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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999.
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______________ to _______________.
Commission file number 0-27374
RAINTREE HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 86-0684011
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15300 N. 90th St., Suite 100
Scottsdale, AZ 85260
(Address of principal executive offices)
(602) 423-1954
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of May 1, 1999, there were 7,593,697 shares of $0.001 par value common
stock outstanding.
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<PAGE>
RAINTREE HEALTHCARE CORPORATION
INDEX
PART I - FINANCIAL INFORMATION PAGE NO.
ITEM 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1999
(unaudited) and December 31, 1998.......................... 3
Consolidated Statements of Operations for the two
months ended March 31, 1999, the one month ended
January 31, 1999, and the three months ended
March 31, 1998 (unaudited)................................. 4
Consolidated Statements of Cash Flows for the two
months ended March 31, 1999, the one month ended
January 31, 1999 and the three months ended
March 31, 1998 (unaudited)................................. 5
Notes to Consolidated Financial Statements................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 14
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings............................................ 22
ITEM 6. Exhibits and Reports on Form 8-K............................. 24
SIGNATURES ........................................................... 28
NOTE: Item 3 of Part I is omitted because it is not applicable. Items 2,
3, 4 and 5 of Part II are omitted because they are not applicable.
2
<PAGE>
RAINTREE HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
REORGANIZED | PREDECESSOR
COMPANY | COMPANY
MARCH 31, | DECEMBER 31,
1999 | 1998
----------- | -----------
(UNAUDITED) |
<S> <C> | <C>
ASSETS |
Current assets: |
Cash and cash equivalents .............................................. $ 4,268 | $ 16,863
Accounts receivable .................................................... 20,245 | 22,621
Prepaid expenses and other current assets .............................. 2,958 | 8,670
--------- | ---------
Total current assets ................................................ 27,471 | 48,154
Property and equipment, net .............................................. 45,742 | 29,227
Reorganization value in excess of amounts |
allocable to identifiable assets ....................................... 50,997 | --
Lease operating rights and other intangible assets, net .................. 1,033 | 58,960
Goodwill, net ............................................................ -- | 24,816
Deposits ................................................................. 9,596 | 9,383
--------- | ---------
$ 134,839 | $ 170,540
========= | =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
Current liabilities: |
Accounts payable ....................................................... $ 8,542 | $ 10,815
Accrued expenses ....................................................... 24,521 | 15,175
Current portion of notes payable and long-term debt .................... 540 | 1,012
--------- | ---------
Total current liabilities ........................................... 33,603 | 27,002
Liabilities subject to compromise ........................................ -- | 166,870
Notes payable and long-term debt ......................................... 35,350 | 7,132
Lease financing obligation ............................................... 38,200 | 38,200
Deferred taxes ........................................................... 9,000 | 5,456
Leasehold liability, net ................................................. -- | 4,058
Other liabilities ........................................................ 1,115 | 899
--------- | ---------
Total liabilities ................................................... 117,268 | 249,617
Stockholders' equity (deficit): |
Common stock, $.001 par value; authorized 10,000,000 shares; |
7,593,697 shares issued and outstanding at March 31, 1999 ............ 8 | --
Common stock, $.001 par value; authorized 25,000,000 shares; |
6,422,096 shares issued and outstanding at December 31, 1998 ......... -- | 5
Additional paid-in capital ............................................. 19,680 | 36,211
Retained earnings (accumulated deficit) ................................ (2,117) | (115,293)
--------- | ---------
Net stockholders' equity (deficit) .................................. 17,571 | (79,077)
--------- | ---------
$ 134,839 | $ 170,540
========= | =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
3
<PAGE>
RAINTREE HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Two Months Ended March 31, 1999, One Month Ended
January 31, 1999
and Three Months Ended March 31, 1998)
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
REORGANIZED | PREDECESSOR PREDECESSOR
COMPANY | COMPANY COMPANY
TWO MONTHS | ONE MONTH THREE MONTHS
1999 | 1999 1998
----------- | ----------- ------------
<S> <C> | <C> <C>
Total revenues ......................................... $ 21,934 | $ 12,893 $ 54,677
|
Expenses: |
Wages and related .................................... 12,541 | 7,074 27,976
Other operating ...................................... 6,839 | 6,088 19,483
Rent ................................................. 2,080 | 1,112 3,964
Interest (excludes contractual interest not accrued on |
prepetition debt of $1,507 in January 1999 and |
$75 in the three months ended March 31, 1998 ..... 1,399 | 445 5,800
Depreciation and amortization ........................ 1,192 | 622 2,273
--------- | --------- ---------
Total expenses .................................. 24,051 | 15,341 59,496
--------- | --------- ---------
Loss from operations ................................... (2,117) | (2,448) (4,819)
Reorganization expenses ................................ -- | 54,597 --
--------- | --------- ---------
Loss before income taxes and extraordinary credit ...... (2,117) | (57,045) (4,819)
Income tax benefit ..................................... -- | -- --
--------- | --------- ---------
Loss before extraordinary credit ....................... (2,117) | (57,045) (4,819)
Extraordinary credit - gain on debt discharge .......... -- | 113,242 --
--------- | --------- ---------
Net income (loss) ...................................... $ (2,117) | $ 56,197 $ (4,819)
========= | ========= =========
|
Net income (loss) per share: |
Loss before income taxes and extraordinary credit .... $ (0.28) | $ (8.88) $ (0.75)
Extraordinary credit - gain on debt discharge ....... -- | 17.63 --
--------- | --------- ---------
Net income (loss) per share ......................... $ (0.28) | $ 8.75 $ (0.75)
========= | ========= =========
Weighted average common shares used in |
per share calculation ................................ 7,594 | 6,422 6,422
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
4
<PAGE>
RAINTREE HEALTHCARE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(TWO MONTHS ENDED MARCH 31, 1999, ONE MONTH
ENDED JANUARY 31, 1999 AND THREE
MONTHS ENDED MARCH 31, 1998)
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
REORGANIZED | PREDECESSOR PREDECESSOR
COMPANY | COMPANY COMPANY
TWO MONTHS | ONE MONTH THREE MONTHS
1999 | 1999 1998
----------- | ----------- ------------
<S> <C> | <C> <C>
Net cash provided by (used in) operating activities (including |
changes in all operating assets and liabilities) .................. $ 1,001 | $ (307) $ 2,049
-------- | -------- --------
INVESTING ACTIVITIES: |
Purchase of equipment and leasehold improvements ..................... (628) | (218) (492)
Increase in lease and insurance deposits ............................. (200) | (13) (582)
-------- | -------- --------
Net cash used in investing activities ................................ (828) | (231) (1,074)
-------- | -------- --------
FINANCING ACTIVITIES: |
Net increase (decrease) in revolving lines of credit ................. 2,955 | 1,012 (93)
Proceeds from long-term borrowings ................................... -- | -- --
Debt payments ........................................................ (86) | (10) (1,219)
Repayment of other long-term liabilities ............................. -- | -- --
Change in bank overdrafts ............................................ (367) | (19) 1,515
Increase in deferred financing costs ................................. (31) | -- (56)
-------- | -------- --------
Net cash provided by financing activities ............................ 2,471 | 983 147
-------- | -------- --------
REORGANIZATION ACTIVITIES: |
Cash paid to settle bankruptcy claims ................................ -- | (15,684) --
-------- | -------- --------
Net increase (decrease) in cash ...................................... 2,644 | (15,239) 1,122
Cash and cash equivalents at beginning of period ..................... 1,624 | 16,863 5,295
-------- | -------- --------
Cash and cash equivalents at end of period ........................... $ 4,268 | $ 1,624 $ 6,417
======== | ======== ========
|
Cash paid for: |
Interest .......................................................... $ 952 | $ 410 $ 1,031
Income taxes ...................................................... 22 | -- --
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
5
<PAGE>
RAINTREE HEALTHCARE CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
RainTree is a provider of long-term and specialty healthcare services. At
March 31, 1999, RainTree operated 41 facilities, including six facilities
managed on behalf of a third party. RainTree also provides, either directly or
through third-party contracts, pharmaceutical services, rehabilitation therapy
services, medical supplies and laboratory testing, both to its facilities and to
nonaffiliated entities.
2. BASIS OF PRESENTATION
RainTree Healthcare Corporation (formerly Unison HealthCare Corporation)
(the "Predecessor Company") filed a voluntary petition on May 28, 1998 to
reorganize under Chapter 11 of the U.S. Bankruptcy Code (the "Bankruptcy Code").
In January 1999, the Plan of Reorganization (the "Plan") was confirmed and
became effective on January 31, 1999 (the "Effective Date"). On January 31,
1999, RainTree Healthcare Corporation (the "Reorganized Company", "RainTree", or
the "Company") adopted fresh start reporting in accordance with Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization under the
Bankruptcy Code" ("SOP 90-7") of the American Institute of Certified Public
Accountants. Accordingly, RainTree's post-reorganization balance sheet and
statement of operations have not been prepared on a basis consistent with the
pre-reorganization financial statements and are not comparable to financial
statements prior to reorganization. For accounting purposes, the inception date
of the Reorganized Company is deemed to be January 31, 1999. A vertical black
line is shown in the financial statements to separate the Reorganized Company
from the Predecessor Company since they have not been prepared on a consistent
basis of accounting.
The consolidated financial statements included herein (except for the
balance sheet as of December 31, 1998) are unaudited; however, in the opinion of
management, they include all adjustments which are necessary to state fairly the
financial position, cash flows and results of operations of RainTree and the
Predecessor Company as of and for the periods indicated. RainTree presumes that
users of the interim financial information herein have read or have access to
the Company's audited financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations for the preceding
fiscal year and that the adequacy of additional disclosures needed for a fair
presentation, except in regard to material contingencies, may be determined in
that context. Accordingly, footnote and other disclosures which would
substantially duplicate the disclosures contained in RainTree's most recent
annual report to stockholders have been omitted.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Operating
results for the two months ended March 31, 1999 are not necessarily indicative
of the results which may be expected for the 11 months ended December 31, 1999.
Certain reclassifications have been made to the 1998 financial statements
to conform to the current year presentation.
The provision for doubtful accounts receivable is included in other
operating expenses. Provisions totaled $431,000, $1.4 million and $264,000 for
the two months ended March 31, 1999, the one month ended January 31, 1999, and
the three months ended March 31, 1998, respectively. The allowance for doubtful
accounts totaled $11.0 million at March 31, 1999 and $9.7 million at December
31, 1998.
6
<PAGE>
3. PLAN OF REORGANIZATION
The implementation of the Plan allowed RainTree to restructure its balance
sheet, significantly reduce its debt burden and dispose of unprofitable
facilities. Prior to the confirmation of the Plan, the Company reached agreement
with respect to its restructuring with its major creditors including, among
others:
o Omega Healthcare Investors, Inc. ("Omega"), from whom RainTree leases
long-term care facilities;
o The holders of $100.0 million of 12 1/4% Senior Notes due 2006 (the
"12 1/4% Senior Notes") and $20.0 million of 13% Senior Notes due 1999
(the "13% Senior Notes");
o Health Care Financial Partners ("Health Partners"), who provided an
$11.0 million accounts receivable-backed line of credit facility (the
"HCFP DIP Facility") for working capital during the Chapter 11
proceedings;
o Bruce H. Whitehead, a major stockholder and creditor of the Company
and, until May 29, 1998, the Chairman of RainTree's board of
directors; and
o David A. Kremser, a major stockholder and creditor of the Company and,
until May 29, 1998, a director of RainTree.
Prior to the Effective Date, the Company leased six facilities from
BritWill Investments Texas, Ltd. ("BritWill Texas"), an affiliate of Mr.
Whitehead, which were subject to a mortgage in favor of Omega (the "BritWill
Texas Leases").
The major provisions of the Plan are as follows.
o All of RainTree's common stock was cancelled on the Effective Date. As
described below, RainTree will issue up to 8 million new common shares
(the "New Common Stock"). RainTree will also issue up to approximately
$26 million of new debt securities (the "Senior Secured Notes") in
satisfaction of bankruptcy claims held by unsecured creditors,
including the holders of the 13% Senior Notes and the 12 1/4% Senior
Notes. The Senior Secured Notes bear interest at 11.0%, will mature
four years from the Effective Date, and are secured by the stock and
personal property of certain RainTree subsidiaries.
o On December 31, 1998, Omega purchased seven facilities owned and
operated by RainTree for a purchase price of $38.2 million. The
facilities were then leased back to RainTree (the "Sale Leaseback"). A
portion of the proceeds were used to (i) repay the mortgage note
related to six of these facilities amounting to approximately $19.3
million, including a prepayment penalty (the "Mortgage Note") and (ii)
exercise the Company's option to purchase The Arbors Health Care
Center for approximately $3.2 million. The Arbors facility was
included in the Sale Leaseback. The remaining proceeds from the sale
were held in escrow until the Effective Date, when they were used to
settle bankruptcy claims as provided for in the Plan and described
below. Omega received closing costs, financing fees and reimbursement
of expenses in the amount of $1.0 million. These seven facilities and
eleven other facilities leased from Omega and BritWill Texas were
combined into a single master lease (the "Omega Master Lease").
RainTree realized no gain or loss on the Sale Leaseback, which was
accounted for as a financing transaction.
o Six leased facilities were returned to Omega and three BritWill Texas
facilities that RainTree disposed of in March 1997 pursuant to a
7
<PAGE>
sublease agreement are excluded from the Master Lease. In return,
Omega received $2.0 million in cash, a seven-year, $3.0 million
promissory note bearing interest at 7.0% and a guarantee by RainTree
that supersedes and replaces all previous guarantees of BritWill Texas
obligations. RainTree also paid to Omega, in cash, prepetition rent
payments and other obligations in the amount of approximately $2.0
million.
o In settlement of approximately $15.8 million of allowed claims, Mr.
Whitehead and affiliates (the "Whitehead Affiliates) received $541,000
in cash, unsecured promissory notes totaling $1.5 million, Senior
Secured Notes amounting to $292,000 and approximately 729,000 shares
of New Common Stock. The unsecured promissory notes bear interest at
9.0%, payable quarterly, and the principal amount will be due and
payable at the end of four years.
o In settlement of approximately $5.4 million of allowed claims, Mr.
Kremser and affiliates (the "Kremser Affiliates") received $541,000 in
cash and a promissory note amounting to $1.4 million. The promissory
note bears interest at 9.0%, payable quarterly, and the principal
amount will be due and payable at the end of five years. The Kremser
Affiliates' note is secured by certain personal property of certain
RainTree subsidiaries.
o Convenience Claims, defined in the Plan as payables due to general
unsecured creditors amounting to $1,000 or less (or $2,000 or less
whose holders elect to reduce their claims to $1,000), were paid in
cash. RainTree paid approximately $520,000 to settle Convenience
Claims. Essential Vendor Claims, defined in the Plan as payables due
to vendors and suppliers essential to RainTree's ongoing business,
were paid in cash in the aggregate amount of approximately $2.5
million.
o Trade Unsecured Claims are defined in the Plan as payables to other
nonessential trade vendors. RainTree is currently in the process of
settling Trade Unsecured Claims and other general unsecured claims.
Each holder of a Trade Unsecured Claim will receive, in cash, the
lesser of 35% of the allowed amount of the claim or a pro rata portion
of $1.4 million, plus shares of New Common Stock. The total amount of
Trade Unsecured Claims was approximately $3.4 million.
o All other general unsecured creditors will share PRO RATA in
approximately 91% of the New Common Stock and the Senior Secured
Notes. A subordination agreement related to the 13% Senior Notes
resulted in a reallocation among the holders of the 13% Senior Notes
and those holders of the 12 1/4% Senior Notes who had consented to a
subordination agreement (the "Consenting Noteholders"). As a result of
this reallocation, the holders of the 13% Senior Notes received Senior
Secured Notes equal to 100% of their allowed claims ($22.1 million)
and the Consenting Noteholders received only New Common Stock totaling
approximately 6,343,000 shares. The holders of the 12 1/4% Senior
Notes who did not consent to the subordination agreement received
Senior Secured Notes totaling $1.8 million and approximately 522,000
shares of New Common Stock. The aggregate amount of these general
unsecured claims was approximately $137.5 million.
o Secured claims included the Mortgage Note, the HCFP DIP Facility,
claims of Omega, property tax liabilities and other secured loans.
Secured claims were either: (i) paid in cash; (ii) the liability was
continued in accordance with its original terms after defaults, if
any, were cured; or (iii) the collateral securing such liability was
returned to the creditor in full satisfaction of the claim. The
aggregate amount of secured claims was approximately $34.7 million.
8
<PAGE>
o The Company's stockholders and members of a shareholders class action
lawsuit settlement class will share pro rata in the issuance of
warrants to purchase approximately 400,000 shares of New Common Stock.
o Shortly after the Effective Date, RainTree obtained a substantial
portion of a new $12.0 million line of credit from Health Partners
that replaced the HCFP DIP Facility. The remaining portion of the line
of credit was obtained on May 14, 1999. See "Management's Discussion
and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources."
o On April 28, 1999, RainTree entered into employment agreements with
four of its executive officers ("Senior Management"). These agreements
are attached to this Quarterly Report as Exhibits 10.31 through 10.34.
Under the terms of the employment agreements, Senior Management was
awarded an aggregate of 360,000 restricted stock units. Each
restricted stock unit entitles the holder to receive, subject to
vesting, one share of New Common Stock upon the earlier of February 1,
2002 or termination of employment.
4. FRESH START REPORTING
In accordance with SOP 90-7, RainTree adopted fresh start reporting as of
the Effective Date. RainTree, with the assistance of its financial advisors,
determined its reorganization value, which represents the fair market value of
the Company before considering liabilities. Reorganization value is intended to
represent the amount a willing buyer would pay for the assets of RainTree
immediately after its emergence from Chapter 11. The reorganization value was
based on, among other things, discounted cash flows for the reorganized Company
over a 14-year period. The projected cash flows included assumptions as to
anticipated revenues, operating expenses and capital expenditures. A discount
rate of 16% was used, which reflects the uncertainty of the cash flows, the
general inherent risk of the long-term care industry, and general business
conditions.
Under fresh start reporting, the reorganization value of the Company has
been allocated to RainTree's assets on a basis substantially consistent with
purchase accounting. The excess of the reorganization value over the value of
identifiable assets is reported as "reorganization value in excess of amounts
allocable to identifiable assets." All identifiable assets were recorded at fair
value, which approximated carrying value. The new Senior Secured Notes and all
other liabilities were recorded at fair value, which approximated carrying
value.
The adjustments made to give effect to the discharge of prepetition
liabilities and fresh start reporting are as follows. The reorganized balance
sheet gives pro forma effect to New Common Stock and Senior Secured Notes yet to
be issued under the Plan (in thousands).
9
<PAGE>
<TABLE>
<CAPTION>
JANUARY 31, 1999
PRECONFIRMATION REORGANIZATION FRESH START REORGANIZED
BALANCE SHEET ADJUSTMENTS ADJUSTMENTS BALANCE SHEET
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 17,308 $ (15,684)(a) $ -- $ 1,624
Accounts receivable, net........................ 21,459 -- -- 21,459
Prepaid expenses and other current assets....... 8,815 -- (5,456)(g)
(103)(h) 3,256
-------- --------- -------- --------
Total current assets......................... 47,582 (15,684) (5,559) 26,339
Property and equipment, net........................ 29,081 (3,117)(b) 19,751 (h) 45,715
Lease operating rights and other intangibles, net.. 58,608 (4,728)(c) (52,858)(h) 1,022
Goodwill, net...................................... 24,727 -- (24,727)(h) --
Deposits........................................... 9,675 (279)(d) -- 9,396
Reorganization value in excess of amounts
allocable to identifiable assets................... -- -- 42,568 (h)
9,000 (g) 51,568
-------- --------- -------- --------
$169,673 $ (23,808) $(11,825) $134,040
======== ========= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 10,958 $ -- $ -- $ 10,958
Accrued expenses................................ 16,321 5,955 (e) -- 22,276
Current portion of long-term debt............... 1,012 (440)(e) -- 572
-------- --------- -------- --------
Total current liabilities.................... 28,291 5,515 -- 33,806
Liabilities subject to compromise.................. 166,870 (166,870)(e) -- --
Notes payable and long-term debt................... 8,144 24,305 (a) -- 32,449
Lease financing obligation......................... 38,200 -- -- 38,200
Deferred taxes .................................... 5,456 -- 3,544 (g) 9,000
Leasehold liability, net........................... 4,058 -- (4,058)(h) --
Other liabilities.................................. 897 -- -- 897
-------- --------- -------- --------
Total liabilities............................... 251,916 (137,050) (514) 114,352
Stockholders' equity (deficit):
Common stock, Predecessor Company.............. 5 -- (5)(i) --
Common stock, Reorganized Company.............. -- 8 (a) -- 8
Additional paid-in capital..................... 36,211 19,680 (a) (36,211)(i) 19,680
Retained earnings (accumulated deficit)........ (118,459) 93,554 (f) 24,905 (i) --
-------- --------- -------- --------
Net stockholders' equity (deficit).......... (82,243) 113,242 (11,311) 19,688
-------- --------- -------- --------
$169,673 $ (23,808) $(11,825) $134,040
======== ========= ======== ========
- -----------------
(a) To record the settlement of bankruptcy claims through payment of cash,
issuance of Senior Secured Notes and issuance of New Common Stock.
(b) To reflect property and equipment returned to creditors in satisfaction of
bankruptcy claims.
(c) To record the write-off of deferred debt issue costs.
(d) To record adjustments to security deposits related to the Omega Master
Lease.
(e) To record the discharge or reclassification of prepetition obligations.
(f) To record the gain on discharge of indebtedness ($113,242) net of New
Common Stock issued ($19,688).
(g) To record adjustment to deferred tax assets and liabilities.
(h) To record adjustments to reflect assets and liabilities at fair market
values and to record reorganization value in excess of amounts allocable to
identifiable assets.
(i) To record the cancellation of Predecessor Company common stock and
elimination of retained earnings.
</TABLE>
REORGANIZATION EXPENSES. In accordance with SOP 90-7, reorganization items
are reported separately in the consolidated statement of operations.
Reorganization items for the one month ended January 31, 1999 are as follows (in
thousands):
10
<PAGE>
Adjustments of assets and liabilities to fair value........ $53,879
Professional fees and other expenses related to the
Chapter 11 proceedings.................................. 718
-------
$54,597
=======
5. LIABILITIES SUBJECT TO COMPROMISE
During the Chapter 11 process, the Predecessor Company and its subsidiaries
(the "Debtors") operated their businesses and managed their properties as
debtors-in-possession under authority of the Bankruptcy Code. Under Chapter 11,
certain claims against the Debtors in existence prior to the filing of the
petitions for reorganization under the federal bankruptcy laws were stayed while
the Debtors were in bankruptcy. These claims are set forth in the December 31,
1998 balance sheet as "liabilities subject to compromise." In accordance with
SOP 90-7, the accrual for interest on unsecured, prepetition obligations of the
Debtors was discontinued from the filing date to the Effective Date.
Liabilities subject to compromise consisted of the following as of December
31, 1998 (in thousands):
12 1/4% Senior Notes....................................... $100,000
13% Senior Notes........................................... 20,000
Notes payable and long-term debt .......................... 24,495
Trade payables............................................. 4,661
Accrued interest........................................... 11,486
Other...................................................... 6,228
--------
$166,870
========
6. DISPOSITIONS
As part of RainTree's restructuring, the Company identified long-term care
facilities for disposition. As part of these plans, in 1998 the Company
terminated the leases of 12 long-term care facilities. RainTree's disposition
program was concluded in January 1999, when the Company terminated the leases of
seven facilities, six of which were leased from Omega.
RainTree has agreed to sell certain assets of Sunbelt Therapy Management
Services, Inc. and its subsidiaries ("Sunbelt"). Sunbelt provides rehabilitation
therapy services to certain RainTree facilities and third parties. The parties
agreed to enter into definitive documentation as soon as practicable. It is
anticipated that under the definitive agreement Paul Henderson and Paige Plash
will purchase the therapy services contracts of Sunbelt's outpatient clinics,
hospitals, home health and other businesses not related to long-term care
facilities. Messrs. Henderson and Plash, who were the president and
vice-president, respectively, of Sunbelt until April 1, 1999, will also acquire
the therapy services contracts of two RainTree nursing facilities. The sales
price is expected to be approximately $1.2 million, comprised of cash and
promissory notes, plus the assumption of certain Sunbelt liabilities. RainTree
has entered into an agreement with an unrelated third party to manage Sunbelt's
remaining long-term care therapy operations for an annual fee of $768,000.
7. CONTINGENCIES
RainTree is a defendant in seven consolidated purported securities class
action lawsuits pending in the United States District Court in Phoenix, Arizona
(the "Federal Action"), and a purported securities class action lawsuit pending
in California Superior Court (the "State Action") (collectively, the "Actions").
The Actions arise from the Company's announcement on March 11, 1997 that it
11
<PAGE>
would be restating its financial results for the nine-month period ended
September 30, 1996. The Federal Action seeks damages for alleged violations of
federal and Arizona securities laws; the State Action seeks damages for alleged
violations of the California securities laws. The broadest class period is that
alleged in the Federal Action from December 18, 1995 (the date of the Company's
initial public offering) to May 30, 1997.
The parties in the Federal Action have reached a settlement in principle
that is expected to resolve both the Federal and State Actions in their
entirety. The settlement includes a cash payment by the Company's primary
insurer amounting to $4.25 million and 1,000,000 shares of old Common Stock.
Under the Plan, old Common Stock was converted into warrants; under the proposed
settlement, class members who are to receive RainTree shares will receive a pro
rata share of such warrants. The settlement was approved by the Bankruptcy Court
on December 30, 1998 and by the district court in the Federal Action on April
28, 1999.
The Company also is a party to several other lawsuits. See "Legal
Proceedings".
8. OPERATING SEGMENTS
During the fourth quarter of 1998, RainTree adopted Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS No. 131"). SFAS No. 131 requires the presentation of
descriptive information about reportable segments that is consistent with that
made available to the management of the Company to assess performance.
RainTree's four reportable segments are strategic business units that involve
specialized healthcare services and require different marketing strategies.
The long-term care segment consists of RainTree's nursing facilities and
assisted and independent living facilities. Sunbelt conducts the Company's
rehabilitation therapy segment operations. The pharmacy segment is comprised of
RainTree's institutional pharmacy and Medicare Part B billing and supply
business units. The laboratory segment represents the operations of RainTree's
medical reference laboratories.
12
<PAGE>
<TABLE>
<CAPTION>
REORGANIZED | PREDECESSOR PREDECESSOR
COMPANY | COMPANY COMPANY
TWO MONTHS | ONE MONTH THREE MONTHS
ENDED | ENDED ENDED
MARCH 31, 1999 | JAN. 31, 1999 MARCH 31, 1998
-------------- | ------------- --------------
<S> <C> | <C> <C>
Revenues from nonrelated entities: |
Long-term care ....................... $ 17,665 | $ 10,142 $ 40,950
Rehabilitation therapy ............... 1,472 | 715 3,500
Pharmacy ............................. 1,387 | 729 2,407
Laboratory ........................... 1,324 | 482 1,453
Corporate ............................ 86 | 50 34
-------- | -------- --------
Total ............................. $ 21,934 | $ 12,118 $ 48,344
======== | ======== ========
|
Total revenues: |
Long-term care ....................... $ 17,665 | $ 10,142 $ 40,950
Rehabilitation therapy ............... 2,336 | 1,152 8,352
Pharmacy ............................. 1,738 | 1,039 3,888
Laboratory ........................... 1,383 | 510 1,453
Corporate ............................ 1,286 | 676 2,707
Eliminations ......................... (2,474) | (626) (2,673)
-------- | -------- --------
Total ............................. $ 21,934 | $ 12,893 $ 54,677
======== | ======== ========
|
Operating income (loss): |
Long-term care ....................... $ 204 | $ (251) $ (783)
Rehabilitation therapy ............... (360) | (1,476) 391
Pharmacy ............................. (34) | 140 767
Laboratory ........................... 189 | (120) (79)
Unallocated corporate expenses ....... (2,116) | (741) (5,115)
-------- | -------- --------
Consolidated operating loss ....... (2,117) | (2,448) (4,819)
Reorganization expenses ................. -- | 54,597 --
-------- | -------- --------
Consolidated loss before income taxes |
and extraordinary credit ............. $ (2,117) | $(57,045) $ (4,819)
======== | ======== ========
|
Interest expense: |
Long-term care ....................... $ 738 | $ 312 $ 1,049
Rehabilitation therapy ............... -- | -- 7
Pharmacy ............................. 2 | 1 5
Laboratory ........................... 3 | -- 3
Corporate ............................ 656 | 132 4,736
-------- | -------- --------
Total ............................. $ 1,399 | $ 445 $ 5,800
======== | ======== ========
|
Depreciation and amortization: |
Long-term care ....................... $ 504 | $ 260 $ 1,088
Rehabilitation therapy ............... 18 | 51 254
Pharmacy ............................. 19 | 15 44
Laboratory ........................... 26 | 19 54
Corporate ............................ 625 | 277 833
-------- | -------- --------
Total ............................. $ 1,192 | $ 622 $ 2,273
======== | ======== ========
|
Routine capital expenditures: |
Long-term care ....................... $ 622 | $ 191 $ 205
Rehabilitation therapy ............... -- | 1 93
Pharmacy ............................. -- | -- 42
Laboratory ........................... 6 | 18 48
Corporate ............................ -- | 8 104
-------- | -------- --------
Total ............................. $ 628 | $ 218 $ 492
======== | ======== ========
</TABLE>
13
<PAGE>
MARCH 31, | DECEMBER 31,
1999 | 1998
----------- | ------------
Total assets: |
Long-term care.................... $ 71,182 | $ 79,624
Rehabilitation therapy............ 2,242 | 13,266
Pharmacy.......................... 2,454 | 5,751
Laboratory........................ 2,443 | 2,372
Corporate......................... 56,919 | 73,732
Eliminations...................... (401) | (4,205)
-------- | --------
Total.......................... $134,939 | $170,540
======== | ========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements contained in this Quarterly Report, including without
limitation statements containing the words "believes", "anticipates", "intends",
"expects" and words of similar import, are forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). While the Company believes that the assumptions
underlying these statements are reasonable, such assumptions (and thus the
statements based upon them) could prove to be inaccurate. Important factors
which could cause results to vary include, among others: delays in or inability
to conclude transactions; unsuccessful implementation of RainTree's new business
strategy; general economic and business conditions; competition; loss of
customers; changes in applicable laws and regulations; availability, terms and
deployment of capital in light of recent losses and cash flow shortfalls;
cancellation of leases or contracts; demand fluctuations; adverse uninsured
determinations in any existing or future litigation or regulatory proceedings;
health care statutory or regulatory changes which disfavor the types of care
delivered by the Company; reversal of the current limitations in the supply of
long-term care facilities; and Year 2000 issues. Important factors which could
cause results to vary also include the factors discussed in RainTree's Annual
Report on Form 10-K for the year ended December 31, 1998 in "Item 1 - Business"
and "Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations - Risks and Uncertainties", as well as factors discussed
elsewhere in this report or in any document incorporated herein by reference.
The following material should be read in conjunction with the Consolidated
Financial Statements of the Company and the related notes thereto. All
references in this discussion and analysis to years are to fiscal years of the
Company ended December 31 of such year.
PLAN OF REORGANIZATION
RainTree operated under the protection of Chapter 11 of the Bankruptcy Code
from May 28, 1998 until January 31, 1999. The restructuring began on January 7,
1998, when three of RainTree's subsidiaries, BritWill Investments-I, Inc.,
BritWill Investments-II, Inc. and BritWill Indiana Partnership (the "BritWill
Debtors"), with operations in Texas and Indiana, filed for protection under
Chapter 11 with the United States Bankruptcy Court for the District of Arizona
(the "Bankruptcy Court"). The Chapter 11 filings were necessitated by actions
taken by Omega to terminate or otherwise enforce the terms of its lease
agreements with the Company. RainTree, through its subsidiaries, leased 14
long-term care facilities from Omega under three master lease agreements. In
addition, RainTree leased six facilities from BritWill Texas, which were subject
to a mortgage in favor of Omega. BritWill Texas is an affiliate of Bruce H.
Whitehead, a major stockholder and creditor of RainTree and formerly chairman of
its Board of Directors.
RainTree initiated negotiations to reach a consensual restructuring of its
debt and lease obligations with Omega, representatives of certain of the holders
of its 12 1/4% Senior Notes and 13% Senior Notes (the "Ad Hoc Committee"), the
14
<PAGE>
Whitehead Affiliates and the Kremser Affiliates. On June 15, 1998, RainTree
concluded an agreement in principle with respect to a consensual restructuring
with some, but not all, of its creditor constituencies. The agreement in
principle formed the basis of the plan of reorganization filed with the
Bankruptcy Court on August 10, 1998. On October 16, 1998, the amended Plan was
filed. The significant elements of the Plan are described in Note 3 of Notes to
Consolidated Financial Statements. Under Bankruptcy Court supervision, the
Company continued to manage and operate its business as a debtor in possession
and, as described above, developed the Plan to restructure its financial
affairs, including assuming or rejecting executory contracts and leases. The
Plan was confirmed by the Bankruptcy Court effective January 31, 1999.
EMERGENCE FROM CHAPTER 11 AND PLAN OF REORGANIZATION
The Plan set forth a method for repaying or otherwise compensating the
Company's creditors in order of the relative priority of their respective claims
while seeking to maintain the Company as a going concern. The Plan provided,
among other things, for: (i) the conversion of substantially all of the
Company's prepetition liabilities into equity interests in the Company and
approximately $26 million of Senior Secured Notes due 2003; (ii) cancellation of
all of the prepetition equity interests in the Company, including the old common
stock; and (iii) restructuring of the Company's master leases for certain
facilities with Omega. The Plan became effective and the Company emerged from
Chapter 11 on the Effective Date. See Note 3 of Notes to Consolidated Financial
Statements.
IMPACT OF FRESH START REPORTING
When RainTree emerged from bankruptcy, it adopted fresh start reporting in
accordance with SOP 90-7. Under fresh start reporting, the reorganization value
of RainTree has been allocated to its assets on a basis substantially consistent
with purchase accounting. The portion of reorganization value not attributable
to specific assets has been recorded as "Reorganization Value in Excess of
Amounts Allocable to Identifiable Assets." Certain fresh start adjustments,
primarily related to the adjustment of the Company's assets and liabilities to
fair market values, will have a significant effect on RainTree's future results
of operations. The more significant adjustments relate to increased depreciation
expense on property and equipment and reduced amortization expense on intangible
assets.
As of the Effective Date, Reorganized RainTree recorded total assets of
$134.0 million, total debt and lease financing obligations of $71.2 million and
stockholders' equity of $19.7 million. See Note 4 of Notes to Consolidated
Financial Statements for further detail regarding fresh start reporting.
DISPOSITIONS
As part of RainTree's restructuring, the Company identified long-term care
facilities for disposition. As part of these plans, in 1998 the Company
terminated the leases of 12 long-term care facilities. RainTree's disposition
program was concluded in January 1999, when the Company terminated the leases of
seven facilities, six of which were leased from Omega.
RainTree has agreed to sell certain assets of Sunbelt. The Company expects
to enter into a definitive agreement with Paul Henderson and Paige Plash, who
will purchase the therapy services contracts of Sunbelt's outpatient clinics,
hospitals, home health and other businesses not related to long-term care
facilities. Messrs. Henderson and Plash, who were the president and
vice-president, respectively, of Sunbelt until April 1, 1999, will also acquire
the therapy services contracts of two RainTree nursing facilities. The sales
price is expected to be approximately $1.2 million, comprised of cash and
promissory notes, plus the assumption of certain Sunbelt liabilities. RainTree
has also entered into an agreement with a third party to manage Sunbelt's
remaining long-term care therapy operations for an annual fee of $768,000.
15
<PAGE>
RESULTS OF OPERATIONS
As a result of the reorganization and the implementation of fresh start
reporting, the Company's results of operations after January 31, 1999 (the
cutoff date used for financial reporting purposes) are not comparable to results
reported in prior periods. See Notes 3 and 4 of Notes to Consolidated Financial
Statements for information on the implementation of the Plan and fresh start
reporting.
To facilitate a meaningful comparison of RainTree's quarterly operating
performance in the first quarters of 1999 and 1998, the following discussion of
results of operations is presented on a traditional comparative basis.
Consequently, the current period's information presented below does not comply
with accounting requirements for companies that emerge from bankruptcy. These
requirements call for separate reporting for Reorganized RainTree and the
Predecessor Company.
RAINTREE HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED RESULTS OF OPERATIONS
(In thousands)
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 (1) 1998
----------- ----------
Total revenues ....................................... $ 34,827 $ 54,677
Expenses:
Wages and related .................................. 19,615 27,976
Other operating .................................... 12,927 19,483
Rent ............................................... 3,192 3,964
Interest (excludes contractual interest not
accrued on prepetition debt of $1,507 in
1999 and $75 in 1998) ............................ 1,844 5,800
Depreciation and amortization ...................... 1,814 2,273
--------- ---------
Total expenses ................................ 39,392 59,496
--------- ---------
Loss from operations ................................. (4,565) (4,819)
Reorganization expenses .............................. 54,597 --
--------- ---------
Loss before income taxes and extraordinary credit .... (59,162) (4,819)
Income tax benefit ................................... -- --
--------- ---------
Loss before extraordinary credit ..................... (59,162) (4,819)
Extraordinary credit - gain on debt discharge ........ (113,242) --
--------- ---------
Net income (loss) .................................... $ 54,080 $ (4,819)
========= =========
- -----------------
(1) This column represents the combination of historical results for the two
months ended March 31, 1999 for Reorganized RainTree and the one month
ended January 31, 1999 for the Predecessor Company.
16
<PAGE>
The following table summarizes selected operating statistics.
AT MARCH 31,
-----------------------
1999 1998
------ ------
Leased and Owned Facilities:
Number of facilities............................... 35 52
Number of licensed beds:
Long-term care.................................. 3,400 4,595
Assisted and independent living................. 214 325
Managed Facilities:
Number of facilities............................... 6 1
Number of licensed beds............................ 406 71
Institutional Pharmacies:
Number of outlets.................................. 2 2
Nonaffiliated facilities served.................... 40 61
Laboratory Services:
Number of laboratories............................. 3 3
Nonaffiliated entities served...................... 318 260
The following table identifies the Company's sources of net operating
revenues from nonaffiliated entities.
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
------ ------
Percentage of total revenues:
Long term care ................................... 82.1% 84.8%
Therapy services ................................. 6.4 7.2
Pharmacy services ................................ 6.2 5.0
Laboratory services .............................. 5.3 3.0
----- -----
Total..................................... 100.0% 100.0%
===== =====
RainTree's revenues fluctuate from facility to facility based on various
factors, including total capacity, occupancy rates, reimbursement methodologies
and rates among the payor categories, payor mix and the scope and utilization of
the Company's ancillary services. In general, the Company believes that private
pay sources are more profitable to the Company than governmental reimbursement
sources.
