<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER: 1-13845
BALANCED CARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 25-1761898
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1215 MANOR DRIVE, MECHANICSBURG, PA 17055
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(717) 796-6100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT MAY 11, 2000
----- ---------------------------
<S> <C>
Common Stock, $.001 par value 34,172,847
</TABLE>
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<PAGE> 2
BALANCED CARE CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I -- FINANCIAL INFORMATION
ITEM 1:
CONDENSED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 2000 and June
30, 1999............................................... 3
Consolidated Statements of Operations for the three months
ended March 31, 2000 and 1999.......................... 4
Consolidated Statements of Operations for the nine months
ended March 31, 2000 and 1999.......................... 5
Consolidated Statement of Stockholders' Equity for the
nine months ended March 31, 2000....................... 6
Consolidated Statements of Cash Flows for the nine months
ended March 31, 2000 and 1999.......................... 7
Notes to Consolidated Financial Statements................ 8
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 13
ITEM 3:
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK...................................................... 26
PART II -- OTHER INFORMATION
ITEM 6:
EXHIBITS AND REPORTS ON FORM 8-K............................ 27
(A) Exhibits
(B) Reports on Form 8-K
</TABLE>
2
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
BALANCED CARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31 JUNE 30
2000 1999
----------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,565 $ 8,160
Receivables (net of allowance for doubtful receivables)... 9,134 11,912
Development contracts in process.......................... 1,118 2,559
Prepaid expenses and other current assets................. 1,303 973
-------- --------
Total current assets................................... 15,120 23,604
Restricted investments...................................... 1,264 2,714
Property and equipment, net................................. 75,784 24,075
Goodwill, net............................................... 14,612 15,293
Purchase option deposits.................................... 5,028 2,974
Other assets................................................ 6,532 2,395
-------- --------
Total assets........................................... $118,340 $ 71,055
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 8,512 $ 450
Accounts payable.......................................... 1,424 10,016
Accrued payroll........................................... 2,183 1,339
Accrued expenses.......................................... 3,663 4,357
-------- --------
Total current liabilities.............................. 15,782 16,162
Long-term debt, net of current portion...................... 52,577 11,773
Straight-line lease liability............................... 1,135 3,537
Deferred revenue and other liabilities...................... 2,894 1,225
-------- --------
Total liabilities...................................... 72,388 32,697
-------- --------
Stockholders' equity:
Common stock, $.001 par value; authorized -- 50,000,000
Shares; issued and outstanding -- 34,172,847 shares at
March 31, 2000 and 16,722,847 shares at June 30, 1999..... 35 17
Additional paid-in capital.................................. 83,333 63,814
Accumulated deficit......................................... (37,416) (25,473)
-------- --------
Total stockholders' equity............................. 45,952 38,358
-------- --------
Total liabilities and stockholders' equity............. $118,340 $ 71,055
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
BALANCED CARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------------
2000 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Resident services......................................... $ 8,491 $ 5,000
Patient services.......................................... 3,375 10,993
Development fees.......................................... 54 258
Management fees........................................... 70 354
Other revenues............................................ 80 132
------- -------
Total revenues.............................................. 12,070 16,737
------- -------
Operating expenses:
Facility operating expenses:
Salaries, wages and benefits........................... 5,619 7,820
Other operating expenses............................... 2,872 5,163
Development, general and administrative expenses.......... 2,298 3,143
Provision for losses under shortfall funding agreements... 700 1,400
Provision for losses under severance agreements........... -- 600
Lease expense............................................. 1,599 2,581
Depreciation and amortization............................. 1,255 570
------- -------
Total operating expenses.................................... 14,343 21,277
------- -------
Loss from operations................................... (2,273) (4,540)
Other income (expense):
Interest and other income................................. 108 154
Interest expense.......................................... (1,349) (127)
Loss on purchase options.................................. (291) --
Loss on sale of assets.................................... -- (102)
------- -------
Loss before income taxes............................... (3,805) (4,615)
Provision for income tax benefit............................ -- (1,846)
------- -------
Net loss............................................... $(3,805) $(2,769)
======= =======
Basic loss per share........................................ $ (0.11) $ (0.17)
======= =======
Diluted loss per share...................................... $ (0.11) $ (0.17)
======= =======
Weighted average shares -- basic............................ 34,173 16,722
======= =======
Weighted average shares -- diluted.......................... 34,173 16,722
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
BALANCED CARE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
--------------------------
2000 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
Resident services......................................... $ 22,418 $16,517
Patient services.......................................... 25,565 35,615
Development fees.......................................... 592 5,932
Management fees........................................... 245 960
Other revenues............................................ 191 266
