to perfect or continue the perfection of its security interest in such property. (B) No Inventory is or will be subject to any lien, claim, encumbrance or security interest whatsoever, except for the security interest of Secured Party hereunder and Permitted Liens; (C) No Inventory having an aggregate value in excess of $100,000 is now, and shall not at any time or times hereafter be, stored with a bailee, warehouseman or similar party without Secured Party's prior written consent and, if Secured Party gives such consent, Pledgor will concurrently therewith cause any such bailee, warehouseman, or similar party to issue and deliver to Secured Party in form and substance acceptable to Secured Party, warehouse receipts therefor in Secured Party's name; and (D) No Inventory is under consignment to any Person. 10. Equipment Warranties and Representations. With respect to Equipment, Pledgor warrants and represents to the Secured Party and each Lender that: (A) Except for the relocation of Equipment from time to time in the ordinary course of business not aggregating more than $100,000 at any one time in any location other than those set forth in Schedules 6.03 and 6.04 of the Credit Agreement and Schedules 4.22 and 4.23 of the Company Guaranty, the Pledgor shall not locate or relocate Equipment to any location other than those set forth in Schedules 6.03 and 6.04 of the Credit Agreement and Schedules 4.22 and 4.23 of the Company Guaranty without giving the Secured Party not less than thirty (30) days prior written notice and taking or causing to be taken at their expense all steps as may be reasonably requested by the Secured Party (including the furnishing of additional financing statements) to enable the Secured Party to perfect or continue the perfection of its security interest in such property; and 12 (B) Pledgor has and at all times will have good and marketable title to and ownership of the Equipment free and clear of any lien, claim, encumbrance, or security interest whatsoever, except for (i) the security interest of Secured Party created hereunder and (ii) Permitted Liens. 11. Casualty and Liability Insurance Required. (A) Pledgor will keep the Collateral continuously insured as may be expressly required by the Agreements. (B) Each insurance policy obtained in satisfaction of the requirements of Section 11(A) hereof: (i) shall be by such insurer (or insurers) as shall be financially responsible and qualified to do business in the applicable jurisdictions; (ii) shall be in such form and have such provisions (including, without limitation, the loss payable clause, the waiver of subrogation clause, the deductible amount, if any, and the standard mortgagee endorsement clause), as are generally considered standard provisions for the type of insurance involved and are acceptable in all respects to Secured Party; (iii) shall prohibit cancellation or substantial modification, termination or lapse in coverage by the insurer without at least 30 days' prior written notice to Secured Party; (iv) shall provide that the interest of Secured Party shall not be impaired or invalidated by any act or neglect of Pledgor nor by the occupation of the premises wherein such Collateral is located for purposes more hazardous than are permitted by said policy; (v) without limiting the generality of the foregoing, all insurance policies covering loss or damage to the Collateral shall name Secured Party as mortgagee, loss payee and a party insured thereunder and any loss thereunder shall be paid directly to Secured Party. (C) Prior to expiration of any such policy, Pledgor shall furnish Secured Party with evidence reasonably satisfactory to Secured Party that the policy or certificate has been renewed or replaced or is no longer required by this Security Agreement. (D) Pledgor hereby irrevocably makes, constitutes and appoints Secured Party (and all officers, employees or agents designated by Secured Party), effective upon the occurrence of an Event of Default which has not been waived or cured, as Pledgor's true and lawful attorney (and agent-in-fact) for the purpose of making, settling and adjusting claims under such policies of 13 insurance, endorsing the name of Pledgor on any check, draft, instrument or other item or payment for the proceeds of such policies of insurance and for making all determinations and decisions with respect to such policies of insurance. (E) In the event Pledgor shall fail to maintain, or cause to be maintained, the full insurance coverage required hereunder or shall fail to keep any Collateral in good repair and good operating condition, the Secured Party may (but shall be under no obligation to), without waiving or releasing any Secured Obligation or Event of Default, after giving notice to the Pledgor, contract for the required policies of insurance and pay the premiums on the same or make any required repairs, renewals and replacements; and all sums so disbursed by Secured Party, including reasonable attorneys' fees, court costs, expenses and other charges related thereto, shall be payable on demand by Pledgor to Secured Party and shall be additional Secured Obligations secured by the Collateral. (F) In case of any material damage to or destruction of all or any part of the Collateral, Pledgor shall give prompt notice thereof to Secured Party. Each such notice shall describe generally the nature and extent of such damage, destruction, taking, loss, proceeding or negotiations. 12. Rights and Remedies Upon Default. Subject, with respect to the Secured Obligations relating to the Company's obligations under the Company Guaranty, to Section 2.08 of the Company Guaranty, upon and after an Event of Default which has not been waived or cured, the Secured Party shall have the following rights and remedies, all of which may be exercised with or without notice to Pledgor: (A) All of the rights and remedies of a secured party under the Uniform Commercial Code of the state where such rights and remedies are asserted, or under other applicable law, all of which rights and remedies shall be cumulative, and none of which shall be exclusive, to the extent permitted by law, in addition to any other rights and remedies contained in this Security Agreement, the Agreements, or any of the other Loan Documents or ESOP Loan Documents; (B) The right to foreclose the liens and security instruments created under this Security Agreement or any of the other Loan Documents or ESOP Loan Documents by any available judicial procedure or without judicial process; (C) The right to (i) enter upon the premises of Pledgor through self-help and without judicial process, without first obtaining a final judgment or giving Pledgor notice and opportunity for a hearing on the validity of Secured Party's claim and without any obligation to pay rent 14 to Pledgor, or any other place or places where any Collateral is located and kept, and remove the Collateral therefrom to the premises of Secured Party or any agent of Secured Party for such time as Secured Party may desire, in order to effectively collect or liquidate the Collateral, and/or (ii) require Pledgor to assemble the Collateral and make it available to Secured Party at a place to be designated by Secured Party in its sole discretion; (D) The right (to the extent permissible by law with respect to Governmental Receivables) to (i) demand payment of the Accounts; (ii) enforce payment of the Accounts and General Intangibles and enforce all Contract Rights, by legal proceedings or otherwise; (iii) exercise all or any of Pledgor's rights and remedies with respect to the collection of the Accounts and General Intangibles and in respect of Contract Rights; (iv) settle, adjust, compromise, extend or renew the Accounts; (v) settle, adjust or compromise any legal proceedings brought to collect the Accounts or General Intangibles or to enforce Contract Rights; (vi) sell or assign the Accounts, General Intangibles, Contract Rights or other Collateral upon such terms, for such amounts and at such time or times as Secured Party deems advisable; (vii) discharge and release the Accounts; (viii) take control, in any manner, of any item of payment or proceeds; (ix) prepare, file and sign Pledgor's name on a Proof of Claim in bankruptcy or similar document against any account obligor; (x) prepare, file and sign Pledgor's name on any notice of lien, assignment or satisfaction of lien or similar document in connection with the Accounts; (xi) endorse the name of Pledgor upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating to the Accounts or Inventory; (xii) use Pledgor's stationery for verifications of the Accounts and notices thereof to account obligors; (xiii) use the information recorded on or contained in any data processing equipment and computer hardware and software relating to the Accounts, General Intangibles, Equipment, Contract Rights or Inventory to which Pledgor has access; and (xiv) do all acts and things and execute all documents necessary, in Secured Party's sole discretion, to collect the Accounts and General Intangibles; (E) The right to sell, assign, lease or to otherwise dispose of all or any Collateral in its then condition, or after any further manufacturing or processing thereof, at public or private sale or sales, with such notice as may be required by law, in lots or in bulk, for cash or on credit, with or without representations and warranties, all as Secured Party, in its sole discretion, may deem advisable (except, in the case of Government Receivables, to the extent such sales or other disposition are prohibited by applicable law). Secured Party shall have the right to 15 conduct such sales on Pledgor's premises or elsewhere and shall have the right to use Pledgor's premises without charge for such sales for such time or times as Secured Party may see fit. Secured Party may, if it deems it reasonable, postpone or adjourn any sale of the Collateral from time to time by an announcement at the time and place of such postponed or adjourned sale, without being required to give a new notice of sale. Pledgor agrees that Secured Party has no obligation to preserve rights to the Collateral against prior parties or to marshall any Collateral for the benefit of any Person. Secured Party is hereby granted a license or other right to use, without charge, Pledgor's labels, patents, copyrights, rights of use of any name, trade secrets, tradenames, trademarks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale and selling any Collateral and Pledgor's rights under any license and any franchise agreement shall inure to Secured Party's benefit. If any of the Collateral shall require repairs, maintenance, preparation or the like, or is in process or other unfinished state, Secured Party shall have the right, but shall not be obligated to perform such repairs, maintenance, preparation, processing or completion of manufacturing for the purpose of putting the same in such saleable form as Secured Party shall deem appropriate, but Secured Party shall have the right to sell or dispose of the Collateral without such processing. In addition, Pledgor agrees that in the event notice is necessary under applicable law, written notice mailed to Pledgor in the manner specified in either of the Agreements ten (10) days prior to the date of public sale of any of the Collateral or prior to the date after which any private sale or other disposition of the Collateral will be made shall constitute commercially reasonable notice to Pledgor. Secured Party or any Lender may purchase all or any part of the Collateral at public or, if permitted by law, private sale, free from any right of redemption which is hereby expressly waived by Pledgor and, in lieu of actual payment of such purchase price, may set off the amount of such price against the Secured Obligations. The net cash proceeds resulting from the collection, liquidation, sale, lease or other disposition of the Collateral shall be applied first to the reasonable expenses (including all reasonable attorneys' fees) of retaking, holding, storing, processing and preparing for sale, selling, collecting, liquidating and the like (collectively, the "Administration Expenses"), and then to the satisfaction of all Secured Obligations, application as to particular Secured Obligations or against principal or interest to be in subject to the terms of Section 13 hereof and of the Agreements. Pledgor shall be liable to Secured Party and the Lenders and shall pay to the Secured Party on demand any deficiency which may remain after such sale, disposition, collection or liquidation of the Collateral. 16 Pledgor recognize that the Secured Party may be unable to effect a public sale of securities constituting Collateral by reason of certain prohibitions contained in the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities or Blue Sky laws, and as a consequence may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Pledgor agrees and acknowledges that private sales so made may be at prices and upon terms less favorable to Pledgor than if such Collateral were sold at public sales and that the Secured Party has no obligation to delay the sale of any of the Collateral for the period of time necessary to permit the issuer of such Collateral to register or otherwise qualify them, even if such issuer would agree to register or otherwise qualify such Collateral for public sale under the Securities Act and applicable state securities or Blue Sky laws. Pledgor further agrees, to the extent permitted by applicable law, that the use of private sales made under the foregoing circumstances to dispose of the Collateral shall be deemed to be dispositions in a commercially reasonable manner; (F) The rights and remedies provided to Secured Party or any Lender under this Security Agreement or any of the other Loan Documents or ESOP Loan Documents. 13. Anti-Marshalling Provisions. The right is hereby given by Pledgor to Secured Party and the Lenders to make releases (whether in whole or in part) of all or any part of the Collateral agreeable to Secured Party and the Lenders without notice to, or the consent, approval or agreement of other parties and interests, including junior lienors, which releases shall not impair in any manner the validity of or priority of the liens and security interest in the remaining Collateral conferred under such documents, nor release Pledgor from personal liability for the indebtedness hereby secured. Notwithstanding the existence of any other security interest in the Collateral held by Secured Party or any Lender, Secured Party and the Lenders shall have the right to determine the order in which any or all of the Collateral shall be subjected to the remedies provided in this Security Agreement. The proceeds realized upon the exercise of the remedies provided herein shall be applied as provided herein, in the Pledgor Guaranty and in the Agreements. Pledgor hereby waives any and all right to require the marshalling of assets in connection with the exercise of any of the remedies permitted by applicable law or provided herein. 14. Appointment of Secured Party as Pledgor's Lawful Attorney. Upon and after an Event of Default which has not been waived or cured, Pledgor irrevocably designates, makes, 17 constitutes and appoints Secured Party (and all Persons designated by Lender) as Pledgor's true and lawful attorney (and agent-in-fact). To the extent permitted by law, all acts of Secured Party or its designee lawfully taken pursuant to Section 13 are hereby ratified and confirmed and Secured Party or its designee shall not be liable for any acts of omission or commission nor for any error of judgment or mistake of fact or law which does not constitute bad faith, willful misconduct or gross negligence. This power, being coupled with an interest, is irrevocable by Pledgor until all Secured Obligations are finally paid in full. 15. Rights and Remedies Cumulative; Non-Waiver; Etc. The enumeration of Secured Party's and Lenders' rights and remedies set forth in this Security Agreement is not intended to be exhaustive and the exercise by the Secured Party or any Lender of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative, and shall be in addition to any other right or remedy given hereunder, or under any other agreement between Pledgor and Secured Party or any Lender or which may now or hereafter exist in law or in equity or by suit or otherwise. No delay or failure to take action on the part of Lender in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any such right power or privilege preclude other or further exercise thereof or the exercise of any other right, power or privilege or be construed to be a waiver of any Event of Default. No waiver by a party hereunder shall be effective unless it is in writing and signed by the party making such waiver, and then only to the extent specifically stated in such writing. No course of dealing between Pledgor and the Secured Party or any Lender or their respective agents or employees shall be effective to change, modify or discharge any provision of this Security Agreement or to constitute a waiver of any Event of Default. 16. Waivers. In addition to the other waivers contained herein and in any other agreement between Pledgor and Secured Party or any Lender, Pledgor hereby expressly waives, to the extent permitted by law: presentment for payment, demand, protest, notice of demand, notice of protest, notice of default or dishonor, notice of payments and nonpayments and all other notices and consents that Secured Party may release, compromise, settle, extend or renew any commercial paper, instruments or guaranties at any time held by Secured Party or any Lender on which Pledgor may in any way be liable and notice of any action taken by Secured Party or any Lender unless expressly required by this Security Agreement or by law. 17. Notice. Except as otherwise provided herein, all notices, requests and demands to or upon a party hereto shall be effective as provided in the Pledgor Guaranty. 18 18. Applicable Law. This Security Agreement shall be governed in all respects by, and construed in accordance with, the internal laws of the State of Florida without reference to choice of laws principles. 19. References to Credit Agreement Definitions. In the event that the Credit Agreement shall no longer be in effect at any time while the Pledgor Guaranty shall continue in effect or there shall otherwise continue to remain outstanding Secured Obligations, all references to the Credit Agreement, including terms defined by reference to their respective definitions contained in the Credit Agreement, shall be deemed to refer to the Credit Agreement as in effect as of the date hereof, with such amendments thereto to which the Secured Party shall have given its express consent in accordance with the Loan Documents and the ESOP Loan Documents. 20. Entire Agreement. This Security Agreement, together with the Credit Agreement and other Loan Documents and ESOP Loan Documents, constitute and express the entire understanding between the parties hereto with respect to the subject matter hereof, and supersede all prior agreements and understandings, inducements, commitments or conditions, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof. Neither this Security Agreement nor any portion or provision hereof may be changed, altered, waived, modified, supplemented, discharged, canceled, terminated, or amended orally or in any manner other than (i) as to the Agent, as provided in the Credit Agreement and (ii) as to NationsBank, by the express written consent of NationsBank in each instance. 21. Section Headings. The Section headings in this Security Agreement are for convenience of reference only; they form no part of this Security Agreement and shall not affect its interpretation. 22. Severability. The provisions of this Security Agreement are independent of and separable from each other. If any provision hereof shall for any reason be held invalid or unenforceable, such invalidity or unenforceability shall not affect the validity or enforceability of any other provision hereof, but this Security Agreement shall be construed as if such invalid or unenforceable provision had never been contained herein. 23. Successors and Assigns. This Security Agreement shall be binding upon the successors and assigns of Pledgor and shall inure to the benefit of and be enforceable by the Secured Party and their successors and assigns; provided, however, the obligations of Pledgor hereunder may not be assigned or delegated 19 to any other Person without the prior written consent of the Secured Party. 24. Agency. Notwithstanding the foregoing references to the Secured Party, Pledgor acknowledges and agrees that so long as NationsBank shall be the sole Lender under the Credit Agreement, the term "Agent" shall mean NationsBank as Lender. When and if there shall be more than one Lender party to the Credit Agreement, then the term "Agent" shall refer to the Agent under the Credit Agreement pursuant to the provisions of Article XI of the Credit Agreement, to which reference is hereby made. 25. Termination. In the event that all of the Secured Obligations shall be fully, finally and indefeasibly paid and satisfied in full (subject to provisions of the Agreements that expressly survive), the Agreements shall be terminated and there shall be no Outstanding Letters of Credit, the Secured Party shall, at the request and at the expense of the Pledgor, terminate the security interest and powers of attorney herein conferred and, in furtherance thereof, execute such Uniform Commercial Code termination statements and such other documents in form and substance reasonably satisfactory to the Secured Party to release and terminate the Lien hereof of record. Notwithstanding the foregoing provisions of this Section 25, in the event that any payment made or deemed made to the Secured Party or any Lender in payment of any Secured Obligation shall be rescinded or declared to be or become void, voidable or otherwise recoverable from the Secured Party or such Lender for any reason whatsoever, the Lien in favor of the Secured Party created hereunder shall be and become reinstituted in respect of such Secured Obligations until the same shall be thereafter fully and finally paid, satisfied and discharged. [Remainder of page intentionally left blank) 20 IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed by authority duly given as of the day and year first above written. WITNESS: VITAS HEALTHCARE CORPORATION OF CALIFORNIA /s/ Terry L. Scaggs - ---------------------------- /s/ Megann Cusato By: /s/ Mark W.Ohlendorf - ---------------------------- ------------------------ Mark W.Ohlendorf Vice President SECURED PARTY: WITNESS: NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION, as Agent /s/ Terry L. Scaggs - ---------------------------- By: /s/ Allison S. Freeland ------------------------- /s/ Megann Cusato Allison S. Freeland - ---------------------------- Vice President WITNESS: NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION /s/ Terry L. Scaggs By: /s/ Allison S. Freeland - ---------------------------- ------------------------- Allison S. Freeland /s/ Megann Cusato Vice President - ---------------------------- 21 Vitas Healthcare Corporation of California PLEDGE AND SECURITY AGREEMENT INDEX TO EXHIBITS AND SCHEDULES* 1. Exhibit A Existing Liens on the Collateral 2. Schedule 6(E) Trade Styles VITAS AGREES TO PROVIDE A COPY OF THE EXHIBIT AND SCHEDULE LISTED ABOVE TO THE COMMISSION UPON REQUEST. - ---------- * The inclusion of any information on any one of these Exhibits and Schedules is not, and shall not be deemed to be, a representation that such information must be set forth on such Exhibit or Schedule or any supplement thereto or otherwise in the agreement to which such Exhibit or Schedule relates. Information provided in any one Exhibit or Schedule shall be deemed to be incorporated into each Exhibit and Schedule, as applicable. EX-10.51 27 EXHIBIT 10.51 EXHIBIT 10.51 AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT THIS AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (this "Security Agreement") is made this 17th day of February, 1995, by and between VITAS HEALTHCARE CORPORATION OF FLORIDA, a Florida corporation having its principal place of business in Miami, Dade County, Florida, (the "Pledgor"), and NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION, a national banking association ("NationsBank"), for itself and as agent (in such agency capacity and together with any successor agent, the "Agent") for certain lenders (the "Lenders") party to the Credit Agreement described below (in such capacities as described below and together with any successor agent acting as such under the Credit Agreement described below, the "Secured Party"). W I T N E S S E T H: WHEREAS, (i) pursuant to a Revolving Credit and Reimbursement Agreement dated as of August 11, 1994 ( the "Prior Credit Agreement") among Vitas Healthcare Corporation (the "Company"), NationsBank as agent and NationsBank as the lender thereunder, NationsBank has extended to the Company a revolving credit facility in the aggregate principal amount of up to $15,000,000, including within such revolving credit facility the issuance of letters of credit for the account of the Company and (ii) pursuant to a Guaranty and Contingent Purchase Agreement of even date with the Prior Credit Agreement between the Company and NationsBank (the "Prior Company Guaranty" and, together with the Prior Credit Agreement, the "Prior Agreements"), NationsBank extended a term loan of $2,386,670 to the Vitas Healthcare Corporation Employee Stock Ownership Trust (the "Trust") to refinance certain indebtedness owing from the Trust to the Company, the repayment of which loan has been, inter alia, guaranteed under the Prior Guaranty; and WHEREAS, pursuant to the Prior Agreements, the Pledgor has executed and delivered (i) its Guaranty and Suretyship Agreement of even date therewith (the "Prior Pledgor Guaranty") guaranteeing the payment and performance by the Company, inter alia, of its obligations under the Prior Agreements, and (ii) its Pledge and Security Agreement of even date with the Prior Pledgor Guaranty securing its obligations under the Prior Pledgor Guaranty (the "Prior Security Agreement"); and WHEREAS, the Company and Vitas Healthcare Corporation of California, a Subsidiary of the Company ("Vitas California"), have entered into an Asset Purchase Agreement with the Sellers (as defined in the Credit Agreement) dated as of December 27, 1994 (the "Asset Purchase Agreement") pursuant to which Vitas California has agreed to purchase substantially all of the operating assets of the CHC Entities (as defined in the Credit Agreement) pursuant to the terms and subject to the conditions set forth therein and, in connection therewith, the Company has requested that the Prior Credit Agreement be amended and restated to increase the revolving credit facility from $15,000,000 to $20,000,000, to provide for a $25,000,000 term loan facility, and to make certain other modifications, and that the Prior Company Guaranty be amended and restated to reflect the agreement of the parties; and WHEREAS, at the request of the Company and to effect the modifications referred to above, (i) the Company, the Agent and the Lenders are entering into an Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement of even date herewith (as the same may be modified, amended or restated from time to time, the "Credit Agreement"), and (ii) the Company and NationsBank are entering into an Amended and Restated Guaranty and Contingent Purchase Agreement of even date herewith (as the same may be modified, amended or restated from time to time, the "Company Guaranty" and, together with the Credit Agreement, the "Agreements") ; and WHEREAS, pursuant to the Agreements, the Pledgor has executed and delivered its Amended and Restated Guaranty and Suretyship Agreement of even date herewith (as the same may be amended, modified or restated from time to time, the "Pledgor Guaranty") guaranteeing the payment and performance by the Company, inter alia, of its obligations under the Agreements; and WHEREAS, the Lenders are unwilling to extend the amend and increase the revolving credit facility or make such term loan pursuant to the Credit Agreement, and NationsBank is unwilling to amend the Prior Agreements as reflected in the Agreements to permit the consummation of the CHC Transaction, unless the Pledgor amends and restates its Prior Security Agreement by entering into this Security Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and promises herein contained, the parties hereto agree as follows: 1. Certain Definitions. Unless otherwise defined herein, capitalized terms used in this Security Agreement shall have the respective meanings therefor provided in the Credit Agreement. 2. Grant of Security Interest. As collateral security for the full and prompt payment, satisfaction and performance of all obligations and liabilities of the Pledgor under the Pledgor Guaranty, whether now existing or hereafter arising (the "Secured Obligations"), Pledgor hereby grants to the Secured Party a continuing security interest in all of its right, title and interest in and to all of the following property in which Pledgor now has or hereafter acquires an interest, whether now owned or 2 existing or hereafter acquired or arising and wheresoever located: (A) All accounts, accounts receivable, notes, bills, acceptances, choses in action, chattel paper, instruments, documents, and other forms of obligations at any time owing to Pledgor, the proceeds thereof and all of Pledgor's rights with respect to any goods represented thereby, whether or not delivered, goods returned by customers and all rights as an unpaid vendor or lienor, including rights of stoppage in transit and of recovering possession by proceedings including replevin and reclamation, together with all customer lists, books and records, ledger and account cards, computer tapes, software, disks, printouts and records, whether now in existence or hereafter created, relating thereto (collectively referred to hereinafter as "Accounts"); (B) All goods of Pledgor, including without limitation, all machinery, equipment, motor vehicles, parts, supplies, apparatus, appliances, tools, patterns, molds, dies, blueprints, fittings, furniture, furnishings, fixtures and articles of tangible personal property of every description now or hereafter owned by Pledgor or in which Pledgor may have or may hereafter acquire any interest, but as to leasehold interests in personal property, only to the extent assignable (collectively referred to hereinafter as "Equipment"); (C) All general intangibles of Pledgor, now existing or hereafter owned or acquired or arising or in which Pledgor now has or hereafter acquires any rights, including but not limited to causes of action, corporate or business records, inventions, designs, patents, patent applications, trademarks, trademark registrations and applications therefor, goodwill, trade names, trade secrets, trade processes, copyrights, copyright registrations and applications therefor, licenses (to the extent assignable), permits (to the extent assignable), franchises, customer lists (to the extent permitted by law), computer programs, all claims under guaranties, tax refund claims, rights and claims against carriers and shippers, leases (to the extent assignable), claims under insurance policies, all rights to indemnification and all other intangible personal property of every kind and nature (collectively referred to hereinafter as "General Intangibles"); (D) All inventory of Pledgor wherever located, including without limitation, all goods manufactured or acquired for sale or lease, and any piece goods, raw materials, work in process and finished merchandise, findings or component materials, and all supplies, goods, incidentals, office supplies, packaging materials and any 3 and all items used or consumed in the operation of the business of Pledgor or which may contribute to the finished product or to the sale, promotion and shipment thereof, in which Pledgor now or at any time hereafter may have an interest, whether or not the same is in transit or in the constructive, actual or exclusive occupancy or possession of Pledgor or is held by Pledgor or by others for Pledgor's account (collectively referred to hereinafter as "Inventory"); (E) To the extent assignable, all rights now or hereafter arising to any Pledgor under contracts, leases, agreements or other instruments of every character and description, and all rights of enforcement thereunder (collectively referred to as hereinafter as "Contract Rights"); (F) All monies, certificates of deposit, commercial paper, cash equivalents, account balances, notes, options, interests, and securities (certificated or uncertificated), wheresoever located; excluding, however, the equity interests (other than interests in money market funds) of the Pledgor in Persons not constituting Subsidiaries; (G) All accessions to, substitutions for and all replacements, products and proceeds of the foregoing including, without limitation, proceeds of insurance policies insuring the Collateral (as hereinafter defined); and (H) All books and records (including without limitation, customer data, credit files, computer programs, printouts, and other computer materials and records of the Pledgor and all documents) pertaining to any of the foregoing. All of the property and interests in property described in subsections (A) through (H) and all other property and interests in personal property which shall, from time to time, secure the Secured Obligations are herein collectively referred to as the "Collateral". 3. Financing Statements. At the time of execution of this Security Agreement, Pledgor shall have (i) furnished the Secured Party with financing statements, approved by the Secured Party and executed as prescribed by the Uniform Commercial Code as presently in effect in the state of Florida, and where other Collateral is located, as may be reasonably requested by the Secured Party, in form and number sufficient to perfect in favor of the Secured Party the security interest in the Collateral, and (ii) delivered to Secured Party's possession certificated securities (with duly executed stock powers in blank affixed thereto) representing the Pledgor's interests in Subsidiaries, in 4 order that the Secured Party shall have a perfected security interest in the Collateral following such filing of such financing statements with the appropriate local and state governmental authorities and the delivery of such securities (to the extent that a security interest in such Collateral is capable of perfection by such filing or possession), and subject only to (a) permitted liens described in the Credit Agreement, (b) such other security interests, liens and encumbrances currently existing and set forth in Exhibit A attached hereto and by reference made a part hereof, or as shall otherwise be acceptable to the Secured Party in its sole discretion, and (c) limitations under applicable law which may limit the creation, perfection or priority of liens on Government Receivables (collectively referred to hereinafter as "Permitted Liens"); provided, however, that with respect to the items of property described in clause (F) of Section 2, the security interest in such property will not be perfected until the Secured Party or any Lender takes possession thereof or otherwise obtains perfection in accordance with the applicable requirements of the Uniform Commercial Code. Pledgor shall execute as reasonably required by the Secured Party any additional financing statements or other documents to effect a perfected security interest in the Collateral to the extent contemplated hereby, together with any necessary continuation statements so long as this Security Agreement remains in effect. 4. Maintenance of Security Interest. Pledgor will, from time to time, upon the request of the Secured Party, deliver specific assignments of Collateral, together with such other instruments and documents, financing statements, amendments thereto, assignments or other writings as the Secured Party or any Lender may reasonably request to carry out the terms of this Security Agreement or to protect or enforce the Secured Party's security interest in the Collateral. With respect to any and all Collateral as to which a security interest is granted under this Security Agreement, Pledgor agrees to do and cause to be done all things necessary to perfect and keep in full force the security interest granted in favor of the Secured Party, including, but not limited to, the prompt payment of all fees and expenses incurred in connection with any filings made to perfect a security interest in the Collateral in favor of the Secured Party. Pledgor agrees to make appropriate entries upon its financial statements and books and records disclosing the Secured Party's security interest in the Collateral. 5. Collections; Secured Party's Right to Notify Account Debtors and to Endorse Each Pledgor's Name. Pledgor hereby authorizes Secured Party at any time after the occurrence and during the continuation of an Event of Default subject, with respect to the Secured Obligations relating to the Company's obligations under the Company Guaranty, to Section 2.08 of the 5 Company Guaranty, (a) to open Pledgor's mail and collect any and all amounts due to Pledgor from persons obligated on any Accounts ("Account Debtors"), but only to the extent permitted by law with respect to Government Receivables; (b) to take over Pledgor's post office boxes or make other arrangements as Secured Party deems necessary to receive Pledgor's mail, including notifying the post office authorities to change the address for delivery of Pledgor's mail to such address as Secured Party may designate; and (c) to notify any or all Account Debtors, but only to the extent permitted by law with respect to Government Receivables, that the Accounts have been assigned to Secured Party and that Secured Party has a security interest therein. Pledgor irrevocably makes, constitutes and appoints Secured Party and all Persons designated by Secured Party for that purpose as Pledgor's true and lawful attorney (and agent-in-fact) after the occurrence and during the continuation of an Event of Default, subject to the limitations set forth in the immediately preceding sentence and, with respect to the Secured Obligations relating to the Company's obligations under the Company Guaranty, to Section 2.08 of the Company Guaranty, to endorse such Pledgor's name on any checks, notes, drafts or any other payment relating to and/or proceeds of the Collateral which comes into Secured Party's possession or Secured Party's control, and apply the same on account of the Secured Obligations as provided herein and in the Agreements, in such order as Secured Party may elect. Secured Party shall promptly furnish Pledgor with a copy of any such notice sent with respect to Accounts of Pledgor and Pledgor hereby agrees that any such notice, in Secured Party's sole discretion, may be sent on Pledgor's stationery, in which event Pledgor shall co-sign such notice with Secured Party. 6. Collateral. Pledgor covenants with Lender that: (A) Inspection. Secured Party and any Lender (by any of its officers, employees and agents) shall have the right, at any time or times during Pledgor's usual business hours, to inspect the Collateral, all records related thereto (and to make extracts or copies from such records), and the premises upon which any of the Collateral is located, to discuss Pledgor's affairs and finances with its principal officers and independent auditors and to verify the amount, quality, quantity, value and condition of, or any other matter relating to, the Collateral. Upon or after the occurrence of a Default or an Event of Default, Secured Party may at any time and from time to time employ and maintain at Pledgor's premises a custodian selected by Secured Party who shall have full authority to do all acts necessary to protect Secured Party's interest. All reasonable expenses incurred by Secured Party by reason of the employment of such custodian shall be paid by the Pledgor, added to the Secured Obligations and secured by the Collateral. 6 (B) Assignments, Records and Schedules of Account. Pledgor shall keep accurate and complete records of its Accounts ("Account Records") and, upon Secured Party's request from time to time at intervals acceptable to Secured Party, Pledgor shall reasonably provide Secured Party and each Lender with a Schedule of Accounts in form and substance reasonably acceptable to the Secured Party describing all Accounts created or acquired by such Pledgor ("Schedule of Accounts") and shall at the request of Secured Party execute and deliver further written assignments of such Accounts to Secured Party; provided however, that Pledgor's failure to execute and deliver any such Schedule of Accounts or assignments shall not affect or limit Secured Party's security interest or other rights in and to any Accounts. If requested by Secured Party, Pledgor shall furnish Secured Party with copies of proof of delivery of invoices and the original copy of all documents, including, without limitation, repayment histories and present status reports, relating to the Accounts so scheduled (collectively, "Account Documents") and such other matter and information relating to the status of then existing Accounts as Secured Party shall reasonably request. (C) Notice Regarding Disputed Accounts. In the event any amounts due and owing in excess of $100,000 are in dispute between any Account Debtor and Pledgor (which shall include, without limitation, any dispute in which an offset claim or counterclaim may result), Pledgor shall provide the Secured Party with written notice thereof promptly, explaining in detail the reason for the dispute, all claims related thereto and the amount in controversy. (D) Verification of Accounts. Whether or not a Default or an Event of Default has occurred, any of Secured Party's, employees, or agents shall have the right, at any time or times hereafter, to verify under reasonable procedures the validity, amount or any other matter relating to any Accounts by mail, telephone, telegraph or otherwise. (E) Change of Trade Styles. Set forth on Schedule 6(E) delivered to the Secured Party simultaneously with the execution of this Security Agreement are all tradenames and trade styles under which Pledgor provides services giving rise to Accounts as of the date of this Agreement ("Trade Styles"). Pledgor shall not change, amend, alter, terminate, or cease using its Trade Styles, or use additional Trade Styles, except upon giving not less than ten (10) days prior written notice to the Secured Party and taking or causing to be taken all such action at Pledgor's expense as may be reasonably requested by the Secured Party (including the furnishing of additional financing statements) to enable the Secured Party to perfect or maintain the perfection of the 7 security interest of the Secured Party in Accounts, General Intangibles, Contract Rights and related Collateral. (F) Safekeeping of Inventory. Pledgor shall be responsible for the safekeeping of its Inventory, and in no event shall Secured Party or any Lender have any responsibility for: (i) Any loss or damage to Inventory or destruction thereof occurring or arising in any manner or fashion from any cause other than as a result of gross negligence, bad faith or willful misconduct of the Agent or any Lender; (ii) Any diminution in the value of Inventory; or (iii) Any act or default of any carrier, warehouseman, bailee or forwarding agency thereof or other Person in any way dealing with or handling Inventory. (G) Records and Schedules of Inventory. Pledgor shall keep correct and accurate records on a perpetual basis, itemizing and describing the kind, type, location, quality and quantity of Inventory owned by it, if any, from time to time, and such Pledgor's cost therefor and selling price thereof, and at the reasonable request of the Secured Party shall furnish to the Secured Party, a current Schedule of Inventory ("Schedule of Inventory"). Pledgor shall conduct a physical inventory, of which Secured Party shall be given prior written notice and shall have the right to be present, no less than annually, and shall furnish to Secured Party such other documents and reports as Secured Party shall reasonably request with respect to the Inventory, including, without limitation, invoices relating to Pledgor's purchase of Inventory. (H) Evidence of Ownership of Equipment. Pledgor, promptly on request therefor by the Secured Party, shall deliver to the Secured Party any and all evidence of ownership of any of the Equipment (including without limitation certificates of title and applications for title). (I) Records and Schedules of Equipment. Pledgor shall maintain accurate, itemized records describing in reasonable detail its Equipment and shall furnish the Secured Party upon reasonable request with a current schedule containing the foregoing information ("Schedule of Equipment"). (J) Administration of Collateral. So long as no Event of Default shall have occurred and be continuing, Pledgor may (to the extent not inconsistent with the provisions of the Loan Documents or the ESOP Loan Documents) (i) sell, 8 transfer or dispose of any asset owned by it or (ii) collect or compromise Accounts and General Intangibles in the ordinary course of business in any lawful manner. (K) Voting Rights, Consensual Rights, Dividends and Distributions. A. So long as no Event of Default shall have occurred and be continuing: 1. the Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Collateral or any part thereof for any purpose not inconsistent with the terms of this Security Agreement, the Credit Agreement, the other Loan Documents or the other ESOP Loan Documents; 2. the Pledgor shall be entitled to receive and retain any and all cash distributions or dividends paid on the Collateral which they are otherwise entitled to receive, notwithstanding the assignment and transfer of the Collateral and the grant of security interest in Section 2 of this Security Agreement (provided that any cash distributions or dividends received upon the occurrence and during the continuance of a Default shall remain segregated from all other funds of the Pledgor and deposited with the Secured Party), but any and all stock dividends, liquidating dividends, distributions in property, returns of capital or other distributions made on or in respect of any of the Collateral, whether resulting from a subdivision, combination or reclassification of the outstanding capital stock of any issuer of the Collateral or received in exchange for the Collateral or any part thereof or as a result of any merger, consolidation, acquisition or other exchange of assets to which any issuer of any Collateral may be a party or otherwise, and any and all cash and other property received in exchange for any of the Collateral shall be and become part of the Collateral hereunder and, if received by the Pledgor, shall forthwith be delivered to the Secured Party, to the extent the Collateral for which it was exchanged was held or required to be held by the Secured Party; and 3. the Secured Party shall execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting, consensual and other rights which the Pledgor are entitled to exercise pursuant to subparagraph (1) above and to receive such distributions and dividends which it is authorized to receive and retain pursuant to subparagraph (2) above. 9 B. Upon the occurrence and during the continuance of an Event of Default: 1. subject, with respect to the Secured Obligations relating to the Company's obligations under the Company Guaranty to Section 2.08 of the Company Guaranty, all rights of the Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 6(K)A.l and to receive and retain the distributions and dividends which it would otherwise be authorized to receive and retain pursuant to Section 6(K)A.2, shall become vested in the Secured Party, which shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and hold as Collateral such distributions and dividends (whether or not the relevant Collateral shall have been transferred into the name of the Secured Party or any of its nominees, the Pledgor hereby irrevocably appointing and constituting the Secured Party as proxy and attorney-in-fact of Pledgor, which appointment is coupled with an interest and is irrevocable, with full power of substitution, to act as if the Secured Party were the outright owner thereof); and 2. all distributions and dividends which are received by the Pledgor contrary to the provisions of Section 6(K)A.2 or Section 6(K)B.1 shall be received in trust for the benefit of the Secured Party, shall be segregated from other funds of Pledgor and shall be paid over to the Secured Party forthwith as Collateral in the same form as so received (with any necessary endorsement). 7. Warranties Regarding Collateral. Pledgor warrants and represents that it is and will continue to be the owner of the Collateral, now owned and upon the acquisition of the same, free and clear of all encumbrances and security interests other than the security interest in favor of Secured Party hereunder and Permitted Liens, and that it will defend the Collateral and the Secured Party's security interest therein and any products and proceeds thereof against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to the Secured Party or any Lender. 8. Account Warranties and Representations. With respect to its Accounts, Pledgor warrants and represents to the Secured Party and the Lenders that they may rely on all statements or representations made by Pledgor on or with respect to any Schedule of Accounts prepared and delivered by Pledgor and, unless otherwise indicated in writing by Pledgor, that: 10 (A) All Account Records and Account Documents are located and shall be kept only at Pledgor's chief executive offices located at the locations described in Schedule 6.04 delivered to the Agent pursuant to the Credit Agreement and Schedule 4.22 delivered to the Bank pursuant to the Company Guaranty; (B) They are genuine, are in all material respects what they purport to be, are not evidenced by a judgment instrument or document or, if evidenced by an instrument or document, are only evidenced by one original instrument or document, which has been delivered to the Secured Party; (C) They cover the bona fide rendition of services, or the bona fide sales and deliveries of Inventory usually dealt in by Pledgor, in the ordinary course of business; (D) Each Account is actually and absolutely owing to Pledgor in the face value thereof, is valid and enforceable against the applicable Account Debtor, and is not subject to any setoffs, discounts, allowances, claims, counterclaims, disputes or doubtful collectibility except (i) as is customary for Accounts of the type represented by such Account (including the nature of the Account Debtor) of the Pledgor in the ordinary course of Pledgor's business and consistent with past practices, and (ii) as is reflected by reserves and reductions in the stated value of such Account, computed in a manner consistent with the Company's policies and practices in preparing the financial statements described in Sections 7.01 and 8.01 of the Credit Agreement and Sections 3.01(f) and 4.01 of the Company Guaranty, included in such financial statements, in the Schedule of Accounts and in any report or certificate including financial information regarding such Account furnished to the Secured Party pursuant to the Loan Documents or the ESOP Loan Documents. (E) The goods or services giving rise thereto are not, and were not at the time of the sale or performance thereof, subject to any lien, claim, encumbrance or security interest, except those of the Secured Party and those removed or terminated prior to the date hereof; (F) They have not been pledged to any Person other than to Secured Party under this Security Agreement and will be owned by Pledgor free and clear of any liens, claims or encumbrances except Permitted Liens; and (G) Secured Party's security interest therein will not be subject to any offset, deduction, counterclaim, lien or other adverse condition, other than Permitted Liens or as is consistent with Section 8(D) above. 11 9. Inventory Warranties and Representation. With respect to Inventory, Pledgor warrants and represents to the Secured Party and the Lenders that they may rely on all statements or representations made by Pledgor on or with respect to any Inventory and, unless otherwise indicated in writing by Pledgor, that (A) Except for the relocation of Inventory from time to time in the ordinary course of business not aggregating more than $100,000 at any one time in any location other than those set forth in Schedules 6.03 and 6.04 delivered pursuant to the Credit Agreement or Schedules 4.22 and 4.23 delivered pursuant to the Company Guaranty, the Pledgor shall not locate or relocate inventory to any location other than those set forth in Section 8(A) above or Schedules 6.03 and 6.04 delivered pursuant to the Credit Agreement or Schedules 4.22 and 4.23 delivered pursuant to the Company Guaranty without giving the Secured Party not less than thirty (30) days prior written notice and taking or causing to be taken at its expense all steps as may be reasonably requested by the Secured Party (including the furnishing of additional financing statements) to enable the Secured Party to perfect or continue the perfection of its security interest in such property. (B) No Inventory is or will be subject to any lien, claim, encumbrance or security interest whatsoever, except for the security interest of Secured Party hereunder and Permitted Liens; (C) No Inventory having an aggregate value in excess of $100,000 is now, and shall not at any time or times hereafter be, stored with a bailee, warehouseman, or similar party without Secured Party's prior written consent and, if Secured Party gives such consent, Pledgor will concurrently therewith cause any such bailee, warehouseman, or similar party to issue and deliver to Secured Party in form and substance acceptable to Secured Party, warehouse receipts therefor in Secured Party's name; and (D) No Inventory is under consignment to any Person. 10. Equipment Warranties and Representations. With respect to Equipment, Pledgor warrants and represents to the Secured Party and each Lender that: (A) Except for the relocation of Equipment from time to time in the ordinary course of business not aggregating more than $100,000 at any one time in any location other than those set forth in Schedules 6.03 and 6.04 of the Credit Agreement and Schedules 4.22 and 4.23 of the Company Guaranty, the Pledgor shall not locate or relocate Equipment to any location other than those set forth in Schedules 6.03 12 and 6.04 of the Credit Agreement and Schedules 4.22 and 4.23 of the Company Guaranty without giving the Secured Party not less than thirty (30) days prior written notice and taking or causing to be taken at their expense all steps as may be reasonably requested by the Secured Party (including the furnishing of additional financing statements) to enable the Secured Party to perfect or continue the perfection of its security interest in such property; and (B) Pledgor has and at all times will have good and marketable title to and ownership of the Equipment free and clear of any lien, claim, encumbrance, or security interest whatsoever, except for (i) the security interest of Secured Party created hereunder and (ii) Permitted Liens. 11. Casualty and Liability Insurance Required. (A) Pledgor will keep the Collateral continuously insured as may be expressly required by the Agreements. (B) Each insurance policy obtained in satisfaction of the requirements of Section 11(A) hereof: (i) shall be by such insurer (or insurers) as shall be financially responsible and qualified to do business in the applicable jurisdictions; (ii) shall be in such form and have such provisions (including, without limitation, the loss payable clause, the waiver of subrogation clause, the deductible amount, if any, and the standard mortgagee endorsement clause), as are generally considered standard provisions for the type of insurance involved and are acceptable in all respects to Secured Party; (iii) shall prohibit cancellation or substantial modification, termination or lapse in coverage by the insurer without at least 30 days' prior written notice to Secured Party; (iv) shall provide that the interest of Secured Party shall not be impaired or invalidated by any act or neglect of Pledgor nor by the occupation of the premises wherein such Collateral is located for purposes more hazardous than are permitted by said policy; (v) without limiting the generality of the foregoing, all insurance policies covering loss or damage to the Collateral shall name Secured Party as mortgagee, loss payee and a party insured thereunder and any loss thereunder shall be paid directly to Secured Party. (C) Prior to expiration of any such policy, Pledgor shall furnish Secured Party with evidence reasonably satisfactory to 13 Secured Party that the policy or certificate has been renewed or replaced or is no longer required by this Security Agreement. (D) Pledgor hereby irrevocably makes, constitutes and appoints Secured Party (and all officers, employees or agents designated by Secured Party), effective upon the occurrence of an Event of Default which has not been waived or cured, as Pledgor's true and lawful attorney (and agent-in-fact) for the purpose of making, settling and adjusting claims under such policies of insurance, endorsing the name of Pledgor on any check, draft, instrument or other item or payment for the proceeds of such policies of insurance and for making all determinations and decisions with respect to such policies of insurance. (E) In the event Pledgor shall fail to maintain, or cause to be maintained, the full insurance coverage required hereunder or shall fail to keep any Collateral in good repair and good operating condition, the Secured Party may (but shall be under no obligation to), without waiving or releasing any Secured Obligation or Event of Default, after giving notice to the Pledgor, contract for the required policies of insurance and pay the premiums on the same or make any required repairs, renewals and replacements; and all sums so disbursed by Secured Party, including reasonable attorneys' fees, court costs, expenses and other charges related thereto, shall be payable on demand by Pledgor to Secured Party and shall be additional Secured Obligations secured by the Collateral. (F) In case of any material damage to or destruction of all or any part of the Collateral, Pledgor shall give prompt notice thereof to Secured Party. Each such notice shall describe generally the nature and extent of such damage, destruction, taking, loss, proceeding or negotiations. 12. Rights and Remedies Upon Default. Subject, with respect to the Secured Obligations relating to the Company's obligations under the Company Guaranty, to Section 2.08 of the Company Guaranty, upon and after an Event of Default which has not been waived or cured, the Secured Party shall have the following rights and remedies, all of which may be exercised with or without notice to Pledgor: (A) All of the rights and remedies of a secured party under the Uniform Commercial Code of the state where such rights and remedies are asserted, or under other applicable law, all of which rights and remedies shall be cumulative, and none of which shall be exclusive, to the extent permitted by law, in addition to any other rights and remedies contained in this Security Agreement, the Agreements, or any of the other Loan Documents or ESOP Loan Documents; 14 (B) The right to foreclose the liens and security instruments created under this Security Agreement or any of the other Loan Documents or ESOP Loan Documents by any available judicial procedure or without judicial process; (C) The right to (i) enter upon the premises of Pledgor through self-help and without judicial process, without first obtaining a final judgment or giving Pledgor notice and opportunity for a hearing on the validity of Secured Party's claim and without any obligation to pay rent to Pledgor, or any other place or places where any Collateral is located and kept, and remove the Collateral therefrom to the premises of Secured Party or any agent of Secured Party, for such time as Secured Party may desire, in order to effectively collect or liquidate the Collateral, and/or (ii) require Pledgor to assemble the Collateral and make it available to Secured Party at a place to be designated by Secured Party in its sole discretion; (D) The right (to the extent permissible by law with respect to Governmental Receivables) to (i) demand payment of the Accounts; (ii) enforce payment of the Accounts and General Intangibles and enforce all Contract Rights, by legal proceedings or otherwise; (iii) exercise all or any of Pledgor's rights and remedies with respect to the collection of the Accounts and General Intangibles and in respect of Contract Rights; (iv) settle, adjust, compromise, extend or renew the Accounts; (v) settle, adjust or compromise any legal proceedings brought to collect the Accounts or General Intangibles or to enforce Contract Rights; (vi) sell or assign the Accounts, General Intangibles, Contract Rights or other Collateral upon such terms, for such amounts and at such time or times as Secured Party deems advisable; (vii) discharge and release the Accounts; (viii) take control, in any manner, of any item of payment or proceeds; (ix) prepare, file and sign Pledgor's name on a Proof of Claim in bankruptcy or similar document against any account obligor; (x) prepare, file and sign Pledgor's name on any notice of lien, assignment or satisfaction of lien or similar document in connection with the Accounts; (xi) endorse the name of Pledgor upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating to the Accounts or Inventory; (xii) use Pledgor's stationery for verifications of the Accounts and notices thereof to account obligors; (xiii) use the information recorded on or contained in any data processing equipment and computer hardware and software relating to the Accounts, General Intangibles, Equipment, Contract Rights or Inventory to which Pledgor has access; and (xiv) do all acts and things and execute all documents necessary, in Secured Party's sole discretion, to collect the Accounts and General Intangibles; 15 (E) The right to sell, assign, lease or to otherwise dispose of all or any Collateral in its then condition, or after any further manufacturing or processing thereof, at public or private sale or sales, with such notice as may be required by law, in lots or in bulk, for cash or on credit, with or without representations and warranties, all as Secured Party, in its sole discretion, may deem advisable (except, in the case of Government Receivables, to the extent such sales or other disposition are prohibited by applicable law). Secured Party shall have the right to conduct such sales on Pledgor's premises or elsewhere and shall have the right to use Pledgor's premises without charge for such sales for such time or times as Secured Party may see fit. Secured Party may, if it deems it reasonable, postpone or adjourn any sale of the Collateral from time to time by an announcement at the time and place of such postponed or adjourned sale, without being required to give a new notice of sale. Pledgor agrees that Secured Party has no obligation to preserve rights to the Collateral against prior parties or to marshall any Collateral for the benefit of any Person. Secured Party is hereby granted a license or other right to use, without charge, Pledgor's labels, patents, copyrights, rights of use of any name, trade secrets, tradenames, trademarks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale and selling any Collateral and Pledgor's rights under any license and any franchise agreement shall inure to Secured Party's benefit. If any of the Collateral shall require repairs, maintenance, preparation or the like, or is in process or other unfinished state, Secured Party shall have the right, but shall not be obligated to perform such repairs, maintenance, preparation, processing or completion of manufacturing for the purpose of putting the same in such saleable form as Secured Party shall deem appropriate, but Secured Party shall have the right to sell or dispose of the Collateral without such processing. In addition, Pledgor agrees that in the event notice is necessary under applicable law, written notice mailed to Pledgor in the manner specified in either of the Agreements ten (10) days prior to the date of public sale of any of the Collateral or prior to the date after which any private sale or other disposition of the Collateral will be made shall constitute commercially reasonable notice to Pledgor. Secured Party or any Lender may purchase all or any part of the Collateral at public or, if permitted by law, private sale, free from any right of redemption which is hereby expressly waived by Pledgor and, in lieu of actual payment of such purchase price, may set off the amount of such price against the Secured Obligations. The net cash proceeds resulting from the collection, liquidation, sale, lease or other disposition of the Collateral shall be applied first to the reasonable expenses (including all reasonable attorneys' 16 fees) of retaking, holding, storing, processing and preparing for sale, selling, collecting, liquidating and the like (collectively, the "Administration Expenses"), and then to the satisfaction of all Secured Obligations, application as to particular Secured Obligations or against principal or interest to be in subject to the terms of Section 13 hereof and of the Agreements. Pledgor shall be liable to Secured Party and the Lenders and shall pay to the Secured Party on demand any deficiency which may remain after such sale, disposition, collection or liquidation of the Collateral. Pledgor recognize that the Secured Party may be unable to effect a public sale of securities constituting Collateral by reason of certain prohibitions contained in the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities or Blue Sky laws, and as a consequence may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Pledgor agrees and acknowledges that private sales so made may be at prices and upon terms less favorable to Pledgor than if such Collateral were sold at public sales and that the Secured Party has no obligation to delay the sale of any of the Collateral for the period of time necessary to permit the issuer of such Collateral to register or otherwise qualify them, even if such issuer would agree to register or otherwise qualify such Collateral for public sale under the Securities Act and applicable state securities or Blue Sky laws. Pledgor further agrees, to the extent permitted by applicable law, that the use of private sales made under the foregoing circumstances to dispose of the Collateral shall be deemed to be dispositions in a commercially reasonable manner; (F) The rights and remedies provided to Secured Party or any Lender under this Security Agreement or any of the other Loan Documents or ESOP Loan Documents. 13. Anti-Marshalling Provisions. The right is hereby given by Pledgor to Secured Party and the Lenders to make releases (whether in whole or in part) of all or any part of the Collateral agreeable to Secured Party and the Lenders without notice to, or the consent, approval or agreement of other parties and interests, including junior lienors, which releases shall not impair in any manner the validity of or priority of the liens and security interest in the remaining Collateral conferred under such documents, nor release Pledgor from personal liability for the indebtedness hereby secured. Notwithstanding the existence of any other security interest in the Collateral held by Secured Party or any Lender, Secured Party and the Lenders shall have the right to determine the order in which any or all of the Collateral shall be subjected to the remedies provided in this 17 Security Agreement. The proceeds realized upon the exercise of the remedies provided herein shall be applied as provided herein, in the Pledgor Guaranty and in the Agreements. Pledgor hereby waives any and all right to require the marshalling of assets in connection with the exercise of any of the remedies permitted by applicable law or provided herein. 14. Appointment of Secured Party as Pledgor's Lawful Attorney. Upon and after an Event of Default which has not been waived or cured, Pledgor irrevocably designates, makes, constitutes and appoints Secured Party (and all Persons designated by Lender) as Pledgor's true and lawful attorney (and agent-in-fact). To the extent permitted by law, all acts of Secured Party or its designee lawfully taken pursuant to Section 13 are hereby ratified and confirmed and Secured Party or its designee shall not be liable for any acts of omission or commission nor for any error of judgment or mistake of fact or law which does not constitute bad faith, willful misconduct or gross negligence. This power, being coupled with an interest, is irrevocable by Pledgor until all Secured Obligations are finally paid in full. 15. Rights and Remedies Cumulative; Non-Waiver; Etc. The enumeration of Secured Party's and Lenders' rights and remedies set forth in this Security Agreement is not intended to be exhaustive and the exercise by the Secured Party or any Lender of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative, and shall be in addition to any other right or remedy given hereunder, or under any other agreement between Pledgor and Secured Party or any Lender or which may now or hereafter exist in law or in equity or by suit or otherwise. No delay or failure to take action on the part of Lender in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude other or further exercise thereof or the exercise of any other right, power or privilege or be construed to be a waiver of any Event of Default. No waiver by a party hereunder shall be effective unless it is in writing and signed by the party making such waiver, and then only to the extent specifically stated in such writing. No course of dealing between Pledgor and the Secured Party or any Lender or their respective agents or employees shall be effective to change, modify or discharge any provision of this Security Agreement or to constitute a waiver of any Event of Default. 