Data for nursing center operations with respect to sources of net patient
revenues and patient mix by payor type are set forth below (long-term care
only).
17
<PAGE>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1999 1998
------ ------
SOURCES OF REVENUES
Medicare .......................................... 22.4% 31.7%
Private and other.................................. 17.9 16.5
----- -----
Quality mix........................................ 40.3 48.2
Medicaid .......................................... 59.7 51.8
----- -----
Total......................................... 100.0% 100.0%
===== =====
AVERAGE OCCUPANCY
Nursing facilities................................. 76.6% 81.2%
Independent and assisted living facilities......... 53.4 59.5
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
In the 1999 first quarter, RainTree recorded net income of $54.1 million
compared to a net loss of $4.8 million in the prior year quarter. Net income for
the 1999 first quarter includes a $113.2 million gain from debt discharged in
the bankruptcy and reorganization expenses amounting to $54.6 million. Loss from
operations amounted to $4.6 million in the 1999 first quarter compared to $4.8
million in the same period in 1998.
Total revenues decreased $19.9 million, or 36.3%, to $34.8 million in the
1999 first quarter from $54.7 million in the comparable 1998 quarter. Net
patient service revenues decreased from $54.1 million in the 1998 first quarter
to $34.5 million in the current period. Patient days decreased from 361,992 in
the 1998 period to 254,040 in the current period. Net patient service revenues
recorded by the long-term care facilities decreased by approximately $13.0
million, of which $8.3 million is attributable to the disposition of facilities.
The long-term care facilities experienced declines in occupancy and quality mix
(the percentage of revenues from Medicare and private pay sources) in the first
quarter 1999. The decrease in average occupancy in 1999 is due primarily to the
negative perception of RainTree as a result of the bankruptcy. If the Company is
unable to increase its average occupancy levels in the near future, it may
experience a material negative impact on its results of operations and cash
flows. Quality mix was impacted by both the bankruptcy and the new Medicare
Prospective Payment System ("PPS"), which applied to RainTree on January 1,
1999. Under PPS, skilled nursing facilities are paid a fixed per diem rate for
virtually all covered services. RainTree estimates that its average daily
Medicare rate under PPS will be approximately 18% lower in fiscal 1999 than in
1998.
Therapy and pharmacy company revenues also decreased from the prior year
period because the companies' nursing facility customers have negotiated lower
contract rates in an effort to control costs in the PPS environment. In
addition, under PPS there is an annual per-patient cap of $1,500 on
reimbursement for combined Part B and outpatient physical and speech therapy
services and an annual cap of $1,500 on combined Part B and occupational therapy
services. See "-Dispositions."
Wages and related expenses decreased $8.4 million, or 29.9%, from $28.0
million in the 1998 first quarter to $19.6 million in the current quarter. The
decrease is due primarily to: (i) facility dispositions, which account for
approximately $4.5 million of the decrease; (ii) a decrease in ancillary company
expenses of approximately $3.2 million; and (iii) cost controls in the Company's
long-term care facilities. Most of the decrease in ancillary company expense is
related to therapy operations. Sunbelt has experienced a decrease in the volume
of services provided as a result of PPS, and has also changed its compensation
structure in order to control costs. Wages and related expenses as a percentage
of revenues amounted to 56.3% in 1999 and 51.2% in 1998.
18
<PAGE>
Other operating expenses decreased $6.6 million, or 33.6%, from $19.5
million in the 1998 first quarter to $12.9 million in the 1999 first quarter.
Approximately $3.4 million of the decrease is due to the disposition of
facilities. The remaining decrease is due primarily to a reduction in ancillary
expenses of the long-term care facilities. RainTree renegotiated its therapy and
pharmacy provider contracts in response to the reimbursement changes under PPS.
The provision for doubtful accounts increased by $1.5 million from the prior
year period. The increase is due to Sunbelt receivables that have been
determined to be uncollectible as well as an increase in the age of nursing
facility receivables. Other operating expenses as a percentage of revenues
amounted to 37.1% in the 1999 first quarter and 35.6% in the 1998 period.
Rent expense decreased from $4.0 million in the 1998 first quarter to $3.2
million in the 1999 period. The decrease is due primarily to the disposition of
facilities. Rent expense as a percentage of revenues was 7.2% in the 1998 first
quarter and 9.2% in the current quarter.
Interest expense amounted to $1.8 million in the 1999 first quarter
compared to $5.8 million in the 1998 first quarter. The decrease is due in part
to contractual interest not accrued on prepetition debt in the amount of
approximately $1.5 million and to the decrease in RainTree's debt as a result of
emergence from bankruptcy on January 31, 1999. Interest expense as a percentage
of revenues was 5.3% in the 1999 first quarter compared to 10.6% in the prior
year period.
Depreciation and amortization expense decreased from $2.3 million in the
1998 first quarter to $1.8 million in the 1999 first quarter. The decrease is
due to the net reduction in intangible assets resulting from fresh start
reporting and the write-down of impaired assets in the fourth quarter of 1998.
Depreciation and amortization as a percentage of revenues amounted to 5.2% in
the 1999 first quarter compared to 4.2% in the prior year period.
RainTree did not record income tax expense or benefit in the current or
prior year periods. In both periods, the Company generated net losses for tax
purposes. The discharge of debt and other obligations on the Effective Date
resulted in an extraordinary gain for financial reporting purposes of
approximately $113.2 million. The Company did not record tax expense related to
this gain. The Internal Revenue Code provides that, in a Chapter 11 bankruptcy
case, income normally arising from the discharge of debt is excluded from
taxable income. However, to the extent that income from discharge is excluded
from income, taxpayers must reduce specified tax attributes that include net
operating losses. The Company anticipates that, as a result of the restructuring
of its debt obligations, its net operating losses will be substantially reduced
or limited. Therefore, the Company has established a valuation allowance against
its net operating loss carryforward benefits.
Reorganization expenses recorded in January 1999 in the amount of $54.6
million are comprised primarily of fresh start adjustments and professional fees
related to the bankruptcy and restructuring. See Note 4 of Notes to Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW PROVIDED BY OPERATING ACTIVITIES
RainTree had a cash balance of $4.3 million and a working capital deficit
of $6.1 million at March 31, 1999.
Net cash provided by the Company's long-term care and ancillary company
operations amounted to approximately $694,000 in the first quarter of 1999. This
cash was generated in spite of the loss from operations recorded by RainTree and
is due primarily to a net increase in accounts payable and accrued expenses and
collection of accounts receivable.
19
<PAGE>
Gross accounts receivable decreased approximately $1.1 million from
December 31, 1998 to March 31, 1999, primarily in connection with facility
dispositions. During this same period, the allowance for doubtful accounts
increased by approximately $1.3 million. See "-Results of Operations." RainTree
anticipates that its allowance for doubtful accounts may continue to fluctuate
in the future and will depend, in large part, on the mix of revenues, as well as
the timing of payments by private, third party and governmental payors. While
the Company believes that the allowance for doubtful accounts is adequate at
March 31, 1999, if the Company is not successful in collecting its accounts
receivable on a timely basis, the Company will be required to further increase
its provision for doubtful accounts.
CASH FLOWS FROM INVESTING AND FINANCING ACTIVITIES
During the bankruptcy proceedings, RainTree financed its working capital
needs out of its operating cash flows and under the HCFP DIP Facility, an $11
million accounts receivable-backed revolving credit facility. Interest on the
HCFP DIP Facility accrued at the prime rate plus 3.0% (10.75% at December 31,
1998). As of January 31, 1999, borrowings under the HCFP DIP Facility amounted
to approximately $8.0 million. On the Effective Date, the HCFP DIP Facility was
replaced partially with a new $7 million revolving line of credit from Health
Partners (the "First Line"). Interest on amounts outstanding under the First
Line accrues at the prime rate plus 0.85%. As of March 31, 1999, borrowings
outstanding under the First Line totaled approximately $3.0 million, which based
on the level of eligible accounts receivable, was the maximum amount that could
be borrowed at that time. On May 14, 1999, the Company entered into another $7
million line of credit with Health Partners (the "Second Line"). Total combined
borrowings under the First Line and Second Line cannot exceed $12 million.
Availability under the Second Line is subject to the Company having met certain
requirements, including sufficient eligible accounts receivable and quarterly
financial covenants contained in the Omega Master Lease. The Company believes
that it has met these covenant requirements as of March 31, 1999. Had the Second
Line been in place on May 1, 1999, the Company estimates that its maximum
borrowing level during the month, based on eligible accounts receivable, would
have been approximately $6-7 million combined under both lines of credit.
Net cash used in investing activities in 1999 amounted to $1.1 million in
the first quarter. Routine capital expenditures amounted to approximately
$846,000 and approximately $213,000 was expended for lease and insurance
deposits.
Net cash provided by financing activities amounted to approximately $3.5
million in the current period, primarily as a result of a net increase in
borrowings under revolving lines of credit.
At March 31, 1999, RainTree had approximately $74.1 million of total debt
and lease financing obligations. The Company also has aggregate minimum rent
obligations of approximately $135 million (subject to certain increases) during
the remainder of the initial terms and first renewal periods under its operating
leases.
The terms of certain of RainTree's debt and lease obligations require the
Company to meet certain financial and reporting covenants. The terms of the
Omega Master Lease require that RainTree maintain specified operating ratios,
levels of working capital and net worth. The Indenture for the Senior Secured
Notes includes covenants that prohibit or limit asset sales, acquisitions,
incurrence of additional debt and liens, the making of restricted payments,
affiliate transactions, engaging in certain mergers and consolidations and
entering new lines of business. For example, should RainTree sell collateral
securing the Senior Secured Notes, any cash proceeds from such sale must be used
to redeem Senior Secured Notes.
The Company's future cash requirements and cash flow expectations are
closely related to the implementation of its restructuring. The Company
generally expects to meet its near future financing needs for the coming fiscal
20
<PAGE>
year principally through its revolving line of credit. However, unexpected
increases in costs or an inability to increase average occupancy and thus
revenues could have a material adverse effect on the Company's cash flows.
IMPACT OF THE YEAR 2000 ISSUE
Some of RainTree's information systems have time-sensitive software that
will not properly recognize the year 2000. Based on an on-going assessment, the
Company has determined that it will be required to modify or replace significant
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. RainTree believes that
with modifications to existing software and conversions to new software, the
Company will be year 2000 ready by the end of 1999 and the year 2000 issue will
not pose significant operational problems for its computer systems.
RainTree is in the process of completing a detailed inventory and analysis
of computer hardware, software and operating systems. The Company will utilize
both internal and external resources to reprogram, or replace, and test the
hardware and software for year 2000 readiness. The scope of the year 2000
project also encompasses consideration of potential impacts on the Company's
business operations. The Company is reviewing internal business operations and
relationships with external business partners to assess the current level of
compliance. The next step is to perform testing and develop contingency plans
with the goal of achieving year 2000 readiness by September 1999.
During 1998 and the first quarter of 1999, RainTree replaced substantially
all of its computer equipment in connection with implementation of the Plan. The
Company believes the new equipment is year 2000 compliant. The Company estimates
that the incremental cost to upgrade existing software to make it year 2000
compliant will not exceed $150,000.
RainTree has initiated formal communications with significant suppliers and
payors to determine the extent to which the Company's systems and operations are
vulnerable to those third parties' failure to remediate their own year 2000
issues. Examples of such issues include, but are not limited to, electronic
interfaces with external agents such as payors, suppliers and banks. The ability
of third parties with which RainTree transacts business to adequately address
their year 2000 issues is outside the Company's control. Although RainTree will
seek to replace any of its current vendors who are unable to become year 2000
ready in a timely manner, there can be no assurance that the Company's
operations will not be adversely affected by the ability of third parties,
including the federal and state governments on which RainTree's operations rely,
to also manage the year 2000 issue.
The Company will continue to assess each of its systems and their year 2000
readiness. At this time, the Company believes that appropriate actions are being
taken and expects to complete its overall year 2000 remediation prior to any
anticipated impact on its operations. However, there can be no assurance that
these assumptions will be achieved, and actual results could differ materially
from those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, third party modification plans and similar uncertainties.
LISTING OF COMMON STOCK
RainTree is in the process of applying for listing of the New Common Stock
on the Nasdaq Small Cap Market. However, the Company may not qualify for listing
on the Nasdaq Small Cap Market, and there can be no assurance that any such
listing will be obtained.
ITEM 3 IS NOT APPLICABLE
21
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
RainTree is, and may in the future be, party to litigation arising in the
ordinary course of its business. It is also routinely subject to surveys and
investigations by regulators and payors. There can be no assurance that Unison's
insurance coverage will be adequate to cover all liabilities occurring by reason
of such claims or investigations or that any such matters that are not covered
by insurance will not have an adverse effect on Unison's business.
On May 28, 1998, RainTree, together with 29 of its subsidiaries, filed
petitions for relief under Chapter 11 of the Bankruptcy Code with the Bankruptcy
Court for the District of Arizona (collectively, the "RainTree Debtors"). On
January 7, 1998, the BritWill Debtors (together with the RainTree Debtors, the
"Debtors") filed voluntary petitions for relief under Chapter 11 with the
Bankruptcy Court in the District of Arizona. All 33 cases were procedurally
consolidated for administrative purposes and have been jointly administered
under Case No. 98-06583-PHX-GBN. In November 1998, the Plan was accepted by
RainTree's creditors. Effective January 31, 1999, the Bankruptcy Court confirmed
RainTree's Plan and the Company emerged from bankruptcy.
RainTree is a defendant in seven consolidated securities class action
lawsuits pending in the United States District Court in Phoenix, Arizona (the
"Federal Action"), and a securities class action lawsuit pending in California
Superior Court (the "State Action") (collectively, the "Securities Class
Actions"). The Securities Class Actions arise from the Company's announcement on
March 11, 1997 that it would be restating its financial results for the
nine-month period ended September 30, 1996. A consolidated amended class action
complaint in the Federal Action was filed on January 6, 1998 under the caption
MARTIN GROSSMAN, ET AL. V. UNISON HEALTHCARE CORPORATION, ET AL., USDC No. CIV
97-0583 PHX SMM. The State Action is captioned JEFFREY D. VANDYKE V. CRUTTENDEN
ROTH, INC., WHEAT FIRST BUTCHER SINGER, INDIVIDUALLY AND AS REPRESENTATIVES OF A
DEFENDANT UNDERWRITER CLASS, AND BRUCE H. WHITEHEAD, UNISON HEALTHCARE CORP.,
JOHN T. LYNCH, JR., TROUVER CAPITAL PARTNERS, L.P., JERRY M. WALKER, PHILLIP R.
ROLLINS, CRAIG R. CLARK, AND PAUL J. CONTRIS, Case No. 779111 (Orange County
Sup. Ct.) (filed May 13, 1997). The Federal Action seeks damages for alleged
violations of federal and Arizona state securities laws; the State Action seeks
damages for alleged violations of the California state securities laws. The
broadest class period is that alleged in the Federal Action from December 18,
1995 (the date of the Company's initial public offering) to May 30, 1997.
The parties in the Federal Action have reached a settlement in principle
that is expected to resolve both the Federal and State Actions in their
entirety. The settlement includes a cash payment by the Company's primary
insurer amounting to $4.25 million and 1,000,000 shares of old Common Stock.
Under the Plan, old Common Stock was converted into warrants; under the proposed
settlement, class members who are to receive RainTree shares will receive a pro
rata share of such warrants. The settlement was approved by the Bankruptcy Court
on December 30, 1998 and by the district court in the Federal Action on April
28, 1999.
The Company and certain of its current and former officers and/or directors
were named as defendants in an action styled JOHN D. FILKOSKI, ET AL. V. UNISON
HEALTHCARE CORPORATION, ET AL., filed in Colorado Superior Court on May 27, 1998
(the "Colorado Action"). The Colorado Action alleges causes of action under
Colorado common and statutory law in connection with the Signature Acquisition.
The Colorado Action arises out of the same general nexus of facts as alleged in
the Securities Class Actions described above. The plaintiffs are four former
shareholders of Signature whose Signature shares were acquired in exchange for
22
<PAGE>
cash, notes and common stock on October 31, 1996. Essentially, plaintiffs allege
that the Company's financial statements for the second and third quarters of
1996 contained false and misleading statements that fraudulently induced
plaintiffs into entering into a merger agreement with the Company. Plaintiffs
further allege that the Company failed to perform on certain promissory notes
made in connection with the Signature Acquisition. Plaintiffs seek damages of
approximately $3.2 million in purported actual damages as well as punitive
damages, interest and costs. Plaintiffs were advised that all proceedings
against the Company, including the Colorado Action, were stayed as a result of
the Chapter 11 filing.
On June 24, 1998, plaintiffs voluntarily dismissed the Company from the
Colorado Action. Plaintiffs subsequently filed a second amended complaint, which
did not name the Company but which did charge certain individual defendants with
acts of fraud, negligent misrepresentation and breach of fiduciary duty in their
capacities as current or former officers and/or directors of the Company. The
Company may be required to indemnify and/or advance defense costs to the
individual defendants. The Company has an applicable insurance policy covering
the Colorado Action. Motions to dismiss the Colorado Action for lack of personal
jurisdiction have been filed by the individual defendants (except Jerry M.
Walker) and are pending before the court. Mr. Walker filed a motion to stay the
Colorado Action pending plaintiffs' decision as to whether they will participate
in the settlement of the Securities Class Actions.
On April 24, 1998, an action styled FRANCISCAN ELDERCARE CORPORATION, INC.
V. SUNQUEST SPC, INC., UNISON HEALTHCARE CORPORATION, INC. [SIC], JERRY WALKER,
PHILLIP ROLLINS AND PAUL CONTRIS was filed in the Circuit Court of the State of
Oregon (County of Multnomah) (Case No. 9801-00050). This action relates to four
nursing facilities that the Company previously leased from Franciscan Eldercare
Corporation ("FEC"). These leases were rejected by RainTree in the Bankruptcy
Court. The action alleges breach of contract, conversion and breach of
promissory note against RainTree and Sunquest SPC, Inc., a RainTree subsidiary,
and breach of guaranty against Messrs. Walker, Rollins and Contris. FEC is
seeking damages from the Company in the amount of at least $1.2 million plus
attorney's fees, interest and costs. This action was and continues to be stayed
as to the Company and Sunquest SPC, Inc. as a result of the bankruptcy
proceedings.
On May 4, 1998, an action styled HEALTHPRIME, INC., HP/HEALTHCARE
ACQUIRORS, INC., MARKLEYSBURG HEALTHCARE INVESTORS, L.P., MARSHALL MANOR
HEALTHCARE SERVICES, INC., AND LAKE CITY NURSING HOMES, INC. V. UNISON
HEALTHCARE CORPORATION AND SUNQUEST SPC, INC. was filed in the Superior Court of
Fulton County, Georgia (Case No. E.68081). The action alleges breach of contract
related to a nursing facility that the Company previously leased from
Markleysburg Healthcare Investors, Inc. and four nursing facilities that the
Company previously managed on behalf of the plaintiff. The facility lease was
rejected by RainTree in the Bankruptcy Court. Plaintiffs are seeking a judgment
holding that the Company is entitled to no additional management fees relating
to the managed facilities and other unspecified damages. On November 11, 1998,
the Company filed an action in Bankruptcy Court (UNISON V. HEALTHPRIME, INC. ET
AL., Adversary Proceeding No. 98-808-GBN) seeking to recover management fees
related to these facilities totaling $1.6 million plus interest and attorneys'
fees.
On December 10, 1998, an action styled AMERICAN PROFESSIONAL HOLDINGS, INC.
[SIC] V. JOHN L. MAGUIRE, W. JEROME MCGEE, AND HAROLD N. MCKINNEY was filed in
the Bankruptcy Court (Adversary No. 98-861). American Professional Holding, Inc.
("Ampro"), a wholly owned subsidiary of RainTree, was acquired on October 31,
1996. Messrs. Maguire, McGee and McKinney are former officers, directors and
stockholders of Ampro. The complaint alleges breach of contract related to loans
made by Ampro in June 1996 to the Defendants in the aggregate amount of
$250,000. These loans were due and payable in full on December 15, 1997. The
Company is seeking damages in the amount of $292,674, which represents the
aggregate principal amount of the loans plus accrued interest, and attorneys'
fees and costs. Also on December 10, 1998, an action styled AMERICAN
PROFESSIONAL HOLDING, INC. V. ASSOCIATED SOLUTIONS, INC. was filed in the
Bankruptcy Court (Adversary No. 98-862). Associated Solutions, Inc. ("ASI") is
an affiliate of Messrs. Maguire, McGee and McKinney. The complaint alleges
breach of contract related to a loan made by Ampro to ASI in March 1996 in the
amount of $600,000. This loan was due and payable in full on December 15, 1997.
23
<PAGE>
The Company is seeking damages in the amount of $781,106, which represents the
principal amount of the loan plus accrued interest, and attorneys' fees and
costs.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
2 Disclosure Statement in Support of Debtors' Joint Plan of
Reorganization Dated August 10, 1998 and Debtors' Joint Plan of
Reorganization Dated August 10 (incorporated by reference to Exhibit
99.1 to Form 8-K filed on August 13, 1998)
2.1 Disclosure Statement in Support of Debtors' First Amended Joint Plan
of Reorganization Dated October 15, 1998 and Debtors' First Amended
Joint Plan of Reorganization Dated October 15, 1998 (incorporated by
reference to Exhibit 2.1 to the Company's 1997 Annual Report on Form
10-K)
3.1 Certificate of Incorporation of RainTree Healthcare Corporation, as
amended and restated (incorporated by reference to Exhibit 2 of
Amendment No. 1 to the Form 8-A filed on April 8, 1999)
3.2 Bylaws of RainTree Healthcare Corporation, as amended and restated
(incorporated by reference to Exhibit 3 to Amendment No. 1 to the Form
8-A filed on April 8, 1999)
4.1 Indenture dated as of January 31, 1999, among RainTree Healthcare
Corporation, the Guarantors and Norwest Bank Minnesota, National
Association, as Trustee (incorporated by reference to Exhibit 4.1 to
the Company's 1998 Annual Report on Form 10-K)
10.1 First Amendment to Omega New Master Lease, dated as of February 1,
1999, among Omega Healthcare Investors, Inc. and BritWill Indiana
Partnership, BritWill Investments I, Inc., BritWill Investments-II,
Inc., Amberwood Court, Inc., The Arbors Health Care Center, Inc.,
Brookshire House, Inc., Christopher Nursing Center, Inc., Los Arcos,
Inc., Pueblo Norte, Inc., and Rio Verde Nursing Center, Inc.
(incorporated by reference to Exhibit 10.2 to the Company's 1998
Annual Report on Form 10-K)
10.2 Revolving Credit Note dated February 8, 1999, among RainTree
Healthcare Corporation, Sunquest SPC, Inc., Safford Care, Inc. Douglas
Manor, Inc., Cornerstone Care, Inc. and Arkansas, Inc., and HCFP
Funding, Inc. (incorporated by reference to Exhibit 10.3 to the
Company's 1998 Annual Report on Form 10-K)
10.3 Loan and Security Agreement dated February 8, 1999, among RainTree
Healthcare Corporation, Sunquest SPC, Inc., Safford Care, Inc. Douglas
Manor, Inc., Cornerstone Care, Inc. and Arkansas, Inc., and HCFP
Funding, Inc. (incorporated by reference to Exhibit 10.4 to the
Company's 1998 Annual Report on Form 10-K)
10.4 Second Amendment To Omega New Master Lease, dated as of February 2,
1999 among Omega Healthcare Investors, Inc. and BritWill Indiana
Partnership, BritWill Investments-I, Inc., BritWill Investments-II,
Inc., Amberwood Court, Inc., The Arbors Health Care Center, Inc.,
Brookshire House, Inc., Christopher Nursing Center, Inc., Los Arcos,
Inc., Pueblo Norte, Inc., and Rio Verde Nursing Center, Inc.
(incorporated by reference to Exhibit 10.5 to the Company's 1998
Annual Report on Form 10-K)
10.5 First Amendment To Omega New Master Lease Guarantee, dated as of
February 2, 1999 among RainTree Healthcare Corporation, Signature
Health Care Corporation, BritWill HealthCare Company, BritWill
Investments-I, Inc., Cedar Care, Inc., and Sherwood HealthCare
Corporation in favor of Omega Healthcare Investors, Inc. (incorporated
by reference to Exhibit 10.6 to the Company's 1998 Annual Report on
Form 10-K)
24
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10.6 First Amendment To Security Agreement, dated as of February 1, 1999
among Omega Healthcare Investors, Inc. and BritWill Indiana
Partnership as successor in interest to BritWill Investments-I, Inc.
(incorporated by reference to Exhibit 10.7 to the Company's 1998
Annual Report on Form 10-K)
10.7 Amended and Restated Security Agreement, dated as of February 2, 1999
among Omega Healthcare Investors, Inc. and BritWill Indiana
Partnership, BritWill Investments-II, Inc., Amberwood Court, Inc., The
Arbors Health Care Center, Inc., Brookshire House, Inc., Christopher
Nursing Center, Inc., Los Arcos, Inc., Pueblo Norte, Inc., and Rio
Verde Nursing Center, Inc. (incorporated by reference to Exhibit 10.8
to the Company's 1998 Annual Report on Form 10-K)
10.8 Indiana Returned Facilities Agreement, dated as of February 1, 1999
among Omega Healthcare Investors, Inc. and BritWill Indiana
Partnership (incorporated by reference to Exhibit 10.9 to the
Company's 1998 Annual Report on Form 10-K)
10.9 Indiana Returned Facility Note, dated as of January 31, 1999 among
Omega Healthcare Investors, Inc. and BritWill Indiana Partnership
(incorporated by reference to Exhibit 10.10 to the Company's 1998
Annual Report on Form 10-K)
10.10 Indiana Returned Facility Note Guarantee, dated as of January 31,
1999 among RainTree Healthcare, BritWill HealthCare Company and Omega
Healthcare Investors, Inc. (incorporated by reference to Exhibit 10.11
to the Company's 1998 Annual Report on Form 10-K)
10.11 Indiana Returned Facilities Interim Management Agreement, dated as of
February 1, 1999 by and between RainTree Healthcare Corporation and
Omega Healthcare Investors, Inc. (incorporated by reference to Exhibit
10.12 to the Company's 1998 Annual Report on Form 10-K)
10.12 Amended Pledge Agreement, dated as of February 2, 1999 by and between
BritWill HealthCare Company and Omega Healthcare Investors, Inc.
(incorporated by reference to Exhibit 10.13 to the Company's 1998
Annual Report on Form 10-K)
10.13 Second Amended and Restated Pledge Agreement, dated as of February 2,
1999 by and between BritWill Investments-I, Inc. and Omega Healthcare
Investors, Inc. (incorporated by reference to Exhibit 10.14 to the
Company's 1998 Annual Report on Form 10-K)
10.14 Promissory Note dated as of January 31, 1999 among RainTree
Healthcare Corporation, American Professional Holding, Inc., Ampro
Medical Services, Inc., Gamma Laboratories, Inc., Memphis Clinical
Laboratory, Inc., Quest Pharmacies, Inc., and David Kremser, Bernice
Kremser, Holly Kremser, Michael Kremser, Stanley Kremser and Elk
Meadows Investments, L.L.C. (incorporated by reference to Exhibit
10.15 to the Company's 1998 Annual Report on Form 10-K)
10.15 BritWill Acquisition Promissory Note A dated as of January 31, 1999,
among RainTree Healthcare Corporation and BritWill Investments
Company, Ltd. (incorporated by reference to Exhibit 10.37 to the
Company's 1998 Annual Report on Form 10-K)
10.16 BritWill Acquisition Promissory Note B dated as of January 31, 1999,
among RainTree Healthcare Corporation and UNHC Real Estate Holdings,
Ltd. (incorporated by reference to Exhibit 10.38 to the Company's 1998
Annual Report on Form 10-K)
10.17 Pledge Agreement effective January 31, 1999, among RainTree
Healthcare Corporation and Norwest Bank Minnesota, National
Association (incorporated by reference to Exhibit 10.39 to the
Company's 1998 Annual Report on Form 10-K)
25
<PAGE>
10.18 Registration Rights Agreement dated as of January 31, 1999, among
RainTree Healthcare Corporation and Morgan Stanley Dean Witter High
Yield Securities, Inc., Morgan Stanley Dean Witter Diversified Income
Fund, Morgan Stanley Dean Witter Variable Investment Series-High Yield
Portfolio, High Income Advantage Trust II, High Income Advantage
Trust, High Income Advantage Trust III, Morgan Stanley Dean Witter
Select Dimensions Investment Series-The Diversified Income Portfolio
and Capital Research and Management Company (incorporated by reference
to Exhibit 10.40 to the Company's 1998 Annual Report on Form 10-K)
10.19 Security Agreement effective January 31, 1999 by and between Quest
Pharmacies, Inc., Sunbelt Therapy Management Services, Inc.(Arizona),
Decatur Sports Fit & Wellness Center, Inc., Therapy Health Systems,
Inc., Henderson & Associates Rehabilitation, Inc., Sunbelt Therapy
Management Services, Inc.(Alabama), RainTree Healthcare Corporation
and Norwest Bank Minnesota, National Association (incorporated by
reference to Exhibit 10.41 to the Company's 1998 Annual Report on Form
10-K)
10.20 Security Agreement dated as of January 31, 1999 by and between
American Professional Holding, Inc. and David Kremser, Bernice
Kremser, Holly Kremser, Michael Kremser, Stanley Kremser and Elk
Meadows Investments, L.L.C. (incorporated by reference to Exhibit
10.42 to the Company's 1998 Annual Report on Form 10-K)
10.21 Stock Pledge Agreement (American Professional Holding, Inc.) dated
January 31, 1999 by and between RainTree Healthcare Corporation and
David Kremser, Bernice Kremser, Holly Kremser, Michael Kremser,
Stanley Kremser and Elk Meadows Investments, L.L.C. (incorporated by
reference to Exhibit 10.43 to the Company's 1998 Annual Report on Form
10-K)
10.22 Security Agreement dated as of January 31, 1999 by and between Ampro
Medical Services, Inc. and David Kremser, Bernice Kremser, Holly
Kremser, Michael Kremser, Stanley Kremser and Elk Meadows Investments,
L.L.C. (incorporated by reference to Exhibit 10.44 to the Company's
1998 Annual Report on Form 10-K)
10.23 Stock Pledge Agreement (Ampro Medical Services, Inc.) dated January
31, 1999 by and between American Professional Holding, Inc. and David
Kremser, Bernice Kremser, Holly Kremser, Michael Kremser, Stanley
Kremser and Elk Meadows Investments, L.L.C. (incorporated by reference
to Exhibit 10.45 to the Company's 1998 Annual Report on Form 10-K)
10.24 Security Agreement dated as of January 31, 1999 by and between Gamma
Laboratories, Inc. and David Kremser, Bernice Kremser, Holly Kremser,
Michael Kremser, Stanley Kremser and Elk Meadows Investments, L.L.C.
(incorporated by reference to Exhibit 10.46 to the Company's 1998
Annual Report on Form 10-K)
10.25 Stock Pledge Agreement (Gamma Laboratories, Inc.) dated January 31,
1999 by and between American Professional Holding, Inc. and David
Kremser, Bernice Kremser, Holly Kremser, Michael Kremser, Stanley
Kremser and Elk Meadows Investments, L.L.C. (incorporated by reference
to Exhibit 10.47 to the Company's 1998 Annual Report on Form 10-K)
10.26 Security Agreement dated as of January 31, 1999 by and between
Memphis Clinical Laboratory, Inc. and David Kremser, Bernice Kremser,
Holly Kremser, Michael Kremser, Stanley Kremser and Elk Meadows
Investments, L.L.C. (incorporated by reference to Exhibit 10.48 to the
Company's 1998 Annual Report on Form 10-K)
26
<PAGE>
10.27 Stock Pledge Agreement (Memphis Clinical Laboratory, Inc.) dated
January 31, 1999 by and between RainTree Healthcare Corporation and
David Kremser, Bernice Kremser, Holly Kremser, Michael Kremser,
Stanley Kremser and Elk Meadows Investments, L.L.C. (incorporated by
reference to Exhibit 10.49 to the Company's 1998 Annual Report on Form
10-K)
10.28 Security Agreement dated as of January 29, 1999 by and between Quest
Pharmacies, Inc. and David Kremser, Bernice Kremser, Holly Kremser,
Michael Kremser, Stanley Kremser and Elk Meadows Investments, L.L.C.
(incorporated by reference to Exhibit 10.50 to the Company's 1998
Annual Report on Form 10-K)
10.29 Stock Pledge Agreement (Quest Pharmacies, Inc.) dated January 31,
1999 by and between RainTree Healthcare Corporation and David Kremser,
Bernice Kremser, Holly Kremser, Michael Kremser, Stanley Kremser and
Elk Meadows Investments, L.L.C. (incorporated by reference to Exhibit
10.51 to the Company's 1998 Annual Report on Form 10-K)
10.30 Sharing Agreement dated January 31, 1999, by and between Northwest
Bank Minnesota, National Association, RainTree Healthcare Corporation,
BritWill Healthcare Company, BritWill Indiana Partnership and Omega
Healthcare Investors, Inc. (incorporated by reference to Exhibit 10.52
to the Company's 1998 Annual Report on Form 10-K)
10.31 Employment Agreement dated as of April 28, 1999 between RainTree
Healthcare Corporation and Michael A. Jeffries
10.32 Employment Agreement dated as of April 28, 1999 between RainTree
Healthcare Corporation and Jim Fields
10.33 Employment Agreement dated as of April 28, 1999 between RainTree
Healthcare Corporation and Nir E. Margalit
10.34 Employment Agreement dated as of April 28, 1999 between RainTree
Healthcare Corporation and Terry Troxell
10.35 Third Amendment to Omega New Master Lease dated as of March 31, 1999
by Omega Healthcare Investors, Inc. as lessor and BritWill Indiana
Partnership, BritWill Investments-II, Inc., Amberwood Court, Inc., The
Arbors Health Care Center, Inc., Brookshire House, Inc., Christopher
Nursing Center, Inc., Los Arcos, Inc., Pueblo Norte, Inc., and Rio
Verde Nursing Center, Inc.
10.36 Loan and Security Agreement dated May 11, 1999 by and among RainTree
Healthcare Corporation, BritWill Healthcare Company, BritWill Funding
Corporation, Cedar Care, Inc., Sherwood Healthcare Corp., BritWill
Investments-I, Inc., BritWill Investments-II, Inc., BritWill Indiana
Partnership, Brookshire House, Inc., Christopher Nursing Center, Inc.,
Amberwood Court, Inc., The Arbors Health Care Corporation, Los Arcos,
Inc., Pueblo Norte, Inc., Rio Verde Nursing Center, Inc., Signature
Health Care Corporation, Signature Management Group, Inc., and HCFP
Funding, Inc.
10.37 Revolving Credit Note dated May 11, 1999 by and among RainTree
Healthcare Corporation, BritWill Healthcare Company, BritWill Funding
Corporation, Cedar Care, Inc., Sherwood Healthcare Corp., BritWill
Investments-I, Inc., BritWill Investments-II, Inc., BritWill Indiana
Partnership, Brookshire House, Inc., Christopher Nursing Center, Inc.,
Amberwood Court, Inc., The Arbors Health Care Corporation, Los Arcos,
Inc., Pueblo Norte, Inc., Rio Verde Nursing Center, Inc., Signature
Health Care Corporation, Signature Management Group, Inc., and HCFP
Funding, Inc.
27 Financial Data Schedule (included only in the EDGAR filing)
27
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(b) Reports filed on Form 8-K:
None
ITEMS 2, 3, 4 AND 5 ARE NOT APPLICABLE.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RAINTREE HEALTHCARE CORPORATION
(Registrant)
Date: May 17, 1999 /s/ JIMMY L. FIELDS
--------------------------------------
Jimmy L. Fields
Executive Vice President and Chief
Financial Officer (Principal Financial
Officer)
/s/ WARREN K. JERREMS
---------------------------------------
Warren K. Jerrems
Vice President and Chief Accounting
Officer (Principal Accounting Officer)
28
Exhibit 10.31
EMPLOYMENT AGREEMENT
AGREEMENT dated as of April 28, 1999, between RAINTREE HEALTHCARE
CORPORATION, a Delaware corporation (the "Company"), and MICHAEL A. JEFFRIES
("Jeffries" or "Executive").
Company wishes to employ Jeffries and Jeffries wishes to be employed by
Company, in each case, pursuant to the terms and subject to the conditions
hereof.
Accordingly, the parties hereto hereby agree as follows:
1. EMPLOYMENT AND DUTIES. Company hereby employs Jeffries as its President
and Chief Executive Officer, and Jeffries hereby accepts such employment. In
addition Company shall cause Jeffries to continue to be a member of the Board of
Directors during the term hereof. Jeffries, who shall devote all his business
time and attention to the business of Company, shall have general responsibility
for the management of Company subject to the direction and control of the Board.
Jeffries agrees that, if he is terminated for Cause (as hereinafter defined) or
resigns his employment other than for Good Reason (as hereinafter defined), he
will also immediately resign as a member of the Board of Directors.
2. TERM. Unless earlier terminated as hereinafter provided, the term of
this Agreement shall commence on the date hereof (the "Commencement Date") and
continue until the third anniversary of the Commencement Date.
3. COMPENSATION. (a) Base Salary. Company shall pay Jeffries a salary,
before deducting all applicable withholdings, at the annual rate of $327,000,
effective as of February 1, 1999 payable in accordance with Company's standard
executive payroll policies as in effect from time to time. Within ninety (90)
days after the end of each fiscal year, Company shall consider increases in the
annual rate of such salary to be effective as of February 1 of each year
commencing February 1, 2000.
(b) Incentive Bonus. The Board's compensation committee shall design
and present to the Board for review, adjustment and adoption an incentive
compensation program for key employees. Such program may include cash and stock
option incentives and will provide for participation by Jeffries. The program
shall, as it relates to cash compensation, provide that Jeffries shall be
entitled to receive a cash bonus in respect of any fiscal year, commencing with
the fiscal year ending December 31, 1999, for which Company achieves EBITDA (as
hereinafter defined) of at least 90% of budgeted EBITDA for such fiscal year, as
set forth in the annual budget to be adopted by the Board for such fiscal year
and designated as the annual budget to be used for purposes hereof; provided,
however, that for purposes of the fiscal year ending December 31, 1999,
<PAGE>
2
both budgeted EBITDA and actual EBITDA shall be determined for the eleven-month
period commencing on February 1, 1999. Such bonus shall be in an amount,
expressed as a percentage of Jeffries' then annual base salary, equal to:
If EBITDA before income taxes:
50% greater than 100%of budget
40% greater than or equal to 95% or
less than or equal to 100% of budget
30% greater than or equal to 90% or less than
95% of budget
Any such bonus shall be payable as soon as practicable following the end of the
fiscal year, but in no event earlier than the date that follows by 30 days the
filing of Company's annual report on Form 10-K for such year.
