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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 000-21505
INTENSIVA HEALTHCARE CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 43-1690769
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7733 FORSYTH BLVD., 8TH FLOOR 63105
ST. LOUIS, MISSOURI (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (800) 724-0112
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
On February 28, 1998 the aggregate market value of the Registrant's voting
stock held by non-affiliates was $25,501,581.
On February 28, 1998 there were 9,905,062 shares of Common Stock
outstanding.
Part III incorporates information by reference from the definitive Proxy
Statements to be used in connection with the Registrant's Annual Meeting of
Shareholders to be held on May 22, 1998, and to be filed no later than 120 days
after Registrant's fiscal year end.
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PART I
ITEM 1. BUSINESS
FORWARD LOOKING STATEMENTS
Certain statements in this Form 10-K, in press releases of Intensiva
HealthCare Corporation ("Intensiva" or the "Company"), and in oral statements
made by or with the approval of an authorized executive officer of the Company,
constitute "forward-looking statements", as that term is defined under the
Private Securities Litigation Reform Act of 1995 (the "Act") and releases issued
by the Securities and Exchange Commission. Words such as "believe", "expect",
"anticipate", "intend", "estimate", and other expressions which are predictions
of or indicate future events and trends and which do not relate to historical
matters identify forward-looking statements. Reliance should not be placed on
forward-looking statements because they involve known and unknown risks,
uncertainties and other factors, which may cause the actual results, performance
or achievements of the Company to differ materially from anticipated future
results, performance or achievements expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
from anticipated results include, but are not limited to, changes in health care
regulation and/or health care reform, changes in the regulation of relationships
among health care providers, difficulty in obtaining necessary licenses or
certifications, ability to collect accounts receivable, changes in reimbursement
policies or procedures, changes in payor mix, changes in referral source
practices, changes in relationships with general acute care hospitals from which
the Company is leasing space, changes in such leases, competition, and the
adequacy of professional liability insurance. The Company undertakes no
obligation to publicly update or revise any forward looking statement, whether
as a result of new information, future events or otherwise.
OVERVIEW
Intensiva provides highly specialized, acute long-term care for critically
ill or injured patients who require intensive medical monitoring and treatment,
and who often have multiple medical conditions and are medically unstable. The
Company provides high quality, cost effective, specialized care for its
patients, who typically require an average length of stay of greater than 25
days in an intensive inpatient setting. Intensiva's medical staffs provide
specialized medical services, as well as nursing and respiratory care, and the
Company is expanding disease-specific pathways to treat pulmonary, cancer, renal
and cardiac conditions, among others. The Company's clinical programs utilize
specialized staff, equipment and protocols for the treatment of its patients.
Intensiva leases underutilized space from general acute care hospitals
("Host Hospitals") in underserved markets, creating a separate "hospital within
a hospital." By leasing space from the Host Hospital, Intensiva is able to
minimize capital and overhead costs, including the costs to purchase and operate
the physical plant and expensive medical and diagnostic equipment. The Company
is able to purchase certain services from its Host Hospitals, such as laboratory
and radiology (MRI, CAT Scan, X-Ray), as well as hotel services such as laundry,
housekeeping, dietary and property management. The Company's business model
contemplates for each of its specialized hospitals to become certified by
Medicare as "long-term care hospitals" exempt from the Prospective Payment
System ("PPS") after approximately seven months of operations. This exemption
will enable the hospitals to receive cost-based reimbursement (subject to
certain caps), which the Company believes is more appropriate given the medical
condition of its patients.
As of February 28, 1998, the Company operated seventeen hospitals in seven
states (586 beds), had executed six additional lease agreements to open acute
long-term care hospitals (202 beds), and had entered into four letters of intent
to open additional hospitals (approximately 140 beds).
On October 10, 1996, the Company completed an initial public offering of
2.5 million shares of common stock, the net proceeds from which aggregated
approximately $13.2 million. On November 7, 1996, the underwriters exercised the
over-allotment option, resulting in the sale of 375,000 additional shares of
common stock, the net proceeds from which aggregated approximately $2.1 million.
The Company has used substantially all the proceeds for development and
operation of additional facilities, and the balance for working capital and
other general corporate purposes.
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In November 1997, the Company entered into a revolving credit facility
agreement with a third-party which provides the Company with access to up to
$20.0 million in borrowing capacity. The credit facility is backed by a first
security interest in the Company's accounts receivable and other assets.
RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE
COMPANY AND ITS BUSINESS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THOSE DESCRIBED IN THIS REPORT AS A RESULT OF CERTAIN FACTORS, INCLUDING
THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS REPORT.
HEALTH CARE REFORM; RELIANCE UPON GOVERNMENT PROGRAMS; POSSIBLE REDUCTION
IN REIMBURSEMENT. Approximately 77% and 73% of the Company's net revenues in
1997 and 1996, respectively, were derived from payments made by Medicare. The
Company's hospitals operate under an exemption from PPS pursuant to which
non-exempt hospitals are reimbursed based upon diagnosis-related groups
("DRGs"). This exemption, created in 1983, was intended to be temporary. Efforts
to eliminate this exemption, coupled with increasing budgetary pressures may
lead to substantial changes in government-sponsored health care programs.
Recently the Balanced Budget Act of 1997 ("BBA") effected significant changes in
Medicare and Medicaid reimbursement for long-term hospital services. Certain
provisions of the BBA which may affect the business of the Company are referred
to in this Report under the heading "Business -- Government Regulation -- Health
Care Reform." Certain provisions of the BBA may reduce Medicare reimbursement to
the Company's hospitals. In particular, the BBA provides for: (i) a 15%
reduction in capital cost reimbursement for long-term care hospitals; (ii) a
statutory reimbursement cap for long-term care hospitals opened after October 1,
1997; (iii) a cap on reimbursement amounts for existing hospitals; and (iv) a
reduction in incentive payments by Medicare to hospitals that operate at cost
levels that are less than their previously established cost-per-discharge
ceilings. Additional proposals to reform Medicare reimbursement continue to be
considered. The Company cannot predict what or when legislation, if any, may be
enacted. Any such legislation may have a material adverse affect on the
Company's business, financial condition or result of operations. Although the
Company believes that its current structure puts it in a good position to deal
with the reimbursement caps which have been imposed by the BBA, there can be no
assurance that the limitations of the Act or of future laws or regulations will
not have a material adverse effect on the Company's business, financial
condition or results of operations.
START-UP COSTS; LICENSURE AND CERTIFICATION RISKS. The Company incurs
substantial costs in opening and initially operating new hospitals, including
leasing costs, renovation and equipment costs and working capital needs. The
Company seeks to have its hospitals certified by Medicare as long-term care
hospitals, which are exempt from the PPS limitations and thus eligible to
receive cost-based reimbursement, subject to certain caps, for services rendered
to Medicare patients. The certification process to qualify for cost-based
reimbursement takes a minimum of six months (the "qualification period"). In
order to successfully complete the certification process, the Company's patients
must have an average length of stay of at least 25 days. Failure to maintain an
average length of stay of at least 25 days would result in the loss of
certification and qualification to receive cost-based reimbursement.
Reimbursement under PPS results in lower payments to the hospital than under
cost-based reimbursement and is not received until after a patient is
discharged, rather than periodically as costs are incurred. If the Company is
unable to receive Medicare certification as a long-term care hospital on a
timely basis for one or more of its facilities and other exemptions from PPS are
not available, the Company's business, financial condition or results of
operations may be adversely affected. In addition, the Company expects to incur
substantial losses with respect to each of its hospitals during the
certification process. Depending on the rate at which the Company opens new
hospitals, such losses could have a material adverse effect on the Company's
business, financial condition or results of operations.
The Company's plans to expand its business are dependent in part upon its
ability to obtain requisite licenses, certifications, permits, approvals and
certificates of need. In some states, for example, health care providers have
experienced delays in obtaining Medicare certification or certification as a
long-term care
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hospital. No assurance can be given that the requisite licenses and
certifications will be granted by the applicable regulatory agencies for all, or
even any, of the Company's future hospitals or those currently under
development. Failure to obtain requisite licenses, certifications, permits,
approvals or certificates of need for any hospital or the delay in issuance of
any such licenses, certifications, permits, approvals or certificates of need
could have a material adverse effect on the Company's business, financial
condition or results of operations.
COLLECTION AND REIMBURSEMENT RISKS. The Company assumes the financial risk
related to collection of its accounts receivable, including the potential
uncollectibility of accounts and delays and adjustments attendant to
reimbursement by third party payors, such as government programs, private
insurance plans and managed care plans. In addition, the nature of the services
rendered by the Company can result in the incurrence of significant charges with
respect to individual patients, which can be difficult to collect from patients
and/or payors. Failure to adequately manage the collection risks and working
capital demands could have a material adverse effect on the Company's business,
financial condition or results of operations.
PAYOR MIX. For services provided to patients covered by Medicare, the
Company receives reimbursement that is either limited by PPS, or, if the
applicable Company hospital is exempt from PPS, is based upon the Company's
reasonable costs, subject to certain caps. The Company has or anticipates
entering into contracts with managed care organizations that provide for per
diem, per discharge or other forms of payment. Most of the Company's agreements
with managed care organizations also provide for significant discounts from the
Company's routine charges. The Company receives payment for other patients based
upon fee for service arrangements or negotiated rates. The Company's success
depends in part upon its ability to achieve and maintain the anticipated mix of
payors and to enter into contractual arrangements with managed care
organizations and other payors that will allow the Company to be paid in excess
of the costs incurred in rendering services. Failure to achieve and maintain the
anticipated payor mix could have a material adverse effect on the Company's
business, financial condition or results of operations.
RELIANCE UPON REFERRAL SOURCES. The Company's patient admissions are
dependent upon establishing and maintaining relationships with unrelated third
parties who refer patients to the Company. The Company believes that its ability
to obtain referrals is based upon demonstrating high quality of care,
convenience to referral sources and cost effective outcomes. The Company
believes it will continue to receive a large number of referrals from its Host
Hospitals. To the extent that a Host Hospital's census, reputation or general
acceptance in the community declines, or to the extent the Company does not
adequately manage its relationships with referral sources, there could be a
material adverse effect on the Company's business, financial condition or
results of operations.
DEPENDENCE ON HOST HOSPITALS. The Company relies upon its Host Hospitals to
provide a variety of necessary services and amenities. Typically, each Intensiva
facility will contract with a Host Hospital to provide diagnostic and other
support, hotel and ancillary services such as laundry and linen, dietary and
waste disposal, as well as for access to certain medical services, such as
laboratory and radiology (MRI, CAT Scan, X-Ray). Should the Host Hospital fail
to adequately provide these services, it is uncertain whether another cost
effective source could be found or effectively utilized. Further, should the
Host Hospital cease or significantly reduce operations, it is unlikely the
Intensiva facility could continue operations at that location.
NON-RENEWAL OR TERMINATION OF LEASES. The Company's facilities have leases
that have an initial term of five or more years. Intensiva has been operating
for approximately three years. Accordingly, none of its leases have come up for
renewal. It is unknown whether the Host Hospitals will renew such leases upon
expiration of their initial terms, or what new payments or other lease terms the
Host Hospital will negotiate upon renewal. In addition, a lease could be
terminated because of a breach of a lease by either the Company or the Host
Hospital. Failure to renew leases with adequate financial terms upon expiration
or early termination of a lease could have a material adverse effect on the
Company's business, financial condition or results of operation.
REGULATION OF RELATIONSHIPS AMONG HEALTH CARE PROVIDERS. Federal and state
laws regulate the relationships among providers of health care services,
physicians and other clinicians. These laws include the fraud and abuse
provisions of the Medicare and Medicaid statues, which prohibit the
solicitation, payment, receipt or offering of any direct or indirect
remuneration for the referral of Medicare or Medicaid patients or
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for recommendation, leasing, arranging, ordering or purchasing of Medicare or
Medicaid covered services, as well as laws that impose significant penalties for
false or improper restrictions on physician referrals for designated health
services to entities with which they have financial relationships. While the
Company believes it has complied with all applicable requirements in its leases
with Host Hospitals and contracts and relationships with its medical staff,
other entities and individuals, there can be no assurance that, if reviewed, the
arrangements would be found to be in compliance. Violations of these laws may
result in substantial civil or criminal penalties for individuals or entities,
including large civil money penalties and exclusion from participation in
Medicare and Medicaid programs. Such exclusion and penalties, if applied to the
Company, could result in significant loss of reimbursement, and could have a
materially adverse effect on the Company's business, financial condition or
results of operations.
MANAGEMENT SYSTEMS. The Company's success will depend in part on its
ability to develop, implement, protect and maintain its management systems,
particularly as they relate to the growth of the Company. There can be no
assurance that the Company's management systems will be adequate to support the
Company's anticipated growth or meet future patient care, reimbursement or
outcome reporting requirements. In addition, some of the Company's management
systems are licensed from third parties and there can be no assurance that such
systems will be maintained and updated so as to meet the Company's ongoing
requirements. There can be no assurance that the Company's systems do not
infringe upon the proprietary rights of others.
COMPETITION. The services provided by the Company are subject to
substantial competition. Competition exists from several sources, including
regional and local hospitals and other health care organizations providing
competitive services. Certain of the Company's competitors are larger and better
capitalized, have greater experience in providing acute long-term care hospital
services and may have longer established relationships with the referral sources
and payors for such services. While general acute care hospitals cannot
currently qualify for cost-based reimbursement as long-term care hospitals on
their existing campuses, in certain urban markets rapid consolidation of general
acute care hospitals is occurring and hospital operators could apply for PPS
exemption for long-term care hospitals that are not located on the same campus
as their general acute care hospitals, and thereby compete with the Company on a
similar basis. The regulations could also change to permit general acute care
hospitals to operate exempt long-term care hospitals located on their campuses.
This competition may adversely affect the Company's ability to maintain or
increase its market share and profitability or to continue its operations.
PROFESSIONAL LIABILITY AND UNCERTAINTY OF ADEQUATE INSURANCE. The
Company's medical staffs provide care to critically ill and injured patients. A
certain percentage of these patients are expected to deteriorate in condition,
and some will die. The Company may be subject to professional liability claims
and costs. In addition, the Company's leases with Host Hospitals generally
require the Company to indemnify the Host Hospitals for losses resulting from
the negligence of the Company, its employees and those affiliated with the
Company. The Company maintains professional and general liability insurance.
While the Company believes it has adequate professional and general liability
coverage, there can be no assurance that the insurance maintained by the Company
would be sufficient to fully cover the Company in the event of a claim.
Furthermore, there can be no assurance that the Company will be able to obtain
liability insurance in the future with adequate coverages or at acceptable
costs. Any claim against the Company could have a material adverse effect on the
Company's reputation, patient referrals, business, financial conditions or
results of operations.
EXPANSION; CAPITAL REQUIREMENTS. The Company's expansion plans depend in
part on its ability to lease excess capacity from general acute care hospitals
and to develop long-term care hospitals in such space. There can be no assurance
that the Company will be able to successfully select new geographic markets and
Host Hospitals or otherwise develop new hospital facilities. The Company's
expansion strategy may also divert management's attention from the operation of
the Company's existing hospitals. In addition, the Company's growth strategy
requires substantial capital for the development of additional long-term care
hospitals. Development of additional new long-term care hospitals requires
capital for renovation, expansion and working capital. The Company believes that
its existing cash resources will be sufficient to meet the Company's
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anticipated expansion and working capital needs through year end 1998. However,
there can be no assurance that additional capital will not be needed.
DEPENDENCE ON KEY PERSONNEL; RECRUITMENT. The Company is highly dependent
on the principal members of its management and development team, the loss of
whose services might impede the achievement of the Company's business
objectives. The loss of David W. Cross, President and Chief Executive Officer,
John R. Lewis, Executive Vice President and Chief Operating Officer, or other
key personnel, could have a material adverse effect on the Company. The Company
has employment agreements with Messrs. Cross and Lewis and other key personnel.
Among other things, these agreements prohibit such executive employees from
competing with the Company under certain conditions for a specific period
following termination, subject to certain exceptions. There can be no assurance
that these non-competition agreements are enforceable under all circumstances.
Currently the Company has key person life insurance in the amount of $1.0
million on the lives of each of Messrs. Cross and Lewis. In addition, as the
Company grows, recruiting and retaining additional qualified personnel to
supervise and manage the Company's development and operations will be important
to the Company's success. Competition exists for qualified personnel, and there
can be no assurance that the Company will be able to attract and retain skilled
and experienced management, development and operations, personnel on acceptable
terms.
CONTROL BY DIRECTORS AND EXECUTIVE OFFICERS. The directors and executive
officers of the Company, and their affiliates, as a group beneficially own
greater than 40% of the outstanding shares of Common Stock (including those
exercisable under the Company's stock option plans at December 31, 1997) of the
Company. As a result, these stockholders acting together would be able to exert
considerable influence over the election of the Company's directors and the
outcome of most corporate actions requiring stockholder approval, such as
certain amendments to the Certificate of Incorporation. Additionally, such
directors and executive officers will have significant influence over the
policies and operations of the Company's management and the conduct of the
Company's business. Such concentration of ownership may have the effect of
delaying, deferring or preventing a change of control of the Company and
consequently could affect the market price of the Common Stock.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER, BY-LAW AND DELAWARE LAW
PROVISIONS; POSSIBLE ISSUANCE OF PREFERRED STOCK. Certain provisions of the
Company's Certificate of Incorporation, Amended and Restated By-laws
("By-laws"), and Delaware law could, together or separately, discourage
potential acquisition proposals, delay or prevent a change in control of the
Company and limit the price that certain investors might be willing to pay in
the future for shares of the Common Stock. These provisions, among other things,
provide for advance notice requirements and other limitations on the right to
call a special meeting of stockholders, to nominate directors and to submit
proposals to be considered at stockholders' meetings. The Certificate of
Incorporation provides for a staggered Board of Directors, with one-third of the
board members being elected each year to a three-year term. Directors may be
removed only for "cause," as defined in the Certificate of Incorporation. The
Company is also subject to Section 203 of the Delaware General Corporation Law
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in a broad range of business combinations with any "interested
stockholder" for a period of three years following the date that such
stockholder became an interested stockholder. In addition, the Company's
Certificate of Incorporation authorizes the Board of Directors to issue
preferred stock with no par value ("Undesignated Preferred Stock") without
stockholder approval and upon such terms as the Board of Directors may
determine. While no shares of Undesignated Preferred Stock are now outstanding,
and the Company has no present plans to issue any shares of Undesignated
Preferred Stock, the rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of any holders of Undesignated
Preferred Stock that may be issued in the future.
POSSIBLE VOLATILITY OF STOCK PRICE. Factors such as continued market
acceptance of the Company's services, development of additional hospitals,
physician referrals, regulatory reform as well as other government regulations,
investor perception of the Company, fluctuations in the Company's operating
results and general market conditions in the industry may cause the market price
of the Common Stock to fluctuate significantly. In addition, the stock market in
general has recently experienced extreme price and volume volatility. These
broad market fluctuations may have a material adverse effect on the market price
of the Common Stock.
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INDUSTRY BACKGROUND
The health care system in the United States continues to undergo
significant change. As the elderly population grows more rapidly than the
overall population and as advances in medicine and technology continue to
increase life expectancies, national health care costs are expected to outstrip
the availability of resources from government sponsored health care programs.
Accordingly, health care reform has increased its focus on cost containment.
Payors, led by managed care networks, are demanding higher quality patient care
at lower cost tied to predictable outcomes. These demographic changes,
technological advances and cost containment pressures are changing medical
practice patterns, resulting in an increasing proportion of complex medical care
being delivered outside of the general acute care hospital, in more cost
effective settings. As a result, the patient population has become increasingly
segmented.
Long stay critically ill or injured patients are difficult and expensive to
treat and, as a result, are in danger of becoming disenfranchised by the current
health care system. These patients generally require an interdisciplinary team
of specialists due to their multiple system deficits and the critical nature of
their illnesses or injuries. Traditional acute care hospitals serve a general
population which consists primarily of short-stay patients. These hospitals are
not well positioned to provide the most cost effective services to critically
ill and injured extended stay patients because of their focus and lack of
critical mass with respect to these patients. Traditional hospitals have an
incentive to discharge these patients to other specialty care providers as soon
as practicable. In addition, payors are seeking specialized clinical services
that provide high quality, predictable outcomes at reduced cost for this
disenfranchised, expensive patient population. The Company estimates that the
cost of treatment for this discrete patient population exceeds $2 billion
annually.
PATIENTS SERVED
The Company provides acute care services for critically ill or injured
patients suffering from multiple medical conditions and requiring an extended
length of stay of typically 25 to 50 days. Extended hospital stays are medically
necessary due to a combination of conditions, including:
- Respiratory conditions resulting from chronic obstructive pulmonary
disease and cancer. Many of the Company's patients require a tracheostomy
or ventilator care and/or weaning.
- Cancer conditions, including the management of patients undergoing
radiation therapy or chemotherapy. Many patients also require specialized
pain management.
- Cardiac conditions, including complicated myocardial infarction with or
without congestive heart failure, cardiac dysrhythmias requiring
intravenous drug therapy, post operative coronary bypass and aortic
aneurysm surgery.
- Renal conditions, ranging from acute kidney and urinary tract infections
to acute and/or chronic renal failure. These include management of renal
transplant patients.
- Neurological conditions, including cerebral vascular accidents,
craniotomies and other post-surgical conditions, brain and spinal cord
injuries and Guillain Barre and other degenerative syndromes.
Many of the Company's patients suffer from combinations of these conditions
and often require long-term intravenous antibiotic therapy, nutritional therapy,
pain control and wound management. In addition, the Company's patients are often
dependent on sophisticated technology for continued life support.
FACILITIES
In each market in which Intensiva operates, the Company establishes a fully
licensed hospital to be certified as a long-term care hospital by Medicare.
Intensiva's hospitals have an average of approximately 35 licensed beds and
generally are located on one or two floors of the Host Hospital. The initial
lease term is five or more years and may be renewed or extended under varying
renewal/extension terms.
As of February 28, 1998, Intensiva operates ten PPS-exempt long-term care
hospitals, has four hospitals that are awaiting final notification of PPS-exempt
long-term care status, three hospitals that are in the
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qualification period to obtain PPS-exempt status as long-term care hospitals,
has entered into six additional leases to open acute long-term care hospitals
and has four letters of intent with Host Hospitals to open acute long-term care
hospitals. Once a lease has been signed (and a Certificate of Need is approved,
if necessary), it takes approximately four to five months to open the hospital
and a minimum additional six to seven months to receive Medicare certification
as a long-term care hospital. All of the Company's hospitals are located within
general acute care hospitals.
The following table presents summarized information on the Company's
facilities as of February 28, 1998:
<TABLE>
<CAPTION>
AVERAGE DAILY
CENSUS IN
TYPE OF FACILITY NO. OF FACILITIES LICENSED BEDS FEB. 1998(4)
---------------- ----------------- ------------- -------------
<S> <C> <C> <C>
PPS-exempt long-term care hospitals................... 10 353(1) 238.3
Hospitals awaiting notification of Medicare long-term
certification....................................... 4 131(2) 55.9
Hospitals in qualification period for Medicare
long-term certification............................. 3 102(3) 15.2
</TABLE>
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(1) The number of beds shown includes beds not being utilized as of February 28,
1998, but for which the Company has contractual rights to operate at its
option. At February 28, 1998, the Company utilized 20 beds out of 34
licensed beds at one facility, and 27 beds out of 35 licensed beds at
another facility.
(2) The number of beds shown includes beds not being utilized as of February 28,
1998, but for which the Company has contractual rights to operate at its
option. At February 28, 1998, the Company utilized 73 beds at these four
facilities.
(3) The number of beds shown includes beds not being utilized as of February 28,
1998, but for which the Company has contractual rights to operate at its
option. At February 28, 1998, the Company utilized 22 beds at these three
facilities.
(4) Average Daily Census ("ADC") is computed by dividing total patient days
during the month for all facilities within a group by the number of calendar
days in the applicable month that each facility group was open. ADC at any
one facility for any particular month will vary based upon a variety of
factors, however, the February 1998 ADC figures are consistent with the
Company's expectations that hospitals in the qualification period for
Medicare long-term certification will have a lower ADC than PPS-exempt
long-term care hospitals. The Company does not believe that month-by-month
ADC figures would provide additional meaningful information.
The Company has entered into a lease agreement with St. Joseph's Hospital,
located in Ann Arbor, Michigan, to open an acute long-term care hospital within
that hospital. The lease provides for 36 beds.
The Company has entered into a lease agreement with St. Mary's Health
System, located in Knoxville, Tennessee, to open an acute long-term care
hospital within that hospital. A certificate of need has been received to
operate 30 beds at this location.
The Company has entered into a lease agreement with St. Joseph's Hospital,
located in Pontiac, Michigan, to open an acute long-term care hospital within
that hospital. The lease provides for 34 beds.
The Company has entered into a lease agreement with St. Mary's Hospital,
located in Reno, Nevada, to open an acute long-term care hospital within that
hospital. The lease provides for 35 beds.
The Company has entered into a lease agreement with Albert Einstein Medical
Center, located in Philadelphia, Pennsylvania, to open an acute long-term care
hospital within that hospital. The lease provides for 37 beds.
The Company has entered into a lease agreement with St. Joseph's Hospital,
located in Tacoma, Washington, to open an acute long-term care hospital within
that hospital. A certificate of need is pending which would allow the Company to
operate 30 beds.
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Most of the Company's hospital leases contain non-competition provisions
pursuant to which the Host Hospital will not operate another long-term care
facility within a certain radius of the Host Hospital. In return, the Company
agrees not to own or operate another acute long-term care program or competitive
business within a certain radius of the Host Hospital.
SOURCES OF REVENUE
The Company receives payment for health care services primarily from
non-governmental payors such as managed care organizations (PPOs, HMOs and
similar organizations) and other commercial health insurance carriers (e.g.,
traditional indemnity insurance plans) and the federal government and state
governments under Medicare, Medicaid and other governmental programs. Consistent
with initiatives to control health care costs, the Company generally negotiates
payments with non-governmental payors based upon the type and extent of services
to be provided to individual patients. As of February 28, 1998, the Company has
approximately 70 managed care contracts to provide services to participating
members. These managed care agreements are composed primarily of per diem/per
discharge contracts, fee for service contracts, and contracts with negotiated
discounts from established charges. The following table sets forth the
approximate percentages of the Company's net revenues derived from the specified
payor sources indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Medicare............................................ 76.9% 73.2% 44.4%
Medicaid............................................ 3.2 0.9 2.3
HMO................................................. 0.8 1.4 2.5
PPO................................................. 4.9 6.5 2.7
All other payors(1)................................. 14.2 18.0 48.1
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
- -------------------------
(1) Includes traditional indemnity insurers and all other third-party payors
(primarily those for which services are negotiated on a case by case basis).
COMPETITION
A number of health care providers compete with the Company for the
admission and treatment of critically ill or injured patients. In each of the
Company's geographic markets, general acute care hospitals provide services
comparable to those offered by the Company. In addition, other health care
providers certified by Medicare as long-term care hospitals and located in the
Company's geographic markets provide similar services to those provided by the
Company. Many of these general acute care hospitals and long-term care hospitals
are larger and more established than the Company's operations. Certain hospitals
that compete with the Company are operated by not-for-profit, non-taxpaying or
governmental agencies, which can finance capital expenditures on a tax-exempt
basis and which receive funds and charitable contributions unavailable to the
Company.
Cost containment efforts by federal and state governments and other
third-party payors designed to encourage more efficient utilization of acute
care services have generally resulted in lower hospital occupancy rates in
recent years. As a result of these efforts, a number of acute care hospitals
have converted to specialized care facilities. The Company may experience
increased competition from existing general acute care hospitals and converted
facilities.
Competition for patients covered by non-governmental reimbursement sources
is intense. The primary competitive factors among acute long-term care providers
include quality of services, charges for services, outcomes and responsiveness
to the needs of patients, families, payors and physicians. Other companies have
entered into the acute long-term care market with licensed hospitals that
compete with the Company, and in many cases are larger and have greater
financial resources than the Company.
8
<PAGE> 10
PROFESSIONAL STAFF
Each of the Company's facilities is staffed with an interdisciplinary team
of health care professionals including physicians, nurses and therapists, who
specialize in areas needed for the treatment of the critically ill or injured.
Each Company facility has its own Medical Director and its own Vice President of
Patient Care Services. A professional nursing staff trained to care for the
extended stay acute patient is on duty 24 hours each day in each of the
Company's facilities. Other professional staff include respiratory therapists,
physical therapists, occupational therapists, speech/language pathologists,
pharmacists, clinical dietitians, case managers, social services and
psychological services. Each Company facility has a Chief Executive Officer who
supervises and is responsible for day-to-day operations, and an Organizational
Improvement Coordinator to direct an integrated quality assurance and
improvement program. The Company's corporate headquarters provides services in
the areas of system design, development, training, human resource management,
reimbursement expertise, financial control, legal advice, technical accounting
support, purchasing, facilities management, and information systems support.
GOVERNMENT REGULATION
The health care industry is subject to regulation by a number of
governmental agencies. The regulatory environment affects the Company's business
activities, requires licensure and certification of its hospitals, regulates
relationships between health care providers, and controls reimbursement to the
Company for services provided.
Each Company hospital is a fully licensed hospital and each has a separate
Medicare provider agreement, with the exception of one hospital opened as a
satellite location of an existing hospital which operates under the existing
hospital's provider agreement. Under the Medicare program, after a hospital has
been in operation for a minimum of six months, it is certified as a long-term
care hospital if its patients have an average length of stay of at least 25
days. As of February 28, 1998, fourteen of the Company's seventeen hospitals
have completed their qualification period and each have had patients with an
average length of stay in excess of 25 days. All of these hospitals have either
been certified or are awaiting notification of certification as a long-term care
hospital.
Additional Medicare rules and regulations regulate the Company's "hospitals
within hospitals" ("HIH") operating model. The rules and regulations are
intended to ensure organizational and functional independence between the host
hospital and the HIH. The rules and regulations require that the HIH must have a
separate governing body, a separate chief medical officer, a separate medical
staff, and a separate chief executive officer. In addition, either no more that
15% of the HIH's total impatient operating costs may be purchased from the host
hospital, or no more than 25% of the HIH's total admissions may be referred from
the host hospital.
The Company intends to operate all of its hospitals to achieve an average
length of stay of greater than 25 days and to comply with the organizational and
functional independence criteria. Currently, the average length of stay for all
Intensiva hospitals is in excess of 28 days.
HEALTH CARE REFORM. The Balanced Budget Act of 1997 was enacted into law on
August 5, 1997. The Act contained a number of provisions affecting long-term
acute care hospitals. Key provisions of the Act as it applied to the Company
include:
- Cap on Target Amount for Existing Hospitals -- Hospitals that have
obtained certification as long-term care hospitals before October 1, 1997
are subject to a reimbursement cap of $37,688 per discharge.
- Cap on Target Amount for New Hospitals -- Hospitals that have obtained
certification as long-term care hospitals on or after October 1, 1997 are
subject to a reimbursement cap of $18,947 per discharge.
- Reduction in Reimbursement for Capital Costs -- Effective October 1,
1997, reimbursement for capital costs have been reduced by 15%.
9
<PAGE> 11
- Reduction in Incentive Payments -- The Medicare program makes incentive
payments to hospitals that operate at cost levels that are less than
their previously established cost per discharge ceilings. These payments
had been calculated as the lesser of (i) 50% of the difference between
actual costs and the cost ceiling, or (ii) 5% of the cost ceiling.
Effective for cost reporting periods beginning on or after October 1,
1997, payments will be calculated as the lesser of (i) 15% of the
difference between actual costs and the cost ceiling, or (ii) 2% of the
cost ceiling.
- Requires the Secretary of the Department of Health and Human Services
("HHS") to develop, establish, administer and evaluate a case-mix
adjusted prospective payment system for long-term care hospitals. The
Secretary is required to develop a legislative proposal for establishing
and administering a payment system that would include an adequate patient
classification system that reflects differences in patient resource use,
and submit such proposal to Congress by no later than October 1, 1999.
Although there is no assurance that the Company's new hospitals will be
able to operate profitably under these new provisions, the Company believes that
it will be able to respond to these changes in Medicare reimbursement.
CERTIFICATE OF NEED AND STATE LICENSING. Certificate of Need ("CON")
regulations control the development and expansion of health care services and
facilities in certain states. CON laws generally provide that approval must be
obtained from the designated state health planning agency prior to expansion of
existing facilities, construction of new facilities, addition of beds,
acquisition of major items of equipment or introduction of new services. The
Company has one signed agreement to open a hospital in a state that requires a
CON that has not yet received CON approval. There can be no assurance that the
Company will be able to obtain the required CON.
State licensing of hospitals is a prerequisite to the operation of each
hospital and participation in government programs. Once a hospital becomes
licensed and operational, it must continue to comply with federal, state and
local licensing requirements in addition to local building and life-safety
codes. Management believes that all of the Intensiva hospitals in operation have
obtained the necessary licenses to conduct business. Failure to obtain a
necessary license or loss of such a license would necessitate not opening or
halting operations of the hospital. See "Business -- Legal Proceedings."