16. Waivers. In addition to the other waivers contained herein and in any other agreement between Pledgor and Secured Party or any Lender, Pledgor hereby expressly waives, to the extent permitted by law: presentment for payment, demand, protest, notice of demand, notice of protest, notice of default or dishonor, notice of payments and nonpayments and all other notices and consents that Secured Party may release, compromise, 18 settle, extend or renew any commercial paper, instruments or guaranties at any time held by Secured Party or any Lender on which Pledgor may in any way be liable and notice of any action taken by Secured Party or any Lender unless expressly required by this Security Agreement or by law. 17. Notice. Except as otherwise provided herein, all notices, requests and demands to or upon a party hereto shall be effective as provided in the Pledgor Guaranty. 18. Applicable Law. This Security Agreement shall be governed in all respects by, and construed in accordance with, the internal laws of the State of Florida without reference to choice of laws principles. 19. References to Credit Agreement Definitions. In the event that the Credit Agreement shall no longer be in effect at any time while the Pledgor Guaranty shall continue in effect or there shall otherwise continue to remain outstanding Secured Obligations, all references to the Credit Agreement, including terms defined by reference to their respective definitions contained in the Credit Agreement, shall be deemed to refer to the Credit Agreement as in effect as of the date hereof, with such amendments thereto to which the Secured Party shall have given its express consent in accordance with the Loan Documents and the ESOP Loan Documents. 20. Entire Agreement. This Security Agreement, together with the Credit Agreement and other Loan Documents and ESOP Loan Documents, constitute and express the entire understanding between the parties hereto with respect to the subject matter hereof, and supersede all prior agreements and understandings, inducements, commitments or conditions, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof. Neither this Security Agreement nor any portion or provision hereof may be changed, altered, waived, modified, supplemented, discharged, canceled, terminated, or amended orally or in any manner other than (i) as to the Agent, as provided in the Credit Agreement and (ii) as to NationsBank, by the express written consent of NationsBank in each instance. 21. Section Headings. The Section headings in this Security Agreement are for convenience of reference only; they form no part of this Security Agreement and shall not affect its interpretation. 22. Severability. The provisions of this Security Agreement are independent of and separable from each other. If any provision hereof shall for any reason be held invalid or unenforceable, such invalidity or unenforceability shall not affect the validity or enforceability of any other provision 19 hereof, but this Security Agreement shall be construed as if such invalid or unenforceable provision had never been contained herein. 23. Successors and Assigns. This Security Agreement shall be binding upon the successors and assigns of Pledgor and shall inure to the benefit of and be enforceable by the Secured Party and their successors and assigns; provided, however, the obligations of Pledgor hereunder may not be assigned or delegated to any other Person without the prior written consent of the Secured Party. 24. Agency. Notwithstanding the foregoing references to the Secured Party, Pledgor acknowledges and agrees that so long as NationsBank shall be the sole Lender under the Credit Agreement, the term "Agent" shall mean NationsBank as Lender. When and if there shall be more than one Lender party to the Credit Agreement, then the term "Agent" shall refer to the Agent under the Credit Agreement pursuant to the provisions of Article XI of the Credit Agreement, to which reference is hereby made. 25. Termination. In the event that all of the Secured Obligations shall be fully, finally and indefeasibly paid and satisfied in full (subject to provisions of the Agreements that expressly survive), the Agreements shall be terminated and there shall be no Outstanding Letters of Credit, the Secured Party shall, at the request and at the expense of the Pledgor, terminate the security interest and powers of attorney herein conferred and, in furtherance thereof, execute such Uniform Commercial Code termination statements and such other documents in form and substance reasonably satisfactory to the Secured Party to release and terminate the Lien hereof of record. Notwithstanding the foregoing provisions of this Section 25, in the event that any payment made or deemed made to the Secured Party or any Lender in payment of any Secured Obligation shall be rescinded or declared to be or become void, voidable or otherwise recoverable from the Secured Party or such Lender for any reason whatsoever, the Lien in favor of the Secured Party created hereunder shall be and become reinstituted in respect of such Secured Obligations until the same shall be thereafter fully and finally paid, satisfied and discharged. [Remainder of page intentionally left blank] 20 IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed by authority duly given as of the day and year first above written. WITNESS: VITAS HEALTHCARE CORPORATION OF FLORIDA /s/ Terry L. Scaggs By: /s/ Mark W. Ohlendorf - --------------------------------- --------------------------------- Mark W. Ohlendorf /s/ Meganne Cusato Vice President - --------------------------------- SECURED PARTY: WITNESS: NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION, as Agent /s/ Terry L. Scaggs By: /s/ Allison S. Freeland - --------------------------------- --------------------------------- Allison S. Freeland /s/ Meganne Cusato Vice President - --------------------------------- WITNESS: NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION /s/ Terry L. Scaggs By: /s/ Allison S. Freeland - --------------------------------- --------------------------------- Allison S. Freeland /s/ Meganne Cusato Vice President - --------------------------------- 21 Vitas Healthcare Corporation of Florida PLEDGE AND SECURITY AGREEMENT INDEX TO EXHIBITS AND SCHEDULES* 1. Exhibit A Existing Liens on the Collateral 2. Schedule 6(E) Trade Styles VITAS AGREES TO PROVIDE A COPY OF THE EXHIBIT AND SCHEDULE LISTED ABOVE TO THE COMMISSION UPON REQUEST - ---------- * The inclusion of any information on any one of these Exhibits and Schedules is not, and shall not be deemed to be, a representation that such information must be set forth on such Exhibit or Schedule or any supplement thereto or otherwise in the agreement to which such Exhibit or Schedule relates. Information provided in any one Exhibit or Schedule shall be deemed to be incorporated into each Exhibit and Schedule, as applicable. Execution: February 10,1995 EX-10.52 28 EXHIBIT 10.52 EXHIBIT 10.52 AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT THIS AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (this "Security Agreement") is made this 17th day of February, 1995, by and between VITAS HEALTHCARE CORPORATION OF OHIO, a Delaware corporation having its principal place of business in Miami, Dade County, Florida, (the "Pledgor"), and NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION, a national banking association ("NationsBank"), for itself and as agent (in such agency capacity and together with any successor agent, the "Agent") for certain lenders (the "Lenders") party to the Credit Agreement described below (in such capacities as described below and together with any successor agent acting as such under the Credit Agreement described below, the "Secured Party"). W I T N E S S E T H: WHEREAS, (i) pursuant to a Revolving Credit and Reimbursement Agreement dated as of August 11, 1994 (the "Prior Credit Agreement") among Vitas Healthcare Corporation (the "Company"), NationsBank as agent and NationsBank as the lender thereunder, NationsBank has extended to the Company a revolving credit facility in the aggregate principal amount of up to $15,000,000, including within such revolving credit facility the issuance of letters of credit for the account of the Company and (ii) pursuant to a Guaranty and Contingent Purchase Agreement of even date with the Prior Credit Agreement between the Company and NationsBank (the "Prior Company Guaranty" and, together with the Prior Credit Agreement, the "Prior Agreements"), NationsBank extended a term loan of $2,386,670 to the Vitas Healthcare Corporation Employee Stock Ownership Trust (the "Trust") to refinance certain indebtedness owing from the Trust to the Company, the repayment of which loan has been, inter alia, guaranteed under the Prior Guaranty; and WHEREAS, pursuant to the Prior Agreements, the Pledgor has executed and delivered (i) its Guaranty and Suretyship Agreement of even date therewith (the "Prior Pledgor Guaranty") guaranteeing the payment and performance by the Company, inter alia, of its obligations under the Prior Agreements, and (ii) its Pledge and Security Agreement of even date with the Prior Pledgor Guaranty securing its obligations under the Prior Pledgor Guaranty (the "Prior Security Agreement"); and WHEREAS, the Company and Vitas Healthcare Corporation of California, a Subsidiary of the Company ("Vitas California"), have entered into an Asset Purchase Agreement with the Sellers (as defined in the Credit Agreement) dated as of December 27, 1994 (the "Asset Purchase Agreement") pursuant to which Vitas California has agreed to purchase substantially all of the operating assets of the CHC Entities (as defined in the Credit Agreement) pursuant to the terms and subject to the conditions set forth therein and, in connection therewith, the Company has requested that the Prior Credit Agreement be amended and restated to increase the revolving credit facility from $15,000,000 to $20,000,000, to provide for a $25,000,000 term loan facility, and to make certain other modifications, and that the Prior Company Guaranty be amended and restated to reflect the agreement of the parties; and WHEREAS, at the request of the Company and to effect the modifications referred to above, (i) the Company, the Agent and the Lenders are entering into an Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement of even date herewith (as the same may be modified, amended or restated from time to time, the "Credit Agreement"), and (ii) the Company and NationsBank are entering into an Amended and Restated Guaranty and Contingent Purchase Agreement of even date herewith (as the same may be modified, amended or restated from time to time, the "Company Guaranty" and, together with the Credit Agreement, the "Agreements") ; and WHEREAS, pursuant to the Agreements, the Pledgor has executed and delivered its Amended and Restated Guaranty and suretyship Agreement of even date herewith (as the same may be amended, modified or restated from time to time, the "Pledgor Guaranty") guaranteeing the payment and performance by the Company, inter alia, of its obligations under the Agreements; and WHEREAS, the Lenders are unwilling to extend the amend and increase the revolving credit facility or make such term loan pursuant to the Credit Agreement, and NationsBank is unwilling to amend the Prior Agreements as reflected in the Agreements to permit the consummation of the CHC Transaction, unless the Pledgor amends and restates its Prior Secuirty Agreement by entering into this Security Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and promises herein contained, the parties hereto agree as follows: 1. Certain Definitions. Unless otherwise defined herein, capitalized terms used in this Security Agreement shall have the respective meanings therefor provided in the Credit Agreement. 2. Grant of Security Interest. As collateral security for the full and prompt payment, satisfaction and performance of all obligations and liabilities of the Pledgor under the Pledgor Guaranty, whether now existing or hereafter arising (the "Secured Obligations"), Pledgor hereby grants to the Secured Party a continuing security interest in all of its right, title and interest in and to all of the following property in which Pledgor now has or hereafter acquires an interest, whether now owned or 2 existing or hereafter acquired or arising and wheresoever located: (A) All accounts, accounts receivable, notes, bills, acceptances, choses in action, chattel paper, instruments, documents, and other forms of obligations at any time owing to Pledgor, the proceeds thereof and all of Pledgor's rights with respect to any goods represented thereby, whether or not delivered, goods returned by customers and all rights as an unpaid vendor or lienor, including rights of stoppage in transit and of recovering possession by proceedings including replevin and reclamation, together with all customer lists, books and records, ledger and account cards, computer tapes, software, disks, printouts and records, whether now in existence or hereafter created, relating thereto (collectively referred to hereinafter as "Accounts"); (B) All goods of Pledgor, including without limitation, all machinery, equipment, motor vehicles, parts, supplies, apparatus, appliances, tools, patterns, molds, dies, blueprints, fittings, furniture, furnishings, fixtures and articles of tangible personal property of every description now or hereafter owned by Pledgor or in which Pledgor may have or may hereafter acquire any interest, but as to leasehold interests in personal property, only to the extent assignable (collectively referred to hereinafter as "Equipment"); (C) All general intangibles of Pledgor, now existing or hereafter owned or acquired or arising or in which Pledgor now has or hereafter acquires any rights, including but not limited to causes of action, corporate or business records, inventions, designs, patents, patent applications, trademarks, trademark registrations and applications therefor, goodwill, trade names, trade secrets, trade processes, copyrights, copyright registrations and applications therefor, licenses (to the extent assignable), permits (to the extent assignable), franchises, customer lists (to the extent permitted by law), computer programs, all claims under guaranties, tax refund claims, rights and claims against carriers and shippers, leases (to the extent assignable), claims under insurance policies, all rights to indemnification and all other intangible personal property of every kind and nature (collectively referred to hereinafter as "General Intangibles"); (D) All inventory of Pledgor wherever located, including without limitation, all goods manufactured or acquired for sale or lease, and any piece goods, raw materials, work in process and finished merchandise, findings or component materials, and all supplies, goods, incidentals, office supplies, packaging materials and any 3 and all items used or consumed in the operation of the business of Pledgor or which may contribute to the finished product or to the sale, promotion and shipment thereof, in which Pledgor now or at any time hereafter may have an interest, whether or not the same is in transit or in the constructive, actual or exclusive occupancy or possession of Pledgor or is held by Pledgor or by others for Pledgor's account (collectively referred to hereinafter as "Inventory"); (E) To the extent assignable, all rights now or hereafter arising to any Pledgor under contracts, leases, agreements or other instruments of every character and description, and all rights of enforcement thereunder (collectively referred to as hereinafter as "Contract Rights"); (F) All monies, certificates of deposit, commercial paper, cash equivalents, account balances, notes, options, interests, and securities (certificated or uncertificated), wheresoever located; excluding, however, the equity interests (other than interests in money market funds) of the Pledgor in Persons not constituting Subsidiaries; (G) All accessions to, substitutions for and all replacements, products and proceeds of the foregoing including, without limitation, proceeds of insurance policies insuring the Collateral (as hereinafter defined); and (H) All books and records (including without limitation, customer data, credit files, computer programs, printouts, and other computer materials and records of the Pledgor and all documents) pertaining to any of the foregoing. All of the property and interests in property described in subsections (A) through (H) and all other property and interests in personal property which shall, from time to time, secure the Secured Obligations are herein collectively referred to as the "Collateral". 3. Financing Statements. At the time of execution of this Security Agreement, Pledgor shall have (i) furnished the Secured Party with financing statements, approved by the Secured Party and executed as prescribed by the Uniform Commercial Code as presently in effect in the states of Ohio and Florida, and where other Collateral is located, as may be reasonably requested by the Secured Party, in form and number sufficient to perfect in favor of the Secured Party the security interest in the Collateral, and (ii) delivered to Secured Party's possession certificated securities (with duly executed stock powers in blank affixed thereto) representing the Pledgor's interests in 4 Subsidiaries, in order that the Secured Party shall have a perfected security interest in the Collateral following such filing of such financing statements with the appropriate local and state governmental authorities and the delivery of such securities (to the extent that a security interest in such Collateral is capable of perfection by such filing or possession), and subject only to (a) permitted liens described in the Credit Agreement, (b) such other security interests, liens and encumbrances currently existing and set forth in Exhibit A attached hereto and by reference made a part hereof, or as shall otherwise be acceptable to the Secured Party in its sole discretion, and (c) limitations under applicable law which may limit the creation, perfection or priority of liens on Government Receivables (collectively referred to hereinafter as "Permitted Liens"); provided, however, that with respect to the items of property described in clause (F) of Section 2, the security interest in such property will not be perfected until the Secured Party or any Lender takes possession thereof or otherwise obtains perfection in accordance with the applicable requirements of the Uniform Commercial Code. Pledgor shall execute as reasonably required by the Secured Party any additional financing statements or other documents to effect a perfected security interest in the Collateral to the extent contemplated hereby, together with any necessary continuation statements so long as this Security Agreement remains in effect. 4. Maintenance of Security Interest. Pledgor will, from time to time, upon the request of the Secured Party, deliver specific assignments of Collateral, together with such other instruments and documents, financing statements, amendments thereto, assignments or other writings as the Secured Party or any Lender may reasonably request to carry out the terms of this Security Agreement or to protect or enforce the Secured Party's security interest in the Collateral. With respect to any and all Collateral as to which a security interest is granted under this Security Agreement, Pledgor agrees to do and cause to be done all things necessary to perfect and keep in full force the security interest granted in favor of the Secured Party, including, but not limited to, the prompt payment of all fees and expenses incurred in connection with any filings made to perfect a security interest in the Collateral in favor of the Secured Party. Pledgor agrees to make appropriate entries upon its financial statements and books and records disclosing the Secured Party's security interest in the Collateral. 5. Collections; Secured Party's Right to Notify Account Debtors and to Endorse Each Pledgor's Name. Pledgor hereby authorizes Secured Party at any time after the occurrence and during the continuation of an Event of Default subject, with respect to the Secured Obligations relating to the Company's 5 obligations under the Company Guaranty, to Section 2.08 of the Company Guaranty, (a) to open Pledgor's mail and collect any and all amounts due to Pledgor from persons obligated on any Accounts ("Account Debtors"), but only to the extent permitted by law with respect to Government Receivables; (b) to take over Pledgor's post office boxes or make other arrangements as Secured Party deems necessary to receive Pledgor's mail, including notifying the post office authorities to change the address for delivery of Pledgor's mail to such address as Secured Party may designate; and (c) to notify any or all Account Debtors, but only to the extent permitted by law with respect to Government Receivables, that the Accounts have been assigned to Secured Party and that Secured Party has a security interest therein. Pledgor irrevocably makes, constitutes and appoints Secured Party and all Persons designated by Secured Party for that purpose as Pledgor's true and lawful attorney (and agent-in-fact) after the occurrence and during the continuation of an Event of Default, subject to the limitations set forth in the immediately preceding sentence and, with respect to the Secured Obligations relating to the Company's obligations under the Company Guaranty, to Section 2.08 of the Company Guaranty, to endorse such Pledgor's name on any checks, notes, drafts or any other payment relating to and/or proceeds of the Collateral which comes into Secured Party's possession or Secured Party's control, and apply the same on account of the Secured Obligations as provided herein and in the Agreements, in such order as Secured Party may elect. Secured Party shall promptly furnish Pledgor with a copy of any such notice sent with respect to Accounts of Pledgor and Pledgor hereby agrees that any such notice, in Secured Party's sole discretion, may be sent on Pledgor's stationery, in which event Pledgor shall co-sign such notice with Secured Party. 6. Collateral. Pledgor covenants with Lender that: (A) Inspection. Secured Party and any Lender (by any of its officers, employees and agents) shall have the right, at any time or times during Pledgor's usual business hours, to inspect the Collateral, all records related thereto (and to make extracts or copies from such records), and the premises upon which any of the Collateral is located, to discuss Pledgor's affairs and finances with its principal officers and independent auditors and to verify the amount, quality, quantity, value and condition of, or any other matter relating to, the Collateral. Upon or after the occurrence of a Default or an Event of Default, Secured Party may at any time and from time to time employ and maintain at Pledgor's premises a custodian selected by Secured Party who shall have full authority to do all acts necessary to protect Secured Party's interest. All reasonable expenses incurred by Secured Party by reason of the employment of such custodian shall be paid by the Pledgor, added to the Secured Obligations and secured by the Collateral. 6 (B) Assignments, Records and Schedules of Accounts. Pledgor shall keep accurate and complete records of its Accounts ("Account Records") and, upon Secured Party's request from time to time at intervals acceptable to Secured Party, Pledgor shall reasonably provide Secured Party and each Lender with a Schedule of Accounts in form and substance reasonably acceptable to the Secured Party describing all Accounts created or acquired by such Pledgor ("Schedule of Accounts") and shall at the request of Secured Party execute and deliver further written assignments of such Accounts to Secured Party; provided however, that Pledgor's failure to execute and deliver any such Schedule of Accounts or assignments shall not affect or limit Secured Party's security interest or other rights in and to any Accounts. If requested by Secured Party, Pledgor shall furnish Secured Party with copies of proof of delivery of invoices and the original copy of all documents, including, without limitation, repayment histories and present status reports, relating to the Accounts so scheduled (collectively, "Account Documents") and such other matter and information relating to the status of then existing Accounts as Secured Party shall reasonably request. (C) Notice Regarding Disputed Accounts. In the event any amounts due and owing in excess of $100,000 are in dispute between any Account Debtor and Pledgor (which shall include, without limitation, any dispute in which an offset claim or counterclaim may result), Pledgor shall provide the Secured Party with written notice thereof promptly, explaining in detail the reason for the dispute, all claims related thereto and the amount in controversy. (D) Verification of Accounts. Whether or not a Default or an Event of Default has occurred, any of Secured Party's, employees, or agents shall have the right, at any time or times hereafter, to verify under reasonable procedures the validity, amount or any other matter relating to any Accounts by mail, telephone, telegraph or otherwise. (E) Change of Trade Styles. Set forth on Schedule 6(E) delivered to the Secured Party simultaneously with the execution of this Security Agreement are all tradenames and trade styles under which Pledgor provides services giving rise to Accounts as of the date of this Agreement ("Trade Styles"). Pledgor shall not change, amend, alter, terminate, or cease using its Trade Styles, or use additional Trade Styles, except upon giving not less than ten (10) days prior written notice to the Secured Party and taking or causing to be taken all such action at Pledgor's expense as may be reasonably requested by the Secured Party (including the furnishing of additional financing statements) to enable the Secured Party to perfect or maintain the perfection of the 7 security interest of the Secured Party in Accounts, General Intangibles, Contract Rights and related Collateral. (F) Safekeeping of Inventory. Pledgor shall be responsible for the safekeeping of its Inventory, and in no event shall Secured Party or any Lender have any responsibility for: (i) Any loss or damage to Inventory or destruction thereof occurring or arising in any manner or fashion from any cause other than as a result of gross negligence, bad faith or willful misconduct of the Agent or any Lender; (ii) Any diminution in the value of Inventory; or (iii) Any act or default of any carrier, warehouseman, bailee or forwarding agency thereof or other Person in any way dealing with or handling Inventory. (G) Records and Schedules of Inventory. Pledgor shall keep correct and accurate records on a perpetual basis, itemizing and describing the kind, type, location, quality and quantity of Inventory owned by it, if any, from time to time, and such Pledgor's cost therefor and selling price thereof, and at the reasonable request of the Secured Party shall furnish to the Secured Party, a current Schedule of Inventory ("Schedule of Inventory"). Pledgor shall conduct a physical inventory, of which Secured Party shall be given prior written notice and shall have the right to be present, no less than annually, and shall furnish to Secured Party such other documents and reports as Secured Party shall reasonably request with respect to the Inventory, including, without limitation, invoices relating to Pledgor's purchase of Inventory. (H) Evidence of Ownership of Equipment. Pledgor, promptly on request therefor by the Secured Party, shall deliver to the Secured Party any and all evidence of ownership of any of the Equipment (including without limitation certificates of title and applications for title). (I) Records and Schedules of Equipment. Pledgor shall maintain accurate, itemized records describing in reasonable detail its Equipment and shall furnish the Secured Party upon reasonable request with a current schedule containing the foregoing information ("Schedule of Equipment"). (J) Administration of Collateral. So long as no Event of Default shall have occurred and be continuing, Pledgor may (to the extent not inconsistent with the provisions of the Loan Documents or the ESOP Loan Documents) (i) sell, 8 transfer or dispose of any asset owned by it or (ii) collect or compromise Accounts and General Intangibles in the ordinary course of business in any lawful manner. (K) Voting Rights, Consensual Rights, Dividends and Distributions. A. So long as no Event of Default shall have occurred and be continuing: 1. the Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Collateral or any part thereof for any purpose not inconsistent with the terms of this Security Agreement, the Credit Agreement, the other Loan Documents or the other ESOP Loan Documents; 2. the Pledgor shall be entitled to receive and retain any and all cash distributions or dividends paid on the Collateral which they are otherwise entitled to receive, notwithstanding the assignment and transfer of the Collateral and the grant of security interest in Section 2 of this Security Agreement (provided that any cash distributions or dividends received upon the occurrence and during the continuance of a Default shall remain segregated from all other funds of the Pledgor and deposited with the Secured Party), but any and all stock dividends, liquidating dividends, distributions in property, returns of capital or other distributions made on or in respect of any of the Collateral, whether resulting from a subdivision, combination or reclassification of the outstanding capital stock of any issuer of the Collateral or received in exchange for the Collateral or any part thereof or as a result of any merger, consolidation, acquisition or other exchange of assets to which any issuer of any Collateral may be a party or otherwise, and any and all cash and other property received in exchange for any of the Collateral shall be and become part of the Collateral hereunder and, if received by the Pledgor, shall forthwith be delivered to the Secured Party, to the extent the Collateral for which it was exchanged was held or required to be held by the Secured Party; and 3. the Secured Party shall execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting, consensual and other rights which the Pledgor are entitled to exercise pursuant to subparagraph (1) above and to receive such distributions and dividends which it is authorized to receive and retain pursuant to subparagraph (2) above. 9 B. Upon the occurrence and during the continuance of an Event of Default: 1. subject, with respect to the Secured Obligations relating to the Company's obligations under the Company Guaranty to Section 2.08 of the Company Guaranty, all rights of the Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 6(K)A.l and to receive and retain the distributions and dividends which it would otherwise be authorized to receive and retain pursuant to Section 6(K)A.2, shall become vested in the Secured Party, which shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and hold as Collateral such distributions and dividends (whether or not the relevant Collateral shall have been transferred into the name of the Secured Party or any of its nominees, the Pledgor hereby irrevocably appointing and constituting the Secured Party as proxy and attorney-in-fact of Pledgor, which appointment is coupled with an interest and is irrevocable, with full power of substitution, to act as if the Secured Party were the outright owner thereof); and 2. all distributions and dividends which are received by the Pledgor contrary to the provisions of Section 6(K)A.2 or Section 6(K)B.l shall be received in trust for the benefit of the Secured Party, shall be segregated from other funds of Pledgor and shall be paid over to the Secured Party forthwith as Collateral in the same form as so received (with any necessary endorsement). 7. Warranties Regarding Collateral. Pledgor warrants and represents that it is and will continue to be the owner of the Collateral, now owned and upon the acquisition of the same, free and clear of all encumbrances and security interests other than the security interest in favor of Secured Party hereunder and Permitted Liens, and that it will defend the Collateral and the Secured Party's security interest therein and any products and proceeds thereof against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to the Secured Party or any Lender. 8. Account Warranties and Representations. With respect to its Accounts, Pledgor warrants and represents to the Secured Party and the Lenders that they may rely on all statements or representations made by Pledgor on or with respect to any Schedule of Accounts prepared and delivered by Pledgor and, unless otherwise indicated in writing by Pledgor, that: 10 (A) All Account Records and Account Documents are located and shall be kept only at Pledgor's chief executive offices located at the locations described in Schedule 6.04 delivered to the Agent pursuant to the Credit Agreement and Schedule 4.22 delivered to the Bank pursuant to the Company Guaranty; (B) They are genuine, are in all material respects what they purport to be, are not evidenced by a judgment instrument or document or, if evidenced by an instrument or document, are only evidenced by one original instrument or document, which has been delivered to the Secured Party; (C) They cover the bona fide rendition of services, or the bona fide sales and deliveries of Inventory usually dealt in by Pledgor, in the ordinary course of business; (D) Each Account is actually and absolutely owing to Pledgor in the face value thereof, is valid and enforceable against the applicable Account Debtor, and is not subject to any setoffs, discounts, allowances, claims, counterclaims, disputes or doubtful collectibility except (i) as is customary for Accounts of the type represented by such Account (including the nature of the Account Debtor) of the Pledgor in the ordinary course of Pledgor's business and consistent with past practices, and (ii) as is reflected by reserves and reductions in the stated value of such Account, computed in a manner consistent with the Company's policies and practices in preparing the financial statements described in Sections 7.01 and 8.01 of the Credit Agreement and Sections 3.01(f) and 4.01 of the Company Guaranty, included in such financial statements, in the Schedule of Accounts and in any report or certificate including financial information regarding such Account furnished to the Secured Party pursuant to the Loan Documents or the ESOP Loan Documents. (E) The goods or services giving rise thereto are not, and were not at the time of the sale or performance thereof, subject to any lien, claim, encumbrance or security interest, except those of the Secured Party and those removed or terminated prior to the date hereof; (F) They have not been pledged to any Person other than to Secured Party under this Security Agreement and will be owned by Pledgor free and clear of any liens, claims or encumbrances except Permitted Liens; and (G) Secured Party's security interest therein will not be subject to any offset, deduction, counterclaim, lien or other adverse condition, other than Permitted Liens or as is consistent with Section 8(D) above. 11 9. Inventory Warranties and Representations. With respect to Inventory, Pledgor warrants and represents to the Secured Party and the Lenders that they may rely on all statements or representations made by Pledgor on or with respect to any Inventory and, unless otherwise indicated in writing by Pledgor, that (A) Except for the relocation of Inventory from time to time in the ordinary course of business not aggregating more than $100,000 at any one time in any location other than those set forth in Schedules 6.03 and 6.04 delivered pursuant to the Credit Agreement or Schedules 4.22 and 4.23 delivered pursuant to the Company Guaranty, the Pledgor shall not locate or relocate inventory to any location other than those set forth in Section 8(A) above or Schedules 6.03 and 6.04 delivered pursuant to the Credit Agreement or Schedules 4.22 and 4.23 delivered pursuant to the Company Guaranty without giving the Secured Party not less than thirty (30) days prior written notice and taking or causing to be taken at its expense all steps as may be reasonably requested by the Secured Party (including the furnishing of additional financing statements) to enable the Secured Party to perfect or continue the perfection of its security interest in such property. (B) No Inventory is or will be subject to any lien, claim, encumbrance or security interest whatsoever, except for the security interest of Secured Party hereunder and Permitted Liens; (C) No Inventory having an aggregate value in excess of $100,000 is now, and shall not at any time or times hereafter be, stored with a bailee, warehouseman, or similar party without Secured Party's prior written consent and, if Secured Party gives such consent, Pledgor will concurrently therewith cause any such bailee, warehouseman, or similar party to issue and deliver to Secured Party in form and substance acceptable to Secured Party, warehouse receipts therefor in Secured Party's name; and (D) No Inventory is under consignment to any Person. 10. Equipment Warranties and Representations. With respect to Equipment, Pledgor warrants and represents to the Secured Party and each Lender that: (A) Except for the relocation of Equipment from time to time in the ordinary course of business not aggregating more than $100,000 at any one time in any location other than those set forth in Schedules 6.03 and 6.04 of the Credit Agreement and Schedules 4.22 and 4.23 of the Company Guaranty, the Pledgor shall not locate or relocate Equipment to any location other than those set forth in Schedules 6.03 12 and 6.04 of the Credit Agreement and Schedules 4.22 and 4.23 of the Company Guaranty without giving the Secured Party not less than thirty (30) days prior written notice and taking or causing to be taken at their expense all steps as may be reasonably requested by the Secured Party (including the furnishing of additional financing statements) to enable the Secured Party to perfect or continue the perfection of its security interest in such property; and (B) Pledgor has and at all times will have good and marketable title to and ownership of the Equipment free and clear of any lien, claim, encumbrance, or security interest whatsoever, except for (i) the security interest of Secured Party created hereunder and (ii) Permitted Liens. 11. Casualty and Liability Insurance Required. (A) Pledgor will keep the Collateral continuously insured as may be expressly required by the Agreements. (B) Each insurance policy obtained in satisfaction of the requirements of Section 11(A) hereof: (i) shall be by such insurer (or insurers) as shall be financially responsible and qualified to do business in the applicable jurisdictions; (ii) shall be in such form and have such provisions (including, without limitation, the loss payable clause, the waiver of subrogation clause, the deductible amount, if any, and the standard mortgagee endorsement clause), as are generally considered standard provisions for the type of insurance involved and are acceptable in all respects to Secured Party; (iii) shall prohibit cancellation or substantial modification, termination or lapse in coverage by the insurer without at least 30 days' prior written notice to Secured Party; (iv) shall provide that the interest of Secured Party shall not be impaired or invalidated by any act or neglect of Pledgor nor by the occupation of the premises wherein such Collateral is located for purposes more hazardous than are permitted by said policy; (v) without limiting the generality of the foregoing, all insurance policies covering loss or damage to the Collateral shall name Secured Party as mortgagee, loss payee and a party insured thereunder and any loss thereunder shall be paid directly to Secured Party. (C) Prior to expiration of any such policy, Pledgor shall furnish Secured Party with evidence reasonably satisfactory to 13 Secured Party that the policy or certificate has been renewed or replaced or is no longer required by this Security Agreement. (D) Pledgor hereby irrevocably makes, constitutes and appoints Secured Party (and all officers, employees or agents designated by Secured Party), effective upon the occurrence of an Event of Default which has not been waived or cured, as Pledgor's true and lawful attorney (and agent-in-fact) for the purpose of making, settling and adjusting claims under such policies of insurance, endorsing the name of Pledgor on any check, draft, instrument or other item or payment for the proceeds of such policies of insurance and for making all determinations and decisions with respect to such policies of insurance. (E) In the event Pledgor shall fail to maintain, or cause to be maintained, the full insurance coverage required hereunder or shall fail to keep any Collateral in good repair and good operating condition, the Secured Party may (but shall be under no obligation to), without waiving or releasing any Secured Obligation or Event of Default, after giving notice to the Pledgor, contract for the required policies of insurance and pay the premiums on the same or make any required repairs, renewals and replacements; and all sums so disbursed by Secured Party, including reasonable attorneys' fees, court costs, expenses and other charges related thereto, shall be payable on demand by Pledgor to Secured Party and shall be additional Secured Obligations secured by the Collateral. (F) In case of any material damage to or destruction of all or any part of the Collateral, Pledgor shall give prompt notice thereof to Secured Party. Each such notice shall describe generally the nature and extent of such damage, destruction, taking, loss, proceeding or negotiations. 12. Rights and Remedies Upon Default. Subject, with respect to the Secured Obligations relating to the Company's obligations under the Company Guaranty, to Section 2.08 of the Company Guaranty, upon and after an Event of Default which has not been waived or cured, the Secured Party shall have the following rights and remedies, all of which may be exercised with or without notice to Pledgor: (A) All of the rights and remedies of a secured party under the Uniform Commercial Code of the state where such rights and remedies are asserted, or under other applicable law, all of which rights and remedies shall be cumulative, and none of which shall be exclusive, to the extent permitted by law, in addition to any other rights and remedies contained in this Security Agreement, the Agreements, or any of the other Loan Documents or ESOP Loan Documents; 14 (B) The right to foreclose the liens and security instruments created under this Security Agreement or any of the other Loan Documents or ESOP Loan Documents by any available judicial procedure or without judicial process; (C) The right to (i) enter upon the premises of Pledgor through self-help and without judicial process, without first obtaining a final judgment or giving Pledgor notice and opportunity for a hearing on the validity of Secured Party's claim and without any obligation to pay rent to Pledgor, or any other place or places where any Collateral is located and kept, and remove the Collateral therefrom to the premises of Secured Party or any agent of Secured Party, for such time as Secured Party may desire, in order to effectively collect or liquidate the Collateral, and/or (ii) require Pledgor to assemble the Collateral and make it available to Secured Party at a place to be designated by Secured Party in its sole discretion; (D) The right (to the extent permissible by law with respect to Governmental Receivables) to (i) demand payment of the Accounts; (ii) enforce payment of the Accounts and General Intangibles and enforce all Contract Rights, by legal proceedings or otherwise; (iii) exercise all or any of Pledgor's rights and remedies with respect to the collection of the Accounts and General Intangibles and in respect of Contract Rights; (iv) settle, adjust, compromise, extend or renew the Accounts; (v) settle, adjust or compromise any legal proceedings brought to collect the Accounts or General Intangibles or to enforce Contract Rights; (vi) sell or assign the Accounts, General Intangibles, Contract Rights or other Collateral upon such terms, for such amounts and at such time or times as Secured Party deems advisable; (vii) discharge and release the Accounts; (viii) take control, in any manner, of any item of payment or proceeds; (ix) prepare, file and sign Pledgor's name on a Proof of Claim in bankruptcy or similar document against any account obligor; (x) prepare, file and sign Pledgor's name on any notice of lien, assignment or satisfaction of lien or similar document in connection with the Accounts; (xi) endorse the name of Pledgor upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating to the Accounts or Inventory; (xii) use Pledgor's stationery for verifications of the Accounts and notices thereof to account obligors; (xiii) use the information recorded on or contained in any data processing equipment and computer hardware and software relating to the Accounts, General Intangibles, Equipment, Contract Rights or Inventory to which Pledgor has access; and (xiv) do all acts and things and execute all documents necessary, in Secured Party's sole discretion, to collect the Accounts and General Intangibles; 15 (E) The right to sell, assign, lease or to otherwise dispose of all or any Collateral in its then condition, or after any further manufacturing or processing thereof, at public or private sale or sales, with such notice as may be required by law, in lots or in bulk, for cash or on credit, with or without representations and warranties, all as Secured Party, in its sole discretion, may deem advisable (except, in the case of Government Receivables, to the extent such sales or other disposition are prohibited by applicable law). Secured Party shall have the right to conduct such sales on Pledgor's premises or elsewhere and shall have the right to use Pledgor's premises without charge for such sales for such time or times as Secured Party may see fit. Secured Party may, if it deems it reasonable, postpone or adjourn any sale of the Collateral from time to time by an announcement at the time and place of such postponed or adjourned sale, without being required to give a new notice of sale. Pledgor agrees that Secured Party has no obligation to preserve rights to the Collateral against prior parties or to marshall any Collateral for the benefit of any Person. Secured Party is hereby granted a license or other right to use, without charge, Pledgor's labels, patents, copyrights, rights of use of any name, trade secrets, tradenames, trademarks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale and selling any Collateral and Pledgor's rights under any license and any franchise agreement shall inure to Secured Party's benefit. If any of the Collateral shall require repairs, maintenance, preparation or the like, or is in process or other unfinished state, Secured Party shall have the right, but shall not be obligated to perform such repairs, maintenance, preparation, processing or completion of manufacturing for the purpose of putting the same in such saleable form as Secured Party shall deem appropriate, but Secured Party shall have the right to sell or dispose of the Collateral without such processing. In addition, Pledgor agrees that in the event notice is necessary under applicable law, written notice mailed to Pledgor in the manner specified in either of the Agreements ten (10) days prior to the date of public sale of any of the Collateral or prior to the date after which any private sale or other disposition of the Collateral will be made shall constitute commercially reasonable notice to Pledgor. Secured Party or any Lender may purchase all or any part of the Collateral at public or, if permitted by law, private sale, free from any right of redemption which is hereby expressly waived by Pledgor and, in lieu of actual payment of such purchase price, may set off the amount of such price against the Secured Obligations. The net cash proceeds resulting from the collection, liquidation, sale, lease or other disposition of the Collateral shall be applied first to the reasonable expenses (including all reasonable attorneys' 16 fees) of retaking, holding, storing, processing and preparing for sale, selling, collecting, liquidating and the like (collectively, the "Administration Expenses"), and then to the satisfaction of all Secured Obligations, application as to particular Secured Obligations or against principal or interest to be in subject to the terms of Section 13 hereof and of the Agreements. Pledgor shall be liable to Secured Party and the Lenders and shall pay to the Secured Party on demand any deficiency which may remain after such sale, disposition, collection or liquidation of the Collateral. Pledgor recognize that the Secured Party may be unable to effect a public sale of securities constituting Collateral by reason of certain prohibitions contained in the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities or Blue Sky laws, and as a consequence may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Pledgor agrees and acknowledges that private sales so made may be at prices and upon terms less favorable to Pledgor than if such Collateral were sold at public sales and that the Secured Party has no obligation to delay the sale of any of the Collateral for the period of time necessary to permit the issuer of such Collateral to register or otherwise qualify them, even if such issuer would agree to register or otherwise qualify such Collateral for public sale under the Securities Act and applicable state securities or Blue Sky laws. Pledgor further agrees, to the extent permitted by applicable law, that the use of private sales made under the foregoing circumstances to dispose of the Collateral shall be deemed to be dispositions in a commercially reasonable manner; (F) The rights and remedies provided to Secured Party or any Lender under this Security Agreement or any of the other Loan Documents or ESOP Loan Documents. 13. Anti-Marshalling Provisions. The right is hereby given by Pledgor to Secured Party and the Lenders to make releases (whether in whole or in part) of all or any part of the Collateral agreeable to Secured Party and the Lenders without notice to, or the consent, approval or agreement of other parties and interests, including junior lienors, which releases shall not impair in any manner the validity of or priority of the liens and security interest in the remaining Collateral conferred under such documents, nor release Pledgor from personal liability for the indebtedness hereby secured. Notwithstanding the existence of any other security interest in the Collateral held by Secured Party or any Lender, Secured Party and the Lenders shall have the right to determine the order in which any or all of the Collateral shall be subjected to the remedies provided in this 17 Security Agreement. The proceeds realized upon the exercise of the remedies provided herein shall be applied as provided herein, in the Pledgor Guaranty and in the Agreements. Pledgor hereby waives any and all right to require the marshalling of assets in connection with the exercise of any of the remedies permitted by applicable law or provided herein. 14. Appointment of Secured Party as Pledgor's Lawful Attorney. Upon and after an Event of Default which has not been waived or cured, Pledgor irrevocably designates, makes, constitutes and appoints Secured Party (and all Persons designated by Lender) as Pledgor's true and lawful attorney (and agent-in-fact). To the extent permitted by law, all acts of Secured Party or its designee lawfully taken pursuant to Section 13 are hereby ratified and confirmed and Secured Party or its designee shall not be liable for any acts of omission or commission nor for any error of judgment or mistake of fact or law which does not constitute bad faith, willful misconduct or gross negligence. This power, being coupled with an interest, is irrevocable by Pledgor until all Secured Obligations are finally paid in full. 15. Rights and Remedies Cumulative; Non-Waiver; Etc. The enumeration of Secured Party's and Lenders' rights and remedies set forth in this Security Agreement is not intended to be exhaustive and the exercise by the Secured Party or any Lender of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative, and shall be in addition to any other right or remedy given hereunder, or under any other agreement between Pledgor and Secured Party or any Lender or which may now or hereafter exist in law or in equity or by suit or otherwise. No delay or failure to take action on the part of Lender in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude other or further exercise thereof or the exercise of any other right, power or privilege or be construed to be a waiver of any Event of Default. No waiver by a party hereunder shall be effective unless it is in writing and signed by the party making such waiver, and then only to the extent specifically stated in such writing. No course of dealing between Pledgor and the Secured Party or any Lender or their respective agents or employees shall be effective to change, modify or discharge any provision of this Security Agreement or to constitute a waiver of any Event of Default. 16. Waivers. In addition to the other waivers contained herein and in any other agreement between Pledgor and Secured Party or any Lender, Pledgor hereby expressly waives, to the extent permitted by law: presentment for payment, demand, protest, notice of demand, notice of protest, notice of default or dishonor, notice of payments and nonpayments and all other notices and consents that Secured Party may release, compromise, 18 settle, extend or renew any commercial paper, instruments or guaranties at any time held by Secured Party or any Lender on which Pledgor may in any way be liable and notice of any action taken by Secured Party or any Lender unless expressly required by this Security Agreement or by law. 17. Notice. Except as otherwise provided herein, all notices, requests and demands to or upon a party hereto shall be effective as provided in the Pledgor Guaranty. 18. Applicable Law. This Security Agreement shall be governed in all respects by, and construed in accordance with, the internal laws of the State of Florida without reference to choice of laws principles. 19. References to Credit Agreement Definitions. In the event that the Credit Agreement shall no longer be in effect at any time while the Pledgor Guaranty shall continue in effect or there shall otherwise continue to remain outstanding Secured Obligations, all references to the Credit Agreement, including terms defined by reference to their respective definitions contained in the Credit Agreement, shall be deemed to refer to the Credit Agreement as in effect as of the date hereof, with such amendments thereto to which the Secured Party shall have given its express consent in accordance with the Loan Documents and the ESOP Loan Documents. 20. Entire Agreement. This Security Agreement, together with the Credit Agreement and other Loan Documents and ESOP Loan Documents, constitute and express the entire understanding between the parties hereto with respect to the subject matter hereof, and supersede all prior agreements and understandings, inducements, commitments or conditions, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof. Neither this Security Agreement nor any portion or provision hereof may be changed, altered, waived, modified, supplemented, discharged, canceled, terminated, or amended orally or in any manner other than (i) as to the Agent, as provided in the Credit Agreement and (ii) as to NationsBank, by the express written consent of NationsBank in each instance. 21. Section Headings. The Section headings in this Security Agreement are for convenience of reference only; they form no part of this Security Agreement and shall not affect its interpretation. 22. Severability. The provisions of this Security Agreement are independent of and separable from each other. If any provision hereof shall for any reason be held invalid or unenforceable, such invalidity or unenforceability shall not affect the validity or enforceability of any other provision 19 hereof, but this Security Agreement shall be construed as if such invalid or unenforceable provision had never been contained herein. 23. Successors and Assigns. This Security Agreement shall be binding upon the successors and assigns of Pledgor and shall inure to the benefit of and be enforceable by the Secured Party and their successors and assigns; provided, however, the obligations of Pledgor hereunder may not be assigned or delegated to any other Person without the prior written consent of the Secured Party. 24. Agency. Notwithstanding the foregoing references to the Secured Party, Pledgor acknowledges and agrees that so long as NationsBank shall be the sole Lender under the Credit Agreement, the term "Agent" shall mean NationsBank as Lender. When and if there shall be more than one Lender party to the Credit Agreement, then the term "Agent" shall refer to the Agent under the Credit Agreement pursuant to the provisions of Article XI of the Credit Agreement, to which reference is hereby made. 25. Termination. In the event that all of the Secured Obligations shall be fully, finally and indefeasibly paid and satisfied in full (subject to provisions of the Agreements that expressly survive), the Agreements shall be terminated and there shall be no Outstanding Letters of Credit, the Secured Party shall, at the request and at the expense of the Pledgor, terminate the security interest and powers of attorney herein conferred and, in furtherance thereof, execute such Uniform Commercial Code termination statements and such other documents in form and substance reasonably satisfactory to the Secured Party to release and terminate the Lien hereof of record. Notwithstanding the foregoing provisions of this Section 25, in the event that any payment made or deemed made to the Secured Party or any Lender in payment of any Secured Obligation shall be rescinded or declared to be or become void, voidable or otherwise recoverable from the Secured Party or such Lender for any reason whatsoever, the Lien in favor of the Secured Party created hereunder shall be and become reinstituted in respect of such Secured Obligations until the same shall be thereafter fully and finally paid, satisfied and discharged. [Remainder of page intentionally left blank] 20 IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed by authority duly given as of the day and year first above written. WITNESS: VITAS HEALTHCARE CORPORATION OF OHIO /s/ Terry L. Scaggs By: /s/ Mark W. Ohlendorf - ------------------------------- ------------------------------------- Mark W. Ohlendorf /s/ Meganne Cusato Vice President - -------------------------------- SECURED PARTY: WITNESS: NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION, as Agent /s/ Terry L. Scaggs By: /s/ Allison S. Freeland - -------------------------------- ------------------------------------- Allison S. Freeland /s/ Meganne Cusato Vice President - -------------------------------- WITNESS: NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION /s/ Terry L. Scaggs By: /s/ Allison S. Freeland - -------------------------------- ------------------------------------- Allison S. Freeland /s/ Meganne Cusato Vice President - -------------------------------- 21 Vitas Healthcare Corporation of Ohio PLEDGE AND SECURITY AGREEMENT INDEX TO EXHIBITS AND SCHEDULES* 1. Exhibit A Existing Liens on the Collateral 2. Schedule 6(E) Trade Styles VITAS AGREES TO PROVIDE A COPY OF THE EXHIBIT AND SCHEDULE LISTED ABOVE TO THE COMMISSION UPON REQUEST. - ---------- * The inclusion of any information on any one of these Exhibits and Schedules is not and shall not be deemed to be, a representation that such information must be set forth on such Exhibit or Schedule or any supplement thereto or otherwise in the agreement to which such Exhibit or Schedule relates. Information provided in any one Exhibit or Schedule shall be deemed to be incorporated into each Exhibit and Schedule, as applicable. EX-10.53 29 EXHIBIT 10.53 EXHIBIT 10.53 AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT THIS AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (this "Security Agreement") is made this 17th day of February, 1995, by and between VITAS HEALTHCARE CORPORATION OF PENNSYLVANIA, a Delaware corporation having its principal place of business in Miami, Dade County, Florida, (the "Pledgor"), and NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION, a national banking association ("NationsBank"), for itself and as agent (in such agency capacity and together with any successor agent, the "Agent") for certain lenders (the "Lenders") party to the Credit Agreement described below (in such capacities as described below and together with any successor agent acting as such under the Credit Agreement described below, the "Secured Party"). W I T N E S S E T H: WHEREAS, (i) pursuant to a Revolving Credit and Reimbursement Agreement dated as of August 11, 1994 ( the "Prior Credit Agreement") among Vitas Healthcare Corporation (the "Company"), NationsBank as agent and NationsBank as the lender thereunder, NationsBank has extended to the Company a revolving credit facility in the aggregate principal amount of up to $15,000,000, including within such revolving credit facility the issuance of letters of credit for the account of the Company and (ii) pursuant to a Guaranty and Contingent Purchase Agreement of even date with the Prior Credit Agreement between the Company and NationsBank (the "Prior Company Guaranty" and, together with the Prior Credit Agreement, the "Prior Agreements"), NationsBank extended a term loan of $2,386,670 to the Vitas Healthcare Corporation Employee Stock Ownership Trust (the "Trust") to refinance certain indebtedness owing from the Trust to the Company, the repayment of which loan has been, inter alia, guaranteed under the Prior Guaranty; and WHEREAS, pursuant to the Prior Agreements, the Pledgor has executed and delivered (i) its Guaranty and Suretyship Agreement of even date therewith (the "Prior Pledgor Guaranty") guaranteeing the payment and performance by the Company, inter alia, of its obligations under the Prior Agreements, and (ii) its Pledge and Security Agreement of even date with the Prior Pledgor Guaranty securing its obligations under the Prior Pledgor Guaranty (the "Prior Security Agreement"); and WHEREAS, the Company and Vitas Healthcare Corporation of California, a Subsidiary of the Company ("Vitas California"), have entered into an Asset Purchase Agreement with the Sellers (as defined in the Credit Agreement) dated as of December 27, 1994 (the "Asset Purchase Agreement") pursuant to which Vitas California has agreed to purchase substantially all of the operating assets of the CHC Entities (as defined in the Credit Agreement) pursuant to the terms and subject to the conditions set forth therein and, in connection therewith, the Company has requested that the Prior Credit Agreement be amended and restated to increase the revolving credit facility from $15,000,000 to $20,000,000, to provide for a $25,000,000 term loan facility, and to make certain other modifications, and that the Prior Company Guaranty be amended and restated to reflect the agreement of the parties; and WHEREAS, at the request of the Company and to effect the modifications referred to above, (i) the Company, the Agent and the Lenders are entering into an Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement of even date herewith (as the same may be modified, amended or restated from time to time, the "Credit Agreement"), and (ii) the Company and NationsBank are entering into an Amended and Restated Guaranty and Contingent Purchase Agreement of even date herewith (as the same may be modified, amended or restated from time to time, the "Company Guaranty" and, together with the Credit Agreement, the "Agreements"); and WHEREAS, pursuant to the Agreements, the Pledgor has executed and delivered its Amended and Restated Guaranty and Suretyship Agreement of even date herewith (as the same may be amended, modified or restated from time to time, the "Pledgor Guaranty") guaranteeing the payment and performance by the Company, inter alia, of its obligations under the Agreements; and WHEREAS, the Lenders are unwilling to extend the amend and increase the revolving credit facility or make such term loan pursuant to the Credit Agreement, and NationsBank is unwilling to amend the Prior Agreements as reflected in the Agreements to permit the consummation of the CHC Transaction, unless the Pledgor amends and restates its Prior Security Agreement by entering into this Security Agreement; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and promises herein contained, the parties hereto agree as follows: 1. Certain Definitions. Unless otherwise defined herein, capitalized terms used in this Security Agreement shall have the respective meanings therefor provided in the Credit Agreement. 2. Grant of Security Interest. As collateral security for the full and prompt payment, satisfaction and performance of all obligations and liabilities of the Pledgor under the Pledgor Guaranty, whether now existing or hereafter arising (the "Secured Obligations"), Pledgor hereby grants to the Secured Party a continuing security interest in all of its right, title and interest in and to all of the following property in which Pledgor now has or hereafter acquires an interest, whether now owned or 2 existing or hereafter acquired or arising and wheresoever located: (A) All accounts, accounts receivable, notes, bills, acceptances, choses in action, chattel paper, instruments, documents, and other forms of obligations at any time owing to Pledgor, the proceeds thereof and all of Pledgor's rights with respect to any goods represented thereby, whether or not delivered, goods returned by customers and all rights as an unpaid vendor or lienor, including rights of stoppage in transit and of recovering possession by proceedings including replevin and reclamation, together with all customer lists, books and records, ledger and account cards, computer tapes, software, disks, printouts and records, whether now in existence or hereafter created, relating thereto (collectively referred to hereinafter as "Accounts"); (B) All goods of Pledgor, including without limitation, all machinery, equipment, motor vehicles, parts, supplies, apparatus, appliances, tools, patterns, molds, dies, blueprints, fittings, furniture, furnishings, fixtures and articles of tangible personal property of every description now or hereafter owned by Pledgor or in which Pledgor may have or may hereafter acquire any interest, but as to leasehold interests in personal property, only to the extent assignable (collectively referred to hereinafter as "Equipment"); (C) All general intangibles of Pledgor, now existing or hereafter owned or acquired or arising or in which Pledgor now has or hereafter acquires any rights, including but not limited to causes of action, corporate or business records, inventions, designs, patents, patent applications, trademarks, trademark registrations and applications therefor, goodwill, trade names, trade secrets, trade processes, copyrights, copyright registrations and applications therefor, licenses (to the extent assignable), permits (to the extent assignable), franchises, customer lists (to the extent permitted by law), computer programs, all claims under guaranties, tax refund claims, rights and claims against carriers and shippers, leases (to the extent assignable), claims under insurance policies, all rights to indemnification and all other intangible personal property of every kind and nature (collectively referred to hereinafter as "General Intangibles"); (D) All inventory of Pledgor wherever located, including without limitation, all goods manufactured or acquired for sale or lease, and any piece goods, raw materials, work in process and finished merchandise, findings or component materials, and all supplies, goods, incidentals, office supplies, packaging materials and any 3 and all items used or consumed in the operation of the business of Pledgor or which may contribute to the finished product or to the sale, promotion and shipment thereof, in which Pledgor now or at any time hereafter may have an interest, whether or not the same is in transit or in the constructive, actual or exclusive occupancy or possession of Pledgor or is held by Pledgor or by others for Pledgor's account (collectively referred to hereinafter as "Inventory"); (E) To the extent assignable, all rights now or hereafter arising to any Pledgor under contracts, leases, agreements or other instruments of every character and description, and all rights of enforcement thereunder (collectively referred to as hereinafter as "Contract Rights"); (F) All monies, certificates of deposit, commercial paper, cash equivalents, account balances, notes, options, interests, and securities (certificated or uncertificated), wheresoever located; excluding, however, the equity interests (other than interests in money market funds) of the Pledgor in Persons not constituting Subsidiaries; (G) All accessions to, substitutions for and all replacements, products and proceeds of the foregoing including, without limitation, proceeds of insurance policies insuring the Collateral (as hereinafter defined); and (H) All books and records (including without limitation, customer data, credit files, computer programs, printouts, and other computer materials and records of the Pledgor and all documents) pertaining to any of the foregoing. All of the property and interests in property described in subsections (A) through (H) and all other property and interests in personal property which shall, from time to time, secure the Secured Obligations are herein collectively referred to as the "Collateral". 