For purposes of this Agreement, the following definitions shall apply:
"EBITDA" shall mean, during each applicable fiscal year, for the Company
and its subsidiaries on a consolidated basis, the Net Income (or loss) for such
period, plus, to the extent reflected in the statement of Net Income for such
period, the sum of (a) the Income Tax of the Company and its subsidiaries, (b)
the Interest Expense of the Company and its subsidiaries, (c) Depreciation
Expense of the Company and its subsidiaries, (d) Amortization of the Company and
its subsidiaries, and (e) any charges resulting from the granting of Restricted
Stock Units as provided in Section 3(c) hereof.
"Depreciation Expense" shall mean, during each applicable fiscal year, for
the Company and its subsidiaries on a consolidated basis, that amount of the
Depreciation Expense that is reflected on the financial statements for such
period in accordance with GAAP consistently applied.
"GAAP" shall mean generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession.
"Income Tax" shall mean, during each applicable fiscal year, for the
Company and its subsidiaries on a consolidated basis, the provision or benefit
for federal, state, local and foreign income taxes of the Company and its
subsidiaries for such period as determined in accordance with GAAP consistently
applied.
"Interest Expense" shall mean, during each applicable fiscal year, as
applied to the Company and its subsidiaries on a consolidated basis, the
interest expense of the Company and its subsidiaries for such period as
determined in accordance with GAAP consistently applied.
<PAGE>
3
"Net Income" shall mean, during each applicable fiscal year, for the
Company and its subsidiaries on a consolidated basis, the net income (or loss)
of the Company and its subsidiaries for such period as determined in accordance
with GAAP consistently applied (except as provided in this definition),
excluding from "Net Income," however, (a) any gain or loss, net of taxes,
realized upon any sale, transfer or other disposition (including by way of
merger or consolidation) by the Company and its subsidiaries of any property or
other assets of the Company and its subsidiaries outside the ordinary course of
business, (b) any gain or loss, net of taxes, realized upon the termination of
any employment benefit plan, and (c) any extraordinary gain or loss, including
any extraordinary costs not associated with the normal operations of the
business of the Company and its subsidiaries net of taxes, in each case (a)
through (c), as determined in accordance with GAAP consistently applied.
(c) Stock Grant and Options. As a material inducement to Executive's
entering into this Agreement, the Board has granted to the Executive on the
Commencement Date, an award of 90,000 Restricted Stock Units, each such Unit
representing the right to receive, subject to vesting, at the times provided for
herein one share of the Common Stock of the Company (the "Restricted Stock Unit
Award"). In addition, the Company shall pay to the Executive dividend equivalent
amounts with respect to the Restricted Stock Units at the time and in the amount
of any dividend distributions paid with respect to shares of Common Stock. The
number of shares of Common Stock underlying vested Restricted Stock Units shall
be delivered to the Executive upon the earlier of (i) the termination of
Executive's employment for any reason and (ii) the third anniversary of the
Commencement Date (provided that Executive shall be permitted to elect to defer
delivery of all or a portion of such shares by written notice specifying a
deferred delivery date(s) sent to the Company not later than the second
anniversary of the Commencement Date (or such other dates as the Company and
Executive shall determine)). The Restricted Stock Units, which shall be in
addition to and not in lieu of any options that would otherwise be granted to
Jeffries under any compensation program referred to in Section 3(b), shall vest
as follows:
34,000 shares Commencement Date
28,000 shares February 1, 2000
28,000 shares February 1, 2001
or, if earlier, on the date of any termination without Cause (as hereinafter
defined) or any termination by Executive for Good Reason (as defined in Section
6(b)) and shall otherwise be subject to Company's standard terms of grant.
4A. EXPENSES. Company shall also, upon receipt of customary documentation,
reimburse Jeffries for his reasonable travel and lodging (outside the Scottsdale
area) and other ordinary and necessary business expenses consistent with
Company's expense reimbursement policies as in effect from time to time.
4B. BENEFITS. Company shall provide Jeffries and his dependents with
health, medical and life insurance, and make payments for Jeffries' account to
<PAGE>
4
such retirement plan or plans as it may from time to time adopt, in each case,
in a manner consistent with its treatment from time to time of other senior
executive officers.
5. VACATION, ETC. Jeffries shall be entitled to vacation with pay in
accordance with Company's vacation policy as in effect from time to time and to
such paid holidays as Company may approve for its executive personnel. Jeffries
hereby waives, to the maximum extent permitted by applicable law, his right to
be paid at such time as his employment by Company should terminate for unaccrued
vacation or personal days.
6. TERMINATION. The Board may terminate Jeffries' employment hereunder
prior to the expiration of the term hereof in the manner provided in either
Section 6(a) or Section 6(b). Jeffries may terminate his employment hereunder at
any time effective upon Company's receipt of at least 30 days' advance notice to
such effect.
(a) FOR CAUSE. Company may terminate this Agreement for Cause upon notice
to Jeffries stating the facts constituting such cause, provided that Jeffries
shall have 30 days following such notice to cure any conduct or act, if curable,
alleged to provide grounds for termination for Cause hereunder. For purposes of
this Agreement, "Cause" shall mean (i) the Executive has been convicted of (or
pleads guilty to) a felony; or (ii) the Executive has engaged in willful
misconduct or gross negligence in the performance of his employment duties to
the Company. If Executive's employment is terminated for Cause, the Company will
have no further liability or obligation to Executive except for amounts earned
or accrued under Company sponsored benefit plans prior to termination.
(b) WITHOUT CAUSE. (i) Company may terminate this Agreement at any time
immediately, without Cause, effective upon Jeffries's receipt of notice to such
effect. Upon termination under this Section 6(b), Company shall pay to Jeffries:
(i) forthwith, the base salary due him through the date of termination, (ii) in
a lump sum, an amount equal to 18 months of his then base salary, and (iii)
within 90 days following the end of the fiscal year in which termination occurs,
a bonus in an amount determined in the manner described in Section 3(b) (except,
if termination occurs prior to the end of a fiscal year, prorated for the period
during which Jeffries was employed hereunder), in each case, less applicable
withholdings. In addition, any and all options, restricted stock or other
similar grants of shares shall immediately vest and shall be immediately
exerciseable.
(ii) The provisions of this Section 6(b) shall also apply, and the Company
shall be deemed to have terminated Jeffries without Cause hereunder, if
Jeffries' terminates his employment with Company for Good Reason. For purposes
of this Agreement, "Good Reason" shall mean any of the following:
(A) Any reason whatsoever within six (6) months of a Change of
Control;
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5
(B) The Company's failure to elect or reelect, or to appoint or
reappoint, Executive to offices or positions involving duties,
responsibilities, authority and dignity of a scope comparable to those of
Executive's most significant offices or positions held at any time during
the term hereof;
(C) Material change by the Company in the Executive's function, duties
or responsibilities (including reporting responsibilities) of a scope less
than that associated with Executive's most significant position with the
Company during the term hereof;
(D) Executive's base salary is reduced by the Company, unless such
reduction is pursuant to a salary reduction program which affects all of
the Company's exempt employees by the same percentage, or there is a
material reduction in the benefits that were in effect for the Executive on
the Commencement Date under the Company's benefit plans in effect on such
date;
(E) Relocation of the Company's corporate headquarters or Executive's
principal place of employment to a place located outside of the greater
Phoenix metropolitan area; provided that required travel on the Company's
business shall not be deemed a relocation so long as Executive is not
required to be outside of the greater Phoenix metropolitan area for a
period of time that is greater than the period of time he was required to
be outside of the greater Phoenix metropolitan area for the twelve month
period immediately preceding the Commencement Date;
(F) The failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company; or
(G) Material breach of this Agreement by the Company, which breach is
not cured within twenty (20) days after written notice thereof is delivered
to the Company.
For purposes of this Agreement, the term "Change in Control" of the Company
shall mean, and a "Change in Control" shall be deemed to have occurred if after
the date hereof:
(A) Any "person" (as such term is used in Section 13(d) and 14(d)(2)
of the Exchange Act) shall become the beneficial owner (within the meaning
of Rule 13d-3 promulgated pursuant to the Exchange Act, or any successor
provision thereto), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting power of
the Company's then outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote at an
election of directors;
(B) Individuals who, as of the Commencement Date, constitute the Board
of Directors of the Company (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors of the Company,
provided (A) that any person becoming a member of the Board of Directors of
<PAGE>
6
the Company subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least
a majority of the members then comprising the Incumbent Board (other than
an election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest
relating to the election of the Directors of the Company, as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act,
or any successor provision thereto) shall be, for purposes of this
Agreement, considered as though such person were a member of the Incumbent
Board, or (B) that the members of the Board of Directors of the Company who
are nominated in the definitive proxy statement furnished in connection
with the solicitation of proxies on behalf of the Board of Directors of the
Company shall be, for purposes of this Agreement, considered as members of
the Incumbent Board; or
(C) Approval by the stockholders of the Company and consummation of
(1) a reorganization, merger, consolidation, or sale or other disposition
of all or substantially all of the assets of the Company, or (2) a
liquidation or dissolution of the Company.
(c) DISABILITY. If during the term of this Agreement, Jeffries fails to
perform his duties hereunder because of illness or other incapacity for a period
of three consecutive months, Company shall have the right to terminate this
Agreement without further obligation hereunder except for any bonus amount
payable in accordance with this Section 6(c) and any amounts payable pursuant to
disability plans generally applicable to executive employees. Within 90 days
after the end of the fiscal year in which termination pursuant to this Section
6(c) occurs, Jeffries shall be entitled to receive a bonus payment as provided
in Section 6(b).
(d) DEATH. If Jeffries dies during the term of this Agreement, this
Agreement shall terminate immediately, and Jeffries' legal representative shall
be entitled to receive the base salary due Jeffries for 60 days following death
as well as any other death benefits generally applicable to executive employees.
In addition, within 90 days after the end of the fiscal year in which Jeffries'
death should occur, Jeffries' legal representative shall also be entitled to
receive a bonus payment as provided in Section 6(b).
7. CONFIDENTIAL INFORMATION; NON-SOLICITATION. (a) CONFIDENTIAL
INFORMATION. Jeffries acknowledges that Jeffries may receive, or contribute to
the production of, Confidential Information. For purposes of this Agreement,
Jeffries agrees that "Confidential Information" shall mean information or
material proprietary to Company or designated as confidential information by
Company and not generally known by non-Company personnel, which Jeffries
develops or to which Jeffries obtains knowledge or access to through or as a
result of Jeffries' relationship with Company (including information conceived,
originated, discovered or developed in whole or in part by Jeffries).
Confidential Information includes, but is not limited to , the following types
<PAGE>
7
of information and other information of a similar nature (whether or not reduced
to writing) related to Company's business: discoveries, inventions, ideas,
concepts, research, development, processes, procedures, "know-how", formulae,
marketing techniques and materials, marketing and development plans, business
plans, customer names and other information related to customers, price lists,
pricing policies, methods of operation, financial information, employee
compensation, and computer programs and systems. Jeffries acknowledges that the
Confidential Information derives independent economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use. Information publicly known without breach of this
Agreement that is generally employed by the trade at or after the time Jeffries
first learns of such information, or generic information or knowledge which
Jeffries would have learned in the course of his employment or work elsewhere in
the trade, shall not be deemed part of the Confidential Information. Jeffries
further agrees:
(1) To furnish Company on demand, at any time during or after employment, a
complete list of the names and addresses of all present, former and potential
suppliers, financing or leasing sources, patients, customers and other contacts
gained while an employee of Company in Jeffries' possession, whether or not in
the possession or within the knowledge of Company.
(2) That all notes, memoranda, documentation and records in any way
incorporating or reflecting any Confidential Information shall belong
exclusively to Company, and Jeffries agrees to turn over all copies of such
materials in Jeffries' control to Company upon request or upon termination of
Jeffries' employment with Company.
(3) That while employed by Company and thereafter Jeffries will hold in
confidence and not directly or indirectly reveal, report, publish, disclose or
transfer any of the Confidential Information to any person or entity, or utilize
any of the Confidential Information for any purpose, except in the course of
Jeffries' work for Company.
(4) That any idea in whole or in part conceived of or made by Jeffries
during the term of his employment, consulting or similar relationship with
Company which relates directly or indirectly to Company's current or planned
lines of business and is made through the use of any of the Confidential
Information of Company or any of Company's equipment, facilities, trade secrets
or time, or which results from any work performed by Jeffries for Company, shall
belong exclusively to Company and shall be deemed a part of the Confidential
Information for purposes of this Agreement. Jeffries hereby assigns and agrees
to assign to Company all rights in and to such Confidential Information whether
for purposes of obtaining patent or copyright protection or otherwise. Jeffries
shall acknowledge and deliver to Company (but at its expense) such written
instruments and do such other acts, including giving testimony in support of
Jeffries' authorship or inventorship, as the case may be, necessary in the
opinion of Company to obtain patents or copyrights or to otherwise protect or
vest in Company the entire right and title in and to the Confidential
Information.
<PAGE>
8
(b) NON-SOLICITATION. During the term of Jeffries' employment by Company
and for a period of one year thereafter, Jeffries agrees that he shall not (for
the purpose of or which results in competition with Company or any of its
affiliates or subsidiaries) either solicit any past or existing customers,
patients or clients of Company or any of its predecessors, affiliates or
subsidiaries or use any Confidential Information; nor will he solicit for any
competing company the employment of any employees of Company or any of its
affiliates or subsidiaries.
(c) INJUNCTIONS. It is agreed that the restrictions contained in this
Section 7 are reasonable, but it is recognized that damages in the event of the
breach of any of the restrictions will be difficult or impossible to ascertain;
and, therefore, Jeffries agrees that, in addition to and without limiting any
other right or remedy Company may have, Company shall have the right to an
injunction against Jeffries issued by a court of competent jurisdiction
enjoining any such breach without showing or proving any actual damage to
Company.
(d) PART OF CONSIDERATION. Jeffries also agrees, acknowledges, covenants,
represents and warrants that he is fully and completely aware, and further
understands, that the foregoing restrictive covenants are an essential part of
the consideration for Company entering into this Agreement and that Company is
entering into this Agreement in full reliance on these acknowledgments,
covenants, representations and warranties.
(e) TIME AND TERRITORY REDUCTION. If the period of time and/or territory
affected by the provisions of this Section 7 are held to be in any respect an
unreasonable restriction, it is agreed that the court so holding may reduce the
territory to which the restriction pertains or the period of time in which it
operates or may reduce both such territory and such period, to the minimum
extent necessary to render such provision enforceable.
(f) SURVIVAL. The obligations described in this Section 7 shall survive any
termination of this Agreement or any termination of the employment relationship
created hereunder.
8. GOVERNING LAW AND VENUE. Arizona law shall govern the construction and
enforcement of this Agreement, and the parties agree that any litigation
pertaining to this Agreement shall be in courts located in Maricopa County,
Arizona.
9. CONSTRUCTION. The language in all parts of this Agreement shall in all
cases be construed as a whole according to its fair meaning and not strictly for
or against any party. The section headings contained in this Agreement are for
reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement. All terms used in one number or gender shall
be construed to include any other number or gender as the context may require.
The parties agree that each party has reviewed this Agreement and has had the
opportunity to have counsel review the same and that any rule of construction to
<PAGE>
9
the effect that ambiguities are to be resolved against the drafting party shall
not apply in the interpretation of this Agreement or any amendment hereto.
10. NONDELAGABILITY OF JEFFRIES' RIGHTS AND COMPANY'S ASSIGNMENT RIGHTS.
The obligations, rights and benefits of Jeffries hereunder are personal and may
not be delegated, assigned or transferred in any manner whatsoever, nor are such
obligations, rights or benefits subject to involuntary alienation, assignment or
transfer. This Agreement shall be assigned automatically to any entity merging
with or acquiring Company or its business.
11. SEVERABILITY. In the event any term or provision of this Agreement is
declared by a court of competent jurisdiction to be invalid or unenforceable for
any reason, this Agreement shall remain in full force and effect, and either (a)
the invalid or unenforceable provision shall be modified to the minimum extent
necessary to make it valid and enforceable or (b) if such a modification is not
possible, this Agreement shall be interpreted as if such invalid or
unenforceable provision were not a part hereof.
12. ATTORNEYS' FEES. Except as otherwise provided herein, in the event
either party hereto institutes an action or other proceeding to enforce any
rights arising out of this Agreement, the party prevailing in such action or
other proceeding shall be paid all reasonable costs and attorneys' fees by the
non-prevailing party, such fees to be set by the court and not by a jury and to
be included in any judgment entered in such proceeding.
13. NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed duly given upon receipt if either personally
delivered, sent by certified mail, return receipt requested, or sent by a
nationally-recognized overnight courier service, addressed to the parties as
follows:
If to Company: RainTree Healthcare Corporation
15300 N. 90th Street
Suite 100
Scottsdale, Arizona 85260
Attention: General Counsel
If to Jeffries: Michael A. Jeffries
RainTree Healthcare Corporation
15300 N. 90th Street
Suite 100
Scottsdale, Arizona 85260
or to such other address as either party may provide to the other in accordance
with this Section.
<PAGE>
10
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior or contemporaneous understandings or agreements in regard thereto. No
waiver of any rights under this Agreement shall be valid unless in writing and
signed by the party to be charged with such waiver. No waiver of any term or
condition contained in this Agreement shall be deemed or construed as a further
or continuing waiver of such term or condition unless the waiver specifically
provides otherwise.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
RAINTREE HEALTHCARE CORPORATION: JEFFRIES:
/s/ Michael A. Jeffries
------------------------------------
Michael A. Jeffries
By: /s/ Jim Fields
----------------------------------
Jim Fields
Executive Vice President and Chief
Financial Officer
Exhibit 10.32
EMPLOYMENT AGREEMENT
AGREEMENT dated as of April 28, 1999, between RAINTREE HEALTHCARE
CORPORATION, a Delaware corporation (the "Company"), and JIM FIELDS ("Fields" or
"Executive").
Company wishes to employ Fields and Fields wishes to be employed by
Company, in each case, pursuant to the terms and subject to the conditions
hereof.
Accordingly, the parties hereto hereby agree as follows:
1. EMPLOYMENT AND DUTIES. Company hereby employs Fields as its Executive
Vice President and Chief Financial Officer, and Fields hereby accepts such
employment. Fields, shall devote all his business time and attention to the
business of Company, subject to the direction and control of the Board.
2. TERM. Unless earlier terminated as hereinafter provided, the term of
this Agreement shall commence on the date hereof (the "Commencement Date") and
continue until the third anniversary of the Commencement Date.
3. COMPENSATION. (a) Base Salary. Company shall pay Executive a salary,
before deducting all applicable withholdings, at the annual rate of $180,000
effective as of February 1, 1999 payable in accordance with Company's standard
executive payroll policies as in effect from time to time. Within ninety (90)
days after the end of each fiscal year, Company shall consider increases in the
annual rate of such salary to be effective as of February 1 of each year
commencing February 1, 2000.
(b) Incentive Bonus. The Board's compensation committee shall design and
present to the Board for review, adjustment and adoption an incentive
compensation program for key employees. Such program may include cash and stock
option incentives and will provide for participation by Executive. The program
shall, as it relates to cash compensation, provide that Executive shall be
entitled to receive a cash bonus in respect of any fiscal year, commencing with
the fiscal year ending December 31, 1999, for which Company achieves EBITDA (as
hereinafter defined) of at least 90% of budgeted EBITDA for such fiscal year, as
set forth in the annual budget to be adopted by the Board for such fiscal year
and designated as the annual budget to be used for purposes hereof; provided,
however, that for purposes of the fiscal year ending December 31, 1999, both
budgeted EBITDA and actual EBITDA shall be determined for the eleven-month
period commencing on February 1, 1999. Such bonus shall be in an amount,
expressed as a percentage of Executive's then annual base salary, equal to:
<PAGE>
2
If EBITDA before income taxes:
50% greater than 100%of budget
40% greater than or equal to 95% or
less than or equal to 100% of budget
30% greater than or equal to 90% or less than
95% of budget
Any such bonus shall be payable as soon as practicable following the end of the
fiscal year, but in no event earlier than the date that follows by 30 days the
filing of Company's annual report on Form 10-K for such year.
For purposes of this Agreement, the following definitions shall apply:
"EBITDA" shall mean, during each applicable fiscal year, for the Company
and its subsidiaries on a consolidated basis, the Net Income (or loss) for such
period, plus, to the extent reflected in the statement of Net Income for such
period, the sum of (a) the Income Tax of the Company and its subsidiaries, (b)
the Interest Expense of the Company and its subsidiaries, (c) Depreciation
Expense of the Company and its subsidiaries, (d) Amortization of the Company and
its subsidiaries, and (e) any charges resulting from the granting of Restricted
Stock Units as provided in Section 3(c) hereof.
"Depreciation Expense" shall mean, during each applicable fiscal year, for
the Company and its subsidiaries on a consolidated basis, that amount of the
Depreciation Expense that is reflected on the financial statements for such
period in accordance with GAAP consistently applied.
"GAAP" shall mean generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession.
"Income Tax" shall mean, during each applicable fiscal year, for the
Company and its subsidiaries on a consolidated basis, the provision or benefit
for federal, state, local and foreign income taxes of the Company and its
subsidiaries for such period as determined in accordance with GAAP consistently
applied.
"Interest Expense" shall mean, during each applicable fiscal year, as
applied to the Company and its subsidiaries on a consolidated basis, the
interest expense of the Company and its subsidiaries for such period as
determined in accordance with GAAP consistently applied.
"Net Income" shall mean, during each applicable fiscal year, for the
Company and its subsidiaries on a consolidated basis, the net income (or loss)
of the Company and its subsidiaries for such period as determined in accordance
with GAAP consistently applied (except as provided in this definition),
excluding from "Net Income," however, (a) any gain or loss, net of taxes,
<PAGE>
3
realized upon any sale, transfer or other disposition (including by way of
merger or consolidation) by the Company and its subsidiaries of any property or
other assets of the Company and its subsidiaries outside the ordinary course of
business, (b) any gain or loss, net of taxes, realized upon the termination of
any employment benefit plan, and (c) any extraordinary gain or loss, including
any extraordinary costs not associated with the normal operations of the
business of the Company and its subsidiaries net of taxes, in each case (a)
through (c), as determined in accordance with GAAP consistently applied.
(c) Stock Grant and Options. As a material inducement to Executive's
entering into this Agreement, the Board has granted to the Executive on the
Commencement Date, an award of 90,000 Restricted Stock Units, each such Unit
representing the right to receive, subject to vesting, at the times provided for
herein one share of the Common Stock of the Company (the "Restricted Stock Unit
Award"). In addition, the Company shall pay to the Executive dividend equivalent
amounts with respect to the Restricted Stock Units at the time and in the amount
of any dividend distributions paid with respect to shares of Common Stock. The
number of shares of Common Stock underlying vested Restricted Stock Units shall
be delivered to the Executive upon the earlier of (i) the termination of
Executive's employment for any reason and (ii) the third anniversary of the
Commencement Date (provided that Executive shall be permitted to elect to defer
delivery of all or a portion of such shares by written notice specifying a
deferred delivery date(s) sent to the Company not later than the second
anniversary of the Commencement Date (or such other dates as the Company and
Executive shall determine)). The Restricted Stock Units, which shall be in
addition to and not in lieu of any options that would otherwise be granted to
Executive under any compensation program referred to in Section 3(b), shall vest
as follows:
34,000 shares Commencement Date
28,000 shares February 1, 2000
28,000 shares February 1, 2001
or, if earlier, on the date of any termination without Cause (as hereinafter
defined) or any termination by Executive for Good Reason (as defined in Section
6(b)) and shall otherwise be subject to Company's standard terms of grant.
4A. EXPENSES. Company shall also, upon receipt of customary documentation,
reimburse Executive for his reasonable travel and lodging (outside the
Scottsdale area) and other ordinary and necessary business expenses consistent
with Company's expense reimbursement policies as in effect from time to time.
4B. BENEFITS. Company shall provide Executive and his dependents with
health, medical and life insurance, and make payments for Executive's account to
such retirement plan or plans as it may from time to time adopt, in each case,
in a manner consistent with its treatment from time to time of other senior
executive officers.
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4
5. VACATION, ETC. Executive shall be entitled to vacation with pay in
accordance with Company's vacation policy as in effect from time to time and to
such paid holidays as Company may approve for its executive personnel. Executive
hereby waives, to the maximum extent permitted by applicable law, his right to
be paid at such time as his employment by Company should terminate for unaccrued
vacation or personal days.
6. TERMINATION. The Board may terminate Executive's employment hereunder
prior to the expiration of the term hereof in the manner provided in either
Section 6(a) or Section 6(b). Executive may terminate his employment hereunder
at any time effective upon Company's receipt of at least 30 days' advance notice
to such effect.
(a) FOR CAUSE. Company may terminate this Agreement for Cause upon notice
to Executive stating the facts constituting such cause, provided that Executive
shall have 30 days following such notice to cure any conduct or act, if curable,
alleged to provide grounds for termination for Cause hereunder. For purposes of
this Agreement, "Cause" shall mean (i) the Executive has been convicted of (or
pleads guilty to) a felony; or (ii) the Executive has engaged in willful
misconduct or gross negligence in the performance of his employment duties to
the Company. If Executive's employment is terminated for Cause, the Company will
have no further liability or obligation to Executive except for amounts earned
or accrued under Company sponsored benefit plans prior to termination.
(b) WITHOUT CAUSE. (i) Company may terminate this Agreement at any time
immediately, without Cause, effective upon Executive's receipt of notice to such
effect. Upon termination under this Section 6(b), Company shall pay to
Executive: (i) forthwith, the base salary due him through the date of
termination, (ii) in a lump sum, an amount equal to 18 months of his then base
salary, and (iii) within 90 days following the end of the fiscal year in which
termination occurs, a bonus in an amount determined in the manner described in
Section 3(b) (except, if termination occurs prior to the end of a fiscal year,
prorated for the period during which Executive was employed hereunder), in each
case, less applicable withholdings. In addition, any and all options, restricted
stock or other similar grants of shares shall immediately vest and shall be
immediately exerciseable.
(ii) The provisions of this Section 6(b) shall also apply, and the Company
shall be deemed to have terminated Executive without Cause hereunder, if
Executive terminates his employment with Company for Good Reason. For purposes
of this Agreement, "Good Reason" shall mean any of the following:
(A) Any reason whatsoever within six (6) months of a Change of
Control;
(B) The Company's failure to elect or reelect, or to appoint or
reappoint, Executive to offices or positions involving duties,
responsibilities, authority and dignity of a scope comparable to those of
Executive's most significant offices or positions held at any time during
the term hereof;
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5
(C) Material change by the Company in the Executive's function, duties
or responsibilities (including reporting responsibilities) of a scope less
than that associated with Executive's most significant position with the
Company during the term hereof;
(D) Executive's base salary is reduced by the Company, unless such
reduction is pursuant to a salary reduction program which affects all of
the Company's exempt employees by the same percentage, or there is a
material reduction in the benefits that were in effect for the Executive on
the Commencement Date under the Company's benefit plans in effect on such
date;
(E) Relocation of the Company's corporate headquarters or Executive's
principal place of employment to a place located outside of the greater
Phoenix metropolitan area; provided that required travel on the Company's
business shall not be deemed a relocation so long as Executive is not
required to be outside of the greater Phoenix metropolitan area for a
period of time that is greater than the period of time he was required to
be outside of the greater Phoenix metropolitan area for the twelve month
period immediately preceding the Commencement Date;
(F) The failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company; or
(G) Material breach of this Agreement by the Company, which breach is
not cured within twenty (20) days after written notice thereof is delivered
to the Company.
For purposes of this Agreement, the term "Change in Control" of the Company
shall mean, and a "Change in Control" shall be deemed to have occurred if after
the date hereof:
(A) Any "person" (as such term is used in Section 13(d) and 14(d)(2)
of the Exchange Act) shall become the beneficial owner (within the meaning
of Rule 13d-3 promulgated pursuant to the Exchange Act, or any successor
provision thereto), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting power of
the Company's then outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote at an
election of directors;
(B) Individuals who, as of the Commencement Date, constitute the Board
of Directors of the Company (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors of the Company,
provided (A) that any person becoming a member of the Board of Directors of
the Company subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least
a majority of the members then comprising the Incumbent Board (other than
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6
an election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest
relating to the election of the Directors of the Company, as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act,
or any successor provision thereto) shall be, for purposes of this
Agreement, considered as though such person were a member of the Incumbent
Board, or (B) that the members of the Board of Directors of the Company who
are nominated in the definitive proxy statement furnished in connection
with the solicitation of proxies on behalf of the Board of Directors of the
Company shall be, for purposes of this Agreement, considered as members of
the Incumbent Board; or
(C) Approval by the stockholders of the Company and consummation of
(1) a reorganization, merger, consolidation, or sale or other disposition
of all or substantially all of the assets of the Company, or (2) a
liquidation or dissolution of the Company.
(c) DISABILITY. If during the term of this Agreement, Executive fails to
perform his duties hereunder because of illness or other incapacity for a period
of three consecutive months, Company shall have the right to terminate this
Agreement without further obligation hereunder except for any bonus amount
payable in accordance with this Section 6(c) and any amounts payable pursuant to
disability plans generally applicable to executive employees. Within 90 days
after the end of the fiscal year in which termination pursuant to this Section
6(c) occurs, Executive shall be entitled to receive a bonus payment as provided
in Section 6(b).
(d) DEATH. If Executive dies during the term of this Agreement, this
Agreement shall terminate immediately, and Executive's legal representative
shall be entitled to receive the base salary due Executive for 60 days following
death as well as any other death benefits generally applicable to executive
employees. In addition, within 90 days after the end of the fiscal year in which
Executive's death should occur, Executive's legal representative shall also be
entitled to receive a bonus payment as provided in Section 6(b).
7. CONFIDENTIAL INFORMATION; NON-SOLICITATION. (a) CONFIDENTIAL
INFORMATION. Executive acknowledges that Executive may receive, or contribute to
the production of, Confidential Information. For purposes of this Agreement,
Executive agrees that "Confidential Information" shall mean information or
material proprietary to Company or designated as confidential information by
Company and not generally known by non-Company personnel, which Executive
develops or to which Executive obtains knowledge or access to through or as a
result of Executive's relationship with Company (including information
conceived, originated, discovered or developed in whole or in part by
Executive). Confidential Information includes, but is not limited to , the
following types of information and other information of a similar nature
(whether or not reduced to writing) related to Company's business: discoveries,
inventions, ideas, concepts, research, development, processes, procedures,
"know-how", formulae, marketing techniques and materials, marketing and
<PAGE>
7
development plans, business plans, customer names and other information related
to customers, price lists, pricing policies, methods of operation, financial
information, employee compensation, and computer programs and systems. Executive
acknowledges that the Confidential Information derives independent economic
value, actual or potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use. Information publicly known without breach of
this Agreement that is generally employed by the trade at or after the time
Executive first learns of such information, or generic information or knowledge
which Executive would have learned in the course of his employment or work
elsewhere in the trade, shall not be deemed part of the Confidential
Information. Executive further agrees:
(1) To furnish Company on demand, at any time during or after employment, a
complete list of the names and addresses of all present, former and potential
suppliers, financing or leasing sources, patients, customers and other contacts
gained while an employee of Company in Executive's possession, whether or not in
the possession or within the knowledge of Company.
(2) That all notes, memoranda, documentation and records in any way
incorporating or reflecting any Confidential Information shall belong
exclusively to Company, and Executive agrees to turn over all copies of such
materials in Executive's control to Company upon request or upon termination of
Executive's employment with Company.
(3) That while employed by Company and thereafter Executive will hold in
confidence and not directly or indirectly reveal, report, publish, disclose or
transfer any of the Confidential Information to any person or entity, or utilize
any of the Confidential Information for any purpose, except in the course of
Executive's work for Company.
(4) That any idea in whole or in part conceived of or made by Executive
during the term of his employment, consulting or similar relationship with
Company which relates directly or indirectly to Company's current or planned
lines of business and is made through the use of any of the Confidential
Information of Company or any of Company's equipment, facilities, trade secrets
or time, or which results from any work performed by Executive for Company,
shall belong exclusively to Company and shall be deemed a part of the
Confidential Information for purposes of this Agreement. Executive hereby
assigns and agrees to assign to Company all rights in and to such Confidential
Information whether for purposes of obtaining patent or copyright protection or
otherwise. Executive shall acknowledge and deliver to Company (but at its
expense) such written instruments and do such other acts, including giving
testimony in support of Executive's authorship or inventorship, as the case may
be, necessary in the opinion of Company to obtain patents or copyrights or to
otherwise protect or vest in Company the entire right and title in and to the
Confidential Information.
(b) NON-SOLICITATION. During the term of Executive's employment by Company
and for a period of one year thereafter, Executive agrees that he shall not (for
the purpose of or which results in competition with Company or any of its
affiliates or subsidiaries) either solicit any past or existing customers,
<PAGE>
8
patients or clients of Company or any of its predecessors, affiliates or
subsidiaries or use any Confidential Information; nor will he solicit for any
competing company the employment of any employees of Company or any of its
affiliates or subsidiaries.
(c) INJUNCTIONS. It is agreed that the restrictions contained in this
Section 7 are reasonable, but it is recognized that damages in the event of the
breach of any of the restrictions will be difficult or impossible to ascertain;
and, therefore, Executive agrees that, in addition to and without limiting any
other right or remedy Company may have, Company shall have the right to an
injunction against Executive issued by a court of competent jurisdiction
enjoining any such breach without showing or proving any actual damage to
Company.
(d) PART OF CONSIDERATION. Executive also agrees, acknowledges, covenants,
represents and warrants that he is fully and completely aware, and further
understands, that the foregoing restrictive covenants are an essential part of
the consideration for Company entering into this Agreement and that Company is
entering into this Agreement in full reliance on these acknowledgments,
covenants, representations and warranties.
(e) TIME AND TERRITORY REDUCTION. If the period of time and/or territory
affected by the provisions of this Section 7 are held to be in any respect an
unreasonable restriction, it is agreed that the court so holding may reduce the
territory to which the restriction pertains or the period of time in which it
operates or may reduce both such territory and such period, to the minimum
extent necessary to render such provision enforceable.
(f) SURVIVAL. The obligations described in this Section 7 shall survive any
termination of this Agreement or any termination of the employment relationship
created hereunder.
8. GOVERNING LAW AND VENUE. Arizona law shall govern the construction and
enforcement of this Agreement, and the parties agree that any litigation
pertaining to this Agreement shall be in courts located in Maricopa County,
Arizona.
9. CONSTRUCTION. The language in all parts of this Agreement shall in all
cases be construed as a whole according to its fair meaning and not strictly for
or against any party. The section headings contained in this Agreement are for
reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement. All terms used in one number or gender shall
be construed to include any other number or gender as the context may require.
The parties agree that each party has reviewed this Agreement and has had the
opportunity to have counsel review the same and that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not apply in the interpretation of this Agreement or any amendment hereto.
<PAGE>
9
10. NONDELAGABILITY OF EXECUTIVE'S RIGHTS AND COMPANY'S ASSIGNMENT RIGHTS.
The obligations, rights and benefits of Executive hereunder are personal and may
not be delegated, assigned or transferred in any manner whatsoever, nor are such
obligations, rights or benefits subject to involuntary alienation, assignment or
transfer. This Agreement shall be assigned automatically to any entity merging
with or acquiring Company or its business.
11. SEVERABILITY. In the event any term or provision of this Agreement is
declared by a court of competent jurisdiction to be invalid or unenforceable for
any reason, this Agreement shall remain in full force and effect, and either (a)
the invalid or unenforceable provision shall be modified to the minimum extent
necessary to make it valid and enforceable or (b) if such a modification is not
possible, this Agreement shall be interpreted as if such invalid or
unenforceable provision were not a part hereof.
12. ATTORNEYS' FEES. Except as otherwise provided herein, in the event
either party hereto institutes an action or other proceeding to enforce any
rights arising out of this Agreement, the party prevailing in such action or
other proceeding shall be paid all reasonable costs and attorneys' fees by the
non-prevailing party, such fees to be set by the court and not by a jury and to
be included in any judgment entered in such proceeding.
13. NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed duly given upon receipt if either personally
delivered, sent by certified mail, return receipt requested, or sent by a
nationally-recognized overnight courier service, addressed to the parties as
follows:
If to Company: RainTree Healthcare Corporation
15300 N. 90th Street
Suite 100
Scottsdale, Arizona 85260
Attention: General Counsel
If to Executive: Jim Fields
RainTree Healthcare Corporation
15300 N. 90th Street
Suite 100
Scottsdale, Arizona 85260
or to such other address as either party may provide to the other in accordance
with this Section.
<PAGE>
10
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior or contemporaneous understandings or agreements in regard thereto. No
waiver of any rights under this Agreement shall be valid unless in writing and
signed by the party to be charged with such waiver. No waiver of any term or
condition contained in this Agreement shall be deemed or construed as a further
or continuing waiver of such term or condition unless the waiver specifically
provides otherwise.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
RAINTREE HEALTHCARE CORPORATION: EXECUTIVE:
/s/ Jim Fields
------------------------------------
Jim Fields
By: /s/ Michael A. Jeffries
-------------------------------------
Michael A. Jeffries
President and Chief Executive Officer
Exhibit 10.33
EMPLOYMENT AGREEMENT
AGREEMENT dated as of April 28, 1999, between RAINTREE HEALTHCARE
CORPORATION, a Delaware corporation (the "Company"), and NIR E. MARGALIT
("Margalit" or "Executive").
Company wishes to employ Margalit and Margalit wishes to be employed by
Company, in each case, pursuant to the terms and subject to the conditions
hereof.
Accordingly, the parties hereto hereby agree as follows:
1. EMPLOYMENT AND DUTIES. Company hereby employs Margalit as its Executive
Vice President, General Counsel and Secretary, and Margalit hereby accepts such
employment. Margalit, shall devote all his business time and attention to the
business of Company, subject to the direction and control of the Board.
2. TERM. Unless earlier terminated as hereinafter provided, the term of
this Agreement shall commence on the date hereof (the "Commencement Date") and
continue until the third anniversary of the Commencement Date.
3. COMPENSATION. (a) Base Salary. Company shall pay Executive a salary,
before deducting all applicable withholdings, at the annual rate of $180,000
effective as of February 1, 1999 payable in accordance with Company's standard
executive payroll policies as in effect from time to time. Within ninety (90)
days after the end of each fiscal year, Company shall consider increases in the
annual rate of such salary to be effective as of February 1 of each year
commencing February 1, 2000.