MEDICARE AND MEDICAID. A substantial portion of Intensiva's net revenues
are derived from patients covered by the Medicare program. For the year ended
December 31, 1997, only 3.2% of Intensiva's net patient revenues were derived
from state Medicaid programs. Payments received by a health care provider under
Medicare and Medicaid are heavily regulated.
For example, in order to receive Medicare reimbursement, a hospital must
meet the applicable Conditions of Participation set forth by HHS relating to the
type of hospital, its equipment, personnel and standards of medical care, as
well as comply with state and local laws and regulations. Hospitals undergo
periodic on-sight Medicare certification surveys, which are generally limited if
the hospital is accredited by JCAHO. All of Intensiva's operating hospitals are
participating in the Medicare program and are in various stages of the
certification process as described above. A loss of or failure to obtain
certification could adversely affect Intensiva's ability to receive payments
under the Medicare program.
Prior to 1983, Medicare reimbursed hospitals for the reasonable direct and
indirect costs of the services provided to beneficiaries. The Social Security
Act Amendments of 1983 implemented PPS as a means of controlling health care
costs. Under PPS, Medicare inpatient costs are reimbursed based upon a fixed
payment amount per discharge based upon diagnosis-related groups ("DRGs").
Although the average length of stay varies for each DRG, the average stay for
all Medicare patients subject to PPS is approximately six days. An additional
outlier payment is made for patients with unusually extended lengths of stay or
higher treatment costs. Outlier payments are designed to cover only marginal
costs.
The Social Security Act Amendments of 1983 exempted psychiatric,
rehabilitation, cancer, children and long-term hospitals from PPS. A long-term
hospital is defined as a hospital which has an average length of stay of greater
than 25 days. Inpatient operating costs for hospitals certified as long-term
hospitals are exempt from PPS and are reimbursed by Medicare under a cost-based
reimbursement system (subject to certain
10
<PAGE> 12
ceilings). Hospitals that receive cost-based reimbursement establish a hospital
specific cost per discharge ceiling in their second full cost report year, which
serves as a ceiling for future reimbursable costs. As described previously, this
ceiling cannot exceed $37,688 per discharge for hospitals certified as long-term
hospitals before October 1, 1997, or $18,947 per discharge for hospitals
certified as long-term hospitals on or after October 1, 1997. This ceiling
amount is subject to annual cost increases. Prior to setting that ceiling, a
hospital is reimbursed based on its reasonable allowable costs, limited to the
amounts per discharge for new and existing hospitals described above. Hospitals
may not be certified as long-term hospitals until they have operated for at
least six months. Prior to such time, reimbursement is based upon PPS (unless
another exemption from PPS is available).
Unlike the situation in the rehabilitation industry, general acute care
hospitals that open acute long-term care hospital facilities within their
hospital or on the same physical campus as their hospital are severely
restricted in terms of reimbursement. Current Medicare regulations establish a
more favorable reimbursement mechanism for hospitals within hospitals that have
a separate governing body, separate medical staff, separate chief medical
officer and separate chief executive officer, and that are not under the control
of their host facility. General acute care hospitals attempting to operate their
own hospitals within hospitals (including hospitals on the same physical campus)
cannot meet the independence criteria to be exempt from PPS.
Federal regulations provide that admission to and utilization of hospitals
by Medicare and Medicaid patients are subject to review by Peer Review
Organizations ("PRO") consisting of groups of practicing physicians and other
health care professionals, in order to insure efficient utilization of hospitals
and services. A PRO may conduct such a review either prospectively or
retroactively and may, as appropriate, recommend denial of payments for services
provided to a patient. Such review is subject to administrative and judicial
appeal.
ANTI-FRAUD LEGISLATION. Medicare and Medicaid Anti-Fraud and Abuse
Amendments codified under Section 1128B(b) of the Social Security Act (the
"Anti-Fraud Amendments") prohibit certain business practices and relationships
that might affect provision and cost of health care services reimbursable under
Medicare and Medicaid. In addition, the Medicare and Medicaid Anti-Kickback
statute and the Medicare and Medicaid Patient and Program Protection Act of 1987
(the "Anti-Kickback Laws") prohibit the payment of remuneration to any person in
return for the referral of Medicare or Medicaid patients. Sanctions for
violating the Anti-Fraud Amendments and the Anti-Kickback Laws include criminal
and civil penalties and exclusion from Medicare and Medicaid programs.
The Omnibus Reconciliation Act of 1989 and the Omnibus Budget
Reconciliation Act of 1993 provide that a physician who has a financial
relationship with providers of certain designated health services, including
inpatient and outpatient hospital services, is generally prohibited from
referring patients to them. If any such financial relationship exists, the
entity is generally prohibited from receiving reimbursement payments for
services under the Medicare or Medicaid programs. Intensiva believes it is in
compliance with these laws and regulations.
GRAMM-RUDMAN-HOLLINGS ACT. The Company's Medicare revenues may be adversely
effected by the Balanced Budget and Emergency Deficit Control Act of 1985, as
amended (the "Gramm-Rudman-Hollings Act") which would reduce federal spending in
order to remove the excess deficit. Under the Gramm-Rudman-Hollings Act, the
Medicare program may be reduced by up to four percent. If reductions are made in
the Medicare program, payments to providers who are paid on a reasonable cost
basis may be reduced.
STATE REGULATORY ENVIRONMENT. Certain states regulate hospital rates. At
this time, the Company does not operate any hospitals in any states that
regulate rates. However, the adoption of such legislation or other cost
containment measures in states in which the Company operates could have a
material adverse effect on the Company's hospitals and revenues and operating
income. The Company is unable to predict whether and in what form any such
legislation might be adopted. The Company's business, financial condition or
results of operations could be affected by other state rate setting laws.
Certain states in which the Company operates require hospitals to disclose
specified financial information. In addition to federal anti-fraud and
anti-kickback statutes, many states have enacted statewide limitations on
physician referrals to entities providing services
11
<PAGE> 13
reimbursed by Medicare, Medicaid or other third-party payors. State laws
governing physician referrals vary from notice requirements to absolute
prohibitions. Intensiva believes it is in compliance with such regulations.
ACCREDITATION
Hospitals may receive accreditation from JCAHO, a nationwide
non-governmental commission which establishes standards relating to the physical
plant, administration, quality of patient care and operation of medical staffs
of hospitals. The purpose of this accreditation is to (i) promote ongoing
compliance with industry recognized standards for hospitals, (ii) assist
management in analyzing each hospital to identify opportunities to improve
patient care, and (iii) assist in patient attraction. Generally, hospitals and
certain other health care facilities are required to have been in operation for
at least six months in order to be eligible for accreditation by JCAHO. After
conducting on-site surveys, JCAHO awards accreditation for up to three years to
hospitals found to be in substantial compliance with JCAHO standards. Accredited
hospitals are periodically resurveyed, at the option of JCAHO, upon a major
change in facilities or organizations and after merger or consolidation. Through
February 28, 1998, 15 of the Company's hospitals have received JCAHO
accreditation. In March 1998, one of the remaining two hospitals received JCAHO
accreditation; the other is scheduled for a survey in mid-1998.
INSURANCE
The Company maintains professional liability coverage on each of its
facilities in addition to coverage for the customary risks inherent in the
operation of health care facilities and business in general. The current
policies provide coverage on an occurrence basis. The Company's management
believes that it has adequate professional liability coverage. The Company also
currently maintains a directors' and officers' liability insurance policy. The
Company believes that it will be able to continue to maintain adequate
insurance; however, there can be no assurance that adequate insurance will be
available on terms acceptable to the Company.
EMPLOYEES
The Company had approximately 890 full-time employees and approximately 585
part-time employees as of February 28, 1998. The Company believes its
relationship with its employees is good.
EXECUTIVE OFFICERS OF THE COMPANY
As of February 28, 1998, the executive officers of the Company were as
follows:
David W. Cross is a founder of the Company and has served as President and
Chief Executive Officer and as a Director since the Company's inception in 1994.
Prior to founding the Company, Mr. Cross was a founder, the President and Chief
Executive Officer, and a director of Advanced Rehabilitation Resources, Inc.,
serving in each of these capacities from 1990 to 1993. From 1987 to 1990, he was
Senior Vice President of Business Development for RehabCare Group, Inc., a
publicly traded rehabilitation care company, and in 1993 and 1994 served as
Executive Vice President and Chief Development Officer of RehabCare Group, Inc.
Mr. Cross currently serves on the board of directors of Odyssey Healthcare,
Inc., a hospice health care company, and he is a Trustee and President of the
Long-Term Acute Care Hospital Association of America, a trade association. Mr.
Cross holds a B.A. from the University of California at Fullerton.
John R. Lewis is a founder of the Company and has served as Executive Vice
President and Chief Operating Officer since its inception in 1994. Prior to
joining the Company, Mr. Lewis was a co-founder of Advanced Rehabilitation
Resources, Inc. and served as its Chief Operating Officer from 1990 to 1993.
From 1984 until 1990, he served as the Chief Operating Officer of RehabCare
Group, Inc. and in 1993 and 1994 served in various senior executive positions
including Chief Operating Officer with RehabCare Group, Inc. Mr. Lewis holds an
M.A. from Ohio University.
John P. Keefe has served as Chief Financial Officer for the Company since
June 1995. From 1993 to 1995, Mr. Keefe served as Northwestern Region Area
Manager for Sons of Norway, a fraternal insurance
12
<PAGE> 14
company, and from 1988 to 1993, he served as Chief Financial Officer and Senior
Vice President for Safecare Health Services, a hospital management company. From
1980 until 1988, he held senior level financial positions with American Medical
International, a hospital management company. He also served as the Chief
Financial Officer for the George Washington University Health Plan. Mr. Keefe is
a certified public accountant and holds a B.A. in business administration from
Georgia State University.
ITEM 2. PROPERTIES
As of December 31, 1997, the Company leased approximately 15,000 square
feet for each of its 17 hospital facilities. The Company considers all of its
physical properties to be in good operating condition and suitable for the
purposes for which they are being used. The Company leases approximately 12,000
square feet for its corporate headquarters in St. Louis, Missouri.
ITEM 3. LEGAL PROCEEDINGS
As is typical in the healthcare industry, the Company is subject to claims
and legal actions by patients and others in the ordinary course of business. The
Company believes that all such claims and actions currently pending against it
either are adequately covered by insurance or would not have a material adverse
effect on the Company if decided in a manner unfavorable to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
13
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of February 28, 1998, the Company had 32 shareholders of record.
The Company's Common Stock is listed and traded on the NASDAQ National
Market ("NNM") under the symbol "IHCC". The Company began trading on the NNM on
October 10, 1996. The high and low sale prices as reported on the NNM during the
first, second, third and fourth quarters of 1997 and the fourth quarter of 1996
(period from October 10, 1996 through December 31, 1996) were as follows:
<TABLE>
<CAPTION>
PRICE RANGE
--------------
1997 HIGH LOW
---- ------ ------
<S> <C> <C>
Fourth Quarter.............................................. $8 5/8 $6 1/8
Third Quarter............................................... 11 1/4 6
Second Quarter.............................................. 8 7/8 6 1/8
First Quarter............................................... 11 1/4 6 1/4
</TABLE>
<TABLE>
<CAPTION>
1996
----
<S> <C> <C>
Fourth Quarter (from October 10 to December 31, 1996)....... 11 3/8 6
</TABLE>
The Company has never declared or paid dividends on its common stock from
July 18, 1994 (inception) through December 31, 1997, and does not anticipate
paying dividends for the foreseeable future.
14
<PAGE> 16
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM
JULY 18, 1994
(INCEPTION)
YEAR ENDED DECEMBER 31, THROUGH
------------------------------------ DECEMBER 31,
1997 1996 1995 1994
---- ---- ---- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net revenue................................... $69,589 $ 18,748 $ 1,488 --
Operating expenses............................ 59,913 18,863 2,521 --
General and administrative.................... 4,606 3,247 1,884 $ 214
Provision for doubtful accounts............... 1,952 1,176 139 --
Depreciation and amortization................. 1,565 817 29 --
---------- --------- --------- -------
Operating income (loss)....................... 1,553 (5,355) (3,085) (214)
Interest income (expense), net................ 178 369 238 (1)
---------- --------- --------- -------
Income (loss) before income taxes............. 1,731 (4,986) (2,847) (215)
Provision for income taxes.................... 94 -- -- --
---------- --------- --------- -------
Net income (loss)............................. $1,637 $(4,986) $(2,847) $ (215)
========== ========= ========= =======
Basic and diluted income (loss)
per share..................................... $0.16 $(1.54) $(2.14) $(0.27)
========== ========= ========= =======
Weighted average shares outstanding used in
calculation of per share amounts:
Basic...................................... 9,929,598 3,229,313 1,332,100 786,397
========== ========= ========= =======
Diluted.................................... 10,463,800 3,229,313 1,332,100 786,397
========== ========= ========= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1996 1995 1994
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents.............................. $ 1,434 $ 2,885 $11,261 $ 190
Working capital........................................ 20,029 19,691 11,207 4,173
Total assets........................................... 43,260 29,368 13,698 4,560
Long-term obligations and revolving credit facility,
less current portion................................ 3,248 635 291 --
Stockholders' equity................................... 23,792 22,146 11,790 4,238
</TABLE>
The Company completed an initial public offering of its common stock during
1996, netting $15.3 million for 2,875,000 shares (including the underwriters
over-allotment option).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Intensiva provides highly specialized, acute long-term care for critically
ill or injured patients who require intensive medical monitoring and treatment,
and who often have multiple medical conditions and are medically unstable. The
Company provides high quality, cost effective, specialized care for its
patients, who typically require an average length of stay of greater than 25
days in an intensive inpatient setting. Intensiva's medical staffs provide
specialized medical services, as well as nursing and respiratory care, and the
Company is expanding disease-specific pathways to treat pulmonary, cancer, renal
and cardiac conditions, among others. The Company's clinical programs utilize
specialized staff, equipment and protocols for the treatment of its patients.
Intensiva leases underutilized space from Host Hospitals in underserved
markets, creating a separate "hospital within a hospital." By leasing space from
the Host Hospital, Intensiva is able to minimize capital
15
<PAGE> 17
and overhead costs, including the costs to purchase and operate the physical
plant and expensive medical and diagnostic equipment. The Company is able to
purchase certain services from its Host Hospitals, such as laboratory and
radiology (MRI, CAT Scan, X-Ray), as well as hotel services such as laundry,
housekeeping, dietary and property management. The Company's business model
contemplates for each of its specialized hospitals to become certified by
Medicare as "long-term care hospitals" exempt from PPS after approximately seven
months of operations. This exemption will enable the hospitals to receive
cost-based reimbursement (subject to certain caps), which the Company believes
is more appropriate given the medical condition of its patients. In addition,
the Company's business model seeks to maintain the anticipated payor mix which
includes both non-governmental and governmental payors. The Company is
reimbursed by non-governmental payors on a per diem or per discharge basis,
through fee for service arrangements, or through negotiated discounts from
established charges.
Operations begin approximately four to five months after an agreement is
executed (and a CON is approved, if necessary) with a Host Hospital. During the
qualification period, the Company spends approximately one million dollars per
facility on renovation costs, equipment purchases, pre-opening costs and working
capital before the facility becomes eligible for certification as a long-term
care hospital. Patient volumes are lower during the qualification phase while
physicians, case managers, and payors are educated as to the benefits of the
Company's clinical services.
During 1995, the Company's first certified long-term care hospital
generated net revenues of $690,000 and had an operating loss of $13,000 in its
first two months of PPS-exempt operations. In contrast, the Company generated
net revenues of $800,000 and direct operating losses (exclusive of general and
administrative expenses) of $1.2 million from all other facilities during fiscal
1995.
During 1996, four additional hospitals obtained Medicare certification as
long-term care hospitals. The five Medicare certified long-term care hospitals
generated net revenues of $12.9 million and an operating margin (exclusive of
general and administrative expenses) of $1.1 million, or 8.5%, from long-term
care operations during 1996. In contrast, all other clinical operations
generated net revenues of $5.8 million and had operating losses (exclusive of
general and administrative expenses) of $3.1 million during the same period.
During 1997, four additional hospitals obtained certification as long-term
care hospitals. In addition, the Company opened a satellite location at one of
its existing long-term care hospitals. The satellite location operates under the
existing hospital's certification and therefore was opened as a long-term care
hospital. The ten locations that are certified as long-term care hospitals at
December 31, 1997 generated net revenues of $59.8 million and an operating
margin (exclusive of general and administrative expenses) of $6.3 million, or
10.5%, from long-term care operations during 1997. In contrast, all other
clinical operations generated net revenues of $9.8 million and had operating
losses (exclusive of general and administrative expenses) of $.3 million during
the same period. The Company continues to believe that it will realize operating
losses during at least the first seven months of operations at each location.
As of February 28, 1998, the Company operates 17 facilities in seven
states. In addition, the Company has two other facilities under development, has
entered into four additional lease agreements, and has signed four letters of
intent to open new hospitals. The Company anticipates opening four facilities in
the second quarter of 1998.
16
<PAGE> 18
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, the percentages
of net revenues represented by certain items reflected in the Company's
consolidated statements of operations:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net revenues......................................... 100.0% 100.0% 100.0%
Expenses:
Operating expenses................................. 86.1 100.6 169.4
General and administrative......................... 6.6 17.3 126.6
Provision for doubtful accounts.................... 2.8 6.3 9.4
Depreciation and amortization...................... 2.3 4.4 1.9
----- ----- ------
Total costs and expenses........................ 97.8 128.6 307.3
----- ----- ------
Operating income (loss).............................. 2.2 (28.6) (207.3)
Interest income, net................................. 0.3 2.0 16.0
----- ----- ------
Income (loss) before income taxes.................... 2.5 (26.6) (191.3)
Provision for income taxes........................... 0.1 -- --
----- ----- ------
Net income (loss).................................... 2.4% (26.6)% (191.3)%
===== ===== ======
</TABLE>
As indicated in the above table, operating expenses, general and
administrative expenses, and the provision for doubtful accounts as a percentage
of net revenues have declined over time as the Company has developed additional
facilities and existing facilities have matured.
SOURCES OF REVENUES
The Company receives payment for health care services primarily from
non-governmental payors such as managed care organizations (e.g. preferred
provider and health maintenance organizations) and other commercial health
insurance carriers (e.g. traditional indemnity insurance plans), and the federal
government and state governments under the Medicare, Medicaid and other
governmental programs. Consistent with initiatives to control health care costs,
the Company generally negotiates payments with non-governmental payors based
upon the type and extent of services to be provided to individual patients. As
of December 31, 1997, the Company had approximately 70 managed care contracts to
provide services to participating members. These managed care agreements consist
primarily of negotiated discounts from established charges, although a small
percentage of patients are treated under per diem contracts. The following table
sets forth the approximate percentages of the Company's net patient service
revenues derived from the specified payor sources indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Medicare........................................... 76.9% 73.2% 44.4%
Medicaid........................................... 3.2 0.9 2.3
HMO................................................ 0.8 1.4 2.5
PPO................................................ 4.9 6.5 2.7
Other.............................................. 14.2 18.0 48.1
----- ----- ------
100.0% 100.0% 100.0%
===== ===== ======
</TABLE>
The level of Medicare net revenues as a percentage of total net revenues is
a reflection of the maturation of a number of the Company hospitals, as the
Medicare percentage is beginning to settle into the range originally estimated
for mature hospitals. Other consists of traditional indemnity insurance and all
other arrangements with third-party payors (primarily those negotiated on a case
by case basis) with the trend toward negotiated arrangements and away from
traditional indemnity insurance.
17
<PAGE> 19
YEARS ENDED DECEMBER 31, 1997 AND 1996
Net Revenues. Net revenues for the year ended December 31, 1997 were $69.6
million compared to $18.7 million for the comparable period in 1996. This growth
of $50.9 million is primarily a result of the increase in the number of
operational facilities, as the Company had 17 operational facilities at December
31, 1997 as compared to ten operational facilities at December 31, 1996. In
addition, increased census at maturing facilities has been a significant factor
in the increase in net patient service revenues. The ten facilities in operation
at December 31, 1996 had patient days of 59,002 in 1997 and 17,319 in 1996.
Operating Expenses. Operating expenses for the year ended December 31, 1997
increased $41.1 million (218%) from the comparable period in 1996. This increase
is attributable to the same factors as those relating to the net revenues
growth. As a percentage of net revenues, operating expenses decreased from 101%
to 86%. The Company expects this percentage to continue to decline as more of
its facilities mature, although at a slower rate.
General and Administrative. General and administrative expenses for the
year ended December 31, 1997 increased $1.4 million, or 42%, from the comparable
period in 1996. The increase in expenses was primarily attributable to salaries,
related payroll taxes, and employee benefits relating to additional personnel
retained to support the Company's growth strategy. As a percentage of net
revenues, general and administrative expenses decreased from 17% to 7%. The
Company expects that its general and administrative expenses will continue to
decrease as a percentage of net revenues as the Company continues to grow and
achieve certain economies of scale, although at a slower rate.
Provision for Doubtful Accounts. The provision for doubtful accounts for
the year ended December 31, 1997 increased $776,000 (66%) from the comparable
period in 1996. Again, the increase is primarily attributable to the growth in
net revenues. As a percentage of net revenues, the provision for doubtful
accounts decreased from 6.3% to 2.8%. The Company expects this percentage to
continue to decrease as a percentage of net revenues as the Company matures,
although at a slower rate.
Depreciation and Amortization. Depreciation and amortization for the year
ended December 31, 1997 increased $748,000 (92%) from the comparable period in
1996. The increase primarily relates to the depreciation and amortization
related to the property and equipment acquired for the seven facilities opened
in 1997.
Income Taxes. Substantially all of the Company's $94,000 income tax
provision for the year ended December 31, 1997 relates to state tax obligations.
Net operating loss carryforwards offset substantially all of the Company's 1997
taxable income for federal tax purposes. The Company recorded no income tax
provision in 1996 due to the taxable loss incurred during that year. As of
December 31, 1997, the Company has approximately $2.8 million of net operating
loss carryforwards for income tax purposes, which, subject to limitations on
use, if unused, will begin to expire in the year 2009.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Net Revenues. Net revenues for the year ended December 31, 1996 were $18.7
million compared to $1.5 million for the comparable period in 1995. The Company
had ten operational sites at December 31, 1996 as compared to two operational
sites at December 31, 1995. Prior to March 1995 the Company was a development
stage company.
Operating Expenses. Operating expenses for the year ended December 31, 1996
increased $16.3 million from the comparable period in 1995. This increase is
attributable to the new facilities opened during 1996. As a percentage of net
revenues, operating expenses decreased from 169% to 101%.
General and Administrative. General and administrative expenses for the
year ended December 31, 1996 increased $1.4 million, or 72%, to $3.2 million
from the comparable period in 1995. The increase in expenses was primarily
attributable to salaries, related payroll taxes, and employee benefits relating
to additional personnel retained to support the Company's growth strategy. As a
percentage of net revenues, general and administrative expenses decreased from
127% to 17%.
18
<PAGE> 20
Provision for Doubtful Accounts. The provision for doubtful accounts for
the year ended December 31, 1996 increased $1.0 million to $1.2 million from the
comparable period in 1995. The increase is attributable to the growth in net
revenues. As a percentage of net revenues, the provision for doubtful accounts
decreased from 9.4% to 6.3%.
Depreciation and Amortization. Depreciation and amortization for the year
ended December 31, 1996 increased $787,000 to $816,000 from the comparable
period in 1995. The increase relates to the acquisition of additional property
and equipment and the amortization of a computer software license, and
organizational and pre-opening costs associated with the ten open hospitals at
December 31, 1996. Property and equipment increased from $588,000 at December
31, 1995 to $3.4 million at December 31, 1996. A computer software license was
obtained in December 1995 for $500,000 with an addendum in September 1996 for
$52,000 and is being amortized over the three-year license period.
Organizational and preopening costs totaled $234,000 and $163,000 during 1996
and 1995, respectively, with an unamortized balance of $147,000 at December 31,
1996.
Income Taxes. The Company has paid minimal income taxes to date and has
approximately $5.8 million of net operating loss carryforwards for income tax
purposes, which, subject to limitations on use, if unused, will begin to expire
in the year 2009.
YEAR ENDED DECEMBER 31, 1995 AND PERIOD (SINCE INCEPTION -- JULY 18, 1994) ENDED
DECEMBER 31, 1994
The Company began providing patient services in late March 1995. Prior to
that time, the Company was a development stage company. Activities in 1994
consisted primarily of raising capital, organizing administrative functions and
initial development activities. The Company's focus during 1995 was directed
toward market selection and the opening and operation of its first facility. In
addition, considerable effort was concentrated on preparations for opening its
Hammond, Indiana (December 1995) and Beech Grove, Indiana (January 1996)
facilities.
LIQUIDITY AND CAPITAL RESOURCES
Through October 1997, the Company had financed its operations primarily
through proceeds from the sale of the Company's equity securities. In November
1997, the Company entered into a Loan and Security Agreement to obtain a $20
million revolving credit facility that is secured by the Company's accounts
receivable and other assets. The Loan and Security Agreement, which will mature
on October 31, 2000, provides for maximum borrowings up to the lesser of the
activated loan amount ($10 million at December 31, 1997) or the Borrowing Base,
as defined, and bears interest at either the higher of (i) the prime rate or
federal funds rate (whichever is greater) plus .25%, or (ii) the 30 day LIBOR
rate plus 2.5%. Since November 1997, the Company has financed its operations
primarily through borrowings under this revolving credit facility. Although the
Company has begun to generate positive cash flows from certain of its mature
facilities, overall cash flows from operations have not been sufficient to
support ongoing operations primarily due to the time lag that is required to
obtain Medicare provider numbers at new facilities and the continuing
development of new facilities in accordance with the Company's growth strategy.
Cash flows used in investing activities have consisted primarily of capital
renovations, equipment purchases, and organizational and preopening costs
incurred prior to providing patient services at each new facility. Such
investing activities were funded by maturities of investments that were
purchased with the proceeds from the sale of the Company's equity securities and
by borrowings under the revolving credit facility.
The Company made capital expenditures of approximately $3.3 million, $2.7
million and $600,000 during the years ended December 31, 1997, 1996 and 1995,
respectively. Additional equipment was acquired through capital leases,
amounting to approximately $1.2 million, $898,000 and $55,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
During March 1996, the Company entered into a sale-leaseback agreement with
a third-party to take advantage of favorable borrowing rates and maintain
liquidity. This third-party received warrants to purchase 15,950 shares of
common stock as a part of this transaction. The net book value of assets sold
and
19
<PAGE> 21
subsequently leased under this agreement totaled $342,244. Net proceeds were
$337,792, resulting in a net loss of $4,452. As part of this agreement, the
Company obtained a $1 million commitment from the third-party to finance
additional capital expenditures. In May 1997, this agreement was amended to
extend an additional commitment of $500,000 through January 1998. Unutilized
borrowing capacity under the line of credit was approximately $413,000 at
December 31, 1997.
The accounts receivable balance at December 31, 1997 increased $25.3
million from December 31, 1996. The majority of the increase is a result of
increased census at the Company's facilities and the time lag required in
obtaining new Medicare provider numbers from the Medicare fiscal intermediaries
once a facility opens and upon completion of the qualification period. The time
lag can result in initial Medicare payments being received in excess of six
months after a facility opens. Of the seventeen facilities operating as of
December 31, 1997, ten have received certification as long-term care hospitals
and have received long-term care provider numbers. Three of the ten received the
provider numbers in the latter half of 1997 and therefore did not begin to
receive a significant level of payments until the last quarter of 1997. Such
facilities therefore were still in the process of collecting backlogged accounts
receivable as of December 31, 1997. Of the remaining seven facilities, four had
received initial provider numbers by December 31, 1997 and two of those had
begun to receive payments by the end of 1997. The Company anticipates that it
will ultimately receive long-term care certification and provider numbers for
all existing facilities.
At December 31, 1997, the Company's working capital was $20.0 million,
which is comparable to the level of working capital at December 31, 1996 of
$19.7 million. Working capital at December 31, 1996 represents an increase of
$8.5 million from December 31, 1995, which was primarily attributable to the
initial public offering of the Company's stock offset by support of ongoing
operations, investments in new facilities and development activities. The
Company expects to invest approximately $1 million per facility to fund capital
renovations, preopening costs and working capital requirements before a facility
achieves profitability.
The Company estimates that borrowings under the revolving credit facility
will be sufficient to fund its continued development and meet anticipated cash
needs of the Company for at least the next 12 months.
HEALTH CARE LEGISLATION
A discussion of the impact of recent health care legislation on the
Company's future operations is included in this Report under the heading
"Business -- Government Regulation -- Health Care Reform."
IMPACT OF INFLATION
To date, inflation has not had a significant impact on the business,
financial condition or results of operations of the Company. Inflation could,
however, affect the Company's future net revenues and results of operation. As a
result, the Company may not be able to increase revenues to account fully for
increased operating expenses. In structuring its charges, the Company attempts
to anticipate inflation levels, but there can be no assurance that the Company
will be able to anticipate fully or otherwise respond to any future inflationary
pressures.