-------- -------
Total revenues............................................ 49,011 59,290
-------- -------
Operating expenses:
Facility operating expenses:
Salaries, wages and benefits........................... 23,153 24,457
Other operating expenses............................... 13,888 16,696
Development, general and administrative expenses.......... 7,466 10,103
Provision for losses on development activities............ -- 2,400
Provision for losses under shortfall funding agreements... 2,250 3,760
Provision for losses under severance agreements........... -- 600
Lease expense............................................. 8,501 7,377
Depreciation and amortization............................. 2,769 1,613
-------- -------
Total operating expenses.................................... 58,027 67,006
-------- -------
Loss from operations................................... (9,016) (7,716)
Other income (expense):
Interest and other income................................. 280 633
Interest expense.......................................... (2,172) (345)
Loss on purchase options.................................. (291) --
Loss on sale of assets.................................... -- (302)
-------- -------
Loss before income taxes and extraordinary item........ (11,199) (7,730)
Provision for income taxes (benefit)........................ 5 (1,738)
-------- -------
Loss before extraordinary item......................... (11,204) (5,992)
Extraordinary loss on extinguishment of debt................ (739) --
-------- -------
Net loss............................................... $(11,943) $(5,992)
======== =======
Basic loss per share:
Loss before extraordinary item............................ $ (0.47) $ (0.36)
======== =======
Net loss.................................................. $ (0.50) $ (0.36)
======== =======
Diluted loss per share:
Loss before extraordinary item............................ $ (0.47) $ (0.36)
======== =======
Net loss.................................................. $ (0.50) $ (0.36)
======== =======
Weighted average shares -- basic............................ 23,984 16,709
======== =======
Weighted average shares -- diluted.......................... 23,984 16,709
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
BALANCED CARE CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
--------------- ADDITIONAL
ISSUED PAR PAID-IN
SHARES VALUE CAPITAL DEFICIT TOTAL
------ ----- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1999.................. 16,723 $17 $63,814 $(25,473) $ 38,358
Issuance of common stock, less costs of
issuance................................ 16,700 $17 $19,519 -- $ 19,536
Exercise of common stock purchase
warrants................................ 750 1 -- -- 1
Net loss.................................. -- -- -- (11,943) (11,943)
------ --- ------- -------- --------
Balance at March 31, 2000................. 34,173 $35 $83,333 $(37,416) $ 45,952
====== === ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
BALANCED CARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
--------------------------
2000 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss.................................................... $(11,943) $(5,992)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization............................. 2,769 1,613
Deferred income taxes..................................... -- (1,833)
Loss on sale of assets.................................... -- 302
Provision for losses on development activities............ -- 2,400
Provision for losses under shortfall funding agreement.... 2,250 3,760
Provision for losses under severance agreements........... -- 600
Extraordinary loss on extinguishment of debt.............. 739 --
Changes in operating assets and liabilities, excluding
effects of acquisitions:
Decrease in receivables, net........................... 879 1,094
Decrease (increase) in development contracts in
process, net.......................................... 1,441 (6,759)
Increase in prepaid expenses and other current
assets................................................ (473) (406)
Decrease (increase) in accounts payable, accrued
payroll and accrued expenses.......................... (11,606) 8
-------- -------
Net cash used for operating activities............... (15,944) (5,213)
-------- -------
Cash Flows from Investing Activities:
Proceeds from sale of assets.............................. 6,675 11,630
Purchases of property and equipment....................... (56,561) (3,154)
Decrease (increase) in restricted investments............. 1,315 (72)
Increase in purchase option deposits and other assets..... (4,479) (4,416)
Business acquisitions..................................... (2,457) (4,355)
-------- -------
Net cash used for investing activities............... (55,507) (367)
-------- -------
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt.................. 54,658 5,682
Payments on long-term debt (including extinguishment costs
of $707 in 2000)....................................... (6,499) (206)
Proceeds from issuance of common stock.................... 19,537 136
Increase in other liabilities............................. (840) (381)
-------- -------
Net cash provided by financing activities............ 66,856 5,231
Decrease in cash and cash equivalents..................... (4,595) (349)
Cash and cash equivalents at beginning of period.......... 8,160 15,481
-------- -------
Cash and cash equivalents at end of period.................. $ 3,565 $15,132
======== =======
Supplemental Cash Flow Information:
Cash paid for interest.................................... $ 1,789 $ 345
======== =======
Cash paid for income taxes................................ $ 5 $ 86
======== =======
Acquisitions:
Fair value of assets acquired.......................... (3,482) (4,377)
Liabilities assumed.................................... 1,025 22
-------- -------
Consideration paid for acquisitions.................... $ (2,457) $(4,355)
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Background
Balanced Care Corporation (the "Company") was incorporated in April 1995
and is engaged primarily in the operation, development and selective acquisition
of assisted living facilities. At March 31, 2000, the Company owned, leased or
managed 61 assisted living communities and 3 skilled nursing facilities. Also at
March 31, 2000, the Company had 4 assisted living communities under
construction. The Company's operations are located in Pennsylvania, Arkansas,
Virginia, Ohio, North Carolina, Tennessee, West Virginia, Florida, Maryland and
Indiana.