(b) Incentive Bonus. The Board's compensation committee shall design and
present to the Board for review, adjustment and adoption an incentive
compensation program for key employees. Such program may include cash and stock
option incentives and will provide for participation by Executive. The program
shall, as it relates to cash compensation, provide that Executive shall be
entitled to receive a cash bonus in respect of any fiscal year, commencing with
the fiscal year ending December 31, 1999, for which Company achieves EBITDA (as
hereinafter defined) of at least 90% of budgeted EBITDA for such fiscal year, as
set forth in the annual budget to be adopted by the Board for such fiscal year
and designated as the annual budget to be used for purposes hereof; provided,
however, that for purposes of the fiscal year ending December 31, 1999, both
budgeted EBITDA and actual EBITDA shall be determined for the eleven-month
period commencing on February 1, 1999. Such bonus shall be in an amount,
expressed as a percentage of Executive's then annual base salary, equal to:
<PAGE>
2
If EBITDA before income taxes:
50% greater than 100%of budget
40% greater than or equal to 95% or
less than or equal to 100% of budget
30% greater than or equal to 90% or less than
95% of budget
Any such bonus shall be payable as soon as practicable following the end of the
fiscal year, but in no event earlier than the date that follows by 30 days the
filing of Company's annual report on Form 10-K for such year.
For purposes of this Agreement, the following definitions shall apply:
"EBITDA" shall mean, during each applicable fiscal year, for the Company
and its subsidiaries on a consolidated basis, the Net Income (or loss) for such
period, plus, to the extent reflected in the statement of Net Income for such
period, the sum of (a) the Income Tax of the Company and its subsidiaries, (b)
the Interest Expense of the Company and its subsidiaries, (c) Depreciation
Expense of the Company and its subsidiaries, (d) Amortization of the Company and
its subsidiaries, and (e) any charges resulting from the granting of Restricted
Stock Units as provided in Section 3(c) hereof.
"Depreciation Expense" shall mean, during each applicable fiscal year, for
the Company and its subsidiaries on a consolidated basis, that amount of the
Depreciation Expense that is reflected on the financial statements for such
period in accordance with GAAP consistently applied.
"GAAP" shall mean generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession.
"Income Tax" shall mean, during each applicable fiscal year, for the
Company and its subsidiaries on a consolidated basis, the provision or benefit
for federal, state, local and foreign income taxes of the Company and its
subsidiaries for such period as determined in accordance with GAAP consistently
applied.
"Interest Expense" shall mean, during each applicable fiscal year, as
applied to the Company and its subsidiaries on a consolidated basis, the
interest expense of the Company and its subsidiaries for such period as
determined in accordance with GAAP consistently applied.
"Net Income" shall mean, during each applicable fiscal year, for the
Company and its subsidiaries on a consolidated basis, the net income (or loss)
of the Company and its subsidiaries for such period as determined in accordance
with GAAP consistently applied (except as provided in this definition),
<PAGE>
3
excluding from "Net Income," however, (a) any gain or loss, net of taxes,
realized upon any sale, transfer or other disposition (including by way of
merger or consolidation) by the Company and its subsidiaries of any property or
other assets of the Company and its subsidiaries outside the ordinary course of
business, (b) any gain or loss, net of taxes, realized upon the termination of
any employment benefit plan, and (c) any extraordinary gain or loss, including
any extraordinary costs not associated with the normal operations of the
business of the Company and its subsidiaries net of taxes, in each case (a)
through (c), as determined in accordance with GAAP consistently applied.
(c) Stock Grant and Options. As a material inducement to Executive's
entering into this Agreement, the Board has granted to the Executive on the
Commencement Date, an award of 90,000 Restricted Stock Units, each such Unit
representing the right to receive, subject to vesting, at the times provided for
herein one share of the Common Stock of the Company (the "Restricted Stock Unit
Award"). In addition, the Company shall pay to the Executive dividend equivalent
amounts with respect to the Restricted Stock Units at the time and in the amount
of any dividend distributions paid with respect to shares of Common Stock. The
number of shares of Common Stock underlying vested Restricted Stock Units shall
be delivered to the Executive upon the earlier of (i) the termination of
Executive's employment for any reason and (ii) the third anniversary of the
Commencement Date (provided that Executive shall be permitted to elect to defer
delivery of all or a portion of such shares by written notice specifying a
deferred delivery date(s) sent to the Company not later than the second
anniversary of the Commencement Date (or such other dates as the Company and
Executive shall determine)). The Restricted Stock Units, which shall be in
addition to and not in lieu of any options that would otherwise be granted to
Executive under any compensation program referred to in Section 3(b), shall vest
as follows:
34,000 shares Commencement Date
28,000 shares February 1, 2000
28,000 shares February 1, 2001
or, if earlier, on the date of any termination without Cause (as hereinafter
defined) or any termination by Executive for Good Reason (as defined in Section
6(b)) and shall otherwise be subject to Company's standard terms of grant.
4A. EXPENSES. Company shall also, upon receipt of customary documentation,
reimburse Executive for his reasonable travel and lodging (outside the
Scottsdale area) and other ordinary and necessary business expenses consistent
with Company's expense reimbursement policies as in effect from time to time.
4B. BENEFITS. Company shall provide Executive and his dependents with
health, medical and life insurance, and make payments for Executive's account to
such retirement plan or plans as it may from time to time adopt, in each case,
in a manner consistent with its treatment from time to time of other senior
executive officers.
<PAGE>
4
5. VACATION, ETC. Executive shall be entitled to vacation with pay in
accordance with Company's vacation policy as in effect from time to time and to
such paid holidays as Company may approve for its executive personnel. Executive
hereby waives, to the maximum extent permitted by applicable law, his right to
be paid at such time as his employment by Company should terminate for unaccrued
vacation or personal days.
6. TERMINATION. The Board may terminate Executive's employment hereunder
prior to the expiration of the term hereof in the manner provided in either
Section 6(a) or Section 6(b). Executive may terminate his employment hereunder
at any time effective upon Company's receipt of at least 30 days' advance notice
to such effect.
(a) FOR CAUSE. Company may terminate this Agreement for Cause upon notice
to Executive stating the facts constituting such cause, provided that Executive
shall have 30 days following such notice to cure any conduct or act, if curable,
alleged to provide grounds for termination for Cause hereunder. For purposes of
this Agreement, "Cause" shall mean (i) the Executive has been convicted of (or
pleads guilty to) a felony; or (ii) the Executive has engaged in willful
misconduct or gross negligence in the performance of his employment duties to
the Company. If Executive's employment is terminated for Cause, the Company will
have no further liability or obligation to Executive except for amounts earned
or accrued under Company sponsored benefit plans prior to termination.
(b) WITHOUT CAUSE. (i) Company may terminate this Agreement at any time
immediately, without Cause, effective upon Executive's receipt of notice to such
effect. Upon termination under this Section 6(b), Company shall pay to
Executive: (i) forthwith, the base salary due him through the date of
termination, (ii) in a lump sum, an amount equal to 18 months of his then base
salary, and (iii) within 90 days following the end of the fiscal year in which
termination occurs, a bonus in an amount determined in the manner described in
Section 3(b) (except, if termination occurs prior to the end of a fiscal year,
prorated for the period during which Executive was employed hereunder), in each
case, less applicable withholdings. In addition, any and all options, restricted
stock or other similar grants of shares shall immediately vest and shall be
immediately exerciseable.
(ii) The provisions of this Section 6(b) shall also apply, and the Company
shall be deemed to have terminated Executive without Cause hereunder, if
Executive terminates his employment with Company for Good Reason. For purposes
of this Agreement, "Good Reason" shall mean any of the following:
(A) Any reason whatsoever within six (6) months of a Change of
Control;
(B) The Company's failure to elect or reelect, or to appoint or
reappoint, Executive to offices or positions involving duties,
responsibilities, authority and dignity of a scope comparable to those of
Executive's most significant offices or positions held at any time during
the term hereof;
<PAGE>
5
(C) Material change by the Company in the Executive's function, duties
or responsibilities (including reporting responsibilities) of a scope less
than that associated with Executive's most significant position with the
Company during the term hereof;
(D) Executive's base salary is reduced by the Company, unless such
reduction is pursuant to a salary reduction program which affects all of
the Company's exempt employees by the same percentage, or there is a
material reduction in the benefits that were in effect for the Executive on
the Commencement Date under the Company's benefit plans in effect on such
date;
(E) Relocation of the Company's corporate headquarters or Executive's
principal place of employment to a place located outside of the greater
Phoenix metropolitan area; provided that required travel on the Company's
business shall not be deemed a relocation so long as Executive is not
required to be outside of the greater Phoenix metropolitan area for a
period of time that is greater than the period of time he was required to
be outside of the greater Phoenix metropolitan area for the twelve month
period immediately preceding the Commencement Date;
(F) The failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company; or
(G) Material breach of this Agreement by the Company, which breach is
not cured within twenty (20) days after written notice thereof is delivered
to the Company.
For purposes of this Agreement, the term "Change in Control" of the Company
shall mean, and a "Change in Control" shall be deemed to have occurred if after
the date hereof:
(A) Any "person" (as such term is used in Section 13(d) and 14(d)(2)
of the Exchange Act) shall become the beneficial owner (within the meaning
of Rule 13d-3 promulgated pursuant to the Exchange Act, or any successor
provision thereto), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting power of
the Company's then outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote at an
election of directors;
(B) Individuals who, as of the Commencement Date, constitute the Board
of Directors of the Company (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors of the Company,
provided (A) that any person becoming a member of the Board of Directors of
the Company subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least
a majority of the members then comprising the Incumbent Board (other than
<PAGE>
6
an election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest
relating to the election of the Directors of the Company, as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act,
or any successor provision thereto) shall be, for purposes of this
Agreement, considered as though such person were a member of the Incumbent
Board, or (B) that the members of the Board of Directors of the Company who
are nominated in the definitive proxy statement furnished in connection
with the solicitation of proxies on behalf of the Board of Directors of the
Company shall be, for purposes of this Agreement, considered as members of
the Incumbent Board; or
(C) Approval by the stockholders of the Company and consummation of
(1) a reorganization, merger, consolidation, or sale or other disposition
of all or substantially all of the assets of the Company, or (2) a
liquidation or dissolution of the Company.
(c) DISABILITY. If during the term of this Agreement, Executive fails to
perform his duties hereunder because of illness or other incapacity for a period
of three consecutive months, Company shall have the right to terminate this
Agreement without further obligation hereunder except for any bonus amount
payable in accordance with this Section 6(c) and any amounts payable pursuant to
disability plans generally applicable to executive employees. Within 90 days
after the end of the fiscal year in which termination pursuant to this Section
6(c) occurs, Executive shall be entitled to receive a bonus payment as provided
in Section 6(b).
(d) DEATH. If Executive dies during the term of this Agreement, this
Agreement shall terminate immediately, and Executive's legal representative
shall be entitled to receive the base salary due Executive for 60 days following
death as well as any other death benefits generally applicable to executive
employees. In addition, within 90 days after the end of the fiscal year in which
Executive's death should occur, Executive's legal representative shall also be
entitled to receive a bonus payment as provided in Section 6(b).
7. CONFIDENTIAL INFORMATION; NON-SOLICITATION. (a) CONFIDENTIAL
INFORMATION. Executive acknowledges that Executive may receive, or contribute to
the production of, Confidential Information. For purposes of this Agreement,
Executive agrees that "Confidential Information" shall mean information or
material proprietary to Company or designated as confidential information by
Company and not generally known by non-Company personnel, which Executive
develops or to which Executive obtains knowledge or access to through or as a
result of Executive's relationship with Company (including information
conceived, originated, discovered or developed in whole or in part by
Executive). Confidential Information includes, but is not limited to , the
following types of information and other information of a similar nature
(whether or not reduced to writing) related to Company's business: discoveries,
inventions, ideas, concepts, research, development, processes, procedures,
"know-how", formulae, marketing techniques and materials, marketing and
<PAGE>
7
development plans, business plans, customer names and other information related
to customers, price lists, pricing policies, methods of operation, financial
information, employee compensation, and computer programs and systems. Executive
acknowledges that the Confidential Information derives independent economic
value, actual or potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use. Information publicly known without breach of
this Agreement that is generally employed by the trade at or after the time
Executive first learns of such information, or generic information or knowledge
which Executive would have learned in the course of his employment or work
elsewhere in the trade, shall not be deemed part of the Confidential
Information. Executive further agrees:
(1) To furnish Company on demand, at any time during or after employment, a
complete list of the names and addresses of all present, former and potential
suppliers, financing or leasing sources, patients, customers and other contacts
gained while an employee of Company in Executive's possession, whether or not in
the possession or within the knowledge of Company.
(2) That all notes, memoranda, documentation and records in any way
incorporating or reflecting any Confidential Information shall belong
exclusively to Company, and Executive agrees to turn over all copies of such
materials in Executive's control to Company upon request or upon termination of
Executive's employment with Company.
(3) That while employed by Company and thereafter Executive will hold in
confidence and not directly or indirectly reveal, report, publish, disclose or
transfer any of the Confidential Information to any person or entity, or utilize
any of the Confidential Information for any purpose, except in the course of
Executive's work for Company.
(4) That any idea in whole or in part conceived of or made by Executive
during the term of his employment, consulting or similar relationship with
Company which relates directly or indirectly to Company's current or planned
lines of business and is made through the use of any of the Confidential
Information of Company or any of Company's equipment, facilities, trade secrets
or time, or which results from any work performed by Executive for Company,
shall belong exclusively to Company and shall be deemed a part of the
Confidential Information for purposes of this Agreement. Executive hereby
assigns and agrees to assign to Company all rights in and to such Confidential
Information whether for purposes of obtaining patent or copyright protection or
otherwise. Executive shall acknowledge and deliver to Company (but at its
expense) such written instruments and do such other acts, including giving
testimony in support of Executive's authorship or inventorship, as the case may
be, necessary in the opinion of Company to obtain patents or copyrights or to
otherwise protect or vest in Company the entire right and title in and to the
Confidential Information.
(b) NON-SOLICITATION. During the term of Executive's employment by Company
and for a period of one year thereafter, Executive agrees that he shall not (for
the purpose of or which results in competition with Company or any of its
<PAGE>
8
affiliates or subsidiaries) either solicit any past or existing customers,
patients or clients of Company or any of its predecessors, affiliates or
subsidiaries or use any Confidential Information; nor will he solicit for any
competing company the employment of any employees of Company or any of its
affiliates or subsidiaries.
(c) INJUNCTIONS. It is agreed that the restrictions contained in this
Section 7 are reasonable, but it is recognized that damages in the event of the
breach of any of the restrictions will be difficult or impossible to ascertain;
and, therefore, Executive agrees that, in addition to and without limiting any
other right or remedy Company may have, Company shall have the right to an
injunction against Executive issued by a court of competent jurisdiction
enjoining any such breach without showing or proving any actual damage to
Company.
(d) PART OF CONSIDERATION. Executive also agrees, acknowledges, covenants,
represents and warrants that he is fully and completely aware, and further
understands, that the foregoing restrictive covenants are an essential part of
the consideration for Company entering into this Agreement and that Company is
entering into this Agreement in full reliance on these acknowledgments,
covenants, representations and warranties.
(e) TIME AND TERRITORY REDUCTION. If the period of time and/or territory
affected by the provisions of this Section 7 are held to be in any respect an
unreasonable restriction, it is agreed that the court so holding may reduce the
territory to which the restriction pertains or the period of time in which it
operates or may reduce both such territory and such period, to the minimum
extent necessary to render such provision enforceable.
(f) SURVIVAL. The obligations described in this Section 7 shall survive any
termination of this Agreement or any termination of the employment relationship
created hereunder.
8. GOVERNING LAW AND VENUE. Arizona law shall govern the construction and
enforcement of this Agreement, and the parties agree that any litigation
pertaining to this Agreement shall be in courts located in Maricopa County,
Arizona.
9. CONSTRUCTION. The language in all parts of this Agreement shall in all
cases be construed as a whole according to its fair meaning and not strictly for
or against any party. The section headings contained in this Agreement are for
reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement. All terms used in one number or gender shall
be construed to include any other number or gender as the context may require.
The parties agree that each party has reviewed this Agreement and has had the
opportunity to have counsel review the same and that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not apply in the interpretation of this Agreement or any amendment hereto.
<PAGE>
9
10. NONDELAGABILITY OF EXECUTIVE'S RIGHTS AND COMPANY'S ASSIGNMENT RIGHTS.
The obligations, rights and benefits of Executive hereunder are personal and may
not be delegated, assigned or transferred in any manner whatsoever, nor are such
obligations, rights or benefits subject to involuntary alienation, assignment or
transfer. This Agreement shall be assigned automatically to any entity merging
with or acquiring Company or its business.
11. SEVERABILITY. In the event any term or provision of this Agreement is
declared by a court of competent jurisdiction to be invalid or unenforceable for
any reason, this Agreement shall remain in full force and effect, and either (a)
the invalid or unenforceable provision shall be modified to the minimum extent
necessary to make it valid and enforceable or (b) if such a modification is not
possible, this Agreement shall be interpreted as if such invalid or
unenforceable provision were not a part hereof.
12. ATTORNEYS' FEES. Except as otherwise provided herein, in the event
either party hereto institutes an action or other proceeding to enforce any
rights arising out of this Agreement, the party prevailing in such action or
other proceeding shall be paid all reasonable costs and attorneys' fees by the
non-prevailing party, such fees to be set by the court and not by a jury and to
be included in any judgment entered in such proceeding.
13. NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed duly given upon receipt if either personally
delivered, sent by certified mail, return receipt requested, or sent by a
nationally-recognized overnight courier service, addressed to the parties as
follows:
If to Company: RainTree Healthcare Corporation
15300 N. 90th Street
Suite 100
Scottsdale, Arizona 85260
Attention: General Counsel
If to Executive: Nir E. Margalit
RainTree Healthcare Corporation
15300 N. 90th Street
Suite 100
Scottsdale, Arizona 85260
or to such other address as either party may provide to the other in accordance
with this Section.
<PAGE>
10
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior or contemporaneous understandings or agreements in regard thereto. No
waiver of any rights under this Agreement shall be valid unless in writing and
signed by the party to be charged with such waiver. No waiver of any term or
condition contained in this Agreement shall be deemed or construed as a further
or continuing waiver of such term or condition unless the waiver specifically
provides otherwise.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
RAINTREE HEALTHCARE CORPORATION: EXECUTIVE:
/s/ Nir E. Margalit
------------------------------------
Nir E. Margalit
By: /s/ Michael A. Jeffries
-------------------------------------
Michael A. Jeffries
President and Chief Executive Officer
Exhibit 10.34
EMPLOYMENT AGREEMENT
AGREEMENT dated as of April 28, 1999, between RAINTREE HEALTHCARE
CORPORATION, a Delaware corporation (the "Company"), and TERRY TROXELL
("Troxell" or "Executive").
Company wishes to employ Troxell and Troxell wishes to be employed by
Company, in each case, pursuant to the terms and subject to the conditions
hereof.
Accordingly, the parties hereto hereby agree as follows:
1. EMPLOYMENT AND DUTIES. Company hereby employs Troxell as its Executive
Vice President, Operations and Troxell hereby accepts such employment. Troxell,
shall devote all his business time and attention to the business of Company,
subject to the direction and control of the Board.
2. TERM. Unless earlier terminated as hereinafter provided, the term of
this Agreement shall commence on the date hereof (the "Commencement Date") and
continue until the third anniversary of the Commencement Date.
3. COMPENSATION. (a) Base Salary. Company shall pay Executive a salary,
before deducting all applicable withholdings, at the annual rate of $180,000
effective as of February 1, 1999 payable in accordance with Company's standard
executive payroll policies as in effect from time to time. Within ninety (90)
days after the end of each fiscal year, Company shall consider increases in the
annual rate of such salary to be effective as of February 1 of each year
commencing February 1, 2000.
(b) Incentive Bonus. The Board's compensation committee shall design and
present to the Board for review, adjustment and adoption an incentive
compensation program for key employees. Such program may include cash and stock
option incentives and will provide for participation by Executive. The program
shall, as it relates to cash compensation, provide that Executive shall be
entitled to receive a cash bonus in respect of any fiscal year, commencing with
the fiscal year ending December 31, 1999, for which Company achieves EBITDA (as
hereinafter defined) of at least 90% of budgeted EBITDA for such fiscal year, as
set forth in the annual budget to be adopted by the Board for such fiscal year
and designated as the annual budget to be used for purposes hereof; provided,
however, that for purposes of the fiscal year ending December 31, 1999, both
budgeted EBITDA and actual EBITDA shall be determined for the eleven-month
period commencing on February 1, 1999. Such bonus shall be in an amount,
expressed as a percentage of Executive's then annual base salary, equal to:
<PAGE>
2
If EBITDA before income taxes:
50% greater than 100%of budget
40% greater than or equal to 95% or
less than or equal to 100% of budget
30% greater than or equal to 90% or less than
95% of budget
Any such bonus shall be payable as soon as practicable following the end of the
fiscal year, but in no event earlier than the date that follows by 30 days the
filing of Company's annual report on Form 10-K for such year.
For purposes of this Agreement, the following definitions shall apply:
"EBITDA" shall mean, during each applicable fiscal year, for the Company
and its subsidiaries on a consolidated basis, the Net Income (or loss) for such
period, plus, to the extent reflected in the statement of Net Income for such
period, the sum of (a) the Income Tax of the Company and its subsidiaries, (b)
the Interest Expense of the Company and its subsidiaries, (c) Depreciation
Expense of the Company and its subsidiaries, (d) Amortization of the Company and
its subsidiaries, and (e) any charges resulting from the granting of Restricted
Stock Units as provided in Section 3(c) hereof.
"Depreciation Expense" shall mean, during each applicable fiscal year, for
the Company and its subsidiaries on a consolidated basis, that amount of the
Depreciation Expense that is reflected on the financial statements for such
period in accordance with GAAP consistently applied.
"GAAP" shall mean generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession.
"Income Tax" shall mean, during each applicable fiscal year, for the
Company and its subsidiaries on a consolidated basis, the provision or benefit
for federal, state, local and foreign income taxes of the Company and its
subsidiaries for such period as determined in accordance with GAAP consistently
applied.
"Interest Expense" shall mean, during each applicable fiscal year, as
applied to the Company and its subsidiaries on a consolidated basis, the
interest expense of the Company and its subsidiaries for such period as
determined in accordance with GAAP consistently applied.
"Net Income" shall mean, during each applicable fiscal year, for the
Company and its subsidiaries on a consolidated basis, the net income (or loss)
of the Company and its subsidiaries for such period as determined in accordance
with GAAP consistently applied (except as provided in this definition),
<PAGE>
3
excluding from "Net Income," however, (a) any gain or loss, net of taxes,
realized upon any sale, transfer or other disposition (including by way of
merger or consolidation) by the Company and its subsidiaries of any property or
other assets of the Company and its subsidiaries outside the ordinary course of
business, (b) any gain or loss, net of taxes, realized upon the termination of
any employment benefit plan, and (c) any extraordinary gain or loss, including
any extraordinary costs not associated with the normal operations of the
business of the Company and its subsidiaries net of taxes, in each case (a)
through (c), as determined in accordance with GAAP consistently applied.
(c) Stock Grant and Options. As a material inducement to Executive's
entering into this Agreement, the Board has granted to the Executive on the
Commencement Date, an award of 90,000 Restricted Stock Units, each such Unit
representing the right to receive, subject to vesting, at the times provided for
herein one share of the Common Stock of the Company (the "Restricted Stock Unit
Award"). In addition, the Company shall pay to the Executive dividend equivalent
amounts with respect to the Restricted Stock Units at the time and in the amount
of any dividend distributions paid with respect to shares of Common Stock. The
number of shares of Common Stock underlying vested Restricted Stock Units shall
be delivered to the Executive upon the earlier of (i) the termination of
Executive's employment for any reason and (ii) the third anniversary of the
Commencement Date (provided that Executive shall be permitted to elect to defer
delivery of all or a portion of such shares by written notice specifying a
deferred delivery date(s) sent to the Company not later than the second
anniversary of the Commencement Date (or such other dates as the Company and
Executive shall determine)). The Restricted Stock Units, which shall be in
addition to and not in lieu of any options that would otherwise be granted to
Executive under any compensation program referred to in Section 3(b), shall vest
as follows:
34,000 shares Commencement Date
28,000 shares February 1, 2000
28,000 shares February 1, 2001
or, if earlier, on the date of any termination without Cause (as hereinafter
defined) or any termination by Executive for Good Reason (as defined in Section
6(b)) and shall otherwise be subject to Company's standard terms of grant.
4A. EXPENSES. Company shall also, upon receipt of customary documentation,
reimburse Executive for his reasonable travel and lodging (outside the
Scottsdale area) and other ordinary and necessary business expenses consistent
with Company's expense reimbursement policies as in effect from time to time.
4B. BENEFITS. Company shall provide Executive and his dependents with
health, medical and life insurance, and make payments for Executive's account to
such retirement plan or plans as it may from time to time adopt, in each case,
in a manner consistent with its treatment from time to time of other senior
executive officers.
<PAGE>
4
5. VACATION, ETC. Executive shall be entitled to vacation with pay in
accordance with Company's vacation policy as in effect from time to time and to
such paid holidays as Company may approve for its executive personnel. Executive
hereby waives, to the maximum extent permitted by applicable law, his right to
be paid at such time as his employment by Company should terminate for unaccrued
vacation or personal days.
6. TERMINATION. The Board may terminate Executive's employment hereunder
prior to the expiration of the term hereof in the manner provided in either
Section 6(a) or Section 6(b). Executive may terminate his employment hereunder
at any time effective upon Company's receipt of at least 30 days' advance notice
to such effect.
(a) FOR CAUSE. Company may terminate this Agreement for Cause upon notice
to Executive stating the facts constituting such cause, provided that Executive
shall have 30 days following such notice to cure any conduct or act, if curable,
alleged to provide grounds for termination for Cause hereunder. For purposes of
this Agreement, "Cause" shall mean (i) the Executive has been convicted of (or
pleads guilty to) a felony; or (ii) the Executive has engaged in willful
misconduct or gross negligence in the performance of his employment duties to
the Company. If Executive's employment is terminated for Cause, the Company will
have no further liability or obligation to Executive except for amounts earned
or accrued under Company sponsored benefit plans prior to termination.
(b) WITHOUT CAUSE. (i) Company may terminate this Agreement at any time
immediately, without Cause, effective upon Executive's receipt of notice to such
effect. Upon termination under this Section 6(b), Company shall pay to
Executive: (i) forthwith, the base salary due him through the date of
termination, (ii) in a lump sum, an amount equal to 18 months of his then base
salary, and (iii) within 90 days following the end of the fiscal year in which
termination occurs, a bonus in an amount determined in the manner described in
Section 3(b) (except, if termination occurs prior to the end of a fiscal year,
prorated for the period during which Executive was employed hereunder), in each
case, less applicable withholdings. In addition, any and all options, restricted
stock or other similar grants of shares shall immediately vest and shall be
immediately exerciseable.
(ii) The provisions of this Section 6(b) shall also apply, and the Company
shall be deemed to have terminated Executive without Cause hereunder, if
Executive terminates his employment with Company for Good Reason. For purposes
of this Agreement, "Good Reason" shall mean any of the following:
(A) Any reason whatsoever within six (6) months of a Change of
Control;
(B) The Company's failure to elect or reelect, or to appoint or
reappoint, Executive to offices or positions involving duties,
responsibilities, authority and dignity of a scope comparable to those of
Executive's most significant offices or positions held at any time during
the term hereof;
<PAGE>
5
(C) Material change by the Company in the Executive's function, duties
or responsibilities (including reporting responsibilities) of a scope less
than that associated with Executive's most significant position with the
Company during the term hereof;
(D) Executive's base salary is reduced by the Company, unless such
reduction is pursuant to a salary reduction program which affects all of
the Company's exempt employees by the same percentage, or there is a
material reduction in the benefits that were in effect for the Executive on
the Commencement Date under the Company's benefit plans in effect on such
date;
(E) Relocation of the Company's corporate headquarters or Executive's
principal place of employment to a place located outside of the greater
Phoenix metropolitan area; provided that required travel on the Company's
business shall not be deemed a relocation so long as Executive is not
required to be outside of the greater Phoenix metropolitan area for a
period of time that is greater than the period of time he was required to
be outside of the greater Phoenix metropolitan area for the twelve month
period immediately preceding the Commencement Date;
(F) The failure by the Company to obtain the assumption of this
Agreement by any successor or assign of the Company; or
(G) Material breach of this Agreement by the Company, which breach is
not cured within twenty (20) days after written notice thereof is delivered
to the Company.
For purposes of this Agreement, the term "Change in Control" of the Company
shall mean, and a "Change in Control" shall be deemed to have occurred if after
the date hereof:
(A) Any "person" (as such term is used in Section 13(d) and 14(d)(2)
of the Exchange Act) shall become the beneficial owner (within the meaning
of Rule 13d-3 promulgated pursuant to the Exchange Act, or any successor
provision thereto), directly or indirectly, of securities of the Company
representing fifty percent (50%) or more of the combined voting power of
the Company's then outstanding securities ordinarily (and apart from rights
accruing under special circumstances) having the right to vote at an
election of directors;
(B) Individuals who, as of the Commencement Date, constitute the Board
of Directors of the Company (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board of Directors of the Company,
provided (A) that any person becoming a member of the Board of Directors of
the Company subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least
a majority of the members then comprising the Incumbent Board (other than
<PAGE>
6
an election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest
relating to the election of the Directors of the Company, as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act,
or any successor provision thereto) shall be, for purposes of this
Agreement, considered as though such person were a member of the Incumbent
Board, or (B) that the members of the Board of Directors of the Company who
are nominated in the definitive proxy statement furnished in connection
with the solicitation of proxies on behalf of the Board of Directors of the
Company shall be, for purposes of this Agreement, considered as members of
the Incumbent Board; or
(C) Approval by the stockholders of the Company and consummation of
(1) a reorganization, merger, consolidation, or sale or other disposition
of all or substantially all of the assets of the Company, or (2) a
liquidation or dissolution of the Company.
(c) DISABILITY. If during the term of this Agreement, Executive fails to
perform his duties hereunder because of illness or other incapacity for a period
of three consecutive months, Company shall have the right to terminate this
Agreement without further obligation hereunder except for any bonus amount
payable in accordance with this Section 6(c) and any amounts payable pursuant to
disability plans generally applicable to executive employees. Within 90 days
after the end of the fiscal year in which termination pursuant to this Section
6(c) occurs, Executive shall be entitled to receive a bonus payment as provided
in Section 6(b).
(d) DEATH. If Executive dies during the term of this Agreement, this
Agreement shall terminate immediately, and Executive's legal representative
shall be entitled to receive the base salary due Executive for 60 days following
death as well as any other death benefits generally applicable to executive
employees. In addition, within 90 days after the end of the fiscal year in which
Executive's death should occur, Executive's legal representative shall also be
entitled to receive a bonus payment as provided in Section 6(b).
7. CONFIDENTIAL INFORMATION; NON-SOLICITATION. (a) CONFIDENTIAL
INFORMATION. Executive acknowledges that Executive may receive, or contribute to
the production of, Confidential Information. For purposes of this Agreement,
Executive agrees that "Confidential Information" shall mean information or
material proprietary to Company or designated as confidential information by
Company and not generally known by non-Company personnel, which Executive
develops or to which Executive obtains knowledge or access to through or as a
result of Executive's relationship with Company (including information
conceived, originated, discovered or developed in whole or in part by
Executive). Confidential Information includes, but is not limited to , the
following types of information and other information of a similar nature
(whether or not reduced to writing) related to Company's business: discoveries,
inventions, ideas, concepts, research, development, processes, procedures,
"know-how", formulae, marketing techniques and materials, marketing and
<PAGE>
7
development plans, business plans, customer names and other information related
to customers, price lists, pricing policies, methods of operation, financial
information, employee compensation, and computer programs and systems. Executive
acknowledges that the Confidential Information derives independent economic
value, actual or potential, from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use. Information publicly known without breach of
this Agreement that is generally employed by the trade at or after the time
Executive first learns of such information, or generic information or knowledge
which Executive would have learned in the course of his employment or work
elsewhere in the trade, shall not be deemed part of the Confidential
Information. Executive further agrees:
(1) To furnish Company on demand, at any time during or after employment, a
complete list of the names and addresses of all present, former and potential
suppliers, financing or leasing sources, patients, customers and other contacts
gained while an employee of Company in Executive's possession, whether or not in
the possession or within the knowledge of Company.
(2) That all notes, memoranda, documentation and records in any way
incorporating or reflecting any Confidential Information shall belong
exclusively to Company, and Executive agrees to turn over all copies of such
materials in Executive's control to Company upon request or upon termination of
Executive's employment with Company.
(3) That while employed by Company and thereafter Executive will hold in
confidence and not directly or indirectly reveal, report, publish, disclose or
transfer any of the Confidential Information to any person or entity, or utilize
any of the Confidential Information for any purpose, except in the course of
Executive's work for Company.
(4) That any idea in whole or in part conceived of or made by Executive
during the term of his employment, consulting or similar relationship with
Company which relates directly or indirectly to Company's current or planned
lines of business and is made through the use of any of the Confidential
Information of Company or any of Company's equipment, facilities, trade secrets
or time, or which results from any work performed by Executive for Company,
shall belong exclusively to Company and shall be deemed a part of the
Confidential Information for purposes of this Agreement. Executive hereby
assigns and agrees to assign to Company all rights in and to such Confidential
Information whether for purposes of obtaining patent or copyright protection or
otherwise. Executive shall acknowledge and deliver to Company (but at its
expense) such written instruments and do such other acts, including giving
testimony in support of Executive's authorship or inventorship, as the case may
be, necessary in the opinion of Company to obtain patents or copyrights or to
otherwise protect or vest in Company the entire right and title in and to the
Confidential Information.
(b) NON-SOLICITATION. During the term of Executive's employment by Company
and for a period of one year thereafter, Executive agrees that he shall not (for
the purpose of or which results in competition with Company or any of its
<PAGE>
8
affiliates or subsidiaries) either solicit any past or existing customers,
patients or clients of Company or any of its predecessors, affiliates or
subsidiaries or use any Confidential Information; nor will he solicit for any
competing company the employment of any employees of Company or any of its
affiliates or subsidiaries.
(c) INJUNCTIONS. It is agreed that the restrictions contained in this
Section 7 are reasonable, but it is recognized that damages in the event of the
breach of any of the restrictions will be difficult or impossible to ascertain;
and, therefore, Executive agrees that, in addition to and without limiting any
other right or remedy Company may have, Company shall have the right to an
injunction against Executive issued by a court of competent jurisdiction
enjoining any such breach without showing or proving any actual damage to
Company.
(d) PART OF CONSIDERATION. Executive also agrees, acknowledges, covenants,
represents and warrants that he is fully and completely aware, and further
understands, that the foregoing restrictive covenants are an essential part of
the consideration for Company entering into this Agreement and that Company is
entering into this Agreement in full reliance on these acknowledgments,
covenants, representations and warranties.
(e) TIME AND TERRITORY REDUCTION. If the period of time and/or territory
affected by the provisions of this Section 7 are held to be in any respect an
unreasonable restriction, it is agreed that the court so holding may reduce the
territory to which the restriction pertains or the period of time in which it
operates or may reduce both such territory and such period, to the minimum
extent necessary to render such provision enforceable.
(f) SURVIVAL. The obligations described in this Section 7 shall survive any
termination of this Agreement or any termination of the employment relationship
created hereunder.
8. GOVERNING LAW AND VENUE. Arizona law shall govern the construction and
enforcement of this Agreement, and the parties agree that any litigation
pertaining to this Agreement shall be in courts located in Maricopa County,
Arizona.
9. CONSTRUCTION. The language in all parts of this Agreement shall in all
cases be construed as a whole according to its fair meaning and not strictly for
or against any party. The section headings contained in this Agreement are for
reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement. All terms used in one number or gender shall
be construed to include any other number or gender as the context may require.
The parties agree that each party has reviewed this Agreement and has had the
opportunity to have counsel review the same and that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not apply in the interpretation of this Agreement or any amendment hereto.
<PAGE>
9
10. NONDELAGABILITY OF EXECUTIVE'S RIGHTS AND COMPANY'S ASSIGNMENT RIGHTS.
The obligations, rights and benefits of Executive hereunder are personal and may
not be delegated, assigned or transferred in any manner whatsoever, nor are such
obligations, rights or benefits subject to involuntary alienation, assignment or
transfer. This Agreement shall be assigned automatically to any entity merging
with or acquiring Company or its business.
11. SEVERABILITY. In the event any term or provision of this Agreement is
declared by a court of competent jurisdiction to be invalid or unenforceable for
any reason, this Agreement shall remain in full force and effect, and either (a)
the invalid or unenforceable provision shall be modified to the minimum extent
necessary to make it valid and enforceable or (b) if such a modification is not
possible, this Agreement shall be interpreted as if such invalid or
unenforceable provision were not a part hereof.
12. ATTORNEYS' FEES. Except as otherwise provided herein, in the event
either party hereto institutes an action or other proceeding to enforce any
rights arising out of this Agreement, the party prevailing in such action or
other proceeding shall be paid all reasonable costs and attorneys' fees by the
non-prevailing party, such fees to be set by the court and not by a jury and to
be included in any judgment entered in such proceeding.
13. NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed duly given upon receipt if either personally
delivered, sent by certified mail, return receipt requested, or sent by a
nationally-recognized overnight courier service, addressed to the parties as
follows:
If to Company: RainTree Healthcare Corporation
15300 N. 90th Street
Suite 100
Scottsdale, Arizona 85260
Attention: General Counsel
If to Executive: Terry Troxell
RainTree Healthcare Corporation
15300 N. 90th Street
Suite 100
Scottsdale, Arizona 85260
or to such other address as either party may provide to the other in accordance
with this Section.
<PAGE>
10
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior or contemporaneous understandings or agreements in regard thereto. No
waiver of any rights under this Agreement shall be valid unless in writing and
signed by the party to be charged with such waiver. No waiver of any term or
condition contained in this Agreement shall be deemed or construed as a further
or continuing waiver of such term or condition unless the waiver specifically
provides otherwise.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
RAINTREE HEALTHCARE CORPORATION: EXECUTIVE:
/s/ Terry Troxell
------------------------------------
Terry Troxell
By: /s/ Michael A. Jeffries
-------------------------------------
Michael A. Jeffries
President and Chief Executive Officer
Exhibit 10.35
THIRD AMENDMENT TO OMEGA NEW MASTER LEASE
THIS THIRD AMENDMENT TO OMEGA NEW MASTER LEASE ("Third Amendment") is dated
as of March 31, 1999 and is entered into by OMEGA HEALTHCARE INVESTORS, INC., a
Maryland corporation, having its principal office at 900 Victors Way, Suite 350,
Ann Arbor, Michigan 48108, ("Lessor"), and the entities designated Lessees on
the signature page hereof (each a "Lessee and collectively, "Lessees").