OTHER INFORMATION
Currently, many computer systems and software products are coded to accept
only two digit entries in the date code field. These date code fields will need
to accept four digit entries to distinguish 21st century dates from 20th century
dates. As a result, many companies' software and computer systems may need to be
upgraded or replaced in order to comply with such "Year 2000" requirements. The
Company and third parties with which the Company does business rely on numerous
computer programs in their day to day operations. Because the Company was
recently organized and relies primarily on recently developed programs provided
by third parties, the Company does not anticipate that it will incur material
expense in this regard. However, the Company intends to review this issue with
its vendors over the next year to determine whether any actions need to be
taken. However, there can be no assurance that Year 2000 issues, if any, will be
resolved in 1998 or 1999. If not resolved, the issues could have a material
adverse impact on the Company's operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
20
<PAGE> 22
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INTENSIVA HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
21
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Intensiva HealthCare Corporation:
We have audited the accompanying consolidated balance sheets of Intensiva
HealthCare Corporation and subsidiaries (the Company) as of December 31, 1997
and 1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Intensiva
HealthCare Corporation and subsidiaries as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
March 2, 1998
22
<PAGE> 24
INTENSIVA HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,433,812 2,884,977
Short-term investments.................................... -- 12,987,220
Accounts receivable, less allowance for doubtful accounts
of $1,736,367 and $1,270,478, respectively............. 31,876,315 8,483,635
Inventories............................................... 781,317 254,177
Prepaid expenses.......................................... 855,429 583,204
----------- ----------
Total current assets................................. 34,946,873 25,193,213
Property and equipment, net................................. 6,882,957 3,434,560
Organizational and preopening costs, net.................... 382,777 147,117
Other assets................................................ 1,047,842 593,185
----------- ----------
$43,260,449 29,368,075
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations.................. 781,315 484,966
Current portion of revolving credit facility.............. 1,649,394 --
Accounts payable and accrued expenses..................... 7,589,180 3,077,326
Accrued salaries, wages, and benefits..................... 2,245,741 1,036,071
Accrued third-party payor settlements..................... 2,652,585 903,713
----------- ----------
Total current liabilities............................ 14,918,215 5,502,076
----------- ----------
Long-term obligations, less current portion................. 1,312,234 634,781
Revolving credit facility, less current portion............. 1,935,575 --
Deferred rent expense....................................... 1,301,984 1,085,300
Stockholders' equity:
Series A convertible preferred stock, $0.001 par value,
3,465,000 shares authorized, none outstanding in 1997
and 1996............................................... -- --
Series B convertible preferred stock, $0.001 par value,
2,232,962 shares authorized, none outstanding in 1997
and 1996............................................... -- --
Common stock, $0.001 par value, 70,000,000 shares
authorized, 9,969,045 and 9,905,062 shares issued and
outstanding, respectively.............................. 9,969 9,905
Additional paid-in capital................................ 30,193,647 30,184,544
Accumulated deficit....................................... (6,411,175) (8,048,531)
----------- ----------
Total stockholders' equity........................... 23,792,441 22,145,918
----------- ----------
$43,260,449 29,368,075
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 25
INTENSIVA HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net patient service revenues........................... $69,589,496 18,748,042 1,488,389
Costs and expenses:
Operating expenses................................... 59,913,263 18,863,038 2,520,873
General and administrative........................... 4,605,961 3,246,989 1,884,063
Provision for doubtful accounts...................... 1,951,890 1,176,308 139,508
Depreciation and amortization........................ 1,565,004 816,389 29,494
----------- ----------- ----------
Total costs and expenses........................ 68,036,118 24,102,724 4,573,938
----------- ----------- ----------
Operating income (loss)......................... 1,553,378 (5,354,682) (3,085,549)
Interest income........................................ 412,706 450,449 266,668
Interest expense....................................... (235,171) (81,393) (28,604)
----------- ----------- ----------
Income (loss) before income taxes............... 1,730,913 (4,985,626) (2,847,485)
Provision for income taxes............................. 93,557 -- --
----------- ----------- ----------
Net income (loss)............................... $ 1,637,356 (4,985,626) (2,847,485)
=========== =========== ==========
Basic and diluted income (loss) per share....... $0.16 (1.54) (2.14)
=========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 26
INTENSIVA HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
COMMON STOCK
PREFERRED STOCK ------------------ ADDITIONAL TOTAL
------------------- NUMBER OF PAID-IN ACCUMULATED STOCKHOLDERS'
SERIES A SERIES B SHARES AMOUNT CAPITAL DEFICIT EQUITY
-------- -------- --------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1995.................. $ 2,365 $ -- 1,332,100 $1,332 $ 4,449,384 $ (215,420) $ 4,237,661
Issuance of Series A
convertible preferred
stock, 1,100,000
shares................ 1,100 -- -- -- 1,998,900 -- 2,000,000
Issuance of Series B
convertible preferred
stock, 2,232,967
shares................ -- 2,233 -- -- 8,397,767 -- 8,400,000
Net loss........... -- -- -- -- -- (2,847,485) (2,847,485)
------- ------- --------- ------ ----------- ----------- -----------
Balance, December 31,
1995.................. 3,465 2,233 1,332,100 1,332 14,846,051 (3,062,905) 11,790,176
Conversion of preferred
stock................. (3,465) (2,233) 5,697,962 5,698 -- -- --
Issuance of 2,875,000
shares of common
stock, net of issuance
costs................. -- -- 2,875,000 2,875 15,338,493 -- 15,341,368
Net loss........... -- -- -- -- -- (4,985,626) (4,985,626)
------- ------- --------- ------ ----------- ----------- -----------
Balance, December 31,
1996.................. -- -- 9,905,062 9,905 30,184,544 (8,048,531) 22,145,918
Issuance of 63,983
shares of common stock
in connection with
exercise of stock
options............... -- -- 63,983 64 9,103 -- 9,167
Net income......... -- -- -- -- -- 1,637,356 1,637,356
------- ------- --------- ------ ----------- ----------- -----------
Balance, December 31,
1997.................. $ -- $ -- 9,969,045 $9,969 $30,193,647 $(6,411,175) $23,792,441
======= ======= ========= ====== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 27
INTENSIVA HEALTHCARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $ 1,637,356 (4,985,626) (2,847,485)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization..................... 1,565,004 816,389 29,494
Provision for doubtful accounts................... 1,951,890 1,176,308 139,508
Increase in accounts receivable................... (25,344,570) (8,674,246) (1,125,205)
Increase in inventories, prepaid expenses, and
other assets.................................... (784,274) (796,458) (130,665)
Increase in accounts payable and accrued
expenses........................................ 4,511,854 2,593,619 438,320
Increase in accrued salaries, wages, and
benefits........................................ 1,209,670 811,932 212,871
Increase in accrued third-party payor
settlements..................................... 1,748,872 903,713 --
Increase in accrued rent differential............. 216,684 651,967 433,333
------------ ----------- -----------
Net cash used in operating activities........... (13,287,514) (7,502,402) (2,849,829)
------------ ----------- -----------
Cash flows from investing activities:
Additions to property and equipment.................. (3,323,707) (2,670,071) (555,171)
Proceeds from sale of equipment...................... -- 337,792 --
Organizational and preopening costs.................. (542,742) (233,655) (162,881)
Purchase of short-term investments................... -- (13,725,125) --
Maturities of short-term investments................. 12,987,220 737,905 --
------------ ----------- -----------
Net cash provided by (used in) investing
activities................................... 9,120,771 (15,553,154) (718,052)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of preferred stock............ -- 15,341,368 14,704,900
Proceeds from exercise of stock options.............. 9,167 -- --
Net borrowings under revolving credit facility....... 3,584,969 -- --
Debt issuance costs incurred......................... (140,322) -- --
Payments on long-term obligations.................... (738,236) (397,057) (65,881)
Repayment of note payable -- stockholder............. -- (265,200) --
------------ ----------- -----------
Net cash provided by financing activities....... 2,715,578 14,679,111 14,639,019
Increase (decrease) in cash and cash
equivalents.................................. (1,451,165) (8,376,445) 11,071,138
Cash and cash equivalents, beginning of year........... 2,884,977 11,261,422 190,284
------------ ----------- -----------
Cash and cash equivalents, end of year................. $ 1,433,812 2,884,977 11,261,422
============ =========== ===========
Supplemental cash flow information:
Cash paid for interest............................... $ 235,171 81,393 28,604
Cash paid for income taxes........................... 43,000 -- --
Supplemental information -- noncash investing and
financing activity:
Acquisition of software license through long-term
obligation........................................ 555,034 52,250 512,500
Acquisition of equipment through capital leases...... 1,156,824 897,960 54,609
============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 28
INTENSIVA HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) Description of Business
Intensiva HealthCare Corporation and subsidiaries (the Company) was
incorporated in Delaware on July 18, 1994. The Company is developing and
operating a network of long-term care hospitals in certain health care markets
across the United States. Prior to 1996, activities primarily consisted of
raising capital, obtaining financing, and organizing administrative functions.
(b) Principles of Consolidation
The consolidated financial statements of the Company include all of its
wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
(c) Cash and Cash Equivalents
Cash and cash equivalents consist of interest-bearing money market accounts
and debt instruments with original maturities of three months or less.
(d) Financial Instruments
Financial instruments, consisting of cash and cash equivalents, short-term
investments, accounts receivable, current liabilities, long-term obligations,
and revolving credit facility, are reported at amounts in the accompanying
consolidated balance sheets that approximate fair value at the balance sheet
dates.
(e) Short-Term Investments
Short-term investments consisted of U.S. Treasury notes, mortgage-backed
securities, and commercial paper with maturities of less than one year. These
investments were classified as held-to-maturity and were recorded at cost.
(f) Inventories
Inventories, which consist principally of medical supplies, are stated at
the lower of cost or market. Cost is determined using the first-in, first-out
method.
(g) Property and Equipment
Property and equipment are stated at cost. Equipment under capital leases
is stated at the present value of minimum lease payments. Property and equipment
of the Company are reviewed for impairment whenever events or circumstances
indicate that the asset's undiscounted expected cash flows are not sufficient to
recover its carrying amount. The Company measures an impairment loss by
comparing the fair value of the asset to its carrying amount. Fair value of an
asset is calculated as the present value of expected future cash flows.
Depreciation and amortization is calculated using the straight-line method
over the estimated useful lives of the assets. Useful lives for equipment range
from 3-15 years. Leasehold improvements are amortized over the shorter of the
lease term or estimated useful life of the asset, approximately five years.
(h) Organizational and Preopening Costs
Organizational and preopening costs consist of legal, consulting, and other
costs incurred by the Company during the development phase of a new hospital.
These costs are capitalized and amortized to expense over a period of twelve
months beginning when the new hospital is opened and begins to admit patients.
Costs related to marketing and development of new hospitals at the corporate
level are expensed as incurred.
27
<PAGE> 29
INTENSIVA HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(i) Other Assets
Other assets primarily consist of software license agreements with a book
value of approximately $879,000 and $490,000 at December 31, 1997 and 1996,
respectively. The software licenses are being amortized into expense over the
three-year estimated useful lives of the licenses.
(j) Deferred Rent Expense
Certain of the leases on the Company's health care facilities include
scheduled base rent increases over the terms of the leases. The total base rent
payments are being charged to expense on the straight-line method over the term
of the leases. Deferred rent expense represents the excess of rent expense over
cash payments since inception of the leases.
(k) Income Taxes
Deferred taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year in which
those differences are expected to be recovered or settled.
(l) Revenue Recognition
The Company recognizes revenue as services are provided to patients.
The Company has agreements with third-party payors that provide for patient
care reimbursement at rates that may differ from the customary charges for such
care. During the qualification period to become certified as a long-term care
hospital (which historically has been approximately six to seven months from the
opening of the facility for the Company), the Medicare program reimburses the
Company under either the Prospective Payment System, which provides for payment
at predetermined amounts based on the discharge diagnosis, or under a cost-based
methodology. Upon obtaining certification as a long-term care hospital, the
Company's hospitals receive cost-based reimbursement, subject to certain
limitations specific to long-term care hospitals, from the Medicare program.
Payment for patient services covered by certain commercial insurance carriers,
health maintenance organizations, and preferred provider organizations are based
upon reimbursement agreements which include negotiated rates for specific
services, discounts from established charges, and prospectively determined per
diem rates.
Net patient service revenues and related accounts receivable are reported
at the estimated net realizable amounts from patients, third-party payors, and
others for services rendered. Retroactive adjustments are accrued on an
estimated basis in the period the related services are rendered and adjusted in
future periods as final settlements are determined. Final settlements are
determined after submission of annual cost reports by the Company and audits
thereof by the Medicare fiscal intermediary.
(m) Medicare Credit Risk and Payor Concentration
Approximately 77%, 73%, and 44% of the Company's net patient service
revenues for 1997, 1996, and 1995, respectively, were derived from funds under
the Medicare program, and approximately 75% and 83% of the Company's net
accounts receivable at December 31, 1997 and 1996, respectively, are from this
payor source.
Ten of the Company's facilities which have been certified by Medicare as
long-term care hospitals at December 31, 1997 accounted for approximately $59.8
million of net patient service revenues in 1997. Significant reductions in the
level of revenues attributable to these facilities may occur if the Company is
unable to maintain the certification of these facilities as long-term care
hospitals in accordance with Medicare
28
<PAGE> 30
INTENSIVA HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rules and regulations, including the maintenance of an average length of stay of
at least 25 days at each individual facility. Also, the Company's facilities
operate in space leased from general acute care hospitals (host hospitals), and
consequently, all of its seventeen facilities in operation at December 31, 1997
are subject to Medicare "hospitals within hospitals" (HIH) rules and
regulations. These rules and regulation are designed to insure that the
Company's facilities are organizationally and functionally independent of their
host hospitals. For purposes of measuring independence, the Medicare rules and
regulations include requirements that the Company's facilities either purchase
no more than 15% of their total operating expenses from the host hospitals or
receive no more than 25% of patient referrals from the host hospitals.
Significant reductions in the Company's level of revenues attributable to its
facilities may occur if the Company is unable to maintain its facilities' status
as HIH's in accordance with Medicare rules and regulations.
Management believes that all its facilities are in compliance with the
Medicare rules and regulations covering long-term care hospitals and HIH
facilities. However, in light of the lack of regulatory guidance and scarcity of
case law interpreting these regulations, there can be no assurance that the
Company's facilities will have been found to be in compliance with these
regulations and, if so, whether any sanctions imposed would have a material
adverse effect on the financial position or results of operations of the
Company.
(n) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the period. Actual results may differ from those estimates.
(o) Net Income (Loss) Per Share
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, (SFAS 128).
SFAS 128 replaces the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. All earnings per
share amounts for all periods have been presented to conform to SFAS 128
requirements.
Basic and diluted income (loss) per share was computed using net income
(loss) and the weighted average number of shares of common stock and common
stock equivalents. The weighted average numbers of shares of common stock and
common stock equivalents used in the computation of basic and diluted income per
share for the year ended December 31, 1997 were 9,929,598 and 10,463,800,
respectively. The difference between the two amounts relates to the effect of
dilutive stock options and warrants. The weighted average numbers of shares of
common stock and common stock equivalents used in the computation of both basic
and diluted income per share for the years ended December 31, 1996 and 1995 were
3,229,313 and 1,332,100, respectively.
(p) Stock-Based Compensation
The Company uses the intrinsic value method prescribed by Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
25), and related interpretations in accounting for its stock options. The
Company has adopted the pro forma disclosures-only provisions of SFAS 123,
Accounting for Stock-Based Compensation.
(q) Reclassifications
Certain prior year amounts have been reclassified to conform with current
year presentation.
29
<PAGE> 31
INTENSIVA HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) ALLOWANCE FOR DOUBTFUL ACCOUNTS
Activity in the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year................. $1,270,478 $ 139,508 $ --
Provision for doubtful accounts.............. 1,951,890 1,176,308 139,508
Accounts written off......................... (1,486,001) (45,338) --
---------- ---------- --------
Balance at end of year....................... $1,736,367 $1,270,478 $139,508
========== ========== ========
</TABLE>
(3) PROPERTY AND EQUIPMENT
Property and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Leasehold improvements................................ $4,329,372 2,195,080
Equipment............................................. 1,954,120 764,525
Equipment under capital leases........................ 2,109,393 952,569
---------- ----------
8,392,885 3,912,174
Less accumulated depreciation and amortization........ 1,509,928 477,614
---------- ----------
Property and equipment, net......................... $6,882,957 3,434,560
========== ==========
</TABLE>
(4) SALE LEASEBACK AGREEMENT
During March 1996, the Company entered into a sale leaseback agreement with
a third party to take advantage of favorable borrowing rates and maintain
liquidity. This third party received warrants to purchase 15,950 shares of the
Company's common stock. The warrants are exercisable for up to seven years at a
price of $3.76 per share. As of December 31, 1997, the warrants have not been
exercised. The net book value of assets sold and subsequently leased back under
this agreement totaled $342,244. Net proceeds were $337,792, resulting in a net
loss of $4,452 which was charged to operations in 1996. As part of this
agreement, the Company obtained a $1 million commitment from the third party to
finance additional capital expenditures. In May 1997, this agreement was amended
to extend an additional commitment of $500,000 through January 1998. The
long-term obligations under this arrangement are secured by certain equipment,
bear interest at 8%, and are repayable monthly through September 2001.
Borrowings outstanding of approximately $820,000 and $458,700 are included in
capital lease obligations at December 31, 1997 and 1996, respectively. The
unutilized borrowing capacity under the additional commitment was approximately
$413,000 at December 31, 1997.
30
<PAGE> 32
INTENSIVA HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Capital lease obligations, interest ranging from 8% to
15%, payable monthly through 2002..................... $1,645,218 820,886
Notes payable, interest at 6.5%, payable monthly through
June 1999............................................. 448,331 298,861
---------- --------
2,093,549 1,119,747
Less current portion.................................... 781,315 484,966
---------- --------
$1,312,234 634,781
========== ========
</TABLE>
Capital lease obligations are secured by various medical equipment at each
facility such as ventilators, x-ray machines, IV pumps, and cardiac monitors.
The net book value of equipment under capital leases was $1,719,254 at December
31, 1997. The notes payable relate to software license agreements.
The aggregate maturities of long-term obligations at December 31, 1997 are
as follows:
<TABLE>
<S> <C>
1998........................................................ $ 971,658
1999........................................................ 741,560
2000........................................................ 481,889
2001........................................................ 235,331
2002 and thereafter......................................... 66,177
----------
2,496,615
Less interest on capital lease obligations.................. 403,066
----------
$2,093,549
==========
</TABLE>
(6) REVOLVING CREDIT FACILITY
In November 1997, the Company entered into a Loan and Security Agreement
(Agreement) to obtain a $20 million revolving credit facility that is secured by
a first security interest in the Company's accounts receivable and other assets.
The Agreement, which will mature on October 31, 2000, provides for maximum
borrowings up to the lesser of the activated loan amount ($10 million at
December 31, 1997) or the Borrowing Base, as defined, and bears interest at
either the higher of (i) the prime rate or federal funds rate (whichever is
greater) plus .25%, or (ii) the 30-day LIBOR rate plus 2.5%. The remaining $10
million in borrowing capacity can be activated by the Company at any time with
the payment of an activation fee of $75,000 so long as no event of default has
occurred under the Agreement. Had the additional borrowing capacity been
activated at December 31, 1997, unused availability on that date would have
totaled $8,212,063. The Agreement includes restrictive covenants involving
limitations on capital expenditures and other borrowings, adherence to certain
financial measurements, and restrictions on the payment of dividends. The
Company pays annual fees on the unused and unactivated portions of the revolving
credit facility of .5% and .125%, respectively. The Company paid interest in
1997 at a weighted average interest rate of 8.75%.
(7) STOCKHOLDERS' EQUITY
On October 10, 1996, the Company completed its Initial Public Offering
(IPO) and sold 2.5 million shares of common stock, the net proceeds from which
aggregated approximately $13.2 million. On
31
<PAGE> 33
INTENSIVA HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
November 7, 1996, the underwriters' exercised the over-allotment option,
resulting in the sale of 375,000 additional shares of common stock, the net
proceeds from which aggregated approximately $2.1 million.
Prior to the Company's IPO, the Company had two series of convertible
preferred stock outstanding. Series A and B convertible preferred stock required
a cumulative dividend of 8% per annum. Each share of preferred stock was
convertible into one share of common, or under certain circumstances, the
Company could have redeemed the shares for cash or forced conversion into common
shares. In connection with the Company's IPO, all preferred stock then
outstanding was converted into 5,697,962 shares of common stock.
The Company has two stock option plans which provide for the issuance of
options to key employees and directors. Under the Intensiva HealthCare
Corporation Stock Option Plan (1995 Plan) established in 1995, up to 785,400
options to purchase common shares may be issued to employees and directors.
Under the Intensiva HealthCare Corporation Directors Stock Option Plan (1997
Plan), established in 1997, up to 60,000 options to purchase common shares may
be issued to directors. Both plans require that the exercise price of options
issued must be at least equal to the fair market value of the shares of stock at
the date of grant and the term of the options may not exceed ten years.
Aggregate information relating to stock option activity under the 1995 Plan
and 1997 Plan is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Number of shares under stock options:
Outstanding at beginning of year.......................... 575,850 536,800 --
Granted................................................... 181,000 39,050 536,800
Exercised................................................. (63,983) -- --
Forfeited................................................. (5,500) -- --
-------- ------- -------
Outstanding at end of year................................ 687,367 575,850 536,800
Exercisable at end of year................................ 267,973 204,332 69,703
Weighted average exercise price:
Granted................................................... $ 7.21 5.42 .08
Exercised................................................. .14 -- --
Forfeited................................................. 6.00 -- --
Outstanding at end of year................................ 2.21 .44 .08
Exercisable at end of year................................ .70 .26 .08
</TABLE>
Aggregate information relating to stock options outstanding and stock
options exercisable at December 31, 1997 is as follows:
OPTIONS OUTSTANDING
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OUTSTANDING AT REMAINING WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES DECEMBER 31, 1997 CONTRACTUAL LIFE EXERCISE PRICE
------------------------ ----------------- ---------------- ----------------
<S> <C> <C> <C>
$.08............................................ 473,917 7.4 $ .08
$3.76........................................... 9,075 8.5 3.76
$6.00-$7.875.................................... 204,375 9.3 7.07
-------
687,367
=======
</TABLE>
32
<PAGE> 34
INTENSIVA HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OPTIONS EXERCISABLE
<TABLE>
<CAPTION>
EXERCISABLE AT WEIGHTED AVERAGE
RANGE OF EXERCISE PRICES DECEMBER 31, 1997 EXERCISE PRICE
------------------------ ----------------- ----------------
<S> <C> <C>
$.08........................................................ 239,826 $ .08
$3.76....................................................... 9,075 3.76
$6.00-$7.875................................................ 19,072 6.98
-------
267,973
=======
</TABLE>
No compensation expense relating to stock option grants was recorded in
1997, 1996, or 1995 as the option exercise prices were equal to fair value at
the dates of grant.
Pro forma information regarding income (loss) and income (loss) per share
is required by SFAS 123, and has been determined as if the Company had accounted
for its stock options under the fair value method of SFAS 123. The fair value
was estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted average assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Risk-free interest rate..................................... 5.8% 6.1% 5.5%
Dividend yield.............................................. 0.0 0.0 0.0
Volatility factor........................................... .765 .000 .000
Weighted average expected life.............................. 5 years 5 years 5 years
</TABLE>
The Company's pro forma income (loss) and income (loss) per share compared
to reported amounts are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income (loss):
As reported............................................ $1,637,356 (4,985,626) (2,847,485)
Pro forma.............................................. 1,509,944 (5,000,482) (2,848,842)
Basic and diluted income (loss) per share:
As reported............................................ 0.16 (1.54) (2.14)
Pro forma:
Basic............................................... 0.15 (1.55) (2.14)
Diluted............................................. 0.14 (1.55) (2.14)
Weighted average fair value of options granted during the
year................................................... 4.77 1.43 .02
</TABLE>
(8) EMPLOYEE BENEFITS
The Company sponsors a voluntary defined contribution 401(k) plan (the
Plan) that is available to substantially all employees. Each participant may
make an annual contribution to their account of an amount not to exceed 15% of
their compensation, subject to certain limitations. The Company makes a matching
contribution of 25% of participant contributions, and may make additional annual
discretionary contributions to the Plan not to exceed 15% of the total
compensation of all plan participants. Participants vest in the Company's
matching portion at a rate of 20% per year. Expense for this Plan totaled
$106,500 and $48,600 for the years ended December 31, 1997 and 1996,
respectively. For the year ended December 31, 1995, no expense was incurred by
the Company related to the Plan.
33
<PAGE> 35
INTENSIVA HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) INCOME TAXES
The provision for income taxes for the year ended December 31, 1997
consisted of $93,557 in state income taxes. No income tax expense was incurred
by the Company for the years ended December 31, 1996 and 1995.
The difference between the effective income tax rate for financial
statement purposes and the U.S. federal income tax rate of 34% for the years
ended December 31, 1997, 1996, and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Expected provision (benefit) at statutory tax rate.......... $588,510 (1,695,113) (968,145)
State taxes................................................. 93,557 -- --
Change in valuation allowance............................... (623,050) 1,690,717 968,145
Other....................................................... 34,540 4,396 --
-------- ---------- --------
$ 93,557 -- --
======== ========== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Net operating loss carryforwards...................... $ 936,032 1,968,010
Allowance for doubtful accounts....................... 590,365 435,385
Accrued expenses...................................... 198,581 54,105
Differences between book and tax basis depreciation
and amortization.................................... 276,330 166,858
---------- ----------
2,001,308 2,624,358
Less valuation allowance.............................. 2,001,308 2,624,358
---------- ----------
$ -- --
========== ==========
</TABLE>
A valuation allowance is necessary for deferred tax assets if, based on the
weight of available evidence, it is more likely than not that some portion or
all of the deferred tax asset will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
during the period in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment. The Company has approximately $2,800,000 of net operating loss
carryforwards for income tax purposes, which, if unused, will begin to expire in
the year 2009.
(10) COMMITMENTS AND CONTINGENCIES
The Company's health care facilities are located in space leased from acute
care health care providers (Host Hospitals) under operating lease agreements
with Host Hospitals of initial terms of five or more years, with varying renewal
terms. The Company leases corporate office space under a noncancellable
operating lease which expires in the year 2002.
Minimum annual lease payments on noncancellable operating leases with
maturities in excess of one year are as follows: $6,705,545 in 1998, $7,034,296
in 1999, $7,045,672 in 2000, $6,780,487 in 2001, $5,012,300 in 2002, and
$1,943,450 thereafter. Total rent expense was approximately $7,381,000,
$2,983,000, and $965,000 in 1997, 1996, and 1995, respectively.
34
<PAGE> 36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
35
<PAGE> 37
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Registrant hereby incorporates by reference the information to be set forth
under the heading "Information about the Directors" and "Stock Ownership and
Trading Reports" in the Registrant's definitive Proxy Statement to be filed
within 120 days of Registrant's fiscal year end (the "Proxy Statement").
Information respecting executive officers is set forth as a part of Item 1 of
this Report.
ITEM 11. EXECUTIVE COMPENSATION
Registrant hereby incorporates by reference the information to be set forth
under the heading "Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Registrant hereby incorporates by reference the information to be set forth
under the heading "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Registrant hereby incorporates by reference the information, if any, to be
set forth under the heading "Certain Transactions Involving Directors, Officers
and their Associates" in the Proxy Statement.
36
<PAGE> 38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Those Financial Statements, Financial Statement Schedules, and Exhibits
required by Item 601 of Regulation S-K and by paragraph (a) of Item 14: The
following financial statements, financial statement schedules, notes thereto,
and auditor's report are set forth in Item 8 to this Form 10-K.
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Independent auditors' report................................ 22
Consolidated balance sheets, as of December 31, 1997 and
1996...................................................... 23
Consolidated statements of operations for each of the years
in the three-year period ended December 31, 1997.......... 24
Consolidated statements of stockholders' equity for each of
the years in the three-year period ended December 31,
1997...................................................... 25
Consolidated statements of cash flows for each of the years
in the three-year period ended December 31, 1997.......... 26
Notes to consolidated financial statements.................. 27
</TABLE>
(b) Reports on Form 8-K: The Company filed no reports on Form 8-K for the
three months ended December 31, 1997.
(c) Exhibits: The exhibits to this Form 10-K are set forth on the Exhibit
Index filed herewith and are incorporated herein by this reference.
(d) Not applicable.
37
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Intensiva HealthCare Corporation
By /s/ DAVID W. CROSS
--------------------------------------
David W. Cross, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DAVID W. CROSS Director and Chief Executive March 26, 1998
- ------------------------------------------------ Officer
David W. Cross
/s/ JEFFREY J. COLLINSON Director March 26, 1998
- ------------------------------------------------
Jeffrey J. Collinson
/s/ MICHAEL R. HOGAN Director March 30, 1998
- ------------------------------------------------
Michael R. Hogan
/s/ WILFRED E. JAEGER, M.D. Director March 26, 1998
- ------------------------------------------------
Wilfred E. Jaeger, M.D.
/s/ JOHN P. KEEFE Principal Financial Officer and March 30, 1998
- ------------------------------------------------ Principal Accounting Officer
John P. Keefe
/s/ PHILLIP M. NUDELMAN, PH.D. Director March 30, 1998
- ------------------------------------------------
Phillip M. Nudelman, Ph.D.
/s/ DAVID L. STEFFY Director March 30, 1998
- ------------------------------------------------
David L. Steffy
Director
- ------------------------------------------------
James B. Tananbaum, M.D.
</TABLE>
38
<PAGE> 40
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3(i).1 The Company's Amended and Restated Certificate of
Incorporation was previously filed as Exhibit 3(i).1 to the
Company's Registration Statement on Form S-1 (Reg. No.
333-08899) and is incorporated herein by this reference.
3(i).2 The Company's Certificate of Amendment to Amended and
Restated Certificate of Incorporation was previously filed
as Exhibit 3(i).2 to the Company's Registration Statement on
Form S-1 (Reg. No. 333-08899) and is incorporated herein by
this reference.
3(i).3 The Company's Third Amended and Restated Certificate of
Incorporation was previously filed as Exhibit 3(i).1 to the
Company's Form 10-Q for the quarter ended September 30, 1996
and is incorporated herein by this reference.
3(i).4 The Company's Certificate of Amendment to Amended and
Restated Certificate of Incorporation was previously filed
as Exhibit 3(i).4 to the Company's Registration Statement on
Form S-1 (Reg. No. 333-08899) and is incorporated herein by
this reference.
3(ii).1 The Company's By-Laws were previously filed as Exhibit
3(ii).1 to the Company's Registration Statement on Form S-1
(Reg. No. 333-08899) and are incorporated herein by this
reference.
3(ii).2 The Company's Amended and Restated By-Laws were previously
filed as Exhibit 3(ii).2 to the Company's Registration
Statement on Form S-1 (Reg. No. 333-08899) and is
incorporated herein by this reference.
4.1 The Company's specimen Certificate of Shares of Common
Stock, $0.001 par value, of the Company was previously filed
as Exhibit 4.1 to the Company's Registration Statement on
Form S-1 (Reg. No. 333-08899) and is incorporated herein by
this reference.
4.2 The Company's Amended and Restated Stockholders' Agreement,
dated December 20, 1995 was previously filed as Exhibit 4.2
to the Company's Registration Statement on Form S-1 (Reg.
No. 333-08899) and is incorporated herein by this reference.
4.3 The Company's Amended and Restated Registration Rights
Agreement, dated December 20, 1995 was previously filed as
Exhibit 4.3 to the Company's Registration Statement on Form
S-1 (Reg. No. 333-08899) and is incorporated herein by this
reference.
10.1 The Company's form of Lease Agreement with Host Hospitals
was previously filed as Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (Reg. o. 333-08899) and
is incorporated herein by this reference.
10.2 The Warrant Agreement to Purchase Shares of Series B
Convertible Preferred Stock of Transitional Care of America,
Inc., by and between the Company and Comdisco, Inc., dated
as of February 15, 1996 was previously filed as Exhibit 10.2
to the Company's Registration Statement on Form S-1 (Reg.
No. 333-08899) and is incorporated herein by this reference.
10.3 The Master Lease Agreement by and between the Company and
Comdisco, Inc., dated December 11, 1995 was previously filed
as Exhibit 10.3 to the Company's Registration Statement on
Form S-1 (Reg. No. 333-08899) and is incorporated herein by
this reference.
10.4 The Agreement by and between the Company and Healthcare
Management Systems, Inc., dated November 29, 1995 was
previously filed as Exhibit 10.4 to the Company's
Registration Statement on Form S-1 (Reg. No. 333-08899) and
is incorporated herein by this reference.
10.5 The Escrow Agreement by and among the Company, Healthcare
Management Systems, Inc. and Wyatt, Tarrant & Combs, dated
November 29, 1995 was previously filed as Exhibit 10.5 to
the Company's Registration Statement on Form S-1 (Reg. No.
333-08899) and is incorporated herein by this reference.
</TABLE>
39
<PAGE> 41
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.6 The Second Amended and Restated Employment Agreement of
David W. Cross, by and between the Company and David W.
Cross, dated June 12, 1996 was previously filed as Exhibit
10.6 to the Company's Registration Statement on Form S-1
(Reg. No. 333-08899) and is incorporated herein by this
reference.*
10.7 The Second Amended and Restated Employment Agreement of John
R. Lewis, by and between the Company and John R. Lewis,
dated June 12, 1996 was previously filed as Exhibit 10.7 to
the Company's Registration Statement on Form S-1 (Reg. No.
333-08899) and is incorporated herein by this reference.*
10.8 The Employment Agreement of John P. Keefe, by and between
the Company and John P. Keefe, dated June 1, 1995 was
previously filed as Exhibit 10.8 to the Company's
Registration Statement on Form S-1 (Reg. No. 333-08899) and
is incorporated herein by this reference.*
10.9 The Employment Agreement of Samuel A. Morse, by and between
the Company and Samuel A. Morse, dated December 2, 1994 was
previously filed as Exhibit 10.9 to the Company's
Registration Statement on Form S-1 (Reg. No. 333-08899) and
is incorporated herein by this reference.*
10.11 The Employment Agreement of James D. Pomeroy, by and between
the Company and James D. Pomeroy, dated December 28, 1994
was previously filed as Exhibit 10.11 to the Company's
Registration Statement on Form S1 (Reg. No. 333-08899) and
is incorporated herein by this reference.*
10.12 The Employment Agreement of Kathie Nohre, R.N., by and
between the Company and Kathie Nohre, R.N., dated November
6, 1995 was previously filed as Exhibit 10.12 to the
Company's Registration Statement on Form S1 (Reg. No.
333-08899) and is incorporated herein by this reference.*
10.13 The Transitional Care of America, Inc. Stock Option Plan was
previously filed as Exhibit 10.13 to the Company's
Registration Statement on Form S-1 (Reg. No. 333-08899) and
is incorporated herein by this reference.*
10.26 The Employment Agreement of Tony J. Torrente, by and between
the Company and Tony J. Torrente, dated December 2, 1996 was
previously filed as Exhibit 10.26 to the Company's Form 10-K
for the year ended December 31, 1996 and is incorporated
herein by this reference.*
10.27 Equipment Schedule VL-2 dated as of May 5, 1997 to Master
Lease Agreement dated as of December 11, 1995 by and between
the Company and Comdisco, Inc. was previously filed as
Exhibit 10.27 to the Company's Form 10-Q for the quarter
ended June 30, 1997 and is incorporated herein by this
reference.
10.28 The Loan and Security Agreement, dated as of November 7,
1997, entered into among the Company, its Subsidiaries, and
Heller Financial, Inc.
10.29 The Amendment No. 1 and Waiver Agreement, dated as of
January 15, 1998, by and among the Company, its
Subsidiaries, and Heller Financial, Inc.