3. Financing Statements. At the time of execution of this Security Agreement, Pledgor shall have (i) furnished the Secured Party with financing statements, approved by the Secured Party and executed as prescribed by the Uniform Commercial Code as presently in effect in the states of Pennsylvania, New Jersey and Florida, and where other Collateral is located, as may be reasonably requested by the Secured Party, in form and number sufficient to perfect in favor of the Secured Party the security interest in the Collateral, and (ii) delivered to Secured Party's possession certificated securities (with duly executed stock powers in blank affixed thereto) representing the Pledgor's 4 interests in Subsidiaries, in order that the Secured Party shall have a perfected security interest in the Collateral following such filing of such financing statements with the appropriate local and state governmental authorities and the delivery of such securities (to the extent that a security interest in such Collateral is capable of perfection by such filing or possession), and subject only to (a) permitted liens described in the Credit Agreement, (b) such other security interests, liens and encumbrances currently existing and set forth in Exhibit A attached hereto and by reference made a part hereof, or as shall otherwise be acceptable to the Secured Party in its sole discretion, and (c) limitations under applicable law which may limit the creation, perfection or priority of liens on Government Receivables (collectively referred to hereinafter as "Permitted Liens"); provided, however, that with respect to the items of property described in clause (F) of Section 2, the security interest in such property will not be perfected until the Secured Party or any Lender takes possession thereof or otherwise obtains perfection in accordance with the applicable requirements of the Uniform Commercial Code. Pledgor shall execute as reasonably required by the Secured Party any additional financing statements or other documents to effect a perfected security interest in the Collateral to the extent contemplated hereby, together with any necessary continuation statements so long as this Security Agreement remains in effect. 4. Maintenance of Security Interest. Pledgor will, from time to time, upon the request of the Secured Party, deliver specific assignments of Collateral, together with such other instruments and documents, financing statements, amendments thereto, assignments or other writings as the Secured Party or any Lender may reasonably request to carry out the terms of this Security Agreement or to protect or enforce the Secured Party's security interest in the Collateral. With respect to any and all Collateral as to which a security interest is granted under this Security Agreement, Pledgor agrees to do and cause to be done all things necessary to perfect and keep in full force the security interest granted in favor of the Secured Party, including, but not limited to, the prompt payment of all fees and expenses incurred in connection with any filings made to perfect a security interest in the Collateral in favor of the Secured Party. Pledgor agrees to make appropriate entries upon its financial statements and books and records disclosing the Secured Party's security interest in the Collateral. 5. Collections, Secured Party's Right to Notify Account Debtors and to Endorse Each Pledgor's Name. Pledgor hereby authorizes Secured Party at any time after the occurrence and during the continuation of an Event of Default subject, with respect to the Secured Obligations relating to the Company's 5 obligations under the Company Guaranty, to Section 2.08 of the Company Guaranty, (a) to open Pledgor's mail and collect any and all amounts due to Pledgor from persons obligated on any Accounts ("Account Debtors"), but only to the extent permitted by law with respect to Government Receivables; (b) to take over Pledgor's post office boxes or make other arrangements as Secured Party deems necessary to receive Pledgor's mail, including notifying the post office authorities to change the address for delivery of Pledgor's mail to such address as Secured Party may designate; and (c) to notify any or all Account Debtors, but only to the extent permitted by law with respect to Government Receivables, that the Accounts have been assigned to Secured Party and that Secured Party has a security interest therein. Pledgor irrevocably makes, constitutes and appoints Secured Party and all Persons designated by Secured Party for that purpose as Pledgor's true and lawful attorney (and agent-in-fact) after the occurrence and during the continuation of an Event of Default, subject to the limitations set forth in the immediately preceding sentence and, with respect to the Secured Obligations relating to the Company's obligations under the Company Guaranty, to Section 2.08 of the Company Guaranty, to endorse such Pledgor's name on any checks, notes, drafts or any other payment relating to and/or proceeds of the Collateral which comes into Secured Party's possession or Secured Party's control, and apply the same on account of the Secured Obligations as provided herein and in the Agreements, in such order as Secured Party may elect. Secured Party shall promptly furnish Pledgor with a copy of any such notice sent with respect to Accounts of Pledgor and Pledgor hereby agrees that any such notice, in Secured Party's sole discretion, may be sent on Pledgor's stationery, in which event Pledgor shall co-sign such notice with Secured Party. 6. Collateral. Pledgor covenants with Lender that: (A) Inspection. Secured Party and any Lender (by any of its officers, employees and agents) shall have the right, at any time or times during Pledgor's usual business hours, to inspect the Collateral, all records related thereto (and to make extracts or copies from such records), and the premises upon which any of the Collateral is located, to discuss Pledgor's affairs and finances with its principal officers and independent auditors and to verify the amount, quality, quantity, value and condition of, or any other matter relating to, the Collateral. Upon or after the occurrence of a Default or an Event of Default, Secured Party may at any time and from time to time employ and maintain at Pledgor's premises a custodian selected by Secured Party who shall have full authority to do all acts necessary to protect Secured Party's interest. All reasonable expenses incurred by Secured Party by reason of the employment of such custodian shall be paid by the Pledgor, added to the Secured Obligations and secured by the Collateral. 6 (B) Assignments, Records and Schedules of Accounts. Pledgor shall keep accurate and complete records of its Accounts ("Account Records") and, upon Secured Party's request from time to time at intervals acceptable to Secured Party, Pledgor shall reasonably provide Secured Party and each Lender with a Schedule of Accounts in form and substance reasonably acceptable to the Secured Party describing all Accounts created or acquired by such Pledgor ("Schedule of Accounts") and shall at the request of Secured Party execute and deliver further written assignments of such Accounts to Secured Party; provided however, that Pledgor's failure to execute and deliver any such Schedule of Accounts or assignments shall not affect or limit Secured Party's security interest or other rights in and to any Accounts. If requested by Secured Party, Pledgor shall furnish Secured Party with copies of proof of delivery of invoices and the original copy of all documents, including, without limitation, repayment histories and present status reports, relating to the Accounts so scheduled (collectively, "Account Documents") and such other matter and information relating to the status of then existing Accounts as Secured Party shall reasonably request. (C) Notice Regarding Disputed Accounts. In the event any amounts due and owing in excess of $100,000 are in dispute between any Account Debtor and Pledgor (which shall include, without limitation, any dispute in which an offset claim or counterclaim may result), Pledgor shall provide the Secured Party with written notice thereof promptly, explaining in detail the reason for the dispute, all claims related thereto and the amount in controversy. (D) Verification of Accounts. Whether or not a Default or an Event of Default has occurred, any of Secured Party's, employees, or agents shall have the right, at any time or times hereafter, to verify under reasonable procedures the validity, amount or any other matter relating to any Accounts by mail, telephone, telegraph or otherwise. (E) Change of Trade Styles. Set forth on Schedule 6(E) delivered to the Secured Party simultaneously with the execution of this Security Agreement are all tradenames and trade styles under which Pledgor provides services giving rise to Accounts as of the date of this Agreement ("Trade Styles"). Pledgor shall not change, amend, alter, terminate, or cease using its Trade Styles, or use additional Trade Styles, except upon giving not less than ten (10) days prior written notice to the Secured Party and taking or causing to be taken all such action at Pledgor's expense as may be reasonably requested by the Secured Party (including the furnishing of additional financing statements) to enable the Secured Party to perfect or maintain the perfection of the 7 security interest of the Secured Party in Accounts, General Intangibles, Contract Rights and related Collateral. (F) Safekeeping of Inventory. Pledgor shall be responsible for the safekeeping of its Inventory, and in no event shall Secured Party or any Lender have any responsibility for: (i) Any loss or damage to Inventory or destruction thereof occurring or arising in any manner or fashion from any cause other than as a result of gross negligence, bad faith or willful misconduct of the Agent or any Lender; (ii) Any diminution in the value of Inventory; or (iii) Any act or default of any carrier, warehouseman, bailee or forwarding agency thereof or other Person in any way dealing with or handling Inventory. (G) Records and Schedules of Inventory. Pledgor shall keep correct and accurate records on a perpetual basis, itemizing and describing the kind, type, location, quality and quantity of Inventory owned by it, if any, from time to time, and such Pledgor's cost therefor and selling price thereof, and at the reasonable request of the Secured Party shall furnish to the Secured Party, a current Schedule of Inventory ("Schedule of Inventory"). Pledgor shall conduct a physical inventory, of which Secured Party shall be given prior written notice and shall have the right to be present, no less than annually, and shall furnish to Secured Party such other documents and reports as Secured Party shall reasonably request with respect to the Inventory, including, without limitation, invoices relating to Pledgor's purchase of Inventory. (H) Evidence of Ownership of Equipment. Pledgor, promptly on request therefor by the Secured Party, shall deliver to the Secured Party any and all evidence of ownership of any of the Equipment (including without limitation certificates of title and applications for title). (I) Records and Schedules of Equipment. Pledgor shall maintain accurate, itemized records describing in reasonable detail its Equipment and shall furnish the Secured Party upon reasonable request with a current schedule containing the foregoing information ("Schedule of Equipment"). (J) Administration of Collateral. So long as no Event of Default shall have occurred and be continuing, Pledgor may (to the extent not inconsistent with the provisions of the Loan Documents or the ESOP Loan Documents) (i) sell, 8 transfer or dispose of any asset owned by it or (ii) collect or compromise Accounts and General Intangibles in the ordinary course of business in any lawful manner. (K) Voting Rights, Consensual Rights, Dividends and Distributions. A. So long as no Event of Default shall have occurred and be continuing: 1. the Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Collateral or any part thereof for any purpose not inconsistent with the terms of this Security Agreement, the Credit Agreement, the other Loan Documents or the other ESOP Loan Documents; 2. the Pledgor shall be entitled to receive and retain any and all cash distributions or dividends paid on the Collateral which they are otherwise entitled to receive, notwithstanding the assignment and transfer of the Collateral and the grant of security interest in Section 2 of this Security Agreement (provided that any cash distributions or dividends received upon the occurrence and during the continuance of a Default shall remain segregated from all other funds of the Pledgor and deposited with the Secured Party), but any and all stock dividends, liquidating dividends, distributions in property, returns of capital or other distributions made on or in respect of any of the Collateral, whether resulting from a subdivision, combination or reclassification of the outstanding capital stock of any issuer of the Collateral or received in exchange for the Collateral or any part thereof or as a result of any merger, consolidation, acquisition or other exchange of assets to which any issuer of any Collateral may be a party or otherwise, and any and all cash and other property received in exchange for any of the Collateral shall be and become part of the Collateral hereunder and, if received by the Pledgor, shall forthwith be delivered to the Secured Party, to the extent the Collateral for which it was exchanged was held or required to be held by the Secured Party; and 3. the Secured Party shall execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to exercise the voting, consensual and other rights which the Pledgor are entitled to exercise pursuant to subparagraph (1) above and to receive such distributions and dividends which it is authorized to receive and retain pursuant to subparagraph (2) above. 9 B. Upon the occurrence and during the continuance of an Event of Default: 1. subject, with respect to the Secured Obligations relating to the Company's obligations under the Company Guaranty to Section 2.08 of the Company Guaranty, all rights of the Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to Section 6(K)A.l and to receive and retain the distributions and dividends which it would otherwise be authorized to receive and retain pursuant to Section 6(K)A.2, shall become vested in the Secured Party, which shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and hold as Collateral such distributions and dividends (whether or not the relevant Collateral shall have been transferred into the name of the Secured Party or any of its nominees, the Pledgor hereby irrevocably appointing and constituting the Secured Party as proxy and attorney-in-fact of Pledgor, which appointment is coupled with an interest and is irrevocable, with full power of substitution, to act as if the Secured Party were the outright owner thereof); and 2. all distributions and dividends which are received by the Pledgor contrary to the provisions of Section 6(K)A.2 or Section 6(K)B.1 shall be received in trust for the benefit of the Secured Party, shall be segregated from other funds of Pledgor and shall be paid over to the Secured Party forthwith as Collateral in the same form as so received (with any necessary endorsement). 7. Warranties Regarding Collateral. Pledgor warrants and represents that it is and will continue to be the owner of the Collateral, now owned and upon the acquisition of the same, free and clear of all encumbrances and security interests other than the security interest in favor of Secured Party hereunder and Permitted Liens, and that it will defend the Collateral and the Secured Party's security interest therein and any products and proceeds thereof against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to the Secured Party or any Lender. 8. Account Warranties and Representations. With respect to its Accounts, Pledgor warrants and represents to the Secured Party and the Lenders that they may rely on all statements or representations made by Pledgor on or with respect to any Schedule of Accounts prepared and delivered by Pledgor and, unless otherwise indicated in writing by Pledgor, that: 10 (A) All Account Records and Account Documents are located and shall be kept only at Pledgor's chief executive offices located at the locations described in Schedule 6.04 delivered to the Agent pursuant to the Credit Agreement and Schedule 4.22 delivered to the Bank pursuant to the Company Guaranty; (B) They are genuine, are in all material respects what they purport to be, are not evidenced by a judgment instrument or document or, if evidenced by an instrument or document, are only evidenced by one original instrument or document, which has been delivered to the Secured Party; (C) They cover the bona fide rendition of services, or the bona fide sales and deliveries of Inventory usually dealt in by Pledgor, in the ordinary course of business; (D) Each Account is actually and absolutely owing to Pledgor in the face value thereof, is valid and enforceable against the applicable Account Debtor, and is not subject to any setoffs, discounts, allowances, claims, counterclaims, disputes or doubtful collectibility except (i) as is customary for Accounts of the type represented by such Account (including the nature of the Account Debtor) of the Pledgor in the ordinary course of Pledgor's business and consistent with past practices, and (ii) as is reflected by reserves and reductions in the stated value of such Account, computed in a manner consistent with the Company's policies and practices in preparing the financial statements described in Sections 7.01 and 8.01 of the Credit Agreement and Sections 3.01(f) and 4.01 of the Company Guaranty, included in such financial statements, in the Schedule of Accounts and in any report or certificate including financial information regarding such Account furnished to the Secured Party pursuant to the Loan Documents or the ESOP Loan Documents. (E) The goods or services giving rise thereto are not, and were not at the time of the sale or performance thereof, subject to any lien, claim, encumbrance or security interest, except those of the Secured Party and those removed or terminated prior to the date hereof; (F) They have not been pledged to any Person other than to Secured Party under this Security Agreement and will be owned by Pledgor free and clear of any liens, claims or encumbrances except Permitted Liens; and (G) Secured Party's security interest therein will not be subject to any offset, deduction, counterclaim, lien or other adverse condition, other than Permitted Liens or as is consistent with Section 8(D) above. 11 9. Inventory Warranties and Representations. With respect to Inventory, Pledgor warrants and represents to the Secured Party and the Lenders that they may rely on all statements or representations made by Pledgor on or with respect to any Inventory and, unless otherwise indicated in writing by Pledgor, that (A) Except for the relocation of Inventory from time to time in the ordinary course of business not aggregating more than $100,000 at any one time in any location other than those set forth in Schedules 6.03 and 6.04 delivered pursuant to the Credit Agreement or Schedules 4.22 and 4.23 delivered pursuant to the Company Guaranty, the Pledgor shall not locate or relocate inventory to any location other than those set forth in Section 8(A) above or Schedules 6.03 and 6.04 delivered pursuant to the Credit Agreement or Schedules 4.22 and 4.23 delivered pursuant to the Company Guaranty without giving the Secured Party not less than thirty (30) days prior written notice and taking or causing to be taken at its expense all steps as may be reasonably requested by the Secured Party (including the furnishing of additional financing statements) to enable the Secured Party to perfect or continue the perfection of its security interest in such property. (B) No Inventory is or will be subject to any lien, claim, encumbrance or security interest whatsoever, except for the security interest of Secured Party hereunder and Permitted Liens; (C) No Inventory having an aggregate value in excess of $100,000 is now, and shall not at any time or times hereafter be, stored with a bailee, warehouseman, or similar party without Secured Party's prior written consent and, if Secured Party gives such consent, Pledgor will concurrently therewith cause any such bailee, warehouseman, or similar party to issue and deliver to Secured Party in form and substance acceptable to Secured Party, warehouse receipts therefor in Secured Party's name; and (D) No Inventory is under consignment to any Person. 10. Equipment Warranties and Representations. With respect to Equipment, Pledgor warrants and represents to the Secured Party and each Lender that: (A) Except for the relocation of Equipment from time to time in the ordinary course of business not aggregating more than $100,000 at any one time in any location other than those set forth in Schedules 6.03 and 6.04 of the Credit Agreement and Schedules 4.22 and 4.23 of the Company Guaranty, the Pledgor shall not locate or relocate Equipment to any location other than those set forth in Schedules 6.03 12 and 6.04 of the Credit Agreement and Schedules 4.22 and 4.23 of the Company Guaranty without giving the Secured Party not less than thirty (30) days prior written notice and taking or causing to be taken at their expense all steps as may be reasonably requested by the Secured Party (including the furnishing of additional financing statements) to enable the Secured Party to perfect or continue the perfection of its security interest in such property; and (B) Pledgor has and at all times will have good and marketable title to and ownership of the Equipment free and clear of any lien, claim, encumbrance, or security interest whatsoever, except for (i) the security interest of Secured Party created hereunder and (ii) Permitted Liens. 11. Casualty and Liability Insurance Required. (A) Pledgor will keep the Collateral continuously insured as may be expressly required by the Agreements. (B) Each insurance policy obtained in satisfaction of the requirements of Section 11(A) hereof: (i) shall be by such insurer (or insurers) as shall be financially responsible and qualified to do business in the applicable jurisdictions; (ii) shall be in such form and have such provisions (including, without limitation, the loss payable clause, the waiver of subrogation clause, the deductible amount, if any, and the standard mortgagee endorsement clause), as are generally considered standard provisions for the type of insurance involved and are acceptable in all respects to Secured Party; (iii) shall prohibit cancellation or substantial modification, termination or lapse in coverage by the insurer without at least 30 days' prior written notice to Secured Party; (iv) shall provide that the interest of Secured Party shall not be impaired or invalidated by any act or neglect of Pledgor nor by the occupation of the premises wherein such Collateral is located for purposes more hazardous than are permitted by said policy; (v) without limiting the generality of the foregoing, all insurance policies covering loss or damage to the Collateral shall name Secured Party as mortgagee, loss payee and a party insured thereunder and any loss thereunder shall be paid directly to Secured Party. (C) Prior to expiration of any such policy, Pledgor shall furnish Secured Party with evidence reasonably satisfactory to 13 Secured Party that the policy or certificate has been renewed or replaced or is no longer required by this Security Agreement. (D) Pledgor hereby irrevocably makes, constitutes and appoints Secured Party (and all officers, employees or agents designated by Secured Party), effective upon the occurrence of an Event of Default which has not been waived or cured, as Pledgor's true and lawful attorney (and agent-in- fact) for the purpose of making, settling and adjusting claims under such policies of insurance, endorsing the name of Pledgor on any check, draft, instrument or other item or payment for the proceeds of such policies of insurance and for making all determinations and decisions with respect to such policies of insurance. (E) In the event Pledgor shall fail to maintain, or cause to be maintained, the full insurance coverage required hereunder or shall fail to keep any Collateral in good repair and good operating condition, the Secured Party may (but shall be under no obligation to), without waiving or releasing any Secured Obligation or Event of Default, after giving notice to the Pledgor, contract for the required policies of insurance and pay the premiums on the same or make any required repairs, renewals and replacements; and all sums so disbursed by Secured Party, including reasonable attorneys' fees, court costs, expenses and other charges related thereto, shall be payable on demand by Pledgor to Secured Party and shall be additional Secured Obligations secured by the Collateral. (F) In case of any material damage to or destruction of all or any part of the Collateral, Pledgor shall give prompt notice thereof to Secured Party. Each such notice shall describe generally the nature and extent of such damage, destruction, taking, loss, proceeding or negotiations. 12. Rights and Remedies Upon Default. Subject, with respect to the Secured Obligations relating to the Company's obligations under the Company Guaranty, to Section 2.08 of the Company Guaranty, upon and after an Event of Default which has not been waived or cured, the Secured Party shall have the following rights and remedies, all of which may be exercised with or without notice to Pledgor: (A) All of the rights and remedies of a secured party under the Uniform Commercial Code of the state where such rights and remedies are asserted, or under other applicable law, all of which rights and remedies shall be cumulative, and none of which shall be exclusive, to the extent permitted by law, in addition to any other rights and remedies contained in this Security Agreement, the Agreements, or any of the other Loan Documents or ESOP Loan Documents; 14 (B) The right to foreclose the liens and security instruments created under this Security Agreement or any of the other Loan Documents or ESOP Loan Documents by any available judicial procedure or without judicial process; (C) The right to (i) enter upon the premises of Pledgor through self-help and without judicial process, without first obtaining a final judgment or giving Pledgor notice and opportunity for a hearing on the validity of Secured Party's claim and without any obligation to pay rent to Pledgor, or any other place or places where any Collateral is located and kept, and remove the Collateral therefrom to the premises of Secured Party or any agent of Secured Party, for such time as Secured Party may desire, in order to effectively collect or liquidate the Collateral, and/or (ii) require Pledgor to assemble the Collateral and make it available to Secured Party at a place to be designated by Secured Party in its sole discretion; (D) The right (to the extent permissible by law with respect to Governmental Receivables) to (i) demand payment of the Accounts; (ii) enforce payment of the Accounts and General Intangibles and enforce all Contract Rights, by legal proceedings or otherwise; (iii) exercise all or any of Pledgor's rights and remedies with respect to the collection of the Accounts and General Intangibles and in respect of Contract Rights; (iv) settle, adjust, compromise, extend or renew the Accounts; (v) settle, adjust or compromise any legal proceedings brought to collect the Accounts or General Intangibles or to enforce Contract Rights; (vi) sell or assign the Accounts, General Intangibles, Contract Rights or other Collateral upon such terms, for such amounts and at such time or times as Secured Party deems advisable; (vii) discharge and release the Accounts; (viii) take control, in any manner, of any item of payment or proceeds; (ix) prepare, file and sign Pledgor's name on a Proof of Claim in bankruptcy or similar document against any account obligor; (x) prepare, file and sign Pledgor's name on any notice of lien, assignment or satisfaction of lien or similar document in connection with the Accounts; (xi) endorse the name of Pledgor upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating to the Accounts or Inventory; (xii) use Pledgor's stationery for verifications of the Accounts and notices thereof to account obligors; (xiii) use the information recorded on or contained in any data processing equipment and computer hardware and software relating to the Accounts, General Intangibles, Equipment, Contract Rights or Inventory to which Pledgor has access; and (xiv) do all acts and things and execute all documents necessary, in Secured Party's sole discretion, to collect the Accounts and General Intangibles; 15 (E) The right to sell, assign, lease or to otherwise dispose of all or any Collateral in its then condition, or after any further manufacturing or processing thereof, at public or private sale or sales, with such notice as may be required by law, in lots or in bulk, for cash or on credit, with or without representations and warranties, all as Secured Party, in its sole discretion, may deem advisable (except, in the case of Government Receivables, to the extent such sales or other disposition are prohibited by applicable law). Secured Party shall have the right to conduct such sales on Pledgor's premises or elsewhere and shall have the right to use Pledgor's premises without charge for such sales for such time or times as Secured Party may see fit. Secured Party may, if it deems it reasonable, postpone or adjourn any sale of the Collateral from time to time by an announcement at the time and place of such postponed or adjourned sale, without being required to give a new notice of sale. Pledgor agrees that Secured Party has no obligation to preserve rights to the Collateral against prior parties or to marshall any Collateral for the benefit of any Person. Secured Party is hereby granted a license or other right to use, without charge, Pledgor's labels, patents, copyrights, rights of use of any name, trade secrets, tradenames, trademarks and advertising matter, or any property of a similar nature, as it pertains to the Collateral, in completing production of, advertising for sale and selling any Collateral and Pledgor's rights under any license and any franchise agreement shall inure to Secured Party's benefit. If any of the Collateral shall require repairs, maintenance, preparation or the like, or is in process or other unfinished state, Secured Party shall have the right, but shall not be obligated to perform such repairs, maintenance, preparation, processing or completion of manufacturing for the purpose of putting the same in such saleable form as Secured Party shall deem appropriate, but Secured Party shall have the right to sell or dispose of the Collateral without such processing. In addition, Pledgor agrees that in the event notice is necessary under applicable law, written notice mailed to Pledgor in the manner specified in either of the Agreements ten (10) days prior to the date of public sale of any of the Collateral or prior to the date after which any private sale or other disposition of the Collateral will be made shall constitute commercially reasonable notice to Pledgor. Secured Party or any Lender may purchase all or any part of the Collateral at public or, if permitted by law, private sale, free from any right of redemption which is hereby expressly waived by Pledgor and, in lieu of actual payment of such purchase price, may set off the amount of such price against the Secured Obligations. The net cash proceeds resulting from the collection, liquidation, sale, lease or other disposition of the Collateral shall be applied first to the reasonable expenses (including all reasonable attorneys' 16 fees) of retaking, holding, storing, processing and preparing for sale, selling, collecting, liquidating and the like (collectively, the "Administration Expenses"), and then to the satisfaction of all Secured Obligations, application as to particular Secured Obligations or against principal or interest to be in subject to the terms of Section 13 hereof and of the Agreements. Pledgor shall be liable to Secured Party and the Lenders and shall pay to the Secured Party on demand any deficiency which may remain after such sale, disposition, collection or liquidation of the Collateral. Pledgor recognize that the Secured Party may be unable to effect a public sale of securities constituting Collateral by reason of certain prohibitions contained in the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities or Blue Sky laws, and as a consequence may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Pledgor agrees and acknowledges that private sales so made may be at prices and upon terms less favorable to Pledgor than if such Collateral were sold at public sales and that the Secured Party has no obligation to delay the sale of any of the Collateral for the period of time necessary to permit the issuer of such Collateral to register or otherwise qualify them, even if such issuer would agree to register or otherwise qualify such Collateral for public sale under the Securities Act and applicable state securities or Blue Sky laws. Pledgor further agrees, to the extent permitted by applicable law, that the use of private sales made under the foregoing circumstances to dispose of the Collateral shall be deemed to be dispositions in a commercially reasonable manner; (F) The rights and remedies provided to Secured Party or any Lender under this Security Agreement or any of the other Loan Documents or ESOP Loan Documents. 13. Anti-Marshalling Provisions. The right is hereby given by Pledgor to Secured Party and the Lenders to make releases (whether in whole or in part) of all or any part of the Collateral agreeable to Secured Party and the Lenders without notice to, or the consent, approval or agreement of other parties and interests, including junior lienors, which releases shall not impair in any manner the validity of or priority of the liens and security interest in the remaining Collateral conferred under such documents, nor release Pledgor from personal liability for the indebtedness hereby secured. Notwithstanding the existence of any other security interest in the Collateral held by Secured Party or any Lender, Secured Party and the Lenders shall have the right to determine the order in which any or all of the Collateral shall be subjected to the remedies provided in this 17 Security Agreement. The proceeds realized upon the exercise of the remedies provided herein shall be applied as provided herein, in the Pledgor Guaranty and in the Agreements. Pledgor hereby waives any and all right to require the marshalling of assets in connection with the exercise of any of the remedies permitted by applicable law or provided herein. 14. Appointment of Secured Party as Pledgor's Lawful Attorney. Upon and after an Event of Default which has not been waived or cured, Pledgor irrevocably designates, makes, constitutes and appoints Secured Party (and all Persons designated by Lender) as Pledgor's true and lawful attorney (and agent- in-fact). To the extent permitted by law, all acts of Secured Party or its designee lawfully taken pursuant to Section 13 are hereby ratified and confirmed and Secured Party or its designee shall not be liable for any acts of omission or commission nor for any error of judgment or mistake of fact or law which does not constitute bad faith, willful misconduct or gross negligence. This power, being coupled with an interest, is irrevocable by Pledgor until all Secured Obligations are finally paid in full. 15. Rights and Remedies Cumulative; Non-Waiver; Etc. The enumeration of Secured Party's and Lenders' rights and remedies set forth in this Security Agreement is not intended to be exhaustive and the exercise by the Secured Party or any Lender of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative, and shall be in addition to any other right or remedy given hereunder, or under any other agreement between Pledgor and Secured Party or any Lender or which may now or hereafter exist in law or in equity or by suit or otherwise. No delay or failure to take action on the part of Lender in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude other or further exercise thereof or the exercise of any other right, power or privilege or be construed to be a waiver of any Event of Default. No waiver by a party hereunder shall be effective unless it is in writing and signed by the party making such waiver, and then only to the extent specifically stated in such writing. No course of dealing between Pledgor and the Secured Party or any Lender or their respective agents or employees shall be effective to change, modify or discharge any provision of this Security Agreement or to constitute a waiver of any Event of Default. 16. Waivers. In addition to the other waivers contained herein and in any other agreement between Pledgor and Secured Party or any Lender, Pledgor hereby expressly waives, to the extent permitted by law: presentment for payment, demand, protest, notice of demand, notice of protest, notice of default or dishonor, notice of payments and nonpayments and all other notices and consents that Secured Party may release, compromise, 18 settle, extend or renew any commercial paper, instruments or guaranties at any time held by Secured Party or any Lender on which Pledgor may in any way be liable and notice of any action taken by Secured Party or any Lender unless expressly required by this Security Agreement or by law. 17. Notice. Except as otherwise provided herein, all notices, requests and demands to or upon a party hereto shall be effective as provided in the Pledgor Guaranty. 18. Applicable Law. This Security Agreement shall be governed in all respects by, and construed in accordance with, the internal laws of the State of Florida without reference to choice of laws principles. 19. References to Credit Agreement Definitions. In the event that the Credit Agreement shall no longer be in effect at any time while the Pledgor Guaranty shall continue in effect or there shall otherwise continue to remain outstanding Secured Obligations, all references to the Credit Agreement, including terms defined by reference to their respective definitions contained in the Credit Agreement, shall be deemed to refer to the Credit Agreement as in effect as of the date hereof, with such amendments thereto to which the Secured Party shall have given its express consent in accordance with the Loan Documents and the ESOP Loan Documents. 20. Entire Agreement. This Security Agreement, together with the Credit Agreement and other Loan Documents and ESOP Loan Documents, constitute and express the entire understanding between the parties hereto with respect to the subject matter hereof, and supersede all prior agreements and understandings, inducements, commitments or conditions, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof. Neither this Security Agreement nor any portion or provision hereof may be changed, altered, waived, modified, supplemented, discharged, canceled, terminated, or amended orally or in any manner other than (i) as to the Agent, as provided in the Credit Agreement and (ii) as to NationsBank, by the express written consent of NationsBank in each instance. 21. Section Headings. The Section headings in this Security Agreement are for convenience of reference only; they form no part of this Security Agreement and shall not affect its interpretation. 22. Severability. The provisions of this Security Agreement are independent of and separable from each other. If any provision hereof shall for any reason be held invalid or unenforceable, such invalidity or unenforceability shall not affect the validity or enforceability of any other provision 19 hereof, but this Security Agreement shall be construed as if such invalid or unenforceable provision had never been contained herein. 23. Successors and Assigns. This Security Agreement shall be binding upon the successors and assigns of Pledgor and shall inure to the benefit of and be enforceable by the Secured Party and their successors and assigns; provided, however, the obligations of Pledgor hereunder may not be assigned or delegated to any other Person without the prior written consent of the Secured Party. 24. Agency. Notwithstanding the foregoing references to the Secured Party, Pledgor acknowledges and agrees that so long as NationsBank shall be the sole Lender under the Credit Agreement, the term "Agent" shall mean NationsBank as Lender. When and if there shall be more than one Lender party to the Credit Agreement, then the term "Agent" shall refer to the Agent under the Credit Agreement pursuant to the provisions of Article XI of the Credit Agreement, to which reference is hereby made. 25. Termination. In the event that all of the Secured Obligations shall be fully, finally and indefeasibly paid and satisfied in full (subject to provisions of the Agreements that expressly survive), the Agreements shall be terminated and there shall be no Outstanding Letters of Credit, the Secured Party shall, at the request and at the expense of the Pledgor, terminate the security interest and powers of attorney herein conferred and, in furtherance thereof, execute such Uniform Commercial Code termination statements and such other documents in form and substance reasonably satisfactory to the Secured Party to release and terminate the Lien hereof of record. Notwithstanding the foregoing provisions of this Section 25, in the event that any payment made or deemed made to the Secured Party or any Lender in payment of any Secured Obligation shall be rescinded or declared to be or become void, voidable or otherwise recoverable from the Secured Party or such Lender for any reason whatsoever, the Lien in favor of the Secured Party created hereunder shall be and become reinstituted in respect of such Secured Obligations until the same shall be thereafter fully and finally paid, satisfied and discharged. [Remainder of page intentionally left blank] 20 IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement to be duly executed by authority duly given as of the day and year first above written. WITNESS: VITAS HEALTHCARE CORPORATION OF PENNSYLVANIA /s/ Terry L. Scaggs By: /s/Mark W. Ohlendorf - ------------------------------- -------------------------------- /s/ Meganne Cusato Mark W. Ohlendorf - ------------------------------- Vice President SECURED PARTY: WITNESS: NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION, as Agent /s/ Terry L. Scaggs By: /s/Allison S. Freeland - ------------------------------- -------------------------------- /s/ Meganne Cusato Allison S. Freeland - ------------------------------- Vice President WITNESS: NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION /s/ Terry L. Scaggs By: /s/Allison S. Freeland - ------------------------------- -------------------------------- /s/ Meganne Cusato Allison S. Freeland - ------------------------------- Vice President 21 Vitas Healthcare Corporation of Pennsylvania PLEDGE AND SECURITY AGREEMENT INDEX TO EXHIBITS AND SCHEDULES* 1. Exhibit A Existing Liens on the Collateral 2. Schedule 6(E) Trade Styles VITAS AGREES TO PROVIDE A COPY OF THE EXHIBIT AND SCHEDULE LISTED ABOVE TO THE COMMISSION UPON REQUEST. - ---------------------- * The inclusion of any information on any one of these Exhibits and Schedules is not, and shall not be deemed to be, a representation that such information must be set forth on such Exhibit or Schedule or any supplement thereto or otherwise in the agreement to which such Exhibit or Schedule relates. Information provided in any one Exhibit or Schedule shall be deemed to be incorporated into each Exhibit and Schedule, as applicable. Execution: February 10, 1995 EX-10.55 30 EXHIBIT 10.55 EXHIBIT 10.55 GUARANTY AND SURETYSHIP AGREEMENT THIS GUARANTY AND SURETYSHIP AGREEMENT, dated as of February 17, 1995 (the "Guaranty"), is made by VITAS HEALTHCARE CORPORATION OF CALIFORNIA, a Delaware corporation (the "Guarantor"), to the parties named in Section 1 hereof. Except as otherwise defined herein, terms used herein defined in the Credit Agreement referred to below shall be used herein as so defined. WITNESSETH WHEREAS, (i) pursuant to Revolving Credit and Reimbursement Agreement dated as of August 11, 1994 (the "Prior Credit Agreement") among Vitas Healthcare Corporation (the "Company"), NationsBank of Florida, National Association ("NationsBank") and NationsBank as agent, NationsBank made available to the Company a revolving credit facility in the aggregate principal amount of up to $15,000,000, including within such revolving credit facility the issuance of letters of credit for the account of the Company and (ii) pursuant to a Guaranty and Contingent Purchase Agreement of even date with the Prior Credit Agreement between the Company and NationsBank (the "Prior Guaranty" and, together with the Prior Credit Agreement, the "Prior Agreements"), and a Loan Agreement (as the same may be amended, modified or restated from time to time, the "ESOP Loan Agreement") of even date with the Prior Credit Agreement between NationsBank and the Vitas Healthcare Corporation Employee Stock Ownership Trust (the "Trust" and, together with the Company, the "Borrowers"), NationsBank extended a term loan of $2,386,670 to the Trust to refinance certain indebtedness owing from the Trust to the Company; and WHEREAS, the Company and the Guarantor, a Subsidiary of the Company, have entered into an Asset Purchase Agreement with the Sellers (as defined in the Credit Agreement) dated as of December 27, 1994 (the "Asset Purchase Agreement") pursuant to which the Guarantor has agreed to purchase substantially all of the operating assets of the CHC Entities (as defined in the Credit Agreement) pursuant to the terms and subject to the conditions set forth therein and, in connection therewith, the Company has requested that the Prior Credit Agreement be amended and restated to increase the revolving credit facility from $15,000,000 to $20,000,000, to provide for a $25,000,000 term loan facility, and to make certain other modifications, and that the Prior Guaranty be amended and restated to reflect the agreement of the parties; and WHEREAS, at the request of the Company and to effect the modifications referred to above, (i) the Company, the Agent and the Lenders are entering into an Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement of even date herewith (as the same may be modified, amended or restated from time to time, the "Credit Agreement" and, together with the ESOP Loan Agreement, the "Agreements"), and (ii) the Company and NationsBank are entering into an Amended and Restated Guaranty and Contingent Purchase Agreement of even date herewith (as the same may be modified, amended or restated from time to time, the "Company Guaranty"); and WHEREAS, the Lenders are unwilling to amend and increase the revolving credit facility or make such term loan pursuant to the Credit Agreement, and NationsBank is unwilling to amend the Prior Agreements as reflected in the Agreements to permit the consummation of the CHC Transaction, unless the Guarantor enters into this Guaranty; and WHEREAS, the Guarantor will be provided with advances from the Company or other working capital made available directly or indirectly by the Lenders under the Credit Agreement, and has thereby materially benefitted or will materially benefit from the Loans made to the Borrowers pursuant to the Credit Agreement and the ESOP Loan Agreement; NOW, THEREFORE, in consideration of the premises, the Guarantor hereby agrees as follows: 1. Guaranty and Surety. The Guarantor does hereby absolutely and unconditionally for the benefit of (i) the Agent and the Lenders under the Credit Agreement and (ii) NationsBank as lender under the ESOP Loan Agreement (collectively, the "Beneficiaries"), guarantee and become surety for the full and timely payment when due (whether by acceleration or otherwise) (including amounts which, but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code (or any successor statute), would become due) of: A. All obligations as defined in the Credit Agreement; and B. All obligations and liabilities of the Trust under the ESOP Loan Agreement and the other ESOP Loan Documents, including without limitation its obligations to pay interest, principal, fees, expenses and indemnification amounts when and as the same shall become due whether at the stated maturity thereof, by acceleration or otherwise (the "ESOP obligations"). in each came whether direct or indirect, joint or several, absolute or contingent, liquidated or unliquidated, now or hereafter existing, extended, renewed, replaced, refinanced or restructured, whether or not from time to time decreased or extinguished and later increased, created or incurred (all indebtedness, obligations and liabilities of the Borrowers described in this Section 1 are collectively referred to as the "Guarantied obligations"); provided, however, that the liability of the Guarantor with respect to the Guarantied obligations shall not exceed at any time the 2 Maximum Amount (as hereinafter defined). The "Maximum Amount" means the greater of (X) the aggregate amount of all advances to the Guarantor made directly or indirectly with the proceeds of Loans (as defined in the Credit Agreement) or (Y) 95% of (a) the fair salable value of the assets of such Guarantor as of the date hereof minus (b) the total liabilities of the Guarantor (including contingent liabilities, but excluding liabilities of the Guarantor under this Guaranty and the other Loan Documents and ESOP Loan Documents executed by the Guarantor) as of the date hereof; provided further, however, that if the calculation of the Maximum Amount in the manner provided above as of the date payment is required of the Guarantor pursuant to this Guaranty would result in a greater positive number, then the Maximum Amount shall be deemed to be such greater positive number. 2. Guaranty Of Payment. This is a guaranty of payment and not merely of collection. In the event of any default by the original obligor in payment or otherwise on any of the Guarantied Obligations, the Guarantor will pay all or any portion of the Guarantied Obligations due or thereafter becoming due, whether by acceleration or otherwise, without offset of any kind whatsoever, without any Beneficiary first being required to make demand upon the original obligor or pursue any of its rights against the original obligor, or against any other Person, including other guarantors (whether or not party to this Guaranty); and without being required to liquidate or to realize on any collateral security. In any right of action accruing to any Beneficiary, such Beneficiary may elect to proceed against (a) the Guarantor together with the original obligor or obligors; (b) the Guarantor and the original obligor or obligors individually; or (c) the Guarantor only without having first commenced any action against the original obligor or obligors. 3. Right to Deal with Guarantied Obligations. Subject to the terms and conditions of the Credit Agreement, any Beneficiary, without notice to Guarantor, may deal with any Guarantied Obligations and any collateral security therefor in such manner as it may deem advisable and may renew or extend the Guarantied Obligations or any part thereof; accept partial payment, or settle, release, compound, or compromise the same; demand additional collateral security therefor, and substitute or release the same; and may compromise or settle with or release and discharge from liability any other guarantor of any Guarantied Obligation, or any other Person liable to such Beneficiary for all or any portion of the obligations of any original obligor; all without impairing the liability of the Guarantor hereunder. 4. Other Waivers. Guarantor hereby unconditionally waives with respect to this Guaranty: (a) notice of acceptance of this Guaranty by any Beneficiary and any notice of the incurring by either or both of the Borrowers of any Guarantied Obligation; (b) presentment for payment, protest, notice of protest and notice of dishonor to any party including either of the Borrowers or the 3 Guarantor; (c) any disability of the original obligor or obligors or defense available to the original obligor or obligors, including absence or cessation of any original obligor's liability for any reason whatsoever; (d) any defense or circumstances which might otherwise constitute a legal or equitable discharge of a guarantor or surety except final and irrevocable payment in full of the Guaranteed Obligations; and (e) all rights under any state or federal statute dealing with or affecting the rights of creditors. 5. Subordination. Until the Guarantied Obligations are paid in full and no Beneficiary is under any further obligation to lend or extend funds or credit which would constitute Guarantied Obligations, Guarantor hereby unconditionally subordinates all present and future debts, liabilities or obligations of the Borrower to such Guarantor to the Guarantied Obligations, and all amounts due under such debts, liabilities, or obligations shall, upon the occurrence and during the continuance of an Event of Default, be collected and paid over forthwith to the Beneficiaries on account of the Guarantied Obligations and, pending such payment, shall be held by the Guarantor as agent and bailee of the Beneficiaries separate and apart from all other funds, property and accounts of the Guarantor. Guarantor, at the reasonable request of any Beneficiary, shall execute such further documents in favor of such Beneficiary to further evidence and support the purpose of this Section 5. Until (i) all of the Guarantied Obligations and all of the Guarantor's obligations hereunder shall have been paid and satisfied in full and (ii) the lapse or expiration of any time period in which any payment in respect of the Guarantied Obligations or hereunder is subject to avoidance as a preferential or similar transfer under any applicable bankruptcy, insolvency or similar law without any such claim for avoidance having been made, Guarantor hereby irrevocably waives and releases any right or rights of subrogation, contribution or similar claims against either of the Borrowers or any other guarantor of any of the Guarantied Obligations existing at law, by contract or otherwise. 6. Representations and Warranties. Guarantor represents and warrants to the Beneficiaries that: (a) no other agreement, representation or special condition exists between the Guarantor and any Beneficiary regarding the liability of the Guarantor under this Guaranty; nor does any understanding exist between the Guarantor and any Beneficiary that the obligations of the Guarantor under this Guaranty are or will be other than as set out herein; and (b) as of the date hereof, the Guarantor has no defense whatsoever to any action or proceeding that may be brought to enforce this Guaranty. Furthermore, the Guarantor affirms to the Beneficiaries that each of the representations and warranties contained in the Credit Agreement or the Company Guaranty and made by either of the Borrowers with respect to the Guarantor is true and correct. 7. No Waiver by Beneficiaries. No failure or delay on the part of any Beneficiary in exercising any right, power or privilege 4 hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. Failure by any Beneficiary to insist upon strict performance hereof shall not constitute a relinquishment of its right to demand strict performance at another time. Receipt by any Beneficiary of any payment by any person on any Guarantied Obligation, with knowledge of a default on any Guarantied Obligation or of a breach of this Guaranty, or both, shall not be construed as a waiver of the default or breach. 8. CONTINUING GUARANTY; TERMINATION. THIS GUARANTY IS A CONTINUING GUARANTY AND SHALL CONTINUE IN FULL FORCE AND EFFECT UNTIL SUCH TIME AS ALL GUARANTIED OBLIGATIONS SHALL HAVE BEEN INDEFEASIBLY PAID IN FULL (OTHER THAN GUARANTIED OBLIGATIONS IN THE NATURE OF CONTINUING INDEMNITIES OR EXPENSE REIMBURSEMENT OBLIGATIONS NOT YET DUE AND PAYABLE) AND NO BENEFICIARY SHALL BE UNDER ANY FURTHER OBLIGATION TO LEND OR TO ADVANCE FUNDS OR ISSUE LETTERS OF CREDIT TO THE ACCOUNT OF THE BORROWERS OR EITHER OF THEM CONSTITUTING GUARANTIED OBLIGATIONS. 9. Benefits of Agreement. This Guaranty is freely assignable and transferable by the Beneficiaries to any permitted assignee and transferee of any Guarantied Obligation; however, the duties and obligations of the Guarantor may not be delegated or transferred by the Guarantor without the written consent of all Beneficiaries. The rights and privileges of the Beneficiaries shall inure to the benefit of their respective successors and assigns, and the duties and obligations of the Guarantors shall bind their respective successors and assigns. 10. Expenses; Indemnity. The Guarantor will upon demand pay to each Beneficiary the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which it may reasonably incur in connection with enforcement of this Guaranty or the failure by the Guarantor to perform or observe any of the provisions hereof. The Guarantor agrees to indemnify and hold harmless each Beneficiary from and against any and all claims, demands, losses, judgments and liabilities (including liabilities for penalties) of whatsoever kind or nature, growing out of or resulting from this Guaranty or the exercise by any Beneficiary of any right or remedy granted to it hereunder or under the other Loan Documents or ESOP Loan Documents, other than such items arising out of the bad faith, gross negligence or willful misconduct on the part of such Beneficiary. If and to the extent that the obligations of the Guarantor under this Section 10 are unenforceable for any reason, the Guarantor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. 11. Amendments, Waivers and Consents. No amendment or waiver of any provision of this Guaranty or consent to any departure by 5 the Guarantor herefrom shall in any event be effective unless the same shall be in writing and signed (i) as to the Obligations, by the Guarantor and the Agent (which execution by Agent shall be evidence that Agent has received the consent thereto of the Lenders required to effect such amendment or waiver) and (ii) as to the ESOP Obligations, the Guarantor and NationsBank, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no such amendment, waiver or consent shall (a) deprive any Beneficiary of the benefits generally of this Guaranty without the written consent of such Beneficiary, or (b) alter the provisions of this Section 11 without the written consent of all of the Beneficiaries. 12. Addresses for Notices. All notices and other communications provided for hereunder shall be given in the manner set forth in Section 12.02 of the Credit Agreement. 13. Interpretation; Partial Invalidity. Whenever possible each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. 14. Miscellaneous; Remedies Cumulative. Unless the context of this Guaranty otherwise clearly requires, references to the plural include the singular, the singular the plural and the part the whole and "or" has the inclusive meaning represented by the phrase "and/or." The section headings used herein are for convenience of reference only and shall not define, limit or extend the provisions of this Guaranty. All remedies hereunder are cumulative and are not exclusive of any other rights and remedies of the Beneficiaries provided by law or under the Credit Agreement, the other Loan Documents, or other applicable agreements or instruments. The making of the Loans to the Borrowers pursuant to the Credit Agreement and the ESOP Loan Agreement shall be presumed conclusively to have been made or extended, respectively, in reliance upon the obligations of the Guarantor incurred pursuant to this Guaranty. 15. Pari Passu Obligations. The Guarantor, and by their acceptance of the benefits hereof each of the Beneficiaries, acknowledge that, in the event the Maximum Amount payable hereunder shall be less than aggregate amount of the Obligations and the ESOP Obligations payable by the Guarantor hereunder, the Obligations and the ESOP Obligations shall rank pari passu with respect to the application of proceeds of payments hereunder to such Obligations and ESOP Obligations and, in accordance therewith, agree that such amounts, including without limitation proceeds of collateral securing the Guarantor's obligations hereunder, after payment of all expenses in connection with the administration and liquidation 6 of such collateral, shall be applied ratably to Obligations and ESOP Obligations in accordance with the respective amounts thereof as of the date of any application. 16. Governing Law. This Guaranty shall in all respects be governed by the law of the State of Florida. Guarantor and the Beneficiaries each hereby (i) submits to the jurisdiction and venue of the state and federal courts of Florida for the purposes of resolving disputes hereunder or under any of the other Loan Documents to which it is a party or for the purpose of collection and (ii) waives trial by jury in connection with any such litigation. 17. Repayment or Recovery. If claim is ever made upon any Beneficiary for repayment or recovery of any amount or amounts received in payment or on account of any of the Guarantied Obligations and any of the Beneficiaries repays all or part of said amount by reason of (a) any judgment, decree or order of any court or administrative body having jurisdiction over such payee or any of its property, or (b) any settlement or compromise of any such claim effected by such Beneficiary with any such claimant (including the original obligor), then and in such event the Guarantor agrees that any such judgment, decree, order, settlement or compromise shall be binding upon it, notwithstanding any revocation hereof or the cancellation of any Note or other instrument evidencing any Guarantied Obligation or any security therefor, and the Guarantor shall be and remain liable to the aforesaid Beneficiary for the amount so repaid or recovered to the same extent as if such amount had never originally been received by any such Beneficiary. 18. Set-Off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of an Event of Default (as defined in either of the Agreements), Guarantor agrees that each Beneficiary shall have a lien for all the liabilities of the Guarantor upon all deposits or deposit accounts, of any kind (other than deposits identified as being held for third parties), or any interest in any deposits or deposit accounts thereof, now or hereafter pledged, mortgaged, transferred or assigned to such Beneficiary or otherwise in the possession or control of such Beneficiary (other than for safekeeping) for any purpose for the account or benefit of the Guarantor and including any balance of any deposit account or of any credit of the Guarantor with such Beneficiary, whether now existing or hereafter established, hereby authorizing each Beneficiary at any time or times, upon the occurrence and during the continuance of an Event of Default, with or without prior notice (but with notice with reasonable promptness after such set-off) to apply such balances or any part thereof to such of the liabilities of the Guarantor to such Beneficiary then past due and in such amounts as they may elect, and whether or not the collateral or the responsibility of other Persons primarily, secondarily or otherwise liable may be 7 deemed adequate. For the purposes of this Section 18, all remittances and property shall be deemed to be in the possession of such Beneficiary as soon as the same may be put in transit to it by mail or carrier or by other bailee. 19. Security. As security for the payment and performance by the Guarantor of its obligations hereunder, the Guarantor has delivered to the Beneficiaries a Pledge and Security Agreement of even date herewith, granting to the Beneficiaries a security interest in certain property of the Guarantor therein specified. 20. References to Credit Agreement Definitions. In the event that the Credit Agreement shall no longer be in effect at any time while this Guaranty shall continue in effect or there shall otherwise continue to remain outstanding Guarantied Obligations, all references to the Credit Agreement, including terms defined by reference to their respective definitions contained in the Credit Agreement, shall be deemed to refer to the Credit Agreement as in effect as of the date hereof, with such amendments thereto to which the remaining Beneficiaries shall have given express consent in accordance with the Loan Documents and the ESOP Loan Documents. 21. Agency. Notwithstanding the foregoing references to the Beneficiaries, Guarantor acknowledges and agrees that so long as NationsBank shall be the sole Lender under the Credit Agreement, the term "Agent" shall mean NationsBank as Lender. When and if there shall be more than one Lender party to the Credit Agreement, then the term "Agent" shall refer to the Agent under the Credit Agreement pursuant to the provisions of Article XI of the Credit Agreement, to which reference is hereby made. 8 IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its officers hereunto duly authorized as of the date first above written. WITNESS: VITAS HEALTHCARE CORPORATION OF CALIFORNIA /s/ Terry L. Scaggs By: /s/Mark W. Ohlendorf - ------------------------------- -------------------------------- /s/ Meganne Cusato Mark W. Ohlendorf - ------------------------------- Vice President Address: 100 South Biscayne Boulevard Miami, Florida 33131 Attention: Mark W. Ohlendorf Telephone No. (305) 350-5922 Telefacsimile No. (305) 374-4765 9 EX-10.56 31 EXHIBIT 10.56 EXHIBIT 10.56 AMENDED AND RESTATED GUARANTY AND SURETYSHIP AGREEMENT THIS AMENDED AND RESTATED GUARANTY AND SURETYSHIP AGREEMENT, dated as of February 17, 1995 (the "Guaranty"), is made by VITAS HEALTHCARE CORPORATION OF FLORIDA, a Florida corporation (the "Guarantor"), to the parties named in Section 1 hereof. Except as otherwise defined herein, terms used herein defined in the Credit Agreement referred to below shall be used herein as so defined. W I T N E S S E T H WHEREAS, (i) pursuant to Revolving Credit and Reimbursement Agreement dated as of August 11, 1994 (the "Prior Credit Agreement") among Vitas Healthcare Corporation (the "Company"), NationsBank of Florida, National Association ("NationsBank") and NationsBank as agent, NationsBank made available to the Company a revolving credit facility in the aggregate principal amount of up to $15,000,000, including within such revolving credit facility the issuance of letters of credit for the account of the Company and (ii) pursuant to a Guaranty and Contingent Purchase Agreement of even date with the Prior Credit Agreement between the Company and NationsBank (the "Prior Guaranty" and, together with the Prior Credit Agreement, the "Prior Agreements"), and a Loan Agreement (as the same may be amended, modified or restated from time to time, the "ESOP Loan Agreement") of even date with the Prior Credit Agreement between NationsBank and the Vitas Healthcare Corporation Employee Stock Ownership Trust (the "Trust" and, together with the Company, the "Borrowers"), NationsBank extended a term loan of $2,386,670 to the Trust to refinance certain indebtedness owing from the Trust to the Company; and WHEREAS, in connection with the execution and delivery of the Prior Agreements, the Guarantor entered into a Guaranty and Suretyship Agreement of even date with the Prior Credit Agreement (the "Prior Subsidiary Guaranty") guaranteeing the payment and performance of the obligations and liabilities of the Borrowers under the Prior Credit Agreement and the ESOP Loan Documents; and WHEREAS, the Company and Vitas Healthcare Corporation of California, a Subsidiary of the Company ("Vitas California"), have entered into an Asset Purchase Agreement with the Sellers (as defined in the Credit Agreement) dated as of December 27, 1994 (the "Asset Purchase Agreement") pursuant to which Vitas California has agreed to purchase substantially all of the operating assets of the CHC Entities (as defined in the Credit Agreement) pursuant to the terms and subject to the conditions set forth therein and, in connection therewith, the Company has requested that the Prior Credit Agreement be amended and restated to increase the revolving credit facility from $15,000,000 to $20,000,000, to provide for a $25,000,000 term loan facility, and to make certain other modifications, and that the Prior Guaranty be amended and restated to reflect the agreement of the parties; and WHEREAS, at the request of the Company and to effect the modifications referred to above, (i) the Company, the Agent and the Lenders are entering into an Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement of even date herewith (as the same may be modified, amended or restated from time to time, the "Credit Agreement" and, together with the ESOP Loan Agreement, the "Agreements"), and (ii) the Company and NationsBank are entering into an Amended and Restated Guaranty and Contingent Purchase Agreement of even date herewith (as the same may be modified, amended or restated from time to time, the "Company Guaranty"); and WHEREAS, the Lenders are unwilling to amend and increase the revolving credit facility or make such term loan pursuant to the Credit Agreement, and NationsBank is unwilling to amend the Prior Agreements as reflected in the Agreements to permit the consummation of the CHC Transaction, unless the Guarantor amends and restates its Prior Subsidiary Guaranty by entering into this Guaranty; and WHEREAS, the Guarantor is a Subsidiary of the Company and has been or may be provided with advances from the Company or other working capital made available directly or indirectly by the Lenders under the Credit Agreement, and has thereby materially benefitted or will materially benefit from the Loans made to the Borrowers pursuant to the Credit Agreement and the ESOP Loan Agreement; NOW, THEREFORE, in consideration of the premises, the Guarantor hereby agrees as follows: 1. Guaranty and Surety. The Guarantor does hereby absolutely and unconditionally for the benefit of (i) the Agent and the Lenders under the Credit Agreement and (ii) NationsBank as lender under the ESOP Loan Agreement (collectively, the "Beneficiaries"), guarantee and become surety for the full and timely payment when due (whether by acceleration or otherwise) (including amounts which, but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code (or any successor statute), would become due) of: A. All Obligations as defined in the Credit Agreement; and B. All obligations and liabilities of the Trust under the ESOP Loan Agreement and the other ESOP Loan Documents, including without limitation its obligations to pay interest, principal, fees, expenses and indemnification amounts when and as the same shall become due whether at the stated maturity 2 thereof, by acceleration or otherwise (the "ESOP Obligations"). in each case whether direct or indirect, joint or several, absolute or contingent, liquidated or unliquidated, now or hereafter existing, extended, renewed, replaced, refinanced or restructured, whether or not from time to time decreased or extinguished and later increased, created or incurred (all indebtedness, obligations and liabilities of the Borrowers described in this Section 1 are collectively referred to as the "Guarantied Obligations"); provided, however, that the liability of the Guarantor with respect to the Guarantied Obligations shall not exceed at any time the Maximum Amount (as hereinafter defined). The "Maximum Amount" means the greater of (X) the aggregate amount of all advances to the Guarantor made directly or indirectly with the proceeds of Loans (as defined in the Credit Agreement) or (Y) 95% of (a) the fair salable value of the assets of such Guarantor as of the date hereof minus (b) the total liabilities of the Guarantor (including contingent liabilities, but excluding liabilities of the Guarantor under this Guaranty and the other Loan Documents and ESOP Loan Documents executed by the Guarantor) as of the date hereof; provided further, however, that if the calculation of the Maximum Amount in the manner provided above as of the date payment is required of the Guarantor pursuant to this Guaranty would result in a greater positive number, then the Maximum Amount shall be deemed to be such greater positive number. 