RECITALS
A. Lessor and Lessees are parties to the Omega New Master Lease dated
effective as of December 31, 1998 (the "Omega New Master Lease"), as
amended by the First Amendment to Omega New Master Lease dated as of
February 1, 1999 (the "First Amendment"), and as further amended by
the Second Amendment to Omega New Master Lease dated as of February 2,
1999 ( the "Second Amendment").
B The Omega New Master Lease, as amended by the First Amendment and the
Second Amendment, was entered into pursuant to the Plan, as defined in
the First Amendment.
C. Section 7.2.3 of the Plan and Section 8.3.1.7.1 of the Omega New
Master Lease limit the amount of debt incurred by Lessees or any one
or more of them to a lender or lenders that is secured by a security
interest in accounts receivable. Lessor and Lessees desire to set
forth in writing certain procedures for implementing the restrictions
on accounts receivable borrowing set forth in Section 7.2.3 of the
Plan and Section 8.3.1.7.1 of the Omega New Master Lease.
NOW, THEREFORE, in consideration of the foregoing, and of other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Lessor and Lessees agree as follows:
1. DEFINITIONS. Capitalized terms used and not otherwise defined herein
have the respective meanings given them in the Omega New Master Lease. In
addition, the following terms mean as follows:
ACCOUNTANT: Initially, Arthur Anderson & Company; thereafter, the
accountant employed by the parties to resolve any differences as to
the Section 8.3.1.7.1 Limit as set forth in Section 5(b) hereof
LESSEES' CERTIFICATE: The certificate to be delivered to Lessor by the
Lessees each calendar quarter as set forth in Section 3 hereof.
MAXIMUM PERMITTED SECURED DEBT: The maximum permitted secured debt of
Lessees determined as set forth in Section 6 hereof.
OMEGA NOTICE: The notice to be given by Lessor to the Lessees as set
forth in Section 4 hereof
SECTION 8.3.1.7.1 LIMIT: The maximum Secured Debt permitted under the
Plan and Section 8.3.1.7.1 of the Omega New Master Lease
<PAGE>
SECURED DEBT: Any debt of one or more of the Lessees secured by a
security interest in accounts receivable.
SECURED DEBT LENDER: Any lender to which Secured Debt is owed by one
or more of the Lessees.
TEN DAY PERIOD: The ten day period during which the Lessor and Lessees
will attempt to resolve any differences as to the Section 8.3.1.7.1
Limit as set forth in Section 5 hereof.
2. CALCULATION OF THE SECTION 8.3.1.7.1 LIMIT. Lessor and Lessees agree
that the Section 8.3.1.7.1 Limit applicable during any calendar quarter shall be
the greater of (i) $2,000,000 or (ii) an amount calculated by the following two
step process:
STEP 1: The first step in calculating the Section 8.3.1.7.1 Limit
shall be to calculate the maximum permitted debt service ("MPDS") on
Secured Debt. The MPDS shall be calculated using the following
formula:
MPDS = EBITDARM - LCFC + SDDS
--------
1.55
The following definitions are applicable to the foregoing formula:
EBITDARM means EBITDARM for the preceding four calendar quarters.
LCFC means Lessees Consolidated Fixed Charges for the preceding four
calendar quarters, provided, however, for any calculation that
includes any quarter ending in the calendar year 1998, the following
assumptions shall be made:
(i) the Omega New Master Lease was effective as of January 1, 1998,
(ii) that no payments were made in 1998 to Brit-Texas (as defined in
Section 1.16 of the Plan), the purpose of which was to allow
Brit-Texas to pay persons who held notes of Brit-Texas issued in
connection with the sale of certain of the Brit-Texas Facilities (as
defined in Section 1.17 of the Plan) to Brit-Texas, and
(iii) that no payments were made in 1998 with regard to the NHI
Secured Claims (as defined in Section 1.118 of the Plan).
SDDS means interest, fees, points and other similar charges with
respect to Secured Debt which are included in the LCFC for the
preceding four calendar quarters.
STEP 2: Divide MPDS by the Pro Forma Annual Interest Rate (as defined
below) on the Secured Debt. The resulting number will be the Section
8.3.1.7.1 Limit.
The Pro Forma Annual Interest Rate means the pro forma annual interest
rate on the Secured Debt. For purposes of computing the Pro Forma
Annual Interest Rate, the following assumptions will be made: (1) the
2
<PAGE>
entire Section 8.3.1.7.1 Limit will be outstanding for one year; (2)
if the interest rate on the Secured Debt is tied to an index, the
index will remain constant for the entire year (i.e., if the interest
rate is one percent over the prime rate, the prime rate will remain
constant) and the Pro Forma Annual Interest Rate shall be based on the
index rate in effect on the business day immediately preceding the
date of the Lessees' Certificate); and (3) fees, points and other
similar charges which will become due during the next one year period
with respect to the Secured Debt will be treated as additional
interest and included as such in calculating the Pro Forma Annual
Interest Rate.
An example of the calculation of the Section 8.3.1.7.1 Limit is set
forth on Exhibit A.
3. LESSEES' CERTIFICATE. Within forty (40) days of the end of each
calendar quarter, the Lessees will deliver to Lessor a certificate (the
"Lessees' Certificate") in a form attached to this Agreement as Exhibit B
certified by the Chief Financial Officer of RainTree Healthcare Corporation and
the Lessees. The Lessees' Certificate will set forth the following:
(a) EBITDARM for the preceding four calendar quarters;
(b) Lessees Consolidated Fixed Charges for the preceding four
calendar quarters adjusted as provided in the definition of LCFC
in Section 2 above;
(c) The interest, points, fees and other similar charges paid by the
Lessees on Secured Debt during the preceding four calendar
quarters and included in the Lessees Consolidated Fixed Charges
for the preceding four calendar quarters; (d) The Pro Forma
Annual Interest Rate;
(e) The Section 8.3.1.7.1 Limit; and
(f) A statement that all calculations of items (a) through (e) are
calculated in accordance with this Third Amendment and to the
extent applicable generally accepted accounting principles
applied on a consistent basis with past practices.
(g) A statement that the Lessees are not in default of any covenant,
representation, warranty or agreement contained in the Omega New
Master Lease, including, without limitation, the separateness
provisions of Section 8.9 of the Omega New Master Lease.
Attached to the Lessees' Certificate will be a detailed calculation of the
items identified in subparagraphs (a) through (e) above.
4. OMEGA NOTICE. Within ten (10) days of receipt of a Lessees'
Certificate setting forth the Section 8.3.1.7.1 Limit, Lessor will send a notice
(the "Omega Notice") to the Lessees doing one of the following:
(a) Agreeing with the Section 8.3.1.7.1 Limit set forth in the
Lessees' Certificate;
3
<PAGE>
(b) Stating that Lessor needs additional information, and identifying
the additional information needed, in order to determine whether
Lessor agrees or disagrees with the Section 8.3.1.7.1 Limit set
forth in the Lessees' Certificate; or
(c) Stating that Lessor disagrees with the Section 8.3.1.7.1 Limit
set forth in the Lessees' Certificate, and setting forth the
reasons for the disagreement.
If Lessor fails to send an Omega Notice within ten (10) days of receipt of the
Lessees' Certificate, Lessor will be deemed to have agreed with the Section
8.3.1.7.1 Limit set forth in the Lessees' Certificate. If Lessor sends the
notice set forth in (b) above, Lessees shall supply such information within five
(5) business days. If Lessor does not give a notice contemplated by paragraph
(c) above within five (5) days of its receipt of such additional information,
Lessor will be deemed to have agreed with the Section 8.3.1.7.1 Limit as set
forth in the Lessees Certificate. In no event will the failure to object to a
calculation at the end of one quarter prejudice the right of Lessor to object at
the end of any subsequent quarter.
5. RESOLUTION OF DISAGREEMENT.
(a) If an Omega Notice states either that Lessor disagrees with the
Section 8.3.1.7.1 Limit set forth in a Lessees' Certificate or
that Lessor needs additional information in order to determine
whether Lessor agrees or disagrees with the Section 8.3.1.7.1
Limit, Lessor and the Lessees shall attempt in good faith during
the next ten days (the "Ten Day Period") to reach agreement as to
the Section 8.3.1.7.1 Limit. As part of that process, the Lessees
shall promptly provide to Lessor any additional information which
Lessor may reasonably request relating to the calculation of the
Section 8.3.1.7.1 Limit, as set forth in paragraph 4 above.
(b) Lessor and Lessees shall forthwith enter into an agreement with
the Accountant to resolve any differences which may hereafter
arise as to the calculation of the Section 8.3.1.7.1 Limit in
accordance with the procedures set forth in this Third Amendment.
If Arthur Anderson & Company ceases to be willing or eligible to
resolve differences as to the Section 8.1.1.7.1 Limit, Lessor and
Lessees shall forthwith enter into an agreement with another
accounting firm to resolve their differences. The new accounting
firm shall be a national accounting firm or major regional
accounting firm with offices in Phoenix, Arizona, shall be
selected by Lessor within ten (10) business days, and shall be
reasonably acceptable to Lessees. If Omega does not act within
the ten (10) business days, Lessees may choose an accountant
reasonably acceptable to Omega. An accounting firm shall not be
eligible to serve as the Accountant if within the past three (3)
years it has performed material services for either Lessor or
Lessees.
(c) If within the Ten Day Period Lessor and Lessees are unable to
reach agreement as to the Section 8.3.1.7.1 Limit, then either
Lessor or Lessees may request that the Accountant promptly
determine the Section 8.3.1.7.1 Limit. The Accountant shall
determine the Section 8.3.1.7.1 Limit within fifteen (15) days of
receipt of such a request. During the fifteen (15) day period,
either Lessor or Lessees may submit written material to the
Accountant with respect to the calculation of the Section
8.3.1.7.1 Limit; copies of such materials shall be provided to
the other party. The Lessees shall promptly provide any
4
<PAGE>
information which the Accountant may request, and shall upon
request permit the Accountant to examine their books and records.
The Accountant may hold such discussions with representatives of
the Lessor and/or Lessees as the Accountant determines
appropriate. The Accountant shall not be required to audit the
books and records of Lessees or to hold any hearing in connection
with its calculation of the Section 8.3.1.7.1 Limit. The decision
of the Accountant with respect to the Section 8.3.1.7.1 Limit
shall be binding upon both Lessor and Lessees.
6. MAXIMUM PERMITTED SECURED Debt. Notwithstanding anything contained in
the Plan or in Section 8.3.1.7.1 of the Master Lease, the parties agree that the
Maximum Permitted Secured Debt shall be as follows:
(a) Except as otherwise specifically provided in subparagraphs (b)
through (e) below, the most recently determined Section 8.3.1.7.1
Limit shall be the Maximum Permitted Secured Debt, and the most
recently determined Section 8.3.1.7.1 Limit shall continue in
effect until a new Section 8.3.1.7.1 Limit is determined in
accordance with the procedures set forth in this Third Amendment.
(b) If the Lessees fail to deliver a Lessees' Certificate within
thirty (30) days of the end of a calendar quarter, and such
failure continues for ten (10) days after a written request
therefor from Lessor, then at the end of such ten (10) day
period, the Maximum Permitted Secured Debt shall be reduced to
the lesser of (i) seventy-five (75%) percent of the most recently
determined Section 8.3.1.7.1 Limit or (ii) Lessor's estimate of
the Section 8.3.1.7.1 Limit based on such information as may be
available to Lessor. For each five (5) days after the end of the
ten (10) day period that Lessees continue to fail to deliver a
Lessees' Certificate, the Maximum Permitted Secured Debt shall be
reduced by another five percent (5%) of the most recently
determined Section 8.3.1.7.1 Limit.
(c) If pursuant to Section 5 of this Third Amendment an Accountant is
employed to determine the Section 8.3.1.7.1 Limit, and the
Accountant notifies Lessor in writing that it is unable to
determine the Section 8.3.1.7.1 Limit because the Lessees will
not make available to it information needed by the Accountant or
are otherwise not cooperating with the Accountant, then the
Section 8.3.1.7.1 Limit will be reduced to the lesser of (i)
seventy-five (75%) percent of the most recently determined
Section 8.3.1.7.1 Limit or (ii) Lessor's estimate of the Section
8.3.1.7.1 Limit based on such information as may be available to
Lessor. For each five (5) days after the date of the notice from
the Accountant that Lessees fail to make information available to
the Accountant or otherwise do not cooperate with the Accountant,
as set forth in a written notice from the Accountant to Lesser,
the Maximum Permitted Secured Debt shall be reduced by another
five (5%) of the most recently determined Section 8.3.1.7.1
Limit.
(d) If the parties are unable to reach agreement as to the new
Section 8.3.1.7.1 Limit during the Ten Day Period, then the
Maximum Permitted Secured Debt shall become the lesser of (i) the
Section 8.3.1.7.1 Limit as set forth in the most recent Lessees'
Certificate, or (ii) the most recently determined Section
8.3.1.7.1 Limit increased by such amount as Lessees shall certify
is necessary only to the extent necessary to avoid immediate and
irreparable harm to the Lessees until the Section 8.3.1.7.1 Limit
5
<PAGE>
is calculated. Expenditures which meet the test set forth in the
previous sentence are referred to as "Necessary Expenditures".
The Maximum Permitted Secured Debt determined in accordance with
this subsection (d) shall cease to be applicable if the Maximum
Permitted Secured Debt is determined in accordance with
subparagraph (c) as a result of a notice from the Accountant that
it is unable to determine the Section 8.3.1.7.1 Limit because of
lack of information from Lessees or lack of cooperation from
Lessee.
(e) Notwithstanding anything to the contrary contained herein or in
the Plan, the Section 8.3.1.7.1 limit shall not be less than
$2,000,000, with no conditions on the first $1,000,000 borrowed.
The second $1,000,000 is to be used for capital improvements at
facilities owned by Omega and can be drawn by Lessees so long as
Lessees gives a designated representative of Omega at least five
(5) days prior notice of the plan to spend all or any portion of
the second $1,000,000. If Omega does not respond in five business
days or approves the expenditures in writing at any time, the
money represented by such request (not to exceed a total of
$1,000,000 for all capital expenditures) can then be borrowed.
Lessees agree that they will spend the money so borrowed for the
capital improvements approved by Omega. The initial Omega
designee is Tim Jewett.
(f) Notwithstanding anything to the contrary contained herein or in
the Plan, the maximum amount of Secured Debt that can be borrowed
by the Lessees is $7,000,000.
7. SUBORDINATION AGREEMENT Lessor currently has a first security interest
in all accounts receivable of Lessees to secure all obligations of Lessees to
Lessor. Lessor agrees from time to time to enter into an intercreditor agreement
(the "Intercreditor Agreement") with the Secured Debt Lender in form reasonably
acceptable to Lessor. The Intercreditor Agreement shall provide, among other
things, that Lessor's security interest in Lessees' accounts receivable is
subordinate to the security interest to be granted to the Secured Debt Lender to
secure repayment of Secured Debt in an amount not to exceed the sum of (i) the
maximum secured senior debt (the "Maximum Secured Senior Debt") calculated as
set forth in the next sentence, and (ii) all accrued interest thereon and costs
of collection. The Maximum Secured Senior Debt shall be the greater of the
amounts determined in accordance with subparagraphs (a) and (b) below:
(a) The Maximum Permitted Secured Debt as determined from time to
time in accordance with the procedures set forth in Section 6 of
this Third Amendment; and
(b) Upon receipt of notice that the Maximum Permitted Secured Debt
has been reduced, the amount of Secured Debt outstanding on the
close of business on the date such notice is received.
Lessor agrees from time to time at the written request of either the Lessees or
the Secured Debt Lender to provide the Secured Debt Lender with written notice
of the Maximum Permitted Secured Debt, and the Secured Debt Lender shall be
entitled to rely on any such notice. The Intercreditor Agreement shall provide
that upon default by Lessees in their obligations to the Secured Debt Lender
Lessee shall have the option, but not the obligation, to purchase the position
of the Secured Debt Lender on terms reasonably satisfactory to Lessor and the
Secured Debt Lender. The provisions of this Section 7 are intended to assist
Lessees in obtaining Secured Debt. Nothing contained in this Section 7 is
intended to be a waiver of the obligations of the Lessees to comply with the
financial covenants contained in Article 8 of the Master Lease.
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<PAGE>
8. RATIFICATION. Except as specifically set forth herein, the Omega New
Master Lease, as amended by the First Amendment and the Second Amendment, is
hereby ratified and confirmed and shall continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Third Amendment by their
duly authorized officers as of the date first above written.
LESSOR:
Omega Healthcare Investors, Inc., a Maryland
corporation
By: /s/ F. SCOTT KELLMAN
--------------------------------------
Name: F. Scott Kellman
--------------------------------------
Title: COO
--------------------------------------
LESSEES:
BritWill Indiana Partnership, an Arizona
general partnership
By: BritWill Investments-I, Inc., a Delaware
corporation, its General Partner
By: /s/ JIMMY L. FIELDS
--------------------------------------
Name: Jimmy L. Fields
--------------------------------------
Title: VP
--------------------------------------
BritWill Investments-II, Inc., a Delaware
corporation
By: /s/ JIMMY L. FIELDS
--------------------------------------
Name: Jimmy L. Fields
--------------------------------------
Title: VP
--------------------------------------
Amberwood Court, Inc., a Colorado
corporation
By: /s/ JIMMY L. FIELDS
--------------------------------------
Name: Jimmy L. Fields
--------------------------------------
Title: VP
--------------------------------------
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<PAGE>
The Arbors Health Care Center, Inc., an
Arizona corporation
By: /s/ JIMMY L. FIELDS
--------------------------------------
Name: Jimmy L. Fields
--------------------------------------
Title: VP
--------------------------------------
Brookshire House, Inc., a Colorado
corporation
By: /s/ JIMMY L. FIELDS
--------------------------------------
Name: Jimmy L. Fields
--------------------------------------
Title: VP
--------------------------------------
Christopher Nursing Center, Inc., a Colorado
corporation
By: /s/ JIMMY L. FIELDS
--------------------------------------
Name: Jimmy L. Fields
--------------------------------------
Title: VP
--------------------------------------
Los Arcos, Inc., a Colorado corporation
By: /s/ JIMMY L. FIELDS
--------------------------------------
Name: Jimmy L. Fields
--------------------------------------
Title: VP
--------------------------------------
Pueblo Norte, Inc., a Colorado corporation
By: /s/ JIMMY L. FIELDS
--------------------------------------
Name: Jimmy L. Fields
--------------------------------------
Title: VP
--------------------------------------
Rio Verde Nursing Center, Inc., a Colorado
corporation
By: /s/ JIMMY L. FIELDS
--------------------------------------
Name: Jimmy L. Fields
--------------------------------------
Title: VP
--------------------------------------
8
<PAGE>
EXHIBIT A
EXAMPLE OF CALCULATION OF THE SECTION 8.3.1.7.1 LIMIT
The following is an example of the calculation of the Section 8.3.1.7.1
Limit. For purposes of this example, assume the following:
1. EBITDARM for the four quarters ending June 30, 1999 is $13,000,000.00.
2. LCFC for the four quarters ending June 30, 1999 is $8,000,000.00.
3. SDDS for the four quarters ending June 30, 1999 is $125,000.00.
4. The interest rate with respect to the Secured Debt will be fifty basis
points over prime rate as published in the Wall Street Journal. The prime rate
as published in the Wall Street Journal on the business day immediately
preceding the date of Lessees' Certificate is eight percent. The Lessees will be
required to pay a one percent fee during the next one (1) year period in
connection with the Secured Debt.
Utilizing the above assumptions, the Section 8.3.1.7.1 Limit for the
calendar quarter beginning July 1, 1999 will be calculated by the following
two-step process:
Step 1. MPDS = 13,000,000 - 8,000,000 + 125,000 = 512,096.77
----------
1.55
Step 2.
Section 8.3.1.7.1 Limit = 512,096.77 = $5,390,492.32
----------
.095
A-1
<PAGE>
EXHIBIT B
FORM OF LESSEES' CERTIFICATE
This Certificate is given on ____________ pursuant to Section 3 of the
Third Amendment to Omega New Master Lease dated as of March __, 1999.
Capitalized terms used and not otherwise defined in this Certificate have the
respective meanings given to them in the Third Amendment to Omega New Master
Lease and in the Omega New Master Lease.
The undersigned, being the Chief Financial Officer of RainTree Healthcare
Corporation and of the Lessees, certifies as follows:
(1) EBITDARM of the Lessees for the preceding four calendar quarters
ending ____________________ was $__________. Exhibit A to this
Certificate is a detailed calculation of EBITDARM for that period.
(2) Lessees Consolidated Fixed Charges for the preceding four calendar
quarters ending _____________________ was $__________________. Exhibit
B to this Certificate is a detailed calculation of Lessees
Consolidated Fixed Charges for that period.
(3) Lessees interest, fees, points and similar charges on Secured Debt for
the four calendar quarters ending ______________ was $____________.
Exhibit C to this Certificate is a detailed calculation of that amount
for that period.
(4) The Pro Forma Annual Interest Rate with respect to Secured Debt,
determined as of the business day immediately preceding the date of
this Certificate, is ___ percent. Exhibit D to this Certificate is a
detailed calculation of the Pro Forma Annual Interest Rate as of the
business day immediately preceding the date of this Certificate.
(5) The Section 8.3.1.7.1 Limit commencing as of _____________is
$_______________. Exhibit E to this Certificate is a detailed
calculation of Section 8.3.1.7.1 done in accordance with Section 1 of
the Third Amendment to the Omega Master Lease.
(6) [Check one of the following boxes]
[ ] Attached hereto is a true and complete set of the loan documents
applicable to the Secured Debt.
[ ] The loan documents previously delivered to Omega with respect to
the Secured Debt remain in full force and effect.
[ ] The calculations above are made in accordance with generally
accepted accounting principles, applied on a basis consistent
with past practices.
B-1
Exhibit 10.36
$7,000,000.00
LOAN AND SECURITY AGREEMENT
by and among
RAINTREE HEALTHCARE CORPORATION
BRITWILL HEALTHCARE COMPANY
BRITWILL FUNDING CORPORATION
CEDAR CARE, INC.
SHERWOOD HEALTHCARE CORP.
BRITWILL INVESTMENTS-I, INC.
BRITWILL INVESTMENTS-II, INC.
BRITWILL INDIANA PARTNERSHIP
BROOKSHIRE HOUSE, INC.
CHRISTOPHER NURSING CENTER, INC.
AMBERWOOD COURT, INC.
THE ARBORS HEALTH CARE CORPORATION
LOS ARCOS, INC.
PUEBLO NORTE, INC.
RIO VERDE NURSING CENTER, INC.
SIGNATURE HEALTH CARE CORPORATION
SIGNATURE MANAGEMENT GROUP, INC.
(collectively, the "Borrower")
and
HCFP FUNDING, INC.
(the "Lender")
May 11, 1999
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (the "Agreement" or the "New LOC II Agreement")
is made as of this 11th day of May 1999, by and among RAINTREE HEALTHCARE
CORPORATION, a Delaware corporation (f/k/a Unison Healthcare Corporation),
BRITWILL HEALTHCARE COMPANY, a Delaware corporation, BRITWILL FUNDING
CORPORATION, a Delaware corporation, CEDAR CARE, INC., an Indiana corporation,
SHERWOOD HEALTHCARE CORP., an Indiana corporation, BRITWILL INVESTMENTS-I, INC.,
a Delaware corporation, BRITWILL INVESTMENTS-II, INC., a Delaware corporation
BRITWILL INDIANA PARTNERSHIP, an Arizona general partnership, BROOKSHIRE HOUSE,
INC., a Colorado corporation (f/k/a Asbury Circle, Inc.), CHRISTOPHER NURSING
CENTER, INC., a Colorado corporation, AMBERWOOD COURT, INC., a Colorado
corporation (f/k/a Valley Hi, Inc.), THE ARBORS HEALTH CARE CORPORATION, an
Arizona corporation, LOS ARCOS, INC., a Colorado corporation, PUEBLO NORTE,
INC., a Colorado corporation (f/k/a Signature Health Care of California
Corporation), RIO VERDE NURSING CENTER, INC., a Colorado corporation, SIGNATURE
HEALTH CARE CORPORATION, a Delaware corporation, and SIGNATURE MANAGEMENT GROUP,
INC., a Colorado corporation (collectively, "Borrower(s)"); and HCFP FUNDING,
INC., a Delaware corporation ("Lender").
RECITALS
A. Borrower desires to establish certain financing arrangements with and
borrow funds from Lender, and Lender is willing to establish such arrangements
for and make loans and extensions of credit to Borrower, on the terms and
conditions set forth below.
B. Borrower includes some of the Debtors in the jointly administered Chapter
11 bankruptcies pending in the United States Bankruptcy Court for the District
of Arizona (the "Bankruptcy Court") (Case Nos. B-98-06583-PHX-GBN through
B-98-06612-PHX-GBN, and Case Nos. B-98-0173-PHX-GBN through B-98-0175-PHX-GBN)
(the "Bankruptcy Cases").
C. By on Order dated January 29, 1999 entered in the Bankruptcy Cases, the
Bankruptcy Court has confirmed a plan of reorganization with respect to Borrower
(and the other Debtors) (as confirmed, the "Reorganization Plan"). The
Reorganization Plan contemplates that the Debtors, as reorganized, will obtain a
secured working line of credit of approximately $12,000,000.00 (defined in the
Reorganization Plan as the "New Line of Credit"). The New Line of Credit will be
comprised of the credit facility of up to the maximum principal amount of
$7,000,000.00 available to Borrower under this New LOC II Agreement, and the
credit facility of up to the maximum principal amount of $7,000,000.00 available
to New LOC I Borrower (as defined below) under the New LOC I Agreement (as
defined below). As provided below, the credit facilities available under this
New LOC II Agreement and under the New LOC I Agreement are limited in principal
amount to the aggregate of $12,000,000.00.
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<PAGE>
D. Borrower and New LOC I Borrower consist of some of the Debtors as
reorganized pursuant to the Reorganization Plan confirmed in the Bankruptcy
Cases.
E. The parties desire to define the terms and conditions of their relationship
in this Agreement.
NOW, THEREFORE, in consideration of the promises and covenants contained in this
Agreement, and for other consideration, the receipt and sufficiency of which are
acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
SECTION 1.1. ACCOUNT. "Account" means any right to payment for goods sold or
leased or services rendered, whether or not evidenced by an instrument or
chattel paper, and whether or not earned by performance.
SECTION 1.2. ACCOUNT DEBTOR. "Account Debtor" means any Person obligated on
any Account of Borrower, including without limitation, any Insurer and any
Medicaid/Medicare Account Debtor.
SECTION 1.3. AFFILIATE. "Affiliate" means, with respect to a specified Person,
any Person directly or indirectly controlling, controlled by, or under common
control with the specified Person, including without limitation their
stockholders and any Affiliates thereof. A Person shall be deemed to control a
corporation if the Person possesses, directly or indirectly, the power to direct
or cause the direction of the management and business of the corporation whether
through the ownership of voting securities, by contract, or otherwise.
SECTION 1.4. AGREEMENT. "Agreement" means this Loan and Security Agreement, as
it may be amended or supplemented from time to time. This Agreement is also
referred to herein from time to time as the "New LOC II Agreement".
SECTION 1.5. BASE RATE. "Base Rate" means a rate of interest equal to
eighty-five one-hundredths of one percent (0.85%) above the "Prime Rate of
Interest".
SECTION 1.6. BORROWED MONEY. "Borrowed Money" means any obligation to repay
money, any indebtedness evidenced by notes, bonds, debentures or similar
obligations, any obligation under a conditional sale or other title retention
agreement and the net aggregate rentals under any lease which under GAAP would
be capitalized on the books of the Borrower or which is the substantial
equivalent of the financing of the property so leased.
2
<PAGE>
SECTION 1.7. BORROWER(S). "Borrower" and "Borrowers" have the meanings set
forth in the Preamble, PROVIDED, HOWEVER, THAT individual references to the
singular and the plural will not limit or affect the joint and several
incurrence of Obligations, granting of liens and security interests in
Collateral, and repayment and enforcement provisions provided herein.
SECTION 1.8. BORROWING BASE. "Borrowing Base" has the meaning set forth in
Section 2.1 (d).
SECTION 1.9. BUSINESS DAY. "Business Day" means any day on which financial
institutions are open for business in the State of Maryland, excluding Saturdays
and Sundays.
SECTION 1.10. CLOSING; CLOSING DATE. "Closing" and "Closing Date" have the
meanings set forth in Section 5.3.
SECTION 1.11. COLLATERAL. "Collateral" has the meaning set forth in Section
3.1.
SECTION 1.12. COMMITMENT FEE. "Commitment Fee" has the meaning set forth in
Section 2.4(a).
SECTION 1.13. CONCENTRATION ACCOUNT. "Concentration Account" has the meaning
set forth in Section 2.3.
SECTION 1.14. CONTROLLED GROUP. "Controlled Group" means a "controlled group"
within the meaning of Section 4001(b) of ERISA.
SECTION 1.15. COST REPORT SETTLEMENT ACCOUNT. "Cost Report Settlement Account"
means an "Account" owed to Borrower by a Medicaid/Medicare Account Debtor
pursuant to any cost report, either interim, filed or audited, as the context
may require.
SECTION 1.16. DEFAULT RATE. "Default Rate" means a rate per annum equal to two
percent (2%) above the Base Rate.
SECTION 1.17. ERISA. "ERISA" has the meaning set forth in Section 4.12.
SECTION 1.18. EVENT OF DEFAULT. "Event of Default" and "Events of Default" have
the meanings set forth in Section 8.1.
SECTION 1.19. GAAP. "GAAP" means generally accepted accounting principles
applied in a matter consistent with the financial statements referred to in
Section 4.7.
SECTION 1.20. GOVERNMENTAL AUTHORITY. "Governmental Authority" means and
includes any federal, state, District of Columbia, county, municipal, or other
government and any department, commission, board, bureau, agency or
instrumentality thereof, whether domestic or foreign.
3
<PAGE>
SECTION 1.21. HAZARDOUS MATERIAL. "Hazardous Material" means any substances
defined or designated as hazardous or toxic waste, hazardous or toxic material,
hazardous or toxic substance, or similar term, by any environmental statute,
rule or regulation or any Governmental Authority.
SECTION 1.22. HIGHEST LAWFUL RATE. "Highest Lawful Rate" means the maximum
lawful rate of interest referred to in Section 2.8 that may accrue pursuant to
this Agreement.
SECTION 1.23. INSURER. A Person that insures a Patient against certain of the
costs incurred in the receipt by such Patient of Medical Services, or that has
an agreement with Borrower to compensate Borrower for providing services to a
Patient.
SECTION 1.23A. ISSUING BANK. "Issuing Bank" shall refer to Fleet Bank, N.A., or
such other bank mutually acceptable to Lender and Borrower from which Lender
obtains the issuance of any of the Letters of Credit in accordance with Section
2.1(e).
SECTION 1.24. LENDER. "Lender" has the meaning set forth in the Preamble.
SECTION 1.24A. LETTERS OF CREDIT. "Letters of Credit" has the meaning set forth
in Section 2.1(e).
SECTION 1.25. LOAN. "Loan" has the meaning set forth in Section 2.1(a).
SECTION 1.26. LOAN DOCUMENTS. "Loan Documents" means and includes this
Agreement, the Note, and each and every other document now or hereafter
delivered in connection therewith, as any of them may be amended, modified, or
supplemented from time to time.
SECTION 1.27. LOAN MANAGEMENT FEE. "Loan Management Fee" has the meaning set
forth in Section 2.4(c).
SECTION 1.28. LOCKBOX. "Lockbox" has the meaning set forth in Section 2.3(a).
SECTION 1.29. LOCKBOX BANK. "Lockbox Bank" has the meaning set forth in Section
2.3(a).
SECTION 1.30. MAXIMUM LOAN AMOUNT. "Maximum Loan Amount" has the meaning set
forth in Section 2.1(a).
SECTION 1.31. MEDICAID/MEDICARE ACCOUNT DEBTOR. "Medicaid/ Medicare Account
Debtor" means any Account Debtor which is (i) the United States of America
acting under the Medicaid/Medicare program established pursuant to the Social
Security Act, (ii) any state or the District of Columbia acting pursuant to a
health plan adopted pursuant to Title XIX of the Social Security Act or (iii)
any agent, carrier, administrator or intermediary for any of the foregoing.
SECTION 1.32. MEDICAL SERVICES. Medical and health care services provided to a
Patient, including, but not limited to, medical and health care services
provided to a Patient and performed by Borrower which are covered by a policy of
4
<PAGE>
insurance issued by an Insurer, and includes physician services, nurse and
therapist services, dental services, hospital services, skilled nursing facility
services, comprehensive outpatient rehabilitation services, home health care
services, residential and out-patient behavioral healthcare services, and
medicine or health care equipment provided by Borrower to a Patient for a
necessary or specifically requested valid and proper medical or health purpose.
SECTION 1.32A. NEW LOC II AGREEMENT. "New LOC II Agreement" means this Loan and
Security Agreement, as it may be amended or supplemented from time to time. The
term "New LOC II Agreement" is completely synonymous and interchangeable with
"Agreement" as defined above.
SECTION 1.32B. NEW LOC I AGREEMENT. "New LOC I Agreement" means that certain
Loan and Security Agreement between Lender and New LOC I Borrower dated as of
February 8, 1999, as it may be amended or supplemented from time to time. Under
the New LOC I Agreement, Lender makes available to New LOC I Borrower a credit
facility of up to the maximum principal amount of $7,000,000.00 under the terms
and conditions stated in the New LOC I Agreement.
SECTION 1.32C. NEW LOC I BORROWER. "New LOC I Borrower" means collectively the
following Affiliates of Borrower: RAINTREE HEALTHCARE CORPORATION, a Delaware
corporation (f/k/a Unison Healthcare Corporation), SUNQUEST SPC, INC., an
Arizona corporation, SAFFORD CARE, INC., a Colorado corporation, DOUGLAS MANOR,
INC., a Colorado corporation, CORNERSTONE CARE CENTER, INC., a Colorado
corporation, and ARKANSAS, INC., a Colorado corporation.
SECTION 1.33. NOTE. "Note" has the meaning set forth in Section 2.1(c).
SECTION 1.34. OBLIGATIONS. "Obligations" has the meaning set forth in Section
3.1.
SECTION 1.35. PATIENT. "Patient" means any Person receiving Medical Services
from Borrower and all Persons legally liable to pay Borrower for such Medical
Services other than Insurers.
SECTION 1.36. PERMITTED LIENS. "Permitted Liens" means: (a) liens for taxes not
delinquent, or which are being contested in good faith and by appropriate
proceedings which suspend the collection thereof and in respect of which
adequate reserves have been made (provided that such proceedings do not, in
Lender's sole discretion, involve any substantial danger of the sale, loss or
forfeiture of such property or assets or any interest therein); (b) deposits or
pledges to secure obligations under workmen's compensation, social security or
similar laws, or under unemployment insurance; (c) deposits or pledges to secure
bids, tenders, contracts (other than contracts for the payment of money),
leases, statutory obligations, surety and appeal bonds and other obligations of
like nature arising in the ordinary course of business; (d) mechanic's,
workmen's, materialmen's or other like liens arising in the ordinary course of
business with respect to obligations which are not due, or which are being
contested in good faith by appropriate proceedings which suspend the collection
thereof and in respect of which adequate reserves have been made (provided that
such proceedings do not, in Lender's sole discretion, involve any substantial
danger of the sale, loss or forfeiture of such property or assets or any
interest therein); (e) liens and encumbrances in favor of Lender; (f) liens
granted in connection with the lease or purchase of property or assets financed
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by borrowings permitted by Section 7.1 (provided, however, that no such
borrowings permitted by Section 7.1 may be secured by liens on any of the
Collateral); and (g) liens set forth on SCHEDULE 1.36.
SECTION 1.37. PERSON. "Person" means an individual, partnership, corporation,
trust, joint venture, joint stock company, limited liability company,
association, unincorporated organization, Governmental Authority, or any other
entity.
SECTION 1.38. PLAN. "Plan" has the meaning set forth in Section 4.12.
SECTION 1.39. PREMISES. "Premises" has the meaning set forth in Section 4.14.
SECTION 1.40. PRIME RATE OF INTEREST. "Prime Rate of Interest" means that rate
of interest quoted by Fleet National Bank of Connecticut, N.A., or any successor
thereto, as the same may from time to time fluctuate.
SECTION 1.41. PROHIBITED TRANSACTION. "Prohibited Transaction" means a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975(c)(1) of the Internal Revenue Code.
SECTION 1.42. QUALIFIED ACCOUNT. "Qualified Account" means an Account of
Borrower generated in the ordinary course of Borrower's business from the sale
of goods or rendition of medical services which Lender, in its reasonable credit
judgment, deems to be a Qualified Account. Without limiting the generality of
the foregoing, no Account shall be a Qualified Account if: (a) it is payable
directly to Borrower by a Medicaid/Medicare Account Debtor or commercial medical
Insurer acceptable to Lender in its reasonable discretion, and remains unpaid
more than one hundred twenty (120) days past the claim or service date
(provided, however, that to be Qualified such Medicaid/Medicare Account must be
billed within thirty (30) days after the applicable Medical Services have been
rendered); (b) it or any portion thereof is payable by an individual
beneficiary, recipient or subscriber individually and remains unpaid more than
thirty (30) days after the applicable Medical Services have been rendered (it
being agreed by Borrower that, outstanding Revolving Credit Loans with respect
to such pre-billed Accounts shall at no time exceed $1,300,000.00); (c) the
Account is subject to any defense, set-off, counterclaim, deduction, discount,
credit, chargeback, freight claim, allowance, or adjustment of any kind; (d) any
part of any goods the sale of which has given rise to the Account has been
returned, rejected, lost, or damaged; (e) if it arises from the sale of goods by
Borrower, such sale was not an absolute sale or on consignment or on approval or
on a sale-or-return basis or subject to any other repurchase or return
agreement, or such goods have not been shipped to the Account Debtor or its
designee; (f) if it arises from the performance of services, such services have
not been actually been performed or were undertaken in violation of any law; (g)
the Account is subject to a lien other than a Permitted Lien; (h) the Borrower
knows or should have known of the bankruptcy, receivership, reorganization, or
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insolvency of the Account Debtor; (i) the Account is evidenced by chattel paper
or an instrument of any kind in which Lender does not have a first priority,
perfected security interest, or has been reduced to judgment; (j) it is an
Account of an Account Debtor having its principal place of business or executive
office outside the United States; (k) the Account Debtor is an Affiliate or
Subsidiary of Borrower; (l) more than ten percent (10%) of the aggregate balance
of all Accounts owing from the Account Debtor obligated on the Account (other
than Medicaid or Medicare Account Debtors) are outstanding more than one hundred
twenty (120) days past their invoice date; (m) more than fifteen percent (15%)
of the aggregate balance of all Accounts owing from any individual Medicaid
Account Debtor obligated on the Account are outstanding more than one hundred
fifty (150) days past their invoice date; (n) more than twenty percent (20%) of
the aggregate balance of all Accounts owing from any individual Account Debtor
(other than a Medicaid/Medicare Account Debtor) obligated on the Account are
outstanding more than one hundred fifty (150) days past their invoice date; (o)
fifty percent (50%) or more of the Accounts from the Account Debtor are not
deemed Qualified Accounts hereunder; (p) the total unpaid Accounts of the
Account Debtor, except for a Medicaid/Medicare Account Debtor, exceed twenty
percent (20%) of the net amount of all Qualified Accounts; (q) the Account has
been generated through the operation of one of the nursing home facilities
listed on SCHEDULE 4.15 as to which Lender has not yet received an estoppel
certificate that is substantially in the form of EXHIBIT D attached hereto or is
otherwise acceptable to Lender in form and substance (r) any covenant,
representation or warranty contained in the Loan Documents with respect to such
Account has been breached; or (s) the Account fails to meet such other
specifications and requirements which may from time to time be established by
Lender.