10.30 The Intensiva HealthCare Corporation Directors Stock Option
Plan.*
21.1 Subsidiaries of the Company
24.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule
</TABLE>
- -------------------------
* Management Contract or Compensatory Plan
40
<PAGE> 1
EXHIBIT 10.28
LOAN AND SECURITY AGREEMENT
DATED AS OF NOVEMBER 7, 1997
AMONG
INTENSIVA HEALTHCARE CORPORATION,
EACH OTHER BORROWER LISTED ON THE SIGNATURE PAGES HEREOF
AND EACH ADDITIONAL BORROWER,
AS BORROWERS
AND
HELLER FINANCIAL, INC.,
AS LENDER
<PAGE> 2
TABLE OF CONTENTS
SECTION
1 DEFINITIONS
1.1 Certain Defined Terms........................................ 1
1.2 Accounting Terms.............................................11
1.3 Other Definitional Provisions................................12
SECTION 2 LOANS AND COLLATERAL
2.1 Loans........................................................12
(A) Revolving Loan......................................12
(B) Eligible Accounts...................................12
(C) Borrowing Mechanics.................................13
(D) Evidence of Revolving Loan Obligations..............14
2.2 Interest.....................................................14
(A) Rate of Interest....................................14
(B) Computation and Payment of Interest.................15
(C) Interest Laws.......................................15
2.3 Fees.........................................................15
(A) Closing Fee and Activation Fee......................15
(B) Unused Line Fees....................................16
(B) Prepayment Fees.....................................16
(C) Collateral Management Fee...........................16
(D) Audit Fees..........................................16
(E) Other Fees and Expenses.............................16
2.4 Payments and Prepayments.....................................16
(A) Manner and Time of Payment..........................16
(B) Mandatory Prepayment................................17
(C) Voluntary Prepayments and Repayments................17
(D) Payments on Business Days...........................17
2.5 Term of this Agreement.......................................17
2.6 Statements...................................................17
2.7 Grant of Security Interest...................................17
2.8 Capital Adequacy and Other Adjustments.......................18
2.9 Taxes........................................................18
(A) No Deductions.......................................18
(B) Changes in Tax Laws.................................19
2.10 Joint and Several Obligations................................19
2.11 Additional Borrowers.........................................20
2.12 Limitation on Reserves.......................................21
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<PAGE> 3
SECTION 3 CONDITIONS TO LOANS
3.1 Conditions to Loans..........................................21
(A) Closing Deliveries..................................22
(B) Security Interests..................................22
(C) Closing Date Availability...........................22
(D) Representations and Warranties......................22
(E) Fees................................................22
(F) No Default..........................................22
(G) Performance of Agreements...........................22
(H) No Prohibition......................................22
(I) No Litigation.......................................22
(J) Payor Notification Letters..........................23
(K) Evidence of Insurance...............................23
(L) Solvency Certificate................................23
SECTION 4 BORROWERS' REPRESENTATIONS AND WARRANTIES
4.1 Organization, Powers, Capitalization.........................23
(A) Organization and Powers...............................23
(B) Capitalization........................................23
4.2 Authorization of Borrowing, No Conflict......................23
4.3 Financial Condition..........................................24
4.4 Indebtedness and Liabilities.................................24
4.5 Account Warranties...........................................24
4.6 Names........................................................25
4.7 Locations; FEIN..............................................25
4.8 Title to Properties; Liens...................................25
4.9 Litigation; Adverse Facts....................................25
4.10 Payment of Taxes.............................................25
4.11 Performance of Agreements....................................26
4.12 Employee Benefit Plans.......................................26
4.13 Intellectual Property........................................26
4.14 Broker's Fees................................................26
4.15 Environmental Compliance.....................................26
4.16 Solvency.....................................................26
4.17 Disclosure...................................................27
4.18 Insurance....................................................27
4.19 Compliance with Laws.........................................27
4.20 Bank Accounts................................................27
4.21 Subsidiaries.................................................27
4.22 Employee Matters.............................................27
4.23 Governmental Regulation......................................27
4.24 Medicare/Medicaid............................................28
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<PAGE> 4
SECTION 5 AFFIRMATIVE COVENANTS
5.1 Financial Statements and Other Reports.......................28
(A) Monthly Financials..................................28
(B) Year-End Financials.................................28
(C) Accountants' Certification and Reports..............29
(D) Compliance Certificate..............................29
(E) Collateral Report, Registers and Journals...........29
(F) Reconciliation Reports, Listings and Agings........29
(G) Management Report...................................29
(H) Government Notices..................................30
(I) Events of Default, etc..............................30
(J) Trade Names.........................................30
(K) Locations...........................................30
(L) Bank Accounts.......................................30
(M) Litigation..........................................30
(N) Projections.........................................30
(O) Subordinated Debt and Other Indebtedness Notices....31
(P) Cost Reports........................................31
(Q) Other Information...................................31
(R) Corporate Compliance Program........................31
5.2 Access to Accountants........................................31
5.3 Inspection...................................................31
5.4 Collateral Records...........................................31
5.5 Account Covenants; Verification..............................31
5.6 Collection of Accounts and Payments..........................33
5.7 Endorsement..................................................33
5.8 Corporate Existence..........................................34
5.9 Payment of Taxes.............................................34
5.10 Maintenance of Properties; Insurance.........................34
5.11 Compliance with Laws.........................................34
5.12 Further Assurances...........................................35
5.13 Use of Proceeds and Margin Security..........................35
5.14 Implementation of Electronic Data Backup System..............35
5.15 Landlord Agreement...........................................35
SECTION 6 FINANCIAL COVENANTS
6.1 Tangible Net Worth...........................................35
6.2 Capital Expenditure Limits...................................36
6.3 Fixed Charge Coverage........................................36
6.4 Alternative Minimum Adjusted Availability Test...............37
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<PAGE> 5
SECTION 7 NEGATIVE COVENANTS
7.1 Indebtedness and Liabilities.................................37
7.2 Guaranties...................................................37
7.3 Transfers, Liens and Related Matters.........................38
(A) Transfers...........................................38
(B) Liens...............................................38
(C) No Negative Pledges.................................38
(D) No Restrictions on Subsidiary Distributions to
Borrowers...........................................38
7.4 Investments and Loans........................................38
7.5 Restricted Junior Payments...................................38
7.6 Restriction on Fundamental Changes...........................39
7.7 Changes Relating to Subordinated Debt........................39
7.8 Transactions with Affiliates.................................39
7.9 Environmental Liabilities....................................39
7.10 Conduct of Business..........................................39
7.11 Compliance with ERISA........................................39
7.12 Tax Consolidations...........................................39
7.13 Subsidiaries.................................................40
7.14 Fiscal Year..................................................40
7.15 Press Release; Public Offering Materials.....................40
7.16 Bank Accounts................................................40
7.17 Collateral Matters...........................................40
SECTION 8 DEFAULT, RIGHTS AND REMEDIES
8.1 Event of Default.............................................40
(A) Payment.............................................40
(B) Default in Other Agreements.........................40
(C) Breach of Certain Provisions........................40
(D) Breach of Warranty..................................40
(E) Other Defaults Under Loan Documents.................41
(F) Change in Control...................................41
(G) Involuntary Bankruptcy; Appointment of Receiver,
etc.................................................41
(H) Voluntary Bankruptcy; Appointment of Receiver,
etc.................................................41
(I) Liens...............................................41
(J) Judgment and Attachments............................42
(K) Dissolution.........................................42
(L) Solvency............................................42
(M) Injunction..........................................42
(N) Invalidity of Loan Documents........................42
(O) Failure of Security.................................42
(P) Damage, Strike, Casualty............................42
(Q) Licenses and Permits................................42
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<PAGE> 6
(R) Medicare/Medicaid...................................43
(S) Forfeiture..........................................43
8.2 Suspension of Revolving Loan Commitment......................43
8.3 Acceleration.................................................43
8.4 Remedies.....................................................43
8.5 Appointment of Attorney-in-Fact..............................44
8.6 Limitation on Duty of Lender with Respect to Collateral......44
8.7 Application of Proceeds......................................44
8.8 Waivers, Non-Exclusive Remedies..............................45
SECTION 9 MISCELLANEOUS
9.1 Assignments and Participations...............................45
9.2 Set Off......................................................45
9.3 Expenses and Attorneys' Fees.................................46
9.4 Indemnity....................................................46
9.5 Amendments and Waivers.......................................47
9.6 Notices......................................................47
9.7 Survival of Warranties and Certain Agreements................48
9.8 Indulgence Not Waiver........................................48
9.9 Marshaling; Payments Set Aside...............................48
9.10 Entire Agreement.............................................48
9.11 Independence of Covenants....................................48
9.12 Severability.................................................49
9.13 Headings.....................................................49
9.14 APPLICABLE LAW...............................................49
9.15 Successors and Assigns.......................................49
9.16 No Fiduciary Relationship; Limitation of Liabilities.........49
9.17 CONSENT TO JURISDICTION......................................49
9.18 WAIVER OF JURY TRIAL.........................................50
9.19 Construction.................................................50
9.20 Counterparts; Effectiveness..................................50
9.21 No Duty......................................................50
9.22 Confidentiality..............................................50
9.23 Adequate Disclosure..........................................51
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EXHIBITS
A Form of Collateral Report
B Form of Compliance Certificate
C Form of Reconciliation Report
SCHEDULES
1.1(A) Other Liens
1.1(B) Acceptable Group
3.1(A) List of Closing Documents
4.1(B) Capitalization of Borrowers
4.6 Trade Names (Present and Past Five Years)
4.7 Location of Principal Place of Business, Books
and Records and Collateral
4.10 Tax Audits
4.20 Bank Accounts
4.21 Subsidiaries
4.22 Employee Matters
4.22 Medicare/Medicaid
7.1 Existing Indebtedness
7.8 Affiliate Transactions
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<PAGE> 8
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is dated as of November 7, 1997 and
entered into among INTENSIVA HEALTHCARE CORPORATION, a Delaware corporation
("Parent"), the Subsidiaries of Parent listed on the signature pages hereof and
each Additional Borrower (as hereinafter defined) (together with Parent,
individually, a "Borrower" and collectively, "Borrowers"), and HELLER FINANCIAL,
INC., a Delaware corporation ("Lender" or "Heller"), with offices at 500 West
Monroe Street, Chicago, Illinois 60661. All capitalized terms used herein are
defined in Section 1 of this Agreement.
WHEREAS, Borrowers desire that Lender extend a credit facility to
provide working capital financing and to provide funds for other general
corporate purposes; and
WHEREAS, Borrowers desire to secure their obligations under the Loan
Documents by granting to Lender a security interest in and lien upon certain of
Borrowers' property.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Borrowers and Lender agree as
follows:
SECTION
1 DEFINITIONS
1.1 Certain Defined Terms. The following terms used in this Agreement
shall have the following meanings:
"Acceptable Group" means, at any time, the Persons listed on Schedule
1.1(B).
"Accounts" means all present and future rights to payment for services
or goods or merchandise sold, accounts, receivables, contract rights, chattel
paper, instruments, documents, rights to payment, reimbursement or settlement
(including cost report settlements) under Medicare, Medicaid, CHAMPUS, CHAMPVA,
other government-sponsored or funded health care programs or insurance or other
medical benefit payments assigned to a Borrower by Patient or pursuant to any
preferred provider, HMO, capitated payment agreements, or other Borrower-Payor
agreements, and General Intangibles relating to each of the foregoing and all
guaranties and security therefor, including, without limitation, all of the
following: all of each Borrower's accounts receivable, lease receivables,
license receivables, all amounts owed to or owned by a Borrower, whether
directly, as assignee, by law or otherwise in respect of, arising or resulting
from the rendition of medical care or other services or the sale or rental of
equipment, supplies or merchandise to Patients, whether or not earned by
performance, and all books of account and records in respect of amounts owing to
a Borrower by Patients, together with all computer programs, applications,
software, and other books and records pertaining to any of the foregoing and all
proceeds of the foregoing. In addition, this definition shall include the
definition of "accounts" as that term is used in the UCC.
<PAGE> 9
"Additional Borrower" means each Subsidiary of Parent that becomes a
Borrower after the Closing Date pursuant to subsection 2.11.
"Affiliate" means any Person (other than Lender): (a) directly or
indirectly controlling, controlled by, or under common control with, a Borrower;
(b) directly or indirectly owning or holding five percent (5%) or more of the
total equity interests in a Borrower; or (c) five percent (5%) or more of whose
voting stock or other equity interest having ordinary voting power for the
election of directors or the power to direct or cause the direction of
management is directly or indirectly owned or held by a Borrower; or (d) which
has a senior executive officer who is also a senior executive officer of a
Borrower. For purposes of this definition, "control" (including with correlative
meanings, the terms "controlling", "controlled by" and "under common control
with") means the possession directly or indirectly of the power to direct or
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities or other equity interest, or by contract or
otherwise.
"Agreement" means this Loan and Security Agreement as it may be
amended, restated, supplemented or otherwise modified from time to time.
"Asset Disposition" means the disposition, whether by sale, lease,
transfer, loss, damage, destruction, condemnation or otherwise, of any or all of
the assets of a Borrower or any of its Subsidiaries other than sales of
Inventory in the ordinary course of business.
"Availability" means, at any time of determination thereof, the Maximum
Revolving Loan Amount minus the aggregate outstanding principal balance of the
Revolving Loan.
"Base Rate" means a variable rate of interest per annum equal to the
higher of (a) the rate of interest from time to time published by the Board of
Governors of the Federal Reserve System as the "Bank Prime Loan" rate in Federal
Reserve Statistical Release H.15(519) entitled "Selected Interest Rates" or any
successor publication of the Federal Reserve System reporting the Bank Prime
Loan rate or its equivalent, or (b) the Federal Funds Effective Rate. The
statistical release generally sets forth a Bank Prime Loan rate for each
Business Day. In the event the Board of Governors of the Federal Reserve System
ceases to publish a Bank Prime Loan rate or its equivalent, the term "Base Rate"
shall mean a variable rate of interest per annum equal to the highest of the
"prime rate", "reference rate", "base rate", or other similar rate announced
from time to time by any of Bankers Trust Company or The Chase Manhattan Bank or
their successors (with the understanding that any such rate may merely be a
reference rate and may not necessarily represent the lowest or best rate
actually charged to any customer by any such bank).
"Borrowers" has the meaning assigned to that term in the preamble to
this Agreement.
"Borrowing Base" means, as of any date of determination, an amount
equal to ninety percent (90%) of the Estimated Insured Value of outstanding
Eligible Accounts, less the aggregate Lease Reserve and, subject to the
limitations set forth in subsection 2.12, such other reserves as Lender in its
reasonable discretion elects to establish. In furtherance of the foregoing and
not in limitation
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<PAGE> 10
thereof, Lender shall reserve for all credit balances with respect to Accounts
reflected on the books and records of a Borrower and any other credits that
Lender is or becomes aware of through any source.
"Business Day" means any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the States of Illinois, Pennsylvania
or Missouri, or is a day on which banking institutions located in any such state
are closed, and, with respect to all notices, determinations, fundings and
payments in connection with Loans that bear interest at the LIBOR Rate, any day
that is a Business Day described above and that is also a day for trading by and
between banks in Dollar deposits in the applicable interbank LIBOR market.
.
"Capital Expenditures" means all expenditures (including deposits) for,
or contracts for expenditures (excluding contracts for expenditures under or
with respect to Capital Leases, but including cash down payments for assets
acquired under Capital Leases) with respect to any fixed assets or improvements,
or for replacements, substitutions or additions thereto, which have a useful
life of more than one year, including the direct or indirect acquisition of such
assets by way of increased product or service charges, offset items or
otherwise.
"Capital Lease" means any lease of any property (whether real, personal
or mixed) that, in conformity with GAAP, should be accounted for as a capital
lease.
"Cash Equivalents" means: (a) marketable direct obligations issued or
unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within six (6) months from the date of acquisition thereof;
(b) commercial paper maturing no more than six (6) months from the date issued
and, at the time of acquisition, having a rating of at least A-1 from Standard &
Poor's Corporation or at least P-1 from Moody's Investors Service, Inc.; and (c)
certificates of deposit or bankers' acceptances maturing within six (6) months
from the date of issuance thereof issued by, or overnight reverse repurchase
agreements from, any commercial bank organized under the laws of the United
States of America or any state thereof or the District of Columbia having
combined capital and surplus of not less than $250,000,000 and not subject to
setoff rights in favor of such bank.
"Closing Date" means November 7, 1997.
"Collateral" has the meaning assigned to that term in subsection 2.7.
"Collateral Report" means a report duly executed by an officer of
Borrowers appropriately completed and in substantially the form of Exhibit A.
"Commercial Account" means an Account with respect to which the primary
Payor is an insurance company or other commercial entity, but specifically
excluding Accounts where the primary Payor is a government agency or natural
person.
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<PAGE> 11
"Compliance Certificate" means a certificate duly executed by the chief
executive officer or chief financial officer of Borrowers appropriately
completed and in substantially the form of Exhibit B.
"Corporate Compliance Program" means a compliance program established
and implemented by Borrowers to ensure Borrowers' compliance with all Medicare
and Medicaid statutes, laws, and regulations applicable to Borrowers' business.
"Default" means a condition, act or event that, after notice or lapse
of time or both, would constitute an Event of Default if that condition or event
were not cured or removed within any applicable grace or cure period.
"Default Rate" has the meaning assigned to that term in subsection
2.2(A).
"EBITDA" means, for any designated Person and for any period, without
duplication, the total of the following for such Person and its Subsidiaries on
a consolidated basis, each calculated for such period: (1) net income determined
in accordance with GAAP; plus, to the extent included in the calculation of net
income, (2) the sum of (a) income and franchise taxes paid or accrued; (b)
Interest Expenses, net of interest income, paid or accrued; (c) interest paid in
kind; (d) amortization and depreciation and (e) other non-cash charges
(excluding accruals for cash expenses made in the ordinary course of business);
less, to the extent included in the calculation of net income, (3) the sum of
(a) the income of any other Person other than wholly-owned Subsidiaries of such
designated Person in which such designated Person or a wholly owned Subsidiary
of such designated Person has an ownership interest except to the extent such
income is received by such designated Person or such wholly-owned Subsidiary in
a cash distribution during such period; (b) gains or losses from sales or other
dispositions of assets (other than inventory in the normal course of business);
and (c) extraordinary or non-recurring gains, but not net of extraordinary or
non-recurring "cash" losses.
"Eligible Accounts" has the meaning assigned to that term in subsection
2.1(B).
"Eligible Unbilled Accounts" means all Accounts that would otherwise
qualify as Eligible Accounts under subsection 2.1(B) but for the fact that such
Accounts have not yet been billed; provided, however, that the following
Accounts shall not be considered an "Eligible Unbilled Account" hereunder: (a)
any Account that remains unbilled more than 30 days following the date of the
rendering of service to which such Account relates, and (b) any unbilled Account
arising from the rendering of service at a facility prior to the time that (i)
such facility has been certified as a long-term care hospital as defined in 42
CFR Sections 412.23(e) subject to cost reimbursement as provided in 42 CFR
Sections 412.22(e) and (ii) the applicable Borrower is issued a provider number
for such facility as a long-term care hospital.
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(3) of ERISA which (a) is maintained for employees of any
Borrower or any ERISA Affiliate or (b) has at any time within the preceding six
(6) years been maintained for the employees of any Borrower or any current or
former ERISA Affiliate.
4
<PAGE> 12
"Environmental Claims" means claims, liabilities, investigations,
litigation, administrative proceedings, judgments or orders relating to
Hazardous Materials.
"Environmental Laws" means any present or future federal, state or
local law, rule, regulation or order relating to pollution, waste, disposal or
the protection of human health or safety, plant life or animal life, natural
resources or the environment.
"Equipment" means all "equipment" (as defined in the UCC), including,
without limitation, all furniture, furnishings, fixtures, machinery, motor
vehicles, trucks, trailers, vessels, aircraft and rolling stock, and parts
thereof and all additions and accessions thereto and replacements therefor.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute and all rules and
regulations promulgated thereunder.
"ERISA Affiliate", as applied to any Borrower, means any Person who is
a member of a group which is under common control with any Borrower, who
together with any Borrower is treated as a single employer within the meaning of
Section 414(b) and (c) of the IRC.
"Estimated Insured Value" means the amount of each Account that Lender
(or its agent) determines in its reasonable discretion will be paid by the Payor
on such Account, which determination shall be made pursuant to Lender's
customary practices and shall be based on historical or expected reimbursement
rates for the type or class of goods or services giving rise to such Account.
Such amount shall be subject to adjustment from time to time by Lender in its
reasonable discretion pursuant to Lender's customary practices and based on
changes in such historical or expected reimbursement rates or on any actual or
expected change, adjustment or modification to the amount or other terms or
conditions of any such Account.
"Event of Default" means each of the events set forth in subsection
8.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Federal Funds Effective Rate" means, for any day, the weighted average
of the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published on the
immediately following Business Day by the Federal Reserve Bank of New York or,
if such rate is not published for any Business Day, the average of the
quotations for the day of the requested Loan received by Lender from three
Federal funds brokers of recognized standing selected by Lender.
"Fiscal Year" means each twelve month period ending on the last day of
December in each year.
"Fixed Charge Coverage" means, for any period, Operating Cash Flow
divided by Fixed Charges.
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<PAGE> 13
"Fixed Charges" means, for any Person and for any period, and each
calculated for such period (without duplication), (a) Interest Expenses paid or
accrued by such Person and its Subsidiaries; plus (b) scheduled payments of
principal with respect to all Indebtedness of such Person and its Subsidiaries;
plus (c) any provision for (to the extent it is greater than zero) income or
franchise taxes included in the determination of net income, excluding any
provision for deferred taxes; plus (d) Restricted Junior Payments made in cash
to the extent permitted under subsection 7.5; plus (e) payment of deferred taxes
accrued in any prior period.
"Funding Date" means the date of each funding of a Loan.
"GAAP" means 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 that are applicable to the
circumstances as of the date of determination.
"General Intangibles" means general intangibles, and other intangible
personal property, including, without limitation, all goodwill, choses in
action, causes of action, franchises, corporate and other business records,
supplier contracts, confidential information, consulting agreements, engineering
contracts, insurance policies (including business interruption insurance),
licenses, permits and such other assets which uniquely reflect the goodwill of
the business of a Borrower, deposit accounts, letters of credit, and general
intangibles relating to other items of Collateral, including without limitation,
rights to refunds or indemnification; and proceeds of all of the foregoing,
including without limitation, insurance proceeds, including proceeds of business
interruption insurance. In addition, this definition shall include the
definition of "general intangibles" as defined in the UCC.
"Government Account" means an Account with respect to which the Payor
of the Account is a government agency (including all Accounts arising under
Medicare, Medicaid and similar programs) and those Accounts arising under the
CHAMPUS or CHAMPVA programs.
"Hazardous Material" means all or any of the following: (a) substances
that are defined or listed in, or otherwise classified pursuant to, any
Environmental Laws or regulations as "hazardous substances", "hazardous
materials", "hazardous wastes", "toxic substances" or any other formulation
intended to define, list or classify substances by reason of deleterious
properties such as ignitability, corrosivity, reactivity, carcinogenicity, or
toxicity; (b) oil, petroleum or petroleum derived substances, natural gas,
natural gas liquids or synthetic gas and drilling fluids, produced waters and
other wastes associated with the exploration, development or production of crude
oil, natural gas or geothermal resources; (c) any flammable substances or
explosives or any radioactive materials; and (d) asbestos in any form or
electrical equipment which contains any oil or dielectric fluid containing
polychlorinated biphenyls.
"Indebtedness", as applied to any Person, means without duplication:
(a) all indebtedness for borrowed money; (b) obligations under leases which in
accordance with GAAP constitute Capital Leases; (c) notes payable and drafts
accepted representing extensions of credit whether or not
6
<PAGE> 14
representing obligations for borrowed money; (d) any obligation owed for all or
any part of the deferred purchase price of property or services if the purchase
price is due more than six months from the date the obligation is incurred or is
evidenced by a note or similar written instrument; (e) all indebtedness secured
by any Lien on any property or asset owned or held by that Person regardless of
whether the indebtedness secured thereby shall have been assumed by that Person
or is non recourse to the credit of that Person; (f) obligations in respect of
letters of credit; and (g) any advances under any factoring arrangement.
"Intangible Assets" means all intangible assets (determined in
conformity with GAAP) including, without limitation, goodwill, intellectual
property, licenses, organizational costs, deferred amounts, covenants not to
compete, unearned income and restricted funds.
"Intellectual Property" means all of each Borrower's present and future
designs, patents, patent rights and applications therefor, trademarks and
registrations or applications therefor, trade names, inventions, copyrights and
all applications and registrations therefor, software or computer programs,
license rights, trade secrets, methods, processes, know-how, drawings,
specifications, descriptions, and all memoranda, notes, and records with respect
to any research and development, whether now owned or hereafter acquired, all
goodwill associated with any of the foregoing and proceeds of all of the
foregoing, including, without limitation, proceeds of insurance policies
thereon.
"Interest Expenses" means, without duplication, for any Person and for
any period, the following, for such Person and its Subsidiaries each calculated
for such period: interest expenses deducted in the determination of net income
(excluding (i) the amortization of fees and costs with respect to the
transactions contemplated by this Agreement which have been capitalized as
transaction costs in accordance with the provisions of subsection 1.2; and (ii)
interest paid in kind).
"Interest Rate" means either the Regular Rate or the LIBOR Rate
determined pursuant to subsection 2.2(A).
"Inventory" means all "inventory" (as defined in the UCC), including,
without limitation, finished goods, raw materials, work in process, and other
materials and supplies used or consumed in a Person's business, and goods which
are returned or repossessed.
"IRC" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute and all rules and regulations promulgated
thereunder.
"Lease Reserve" means, for each leased facility of each Borrower where
any Collateral or any records relating to Collateral is located and as to which
Borrowers have not delivered to Lender a landlord agreement reasonably
satisfactory to Lender, a reserve in an amount equal to one months rent owing
under the lease for such facility.
"Lender" means Heller Financial, Inc. together with its successors and
permitted assigns pursuant to subsection 9.1.
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<PAGE> 15
"Lender's Account" means ABA No. 0710-0001-3, Account No. 59-29792 at
First National Bank of Chicago, One First National Plaza, Chicago, IL 60670,
Reference: Heller Business Credit for the benefit of Intensiva HealthCare
Corporation.
"Liabilities" shall have the meaning given that term in accordance with
GAAP and shall include Indebtedness.
"LIBOR" means, a rate of interest equal to:
(a) the rate of interest determined by Lender at which deposits in
Dollars for a thirty (30) day interest period are offered based on information
presented on the Reuters Screen LIBOR Page as of 11:00 A.M. (London time) on the
day which is two (2) Business Days prior to such interest period; provided that
if at least two such offered rates appear on the Reuters Screen LIBOR Page in
respect of such interest period, the arithmetic mean of all such rates (as
determined by Lender) will be the rate used; provided further that if Reuters
ceases to provide LIBOR quotations, such rate shall be the average rate of
interest determined by Lender at which deposits in Dollars are offered for the
relevant thirty (30) day interest period by Bankers Trust Company or The Chase
Manhattan Bank, or their successors, to prime banks in the London interbank
market as of 11:00 A.M. (London time) on the applicable interest rate
determination date, divided by
(b) a number equal to 1.0 minus the aggregate (but without duplication)
of the rates (expressed as a decimal fraction) of reserve requirements in effect
on the day which is two (2) Business Days prior to the beginning of such thirty
(30) day interest period (including, without limitation, basic, supplemental,
marginal and emergency reserves under any regulations of the Board of Governors
of the Federal Reserve System or other governmental authority having
jurisdiction with respect thereto, as now and from time to time in effect) for
Eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of such Board) which are required to be maintained by a member bank
of the Federal Reserve System;
(such rate to be adjusted to the nearest one sixteenth of one percent (1/16 of
1%) or, if there is not a nearest one sixteenth of one percent (1/16 of 1%), to
the next higher one sixteenth of one percent (1/16 of 1%).
"LIBOR Rate" has the meaning assigned to that term in subsection
2.2(A).
"Lien" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind, whether voluntary or involuntary, (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
"Loan" or "Loans" means an advance or advances under the Revolving Loan
Commitment.
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"Loan Documents" means this Agreement, the Pledge Agreement and all
other instruments, documents and agreements executed by or on behalf of any
Borrower and delivered concurrently herewith or at any time hereafter to or for
Lender in connection with the Loans and other transactions contemplated by this
Agreement, all as amended, restated, supplemented or modified from time to time.
"Loan Year" means each period of twelve (12) consecutive months
commencing on the Closing Date and on each anniversary thereof.
"Material Adverse Effect" means a material adverse effect upon (a) the
business, operations, prospects, properties, assets or condition (financial or
otherwise) of Borrowers taken as a whole or (b) the ability of Borrowers to
perform their obligations under any Loan Document or of Lender to enforce or
collect any of the Obligations.
"Maximum Revolving Loan Amount" means, as of any date of determination,
the lesser of (a) the Revolving Loan Commitment, less the aggregate Lease
Reserve and, subject to the limitations set forth in subsection 2.12, such other
reserves as Lender in its reasonable discretion elects to establish and (b) the
Borrowing Base.
"Net Worth" means, as of any date, the sum of the capital stock and
additional paid-in capital plus retained earnings (or minus accumulated deficit)
calculated in conformity with GAAP.
"Notice of Borrowing" has the meaning assigned to that term in
subsection 2.1(C).
"Notice of Election" has the meaning assigned to that term in
subsection 2.2(A).
"Obligations" means all obligations, liabilities and indebtedness of
every nature of each Borrower from time to time owed to Lender under the Loan
Documents including the principal amount of all debts, claims and indebtedness
(whether incurred before or after the Termination Date), accrued and unpaid
interest and all fees, costs and expenses, whether primary, secondary, direct,
contingent, fixed or otherwise, heretofore, now and/or from time to time
hereafter owing, due or payable including, without limitation, all interest,
fees, costs and expenses accrued or incurred after the filing of any petition
under any bankruptcy or insolvency law.
"Operating Cash Flow" means, for any period, (a) EBITDA; less (b)
Capital Expenditures.
"Patient" means the natural person to whom a Borrower has rendered
services or sold or rented supplies, equipment or merchandise.
"Payor" means any person who bears a responsibility or obligation to
pay part or all of a an Account, whether such responsibility or obligation is
absolute or conditional and shall include insurance companies, government
agencies and natural persons.
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"Permitted Encumbrances" means the following types of Liens: (a) Liens
(other than Liens relating to Environmental Claims or ERISA) for taxes,
assessments or other governmental charges not yet due and payable; (b) statutory
Liens of landlords, carriers, warehousemen, mechanics, materialmen and other
similar liens imposed by law, which are incurred in the ordinary course of
business for sums not more than thirty (30) days delinquent, provided, that the
foregoing items in this clause (b) may be more than thirty (30) days delinquent
so long as (i) such items are being contested in good faith and by appropriate
proceedings, (ii) enforcement of such Liens is effectively stayed, (iii)
adequate reserves have been established and maintained, and (iv) such Liens, in
the aggregate, could not reasonably be expected to have a Material Adverse
Effect; (c) Liens (other than any Lien imposed by ERISA) incurred or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, trade contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money); (d) easements, rights-of-way, restrictions, and other similar charges or
encumbrances not interfering in any material respect with the ordinary conduct
of the business of any Borrower; (e) Liens for purchase money obligations and
under Capital Leases, provided that (i) the purchase or lease of the asset
subject to any such Lien is permitted under subsection 6.2, (ii) the
Indebtedness secured by any such Lien is permitted under subsection 7.1, and
(iii) such Lien encumbers only the asset so purchased or leased; (f) Liens in
favor of Lender; and (g) Liens set forth on Schedule 1.1(A).
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other organizations, whether or not
legal entities, and governments and agencies and political subdivisions thereof.
"Pledge Agreement" means each stock pledge agreement to be executed and
delivered by Parent in favor of Lender, in form and substance satisfactory to
Lender.
"Projections" means Borrowers' forecasted consolidated and
consolidating: (a) balance sheets; (b) profit and loss statements; (c) cash flow
statements; and (d) capitalization statements, all prepared on a division by
division and Subsidiary by Subsidiary basis and otherwise consistent with
Borrowers' historical financial statements, together with appropriate supporting
details and a statement of underlying assumptions.
"Reconciliation Report" means a report duly executed by the chief
executive officer or chief financial officer of Borrowers appropriately
completed and substantially in the form of Exhibit C.
"Regular Rate" has the meaning assigned to that term in subsection
2.2(A).
"Restricted Junior Payment" means: (a) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
of a Borrower or any of its Subsidiaries now or hereafter outstanding, except a
dividend payable solely with shares of the class of stock on which such dividend
is declared; (b) any payment or prepayment of principal of, premium, if any, or
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interest on, or any redemption, conversion, exchange, retirement, defeasance,
sinking fund or similar payment, purchase or other acquisition for value, direct
or indirect, of any Subordinated Debt or any shares of any class of stock of a
Borrower or any of its Subsidiaries now or hereafter outstanding, or the
issuance of a notice of an intention to do any of the foregoing; (c) any payment
made to retire, or to obtain the surrender of, any outstanding warrants, options
or other rights to acquire shares of any class of stock of a Borrower or any of
its Subsidiaries now or hereafter outstanding; and (d) any payment by a Borrower
or any of its Subsidiaries of any management, consulting or similar fees to any
Affiliate, whether pursuant to a management agreement or otherwise.
"Revolving Advance" means each advance made by Lender pursuant to
subsection 2.1(A).
"Revolving Loan" means the outstanding balance of all Revolving
Advances and any amounts added to the principal balance of the Revolving Loan
pursuant to this Agreement.
"Revolving Loan Commitment" means the commitment of Lender to make
Revolving Advances in the aggregate not to exceed at anytime $10,000,000;
provided, however, that subject to the Borrowers' payment of the activation fee
required under subsection 2.3(A), Borrowers shall have the right, by written
notice (which notice shall be delivered not less than five (5) days prior to the
effective date of the requested increase) to Lender, to increase the Revolving
Loan Commitment to $20,000,000 so long as no Default or Event of Default shall
be in existence. Prior to such increase, the first $10,000,000 of the Revolving
Loan Commitment is referred to herein as the "Activated Portion of the Revolving
Loan Commitment," and the second $10,000,000 of the Revolving Loan Commitment is
referred to herein as the "Unactivated Portion of the Revolving Loan
Commitment." After such increase, the entire amount of the Revolving Loan
Commitment is referred to herein as the Activated Portion of the Revolving Loan
Commitment.