(b) Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries from their respective acquisition
dates. All significant intercompany accounts and transactions have been
eliminated in the consolidated financial statements.
The financial statements as of and for the three and nine-month periods
ended March 31, 2000 and 1999 are unaudited, but in the opinion of management,
have been prepared on the same basis as the audited financial statements and
reflect all adjustments, consisting of normal recurring accruals, necessary for
a fair presentation of the information set forth therein. The results of
operations for the three and nine-month periods ended March 31, 2000 are not
necessarily indicative of the operating results to be expected for the full year
or any other period. These financial statements and notes should be read in
conjunction with the financial statements and notes included in the audited
consolidated financial statements of the Company for the year ended June 30,
1999 as contained in the Company's Annual Report on Form 10-K (as amended).
2. ACQUISITIONS
Acquisitions and the manner of payment are summarized as follows:
<TABLE>
<CAPTION>
LEASED CASH PAID/
MONTH TRANSACTION DESCRIPTION OR OWNED BUSINESS LOCATION TOTAL COST
----- ----------------------- -------- -------- -------- ----------------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
December 1999 Stock of Black Box of Martinsburg, Inc. Owned ALF WV $ 141
December 1999 Stock of Black Box of Peckville, Inc. Owned ALF PA 322
December 1999 Stock of TC Realty of Maumelle, Inc. Owned ALF AR 499
December 1999 Stock of TC Realty of Scranton, Inc. Owned ALF PA 524
December 1999 Stock of TC Realty of Berwick, Inc. Owned ALF PA 140
December 1999 Stock of TC Realty of Lewistown, Inc. Owned ALF PA 400
December 1999 Stock of TC Realty of Mansfield, Inc. Owned ALF OH 431
------
$2,457
======
</TABLE>
Before acquiring the operations of these special purpose entities ("SPEs")
in the transactions detailed above, the Company managed the operations for the
prior Operator/Lessee. Subsequent to these transactions, the Company then
acquired the real estate assets from the REIT owner in a separate transaction.
Refer to the descriptions of these transactions in the "Recent Developments"
section ("Property Acquisition") and the "Liquidity" section ("Operation") of
Item 2 of this Quarterly Report.
The following unaudited summary, prepared on a pro forma basis, combines
the results of operations of the acquired operations with those of the Company
as if the acquisitions and leases had been consummated as of the beginning of
the period. The acquired businesses and their respective acquisition dates were
Extended Care Operators of Harrisburg, LLC d/b/a/ Harrisburg Outlook Pointe in
March 1999, TC Realty of
8
<PAGE> 9
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Sherwood, Inc. d/b/a Sherwood Outlook Pointe in April 1999, TC Realty of
Mountain Home, Inc. d/b/a/ Mountain Home Outlook Pointe in April 1999, TC Realty
of Altoona, Inc. d/b/a/ Altoona Outlook Pointe in May 1999 and TC Realty of
Reading, Inc. d/b/a/ Reading Outlook Pointe in May 1999. Also, Black Box of
Peckville d/b/a Outlook Pointe Keepsakes at Mid Valley, Black Box of
Martinsburg, Inc. d/b/a Outlook Pointe at Martinsburg, Inc., TC Realty at
Mansfield, Inc. d/b/a Outlook Pointe at Ontario, TC Realty at Maumelle, Inc.