2. Guaranty of Payment. This is a guaranty of payment and not merely of collection. In the event of any default by the original obligor in payment or otherwise on any of the Guarantied Obligations, the Guarantor will pay all or any portion of the Guarantied Obligations due or thereafter becoming due, whether by acceleration or otherwise, without offset of any kind whatsoever, without any Beneficiary first being required to make demand upon the original obligor or pursue any of its rights against the original obligor, or against any other Person, including other guarantors (whether or not party to this Guaranty); and without being required to liquidate or to realize on any collateral security. In any right of action accruing to any Beneficiary, such Beneficiary may elect to proceed against (a) the Guarantor together with the original obligor or obligors; (b) the Guarantor and the original obligor or obligors individually; or (c) the Guarantor only without having first commenced any action against the original obligor or obligors. 3. Right to Deal with Guarantied Obligations. Subject to the terms and conditions of the Credit Agreement, any Beneficiary, without notice to Guarantor, may deal with any Guarantied Obligations and any collateral security therefor in such manner as it may deem advisable and may renew or extend the Guarantied Obligations or any part thereof; accept partial payment, or settle, release, compound, or compromise the same; demand additional collateral security therefor, and substitute or release the same; 3 and may compromise or settle with or release and discharge from liability any other guarantor of any Guarantied Obligation, or any other Person liable to such Beneficiary for all or any portion of the obligations of any original obligor; all without impairing the liability of the Guarantor hereunder. 4. Other Waivers. Guarantor hereby unconditionally waives with respect to this Guaranty: (a) notice of acceptance of this Guaranty by any Beneficiary and any notice of the incurring by either or both of the Borrowers of any Guarantied Obligation; (b) presentment for payment, protest, notice of protest and notice of dishonor to any party including either of the Borrowers or the Guarantor; (c) any disability of the original obligor or obligors or defense available to the original obligor or obligors, including absence or cessation of any original obligor's liability for any reason whatsoever; (d) any defense or circumstances which might otherwise constitute a legal or equitable discharge of a guarantor or surety except final and irrevocable payment in full of the Guaranteed Obligations; and (e) all rights under any state or federal statute dealing with or affecting the rights of creditors. 5. Subordination. Until the Guarantied Obligations are paid in full and no Beneficiary is under any further obligation to lend or extend funds or credit which would constitute Guarantied Obligations, Guarantor hereby unconditionally subordinates all present and future debts, liabilities or obligations of the Borrower to such Guarantor to the Guarantied Obligations, and all amounts due under such debts, liabilities, or obligations shall, upon the occurrence and during the continuance of an Event of Default, be collected and paid over forthwith to the Beneficiaries on account of the Guarantied Obligations and, pending such payment, shall be held by the Guarantor as agent and bailee of the Beneficiaries separate and apart from all other funds, property and accounts of the Guarantor. Guarantor, at the reasonable request of any Beneficiary, shall execute such further documents in favor of such Beneficiary to further evidence and support the purpose of this Section 5. Until (i) all of the Guarantied Obligations and all of the Guarantor's obligations hereunder shall have been paid and satisfied in full and (ii) the lapse or expiration of any time period in which any payment in respect of the Guarantied Obligations or hereunder is subject to avoidance as a preferential or similar transfer under any applicable bankruptcy, insolvency or similar law without any such claim for avoidance having been made, Guarantor hereby irrevocably waives and releases any right or rights of subrogation, contribution or similar claims against either of the Borrowers or any other guarantor of any of the Guarantied Obligations existing at law, by contract or otherwise. 6. Representations and Warranties. Guarantor represents and warrants to the Beneficiaries that: (a) no other agreement, representation or special condition exists between the Guarantor and any Beneficiary regarding the liability of the Guarantor under this Guaranty; nor does any understanding exist between the 4 Guarantor and any Beneficiary that the obligations of the Guarantor under this Guaranty are or will be other than as set out herein; and (b) as of the date hereof, the Guarantor has no defense whatsoever to any action or proceeding that may be brought to enforce this Guaranty. Furthermore, the Guarantor affirms to the Beneficiaries that each of the representations and warranties contained in the Credit Agreement or the Company Guaranty and made by either of the Borrowers with respect to the Guarantor is true and correct. 7. No Waiver by Beneficiaries. No failure or delay on the part of any Beneficiary in exercising any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. Failure by any Beneficiary to insist upon strict performance hereof shall not constitute a relinquishment of its right to demand strict performance at another time. Receipt by any Beneficiary of any payment by any person on any Guarantied Obligation, with knowledge of a default on any Guarantied Obligation or of a breach of this Guaranty, or both, shall not be construed as a waiver of the default or breach. 8. CONTINUING GUARANTY; TERMINATION. THIS GUARANTY IS A CONTINUING GUARANTY AND SHALL CONTINUE IN FULL FORCE AND EFFECT UNTIL SUCH TIME AS ALL GUARANTIED OBLIGATIONS SHALL HAVE BEEN INDEFEASIBLY PAID IN FULL (OTHER THAN GUARANTIED OBLIGATIONS IN THE NATURE OF CONTINUING INDEMNITIES OR EXPENSE REIMBURSEMENT OBLIGATIONS NOT YET DUE AND PAYABLE) AND NO BENEFICIARY SHALL BE UNDER ANY FURTHER OBLIGATION TO LEND OR TO ADVANCE FUNDS OR ISSUE LETTERS OF CREDIT TO THE ACCOUNT OF THE BORROWERS OR EITHER OF THEM CONSTITUTING GUARANTIED OBLIGATIONS. 9. Benefit of Agreement. This Guaranty is freely assignable and transferable by the Beneficiaries to any permitted assignee and transferee of any Guarantied Obligation; however, the duties and obligations of the Guarantor may not be delegated or transferred by the Guarantor without the written consent of all Beneficiaries. The rights and privileges of the Beneficiaries shall inure to the benefit of their respective successors and assigns, and the duties and obligations of the Guarantors shall bind their respective successors and assigns. 10. Expenses; Indemnity. The Guarantor will upon demand pay to each Beneficiary the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which it may reasonably incur in connection with enforcement of this Guaranty or the failure by the Guarantor to perform or observe any of the provisions hereof. The Guarantor agrees to indemnify and hold harmless each Beneficiary from and against any and all claims, demands, losses, judgments and liabilities (including liabilities for penalties) of whatsoever kind or nature, growing out of or resulting from this Guaranty or 5 the exercise by any Beneficiary of any right or remedy granted to it hereunder or under the other Loan Documents or ESOP Loan Documents, other than such items arising out of the bad faith, gross negligence or willful misconduct on the part of such Beneficiary. If and to the extent that the obligations of the Guarantor under this Section 10 are unenforceable for any reason, the Guarantor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. 11. Amendments, Waivers and Consents. No amendment or waiver of any provision of this Guaranty or consent to any departure by the Guarantor herefrom shall in any event be effective unless the same shall be in writing and signed (i) as to the Obligations, by the Guarantor and the Agent (which execution by Agent shall be evidence that Agent has received the consent thereto of the Lenders required to effect such amendment or waiver) and (ii) as to the ESOP Obligations, the Guarantor and NationsBank, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no such amendment, waiver or consent shall (a) deprive any Beneficiary of the benefits generally of this Guaranty without the written consent of such Beneficiary, or (b) alter the provisions of this Section 11 without the written consent of all of the Beneficiaries. 12. Addresses for Notices. All notices and other communications provided for hereunder shall be given in the manner set forth in Section 12.02 of the Credit Agreement. 13. Interpretation; Partial Invalidity. Whenever possible each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. 14. Miscellaneous: Remedies Cumulative. Unless the context of this Guaranty otherwise clearly requires, references to the plural include the singular, the singular the plural and the part the whole and "or" has the inclusive meaning represented by the phrase "and/or." The section headings used herein are for convenience of reference only and shall not define, limit or extend the provisions of this Guaranty. All remedies hereunder are cumulative and are not exclusive of any other rights and remedies of the Beneficiaries provided by law or under the Credit Agreement, the other Loan Documents, or other applicable agreements or instruments. The making of the Loans to the Borrowers pursuant to the Credit Agreement and the ESOP Loan Agreement shall be presumed conclusively to have been made or extended, respectively, in reliance upon the obligations of the Guarantor incurred pursuant to this Guaranty. 6 15. Pari Passu Obligation. The Guarantor, and by their acceptance of the benefits hereof each of the Beneficiaries, acknowledge that, in the event the Maximum Amount payable hereunder shall be less than aggregate amount of the Obligations and the ESOP Obligations payable by the Guarantor hereunder, the Obligations and the ESOP Obligations shall rank pari passu with respect to the application of proceeds of payments hereunder to such Obligations and ESOP Obligations and, in accordance therewith, agree that such amounts, including without limitation proceeds of collateral securing the Guarantor's obligations hereunder, after payment of all expenses in connection with the administration and liquidation of such collateral, shall be applied ratably to Obligations and ESOP Obligations in accordance with the respective amounts thereof as of the date of any application. 16. Governing Law. This Guaranty shall in all respects be governed by the law of the State of Florida. Guarantor and the Beneficiaries each hereby (i) submits to the jurisdiction and venue of the state and federal courts of Florida for the purposes of resolving disputes hereunder or under any of the other Loan Documents to which it is a party or for the purpose of collection and (ii) waives trial by jury in connection with any such litigation. 17. Repayment or Recovery. If claim is ever made upon any Beneficiary for repayment or recovery of any amount or amounts received in payment or on account of any of the Guarantied Obligations and any of the Beneficiaries repays all or part of said amount by reason of (a) any judgment, decree or order of any court or administrative body having jurisdiction over such payee or any of its property, or (b) any settlement or compromise of any such claim effected by such Beneficiary with any such claimant (including the original obligor), then and in such event the Guarantor agrees that any such judgment, decree, order, settlement or compromise shall be binding upon it, notwithstanding any revocation hereof or the cancellation of any Note or other instrument evidencing any Guarantied Obligation or any security therefor, and the Guarantor shall be and remain liable to the aforesaid Beneficiary for the amount so repaid or recovered to the same extent as if such amount had never originally been received by any such Beneficiary. 18. Set-Off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of an Event of Default (as defined in either of the Agreements), Guarantor agrees that each Beneficiary shall have a lien for all the liabilities of the Guarantor upon all deposits or deposit accounts, of any kind (other than deposits identified as being held for third parties), or any interest in any deposits or deposit accounts thereof, now or hereafter pledged, mortgaged, transferred or assigned to such Beneficiary or otherwise in the possession or control of such Beneficiary (other than for safekeeping) for any 7 purpose for the account or benefit of the Guarantor and including any balance of any deposit account or of any credit of the Guarantor with such Beneficiary, whether now existing or hereafter established, hereby authorizing each Beneficiary at any time or times, upon the occurrence and during the continuance of an Event of Default, with or without prior notice (but with notice with reasonable promptness after such set-off) to apply such balances or any part thereof to such of the liabilities of the Guarantor to such Beneficiary then past due and in such amounts as they may elect, and whether or not the collateral or the responsibility of other Persons primarily, secondarily or otherwise liable may be deemed adequate. For the purposes of this Section 18, all remittances and property shall be deemed to be in the possession of such Beneficiary as soon as the same may be put in transit to it by mail or carrier or by other bailee. 19. Security. As security for the payment and performance by the Guarantor of its obligations hereunder, the Guarantor has delivered to the Beneficiaries an Amended and Restated Pledge and Security Agreement of even date herewith, granting to the Beneficiaries a security interest in certain property of the Guarantor therein specified. 20. References to Credit Agreement Definitions. In the event that the Credit Agreement shall no longer be in effect at any time while this Guaranty shall continue in effect or there shall otherwise continue to remain outstanding Guarantied Obligations, all references to the Credit Agreement, including terms defined by reference to their respective definitions contained in the Credit Agreement, shall be deemed to refer to the Credit Agreement as in effect as of the date hereof, with such amendments thereto to which the remaining Beneficiaries shall have given express consent in accordance with the Loan Documents and the ESOP Loan Documents. 21. Agency. Notwithstanding the foregoing references to the Beneficiaries, Guarantor acknowledges and agrees that so long as NationsBank shall be the sole Lender under the Credit Agreement, the term "Agent" shall mean NationsBank as Lender. When and if there shall be more than one Lender party to the Credit Agreement, then the term "Agent" shall refer to the Agent under the Credit Agreement pursuant to the provisions of Article XI of the Credit Agreement, to which reference is hereby made. 8 IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its officers hereunto duly authorized as of the date first above written. WITNESS: VITAS HEALTHCARE CORPORATION OF FLORIDA /s/ Terry L. Scaggs - --------------------------- By: /s/ Mark W. Ohlendorf ----------------------------- /s/ Meganne Cusato Name: Mark W. Ohlendorf - --------------------------- Title: Vice President Address: 100 South Biscayne Boulevard Miami, Florida 33131 Attention: Mark W. Ohlendorf Telephone No. (305) 350-5922 Telefacsimile No. (305) 374-4765 9 EX-10.57 32 EXHIBIT 10.57 EXHIBIT 10.57 AMENDED AND RESTATED GUARANTY AND SURETYSHIP AGREEMENT THIS AMENDED AND RESTATED GUARANTY AND SURETYSHIP AGREEMENT, dated as of February 17, 1995 (the "Guaranty"), is made by VITAS HEALTHCARE CORPORATION OF OHIO, a Delaware corporation (the "Guarantor"), to the parties named in Section 1 hereof. Except as otherwise defined herein, terms used herein defined in the Credit Agreement referred to below shall be used herein as so defined. W I T N E S S E T H: WHEREAS, (i) pursuant to Revolving Credit and Reimbursement Agreement dated as of August 11, 1994 (the "Prior Credit Agreement") among Vitas Healthcare Corporation (the "Company"), NationsBank of Florida, National Association ("NationsBank") and NationsBank as agent, NationsBank made available to the Company a revolving credit facility in the aggregate principal amount of up to $15,000,000, including within such revolving credit facility the issuance of letters of credit for the account of the Company and (ii) pursuant to a Guaranty and Contingent Purchase Agreement of even date with the Prior Credit Agreement between the Company and NationsBank (the "Prior Guaranty" and, together with the Prior Credit Agreement, the "Prior Agreements"), and a Loan Agreement (as the same may be amended, modified or restated from time to time, the "ESOP Loan Agreement") of even date with the Prior Credit Agreement between NationsBank and the Vitas Healthcare Corporation Employee Stock Ownership Trust (the "Trust" and, together with the Company, the "Borrowers"), NationsBank extended a term loan of $2,386,670 to the Trust to refinance certain indebtedness owing from the Trust to the Company; and WHEREAS, in connection with the execution and delivery of the Prior Agreements, the Guarantor entered into a Guaranty and Suretyship Agreement of even date with the Prior Credit Agreement (the "Prior Subsidiary Guaranty") guaranteeing the payment and performance of the obligations and liabilities of the Borrowers under the Prior Credit Agreement and the ESOP Loan Documents; and WHEREAS, the Company and Vitas Healthcare Corporation of California, a Subsidiary of the Company ("Vitas California"), have entered into an Asset Purchase Agreement with the Sellers (as defined in the Credit Agreement) dated as of December 27, 1994 (the "Asset Purchase Agreement") pursuant to which Vitas California has agreed to purchase substantially all of the operating assets of the CHC Entities (as defined in the Credit Agreement) pursuant to the terms and subject to the conditions set forth therein and, in connection therewith, the Company has requested that the Prior Credit Agreement be amended and restated to increase the revolving credit facility from $15,000,000 to $20,000,000, to provide for a $25,000,000 term loan facility, and to make certain other modifications, and that the Prior Guaranty be amended and restated to reflect the agreement of the parties; and WHEREAS, at the request of the Company and to effect the modifications referred to above, (i) the Company, the Agent and the Lenders are entering into an Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement of even date herewith (as the same may be modified, amended or restated from time to time, the "Credit Agreement" and, together with the ESOP Loan Agreement, the "Agreements"), and (ii) the Company and NationsBank are entering into an Amended and Restated Guaranty and Contingent Purchase Agreement of even date herewith (as the same may be modified, amended or restated from time to time, the "Company Guaranty"); and WHEREAS, the Lenders are unwilling to amend and increase the revolving credit facility or make such term loan pursuant to the Credit Agreement, and NationsBank is unwilling to amend the Prior Agreements as reflected in the Agreements to permit the consummation of the CHC Transaction, unless the Guarantor amends and restates its Prior Subsidiary Guaranty by entering into this Guaranty; and WHEREAS, the Guarantor is a Subsidiary of the Company and has been or may be provided with advances from the Company or other working capital made available directly or indirectly by the Lenders under the Credit Agreement, and has thereby materially benefitted or will materially benefit from the Loans made to the Borrowers pursuant to the Credit Agreement and the ESOP Loan Agreement; NOW, THEREFORE, in consideration of the premises, the Guarantor hereby agrees as follows: 1. Guaranty and Surety. The Guarantor does hereby absolutely and unconditionally for the benefit of (i) the Agent and the Lenders under the Credit Agreement and (ii) NationsBank as lender under the ESOP Loan Agreement (collectively, the "Beneficiaries"), guarantee and become surety for the full and timely payment when due (whether by acceleration or otherwise) (including amounts which, but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code (or any successor statute), would become due) of: A. All Obligations as defined in the Credit Agreement; and B. All obligations and liabilities of the Trust under the ESOP Loan Agreement and the other ESOP Loan Documents, including without limitation its obligations to pay interest, principal, fees, expenses and indemnification amounts when and as the same shall become due whether at the stated maturity 2 thereof, by acceleration or otherwise (the "ESOP Obligations"). in each case whether direct or indirect, joint or several, absolute or contingent, liquidated or unliquidated, now or hereafter existing, extended, renewed, replaced, refinanced or restructured, whether or not from time to time decreased or extinguished and later increased, created or incurred (all indebtedness, obligations and liabilities of the Borrowers described in this Section 1 are collectively referred to as the "Guarantied Obligations"); provided, however, that the liability of the Guarantor with respect to the Guarantied Obligations shall not exceed at any time the Maximum Amount (as hereinafter defined). The "Maximum Amount" means the greater of (X) the aggregate amount of all advances to the Guarantor made directly or indirectly with the proceeds of Loans (as defined in the Credit Agreement) or (Y) 95% of (a) the fair salable value of the assets of such Guarantor as of the date hereof minus (b) the total liabilities of the Guarantor (including contingent liabilities, but excluding liabilities of the Guarantor under this Guaranty and the other Loan Documents and ESOP Loan Documents executed by the Guarantor) as of the date hereof; provided further, however, that if the calculation of the Maximum Amount in the manner provided above as of the date payment is required of the Guarantor pursuant to this Guaranty would result in a greater positive number, then the Maximum Amount shall be deemed to be such greater positive number. 2. Guaranty of Payment. This is a guaranty of payment and not merely of collection. In the event of any default by the original obligor in payment or otherwise on any of the Guarantied Obligations, the Guarantor will pay all or any portion of the Guarantied Obligations due or thereafter becoming due, whether by acceleration or otherwise, without offset of any kind whatsoever, without any Beneficiary first being required to make demand upon the original obligor or pursue any of its rights against the original obligor, or against any other Person, including other guarantors (whether or not party to this Guaranty); and without being required to liquidate or to realize on any collateral security. In any right of action accruing to any Beneficiary, such Beneficiary may elect to proceed against (a) the Guarantor together with the original obligor or obligors; (b) the Guarantor and the original obligor or obligors individually; or (c) the Guarantor only without having first commenced any action against the original obligor or obligors. 3. Right to Deal with Guarantied Obligations. Subject to the terms and conditions of the Credit Agreement, any Beneficiary, without notice to Guarantor, may deal with any Guarantied Obligations and any collateral security therefor in such manner as it may deem advisable and may renew or extend the Guarantied Obligations or any part thereof; accept partial payment, or settle, release, compound, or compromise the same; demand additional collateral security therefor, and substitute or release the same; 3 and may compromise or settle with or release and discharge from liability any other guarantor of any Guarantied Obligation, or any other Person liable to such Beneficiary for all or any portion of the obligations of any original obligor; all without impairing the liability of the Guarantor hereunder. 4. Other Waivers. Guarantor hereby unconditionally waives with respect to this Guaranty: (a) notice of acceptance of this Guaranty by any Beneficiary and any notice of the incurring by either or both of the Borrowers of any Guarantied Obligation; (b) presentment for payment, protest, notice of protest and notice of dishonor to any party including either of the Borrowers or the Guarantor; (c) any disability of the original obligor or obligors or defense available to the original obligor or obligors, including absence or cessation of any original obligor's liability for any reason whatsoever; (d) any defense or circumstances which might otherwise constitute a legal or equitable discharge of a guarantor or surety except final and irrevocable payment in full of the Guaranteed Obligations; and (e) all rights under any state or federal statute dealing with or affecting the rights of creditors. 5. Subordination. Until the Guarantied Obligations are paid in full and no Beneficiary is under any further obligation to lend or extend funds or credit which would constitute Guarantied Obligations, Guarantor hereby unconditionally subordinates all present and future debts, liabilities or obligations of the Borrower to such Guarantor to the Guarantied Obligations, and all amounts due under such debts, liabilities, or obligations shall, upon the occurrence and during the continuance of an Event of Default, be collected and paid over forthwith to the Beneficiaries on account of the Guarantied Obligations and, pending such payment, shall be held by the Guarantor as agent and bailee of the Beneficiaries separate and apart from all other funds, property and accounts of the Guarantor. Guarantor, at the reasonable request of any Beneficiary, shall execute such further documents in favor of such Beneficiary to further evidence and support the purpose of this Section 5. Until (i) all of the Guarantied Obligations and all of the Guarantor's obligations hereunder shall have been paid and satisfied in full and (ii) the lapse or expiration of any time period in which any payment in respect of the Guarantied Obligations or hereunder is subject to avoidance as a preferential or similar transfer under any applicable bankruptcy, insolvency or similar law without any such claim for avoidance having been made, Guarantor hereby irrevocably waives and releases any right or rights of subrogation, contribution or similar claims against either of the Borrowers or any other guarantor of any of the Guarantied Obligations existing at law, by contract or otherwise. 6. Representations and Warranties. Guarantor represents and warrants to the Beneficiaries that: (a) no other agreement, representation or special condition exists between the Guarantor and any Beneficiary regarding the liability of the Guarantor under this Guaranty; nor does any understanding exist between the 4 Guarantor and any Beneficiary that the obligations of the Guarantor under this Guaranty are or will be other than as set out herein; and (b) as of the date hereof, the Guarantor has no defense whatsoever to any action or proceeding that may be brought to enforce this Guaranty. Furthermore, the Guarantor affirms to the Beneficiaries that each of the representations and warranties contained in the Credit Agreement or the Company Guaranty and made by either of the Borrowers with respect to the Guarantor is true and correct. 7. No Waiver by Beneficiaries. No failure or delay on the part of any Beneficiary in exercising any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. Failure by any Beneficiary to insist upon strict performance hereof shall not constitute a relinquishment of its right to demand strict performance at another time. Receipt by any Beneficiary of any payment by any person on any Guarantied Obligation, with knowledge of a default on any Guarantied Obligation or of a breach of this Guaranty, or both, shall not be construed as a waiver of the default or breach. 8. CONTINUING GUARANTY; TERMINATION. THIS GUARANTY IS A CONTINUING GUARANTY AND SHALL CONTINUE IN FULL FORCE AND EFFECT UNTIL SUCH TIME AS ALL GUARANTIED OBLIGATIONS SHALL HAVE BEEN INDEFEASIBLY PAID IN FULL (OTHER THAN GUARANTIED OBLIGATIONS IN THE NATURE OF CONTINUING INDEMNITIES OR EXPENSE REIMBURSEMENT OBLIGATIONS NOT YET DUE AND PAYABLE) AND NO BENEFICIARY SHALL BE UNDER ANY FURTHER OBLIGATION TO LEND OR TO ADVANCE FUNDS OR ISSUE LETTERS OF CREDIT TO THE ACCOUNT OF THE BORROWERS OR EITHER OF THEM CONSTITUTING GUARANTIED OBLIGATIONS. 9. Benefits of Agreement. This Guaranty is freely assignable and transferable by the Beneficiaries to any permitted assignee and transferee of any Guarantied Obligation; however, the duties and obligations of the Guarantor may not be delegated or transferred by the Guarantor without the written consent of all Beneficiaries. The rights and privileges of the Beneficiaries shall inure to the benefit of their respective successors and assigns, and the duties and obligations of the Guarantors shall bind their respective successors and assigns. 10. Expenses; Indemnity. The Guarantor will upon demand pay to each Beneficiary the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which it may reasonably incur in connection with enforcement of this Guaranty or the failure by the Guarantor to perform or observe any of the provisions hereof. The Guarantor agrees to indemnify and hold harmless each Beneficiary from and against any and all claims, demands, losses, judgments and liabilities (including liabilities for penalties) of whatsoever kind or nature, growing out of or resulting from this Guaranty or 5 the exercise by any Beneficiary of any right or remedy granted to it hereunder or under the other Loan Documents or ESOP Loan Documents, other than such items arising out of the bad faith, gross negligence or willful misconduct on the part of such Beneficiary. If and to the extent that the obligations of the Guarantor under this Section 10 are unenforceable for any reason, the Guarantor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. 11. Amendments, Waivers and Consents. No amendment or waiver of any provision of this Guaranty or consent to any departure by the Guarantor herefrom shall in any event be effective unless the same shall be in writing and signed (i) as to the Obligations, by the Guarantor and the Agent (which execution by Agent shall be evidence that Agent has received the consent thereto of the Lenders required to effect such amendment or waiver) and (ii) as to the ESOP Obligations, the Guarantor and NationsBank, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no such amendment, waiver or consent shall (a) deprive any Beneficiary of the benefits generally of this Guaranty without the written consent of such Beneficiary, or (b) alter the provisions of this Section 11 without the written consent of all of the Beneficiaries. 12. Addresses for Notices. All notices and other communications provided for hereunder shall be given in the manner set forth in Section 12.02 of the Credit Agreement. 13. Interpretation; Partial Invalidity. Whenever possible each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. 14. Miscellaneous; Remedies Cumulative. Unless the context of this Guaranty otherwise clearly requires, references to the plural include the singular, the singular the plural and the part the whole and "or" has the inclusive meaning represented by the phrase "and/or." The section headings used herein are for convenience of reference only and shall not define, limit or extend the provisions of this Guaranty. All remedies hereunder are cumulative and are not exclusive of any other rights and remedies of the Beneficiaries provided by law or under the Credit Agreement, the other Loan Documents, or other applicable agreements or instruments. The making of the Loans to the Borrowers pursuant to the Credit Agreement and the ESOP Loan Agreement shall be presumed conclusively to have been made or extended, respectively, in reliance upon the obligations of the Guarantor incurred pursuant to this Guaranty. 6 15. Pari Passu Obligations. The Guarantor, and by their acceptance of the benefits hereof each of the Beneficiaries, acknowledge that, in the event the Maximum Amount payable hereunder shall be less than aggregate amount of the Obligations and the ESOP Obligations payable by the Guarantor hereunder, the Obligations and the ESOP Obligations shall rank pari passu with respect to the application of proceeds of payments hereunder to such Obligations and ESOP Obligations and, in accordance therewith, agree that such amounts, including without limitation proceeds of collateral securing the Guarantor's obligations hereunder, after payment of all expenses in connection with the administration and liquidation of such collateral, shall be applied ratably to Obligations and ESOP Obligations in accordance with the respective amounts thereof as of the date of any application. 16. Governing Law. This Guaranty shall in all respects be governed by the law of the State of Florida. Guarantor and the Beneficiaries each hereby (i) submits to the jurisdiction and venue of the state and federal courts of Florida for the purposes of resolving disputes hereunder or under any of the other Loan Documents to which it is a party or for the purpose of collection and (ii) waives trial by jury in connection with any such litigation. 17. Repayment or Recovery. If claim is ever made upon any Beneficiary for repayment or recovery of any amount or amounts received in payment or on account of any of the Guarantied Obligations and any of the Beneficiaries repays all or part of said amount by reason of (a) any judgment, decree or order of any court or administrative body having jurisdiction over such payee or any of its property, or (b) any settlement or compromise of any such claim effected by such Beneficiary with any such claimant (including the original obligor), then and in such event the Guarantor agrees that any such judgment, decree, order, settlement or compromise shall be binding upon it, notwithstanding any revocation hereof or the cancellation of any Note or other instrument evidencing any Guarantied Obligation or any security therefor, and the Guarantor shall be and remain liable to the aforesaid Beneficiary for the amount so repaid or recovered to the same extent as if such amount had never originally been received by any such Beneficiary. 18. Set-Off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of an Event of Default (as defined in either of the Agreements), Guarantor agrees that each Beneficiary shall have a lien for all the liabilities of the Guarantor upon all deposits or deposit accounts, of any kind (other than deposits identified as being held for third parties), or any interest in any deposits or deposit accounts thereof, now or hereafter pledged, mortgaged, transferred or assigned to such Beneficiary or otherwise in the possession or control of such Beneficiary (other than for safekeeping) for any 7 purpose for the account or benefit of the Guarantor and including any balance of any deposit account or of any credit of the Guarantor with such Beneficiary, whether now existing or hereafter established, hereby authorizing each Beneficiary at any time or times, upon the occurrence and during the continuance of an Event of Default, with or without prior notice (but with notice with reasonable promptness after such set-off) to apply such balances or any part thereof to such of the liabilities of the Guarantor to such Beneficiary then past due and in such amounts as they may elect, and whether or not the collateral or the responsibility of other Persons primarily, secondarily or otherwise liable may be deemed adequate. For the purposes of this Section 18, all remittances and property shall be deemed to be in the possession of such Beneficiary as soon as the same may be put in transit to it by mail or carrier or by other bailee. 19. Security. As security for the payment and performance by the Guarantor of its obligations hereunder, the Guarantor has delivered to the Beneficiaries an Amended and Restated Pledge and Security Agreement of even date herewith, granting to the Beneficiaries a security interest in certain property of the Guarantor therein specified. 20. References to Credit Agreement Definitions. In the event that the Credit Agreement shall no longer be in effect at any time while this Guaranty shall continue in effect or there shall otherwise continue to remain outstanding Guarantied Obligations, all references to the Credit Agreement, including terms defined by reference to their respective definitions contained in the Credit Agreement, shall be deemed to refer to the Credit Agreement as in effect as of the date hereof, with such amendments thereto to which the remaining Beneficiaries shall have given express consent in accordance with the Loan Documents and the ESOP Loan Documents. 21. Agency. Notwithstanding the foregoing references to the Beneficiaries, Guarantor acknowledges and agrees that so long as NationsBank shall be the sole Lender under the Credit Agreement, the term "Agent" shall mean NationsBank as Lender. When and if there shall be more than one Lender party to the Credit Agreement, then the term "Agent" shall refer to the Agent under the Credit Agreement pursuant to the provisions of Article XI of the Credit Agreement, to which reference is hereby made. 8 IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its officers hereunto duly authorized as of the date first above written. WITNESS: VITAS HEALTHCARE CORPORATION OF OHIO /s/ Terry L. Scaggs By: /s/ Mark W. Ohlendorf - -------------------------------- ------------------------------------- Name: Mark W. Ohlendorf /s/ Meganne Cusato Title: Vice President - -------------------------------- Address: 100 South Biscayne Boulevard Miami, Florida 33131 Attention: Mark W. Ohlendorf Telephone No. (305) 350-5922 Telefacsimile No. (305) 374-4765 9 EX-10.58 33 EXHIBIT 10.58 EXHIBIT 10.58 AMENDED AND RESTATED GUARANTY AND SURETYSHIP AGREEMENT THIS AMENDED AND RESTATED GUARANTY AND SURETYSHIP AGREEMENT, dated as of February 17, 1995 (the "Guaranty"), is made by VITAS HEALTHCARE CORPORATION OF PENNSYLVANIA, a Delaware corporation (the "Guarantor"), to the parties named in Section 1 hereof. Except as otherwise defined herein, terms used herein defined in the Credit Agreement referred to below shall be used herein as so defined. W I T N E S S E T H : WHEREAS, (i) pursuant to Revolving Credit and Reimbursement Agreement dated as of August 11, 1994 (the "Prior Credit Agreement") among Vitas Healthcare Corporation (the "Company"), NationsBank of Florida, National Association ("NationsBank") and NationsBank as agent, NationsBank made available to the Company a revolving credit facility in the aggregate principal amount of up to $15,000,000, including within such revolving credit facility the issuance of letters of credit for the account of the Company and (ii) pursuant to a Guaranty and Contingent Purchase Agreement of even date with the Prior Credit Agreement between the Company and NationsBank (the "Prior Guaranty" and, together with the Prior Credit Agreement, the "Prior Agreements"), and a Loan Agreement (as the same may be amended, modified or restated from time to time, the "ESOP Loan Agreement") of even date with the Prior Credit Agreement between NationsBank and the Vitas Healthcare Corporation Employee Stock Ownership Trust (the "Trust" and, together with the Company, the "Borrowers"), NationsBank extended a term loan of $2,386,670 to the Trust to refinance certain indebtedness owing from the Trust to the Company; and WHEREAS, in connection with the execution and delivery of the Prior Agreements, the Guarantor entered into a Guaranty and Suretyship Agreement of even date with the Prior Credit Agreement (the "Prior Subsidiary Guaranty") guaranteeing the payment and performance of the obligations and liabilities of the Borrowers under the Prior Credit Agreement and the ESOP Loan Documents; and WHEREAS, the Company and Vitas Healthcare Corporation of California, a Subsidiary of the Company ("Vitas California"), have entered into an Asset Purchase Agreement with the Sellers (as defined in the Credit Agreement) dated as of December 27, 1994 (the "Asset Purchase Agreement") pursuant to which Vitas California has agreed to purchase substantially all of the operating assets of the CHC Entities (as defined in the Credit Agreement) pursuant to the terms and subject to the conditions set forth therein and, in connection therewith, the Company has requested that the Prior Credit Agreement be amended and restated to increase the revolving credit facility from $15,000,000 to $20,000,000, to provide for a $25,000,000 term loan facility, and to make certain other modifications, and that the Prior Guaranty be amended and restated to reflect the agreement of the parties; and WHEREAS, at the request of the Company and to effect the modifications referred to above, (i) the Company, the Agent and the Lenders are entering into an Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement of even date herewith (as the same may be modified, amended or restated from time to time, the "Credit Agreement" and, together with the ESOP Loan Agreement, the "Agreements"), and (ii) the Company and NationsBank are entering into an Amended and Restated Guaranty and Contingent Purchase Agreement of even date herewith (as the same may be modified, amended or restated from time to time, the "Company Guaranty") and WHEREAS, the Lenders are unwilling to amend and increase the revolving credit facility or make such term loan pursuant to the Credit Agreement, and NationsBank is unwilling to amend the Prior Agreements as reflected in the Agreements to permit the consummation of the CHC Transaction, unless the Guarantor amends and restates its Prior Subsidiary Guaranty by entering into this Guaranty; and WHEREAS, the Guarantor is a Subsidiary of the Company and has been or may be provided with advances from the Company or other working capital made available directly or indirectly by the Lenders under the Credit Agreement, and has thereby materially benefitted or will materially benefit from the Loans made to the Borrowers pursuant to the Credit Agreement and the ESOP Loan Agreement; NOW, THEREFORE, in consideration of the premises, the Guarantor hereby agrees as follows: 1. Guaranty and surety. The Guarantor does hereby absolutely and unconditionally for the benefit of (i) the Agent and the Lenders under the Credit Agreement and (ii) NationsBank as lender under the ESOP Loan Agreement (collectively, the "Beneficiaries"), guarantee and become surety for the full and timely payment when due (whether by acceleration or otherwise) (including amounts which, but for the operation of the automatic stay under Section 362 (a) of the Bankruptcy Code (or any successor statute), would become due) of: A. All Obligations as defined in the Credit Agreement; and B. All obligations and liabilities of the Trust under the ESOP Loan Agreement and the other ESOP Loan Documents, including without limitation its obligations to pay interest, principal, fees, expenses and indemnification amounts when and as the same shall become due whether at the stated maturity 2 thereof, by acceleration or otherwise (the "ESOP obligations"). in each case whether direct or indirect, joint or several, absolute or contingent, liquidated or unliquidated, now or hereafter existing, extended, renewed, replaced, refinanced or restructured, whether or not from time to time decreased or extinguished and later increased, created or incurred (all indebtedness, obligations and liabilities of the Borrowers described in this Section 1 are collectively referred to as the "Guarantied Obligations"); provided, however, that the liability of the Guarantor with respect to the Guarantied Obligations shall not exceed at any time the Maximum Amount (as hereinafter defined). The "Maximum Amount" means the greater of (X) the aggregate amount of all advances to the Guarantor made directly or indirectly with the proceeds of Loans (as defined in the Credit Agreement) or (Y) 95% of (a) the fair salable value of the assets of such Guarantor as of the date hereof minus (b) the total liabilities of the Guarantor (including contingent liabilities, but excluding liabilities of the Guarantor under this Guaranty and the other Loan Documents and ESOP Loan Documents executed by the Guarantor) as of the date hereof; provided further, however, that if the calculation of the Maximum Amount in the manner provided above as of the date payment is required of the Guarantor pursuant to this Guaranty would result in a greater positive number, then the Maximum Amount shall be deemed to be such greater positive number. 2. Guaranty Of Payment. This is a guaranty of payment and not merely of collection. In the event of any default by the original obligor in payment or otherwise on any of the Guarantied obligations, the Guarantor will pay all or any portion of the Guarantied Obligations due or thereafter becoming due, whether by acceleration or otherwise, without offset of any kind whatsoever, without any Beneficiary first being required to make demand upon the original obligor or pursue any of its rights against the original obligor, or against any other Person, including other guarantors (whether or not party to this Guaranty); and without being required to liquidate or to realize on any collateral security. In any right of action accruing to any Beneficiary, such Beneficiary may elect to proceed against (a) the Guarantor together with the original obligor or obligors; (b) the Guarantor and the original obligor or obligors individually; or (c) the Guarantor only without having first commenced any action against the original obligor or obligors. 3. Right to Deal with Guarantied Obligations. Subject to the terms and conditions of the Credit Agreement, any Beneficiary, without notice to Guarantor, may deal with any Guarantied Obligations and any collateral security therefor in such manner as it may deem advisable and may renew or extend the Guarantied Obligations or any part thereof; accept partial payment, or settle, release, compound, or compromise the same; demand additional collateral security therefor, and substitute or release the same; 3 and may compromise or settle with or release and discharge from liability any other guarantor of any Guarantied Obligation, or any other Person liable to such Beneficiary for all or any portion of the obligations of any original obligor; all without impairing the liability of the Guarantor hereunder. 4. Other Waivers. Guarantor hereby unconditionally waives with respect to this Guaranty: (a) notice of acceptance of this Guaranty by any Beneficiary and any notice of the incurring by either or both of the Borrowers of any Guarantied Obligation; (b) presentment for payment, protest, notice of protest and notice of dishonor to any party including either of the Borrowers or the Guarantor; (c) any disability of the original obligor or obligors or defense available to the original obligor or obligors, including absence or cessation of any original obligor's liability for any reason whatsoever; (d) any defense or circumstances which might otherwise constitute a legal or equitable discharge of a guarantor or surety except final and irrevocable payment in full of the Guarantied Obligations; and (e) all rights under any state or federal statute dealing with or affecting the rights of creditors. 5. Subordination. Until the Guarantied Obligations are paid in full and no Beneficiary is under any further obligation to lend or extend funds or credit which would constitute Guarantied Obligations, Guarantor hereby unconditionally subordinates all present and future debts, liabilities or obligations of the Borrower to such Guarantor to the Guarantied Obligations, and all amounts due under such debts, liabilities, or obligations shall, upon the occurrence and during the continuance of an Event of Default, be collected and paid over forthwith to the Beneficiaries on account of the Guarantied Obligations and, pending such payment, shall be held by the Guarantor as agent and bailee of the Beneficiaries separate and apart from all other funds, property and accounts of the Guarantor. Guarantor, at the reasonable request of any Beneficiary, shall execute such further documents in favor of such Beneficiary to further evidence and support the purpose of this Section 5. Until (i) all of the Guarantied Obligations and all of the Guarantor's obligations hereunder shall have been paid and satisfied in full and (ii) the lapse or expiration of any time period in which any payment in respect of the Guarantied Obligations or hereunder is subject to avoidance as a preferential or similar transfer under any applicable bankruptcy, insolvency or similar law without any such claim for avoidance having been made, Guarantor hereby irrevocably waives and releases any right or rights of subrogation, contribution or similar claims against either of the Borrowers or any other guarantor of any of the Guarantied Obligations existing at law, by contract or otherwise. 6. Representations and Warranties. Guarantor represents and warrants to the Beneficiaries that: (a) no other agreement, representation or special condition exists between the Guarantor and any Beneficiary regarding the liability of the Guarantor under this Guaranty; nor does any understanding exist between the 4 Guarantor and any Beneficiary that the obligations of the Guarantor under this Guaranty are or will be other than as set out herein; and (b) as of the date hereof, the Guarantor has no defense whatsoever to any action or proceeding that may be brought to enforce this Guaranty. Furthermore, the Guarantor affirms to the Beneficiaries that each of the representations and warranties contained in the Credit Agreement or the Company Guaranty and made by either of the Borrowers with respect to the Guarantor is true and correct. 7. No Waiver by Beneficiaries. No failure or delay on the part of any Beneficiary in exercising any right, power or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. Failure by any Beneficiary to insist upon strict performance hereof shall not constitute a relinquishment of its right to demand strict performance at another time. Receipt by any Beneficiary of any payment by any person on any Guarantied Obligation, with knowledge of a default on any Guarantied Obligation or of a breach of this Guaranty, or both, shall not be construed as a waiver of the default or breach. 8. CONTINUING GUARANTY; TERMINATION. THIS GUARANTY IS A CONTINUING GUARANTY AND SHALL CONTINUE IN FULL FORCE AND EFFECT UNTIL SUCH TIME AS ALL GUARANTIED OBLIGATIONS SHALL HAVE BEEN INDEFEASIBLY PAID IN FULL (OTHER THAN GUARANTIED OBLIGATIONS IN THE NATURE OF CONTINUING INDEMNITIES OR EXPENSE REIMBURSEMENT OBLIGATIONS NOT YET DUE AND PAYABLE) AND NO BENEFICIARY SHALL BE UNDER ANY FURTHER OBLIGATION TO LEND OR TO ADVANCE FUNDS OR ISSUE LETTERS OF CREDIT TO THE ACCOUNT OF THE BORROWERS OR EITHER OF THEM CONSTITUTING GUARANTIED OBLIGATIONS. 9. Benefits of Agreement. This Guaranty is freely assignable and transferable by the Beneficiaries to any permitted assignee and transferee of any Guarantied Obligation; however, the duties and obligations of the Guarantor may not be delegated or transferred by the Guarantor without the written consent of all Beneficiaries. The rights and privileges of the Beneficiaries shall inure to the benefit of their respective successors and assigns, and the duties and obligations of the Guarantors shall bind their respective successors and assigns. 10. Expenses; Indemnity. The Guarantor will upon demand pay to each Beneficiary the amount of any and all reasonable expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, which it may reasonably incur in connection with enforcement of this Guaranty or the failure by the Guarantor to perform or observe any of the provisions hereof. The Guarantor agrees to indemnify and hold harmless each Beneficiary from and against any and all claims, demands, losses, judgments and liabilities (including liabilities for penalties) of whatsoever kind or nature, growing out of or resulting from this Guaranty or 5 the exercise by any Beneficiary of any right or remedy granted to it hereunder or under the other Loan Documents or ESOP Loan Documents, other than such items arising out of the bad faith, gross negligence or willful misconduct on the part of such Beneficiary. If and to the extent that the obligations of the Guarantor under this Section 10 are unenforceable for any reason, the Guarantor hereby agrees to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. 11. Amendments, Waivers and Consents. No amendment or waiver of any provision of this Guaranty or consent to any departure by the Guarantor herefrom shall in any event be effective unless the same shall be in writing and signed (i) as to the Obligations, by the Guarantor and the Agent (which execution by Agent shall be evidence that Agent has received the consent thereto of the Lenders required to effect such amendment or waiver) and (ii) as to the ESOP Obligations the Guarantor and NationsBank, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that no such amendment, waiver or consent shall (a) deprive any Beneficiary of the benefits generally of this Guaranty without the written consent of such Beneficiary, or (b) alter the provisions of this Section 11 without the written consent of all of the Beneficiaries. 12. Addresses for Notices. All notices and other communications provided for hereunder shall be given in the manner set forth in Section 12.02 of the Credit Agreement. 13. Interpretation; Partial Invalidity. Whenever possible each provision of this Guaranty shall be interpreted in such manner as to be effective and, valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Guaranty. 14. Miscellaneous; Remedies Cumulative. Unless the context of this Guaranty otherwise clearly requires, references to the plural include the singular, the singular the plural and the part the whole and "or" has the inclusive meaning represented by the phrase "and/or." The section headings used herein are for convenience of reference only and shall not define, limit or extend the provisions of this Guaranty. All remedies hereunder are cumulative and are not exclusive of any other rights and remedies of the Beneficiaries provided by law or under the Credit Agreement, the other Loan Documents, or other applicable agreements or instruments. The making of the Loans to the Borrowers pursuant to the Credit Agreement and the ESOP Loan Agreement shall be presumed conclusively to have been made or extended, respectively, in reliance upon the obligations of the Guarantor incurred pursuant to this Guaranty. 6 15. Pari Passu Obligations. The Guarantor, and by their acceptance of the benefits hereof each of the Beneficiaries, acknowledge that, in the event the Maximum Amount payable hereunder shall be less than aggregate amount of the Obligations and the ESOP Obligations payable by the Guarantor hereunder, the Obligations and the ESOP Obligations shall rank pari passu with respect to the application of proceeds of payments hereunder to such Obligations and ESOP obligations and, in accordance therewith, agree that such amounts, including without limitation proceeds of collateral securing the Guarantor's obligations hereunder, after payment of all expenses in connection with the administration and liquidation of such collateral, shall be applied ratably to Obligations and ESOP Obligations in accordance with the respective amounts thereof as of the date of any application. 16. Governing Law. This Guaranty shall in all respects be governed by the law of the State of Florida. Guarantor and the Beneficiaries each hereby (i) submits to the jurisdiction and venue of the state and federal courts of Florida for the purposes of resolving disputes hereunder or under any of the other Loan Documents to which it is a party or for the purpose of collection and (ii) waives trial by jury in connection with any such litigation. 17. Repayment or Recovery. If claim is ever made upon any Beneficiary for repayment or recovery of any amount or amounts received in payment or on account of any of the Guarantied Obligations and any of the Beneficiaries repays all or part of said amount by reason of (a) any judgment, decree or order of any court or administrative body having jurisdiction over such payee or any of its property, or (b) any settlement or compromise of any such claim effected by such Beneficiary with any such claimant (including the original obligor), then and in such event the Guarantor agrees that any such judgment, decree, order, settlement or compromise shall be binding upon it, notwithstanding any revocation hereof or the cancellation of any Note or other instrument evidencing any Guarantied Obligation or any security therefor, and the Guarantor shall be and remain liable to the aforesaid Beneficiary for the amount so repaid or recovered to the same extent as if such amount had never originally been received by any such Beneficiary. 18. Set-Off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of an Event of Default (as defined in either of the Agreements), Guarantor agrees that each Beneficiary shall have a lien for all the liabilities of the Guarantor upon all deposits or deposit accounts, of any kind (other than deposits identified as being held for third parties), or any interest in any deposits or deposit accounts thereof, now or hereafter pledged, mortgaged, transferred or assigned to such Beneficiary or otherwise in the possession or control of such Beneficiary (other than for safekeeping) for any 7 purpose for the account or benefit of the Guarantor and including any balance of any deposit account or of any credit of the Guarantor with such Beneficiary, whether now existing or hereafter established, hereby authorizing each Beneficiary at any time or times, upon the occurrence and during the continuance of an Event of Default, with or without prior notice (but with notice with reasonable promptness after such set-off) to apply such balances or any part thereof to such of the liabilities of the Guarantor to such Beneficiary then past due and in such amounts as they may elect, and whether or not the collateral or the responsibility of other Persons primarily, secondarily or otherwise liable may be deemed adequate. For the purposes of this Section 18, all remittances and property shall be deemed to be in the possession of such Beneficiary as soon as the same may be put in transit to it by mail or carrier or by other bailee. 19. Security. As security for the payment and performance by the Guarantor of its obligations hereunder, the Guarantor has delivered to the Beneficiaries an Amended and Restated Pledge and Security Agreement of even date herewith, granting to the Beneficiaries a security interest in certain property of the Guarantor therein specified. 20. References to Credit Agreement Definitions. In the event that the Credit Agreement shall no longer be in effect at any time while this Guaranty shall continue in effect or there shall otherwise continue to remain outstanding Guarantied Obligations, all references to the Credit Agreement, including terms defined by reference to their respective definitions contained in the Credit Agreement, shall be deemed to refer to the Credit Agreement as in effect as of the date hereof, with such amendments thereto to which the remaining Beneficiaries shall have given express consent in accordance with the Loan Documents and the ESOP Loan Documents. 21. Agency. Notwithstanding the foregoing references to the Beneficiaries, Guarantor acknowledges and agrees that so long as NationsBank shall be the sole Lender under the Credit Agreement, the term "Agent" shall mean NationsBank as Lender. When and if there shall be more than one Lender party to the Credit Agreement, then the term "Agent" shall refer to the Agent under the Credit Agreement pursuant to the provisions of Article XI of the Credit Agreement, to which reference is hereby made. 8 IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly executed and delivered by its officers hereunto duly authorized as of the date first above written. WITNESS: VITAS HEALTHCARE CORPORATION OF PENNSYLVANIA /s/ Terry L. Scaggs By: /s/ Mark W. Ohlendorf - --------------------------------- --------------------------------- Name: Mark W. Ohlendorf /s/ Meganne Cusato Title: Vice President - --------------------------------- Address: 100 South Biscayne Boulevard Miami, Florida 33131 Attention: Mark W. Ohlendorf Telephone No. (305) 350-5922 Telefacsimile No. (305) 374-4765 9 EX-10.60 34 EXHIBIT 10.60 EXHIBIT 10.60 ================================================================================ AMENDED AND RESTATED GUARANTY AND CONTINGENT PURCHASE AGREEMENT Dated as of February 17, 1995 between VITAS HEALTHCARE CORPORATION and NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION relating to $2,386,670 Term Loan to the Vitas Healthcare Corporation Employee Stock Ownership Trust ================================================================================ TABLE OF CONTENTS Page ARTICLE I DEFINITIONS SECTION 1.01. Certain Defined Terms ..................................... 3 SECTION 1.02. General ................................................... 19 ARTICLE II GUARANTY AND CONTINGENT PURCHASE SECTION 2.01. The Guaranty .............................................. 21 SECTION 2.02. Guaranty Unconditional .................................... 21 SECTION 2.03. Operation of Guaranty ..................................... 21 SECTION 2.04. Obligation of Guarantor Absolute .......................... 22 SECTION 2.05. Waiver of Notice .......................................... 22 SECTION 2.06. Postponement of Subrogation ............................... 23 SECTION 2.07. Security .................................................. 23 SECTION 2.08. Purchase of ESOP Loan Documents ........................... 24 ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.01. Representations and Warranties ............................ 26 ARTICLE IV AFFIRMATIVE COVENANTS SECTION 4.01. Financial Reports, Etc. ................................... 35 SECTION 4.02. Maintain Properties ....................................... 37 SECTION 4.03. Existence, Qualification, Etc. ............................ 37 SECTION 4.04. Regulations and Taxes ..................................... 37 SECTION 4.05. Insurance ................................................. 37 SECTION 4.06. True Books ................................................ 38 SECTION 4.07. Perform Covenants ......................................... 38 SECTION 4.08. Right of Inspection ....................................... 38 SECTION 4.09. Observe all Laws .......................................... 38 SECTION 4.10. Governmental Licenses ..................................... 38 SECTION 4.11. Covenants Extending to Subsidiaries ....................... 38 SECTION 4.12. Officer's Knowledge of Default ............................ 38 SECTION 4.13. Suits or Other Proceedings ................................ 39 SECTION 4.14. Notice of Discharge of Hazardous Material or Environmental Complaint ................................. 39 SECTION 4.15. Environmental Compliance .................................. 39 SECTION 4.16. Indemnification ........................................... 39 SECTION 4.17. Further Assurances ........................................ 39 SECTION 4.18. ERISA Requirement ......................................... 40 SECTION 4.19. Continued Operations ...................................... 40 i SECTION 4.20. Use of Proceeds ........................................... 40 SECTION 4.21. Trade Names ............................................... 40 SECTION 4.22. Property Location ......................................... 41 SECTION 4.23. Chief Executive Offices ................................... 41 SECTION 4.24. New Obligated Subsidiaries ................................ 41 SECTION 4.25. Sufficient Contributions .................................. 43 ARTICLE V NEGATIVE COVENANTS SECTION 5.01. Consolidated Shareholders' Equity ......................... 44 SECTION 5.02. Current Ratio ............................................. 44 SECTION 5.03. Consolidated Interest Coverage Ratio ...................... 44 SECTION 5.04. Consolidated Leverage Ratio ............................... 44 SECTION 5.05. Consolidated Fixed Charge Ratio ........................... 45 SECTION 5.06. Indebtedness .............................................. 45 SECTION 5.07. Liens ..................................................... 46 SECTION 5.08. Transfer of Assets ........................................ 47 SECTION 5.09. Investments; Acquisitions ................................. 47 SECTION 5.10. Dividends or Distributions ................................ 48 SECTION 5.11. Merger or Consolidation ................................... 49 SECTION 5.12. Change in Control ......................................... 49 SECTION 5.13. Transactions with Affiliates .............................. 49 SECTION 5.14. ERISA ..................................................... 50 SECTION 5.15. Fiscal Year ............................................... 50 SECTION 5.16. Dissolution, etc. ......................................... 51 SECTION 5.17. Rate Hedging Obligations .................................. 51 SECTION 5.18. Subordinated Obligations .................................. 51 ARTICLE VI EVENTS OF DEFAULT AND REMEDIES SECTION 6.01. Events of Default ........................................ 52 SECTION 6.02. Rights Upon an Event of Default .......................... 55 SECTION 6.03. No Remedy Exclusive ...................................... 55 ARTICLE VII MISCELLANEOUS SECTION 7.01. Amendments, Etc. .......................................... 56 SECTION 7.02. Notices, Etc. ............................................. 56 SECTION 7.03. No Waiver ................................................. 57 SECTION 7.04. Right of Set-off .......................................... 57 SECTION 7.05. Costs, Expenses and Taxes ................................. 57 SECTION 7.06. Binding Effect ............................................ 58 SECTION 7.07. Severability .............................................. 58 SECTION 7.08. Governing Law ............................................. 58 SECTION 7.09. Headings .................................................. 58 SECTION 7.10. Prior Agreements Superseded ............................... 58 SECTION 7.11. Counterparts .............................................. 58 ii SECTION 7.12. Consents ................................................. 