"Subordinated Debt" means all Indebtedness of Borrowers that is
subordinated in right of payment to the Obligations on terms reasonably
satisfactory to Lender.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than fifty percent (50%) of
the total voting power of shares of stock (or equivalent ownership or
controlling interest) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other subsidiaries of that Person or a combination thereof.
"Tangible Net Worth" of any Person means an amount equal to: (a) Net
Worth of such Person; less (b) Intangible Assets of such Person; less (c)
prepaid expenses of any Person; less (d) all obligations owed to such Person or
any of its Subsidiaries by any Affiliate of such Person or any of its
Subsidiaries; and less (e) all loans by such Person to its officers,
stockholders, Subsidiaries or employees.
"Termination Date" means the date this Agreement is terminated as set
forth in subsection 2.5.
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"UCC" means the Uniform Commercial Code as in effect on the date hereof
in the State of Illinois, as amended from time to time, and any successor
statute.
1.2 Accounting Terms. For purposes of this Agreement, all accounting
terms not otherwise defined herein shall have the meanings assigned to such
terms in conformity with GAAP. Financial statements and other information
furnished to Lender pursuant to subsection 5.1 shall be prepared in accordance
with GAAP (as in effect at the time of such preparation) on a consistent basis.
In the event any "Accounting Changes" (as defined below) shall occur and such
changes affect financial covenants, standards or terms in this Agreement, then
Borrowers and Lender agree to enter into negotiations in order to amend such
provisions of this Agreement so as to equitably reflect such Accounting Changes
with the desired result that the criteria for evaluating the financial condition
of Borrowers shall be the same after such Accounting Changes as if such
Accounting Changes had not been made, and until such time as such an amendment
shall have been executed and delivered by Borrowers and Lender, (A) all
financial covenants, standards and terms in this Agreement shall be calculated
and/or construed as if such Accounting Changes had not been made, and (B)
Borrowers shall prepare footnotes to each Compliance Certificate and the
financial statements required to be delivered hereunder that show the
differences between the financial statements delivered (which reflect such
Accounting Changes) and the basis for calculating financial covenant compliance
(without reflecting such Accounting Changes). "Accounting Changes" means: (a)
changes in accounting principles required by GAAP and implemented by Borrowers;
and (b) changes in accounting principles recommended by Borrowers' certified
public accountants.
1.3 Other Definitional Provisions. References to "Sections",
"subsections", "Exhibits" and "Schedules" shall be to Sections, subsections,
Exhibits and Schedules, respectively, of this Agreement unless otherwise
specifically provided. Any of the terms defined in subsection 1.1 may, unless
the context otherwise requires, be used in the singular or the plural depending
on the reference. In this Agreement, words importing any gender include the
other genders; the words "including," "includes" and "include" shall be deemed
to be followed by the words "without limitation"; references to agreements and
other contractual instruments shall be deemed to include subsequent amendments,
assignments, and other modifications thereto, but only to the extent such
amendments, assignments and other modifications are not prohibited by the terms
of this Agreement or any other Loan Document; references to Persons include
their respective permitted successors and assigns or, in the case of
governmental Persons, Persons succeeding to the relevant functions of such
Persons; and all references to statutes and related regulations shall include
any amendments of same and any successor statutes and regulations.
SECTION 2 LOANS AND COLLATERAL
2.1 Loans.
(A) Revolving Loan. Subject to the terms and conditions of
this Agreement and in reliance upon the representations and warranties of
Borrowers set forth herein and in the other Loan Documents, Lender agrees to
lend to Borrowers from time to time an aggregate amount not
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to exceed at any time the Maximum Revolving Loan Amount. Amounts borrowed under
this subsection 2.1(A) may be repaid and reborrowed at any time prior to the
earlier of (i) the termination of the Revolving Loan Commitment pursuant to
subsection 8.3 or (ii) the Termination Date. Lender shall have no obligation to
make a Revolving Advance to the extent any requested advance would cause the
Revolving Loan (after giving effect to any immediate application of the proceeds
thereof) to exceed the Maximum Revolving Loan Amount.
(B) Eligible Accounts.
"Eligible Accounts" means, as at any date of determination, the
aggregate of all Accounts that Lender, in its reasonable judgment, deems to be
eligible for borrowing purposes. Without limiting the generality of the
foregoing, unless otherwise agreed by Lender, the following Accounts are not
Eligible Accounts:
(1) Accounts that are not Commercial Accounts or
Government Accounts;
(2) Accounts outstanding more than one hundred twenty
(120) days from the billing date of such Accounts;
(3) Accounts for which the Payor is located outside
the United States;
(4) Accounts for which Lender has notified Borrowers
that the Payor does not have satisfactory credit or financial standing
(as determined in the reasonable discretion of Lender);
(5) Accounts in which Lender does not have a valid,
first priority and fully perfected security interest;
(6) Accounts subject to any Lien except those in
favor of Lender;
(7) Accounts (other than Eligible Unbilled Accounts)
that have not yet been billed;
(8) Accounts with respect to which Payor is a Person
to whom a Borrower is indebted, provided, however, that such Accounts
shall only be ineligible as to that portion of the Accounts which is
less than or equal to the amount owed by such Borrower to such Person;
(9) Accounts for which the Payor is an Affiliate of a
Borrower;
(10) Accounts for which the Payor notification
letters required pursuant to subsection 3.1 have not been sent;
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(11) Accounts due from one commercial Payor if fifty
percent (50%) or more of the aggregate Accounts due from such
commercial Payor are outstanding more than 120 days from the billing
date;
(12) That part of Accounts consisting of cost report
and other settlements due to a Borrower from government agencies,
regardless of whether such amounts are the result of interim or final
cost reports; and
(13) Accounts evidenced by an "instrument" or
"chattel paper" as defined in the UCC not in the possession of Lender.
(C) Borrowing Mechanics. On any day when Borrowers desire to
borrow under this subsection 2.1, Borrowers shall give Lender telephonic notice
of the proposed borrowing by 11:00 a.m. (Chicago time) on the Funding Date,
which notice (a "Notice of Borrowing") shall also specify the proposed Funding
Date (which shall be a Business Day). Lender shall not incur any liability to
Borrowers for acting upon any telephonic notice Lender believes in good faith to
have been given by a duly authorized officer or other person authorized to
borrow on behalf of Borrowers or for otherwise acting in good faith under this
subsection 2.1(C). Lender will not make any advance pursuant to any telephonic
notice unless Lender has also received the most recent Collateral Report and all
other documents required under subsection 5.1(E) by 11:00 a.m. (Chicago time).
Each advance made to Borrowers under the Revolving Loan shall be deposited by
wire transfer in immediately available funds in such account as Borrowers may
from time to time designate to Lender in writing. Unless payment is otherwise
timely made by Borrowers, the becoming due of any amount required to be paid
under this Agreement or any of the other Loan Documents as principal, accrued
interest and fees shall be deemed irrevocably to be a request by Borrowers for a
Revolving Loan on the due date of, and in the amount required to pay, such
principal, accrued interest and fees, and the proceeds of each such Revolving
Loan if made by Lender shall be disbursed by Lender by way of direct payment of
the relevant obligation.
(D) Evidence of Revolving Loan Obligations. Each Revolving Advance
shall be evidenced by this Agreement and notations made from time to time by
Lender in its books and records, including computer records. Lender's books and
records shall constitute presumptive evidence, absent manifest error, of the
accuracy of the information contained therein. Failure by the Lender to make any
such notation or record shall not affect the obligations of Borrowers to Lender
with respect to the Revolving Loans.
2.2 Interest
(A) Rate of Interest. The Loans and all other Obligations
shall bear interest from the date such Loans are made or such other Obligations
become due to the date paid at a rate per annum equal to either (i) the Base
Rate plus one-quarter of one percent (0.25%) (the "Regular Rate"), or (ii) LIBOR
plus two and one-half percent (2.50%) (the "LIBOR Rate"), as selected by
Borrowers in accordance with the provisions hereof; provided, however, that if
at any time the LIBOR Rate is incapable of determination, then the Loans and all
other Obligations shall bear interest at the Regular
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Rate. The Loans and all other Obligations initially shall bear interest at the
Regular Rate, provided that Borrowers may at any time after the Closing Date
convert the Interest Rate to a rate based on the LIBOR Rate as set forth above
by delivering to Lender not less than two (2) Business Days prior written notice
(a "Notice of Election"). At any time that Borrowers elect for the Loans and the
other Obligations to bear interest at the LIBOR Rate, such Interest Rate shall
remain fixed during the period commencing on the date that such LIBOR Rate is to
be effective (as set forth in the Notice of Election) through and including the
date which is thirty (30) days after the date that such LIBOR Rate is to be
effective. Thereafter, the Loans and the other Obligations shall bear interest
at the Regular Rate unless Borrowers elect that the Loans and the other
Obligations shall bear interest at the LIBOR Rate by properly delivering a
Notice of Election. Each Interest Rate election shall be applicable to all
outstanding Loans and other Obligations.
After the occurrence and during the continuance of an Event of Default,
at Lender's option, the Loans and all other Obligations shall bear interest at a
rate per annum equal to two percent (2%) plus the applicable Interest Rate (the
"Default Rate").
(B) Computation and Payment of Interest. Interest on the Loans
and all other Obligations shall be computed on the daily principal balance on
the basis of a 360 day year for the actual number of days elapsed in the period
during which it accrues and shall be payable monthly in arrears on the first day
of each month, on the date of any prepayment of Loans, and at maturity, whether
by acceleration or otherwise. Any publicly announced change in the Base Rate
shall result in an adjustment to the Regular Rate on the day such change takes
effect. The LIBOR Rate shall remain fixed during the period commencing on the
date that such LIBOR Rate is to be effective (as set forth in the Notice of
Election) through and including the date which is thirty (30) days after the
date that such LIBOR Rate is to be effective. Thereafter, the Loans and the
other Obligations shall bear interest at the Regular Rate unless Borrowers elect
that the Loans and the other Obligations shall bear interest at the LIBOR Rate
by properly delivering a Notice of Election. Each Interest Rate election shall
be applicable to all outstanding Loans and other Obligations. In computing
interest on any Loan, the date of funding of the Loan shall be included; and the
date of payment of such Loan shall be excluded; provided that if a Loan is
repaid on the same day on which it is made, one day's interest shall be paid on
that Loan.
(C) Interest Laws. Notwithstanding any provision to the
contrary contained in this Agreement or any other Loan Document, Borrowers shall
not be required to pay, and Lender shall not be permitted to collect, any amount
of interest in excess of the maximum amount of interest permitted by applicable
law ("Excess Interest"). If any Excess Interest is provided for or determined by
a court of competent jurisdiction to have been provided for in this Agreement or
in any other Loan Document, then in such event: (1) the provisions of this
subsection shall govern and control; (2) no Borrower shall be obligated to pay
any Excess Interest; (3) any Excess Interest that Lender may have received
hereunder shall be, at Lender's option, (a) applied as a credit against the
outstanding principal balance of the Obligations or accrued and unpaid interest
(not to exceed the maximum amount permitted by law), (b) refunded to the payor
thereof, or (c) any combination of the foregoing; (4) the interest rate(s)
provided for herein shall be automatically reduced to the maximum lawful rate
allowed from time to time under applicable law (the "Maximum Rate"), and
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this Agreement and the other Loan Documents shall be deemed to have been and
shall be, reformed and modified to reflect such reduction; and (5) no Borrower
shall have any action against Lender for any damages arising out of the payment
or collection of any Excess Interest. Notwithstanding the foregoing, if for any
period of time interest on any Obligations is calculated at the Maximum Rate
rather than the applicable rate under this Agreement, and thereafter such
applicable rate becomes less than the Maximum Rate, the rate of interest payable
on such Obligations shall remain at the Maximum Rate until Lender shall have
received the amount of interest which Lender would have received during such
period on such Obligations had the rate of interest not been limited to the
Maximum Rate during such period.
2.3 Fees.
(A) Closing Fee and Activation Fee. Borrowers shall pay to
Lender on the Closing Date a closing fee in the amount of $75,000; upon an
increase in the amount of the Revolving Loan Commitment as provided in the
definition thereof, Borrowers shall pay to Lender an activation fee in the
amount of $75,000.
(B) Unused Line Fees. Borrowers shall pay to Lender (i) a fee
in an amount equal to the Activated Portion of the Revolving Loan Commitment
less the average daily balance of the Revolving Loan during the preceding month
multiplied by one-half percent (0.50%) per annum, such fee to be calculated on
the basis of a 360 day year for the actual number of days elapsed and to be
payable monthly in arrears on the first day of the first month following the
Closing Date and the first day of each month thereafter, and (ii) a monthly fee
of $1,041.67 until such time as the Revolving Loan Commitment is increased from
$10,000,000 to $20,000,000 in accordance with the terms of this Agreement, such
fee to be payable monthly in arrears on the first day of the first month
following the Closing Date and the first day of each month thereafter.
(B) Prepayment Fees. If Borrowers voluntarily prepay the
Obligations prior to the Termination Date (other than voluntary prepayments of
the Revolving Loan which do not terminate the Revolving Loan Commitment and
other than a voluntary prepayment of the Revolving Loan and termination of the
Revolving Loan Commitment within sixty (60) days following the date on which
Lender makes a demand for payment under subsection 2.8 or 2.9(B)), Borrowers at
the time of prepayment shall pay to Lender, as compensation for the costs of
being prepared to make funds available to Borrowers under this Agreement, and
not as a penalty, an amount determined by multiplying the percentage set forth
below by the amount of the Revolving Loan Commitment: two percent (2.00%) upon a
prepayment during the first Loan Year; and one percent (1.00%) upon a prepayment
during the second Loan Year. Notwithstanding the foregoing, Borrower may at any
time prepay the Loans in full and terminate this Agreement, in accordance with
subsection 2.4(C) hereof, and shall not be obligated to pay the prepayment fee
referred to in the immediately preceding sentence as a result of such prepayment
if at the time of such prepayment Borrowers and Heller have not entered into an
amendment to this Agreement, amending the definition of "Eligible Unbilled
Accounts."
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(C) Collateral Management Fee. Borrowers shall pay to Lender,
without demand, in addition to any interest and other fees due under this
Agreement, an aggregate collateral management fee at the rate of $24,000 per
annum. Said fee shall be payable monthly in arrears on the first day of each
month, commencing on the first day of the month following the Closing Date, and
on the Termination Date, except that the amount of the collateral management fee
payable on the Termination Date in respect of the month in which the Termination
Date occurs shall be pro rated based on the number of days that this Agreement
is in effect during such final month.
(D) Audit Fees. Borrowers agree to pay Lender an audit fee
equal to $750 per auditor per day or any portion thereof (excluding all full
days spent by Lender traveling to or from Borrowers' locations), together with
out-of-pocket expenses.
(E) Other Fees and Expenses. Borrowers shall pay to Lender,
for its own account, all charges for returned items and all other bank charges
incurred by Lender, as well as Lender's standard wire transfer charges for each
wire transfer made under this Agreement.
2.4 Payments and Prepayments.
(A) Manner and Time of Payment. In its sole discretion, Lender
may charge interest and other amounts payable hereunder to the Revolving Loan,
all as set forth on Lender's books and records. If Lender elects to bill
Borrowers for any amount due hereunder, such amount shall be immediately due and
payable with interest thereon as provided herein. All payments made by Borrowers
with respect to the Obligations shall be made without deduction, defense, setoff
or counterclaim. All payments to Lender hereunder shall, unless otherwise
directed by Lender, be made in accordance with subsection 5.6. Proceeds remitted
to Lender's Account shall be credited to the Obligations on the Business Day
such proceeds were received, provided, however, for the purpose of calculating
interest on the Obligations, such funds shall be deemed received on the first
Business Day thereafter.
(B) Mandatory Prepayment. At any time that the Revolving Loan
exceeds the Maximum Revolving Loan Amount, Borrowers shall immediately repay the
Revolving Loan to the extent necessary to reduce the principal balance to an
amount that is equal to or less than the Maximum Revolving Loan Amount.
(C) Voluntary Prepayments and Repayments. Borrowers'
Obligations may only be prepaid or repaid in full and not in part. Borrowers
may, at any time, upon not less than three (3) Business Days' prior written
notice to Lender, terminate the Revolving Loan Commitment.
(D) Payments on Business Days. Whenever any payment to be made
hereunder shall be stated to be due on a day that is not a Business Day, the
payment may be made on the next succeeding Business Day and such extension of
time shall be included in the computation of the amount of interest or fees due
hereunder.
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2.5 Term of this Agreement. This Agreement shall be effective until
October 31, 2000 (the "Termination Date"). The Revolving Loan Commitment shall
(unless earlier terminated) terminate upon the earlier of (i) the occurrence of
an event specified in subsection 8.3 or (ii) the Termination Date. Upon
termination in accordance with subsection 8.3 or on the Termination Date, all
Obligations shall become immediately due and payable without notice or demand.
Notwithstanding any termination, until all Obligations have been fully paid and
satisfied, Lender shall be entitled to retain security interests in and liens
upon all Collateral, and even after payment of all Obligations hereunder,
Borrowers' obligation to indemnify Lender in accordance with the terms hereof
shall continue.
2.6 Statements. Lender shall render a monthly statement of account to
Borrowers within twenty (20) days after the end of each month. Such statement of
account shall constitute an account stated unless Borrowers make written
objection thereto within thirty (30) days from the date such statement is mailed
to Borrowers. Borrowers promise to pay all of the Obligations as such amounts
become due or are declared due pursuant to the terms of this Agreement.
2.7 Grant of Security Interest. To secure the payment and performance
of the Obligations, including all renewals, extensions, restructurings and
refinancings of any or all of the Obligations, each Borrower hereby grants to
Lender a continuing security interest, lien and mortgage in and to all right,
title and interest of such Borrower in the following property of such Borrower,
whether now owned or existing or hereafter acquired or arising and regardless of
where located (all being collectively referred to as the "Collateral"): (A)
Accounts; (B) Inventory, (C) General Intangibles; (D) instruments (as defined in
the UCC); (E) proceeds of Loans made hereunder; (F) documents (as defined in the
UCC) or other receipts covering, evidencing, or representing goods; (G)
investment property (as defined in the UCC); (H) chattel paper (as defined in
the UCC); (I) fixtures (as defined in the UCC); (J) Equipment (other than leased
Equipment); (K) Intellectual Property; (L) monies, securities and other property
now or hereafter held or received by, or in transit to Lender from or for such
Borrower, whether for safekeeping, pledge, custody, transmission, collection or
otherwise, and all of such Borrower's deposits and credit balances in Lender's
possession; (M) all deposit accounts of such Borrower maintained with any bank
or financial institution; (N) all cash and other monies and property of Borrower
in the possession or under the control of Lender or any participant; (O) all
books, records, ledger cards, files, correspondence, computer programs, tapes,
disks and related data processing software that at any time evidence or contain
information relating to any of the property described above or are otherwise
necessary or helpful in the collection thereof or realization thereon; and (P)
proceeds of all or any of the property described above, including, without
limitation, the proceeds of any insurance policies covering any of the above
described property. Notwithstanding the foregoing, the Collateral shall not
include any computer software that is licensed to a Borrower if the license of
such software prohibits the granting of a security interest therein. Recourse to
the collateral security herein provided shall not be required, and Borrower
shall at all times herein remain liable for the payment and performance of all
of the Obligations as provided herein.
2.8 Capital Adequacy and Other Adjustments. In the event Lender shall
have determined that the adoption after the date hereof of any law, treaty,
governmental (or quasi-governmental) rule,
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regulation, guideline or order regarding capital adequacy, reserve requirements
or similar requirements or compliance by Lender or any corporation controlling
Lender with any request or directive regarding capital adequacy, reserve
requirements or similar requirements (whether or not having the force of law and
whether or not failure to comply therewith would be unlawful) from any central
bank or governmental agency or body having jurisdiction does or shall have the
effect of increasing the amount of capital, reserves or other funds required to
be maintained by Lender or any corporation controlling Lender and thereby
reducing the rate of return on Lender's or such corporation's capital as a
consequence of its obligations hereunder, then Borrowers shall from time to time
within fifteen (15) days after notice and demand from Lender (together with the
certificate referred to in the next sentence) pay to Lender additional amounts
sufficient to compensate such Lender for such reduction. A certificate as to the
amount of such cost and showing the basis of the computation of such cost
submitted by Lender to Borrowers shall, absent manifest error, be presumptively
correct and binding for all purposes.
2.9 Taxes.
(A) No Deductions. Any and all payments or reimbursements made
hereunder shall be made free and clear of and without deduction for any and all
taxes, levies, imposts, deductions, charges or withholdings, and all liabilities
with respect thereto; excluding, however, the following: taxes imposed on the
net income of Lender by the jurisdiction under the laws of which Lender is
organized or doing business or any political subdivision thereof and taxes
imposed on its net income by the jurisdiction of Lender's applicable lending
office or any political subdivision thereof (all such taxes, levies, imposts,
deductions, charges or withholdings and all liabilities with respect thereto
excluding such taxes imposed on net income, herein "Tax Liabilities"). If
Borrowers shall be required by law to deduct any such Tax Liabilities from or in
respect of any sum payable hereunder to Lender, then the sum payable hereunder
shall be increased as may be necessary so that, after making all required
deductions, Lender receives an amount equal to the sum it would have received
had no such deductions been made.
(B) Changes in Tax Laws. In the event that, subsequent to the
Closing Date, (i) any changes in any existing law, regulation, treaty or
directive or in the interpretation or application thereof, (ii) any new law,
regulation, treaty or directive enacted or any interpretation or application
thereof, or (iii) compliance by Lender with any request or directive (whether or
not having the force of law) from any governmental authority, agency or
instrumentality:
(1) does or shall subject Lender to any tax of any kind
whatsoever with respect to this Agreement, the other Loan Documents or any Loans
made hereunder, or change the basis of taxation of payments to Lender of
principal, fees, interest or any other amount payable hereunder (except for net
income taxes, or franchise taxes imposed in lieu of net income taxes, imposed
generally by federal, state or local taxing authorities with respect to interest
or commitment or other fees payable hereunder or changes in the rate of tax on
the overall net income of Lender); or
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(2) does or shall impose on Lender any other condition or
increased cost in connection with the transactions contemplated hereby or
participations herein; and the result of any of the foregoing is to increase the
cost to Lender of making or continuing any Loan hereunder, or to reduce any
amount receivable hereunder, then, in any such case, Borrowers shall promptly
pay to Lender, upon its demand, any additional amounts necessary to compensate
Lender, on an after-tax basis, for such additional cost or reduced amount
receivable, as determined by Lender with respect to this Agreement or the other
Loan Documents. If Lender becomes entitled to claim any additional amounts
pursuant to this subsection, it shall promptly notify Borrowers of the event by
reason of which Lender has become so entitled. A certificate as to any
additional amounts payable pursuant to the foregoing sentence submitted by
Lender to Borrowers shall, absent manifest error, be presumptively correct and
binding for all purposes.
2.10 Joint and Several Obligations.
(A) All of the Obligations shall be the joint and several
obligation of Parent and the other Borrowers. The Obligations of each Borrower
hereunder shall not be released, discharged or otherwise affected by:
(1) any extension, renewal, settlement, compromise, waiver
or release in respect of any Obligation of any other Borrower or the Collateral
therefor under this Agreement or the other Loan Documents;
(2) any modification or amendment of or supplement to this
Agreement or the other Loan Documents;
(3) any change in the corporate or partnership existence,
structure or ownership of any other Borrower, or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting any other Borrower or its
Collateral or its assets;
(4) the existence of any claim, set-off or other rights
that such Borrower may have at any time against any other Borrower, Lender or
any other Person, whether in connection herewith or any unrelated transactions,
provided that nothing herein shall prevent the assertion of any such claim by
separate suit or compulsory counterclaim;
(5) any invalidity or unenforceability relating to or
against any Borrower for any reason of any provision or all of this Agreement or
the other Loan Documents, or any provision of applicable law or regulation
purporting to prohibit the payment by any Borrower of any amount payable by it
under this Agreement or the other Loan Documents; or
(6) any other act or omission to act or delay of any kind
by any Borrower, Lender or any other Person or any other circumstance whatsoever
that might, but for the provisions of this paragraph, constitute a legal or
equitable discharge of such Borrower's obligations under this Agreement or the
other Loan Documents.
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(B) Each Borrower's Obligations under this subsection 2.10
shall remain in full force and effect until all Obligations shall have been paid
in full and this Agreement and the other Loan Documents shall have terminated in
accordance with their terms. If at any time any payment of any amount payable by
any Borrower under this Agreement or the other Loan Documents is rescinded or
must be otherwise restored or returned upon the insolvency, bankruptcy or
reorganization of such Borrower or otherwise, each Borrower's Obligations under
this subsection 2.10 with respect to such payment shall be revived and continued
in full force and effect.
(C) In the event that the demand for payment of any amount
payable by any Borrower under this Agreement or the other Loan Documents is
stayed upon the insolvency, bankruptcy or reorganization of such Borrower, all
such amounts otherwise subject to acceleration under the terms of this Agreement
or the other Loan Documents shall nonetheless be payable by each Borrower
hereunder forthwith upon demand by Lender.
(D) Each Borrower hereby irrevocably waives and releases each
other Borrower from all "claims" (as defined in Section 101(4) of the Bankruptcy
Code) to which such Borrower is or would be entitled by virtue of the guaranty
of the Obligations of any other Borrower or the performance of such Borrower's
obligations under this subsection 2.10, including, without limitation, any right
of subrogation (whether contractual, under Section 509 of the Bankruptcy Code or
otherwise), reimbursement, contribution, exoneration or other similar right, or
indemnity, or any right of recourse to security for any of the Obligations.
2.11 Additional Borrowers. Subsidiaries of Parent formed or acquired
after the Closing Date may, upon the request of Parent and with the consent of
Lender (which may be granted or withheld in Lender's sole and absolute
discretion), become Borrowers hereunder, subject to the satisfaction of the
following:
(A) Borrowers and such Subsidiary shall deliver to Lender duly
executed amendments to this Agreement and the Pledge Agreements and such other
documents as Lender shall reasonably request, each in form and substance
reasonably satisfactory to Lender, evidencing that such Subsidiary is a Borrower
hereunder, that such Subsidiary has granted to Lender a first priority,
perfected security interest in its Collateral as security for the Obligations
and that all of the issued and outstanding stock of such Subsidiary is pledged
to Lender as security for the Obligations;
(B) Lender shall have received favorable lien search reports
with respect to such Subsidiary;
(C) Borrowers and such Subsidiary shall deliver to Lender duly
executed financing statements, in form and substance reasonably satisfactory to
Lender, with respect to such Subsidiary;
(D) Borrowers shall deliver to Lender duly executed
notification letters, in form and substance reasonably satisfactory to Lender,
with respect to each Payor on Accounts of such Subsidiary;
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(E) Borrowers shall deliver to Lender certified copies of such
Subsidiary's articles of incorporation, bylaws and board of director resolutions
approving such Subsidiary's becoming a Borrower and consummating the
transactions contemplated hereby, together with a certificate of existence from
the Secretary of State of the jurisdiction of such Subsidiary's incorporation;
(F) Borrowers shall deliver to Lender a duly executed
telephone instruction letter, in form and substance reasonably satisfactory to
Lender, with respect to such Subsidiary;
(G) No Default or Event of Default shall be in existence or
shall be created by such Subsidiary's becoming a Borrower hereunder; and
(H) Borrowers and such Subsidiary shall deliver to Lender such
other documents as Lender shall reasonably request.
The inclusion of any Additional Borrower's Accounts in its Borrowing
Base shall be subject to Lender's audit and due diligence with respect to such
Accounts.
2.12 Limitation on Reserves. The right of Lender to establish reserves
in connection with the computation of the Borrowing Base or the Maximum
Revolving Loan Amount is subject to the following limitations: (a) Lender shall
have a reasonable basis for establishing and setting the amount of any such
reserve, (b) such reserves shall be based on Lender's customary credit and
collateral criteria and (c) the establishment of any such reserve shall be based
on facts or circumstances applicable to a Borrower or the Collateral.
SECTION 3 CONDITIONS TO LOANS
3.1 Conditions to Loans. The obligations of Lender to make Loans on the
Closing Date and on each Funding Date are subject to satisfaction of all of the
conditions set forth below.
(A) Closing Deliveries. Lender shall have received, in form
and substance satisfactory to Lender, all documents, instruments and information
identified on Schedule 3.1(A) and all other agreements, notes, certificates,
orders, authorizations, financing statements, mortgages and other documents
which Lender may at any time reasonably request.
(B) Security Interests. Lender shall have received
satisfactory evidence that all security interests and liens granted to Lender,
pursuant to this Agreement or the other Loan Documents have been duly perfected
and constitute first priority liens on the Collateral, subject only to Permitted
Encumbrances.
(C) Closing Date Availability. After giving effect to the
consummation of the transactions contemplated hereunder on the Closing Date and
the payment by Borrowers of all costs, fees and expenses relating thereto,
Availability on the Closing Date shall be at least $5,000,000.
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(D) Representations and Warranties. The representations and
warranties contained herein and in the Loan Documents shall be true, correct and
complete in all material respects on and as of that Funding Date to the same
extent as though made on and as of that date, except for any representation or
warranty limited by its terms to a specific date and taking into account any
amendments to the Schedules or Exhibits as a result of any disclosures made by
Borrowers to Lender after the Closing Date and approved by Lender.
(E) Fees. Borrowers shall have paid the fees payable on the
Closing Date referred to in subsection 2.3.
(F) No Default. No event shall have occurred and be continuing
or would result from the consummation of the requested borrowing that would
constitute an Event of Default or a Default.
(G) Performance of Agreements. Each Borrower shall have
performed in all material respects all agreements and satisfied all conditions
which any Loan Document provides shall be performed by it on or before that
Funding Date.
(H) No Prohibition. No order, judgment or decree of any court,
arbitrator or governmental authority shall purport to enjoin or restrain Lender
from making any Loans.
(I) No Litigation. There shall not be pending or, to the
knowledge of Borrowers, threatened, any action, charge, claim, demand, suit,
proceeding, petition, governmental investigation or arbitration by, against or
affecting any Borrower or any property of any Borrower that has not been
disclosed by Borrowers in writing, and there shall have occurred no development
in any such action, charge, claim, demand, suit, proceeding, petition,
governmental investigation or arbitration that, in the opinion of Lender, would
reasonably be expected to have a Material Adverse Effect.
(J) Payor Notification Letters. Borrowers shall have delivered
to Lender duly executed letters to each of its insurance company Payors, in form
and substance reasonably satisfactory to Lender, notifying such Payors of
Lender's security interest in the Collateral and directing such Payors to make
payments to a lockbox established pursuant to subsection 5.6(A).
(K) Evidence of Insurance. Lender shall have received from
Borrowers evidence of the insurance policies required to be maintained by
Borrowers pursuant to subsection 5.10 hereof, with the appropriate endorsements
naming Lender as loss payee, in each case, in form and substance satisfactory to
Lender.
(L) Solvency Certificate. Lender shall have received a
certificate from the chief financial officer of Parent, on behalf of the
Borrowers, in form and substance reasonably satisfactory to Lender, to the
effect that Parent and each other Borrower is, as of the Closing Date, solvent
(as represented by Borrowers in subsection 4.16).
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SECTION 4 BORROWERS' REPRESENTATIONS AND WARRANTIES
To induce Lender to enter into this Agreement, and to make Loans,
Borrowers represent and warrant to Lender that the following statements are and
will be true, correct and complete:
4.1 Organization, Powers, Capitalization.
(A) Organization and Powers. Each Borrower is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and qualified to do business in all states where
such qualification is required except where failure to be so qualified could not
be reasonably expected to have a Material Adverse Effect. Each Borrower has all
requisite corporate power and authority to own and operate its properties, to
carry on its business as now conducted and proposed to be conducted and to enter
into each Loan Document.
(B) Capitalization. The authorized capital stock of each
Borrower is as set forth on Schedule 4.1(B). All issued and outstanding shares
of capital stock of each Borrower are duly authorized and validly issued, fully
paid and nonassessable, and such shares were issued in compliance with all
applicable state and federal laws concerning the issuance of securities. All of
the outstanding capital stock of each Subsidiary of Parent is owned by Parent,
and the number of shares of outstanding stock of each of Parent's Subsidiaries
is set forth on Schedule 4.1(B). There are no preemptive or other outstanding
rights, options, warrants, conversion rights or similar agreements or
understandings for the purchase or acquisition from any of Parent's Subsidiaries
of any shares of capital stock or other securities of any such entity.