d/b/a Outlook Pointe at Maumelle, TC Realty at Berwick, Inc. d/b/a Outlook
Pointe Commons at Berwick, TC Realty at Scranton, Inc. d/b/a Outlook Pointe
Commons at Scranton, and TC Realty at Lewistown, Inc. d/b/a Outlook Pointe at
Lewistown, Inc., were acquired in December 1999. The pro forma results include
the impact of certain adjustments such as: amortization of goodwill,
depreciation of assets acquired, interest on acquisition financing and lease
payments on the leased facility (in thousands, except for per share amounts):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31
-------------------
2000 1999
-------- -------
<S> <C> <C>
Revenue..................................................... $ 52,615 $64,524
======== =======
Loss before extraordinary items............................. $(10,929) $(9,591)
======== =======
Loss before extraordinary items per common
share -- diluted.......................................... $ (0.46) $ (0.57)
======== =======
</TABLE>
The unaudited pro forma results are not necessarily indicative of what
actually might have occurred if the acquisitions had been completed as of July
1, 1999 and 1998. In addition, they are not intended to be a projection of
future results of operations.
3. LOSS PER SHARE
Loss per share is computed using the weighted average number of common
shares and common equivalent shares outstanding (using the treasury stock
method). For the three and nine-month periods ended March 31, 2000 and 1999,
common equivalent shares from stock options and warrants are excluded from the
computation, as their effect is anti-dilutive.
4. LINE OF CREDIT AMENDMENTS AND LOSS ON EARLY EXTINGUISHMENT OF DEBT
In April 1999, the Company entered into a $15 million revolving Line of
Credit with HCFP Funding, Inc. ("HCFP"). The Line of Credit is for a term of
three years, and outstanding borrowings bear interest at a rate per annum of
prime plus 2.75%. In July 1999, the Line of Credit was increased to $20 million.
Prior to July 1999, the Line of Credit was secured by the real estate owned by
five of the Company's subsidiaries (BCC at Darlington, Inc., Balanced Care at
Eyers Grove, Inc., Balanced Care at Butler, Inc., Balanced Care at Sarver, Inc.,
and Balanced Care at North Ridge, Inc.), and the eligible accounts receivable of
the Company's 10 Missouri skilled nursing facilities (the "Accounts Receivable
Borrowers"). In July 1999, the real estate of BCC at Republic Park Care Center,
Inc. and BCC at Nevada Park Care Center, Inc. (the "Skilled Nursing Facility
Borrowers") was added as security to collateralize the Line of Credit. In order
to mortgage the Skilled Nursing Facility Borrowers' real estate in favor of
HCFP, the Company repaid its $3.1 million loan to Meditrust to satisfy the
existing mortgage on this real estate. As a result of this transaction, the
Company reported a loss on the extinguishment of debt of $739,000 in the first
quarter of Fiscal 2000.
On January 12, 2000, the Company completed the sale of its Missouri assets
(see "Divestiture of Missouri Operations" discussed below), which included the
real estate, leasehold interests and operations of the Skilled Nursing Facility
Borrowers and the Accounts Receivable Borrowers (the "Missouri Borrowers"). In
order for HCFP to release the Missouri Borrowers and their respective liens and
security interests under the Line of Credit, the Company agreed to (i) repay
$5.4 million on the Line of Credit attributable to the
9
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BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Missouri Borrowers, (ii) pay a prepayment fee of approximately $75,000, (iii)
reset the availability under the Line of Credit to $12.0 million as of December
31, 1999 and (iv) provide a cross-default on its obligations under the Line of
Credit with any future obligations with HCFP.
The primary component of the borrowing base for the Line of Credit consists
of 85% of the product of 8.0 to 8.5 times EBITDA of the Real Estate Borrowers
(as defined in the Line of Credit Agreement). At March 31, 2000, the borrowing
base available under the Line of Credit was approximately $10.4 million and
$10.4 million was borrowed thereunder.
5. EQUITY TRANSACTION
In October 1999, the Company entered into a Subscription Agreement (the
"Subscription Agreement") with IPC Advisors S.A.R.L., a Luxembourg company
("IPC"), under which IPC agreed to make an equity investment of approximately
$21.0 million in the Company (the "Transaction"). Under the first tranche of the
Transaction, which closed on October 11, 1999, the Company issued to IPC
3,300,000 shares of Series C Convertible Preferred Stock, par value $.001 (the
"Series C Preferred Stock"), at a price per share of $1.25, for an aggregate
purchase price of $4,125,000. Under the second tranche of the Transaction, which
was approved by the stockholders on December 15, 1999 and closed on December 21,
1999, the Company issued to IPC 13,400,000 shares of common stock, par value
$.001 (the "Common Stock"), at a price per share of $1.25, for an aggregate
purchase price of $16,750,000, and the outstanding shares of Series C Preferred
Stock automatically converted into 3,300,000 shares of Common Stock. At March
31, 2000, IPC owned approximately 49.9% of the outstanding shares of Common
Stock of the Company.