58 SECTION 7.13. Supplements to Schedules ................................. 59 EXHIBIT A Notice of Appointment (or Revocation) of Authorized Representative ............................... 62 EXHIBIT B Compliance Certificate ..................................... 63 EXHIBIT C Form of Subsidiary Guaranty ................................ 70 EXHIBIT D Form of Subsidiary Security Agreement ...................... 71 Schedule 3.01(d) Subsidiaries and Investments Schedule 3.01(f) Contingent and Other Obligations Schedule 3.01(g) Existing Liens on the Collateral Schedule 3.01(h) Taxes Schedule 3.01(j) Litigation Schedule 3.01(m) Exceptions Regarding Patents Schedule 3.01(o) Consents and Notices Schedule 3.01(r) Hazardous Materials Schedule 3.01(t) Pending Administrative Matters Schedule 4.05 Existing Insurance Schedule 4.21 Trade Names Schedule 4.22 Locations of Equipment and Inventory Schedule 5.06 Indebtedness Vitas agrees to provide a copy of this exhibit to the Commission upon request. iii AMENDED AND RESTATED GUARANTY AND CONTINGENT PURCHASE AGREEMENT (the "Guaranty"), dated as of February 17, 1995, by and between VITAS HEALTHCARE CORPORATION, a Delaware corporation (the "Guarantor"), and NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION, a national banking association (the "Bank"). PRELIMINARY STATEMENTS: (1) The Vitas Healthcare Corporation Employee Stock Ownership Trust, a trust organized and existing under the Federal law and laws of the State of Delaware (the "Borrower") formed pursuant to the Vitas Healthcare Corporation Employee Stock Ownership Plan originally effective as of October 1, 1989 , as amended to date (the "Plan"), entered into a Loan Agreement dated as of August 11, 1994 (as the same may be amended, modified or supplemented as therein permitted, the "Agreement") with the Bank pursuant to which the Bank made a term loan to the Borrower in the initial principal amount of $2,386,670 (the "Loan") to refinance a securities acquisition loan to the Trust by the Guarantor in the original principal amount of $2,864,000 made on or about December 17, 1991 (the "Prior Loan"). (2) In connection with the making of the Loan, the Guarantor, as sponsor of the Plan and lender of the Prior Loan, executed and delivered a Guaranty and Contingent Purchase Agreement of even date with the Agreement (the "Prior Guaranty") thereby (i) guaranteeing the payment and performance by the Borrower of its obligations under the Agreement and other loan documents executed by the Borrower in connection therewith and (ii) agreeing, upon the occurrence of certain events, to purchase at the election of the Bank all of the right, title and interest of the Bank (other than rights under the Security Agreement, as defined below) in, to and under the Agreement and such other loan documents. (3) The Guarantor and Vitas Healthcare Corporation of California, a Subsidiary of the Guarantor ("Vitas California"), have entered into an Asset Purchase Agreement with the Sellers (as hereinafter defined) dated as of December 27, 1994 (the "Asset Purchase Agreement") pursuant to which Vitas California has agreed to purchase substantially all of the operating assets of the CHC Entities (as hereinafter defined) pursuant to the terms and subject to the conditions set forth therein, and, in connection therewith the Guarantor has requested the Bank to consent to such acquisition. (4) The Bank is unwilling to consent to the acquisition transaction described above unless the Prior Guaranty is amended and restated as herein provided. (5) The Guarantor has and will continue to materially and directly benefit from the making and continuation of the Loan to Borrower and will materially benefit from the consummation of the acquisition transaction described above, and, therefore, to provide an inducement to the Bank to consent thereto, the Guarantor is willing to enter into this Guaranty. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, including the covenants, terms and conditions hereinafter appearing and in order to induce the Lender to make the Loan, the parties hereto agree as follows: 2 ARTICLE I DEFINITIONS SECTION 1.01. Certain Defined Terms. As used in this Guaranty, in addition to the terms defined above, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Accounts" of any Person means all accounts, accounts receivable, contract rights, general intangibles, notes, bills, acceptances, choses in action, chattel paper, instruments, documents, and other forms of obligations at any time owing to such Person, the proceeds thereof and all of such Person's rights with respect to any goods represented thereby, whether or not delivered, goods returned by customers and all rights as an unpaid vendor or lienor, including rights of stoppage in transit and of recovering possession by proceedings including replevin and reclamation, together with all customer lists, books and records, ledger and account cards, computer tapes, software, disks, printouts and records, whether now in existence or hereafter created, relating to Accounts. "Affiliate" means a Person, other than a Subsidiary, (i) which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with the Guarantor; (ii) which is the beneficial owner (as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of 10% or more of any class of the outstanding voting stock of the Guarantor; (iii) 10% or more of any class of the outstanding voting stock (or in the case of a Person which is not a corporation, 10% or more of the equity interest) of which is beneficially owned or held by the Guarantor. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of voting stock, by contract or otherwise; provided, however, that when the Guarantor registers any security issued by it pursuant to the Securities Act of 1933, as amended, the figure 10% used throughout this definition shall automatically be changed to 5%. "Authorized Representative" means any of the President, chief executive officer or chief financial officer of the Guarantor or, with respect to financial matters, the Treasurer, any Assistant Treasurer or chief financial officer of the Guarantor or any other person expressly designated by the Board of Directors of the Guarantor (or the appropriate committee thereof) as an Authorized Representative of the 3 Guarantor, as set forth from time to time in a certificate in the form attached hereto as Exhibit A. "Board" means the Board of Governors of the Federal Reserve System (or any successor body). "Business Day" means any day which is not a Saturday, Sunday or a day on which banks in the States of North Carolina or Florida are authorized or obligated by law, executive order or governmental decree to be closed. "Capital Expenditures" means, for any period, the sum of (without duplication) (i) all expenditures (whether paid in cash or accrued as liabilities) by the Guarantor or any Subsidiary during that period that are for items that would be classified as "property, plant or equipment" or comparable items on the consolidated balance sheet of the Guarantor, plus (ii) with respect to any Capital Lease entered into by the Guarantor or its Subsidiaries during such period, the present Value of the lease payments due under such Capital Lease over the term of such Capital Lease applying a discount rate equal to the interest rate provided in such lease (or in the absence of a stated interest rate that rate used in the preparation of the financial statements described in Section 4.01(a) hereof), excluding, however, the amount of any Capital Expenditures paid for with proceeds of casualty insurance. "Capital Leases" means all leases which have been or should be capitalized in accordance with Generally Accepted Accounting Principles as in effect from time to time including Statement No. 13 of the Financial Accounting Standards Board and any successor thereof. "CHC Entities" means, collectively, Community and the following limited partnerships, of each of which Community is the sole general partner as of the Closing Date: Community Hospice Care of Orange County, Ltd. L.P., Community Hospice Care of San Diego Limited Partnership, Community Hospice Care - Coastal Cities Limited Partnership, Community Hospice Care - Inland Cities Limited Partnership, Community Hospice Care - San Gabriel Valley Limited Partnership, Community Hospice Care - Valley Cities, L. P., and Community Hospice Care - Los Angeles Cities, L.P. "CHC Transaction" means the acquisition by Vitas California of substantially all of the operating assets of the CHC Entities in accordance with the terms of the Asset Purchase Agreement. "CHC Transaction Documents" means, collectively, the Asset Purchase Agreement, the Seller Notes, the Subordination Agreements, and the Bill of Sale, Assumption Agreement, guaranty, Will Agreement, Joint Account Agreement, Non- 4 Competition Agreement and Will Non-Competition Agreement referred to in the Asset Purchase Agreement (including in each case all exhibits and schedules thereto). "Closing Date" means the date of this Guaranty. "Code" means the Internal Revenue Code of 1986, as amended, any successor provision or provisions and any regulations promulgated thereunder. "Collateral" means, collectively, all collateral or security at any time granted to the Bank in its capacity as lender under the Agreement and as agent for the lenders under the Revolving Credit Agreement by the Borrower, the Guarantor, the Subsidiaries or any other Person pursuant to the Security Documents. "Community" means Community Hospice Care, Inc., a California corporation. "Consistent Basis" in reference to the application of Generally Accepted Accounting Principles means the accounting principles observed in the period referred to are comparable in all material respects to those applied in the preparation of the audited financial statements of the Guarantor referred to in Section 3.0l(f)(i) hereof, subject to Section 1.02 hereof. "Consolidated Current Assets" means cash and all other assets of the Guarantor and its Subsidiaries which are expected to be realized in cash, sold in the ordinary course of business, or consumed within one year or which would be classified as a current asset, all determined in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis. "Consolidated Current Liabilities" means all liabilities of the Guarantor and its Subsidiaries which by their terms are payable within one year (including all Indebtedness payable on demand or maturing not more than one year from the date of computation and the current portion of Indebtedness having a maturity date in excess of one year, but excluding in all cases the Revolving Credit Debit Balance, the Term Loan and the Seller Notes (each as defined in the Revolving Credit Agreement)), all determined in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis. "Consolidated EBITDAR" means, with respect to the Guarantor and its Subsidiaries for any period of computation thereof, the sum of, without duplication, (i) Consolidated Net Income, plus (ii) Consolidated Interest Expense accrued during such period, plus (iii) taxes on income accrued during such period, plus (iv) amortization accrued during such period, 5 plus (v) any depreciation during such period, plus (vi) all contributions made or accrued by the Guarantor during such period related to the ESOP, plus (vii) Consolidated Rentals, all determined on a consolidated basis in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis. "Consolidated Fixed Charge Ratio" means, with respect to the Guarantor and its Subsidiaries for the Four-Quarter Period ending on the date of computation thereof, the ratio of (a) Consolidated EBITDAR minus Capital Expenditures (other than (i) Capital Expenditures of up to $2,300,000 in the aggregate incurred in connection with the operation of the business acquired in the CHC Transaction and (ii) Capital Expenditures incurred under Capital Leases) to (b) Consolidated Fixed Charges. "Consolidated Fixed Charges" means, with respect to the Guarantor and its Subsidiaries, for any period of computation thereof, the sum of, without duplication, (i) Consolidated Interest Expense accrued during such period, (ii) dividends and distributions (other than dividends payable solely in capital stock of the Guarantor) paid during such period, including Preferred Stock Redemptions, but excluding redemptions of Preferred Stock effected in connection with and funded with proceeds of the Borrower's offering of Qualified Equity Securities, (iii) required principal payments of Consolidated Funded Indebtedness required to be paid during such period (but excluding any principal payments that might be required under the Revolving Credit Agreement), and (iv) Consolidated Rentals. "Consolidated Funded Indebtedness" means Indebtedness for Money Borrowed of the Guarantor and its Subsidiaries and the ESOP Debt. "Consolidated Indebtedness" means all Indebtedness of the Guarantor and its Subsidiaries, all determined on a consolidated basis and including the ESOP Debt. "Consolidated Interest Coverage Ratio" means, with respect to the Guarantor and its Subsidiaries for the Four-Quarter Period ending on the date of computation thereof, the ratio of (a) Consolidated Net Income plus to the extent deducted in determining Consolidated Net Income (i) taxes based on income accrued during such period, (ii) Consolidated Interest Expense, plus (iii) all contributions made or accrued by the Guarantor during such period related to the ESOP to (b) Consolidated Interest Expense. "Consolidated Interest Expense" means, with respect to any period of computation thereof, the gross interest expense of the Guarantor and its Subsidiaries accrued during such 6 period and including interest expense payable in respect of the ESOP Debt, including without limitation (i) the amortization of debt discounts, (ii) the amortization of all fees (including, without limitation, fees payable in respect of a Swap Agreement) payable in connection with the incurrence of Indebtedness to the extent included in interest expense and (iii) the portion of any liabilities incurred in connection with Capital Leases allocable to interest expense, all determined on a consolidated basis in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis. "Consolidated Leverage Ratio" means the ratio of Consolidated Funded Indebtedness to Consolidated Total Capital. "Consolidated Net Income" means, for any period of computation thereof, the gross revenues from operations of the Guarantor and its Subsidiaries (including payments received by the Guarantor and its Subsidiaries of (i) interest income, and (ii) dividends and distributions made in the ordinary course of their businesses by Persons in which investment is permitted pursuant to Section 5.09 and not related to an extraordinary event) less all operating and non-operating expenses of the Guarantor and its Subsidiaries including taxes on income (excluding, however, up to $800,000 of expenses incurred in connection with preparation of a proposed public offering of the Guarantor's capital stock that was not pursued due to market conditions) all determined on a consolidated basis in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis; but excluding as income: (i) net gains on the sale, conversion or other disposition of capital assets, (ii) net gains on the acquisition, retirement, sale or other disposition of capital stock and other securities of the Guarantor or its Subsidiaries, (iii) net gains on the collection of proceeds of life insurance policies, (iv) any write-up of any asset, and (v) any other net gain or credit of an extraordinary nature as determined in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis. "Consolidated Rentals" means and includes with respect to any period of determination thereof, the aggregate amount of all fixed payments (including as such all payments which the lessee is obligated to make to the lessor on termination of the lease or surrender of the leased property) payable by the Guarantor or any of its Subsidiaries, as lessee or sublessee under any lease of real property, or with respect to inpatient facilities, any lease of real or personal property, and shall include any amounts required to be paid by the Guarantor or any of its Subsidiaries (whether or not designated as rents or additional rents) on account of maintenance, repairs, insurance, taxes and similar charges. 7 "Consolidated Shareholders' Equity" means, at any time as of which the amount thereof is to be determined, the sum of the following in respect of the Guarantor and its Subsidiaries (determined on a consolidated basis and excluding intercompany items among the Borrower and its Subsidiaries and any upward adjustment after the Closing Date due to revaluation of assets): (i) the amount of issued and outstanding capital stock, plus (ii) the amount of additional paid-in capital and retained income (or, in the case of a deficit, minus the amount of such deficit), minus, without duplication, (iii) the amount of any deferred compensation or other contra-equity account in respect of the ESOP Debt), in each case as determined in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis, except that regardless of the treatment thereof under Generally Accepted Accounting Principles, the Preferred Stock and Qualified Equity Securities shall be considered part of Consolidated Shareholders' Equity for purposes of this Guaranty. "Consolidated Total Capital" means the sum of Consolidated Funded Indebtedness and Consolidated Shareholders' Equity. "Contingent Obligation" of any Person means all contingent liabilities required (or which, upon the creation or incurring thereof, would be required) to be included in the consolidated financial statements (including footnotes) of such Person in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis, including Statement No. 5 of the Financial Accounting Standards Board, and any obligation of such Person guaranteeing or in effect guaranteeing any Indebtedness, dividend or other obligation of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including obligations of such Person however incurred: (1) to purchase such Indebtedness or other obligation or any property or assets constituting security therefor; (2) to advance or supply funds in any manner (i) for the purchase or payment of such Indebtedness or other obligation, or (ii) to maintain a minimum working capital, net worth or other balance sheet condition or any income statement condition of the primary obligor; (3) to grant or convey any lien, security interest, pledge, charge or other encumbrance on any property or assets of such Person to secure payment of such Indebtedness or other obligation; (4) to lease property or to purchase securities or other property or services primarily for the purpose of 8 assuring the owner or holder of such Indebtedness or obligation of the ability of the primary obligor to make payment of such Indebtedness or other obligation; or (5) otherwise to assure the owner of the Indebtedness or such obligation of the primary obligor against loss in respect thereof. with respect to Contingent Obligations, such liabilities shall be computed at the amount which, in light of all the facts and circumstances existing at the time, represent the present value of the amount which can reasonably be expected to become an actual or matured liability. "Cost of Acquisition" means the sum of the purchase price, as reflected in any definitive agreement to acquire all or any portion of the stock or all or any portion of the assets of any Person plus, without duplication, any Indebtedness assumed by the Guarantor or its Subsidiaries in connection with such acquisition. "Default" shall mean an Event of Default or an event that with notice or lapse of time or both would become an Event of Default. "Default Rate" shall mean the Prime Rate plus two percent (2%) per annum. "Eligible Securities" means the following obligations and any other obligations previously approved in writing by the Bank: (a) Government Securities; (b) the following debt securities of the following agencies or instrumentalities of the United States of America if at all times the full faith and credit of the United States of America is pledged to the full and timely payment of all interest and principal thereof: (i) all direct or fully guaranteed obligations of the United States Treasury; and (ii) mortgage-backed securities and participation certificates guaranteed by the Government National Mortgage Association or any successor thereto; (c) the following obligations of the following agencies or instrumentalities of the United States of America: 9 (i) participation certificates and debt obligations of the Federal Home Loan Mortgage Corporation or any successor thereto; (ii) consolidated debt obligations, and obligations secured by a letter of credit, of any of the Federal Home Loan Banks; and (iii) debt obligations and mortgage-backed securities of the Federal National Mortgage Association or any successor thereto which have not had the interest portion thereof severed therefrom; (d) obligations of any corporation organized under the laws of any state of the United States of America or under the laws of any other nation, payable in the United States of America, expressed to mature not later than one year following the date of purchase thereof and rated in an investment grade rating category by S&P and Moody's; (e) interest bearing demand or time deposits issued by the Bank or certificates of deposit maturing within one year from the date of acquisition issued by a bank or trust company organized under the laws of the United States or of any state thereof having capital surplus and undivided profits aggregating at least $400,000,000 and being rated A-3 or better by S&P or A or better by Moody's; (f) Repurchase Agreements; (g) Pre-Refunded Municipal Obligations; (h) shares of mutual funds which invest in obligations described in paragraphs (a) through (g) above, the shares of which mutual funds are at all times rated "AAA" by S&P; (i) asset-backed remarketed certificates of participation representing a fractional undivided interest in the assets of a trust, which certificates are rated at least "A-l" by S&P and "P-l" by Moody's; and (j) any other obligation or security, the investment in which is consistent with the Guarantor's written investment policies, a copy of which has been delivered by the Guarantor to the Bank. Obligations which are in book-entry form must be held in a book-entry custody account with any Federal Reserve Bank or with a clearing corporation or chain of clearing corporations which has an account with any Federal Reserve Bank. 10 "Environmental Laws" means, collectively, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, the Superfund Amendments and Reauthorization Act of 1986, the Resource Conservation and Recovery Act, the Toxic Substances Control Act, as amended, the Clean Air Act, as amended, the Clean Water Act, as amended, any other "Superfund" or "Superlien" law or any other federal, or applicable state or local statute, law, ordinance, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic or dangerous waste, substance or material. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended, and the regulations thereunder, all as the same shall be in effect at such time. "ESOP Debt" means, as of any date of computation thereof, the aggregate principal amount of the indebtedness outstanding under the ESOP Loan Documents. "ESOP Loan Documents" means the Agreement and all promissory notes, pledge agreements and other documents, instruments and agreements now or hereafter delivered to the Bank evidencing or relating to the indebtedness incurred pursuant to the Agreement, as any of such documents may have been or hereafter be amended, modified or supplemented as therein and herein permitted. "Event of Default" shall have the meaning assigned to such term in Article VI hereof. "Fiscal Year" means the 12 month period of the Guarantor ending on September 30 of each calendar year and commencing on October 1 of each calendar year, subject to change pursuant to Section 5.15 hereof. "Four-Quarter Period" means a period of four full consecutive quarterly periods, taken together as one accounting period. "Generally Accepted Accounting Principles" means generally accepted accounting principles in effect in the United States of America as applied by nationally recognized accounting firms. "Government Receivables" means Accounts of the Guarantor or any Subsidiary as to which the United States of America or any State or agency or instrumentality thereof (including, without limitation, any agent, fiscal intermediary or carrier acting on behalf or under the direction of the United States of America or any State or agency or instrumentality thereof) is the account obligor. 11 "Government Securities" means direct obligations of, or obligations the timely payment of principal and interest on which are fully and unconditionally guaranteed by, the United States of America. "Governmental Authority" shall mean any Federal, state, municipal, national or other governmental department, commission, board, bureau, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative or judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether of a state, territory or possession of the United States, the United States, a foreign governmental entity or the District of Columbia. "Hazardous Material" means and includes any hazardous, toxic or dangerous waste, substance or material, the generation, handling, storage, disposal, treatment or emission of which is subject to any Environmental Law. "Indebtedness" means with respect to any Person, without duplication, all Indebtedness for Money Borrowed, all indebtedness of such Person for the acquisition of property, all indebtedness secured by any Lien on the property of such Person whether or not such indebtedness is assumed (but if not assumed, then the amount of such indebtedness shall be the lower of the amount thereof or the book value of such property), all liability of such Person by way of endorsements (other than for collection or deposit in the ordinary course of business), all Contingent Obligations; but excluding all accounts payable in the ordinary course of business so long as payment therefor is due within one year; provided that in no event shall the term Indebtedness include shareholders' capital, surplus and retained earnings, minority interest in Subsidiaries, lease obligations (other than pursuant to Capital Leases), the Preferred Stock, obligations to pay dividends on or to redeem the Preferred Stock, Qualified Equity Securities, reserves for deferred income taxes and investment credits, other deferred credits and reserves, including, without limitation, unearned Medicare prospective payments, and deferred compensation obligations (except that deferred compensation obligations relating to the ESOP Debt shall constitute Indebtedness). "Indebtedness for Money Borrowed" means all indebtedness in respect of money borrowed, including without limitation all Capital Leases and the deferred purchase price of any property or asset, evidenced by a promissory note, bond or similar written obligation for the payment of money (including, but not limited to, conditional sales or similar title retention agreements) and shall include the ESOP Debt. 12 "Individual Sellers" means, collectively, Connie A. Black, a resident of the State of California, and Dennis Rezendes, a resident of the State of Colorado, each a signatory to the Asset Purchase Agreement. "Lien" means any interest in property securing any obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on the common law, statute or contract, and including but not limited to the lien or security interest arising from a mortgage, encumbrance, pledge, security agreement, conditional sale or trust receipt or a lease, consignment or bailment for security purposes. For the purposes of this Guaranty, the Guarantor and its Subsidiaries shall be deemed to be the owners of any property which any of them have acquired or hold subject to a conditional sale agreement, financing lease, or other arrangement pursuant to which title to the property has been retained by or vested in some other Person for security purposes. "Moody's" means Moody's Investors Service, Inc., a Delaware corporation, or any successor thereto. "Multi-employer Plan" means an employee pension benefit plan covered by Title IV of ERISA and in respect of which the Guarantor or any Subsidiary is an "employer" as described in Section 4001(b) of ERISA, which is also a multi-employer plan as defined in Section 4001(a)(3) of ERISA. "Obligated Subsidiary" means, collectively, (i) Vitas California, Vitas Healthcare Corporation of Florida, a Florida corporation, Vitas Healthcare Corporation of Ohio, a Delaware corporation, Vitas Healthcare Corporation of Pennsylvania, a Delaware corporation, (ii) every other Subsidiary of the Guarantor, existing as of the Closing Date, and every Strategic Investment Subsidiary, which (x) in any calendar month shall have operating revenues of $50,000 or more and (y) shall have executed and delivered a Guaranty pursuant to Section 4.24 hereof, and (iii) every other Subsidiary (excluding Strategic Investment Subsidiaries) of the Guarantor hereafter organized or acquired which shall have executed and delivered a Guaranty pursuant to Section 4.24 hereof. "New Guaranty Event" shall have the meaning therefor provided in Section 4.24. "9% Preferred Stock" means the 9.0% Cumulative Nonconvertible Preferred Stock, par value $1.00 per share, issued by the Guarantor, of which 270,000 shares are issued and outstanding as of the Closing Date. "Permitted Acquisition" means the acquisition by Guarantor or any Subsidiary of any Person or the assets of any 13 Person, which satisfies the following: (i) such Person is or the assets of such Person are used in the same or similar line of business as that engaged in by Guarantor, (ii) the Person acquired does not oppose such acquisition, (iii) such Person (to the extent a separate entity is acquired or results) becomes a Subsidiary and is consolidated with Guarantor for financial reporting purposes or the assets acquired from such Person are owned by Guarantor or a Subsidiary, (iv) if the Cost of Acquisition exceeds $2,500,000, the Bank shall have consented thereto, and (v) no Default or Event of Default exists immediately after giving effect to such acquisition. "Permitted Liens" means those Liens described in subsections (i) through (vii) of Section 5.07 hereof. "Person" means an individual, partnership, corporation, trust, unincorporated organization, association, joint venture or a government or agency or political subdivision thereof. "Pledge Agreement" shall mean the Pledge Agreement of even date with the Agreement from the Borrower to the Bank, as amended, modified or supplemented from time to time. "Preferred Stock" means , collectively, the 9% Preferred Stock and the Series B Preferred Stock. "Preferred Stock Redemption" means (i) with respect to 9% Preferred Stock, redemptions made by Guarantor pursuant to Section 3(b) of the Certificate of Designation, Preferences and Other Rights of 9.0% Cumulative Nonconvertible Preferred Stock of Guarantor, and (ii) with respect to Series B Preferred Stock, redemptions made by Guarantor pursuant to Sections 3(a) and 3(b) of the Certificate of Designation, Preferences and Other Rights of the Series B Convertible Preferred Stock of Guarantor. "Pre-Refunded Municipal Obligations" means obligations of any state of the United States of America or of any municipal corporation or other public body organized under the laws of any such state which are rated, based on the escrow, in the highest investment rating category by both S&P and Moody's and which have been irrevocably called for redemption and advance refunded through the deposit in escrow of Government Securities or other debt securities which are (i) not callable at the option of the issuer thereof prior to maturity, (ii) irrevocably pledged solely to the payment of all principal and interest and other charges on such obligations as the same becomes due and (iii) in a principal amount and bear such rate or rates of interest as shall be sufficient to pay in full all principal of, interest, and premium, if any, on such obligations as the same becomes due as verified by a nationally recognized firm of certified public accountants. 14 "Prime Rate" shall mean that rate of interest announced from time to time by the Bank to be its prime rate. The Prime Rate is not necessarily the best or the lowest rate of interest offered by the Bank. "Projection of Combined Entities" means the Vitas Healthcare Corporation Analysis of Community Hospice Care, Inc. dated as of January 24, 1995; "Purchase Event" means any Event of Default as defined in Article VI hereof. "Qualified Equity Securities" means either of the following types of equity securities of the Guarantor sold in a public or private offering: (i) common stock; or (ii) preferred stock having no right to the payment of cash dividends or other similar cash distributions and as to which the Guarantor has no obligation to redeem, repurchase or otherwise retire any of such securities during the period from the date of issuance thereof until not earlier than 91 days following the full payment and satisfaction of the obligations arising under this Guaranty and termination of this Guaranty, the net proceeds of which preferred stock are used to the extent necessary to redeem in whole the Series A Preferred Stock; provided that in either case such securities are issued substantially simultaneously with or following either (x) the redemption in full of the Series B Preferred Stock or (y) amendment of the Series B Preferred Stock (and related Certificate of Designature, Preferences and Other Rights) in form and substance reasonably acceptable to the Agent in order to eliminate any obligation of the Guarantor to redeem, repurchase or otherwise retire any of such securities until not earlier than 91 days following the full payment and satisfaction of the obligations arising under this Guaranty and termination of this Guaranty. "Rate Hedging Obligations" means any and all obligations of the Guarantor, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (a) any and all agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange 15 agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts, warrants and those commonly known as interest rate "swap" agreements; and (b) any and all cancellations, buybacks, reversals, terminations or assignments of any of the foregoing. "Repurchase Agreement" means a repurchase agreement entered into with any financial institution whose debt obligations or commercial paper are rated "A" by either of S&P or Moody's or "A-1" by S&P or "P-1" by Moody's. "Required New Obligated Subsidiary" shall have the meaning therefor provided in Section 4.24. "Revolving Credit Agreement" means the Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement of even date herewith among the Guarantor, NationsBank of Florida, National Association, as agent, and the lenders signatories thereto, as the same may be amended, modified or supplemented as therein permitted. "Revolving Credit Loan Documents" shall have the meaning ascribed to the term "Loan Documents" provided in the Revolving Credit Agreement." "S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill, or any successor thereto. "Security Agreement" means the Amended and Restated Pledge and Security Agreement dated as of the date hereof by the Guarantor to the Bank pursuant to which the Guarantor, inter alia, grants a security interest in the Collateral (i) to the Agent (as defined in the Revolving Credit Agreement) for the ratable benefit of the lenders as security for the Obligations under the Revolving Credit Loan Documents and (ii) to the Bank as security for the obligations of Guarantor hereunder, as the same may be modified, amended or supplemented from time to time as herein and therein permitted. "Security Agreements" means, collectively, the Security Agreement and the Subsidiary Security Agreements. "Security Documents" means the Security Agreement, the Subsidiary Security Agreements, the financing statements required to perfect a security interest in the Collateral, the stock certificates evidencing the Guarantor's equity interests in all Subsidiaries with duly executed stock powers in blank affixed thereto ("Subsidiary Stock"), and such other documents and instruments as the Agent may require to create or perfect a security interest in the Collateral. 16 "Series B Preferred Stock" means the Series B Convertible Preferred Stock, par value $1.00 per share, issued by the Guarantor, of which 262,500 shares are issued and outstanding as of the Closing Date. "Single Employer Plan" means any employee pension benefit plan covered by Title IV of ERISA and in respect of which the Borrower or any Subsidiary is an "employer" as described in Section 4001(b) of ERISA, which is not a Multi-employer Plan. "Solvent" means, when used with respect to any Person, that at the time of determination: (i) the fair value of its assets (both at fair valuation and at present fair saleable value on an orderly basis) is in excess of the total amount of its liabilities, including, without limitation, Contingent Obligations; and (ii) it is then able and expects to be able to pay its debts as they mature; and (iii) it has capital sufficient to carry on its business as presently conducted. "Strategic Investment" means an equity investment not constituting a Permitted Acquisition by the Guarantor or any Subsidiary in, or any loan or advance by the Guarantor or any Subsidiary to, a Person (i) not constituting a Subsidiary at the time of such investment and (ii) who is engaged in the same or similar line of business as the Guarantor, which investment (a) is not opposed by the Person in whom such investment is made, (b) is made pursuant to an interest or plan reflected in the minutes of the board of directors (or appropriate committee thereof) of the Guarantor or Subsidiary making such investment, either to acquire all or substantially all of the stock or assets of such Person or to enter into a joint venture, co-ownership or similar arrangement through such investment, and (c) does not, and so far as can reasonably be foreseen will not, give rise to or result in any Indebtedness (including any Contingent Obligation) or other liability of, or claim against the assets of, Guarantor or any Subsidiary (other than claims against the related Strategic Investment itself), whether as a result of being a general partner or joint venturer, an owner or operator of any facility or property, or otherwise by operation of any contract, commitment, statute or principle of law. "Strategic Investment Subsidiary" means any Subsidiary used for the primary purpose of making one or more Strategic Investments. 17 "Subordination Agreements" means, collectively, the Subordination Agreement-A and the Subordination Agreement-B, each of even date herewith from the CHC Entities subordinating the Seller Notes and certain other rights to payment under the Asset Purchase Agreement to the payment and satisfaction of certain obligations, as the same may be amended, modified or supplemented from time to time as therein permitted. "Subordinated Obligations" has the meaning provided in the Subordination Agreements. "Subsidiary" means any corporation or other entity in which more than 50% of its outstanding voting stock or more than 50% of all equity interests is owned directly or indirectly by the Guarantor and/or by one or more of the Guarantor's Subsidiaries. "Subsidiary Guaranty" means (i) as to all Persons who executed and delivered a "Subsidiary Guaranty" under and as defined in the Prior Guaranty, each Amended and Restated Guaranty and Suretyship Agreement of an Obligated Subsidiary of even date herewith, (ii) as to Vitas California, the Guaranty and Suretyship Agreement of Vitas California of even date herewith, and (iii) as to Persons delivering a Guaranty pursuant to Section 4.24 hereof, each Guaranty and Suretyship Agreement dated as of the date of delivery thereof, in favor of the Bank, as the same may be amended, modified or supplemented. "Subsidiary Security Agreement" means (i) as to all Persons who executed and delivered a "Subsidiary Security Agreement" under and as defined in the Prior Guaranty, the Amended and Restated Pledge and Security Agreement of each Obligated Subsidiary dated as of the date hereof as to an Obligated Subsidiary in existence as of the date hereof, (ii) as to Vitas California, the Pledge and Security Agreement of Vitas California of even date herewith, and (iii) as to Persons delivering a Pledge and Security Agreement pursuant to Section 4.24 hereof, each Pledge and Security Agreement dated the date of such delivery, by an Obligated Subsidiary of the Guarantor to the Agent pursuant to which such Obligated Subsidiary, inter alia, grants a security interest in Collateral (i) to the Agent (as defined in the Revolving Credit Agreement) for the ratable benefit of the lenders under the Revolving Credit Loan Documents, and (ii) to the Bank, as security for the obligations of such Obligated Subsidiary under its Subsidiary Guaranty, as the same may be modified, amended or supplemented from time to time as herein and therein permitted. "Successor Preferred Stock" means preferred stock of the Guarantor (a) described in clause (ii) of the definition of "Qualified Equity Securities" in this Section 1.01 issued in 18 connection with (and the net proceeds of which issue are utilized to fund) the redemption in full of the 9% Preferred Stock, or (b) (ii) having terms which are approved by the Bank. "Swap Agreement" means one or more agreements with respect to Indebtedness evidenced by the promissory notes of the Guarantor constituting Revolving Credit Loan Documents, between the Guarantor and another Person, on terms mutually acceptable to such Guarantor and such Person, which agreements create Rate Hedging Obligations. "Will Agreement" has the meaning therefor provided in the Asset Purchase Agreement. "Will Entities" means, collectively, Vernon R. Will and WilCare Corporation, a California corporation, signatories to the Will Agreement. SECTION 1.02. General. All accounting terms not specifically defined herein shall have the meanings assigned to such terms and shall be interpreted in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis; provided, however, if any change in Generally Accepted Accounting Principles or, if applicable, Regulation S-X promulgated pursuant to the Securities Act of 1933, as amended, in effect on the date hereof shall result in a change in any calculation (or the meaning or effect of any calculation) required to determine compliance with any provision contained in this Guaranty, the Guarantor and the Bank will amend such provision in a manner to reflect such change such that the determination of compliance with such provision shall yield the same result as would have obtained prior to such change in Generally Accepted Accounting Principles or Regulation S-X. Until an amendment is entered into covenants shall be calculated in accordance with Generally Accepted Accounting Principles as in effect immediately preceding such change. All references in this instrument to designated "Articles", "Sections" and other subdivisions are to the designated Articles, Sections and subdivisions of this instrument as originally executed. The terms "herein", "hereof" and "hereunder" and other words of similar import refer to this Guaranty as a whole and not to any particular Article, Section or other subdivision. The terms "include," "including" and similar terms shall be construed as if followed by the phrase "without being limited to." All Article and Section captions herein are used for reference only and in no way limit or describe the scope or intent of, or in any way affect, this Guaranty. 19 Words importing the singular number shall mean and include the plural number and visa versa. All recitals set forth in this Guaranty are hereby incorporated in the operative provisions of this Guaranty. No inference in favor of or against either party shall be drawn from the fact that such party or its counsel has drafted any portion hereof. In the event of any conflict or inconsistency between this Guaranty and the Revolving Credit Agreement, the Revolving Credit Agreement shall govern and control. 20 ARTICLE II GUARANTY AND CONTINGENT PURCHASE SECTION 2.01. The Guaranty. Guarantor hereby unconditionally and absolutely (i) guarantees to the Bank the full and prompt payment and performance by Borrower of all its obligations under the ESOP Loan Documents, including without limitation its obligations to pay interest, principal, fees, expenses and indemnification amounts when and as the same shall become due whether at the stated maturity thereof, by acceleration or otherwise, and (ii) agrees to pay any and all reasonable expenses (including reasonable attorneys' fees) incurred by the Bank in enforcing its rights under this Guaranty. SECTION 2.02. Guaranty Unconditional. This Guaranty shall be a continuing, absolute and unconditional guaranty and shall remain in full force and effect until all of the obligations of Borrower under the ESOP Loan Documents shall have been paid and satisfied in full and the ESOP Loan Documents terminated, provided that the guarantee hereunder of indemnification obligations of Borrower shall survive. The obligations of Guarantor hereunder shall arise absolutely and unconditionally upon the making of the Loan to the Borrower. SECTION 2.03. Operation of Guaranty. This is a guaranty of payment and not of collection, and Guarantor expressly waives any right to require that any action be brought against Borrower or to require that resort be had to any security, whether held by or available to the Bank or to any other Person. If Borrower shall default in payment of principal, interest, fees or any other amount payable under the ESOP Loan Documents when and as the same shall become due, whether at stated maturity, by acceleration, upon demand, or otherwise, or upon the occurrence of any other Event of Default hereunder, Guarantor, upon demand by the Bank or its successors or assigns, will promptly and fully make such payments. Guarantor will pay all reasonable costs and expenses, including reasonable attorneys' fees, paid or incurred by the Bank or its successors or assigns, under this Guaranty. All payments by Guarantor shall be made in immediately available freely transferable coin or currency of the United States of America which on the respective dates of payment thereof is legal tender for the payment of public and private debts. Each Event of Default under the ESOP Loan Documents shall give rise to a separate cause of action hereunder, and separate suits may be brought hereunder as each cause of action arises. The Bank or its successors or assigns, in its sole discretion, shall have the right to proceed first and directly against Guarantor and its successors and assigns. In the event that any amount payable hereunder is not paid when due, then (without limiting the rights of the Bank under Section 5.01 hereof) such amount shall bear interest until paid in full at the lesser of the Default Rate or the maximum rate permitted by applicable law. 21 SECTION 2.04. Obligation of Guarantor Absolute. The obligations of Guarantor hereunder shall not be impaired, modified, released or limited by any occurrence or condition whatsoever, including without limitation (a) the release of any co-guarantor or any compromise, settlement, release, waiver, renewal, extension, indulgence or modification of or change in any of the obligations and liabilities of Borrower contained in the ESOP Loan Documents, (b) any impairment, modification, release or limitation of the liability of Borrower or its estate in bankruptcy, or any other security for the ESOP Loan Documents other than any such impairment of security resulting from the Agent's (as defined in the Revolving Credit Agreement), the Bank's or any Lender's (as defined in the Revolving Credit Agreement) actions or inactions, or any remedy for the enforcement thereof, resulting from the operation of any present or future provision of the Bankruptcy Code, or other statute or from the decision of any court, (c) the assertion or exercise by the Bank or its successors or assigns, of any rights or remedies under any of the ESOP Loan Documents or its delay in or failure to assert or exercise any such rights or remedies, (d) any lack of validity or enforceability of the ESOP Loan Documents or any other agreement or instrument relating thereto; (e) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations under the ESOP Loan Documents, or any other amendment or waiver of or any consent to departure from the ESOP Loan Documents; (f) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guaranty; (g) any delay in or limitation on the full and timely payment or performance of obligations or liabilities under the ESOP Loan Documents, whether arising before or after default, as a result of the application of any applicable limitation on payment or performance by the Trust described in Section 1.05 of the Agreement (a "Performance Limitation"), or (h) any other circumstance which might otherwise constitute a defense available to, or a discharge of, a guarantor except, subject to the following sentence of this paragraph, final and irrevocable payment in full of Borrower's obligations to the Bank under the ESOP Loan Documents. This Guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any of the obligations of Borrower under the ESOP Loan Documents or the Guarantor is rescinded or is otherwise returned by the Bank upon the insolvency, bankruptcy or reorganization of Borrower or the Guarantor, or otherwise, all as though such payment had not been made. Guarantor specifically acknowledges that, notwithstanding the application of any Performance Limitation, it guarantees hereby the full and timely payment and performance of the obligations and liabilities of the Trust arising under the ESOP Loan Documents as if no Performance Limitation were applicable thereto. SECTION 2.05. Waiver of Notice. Guarantor unconditionally waives (a) notice of any of the matters referred to in Section 2.04 hereof and (b) any demand (except as specified in Section 2.03 hereof), proof or notice of nonpayment under the ESOP Loan 22 Documents, or of default by Borrower, in performing and keeping any other covenant, condition or agreement required of it under the ESOP Loan Documents. SECTION 2.06. Postponement of Subrogation. Until (i) all of the Borrower's obligations under the ESOP Loan Documents and all of the Guarantor's obligations hereunder shall have been paid and satisfied in full and (ii) the lapse or expiration of any time period in which any payment under the ESOP Loan Documents or hereunder is subject to avoidance as a preferential or similar transfer under any applicable bankruptcy, insolvency or similar law without any such claim for avoidance having been made, the Guarantor hereby waives any and all rights of subrogation, contribution or similar claims against Borrower, whether arising by statute, at law or in equity. SECTION 2.07. Security. (a) As security for the obligations of Guarantor to the Bank hereunder the Guarantor shall execute and deposit with the Bank on the Closing Date the Security Agreement pursuant to which the Guarantor grants to the Bank, inter alia, a security interest in the Collateral therein described. Guarantor shall also cause each Person who shall be an Obligated Subsidiary or be required to become an Obligated Subsidiary pursuant to Section 4.24 hereof, to execute and deliver to the Bank (i) a Subsidiary Guaranty in the form of Exhibit C attached hereto, (ii) as security for the obligations of each such Obligated Subsidiary under its Subsidiary Guaranty, a Subsidiary Security Agreement in the form of Exhibit D attached hereto, and (iii) related Uniform Commercial Code financing statements, and stock certificates evidencing the Guarantor's equity interests in all Subsidiaries with duly executed stock powers in blank affixed thereto (the "Subsidiary Stock") and such other documents and instruments relating thereto as are described in Section 4.24 hereof. In addition, the Guarantor shall deliver or cause to be delivered to the Bank on the Closing Date certificates of the Guarantor's and Obligated Subsidiaries' insurers, or, if the Bank shall request, original insurance policies, evidencing compliance with the insurance requirements contained herein and in the Security Documents, including without limitation provisions naming the Bank as loss payee and additional insured under such policies. (b) Notwithstanding the foregoing provisions of this Section 2.07, Section 4.24 or anything to the contrary contained in the Security Agreement or the Subsidiary Guaranties, in the event that the Revolving Credit Agreement shall for any reason terminate or be of no further force or of fact prior to the full, final and irrevocable payment and satisfaction of the obligations of Guarantor and the Obligated Subsidiaries arising hereunder, under the Subsidiary Guaranties and under the other ESOP Loan Documents, upon delivery to and acceptance by the Bank of (i) an irrevocable standby letter of credit supporting payment of such obligations and issued by such bank and having such stated amount, expiry date and terms and conditions as shall be in all respects acceptable to the 23 Bank, or (ii) in the discretion of the Bank and provided no Default or Event or Default shall have occurred and be continuing, cash collateral in an amount acceptable to the Bank, the Bank shall, at the request and expense of the Guarantor, terminate the security interest and powers of attorney therein conferred and, in furtherance thereof, execute such Uniform Commercial Code termination statements and such other documents in form and substance reasonably satisfactory to the Bank to release and terminate the Liens created thereunder of record. SECTION 2.08. Purchase of ESOP Loan Documents. Upon the occurrence of any Purchase Event, the Bank may at its option require the Guarantor, and if not required by the Bank, the Guarantor shall have the option, to purchase the Purchase Interests (as herein defined) as provided in this Section 2.08. Upon the occurrence of any Purchase Event, the Bank shall, prior to exercising any other right, power or remedy available to it (other than the giving of notices, declaration of default and acceleration of indebtedness), notify the Guarantor of the occurrence of a Purchase Event and if the Bank elects, by such notice or later notice to the Guarantor, demand that the Guarantor or its designee purchase from the Bank all of the right, title and interest of the Bank in, to and under the Agreement, the Pledge Agreement, the promissory note or notes of the Borrower issued under the Agreement, and this Guaranty (collectively, the "Purchase Interests"), but not any interest of the Bank under the Security Agreements or the Subsidiary Guaranties on a date (the "Purchase Date") specified in such notice, which shall be a Business Day not less than five (5) nor more than thirty (30) days following the date of the notice. Within five (5) Business Days of the receipt of notice of the Purchase Event, if the Bank shall not have demanded that the Guarantor purchase the Purchase Interests, the Guarantor may by notice to the Bank, effective upon receipt, elect to purchase the Purchase Interests on a Purchase Date specified by the Guarantor and meeting the requirements of the next preceding sentence for a Purchase Date selected by the Bank. The Bank shall not be entitled to exercise any other right, power or remedy available to it (other than the giving of notices, declarations of default and acceleration of indebtedness) under the Security Agreements or the ESOP Loan Documents, at law or in equity, (i) for a period of five (5) Business Days after notice to the Guarantor of the occurrence a Purchase Event and (ii) if either the Bank or the Guarantor shall have by notice to the other elected to cause the purchase of the Purchase Interests under this Section 2.08, from the date of notice of such election to and including the Purchase Date. The Guarantor unconditionally, absolutely and irrevocably agrees that upon the election of the Bank or the Guarantor to cause the purchase of the Purchase Interests under this Section 2.08, it will purchase the Purchase Interests on the Purchase Date without recourse at a price equal to the then outstanding aggregate amount of all obligations and liabilities of the Borrower for principal, interest, fees, expenses and indemnification amounts under the ESOP Loan Documents, plus the reasonable out of pocket expenses 24 (including reasonable attorneys' fees and expenses) of the Bank incurred in connection with such purchase or the occurrence of any Purchase Event giving rise thereto. Upon receipt of the purchase price for the Purchase Interests in immediately available funds, the Bank shall assign the Purchase Interests to the Guarantor without representation, recourse or warranty. The costs of preparation, execution and recordation of all documents or instruments of assignment (including reasonable attorneys' fees and expenses) and all documentary stamp, excise, intangibles, registration, recording or other fees, taxes, duties or imposts (except for taxes on income) arising in connection with the purchase of Purchase Interests shall be payable by the Guarantor (i) on the Purchase Date to the extent incurred and calculated by such date and (ii) thereafter on demand. If the Guarantor fails to satisfy in full its obligations to the Bank under this Section 2.08 on the Purchase Date, the Bank may thereupon exercise any or all rights, remedies and powers available to it hereunder, under the other ESOP Loan Documents, the Security Agreements, or the Subsidiary Guaranties, at law and in equity. Notwithstanding anything to the contrary contained in this Section 2.08, in the event that there shall occur and not be waived any Default or Event of Default under the Revolving Credit Agreement, nothing herein contained shall prevent, impair or delay the right of the Agent or any Lender (each as defined in the Revolving Credit Agreement) to exercise any right, power or privilege contained in the Revolving Credit Loan Documents or otherwise available at law, in equity or by statute to enforce or obtain payment of the Obligations (as defined in the Revolving Credit Agreement). 25 ARTICLE III REPRESENTATIONS AND WARRANTIES SECTION 3.01. Representations and Warranties. The Guarantor represents and warrants to the Bank as follows (which representations and warranties shall survive the making of the Loan), after giving effect to the CHC Transaction: (a) Organization and Authority. (i) the Guarantor and each Subsidiary is a corporation duly organized and validly existing under the laws of the jurisdiction of its incorporation; (ii) the Guarantor and each Subsidiary (x) has the requisite power and authority to own its properties and assets and to carry on its business as now being conducted and as contemplated in this Guaranty, the Subsidiary Guaranties, the Security Agreements and the CHC Transaction Documents, and (y) is qualified to do business in every jurisdiction in which failure so to qualify would have a material adverse effect on the business or operations of the Guarantor or any Subsidiary; (iii) the Guarantor has the power and authority to execute, deliver and perform this Guaranty and each of the other ESOP Loan Documents and CHC Transaction Documents to which the Guarantor is a party; (iv) each Obligated Subsidiary has the power and authority to execute, deliver and perform the Subsidiary Guaranty, the Subsidiary Security Agreement, the other Loan Documents and the CHC Transaction Documents to which it is a party; and (v) when executed and delivered, this Guaranty, each of the other ESOP Loan Documents and the CHC Transaction Documents to which the Guarantor or any Obligated Subsidiary is a party will be the legal, valid and binding obligation or agreement, as the case may be, of the Guarantor or such Obligated Subsidiary, enforceable against the Guarantor or such Obligated Subsidiary in accordance with its terms, subject to the effect of any applicable bankruptcy, moratorium, insolvency, reorganization or other similar law affecting the enforceability of creditors' rights generally and to the effect of general principles of equity which may limit the availability of equitable remedies (whether in a proceeding at law or in equity); 26 (b) Loan Documents and CHC Transaction Documents. The execution, delivery and performance by the Guarantor and each Obligated Subsidiary of each of the ESOP Loan Documents and each of the CHC Transaction Documents to which the Guarantor or such Obligated Subsidiary is a party: (i) have been duly authorized by all requisite corporate action (including any required shareholder approval) of the Guarantor or Obligated Subsidiary signatory thereto required for the lawful execution, delivery and performance thereof; (ii) do not violate any provisions of (1) applicable law, rule or regulation, (2) any order of any court or other agency of government binding on the Guarantor, or any Obligated Subsidiary of Guarantor, or their respective properties, or (3) the charter documents or by-laws of Guarantor or any Obligated Subsidiary; (iii) will not be in conflict with, result in a breach of or constitute an event of default, or an event which, with notice or lapse of time, or both, would constitute an event of default, under any indenture, agreement or other instrument to which Guarantor or any Subsidiary is a party, or by which the properties or assets of Guarantor or any Subsidiary of Guarantor are bound, the effect of which would have any material adverse effect on the ability of the Guarantor or any Obligated Subsidiary to observe the covenants and agreements contained herein or in any other ESOP Loan Document or in any of the CHC Transaction Documents, or on its ability to pay its obligations hereunder or under the other ESOP Loan Documents; (iv) will not result in the creation or imposition of any Lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of Guarantor or any Subsidiary of Guarantor except any Liens in favor of the Bank created by the ESOP Loan Documents or in favor of the Agent and the Lenders (each as defined in the Revolving Credit Agreement) under the Revolving Credit Loan Documents. (c) Solvency. Guarantor and each Obligated Subsidiary is Solvent after giving effect to the transactions contemplated by this Guaranty, the other ESOP Loan Documents, assuming, with respect to each Obligated Subsidiary, that the Guarantor's past practice of making capital contributions to such Obligated Subsidiary as necessary will continue; provided that with respect to any date after the date hereof on which this representation and warranty is deemed to be made or reaffirmed hereunder, the Guarantor represents and warrants 27 that as of such later date the Guarantor and the Obligated Subsidiaries, taken as a whole, are Solvent. (d) Subsidiaries and Stockholders. Guarantor has no Subsidiaries other than those Persons listed as Subsidiaries in Schedule 3.01(d) delivered to the Bank simultaneously with the execution of this Guaranty; Schedule 3.01(d) states as of the date hereof the authorized and issued capitalization of each Subsidiary listed thereon, the number of shares or other equity interests of each class of capital stock or interest issued and outstanding of each such Subsidiary and the number and/or percentage of outstanding shares or other equity interest (including options, warrants and other rights to acquire any interest) of each such class of capital stock or equity interest owned by Guarantor or by any such Subsidiary; the outstanding shares or other equity interests of each such Subsidiary have been duly authorized and validly issued and are fully paid and nonassessable; and Guarantor and each such Subsidiary own beneficially and of record all the shares and other interests it is listed as owning in Schedule 3.01(d), free and clear of any Lien other than the Lien arising under the ESOP Loan Documents and applicable restrictions on transfer of such securities in effect on the Closing Date or otherwise imposed by applicable law. (e) Ownership Interests. Guarantor owns no interest in any Person other than the Persons listed in Schedule 3.01(d); (f) Financial Condition. (i) The Guarantor has heretofore furnished to the Bank an audited consolidated balance sheet of the Guarantor and its Subsidiaries as of September 30, 1994 and the notes thereto and the related consolidated statements of income, stockholders' equity and cash flows for the Fiscal Year then ended as audited by Ernst & Young. Except as set forth therein, such financial statements (including the notes thereto) present fairly the financial condition of the Guarantor and its Subsidiaries as of the end of such Fiscal Year and results of their operations and the changes in their stockholders' equity for the Fiscal Year then ended, all in conformity with Generally Accepted Accounting Principles applied on a Consistent Basis; (ii) since September 30, 1994, there has been no material adverse change in the financial condition of the Guarantor and its Subsidiaries or in the businesses, properties and operations of the Guarantor or any of its Subsidiaries (for purposes of this clause (ii), a change in the business, properties and operations of the Guarantor or any Subsidiary shall not be deemed to be a material adverse change unless such change reduces net income of the affected entity in an amount not less than an amount equal to two and one-half percent (2 1/2%) of Consolidated Net Income of the Guarantor and its Subsidiaries for the Four-Quarter Period immediately 28 preceding the occurrence of such change), nor have such businesses or properties, taken as a whole, been materially adversely affected as a result of any fire, explosion, earthquake, accident, strike, lockout, combination of workers, flood, embargo or act of God; nor has any event occurred the effect of which would have a material adverse effect on the ability of the Guarantor or any Obligated Subsidiary to observe the covenants and agreements contained herein or in any of the other ESOP Loan Documents or in the CHC Transaction Documents, or on its ability to pay its obligations hereunder or under the other ESOP Loan Documents; (iii) except as set forth in the financial statements referred to in Section 3.0l(f)(i) or in Schedule 3.01(f) or Schedule 3.01(j) delivered to the Bank simultaneously with the execution of this Guaranty, neither Guarantor nor any Subsidiary has incurred, other than in the ordinary course of business, any material indebtedness, obligations, commitments or other liability, contingent or otherwise, which remains outstanding or unsatisfied; (iv) the Projection of Combined Entities provided to the Bank was prepared by the Guarantor in good faith and is based upon assumptions which the Guarantor believes to have been reasonable as of the time of preparation thereof and as of the Closing Date; (g) Title to Properties. The Guarantor and its Subsidiaries have title to all their respective real and personal properties, subject to no transfer restrictions or Liens of any kind, except for (x) the transfer restrictions and Liens described in Schedule 3.01(g)-Liens delivered to the Bank simultaneously with the execution of this Guaranty, and (y) Permitted Liens; (h) Taxes. Except as set forth in Schedule 3.01(h) delivered to the Bank simultaneously with the execution of this Guaranty, the Guarantor and its Subsidiaries have filed or caused to be filed all federal, state and local tax returns which are required to be filed by them and except for taxes and assessments being contested in good faith and against which reserves satisfactory to the Guarantor's independent certified public accountants have been established, have paid or caused to be paid all taxes as shown on said returns or on any assessment received by them, to the extent that such taxes have become due; (i) Other Agreements. Neither the Guarantor nor any Subsidiary is (i) a party to any judgment, order, decree or any agreement or instrument or subject to restrictions materially adversely affecting the ability of the 29 Guarantor or any Obligated Subsidiary to observe the covenants and agreements contained herein or in the other ESOP Loan Documents or in the CHC Transaction Documents, or to pay the obligations hereunder or under the other ESOP Loan Documents; or (ii) in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which the Guarantor or any Subsidiary is a party, which default has, or if not remedied within any applicable grace period would reasonably be likely to have, a material adverse effect on the ability of the Guarantor or any Obligated Subsidiary to observe the covenants and agreements contained herein or in the other ESOP Loan Documents or the CHC Transaction Documents, or to pay the obligations hereunder or under the other ESOP Loan Documents; (j) Litigation. Except as set forth in Schedule 3.0l(j) or Schedule 3.0l(t) delivered to the Bank simultaneously with the execution of this Guaranty, other than proposed legislation or regulation or other governmental proceedings affecting the healthcare or hospice industries generally, there is no action, suit or proceeding at law or in equity or by or before any governmental instrumentality or agency or arbitral body pending against the Guarantor or affecting any Subsidiary or any properties or rights of the Guarantor or any Subsidiary, or to the knowledge of the Guarantor, pending against any of the Sellers or affecting any properties or rights of any of the Sellers, which would reasonably be expected to (i) materially adversely affect the financial condition, business or operations of the Guarantor or any of its Subsidiaries, or (ii) restrain, enjoin, impose burdensome conditions upon or otherwise materially and adversely affect the consummation of the CHC Transaction in accordance with the CHC Transaction Documents or the exercise of rights and powers by the Bank under the ESOP Loan Documents or, to the knowledge of the Guarantor, threatened in writing against the Guarantor or any Subsidiary affecting the Guarantor or any Subsidiary or any properties or rights of the Guarantor or any Subsidiary, or, to the knowledge of the Guarantor, threatened in writing against any Seller affecting any Seller or any properties or rights of any Seller, which reasonably is expected to (i) materially adversely affect the financial condition, business or operations of the Guarantor or any of its Subsidiaries, or (ii) restrain, enjoin, impose burdensome conditions upon or otherwise materially and adversely affect the consummation of the CHC Transaction in accordance with the CHC Transaction Documents or the exercise of rights and powers by the Bank under the ESOP Loan Documents; 30 (k) Margin Stock. Neither the Guarantor nor any Subsidiary owns any "margin stock" as such term is defined in Regulation U, as amended (12 C.F.R. Part 221), of the Board. The proceeds of the Loan will be used by the Borrower only for the purposes set forth in the Preliminary Statements of this Guaranty. None of such proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin stock or for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry margin stock or for any other purpose which might constitute any the Loan a "purpose credit" within the meaning of said Regulation U or Regulation X (12 C.F.R. Part 224) of the Board. Neither the Guarantor nor any agent acting in its behalf has taken or will take any action which might cause this Guaranty or any of the ESOP Loan Documents or instruments delivered pursuant hereto or thereto to violate any regulation of the Board or to violate the Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as amended, or any state securities laws, in each case as in effect on the date hereof; (l) Investment Company. Neither the Guarantor nor any Subsidiary is an "investment company," or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company," as such terms are defined in the Investment Company Act of 1940, as amended (15 U.S.C. (S) 80a-l, et seq.). The application of the proceeds of the Loan and repayment thereof by the Borrower and the performance by the Guarantor of the transactions contemplated by this Guaranty will not violate any provision of said Act, or any rule, regulation or order issued by the Securities and Exchange Commission thereunder, in each case as in effect on the date hereof; (m) Patents, Etc. Except as set forth in Schedule 3.01(m) delivered to the Bank simultaneously with the execution of this Guaranty, the Guarantor and its Subsidiaries own or have the right to use, under valid license agreements or otherwise, all material patents, licenses, franchises, trademarks, trademark rights, trade names, trade name rights, trade secrets and copyrights necessary to the conduct of their businesses as now conducted, without known conflict with any patent, license, franchise, trademark, trade secrets and confidential commercial or proprietary information, trade name, copyright, rights to trade secrets or other proprietary rights of any other Person; (n) No Untrue Statement. Neither this Guaranty nor any other ESOP Loan Document or certificate or document executed and delivered by or on behalf of the Borrower or the Guarantor in accordance with or pursuant to any ESOP Loan Document contains any misrepresentation or untrue statement of material fact or omits to state a material fact necessary, in light of 31 the circumstance under which it was made, in order to make any such representation or statement contained therein not misleading in any material respect; (o) No Consents. Etc. Except as set forth in Schedule 3.01(o) or Schedule 3.01(g) delivered to the Bank simultaneously with the execution of this Guaranty, neither the respective businesses or properties of the Guarantor or any Subsidiary, nor any relationship between the Guarantor or any Subsidiary and any other Person, nor any circumstance in connection with the execution, delivery and performance (i) by the Guarantor or the Borrower of the ESOP Loan Documents or (ii) by Vitas California or the Guarantor of the CHC Transaction Documents and the transactions contemplated hereby and thereby is such as to require a consent, approval or authorization of, or filing, registration or qualification with, any governmental or other authority or any other Person on the part of the Borrower, the Guarantor or any Subsidiary as a condition to the execution, delivery and performance of, or consummation of the transactions contemplated by this Guaranty or the other ESOP Loan Documents or the CHC Transaction Documents by the Guarantor or the Obligated Subsidiaries or if so, such consent, approval, authorization, filing, registration or qualification has been obtained or effected, as the case may be; (p) ERISA. (i) None of the employee benefit plans maintained at any time by the Guarantor or any Subsidiary or the trusts created thereunder has engaged in a prohibited transaction which could subject any such employee benefit plan or trust to a material tax or penalty on prohibited transactions imposed under Internal Revenue Code Section 4975 or ERISA; (ii) None of the employee benefit plans maintained at any time by the Guarantor or any Subsidiary which are employee pension benefit plans and which are subject to Title IV of ERISA or the trusts created thereunder has been terminated so as to result in a material liability of the Guarantor under ERISA nor has any such employee benefit plan of the Guarantor or any Subsidiary incurred any material liability to the Pension Benefit Guaranty Corporation established pursuant to ERISA, other than for required insurance premiums which have been paid or are not yet due and payable; neither the Guarantor nor any Subsidiary has withdrawn from or caused a partial withdrawal to occur with respect to any Multi-employer Plan resulting in any assessed and unpaid withdrawal liability; the Guarantor and the Subsidiaries have made or provided for all contributions to all such employee pension benefit plans which they maintain and which are required as of the end of the most recent fiscal year under each such plan; neither the Guarantor nor any 32 Subsidiary has incurred any accumulated funding deficiency with respect to any such plan, whether or not waived; nor has there been any reportable event, or other event or condition, which presents a material risk of termination of any such employee benefit plan by such Pension Benefit Guaranty Corporation; (iii) The present value of all vested accrued benefits under the employee pension benefit plans which are subject to Title IV of ERISA, maintained by the Guarantor or any Subsidiary, did not, as of the most recent valuation date for each such plan, exceed the then current value of the assets of such employee benefit plans allocable to such benefits; (iv) The consummation of the Loan pursuant to the ESOP Loan Documents will not involve any prohibited transaction under ERISA which is not subject to a statutory or administrative exemption; (v) To the best of the Guarantor's knowledge, each employee pension benefit plan subject to Title IV of ERISA, maintained by the Guarantor or any Subsidiary, has been administered in accordance with its terms in all material respects and is in compliance in all material respects with all applicable requirements of ERISA and other applicable laws, regulations and rules; (vi) There has been no withdrawal liability incurred and unpaid with respect to any Multi-employer Plan to which the Guarantor or any Subsidiary is or was a contributor; (vii) As used in this Agreement, the terms "employee benefit plan," "employee pension benefit plan," "accumulated funding deficiency," "reportable event," and "accrued benefits" shall have the respective meanings assigned to them in ERISA, and the term "prohibited transaction" shall have the meaning assigned to it in Code Section 4975 and ERISA; (viii) Neither the Guarantor nor any Subsidiary has any liability not disclosed on any of the financial statements furnished to the Lenders pursuant to Section 3.01(f) hereof, contingent or otherwise, under any plan or program or the equivalent for unfunded post-retirement benefits, including pension, medical and death benefits, which liability would have a material adverse effect on the financial condition of the Guarantor or any Subsidiary; (q) No Default. As of the date hereof, and after giving effect to the CHC Transaction, there does not exist any Default or Event of Default hereunder; 33 (r) Hazardous Materials. Except as set forth on Schedule 3.01(r), the Guarantor and each Subsidiary is in compliance with all applicable Environmental Laws in all material respects and neither the Guarantor nor any Subsidiary has been notified of any action, suit, proceeding or investigation which calls into question compliance by the Guarantor or any Subsidiary with any Environmental Laws or which seeks to suspend, revoke or terminate any license, permit or approval necessary for the generation, handling, storage, treatment or disposal of any Hazardous Material; (s) RICO. Neither the Guarantor nor any Subsidiary is engaged in or has engaged in any course of conduct that could subject any of their respective properties to any Lien, seizure or other forfeiture under any criminal law, racketeer influenced and corrupt organizations law, civil or criminal, or other similar laws; (t) Employment Matters. Except as disclosed on Schedule 3.01(t) delivered to the Bank simultaneously with the execution of this Guaranty, the Guarantor and all Subsidiaries are in compliance in all material respects with all applicable laws, rules and regulations pertaining to labor or employment matters, including without limitation those pertaining to wages, hours, occupational safety and taxation and there is neither pending or to the knowledge of the Guarantor threatened any material litigation, administrative proceeding nor, to the knowledge of the Guarantor, any investigation, in respect of such matters. 