4.2 Authorization of Borrowing, No Conflict. Each Borrower has the
corporate power and authority to incur the Obligations and to grant security
interests in the Collateral. On the Closing Date, the execution, delivery and
performance of the Loan Documents by each Borrower signatory thereto will have
been duly authorized by all necessary corporate and shareholder action. The
execution, delivery and performance by each Borrower of each Loan Document to
which it is a party and the consummation of the transactions contemplated by
this Agreement and the other Loan Documents by each Borrower do not contravene
and will not be in contravention of any applicable law, the corporate charter or
bylaws of any Borrower or any agreement or order by which any Borrower or any
Borrower's property is bound. This Agreement is, and the other Loan Documents,
when executed and delivered will be, the legally valid and binding obligations
of the applicable Borrower respectively, each enforceable against the Borrower,
as applicable, in accordance with their respective terms.
4.3 Financial Condition. All financial statements concerning Parent and
its Subsidiaries which have been or will hereafter be furnished by Borrowers to
Lender pursuant to this Agreement have been or will be prepared in accordance
with GAAP consistently applied throughout the periods involved (except as
disclosed therein) and do or will present fairly the financial condition of the
corporations covered thereby as at the dates thereof and the results of their
operations for the periods then ended. The Projections delivered and to be
delivered have been and will be prepared by Borrowers in light of the past
operations of the business of Parent and its Subsidiaries, and such
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Projections represent and will represent the good faith estimate of Borrowers
and their senior management concerning the most probable course of its business
as of the date such Projections are prepared and delivered.
4.4 Indebtedness and Liabilities. As of the Closing Date, Borrowers do
not have (a) any Indebtedness except as set forth on Schedule 7.1; or (b) any
Liabilities other than as reflected on the most recent financial statements
delivered to Lender or as incurred in the ordinary course of business following
the date of the most recent financial statements delivered to Lender.
4.5 Account Warranties. Borrowers represent, warrant and covenant as to
each Account that:
(A) At the time of its creation, the Account is a valid, bona
fide account, representing to the best of Borrowers' knowledge an
undisputed indebtedness incurred by the named Payor for services
rendered; there are no setoffs, offsets or counterclaims, genuine or
otherwise, against the Account; the Account does not represent a sale
to an Affiliate; no agreement exists permitting any deduction or
discount (other than the discount stated on the invoice); the
applicable Borrower is the lawful owner of the Account and has the
right to grant to Lender a security interest in the same; the Account
is free of all security interests, liens and encumbrances other than
those in favor of Lender, and the Account is due and payable in
accordance with its terms;
(B) On or after the Closing Date, no payments have been or
shall be made thereon except payments immediately delivered to Lender
pursuant to this Agreement;
(C) To Borrowers' knowledge, there are no facts, events or
occurrences not previously disclosed to Lender which in any way impair
the validity, collection or enforcement thereof or reduce the amount
payable thereunder;
(D) The Account information furnished to Lender by Borrowers
is true, accurate and complete; Borrowers have verified existing
coverage for all Accounts with the applicable Payor and has complied
with all verification procedures required by Lender; the services
performed or merchandise sold was covered by the existing coverage for
each Account; and the benefits under the policy of insurance covering
each Commercial Account were assignable, said benefits have been
assigned to the applicable Borrower;
(E) Each Borrower is in full compliance with all federal,
state and municipal laws and regulations relating to the Account, and
each Borrower has made and will make all necessary disclosures,
required by law, to Patients and the Payors, as applicable and/or
necessary, regarding this Agreement.
4.6 Names. Schedule 4.6 sets forth all names, trade names, fictitious
names and business names under which each Borrower currently conducts business
or has at any time during the past five years conducted business.
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4.7 Locations; FEIN. Schedule 4.7 sets forth the location of each
Borrower's principal place of business, the location of each Borrower's books
and records, the location of all other offices of each Borrower and all
Collateral locations, and such locations are Borrowers' sole locations for their
business and the Collateral. Each Borrower's federal employer identification
number is set forth below such Borrower's signature on the signature page
hereof.
4.8 Title to Properties; Liens. Each Borrower and its Subsidiaries has
good, sufficient and legal title, subject to Permitted Encumbrances, to all its
respective material properties and assets. Except for Permitted Encumbrances,
all such properties and assets are free and clear of Liens. To the best
knowledge of Borrowers after due inquiry, there are no actual, threatened or
alleged defaults with respect to any leases of real property under which any
Borrower or any of its Subsidiaries is lessee or lessor which would have a
Material Adverse Effect.
4.9 Litigation; Adverse Facts. There are no judgments outstanding
against any Borrower or affecting any property of any Borrower nor is there any
action, charge, claim, demand, suit, proceeding, petition, governmental
investigation or arbitration now pending or, to the best knowledge of Borrowers
after due inquiry, threatened against or affecting any Borrower or any property
of any Borrower which could reasonably be expected to result in any Material
Adverse Effect. No Borrower has received any opinion or memorandum or legal
advice from legal counsel to the effect that it is exposed to any liability
which could reasonably be expected to result in any Material Adverse Effect.
4.10 Payment of Taxes. All material tax returns and reports of each
Borrower and each of its Subsidiaries required to be filed by any of them have
been timely filed, and all taxes, assessments, fees and other governmental
charges upon such Persons and upon their respective properties, assets, income
and franchises which are shown on such returns as due and payable have been paid
when due and payable. As of the Closing Date, except as set forth on Schedule
4.10, none of the United States income tax returns of any Borrower or any of its
Subsidiaries are under audit. No tax liens have been filed and no claims (except
as otherwise permitted by Section 5.9) are being asserted with respect to any
such taxes. The charges, accruals and reserves on the books of each Borrower and
each of its Subsidiaries in respect of any taxes or other governmental charges
are in accordance with GAAP.
4.11 Performance of Agreements. No Borrower nor any of its Subsidiaries
is in default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any contractual obligation of
any such Person the effect of which is reasonably expected to have a Material
Adverse Effect, and no condition exists that, with the giving of notice or the
lapse of time or both, would constitute such a default the effect of which is
reasonably expected to have a Material Adverse Effect.
4.12 Employee Benefit Plans. Each Borrower, each of its Subsidiaries
and each ERISA Affiliate is in compliance in all material respects with all
applicable provisions of ERISA, the IRC and all other applicable laws and the
regulations and interpretations thereof with respect to all Employee Benefit
Plans. No material liability has been incurred by any Borrower, any of its
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Subsidiaries or any ERISA Affiliate which remains unsatisfied for any funding
obligation, taxes or penalties with respect to any Employee Benefit Plan.
4.13 Intellectual Property. Each Borrower and each of its Subsidiaries
owns, is licensed to use or otherwise has the right to use, all intellectual
property used in or necessary for the conduct of its business as currently
conducted.
4.14 Broker's Fees. No broker's or finder's fee or commission will be
payable with respect to any of the transactions contemplated hereby.
4.15 Environmental Compliance. Each Borrower has been and is currently
in compliance with all applicable Environmental Laws, including obtaining and
maintaining in effect all permits, licenses or other authorizations required by
applicable Environmental Laws. There are no claims, liabilities, investigations,
litigation, administrative proceedings, whether pending or threatened, or
judgments or orders relating to any Hazardous Materials asserted or threatened
against any Borrower or relating to any real property currently or formerly
owned, leased or operated by any Borrower.
4.16 Solvency. After giving effect to the transactions contemplated by
the Loan Documents and as of, from and after, the date of this Agreement, (a)
Borrowers, taken as a whole: (i) own and will own assets the fair salable value
of which are (A) greater than the total amount of their liabilities (including
contingent liabilities) and (B) greater than the amount that will be required to
pay the probable liabilities of Borrowers as they mature; (ii) have capital that
is not unreasonably small in relation to their business as presently conducted
or any contemplated or undertaken transaction; and (iii) do not intend to incur
and do not believe that they will incur debts beyond their ability to pay such
debts as they become due; and (b) each Borrower: (i) has capital that is not
unreasonably small in relation to its business as presently conducted or any
contemplated or undertaken transaction and (ii) does not intend to incur and
does not believe that it will incur debts beyond its ability to pay such debts
as they become due.
4.17 Disclosure. No representation or warranty of any Borrower
contained in this Agreement, the financial statements, the other Loan Documents,
or any other document, certificate or written statement furnished to Lender by
or on behalf of any such Person for use in connection with the Loan Documents
contains any untrue statement of a material fact or omitted, omits or will omit
to state a material fact necessary in order to make the statements contained
herein or therein not misleading in light of the circumstances in which the same
were made. There is no material fact known to any Borrower that has had or will
have a Material Adverse Effect and that has not been disclosed herein or in such
other documents, certificates and statements furnished to Lender for use in
connection with the transactions contemplated hereby.
4.18 Insurance. Each Borrower and each of its Subsidiaries maintains
adequate insurance policies for public liability, property damage for its
business and properties, product liability, and business interruption, no notice
of cancellation has been received with respect to such policies, and each
Borrower and each of its Subsidiaries is in compliance with all conditions
contained in such policies.
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4.19 Compliance with Laws. No Borrower nor any of its Subsidiaries is
in violation of any law, ordinance, rule, regulation, order, policy, guideline
or other requirement of any domestic or foreign government or any
instrumentality or agency thereof, having jurisdiction over the conduct of its
business or the ownership of its properties, including, without limitation, any
violation relating to any use, release, storage, transport or disposal of any
Hazardous Material, which violation would subject any Borrower or any of its
Subsidiaries, or any of their respective officers to criminal liability or have
a Material Adverse Effect and no such violation has been alleged.
4.20 Bank Accounts. Schedule 4.20 sets forth the account numbers and
locations of all bank accounts of each Borrower and its Subsidiaries.
4.21 Subsidiaries. Borrowers have no Subsidiaries other than as set
forth on Schedule 4.21.
4.22 Employee Matters. Except as set forth on Schedule 4.22, (a) no
Borrower nor any of such Borrower's employees is subject to any collective
bargaining agreement, (b) to Borrowers' knowledge, no petition for certification
or union election is pending with respect to the employees of any Borrower and
no union or collective bargaining unit has sought such certification or
recognition with respect to the employees of any Borrower and (c) there are no
strikes, slowdowns, work stoppages or controversies pending or, to the best
knowledge of Borrowers after due inquiry, threatened between any Borrower and
its respective employees, other than employee grievances arising in the ordinary
course of business which could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. Except for
employment contracts entered into in the ordinary course of Borrowers' business
with the persons identified on Schedule 4.22, no Borrower nor any of its
Subsidiaries is subject to an employment contract.
4.23 Governmental Regulation. No Borrower is, or after giving effect to
any loan will be, subject to regulation under the Public Utility Holding Company
Act of 1935, the Federal Power Act or the Investment Company Act of 1940 or to
any federal or state statute or regulation limiting its ability to incur
indebtedness for borrowed money.
4.24 Medicare/Medicaid. Except as set forth in Schedule 4.24, each
Borrower has in force all licenses necessary for participation in such Medicare
and Medicaid programs, and no Borrower is in violation of any of the
requirements of any Medicare or Medicaid program. Except as set forth on
Schedule 4.24, no Borrower has incurred any cost report offsets during the past
three years, and no Borrower has received notice of any currently proposed cost
report offset.
Borrowers may, at any time and from time to time and subject to
subsection 5.13, amend any one or more of the Schedules referred in this Section
4 and any representation or warranty contained herein which refers to any such
Schedule shall from and after the date of any such amendment refer to such
Schedule as so amended, provided, however, that in no event may Borrowers amend
any such Schedule if such amendment would reflect or evidence a Default or Event
of Default.
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SECTION 5 AFFIRMATIVE COVENANTS
Borrowers covenant and agree that, so long as the Revolving Loan
Commitment shall be in effect and until payment in full of all Obligations,
unless Lender shall otherwise give its prior written consent, Borrowers shall
perform, and shall cause each of their respective Subsidiaries to perform, all
covenants in this Section 5 applicable to such Person.
5.1 Financial Statements and Other Reports. Borrowers will maintain,
and cause each of their Subsidiaries to maintain, a system of accounting
established and administered in accordance with sound business practices to
permit preparation of financial statements in conformity with GAAP. Borrowers
will deliver to Lender the financial statements and other reports described
below.
(A) Monthly Financials. As soon as available and in any event
within thirty (30) days after the end of each month, Parent will deliver (1) the
consolidated and consolidating balance sheet of Parent and its Subsidiaries as
at the end of such month and the related consolidated and consolidating
statements of income, stockholders' equity and cash flow for such month and for
the period from the beginning of the then current Fiscal Year to the end of such
month, and (2) a schedule of the outstanding Indebtedness for borrowed money of
Parent and its Subsidiaries describing in reasonable detail each such debt issue
or loan outstanding and the principal amount and amount of accrued and unpaid
interest with respect to each such debt issue or loan.
(B) Year-End Financials. As soon as available and in any event
within one hundred twenty (120) days after the end of each Fiscal Year, Parent
will deliver: (1) the consolidated balance sheet of Parent and its Subsidiaries
as at the end of such year and the related consolidated statements of income,
stockholders' equity and cash flow for such Fiscal Year; (2) a schedule of the
outstanding Indebtedness of Parent and its Subsidiaries describing in reasonable
detail each such debt issue or loan outstanding and the principal amount and
amount of accrued and unpaid interest with respect to each such debt issue or
loan; and (3) a report with respect to the financial statements from a firm of
independent certified public accountants selected by Borrowers, and acceptable
to Lender, which report shall be unqualified as to going concern and scope of
audit of Parent and its Subsidiaries and shall state that (a) such consolidated
financial statements present fairly the consolidated financial position of
Parent and its Subsidiaries as at the dates indicated and the results of their
operations and cash flow for the periods indicated in conformity with GAAP
applied on a basis consistent with prior years and (b) that the examination by
such accountants in connection with such consolidated financial statements has
been made in accordance with generally accepted auditing standards; and (4)
copies of the consolidating financial statements of Parents and its
Subsidiaries, including (a) consolidating balance sheets of Parent and its
Subsidiaries as at the end of such Fiscal Year showing intercompany eliminations
and (b) related consolidating statements of earnings of Parent and its
Subsidiaries showing intercompany eliminations.
(C) Accountants' Certification and Reports. Together with each
delivery of consolidated financial statements of Parent and its Subsidiaries
pursuant to subsection 5.1(B), Parent will deliver a written statement by its
independent certified public accountants (a) stating that the
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examination has included a review of the terms of this Agreement as same relate
to accounting matters and (b) stating whether, in connection with the
examination, any condition or event that constitutes a Default or an Event of
Default has come to their attention and, if such a condition or event has come
to their attention, specifying the nature and period of existence thereof.
Promptly upon receipt thereof, Parent will deliver copies of all significant
reports submitted to Borrowers by independent public accountants in connection
with each annual, interim or special audit of the financial statements of
Borrowers made by such accountants, including the comment letter submitted by
such accountants to management in connection with their annual audit.
(D) Compliance Certificate. Together with the delivery of each
set of financial statements referenced in subparts (A) and (B) of this
subsection 5.1, Borrowers will deliver to Lender a Compliance Certificate.
(E) Collateral Report, Registers and Journals. No less often
than once per week, Borrowers shall deliver to Lender: (1) a current Collateral
Report; (2) an invoice register or sales journal describing all Accounts created
during the applicable reporting period; (3) a cash receipts journal; and (4) an
adjustments journal.
(F) Reconciliation Reports, Listings and Agings. Within five
(5) Business Days after the last day of each month commencing with the month
ending November 30, 1997, Borrowers will deliver to Lender:(1) an aged trial
balance of all then existing Accounts, (2) a Reconciliation Report as at the
last day of such month and (3) an aged trial balance of all then existing
accounts payable. All such reports shall be in form and substance satisfactory
to Lender.
(G) Management Report. Together with each delivery of
financial statements of Parent and its Subsidiaries pursuant to subdivisions (A)
and (B) of this subsection 5.1, Parent will deliver to Lender a management
report: (1) describing the operations and financial condition of Parent and its
Subsidiaries for the month then ended (actual and budgeted) and the portion of
the current Fiscal Year then elapsed (actual and budgeted) (or for the Fiscal
Year then ended in the case of year-end financials); and (2) discussing the
reasons for any significant variations. The information above shall be presented
in reasonable detail and shall be certified by the chief financial officer of
Borrowers to the effect that such information fairly presents the results of
operations and financial condition of Borrowers and their Subsidiaries as at the
dates and for the periods indicated.
(H) Government Notices. Borrowers will deliver to Lender
promptly after receipt copies of all notices, requests, subpoenas, inquiries or
other writings received from any governmental agency concerning any Employee
Benefit Plan, the violation or alleged violation of any Environmental Laws, the
storage, use or disposal of any Hazardous Material, the violation or alleged
violation of the Fair Labor Standards Act or a Borrower's payment or non-payment
of any taxes including any tax audit.
(I) Events of Default, etc. Promptly upon any officer of a
Borrower obtaining knowledge of any of the following events or conditions,
Borrowers shall deliver to Lender a certificate of Borrowers' chief executive
officer specifying the nature and period of existence of such
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condition or event and what action Borrowers have taken, are taking and propose
to take with respect thereto: (1) any condition or event that constitutes an
Event of Default or Default; (2) any notice of default that any Person has given
to a Borrower or any of its Subsidiaries or any other action taken with respect
to a claimed default; or (3) any Material Adverse Effect.
(J) Trade Names. Borrowers will give Lender at least thirty
(30) days advance written notice of any change of name or of any new trade name
or fictitious business name by Parent or any of its Subsidiaries. A Borrower's
use of any trade name or fictitious business name will be in compliance with all
laws regarding the use of such names.
(K) Locations. Borrowers will give Lender at least thirty (30)
days advance written notice of any change in a Borrower's principal place of
business or any change in the location of its books and records or the
Collateral or of any new location for its books and records or the Collateral.
(L) Bank Accounts. Borrowers will give Lender prompt notice of
any new bank accounts a Borrower or any of its Subsidiaries intends to establish
prior to its opening same.
(M) Litigation. Promptly upon any officer of a Borrower or its
Subsidiaries obtaining knowledge of (1) the institution of any action, suit,
proceeding, governmental investigation or arbitration against or affecting any
Borrower or any property of any Borrower not previously disclosed by Borrowers
to Lender which could reasonably be expected to have a Material Adverse Effect
or (2) any material development in any action, suit, proceeding, governmental
investigation or arbitration at any time pending against or affecting any
Borrower or any property of any Borrower which could reasonably be expected to
have a Material Adverse Effect, Borrowers will promptly give notice thereof to
Lender and provide such other information as may be reasonably available to them
to enable Lender and its counsel to evaluate such matter.
(N) Projections. As soon as available and in any event no
later than thirty (30) days prior to the end of each Fiscal Year of Borrowers,
Borrowers will deliver to Lender consolidated and consolidating Projections of
Parent and its Subsidiaries for the forthcoming two Fiscal Years, year by year,
and for the forthcoming Fiscal Year, month by month.
(O) Subordinated Debt and Other Indebtedness Notices.
Borrowers shall promptly deliver copies of all notices given or received by
Parent or any of its Subsidiaries with respect to noncompliance with any term or
condition related to any Subordinated Debt and other Indebtedness, and shall
promptly notify Lender of any potential or actual event of default with respect
to any Subordinated Debt or other Indebtedness.
(P) Cost Reports. Simultaneously with the submission of such
reports, but in no event later than 150 days from the end of each Borrower's
cost report year, Borrowers shall deliver to Lender copies of all cost reports
or other required reports submitted by it to any governmental agency or
intermediary on either a final or interim basis and promptly upon receipt
thereof, copies of any correspondence from such governmental agency or
intermediary regarding such reports.
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(Q) Other Information. With reasonable promptness, Borrowers
will deliver such other information and data with respect to any Borrower or the
Collateral as Lender may reasonably request from time to time.
(R) Corporate Compliance Program. Borrowers shall have
implemented a Corporate Compliance Program reasonably satisfactory to Lender
within one hundred eighty (180) days after the Closing Date.
5.2 Access to Accountants. Each Borrower authorizes Lender to discuss
the financial condition and financial statements of such Borrower and its
Subsidiaries with Borrowers' independent public accountants upon reasonable
notice to Borrowers of its intention to do so, and authorizes such accountants
to respond to all of Lender's inquiries.
5.3 Inspection. Borrowers shall permit Lender and any authorized
representatives designated by Lender to visit and inspect any of the properties
of each Borrower or any of its Subsidiaries, including its financial and
accounting records, and to make copies and take extracts therefrom, and to
discuss its affairs, finances and business with its officers and independent
public accountants, at such reasonable times during normal business hours and as
often as may be reasonably requested. Borrowers acknowledge that Lender intends
to make such inspections on at least a quarterly basis.
5.4 Collateral Records. Each Borrower shall keep full and accurate
books and records relating to the Collateral and shall mark such books and
records to indicate Lender's security interests in the Collateral.
5.5 Account Covenants; Verification.
(A) Borrowers shall, at their own expense: (a) cause all
invoices evidencing Accounts and all copies thereof to bear a notice that such
invoices are payable to the lockboxes established in accordance with subsection
5.6 and (b) use its best efforts to assure prompt payment of all amounts due or
to become due under the Accounts.
(B) Borrowers will immediately notify Lender in the event that
a Payor alleges any dispute or claim with respect to an Account or of any other
circumstances known to a Borrower that may impair the validity or collectibility
of an Account.
(C) Lender shall have the right, at any time or times
hereafter, to verify the validity, amount or any other matter relating to an
Account, by mail, telephone or in person.
(D) After the occurrence of a Default or an Event of Default,
Borrowers shall not, without the prior consent of Lender, adjust, settle or
compromise the amount or payment of any Account, or release wholly or partly any
customer or obligor thereof, or allow any credit or discount thereon.
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(E) Lender shall have the right at any time to notify Payors
that Lender has been granted a security interest in the Accounts of such Payor.
(F) Borrowers have full and complete legal responsibility for
the accuracy and validity of all Accounts and medical file documentation
submitted to Payors.
(G) Borrowers shall correct and resubmit any Accounts that
have been rejected by Payors that require correction, modification or additional
information.
(H) Promptly upon request by Lender, Borrowers shall deliver
to Lender copies of documentation supporting Accounts and such other
documentation as Lender may reasonably require. Each Account submitted to the
appropriate Payor shall be supported by an original document that includes the
Patient's duly executed assignment of its rights against the Payor, which
documents shall be maintained by Borrowers for six (6) years from the date
payment is received on or in respect of such Account.
(I) Borrowers shall at all times maintain a record of
Accounts, keeping correct and accurate records itemizing and describing the
names and addresses of Patients and Payors, nature of services performed,
relevant billing statement information, all of which records shall be available
during usual business hours at the request of any of Lender's officers,
employees or agents. Borrowers shall institute appropriate measures to safeguard
these records and to provide disaster recovery programs as appropriate.
Borrowers shall cooperate fully with Lender and its agents who shall have the
right at any time or times to inspect the Accounts and the records with respect
thereto. Lender may to the extent allowed by law, at any time after an Event of
Default hereunder, remove from the premises of each Borrower copies of all such
records, files and books relating to Accounts. Lender agrees to protect the
files and information of each Borrower to the same extent that Lender protects
its own proprietary information, and will not disclose such information to
others other than as required for the processing and collection of Accounts and
enforcement of this Agreement.
5.6 Collection of Accounts and Payments.
(A) Commercial Accounts and Other Accounts. Each Borrower
shall establish one or more lockboxes and one or more depository accounts in
such Borrower's name with such collecting banks as are acceptable to Lender
(subject to irrevocable instructions acceptable to Lender as hereinafter set
forth). Each Borrower shall cause all Payors on Accounts (other than Government
Accounts) to remit all payments on such Accounts either to a lockbox (in the
case of payments by check) or a depository account (in the case of payment by
wire transfer or other funds transfer mechanism) established pursuant to this
subsection 5.6(A). Each such collecting bank shall acknowledge and agree, in a
manner satisfactory to Lender, that all checks and other items of payment
received in each lockbox established with such collecting bank shall be
deposited in the applicable depository account, that Lender shall have sole and
exclusive dominion and control over such depository account and all funds
therein and that such collecting bank shall have no right of setoff against such
depository account. Each Borrower hereby agrees that all payments made to any
such lockbox or depository account or otherwise received by Lender and
constituting proceeds of
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Accounts or other Collateral (other than Government Accounts) are the sole and
exclusive property of Lender. Each Borrower shall irrevocably instruct each such
collecting bank that it shall wire transfer to Lender on each business day all
collected funds in the applicable depository account. Each Borrower, and any of
its Affiliates, employees, agents or other Persons acting for or in concert with
a Borrower, shall, acting as trustee for Lender, receive, as the sole and
exclusive property of Lender, any monies, checks, notes, drafts or any other
payments relating to and/or proceeds of Accounts or other Collateral (other than
Government Accounts) that come into the possession or under the control of such
Borrower or any of such Borrower's Affiliates, employees, agents or other
Persons acting for or in concert with such Borrower, and immediately upon
receipt thereof, such Borrower or such Persons shall remit the same or cause the
same to be remitted, in kind, to a depository account established pursuant to
this subsection 5.6(A).
(B) Government Accounts. Each Borrower shall forward to
Lender, an amount equal to all remittances or other payments received by such
Borrower representing payments of Government Accounts within one (1) day of
receipt of such remittances or payments. Each Borrower shall establish a lockbox
or other depository account in its name to which it shall direct payment of
Government Accounts. Each Borrower shall instruct the bank at which such lockbox
is maintained to forward the proceeds of such lockbox or depository account to
Lender each business day, and no Borrower shall change such instructions without
delivering at least ten (10) days prior written notice to Lender, provided that
if such new instructions direct payment of such proceeds to a Person other than
Lender, then Lender shall have the right to declare the Obligations due and
payable and to terminate this Agreement by delivering written notice of such
election to Borrowers. To the extent Lender receives from any Payor any payments
or other remittances relating to Government Accounts, Lender shall deposit such
amounts to a depository account of the appropriate Borrower established pursuant
to this subsection 5.6(B).
5.7 Endorsement. Each Borrower hereby constitutes and appoints Lender
and all Persons designated by Lender for that purpose as such Borrower's true
and lawful attorney-in-fact, with power to endorse such Borrower's name to any
of the items of payment or proceeds described in subsection 5.6 above and all
proceeds of Collateral that come into Lender's possession or under Lender's
control. Both the appointment of Lender as each Borrower's attorney and Lender's
rights and powers are coupled with an interest and are irrevocable until payment
in full and complete performance of all of the Obligations.
5.8 Corporate Existence. Each Borrower will, and will cause each of its
Subsidiaries to, at all times preserve and keep in full force and effect its
corporate existence and all rights and franchises material to its business. Each
Borrower will promptly notify Lender of any change in its or its Subsidiaries'
ownership or corporate structure.
5.9 Payment of Taxes. Each Borrower will, and will cause each of its
Subsidiaries to, pay all taxes, assessments and other governmental charges
imposed upon it or any of its properties or assets or with respect to any of its
franchises, business, income or property before any penalty accrues thereon
provided that no such tax need be paid if a Borrower or one of its Subsidiaries
is contesting same in good faith by appropriate proceedings promptly instituted
and diligently
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conducted and if a Borrower or such Subsidiary has established appropriate
reserves as shall be required in conformity with GAAP.
5.10 Maintenance of Properties; Insurance. Each Borrower will maintain
or cause to be maintained in good repair, working order and condition all
material properties used in the business of such Borrower and its Subsidiaries
and will make or cause to be made all appropriate repairs, renewals and
replacements thereof. Each Borrower will maintain or cause to be maintained,
with financially sound and reputable insurers, public liability and property
damage insurance with respect to its business and properties and the business
and properties of its Subsidiaries against loss or damage of the kinds
customarily carried or maintained by corporations of established reputation
engaged in similar businesses and in amounts acceptable to Lender. Borrowers
shall cause Lender to be named as loss payee on all insurance policies relating
to any Collateral and as additional insured under all liability policies, in
each case pursuant to appropriate endorsements in form and substance
satisfactory to Lender and shall collaterally assign to Lender as security for
the payment of the Obligations all business interruption insurance of each
Borrower. In the event Borrowers fail to provide Lender with evidence of the
insurance coverage required by this Agreement, Lender may, but is not required
to, purchase insurance at Borrowers' expense to protect Lender's interests in
the Collateral. This insurance may, but need not, protect Borrowers' interests.
The coverage purchased by Lender may not pay any claim made by a Borrower or any
claim that is made against a Borrower in connection with the Collateral.
Borrowers may later cancel any insurance purchased by Lender, but only after
providing Lender with evidence that Borrowers have obtained insurance as
required by this Agreement. If Lender purchases insurance for the Collateral,
Borrowers will be responsible for the costs of that insurance, including
interest and other charges imposed by Lender in connection with the placement of
the insurance, until the effective date of the cancellation or expiration of the
insurance. The costs of the insurance may be added to the Obligations. The costs
of the insurance may be more than the cost of insurance Borrowers are able to
obtain on their own.
5.11 Compliance with Laws. Each Borrower will, and will cause each of
its Subsidiaries to, comply with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority as now in effect and which
may be imposed in the future in all jurisdictions in which such Borrower or any
of its Subsidiaries is now doing business or may hereafter be doing business,
other than those laws the noncompliance with which would not have a Material
Adverse Effect.
5.12 Further Assurances. Each Borrower shall, and shall cause each of
its Subsidiaries to, from time to time, execute such guaranties, financing or
continuation statements, documents, security agreements, reports and other
documents or deliver to Lender such instruments, certificates of title or other
documents as Lender at any time may reasonably request to evidence, perfect or
otherwise implement the guaranties and security for repayment of the Obligations
provided for in the Loan Documents. At Lender's request, each Borrower shall
cause any Subsidiaries of such Borrower promptly to guaranty the Obligations and
to grant to Lender security interests in the real, personal and mixed property
of such Subsidiary to secure the Obligations.
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5.13 Use of Proceeds and Margin Security. Borrowers shall use the
proceeds of all Loans for proper business purposes (as described in the recitals
to this Agreement) consistent with all applicable laws, statutes, rules and
regulations. No portion of the proceeds of any Loan shall be used by a Borrower
or any of its Subsidiaries for the purpose of purchasing or carrying of margin
stock within the meaning of Regulation G or Regulation U, or in any manner that
might cause the borrowing or the application of such proceeds to violate
Regulation T or Regulation X or any other regulation of the Board of Governors
of the Federal Reserve System, or to violate the Exchange Act.
5.14 Implementation of Electronic Data Backup System. Within thirty
(30) days after the Closing Date, Borrowers shall provide Lender with evidence
reasonably satisfactory to Lender of Borrowers' implementation of an off-site
electronic data storage, access and backup system (the "Data Backup System")
maintained by a third party reasonably acceptable to Lender (the "Backup
Provider"). The Data Backup System shall provide not less than weekly automatic
backups of all patient demographic, "billed to" party, accessions records, and
other types and categories of billing and testing data maintained by Borrowers,
which data shall be at least as extensive as that processed and stored as of the
Closing Date by Borrowers' software program. Borrowers shall irrevocably
instruct the Backup Provider, pursuant to an agreement in form and substance
satisfactory to Lender, to permit and facilitate Lender's access to and
retrieval of all such data upon Lender's request therefor or at least on a
weekly basis.
5.15 Landlord Agreement. Within thirty (30) days after the Closing
Date, Borrowers shall deliver to Lender a landlord agreement, reasonably
satisfactory to Lender, relating to the lease by Parent of its corporate offices
in St. Louis, Missouri.
SECTION 6 FINANCIAL COVENANTS
Borrowers covenant and agree that so long as the Revolving Loan
Commitment remains in effect and until payment in full of all Obligations,
Borrowers shall comply with and shall cause each of their Subsidiaries to comply
with all covenants in this Section 6.
6.1 Tangible Net Worth. Borrowers shall at all times maintain Tangible
Net Worth of at least the amounts set forth below during the corresponding
period set forth below:
Period Amount
------ ------
From the Closing Date through
September 30, 1998 $19,000,000
From October 1, 1998 through
December 31, 1998 $20,000,000
From and after January 1, 1999 $23,000,000
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6.2 Capital Expenditure Limits. The aggregate amount of all Capital
Expenditures of Borrowers and their Subsidiaries (excluding trade-ins and
excluding Capital Expenditures in respect of replacement assets to the extent
funded with casualty insurance proceeds) will not exceed either (a) $600,000 for
any acute care facility of a Borrower during any Fiscal Year or (b) $7,000,000
in the aggregate during any Fiscal Year. In the event that a Borrower or any of
its Subsidiaries enters into a Capital Lease or other contract with respect to
fixed assets, for purposes of calculating Capital Expenditures under this
subsection only, the amount of the Capital Lease or contract initially
capitalized on such Borrower's or any Subsidiary's balance sheet prepared in
accordance with GAAP shall be considered expended in full on the date that such
Borrower or any of its Subsidiaries enters into such Capital Lease or contract.
Permitted Capital Expenditures under clause (b) above not made in any Fiscal
Year may be carried over for one year only to the next Fiscal Year provided,
however, any carried-over Capital Expenditure will be deemed used only after all
otherwise Permitted Capital Expenditures for that Fiscal Year have been used.