6. PROPERTY ACQUISITION
In December 1999, the Company acquired the real property, improvements,
furniture, fixtures and equipment of 12 assisted living facilities. The
aggregate purchase price was $52,073,054. The purchase price was paid from the
following sources: a $7,811,054 promissory note due to the seller, New Meditrust
Company LLC ("Meditrust"), a $32,000,000 loan from Heller Healthcare Finance,
Inc ("Heller"), a $7,000,000 discount note due to FRR Investments Limited
("FRR"), and $5,262,000 in cash from the Company. The Company has an option to
purchase 12 additional assisted living facilities from Meditrust by October 31,
2000. On April 27, 2000, the Company increased its existing $32 million loan
from Heller by $5 million to $37 million, on the same terms and conditions, and
using the same collateral, as the existing loan.
7. DIVESTITURE OF MISSOURI OPERATIONS
On January 12, 2000, the Company completed the sale of its Missouri assets
to Christian Health Care of Missouri, Inc. and certain of its affiliates
(collectively, "CHM") pursuant to an Asset Purchase Agreement dated October 15,
1999 (as amended, the "Asset Purchase Agreement"). The Company sold its
leasehold interests in eight skilled nursing facilities and nine assisted and
independent living facilities, together with the operations of those facilities.
The Company sold its real property interests and operations in two skilled
nursing facilities. The aggregate consideration paid by CHM to the Company for
the assets was (i) $51,000,000 in assumed lease obligations, (ii) $6,675,000 in
cash, and (iii) $2,525,000 in notes. The Company has guaranteed the payments of
the lease obligations of the buyer until the occurrence of certain events. For a
more detailed description of these transactions, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Recent
Developments."
8. SUBSEQUENT EVENT
The Company has exercised its options to purchase 10 SPEs currently managed
by the Company in the fourth quarter and expects to close on the transactions by
May 31, 2000. The capital required to exercise the
10
<PAGE> 11
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
options is approximately $10 million and will be funded by the property owners,
Nationwide Health Properties, Inc. and its affiliates ("NHP"), through an
increase in the lease base for each of the 10 properties.
9. SEGMENT REPORTING
Statement of Financial Accounting Standards No. 131, Disclosures about
Segments of an Enterprise and Related Information (SFAS No. 131) established
standards for the way public business enterprises are to report information
about operating segments in annual and interim financial statements issued to
shareholders. It also established standards for related disclosures about
products and services, geographic areas and major customers.
The Company has three primary reportable segments: (i) Resident Services
which includes all assisted living and independent living services, and the
management of assisted living facilities, (ii) Patient Services which includes
skilled nursing services, home health services, and medical rehabilitation
services, and (iii) Development, General and Administrative. No other individual
business segment exceeds the 10% quantitative thresholds of SFAS No. 131.