SECTION 1.43. REPORTABLE EVENT. "Reportable Event" means a "reportable event"
as defined in Section 4043(b) of ERISA.
SECTION 1.44. REVOLVING CREDIT LOAN. "Revolving Credit Loan" has the meaning
set forth in Section 2.1(b).
SECTION 1.45. TERM. "Term" has the meaning set forth in Section 2.8.
SECTION 1.46. USAGE FEE. "Usage Fee" has the meaning set forth in Section
2.4(b).
ARTICLE II
LOAN
SECTION 2.1. TERMS.
(a) The maximum aggregate principal amount of credit extended by Lender to
Borrower hereunder (the "Loan") that may be outstanding at any time is Seven
Million and No/100 ($7,000,000.00) (the "Maximum Loan Amount"). Notwithstanding
the foregoing, or anything else in this Agreement to the contrary, however, the
total of the aggregate outstanding principal amount of the Loan made under this
Agreement and the aggregate outstanding principal amount of the Loan under the
New LOC I Agreement shall not exceed Twelve Million and No/100 ($12,000,000.00).
(b) The Loan shall be in the nature of a revolving line of credit, and
shall include sums advanced and other credit extended by Lender to or for the
benefit of the Borrower from time to time under this Article 2 (each a
"Revolving Credit Loan"), limited at all times to the least of: (i) the Maximum
Loan Amount; (ii) the availability in the Borrowing Base; or (iii) the
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difference between $12,000,000.00 and the outstanding Loan owing pursuant to the
New LOC I Agreement (as defined therein). Depending on the requests of Borrower
pursuant to the terms and conditions of Sections 2.1(e) and 2.2 below, the
outstanding principal balance of the Loan may fluctuate from time to time, to be
reduced by repayments made by Borrower (which may be made without penalty or
premium), and to be increased by future Revolving Credit Loans, advances and
other extensions of credit to or for the benefit of Borrower, and shall be due
and payable in full upon the expiration of the Term. For purposes of this
Agreement, any determination as to whether there is ability within the Borrowing
Base for advances or extensions of credit shall be made by Lender in its
reasonable discretion and is final and binding upon Borrower.
(c) At Closing, Borrower shall execute and deliver to Lender a promissory
note evidencing Borrower's unconditional obligation to repay Lender for
Revolving Credit Loans, advances, and other extensions of credit made under the
Loan (including without limitation Borrower's obligations with respect to
Letters of Credit), in the form of EXHIBIT A to this Agreement (the "Note"),
dated the date hereof, payable to the order of Lender in accordance with the
terms thereof. The Note (and the principal balance of the Loan outstanding from
time to time thereunder, but not including the portion of the Loan owing for
undrawn Letters of Credit) shall bear interest from the date thereof until
repaid, with interest payable monthly in arrears on the first Business Day of
each month, at a rate per annum (on the basis of the actual number of days
elapsed over a year of 360 days) equal to the Base Rate, provided that after an
occurrence or during the continuance of an Event of Default such rate shall be
equal to the Default Rate. Each Revolving Credit Loan, advance and other
extension of credit shall be deemed evidenced by the Note, which is deemed
incorporated by reference herein and made a part hereof.
(d) As used herein, the term "Borrowing Base" shall mean that amount
equal, at any applicable time, to eighty-five percent (85%) of Qualified
Accounts due and owing from any Medicaid/Medicare Account Debtor, Insurer or
other Account Debtor. Notwithstanding any other provision of this Agreement,
advances under the Loan shall not be made in an amount that would cause the
total amount outstanding under the Loan (after taking into account a proposed
advance) to exceed the amount of the Borrowing Base.
(e) Borrower may request from time to time that Lender obtain from Issuing
Bank irrevocable standby letters of credit (collectively, the "Letters of
Credit") issued on behalf of Borrower for the benefit of third parties
identified by Borrower, PROVIDED THAT: (i) the aggregate amount that
beneficiaries of outstanding Letters of Credit may draw at any time may not
exceed the amount equal to $2,500,000.00 less the aggregate face amount of all
Letters of Credit outstanding pursuant to the New LOC I Agreement; and (ii) when
a Letter of Credit is issued, the maximum amount that can be drawn on that
Letter of Credit by the beneficiary thereof shall be deemed an advance under
this Agreement for purposes of determining Borrower's borrowing capacity under
the Loan. Such advances shall be deemed Revolving Credit Loans and therefore
part of the Loan owing by Borrower hereunder, but shall be deemed to be repaid
as the amounts that can be drawn under Letters of Credit are reduced from time
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to time in accordance with the terms and conditions thereof. In the event of any
draw under a Letter of Credit: (i) Borrower shall immediately thereafter pay to
Lender an amount equal to all amounts that Lender has paid to, or owes, Issuing
Bank in relation to that Letter of Credit; and (ii) the portion of the Loan
comprised of Borrower's obligations with respect to the Letter of Credit drawn
upon shall thereafter bear interest at the applicable rate for the remainder of
the Loan (not including obligations related to other Letters of Credit). Payment
and performance of all obligations and liabilities of Borrower to Lender arising
in connection with the Letters of Credit, including but not limited to all
obligations and liabilities of Borrower to Lender under the fee and
reimbursement agreement (in a form acceptable to Lender in its sole discretion)
that shall be entered into by Borrower and Lender with respect to each Letter of
Credit, shall be secured by the liens and security interests in the Collateral
granted to Lender under this Agreement. Notwithstanding any of the foregoing,
Lender's failure, for any reason, to obtain a Letter of Credit on behalf of
Borrower following a request by Borrower shall not constitute a default by
Lender under this Agreement.
SECTION 2.2. LOAN ADMINISTRATION. Borrowings under the Loan shall be as follows:
(a) A request for a Revolving Credit Loan shall be made, or shall be
deemed to be made, in the following manner: (i) Borrower may give Lender notice
of its intention to borrow, in which notice Borrower shall specify the amount of
the proposed borrowing and the proposed borrowing date, not later than 2:00 p.m.
Eastern time one (1) Business Day prior to the proposed borrowing date;
PROVIDED, HOWEVER, that no such request may be made at a time when there exists
an Event of Default; and (ii) the becoming due (after the expiration of the
applicable grace period, if any) of any amount required to be paid under this
Agreement, whether as interest or for any other Obligation, shall be deemed
irrevocably to be a request for a Revolving Credit Loan on the due date in the
amount required to pay such interest or other Obligation.
(b) Borrower hereby irrevocably authorizes Lender to disburse the proceeds
of each Revolving Credit Loan requested, or deemed to be requested, as follows:
(i) the proceeds of each Revolving Credit Loan requested under subsection
2.2(a)(i) shall be disbursed by Lender by wire transfer to such bank account as
may be agreed upon by Borrower and Lender from time to time or elsewhere if
pursuant to written direction from Borrower; and (ii) the proceeds of each
Revolving Credit Loan requested under subsection 2.2(a)(ii) shall be disbursed
by Lender by way of direct payment of the relevant interest or other Obligation.
(c) All Revolving Credit Loans, advances and other extensions of credit to
or for the benefit of Borrower shall constitute the Obligation of Borrower, and
shall be secured by Lender's lien upon all of the Collateral of the Borrower.
(d) Lender shall enter all Revolving Credit Loans as debits to a loan
account in the name of Borrower and shall also record in said loan account all
payments made by Borrower on any Obligations and all proceeds of Collateral
which are indefeasibly paid to Lender, and may record therein, in accordance
with customary accounting practice, other debits and credits, including interest
and all charges and expenses properly chargeable to Borrower. All collections
into the Concentration Account pursuant to Section 2.3 shall be applied first to
fees, costs and expenses due and owing under the Loan Documents, then to
interest due and owing under the Loan Documents, and then to principal
outstanding with respect to Revolving Credit Loans.
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(e) Lender will account to Borrower monthly with a statement of Revolving
Credit Loans, charges and payments made pursuant to this Agreement, and such
account rendered by Lender shall, absent manifest error, be deemed final,
binding and conclusive upon Borrower unless Lender is notified by Borrower in
writing to the contrary within thirty (30) days of the date each accounting is
mailed to Borrower. Such notice shall be deemed an objection to those items
specifically objected to therein.
SECTION 2.3. COLLECTIONS, DISBURSEMENTS, BORROWING AVAILABILITY, AND LOCKBOX
ACCOUNT. Borrower shall maintain one or more lockbox accounts (collectively, the
"Lockbox") with Bank One Arizona, N.A. (the "Lockbox Bank"), subject to the
provisions of this Agreement, and shall execute with the Lockbox Bank a Lockbox
Agreement in the form acceptable to Lender, and such other agreements related
thereto as Lender may require. Borrower shall ensure that all collections of
Accounts are paid directly from Account Debtors into the Lockbox, and that all
funds paid into the Lockbox are immediately transferred into a depository
account maintained by Lender at Bank One Arizona, N.A. or U.S. Bank N.A., as
determined by Lender in its sole discretion and communicated to Borrower (the
"Concentration Account"). Lender shall apply, on a daily basis, all funds
transferred into the Concentration Account pursuant to this Section 2.3 to
reduce the outstanding indebtedness under the Loan, with future Revolving Credit
Loans, advances and other extensions of credit to be made by Lender under the
conditions set forth in this Article II. To the extent that any collections of
Accounts or proceeds of other Collateral are not sent directly to the Lockbox
but are received by Borrower, such collections shall be held in trust for the
benefit of Lender and immediately remitted, in the form received, to the Lockbox
Bank for transfer to the Concentration Account immediately upon receipt by
Borrower. Borrower acknowledges and agrees that its compliance with the terms of
this Section 2.3 is essential, and that upon its failure to comply with any such
terms Lender shall be entitled to assess a non-compliance fee which shall
operate to increase the Base Rate by two percent (2%) per annum during any
period of non-compliance. Lender shall be entitled to assess such fee whether or
not an Event of Default is declared or otherwise occurs. All funds transferred
from the Concentration Account for application to Borrower's indebtedness to
Lender shall be applied to reduce the Loan balance, but for purposes of
calculating interest, shall be subject to a five (5) Business Day clearance
period. If as the result of collections of Accounts pursuant to the terms and
conditions of this Section 2.3 a credit balance exists with respect to the
Concentration Account, such credit balance shall not accrue interest in favor of
Borrower, but shall be available to Borrower at any time or times for so long as
no Event of Default exists.
SECTION 2.4. FEES.
(a) Upon execution of this Agreement, Borrower shall unconditionally pay
to Lender a commitment fee equal to Ten Thousand and No/100 Dollars ($10,000.00)
(the "Commitment Fee").
(b) For so long as the Loan is available to Borrower, Borrower
unconditionally shall pay to Lender a monthly usage fee (the "Usage Fee") equal
to one twelfth (1/12th) of one and one-quarter percent (1.25%) of the average
amount by which the Maximum Loan Amount exceeds the average amount of the
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outstanding principal balance of the Revolving Credit Loans during the preceding
month. The Usage Fee shall be payable monthly in arrears on the first day of
each successive calendar month.
(c) For so long as the Loan is available to Borrower, Borrower
unconditionally shall pay to Lender a quarterly loan management fee (the "Loan
Management Fee") equal to Three Thousand Seven Hundred Fifty and No/100 Dollars
($3,750.00) per quarter within the Term. The Loan Management Fee shall be
payable quarterly in advance on the first day of each February, May, August and
November while this Agreement remains in effect.
(d) Borrower shall pay to Lender all reasonable audit and appraisal fees
in connection with audits and appraisals of Borrower's books and records on not
more than a quarterly basis while no Event of Default exists and is continuing,
which shall be due and payable on the first Business Day of the month following
the date of issuance by Lender of a request for payment thereof to Borrower;
provided, however, that (i) absent an Event of Default the payment by Borrower
of the quarterly Loan Management Fee shall satisfy its payment obligations under
this Section 2.4(d) for the applicable quarter, and (ii) following the
occurrence or during the continuation of an Event of Default the hourly rates of
the professionals selected by Lender to perform the audits and appraisals shall
be reasonable in relation to the scope of the services performed.
(e) Borrower shall pay to Lender, on demand, any and all fees, costs or
expenses which Lender or any participant pays to a bank or other similar
institution (including, without limitation, any fees paid by Lender to any
participant) arising out of or in connection with (i) the forwarding to Borrower
or any other Person on behalf of Borrower, by Lender, of proceeds of Revolving
Credit Loans made by Lender to Borrower pursuant to this Agreement, and (ii) the
depositing for collection, by Lender or any participant, of any check or item of
payment received or delivered to Lender or any participant on account of
Obligations.
(f) Borrower shall pay to Lender, on demand, any and all fees, costs or
expenses which Lender pays to Issuing Bank arising out of or in connection with
any Letter of Credit issued on behalf of Borrower. In addition, on the date that
any Letter of Credit is issued or renewed by Issuing Bank, Borrower shall pay to
Lender a fee equal to four percent (4%) of the face amount of the Letter of
Credit issued or renewed.
SECTION 2.5. PAYMENTS. Principal payable on account of Revolving Credit Loans
shall be payable by Borrower to Lender immediately upon the earliest of (i) the
receipt by Borrower of any proceeds of any of the Collateral, to the extent of
such proceeds, (ii) any draw under a Letter of Credit, to the extent provided in
Section 2.1(e) hereof, (iii) the occurrence of an Event of Default in
consequence of which the Loan and the maturity of the payment of the Obligations
are accelerated, or (iv) the termination of this Agreement pursuant to Section
2.8 hereof; PROVIDED, HOWEVER, that if any advance made by Lender in excess of
the Borrowing Base shall exist at any time, Borrower shall, immediately upon
demand, repay such overadvance. Interest accrued on the Revolving Credit Loans
shall be due on the earliest of (i) the first Business Day of each month (for
the immediately preceding month), computed on the last calendar day of the
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preceding month, (ii) the occurrence of an Event of Default in consequence of
which the Loan and the maturity of the payment of the Obligations are
accelerated, or (iii) the termination of this Agreement pursuant to Section 2.8
hereof. Except to the extent otherwise set forth in this Agreement, all payments
of principal and of interest on the Loan, all other charges and any other
obligations of Borrower hereunder, shall be made to Lender to the Concentration
Account, in immediately available funds.
SECTION 2.6. USE OF PROCEEDS. The proceeds of Lender's advances under the Loan
shall be used solely for working capital and for other costs of Borrower arising
in the ordinary course of Borrower's business.
SECTION 2.7. INTEREST RATE LIMITATION. The parties intend to conform strictly
to the applicable usury laws in effect from time to time during the term of the
Loan. Accordingly, if any transaction contemplated hereby would be usurious
under such laws, then notwithstanding any other provision hereof: (a) the
aggregate of all interest that is contracted for, charged, or received under
this Agreement or under any other Loan Document shall not exceed the maximum
amount of interest allowed by applicable law, and any excess shall be promptly
credited to Borrower by Lender (or, to the extent that such consideration shall
have been paid, such excess shall be promptly refunded to Borrower by Lender);
(b) neither Borrower nor any other Person now or hereafter liable hereunder
shall be obligated to pay the amount of such interest to the extent that it is
in excess of the maximum interest permitted by applicable law (the "Highest
Lawful Rate"); and (c) the effective rate of interest shall be reduced to the
Highest Lawful Rate. All sums paid, or agreed to be paid, to Lender for the use,
forbearance, and detention of the debt of Borrower to Lender shall, to the
extent permitted by applicable law, be allocated throughout the full term of the
Note until payment is made in full so that the actual rate of interest does not
exceed the Highest Lawful Rate in effect at any particular time during the full
term thereof. If at any time the rate of interest under the Note exceeds the
Highest Lawful Rate, the rate of interest to accrue pursuant to this Agreement
shall be limited, notwithstanding anything to the contrary herein, to the
Highest Lawful Rate, but any subsequent reductions in the Base Rate shall not
reduce the interest to accrue pursuant to this Agreement below the Highest
Lawful Rate until the total amount of interest accrued equals the amount of
interest that would have accrued if a varying rate per annum equal to the
interest rate under the Note had at all times been in effect. If the total
amount of interest paid or accrued pursuant to this Agreement under the
foregoing provisions is less than the total mount of interest that would have
accrued if a varying rate per annum equal to the interest rate under the Note
had been in effect, then Borrower agrees to pay to Lender an amount equal to the
difference between (a) the lesser of (i) the amount of interest that would have
accrued if the Highest Lawful Rate had at all times been in effect, or (ii) the
amount of interest that would have accrued if a varying rate per annum equal to
the interest rate under the Note had at all times been in effect, and (b) the
amount of interest accrued in accordance with the other provisions of this
Agreement.
SECTION 2.8. TERM.
(a) Subject to Lender's right to cease making Revolving Credit Loans to
Borrower upon or after any Event of Default, this Agreement shall be in effect
for a period of three (3) years from the Closing Date, unless terminated as
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provided in this Section 2.8 (the "Term"), and this Agreement may be renewed for
one-year periods thereafter upon the mutual written agreement of the parties.
(b) Upon at least thirty (30) days prior written notice to Borrower,
Lender may terminate this Agreement as of the end of the Term. In all events,
however, Lender may terminate this Agreement without notice upon or after the
occurrence of an Event of Default.
(c) Upon at least thirty (30) days prior written notice to Lender (the
"Termination Notice Period"), Borrower may terminate this Agreement before the
third annual anniversary of the Closing Date, provided that, at the effective
date of such termination, Borrower shall pay to Lender (in addition to the then
outstanding principal, accrued interest and other Obligations owing under the
terms of this Agreement and any other Loan Documents) as liquidated damages for
the loss of bargain and not as a penalty, an amount equal to (i) two percent
(2%) of the Maximum Loan Amount if the effective date of such termination by
Borrower is on or before the first annual anniversary of the Closing Date, (ii)
one percent (1%) of the Maximum Loan Amount if the effective date of such
termination by Borrower is after the first annual anniversary of the Closing
Date and before the second annual anniversary of the Closing Date, and (iii) one
percent (1%) of the Maximum Loan Amount if the effective date of such
termination by Borrower is after the second annual anniversary of the Closing
Date and before the third annual anniversary of the Closing Date.
(d) All of the Obligations shall be immediately due and payable upon the
termination date of this Agreement (the "Termination Date"); provided that,
notwithstanding anything in Section 2.8(c) to the contrary, the Termination Date
shall be effective no earlier than the first Business Day of the month following
the expiration of the Termination Notice Period. All undertakings, agreements,
covenants, warranties, and representations of Borrower contained in the Loan
Documents shall survive any such termination and Lender shall retain its liens
in the Collateral and all of its rights and remedies under the Loan Documents
notwithstanding such termination until Borrower has paid the Obligations to
Lender, in full, in immediately available funds.
(e) Notwithstanding any provision of this Agreement which makes reference
to the continuance of an Event of Default, nothing in this Agreement shall be
construed to permit Borrower to cure an Event of Default following the lapse of
the applicable cure period, and Borrower shall have no such right in any
instance unless specifically granted in writing by Lender.
SECTION 2.9. JOINT AND SEVERAL LIABILITY; BINDING OBLIGATIONS. Each entity
comprising Borrower and executing this Agreement on behalf of Borrower shall be
jointly and severally liable for all of the Obligations. In addition, each
entity comprising Borrower hereby acknowledges and agrees that all of the
representations, warranties, covenants, obligations, conditions, agreements and
other terms contained in this Agreement shall be applicable to and shall be
binding upon each individual entity comprising Borrower, and shall be binding
upon all such entities when taken together.
ARTICLE III
COLLATERAL
SECTION 3.1. GENERALLY. As security for the payment of all liabilities of
Borrower to Lender, including without limitation: (i) indebtedness evidenced
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under the Note, repayment of Revolving Credit Loans, advances and other
extensions of credit, all fees and charges owing by Borrower, and all other
liabilities and obligations of every kind or nature whatsoever of Borrower to
Lender, whether now existing or hereafter incurred, joint or several, matured or
unmatured, direct or indirect, primary or secondary, related or unrelated, due
or to become due, including but not limited to any extensions, modifications,
substitutions, increases and renewals thereof, (ii) the payment of all amounts
advanced by Lender to preserve, protect, defend, and enforce its rights
hereunder and in the following property in accordance with the terms of this
Agreement, and (iii) the payment of all expenses incurred by Lender in
connection therewith (collectively, the "Obligations"), Borrower hereby assigns
and grants to Lender a continuing first priority lien on and security interest
in, upon, and to the following property (the "Collateral"):
(a) All of Borrower's now-owned and hereafter acquired or arising
Accounts, accounts receivable and rights to payment of every kind and
description, and any contract rights, chattel paper, documents and instruments
with respect thereto, together with all fees and other payments due Borrower in
connection with its management of nursing homes and other healthcare facilities;
(b) All of Borrower's now owned and hereafter acquired or arising general
intangibles of every kind and description pertaining to its Accounts, accounts
receivable and other rights to payment, including, but not limited to, all
existing and future customer lists, choses in action, claims, books, records,
contracts, licenses, formulae, tax and other types of refunds, returned and
unearned insurance premiums, rights and claims under insurance policies relating
to any of the Collateral, and computer information, software, records, and data;
(c) All of Borrower's now or hereafter acquired deposit accounts into
which Accounts are deposited, including the Lockbox Account;
(d) All of Borrower's monies and other property of every kind and nature
now or at any time or times hereafter in the possession of or under the control
of Lender or a bailee or Affiliate of Lender; and
(e) The proceeds (including, without limitation, insurance proceeds) of
all of the foregoing.
Notwithstanding anything in this Agreement to the contrary, the parties agree
that if (i) Lender has extended credit hereunder equal to the Maximum Loan
Amount, and (ii) thereafter Borrower receives an offer, term sheet or commitment
(for purposes of the Section, an "Offer") from any Person to provide permanent,
long term, short term or any other financing (for purposes of this Section,
"Additional Financing") with respect to Borrower, Borrower shall first forward
the Offer to the Lender, and the Lender shall have thirty (30) days after
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receipt (the "Option Period") to agree to provide the Additional Financing in
place of such third party upon the terms and conditions set forth in the Offer
and to notify Borrower in writing of the Lender's acceptance of the Offer (the
"Acceptance Notice"). If Borrower has not received an Acceptance Notice within
the Option Period, then Borrower shall be free to consummate the transaction
described in the Offer with the third party providing the Offer (the
"Transaction"), provided that (a) any liens on Collateral granted to such third
party shall be generated solely and exclusively through the operation of one or
more nursing homes or other healthcare facilities not owned, operated or managed
by any of the entities comprising Borrower as of the Closing Date, and (b)
Lender shall obtain signed documentation from such third party financing source
confirming (in form and substance satisfactory to Lender, in its sole
discretion) that such third party has no security interest in any of the
Collateral generated at any nursing home or other healthcare facility owned,
operated or managed by any of the entities comprising Borrower as of the Closing
Date. If the Transaction is not consummated with such third party during the
longer of (i) the one hundred twenty (120) day period following the expiration
of the Option Period, and (ii) the period (if any) proposed in the Offer for
completion of the Transaction, then Borrower shall not be permitted to
consummate the Transaction without again complying with this Section. For
purposes of this Section only, the "Lender" shall mean and include either of
HCFP Funding, Inc., HCFP Funding II, Inc., HealthCare Financial Partners REIT, a
Maryland corporation, or any other parent company, subsidiary or Affiliate of
HCFP Funding, Inc. or the parent company or subsidiaries of any of such
entities.
SECTION 3.2. LIEN DOCUMENTS. At Closing and thereafter as Lender deems necessary
in its sole discretion, Borrower shall execute and deliver to Lender, or have
executed and delivered (all in form and substance satisfactory to Lender in its
sole discretion):
(a) UCC-1 Financing statements pursuant to the Uniform Commercial Code in
effect in the jurisdictions in which Borrower operates, which Lender may file in
any State where any Collateral is or may be located and in any other
jurisdiction that Lender deems appropriate; PROVIDED that a carbon,
photographic, or other reproduction or other copy of this Agreement or of a
financing statement is sufficient as and may be filed in lieu of a financing
statement;
(b) Any other agreements, documents, instruments, and writings deemed
necessary by Lender or as Lender may otherwise request from time to time in its
reasonable discretion to evidence, perfect, or protect Lender's liens and
security interests in the Collateral required hereunder.
SECTION 3.3. COLLATERAL ADMINISTRATION.
(a) All Collateral (except deposit accounts) will at all times be kept by
Borrower at its principal office(s) as set forth on SCHEDULE 4.15 hereto and
shall not, without the prior written approval of Lender, be moved therefrom.
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(b) Borrower shall keep accurate and complete records of its Accounts and
all payments and collections thereon and shall submit to Lender on such periodic
basis as Lender shall request a sales and collections report for the preceding
period, in form satisfactory to Lender. In addition, if Accounts in an aggregate
face amount in excess of $50,000.00 become ineligible because they fall within
one of the specified categories of ineligibility set forth in the definition of
Qualified Accounts or otherwise, Borrower shall notify Lender of such occurrence
on the first Business Day following such occurrence (or immediately upon
Borrower's preparation of a monthly aging schedule if the reason for
ineligibility is that the Account has remained unpaid for longer than the
applicable period for Qualified Accounts), and the Borrowing Base shall
thereupon be adjusted to reflect such occurrence. If requested by Lender,
Borrower shall execute and deliver to Lender formal written assignments of all
of its Accounts weekly or daily, which shall include all Accounts that have been
created since the date of the last assignment, together with copies of claims,
invoices or other information related thereto.
(c) Whether or not an Event of Default has occurred, any of Lender's
officers, employees or agents shall have the right, at any time or times
hereafter, in the name of Lender, any designee of Lender or Borrower, to verify
the validity, amount or any other matter relating to any Accounts by mail,
telephone, telegraph or otherwise. Borrower shall cooperate fully with Lender in
an effort to facilitate and promptly conclude such verification process.
(d) To expedite collection, Borrower shall endeavor in the first instance
to make collection of its Accounts for Lender. Lender retains the right at all
times after the occurrence and during the continuance of an Event of Default,
subject to applicable law regarding Medicaid/Medicare Account Debtors, to notify
Account Debtors that Accounts have been assigned to Lender and to collect
Accounts directly in its own name and to charge the collection costs and
expenses, including attorneys' fees to Borrower.
SECTION 3.4. OTHER ACTIONS. In addition to the foregoing, Borrower (i) shall
provide prompt written notice to each private indemnity, managed care or other
Insurer who either is currently an Account Debtor or becomes an Account Debtor
at any time following the date hereof that the Lender has been granted a first
priority lien and security interest in, upon and to all Accounts applicable to
such Insurer, and hereby authorizes Lender to send any and all similar notices
to such Insurers by Lender, and (ii) shall do anything further that may be
lawfully required by Lender to secure Lender and effectuate the intentions and
objects of this Agreement, including but not limited to the execution and
delivery of lockbox agreements, continuation statements, amendments to financing
statements, and any other documents required hereunder. At Lender's request,
Borrower shall also immediately deliver to Lender all items for which Lender
must receive possession to obtain a perfected security interest. Borrower shall,
on Lender's demand, deliver to Lender all notes, certificates, and documents of
title, chattel paper, warehouse receipts, instruments, and any other similar
instruments constituting Collateral.
SECTION 3.5. SEARCHES. Prior to Closing, and thereafter (as and when requested
by Lender in its reasonable discretion), Borrower shall obtain and deliver to
Lender the following searches against Borrower (the results of which are to be
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consistent with Borrower's representations and warranties under this Agreement),
all at its own expense:
(a) Uniform Commercial Code searches with the Secretary of State and local
filing offices of each jurisdiction where Borrower maintains its executive
offices, a place of business, or assets;
(b) Judgment, federal tax lien and corporate tax lien searches, in each
jurisdiction searched under clause (a) above; and
(c) Good standing certificates showing Borrower to be in good standing in
its state of formation and in each other state in which it is doing and
presently intends to do business for which qualification is required.
SECTION 3.6. POWER OF ATTORNEY. To the extent permitted by applicable bankruptcy
law, each of the officers of Lender is hereby, or, if required, upon application
to the bankruptcy court, may be, irrevocably made, constituted and appointed the
true and lawful attorney for Borrower (without requiring any of them to act as
such) with full power of substitution to do the following: (a) endorse the name
of Borrower upon any and all checks, drafts, money orders, and other instruments
for the payment of money that are payable to Borrower and constitute collections
on Borrower's Accounts; (b) execute in the name of Borrower any financing
statements, schedules, assignments, instruments, documents, and statements that
Borrower is obligated to give Lender hereunder; and (c) do such other and
further acts and deeds in the name of Borrower that Lender may deem necessary or
desirable to enforce any Account or other Collateral or perfect Lender's
security interest or lien in any Collateral. In addition, if Borrower breaches
its obligation to direct payments of the proceeds of the Collateral to the
Lockbox Account, Lender, as the irrevocably made, constituted and appointed true
and lawful attorney for Borrower pursuant to this paragraph, may, by the
signature or other act of any of Lender's officers (without requiring any of
them to do so), direct any federal, state or private payor or fiscal
intermediary to pay proceeds of the Collateral to Borrower by directing payment
to the Lockbox Account.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Each entity comprising Borrower, jointly and severally, represents and
warrants to Lender, and shall be deemed to represent and warrant on each day on
which any Obligations shall be outstanding hereunder, that:
SECTION 4.1. SUBSIDIARIES. Except as set forth in SCHEDULE 4.1, Borrower has
no subsidiaries.
SECTION 4.2. ORGANIZATION AND GOOD STANDING. Borrower is a corporation duly
organized, validly existing, and in good standing under the laws of its state of
incorporation, is in good standing as a foreign corporation in each jurisdiction
in which the character of the properties owned or leased by it therein or the
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nature of its business makes such qualification necessary, has the corporate
power and authority to own its assets and transact the business in which it is
engaged, and has obtained all certificates, licenses and qualifications required
under all laws, regulations, ordinances, or orders of public authorities
necessary for the ownership and operation of all of its properties and
transaction of all of its business.
SECTION 4.3. AUTHORITY. Borrower has full corporate power and authority to enter
into, execute, and deliver this Agreement and to perform its obligations
hereunder, to borrow the Loan, to execute and deliver the Note, and to incur and
perform the obligations provided for in the Loan Documents, all of which have
been duly authorized by all necessary corporate action. No consent or approval
of shareholders of, or lenders to, Borrower and no consent, approval, filing or
registration with any Governmental Authority is required as a condition to the
validity of the Loan Documents or the performance by Borrower of its obligations
thereunder.
SECTION 4.4. BINDING AGREEMENT. This Agreement and all other Loan Documents
constitute, and the Note, when issued and delivered pursuant hereto for value
received, will constitute, the valid and legally binding obligations of
Borrower, enforceable against Borrower in accordance with their respective
terms.
SECTION 4.5. LITIGATION. Except as disclosed in SCHEDULE 4.5, there are no
actions, suits, proceedings or investigations pending or threatened against
Borrower before any court or arbitrator or before or by any Governmental
Authority which, in any one case or in the aggregate, if determined adversely to
the interests of the Borrower, could have a material adverse effect on the
business, properties, condition (financial or otherwise) or operations, present
or prospective, of Borrower, or upon its ability to perform its obligations
under the Loan Documents. Borrower is not in default with respect to any order
of any court, arbitrator, or Governmental Authority applicable to Borrower or
its properties.
SECTION 4.6. NO CONFLICTS. Except as disclosed in SCHEDULE 4.6, the execution
and delivery by Borrower of this Agreement and the other Loan Documents do not,
and the performance of its obligations thereunder will not, violate, conflict
with, constitute a default under, or result in the creation of a lien or
encumbrance upon the property of Borrower under: (a) any provision of Borrower's
articles of incorporation or its bylaws, (b) any provision of any law, rule, or
regulation applicable to Borrower, or (c) any of the following: (i) any lease,
indenture or other agreement or instrument to which Borrower is a party or by
which Borrower or its property is bound; or (ii) any judgment, order or decree
of any court, arbitration tribunal, or Governmental Authority having
jurisdiction over Borrower which is applicable to Borrower.
SECTION 4.7. FINANCIAL CONDITION. The audited financial statements of Unison
Healthcare Corporation and its subsidiaries (including the entities comprising
the Borrower) (collectively, the "Consolidated Company") as of December 31,
1997, certified by Ernst & Young, and the unaudited financial statements of the
Consolidated Company as of November 30, 1998, certified by an officer of the
Consolidated Company, which have been delivered to Lender, fairly present the
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financial condition of the Consolidated Company and the results of its
operations and changes in financial condition as of the dates and for the
periods referred to, and have been prepared in accordance with GAAP. There are
no material unrealized or anticipated liabilities, direct or indirect, fixed or
contingent, of the Consolidated Company as of the dates of such financial
statements which are not reflected therein or in the notes thereto, except as
otherwise disclosed in the disclosure statement with respect to the
Reorganization Plan filed by the Debtors in the Bankruptcy Cases. The
Consolidated Company's fiscal year ends on December 31. The federal tax
identification numbers for the entities comprising the Borrower are listed on
SCHEDULE 4.7.
SECTION 4.8. NO DEFAULT. Except as disclosed in SCHEDULE 4.6, Borrower is not
in default under or with respect to any obligation in any respect which could be
adverse to its business, operations, property or financial condition, or which
could adversely affect the ability of Borrower to perform its obligations under
the Loan Documents. No Event of Default or event which, with the giving of
notice or lapse of time, or both, could become an Event of Default, has occurred
and is continuing.
SECTION 4.9. TITLE TO PROPERTIES. Borrower has good and marketable title to its
properties and assets, including the Collateral and the properties and assets
reflected in the financial statements described in Section 4.7, subject to no
lien, mortgage, pledge, encumbrance or charge of any kind, other than Permitted
Liens. Borrower has not agreed or consented to cause any of its properties or
assets whether owned now or hereafter acquired to be subject in the future (upon
the happening of a contingency or otherwise) to any lien, mortgage, pledge,
encumbrance or charge of any kind other than Permitted Liens.
SECTION 4.10. TAXES. Except as disclosed on SCHEDULE 4.10, Borrower has filed,
or has obtained extensions for the filing of, all federal, state and other tax
returns which are required to be filed, and has paid all taxes shown as due on
those returns and all assessments, fees and other amounts due as of the date
hereof. All tax liabilities of Borrower were, as of November 30, 1998, and are
now, adequately provided for on Borrower's books. No tax liability has been
asserted by the Internal Revenue Service or other taxing authority against
Borrower for taxes in excess of those already paid.
SECTION 4.11. SECURITIES AND BANKING LAWS AND REGULATIONS.
(a) The use of the proceeds of the Loan and Borrower's issuance of the
Note will not directly or indirectly violate or result in a violation of the
Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, or
any regulations issued pursuant thereto, including without limitation
Regulations U, T, G, or X of the Board of Governors of the Federal Reserve
System. Borrower is not engaged in the business of extending credit for the
purpose of the purchasing or carrying "margin stock" within the meaning of those
regulations. No part of the proceeds of the Loan hereunder will be used to
purchase or carry any margin stock or to extend credit to others for such
purpose.
(b) Borrower is not an investment company within the meaning of the
Investment Company Act of 1940, as amended, nor is it, directly or indirectly,
controlled by or acting on behalf of any Person which is an investment company
within the meaning of that Act.
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SECTION 4.12. ERISA. No employee benefit plan (a "Plan") subject to the Employee
Retirement Income Security Act of 1974 ("ERISA") and regulations issued pursuant
thereto that is maintained by Borrower or under which Borrower could have any
liability under ERISA (a) has failed to meet minimum funding standards
established in Section 302 of ERISA, (b) has failed to comply with all
applicable requirements of ERISA and of the Internal Revenue Code, including all
applicable rulings and regulations thereunder, (c) has engaged in or been
involved in a prohibited transaction (as defined in ERISA) under ERISA or under
the Internal Revenue Code, or (d) has been terminated. Borrower has not assumed,
or received notice of a claim asserted against Borrower for, withdrawal
liability (as defined in the Multi-Employer Pension Plan Amendments Act of 1980,
as amended) with respect to any multi-employer pension plan and is not a member
of any Controlled Group (as defined in ERISA). Borrower has timely made when due
all contributions with respect to any multi-employer pension plan in which it
participates and no event has occurred triggering a claim against Borrower for
withdrawal liability with respect to any multi-employer pension plan in which
Borrower participates.
SECTION 4.13. COMPLIANCE WITH LAW. Except as described in SCHEDULE 4.13,
Borrower is not in violation of any statute, rule or regulation of any
Governmental Authority (including, without limitation, any statute, rule or
regulation relating to employment practices or to environmental, occupational
and health standards and controls). Borrower has obtained all licenses, permits,
franchises, and other governmental authorizations necessary for the ownership of
its properties and the conduct of its business. Borrower is current with all
reports and documents required to be filed with any state or federal securities
commission or similar Governmental Authority and is in full compliance with all
applicable rules and regulations of such commissions.
SECTION 4.14. ENVIRONMENTAL MATTERS. No use, exposure, release, generation,
manufacture, storage, treatment, transportation or disposal of Hazardous
Material has occurred or is occurring on or from any real property on which the
Collateral is located or which is owned, leased or otherwise occupied by
Borrower (the "Premises"), or off the Premises as a result of any action of
Borrower, except as described in SCHEDULE 4.14. All Hazardous Material used,
treated, stored, transported to or from, generated or handled on the Premises,
or off the Premises by Borrower, has been disposed of on or off the Premises by
or on behalf of Borrower in a lawful manner. There are no underground storage
tanks present on or under the Premises owned or leased by Borrower. No other
environmental, public health or safety hazards exist with respect to the
Premises.
SECTION 4.15. PLACES OF BUSINESS. The only places of business of Borrower, and
the places where it keeps and intends to keep the Collateral and records
concerning the Collateral, are at the addresses set forth in SCHEDULE 4.15.
SCHEDULE 4.15 also lists the owner of record of each such property.