6.3 Fixed Charge Coverage. Borrowers shall not permit their Fixed
Charge Coverage for each period set forth below to be less than the amount set
forth below for such periods:
Period Amount
------ ------
For the fiscal quarter ending
March 31, 1998 1.0
For the fiscal quarter ending
June 30, 1998 1.2
For the fiscal quarter ending
September 30, 1998 1.5
For the twelve months ending
December 31, 1998 and for each
twelve-month period ending at the end
of each fiscal quarter thereafter 1.5
6.4 Alternative Minimum Adjusted Availability Test. Notwithstanding the
forgoing, Borrowers shall not be obligated to comply with the covenants set
forth in subsections 6.1 and 6.3 so long as Borrowers shall maintain an
aggregate Availability of at least $2,000,000 at all times on and after the
Closing Date.
SECTION 7 NEGATIVE COVENANTS
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Borrowers covenant and agree that so long as the Revolving Loan
Commitment remains in effect and until payment in full of all Obligations,
unless Borrowers have received the prior written consent of Lender, Borrowers
shall not and will not permit any of their Subsidiaries to:
7.1 Indebtedness and Liabilities. Directly or indirectly create, incur,
assume, guaranty, or otherwise become or remain directly or indirectly liable,
on a fixed or contingent basis, with respect to any Indebtedness except: (a) the
Obligations; (b) intercompany Indebtedness among Borrowers; provided that such
Indebtedness is subordinated in right of payment to the Obligations; (c)
Indebtedness (excluding capital leases) not to exceed $150,000 in the aggregate
at any time outstanding secured by purchase money Liens; (d) Indebtedness under
Capital Leases or loans for the purpose of financing leasehold improvements and
equipment at a hospital facility not to exceed $2,500,000 outstanding at any
time in the aggregate; and (e) Indebtedness existing on the Closing Date and
identified on Schedule 7.1. Except for Indebtedness described permitted in the
preceding sentence, Borrowers will not, and will not permit any of their
Subsidiaries to, incur any Liabilities except for (i) Liabilities consisting of
trade payables and normal accruals in the ordinary course of business not yet
due and payable or; (ii) Liabilities expensed monthly in the ordinary course of
business and required in accordance with GAAP to be reflected on a balance sheet
of Borrower; (iii) Liabilities with respect to which Borrower or any of its
Subsidiaries is contesting in good faith the amount or validity thereof by
appropriate proceedings and then only to the extent that Borrower or any of its
Subsidiaries has established adequate reserves therefor, if appropriate under
GAAP; and (iv) other Liabilities, to the extent such Liabilities are required to
be disclosed to Lender pursuant to the other terms and provisions of this
Agreement.
7.2 Guaranties. Except for (i) endorsements of instruments or items of
payment for collection in the ordinary course of business, and (ii) the guaranty
by Parent of Indebtedness of a Subsidiary Borrower permitted to be incurred
under subsection 7.1 hereof, guaranty, endorse, or otherwise in any way become
or be responsible for any obligations of any other Person, whether directly or
indirectly by agreement to purchase the indebtedness of any other Person or
through the purchase of goods, supplies or services, or maintenance of working
capital or other balance sheet covenants or conditions, or by way of stock
purchase, capital contribution, advance or loan for the purpose of paying or
discharging any indebtedness or obligation of such other Person or otherwise.
7.3 Transfers, Liens and Related Matters.
(A) Transfers. Sell, assign (by operation of law or otherwise)
or otherwise dispose of, or grant any option with respect to any of the
Collateral or the assets of such Person, except that Borrowers and their
Subsidiaries may (i) sell inventory in the ordinary course of business; and (ii)
make Asset Dispositions if all of the following conditions are met: (1) the
market value of assets sold or otherwise disposed of in any single transaction
or series of related transactions does not exceed $100,000 per acute care
facility and the aggregate market value of assets sold or otherwise disposed of
in any Fiscal Year does not exceed $500,000 per acute care facility; (2) the
consideration received is at least equal to the fair market value of such
assets; (3) the sole consideration received is cash; (4) after giving effect to
the sale or other disposition of the assets included within the Asset
Disposition and the repayment of the Obligations with the proceeds thereof,
Borrowers are in
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compliance on a pro forma basis with the covenants set forth in Section 6
recomputed for the most recently ended month for which information is available
and is in compliance with all other terms and conditions contained in this
Agreement; and (5) no Default or Event of Default shall then exist or result
from such sale or other disposition.
(B) Liens. Except for Permitted Encumbrances, directly or
indirectly create, incur, assume or permit to exist any Lien on or with respect
to any of the Collateral or the assets of such Person or any proceeds, income or
profits therefrom.
(C) No Negative Pledges. Enter into or assume any agreement
(other than the Loan Documents) prohibiting the creation or assumption of any
Lien upon its properties or assets, whether now owned or hereafter acquired.
(D) No Restrictions on Subsidiary Distributions to Borrowers.
Except as provided herein, directly or indirectly create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction of
any kind on the ability of any such Subsidiary to: (1) pay dividends or make any
other distribution on any of such Subsidiary's capital stock owned by a Borrower
or any Subsidiary of a Borrower; (2) subject to subordination provisions, pay
any indebtedness owed to a Borrower or any other Subsidiary; (3) make loans or
advances to a Borrower or any other Subsidiary; or (4) transfer any of its
property or assets to a Borrower or any other Subsidiary.
7.4 Investments and Loans. Make or permit to exist investments in or
loans to any other Person, except: (a) Cash Equivalents; and (b) loans and
advances to employees for moving, entertainment, travel and other similar
expenses in the ordinary course of business in an aggregate outstanding amount
not in excess of $150,000 at any time.
7.5 Restricted Junior Payments. Directly or indirectly declare, order,
pay, make or set apart any sum for any Restricted Junior Payment, except that
(a) Subsidiaries of a Borrower may make Restricted Junior Payments with respect
to their common stock to the extent necessary to permit such Borrower to pay the
Obligations and to permit such Borrower to pay expenses incurred in the ordinary
course of business, (b) Subsidiaries of Parent may pay management fees to Parent
for the purpose of covering Parent's cost of providing administrative and other
services to its Subsidiaries and (c) Parent may pay director fees in an
aggregate amount not in excess of $150,000 in any Fiscal Year.
7.6 Restriction on Fundamental Changes. (a) Enter into any transaction
of merger or consolidation; (b) liquidate, wind-up or dissolve itself (or suffer
any liquidation or dissolution); (c) convey, sell, lease, sublease, transfer or
otherwise dispose of, in one transaction or a series of transactions, all or any
substantial part of its business or assets, or the capital stock of any of its
Subsidiaries, whether now owned or hereafter acquired; or (d) acquire by
purchase or otherwise all or any substantial part of the business or assets of,
or stock or other evidence of beneficial ownership of, any Person.
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7.7 Changes Relating to Subordinated Debt. Change or amend the terms of
the Subordinated Debt if the effect of such amendment is to: (a) increase the
interest rate on such Indebtedness; (b) change the dates upon which payments of
principal or interest are due on such Indebtedness; (c) change any event of
default or add any covenant with respect to such Indebtedness; (d) change the
payment provisions of such Indebtedness; (e) change the subordination provisions
thereof; or (f) change or amend any other term if such change or amendment would
materially increase the obligations of the obligor or confer additional material
rights on the holder of such Indebtedness in a manner adverse to a Borrower, any
of its Subsidiaries, or Lender.
7.8 Transactions with Affiliates. Directly or indirectly, enter into or
permit to exist any transaction (including the purchase, sale or exchange of
property or the rendering of any service) with any Affiliate or with any
officer, director or employee of any Borrower, except for transactions in the
ordinary course of and pursuant to the reasonable requirements of Borrowers'
business and upon fair and reasonable terms which are fully disclosed to Lender
and which are no less favorable to Borrowers than it would obtain in a
comparable arm's length transaction with an unaffiliated Person, all of which
transactions are described on Schedule 7.8 hereto.
7.9 Environmental Liabilities. (a) Violate any applicable Environmental
Law; (b) dispose of any Hazardous Materials (except in accordance with
applicable law) into or onto or from, any real property owned, leased or
operated by any Borrower; or (c) permit any Lien imposed pursuant to any
Environmental Law to be imposed or to remain on any real property owned, leased
or operated by any Borrower.
7.10 Conduct of Business. From and after the Closing Date, engage in
any business other than businesses of the type engaged in by Borrowers or any
Subsidiary on the Closing Date.
7.11 Compliance with ERISA. Establish any new Employee Benefit Plan or
amend any existing Employee Benefit Plan if the liability or increased liability
resulting from such establishment or amendment is material. No Borrower nor any
of its Subsidiaries shall fail to establish, maintain and operate each Employee
Benefit Plan in compliance in all material respects with the provisions of
ERISA, the IRC and all other applicable laws and the regulations and
interpretations thereof.
7.12 Tax Consolidations. File or consent to the filing of any
consolidated income tax return with any Person other than a Borrower or any of
its Subsidiaries.
7.13 Subsidiaries. Establish, create or acquire any new Subsidiaries,
except for Subsidiaries created for the purpose of operating new acute care
facilities and that become Additional Borrowers pursuant to the provisions of
subsection 2.11.
7.14 Fiscal Year. Change their Fiscal Year.
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7.15 Press Release; Public Offering Materials. Disclose the name of
Lender in any press release or in any prospectus, proxy statement or other
materials filed with any governmental entity relating to a public offering of
the capital stock of any Borrower except as may be required by law.
7.16 Bank Accounts. Establish any new bank accounts, or amend or
terminate any blocked account or lockbox agreement without Lender's prior
written consent.
7.17 Collateral Matters. Retain or engage any Person to perform
services in connection with the Collateral that could affect the value of the
Collateral without Lender's prior written consent, including, but not be limited
to, hiring collection agents to collect Accounts; provided, however, that
Borrowers may retain collection agents to collect up to five percent (5%) of
outstanding Accounts without Lender's prior written consent.
SECTION 8 DEFAULT, RIGHTS AND REMEDIES
8.1 Event of Default. "Event of Default" shall mean the occurrence or
existence of any one or more of the following:
(A) Payment. Failure to make payment of any of the Obligations
when due and in the case of interest, such failure shall not be cured within
five (5) days of the applicable due date; or
(B) Default in Other Agreements. (1) Failure of Borrowers or
any of their Subsidiaries to pay when due any principal or interest on any
Indebtedness (other than the Obligations) or (2) breach or default of a Borrower
or any of its Subsidiaries with respect to any Indebtedness (other than the
Obligations); if such failure to pay, breach or default entitles the holder to
cause such Indebtedness having an individual principal amount in excess of
$25,000 or having an aggregate principal amount in excess of $50,000 to become
or be declared due prior to its stated maturity; or
(C) Breach of Certain Provisions. Failure of Borrowers to
perform or comply with any term or condition contained in subsections 5.1(A),
(B) and (N), 5.3, 5.5 or 5.6 or contained in Section 6 or Section 7; or
(D) Breach of Warranty. Any representation, warranty,
certification or other statement made by any Borrower in any Loan Document or in
any statement or certificate at any time given by such Person in writing
pursuant or in connection with any Loan Document is false in any material
respect on the date made; or
(E) Other Defaults Under Loan Documents. A Borrower defaults
in the performance of or compliance with any term contained in this Agreement or
the other Loan Documents and such default is not remedied or waived within ten
(10) days after receipt by Borrowers of notice from Lender of such default
(other than occurrences described in other
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provisions of this subsection 8.1 for which a different grace or cure period is
specified or which constitute immediate Events of Default); or
(F) Change in Control. (1) any Person or group (within the
meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
whether or not Parent has any capital stock subject to such Section) other than
a member of the Acceptable Group shall at any time beneficially own (within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended,
whether or not Parent has any capital stock subject to such Rule) more than 20%
of the total voting power of all classes of capital stock of Parent entitled to
vote (or convertible into shares of stock entitled to vote) generally for the
election of directors of Parent or (2) Parent at any time ceases to own,
directly or indirectly, all of the issued and outstanding capital stock of each
Subsidiary listed on the signature pages hereof or any Additional Borrower; or
(G) Involuntary Bankruptcy; Appointment of Receiver, etc. (1)
A court enters a decree or order for relief with respect to a Borrower or any of
its Subsidiaries in an involuntary case under the Bankruptcy Code or any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, which decree or order is not stayed or other similar relief is not
granted under any applicable federal or state law; or (2) the continuance of any
of the following events for sixty (60) days unless dismissed, bonded or
discharged: (a) an involuntary case is commenced against a Borrower or any of
its Subsidiaries, under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect; or (b) a decree or order of a court for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or other
officer having similar powers over a Borrower or any of its Subsidiaries, or
over all or a substantial part of their respective property, is entered; or (c)
an interim receiver, trustee or other custodian is appointed without the consent
of a Borrower or any of its Subsidiaries, for all or a substantial part of the
property of a Borrower or any such Subsidiary; or
(H) Voluntary Bankruptcy; Appointment of Receiver, etc. (1) An
order for relief is entered with respect to a Borrower or any of its
Subsidiaries or a Borrower or any of its Subsidiaries commences a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consents to the entry of an order for relief in an
involuntary case or to the conversion of an involuntary case to a voluntary case
under any such law or consents to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of its
property; or (2) a Borrower or any of its Subsidiaries makes any assignment for
the benefit of creditors; or (3) the board of directors of a Borrower or any of
its Subsidiaries adopts any resolution or otherwise authorizes action to approve
any of the actions referred to in this subsection 8.1(H); or
(I) Liens. Any lien, levy or assessment is filed or recorded
with respect to or otherwise imposed upon all or any part of the Collateral or
the assets of a Borrower or any of its Subsidiaries by the United States or any
department or instrumentality thereof or by any state, county, municipality or
other governmental agency (other than Permitted Encumbrances) and such lien,
levy or assessment is not stayed, vacated, paid or discharged within ten (10)
days; or
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(J) Judgment and Attachments. Any money judgment, writ or
warrant of attachment, or similar process involving (1) an amount in any
individual case in excess of $25,000 or (2) an amount in the aggregate at any
time in excess of $50,000 (in either case not adequately covered by insurance as
to which the insurance company has acknowledged coverage) is entered or filed
against a Borrower or any of its Subsidiaries or any of their respective assets
and remains undischarged, unvacated, unbonded or unstayed for a period of thirty
(30) days or in any event later than five (5) days prior to the date of any
proposed sale thereunder; or
(K) Dissolution. Any order, judgment or decree is entered
against a Borrower or any of its Subsidiaries decreeing the dissolution or split
up of a Borrower or that Subsidiary and such order remains undischarged or
unstayed for a period in excess of twenty (20) days; or
(L) Solvency. A Borrower ceases to be solvent (as represented
by Borrowers in subsection 4.16) or admits in writing its present or prospective
inability to pay its debts as they become due; or
(M) Injunction. A Borrower or any of its Subsidiaries is
enjoined, restrained or in any way prevented by the order of any court or any
administrative or regulatory agency from conducting all or any material part of
its business and such order continues for more than thirty (30) days; or
(N) Invalidity of Loan Documents. Any of the Loan Documents
for any reason, other than a partial or full release in accordance with the
terms thereof, ceases to be in full force and effect or is declared to be null
and void, or any Borrower denies that it has any further liability under any
Loan Documents to which it is party, or gives notice to such effect; or
(O) Failure of Security. Lender does not have or ceases to
have a valid and perfected first priority security interest in the Collateral
(subject to Permitted Encumbrances), in each case, for any reason other than the
failure of Lender to take any action within its control; or
(P) Damage, Strike, Casualty. Any material damage to, or loss,
theft or destruction of, any Collateral, whether or not insured, or any strike,
lockout, labor dispute, embargo, condemnation, act of God or public enemy, or
other casualty which causes, for more than fifteen (15) consecutive days the
cessation or substantial curtailment of revenue producing activities at any
facility of a Borrower or any of its Subsidiaries if any such event or
circumstance could reasonably be expected to have a Material Adverse Effect; or
(Q) Licenses and Permits. The loss, suspension or revocation
of, or failure to renew, any license or permit now held or hereafter acquired by
a Borrower or any of its Subsidiaries, if such loss, suspension, revocation or
failure to renew could reasonably be expected to have a Material Adverse Effect;
or
(R) Medicare/Medicaid. A Borrower's ability to participate in
any Medicare, Medicaid or other government funded program is terminated; or
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(S) Forfeiture. There is filed against a Borrower any civil or
criminal action, suit or proceeding under any federal or state racketeering
statute (including, without limitation, the Racketeer Influenced and Corrupt
Organization Act of 1970), which action, suit or proceeding (1) is not dismissed
within one hundred twenty (120) days; and (2) could result in the confiscation
or forfeiture of any material portion of the Collateral.
8.2 Suspension of Revolving Loan Commitment. Upon the occurrence of any
Default or Event of Default, notwithstanding any grace period or right to cure,
Lender, without notice or demand, may immediately cease making additional Loans
and the Revolving Loan Commitment shall be suspended; provided that, in the case
of a Default, if the subject condition or event is waived or cured within any
applicable grace or cure period, the Revolving Loan Commitment shall be
reinstated.
8.3 Acceleration. Upon the occurrence of any Event of Default described
in the foregoing subsections 8.1(G) or 8.1(H), all Obligations shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by Borrowers, and the Revolving Loan Commitment shall thereupon
terminate. Upon the occurrence and during the continuance of any other Event of
Default, Lender may, by written notice to Borrowers, declare all or any portion
of the Obligations to be, and the same shall forthwith become, immediately due
and payable and the Revolving Loan Commitment shall thereupon terminate.
8.4 Remedies. If any Event of Default shall have occurred and be
continuing, in addition to and not in limitation of any rights or remedies
available to Lender at law or in equity, Lender may exercise in respect of the
Collateral, in addition to all other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the UCC (whether or not the UCC applies to the affected
Collateral) and may also (a) notify any or all obligors on the Accounts to make
all payments directly to Lender; (b) require Borrowers to, and Borrowers hereby
agree that they will, at their expense and upon request of Lender forthwith,
assemble all or part of the Collateral as directed by Lender and make it
available to Lender at a place to be designated by Lender which is reasonably
convenient to both parties; (c) withdraw all cash in each blocked account
established pursuant to subsection 5.6 and apply such monies in payment of the
Obligations in the manner provided in subsection 8.7; (d) without notice or
demand or legal process, enter upon any premises of a Borrower and take
possession of the Collateral; and (e) without notice except as specified below,
sell the Collateral or any part thereof in one or more parcels at public or
private sale, at any of the Lender's offices or elsewhere, at such time or
times, for cash, on credit or for future delivery, and at such price or prices
and upon such other terms as Lender may deem commercially reasonable. Each
Borrower agrees that, to the extent notice of sale shall be required by law, at
least ten (10) days notice to Borrowers of the time and place of any public sale
or the time after which any private sale is to be made shall constitute
reasonable notification. At any sale of the Collateral, if permitted by law,
Lender may bid (which bid may be, in whole or in part, in the form of
cancellation of indebtedness) for the purchase of the Collateral or any portion
thereof for the account of Lender. Lender shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. Borrowers
shall remain liable for any
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deficiency. Lender may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned. To
the extent permitted by law, each Borrower hereby specifically waives all rights
of redemption, stay or appraisal which it has or may have under any law now
existing or hereafter enacted. Lender shall not be required to proceed against
any Collateral but may proceed against Borrowers directly.
8.5 Appointment of Attorney-in-Fact. Each Borrower hereby constitutes
and appoints Lender as such Borrower's attorney-in-fact with full authority in
the place and stead of such Borrower and in the name of such Borrower, Lender or
otherwise, from time to time in Lender's discretion while an Event of Default is
continuing to take any action and to execute any instrument that Lender may deem
necessary or advisable to accomplish the purposes of this Agreement, including:
(a) to ask, demand, collect, sue for, recover, compound, receive and give
acquittance and receipts for moneys due and to become due under or in respect of
any of the Collateral; (b) to adjust, settle or compromise the amount or payment
of any Account, or release wholly or partly any customer or obligor thereunder
or allow any credit or discount thereon; (c) to receive, endorse, and collect
any drafts or other instruments, documents and chattel paper, in connection with
clause (a) above; (d) to file any claims or take any action or institute any
proceedings that Lender may deem necessary or desirable for the collection of
any of the Collateral or otherwise to enforce the rights of Lender with respect
to any of the Collateral; (e) to sign and endorse any invoices, assignments,
verifications and notices in connection with Accounts and other documents
relating to the Collateral; (f) prepare, file and sign such Borrower's name on
any proof of claim in bankruptcy, cost report (final or interim) or other
similar document against a Payor; and (g) notify the postal authorities of any
change of the address for delivery of such Borrower's mail with respect to
Accounts to an address designated by Lender, and open and dispose of all mail
with respect to Accounts addressed to such Borrower. The appointment of Lender
as each Borrower's attorney and Lender's rights and powers are coupled with an
interest and are irrevocable until payment in full and complete performance of
all of the Obligations.
8.6 Limitation on Duty of Lender with Respect to Collateral. Beyond the
safe custody thereof, Lender shall have no duty with respect to any Collateral
in its possession or control (or in the possession or control of any agent or
bailee) or with respect to any income thereon or the preservation of rights
against prior parties or any other rights pertaining thereto. Lender shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which Lender accords its own property. Lender shall
not be liable or responsible for any loss or damage to any of the Collateral, or
for any diminution in the value thereof, by reason of the act or omission of any
warehouseman, carrier, forwarding agency, consignee or other agent or bailee
selected by Lender in good faith.
8.7 Application of Proceeds. Upon the occurrence and during the
continuance of an Event of Default, (a) each Borrower irrevocably waives the
right to direct the application of any and all payments at any time or times
thereafter received by Lender from or on behalf of a Borrower, and each Borrower
hereby irrevocably agrees that Lender shall have the continuing exclusive right
to
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apply and to reapply any and all payments received at any time or times after
the occurrence and during the continuance of an Event of Default against the
Obligations in such manner as Lender may deem advisable notwithstanding any
previous entry by Lender upon any books and records and (b) the proceeds of any
sale of, or other realization upon, all or any part of the Collateral shall be
applied: first, to all fees, costs and expenses incurred by Lender with respect
to this Agreement, the other Loan Documents or the Collateral; second, to all
fees due and owing to Lender; third, to accrued and unpaid interest on the
Obligations; fourth, to the principal amounts of the Obligations outstanding;
and fifth, to any other indebtedness or obligations of Borrowers owing to
Lender.
8.8 Waivers, Non-Exclusive Remedies. No failure on the part of Lender
to exercise, and no delay in exercising and no course of dealing with respect
to, any right under this Agreement or the other Loan Documents shall operate as
a waiver thereof; nor shall any single or partial exercise by Lender of any
right under this Agreement or any other Loan Document preclude any other or
further exercise thereof or the exercise of any other right. The rights in this
Agreement and the other Loan Documents are cumulative and are not exclusive of
any other remedies provided by law.
SECTION 9 MISCELLANEOUS
9.1 Assignments and Participations. Lender may assign its rights and
delegate its obligations under this Agreement and further may assign, or sell
participations in, all or any part of the Loans, the Revolving Loan Commitment
or any other interest herein to an Affiliate or to another Person. In the case
of an assignment authorized under this subsection 9.1, the assignee shall have,
to the extent of such assignment, the same rights, benefits and obligations as
it would if it were a Lender hereunder. Lender shall be relieved of its
obligations hereunder with respect to the Revolving Loan Commitment or assigned
portion thereof. Borrowers hereby acknowledge and agree that any assignment will
give rise to a direct obligation of Borrowers to the assignee and that the
assignee shall be considered to be a "Lender". Lender may furnish any
information concerning Borrowers and their Subsidiaries in its possession from
time to time to assignees and participants (including prospective assignees and
participants).
9.2 Set Off. In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence of any Event of Default, Lender, each assignee of Lender's interest,
and each participant is hereby authorized by Borrowers at any time or from time
to time, without notice to Borrowers or to any other Person, any such notice
being hereby expressly waived, to set off and to appropriate and to apply any
and all balances held by it at any of its offices for the account of a Borrower
or any of its Subsidiaries (regardless of whether such balances are then due to
a Borrower or its Subsidiaries) and any other property at any time held or owing
by that Lender or assignee to or for the credit or for the account of a Borrower
against and on account of any of the Obligations then outstanding; provided,
that no participant shall exercise such right without the prior written consent
of Heller.
Each Borrower hereby agrees, to the fullest extent permitted by law,
that any Lender, assignee or participant may exercise its right of setoff with
respect to amounts in excess of its pro
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rata share of the Obligations (or, in the case of a participant, in excess of
its pro rata participation interest in the Obligations) and that such Lender,
assignee or participant, as the case may be, shall be deemed to have purchased
for cash in the amount of such excess, participations in each other Lender's or
holder's share of the Obligations.
9.3 Expenses and Attorneys' Fees. Whether or not the transactions
contemplated hereby shall be consummated, Borrowers agree to promptly pay all
fees, costs and expenses incurred by Lender in connection with any matters
contemplated by or arising out of this Agreement or the other Loan Documents
including the following, and all such fees, costs and expenses shall be part of
the Obligations, payable on demand and secured by the Collateral: (a) fees,
costs and expenses (including attorneys' fees, allocated costs of internal
counsel, per diem charges of Lender's internal auditors and fees of
environmental consultants, accountants and other professionals retained by
Lender) incurred in connection with the examination, review, due diligence
investigation, documentation and closing of the financing arrangements evidenced
by the Loan Documents; (b) fees, costs and expenses (including attorneys' fees,
allocated costs of internal counsel, per diem charges of Lender's internal
auditors and fees of environmental consultants, accountants and other
professionals retained by Lender) incurred in connection with the review,
negotiation, preparation, documentation, execution and administration of the
Loan Documents, the Loans, and any amendments, waivers, consents, forbearances
and other modifications relating thereto or any subordination or intercreditor
agreements; (c) fees, costs and expenses incurred in creating, perfecting and
maintaining perfection of Liens in favor of Lender; (d) fees, costs and expenses
incurred in connection with forwarding to Borrowers the proceeds of Loans
including Lender's standard wire transfer fee; (e) fees, costs, expenses and
bank charges, including bank charges for returned checks, incurred by Lender in
establishing, maintaining and handling lock box accounts, blocked accounts or
other accounts for collection of the Collateral; (f) fees, costs, expenses
(including attorneys' fees, allocated costs of internal counsel, per diem
charges of Lender's internal auditors and fees of environmental consultants,
accountants and other professionals retained by Lender) and costs of settlement
incurred in collecting upon or enforcing rights against the Collateral or
incurred in any action to enforce this Agreement or the other Loan Documents or
to collect any payments due from Borrowers under this Agreement or any other
Loan Document or incurred in connection with any refinancing or restructuring of
the credit arrangements provided under this Agreement, whether in the nature of
a "workout" or in connection with any insolvency or bankruptcy proceedings or
otherwise.
9.4 Indemnity. In addition to the payment of expenses pursuant to
subsection 9.3, whether or not the transactions contemplated hereby shall be
consummated, each Borrower agrees to indemnify, pay and hold Lender and the
officers, directors, employees, agents, consultants, auditors, persons engaged
by Lender to evaluate or monitor the Collateral, affiliates and attorneys of
Lender and such holders (collectively called the "Indemnitees") harmless from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any kind
or nature whatsoever (including the fees and disbursements of counsel for such
Indemnitees in connection with any investigative, administrative or judicial
proceeding commenced or threatened, whether or not such Indemnitee shall be
designated a party thereto) that may be imposed on, incurred by, or asserted
against that Indemnitee, in any manner
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relating to or arising out of this Agreement or the other Loan Documents, the
consummation of the transactions contemplated by this Agreement, the statements
contained in the commitment letters, if any, delivered by Lender, Lender's
agreement to make the Loans hereunder, the use or intended use of the proceeds
of any of the Loans or the exercise of any right or remedy hereunder or under
the other Loan Documents (the "Indemnified Liabilities"); provided that
Borrowers shall have no obligation to an Indemnitee hereunder with respect to
Indemnified Liabilities arising from the gross negligence or willful misconduct
of that Indemnitee as determined by a court of competent jurisdiction.
9.5 Amendments and Waivers. No amendment, modification, termination or
waiver of any provision of this Agreement or of the other Loan Documents, or
consent to any departure by Borrowers therefrom, shall be effective unless the
same shall be in writing and signed by Lender and Borrowers. Each amendment,
modification, termination or waiver shall be effective only in the specific
instance and for the specific purpose for which it was given.
9.6 Notices. Unless otherwise specifically provided herein, all notices
shall be in writing addressed to the respective party as set forth below and may
be personally served, telecopied or sent by overnight courier service or United
States mail and shall be deemed to have been given: (a) if delivered in person,
when delivered; (b) if delivered by telecopy, on the date of transmission if
transmitted on a Business Day before 4:00 p.m. (Chicago time) or, if not, on the
next succeeding Business Day; (c) if delivered by overnight courier, two (2)
days after delivery to such courier properly addressed; or (d) if by U.S. Mail,
four (4) Business Days after depositing in the United States mail, with postage
prepaid and properly addressed.
If to Borrowers: Intensiva HealthCare Corporation
7733 Forsyth Boulevard, Suite 800
St. Louis, Missouri 63105
Attn: Chief Financial Officer
Telecopy No.: 314-725-0443
With a copy to: Suelthaus & Walsh, P.C.
7733 Forsyth Boulevard
Twelfth Floor
St. Louis, Missouri 63105
Attn: Thomas M. Walsh
Telecopy No.: 314-727-7166
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If to Lender: Heller Business Credit
Healthcare Financial Services Division
Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661
Attn: Portfolio Manager
Telecopy No.: (312) 441-6158
With a copy to: Heller Business Credit
Healthcare Financial Services Division
Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661
Telecopy No.: (312) 441-6876
Attn: Legal Department/HBC/HFS
or to such other address as the party addressed shall have previously designated
by written notice to the serving party, given in accordance with this subsection
9.6.
9.7 Survival of Warranties and Certain Agreements. All agreements,
representations and warranties made herein shall survive the execution and
delivery of this Agreement and the making of the Loans hereunder.
Notwithstanding anything in this Agreement or implied by law to the contrary,
the agreements of Borrowers set forth in subsections 9.3 and 9.4 shall survive
the payment of the Loans and the termination of this Agreement.
9.8 Indulgence Not Waiver. No failure or delay on the part of Lender in
the exercise of any power, right or privilege shall impair such power, right or
privilege or be construed to be a waiver of any default or acquiescence therein,
nor shall any single or partial exercise of any such power, right or privilege
preclude other or further exercise thereof or of any other right, power or
privilege.
9.9 Marshaling; Payments Set Aside. Lender shall not be under any
obligation to marshal any assets in favor of any Borrower or any other party or
against or in payment of any or all of the Obligations. To the extent that any
Borrower makes a payment or payments to Lender or Lender enforces its security
interests or exercise its rights of setoff, and such payment or payments or the
proceeds of such enforcement or setoff or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then to the
extent of such recovery, the Obligations or part thereof originally intended to
be satisfied, and all Liens, rights and remedies therefor, shall be revived and
continued in full force and effect as if such payment had not been made or such
enforcement or setoff had not occurred.
49
<PAGE> 57
9.10 Entire Agreement. This Agreement and the other Loan Documents
referred to herein embody the final, entire agreement among the parties hereto
and supersede any and all prior commitments, agreements, representations, and
understandings, whether written or oral, relating to the subject matter hereof
and may not be contradicted or varied by evidence of prior, contemporaneous, or
subsequent oral agreements or discussions of the parties hereto. There are no
oral agreements among the parties hereto.
9.11 Independence of Covenants. All covenants hereunder shall be given
independent effect so that if a particular action or condition is not permitted
by any of such covenants, the fact that it would be permitted by an exception
to, or be otherwise within the limitations of, another covenant shall not avoid
the occurrence of a Default or an Event of Default if such action is taken or
condition exists.
9.12 Severability. The invalidity, illegality or unenforceability in
any jurisdiction of any provision in or obligation under this Agreement or the
other Loan Documents shall not affect or impair the validity, legality or
enforceability of the remaining provisions or obligations under this Agreement,
or the other Loan Documents or of such provision or obligation in any other
jurisdiction.
9.13 Headings. Section and subsection headings in this Agreement are
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
9.14 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
9.15 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns except that Borrowers may not assign their rights or obligations
hereunder without the prior written consent of Lender.
9.16 No Fiduciary Relationship; Limitation of Liabilities.
(A) No provision in this Agreement or in any of the other Loan
Documents and no course of dealing between the parties shall be deemed to create
any fiduciary duty by Lender to a Borrower.
(B) Neither Lender, nor any affiliate, officer, director,
shareholder, employee, attorney, or agent of Lender shall have any liability
with respect to, and each Borrower hereby waives, releases, and agrees not to
sue any of them upon, any claim for any special, indirect, incidental, or
consequential damages suffered or incurred by a Borrower in connection with,
arising out of, or in any way related to, this Agreement or any of the other
Loan Documents, or any of the transactions contemplated by this Agreement or any
of the other Loan Documents. Each Borrower hereby waives, releases, and agrees
not to sue Lender or any of Lender's affiliates, officers, directors,
50
<PAGE> 58
employees, attorneys, or agents for punitive damages in respect of any claim in
connection with, arising out of, or in any way related to, this Agreement or any
of the other Loan Documents, or any of the transactions contemplated by this
Agreement or any of the transactions contemplated hereby.