34 ARTICLE IV AFFIRMATIVE COVENANTS Until the obligations of the Borrower under the ESOP Loan Documents have been paid and satisfied in full and until the Agreement has been terminated in accordance with the terms thereof following such payment and satisfaction, unless the Bank shall otherwise consent in writing, the Guarantor will and will, where applicable, cause each Subsidiary to: SECTION 4.01. Financial Reports, Etc. (a) as soon as practicable and in any event within one hundred and five (105) days (or, at all times after the Guarantor shall become subject to the financial reporting requirements of the Securities Exchange Act of 1934, as amended, ninety (90) days) after the end of each Fiscal Year of the Guarantor, deliver or cause to be delivered to the Bank (i) a consolidated balance sheet of the Guarantor and its Subsidiaries, and the notes thereto, and the related consolidated statements of income, stockholders' equity and cash flows and the respective notes thereto, for such Fiscal Year, setting forth comparative financial statements for the preceding Fiscal Year, all prepared in accordance with Generally Accepted Accounting Principles applied on a Consistent Basis and containing, with respect to the consolidated financial reports, opinions of Ernst & Young, or other such independent certified public accountants of nationally recognized standing selected by the Guarantor, which are unqualified as to the scope of the audit performed and as to the "going concern" status of the Guarantor; and (ii) a certificate of an Authorized Representative demonstrating compliance with Sections 5.01, 5.02, 5.03, 5.04, 5.05, and 5.09(v) of this Guaranty, which certificate shall be in the form attached hereto as Exhibit B (provided, however, that so long as the Revolving Credit Agreement remains in effect, timely delivery of the certificate for the corresponding period described in Section 8.01(a)(ii) of the Revolving Credit Agreement shall satisfy the requirement of this clause (ii)); (b) as soon as practicable and in any event within thirty (30) days after the end of each calendar month, other than the last month of each Fiscal Year (except the last month of each fiscal quarter as to which forty-five (45) days shall apply), deliver to the Bank (i) a consolidated balance sheet of the Guarantor and its Subsidiaries as of the end of such reporting period, the related consolidated statement of income and in the case of quarterly statements a statement of cash flows for such reporting period and for the period from the beginning of the Fiscal Year through the end of such reporting period, accompanied by a certificate of an Authorized Representative to the effect that such financial statements present fairly the financial position of the Guarantor and its Subsidiaries as of the end of such reporting period and the results of their operations and the changes in their financial position for such reporting period, in conformity with the 35 standards set forth in Section 3.01(f)(i) with respect to interim financials, and (ii) a certificate of an Authorized Representative (which shall be required to be delivered only in connection with the interim financial statements delivered as at the end of each three, six and nine month period in each Fiscal Year) containing computations for such quarter comparable to that required pursuant to Section 4.01(a)(ii) (provided, however, that so long as the Revolving Credit Agreement remains in effect, timely delivery of the certificate for the corresponding period described in Section 8.01(b)(iii) of the Revolving Credit Agreement shall satisfy the requirement of this clause (ii)); (c) together with each delivery of the financial statements required by Section 4.01(a)(i) hereof, deliver to the Bank a letter from the Guarantor's accountants specified in Section 4.01(a)(i) hereof stating that in performing the audit necessary to render an opinion on the financial statements delivered under Section 4.O1(a)(i), nothing has come to their attention that has caused them to believe that there exists any Default or Event of Default by the Guarantor in the fulfillment of the terms and provisions of this Guaranty insofar as they relate to financial matters (which at the date of such statement remains uncured); and if the accountants have obtained knowledge of such Default or Event of Default, a statement specifying the nature and period of existence thereof; (d) promptly upon their becoming available to the Guarantor, the Guarantor shall deliver to the Bank a copy of (i) all regular or special reports or effective registration statements which Guarantor or any Subsidiary shall file with the Securities and Exchange Commission (or any successor thereto) (including without limitation filings on Forms 10-K, l0-Q and 8-K) or any securities exchange, (ii) at any time after becoming subject to the Securities Exchange Act of 1934, as amended, any proxy statement distributed by the Guarantor to its shareholders, bondholders or the financial community in general, and (iii) any management letter or other similar report submitted to the Guarantor or any of its Subsidiaries by independent accountants presenting in final form any results of, deficiencies discovered during or recommendations arising from any annual, interim or special audit of the Guarantor or any of its Subsidiaries; and (e) promptly, from time to time, deliver or cause to be delivered to the Bank such other information regarding Guarantor's and each Subsidiary's operations, business affairs and financial condition as the Bank may reasonably request. The Bank is hereby authorized to deliver a copy of any such financial information delivered hereunder to the Bank (or any affiliate of the Bank) to any regulatory authority having jurisdiction over the Bank pursuant to any written request therefor, or to any other Person who shall acquire or consider the acquisition of a participation interest in or assignment of all or any portion of the Loan. 36 SECTION 4.02. Maintain Properties. Maintain all properties necessary to its operations in good working order and condition (ordinary wear and tear excepted) and make all needed repairs, replacements and renewals as are necessary to conduct its business in accordance with customary business practices. SECTION 4.03. Existence, Qualification, Etc. Do or cause to be done all things necessary to preserve and keep in full force and effect its existence and all material rights and material franchises, trade names, trademarks and permits, and, except as otherwise expressly provided by this Agreement, maintain its license or qualification to do business as a foreign corporation and good standing in each jurisdiction in which its ownership or lease of property or the nature of its business makes such license or qualification necessary and failure to maintain qualification or good standing would reasonably be likely to have a material adverse effect on the Guarantor or any of its Subsidiaries; except that the Guarantor may effect the dissolution of Vitas Healthcare Corporation of Texas so long as it remains an inactive Subsidiary of the Borrower prior to such dissolution. SECTION 4.04. Regulations and Taxes. Comply with, in all material respects, or contest in good faith, all statutes and governmental regulations applicable to the Guarantor or its Subsidiaries and pay all taxes, assessments, governmental charges, claims for labor, supplies, rent and any other obligation which, if unpaid, might become a Lien against any of its properties, except liabilities being contested in good faith and against which adequate reserves have been established. SECTION 4.05. Insurance. (i) Keep all of its insurable properties adequately insured in all material respects at all times with responsible insurance carriers against loss or damage by fire and other hazards to the extent and in the manner required by the Security Agreement and otherwise as are customarily insured against by similar businesses owning such properties similarly situated, (ii) maintain general public liability insurance and medical malpractice insurance at all times with responsible insurance carriers against liability on account of damage to persons and property having such limits, deductibles, exclusions and co-insurance and other provisions providing no less coverage than that specified in Schedule 4.05 delivered to the Bank simultaneously with the execution of this Guaranty, such insurance policies to be in form reasonably satisfactory to the Bank, and (iii) maintain insurance under all applicable workers' compensation laws (or in the alternative, maintain required reserves if self-insured for workers' compensation purposes). Without limiting any additional requirement contained in the Security Agreement, each of the policies of insurance described in this Section 4.05 shall provide that the insurer shall give the Bank not less than thirty (30) days' prior written notice before any such policy shall be terminated, lapse or be altered in any manner. 37 SECTION 4.06. True Books. Keep true books of record and account in accordance with commercially reasonable business practices in which full, true and correct entries will be made of all of its dealings and transactions in all material respects, and set up on its books such reserves as may be required by Generally Accepted Accounting Principles with respect to doubtful accounts and all taxes, assessments, charges, levies and claims and with respect to its business in general, and include such reserves in quarterly as well as year-end financial statements. SECTION 4.07. Perform Covenants. Duly comply with all the terms and covenants contained in all ESOP Loan Documents and other instruments and documents given to the Bank pursuant hereto or thereto. SECTION 4.08. Right of Inspection. Permit any Person designated by the Bank at the Bank's expense, as the case may be, to visit and inspect any of the properties, corporate books and financial reports of the Guarantor and its Subsidiaries, and to discuss their respective affairs, finances and accounts with their principal officers and independent auditors, all at reasonable times, at reasonable intervals and with reasonable prior notice. SECTION 4.09. Observe all Laws. Conform to and duly observe in all material respects all laws, rules and regulations of any applicable regulatory authority with respect to the conduct of its business. SECTION 4.10. Governmental Licenses. To the extent the Guarantor or any Subsidiaries provides goods or services giving rise to Accounts constituting Government Receivables, maintain all licenses, permits, certifications and approvals and take such other necessary action as shall entitle such Person to obtain payment or reimbursement of such Account. SECTION 4.11. Covenants Extending to Subsidiaries. Cause each of its Subsidiaries to do with respect to itself, its business and its assets, each of the things required of the Guarantor in Sections 4.02 through 4.10, inclusive. SECTION 4.12. Officer's Knowledge of Default. Upon the President, the chief executive officer, the chief financial officer, the Treasurer or the Vice President for Legal and Regulatory Affairs of the Guarantor obtaining knowledge of any Default or Event of Default hereunder or any default under any other obligation of the Guarantor or any Subsidiary where the amount of such other obligation or obligations aggregates $250,000 or more, cause such officer or an Authorized Representative to promptly notify the Bank of the nature thereof, the period of existence thereof, and what action the Guarantor proposes to take with respect thereto. 38 SECTION 4.13. Suits or Other Proceedings. Upon the President, the chief executive officer, the chief financial officer, the Treasurer or the Vice President for Legal and Regulatory Affairs of the Guarantor obtaining knowledge of any litigation or other proceedings being instituted against the Guarantor or any Subsidiary, or any attachment, levy, execution or other process being instituted against any assets of the Guarantor or any Subsidiary, in an aggregate amount greater than $500,000 and not otherwise covered by insurance (or, in the alternative, not otherwise reserved against if self-insured), promptly deliver to the Bank written notice thereof stating the nature and status of such litigation, dispute, proceeding, levy, execution or other process. SECTION 4.14. Notice of Discharge of Hazardous Material or Environmental Complaint. Promptly provide to the Bank true, accurate and complete copies of any and all notices, complaints, orders, directives, claims, or citations received by the Guarantor or any Subsidiary relating to any material (a) violation or alleged violation by the Guarantor or any Subsidiary of any applicable Environmental Laws or OSHA; (b) release or threatened release by the Guarantor or any Subsidiary of any Hazardous Material, except where occurring legally; or (c) liability or alleged liability of the Guarantor or any Subsidiary for the costs of cleaning up, removing, remediating or responding to a release of Hazardous Materials. SECTION 4.15. Environmental Compliance. If the Guarantor or any Subsidiary shall receive written notice from any governmental authority that the Guarantor or any Subsidiary has violated any applicable Environmental Laws, the Guarantor shall promptly (and in any event within the time period permitted by the applicable governmental authority) remove or remedy, or cause the applicable subsidiary to remove or remedy, such violation, unless the Guarantor in good faith is disputing such claim of violation by appropriate proceedings promptly commenced and diligently pursued and such claim does not give rise to or result in the imposition of any Lien against property of the Guarantor or any Subsidiary. SECTION 4.16. Indemnification. The Guarantor hereby agrees to defend, indemnify and hold the Bank harmless from and against any and all claims, losses, liabilities, damages and expenses (including, without limitation, cleanup costs and reasonable attorneys' fees) arising directly or indirectly from, out of or by reason of the handling, storage, treatment, emission or disposal of any Hazardous Material by or in respect of the Guarantor or any Subsidiary or property owned or leased or operated by the Guarantor or any Subsidiary. The provisions of this Section 4.16 shall survive repayment of the Loan and termination of this Guaranty. SECTION 4.17. Further Assurances. At its cost and expense, upon request of the Bank, duly execute and deliver or cause to be duly executed and delivered, to the Bank such further instruments, 39 documents, certificates, financing and continuation statements, and do and cause to be done such further acts that may be reasonably necessary or advisable in the reasonable opinion of the Bank to carry out more effectively the provisions and purposes of this Guaranty and the other ESOP Loan Documents. SECTION 4.18. ERISA Requirement. Comply in all material respects with all requirements of ERISA applicable to it and furnish to the Bank as soon as possible and in any event (i) within thirty (30) days after the President or chief executive officer of the Guarantor or, with respect to financial matters, the Treasurer, any Assistant Treasurer or the chief financial officer of the Guarantor, knows or has reason to know that any reportable event with respect to any employee benefit plan maintained by the Guarantor or any Subsidiary which could give rise to termination or the imposition of any material tax or penalty has occurred, written statement of an Authorized Representative describing in reasonable detail such reportable event and any action which the Guarantor or applicable Subsidiary proposes to take with respect thereto, together with a copy of the notice of such reportable event given to the PBGC or a statement that said notice will be filed with the annual report of the United States Department of Labor with respect to such plan if such filing has been authorized, (ii) promptly after receipt thereof, a copy of any notice that the Guarantor or any Subsidiary may receive from the PBGC relating to the intention of the PBGC to terminate any employee benefit plan or plans of the Guarantor or any Subsidiary or to appoint a trustee to administer any such plan, and (iii) within 10 days after a filing with the PBGC pursuant to Section 412(n) of the Code of a notice of failure to make a required installment or other payment with respect to a plan, a certificate of an Authorized Representative setting forth details as to such failure and the action that the Guarantor or its affected Subsidiary, as applicable, proposes to take with respect thereto, together with a copy of such notice given to the PBGC. SECTION 4.19. Continued Operations. Continue at all times (i) to conduct its business and engage principally in the same or similar line or lines of business substantially as heretofore conducted, and (ii) preserve, protect and maintain free from Liens its material patents, copyrights, licenses, trademarks, trademark rights, trade names, trade name rights, trade secrets and know-how necessary or useful in the conduct of its operations. SECTION 4.20. Use of Proceeds. Cause the proceeds of the Loan to be used solely for the purposes specified in the Preliminary Statements of this Guaranty. SECTION 4.21. Trade Names. (a) Conduct, and cause each Obligated Subsidiary to conduct, its business in all respects and obtain and maintain title to all Collateral solely in the names set forth in Schedule 4.21 delivered to the Bank simultaneously with the 40 execution of this Guaranty unless the Guarantor shall have (i) given (or caused the appropriate Obligated Subsidiary to give) the Bank ten (10) days prior written notice of its intention to operate under another name, and (ii) caused to be delivered to the Bank any additional financing statements necessary to perfect a security interest in the Collateral (to the extent contemplated hereunder); (b) Cause at its expense all filings to be made and other action to be taken as the Bank may reasonably request to continue the perfection of the Bank's first priority security interest in the Collateral (to the extent contemplated hereunder); and (c) Except as may be set forth in Schedule 3.01(m), at all times have the lawful right, power and authority, and cause each Obligated Subsidiary to have the lawful right, power and authority, to utilize all trade names or trade styles employed by Guarantor or such Obligated Subsidiary to provide services giving rise to Accounts or to bill such Accounts. SECTION 4.22. Property Location. Maintain (and cause all Subsidiaries to maintain) all Collateral which constitutes inventory or equipment at the locations listed on Schedule 4.22 delivered to the Bank simultaneously with the execution of this Guaranty, and advise the Bank at the time of delivery of each certificate described in Section 4.01(a)(ii) and Section 4.01(b)(ii) of any change in or addition to the location or locations of such property. The information provided to the Bank shall include the address of each such location, the identity (including legal name and any trade name, if different) of the Person in whose facilities or custody such property is located, and such additional information as the Bank shall reasonably deem necessary or advisable in connection with perfecting or maintaining the perfection of a Lien on such property pursuant to the ESOP Loan Documents. SECTION 4.23. Chief Executive Offices. Not change (or permit any Obligated Subsidiary to change) the location of its chief executive office from the respective addresses set forth in the Revolving Credit Agreement as of the date hereof except upon giving not less than thirty (30) days prior written notice to the Bank and taking or causing to be taken all such action at Guarantor's expense as may be reasonably requested by the Bank to perfect or maintain the perfection of the security interest of the Bank in Accounts (to the extent contemplated hereunder), general intangibles and related Collateral. SECTION 4.24. New Obligated Subsidiaries. Upon the occurrence of a New Guaranty Event, the Guarantor shall, as soon as practicable but in any event within fifteen (15) Business Days of 41 such event cause to be delivered to the Bank by each Required New Obligated Subsidiary each of the following: (i) a Subsidiary Guaranty substantially in the form attached hereto as Exhibit C duly executed by such Required New Obligated Subsidiary; (ii) a Subsidiary Security Agreement in the form attached hereto as Exhibit D duly executed by such Required New Obligated Subsidiary; (iii) an opinion of counsel to such Required New Obligated Subsidiary dated as of the date of delivery of the Subsidiary Guaranty provided in the foregoing clause (i) and addressed to the Bank, substantially in the form of the opinion of special counsel for the Guarantor and the Obligated Subsidiaries delivered on the Closing Date (the "Initial Opinion") with respect to paragraphs (b), (g), (k) and (n) thereof regarding the organization, good standing and foreign qualification of such Required New Obligated Subsidiary, the authorization of such Required New Obligated Subsidiary to execute, deliver and perform its obligations under the Guaranty and the Subsidiary Security Agreement, the due execution and delivery of the Guaranty and the Subsidiary Security Agreement on behalf of such Required New Obligated Subsidiary as valid and binding obligations of such Required New Obligated Subsidiary, enforceable against such Required New Obligated Subsidiary in accordance with their respective terms (subject to the exceptions set forth in paragraph (k) of the Initial Opinion), and the creation and perfection of a security interest in the collateral described in the Subsidiary Security Agreement (subject to the exceptions set forth in paragraph (n) of the Initial Opinion); (iv) current copies of the charter documents, including partnership agreements and certificate of limited partnership, if applicable, and bylaws of such Required New Obligated Subsidiary, minutes of duly called and conducted meetings (or duly effected consent actions) of the Board of Directors, partners, or appropriate committees thereof (and, if required by such charter documents, by-laws or by applicable laws, of the shareholders or partners) of such Required New Obligated Subsidiary authorizing the actions and the execution and delivery of documents described in clauses (i) and (ii) of this Section 4.24 and evidence satisfactory to the Bank that such Required New Obligated Subsidiary is Solvent as of such date and after giving effect to the Subsidiary Guaranty and the Subsidiary Security Agreement; (v) such duly executed Uniform Commercial Code financing statements and other documents and instruments, each in form and content acceptable to the Bank, as shall be necessary to 42 perfect the Liens created under the applicable Subsidiary Security Agreement to the extent contemplated hereunder; and (vi) the Subsidiary Stock (as defined in Section 2.07 hereof) evidencing ownership of such Required New Obligated Subsidiary, together with duly executed stock powers in blank affixed thereto. For purposes of this Section 4.24, (i) "New Guaranty Event" means each occurrence of any of the following: (A) the acquisition or creation after the Closing Date of any Subsidiary (other than Strategic Investment Subsidiaries), or (B) any Subsidiary in existence (but not an Obligated Subsidiary) as of the Closing Date or any Strategic Investment Subsidiary (whenever created or acquired) satisfying the criteria in clause (ii)(x) of the definition of "Obligated Subsidiary" in Article I hereof, or (C) the aggregate operating revenues of all Subsidiaries who are not Obligated Subsidiaries exceeding in any calendar month ten percent (10%) of the consolidated operating revenues of the Guarantor and its Subsidiaries, and (ii) "Required New Obligated Subsidiary" means (A) in the case of a New Guaranty Event described in clauses (i)(A) or (i)(B) immediately above, the Subsidiary giving rise to such New Guaranty Event, and (B) in the case of a New Guaranty Event described in clause (i)(C) immediately above, the Subsidiary (or Subsidiaries, to the extent necessary to eliminate the occurrence of the New Guaranty Event) not then Obligated Subsidiaries having the largest operating revenues in the relevant calendar month. SECTION 4.25. Sufficient Contributions. Make sufficient and timely contributions to the Borrower pursuant to the Plan in order to enable the Borrower to make in full timely payments of principal of and interest on the Loan and all other amounts payable by the Borrower under the ESOP Loan Documents. SECTION 4.26. Modification of Covenants. In the event that, in connection with the initial public offering of the Guarantor's common stock, covenants in the Revolving Credit Agreement shall be amended by the Guarantor and the Lenders (as defined in the Revolving Credit Agreement) to reflect the Guarantor's resulting financial condition, then the parties hereto agree that they shall enter into an amendment to this Guaranty effecting corresponding amendments to the covenants contained herein. 43 ARTICLE V NEGATIVE COVENANTS Until all of the obligations of the Borrower under the ESOP Loan Documents to be performed and paid shall have been performed and paid in full, and until the Agreement is terminated following such payment and performance, unless the Bank shall otherwise consent in writing, the Guarantor will not, nor will it permit any Subsidiary to, either directly or indirectly: SECTION 5.01. Consolidated Shareholders' Equity. Permit Consolidated Shareholders' Equity to be less than (i) $22,000,000 at the Closing Date, and (ii) as at the last day of each fiscal quarter of the Guarantor and until (but excluding) the last day of the next following fiscal quarter of the Guarantor, the sum of (A) the amount of Consolidated Shareholders' Equity required to be maintained pursuant to this Section 5.01 as at the end of the immediately preceding fiscal quarter, plus (B) 50% of positive Consolidated Net Income during the immediately preceding fiscal quarter of the Guarantor ending on such day (including in Consolidated Net Income for purposes of this Section 5.01 only any net gain or credit of an extraordinary nature) plus (C) 80% of the net proceeds (less (only in connection with the consummation of the Guarantor's offering of Qualified Equity Securities) an amount equal to the lesser of (i) the amount required to redeem the 9% Preferred Stock, reduced by the net proceeds to the Guarantor from the exercise of Warrant A dated December 17, 1991 or Warrant B dated December 17, 1991, as applicable, and (ii) $17,000,000) of each sale of equity interest (or securities other than those constituting Indebtedness exchangeable, convertible or exercisable into equity interests) in the Guarantor or any Subsidiary. SECTION 5.02. Current Ratio. Permit at any time the ratio of Consolidated Current Assets to Consolidated Current Liabilities (before giving effect to any prepayment obligation arising under Section 2.05(c)(iv) of the Revolving Credit Agreement) to be less than 1.00 to 1.00. SECTION 5.03. Consolidated Interest Coverage Ratio. Permit at any time during the periods set forth below the Consolidated Interest Coverage Ratio to be less than the respective amount set forth opposite each such period: Period Ratio ------ ----- From the Closing Date through December 31, 1996 1.75 to 1.00 From January 1, 1997 and thereafter 2.25 to 1.00 SECTION 5.04. Consolidated Leverage Ratio. Permit at any time during the periods set forth below the Consolidated Leverage 44 Ratio to be more than the respective amount set forth opposite each such period: Period Ratio ------ ----- From the Closing Date through December 31, 1995 .75 to 1.00 From and including January 1, 1996 through December 31, 1996 .70 to 1.00 From and including January 1, 1997 through December 31, 1997 .55 to 1.00 From and including January 1, 1998 and thereafter .50 to 1.00 SECTION 5.05. Consolidated Fixed Charge Ratio. Permit at any time during the respective periods set forth below the Consolidated Fixed Charge Ratio to be less than the respective amount set forth opposite such period: Period Ratio ------ ----- From the Closing Date through December 31, 1995 1.00 to 1.00 From and including January 1, 1996 through December 31, 1996 1.10 to 1.00 From and including January 1, 1997 through December 31, 1997 1.25 to 1.00 From and including January 1, 1998 and thereafter 1.40 to 1.00 SECTION 5.06. Indebtedness. Incur, create, assume or permit to exist any Indebtedness, howsoever evidenced, except (i) Indebtedness existing as of the date hereof and as set forth in Schedule 5.06 delivered to the Bank simultaneously with the execution of this Guaranty and incorporated herein by reference; (ii) Indebtedness owed under the Revolving Credit Loan Documents; (iii) the endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; 45 (iv) additional Indebtedness not to exceed in the aggregate $3,000,000 during each of the Fiscal Years ending September 30, 1995 and 1996 (on a non-cumulative basis, so that amounts not incurred in one Fiscal Year may not be carried over to a subsequent Fiscal Year) incurred to acquire computer hardware and software and related components or telecommunications equipment, systems and services and other equipment; (v) Indebtedness of the Guarantor or Vitas California evidenced by the Seller Notes and the Guarantor's guaranty thereof or otherwise arising under the CHC Transaction Documents; and (vi) the guaranty by the Guarantor of lease obligations of Vitas California. SECTION 5.07. Liens. Incur, create or permit to exist any pledge, Lien, charge or other encumbrance of any nature whatsoever with respect to any property or assets now owned or hereafter acquired by the Guarantor or any of its Subsidiaries, other than (i) Liens existing as of the date hereof and as set forth in Schedule 3.01(g) delivered to the Bank simultaneously with the execution of this Guaranty; (ii) Liens imposed by law for taxes, assessments or charges of any Governmental Authority for claims not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with Generally Accepted Accounting Principles; (iii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other Liens imposed by law or created in the ordinary course of business and in existence less than 120 days from the date of creation thereof for amounts not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with Generally Accepted Accounting Principles; (iv) Liens incurred or deposits made in the ordinary course of business (including, without limitation, surety bonds and appeal bonds) in connection with workers' compensation, unemployment insurance and other types of social security benefits or to secure the performance of tenders, bids, leases, contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations or arising as a result of progress payments under government contracts; 46 (v) easements (including, without limitation, reciprocal easement agreements and utility agreements), rights-of-way, covenants, consents, reservations, encroachments, variations and zoning and other restrictions, charges or encumbrances (whether or not recorded), which do not interfere materially with the ordinary conduct of the business of the Guarantor or any Subsidiary and which do not materially detract from the value of the property to which they attach or materially impair the use thereof to the Guarantor or any Subsidiary; (vi) Liens arising under the Revolving Credit Loan Documents and the ESOP Loan Documents; (vii) purchase money Liens to secure Indebtedness permitted under Section 5.06(iv) hereof so long as such Indebtedness is incurred to purchase computer hardware and software, the Indebtedness represents not less than 75% of the purchase price of such assets, no other property other than the property acquired with the proceeds of such Indebtedness secures such Indebtedness; and (viii) the right of the Sellers to payments from certain accounts and funds pursuant to Sections 2.6 and 2.7 of the Asset Purchase Agreement and the Joint Account Agreement (as such term is defined in the Asset Purchase Agreement). SECTION 5.08. Transfer of Assets. Sell, lease, transfer or otherwise dispose of (i) any interest in any Subsidiary, or (ii) any other asset of Guarantor or any Subsidiary except, in each case, (a) assets sold in the ordinary course of business, (b) assets which are worn out, obsolete or no longer necessary, or (c) assets transferred by Guarantor to any Obligated Subsidiary, by one Obligated Subsidiary to another Obligated Subsidiary, or by any Obligated Subsidiary to the Guarantor. SECTION 5.09. Investments; Acquisitions. Purchase, own, invest in or otherwise acquire, directly or indirectly, any stock or other securities or all or substantially all of the assets, or make or permit to exist any interest whatsoever in any other Person other than an Obligated Subsidiary or permit to exist any loans or advances to any Person; provided, Guarantor and its Subsidiaries may consummate the CHC Transaction in accordance with the CHC Transaction Documents and otherwise may maintain investments or invest in, own, make loans or advances to, or acquire (i) Eligible Securities; (ii) loans, advances and investments existing as of the date hereof and as set forth in Schedule 3.01(d) delivered to the Bank simultaneously with the execution of this Guaranty; (iii) accounts receivable arising and trade credit granted in the ordinary course of business and any securities received 47 in satisfaction or partial satisfaction thereof in connection with accounts of financially troubled Persons to the extent reasonably necessary in order to prevent or limit loss; (iv) loans and advances to other Persons in an aggregate outstanding amount not exceeding at any time $750,000 except the dollar limit restriction contained in this clause (iv) shall not apply to non-cash loans and advances made to Persons in connection with the exercise of stock options or other equity interests in the Guarantor so long as such loan or advance is repaid within five (5) Business Days; (v) Strategic Investments (including Strategic Investment Subsidiaries not constituting Obligated Subsidiaries), provided that no such Strategic Investment shall be made if after giving effect thereto (W) the aggregate investment in any one Person shall exceed $1,000,000 (valued at cost), (X) the aggregate amount of Strategic Investments made in any Fiscal Year (on a noncumulative basis, with the effect that amounts not expended in any Fiscal Year may not be expended in any subsequent Fiscal Year) shall exceed $2,000,000, (Y) the aggregate amount of Strategic Investments made in any Fiscal Year (on a noncumulative basis, with the effect that amounts not expended in any Fiscal Year may not be expended in any subsequent Fiscal Year), together with the aggregate amount of Costs of Acquisitions (excluding the CHC Transaction) incurred during such Fiscal Year (similarly computed on a non-cumulative basis), shall exceed $5,000,000, or (Z) the aggregate amount of Strategic Investments shall exceed five percent (5%) of Consolidated Shareholders' Equity, provided that each of the limitations described in this Section 5.09(v) shall be applied after giving effect to reductions in Strategic Investments from receipt of cash distributions and cash management fees; and (vi) Permitted Acquisitions provided that if the Cost of Acquisition exceeds $2,500,000 the Guarantor shall have furnished to the Bank a certificate in the form of Exhibit B prepared on a historical pro forma basis giving effect to such Permitted Acquisition which certificate shall demonstrate that no Default or Event of Default will exist; provided, further, the aggregate Costs of Acquisitions (excluding the CHC Transaction) in any Fiscal Year (on a noncumulative basis, with the effect that amounts not expended in any Fiscal Year may not be expended in any subsequent Fiscal Year), together with the aggregate amount of Strategic Investments in such Fiscal Year (similarly computed on a non-cumulative basis), shall not exceed $5,000,000. SECTION 5.10. Dividends or Distributions. Declare or pay any dividends (other than those payable solely in capital stock) or distribution in reduction of capital or otherwise in respect of any equity interest, or purchase, redeem or otherwise retire any such 48 equity interest except (i) dividends paid with respect to Preferred Stock, (ii) Preferred Stock Redemptions, (iii) redemptions of the Preferred Stock with the net proceeds from the issuance and sale of Qualified Equity Securities, (iv) payments to purchase stock of the Guarantor pursuant to the exercise by Plan beneficiaries of put rights under Section 16(b) of the Plan, and (v) pursuant to the exercise of rights of first refusal or similar rights relating to stock options or securities issuable upon the exercise of stock options in an aggregate amount in any Fiscal Year not exceeding $300,000 (on a non-cumulative basis, with the effect that amounts not expended in any Fiscal Year may not be expended in a subsequent Fiscal Year), provided that after giving effect to payment of such dividend or Preferred Stock Redemption no Default or Event of Default exist hereunder; provided further that, without limiting other rights of the Bank hereunder or under the other ESOP Loan Documents, the provisions of this Section 5.10 shall not prohibit any Preferred Stock Redemption after December 30, 1996. SECTION 5.11. Merger or Consolidation. (a) Consolidate with or merge into any other Person, or permit any other Person to merge into it; or (b) liquidate, wind-up or dissolve or sell, transfer or lease or otherwise dispose of all or a substantial part of its assets (other than sales in the ordinary course of business or transfers from an Obligated Subsidiary to the Guarantor or another obligated Subsidiary or from the Guarantor to an Obligated Subsidiary); provided, however, (i) any Subsidiary of the Guarantor may merge into or transfer all or substantially all of its assets to or consolidate with any wholly-owned Subsidiary of the Guarantor, and (ii) any Person may merge with the Guarantor or any wholly-owned Subsidiary of the Guarantor (whether or not such Subsidiary is the survivor, provided such Person becomes a Subsidiary and, if required, an Obligated Subsidiary) if the Guarantor or such wholly-owned Subsidiary shall be the survivor thereof and, if required, an Obligated Subsidiary, and such merger shall not cause, create or result in the occurrence of any Default or Event of Default hereunder. SECTION 5.12. Change in Control. Cause, suffer or permit any Person or group of Persons, other than the owners existing as of the Closing Date, to own beneficially more than 49% (and after an initial public offering of Guarantor's capital stock, 25%) of the outstanding securities of (on a fully diluted basis and taking into account any outstanding securities or contract rights exercisable, exchangeable or convertible into equity interests) the Guarantor having voting rights in the election of directors. SECTION 5.13. Transactions with Affiliates. Enter into any transaction after the date hereof, including, without limitation, the purchase, sale, leasing or exchange of property, real or personal, or the rendering of any service, with any Affiliate of the Guarantor, except for the following: (a) such Persons may render services to the Guarantor or its Subsidiaries for compensation at the same rates generally paid by Persons engaged in 49 the same or similar businesses for the same or similar services, and (b) such transactions may be entered into in the ordinary course of and pursuant to the reasonable requirements of the Guarantor's (or any Subsidiary's) business and upon fair and reasonable terms no less favorable to the Guarantor (or any Subsidiary) than would be obtained in a comparable arm's-length transaction with a Person not an Affiliate and (c) the limitation contained in this Section does not apply to compensation arrangements (present and deferred) for Affiliates who are or were officers or employees of the Guarantor or any Subsidiary as of or prior to the Closing Date if such compensation arrangements are (i) approved by a majority of the non-employee directors of the Board of Directors or the Compensation Committee of the Board of Directors and (ii) such compensation is paid for services rendered to the Guarantor or such Subsidiary in the ordinary course of business. SECTION 5.14. ERISA. With respect to all employee pension benefit plans maintained by the Guarantor or any Subsidiary: (i) terminate any of such employee pension benefit plans so as to incur any liability to the Pension Benefit Guaranty Corporation established pursuant to ERISA; (ii) allow or suffer to exist any prohibited transaction involving any of such employee pension benefit plans or any trust created thereunder which would subject the Guarantor or a Subsidiary to a tax or penalty or other liability on prohibited transactions imposed under Internal Revenue Code Section 4975 or ERISA; (iii) fail to pay to any such employee pension benefit plan any contribution which it is obligated to pay under the terms of such plan; (iv) allow or suffer to exist any accumulated funding deficiency, whether or not waived, with respect to any such employee pension benefit plan; (v) allow or suffer to exist any occurrence of a reportable event or any other event or condition, which presents a material risk of termination by the Pension Benefit Guaranty Corporation of any such employee pension benefit plan that is a Single Employer Plan, which termination could result in any liability to the Pension Benefit Guaranty Corporation; or (vi) incur any withdrawal liability with respect to any Multi-employer Plan. SECTION 5.15. Fiscal Year. Change its Fiscal Year unless the Guarantor can demonstrate compliance with the covenants contained herein for both the Fiscal Year in effect prior to any change and 50 the new fiscal year period by delivery to the Bank of appropriate interim and annual pro forma historical and current compliance certificates for such periods and such other information as the Bank may reasonably request. SECTION 5.16. Dissolution, etc. Wind up, liquidate or dissolve (voluntarily or involuntarily) or commence or suffer any proceedings seeking any such winding up, liquidation or dissolution, except in connection with (i) the merger or consolidation of Subsidiaries into each other or into the Guarantor permitted pursuant to Section 5.11 and (ii) the dissolution of Vitas Healthcare Corporation of Texas so long as it remains an inactive Subsidiary of the Guarantor prior to such dissolution. SECTION 5.17. Rate Hedging Obligations. Incur any Rate Hedging Obligations or enter into any agreements, arrangements, devices or instruments relating to Rate Hedging Obligations, except in regard to Swap Agreements. SECTION 5.18. Subordinated Obligations. Cause, suffer or permit to be made any payments in respect of Subordinated Obligations except to the extent expressly permitted by the Subordination Agreements. 51 ARTICLE VI EVENTS OF DEFAULT AND REMEDIES SECTION 6.01. Events of Default. The following shall constitute Events of Default under this Guaranty (whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) the Guarantor shall fail to observe or perform any of the terms, covenant or provisions contained in Article II hereof, including without limitation failure to pay any amount as and when the same shall become due as therein provided; or (b) default shall be made in the performance or observance of any covenant set forth in Sections 4.06, 4.07, 4.08, 4.12, 4.13, 4.24, 4.25 or Article V hereof and in the case of Section 4.01 through 4.05, 4.07 and 4.14 such default shall continue for a period of five (5) days; or (c) if a default shall be made in the performance or observance of, or shall occur under, any covenant, agreement or provision contained in this Guaranty (other than as described in clauses (a) or (b) above) and such default shall continue for 30 or more days after the earlier of receipt of notice of such default by the Authorized Representative from the Bank, the President, the chief executive officer, the chief financial officer, the Treasurer or the Vice President for Legal and Regulatory Affairs of the Guarantor becomes aware of such default, or if a default shall be made in the performance or observance of, or shall occur under, any covenant, agreement or provision contained in any of the subsidiary Guaranties, Subsidiary Security Agreements or other ESOP Loan Documents (beyond any applicable grace period, if any, contained therein) or in any instrument or document evidencing or creating any obligation, guaranty, or Lien in favor of the Bank or delivered to the Bank in connection with or pursuant to this Guaranty or any of the ESOP Loan Documents, or if any ESOP Loan Document ceases to be in full force and effect (other than by reason of any action by the Bank), or if without the written consent of the Bank, this Guaranty or any other ESOP Loan Document shall be disaffirmed or shall terminate, be terminable or be terminated or become void or unenforceable for any reason whatsoever (other than in accordance with its terms in the absence of default or by reason of any action by the Bank); or (d) if a default shall occur, which is not waived, (i) in the payment of any principal, interest, premium or other amounts with respect to any Indebtedness (other than the Loans) of the Guarantor or of any Subsidiary in an amount not less than $25O,000 in the aggregate outstanding, or (ii) in the performance, observance or fulfillment of any term or covenant contained in any 52 agreement or instrument under or pursuant to which any such Indebtedness may have been issued, created, assumed, guaranteed or secured by the Guarantor or any Subsidiary, and such default shall continue for more than the period of grace, if any, therein specified, or if such default shall permit the holder of any such Indebtedness to accelerate the maturity thereof; or (e) if any representation, warranty or other statement of fact contained herein or any other ESOP Loan Document or in any writing, certificate, report or statement at any time furnished to the Bank by or on behalf of the Guarantor or, any Obligated Subsidiary pursuant to or in connection with this Guaranty or the other ESOP Loan Documents, or otherwise, shall be false or misleading in any material respect when given; or (f) if the Guarantor or any Subsidiary shall be unable to pay its debts generally as they become due; file a petition to take advantage of any insolvency statute; make an assignment for the benefit of its creditors; commence a proceeding for the appointment of a receiver, trustee, liquidator or conservator of itself or of the whole or any substantial part of its property; file a petition or answer seeking reorganization or arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute; or (g) if a court of competent jurisdiction shall enter an order, judgment or decree appointing a custodian, receiver, trustee, liquidator or conservator of the Guarantor or any Subsidiary or of the whole or any substantial part of its properties and such order, judgment or decree continues unstayed and in effect for a period of sixty (60) days, or approve a petition filed against the Guarantor or any Subsidiary seeking reorganization or arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state, which petition is not dismissed within thirty (30) days; or if, under the provisions of any other law for the relief or aid of debtors, a court of competent jurisdiction shall assume custody or control of the Guarantor or any Subsidiary or of the whole or any substantial part of its properties, which control is not relinquished within sixty (60) days; or if there is commenced against the Guarantor or any Subsidiary any proceeding or petition seeking reorganization, arrangement or similar relief under the federal bankruptcy laws or any other applicable law or statute of the United States of America or any state which proceeding or petition remains undismissed for a period of sixty (60) days; or if the Guarantor or any Subsidiary takes any action to indicate its consent to or approval of any such proceeding or petition; or (h) if (i) any final, non-appealable judgment where the amount not covered by insurance (or the amount as to which the insurer denies liability) is in excess of $250,000 is rendered against the Guarantor or any Subsidiary, or (ii) there is any 53 attachment, injunction or execution against any of the Guarantor's or any Subsidiary's properties for any amount in excess of $250,000; and in either case such judgment, attachment, injunction or execution remains unpaid, unstayed, undischarged, unbonded or undismissed for a period of sixty (60) days; or (i) if the Guarantor or any Subsidiary shall, other than in the ordinary course of business (as determined by past practices), suspend all or any part of its operations material to the conduct of the business of the Guarantor and its Subsidiaries, taken as a whole; or (j) if (i) the Guarantor or any Subsidiary shall engage in any prohibited transaction (as described in Section 5.14(u) hereof), which is not subject to a statutory or administrative exemption, involving any employee pension benefit plan of the Guarantor or any Subsidiary, (ii) any accumulated funding deficiency (as referred to in Section 5.14(iv) hereof), whether or not waived, shall exist with respect to any Single Employer Plan, (iii) a reportable event (as referred to in Section 5.14(v) hereof) (other than a reportable event for which the statutory notice requirement to the Pension Benefit Guaranty Corporation has been waived by regulation) shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed to administer or to terminate, any Single Employer Plan, which reportable event or institution or proceedings is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Single Employer Plan for purposes of Title IV of ERISA, and in the case of such a reportable event, the continuance of such reportable event shall be unremedied for sixty (60) days after notice of such reportable event pursuant to Section 4043(a), (c) or (d) of ERISA is given, as the case may be, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, and such termination results in a material liability of the Guarantor or any Subsidiary to such Single Employer Plan or the Pension Benefit Guaranty Corporation, or (v) the Guarantor or any Subsidiary shall withdraw from a Multi-employer Plan for purposes of Title IV of ERISA, and, as a result of any such withdrawal, the Guarantor or any Subsidiary shall incur withdrawal liability to such Multi-employer Plan; and in each case in clauses (i) through (v) of this Section 6.01(i), such event or condition, together with all other such events or conditions, if any, would subject the Guarantor or any Subsidiary to any tax, penalty or other liabilities, and in each such case the event or condition is not remedied to the satisfaction of the Required Lenders within ninety (90) days after the earlier of (i) receipt of notice of such event or condition by the Authorized Representative from the Bank or (ii) the Guarantor becomes aware of such event or condition; or (k) if the Guarantor or any Subsidiary shall breach any of the terms or conditions of any agreement under which any Rate Hedging Obligation permitted pursuant to Section 5.17 is created 54 and such breach shall continue beyond any grace period, if any, relating thereto pursuant to the terms of such obligation; or (1) if there shall occur and not be waived an Event of Default as defined in any of the Revolving Credit Loan Documents or any of the other ESOP Loan Documents; or (m) if there shall occur any loss of any permits, licenses, authorizations, certifications or approvals from any federal, state or local governmental or administrative authority or termination of any contract with any such authority, which loss or termination (i) continues for a period greater than 60 days and (ii) results in the suspension or termination of operations of the Guarantor or any Subsidiary which produces 5% or more of the Guarantor's gross revenues. SECTION 6.02. Rights Upon an Event of Default. If any Event of Default shall have occurred and not been waived subject to Section 2.08 hereof, the Bank may proceed to protect and enforce its rights and interests hereunder and under the other ESOP Loan Documents, and shall have the right to proceed first directly against the Guarantor or any signatory to a Subsidiary Guaranty, and the Bank shall have no obligation to proceed against or exhaust any other remedy or remedies which it may have without resorting to any other security or guaranty, whether held by or available to the Bank. SECTION 6.03. No Remedy Exclusive. No remedy herein conferred upon or reserved to the Bank is intended to be exclusive of any other available remedy or remedies, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. 55 ARTICLE VII MISCELLANEOUS SECTION 7.01. Amendments, Etc. No amendment or waiver of any provision of this Guaranty, nor consent to any departure by the Guarantor in any event shall be effective unless the same shall be in writing and signed by the Bank and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 7.02. Notices, Etc. All notices, demands or requests provided for or permitted to be given pursuant to this Guaranty shall be deemed to have been properly given or served by personal delivery, by telecopy with telephone or telecopied confirmation of receipt, or by depositing in the United States mail, postpaid and registered or certified, return receipt requested, and addressed to the parties at their addresses set forth below. All notices, demands and requests shall be effective upon being personally delivered at the address specified herein, upon confirmation of receipt by telecopy, or three (3) Business Days after being deposited in the United States mail. The time period for which a response to any notice, demand or request must be given, if any, shall commence to run from the date of delivery at the address specified herein, the date of receipt of telecopy notice, or the date of receipt of the notice, demand, or request, by the addressee thereof as disclosed by the return receipt. Rejection or other refusal to accept or the inability to deliver because of changed address of which no notice was given shall be deemed to be receipt of the notice, demand or request sent. Any party hereto shall have the right from time to time and at any time during the term of this Guaranty to change its address or addressee and each shall have the right to specify as its address any other address within the United States by giving notice in accordance with the terms hereof. For the purposes of this Guaranty, the addresses of the parties are as follows: (a) if to the Guarantor at: Vitas Healthcare Corporation 100 South Biscayne Boulevard Miami, Florida 33131 Attention: Mark Ohlendorf, Chief Financial Officer Telefacsimile No.: (305) 374-4765 56 with a copy (which shall not constitute notice) to: Vitas Healthcare Corporation 100 South Biscayne Boulevard Miami, Florida 33131 Attention: Mark A. Sterling Vice President for Legal and Regulatory Affairs Telephone: (305) 350-6044 Telefacsimile: (305) 350-6059 (b) if to the Bank at: NationsBank Plaza 150 S.E. Third Avenue Miami, Florida 33131 Attention: Corporate Banking Department Telefacsimile No.: (305) 577-5745 SECTION 7.03. No Waiver. No failure on the part of the Bank to exercise, and no delay in exercising, any right hereunder or under the other ESOP Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right. SECTION 7.04. Right of Set-off. Upon the occurrence of any Event of Default, the Bank is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand other than deposits identified as for the benefit of third parties) at any time held and other indebtedness at any time owing by the Bank to or for the credit or the account of the Guarantor against any and all of the obligations of the Guarantor now and hereafter existing under this Guaranty, irrespective of whether or not the Bank shall have made any demand hereunder and although such obligations may be contingent or unmatured. SECTION 7.05. Costs, Expenses and Taxes. The Guarantor agrees to pay immediately when due all costs and expenses in connection with the preparation, execution, delivery, filing, recording, and administration and enforcement of or monitoring of compliance with this Guaranty and any other documents which may be delivered in connection with this Guaranty or the transactions contemplated hereby, including, without limitation, the reasonable fees and out-of-pocket expenses of the Bank and of counsel and any agents or consultants for the Bank, with respect thereto and with respect to advising the Bank as to its rights and responsibilities under this Guaranty, subject to an aggregate cap of fees and expenses of counsel to the Bank of $55,000 in connection with the negotiation, preparation and execution of the ESOP Loan Documents and the Loan Documents (as defined in the Revolving Credit 57 Agreement), excluding fees and expenses arising in connection with any amendment, supplement or modification hereto or to any of the ESOP Loan Documents or to any Loan Documents. In addition, the Guarantor shall pay any and all documentary stamp, intangibles and other taxes and fees payable or determined to be payable in connection with the execution, delivery, filing and recording of this Guaranty, and agrees to save the Bank harmless from and against any and all liabilities with respect to or resulting from any delay in paying or failure to pay such taxes and fees. SECTION 7.06. Binding Effect. This Guaranty shall be binding upon and inure to the benefit of the Guarantor and the Bank and their respective successors and assigns, except that the Guarantor shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of the Bank. The Bank may assign or sell a participation in all or any part of, or any interest (undivided or divided) in, the Bank's rights and benefits under this Guaranty to any financial institution and agrees to give the Guarantor written notice thereof. To the extent of any assignment by the Bank, the assignee shall have the same rights and benefits against the Guarantor hereunder as it would have had if such assignee were the Bank. SECTION 7.07. Severability. Any provision of this Guaranty which is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or non-authorization without invalidating the remaining provisions hereof or affecting the validity, enforceability or legality of such provision in any other jurisdiction. SECTION 7.08. Governing Law. This Guaranty shall be governed by, and construed in accordance with, the internal laws of the State of Florida, without regard to its choice of law principles. SECTION 7.09. Headings. Section headings in this Guaranty are included herein for convenience of reference only and shall not constitute a part of this Guaranty for any other purpose. SECTION 7.10. Prior Agreements Superseded. This Guaranty and the other ESOP Loan Documents shall completely and fully supersede all prior undertakings or agreements, both written and oral, between the Guarantor and the Bank relating to the subject matter hereof and thereof, including those contained in any commitment letter between the Bank and the Guarantor executed in anticipation of the issuance of the making of the Loan. SECTION 7.11. Counterparts. This Guaranty may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. SECTION 7.12. Consents. Whenever pursuant to the terms of the ESOP Loan Documents the consent of a party to the ESOP Loan 58 Documents shall be required for any other Person to take any action or obtain any right, privilege or other benefit thereunder, the party entitled to give or withhold consent shall respond to any such request for consent duly made hereunder within the time for such response expressly provided therefor in the ESOP Loan Documents or, if no such time is so provided, within a reasonable time following receipt thereof; provided that (i) nothing in this section shall impair the effect of any other provision of the ESOP Loan Documents expressly providing in certain circumstances that the failure to give consent shall constitute a refusal to consent, (ii) in no event shall the Bank be required to respond to any such request for consent more rapidly than thirty (30) days following the latest date upon which the Bank receives such request for consent and all information relating thereto which the Bank may request in connection therewith, and (iii) failure of the Bank to respond to any request for consent as provided in this Section 7.12 shall not discharge, diminish or constitute a defense to enforcement of any obligations under the ESOP Loan Documents. SECTION 7.13. Supplements to Schedules. The Guarantor may, from time to time, amend or supplement the Schedules to this Guaranty by delivering (effective upon receipt) to the Bank a copy of such revised Schedule or Schedules which shall (i) be dated the date of delivery, (ii) be certified by an Authorized Representative as true, complete and correct as of such date and as delivered in replacement for the corresponding Schedule or Schedules previously in effect, and (iii) show in reasonable detail (by blacklining or other appropriate graphic means) the changes from each such corresponding predecessor Schedule. 