SECTION 4.16. INTELLECTUAL PROPERTY. Borrower exclusively owns or possesses all
the patents, patent applications trademarks trademark applications, service
marks, trade names, copyrights, franchises, licenses, and rights with respect to
the foregoing necessary for the present and planned future conduct of its
business, without any conflict with the rights of others. A list of all such
intellectual property (indicating the nature of Borrower's interest), as well as
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all outstanding franchises and licenses given by or held by Borrower, is
attached as SCHEDULE 4.16. Borrower is not in default of any obligation or
undertaking with respect to such intellectual property or rights.
SECTION 4.17. STOCK OWNERSHIP. The identity of the stockholders of all classes
of the outstanding stock of each entity comprising Borrower, together with the
respective ownership percentages held by such stockholders, are as set forth on
SCHEDULE 4.17.
SECTION 4.18. MATERIAL FACTS. Neither this Agreement nor any other Loan Document
nor any other agreement, document, certificate, or statement furnished to Lender
by or on behalf of Borrower in connection with the transactions contemplated
hereby contains any untrue statement of material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. There is no fact known to Borrower that adversely
affects or in the future may adversely affect the business, operations, affairs
or financial condition of Borrower, or any of its properties or assets.
SECTION 4.19. INVESTMENTS, GUARANTEES, AND CERTAIN CONTRACTS. Borrower does not
own or hold any equity or long-term debt investments in, have any outstanding
advances to, have any outstanding guarantees for the obligations of, or have any
outstanding borrowings from, any Person, except as described on SCHEDULE 4.19.
Borrower is not a party to any contract or agreement, or subject to any charter
or other corporate restriction, which adversely affects its business.
SECTION 4.20. BUSINESS INTERRUPTIONS. Within five years prior to the date
hereof, neither the business, property or assets, or operations of Borrower has
been adversely affected in any way by any casualty, strike, lockout, combination
of workers, or order of the United States of America or other Governmental
Authority, directed against Borrower. There are no pending or threatened labor
disputes, strikes, lockouts, or similar occurrences or grievances against
Borrower or its business.
SECTION 4.21. NAMES. Within five years prior to the date hereof, Borrower has
not conducted business under or used any other name (whether corporate or
assumed) other than as shown on SCHEDULE 4.21. Borrower is the sole owner of all
names listed on that Schedule and any and all business done and invoices issued
in such names are Borrower's sales, business, and invoices. Each trade name of
Borrower represents a division or trading style of Borrower and not a separate
corporate subsidiary or independent Affiliate.
SECTION 4.22. JOINT VENTURES. Borrower is not engaged in any joint venture or
partnership with any other Person, except as set forth on SCHEDULE 4.22.
SECTION 4.23. ACCOUNTS. Lender may rely, in determining which Accounts are
Qualified Accounts, on all statements and representations made by Borrower with
respect to any Account or Accounts. Unless otherwise indicated in writing to
Lender, with respect to each Account:
(a) It is genuine and in all respects what it purports to be, and is not
evidenced by a judgment;
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(b) It arises out of a completed, BONA FIDE sale and delivery of (or, in
the case of an Account relating to individual recipients of Medical Services, a
BONA FIDE pre-billing for) goods or rendition of services by Borrower in the
ordinary course of its business and in accordance with the terms and conditions
of all purchase orders, contracts, certification, participation, certificate of
need, or other documents relating thereto and forming a part of the contract
between Borrower and Account Debtor (provided, however, that in the case only of
pre-billed Accounts to individual recipients of Medical Services covered by such
Account, the services will be rendered in full within thirty (30) days following
the claim or invoice date);
(c) It is for a liquidated amount maturing as stated in a duplicate claim
or invoice covering such sale or rendition of services, a copy of which has been
furnished or is available to Lender (or in the case only of Accounts owed by
Medicaid/Medicare Account Debtors, Borrower has furnished Lender with evidence
reasonably satisfactory to Lender that the Medical Services have been rendered
but have not yet been invoiced solely as a result of applicable
Medicaid/Medicare billing procedures);
(d) Such Account, and Lender's security interest therein, is not, and will
not (by voluntary act or omission by Borrower), be in the future, subject to any
offset, lien, deduction, defense, dispute, counterclaim or any other adverse
condition, and each such Account is absolutely owing to Borrower and is not
contingent in any respect or for any reason;
(e) There are no facts, events or occurrences which in any way impair the
validity or enforceability of any Accounts or tend to reduce the amount payable
thereunder from the face amount of the claim or invoice and statements delivered
to Lender with respect thereto;
(f) To the best of Borrower's knowledge, the Account Debtor thereunder (i)
had the capacity to contract at the time any contract or other document giving
rise to the Account was executed and (ii) such Account Debtor is solvent;
(g) To the best of Borrower's knowledge, there are no proceedings or
actions which are threatened or pending against any Account Debtor thereunder
which might result in any material adverse change in such Account Debtor's
financial condition or the collectibility of such Account;
(h) It has been billed and forwarded to the Account Debtor for payment in
accordance with applicable laws and compliance and conformance with any and
requisite procedures, requirements and regulations governing payment by such
Account Debtor with respect to such Account (or in the case only of Accounts
owed by Medicaid/Medicare Account Debtors, Borrower has furnished Lender with
evidence reasonably satisfactory to Lender that the Medical Services have been
rendered but have not yet been invoiced solely as a result of applicable
Medicaid/Medicare billing procedures), and such Account if due from a
Medicaid/Medicare Account Debtor is properly payable directly to Borrower; and
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(i) Borrower has obtained and currently has all certificates of need,
Medicaid and Medicare provider numbers, licenses, permits and authorizations as
necessary in the generation of such Accounts.
SECTION 4.24. SOLVENCY. Both before and after giving effect to the transactions
contemplated by the terms and provisions of this Agreement (and following the
effective date of the Reorganization Plan): (i) Borrower (taken as a whole) owns
property whose fair saleable value is greater than the amount required to pay
all of Borrower's Indebtedness (including contingent debts), (ii) Borrower
(taken as a whole) was and is able to pay all of its Indebtedness as such
Indebtedness matures, and (iii) Borrower (taken as a whole) had and has capital
sufficient to carry on its business and transactions and all business and
transactions in which it about to engage. For purposes hereof, the term
"Indebtedness" means, without duplication (x) all items which in accordance with
GAAP would be included in determining total liabilities as shown on the
liability side of a balance sheet of such Borrower as of the date on which
Indebtedness is to be determined, (y) all obligations of any other person or
entity which such Borrower has guaranteed, and (z) the Obligations.
SECTION 4.25. NO APPROVALS, ETC. No approval, authorization, bond, consent,
certificate, franchise, license, permit, registration, qualification, or other
action or grant by or filing with any Governmental Authority or other Person is
required in connection with the execution, delivery, or performance (other than
performance which is not yet due) by any Borrower of the Loan Documents.
SECTION 4.26. PURPOSE OF ADVANCES. The purpose of each advance under the Loan is
a business purpose, and the proceeds of each advance will be used solely for
working capital and for other costs of Borrower arising in the ordinary course
of Borrower's business.
SECTION 4.27. APPROVALS AND PERMITS; ASSETS AND PROPERTY. To the best knowledge
of Borrower, Borrower has obtained and there are in full force and effect all
approvals and permits presently necessary for the conduct of the business of
each Borrower, and each Borrower owns, leases, or licenses all assets and
property necessary for conduct of the business and operations of such Borrower,
except as otherwise permitted pursuant to this Agreement, except for any failure
to own, lease or license such assets and property that would not, individually
or in the aggregate, be materially adverse to the business, properties, assets,
operations, prospects, or condition (financial or otherwise) of Borrower.
SECTION 4.28. GOVERNMENTAL REGULATION. Borrower is not subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, and
Investment Company Act of 1940, the Interstate Commerce Act (as any of the
preceding have been amended), or any other law which regulates the incurring by
Borrower of indebtedness, including but not limited to laws relating to common
or contract carriers or the sale of electricity, gas, steam, water, or other
public utility services.
SECTION 4.29. YEAR 2000 COMPLIANCE. Borrower will use its best efforts to insure
that all devices, systems, machinery, information technology, computer software
and hardware, and other date sensitive technology (jointly and severally, the
"Systems") necessary for Borrower to carry on its business as presently
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conducted and as contemplated to be conducted in the future are Year 2000
Compliant or will be Year 2000 Compliant within a period of time calculated to
result in no material disruption of any of Borrower's business operations. For
purposes of these provisions, "Year 2000 Compliant" means that such Systems are
designed to be used prior to, during and after the Gregorian calendar year 2000
A.D. and will operate during each such time period without error relating to
date data, specifically including any error relating to, or the product of, date
data which represents or references different centuries or more than one
century.
ARTICLE V
CLOSING AND CONDITIONS OF LENDING
SECTION 5.1. CONDITIONS PRECEDENT TO AGREEMENT. The obligation of Lender to
enter into and perform this Agreement and to make Revolving Credit Loans is
subject to the following conditions precedent:
(a) Lender shall have received two (2) originals of this Agreement and all
other Loan Documents required to be executed and delivered at or prior to
Closing (other than the Note, as to which Lender shall receive only one
original), executed by Borrower and any other required Persons, as applicable.
(b) Lender shall have received all searches and good standing certificates
required by section 3.5.
(c) Borrower shall have complied and shall then be in compliance with all
the terms, covenants and conditions of the Loan Documents.
(d) There shall have occurred no Event of Default and no event which, with
the giving of notice or the lapse of time, or both, could constitute such an
Event of Default.
(e) The representations and warranties contained in Article IV shall be
true and correct.
(f) Lender shall have received copies of all board of directors
resolutions and other corporate action taken by Borrower to authorize the
execution, delivery and performance of the Loan Documents and the borrowing of
the Loan thereunder, as well as the names and signatures of the officers of
Borrower authorized to execute documents on its behalf in connection herewith,
all as also certified as of the date hereof by an officer of Borrower, and such
other papers as Lender may require.
(g) Lender shall have received copies, certified as true, correct and
complete by a corporate officer of Borrower, of the articles of incorporation
and bylaws of Borrower, with any amendments thereto, and all other documents
necessary for performance of the obligations of Borrower under this Agreement
and the other Loan Documents.
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(h) Lender shall have received a written opinion of counsel for Borrower,
dated the date hereof, substantially in the form of EXHIBIT C.
(i) Lender shall have received such financial statements, reports,
certifications, and other operational information required to be delivered
hereunder, including without limitation an initial borrowing base certificate
calculating the Borrowing Base.
(j) Lender shall have received the Commitment Fee.
(k) The Lockbox and the Concentration Account shall have been established.
(l) INTENTIONALLY OMITTED.
(m) Lender shall have received a certificate of Borrower's chief financial
officer, dated the Closing Date, certifying that (i) all of the conditions
specified in this Section have been fulfilled, (ii) no Event of Default has
occurred, and that no event has occurred which, with the giving of notice or the
lapse of time, or both, could constitute an Event of Default, and (iii) the
representations and warranties contained in Article IV are true and correct..
(n) Lender shall have received copies of certificates of insurance that
show that the insurance requirements stated in Section 6.7 of this Agreement
have been satisfied, and that the insurance is in full force and effect.
SECTION 5.2. CONDITIONS PRECEDENT TO ADVANCES. Notwithstanding any other
provision of this Agreement, no Loan proceeds, Revolving Credit Loans, advances
or other extensions of credit under the Loan shall be disbursed hereunder unless
the following conditions have been satisfied or waived immediately prior to such
disbursement:
(a) Lender shall have received from Borrower a Borrowing Base Report and
Compliance Certificate in a form acceptable to Lender in its sole discretion.
(b) The representations and warranties on the part of Borrower contained
in Article IV of this Agreement shall be true and correct in all respects at and
as of the date of disbursement or advance, as though made on and as of such date
(except to the extent that such representations and warranties expressly relate
solely to an earlier date and except that the references in Section 4.7 to
financial statements shall be deemed to be a reference to the then most recent
annual and interim financial statements of Borrower furnished to Lender pursuant
to Section 6.1 hereof).
(c) No Event of Default or event which, with the giving of notice of the
lapse of time, or both, could become an Event of Default shall have occurred and
be continuing or would result from the making of the disbursement or advance.
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(d) No adverse change in the condition (financial or otherwise),
properties, business, or operations of Borrower shall have occurred and be
continuing with respect to Borrower since the date hereof.
(e) Borrower shall have used its best efforts to obtain and provide to
Lender an estoppel certificate substantially in the form of EXHIBIT D attached
hereto from Borrower's landlord or sublandlord, as the case may be, with respect
to each of the facilities identified on SCHEDULE 4.15.
SECTION 5.3. CLOSING. Subject to the conditions of this Article V, the Loan
shall be made available on the date as is mutually agreed by the parties (the
"Closing Date") at such time as may by mutually agreeable to the parties upon
the execution hereof (the "Closing") at such place as may be requested by
Lender.
SECTION 5.4. WAIVER OF RIGHTS. By completing the Closing hereunder, or by making
advances under the Loan, Lender does not waive a breach of any representation or
warranty of Borrower hereunder or under any other Loan Document, and all of
Lender's claims and rights resulting from any breach or misrepresentation by
Borrower are specifically reserved by Lender.
ARTICLE VI
AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees that for so long as Borrower may borrow
hereunder and until payment in full of the Note and performance of all other
obligations of Borrower under the Loan Documents:
SECTION 6.1. FINANCIAL STATEMENTS AND COLLATERAL REPORTS. Borrower will furnish
to Lender (a) a sales and collections report and accounts receivable aging
schedule on a form acceptable to Lender within fifteen (15) days after the end
of each calendar month; (b) payable aging schedules within fifteen (15) days
after the end of each calendar month; (c) internally prepared monthly financial
statements for the Consolidated Company (as such term is defined in Section
4.7), certified by a duly authorized officer of Borrower, within forty-five (45)
days of the end of each calendar month; (d) quarterly financial statements for
the Consolidated Company on Form 10-Q, certified by a duly authorized officer of
Borrower, within forty-five (45) days of the end of each fiscal quarter of
Borrower; (e) to the extent prepared by Borrower, annual projections, profit and
loss statements, balance sheets, and cash flow reports (prepared on a monthly
basis) for the succeeding fiscal year within thirty (30) days before the end of
each of Borrower's fiscal years; (f) internally prepared annual financial
statements for Borrower within sixty (60) days after the end of each of
Borrower's fiscal years; (g) annual audited financial statements for the
Consolidated Company prepared by Ernst & Young or a firm of independent public
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accountants satisfactory to Lender, within ninety (90) days after the end of
each of Borrower's fiscal years; (h) promptly upon receipt thereof, copies of
any reports submitted to Borrower by independent accountants in connection with
any interim audit of the books of Borrower and copies of each management control
letter provided to Borrower by independent accountants; (i) as soon as
available, copies of all financial statements and notices provided by Borrower
to all of its stockholders; and (j) such additional information, reports or
statements as Lender may from time to time request. Annual financial statements
shall set forth in comparative form figures for the corresponding periods in the
prior fiscal year. All financial statements shall include a balance sheet and
statement of earnings and shall be prepared in accordance with GAAP.
SECTION 6.2. PAYMENTS HEREUNDER. Borrower will make all payments of principal,
interest, fees, and all other payments required hereunder, under the Loan, and
under any other agreements with Lender to which Borrower is a party, as and when
due.
SECTION 6.3. EXISTENCE, GOOD STANDING, AND COMPLIANCE WITH LAWS. Borrower will
do or cause to be done all things necessary (a) to obtain and keep in full force
and effect all corporate existence, rights, licenses, privileges, and franchises
of Borrower necessary to the ownership of its property or the conduct of its
business, and comply with all applicable present and future laws, ordinances,
rules, regulations, orders and decrees of any Governmental Authority having or
claiming jurisdiction over Borrower; and (b) to maintain and protect the
properties used or useful in the conduct of the operations of Borrower, in a
prudent manner, including without limitation the maintenance at all times of
such insurance upon its insurable property and operations as required by law or
by Section 6.7 hereof.
SECTION 6.4. LEGALITY. The making of the Loan and each disbursement or advance
under the Loan shall not be subject to any penalty or special tax, shall not be
prohibited by any governmental order or regulation applicable to Borrower, and
shall not violate any rule or regulation of any Governmental Authority, and
necessary consents, approvals and authorizations of any Governmental Authority
to or of any such disbursement or advance shall have been obtained.
SECTION 6.5. LENDER'S SATISFACTION. All instruments and legal documents and
proceedings in connection with the transactions contemplated by this Agreement
shall be satisfactory in form and substance to Lender and its counsel, and
Lender shall have received all documents, including records of corporate
proceedings and opinions of counsel, which Lender may have requested in
connection therewith.
SECTION 6.6. TAXES AND CHARGES. Borrower will timely file all tax reports and
pay and discharge all post-petition taxes, assessments and governmental charges
or levies imposed upon Borrower, or its income or profits or upon its properties
or any part thereof, before the same shall be in default and prior to the date
on which penalties attach thereto, as well as all lawful claims for labor,
material, supplies or otherwise which, if unpaid, might become a lien or charge
upon the properties or any part thereof of Borrower; PROVIDED, HOWEVER, that the
Borrower shall not be required to pay and discharge or cause to be paid and
discharged any such tax, assessment, charge, levy or claim so long as the
validity or amount thereof shall be contested in good faith and by appropriate
proceedings by Borrower, and the Borrower shall have set aside on their books
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adequate reserve therefor; and PROVIDED FURTHER, that such deferment of payment
is permissible only so long as Borrower's title to, and its right to use, the
Collateral is not adversely affected thereby and Lender's lien and priority on
the Collateral are not adversely affected, altered or impaired thereby.
SECTION 6.7. INSURANCE. Borrower will carry adequate public liability and
professional liability insurance with responsible companies satisfactory to
Lender in such amounts and against such risks as is customarily maintained by
similar businesses and by owners of similar property in the same general area,
including without limitation insurance on the Collateral covering such risks and
in such form and amount as may be required by Lender from time to time, with
loss payable to Lender as its interests may appear. Upon request, Borrower will
deliver certificates of insurance regarding such insurance, or copies of the
insurance policy or policies, to Lender.
SECTION 6.8. GENERAL INFORMATION. Borrower will furnish to Lender such
information as Lender may, from time to time, request with respect to the
business or financial affairs of Borrower, and permit any officer, employee or
agent of Lender to visit and inspect any of the properties, to examine the
minute books, books of account and other records, including management letters
prepared by Borrower's auditors, of Borrower, and make copies thereof or
extracts therefrom, and to discuss its and their business affairs, finances and
accounts with, and be advised as to the same by, the accountants and officers of
Borrower, all at such times and as often as Lender may require.
SECTION 6.9. MAINTENANCE OF PROPERTY. Borrower will maintain, keep and preserve
all of its properties in good repair, working order and condition and from time
to time make all needful and proper repairs, renewals, replacements, betterments
and improvements thereto, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times.
SECTION 6.10. NOTIFICATION OF EVENTS OF DEFAULT AND ADVERSE DEVELOPMENTS.
Borrower promptly will notify Lender upon the occurrence of: (a) any Event of
Default; (b) any event which, with the giving of notice or lapse of time, or
both, could constitute an Event of Default; (c) any event, development or
circumstance whereby the financial statements previously furnished to Lender
fail in any material respect to present fairly, in accordance with GAAP, the
financial condition and operational results of Borrower; (d) any judicial,
administrative or arbitration proceeding pending against Borrower, and any
judicial or administrative proceeding known by Borrower to be threatened against
it which, if adversely decided, could adversely affect its condition (financial
or otherwise) or operations (present or prospective) or which may expose
Borrower to uninsured liability of $25,000.00 or more; (e) any default claimed
by any other creditor for borrowed money of Borrower other than Lender, or any
lessor; and (f) any other development in the business or affairs of Borrower
which may be materially adverse; in each case describing the nature thereof and
(in the case of notification under clauses (a) and (b)) the action Borrower
proposes to take with respect thereto.
SECTION 6.11. EMPLOYEE BENEFIT PLANS. Borrower will (a) comply with the funding
requirements of ERISA with respect to the Plans for its employees, or will
promptly satisfy any accumulated funding deficiency that arises under Section
302 of ERISA; (b) furnish Lender, promptly after filing the same, with copies of
all reports or other statements filed with the United States Department of
Labor, the Pension Benefit Guaranty Corporation, or the Internal Revenue Service
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with respect to all Plans, or which Borrower, or any member of a Controlled
Group, may receive from such Governmental Authority with respect to any such
Plans, and (c) promptly advise Lender of the occurrence of any Reportable Event
or Prohibited Transaction with respect to any such Plan and the action which
Borrower proposes to take with respect thereto. Borrower will make all
contributions when due with respect to any multi-employer pension plan in which
it participates and will promptly advise Lender: (a) upon its receipt of notice
of the assertion against Borrower of a claim for withdrawal liability; (b) upon
the occurrence of any event which could trigger the assertion of a claim for
withdrawal liability against Borrower; and (c) upon the occurrence of any event
which would place Borrower in a Controlled Group as a result of which any member
(including Borrower) thereof may be subject to a claim for withdrawal liability,
whether liquidated or contingent.
SECTION 6.12. FINANCING STATEMENTS. Borrower shall provide to Lender evidence
satisfactory to Lender as to the due recording of termination statements,
releases of collateral, and Forms UCC-2 and UCC-3 (as applicable), and shall
cause to be recorded financing statements on Form UCC-1 and/or UCC-3, duly
executed by Borrower and Lender, in all places necessary to release all existing
security interests and other liens in the Collateral (other than as permitted
hereby) and to perfect and protect Lender's first priority lien and security
interest in the Collateral, as Lender may request.
SECTION 6.13. FINANCIAL RECORDS. Borrower shall keep current and accurate books
of records and accounts in which full and correct entries will be made of all of
its business transactions, and will reflect in its financial statements adequate
accruals and appropriations to reserves, all in accordance with GAAP.
SECTION 6.14. COLLECTION OF ACCOUNTS. Borrower shall continue to collect its
Accounts in the ordinary course of business.
SECTION 6.15. PLACES OF BUSINESS. Borrower shall give thirty (30) days' prior
written notice to Lender of any change in the location of any of its places of
business, of the places where its records concerning its Accounts are kept, of
the places where the Collateral is kept, or of the establishment of any new, or
the discontinuance of any existing, places of business.
SECTION 6.16. BUSINESS CONDUCTED. Borrower shall continue in the business
presently conducted by it using its best efforts to maintain its customers and
goodwill. Borrower shall not engage, directly or indirectly, in any line of
business substantially different from the business conducted by it immediately
prior to the Closing Date, or engage in business or lines of business which are
not reasonably related thereto.
SECTION 6.17. LITIGATION AND OTHER PROCEEDINGS. Borrower shall give prompt
notice to Lender of any litigation, arbitration, or other proceeding before any
court, arbitrator (or arbitration panel), or Governmental Authority against or
affecting Borrower if the amount claimed is more than $50,000.00.
SECTION 6.18. BANK ACCOUNTS. Borrower shall assign all of its depository (which
shall not include Borrower's operating account) and disbursement accounts to
Lender.
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SECTION 6.19. SUBMISSION OF COLLATERAL DOCUMENTS. Borrower will, on demand of
Lender, make available to Lender copies of shipping and delivery receipts
evidencing the shipment of goods that gave rise to an Account, medical records,
insurance verification forms, assignment of benefits, in-take forms or other
proof of the satisfactory performance of services that gave rise to an Account,
a copy of the claim or invoice for each Account and copies of any written
contract or order from which the Account arose. Borrower shall promptly notify
Lender if an Account becomes evidenced or secured by an instrument or chattel
paper and upon request of Lender, will promptly deliver any such instrument or
chattel paper to Lender.
SECTION 6.20. LICENSURE; MEDICAID/MEDICARE COST REPORTS. Borrower will maintain
all certificates of need, provider numbers and licenses necessary to conduct its
business as presently conducted, and take any steps required to comply with any
such new or additional requirements that may be imposed on providers of medical
products and services. If required, all Medicaid/Medicare costs reports will be
properly filed.
SECTION 6.21. OFFICER'S CERTIFICATES. Together with the monthly financial
statements delivered pursuant to clause (c) of Section 6.1, and together with
the audited annual financial statements delivered pursuant to clause (g) of that
Section, Borrower shall deliver to Lender a certificate of a duly authorized
officer in form and substance satisfactory to Lender setting forth:
(a) The information (including detailed calculations), to the best of
Borrower's knowledge, required in order to establish whether Borrower is in
compliance with the requirements of Articles VI and VII as of the end of the
period covered by the financial statements then being furnished; and
(b) That the signer has reviewed the relevant terms of this Agreement, and
has made (or caused to be made under his supervision) a review of the
transactions and conditions of Borrower from the beginning of the accounting
period covered by the income statements being delivered to the date of the
certificate, and that such review has not disclosed the existence during such
period of any condition or event which constitutes an Event of Default or which
is then, or with the passage of time or giving of notice or both, could become
an Event of Default, and if any such condition or event existed during such
period or now exists, specifying the nature and period of existence thereof and
what action Borrower has taken or proposes to take with respect thereto.
SECTION 6.22. VISITS AND INSPECTIONS. Borrower will permit representatives of
Lender, from time to time, as often as may be reasonably requested, but only
during normal business hours, to visit and inspect the properties of Borrower,
and to inspect, audit and make extracts from its books and records, and discuss
with its officers, its employees and its independent accountants, Borrower's
business, assets, liabilities, financial condition, business prospects and
results of operations. All inspections by representatives of Lender are for the
sole purpose of protecting the rights and interests of Lender and are not to be
construed as a representation by Lender that there has been compliance with any
of the requirements of this Agreement. Borrower may make or cause to be made
such other independent inspections as Borrower may desire for its own
protection.
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SECTION 6.23. DEFENSE OF TITLE.
(a) Borrower will defend the Collateral and the title and interest therein
of Borrower against all matters, including, without limitation, (a) any
attachment, levy, or other seizure by legal process or otherwise of any or all
the Collateral; (b) any lien or encumbrance or claim thereof on any or all of
the Collateral; and (c) any attempt to foreclose or otherwise realize upon any
or all of the Collateral under any lien or encumbrance. Borrower will notify
Lender promptly in writing of any of the foregoing and will provide such
information with respect thereto as Lender may from time to time request.
(b) Borrower will defend all assets other than Collateral and the title
and interest therein of Borrower against all matters, including, without
limitation, (a) any attachment, levy, or other seizure by legal process or
otherwise of any or all of such assets; (b) any lien or encumbrance or claim
thereof on any or all of such assets; and (c) any attempt to foreclose, conduct
a trustee's sale, or otherwise realize upon any or all of such assets under any
lien or encumbrance or claim thereof on any of all of such assets. Borrower will
notify Lender promptly in writing of any of the foregoing and will provide such
information with respect thereto as Lender may from time to time request.
SECTION 6.24. YEAR 2000 COMPLIANCE. Borrower covenants and agrees with Lender
that, while any Loan Document is in effect, Borrower will furnish such
additional information, statements and other reports with respect to Borrower's
activities, course of action and progress towards becoming Year 2000 Compliant
as Lender may request from time to time.
ARTICLE VII
NEGATIVE COVENANTS
Each Borrower covenants and agrees that so long as Borrower may borrow hereunder
and until payment in full of the Note and performance of all other obligations
of the Borrower under the Loan Documents:
SECTION 7.1. BORROWING. Borrower will not create, incur, assume or suffer to
exist any liability for Borrowed Money except: (i) indebtedness to Lender; (ii)
indebtedness of Borrower secured by mortgages, encumbrances or liens expressly
permitted by Section 7.3 hereof; (iii) accounts payable to trade creditors and
current operating expenses (other than for borrowed money) which are not aged
more than one hundred twenty (120) days from the billing date or more than
thirty (30) days from the due date, in each case incurred in the ordinary course
of business and paid within such time period, unless the same are being
contested in good faith and by appropriate and lawful proceedings, and Borrower
shall have set aside such reserves, if any, with respect thereto as are required
by GAAP and deemed adequate by Borrower and its independent accountants; and
(iv) borrowings incurred in the ordinary course of its business and not
exceeding $250,000.00 in the aggregate outstanding at any one time. Borrower
will not make prepayments on any existing or future indebtedness for Borrowed
Money to any Person (other than Lender, to the extent permitted by this
Agreement or any subsequent agreement between Borrower and Lender).
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SECTION 7.2. JOINT VENTURES. Borrower will not invest directly or indirectly in
any joint venture for any purpose without the prior written notice to, and the
express written consent of, Lender, which consent may be withheld in Lender's
sole discretion.
SECTION 7.3. LIENS AND ENCUMBRANCES. Borrower will not create, incur, assume or
suffer to exist any mortgage, pledge, lien or other encumbrance of any kind
(including the charge upon property purchased under a conditional sale or other
title retention agreement) upon, or any security interest in, any of its
Collateral, whether now owned or hereafter acquired, except as described on
SCHEDULE 1.36 and SCHEDULE 4.19.
SECTION 7.4. RESTRICTION ON FUNDAMENTAL CHANGES. Borrower will not (a) enter
into any merger or consolidation with any Person without the prior written
consent of the Lender, which consent shall not be unreasonably withheld, (b)
acquire all or substantially all of the assets of any Person, unless such
acquisition is done for a commercially reasonable price, and with the purpose of
expanding Borrower's existing business or entering into new businesses that are
reasonably related to Borrower's existing business, or (c) sell, lease, or
otherwise dispose of any of its assets except in the ordinary course of its
business (such prohibition to include, without limitation, the transfer of any
nursing home or other healthcare facility from any entity comprising Borrower to
any other entity comprising Borrower or any other Affiliate of Unison Healthcare
Corporation) without the prior written consent of the Lender, which consent
shall not be unreasonably withheld. Consistent with the foregoing, until the
Obligations are repaid in full none of the entities comprising Borrower shall
transfer, assign, convey or grant to any other Person the right to operate or
control any of the nursing homes listed on SCHEDULE 4.15, whether by lease,
sublease, management agreement, joint venture agreement or otherwise.
SECTION 7.5. SALE AND LEASEBACK. Except to the extent permitted by Section 7.1,
Borrower will not, directly or indirectly, enter into any arrangement whereby
Borrower sells or transfers all or any part of its assets and thereupon and
within one year thereafter rents or leases the assets so sold or transferred
without the prior written notice to, and the express written consent of, Lender,
which consent may be withheld in Lender's sole discretion.
SECTION 7.6. DIVIDENDS AND MANAGEMENT FEES. Except under the circumstances
described in SCHEDULE 7.6, Borrower will not declare or pay any dividends,
purchase, redeem or otherwise acquire for value any of its outstanding stock, or
return any capital of its stockholders, nor shall Borrower pay or become
obligated to pay management fees or fees of a similar nature to any Person;
PROVIDED, HOWEVER, that so long as no Event of Default has occurred hereunder,
Borrower may make any such dividends or purchase, redeem or otherwise acquire
such outstanding stock, return any such capital, or pay any such management
fees, so long as doing so would not violate any of the other terms and
conditions of this Agreement.
SECTION 7.7. LOANS. Borrower will not make loans or advances to any Person,
other than (i) trade credit extended in the ordinary course of its business,
(ii) advances for business travel and similar temporary advances in the ordinary
course of business to officers, stockholders, directors, and employees, or (iii)
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loans or advances in the ordinary course of business from one entity comprising
Borrower to another entity comprising Borrower.
SECTION 7.8. CONTINGENT LIABILITIES. Borrower will not assume, guarantee,
endorse, contingently agree to purchase or otherwise become liable upon the
obligation of any Person, except (a) for guarantees of indebtedness otherwise
permitted by Section 7.1, or (b) by the endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business.
SECTION 7.9. SUBSIDIARIES. Borrower will not form any subsidiary or other Person
except for the purpose of expanding Borrower's existing business or entering
into new businesses that are reasonably related to Borrower's business, and will
not make any investment in or any loan in the nature of an investment to, any
other Person.
SECTION 7.10. COMPLIANCE WITH ERISA. Borrower will not permit with respect to
any Plan covered by Title IV of ERISA any Prohibited Transaction or any
Reportable Event.
SECTION 7.11. CERTIFICATES OF NEED. Borrower will not seek to, or otherwise,
amend, alter or suspend or terminate or make provisional in any material way,
any certificate of need or provider number without the prior written consent of
Lender.
SECTION 7.12. TRANSACTIONS WITH AFFILIATES. Except as otherwise expressly
permitted by this Agreement, Borrower will not enter into any transaction,
including without limitation the purchase, sale, or exchange of property, or the
loaning or giving of funds to any Affiliate or subsidiary, except in the
ordinary course of business and pursuant to the reasonable requirements of
Borrower's business and upon terms substantially the same and no less favorable
to Borrower as it would obtain in a comparable arm's length transaction with any
Person not an Affiliate or subsidiary, and so long as the transaction is not
otherwise prohibited hereunder. For purposes of the foregoing, Lender consents
to the transactions described on SCHEDULE 7.12.
SECTION 7.13. USE OF LENDER'S NAME. Borrower will not use Lender's name (or the
name of any of Lender's affiliates) in connection with any of its business
operations. Borrower may disclose to third parties that Borrower has a borrowing
relationship with Lender. Nothing herein contained is intended to permit or
authorize Borrower to make any contract on behalf of Lender.
SECTION 7.14. CHANGE IN CAPITAL STRUCTURE. There shall occur no change in the
Borrower's capital structure, or change in control of Borrower through a change
in the ownership of Borrower's capital stock, both as set forth in SCHEDULE
4.17. For so long as this Agreement remains in effect Michael Jeffries shall be
engaged full-time in the management and operation of Borrower's business.
SECTION 7.15. CONTRACTS AND AGREEMENTS. Borrower will not become or be a party
to any contract or agreement which would breach this Agreement, or breach any
other instrument, agreement, or document to which Borrower is a party or by
which it is or may be bound.
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SECTION 7.16. MARGIN STOCK. Borrower will not carry or purchase any "margin
security" within the meaning of Regulations U, G, T or X of the Board of
Governors of the Federal Reserve System.
SECTION 7.17. TRUTH OF STATEMENTS AND CERTIFICATES. Borrower will not furnish to
Lender any certificate or other document that contains any untrue statement of a
material fact or that omits to state a material fact necessary to make it not
misleading in light of the circumstances under which it was furnished.
SECTION 7.18. CENSUS. With respect to any twelve (12) month period during the
Term, Borrower will not allow the average patient census for such 12-month
period, on an aggregate basis at all facilities listed in SCHEDULE 4.15 attached
hereto and made a part hereof, to fall below ninety percent (90%) of the overall
patient occupancy rate at all facilities listed in SCHEDULE 4.15 as of the
Closing Date.
SECTION 7.19. PROHIBITION ON AMENDMENTS TO ORGANIZATIONAL DOCUMENTS. No Borrower
will amend, modify, restate, supplement, or terminate its respective certificate
of incorporation or bylaws (or other organizational documents) in any manner
that would materially affect the validity and enforceability of the Obligations
or such Borrower's ability to borrow hereunder, or that would materially impair
any security for the Obligations.
SECTION 7.20. NAME, FISCAL YEAR AND ACCOUNTING METHOD. No Borrower shall change
its name, fiscal year or accounting methods except as required by GAAP.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.1. EVENTS OF DEFAULT. Each of the following (individually, an "Event
of Default" and collectively, the "Events of Default") shall constitute an event
of default hereunder:
(a) A default in the payment of any installment of principal of, or
interest upon, the Note when due and payable, whether at maturity or otherwise,
which default shall have continued unremedied for a period of five (5) days
after written notice thereof from Lender to Borrower;
(b) A default in the payment of any other charges, fees, or other monetary
obligations owing to Lender arising out of or incurred in connection with this
Agreement when such payment is due and payable, which default shall have
continued unremedied for a period of five (5) days after written notice from
Lender;
(c) A default in the due observance or performance by Borrower of any
other term, covenant or agreement contained in any of the Loan Documents, which
default shall have continued unremedied for a period of thirty (30) days after
written notice from Lender;
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(d) If any representation or warranty made by Borrower herein or in any of
the other Loan Documents, any financial statement, or any statement or
representation made in any other certificate, report or opinion delivered in
connection herewith or therewith proves to have been incorrect or misleading in
any material respect when made, which default shall have continued unremedied
for a period of thirty (30) days after written notice from Lender;
(e) If any obligation of Borrower (other than its Obligations hereunder)
for the payment of Borrowed Money in excess of $50,000.00 is not paid when due
or within any applicable grace period, or such obligation becomes or is declared
to be due and payable prior to the expressed maturity thereof, or there shall
have occurred a monetary default which, with the giving of notice or lapse of
time, or both, would cause any such obligation to become, or allow any such
obligation to be declared to be, due and payable;
(f) If Borrower makes an assignment for the benefit of creditors, offers a
composition or extension to creditors, or makes or sends notice of an intended
bulk sale of any business or assets now or hereafter conducted by Borrower;
(g) If Borrower files a petition in bankruptcy, is adjudicated insolvent
or bankrupt, petitions or applies to any tribunal for any receiver of or any
trustee for itself or any substantial part of its property, commences any
proceeding relating to itself under any reorganization, arrangement,
readjustment or debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, or there is commenced against
Borrower any such proceeding which remains undismissed for a period of sixty
(60) days, or any Borrower by any act indicates its consent to, approval of, or
acquiescence in, any such proceeding or the appointment of any receiver of or
any trustee for a Borrower or any substantial part of its property, or suffers
any such receivership or trusteeship to continue undischarged for a period of
sixty (60) days;
(h) If one or more final judgments against Borrower or attachments against
its property not fully and unconditionally covered by insurance shall be
rendered by a court of record and shall remain unpaid, unstayed on appeal,
undischarged, unbonded and undismissed for a period of ten (10) days;
(i) A Reportable Event which might constitute grounds for termination of
any Plan covered by Title IV of ERISA or for the appointment by the appropriate
United States District Court of a trustee to administer any such Plan or for the
entry of a lien or encumbrance to secure any deficiency, has occurred and is
continuing thirty (30) days after its occurrence, or any such Plan is
terminated, or a trustee is appointed by an appropriate United States District
Court to administer any such Plan, or the Pension Benefit Guaranty Corporation
institutes proceedings to terminate any such Plan or to appoint a trustee to
administer any such Plan, or a lien or encumbrance is entered to secure any
deficiency or claim;
(j) If any outstanding stock of Borrower is sold or otherwise transferred
by the Person owning such stock on the date hereof, PROVIDED, HOWEVER, THAT this
provision will not be violated such that an Event of Default has occurred if
publicly traded stock of Borrower Unison Healthcare Corporation is bought and
sold in ordinary course by non-insider stockholders of that entity;
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<PAGE>
(k) If there shall occur any uninsured damage to or loss, theft or
destruction of any portion of the Collateral;
(l) If Borrower breaches or violates the terms of, or if a default or an
event which could, whether with notice or the passage of time, or both,
constitute a default, occurs under any other existing or future agreement
(related or unrelated) between Borrower and Lender;
(m) Upon the issuance of any execution or distraint process against
Borrower or any of its property or assets;
(n) If Borrower ceases any material portion of its business operations as
presently conducted;
(o) If any indication or evidence is received by Lender that Borrower may
have directly or indirectly been engaged in any type of activity which, in
Lender's discretion, might result in the forfeiture of any property of Borrower
to any Governmental Authority, which default shall have continued unremedied for
a period of ten (10) days after written notice from Lender;
(p) Borrower or any Affiliate of Borrower, shall challenge or contest, in
any action, suit or proceeding, the validity or enforceability of this
Agreement, or any of the other Loan Documents, the legality or the
enforceability of any of the Obligations or the perfection or priority of any
Lien granted to Lender;
(q) Borrower shall be criminally indicted or convicted under any law that
could lead to a forfeiture of any Collateral.