9.17 CONSENT TO JURISDICTION. EACH BORROWER HEREBY CONSENTS TO THE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK,
STATE OF ILLINOIS AND IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S ELECTION, ALL
ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER
LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS. EACH BORROWER ACCEPTS FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR
THE OBLIGATIONS.
9.18 WAIVER OF JURY TRIAL. EACH BORROWER AND LENDER HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. EACH BORROWER AND
LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A
BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE WAIVER IN ENTERING
INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THAT EACH WILL CONTINUE TO
RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH BORROWER AND LENDER
FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
9.19 Construction. Each Borrower and Lender each acknowledge that it
has had the benefit of legal counsel of its own choice and has been afforded an
opportunity to review this Agreement and the other Loan Documents with its legal
counsel and that this Agreement and the other Loan Documents shall be construed
as if jointly drafted by Borrowers and Lender.
9.20 Counterparts; Effectiveness. This Agreement and any amendments,
waivers, consents, or supplements may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all of which
counterparts together shall constitute but one and the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto. Delivery of an executed counterpart of a signature
page to this Agreement, any amendments, waivers, consents or supplements, or to
any other Loan Document by telecopier shall be as effective as delivery of a
manually executed counterpart thereof.
51
<PAGE> 59
9.21 No Duty. All attorneys, accountants, appraisers, and other
professional Persons and consultants retained by Lender shall have the right to
act exclusively in the interest of Lender and shall have no duty of disclosure,
duty of loyalty, duty of care, or other duty or obligation of any type or nature
whatsoever to any Borrower or any of any Borrower's shareholders or any other
Person.
9.22 Confidentiality. Lender shall hold all nonpublic information
obtained pursuant to the requirements hereof and identified as such by a
Borrower in accordance with such Person's customary procedures for handling
confidential information of this nature and in accordance with safe and sound
business practices and in any event may make disclosure to such of its
respective Affiliates, officers, directors, employees, agents and
representatives as need to know such information in connection with the Loans.
If any Lender is otherwise a creditor of a Borrower, such Lender may use the
information in connection with its other credits. Lender may also make
disclosure reasonably required by a bona fide offeree or assignee (or
participation), or as required or requested by any governmental authority or
representative thereof, or pursuant to legal process, or to its accountants,
lawyers and other advisors, and shall require any such offeree or assignee (or
participant) to agree (and require any of its offerees, assignees or
participants to agree) to comply with this Section 9.22. In no event shall
Lender be obligated or required to return any materials furnished by a Borrower;
provided, however, each offeree shall be required to agree that if it does not
become an assignee (or participant) it shall return all materials furnished to
it by a Borrower in connection herewith.
9.23 Adequate Disclosure. Any information or matter disclosed on a
given Schedule to this Agreement shall be deemed to be disclosed on all
applicable Schedules to this Agreement.
[Signatures appear on following pages]
52
<PAGE> 60
Witness the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first written above.
BORROWERS:
INTENSIVA HEALTHCARE CORPORATION
By: /s/ David W. Cross
------------------------------------
Title: President
---------------------------------
FEIN: 43-1690769
----------------------------------
INTENSIVA HOSPITAL OF
AKRON, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
FEIN: 43-1742017
---------------------------------
INTENSIVA HOSPITAL OF
COLUMBUS, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
FEIN: 31-1476471
----------------------------------
Loan and Security Agreement - Signature Page 1
<PAGE> 61
INTENSIVA HOSPITAL OF
CORPUS CHRISTI, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
FEIN: 36-4072039
----------------------------------
INTENSIVA HOSPITAL OF
EASTERN OKLAHOMA, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
FEIN: 43-1726284
---------------------------------
INTENSIVA HOSPITAL OF
EVANSVILLE, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
FEIN: 43-1726283
----------------------------------
Loan and Security Agreement - Signature Page 2
<PAGE> 62
INTENSIVA HOSPITAL OF
FLINT, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
FEIN: 38-3329100
----------------------------------
INTENSIVA HOSPITAL OF
FORT WAYNE, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
FEIN: 35-1994301
----------------------------------
INTENSIVA HOSPITAL OF
GREATER ST. LOUIS, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
FEIN: 43-1726282
----------------------------------
Loan and Security Agreement - Signature Page 3
<PAGE> 63
INTENSIVA HOSPITAL OF
INDIANAPOLIS, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
FEIN: 43-1726278
----------------------------------
INTENSIVA HOSPITAL OF
KANSAS CITY, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
FEIN: 43-1732618
----------------------------------
INTENSIVA HOSPITAL OF
KNOXVILLE, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
FEIN: 62-1684861
----------------------------------
Loan and Security Agreement - Signature Page 4
<PAGE> 64
INTENSIVA HOSPITAL OF
MACOMB COUNTY, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
FEIN: 38-3345654
----------------------------------
INTENSIVA HOSPITAL OF
MUSKEGON, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
FEIN: 383297128
----------------------------------
INTENSIVA HOSPITAL OF
NORTHWEST INDIANA, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
FEIN: 43-1726280
----------------------------------
INTENSIVA HOSPITAL OF
OKLAHOMA CITY, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
FEIN: 43-1699215
----------------------------------
Loan and Security Agreement - Signature Page 5
<PAGE> 65
INTENSIVA HOSPITAL OF
PITTSBURGH, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
FEIN: 23-2911846
----------------------------------
INTENSIVA HOSPITAL OF
SIOUX FALLS, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
FEIN: 91-1773396
----------------------------------
INTENSIVA HOSPITAL OF
TACOMA, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
FEIN: 91-1829681
----------------------------------
INTENSIVA HOSPITAL OF
TOPEKA, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
FEIN: 74-2826467
----------------------------------
Loan and Security Agreement - Signature Page 6
<PAGE> 66
INTENSIVA HOSPITAL OF
CINCINNATI, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
FEIN:
----------------------------------
Loan and Security Agreement - Signature Page 7
<PAGE> 67
LENDER:
HELLER FINANCIAL, INC.
By: Nancy K. Stafford
------------------------------------
Title: Vice President
---------------------------------
Loan and Security Agreement - Signature Page 8
<PAGE> 1
EXHIBIT 10.29
AMENDMENT NO. 1 AND WAIVER AGREEMENT
This AMENDMENT NO. 1 AND WAIVER AGREEMENT (this "Agreement") is dated
as of January 15, 1998, by and among INTENSIVA HEALTHCARE CORPORATION, a
Delaware corporation ("Parent"), the Subsidiaries of Parent listed on the
signature pages hereof (together with the Parent, collectively "Borrowers"), and
HELLER FINANCIAL, INC., a Delaware corporation ("Lender" or "Heller").
RECITALS
WHEREAS, Heller and Borrowers are parties to that certain Loan and
Security Agreement dated as of November 7, 1997 (the "Existing Loan Agreement",
and as amended by this Agreement, the "Amended Loan Agreement"; capitalized
terms used herein and not otherwise defined herein shall have the meanings
ascribed to them in the Existing Loan Agreement);
WHEREAS, Borrowers have informed Heller that they are in violation of
subsection 6.2 of the Existing Loan Agreement (the "Capital Expenditure
Violation") as a result of Capital Expenditures made by one or more Borrowers in
respect of certain acute care facilities of Intensiva Hospital of Macomb County,
Inc., a Missouri corporation ("Intensiva Macomb County") and Intensiva Hospital
of Sioux Falls, Inc., a Missouri corporation ("Intensiva Sioux Falls") during
the fiscal year ended December 31, 1997, in each case, in an aggregate amount
greater than $600,000 but less than $750,000 per acute care facility; and
WHEREAS, subject to the terms and conditions set forth herein, the
parties hereto desire to amend the Existing Loan Agreement and waive the Capital
Expenditure Violation as set forth in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. AMENDMENTS TO LOAN AND SECURITY AGREEMENT
Subject to the satisfaction of the condition precedent set forth in
Section 4 of this Agreement, Borrowers and Heller hereby agree that the Existing
Loan Agreement be, and it hereby is, amended as follows:
1.1 General. Upon and after the date hereof, all references to "this
Agreement" in the Existing Loan Agreement, and all references to the "Loan
Agreement" or the "Loan and Security Agreement" in the other Loan Documents,
shall mean the Amended Loan Agreement. Except as expressly provided herein, the
execution and delivery of this Agreement does not and will not amend, modify or
supplement any provision of, or constitute a consent to or a waiver of any
noncompliance with the provisions of, the Existing Loan Agreement, and, except
as specifically
<PAGE> 2
provided in this Agreement, the Existing Loan Agreement shall remain in full
force and effect and is hereby ratified and confirmed.
1.2 Amendments to Subsection 5.1(F). Subsection 5.1(F) of the Existing
Loan Agreement is hereby amended by amending and restating said subsection to
read in its entirety as follows:
"(F) Reconciliation Reports, Listings and Agings. Within ten (10)
Business Days after the last day of each month commencing with the
month ending November 30, 1997, Borrowers will deliver to Lender:(1) an
aged trial balance of all then existing Accounts, (2) a Reconciliation
Report as at the last day of such month and (3) an aged trial balance
of all then existing accounts payable. All such reports shall be in
form and substance satisfactory to Lender."
SECTION 2. REPRESENTATIONS AND WARRANTIES
Each Borrower hereby represents and warrants to Heller as follows:
(a) Representations in Amended Loan Agreement. After giving
effect to this Agreement all of the representations and warranties set
forth in the Amended Loan Agreement, will be accurate in all material
respects as of the date hereof.
(b) No Default or Event of Default. After giving effect to
this Agreement, no Default or Event of Default will exist under the
Amended Loan Agreement.
(c) Capital Expenditures During Fiscal Year 1997. The
aggregate amount of all Capital Expenditures of Borrowers and their
Subsidiaries (excluding trade-ins and excluding Capital Expenditures in
respect of replacement assets to the extent funded with casualty
insurance proceeds) did not exceed $7,000,000 in the aggregate during
the Fiscal Year ended December 31, 1997.
SECTION 3. WAIVER
3.1 Subject to the limitations contained in Section 3.2 below, Heller
hereby waives enforcement of subsection 6.2 of the Existing Loan Agreement
solely with respect to the Default and Event of Default that has occurred and is
continuing as a result of Capital Expenditures made by one or more Borrowers in
respect of certain acute care facilities of Intensiva Macomb County and
Intensiva Sioux Falls during the Fiscal Year ended December 31, 1997, in each
case, in an aggregate amount greater than $600,000 but less than $750,000 per
acute care facility.
3.2 The waiver provided for in this Section 3 applies solely to the
Defaults and Events of Default under subsection 6.2 of the Existing Loan
Agreement resulting from the Capital Expenditure Violation and occurring prior
to the date hereof. Without limiting the foregoing
-2-
<PAGE> 3
sentence, Heller expressly reserves any and all rights it may have under the
Amended Loan Agreement or any other Loan Documents arising out of or in
connection with any Default or Event of Default thereunder and not specifically
waived herein.
SECTION 4. CONDITIONS TO EFFECTIVENESS
The amendments set forth in Section 1 of this Agreement and the waiver
set forth in Section 3 of this Agreement, in each case, are to be effective only
upon the receipt by Heller of counterparts of this Agreement, duly executed and
delivered by each Borrower, in form and substance satisfactory to Heller.
SECTION 5. MISCELLANEOUS
5.1 Counterparts. This Agreement may be executed by each party to this
Agreement upon a separate copy, and in such case one counterpart of this
Agreement shall consist of enough of such copies to reflect the signature of all
of the parties to this Agreement. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement or its terms to produce or account
for more than one of such counterparts.
5.2 Section References. The references in this Agreement to any section
are, unless otherwise specified, to such section of this Agreement.
5.3 Construction of Agreement. This Agreement is a Loan Document
executed pursuant to the Existing Loan Agreement and shall be construed,
administered and applied in accordance with all of the terms and provisions of
the Amended Loan Agreement.
5.4 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
5.5 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
[Signatures commence on following page]
-3-
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers hereunder duly authorized as of the day
and year first above written.
BORROWERS:
INTENSIVA HEALTHCARE CORPORATION
By: /s/ John P. Keefe
------------------------------------
Title: Chief Financial Officer
---------------------------------
INTENSIVA HOSPITAL OF
AKRON, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
INTENSIVA HOSPITAL OF
COLUMBUS, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
INTENSIVA HOSPITAL OF
CORPUS CHRISTI, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
Amendment No.1 and Waiver Agreement - Signature Page 1
<PAGE> 5
INTENSIVA HOSPITAL OF
EASTERN OKLAHOMA, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
INTENSIVA HOSPITAL OF
EVANSVILLE, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
INTENSIVA HOSPITAL OF
FLINT, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
INTENSIVA HOSPITAL OF
FORT WAYNE, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
Amendment No.1 and Waiver Agreement - Signature Page 2
<PAGE> 6
INTENSIVA HOSPITAL OF
GREATER ST. LOUIS, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
INTENSIVA HOSPITAL OF
INDIANAPOLIS, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
INTENSIVA HOSPITAL OF
KANSAS CITY, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
INTENSIVA HOSPITAL OF
KNOXVILLE, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
INTENSIVA HOSPITAL OF
MACOMB COUNTY, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
Amendment No.1 and Waiver Agreement - Signature Page 3
<PAGE> 7
INTENSIVA HOSPITAL OF
MUSKEGON, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
INTENSIVA HOSPITAL OF
NORTHWEST INDIANA, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
INTENSIVA HOSPITAL OF
OKLAHOMA CITY, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
INTENSIVA HOSPITAL OF
PITTSBURGH, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
INTENSIVA HOSPITAL OF
SIOUX FALLS, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
--------------------------------
Amendment No.1 and Waiver Agreement - Signature Page 4
<PAGE> 8
INTENSIVA HOSPITAL OF
TACOMA, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
INTENSIVA HOSPITAL OF
TOPEKA, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
INTENSIVA HOSPITAL OF
CINCINNATI, INC.
By: /s/ John P. Keefe
------------------------------------
Title: Treasurer
---------------------------------
LENDER:
HELLER FINANCIAL, INC.
By: /s/ Nancy K. Stafford
------------------------------------
Title: Vice President
---------------------------------
Amendment No.1 and Waiver Agreement - Signature Page 5
<PAGE> 1
EXHIBIT 10.30
- --------------------------------------------------------------------------------
INTENSIVA HEALTHCARE CORPORATION
DIRECTORS STOCK OPTION PLAN
- --------------------------------------------------------------------------------
<PAGE> 2
INTENSIVA HEALTHCARE CORPORATION
DIRECTORS STOCK OPTION PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The Intensiva HealthCare Corporation Directors Stock Option Plan is
designed and intended: (i) to compensate directors for serving as directors and
to reward them for their contributions to the growth and success of the Company;
(ii) to induce directors of the Company to remain directors of the Company, to
offer them incentives and rewards in recognition of their contributions to the
Company's progress, and to encourage them to continue to promote the best
interests of the Company and its subsidiaries; and (iii) to aid the Company and
its subsidiaries in competing with other enterprises for the services of new
directors needed to help ensure the Company's continued progress.
SECTION 2. DEFINITIONS.
(a) "ACT" means the Securities Exchange Act of 1934, as amended.
(b) "ADMINISTRATOR" means the President of the Company, initially
David W. Cross.
(c) "BOARD OF DIRECTORS" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
(e) "COMPANY" means Intensiva HealthCare Corporation, a corporation
organized and existing under the laws of the State of Delaware.
(f) "ELIGIBLE DIRECTOR" means any member of the Board of Directors on
an Option Date who: (i) is eligible to receive cash compensation
for serving as a director of the Company; and (ii) has elected to
be granted Options under Section 7 of this Plan in lieu of cash
payment of director's fees.
(g) "FAIR MARKET VALUE" of a share of the Company's Common Stock
means, for any particular date: (i) for any period when closing
transaction prices for the Stock shall be reported by NASDAQ, the
closing transaction price per share of Stock as reported by
NASDAQ; or (ii) the fair market value market per share of stock
as determined in good faith by the Board of Directors in the
event clause (i) shall not be applicable. If Fair Market Value is
to be determined as of a day when the securities markets are not
open (or no trades of the stock were reported, in the event
clause (i)), the Fair Market Value on that day shall be the Fair
Market Value on the preceding day when the markets were open (or
a trade was reported).
(h) "NASDAQ" means the National Association of Securities Dealers
Automated Quotation System or any successor thereto on which the
daily trading price or bid and ask prices of the Company's Stock
is made available.
Intensiva HealthCare Corporation Page 1
Directors Stock Option Plan
<PAGE> 3
(i) "OPTION" means an option granted under this Plan to acquire
Stock.
(j) "OPTIONEE" means the person to whom an Option is granted.
(k) "OPTION AGREEMENT" means an Agreement issued to each Eligible
Director with respect to each Option.
(l) "OPTION DATE" means the date as of which an Option is granted,
which shall be the first business day after each annual meeting
of the Board of Directors of the Company for each year that the
Plan is in effect; provided, however, that the Option Date with
respect to granting Options hereunder for fiscal 1997 shall be
the date that the Plan is approved by the Board of Directors.
(m) "PLAN" means the Intensiva HealthCare Corporation Directors Stock
Option Plan.
(n) "POST-DEATH REPRESENTATIVE(S)" means the executor(s), personal
representatives, or administrator(s) of the Optionee's estate or
the person or persons to whom the Optionee's rights under his or
her Option pass by the Optionee's will or the laws of descent and
distribution.
(o) "STOCK" means authorized and unissued shares of Common Stock of
the Company or reacquired shares of the Company's Common Stock
held in its treasury.
SECTION 3. ADMINISTRATION.
The Plan shall be administered on behalf of the Company by the
Administrator. The Administrator may adopt, amend, and rescind from time to time
such administrative rules, and may take from time to time such actions, with or
without notice to affected Optionees, as he or she may deem appropriate to
implement or interpret the provisions of this Plan or to exercise any authority,
discretion, or power explicitly or implicitly granted to the Administrator under
this Plan, provided that no such rules or actions may be inconsistent with the
provisions of this Plan, or Rule 16b-3 promulgated by the Securities and
Exchange Commission. The Administrator may make rules or take action pursuant to
this Section by any appropriate means.
SECTION 4. SHARES RESERVED UNDER THE PLAN.
(a) At any time during the existence of the Plan, there shall be
reserved for issuance upon the exercise of Options granted under the Plan an
amount of Stock (subject to adjustment as provided in Section 10 hereof) equal
to the total number of shares then issuable pursuant to all such Option grants
which shall have been made prior to such time. The Company in its discretion may
use reacquired shares held in the treasury in lieu of authorized but unissued
shares.
(b) If an Option terminates in whole or in part, by expiration or for
any other reason except exercise of such Option, the shares previously reserved
for issuance upon exercise of the Option shall again be available for issuance,
as if such shares had never been subject to an Option.
Intensiva HealthCare Corporation Page 2
Directors Stock Option Plan
<PAGE> 4
SECTION 5. GRANTING OF OPTIONS.
(a) Each person who is an Eligible Director on an Option Date shall
receive Options to acquire ten thousand (10,000) shares of Stock in lieu of cash
compensation as a member of the Board of Directors for a two-year period
commencing with the meeting of the Board of Directors on September 5, 1997.
Thereafter the amount of Options to which Eligible Directors shall be entitled
hereunder shall be established by resolution of the Board of Directors.
(b) All Options granted under the Plan shall be granted as of an Option
Date. Promptly after each Option Date, the Company shall notify the Optionee of
the grant of the Option, and shall give to the Optionee an Option Agreement,
duly executed by and on behalf of the Company, with the request that the
Optionee execute and return the Agreement within thirty days after the Option
Date.
SECTION 6. TERMS OF OPTIONS.
Each Option granted under the Plan shall be evidenced by an Option
Agreement, which shall include the substance of the following terms and
conditions:
(a) The exercise price for each share of Stock subject to an Option
shall be an amount equal to the Fair Market Value of a share of Stock on the
Option Date.
(b) The Option shall not be transferable by the Optionee otherwise than
by will or by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code or the regulations thereunder.
The designation of a beneficiary does not constitute a transfer. The Option
shall be exercisable, during the Optionee's lifetime, only by the Optionee.
(c) The Option shall not be exercisable as to any shares of Stock until
the six-month anniversary of the Option Date at which time options to purchase
one-fourth (1/4) of the shares of Stock subject to the Option shall become
exercisable; thereafter Options to purchase an additional one-twenty-fourth
(1/24) of the shares of Stock subject to the Option shall become exercisable on
each monthly anniversary of the Option Date. Notwithstanding the foregoing, if
at any time an Eligible Director ceases to be a member of the Company's Board of
Directors, any Options granted to such person which have not become exercisable
prior to the time such person ceases being a director shall immediately
terminate and be null and void.
(d) Any Option granted under this Plan shall not be exercisable after
the expiration of ten years from the Option Date.
SECTION 7. ELECTION TO RECEIVE OPTIONS.
The issuance of Options under this Plan is intended to compensate
directors for their services as such in lieu of cash compensation. In order to
become an Eligible Director, a director must deliver to the Company written
notice of his or her intention to receive Options in lieu of cash compensation
for directors' fees within thirty days following the annual meeting of the Board
of Directors of the Company
Intensiva HealthCare Corporation Page 3
Directors Stock Option Plan
<PAGE> 5
for each year hereafter that the Plan is in effect; provided, however, that
Directors may elect to receive Options hereunder in lieu of cash compensation
for the two years commencing with the Board of Directors' Meeting on September
5, 1997, or such other Option Date as of which a director elects to receive
options under the Plan, by providing the Company with written notice of such
intention within 30 days of adoption of this Plan by the Board of Directors or
such later Option Date. Written notice hereunder shall be deemed to be an
election by a director to receive Options in lieu of cash compensation for
directors' fees for a two-year period from the date of such notice. During such
two-year period, an Eligible Director will not be entitled to any cash
compensation for directors' fees.
SECTION 8. NO RIGHT TO REMAIN A DIRECTOR.
Notwithstanding anything else contained in this Plan to the contrary,
the election of a director to receive Options under this Plan shall not create
any right in any person to remain a director of the Company.
SECTION 9. EXERCISE OF OPTIONS.
(a) An Option shall be exercisable only: (i) upon payment to the
Company on the exercise date of cash in the full amount of the option price of
the shares with respect to which the Option is exercised; (ii) upon delivery to
the Company on the exercise date of certificates representing shares of Company
Stock, owned by the Optionee for longer than six months and registered in the
Optionee's name, having a Fair Market Value, on the date of such exercise and
delivery, equal to the full amount of the purchase price of the shares with
respect to which the Option is exercised; (iii) upon delivery to the Company on
the exercise date of options to purchase shares of Company Stock (whether
granted hereunder or otherwise), having a Fair Market Value, after deducting the
exercise price of such options, on the date of such exercise and delivery, equal
to the full amount of the purchase price of the shares with respect to which the
Option is exercised; or (iv) a combination of (i), (ii), and (iii).
(b) An Optionee shall have none of the rights of a shareholder with
respect to shares of Stock subject to his or her Option until shares of Stock
are issued to him or her upon the exercise of his or her Option.
SECTION 10. GENERAL PROVISIONS.
The Company shall not be required to issue or deliver any certificate
for shares of Stock to an Optionee upon the exercise of his or her Option prior
to:
(a) if requested by the Company, the filing with the Company by the
Optionee or the Optionee's Post-Death Representative of a representation in
writing that at the time of such exercise it is his or her then present
intention to acquire the shares of Stock being purchased for investment and not
for resale, and/or the completion of any registration or other qualification of
such shares of Stock under any state or federal laws or rulings or regulations
of any governmental regulatory body, which the Company shall determine to be
necessary or advisable; and
Intensiva HealthCare Corporation Page 4
Directors Stock Option Plan
<PAGE> 6
(b) the obtaining of any other consent, approval or permit from any
state or federal governmental agency which the Administrator shall, in his
absolute discretion upon the advice of counsel, determine to be necessary or
advisable.
SECTION 11. ADJUSTMENT PROVISIONS; CHANGE OF CONTROL.
In the event any stock dividend is declared upon the Company's Common
Stock or in the event outstanding shares of stock shall be changed into or
exchanged for a different number, class or kind of shares of stock or other
securities of the Company or of another corporation, whether by reason of a
split or combination of shares, recapitalization, reclassification,
reorganization, merger, consolidation or otherwise, the number of shares of
Stock reserved for issuance upon the exercise of Options issuable hereunder
whether or not subject to outstanding Options shall be appropriately and
proportionately adjusted, and in any such event a corresponding adjustment shall
be made changing the number, class, or kind of shares of Stock or other
securities which are deliverable upon the exercise of any Option theretofore
granted and unexercised without change in the total price applicable to the
unexercised portion of such Option, but with a corresponding adjustment in the
price for each share of Stock covered by the unexercised portion of such Option.
Notwithstanding anything herein to the contrary, if an Optionee is employed by
the Company upon the effective date of any merger, consolidation, sale of all
(or substantially all) of the assets of the Company, or other business
combination involving the sale or transfer of all (or substantially all) of the
capital stock or assets of the Company in which the Company is not the surviving
entity, or if it is the surviving entity, either (i) it does not survive as an
operating ongoing concern in substantially the same line of business, or (ii) it
is controlled by persons or entities previously unaffiliated with the Company,
any Option held by such Optionee shall become exercisable immediately prior to
the consummation of any of the foregoing events with respect to one hundred
percent (100%) of the shares subject to the Option.
SECTION 12. DURATION, AMENDMENT, AND TERMINATION.
(a) The Board of Directors may at any time terminate the Plan or make
such amendments thereof, including reducing the number of Options which are to
be granted as of any Option Date, as it shall deem advisable and in the best
interests of the Company, without action on the part of the stockholders of the
Company; provided, however, that no such termination or amendment shall, without
the consent of the Optionee, adversely affect or impair the rights of such
Optionee with respect to Options granted prior to the date of such termination
or amendment.
(b) The period during which Options may be granted under the Plan shall
terminate on September 5, 2007, unless the Plan earlier shall have been
terminated as provided above.
SECTION 13. EFFECTIVE DATE.
The Plan shall be effective on the date that it is approved by the
Board of Directors of the Company.
Intensiva HealthCare Corporation Page 5
Directors Stock Option Plan
<PAGE> 7
INTENSIVA HEALTHCARE CORPORATION
DIRECTORS STOCK OPTION PLAN
STOCK OPTION AGREEMENT
This Stock Option Agreement (the "AGREEMENT"), entered into this______
day of___________, in the County of St. Louis, Missouri, by and between
Intensiva HealthCare Corporation, a Delaware corporation (the
"COMPANY") and _________, (the "OPTIONEE") pursuant to the Intensiva
HealthCare Corporation Directors Stock Option Plan (the "PLAN").
1. GRANT OF OPTION. The Company hereby grants to Optionee the right,
privilege and option to purchase __________ shares of Common Stock, 0.001 par
value, of the Company at a price of __________ Dollars ($ ______) per share, in
the manner and subject to the conditions provided herein.
2. TERM OF OPTION. This Option shall expire on ______________.
3. TIME OF EXERCISE OF OPTION. This Option shall be immediately
exercisable as to any or all shares and may be exercised at any time and from
time to time during its term.
4. INCORPORATION OF STOCK OPTION PLAN. This Agreement is entered into
pursuant to the Plan, which Plan is by this reference incorporated herein and
made a part hereof. All capitalized terms not defined herein shall have the
meaning ascribed to them in the Plan. The material provisions of the Plan
applicable to this Option are as follows:
a. METHOD OF EXERCISE OF OPTION. This Option shall be exercisable
only: (i) upon payment to the Company on the exercise date of cash in
the full amount of the option price of the shares with respect to which
the Option is exercised; (ii) upon delivery to the Company on the
exercise date of certificates representing shares of Company Stock,
owned by the Optionee for longer than six months and registered in the
Optionee's name, having a Fair Market Value, on the date of such
exercise and delivery, equal to the full amount of the purchase price
of the shares with respect to which the Option is exercised; (iii) upon
delivery to the Company on the exercise date of options to purchase
shares of Company Stock (whether granted hereunder or otherwise),
having a Fair Market Value, after deducting the exercise price of such
options, on the date of such exercise and delivery, equal to the full
amount of the purchase price of the shares with respect to which the
Option is exercised; or (iv) a combination of (i), (ii), and (iii).
b. NON-TRANSFERABILITY OF OPTION. This Option is non-transferable by
Optionee except by will or the laws of descent and distribution and
shall be exercisable during Optionee's lifetime only by Optionee. In
the event of Optionee's death, the Post-Death Representative may
exercise this Option.
c. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, ETC. In the event any
stock dividend is declared upon the Company's Common Stock or in the
event outstanding shares of stock shall be changed into or exchanged
for a different number, class or kind of shares of stock or other
securities of the Company or of another corporation, whether by reason
of a split or combination of shares, recapitalization,
reclassification, reorganization, merger,
Stock Option Agreement Page 1
<PAGE> 8
consolidation or otherwise, the number of shares of Stock reserved for
issuance upon the exercise of outstanding Options shall be
appropriately and proportionately adjusted, and in any such event a
corresponding adjustment shall be made changing the number, class or
kind of shares of Stock or other securities which are deliverable upon
the exercise of any Option theretofore granted without change in the
total price applicable to the unexercised portion of such Option, but
with a corresponding adjustment in the price for each share of Stock
covered by the unexercised portion of such Option. In the event the
Company is merged, consolidated or reorganized with another
corporation, appropriate provision shall be made for the continuance of
outstanding Options with respect to shares of the succeeding parent
corporation following a merger, or with respect to shares of the
consolidated or reorganized corporation in the case of a consolidation
or reorganization, and to prevent their dilution or enlargement
compared to the total shares issuable therein in respect of the Stock.
Adjustments hereunder shall be made in an equitable manner by the
Administrator, whose determination shall be conclusive and binding on
all concerned.
IN WITNESS WHEREOF, Intensiva HealthCare Corporation has caused this
Agreement to be executed and its Corporate Seal to be affixed, and Optionee has
signed the same, in duplicate originals as of the day and year first above
written.
INTENSIVA HEALTHCARE CORPORATION
By:
------------------------------------
David W. Cross
President and Chief Executive Officer
--------------------------------------
Optionee
Stock Option Agreement Page 2
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of Registrant
As of December 31, 1997, the following were wholly-owned subsidiaries of the
registrant:
<TABLE>
<S> <C>
Intensiva Hospital of Akron, Inc. Intensiva Hospital of Knoxville, Inc.
Intensiva Hospital of Ann Arbor, Inc. Intensiva Hospital of Macomb County, Inc.
Intensiva Hospital of Battle Creek, Inc. Intensiva Hospital of Muskegon, Inc.
Intensiva Hospital of Cincinnati, Inc. Intensiva Hospital of Northwest Indiana, Inc.
Intensiva Hospital of Columbus, Inc. Intensiva Hospital of Oklahoma City, Inc.
Intensiva Hospital of Corpus Christi, Inc. Intensiva Hospital of Philadelphia/AEMC, Inc.
Intensiva Hospital of Eastern Oklahoma, Inc. Intensiva Hospital of Pittsburgh, Inc.
Intensiva Hospital of Evansville, Inc. Intensiva Hospital of Pontiac, Inc.
Intensiva Hospital of Flint, Inc. Intensiva Hospital of Reno, Inc.
Intensiva Hospital of Fort Wayne, Inc. Intensiva Hospital of Sioux Falls, Inc.
Intensiva Hospital of Greater St. Louis, Inc. Intensiva Hospital of Tacoma, Inc.
Intensiva Hospital of Indianapolis, Inc. Intensiva Hospital of Topeka, Inc.
Intensiva Hospital of Kansas City, Inc. Intensiva Hospital of Wichita, Inc.
</TABLE>
<PAGE> 1
EXHIBIT 24.1
Independent Auditors' Consent
The Board of Directors
Intensiva HealthCare Corporation:
We consent to the incorporation by reference in the registration statement (No.
333-29619) on Form S-8 of Intensiva HealthCare Corporation of our report dated
March 2, 1998, with respect to the consolidated balance sheets of Intensiva
HealthCare Corporation and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1997 which report is included in the December 31, 1997 annual report on Form
10-K of Intensiva HealthCare Corporation.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
March 2, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTENSIVA
HEALTHCARE CORPORATION'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1433812
<SECURITIES> 0
<RECEIVABLES> 31876315
<ALLOWANCES> 1736367
<INVENTORY> 781317
<CURRENT-ASSETS> 34946873
<PP&E> 8392885
<DEPRECIATION> 1509928
<TOTAL-ASSETS> 43260449
<CURRENT-LIABILITIES> 14918215
<BONDS> 0
0
0
<COMMON> 9969
<OTHER-SE> 23782472
<TOTAL-LIABILITY-AND-EQUITY> 43260449
<SALES> 0
<TOTAL-REVENUES> 69589496
<CGS> 0
<TOTAL-COSTS> 59913263
<OTHER-EXPENSES> 4605961
<LOSS-PROVISION> 1951890
<INTEREST-EXPENSE> 235171
<INCOME-PRETAX> 1730913
<INCOME-TAX> 93557
<INCOME-CONTINUING> 1637356
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1637356
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