59 IN WITNESS WHEREOF, the parties hereto have caused this Guaranty to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first above written. WITNESS: VITAS HEALTHCARE CORPORATION /s/ Meganne Cusato By: /s/ Mark W. Ohlendorf - ---------------------------- ----------------------------------- Name: Mark W. Ohlendorf /s/ Terry L. Scaggs Title: Vice President - ---------------------------- [The remainder of this page intentionally left blank.] 60 WITNESS: NATIONSBANK OF FLORIDA, NATIONAL ASSOCIATION /s/ Meganne Cusato By: /s/ Allison S. Freeland - ---------------------------- ----------------------------------- Name: Allison S. Freeland /s/ Terry L. Scaggs Title: Vice President - ---------------------------- 61 EX-10.61 35 EXHIBIT 10.61 EXHIBIT 10.61 WARRANT AGREEMENT BETWEEN NATIONSBANK, N.A. AND VITAS HEALTHCARE CORPORATION July 18, 1997 TABLE OF CONTENTS ARTICLE 1 CERTAIN DEFINITIONS ARTICLE II ORIGINAL ISSUE OF WARRANTS 2.1 Form of Warrant Certificates ......................................... 5 2.2 Legend ............................................................... 5 2.3 Delivery of the Warrants ............................................. 5 ARTICLE 3 EXERCISE OF WARRANTS 3.1 Exercise Price ....................................................... 6 3.2 Restrictions on Exercise; Expiration ................................. 6 3.3 Method of Exercise; Payment of Exercise Price ........................ 6 3.4 Dividends and Distributions .......................................... 8 3.5 Stockholder Rights ................................................... 8 ARTICLE 4 ADJUSTMENTS 4.1 Adjustments .......................................................... 9 4.2 Termination of Right of Exercise on Fundamental Corporate Changes .... 12 4.3 Statements in the Warrants ........................................... 13 4.4 Fractional Interests ................................................. 13 4.5 No Dilution or Impairment ............................................ 13 ARTICLE 5 RESERVATION AND AUTHORIZATION OF COMMON SHARES 5.1 Reservation and Authorization ........................................ 13 5.2 Covenant Regarding Securities ........................................ 13 5.3 Registration ......................................................... 13 ARTICLE 6 WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER 6.1 Transfer and Exchange ................................................ 14 i ARTICLE 7 REGISTRATION RIGHTS ARTICLE 8 MISCELLANEOUS 8.1 Loss or Mutilation ................................................... 17 8.2 Payment of Taxes ..................................................... 17 8.3 Notices .............................................................. 17 8.4 Governing Law ........................................................ 18 8.5 Assignment; Successors ............................................... 18 8.6 Counterparts ......................................................... 18 8.7 Amendments ........................................................... 18 8.8 Headings ............................................................. 19 8.9 Third Party Beneficiaries ............................................ 19 8.10 Severability ......................................................... 19 8.11 No Inconsistent Agreements ........................................... 19 VITAS AGREES TO PROVIDE A COPY OF THE EXHIBITS REFERENCED IN THIS AGREEMENT TO THE COMMISSION UPON REQUEST. ii WARRANT AGREEMENT WARRANT AGREEMENT, dated as of July 18, 1997 (this "Agreement"), between VITAS HEALTHCARE CORPORATION, a Delaware corporation (the "Corporation"), and NATIONSBANK, N.A. (successor by merger of NationsBank, N.A. (South) ("NationsBank"). WHEREAS, pursuant to the terms of an Amendment No.6 dated as of March 24,1997 ("Amendment No. 6") to Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement dated as of February 17,1995, as amended, among the Corporation, NationsBank, as Agent, and NationsBank, as Lender (as previously amended and as amended by Amendment No.6, the "Credit Agreement"), NationsBank, among other things, has agreed to continue to make available to the Corporation loans of up to $32,000,000 (the "Loans"), which Loans are evidenced by Notes of the Corporation in favor of NationsBank (the "Notes"); WHEREAS, in order to induce NationsBank to enter into Amendment No. 6, the Corporation has agreed to execute and deliver to NationsBank 486,532 stock purchase warrants ("Warrants") issued pursuant to this Agreement entitling the Holder(s) (as defined herein) thereof to purchase from the Corporation an aggregate of 486,532 shares (the "Warrant Shares") of the Corporation's common stock, par value $.001 per share ("Common Stock"), at the Exercise Price (as defined herein), subject to adjustment as provided in Article 4 hereof, at any time on or after the date hereof and before 5:00 P.M., New York City time, on the Expiration Date (as defined herein), subject to the terms and conditions hereof. NOW, THEREFORE, in consideration of the foregoing and of the agreements contained in the Credit Agreement, and for the purpose of defining the terms and provisions of the Warrants and Warrant Shares and the respective rights and obligations thereunder of the Corporation and the Holder(s), the Corporation and NationsBank hereby agree as follows: ARTICLE 1 CERTAIN DEFINITIONS For all purposes of this Agreement, except as otherwise expressly provided: (a) the terms defined in this Article 1 have the meanings assigned to them in this Article, and include the plural as well as the singular; and (b) the words "herein," "hereof" and "hereunder," and other words of similar import, refer to this Agreement as a whole and not to any particular article, section or other subdivision. "Adjustment Period" shall mean the period of five (5) consecutive trading days selected by the Board of Directors in its sole discretion, during the twenty (20) trading days preceding, and including the date as of which the Fair Market Value of a security is to be determined. "Affiliate" means, as to any Person, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "under common control with" and "controlled by"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting stock, by agreement or otherwise; provided, however, that beneficial ownership of 25% or more of the total voting power of all outstanding stock of a Person shall be deemed to be control of such Person. "Agreement" has the meaning set forth in the preamble hereto. "Amendment No. 6" has the meaning set forth in the preamble hereto. "Board of Directors" means the board of directors of the Corporation. "Business Day" means any day which is not a Saturday, Sunday or a day on which banking institutions in the States of New York or Florida are not authorized or obligated by law, executive order, regulation or governmental decree to close. "Commission" means the Securities and Exchange Commission. "Common Stock" has the meaning set forth in the preamble hereto. "Corporation" has the meaning set forth in the preamble hereto. "Current Market Price" of publicly traded shares of Common Stock or any other class of capital stock or other security of the Corporation or any other issuer for any given day shall mean the last reported sales price, regular way, or, in case no sale takes place on such day, the average reported closing bid and asked prices, regular way, in either case as reported on the New York Stock Exchange Composite Tape or, if such security is not listed or admitted to trading on any national securities exchange, on the NASDAQ National Market or, if such security is not quoted on such NASDAQ National Market, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ, or, if bid and asked prices for such security on such day shall not have been reported through NASDAQ, the average of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm regularly making a market in such security selected for such purpose by the Board of Directors. "Credit Agreement" has the meaning set forth in the preamble hereto. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder. 2 "Exempt Securities" shall mean the issuance of (a) Warrant Shares or other securities issuable pursuant to the Warrants; (b) securities of the Corporation issued upon the exercise, conversion or exchange of securities of the Corporation issued prior to the date hereof; (c) shares of Common Stock or other Corporation securities issued or issuable as a result of adjustments under Section 4 or other applicable provisions of the Series B Certificate of Designation or similar provisions of other convertible securities; (d) any securities of the Corporation issued in exchange for assets or securities in a merger, consolidation, sale or purchase of assets or other business combination transaction approved by the Board of Directors; (e) any securities issuable or any adjustment made or to be made to the Warrants or Warrant Shares under Article 4 of this Agreement; (f) any rights or other securities issued or issuable pursuant to a stockholder rights agreement under which the Board of Directors would declare a dividend of one preferred (or common) share purchase right for each outstanding share of Common Stock provided that such stockholder rights agreement results in equivalent dividends on Warrant Shares; (g) any shares of Common Stock pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Corporation and the investment of additional optional amounts in shares of Common Stock under any such plan; (h) any shares of Common Stock in a public offering registered under the Securities Act; (i) any shares of Common Stock or options or rights to purchase such shares pursuant to any stock option or bonus plan or plans now or hereafter adopted by the Corporation (including any stock appreciation rights or employee stock ownership plan) for the benefit of directors, officers, employees and/or consultants of the Corporation and/or its subsidiaries or pursuant to any employee benefit plan or program now or hereafter adopted by the Corporation for the benefit of its employees and/or employees of its subsidiaries, or pursuant to any specific grant not pursuant to any plan or program that is approved by the Corporation's Board of Directors; or (j) the issuance or repurchase of Corporation securities on or prior to the date the Warrants are first issued (or any subsequent issuances of Common Stock, 9% Preferred Stock or Series B Preferred Stock issued pursuant to warrants, options or rights previously granted, outstanding or issued on the date the Warrants are first issued). "Exercise Price" has the meaning set forth in Section 3.1 hereof. "Expiration Date" means March 24, 2007. "Extraordinary Distribution" shall mean any dividend or other distribution with respect to the Common Stock (effected while any of the Warrants are outstanding) of any shares of capital stock of the Corporation (other than shares of Common Stock), other securities of the Corporation (other than securities of the type referred to in Section 4.1(c)), evidences of indebtedness of the Corporation or any other person or any other property other than cash (including shares of any subsidiary of the Corporation), or any combination thereof. "Fair Market Value" shall mean, as to shares of Common Stock or any other class of capital stock or securities of the Corporation or any other issuer which are publicly traded, the average of the Current Market Prices of such shares or securities for each day of the Adjustment Period. The "Fair Market Value" of any security which is not publicly traded or of any other 3 property shall mean the fair value thereof as determined in good faith by the Board of Directors in its sole discretion. "Holders" shall mean NationsBank or an Affiliate thereof and such other Persons to whom NationsBank or an Affiliate thereof transfers Warrants in compliance with the terms of this Agreement and each subsequent permitted transferee. "NationsBank" has the meaning set forth in the preamble hereto. "9% Certificate of Designation" shall mean the Certificate of Designation, Preferences and Other Rights of the 9.0% Cumulative Nonconvertible Preferred Stock of the Corporation, as amended from time to time. "9% Preferred Stock" shall mean the 9.0% Cumulative Nonconvertible Preferred Stock of the Corporation, par value $1.00 per share, which is issued under the 9% Certificate of Designation. "Notes" has the meaning set forth in the preamble hereto. "Person" shall mean a natural person, partnership, corporation, association, joint stock company, trust, joint venture, unincorporated association, governmental entity or any department, agency or political subdivision thereof, or other entity. "Private Placement Legend" means the legend in the form set forth in Section 2.2 hereof. "Qualified Initial Public Offering" shall mean a public offering of the Corporation's Common Stock resulting in gross proceeds to the Corporation of not less than $12 million and at a total market capitalization of the common equity of the Corporation at that time of not less than $60 million. "Registration Rights Agreement" shall mean that certain Registration Rights Agreement dated as of June 4, 1993 among the Corporation, certain stockholders of the Corporation, Chemed Corporation and the investors identified on Schedule A thereto. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Series B Certificate of Designation" shall mean the Certificate of Designation, Preferences and Other Rights of the Series B Convertible Preferred Stock of the Corporation, as amended from time to time. "Series B Preferred Stock" shall mean the Series B Convertible Preferred Stock of the Corporation, par value $1.00 per share, which is issued under the Series B Certificate of Designation. 4 "Warrants" has the meaning set forth in the preamble hereto. "Warrant Certificate" has the meaning set forth in Section 2.1 hereto. "Warrant Shares" has the meaning set forth in the preamble hereto. ARTICLE 2 ORIGINAL ISSUE OF WARRANTS 2.1 Form of Warrant Certificates. Any certificate representing the Warrants (a "Warrant Certificate"), the form of which is attached hereto as Exhibit A, shall be detachable from the Credit Agreement and any Notes and shall be dated the date on which it is signed by a duly authorized officer of the Corporation and shall have such insertions as are appropriate or required or permitted by this Agreement and may have such letters, numbers or other marks of identification as the Corporation may deem appropriate and as are not inconsistent with the provisions of this Agreement. 2.2 Legend. Subject to the provisions hereof, each Warrant Certificate and each certificate representing securities acquired upon exercise of the Warrants shall bear the following legend on the face thereof: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN AGREEMENT WHICH INCLUDES A RIGHT OF FIRST REFUSAL ON THE SALE OF THE SECURITIES. COPIES OF THE AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION. THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND CANNOT BE OFFERED, SOLD OR TRANSFERRED WITHOUT REGISTRATION OR COMPLIANCE WITH EXEMPTION FROM REGISTRATION UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS AND REGULATIONS PROMULGATED THEREUNDER. A full statement of the powers, designations, preferences and relative, participating, optional or other special rights of the shares of each class of stock of the Corporation authorized to be issued, and the qualifications, limitations or restrictions of such preferences and/or rights, will be furnished to any stockholder without charge upon request to the Secretary of the Corporation." 2.3 Delivery of the Warrants. This Agreement contemplates the issuance of up to 486,532 Warrants, subject to adjustment as provided herein. Concurrently with the execution and delivery of this Agreement, 5 the Corporation shall issue to NationsBank or an Affiliate thereof in connection therewith (but detachable therefrom) a Warrant Certificate for 486,532 Warrants. ARTICLE 3 EXERCISE OF WARRANTS 3.1 Exercise Price. The Warrant Certificate shall entitle the Holders thereof, subject to the provisions of this Agreement, to purchase an aggregate of four hundred eighty-six thousand five hundred thirty-two (486,532) Warrant Shares at a per share purchase price (the "Exercise Price") of $.0l, subject to the limitations and adjustments as provided in Article 4 hereof; provided, however, that in no event shall the exercise price per share of Common Stock be less than the par value of such Common Stock. 3.2 Restrictions on Exercise; Expiration. Subject to the limitations and adjustments as provided herein, on or before the Expiration Date, the Warrants may be exercised on any Business Day as to all or any portion of the Warrant Shares for which the Warrants are then exercisable as follows: (a) as of the date of this Agreement and the issuance of the Warrant Certificate, the number of Warrants which may be exercised pursuant to this Agreement, and the number of Warrant Shares issuable upon exercise of such Warrants, shall be 194,613; (b) in the event the Corporation shall not have been paid in full its Obligations (as defined in the Credit Agreement) on or prior to August 30, 1997, the number of Warrants which may be exercised pursuant to this Agreement, and the number of Warrant Shares issuable upon exercise of such Warrants, shall be automatically increased to 291,919 effective as of August 31,1997; (c) in the event the Corporation shall not have paid in full its Obligations (as defined in the Credit Agreement) on or prior to November 29, 1997, the number of Warrants which may be exercised pursuant to this Agreement, and the number of Warrant Shares issuable upon exercise of such Warrants, shall be automatically increased to 389,226 effective as of November 30,1997; and (d) in the event the Corporation shall not have been paid in full its Obligations (as defined in the Credit Agreement) on or prior to January 30, 1998, the number of Warrants which may be exercised pursuant to this Agreement, and the number of Warrant Shares issuable upon exercise of such Warrants, shall be automatically increased to 486,532 effective as of January 31, 1998. The Exercise Price shall not be adjusted by reason of any such increase in the number of Warrants which may be exercised and in the number of Warrant Shares issuable upon such exercise. If any of the Warrants are not exercised by 5:00 p.m., New York City time, on the Expiration Date, this Agreement and all unexercised Warrants shall expire and all rights of the Holders hereunder and thereunder shall terminate unless otherwise provided herein or therein. 3.3 Method of Exercise; Payment of Exercise Price. (a) In order to exercise any of the Warrants, the Holder thereof must provide written notice to the Corporation at its address set forth in Section 8.3 hereof in the form attached hereto as Exhibit B specifying the number of Warrants being exercised. Such notice shall be 6 accompanied by Warrant Certificates representing not less than the number of Warrants being exercised, together with payment in full of the per share Exercise Price multiplied by the number of Warrant Shares to be purchased pursuant to the exercise. The Exercise Price shall be payable, at the option of the Holder, by wire transfer, certified check, official bank check or bank cashier's check payable to the order of the Corporation. (b) In lieu of exercising Warrants pursuant to Section 3.3(a), the Holder shall have the right to require the Corporation to convert the Warrants, in whole or in part and at any time or times (the "Conversion Right"), into Warrant Shares, by surrendering to the Corporation at its address set forth in Section 8.3 hereof the Warrant Certificate evidencing the Warrants to be converted, accompanied by the form of conversion notice attached hereto as Exhibit C which has been duly completed and signed. Upon exercise of the Conversion Right, the Corporation shall deliver to the Holder (without payment by the Holder of any Exercise Price) that number of Warrant Shares which is equal to the quotient obtained by dividing (x) the value of the number of Warrants being converted at the time the Conversion Right is exercised (determined by subtracting the aggregate Exercise Price for all such Warrants immediately prior to the exercise of the Conversion Right from the aggregate Fair Market Value of that number of Warrant Shares purchasable upon exercise of such Warrants immediately prior to the exercise of the Conversion Right (taking into account all applicable adjustments pursuant to Article 4), by (y) the Fair Market Value of one share of Common Stock immediately prior to the exercise of the Conversion Right. Any references in this Agreement to the "exercise" of any Warrants, and the use of the term "exercise" herein, shall be deemed to include (without limitation) any exercise of the Conversion Right. (c) If the number of Warrants being exercised is less than the number of Warrants represented by the Warrant Certificate(s) tendered in connection with the exercise, the Corporation shall issue new Warrant Certificate(s) for the unexercised Warrants in accordance with instructions contained in the notice of exercise and this Agreement. (d) Upon exercise of any Warrant in conformity with the foregoing provisions, the Corporation shall (i) transfer promptly to, or upon the written order of, the Holder of such Warrant, appropriate evidence of ownership of any Warrant Shares or other securities or property (including money) to which it is entitled, registered or otherwise placed in such name or names as may be directed in writing by the Holder thereof, (ii) deliver such evidence of ownership and any other securities or property (including money) to the person or persons entitled to receive the same, and (iii) reissue, as the case may be, a Warrant Certificate for any unexercised Warrants. Each new Warrant Certificate so issued shall bear the legend set forth in Section 2.2 if the Warrant Certificate presented in connection with partial exercise thereof bore such legend except to the extent that some or all of the transfer restrictions referred to in such legend or this Agreement are no longer applicable pursuant to Article 6 or as a result of registration of the Warrant Shares pursuant to Article 7. All Warrant Certificates surrendered upon exercise of Warrants shall be canceled. A Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of the surrender to the Corporation for exercise of the Warrant Certificate representing such Warrant being exercised and accompanied by the notice required 7 under Section 3(a) or 3(b), as the case may be, for all purposes of this Agreement, the person entitled to receive any Warrant Shares or other securities or property deliverable upon such exercise shall, as between such person and the Corporation, be deemed to be the Holder of such Warrant Shares or other securities or property of record as of the close of business on such date and shall be entitled to receive any Warrant Shares or other securities or property (including money) to which such person would have been entitled had such person been the record holder of such Warrant Shares or other securities or property on such date. 3.4 Dividends and Distributions. For so long as any of the Warrants remain outstanding and unexercised, the Corporation will, upon the declaration of a cash dividend upon its Common Stock or other distribution to the holders of its Common Stock (other than a dividend payable in shares of the Corporation's Common Stock) and at least twenty (20) calendar days prior to the record date for such dividend or other distribution (or if no record date is specified, twenty (20) calendar days prior to the taking of the action), notify the Holders of such declaration, which notice will contain, at a minimum, the following information: (i) the date of the declaration of the dividend or distribution, (ii) the amount of such dividend or distribution, (iii) the record date of such dividend or distribution, and (iv) the payment date or distribution date of such dividend or distribution. The failure to give the notice required by this Section 3.4 or any defect therein shall not affect the legality or validity of such dividend or distribution. 3.5 Stockholders Rights. (a) Nothing contained in this Agreement or in any of the Warrant Certificates shall be construed as conferring upon the Holders thereof the right to vote or to consent or to receive notice as a stockholder in respect of the meetings of stockholders or the election of directors of the Corporation or any other matter, or any rights whatsoever as a stockholder of the Corporation. (b) Nothing contained in this Agreement or in any of the Warrant Certificates shall be construed as imposing any obligation on the registered Holders thereof to purchase any securities or as imposing any liabilities on such Holders as stockholders of the Corporation, whether such obligation or liabilities are asserted by the Corporation or by creditors of the Corporation (except for indemnities and other obligations in connection with registration rights). 8 ARTICLE 4 ADJUSTMENTS 4.1 Adjustments. The Exercise Price and the number of Warrant Shares issuable upon exercise of each Warrant shall be subject to adjustment from time to time as follows: (a) Intentionally Omitted. (b) Adjustments for Changes in Common Stock. Subject to the provisions of Section 4.1(e), in the event the Corporation shall, at any time or from time to time while any of the Warrants are outstanding, (i) pay a dividend or make a distribution in respect of the Common Stock in shares of Common Stock or (ii) subdivide or combine the outstanding shares of Common Stock into a greater or lesser number of shares, in each case whether by reclassification of shares, recapitalization of the Corporation or otherwise, then, in such event, each Warrant will automatically, without any action on the part of the Holder or the Corporation, become exercisable for that number of Warrant Shares equal to the number of Warrant Shares for which a Warrant was exercisable immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock outstanding immediately before such event. An adjustment pursuant to this Section 4.1(b) shall be effective upon payment of such dividend or distribution in respect of the Common Stock and in the case of a subdivision or combination shall become effective immediately as of the effective date thereof. Concurrently with the automatic adjustment pursuant to this Section 4.1(b), the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately before the event by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately before such event and the denominator of which is the number of shares of Common Stock outstanding immediately after such event. (c) Below Market Issuances. Subject to the provisions of Section 4.1(e), in the event the Corporation shall, at any time or from time to time while any of the Warrants are outstanding, sell or issue shares of Common Stock (other than in a transaction subject to Section 4.1(b)), any security convertible into shares of Common Stock or any option, right or warrant to purchase shares of Common Stock for no consideration or at a purchase price per share of Common Stock, or conversion price in the case of a security convertible into Common Stock, less than the Fair Market Value of a share of Common Stock on the date of issuance of such Common Stock, security convertible into Common Stock, option, right or warrant, then, in such event, each Warrant will automatically, without any action on the part of the holder thereof or the Corporation, become exercisable for that number of Warrant Shares equal to the number of Warrant Shares for which a Warrant was exercisable immediately before such sale or issuance of Common Stock, securities convertible into Common Stock, options, rights or warrants multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately before such sale or issuance of Common Stock, securities convertible into Common Stock, options, rights or warrants plus the maximum number of shares of Common Stock that could be acquired upon the sale or issuance of the Common Stock or upon exercise in full of all 9 such conversion rights, options, rights and warrants and the denominator of which is the number of shares of Common Stock outstanding immediately before such sale or issuance of Common Stock, securities convertible into Common Stock, options, rights or warrants plus the number of shares of Common Stock which could be purchased at the Fair Market Value of a share of Common Stock at the time of such sale or issuance for the maximum aggregate consideration payable upon the sale or issuance of the Common Stock or upon exercise in full of all such conversion rights, options, rights or warrants. Concurrently with the automatic adjustment pursuant to this Section 4.1(c), the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately before such sale or issuance of Common Stock, securities convertible into Common Stock, options, rights or warrants by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately before such sale or issuance of Common Stock, securities convertible into Common Stock, options, rights or warrants plus the number of shares of Common Stock which could be purchased at the Fair Market Value of a share of Common Stock at the time of such sale or issuance for the maximum aggregate consideration payable upon the sale or issuance of the Common Stock or upon exercise in full of all such conversion rights, options or warrants, and the denominator of which is the number of shares of Common Stock outstanding immediately before such sale or issuance of Common Stock, securities convertible into Common Stock, options, rights or warrants plus the maximum number of shares that could be acquired upon the sale or issuance of the Common Stock or upon the exercise in full of all such conversion rights, options, rights and warrants. For purposes of this Section 4.1(c), all shares of Common Stock issuable upon the conversion of such convertible securities or upon exercise of such options, warrants or rights shall be deemed to have been issued, for the purpose of computing the number of Warrant Shares for which a Warrant is exercisable and the Exercise Price hereunder, as of the time such convertible securities, options, warrants or rights are issued or sold. If any rights of conversion or exercise of such convertible securities, options, rights or warrants shall expire without having been exercised, the number of Warrant Shares for which a Warrant is exercisable and the Exercise Price shall forthwith be automatically adjusted to be the number of Warrant Shares for which a Warrant is exercisable and the Exercise Price that would have been in effect had an adjustment been made on the basis that the only shares of Common Stock issued or sold were those actually issued upon the conversion or exercise of such convertible securities, options, rights or warrants. For purposes of this Section 4.1(c), the date of issuance of options for shares of Common Stock shall mean the date of their grant. For purposes of this Section 4.1(c), "Common Stock outstanding shall mean all shares of Common Stock outstanding on a fully diluted basis, as if all securities convertible into or exchangeable for Common Stock had been fully converted into or exchanged for shares of Common Stock and any outstanding options, warrants or other rights to purchase Common Stock or securities convertible into or exchangeable for Common Stock had been fully exercised (and the resulting securities converted into or exchanged for Common Stock), but excluding shares of Common Stock issuable upon exercise of the Warrants. (d) Extraordinary Distributions. Subject to the provisions of Section 4.1(e) and Section 4.2, in the event the Corporation shall, at any time or from time to time while any of the Warrants are outstanding, make an Extraordinary Distribution in respect of the Common Stock, whether by dividend, distribution, reclassification of shares or recapitalization of the Corporation 10 (including recapitalization or reclassification effected by a merger or consolidation in which the Corporation is the surviving entity) then, in such event, each Warrant will automatically, without any action on the part of the holder thereof or the Corporation, become exercisable for that number of Warrant Shares equal to the number of Warrant Shares for which a Warrant was exercisable immediately before such Extraordinary Distribution multiplied by a fraction the numerator of which is the product of (a) the number of shares of Common Stock outstanding immediately before such Extraordinary Distribution multiplied by (b) the Fair Market Value of a share of Common Stock on the record date with respect to an Extraordinary Distribution and the denominator of which is (i) the product of (x) the number of shares of Common Stock outstanding immediately before such Extraordinary Distribution multiplied by (y) the Fair Market Value of a share of Common Stock on the record date with respect to an Extraordinary Distribution minus (ii) the Fair Market Value of the Extraordinary Distribution. The Corporation shall send each Holder notice of its intent to make any Extraordinary Distribution at the same time as, or as soon as practicable after, such offer is first communicated (including by announcement of a record date in accordance with the rules of any stock exchange on which the Common Stock is listed or admitted to trading) to holders of Common Stock. Such notice shall indicate the intended record date and the amount and nature of such distribution, as well as the Exercise Price and the number of Warrant Shares for which a Warrant may be exercised at such time. Concurrently with the automatic adjustment pursuant to this Section 4.1(d), the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately before such Extraordinary Distribution by a fraction the numerator of which is (i) the product of (x) the number of shares of Common Stock outstanding immediately before such Extraordinary Distribution multiplied by (y) the Fair Market Value of a share of Common Stock on the record date with respect to an Extraordinary Distribution, minus (ii) the Fair Market Value of the Extraordinary Distribution and the denominator of which is the product of (a) the number of shares of Common Stock outstanding immediately before such Extraordinary Distribution multiplied by (b) the Fair Market Value of a share of Common Stock on the record date with respect to an Extraordinary Distribution. (e) Exempt Securities. Notwithstanding any other provision herein to the contrary, the issuance of any Exempt Securities shall not be deemed to constitute an issuance of Common Stock or other security of the Corporation (or in the case of any repurchase, any Extraordinary Distribution) for purposes of the foregoing anti-dilution provisions. (f) De Minimus Adjustments. Notwithstanding any other provisions of this Section 4.1, the Corporation shall not be required to make (i) any adjustment of the number of Warrant Shares or the Exercise Price unless such adjustment would require an increase or decrease of at least one percent (1%) in the aggregate number of Warrant Shares for which Warrants are exercisable at that time, or (ii) any adjustment of the Exercise Price unless such adjustment would require an increase or decrease of at least one percent (1%) in the Exercise Price. Any lesser adjustment shall be carried forward and shall be made no later than the time of, and together with, the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least one percent (1%) of the number of Warrant Shares for which Warrants are exercisable at that time or an increase or decrease of at least one percent (1%) of the Exercise Price, whichever the case may be. If any action would require adjustment of the Exercise 11 Price pursuant to more than one paragraph of Section 4.1, only one adjustment shall be made as determined in good faith by the Board of Directors of the Corporation. (g) Notice of Adjustment. Whenever an adjustment to the Exercise Price or number of Warrants and Warrant Shares is required pursuant to this Section 4.1, the Corporation shall forthwith place on file with the transfer agent for the Common Stock, if any, and with the Treasurer of the Corporation, a statement signed by the Treasurer or Assistant Treasurer of the Corporation stating the adjusted number of Warrant Shares and the Exercise Price determined as provided herein. Such statement shall set forth in reasonable detail such facts as shall be necessary to show the reason and the manner of computing such adjustment, including any determination of Fair Market Value involved in such computation. Promptly after each adjustment to the number of Warrant Shares for which Warrants are exercisable or the Exercise Price, the Corporation shall mail a notice thereof and of the then prevailing number of Warrant Shares for which Warrants are exercisable and the Exercise Price to each Holder. 4.2 Termination of Right of Exercise on Fundamental Corporate Changes. Notwithstanding anything herein to the contrary, and subject to the notice requirements of this Section 4.2, if the Corporation shall be a party to any transaction which involves any consolidation or merger of the Corporation with another corporation, or any sale of all or substantially all of the assets of the Corporation to another corporation, and which is effected in such a way that the holders of Common Stock shall be entitled to receive cash, stock, securities or other assets with respect to or in exchange for Common Stock, then the right to exercise the Warrants and thereby to purchase shares of Common Stock shall terminate at the close of business on the date as of which the holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for cash, securities or other assets deliverable upon such consolidation, merger or sale of all or substantially all of the assets of the Corporation. In case the Corporation shall enter into any agreement or understanding or the Board of Directors shall adopt any resolution authorizing or proposing any transaction of the type described in this Section 4.2, or with respect to a voluntary or involuntary dissolution, liquidation or winding up of the Corporation, then in any such event the Corporation promptly shall cause to be mailed, by registered or certified mail, postage paid, to the Holder of this Warrant at such Holder's last address appearing on the records of the Corporation at the earliest practicable time (and, in any event, not later than the later of (i) the date the proxy materials (if any) are first distributed (or other notice is first given) to the Corporation's shareholders regarding the proposed transaction, or (ii) 20 days before the effective date (or record date, if earlier) of such proposed transaction), notice of the date on which such reorganization, sale, consolidation, merger, dissolution, liquidation or winding up or other such transaction shall take place, as the case may be. Such notice shall also set forth such facts as shall indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Exercise Price and the kind and amount of securities and property purchasable upon exercise of the Warrants. Such notice shall also specify the date as of which the holders of record of the shares of Common Stock or other securities or property purchasable upon exercise of the Warrants shall be entitled to exchange their shares or other securities or property for securities, money or other property deliverable upon such reorganization, sale, consolidation, merger, dissolution, liquidation or winding up or other such transaction, as the case may be. 12 4.3 Statements in the Warrants. Notwithstanding any adjustment in the Exercise Price or the number or kind of Warrant Shares purchasable upon the exercise of the Warrants, the Warrant Certificates theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the Warrant Certificate initially issued pursuant to this Agreement. 4.4 Fractional Interests. In computing adjustments under this Article 4, fractional interests in Common Stock shall be taken into account to the nearest one-thousandth of a share. No fractional shares of Common Stock or scrip representing fractional shares of Common Stock shall be issued upon any exercise of the Warrants, but, in lieu thereof, there shall be paid an amount in cash equal to the same fraction of the Market Price of a whole share of Common Stock on the business day preceding the day of exercise. 4.5 No Dilution or Impairment. The Corporation shall not amend its Certificate of Incorporation or participate in any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, for the purpose of avoiding or seeking to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times, in good faith, assist in carrying out all such actions as may be reasonably necessary or appropriate in order to protect the rights of the holders of the Warrants against dilution or other impairment as set forth in this Agreement. ARTICLE 5 RESERVATION AND AUTHORIZATION OF COMMON SHARES 5.1 Reservation and Authorization. The Corporation shall at all times reserve and keep available for issuance upon exercise of the Warrants such number of its duly authorized but unissued shares of Common Stock or other securities of the Corporation purchasable upon exercise of the Warrants as will be sufficient to permit the exercise in full of all outstanding Warrants and will cause appropriate evidence of ownership of such shares of Common Stock or other securities to be delivered to the Holders of the Warrants upon their request for delivery of such, and all such shares of Common Stock or other securities shall, at all times, be duly approved for listing, subject to official notice of issuance, on each securities exchange, if any, on which such shares of Common Stock or other securities are then listed. 5.2 Covenant Regarding Secruities. The Corporation covenants that all shares of Common Stock or other securities of the Corporation that may be issued upon the exercise of the Warrants will, upon issuance, be (a) duly authorized, validly issued, fully paid and nonassessable, (b) free from preemptive and any other similar rights and (c) free from any taxes, liens, charges or security interest with respect thereto except transfer taxes and Florida documentary stamp taxes to the extent applicable thereto. 5.3 Registration. If the Warrant Shares or any securities of the Corporation issuable to NationsBank upon the exercise of the Warrants require registration with, or approval of, any governmental authority (in addition to such as the Corporation is required to obtain pursuant to 13 Article 7 hereof), or the taking of any other action (in addition to such as the Corporation is required to obtain pursuant to Article 7 hereof), under the laws of the United States of America or any state or political subdivision thereof, before such securities may be validly offered or sold in compliance with such laws, then the Corporation covenants that it will, in good faith and as expeditiously as practicable, endeavor to secure and maintain such registration or approval or to take such other action, as the case may be; provided, however, that the Corporation will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action that would subject it to general service of process or to taxation in any such jurisdiction where it is not then so subject; provided, further, that the expenses of such registration shall be allocated in accordance with the provisions the Registration Rights Agreement. ARTICLE 6 WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER 6.1 Transfer and Exchange. (a) Warrant Register. The Corporation shall keep and maintain at its office a register in which, subject to such reasonable regulations as it may prescribe, the Corporation shall provide for the registration of the Warrant Certificates on the Corporation's records and transfers or exchanges of the Warrant Certificates as herein provided. (b) Restrictions on Transfer. (i) Each of NationsBank and its Affiliates who are issued Warrants pursuant to this Warrant Agreement (A) represents that it is acquiring the Warrants for its own account for investment and not with a view to any distribution or public offering within the meaning of the Securities Act, except in any case pursuant to the registration of such Warrants or Warrant Shares under the Securities Act or any state securities or "blue sky" laws or pursuant to a valid exemption from such registration requirement, (B) acknowledges that the Warrants and the Warrant Shares issuable upon exercise thereof have not been registered under the Securities Act or any state securities or "blue sky" laws and (C) agrees that it will not sell or otherwise transfer any of its Warrants or Warrant Shares except upon the terms and conditions specified herein and that it will cause any transferee thereof to agree to take and hold the same subject to the terms and conditions specified herein, (D) acknowledges that any transfer agent now or hereafter employed or utilized by the Corporation shall be instructed not to effect transfer of the Warrants or the Warrant Shares issuable upon exercise thereof without prior authorization from the Corporation in accordance with the terms hereof (or, if the Corporation serves as its own transfer agent, a notation shall be made in the Corporation's records indicating the transfer restrictions to which the Warrants and Warrant Shares issuable upon exercise thereof are subject and that the Warrants and the Warrant Shares may only be transferable in accordance with this Agreement); and (E) represents it (I) is an "accredited investor" (as defined in Rule 501(a)(1) of Regulation D promulgated under the Securities Act by the Commission); (II) has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment in the Warrants and Warrant Shares issuable upon exercise of the Warrants; (III) is able to bear the complete loss of its investment in the Warrants and Warrant Shares issuable upon exercise of the Warrants; (IV) has had the opportunity to ask questions of, and receive answers from, the Corporation and its management concerning the 14 terms and conditions of the offering of the Warrants and Warrant Shares issuable upon exercise of the Warrants and to obtain additional information; and (V) is not relying upon any statements or instruments made or issued by any person other than the Corporation in making its decision to invest in the Warrants and Warrant Shares issuable upon exercise of the Warrants; and (ii) each of NationsBank and its Affiliates who are issued Warrants pursuant to this Agreement (A) is domiciled in North Carolina and received its offer to purchase Warrants and Warrant Shares in North Carolina; (B) understands that the Warrants and Warrant Shares issuable upon exercise of the Warrants will be considered restricted securities within the meaning of Rule 144 under the Securities Act; that Rule 144 may not be available for exemption from the registration requirements of the Securities Act for the sale of such restricted securities; that if Rule 144 is available, sales may be made in reliance upon Rule 144 only in accordance with the terms and conditions of Rule 144, which among other things generally requires that the securities be held for at least one year and that sales shall be made in limited amounts; and that, if an exemption for such sales by such holder of the Warrants or the Warrant Shares is not available, registration of the securities may be required, but that the Corporation is under no obligation to register the securities or to facilitate compliance or to comply with any exemption except pursuant to Article 7 of this Agreement; and (C) agrees that it will not sell, transfer, hypothecate, or otherwise dispose of any of the Warrants and Warrant Shares issuable upon exercise of the Warrants, except in compliance with the Securities Act and applicable securities laws. (c) Right of First Refusal. Notwithstanding any other provision of this Agreement, until the Corporation consummates a Qualified Initial Public Offering, no assignment, transfer or sale of any Warrants or any Warrant Shares (other than a sale to an Affiliate) shall be made except in compliance with this Agreement and the following right of first refusal: (i) If any Holder of Warrants or Warrant Shares (the "Selling Warrant Holder") desires to dispose of any Warrants or Warrant Shares, (the "Offered Warrant Securities"), except as otherwise permitted hereunder, such Selling Warrant Holder shall first give written notice (the "Warrant Securities Offer Notice") to the Corporation. A Warrant Securities Offer Notice shall (A) indicate that such Selling Warrant Holder wishes to dispose of the Offered Warrant Securities, and (B) state the price and other material terms upon which such Selling Warrant Holder wishes to dispose of such Warrant Securities and offer to sell the Offered Warrant Securities, in whole (but not in part) (the "Warrant Securities Offer") at the price and on the other material terms described in the Warrant Securities Offer Notice, first, to the Corporation and/or its designees. (ii) The Corporation and/or its designees may offer to accept a Warrant Securities Offer in whole (but not in part) by giving notice to the Selling Warrant Holder within thirty (30) days after the Warrant Securities Offer Date. The closing of such sale of Offered Warrant Securities shall be consummated within five (5) days after the date the Corporation's and/or its designees' offer is accepted by the Selling Warrant Holder at the principal office of the Corporation (or at such other times or places as such Selling Warrant Holder and the Corporation and/or its designees may agree). (iii) if the Offered Warrant Securities have not been accepted by the Corporation and/or its designees in accordance with this Section 6.1(c), the Selling Warrant Holder may dispose of the Offered Warrant Securities, to one or more Persons who each agree in writing to be bound by the terms of this Agreement, on substantially the same terms but not more favorable than those stated 15 in the Warrant Securities Offer Notice, at any time up to one hundred (100) days after the Warrant Securities Offer Date. Thereafter, the provisions of this Section 6.1(c) will again apply. (d) Notice of Transfer. Prior to or promptly after any assignment, transfer or sale of the Warrants or any Warrant Shares, the Holder thereof shall give written notice to the Corporation of such Holder's intention to effect such assignment, transfer or sale, which notice shall set forth the date of such proposed assignment, transfer or sale and the identity of the proposed transferee. Each Holder wishing to effect such a transfer of the Warrants or any Warrant Shares shall also furnish to the Corporation an agreement by the transferee thereof that it is taking and holding the same subject to the terms and conditions specified herein and a written opinion of such Holder's counsel, in form reasonably satisfactory to the Corporation, to the effect that the proposed transfer may be effected without registration under the Securities Act and applicable state securities laws. (e) Legend. Except as provided in Section 6.1(f) hereof, each Warrant Certificate and each certificate for the Warrant Shares issued to NationsBank or an Affiliate thereof or to a subsequent transferee thereof pursuant to Section 6.1(d) shall include the legend in substantially the form set forth in Section 2.2; provided that such legend shall not be required if such transfer is being made in connection with a sale which is exempt from registration pursuant to Rule 144 under the Securities Act. (f) Termination of Transfer Restrictions. The restrictions set forth in Sections 6.1(b) through (e) shall terminate and cease to be effective (i) if the Warrants or any Warrant Shares issuable upon exercise thereof are registered under the Securities Act and, in the case of Warrant Shares, when such Warrant Shares are sold in reliance upon Rule 144 or (ii) on such earlier date as of which the Corporation shall determine that such restrictions are no longer required under applicable securities laws (and the Corporation shall respond promptly, reasonably and in good faith to any reasonable request that the Corporation make such a determination). Whenever such restrictions shall so terminate the Holder of such Warrants and/or Warrant Shares shall be entitled to receive from the Company, without expense (other than transfer taxes and Florida documentary stamp tax, to the extent applicable), a new Warrant Certificate(s) or certificates for such Warrant Shares not bearing the legend set forth in Section 2.2 at which time the Company shall rescind any transfer restrictions relating thereto. ARTICLE 7 REGISTRATION RIGHTS NationsBank (and its permitted transferees and assignees of this Agreement) shall have and be entitled to exercise the rights of registration granted to, and shall be subject to the obligations of, "Other Stockholders" under the Registration Rights Agreement. As a condition precedent thereto, NationsBank and each subsequent permitted transferee and assignee shall execute and deliver to the Corporation and each other party to the Registration Rights Agreement a counterpart signature page thereto. 16 ARTICLE 8 MISCELLANEOUS 8.1 Loss or Mutilation. Upon receipt by the Corporation of (a) evidence satisfactory to it of the ownership, and the loss, theft, destruction or mutilation, of any Warrant Certificate and (b) of indemnity satisfactory to it or, in the ease of mutilation, upon surrender and cancellation of the mutilated Warrant Certificate, then, the Corporation shall execute and deliver to the registered Holder of the lost, stolen, destroyed or mutilated Warrant Certificate, in exchange for or in lieu thereof, a new Warrant Certificate of the same tenor and for a like aggregate number of Warrant Shares. Upon the issuance of any new Warrant Certificate under this Section 8.1, the Corporation may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and other expenses in connection therewith including any transfer taxes and Florida documentary stamp tax. Every new Warrant Certificate executed and delivered pursuant to this Section in lieu of any lost, stolen or destroyed Warrant Certificate shall constitute a contractual obligation of the Corporation, whether or not the allegedly lost, stolen or destroyed Warrant Certificate shall be at any time enforceable by anyone, and shall be entitled to the benefits of this Agreement. The provisions of this Section 8.1 are exclusive and shall preclude (to the extent lawful) all other rights or remedies with respect to the replacement of the mutilated, lost, stolen, or destroyed Warrant Certificate. 8.2 Payment of Taxes. The Corporation shall pay any taxes and other governmental charges that may be imposed on the Corporation under the laws of the United States of America or any political subdivision or taxing authority thereof or therein in respect of the issue or delivery of Warrant Shares or of other securities or property deliverable upon exercise of the Warrants. The Corporation shall not be required, however, to pay any tax or other charge imposed in connection with any transfer involved in the issue of any certificate for Warrant Shares or other securities or property issuable upon the exercise of the Warrants or payment of cash to any person other than the Holder of a Warrant Certificate surrendered upon exercise of the Warrants and in case of such transfer or payment, the Corporation shall not be required to issue any stock certificate or pay any cash until such tax or charge has been paid or it has been established to the Corporation's satisfaction that no such tax or charge is due. 8.3 Notices. Any notice, demand or delivery authorized by this Agreement shall be in writing and shall be delivered by hand or overnight courier service, mailed or set by facsimile as follows: 17 To the Corporation: Vitas Healthcare Corporation 100 South Biscayne Boulevard Miami, Florida 33131 Attention: Chief Executive Officer Telephone No. (305) 374-4765 To NationsBank: NationsBank, N.A. Independence Center, 15th Floor Charlotte, North Carolina 28255 Attention: Agency Services Telecopy: (704) 386-9923 or such other address or telecopy number as shall have been furnished to the party giving or making such notice, demand or delivery. Any notice that is sent in a manner provided herein shall have been duly given when sent. 8.4 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO CONFLICTS OF LAW PRINCIPLES THEREOF. 8.5 Assignment; Successors. Subject to Section 6.1 hereof, this Agreement may be assigned by NationsBank to any Affiliate at any time upon written notice. This Agreement shall be binding upon and inure to the benefit of the Corporation and the Holders and their respective successors and assigns, and the Holders from time to time of the Warrants. Nothing in this Agreement is intended or shall be construed to confer upon any person, other than the Corporation, and the Holders, any right, remedy or claim under or by reason of this Agreement or any part hereof. 8.6 Counterparts. This Agreement may be executed manually or by facsimile in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 8.7 Amendments. Any provision of this Agreement or the Warrant Certificate may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Corporation and the Holders of a majority in interest of the issued or issuable Warrant Shares; provided, however, if any amendment adversely affects the Exercise Price or the number of Warrant Shares issued upon exercise of any Warrant, then the Holders of all the issued or issuable Warrant Shares must sign the amendment. 18 8.8 Headings. The descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. 8.9 Third Party Beneficiaries. The Holders shall be third party beneficiaries to the agreements made hereunder between the Corporation, on the one hand, and NationsBank, on the other hand, and the Holders shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights or the rights of the Holder hereunder. 8.10 Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired or affected thereby, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law. 8.11 No Inconsistent Agreements. Except as set forth in the Registration Rights Agreement, the Corporation has not, as of the date hereof, entered into, nor shall it, on or after the date hereof, enter into, any agreement that is inconsistent with the rights granted to the Holders herein or that otherwise conflicts with the provisions hereof. 19 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered, as of the date first above written VITAS HEALTHCARE CORPORATION By: /s/ Hugh A. Westbrook ---------------------------------------- Name: Hugh A. Westbrook Title: Chairman and Chief Executive Officer NATIONSBANK, N.A. By: /s/ Allison Freeland ---------------------------------------- Name: Allison Freeland Title: Senior Vice President 20 EX-10.62 36 EXHIBIT 10.62 EXHIBIT 10.62 WARRANT CERTIFICATE THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN AGREEMENT WHICH INCLUDES A RIGHT OF FIRST REFUSAL ON THE SALE OF THE SECURITIES. COPIES OF THE AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION. THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND CANNOT BE OFFERED, SOLD OR TRANSFERRED WITHOUT REGISTRATION OR COMPLIANCE WITH EXEMPTION FROM REGISTRATION UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS AND REGULATIONS PROMULGATED THEREUNDER. A full statement of the powers, designations, preferences and relative, participating, optional or other special rights of the shares of each class of stock of the Corporation authorized to be issued, and the qualifications, Limitations or restrictions of such preferences and/or rights, will be furnished to any stockholder without charge upon request to the Secretary of the Corporation. No.1 Warrants to purchase an aggregate of 486,532 shares of Common Stock WARRANT TO PURCHASE COMMON STOCK This certifies that NationsBank, N.A. or its permitted assigns, is the holder of 486,532 Warrants to purchase shares of Common Stock ("Common Stock") of Vitas Healthcare Corporation (the "Corporation"). Each Warrant initially entitles the holder thereof (the "Holder") to purchase from the Corporation one (1) share of Common Stock at the purchase price (the "Exercise Price") set forth in the Warrant Agreement (as defined below), subject to the terms and conditions hereof and of the Warrant Agreement. In order to exercise the Warrants represented by this Warrant Certificate, the registered Holder hereof must surrender this Warrant Certificate at the office of Corporation as set forth in the Warrant Agreement or to its successor. This Warrant Certificate is issued under and in accordance with a Warrant Agreement dated as of July 18,1997 by and between NationsBank, N.A. and the Corporation (the "Warrant Agreement"), and is subject to the terms and provisions contained therein, to all of which terms and provisions the Holder of this Warrant Certificate consents by acceptance hereof. The Warrant Agreement is hereby incorporated herein by reference and made a part hereof. Reference is hereby made to the Warrant Agreement for a full description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Corporation and the Holder of the Warrants. The summary or the terms of the Warrant Agreement contained in this Warrant Certificate is qualified in its entirely by express reference to the Warrant Agreement. All terms used in this Warrant Certificate that are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement. Copies of the Warrant Agreement are on file at the office of the Corporation and may be obtained by writing to the Corporation requesting the same. The number of shares of Common Stock purchasable upon the exercise of the Warrants and the Exercise Price are subject to adjustment as provided in the Warrant Agreement. Subject to the requirements set forth in the Warrant Agreement and the restrictions on transfer set forth therein, this Warrant Certificate and all rights hereunder shall be transferable by the registered Holder hereof on the register of the Corporation maintained by the Corporation for such purpose at its office upon surrender of this Warrant Certificate duly endorsed, or accompanied by a written instrument of transfer in form satisfactory to the Corporation duly executed, by the registered Holder hereof or such Holder's attorney duly authorized in writing and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. Upon any partial transfer the Corporation will issue and deliver to such Holder a new Warrant Certificate with respect to any portion not so transferred. This Warrant Certificate shall be void and all rights evidenced hereby shall cease on the Expiration Date unless otherwise provided in the Warrant Agreement. 2 This Warrant Certificate and the Warrant Agreement are subject to amendment as provided in the Warrant Agreement. Dated: July 18, 1997. VITAS HEALTHCARE CORPORATION By: /s/ Hugh A. Westbrook --------------------------------- Name: Hugh A. Westbrook Title: Chairman and Chief Executive Officer 3 EX-10.63 37 EXHIBIT 10.63 EXHIBIT 10.63 [LETTERHEAD OF NATIONSBANK] July 18,1997 Mr. Hugh A. Westbrook Chairman of the Board and Chief Executive Officer Vitas Healthcare Corporation 100 South Biscayne Boulevard Suite 1500 Miami, Florida 33131 Re: Warrant to Purchase 486,532 Shares of Vitas Common Stock Dear Hugh: Reference is made to that certain Warrant Agreement to be entered into between Vitas Healthcare Corporation ("Vitas") and NationsBank, N.A. ("NationsBank") (the "Warrant Agreement"), pursuant to which Vitas proposes to issue to NationsBank a Warrant Certificate evidencing NationsBank's right to purchase 486,532 shares (the "Warrant Shares") of Vitas common stock, par value $.001 per share, at an exercise price of $.01 per share, subject to the terms and conditions thereof (the "Warrants"). The purpose of this letter is to confirm to Vitas Healthcare Corporation that in the event the United States Bankruptcy Court for the District of Arizona vacates its June 16, 1997 order authorizing the Trustee to enter into the Modification of Promissory Note A (the "Modification") (which execution of the Modification was a precondition to the effectiveness of Amendment No. 6 dated as of March 24, 1997 to the Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement dated as of February 17, 1995 between Vitas and NationsBank of Florida, National Association (predecessor in interest to NationsBank) (the "Credit Agreement") and, as a result, NationsBank declares an Event of Default under the Credit Agreement, then (i) all outstanding and unexercised Warrants shall terminate and be null and void, ab initio, and (ii) any Warrant Shares or other securities issued to the Holders (as such term is defined in the Warrant Agreement) pursuant to the Warrant Agreement shall be immediately transferred by such Holders to Vitas in exchange for the aggregate consideration received by Vitas from such Holders in connection with the issuance of such Warrant Shares or other securities. NationsBank further agrees that, in addition to any restrictions set forth in the Warrant Agreement, as a condition to transferring or assigning any of its rights or obligations in, to or under the Warrant Agreement, the Warrants, the Warrant Shares and any other securities issued in exchange therefor or pursuant thereto, NationsBank shall cause any such transferee or assignee to deliver to Vitas a letter agreement pursuant to which such transferee or assignee agrees to the provisions set forth in the preceding sentence. NATIONSBANK, N.A. By: /s/ Allison Freeland ----------------------------- Name Allison Freeland Title Senior Vice President EX-10.64 38 EXHIBIT 10.64 Exhibit 10.64 WARRANT AGREEMENT BETWEEN NATIONSBANK, N.A. AND VITAS HEALTHCARE CORPORATION September 1, 1997 TABLE OF CONTENTS ARTICLE 1 CERTAIN DEFINITIONS ARTICLE 2 ORIGINAL ISSUE OF WARRANTS 2.1 Form of Warrant Certificates.......................................... 5 2.2 Legend................................................................ 5 2.3 Delivery of the Warrants.............................................. 5 ARTICLE 3 EXERCISE OF WARRANTS 3.1 Exercise Price........................................................ 6 3.2 Restrictions on Exercise; Expiration.................................. 6 3.3 Method of Exercise; Payment of Exercise Price......................... 6 3.4 Dividends and Distributions........................................... 8 3.5 Stockholder Rights.................................................... 8 ARTICLE 4 ADJUSTMENTS 4.1 Adjustments........................................................... 9 4.2 Termination of Right of Exercise on Fundamental Corporate Changes..... 12 4.3 Statements in the Warrants............................................ 13 4.4 Fractional Interests.................................................. 13 4.5 No Dilution or Impairment............................................. 13 ARTICLE 5 RESERVATION AND AUTHORIZATION OF COMMON SHARES 5.1 Reservation and Authorization......................................... 13 5.2 Covenant Regarding Securities......................................... 13 5.3 Registration.......................................................... 13 ARTICLE 6 WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER 6.1 Transfer and Exchange................................................. 14 ARTICLE 7 REGISTRATION RIGHTS i ARTICLE 8 MISCELLANEOUS 8.1 Loss or Mutilation.................................................... 17 8.2 Payment of Taxes...................................................... 17 8.3 Notices............................................................... 17 8.4 Governing Law......................................................... 18 8.5 Assignment; Successors................................................ 18 8.6 Counterparts.......................................................... 18 8.7 Amendments............................................................ 18 8.8 Headings.............................................................. 19 8.9 Third Party Beneficiaries............................................. 19 8.10 Severability.......................................................... 19 8.11 No Inconsistent Agreements............................................ 