(r) There shall occur a material adverse change in the financial condition
or business prospects of Borrower, or if Lender in good faith deems itself
insecure as a result of acts or events bearing upon the financial condition of
Borrower or the repayment of the Note, which default shall have continued
unremedied for a period of ten (10) days after written notice from Lender.
(s) The occurrence of any event of default under the New LOC I Agreement
or related loan and security documents.
(t) If Borrower fails to pay all amounts owing under Section 2.1(e) with
respect to any draw on a Letter of Credit within five (5) Business Days after
receiving written notice from Lender of the draw on the Letter of Credit,
provided, however, that Borrower may use a Revolving Credit Loan to fund any
such payments to Lender if and to the extent credit is otherwise available to
Borrower under the terms and conditions of this Agreement.
SECTION 8.2. ACCELERATION. Upon the occurrence of any of the foregoing Events of
Default, the Note shall become and be immediately due and payable upon
declaration to that effect delivered by Lender to Borrower; provided that, upon
the happening of any event specified in Section 8.1.(g) hereof, the Note shall
36
<PAGE>
be immediately due and payable without declaration or other notice to Borrower.
SECTION 8.3. REMEDIES.
(a) In addition to all other rights, options, and remedies granted to
Lender under this Agreement, upon the occurrence of an Event of Default Lender
may (i) suspend, or halt forever, any of its obligations under this Agreement to
make advances to Borrower, (ii) terminate this Agreement, whereupon all
outstanding Obligations shall be immediately due and payable, (iii) exercise all
other rights granted to it hereunder and all rights under the Uniform Commercial
Code in effect in the applicable jurisdiction(s) and under any other applicable
law, and/or (iv) exercise all rights and remedies under all Loan Documents now
or hereafter in effect, including the following rights and remedies (which list
is given by way of example and is not intended to be an exhaustive list of all
such rights and remedies):
(i) The right to take possession of, send notices regarding, and
collect directly the Collateral, with or without judicial process, and to
exercise all rights and remedies available to Lender with respect to the
Collateral under the Uniform Commercial Code in effect in the jurisdiction(s) in
which such Collateral is located;
(ii) Subject to applicable law regarding Medicaid/Medicare Account
Debtors, Lender shall have the additional rights and remedies with respect to
the Accounts, all of which may be exercised with or without further notice to
Borrower: to notify any and all parties to any of the Accounts that the same
have been assigned to Lender and that all performance thereunder shall
thereafter be rendered to Lender; to renew, extend, modify, amend, accelerate,
accept partial performance on, release, settle, compromise, compound, collect or
otherwise liquidate or deal with, on terms acceptable to Lender, in whole or in
part, the Accounts and all of Borrower's rights or interests therein; to enter
into any other agreement relating to or affecting the Accounts; to enforce
performance and prosecute any action or proceeding with respect to any and all
of the Accounts, and take or bring, in Lender's name or in the name of Borrower,
all steps, actions, suits or proceedings deemed by Lender necessary or desirable
with respect to the Accounts; and to exercise all other rights, powers and
remedies of Lender with respect to the Accounts; provided, however, that Lender
shall have no liability or responsibility for any act or omission taken with
respect thereto. Borrower hereby nominates and appoints Lender as
attorney-in-fact to perform all acts and execute all documents deemed necessary
by Lender in furtherance of the terms hereof;
(iii) The right to (by its own means or with judicial assistance)
enter any of Borrower's premises and take possession of the Collateral, or
render it unusable, or dispose of the Collateral on such premises in compliance
with subsection (b), without any liability for rent, storage, utilities, or
other sums, and Borrower shall not resist or interfere with such action;
(iv) The right to require Borrower at Borrower's expense to assemble
all or any part of the Collateral and make it available to Lender at any place
designated by Lender;
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<PAGE>
(v) The right to reduce the Maximum Loan Amount or to use the
Collateral and/or funds in the Concentration Account in amounts up to the
Maximum Loan Amount for any reason; and
(vi) The right to relinquish or abandon any Collateral or any security
interest therein.
(b) Borrower agrees that a notice received by it at least five (5) days
before the time of any intended public sale, or the time after which any private
sale or other disposition of the Collateral is to be made, shall be deemed to be
reasonable notice of such sale or other disposition. If permitted by applicable
law, any perishable Collateral which threatens to speedily decline in value or
which is sold on a recognized marked may be sold immediately by Lender without
prior notice to Borrower. At any sale or disposition of Collateral, Lender may
(to the extent permitted by applicable law) purchase all or any part of the
Collateral, free from any right of redemption by Borrower, which right is hereby
waived and released. At any sale or disposition of Collateral, Lender may (to
the extent permitted by applicable law) purchase all or any part of the
Collateral, free from any right of redemption by Borrower, which right is hereby
waived and released. Borrower covenants and agrees not to interfere with or
impose any obstacle to Lender's exercise of its rights and remedies with respect
to the Collateral.
SECTION 8.4. NATURE OF REMEDIES. Lender shall have the right to proceed against
all or any portion of the Collateral to satisfy in any order the liabilities and
Obligations of Borrower to Lender. All rights and remedies granted Lender
hereunder and under any agreement referred to herein, or otherwise available at
law or in equity, shall be deemed concurrent and cumulative, and not alternative
remedies, and Lender may proceed with any number of remedies at the same time
until the Loans, and all other existing and future liabilities and obligations
of Borrower to Lender, are satisfied in full. The exercise of any one right or
remedy shall not be deemed a waiver or release of any other right or remedy, and
Lender, upon the occurrence of an Event of Default, may proceed against
Borrower, and/or the Collateral, at any time, under any agreement, with any
available remedy and in any order.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. EXPENSES AND TAXES.
(a) Borrower agrees to pay, whether or not the Closing occurs, a
reasonable documentation preparation fee, together with actual audit and
appraisal fees and all other out-of-pocket charges and expenses incurred by
Lender in connection with the negotiation, preparation, legal review and
execution of each of the Loan Documents. In addition, Borrower shall pay all
such fees associated with any amendments to the Loan Documents following
Closing.
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<PAGE>
(b) Borrower shall pay all taxes (other than taxes based upon or measured
by Lender's income or revenues or any personal property tax), if any, in
connection with the issuance of the Note and the recording of the security
documents therefor. The obligations of Borrower under this clause (b) shall
survive the payment of Borrower's indebtedness hereunder and the termination of
this Agreement.
SECTION 9.2. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other Loan
Documents constitute the full and entire understanding and agreement among the
parties with regard to their subject matter and supersede all prior written or
oral agreements, understandings, representations and warranties made with
respect thereto. No amendment, supplement or modification of this Agreement nor
any waiver of any provision thereof shall be made except in writing executed by
the party against whom enforcement is sought.
SECTION 9.3. NO WAIVER; CUMULATIVE RIGHTS. No waiver by any party hereto of any
one or more defaults by the other party in the performance of any of the
provisions of this Agreement shall operate or be construed as a waiver of any
future default or defaults, whether of a like or different nature. No failure or
delay on the part of any party in exercising any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies provided for herein are cumulative and are not exclusive of any
remedies that may be available to any party hereto at law, in equity or
otherwise.
SECTION 9.4. NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and personally delivered, mailed by registered or
certified mail (return receipt requested and postage prepaid), sent by
telecopier (with a confirming copy sent by regular mail), or sent by prepaid
overnight courier service, and addressed to the relevant party at its address
set forth below, or at such other address as such party may, by written notice,
designate as its address for purposes of notice hereunder:
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(a) If to Lender, at:
HCFP Funding, Inc.
2 Wisconsin Circle, 4th floor
Chevy Chase, MD 20815
Attn: Michael Gardullo
Telephone: (301) 664-9850
Telecopier: (301) 664-9890
and a copy to:
John J. Dawson, Esq.
John A. Harris, Esq.
Streich Lang, P.A.
Renaissance One
Two North Central
Phoenix, Arizona 85004-2391
Telephone: (602) 229-5200
Telecopier: (602) 229-5690
(b) If to Borrower, at:
c/o RainTree HealthCare Corporation
15300 N. 90th Street, Suite 100
Scottsdale, AZ 85260
Attention: Treasurer
Telephone: (602) 423-1954
Telecopier: (602) 423-1929
And a copy to:
Thomas J. Salerno, Esq.
Jordan A. Kroop, Esq.
Squire Sanders & Dempsey
40 North Central Avenue
Suite 2700
Phoenix, AZ 85004
Telephone: (602) 528-4000
Telecopier: (602) 253-8129
If mailed, notice shall be deemed to be given five (5) days after being sent, if
sent by personal delivery or telecopier, notice shall be deemed to be given when
delivered, and if sent by prepaid courier, notice shall be deemed to be given on
the next Business Day following deposit with the courier.
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SECTION 9.5. SEVERABILITY. If any term, covenant or condition of this Agreement,
or the application of such term, covenant or condition to any party or
circumstance shall be found by a court of competent jurisdiction to be, to any
extent, invalid or unenforceable, the remainder of this Agreement and the
application of such term, covenant, or condition to parties or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term, covenant or condition shall be valid and
enforced to the fullest extent permitted by law. Upon determination that any
such term is invalid, illegal or unenforceable, the parties hereto shall amend
this Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner.
SECTION 9.6. SUCCESSORS AND ASSIGNS. This Agreement, the Note, and the other
Loan Documents shall be binding upon and inure to the benefit of Borrower and
Lender and their respective successors and assigns. Notwithstanding the
foregoing, Borrower may not assign any of its rights or delegate any of its
obligations hereunder without the prior written consent of Lender, which may be
withheld in its sole discretion. Lender may sell, assign, transfer, or
participate any or all of its rights or obligations hereunder with ten calendar
days' notice to, but without requiring the consent of, Borrower.
SECTION 9.7. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one instrument.
SECTION 9.8. INTERPRETATION. No provision of this Agreement or any other Loan
Document shall be interpreted or construed against any party because that party
or its legal representative drafted that provision. The titles of the paragraphs
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement. Any pronoun used in this Agreement
shall be deemed to include singular and plural and masculine, feminine and
neuter gender as the case may be. The words "herein," "hereof," and "hereunder"
shall be deemed to refer to this entire Agreement, except as the context
otherwise requires.
SECTION 9.9. SURVIVAL OF TERMS. All covenants, agreements, representations and
warranties made in this Agreement, any other Loan Document, and in any
certificates and other instruments delivered in connection therewith shall be
considered to have been relied upon by Lender and shall survive the making by
Lender of the Loans herein contemplated and the execution and delivery to Lender
of the Note, and shall continue in full force and effect until all liabilities
and obligations of Borrower to Lender are satisfied in full.
SECTION 9.10. RELEASE OF LENDER. Borrower releases Lender, its officers,
employees, and agents, of and from any claims for loss or damage resulting from
acts or conduct of any or all of them, unless caused by Lender's recklessness,
gross negligence, or willful misconduct.
SECTION 9.11. TIME. Whenever Borrower is required to make any payment or perform
any act on a Saturday, Sunday, or a legal holiday under the laws of the State of
Maryland (or other jurisdiction where Borrower is required to make the payment
or perform the act), the payment may be made or the act performed on the next
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Business Day. Time is of the essence in Borrower's performance under this
Agreement and all other Loan Documents.
SECTION 9.12. COMMISSIONS. The transaction contemplated by this Agreement was
brought about by Lender and Borrower acting as principals and without any
brokers, agents, or finders being the effective procuring cause. Borrower
represents that it has not committed Lender to the payment of any brokerage fee,
commission, or charge in connection with this transaction. If any such claim is
made on Lender by any broker, finder, or agent or other person, Borrower will
indemnify, defend, and hold Lender harmless from and against the claim and will
defend any action to recover on that claim, at Borrower's cost and expense,
including Lender's counsel fees. Borrower further agrees that until any such
claim or demand is adjudicated in Lender's favor, the amount demanded will be
deemed a liability of Borrower under this Agreement, secured by the Collateral.
SECTION 9.13. THIRD PARTIES. No rights are intended to be created hereunder or
under any other Loan Document for the benefit of any third party donee,
creditor, or incidental beneficiary of Borrower. Nothing contained in this
Agreement shall be construed as a delegation to Lender of Borrower's duty of
performance, including without limitation Borrower's duties under any account or
contract in which Lender has a security interest.
SECTION 9.14. DISCHARGE OF BORROWER'S OBLIGATIONS. Lender, in its reasonable
discretion, shall have the right at any time, and from time to time, without
prior notice to Borrower if Borrower fails to do so, to: (a) obtain insurance
covering any of the Collateral as required hereunder; (b) pay for the
performance of any of Borrower's obligations hereunder; (c) discharge taxes,
liens, security interests, or other encumbrances at any time levied or placed on
any of the Collateral in violation of this Agreement unless Borrower is in good
faith with due diligence by appropriate proceedings contesting those items; and
(d) pay for the maintenance and preservation of any of the Collateral. Expenses
and advances shall be added to the Loan, until reimbursed to Lender and shall be
secured by the Collateral. Such payments and advances by Lender shall not be
construed as a waiver by Lender of an Event of Default.
SECTION 9.15. INFORMATION TO PARTICIPANTS. Lender may divulge to any participant
it may obtain in the Loan, or any portion thereof, all information, and furnish
to such participant copies of reports, financial statements, certificates, and
documents obtained under any provision of this Agreement or any other Loan
Document.
SECTION 9.16. INDEMNITY. Borrower hereby agrees to indemnify and hold harmless
Lender, its partners, officers, agents and employees (collectively,
"Indemnitee") from and against any liability, loss, cost, expense, claim,
damage, suit, action or proceeding ever suffered or incurred by Lender
(including reasonable attorneys' fees and expenses) arising from Borrower's
failure to observe, perform or discharge any of its covenants, obligations,
agreements or duties hereunder, or from the breach of any of the representations
or warranties contained in Article IV hereof. In addition, with the exception of
claims asserted in the motion for approval of debtor in possession financing,
Borrower shall defend Indemnitee against and save it harmless from all claims of
any Person with respect to the Collateral. Notwithstanding any contrary
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provision in this Agreement, the obligation of Borrower under this Section 9.16
shall survive the payment in full of the Obligations and the termination of this
Agreement.
SECTION 9.17. CHOICE OF LAW; CONSENT TO JURISDICTION. THIS AGREEMENT AND THE
NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF MARYLAND, WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES OF
CONFLICTS OF LAWS. IF ANY COLLECTION ACTION ARISING OUT OF THIS AGREEMENT OR THE
NOTE IS COMMENCED BY LENDER IN THE STATE OF MARYLAND OR FEDERAL COURT LOCATED IN
THE STATE OF MARYLAND, BORROWER HEREBY CONSENTS TO THE JURISDICTION OF ANY SUCH
COURT IN ANY SUCH ACTION AND TO THE LAYING OF VENUE IN THE STATE OF MARYLAND.
ANY PROCESS IN ANY SUCH ACTION SHALL BE DULY SERVED IF MAILED BY REGISTERED
MAIL, POSTAGE PREPAID, TO THE BORROWER AT ITS ADDRESS DESCRIBED IN SECTION 9.4
HEREOF.
SECTION 9.18. WAIVER OF TRIAL BY JURY. BORROWER HEREBY (A) COVENANTS AND AGREES
NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B)
WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL
NOW OR HEREAFTER EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY
GIVEN, KNOWINGLY AND VOLUNTARILY, BY BORROWER, AND THIS WAIVER IS INTENDED TO
ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A
JURY TRIAL WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED AND REQUESTED TO
SUBMIT THIS AGREEMENT TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER
AND THE PARTIES HERETO, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF BORROWER'S
WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER, BORROWER HEREBY CERTIFIES THAT NO
REPRESENTATIVE OR AGENT OF LENDER (INCLUDING LENDER'S COUNSEL) HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, TO BORROWER THAT LENDER WILL NOT SEEK TO ENFORCE THIS
WAIVER OF RIGHT TO JURY TRIAL PROVISION.
SECTION 9.19. CONFESSION OF JUDGMENT. BORROWER AUTHORIZES ANY ATTORNEY ADMITTED
TO PRACTICE BEFORE ANY COURT OF RECORD IN THE UNITED STATES OR THE CLERK OF SUCH
COURT TO APPEAR ON BEHALF OF BORROWER IN ANY COURT IN ONE OR MORE PROCEEDINGS,
OR BEFORE ANY CLERK THEREOF OF PROTHONOTARY OR OTHER COURT OFFICIAL, AND TO
CONFESS JUDGMENT AGAINST BORROWER IN FAVOR OF LENDER IN THE FULL AMOUNT DUE ON
THIS AGREEMENT (INCLUDING PRINCIPAL, ACCRUED INTEREST AND ANY AND ALL CHARGES,
FEES AND COSTS) PLUS ATTORNEYS' FEES EQUAL TO FIFTEEN PERCENT (15%) OF THE
AMOUNT DUE, PLUS COURT COSTS, ALL WITHOUT PRIOR NOTICE OR OPPORTUNITY OF
BORROWER FOR PRIOR HEARING. BORROWER AGREES AND CONSENTS THAT VENUE AND
JURISDICTION SHALL BE PROPER IN THE CIRCUIT COURT OF ANY COUNTY OF THE STATE OF
MARYLAND OR OF BALTIMORE CITY, MARYLAND, OR IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND. BORROWER WAIVES THE BENEFIT OF ANY AND EVERY
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STATUTE, ORDINANCE, OR RULE OF COURT WHICH MAY BE LAWFULLY WAIVED CONFERRING
UPON BORROWER ANY RIGHT OR PRIVILEGE OF EXEMPTION, HOMESTEAD RIGHTS, STAY OF
EXECUTION, OR SUPPLEMENTARY PROCEEDINGS, OR OTHER RELIEF FROM THE ENFORCEMENT OR
IMMEDIATE ENFORCEMENT OF A JUDGMENT OR RELATED PROCEEDINGS ON A JUDGMENT. THE
AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT AGAINST BORROWER SHALL NOT
BE EXHAUSTED BY ONE OR MORE EXERCISES THEREOF, OR BY ANY IMPERFECT EXERCISE
THEREOF, AND SHALL NOT BE EXTINGUISHED BY ANY JUDGMENT ENTERED PURSUANT THERETO;
SUCH AUTHORITY AND POWER MAY BE EXERCISED ON ONE OR MORE OCCASIONS FROM TIME TO
TIME, IN THE SAME OR DIFFERENT JURISDICTIONS, AS OFTEN AS LENDER SHALL DEEM
NECESSARY, CONVENIENT, OR PROPER.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first written above.
ATTEST: HCFP FUNDING, INC.,
a Delaware corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: RAINTREE HEALTHCARE CORPORATION,
a Delaware corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: BRITWILL HEALTHCARE COMPANY, a
Delaware corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: BRITWILL FUNDING CORPORATION,
a Delaware corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
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ATTEST: CEDAR CARE, INC., an Indiana corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: SHERWOOD HEALTHCARE CORP., an
Indiana corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: BRITWILL INVESTMENTS-I, INC.,
a Delaware corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: BRITWILL INVESTMENTS-II, INC.,
a Delaware corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: BRITWILL INDIANA PARTNERSHIP.,
an Arizona general partnership
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
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ATTEST: BROOKSHIRE HOUSE, INC., a Colorado
corporation (f/k/a Asbury Circle, Inc.)
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: CHRISTOPHER NURSING CENTER, INC., a
Colorado corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: AMBERWOOD COURT, INC., a Colorado
corporation (f/k/a Valley Hi, Inc.)
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: THE ARBORS HEALTH CARE
CORPORATION, an Arizona corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: LOS ARCOS, INC., a Colorado corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
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ATTEST: PUEBLO NORTE, INC., a Colorado
corporation (f/k/a Signature Health
Care of California Corporation)
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: RIO VERDE NURSING CENTER, INC., a
Colorado corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: SIGNATURE HEALTH CARE CORPORATION, a
Delaware corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: SIGNATURE MANAGEMENT GROUP, INC., a
Colorado corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
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LIST OF EXHIBITS
Exhibit A - Form of Revolving Credit Note
Exhibit B - INTENTIONALLY DELETED
Exhibit C - Opinion Letter from Borrower's Counsel
Exhibit D - Form of Estoppel Certificate
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LIST OF SCHEDULES
Schedule 1.36 - Permitted Liens
Schedule 4.1 - Subsidiaries
Schedule 4.5 - Litigation
Schedule 4.6 - Loan Defaults to be Discharged
Schedule 4.7 - Tax Identification Numbers
Schedule 4.10 - Taxes
Schedule 4.13 - Non-Compliance with Law
Schedule 4.14 - Environmental Matters
Schedule 4.15 - Places of Business with patient census
Schedule 4.16 - Licenses
Schedule 4.17 - Stock Ownership
Schedule 4.19 - Borrowings and Guarantees
Schedule 4.21 - Trade Names
Schedule 4.22 - Joint Ventures
Schedule 7.6 - Dividends and Management Fees
Schedule 7.12 - Transactions with Affiliates
50
Exhibit 10.37
REVOLVING CREDIT NOTE
$7,000,000 May 11, 1999
FOR VALUE RECEIVED, the undersigned, RAINTREE HEALTHCARE CORPORATION, a
Delaware corporation (f/k/a Unison Healthcare Corporation), BRITWILL HEALTHCARE
COMPANY, a Delaware corporation, BRITWILL FUNDING CORPORATION, a Delaware
corporation, CEDAR CARE, INC., an Indiana corporation, SHERWOOD HEALTHCARE
CORP., an Indiana corporation, BRITWILL INVESTMENTS-I, INC., a Delaware
corporation, BRITWILL INVESTMENTS-II, INC., a Delaware corporation BRITWILL
INDIANA PARTNERSHIP, an Arizona general partnership, BROOKSHIRE HOUSE, INC., a
Colorado corporation (f/k/a Asbury Circle, Inc.), CHRISTOPHER NURSING CENTER,
INC., a Colorado corporation, AMBERWOOD COURT, INC., a Colorado corporation
(f/k/a Valley Hi, Inc.), THE ARBORS HEALTH CARE CORPORATION, an Arizona
corporation, LOS ARCOS, INC., a Colorado corporation, PUEBLO NORTE, INC., a
Colorado corporation (f/k/a Signature Health Care of California Corporation),
RIO VERDE NURSING CENTER, INC., a Colorado corporation, SIGNATURE HEALTH CARE
CORPORATION, a Delaware corporation, and SIGNATURE MANAGEMENT GROUP, INC., a
Colorado corporation (collectively, "Borrower"), jointly and severally, promise
to pay, in lawful money of the United States, to the order of HCFP FUNDING,
INC., a Delaware corporation (together with its successors and assigns,
"Lender"), the principal sum of Seven Million and No/100 Dollars
($7,000,000.00), or so much of such principal sum as shall be advanced or
readvanced and shall remain unpaid under the Loan established pursuant to that
certain "LOAN AND SECURITY AGREEMENT" dated May 11, 1999, by and among the
undersigned and Lender (as amended, modified, restated or replaced from time to
time, the "Loan Agreement"), plus interest on the unpaid balance thereof,
computed on a 360-day basis, at the rate per annum that is set forth in the Loan
Agreement.
1. All capitalized terms used and not otherwise specifically defined in
this Revolving Credit Note (as amended, modified, restated or replaced from time
to time, the "Note") shall have the meanings given to them in the Loan
Agreement.
2. This Note shall evidence the undersigned's obligation to repay all sums
advanced by Lender from time to time under the Loan Agreement and as part of the
Loan, and all other amounts due under the Loan Agreement. The actual amount due
and owing from time to time under this Note shall be evidenced by Lender's
records of receipts and disbursements with respect to the Loan, which shall be
conclusive evidence of that amount, absent manifest error.
3. Interest due pursuant to this Note shall be payable monthly, in arrears,
on the first Business Day of each month after the date of this Note (for the
previous month). For purposes of this Note, a "Business Day" shall mean any day
on which banks are open for business in Maryland, excluding Saturdays and
Sundays.
<PAGE>
4. This Note shall become due and payable upon the earlier to occur of (i)
the Termination Date, or (ii) the termination of the Loan Agreement pursuant to
its terms, or any other event under the Loan Agreement or any other Loan
Documents which would result in the indebtedness evidenced by this Note becoming
due and payable. At such time, the entire principal balance of this Note and all
other interest, fees, costs and expenses, if any, shall be due and payable in
full. Lender shall then have the option at any time and from time to time to
exercise all of the rights and remedies set forth in this Note, the Loan
Agreement and in the other Loan Documents, as well as all rights and remedies
otherwise available to Lender at law or in equity, to collect the unpaid
indebtedness under this Note, the Loan Agreement and the other Loan Documents.
This Note is secured by the Collateral, as defined in and described in the Loan
Agreement.
5. Whenever any principal and/or interest and/or fee under this Note shall
not be paid when due, whether at the stated maturity or by acceleration,
interest on such unpaid amounts shall thereafter be payable at a rate per annum
equal to the Default Rate stated in the Loan Agreement.
6. The undersigned and Lender intend to conform strictly to the applicable
usury laws in effect from time to time during the term of the Loan. Accordingly,
if any transaction contemplated by the Loan Agreement or this Note would be
usurious under such laws, then notwithstanding any other provision hereof: (i)
the aggregate of all interest that is contracted for, charged, or received under
this Note or under any other Loan Document shall not exceed the maximum amount
of interest allowed by applicable law, and any excess shall be promptly credited
to the undersigned by Lender (or, to the extent that such consideration shall
have been paid, such excess shall be promptly refunded to the undersigned by
Lender); (ii) neither the undersigned nor any other Person (as defined in the
Loan Agreement) now or hereafter liable hereunder shall be obligated to pay the
amount of such interest to the extent that it is in excess of the maximum
interest permitted by applicable law; and (iii) the effective rate of interest
shall be reduced to the Highest Lawful Rate (as defined in the Loan Agreement).
All sums paid, or agreed to be paid, to Lender for the use, forbearance, and
detention of the debt of Borrower to Lender shall, to the extent permitted by
applicable law, be allocated throughout the full term of this Note until payment
is made in full so that the actual rate of interest does not exceed the Highest
Lawful Rate in effect at any particular time during the full term thereof. If at
any time the rate of interest under this Note exceeds the Highest Lawful Rate,
the rate of interest to accrue pursuant to this Note shall be limited,
notwithstanding anything to the contrary in this Note, to the Highest Lawful
Rate, but any subsequent reductions in the Base Rate shall not reduce the
interest to accrue pursuant to this Note below the Highest Lawful Rate until the
total amount of interest accrued equals the amount of interest that would have
accrued if a varying rate per annum equal to the interest rate under the Note
had at all times been in effect. If the total amount of interest paid or accrued
pursuant to this Note under the foregoing provisions is less than the total
amount of interest that would have accrued if a varying rate per annum equal to
the interest rate under this Note had been in effect, then the undersigned
agrees to pay to Lender an amount equal to the difference between (x) the lesser
of (A) the amount of interest that would have accrued if the Highest Lawful Rate
had at all times been in effect, or (B) the amount of interest that would have
accrued if a varying rate per annum equal to the interest rate under the Note
had at all times been in effect, and (y) the amount of interest accrued in
accordance with the other provisions of this Note and the Loan Agreement.
2
<PAGE>
7. This Note is the "Note" referred to in the Loan Agreement, and is issued
pursuant to the Loan Agreement. Reference is made to the Loan Agreement for a
statement of the additional rights and obligations of the undersigned and
Lender. In the event of any conflict between the terms of this Note and the
terms of the Loan Agreement, the terms of the Loan Agreement shall prevail. All
of the terms, covenants, provisions, conditions, stipulations, promises and
agreements contained in the Loan Documents to be kept, observed and/or performed
by the undersigned are made a part of this Note and are incorporated into this
Note by this reference to the same extent and with the same force and effect as
if they were fully set forth in this Note; the undersigned promises and agrees
to keep, observe and perform them or cause them to be kept, observed and
performed, strictly in accordance with the terms and provisions thereof.
8. Each party liable on this Note in any capacity, whether as maker,
endorser, surety, guarantor or otherwise, (i) waives presentment for payment,
demand, protest and notice of presentment, notice of protest, notice of
non-payment and notice of dishonor of this debt and each and every other notice
of any kind respecting this Note and all lack of diligence or delays in
collection or enforcement hereof; (ii) agrees that Lender at any time or times,
without notice to the undersigned or its consent, may grant extensions of time,
without limit as to the number of the aggregate period of such extensions, for
the payment of any principal, interest or other sums due hereunder; (iii) to the
extent permitted by law, waives all exemptions under the laws of the State of
Maryland and/or any state or territory of the United States; (iv) to the extent
permitted by law, waives the benefit of any law or rule of law intended for its
advantage or protection as an obligor under this Note or providing for its
release or discharge from liability on this Note, in whole or in part, on
account of any facts or circumstances other than full and complete payment of
all amounts due under this Note; and (v) agrees to pay, in addition to all other
sums of money due, all cost of collection and attorney's fees, whether suit be
brought or not, if this Note is not paid in full when due, whether at the stated
maturity or by acceleration.
9. No waiver by Lender of any one or more defaults by the undersigned in
the performance of any of its obligations under this Note shall operate or be
construed as a waiver of any future default or defaults, whether of a like or
different nature. No failure or delay on the part of Lender in exercising any
right, power or remedy under this Note (including, without limitation, the right
to declare this Note due and payable) shall operate as a waiver of such right,
power or remedy nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise of such right, power or
remedy or the exercise of any other right, power or remedy.
10. If any term, provision, covenant or condition of this Note or the
application of any term, provision, covenant or condition of this Note to any
party or circumstance shall be found by a court of competent jurisdiction to be,
to any extent, invalid or unenforceable, then the remainder of this Note and the
application of such term, provision, covenant, or condition to parties or
circumstances other than those as to which it is held invalid or unenforceable,
3
<PAGE>
shall not be affected thereby, and each term, provision, covenant or condition
shall be valid and enforced to the fullest extent permitted by law. Upon
determination that any such term, provision, covenant or condition is invalid,
illegal or unenforceable, Lender may, but is not obligated to, advance funds to
Borrower under this Note until Borrower and Lender amend this Note so as to
effect the original intent of the parties as closely as possible in a valid and
enforceable manner.
11. No amendment, supplement or modification of this Note nor any waiver of
any provision of this Note shall be made except in writing executed by the party
against whom enforcement is sought.
12. This Note shall be binding upon the undersigned and its successors and
assigns. Notwithstanding the foregoing, the undersigned may not assign any of
its rights or delegate any of its obligations under this Note without the prior
written consent of Lender, which may be withheld in its sole discretion.
13. Each entity constituting Borrower shall be jointly and severally liable
for all of the obligations of Borrower under this Note and under the Loan
Agreement.
14. THIS NOTE IS TO BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF MARYLAND WITHOUT RESPECT TO ANY OTHERWISE APPLICABLE
CONFLICTS-OF-LAWS PRINCIPLES, BOTH AS TO INTERPRETATION AND PERFORMANCE, AND THE
PARTIES EXPRESSLY CONSENT AND AGREE TO THE NON-EXCLUSIVE JURISDICTION OF THE
COURTS OF THE STATE OF MARYLAND AND THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF MARYLAND AND TO THE LAYING OF VENUE IN THE STATE OF MARYLAND,
WAIVING ALL CLAIMS OR DEFENSES BASED ON LACK OF PERSONAL JURISDICTION, IMPROPER
VENUE, INCONVENIENT FORUM OR THE LIKE. BORROWER HEREBY CONSENTS TO SERVICE OF
PROCESS BY MAILING A COPY OF THE SUMMONS TO BORROWER, BY CERTIFIED OR REGISTERED
MAIL, POSTAGE PREPAID, TO BORROWER'S ADDRESS SET FORTH IN SECTION 9.4 OF THE
LOAN AGREEMENT. BORROWER FURTHER WAIVES ANY CLAIM FOR CONSEQUENTIAL DAMAGES IN
RESPECT OF ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY LENDER IN GOOD FAITH.
15. THE UNDERSIGNED HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY
JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES ANY RIGHT TO TRIAL
BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST.
THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY THE
UNDERSIGNED, AND THIS WAIVER IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE
AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL WOULD OTHERWISE ACCRUE.
LENDER IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS NOTE TO ANY COURT
HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO
SERVE AS CONCLUSIVE EVIDENCE OF THE UNDERSIGNED'S WAIVER OF THE RIGHT TO JURY
TRIAL. FURTHER, THE UNDERSIGNED HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT
4
<PAGE>
OF LENDER (INCLUDING LENDER'S COUNSEL) HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
TO ANY BORROWER THAT LENDER WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO
JURY TRIAL PROVISION.
16. THE UNDERSIGNED HEREBY AUTHORIZES ANY ATTORNEY ADMITTED TO PRACTICE
BEFORE ANY COURT OF RECORD IN THE UNITED STATES OR THE CLERK OF SUCH COURT TO
APPEAR ON BEHALF OF THE UNDERSIGNED IN ANY COURT IN ONE OR MORE PROCEEDINGS, OR
BEFORE ANY CLERK THEREOF OF PROTHONOTARY OR OTHER COURT OFFICIAL, AND TO CONFESS
JUDGMENT AGAINST THE UNDERSIGNED IN FAVOR OF LENDER IN THE FULL AMOUNT DUE ON
THIS NOTE (INCLUDING PRINCIPAL, ACCRUED INTEREST AND ANY AND ALL CHARGES, FEES
AND COSTS) PLUS ATTORNEYS' FEES EQUAL TO FIFTEEN PERCENT (15%) OF THE AMOUNT
DUE, PLUS COURT COSTS, ALL WITHOUT PRIOR NOTICE OR OPPORTUNITY OF BORROWER FOR
PRIOR HEARING. THE UNDERSIGNED AGREES AND CONSENTS THAT VENUE AND JURISDICTION
SHALL BE PROPER IN THE CIRCUIT COURT OF ANY COUNTY OF THE STATE OF MARYLAND OR
OF BALTIMORE CITY, MARYLAND, OR IN THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF MARYLAND. THE UNDERSIGNED WAIVES THE BENEFIT OF ANY AND EVERY
STATUTE, ORDINANCE, OR RULE OF COURT WHICH MAY BE LAWFULLY WAIVED CONFERRING
UPON BORROWER ANY RIGHT OR PRIVILEGE OF EXEMPTION, HOMESTEAD RIGHTS, STAY OF
EXECUTION, OR SUPPLEMENTARY PROCEEDINGS, OR OTHER RELIEF FROM THE ENFORCEMENT OR
IMMEDIATE ENFORCEMENT OF A JUDGMENT OR RELATED PROCEEDINGS ON A JUDGMENT. THE
AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT AGAINST THE UNDERSIGNED
SHALL NOT BE EXHAUSTED BY ONE OR MORE EXERCISES THEREOF, OR BY ANY IMPERFECT
EXERCISE THEREOF, AND SHALL NOT BE EXTINGUISHED BY ANY JUDGMENT ENTERED PURSUANT
THERETO; SUCH AUTHORITY AND POWER MAY BE EXERCISED ON ONE OR MORE OCCASIONS FROM
TIME TO TIME, IN THE SAME OR DIFFERENT JURISDICTIONS, AS OFTEN AS LENDER SHALL
DEEM NECESSARY, CONVENIENT, OR PROPER.
5
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Note as of the date
first above written.
BORROWER:
ATTEST: RAINTREE HEALTHCARE CORPORATION,
a Delaware corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: BRITWILL HEALTHCARE COMPANY,
a Delaware corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: BRITWILL FUNDING CORPORATION,
a Delaware corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: CEDAR CARE, INC., an Indiana corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
6
<PAGE>
ATTEST: SHERWOOD HEALTHCARE CORP., an
Indiana corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: BRITWILL INVESTMENTS-I, INC.,
a Delaware corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: BRITWILL INVESTMENTS-II, INC.,
a Delaware corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: BRITWILL INDIANA PARTNERSHIP.,
an Arizona general partnership
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: BROOKSHIRE HOUSE, INC., a Colorado
corporation (f/k/a Asbury Circle, Inc.)
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
7
<PAGE>
ATTEST: CHRISTOPHER NURSING CENTER, INC., a
Colorado corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: AMBERWOOD COURT, INC., a Colorado
corporation (f/k/a Valley Hi, Inc.)
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: THE ARBORS HEALTH CARE
CORPORATION, an Arizona corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: LOS ARCOS, INC., a Colorado corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: PUEBLO NORTE, INC., a Colorado
corporation (f/k/a Signature Health Care
of California Corporation)
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
8
<PAGE>
ATTEST: RIO VERDE NURSING CENTER, INC., a
Colorado corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: SIGNATURE HEALTH CARE
CORPORATION, a Delaware
corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
ATTEST: SIGNATURE MANAGEMENT GROUP, INC.,
a Colorado corporation
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM RAINTREE'S
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE 2 MOS ENDED MARCH 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999 <F1>
<PERIOD-END> MAR-31-1999
<CASH> 4,268
<SECURITIES> 0
<RECEIVABLES> 31,229
<ALLOWANCES> 10,984
<INVENTORY> 1,560
<CURRENT-ASSETS> 27,471
<PP&E> 52,967
<DEPRECIATION> 7,225
<TOTAL-ASSETS> 134,839
<CURRENT-LIABILITIES> 33,603
<BONDS> 74,090
0
0
<COMMON> 8
<OTHER-SE> 17,563
<TOTAL-LIABILITY-AND-EQUITY> 134,839
<SALES> 0
<TOTAL-REVENUES> 21,934
<CGS> 0
<TOTAL-COSTS> 18,949
<OTHER-EXPENSES> 3,272
<LOSS-PROVISION> 431
<INTEREST-EXPENSE> 1,399
<INCOME-PRETAX> (2,117)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,117)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,117)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> 0
<FN>
<F1> RainTree Healthcare Corporation emerged from Chapter 11 on January 31, 1999
and adopted fresh start reporting in accordance with Statement of Position
90-7. Accordingly, the Company's post-reorganization financial statements
have not been prepared on a consistent basis with such pre-reorganization
financial statements and are not comparable in all respects to financial
statements prior to reorganization.
</FN>
</TABLE>