19 ii WARRANT AGREEMENT WARRANT AGREEMENT, dated as of September 1, 1997 (this "Agreement"), between VITAS HEALTHCARE CORPORATION, a Delaware corporation (the "Corporation"), and NATIONSBANK, N.A. (successor by merger of NationsBank, N.A. (South) ("NationsBank"). WHEREAS, pursuant to the terms of an Amendment No. 7 dated as of September 1, 1997 ("Amendment No. 7") to Amended and Restated Revolving Credit, Term Loan and Reimbursement Agreement dated as of February 17, 1995, as amended, among the Corporation, NationsBank, as Agent, and NationsBank, as Lender (as previously amended and as amended by Amendment No. 7, the "Credit Agreement"), NationsBank, among other things, has agreed to continue to make available to the Corporation loans of up to $32,000,000 (the "Loans"), which Loans are evidenced by Notes of the Corporation in favor of NationsBank (the "Notes"); WHEREAS, in order to induce NationsBank to enter into Amendment No. 7, the Corporation has agreed to execute and deliver to NationsBank 291,918 stock purchase warrants ("Warrants") issued pursuant to this Agreement entitling the Holder(s) (as defined herein) thereof to purchase from the Corporation an aggregate of 291,918 shares (the "Warrant Shares") of the Corporation's common stock, par value $.001 per share ("Common Stock"), at the Exercise Price (as defined herein), subject to adjustment as provided in Article 4 hereof, at any time on or after the date hereof and before 5:00 P.M., New York City time, on the Expiration Date (as defined herein), subject to the terms and conditions hereof. NOW, THEREFORE, in consideration of the foregoing and of the agreements contained in the Credit Agreement, and for the purpose of defining the terms and provisions of the Warrants and Warrant Shares and the respective rights and obligations thereunder of the Corporation and the Holder(s), the Corporation and NationsBank hereby agree as follows: ARTICLE 1 CERTAIN DEFINITIONS For all purposes of this Agreement, except as otherwise expressly provided: (a) the terms defined in this Article 1 have the meanings assigned to them in this Article, and include the plural as well as the singular; and (b) the words "herein," "hereof" and "hereunder," and other words of similar import, refer to this Agreement as a whole and not to any particular article, section or other subdivision. "Adjustment Period" shall mean the period of five (5) consecutive trading days selected by the Board of Directors in its sole discretion, during the twenty (20) trading days preceding, and including the date as of which the Fair Market Value of a security is to be determined. "Affiliate" means, as to any Person, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "under common control with" and "controlled by"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting stock, by agreement or otherwise; provided, however, that beneficial ownership of 25% or more of the total voting power of all outstanding stock of a Person shall be deemed to be control of such Person. "Agreement" has the meaning set forth in the preamble hereto. "Amendment No. 7" has the meaning set forth in the preamble hereto. "Board of Directors" means the board of directors of the Corporation. "Business Day" means any day which is not a Saturday, Sunday or a day on which banking institutions in the States of New York or Florida are not authorized or obligated by law, executive order, regulation or governmental decree to close. "Commission" means the Securities and Exchange Commission. "Common Stock" has the meaning set forth in the preamble hereto. "Corporation" has the meaning set forth in the preamble hereto. "Current Market Price" of publicly traded shares of Common Stock or any other class of capital stock or other security of the Corporation or any other issuer for any given day shall mean the last reported sales price, regular way, or, in case no sale takes place on such day, the average reported closing bid and asked prices, regular way, in either case as reported on the New York Stock Exchange Composite Tape or, if such security is not listed or admitted to trading on any national securities exchange, on the NASDAQ National Market or, if such security is not quoted on such NASDAQ National Market, the average of the closing bid and asked prices on such day in the over-the-counter market as reported by NASDAQ, or, if bid and asked prices for such security on such day shall not have been reported through NASDAQ, the average of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm regularly making a market in such security selected for such purpose by the Board of Directors. "Credit Agreement" has the meaning set forth in the preamble hereto. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder. 2 "Exempt Securities" shall mean the issuance of (a) Warrant Shares or other securities issuable pursuant to the Warrants; (b) securities of the Corporation issued upon the exercise, conversion or exchange of securities of the Corporation issued prior to the date hereof; (c) shares of Common Stock or other Corporation securities issued or issuable as a result of adjustments under Section 4 or other applicable provisions of the Series B Certificate of Designation or similar provisions of other convertible securities; (d) any securities of the Corporation issued in exchange for assets or securities in a merger, consolidation, sale or purchase of assets or other business combination transaction approved by the Board of Directors; (e) any securities issuable or any adjustment made or to be made to the Warrants or Warrant Shares under Article 4 of this Agreement; (f) any rights or other securities issued or issuable pursuant to a stockholder rights agreement under which the Board of Directors would declare a dividend of one preferred (or common) share purchase right for each outstanding share of Common Stock provided that such stockholder rights agreement results in equivalent dividends on Warrant Shares; (g) any shares of Common Stock pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Corporation and the investment of additional optional amounts in shares of Common Stock under any such plan; (h) any shares of Common Stock in a public offering registered under the Securities Act; (i) any shares of Common Stock or options or rights to purchase such shares pursuant to any stock option or bonus plan or plans now or hereafter adopted by the Corporation (including any stock appreciation rights or employee stock ownership plan) for the benefit of directors, officers, employees and/or consultants of the Corporation and/or its subsidiaries or pursuant to any employee benefit plan or program now or hereafter adopted by the Corporation for the benefit of its employees and/or employees of its subsidiaries, or pursuant to any specific grant not pursuant to any plan or program that is approved by the Corporation's Board of Directors; or (j) the issuance or repurchase of Corporation securities on or prior to the date the Warrants are first issued (or any subsequent issuances of Common Stock, 9% Preferred Stock or Series B Preferred Stock issued pursuant to warrants, options or rights previously granted, outstanding or issued on the date the Warrants are first issued). "Exercise Price" has the meaning set forth in Section 3.1 hereof. "Expiration Date" means September 1, 2007. "Extraordinary Distribution" shall mean any dividend or other distribution with respect to the Common Stock (effected while any of the Warrants are outstanding) of any shares of capital stock of the Corporation (other than shares of Common Stock), other securities of the Corporation (other than securities of the type referred to in Section 4.1(c)), evidences of indebtedness of the Corporation or any other person or any other property other than cash (including shares of any subsidiary of the Corporation), or any combination thereof. "Fair Market Value" shall mean, as to shares of Common Stock or any other class of capital stock or securities of the Corporation or any other issuer which are publicly traded, the average of the Current Market Prices of such shares or securities for each day of the Adjustment Period. The "Fair Market Value" of any security which is not publicly traded or of any other 3 property shall mean the fair value thereof as determined in good faith by the Board of Directors in its sole discretion. "Holders" shall mean NationsBank or an Affiliate thereof and such other Persons to whom NationsBank or an Affiliate thereof transfers Warrants in compliance with the terms of this Agreement and each subsequent permitted transferee. "NationsBank" has the meaning set forth in the preamble hereto. "9% Certificate of Designation" shall mean the Certificate of Designation, Preferences and Other Rights of the 9.0% Cumulative Nonconvertible Preferred Stock of the Corporation, as amended from time to time. "9% Preferred Stock" shall mean the 9.0% Cumulative Nonconvertible Preferred Stock of the Corporation, par value $1.00 per share, which is issued under the 9% Certificate of Designation. "Notes" has the meaning set forth in the preamble hereto. "Person" shall mean a natural person, partnership, corporation, association, joint stock company, trust, joint venture, unincorporated association, governmental entity or any department, agency or political subdivision thereof, or other entity. "Private Placement Legend" means the legend in the form set forth in Section 2.2 hereof. "Qualified Initial Public Offering" shall mean public offering of the Corporation's Common Stock resulting in gross proceeds to the Corporation of not less than $12 million and at a total market capitalization of the common equity of the Corporation at that time of not less than $60 million. "Registration Rights Agreement" shall mean that certain Registration Rights Agreement dated as of June 4, 1993 among the Corporation, certain stockholders of the Corporation, Cherned Corporation and the investors identified on Schedule A thereto. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. "Series B Certificate of Designation" shall mean the Certificate of Designation, Preferences and Other Rights of the Series B Convertible Preferred Stock of the Corporation, as amended from time to time. "Series B Preferred Stock" shall mean the Series B Convertible Preferred Stock of the Corporation, par value $1.00 per share, which is issued under the Series B Certificate of Designation. 4 "Warrants" has the meaning set forth in the preamble hereto. "Warrant Certificate" has the meaning set forth in Section 2.1 hereto. "Warrant Shares" has the meaning set forth in the preamble hereto. ARTICLE 2 ORIGINAL ISSUE OF WARRANTS 2.1 Form of Warrant Certificates. Any certificate representing the Warrants (a "Warrant Certificate"), the form of which is attached hereto as Exhibit A, shall be detachable from the Credit Agreement and any Notes and shall be dated the date on which it is signed by a duly authorized officer of the Corporation and shall have such insertions as are appropriate or required or permitted by this Agreement and may have such letters, numbers or other marks of identification as the Corporation may deem appropriate and as are not inconsistent with the provisions of this Agreement. 2.2 Legend. Subject to the provisions hereof, each Warrant Certificate and each certificate representing securities acquired upon exercise of the Warrants shall bear the following legend on the face thereof: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN AGREEMENT WHICH INCLUDES A RIGHT OF FIRST REFUSAL ON THE SALE OF THE SECURITIES. COPIES OF THE AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION. THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND CANNOT BE OFFERED, SOLD OR TRANSFERRED WITHOUT REGISTRATION OR COMPLIANCE WITH EXEMPTION FROM REGISTRATION UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS AND REGULATIONS PROMULGATED THEREUNDER. A full statement of the powers, designations, preferences and relative, participating, optional or other special rights of the shares of each class of stock of the Corporation authorized to be issued, and the qualifications, limitations or restrictions of such preferences and/or rights, will be furnished to any stockholder without charge upon request to the Secretary of the Corporation. 2.3 Delivery of the Warrants This Agreement contemplates the issuance of up to 291,918 Warrants, subject to adjustment as provided herein. Concurrently with the execution and delivery of this Agreement, 5 the Corporation shall issue to NationsBank or an Affiliate thereof in connection therewith (but detachable therefrom) a Warrant Certificate for 291,918 Warrants. ARTICLE 3 EXERCISE OF WARRANTS 3.1 Exercise Price. The Warrant Certificate shall entitle the Holders thereof, subject to the provisions of this Agreement, to purchase an aggregate of two hundred ninety-one thousand nine hundred eighteen (291,918) Warrant Shares at a per share purchase price (the "Exercise Price") of $.01, subject to the limitations and adjustments as provided in Article 4 hereof; provided, however, that in no event shall the exercise price per share of Common Stock be less than the par value of such Common Stock. 3.2 Restrictions on Exercise; Expiration. Subject to the limitations and adjustments as provided herein, on or before the Expiration Date, the Warrants may be exercised on any Business Day as to all or any portion of the Warrant Shares for which the Warrants are then exercisable as follows: (a) as of the date of this Agreement and the issuance of the Warrant Certificate, the number of Warrants which may be exercised pursuant to this Agreement, and the number of Warrant Shares issuable upon exercise of such Warrants, shall be none; (b) in the event the Corporation shall not have paid in full its Obligations (as defined in the Credit Agreement) on or prior to April 29, 1998, the number of Warrants which may be exercised pursuant to this Agreement, and the number of Warrant Shares issuable upon exercise of such Warrants, shall be 97,306 effective as of April 30, 1998; (c) in the event the Corporation shall not have been paid in full its Obligations (as defined in the Credit Agreement) on or prior to July 30, 1998, the number of warrants which may be exercised pursuant to this Agreement, and the number of Warrant Shares issuable upon exercise of such Warrants, shall be automatically increased to 194,612 effective as of July 31, 1998; and (d) in the event the Corporation shall not have paid in full its Obligations (as defined in the Credit Agreement) on or prior to September 29, 1998, the number of Warrants which may be exercised pursuant to this Agreement, and the number of Warrant Shares issuable upon exercise of such Warrants, will be automatically increased to 291,918 effective as of September 30, 1998. The Exercise Price shall not be adjusted by reason of any such increase in the number of Warrants which may be exercised and in the number of Warrant Shares issuable upon such exercise. If any of the Warrants are not exercised by 5:00 p.m., New York City time, on the Expiration Date, this Agreement and all unexercised Warrants shall expire and all rights of the Holders hereunder and thereunder shall terminate unless otherwise provided herein or therein. 3.3 Method of Exercise; Payment of Exercise Price. (a) In order to exercise any of the Warrants, the Holder thereof must provide written notice to the Corporation at its address set forth in Section 8.3 hereof in the form attached hereto as Exhibit B specifying the number of Warrants being exercised. Such notice shall be 6 accompanied by Warrant Certificates representing not less than the number of Warrants being exercised, together with payment in full of the per share Exercise Price multiplied by the number of Warrant Shares to be purchased pursuant to the exercise. The Exercise Price shall be payable at the option of the Holder, by wire transfer, certified check, official bank check or bank cashier's check payable to the order of the Corporation. (b) In lieu of exercising Warrants pursuant to Section 3.3(a), the Holder shall have the right to require the Corporation to convert the Warrants, in whole or in part and at any time or times (the "Conversion Right"), into Warrant Shares, by surrendering to the Corporation at its address set forth in Section 8.3 hereof the Warrant Certificate evidencing the Warrants to be converted, accompanied by the form of conversion notice attached hereto as Exhibit C which has been duly completed and signed. Upon exercise of the Conversion Right, the Corporation shall deliver to the Holder (without payment by the Holder of any Exercise Price) that number of Warrant Shares which is equal to the quotient obtained by dividing (x) the value of the number of Warrants being converted at the time the Conversion Right is exercised (determined by subtracting the aggregate Exercise Price for all such Warrants immediately prior to the exercise of the Conversion Right from the aggregate Fair Market Value of that number of Warrant Shares purchasable upon exercise of such Warrants immediately prior to the exercise of the Conversion Right (taking into account all applicable adjustments pursuant to Article 4), by (y) the Fair Market Value of one share of Common Stock immediately prior to the exercise of the Conversion Right. Any references in this Agreement to the "exercise" of any Warrants, and the use of the term "exercise" herein, shall be deemed to include (without limitation) any exercise of the Conversion Right. (c) If the number of Warrants being exercised is less than the number of Warrants represented by the Warrant Certificate(s) tendered in connection with the exercise, the Corporation shall issue new Warrant Certificate(s) for the unexercised Warrants in accordance with instructions contained in the notice of exercise and this Agreement. (d) Upon exercise of any Warrant in conformity with the foregoing provisions, the Corporation shall (i) transfer promptly to, or upon the written order of, the Holder of such Warrant, appropriate evidence of ownership of any Warrant Shares or other securities or property (including money) to which it is entitled, registered or otherwise placed in such name or names as may be directed in writing by the Holder thereof, (ii) deliver such evidence of ownership and any other securities or property (including money) to the person or persons entitled to receive the same, and (iii) reissue, as the case may be, a Warrant Certificate for any unexercised Warrants. Each new Warrant Certificate so issued shall bear the legend set forth in Section 2.2 if the Warrant Certificate presented in connection with partial exercise thereof bore such legend except to the extent that some or all of the transfer restrictions referred to in such legend or this Agreement are no longer applicable pursuant to Article 6 or as a result of registration of the Warrant Shares pursuant to Article 7. All Warrant Certificates surrendered upon exercise of Warrants shall be canceled. A Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of the surrender to the Corporation for exercise of the Warrant Certificate representing such Warrant being exercised and accompanied by the notice required 7 under Section 3(a) or 3(b), as the case may be, for all purposes of this Agreement, the person entitled to receive any Warrant Shares or other securities or property deliverable upon such exercise shall, as between such person and the Corporation, be deemed to be the Holder of such Warrant Shares or other securities or property of record as of the close of business on such date and shall be entitled to receive any Warrant Shares or other securities or property (including money) to which such person would have been entitled had such person been the record holder of such Warrant Shares or other securities or property on such date. 3.4 Dividends and Distributions. For so long as any of the Warrants remain outstanding and unexercised, the Corporation will, upon the declaration of a cash dividend upon its Common Stock or other distribution to the holders of its Common Stock (other than a dividend payable in shares of the Corporation's Common Stock) and at least twenty (20) calendar days prior to the record date for such dividend or other distribution (or if no record date is specified, twenty (20) calendar days prior to the taking of the action), notify the Holders of such declaration, which notice will contain, at a minimum, the following information: (i) the date of the declaration of the dividend or distribution, (ii) the amount of such dividend or distribution, (iii) the record date of such dividend or distribution, and (iv) the payment date or distribution date of such dividend or distribution. The failure to give the notice required by this Section 3.4 or any defect therein shall not affect the legality or validity of such dividend or distribution. 3.5 Stockholder Rights. (a) Nothing contained in this Agreement or in any of the Warrant Certificates shall be construed as conferring upon the Holders thereof the right to vote or to consent or to receive notice as a stockholder in respect of the meetings of stockholders or the election of directors of the Corporation or any other matter, or any rights whatsoever as a stockholder of the Corporation. (b) Nothing contained in this Agreement or in any of the Warrant Certificates shall be construed as imposing any obligation on the registered Holders thereof to purchase any securities or as imposing any liabilities on such Holders as stockholders of the Corporation, whether such obligation or liabilities are asserted by the Corporation or by creditors of the Corporation (except for indemnities and other obligations in connection with registration rights). 8 ARTICLE 4 ADJUSTMENTS 4.1 Adjustments. The Exercise Price and the number of Warrant Shares issuable upon exercise of each Warrant shall be subject to adjustment from time to time as follows: (a) Intentionally Omitted. (b) Adjustments for Changes in Common Stock. Subject to the provisions of Section 4.1(e), in the event the Corporation shall, at any time or from time to time while any of the Warrants are outstanding, (i) pay a dividend or make a distribution in respect of the Common Stock in shares of Common Stock or (ii) subdivide or combine the outstanding shares of Common Stock into a greater or lesser number of shares, in each case whether by reclassification of shares, recapitalization of the Corporation or otherwise, then, in such event, each Warrant will automatically, without any action on the part of the Holder or the Corporation, become exercisable for that number of Warrant Shares equal to the number of Warrant Shares for which a Warrant was exercisable immediately prior to such event multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock outstanding immediately before such event. An adjustment pursuant to this Section 4.1(b) shall be effective upon payment of such dividend or distribution in respect of the Common Stock and in the case of a subdivision or combination shall become effective immediately as of the effective date thereof. Concurrently with the automatic adjustment pursuant to this Section 4.1(b), the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately before the event by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately before such event and the denominator of which is the number of shares of Common Stock outstanding immediately after such event. (c) Below Market Issuances. Subject to the provisions of Section 4.1(e), in the event the Corporation shall, at any time or from time to time while any of the Warrants are outstanding, sell or issue shares of Common Stock (other than in a transaction subject to Section 4.1(b)), any security convertible into shares of Common Stock or any option, right or warrant to purchase shares of Common Stock for no consideration or at a purchase price per share of Common Stock, or conversion price in the case of a security convertible into Common Stock, less than the Fair Market Value of a share of Common Stock on the date of issuance of such Common Stock, security convertible into Common Stock, option, right or warrant, then, in such event, each Warrant will automatically, without any action on the part of the holder thereof or the Corporation, become exercisable for that number of Warrant Shares equal to the number of Warrant Shares for which a Warrant was exercisable immediately before such sale or issuance of Common Stock, securities convertible into Common Stock, options, rights or warrants multiplied by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately before such sale or issuance of Common Stock, securities convertible into Common Stock, options, rights or warrants plus the maximum number of shares of Common Stock that could be acquired upon the sale or issuance of the Common Stock or upon exercise in full of all 9 such conversion rights, options, rights and warrants and the denominator of which is the number of shares of Common Stock outstanding immediately before such sale or issuance of Common Stock, securities convertible into Common Stock, options, rights or warrants plus the number of shares of Common Stock which could be purchased at the Fair Market Value of a share of Common Stock at the time of such sale or issuance for the maximum aggregate consideration payable upon the sale or issuance of the Common Stock or upon exercise in full of all such conversion rights, options, rights or warrants. Concurrently with the automatic adjustment pursuant to this Section 4.1(c), the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately before such sale or issuance of Common Stock, securities convertible into Common Stock, options, rights or warrants by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately before such sale or issuance of Common Stock, securities convertible into Common Stock, options, rights or warrants plus the number of shares of Common Stock which could be purchased at the Fair Market Value of a share of Common Stock at the time of such sale or issuance for the maximum aggregate consideration payable upon the sale or issuance of the Common Stock or upon exercise in full of all such conversion rights, options or warrants, and the denominator of which is the number of shares of Common Stock outstanding immediately before such sale or issuance of Common Stock, securities convertible into Common Stock, options, rights or warrants plus the maximum number of shares that could be acquired upon the sale or issuance of the Common Stock or upon the exercise in full of all such conversion rights, options, rights and warrants. For purposes of this Section 4.1(c), all shares of Common Stock issuable upon the conversion of such convertible securities or upon exercise of such options, warrants or rights shall be deemed to have been issued, for the purpose of computing the number of Warrant Shares for which a Warrant is exercisable and the Exercise Price hereunder, as of the time such convertible securities, options, warrants or rights are issued or sold. If any rights of conversion or exercise of such convertible securities, options, rights or warrants shall expire without having been exercised, the number of Warrants Shares for which a Warrant is exercisable and the Exercise Price shall forthwith be automatically adjusted to be the number of Warrant Shares for which a Warrant is exercisable and the Exercise Price that would have been in effect had an adjustment been made on the basis that the only shares of Common Stock issued or sold were those actually issued upon the conversion or exercise of such convertible securities, options, rights or warrants. For purposes of this Section 4.1(c), the date of issuance of options for shares of Common Stock shall mean the date of their grant. For purposes of this Section 4.1(c), "Common Stock outstanding shall mean all shares of Common Stock outstanding on a fully diluted basis, as if all securities convertible into or exchangeable for Common Stock had been fully converted into or exchanged for shares of Common Stock and any outstanding options, warrants or other rights to purchase Common Stock or securities convertible into or exchangeable for Common Stock had been fully exercised (and the resulting securities converted into or exchanged for Common Stock), but excluding shares of Common Stock issuable upon exercise of the Warrants. (d) Extraordinary Distributions. Subject to the provisions of Section 4.1(e) and Section 4.2, in the event the Corporation shall, at any time or from time to time while any of the Warrants are outstanding, make an Extraordinary Distribution in respect of the Common Stock, whether by dividend, distribution, reclassification of shares or recapitalization of the Corporation 10 (including recapitalization or reclassification effected by a merger or consolidation in which the Corporation is the surviving entity) then, in such event, each Warrant will automatically, without any action on the part of the holder thereof or the Corporation, become exercisable for that number of Warrant Shares equal to the number of Warrant Shares for which a Warrant was exercisable immediately before such Extraordinary Distribution multiplied by a fraction the numerator of which is the product of (a) the number of shares of Common Stock outstanding immediately before such Extraordinary Distribution multiplied by (b) the Fair Market Value of a share of Common Stock on the record date with respect to an Extraordinary Distribution and the denominator of which is (i) the product of (x) the number of shares of Common Stock outstanding immediately before such Extraordinary Distribution multiplied by (y) the Fair Market Value of a share of Common Stock on the record date with respect to an Extraordinary Distribution minus (ii) the Fair Market Value of the Extraordinary Distribution. The Corporation shall send each Holder notice of its intent to make any Extraordinary Distribution at the same time as, or as soon as practicable after, such offer is first communicated (including by announcement of a record date in accordance with the rules of any stock exchange on which the Common Stock is listed or admitted to trading) to holders of Common Stock. Such notice shall indicate the intended record date and the amount and nature of such distribution, as well as the Exercise Price and the number of Warrant Shares for which a Warrant may be exercised at such time. Concurrently with the automatic adjustment pursuant to this Section 4.1(d), the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately before such Extraordinary Distribution by a fraction the numerator of which is (i) the product of (x) the number of shares of Common Stock outstanding immediately before such Extraordinary Distribution multiplied by (y) the Fair Market Value of a share of Common Stock on the record date with respect to an Extraordinary Distribution, minus (ii) the Fair Market Value of the Extraordinary Distribution and the denominator of which is the product of (a) the number of shares of Common Stock outstanding immediately before such Extraordinary Distribution multiplied by (b) the Fair Market Value of a share of Common Stock on the record date with respect to an Extraordinary Distribution. (e) Exempt Securities. Notwithstanding any other provision herein to the contrary, the issuance of any Exempt Securities shall not be deemed to constitute an issuance of Common Stock or other security of the Corporation (or in the case of any repurchase, any Extraordinary Distribution) for purposes of the foregoing anti-dilution provisions. (f) De Minimis Adjustments. Notwithstanding any other provisions of this Section 4.1, the Corporation shall not be required to make (i) any adjustment of the number of Warrant Shares or the Exercise Price unless such adjustment would require an increase or decrease of at least one percent (1%) in the aggregate number of Warrant Shares for which Warrants are exercisable at that time, or (ii) any adjustment of the Exercise Price unless such adjustment would require an increase or decrease of at least one percent (1%) in the Exercise Price. Any lesser adjustment shall be carried forward and shall be made no later than the time of, and together with, the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least one percent (1%) of the number of Warrant Shares for which Warrants are exercisable at that time or an increase or decrease of at least one percent (1%) of the Exercise Price, whichever the case may be. If any action would require adjustment of the Exercise 11 Price pursuant to more than one paragraph of Section 4.1, only one adjustment shall be made as determined in good faith by the Board of Directors of the Corporation. (g) Notice of Adjustment. Whenever an adjustment to the Exercise Price or number of Warrants and Warrant Shares is required pursuant to this Section 4.1, the Corporation shall forthwith place on file with the transfer agent for the Common Stock, if any, and with the Treasurer of the Corporation, a statement signed by the Treasurer or Assistant Treasurer of the Corporation stating the adjusted number of Warrant Shares and the Exercise Price determined as provided herein. Such statement shall set forth in reasonable detail such facts as shall be necessary to show the reason and the manner of computing such adjustment, including any determination of Fair Market Value involved in such computation. Promptly after each adjustment to the number of Warrant Shares for which Warrants are exercisable or the Exercise Price, the Corporation shall mail a notice thereof and of the then prevailing number of Warrant Shares for which Warrants are exercisable and the Exercise Price to each Holder. 4.2 Termination of Right of Exercise on Fundamental Corporate Changes. Notwithstanding anything herein to the contrary, and subject to the notice requirements of this Section 4.2, if the Corporation shall be a party to any transaction which involves any consolidation or merger of the Corporation with another corporation, or any sale of all or substantially all of the assets of the Corporation to another corporation, and which is effected in such a way that the holders of Common Stock shall be entitled to receive cash, stock, securities or other assets with respect to or in exchange for Common Stock, then the right to exercise the Warrants and thereby to purchase shares of Common Stock shall terminate at the close of business on the date as of which the holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for cash, securities or other assets deliverable upon such consolidation, merger or sale of all or substantially all of the assets of the Corporation. In case the Corporation shall enter into any agreement or understanding or the Board of Directors shall adopt any resolution authorizing or proposing any transaction of the type described in this Section 4.2, or with respect to a voluntary or involuntary dissolution, liquidation or winding up of the Corporation, then in any such event the Corporation promptly shall cause to be mailed, by registered or certified mail, postage paid, to the Holder of this Warrant at such Holder's last address appearing on the records of the Corporation at the earliest practicable time (and, in any event, not later than the later of (i) the date the proxy materials (if any) are first distributed (or other notice is first given) to the Corporation's shareholders regarding the proposed transaction, or (ii) 20 days before the effective date (or record date, if earlier) of such proposed transaction), notice of the date on which such reorganization, sale, consolidation, merger, dissolution, liquidation or winding up or other such transaction shall take place, as the case may be. Such notice shall also set forth such facts as shall indicate the effect of such action (to the extent such effect may be known at the date of such notice) on the Exercise Price and the kind and amount of securities and property purchasable upon exercise of the Warrants. Such notice shall also specify the date as of which the holders of record of the shares of Common Stock or other securities or property purchasable upon exercise of the Warrants shall be entitled to exchange their shares or other securities or property for securities, money or other property deliverable upon such reorganization, sale, consolidation, merger, dissolution, liquidation or winding up or other such transaction, as the case may be. 12 4.3 Statements in the Warrants. Notwithstanding any adjustment in the Exercise Price or the number or kind of Warrant Shares purchasable upon the exercise of the Warrants, the Warrant Certificates theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the Warrant Certificate initially issued pursuant to this Agreement. 4.4 Fractional Interests. In computing adjustments under this Article 4, fractional interests in Common Stock shall be taken into account to the nearest one-thousandth of a share. No fractional shares of Common Stock or scrip representing fractional shares of Common Stock shall be issued upon any exercise of the Warrants, but, in lieu thereof, there shall be paid an amount in cash equal to the same fraction of the Market Price of a whole share of Common Stock on the business day preceding the day of exercise. 4.5 No Dilution or Impairment. The Corporation shall not amend its Certificate of Incorporation or participate in any reorganization, transfer or assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, for the purpose of avoiding or seeking to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times, in good faith, assist in carrying out all such actions as may be reasonably necessary or appropriate in order to protect the rights of the holders of the Warrants against dilution or other impairment as set forth in this Agreement. ARTICLE 5 RESERVATION AND AUTHORIZATION OF COMMON SHARES 5.1 Reservation and Authorization. The Corporation shall at all times reserve and keep available for issuance upon exercise of the Warrants such number of its duly authorized but unissued shares of Common Stock or other securities of the Corporation purchasable upon exercise of the Warrants as will be sufficient to permit the exercise in full of all outstanding Warrants and will cause appropriate evidence of ownership of such shares of Common Stock or other securities to be delivered to the Holders of the Warrants upon their request for delivery of such, and all such shares of Common Stock or other securities shall, at all times, be duly approved for listing, subject to official notice of issuance, on each securities exchange, if any, on which such shares of Common Stock or other securities are then listed. 5.2 Covenant Regarding Securities. The Corporation covenants that all shares of Common Stock or other securities of the Corporation that may be issued upon the exercise of the Warrants will, upon issuance, be (a) duly authorized, validly issued, fully paid and nonassessable, (b) free from preemptive and any other similar rights and (c) free from any taxes, liens, charges or security interest with respect thereto except transfer taxes and Florida documentary stamp taxes to the extent applicable thereto. 5.3 Registration. If the Warrant Shares or any securities of the Corporation issuable to NationsBank upon the exercise of the Warrants require registration with, or approval of, any governmental authority (in addition to such as the Corporation is required to obtain pursuant to 13 Article 7 hereof), or the taking of any other action (in addition to such as the Corporation is required to obtain pursuant to Article 7 hereof), under the laws of the United States of America or any state or political subdivision thereof, before such securities may be validly offered or sold in compliance with such laws, then the Corporation covenants that it will, in good faith and as expeditiously as practicable, endeavor to secure and maintain such registration or approval or to take such other action, as the case may be; provided, however, that the Corporation will not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action that would subject it to general service of process or to taxation in any such jurisdiction where it is not then so subject; provided, further, that the expenses of such registration shall be allocated in accordance with the provisions of the Registration Rights Agreement. ARTICLE 6 WARRANT TRANSFER BOOKS; RESTRICTIONS ON TRANSFER 6.1 Transfer and Exchange. (a) Warrant Register. The Corporation shall keep and maintain at its office a register in which, subject to such reasonable regulations as it may prescribe, the Corporation shall provide for the registration of the Warrant Certificates on the Corporation's records and transfers or exchanges of the Warrant Certificates as herein provided. (b) Restrictions on Transfer. (i) Each of NationsBank and its Affiliates who are issued Warrants pursuant to this Warrant Agreement (A) represents that it is acquiring the Warrants for its own account for investment and not with a view to any distribution or public offering within the meaning of the Securities Act, except in any case pursuant to the registration of such Warrants or Warrant Shares under the Securities Act or any state securities or "blue sky" laws or pursuant to a valid exemption from such registration requirement, (B) acknowledges that the Warrants and the Warrant Shares issuable upon exercise thereof have not been registered under the Securities Act or any state securities or "blue sky" laws and (C) agrees that it will not sell or otherwise transfer any of its Warrants or Warrant Shares except upon the terms and conditions specified herein and that it will cause any transferee thereof to agree to take and hold the same subject to the terms and conditions specified herein, (D) acknowledges that any transfer agent now or hereafter employed or utilized by the Corporation shall be instructed not to effect transfer of the Warrants or the Warrant Shares issuable upon exercise thereof without prior authorization from the Corporation in accordance with the terms hereof (or, if the Corporation serves as its own transfer agent, a notation shall be made in the Corporation's records indicating the transfer restrictions to which the Warrants and Warrant Shares issuable upon exercise thereof are subject and that the Warrants and the Warrant Shares may only be transferable in accordance with this Agreement); and (E) represents it (I) is an "accredited investor" (as defined in Rule 501(a)(1) of Regulation D promulgated under the Securities Act by the Commission);(II) has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment in the Warrants and Warrant Shares issuable upon exercise of the Warrants; (III) is able to bear the complete loss of its investment in the Warrants and Warrant Shares issuable upon exercise of the Warrants; (IV) has had the opportunity to ask questions of, and receive answers from, the Corporation and its management concerning the 14 terms and conditions of the offering of the Warrants and Warrant Shares issuable upon exercise of the Warrants and to obtain additional information; and (V) is not relying upon any statements or instruments made or issued by any person other than the Corporation in making its decision to invest in the Warrants and Warrant Shares issuable upon exercise of the Warrants; and (ii) each of NationsBank and its Affiliates who are issued Warrants pursuant to this Agreement (A) is domiciled in North Carolina and received its offer to purchase Warrants and Warrant Shares in North Carolina; (B) understands that the Warrants and Warrant Shares issuable upon exercise of the Warrants will be considered restricted securities within the meaning of Rule 144 under the Securities Act; that Rule 144 may not be available for exemption from the registration requirements of the Securities Act for the sale of such restricted securities; that if Rule 144 is available, sales may be made in reliance upon Rule 144 only in accordance with the terms and conditions of Rule 144, which among other things generally requires that the securities be held for at least one year and that the sales shall be made in limited amounts; and that, if an exemption for such sales by such holder of the Warrants or the Warrant Shares is not available, registration of the securities may be required, but that the Corporation is under no obligation to register the securities or to facilitate compliance or to comply with any exemption except pursuant to Article 7 of this Agreement; and (C) agrees that it will not sell, transfer, hypothecate, or otherwise dispose of any of the Warrants and Warrant Shares issuable upon exercise of the Warrants, except in compliance with the Securities Act and applicable securities laws. (c) Right of First Refusal. Notwithstanding any other provision of this Agreement, until the Corporation consummates a Qualified Initial Public Offering, no assignment, transfer or sale of any Warrants or any Warrant Shares (other than a sale to an Affiliate) shall be made except in compliance with this Agreement and the following right of first refusal: (i) If any Holder of Warrants or Warrant Shares (the "Selling Warrant Holder") desires to dispose of any Warrants or Warrant Shares, (the "Offered Warrant Securities"), except as otherwise permitted hereunder, such Selling Warrant Holder shall first give written notice (the "Warrant Securities Offer Notice") to the Corporation. A Warrant Securities Offer Notice shall (A) indicate that such Selling Warrant Holder wishes to dispose of the Offered Warrant Securities, and (B) state the price and other material terms upon which such Selling Warrant Holder wishes to dispose of such Warrant Securities and offer to sell the Offered Warrant Securities, in whole (but not in part)(the "Warrant Securities Offer") at the price and on the other material terms described in the Warrant Securities Offer Notice, first, to the Corporation and/or its designees. (ii) The Corporation and/or its designees may offer to accept a Warrant Securities Offer in whole (but not in part) by giving notice to the Selling Warrant Holder within thirty (30) days after the Warrant Securities Offer Date. The closing of such sale of Offered Warrant Securities shall be consummated within five (5) days after the date the Corporation's and/or its designees' offer is accepted by the Selling Warrant Holder at the principal office of the Corporation (or at such other times or places as such Selling Warrant Holder and the Corporation and/or its designees may agree). (iii) If the Offered Warrant Securities have not been accepted by the Corporation and/or its designees in accordance with this Section 6.1(c), the Selling Warrant Holder may dispose of the Offered Warrant Securities, to one or more Persons who each agree in writing to be bound by the terms of this Agreement, on substantially the same terms but not more favorable than those stated 15 in the Warrant Securities Offer Notice, at any time up to one hundred (100) days after the Warrant Securities Offer Date. Thereafter, the provisions of this Section 6.1(c) will again apply. (d) Notice of Transfer. Prior to or promptly after any assignment, transfer or sale of the Warrants or any Warrant Shares, the Holder thereof shall give written notice to the Corporation of such Holder's intention to effect such assignment, transfer or sale, which notice shall set forth the date of such proposed assignment, transfer or sale and identify of the proposed transferee. Each Holder wishing to effect such a transfer of the Warrants or any Warrant Shares shall also furnish to the Corporation an agreement by the transferee thereof that it is taking and holding the same subject to the terms and conditions specified herein and a written opinion of such Holder's counsel, in form reasonably satisfactory to the Corporation, to the effect that the proposed transfer may be effected without registration under the Securities Act and applicable state securities laws. (e) Legend. Except as provided in Section 6.1(f) hereof, each Warrant Certificate and each certificate for the Warrant Shares issued to NationsBank or an Affiliate thereof or to a subsequent transferee thereof pursuant to Section 6.1(d) shall include the legend in substantially the form set forth in Section 2.2; provided that such legend shall not be required if such transfer is being made in connection with a sale which is exempt from registration pursuant to Rule 144 under the Securities Act. (f) Termination of Transfer Restrictions. The restrictions set forth in Sections 6.1(b) through (e) shall terminate and cease to be effective (i) if the Warrants or any Warrant Shares issuable upon exercise therof are registered under the Securities Act and, in the case of Warrant Shares, when such Warrant Shares are sold in reliance upon Rule 144 or (ii) on such earlier date as of which the Corporation shall determine that such restrictions are no longer required under applicable securities laws (and the Corporation shall respond promptly, reasonably and in good faith to any reasonable request that the Corporation make such a determination). Whenever such restrictions shall so terminate the Holder of such Warrants and/or Warrant Shares shall be entitled to receive from the Company, without expense (other than transfer taxes and Florida documentary stamp tax, to the extent applicable), a new Warrant Certificate(s) or certificates for such Warrant Shares not bearing the legend set forth in Section 2.2 at which time the Company shall rescind any transfer restrictions relating thereto. ARTICLE 7 REGISTRATION RIGHTS NationsBank (and its permitted transferees and assignees of this Agreement) shall have and be entitled to exercise the rights of registration granted to, and shall be subject to the obligations of, "Other Stockholders" under the Registration Rights Agreement. As a condition precedent thereto, NationsBank and each subsequent permitted transferee and assignee shall execute and deliver to the Corporation and each other party to the Registration Rights Agreement a counterpart signature page thereto. 16 ARTICLE 8 MISCELLANEOUS 8.1 Loss or Mutilation. Upon receipt by the Corporation of (a) evidence satisfactory to it of the ownership, and the loss, theft, destruction or mutilation, of any Warrant Certificate and (b) of indemnity satisfactory to it or, in the case of mutilation, upon surrender and cancellation of the mutilated Warrant Certificate, then, the Corporation shall execute and deliver to the registered Holder of the lost, stolen, destroyed or mutilated Warrant Certificate, in exchange for or in lieu thereof, a new Warrant Certificate of the same tenor and for a like aggregate number of Warrant Shares. Upon the issuance of any new Warrant Certificate under this Section 8.1, the Corporation may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and other expenses in connection therewith including any transfer taxes and Florida documentary stamp tax. Every new Warrant Certificate executed and delivered pursuant to this Section in lieu of any lost, stolen or destroyed Warrant Certificate shall constitute a contractual obligation of the Corporation, whether or not the allegedly lost, stolen or destroyed Warrant Certificate shall be at any time enforceable by anyone, and shall be entitled to the benefits of this Agreement. The provisions of this Section 8.1 are exclusive and shall preclude (to the extent lawful) all other rights or remedies with respect to the replacement of the mutilated, lost, stolen, or destroyed Warrant Certificates. 8.2 Payment of Taxes. The Corporation shall pay any taxes and other governmental charges that may be imposed on the Corporation under the laws of the United States of America or any political subdivision or taxing authority thereof or therein in respect of the issue or delivery of Warrant Shares or of other securities or property deliverable upon exercise of the Warrants. The Corporation shall not be required, however, to pay any tax or other charge imposed in connection with any transfer involved in the issue of any certificate for Warrant Shares or other securities or property issuable upon the exercise of the Warrants or payment of cash to any person other than the Holder of a Warrant Certificate surrendered upon exercise of the Warrants and in case of such transfer or payment, the Corporation shall not be required to issue any stock certificate or pay any cash until such tax or charge has been paid or it has been established to the Corporation's satisfaction that no such tax or charge is due. 8.3 Notices. Any notice, demand or delivery authorized by this Agreement shall be in writing and shall be delivered by hand or overnight courier service, mailed or set by facsimile as follows: 17 To the Corporation: Vitas Healthcare Corporation 100 South Biscayne Boulevard Miami, Florida 33131 Attention: Chief Executive Officer Telephone No. (305) 374-4765 To NationsBank: NationsBank, N.A. Independence Center, 15th Floor Charlotte, North Carolina 28255 Attention: Agency Services Telecopy: (704) 386-9923 or such other address or telecopy number as shall have been furnished to the party giving or making such notice, demand or delivery. Any notice that is sent in a manner provided herein shall have been duly given when sent. 8.4 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO CONFLICTS OF LAW PRINCIPLES THEREOF. 8.5 Assignment; Successors. Subject to Section 6.1 hereof, this Agreement may be assigned by NationsBank to any Affiliate at any time upon written notice. This Agreement shall be binding upon and inure to the benefit of the Corporation and the Holders and their respective successors and assigns, and the Holders from time to time of the Warrants. Nothing in this Agreement is intended or shall be construed to confer upon any person, other than the Corporation and the Holders, any right, remedy or claim under or by reason of this Agreement or any part hereof. 8.6 Counterparts. This Agreement may be executed manually or by facsimile in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 8.7 Amendments. Any provision of this Agreement or the Warrant Certificate may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Corporation and the Holders of a majority in interest of the issued or issuable Warrant Shares; provided, however, if any amendment adversely affects the Exercise Price or the number of Warrant Shares issued upon exercise of any Warrant, then the Holders of all the issued or issuable Warrant Shares must sign the document. 18 8.8 Headings. The descriptive headings of the several Sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. 8.9 Third Party Beneficiaries. The Holders shall be third party beneficiaries to the agreements made hereunder between the Corporation, on the one hand, and NationsBank, on the other hand, and the Holders shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights or the rights of the Holder hereunder. 8.10 Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired or affected thereby, it being intended that all of the rights and privileges of the parties shall be enforceable to the fullest extent permitted by law. 8.11 No Inconsistent Agreements. Except as set forth in the Registration Rights Agreement, the Corporation has not, as of the date hereof, entered into, nor shall it, on or after the date hereof, enter into, any agreement that is inconsistent with the rights granted to the Holders herein or that otherwise conflicts with the provisions hereof. 19 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered, as of the date first above written. VITAS HEALTHCARE CORPORATION By: /s/ Hugh A. Westbrook ------------------------------------------ Name: Hugh A. Westbrook Title: Chairman and Chief Executive Officer NATIONSBANK, N.A. By: /s/ Allison Freeland ------------------------------------------ Name: Allison Freeland Title: Senior Vice President 20 EXHIBIT A WARRANT CERTIFICATE THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN AGREEMENT WHICH INCLUDES A RIGHT OF FIRST REFUSAL ON THE SALE OF THE SECURITIES. COPIES OF THE AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION. THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND CANNOT BE OFFERED, SOLD OR TRANSFERRED WITHOUT REGISTRATION OR COMPLIANCE WITH EXEMPTION FROM REGISTRATION UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS AND REGULATIONS PROMULGATED THEREUNDER. A full statement of the powers, designations, preferences and relative, participating, optional or other special rights of the shares of each class of stock of the Corporation authorized to be issued, and the qualifications, limitations or restrictions of such preferences and/or rights, will be furnished to any stockholder without charge upon request to the Secretary of the Corporation. No.1 Warrants to purchase an aggregate of 291,918 shares of Common Stock WARRANT TO PURCHASE COMMON STOCK This certifies that NationsBank, N.A. or its permitted assigns, is the holder of 291,918 Warrants to purchase shares of Common Stock ("Common Stock") of Vitas Healthcare Corporation (the "Corporation"). Each Warrant initially entitles the holder thereof (the "Holder") to purchase from the Corporation one (1) share of Common Stock at the purchase price (the "Exercise Price") set forth in the Warrant Agreement (as defined below), subject to the terms and conditions hereof and of the Warrant Agreement. In order to exercise the Warrants represented by this Warrant Certificate, the registered Holder hereof must surrender this Warrant Certificate at the office of Corporation as set forth in the Warrant Agreement or to its successor. This Warrant Certificate is issued under and in accordance with a Warrant Agreement dated as of September 1, 1997 by and between NationsBank, N.A. and the Corporation (the "Warrant Agreement"), and is subject to the terms and provisions contained therein, to all of which terms and provisions the Holder of this Warrant Certificate consents by acceptance hereof. The Warrant Agreement is hereby incorporated herein by reference and made a part hereof. Reference is hereby made to the Warrant Agreement for a full description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Corporation and the Holder of the Warrants. The summary or the terms of the Warrant Agreement contained in this Warrant 21 qualified in its entirety by express reference to the Warrant Agreement. All terms used in this Warrant Certificate that are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement. Copies of the Warrant Agreement are on file at the office of the Corporation and may be obtained by writing to the Corporation requesting the same. The number of shares of Common Stock purchasable upon the exercise of the Warrants and the Exercise Price are subject to adjustment as provided in the Warrant Agreement. Subject to the requirements set forth in the Warrant Agreement and the restrictions on transfer set forth therein, this Warrant Certificate and all rights hereunder shall be transferable by the registered Holder hereof on the register of the Corporation maintained by the Corporation for such purpose at its office upon surrender of this Warrant Certificate duly endorsed, or accompanied by a written instrument of transfer in form satisfactory to the Corporation duly executed, by the registered Holder hereof or such Holder's attorney duly authorized in writing and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. Upon any partial transfer the Corporation will issue and deliver to such Holder a new Warrant Certificate with respect to any portion not so transferred. This Warrant Certificate shall be void and all rights evidenced hereby shall cease on the Expiration Date unless otherwise provided in the Warrant Agreement. 22 This Warrant Certificate and the Warrant Agreement are subject to amendment as provided in the Warrant Agreement. Dated: __________, 1997 VITAS HEALTHCARE CORPORATION By: ------------------------------------------- Name: Title: Chairman and Chief Executive Officer 23 EXHIBIT B Notice of Intention to Exercise Warrant for Cash ------------------------------------------------ The undersigned holder of the attached Warrant Certificate hereby exercises the right to exchange the attached Warrant Certificate for the number of shares of Common Stock of Vitas Healthcare Corporation shown below in accordance with the terms thereof and directs that (i) such shares be issued and delivered to the undersigned as provided by the terms of the attached Warrant Certificate, and (ii) a certificate representing the number of shares covered by the attached Warrant Certificate which shall thereafter remain unexercised, if any, also be delivered to the undersigned. This notice is accompanied by the Aggregate Purchase price shown below. 1. Number of shares as to which exercised: ----------------------------- AND 2. Aggregate Purchase Price: ------------------------------------------- ------------------------------------------- (Signature of Holder) EXHIBIT C Notice of Intention to Exercise Warrant by Conversion The undersigned holder of the attached Warrant Certificate hereby irrevocably elects to exercise the right, represented by the attached Warrant Certificate, to convert Warrants represented thereby into ____ shares of Common Stock of Vitas Healthcare Corporation and directs that (i) such shares be issued and delivered to the undersigned as provided by the terms of the attached Warrant Certificate, and (ii) a certificate representing the number of shares covered by the attached Warrant Certificate which shall thereafter remain unexercised, if any, also be delivered to the undersigned. --------------------------------- (Signature of Holder) IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered, as of the date first above written. VITAS HEALTHCARE CORPORATION By: /s/ Hugh A. Westbrook ------------------------ Name: Title: Chairman and Chief Executive Officer NATIONSBANK, N.A. By: ------------------------- Name: Title: Senior Vice President EX-10.65 39 EXHIBIT 10-65 EXHIBIT 10.65 WARRANT CERTIFICATE THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN AGREEMENT WHICH INCLUDES A RIGHT OF FIRST REFUSAL ON THE SALE OF THE SECURITIES. COPIES OF THE AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION. THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND CANNOT BE OFFERED, SOLD OR TRANSFERRED WITHOUT REGISTRATION OR COMPLIANCE WITH EXEMPTION FROM REGISTRATION UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS AND REGULATIONS PROMULGATED THEREUNDER. A full statement of the powers, designations, preferences and relative, participating, optional or other special rights of the shares of each class of stock of the Corporation authorized to be issued, and the qualifications, limitations or restrictions of such preferences and/or rights, will be furnished to any stockholder without charge upon request to the Secretary of the Corporation. No. 1 Warrants to purchase an aggregate of 291,918 shares of Common Stock WARRANT TO PURCHASE COMMON STOCK This certifies that NationsBank, N.A. or its permitted assigns, is the holder of 291,918 Warrants to purchase shares of Common Stock ("Common Stock") of Vitas Healthcare Corporation (the "Corporation"). Each Warrant initially entitles the holder thereof (the "Holder") to purchase from the Corporation one (1) share of Common Stock at the purchase price (the "Exercise Price") set forth in the Warrant Agreement (as defined below), subject to the terms and conditions hereof and of the Warrant Agreement. In order to exercise the Warrants represented by this Warrant Certificate, the registered Holder hereof must surrender this Warrant Certificate at the office of Corporation as set forth in the Warrant Agreement or to its successor. This Warrant Certificate is issued under and in accordance with a Warrant Agreement dated as of September 1, 1997 by and between NationsBank, N.A. and the Corporation (the "Warrant Agreement"), and is subject to the terms and provisions contained therein, to all of which terms and provisions the Holder of this Warrant Certificate consents by acceptance hereof. The Warrant Agreement is hereby incorporated herein by reference and made a part hereof. Reference is hereby made to the Warrant Agreement for a full description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Corporation and the Holder of the Warrants. The summary or the terms of the Warrant Agreement contained in this Warrant Certificate is qualified in its entirety by express reference to the Warrant Agreement. All terms used in this Warrant Certificate that are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement. Copies of the Warrant Agreement are on file at the office of the Corporation and may be obtained by writing to the Corporation requesting the same. The number of shares of Common Stock purchasable upon the exercise of the Warrants and the Exercise Price are subject to adjustment as provided in the Warrant Agreement. Subject to the requirements set forth in the Warrant Agreement and the restrictions on transfer set forth therein, this Warrant Certificate and all rights hereunder shall be transferable by the registered Holder hereof on the register of the Corporation maintained by the Corporation for such purpose at its office upon surrender of this Warrant Certificate duly endorsed, or accompanied by a written instrument of transfer in form satisfactory to the Corporation duly executed, by the registered Holder hereof or such Holder's attorney duly authorized in writing and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. Upon any partial transfer the Corporation will issue and deliver to such Holder a new Warrant Certificate with respect to any portion not so transferred. This Warrant Certificate shall be void and all rights evidenced hereby shall cease on the Expiration Date unless otherwise provided in the Warrant Agreement. 2 This Warrant Certificate and the Warrant Agreement are subject to amendment as provided in the Warrant Agreement. Dated: , 1997 ---------------- VITAS HEALTHCARE CORPORATION By: /s/ Hugh Waterbard --------------------------------- Name: Title: Chairman and Chief Executive Officer 3 EX-11.1 40 EXHIBIT 11.1 Exhibit 11.1 Statement Re: Computation of Per share Earnings
YEAR ENDED SEPTEMBER 30 ---------------------------------- 1994 1995 1996 ---------- ---------- ---------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) PRIMARY AVERAGE SHARES OUTSTANDING............................................... 1,601,912 1,613,993 1,723,595 COMMON STOCK EQUIVALENTS................................................. 2,985,273 -- -- ---------- ---------- ---------- TOTAL.................................................................... 4,587,185 1,613,993 1,723,595 NET INCOME............................................................... $ 5,141 $ (2,845) $ (7,092) ADJUSTMENTS TO NET INCOME: 9% PREFERRED STOCK DIVIDENDS........................................... (2,498) (2,498) (2,498) SERIES B PREFERRED STOCK DIVIDENDS..................................... (2,100) (2,100) (2,100) INCOME FROM US GOVERNMENT SECURITIES................................... 1,287 -- -- ---------- ---------- ---------- NET INCOME PER COMMON SHARE.............................................. $ 1,830 $ (7,443) $ (11,690) ---------- ---------- ---------- ---------- ---------- ---------- PER SHARE AMOUNT......................................................... $ .40 $ (4.61) $ (6.78) ---------- ---------- ---------- ---------- ---------- ---------- FULLY DILUTED AVERAGE SHARES OUTSTANDING............................................... 1,601,912 1,613,993 1,723,595 COMMON STOCK EQUIVALENTS................................................. 2,985,273 -- -- ADDITIONAL COMMON STOCK EQUIVALENTS...................................... 121,949 -- -- ---------- ---------- ---------- TOTAL.................................................................... 4,709,134 1,613,993 1,723,595 NET INCOME............................................................... $ 5,141 (2,845) (7,092) ADJUSTMENTS TO NET INCOME: 9% PREFERRED STOCK DIVIDENDS........................................... (2,498) (2,498) (2,498) SERIES B PREFERRED STOCK DIVIDENDS..................................... (2,100) (2,100) (2,100) INCOME FROM US GOVERNMENT SECURITIES................................... 1,287 -- -- ---------- ---------- ---------- NET INCOME ATTRIBUTABLE TO COMMON SHARE.................................. $ 1,830 $ (7,443) $ (11,690) INCOME FROM ADDITIONAL INVESTMENTS IN US GOVERNMENT SECURITIES........... 132 -- -- ---------- ---------- ---------- NET INCOME PER FULLY DILUTED COMMON SHARE................................ $ 1,962 $ (7,443) $ (11,690) ---------- ---------- ---------- ---------- ---------- ---------- PER SHARE AMOUNT......................................................... $ .42 $ (4.61) $ (6.78) ---------- ---------- ---------- ---------- ---------- ----------
EX-21.1 41 EXHIBIT 21.1 EXHIBIT 21.1 Subsidiaries of the Company Name State of Incorporation 1. Vitas Healthcare Corporation of Delaware California 2. Vitas Healthcare Corporation of Delaware Central Florida 3. Vitas Healthcare Corporation of Florida Florida 4. Vitas Healthcare Corporation of Delaware Ohio 5. Vitas Healthcare Corporation of Delaware Pennsylvania EX-23.1 42 EXHIBIT 23.1 Exhibit 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated January 24, 1997, except for the third paragraph of Note 1 as to which the date is September 15, 1997, the second paragraph of Note 4 as to which the date is September 18, 1997 and Note 7 as to which the date is September 1, 1997 with respect to Vitas Healthcare Corporation and February 20, 1995 with respect to Community Hospice Care, Inc. et al, in the Registration Statement (Form S-1) and related Prospectus of Vitas Healthcare Corporation dated September 22, 1997. /s/ Ernst & Young LLP Ernst & Young LLP Miami, Florida September 22, 1997 EX-27.1 43 EXHIBIT 27.1
5 EXHIBIT 27.1 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30, 1997 INTERIM FINANCIAL STATEMENTS FOR THE NINE MONTHS THEN ENDED AND THE FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30, 1996. 1,000 9-MOS YEAR SEP-30-1997 SEP-30-1996 OCT-01-1996 OCT-01-1995 JUN-30-1997 SEP-30-1996 9,225 5,351 0 0 20,993 22,872 (6,509) (6,000) 0 0 25,774 29,223 33,147 30,788 (19,941) (15,701) 85,859 92,276 41,427 38,977 0 0 62,117 60,491 0 0 17 16 (50,261) (48,491) 85,859 92,276 0 0 150,323 213,856 0 0 150,043 216,553 0 0 3,283 7,958 3,652 4,674 (924) (7,092) 0 0 (924) (7,092) 0 0 0 0 0 0 (924) (7,092) (.74) (2.56) 0 0
-----END PRIVACY-ENHANCED MESSAGE-----