The Company's management evaluates the performance of its operating
segments on the basis of income from continuing operations before non-recurring
items (representing provisions for losses on development activities and
severance agreements and gains and losses on sales of assets), lease expense,
interest (net), taxes, depreciation and amortization.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000
------------------------------------------------------
DEVELOPMENT
RESIDENT PATIENT GENERAL AND
SERVICES SERVICES ADMINISTRATIVE CONSOLIDATED
-------- -------- -------------- ------------
<S> <C> <C> <C> <C>
Revenues...................................... $8,631 $ 3,385 $ 54 $12,070
Operating expenses............................ 5,625 2,866 -- 8,491
Development, general and administrative
expenses.................................... -- -- 2,298 2,298
Provision for losses under shortfall funding
agreements.................................. 700 -- -- 700
------ ------- ------- -------
Income (loss) from continuing operations
before non-recurring items, lease expense,
interest (net), taxes, depreciation and
amortization................................ $2,306 $ 519 $(2,244) $ 581
====== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
------------------------------------------------------
DEVELOPMENT
RESIDENT PATIENT GENERAL AND
SERVICES SERVICES ADMINISTRATIVE CONSOLIDATED
-------- -------- -------------- ------------
<S> <C> <C> <C> <C>
Revenues...................................... $5,392 $11,087 $ 258 $16,737
Operating expenses............................ 3,228 9,755 -- 12,983
Development, general and administrative
expenses.................................... -- -- 3,143 3,143
Provision for losses under shortfall funding
agreements.................................. 1,400 -- -- 1,400
------ ------- ------- -------
Income (loss) from continuing operations
before non-recurring items, lease expense,
interest (net), taxes, depreciation and
amortization................................ $ 764 $ 1,332 $(2,885) $ (789)
====== ======= ======= =======
</TABLE>
11
<PAGE> 12
BALANCED CARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31, 2000
---------------------------------------------------
DEVELOPMENT
RESIDENT PATIENT GENERAL AND
SERVICES SERVICES ADMINISTRATIVE CONSOLIDATED
-------- -------- -------------- ------------
<S> <C> <C> <C> <C>
Revenues........................................ $ 22,833 $25,586 $ 592 $ 49,011
Operating expenses.............................. 14,584 22,457 -- 37,041
Development, general and administrative
expenses...................................... -- -- 7,466 7,466
Provision for losses under shortfall funding
agreements.................................... 2,250 -- -- 2,250
-------- ------- ------- --------
Income (loss) from continuing operations before
non-recurring items, lease expense, interest
(net), taxes, depreciation and amortization... $ 5,999 $ 3,129 $(6,874) $ 2,254
======== ======= ======= ========
Total Assets.................................... $102,295 $ 2,996 $13,049 $118,340
======== ======= ======= ========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31, 1999
---------------------------------------------------
DEVELOPMENT
RESIDENT PATIENT GENERAL AND
SERVICES SERVICES ADMINISTRATIVE CONSOLIDATED
-------- -------- -------------- ------------
<S> <C> <C> <C> <C>
Revenues........................................ $ 17,587 $35,771 $ 5,932 $ 59,290
Operating expenses.............................. 10,432 30,721 -- 41,153
Development, general and administrative
expenses...................................... -- -- 10,103 10,103
Provision for losses under shortfall funding
agreements.................................... 3,760 -- -- 3,760
-------- ------- ------- --------
Income (loss) from continuing operations before
non-recurring items, lease expense, interest
(net), taxes, depreciation and amortization... $ 3,395 $ 5,050 $(4,171) $ 4,274
======== ======= ======= ========
Total Assets.................................... $ 36,135 $12,985 $34,465 $ 83,585
======== ======= ======= ========
</TABLE>
12
<PAGE> 13
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis addresses the Company's results of
operations on a historical basis for the three and nine-month periods ended
March 31, 2000 and 1999, and the Company's liquidity and capital resources. This
information should be read in conjunction with the Company's consolidated
condensed financial statements contained elsewhere in this report. This report
contains, in addition to historical information, forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially. Factors that could cause or contribute to such differences include,
but are not limited to, those disclosed in "Risk Factors" in the Company's
Annual Report on Form 10-K for the year ended June 30, 1999, as amended.
OVERVIEW
The Company is engaged primarily in the operation, development and
selective acquisition of assisted living facilities. The Company has grown
primarily through acquisitions and by designing, developing, operating and
managing its Outlook Pointe(R) signature series assisted living facilities. The
following table summarizes the Company's operating facilities at March 31, 2000
and 1999 (excluding the former Missouri facilities):
<TABLE>
<CAPTION>
MARCH 31
-------------------------------------------------------------------
2000 1999
-------------------------------- --------------------------------
OWNED LEASED MANAGED TOTAL OWNED LEASED MANAGED TOTAL
----- ------ ------- ----- ----- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Developed Assisted Living Facilities.... 12 1 35 48 -- 2 29 31
Acquired Assisted Living Facilities..... 5 8 -- 13 5 8 -- 13
Skilled Nursing Facilities.............. -- 3 -- 3 -- 3 -- 3
-- -- -- -- -- -- -- --
17 12 35 64 5 13 29 47
== == == == == == == ==
</TABLE>
As of March 31, 2000, the Company had operations in Pennsylvania, Arkansas,
Virginia, Ohio, North Carolina, Tennessee, West Virginia, Florida, Maryland and
Indiana. In January 2000, the Company divested its Missouri assets, consisting
of ten skilled nursing facilities with 1,135 beds and nine assisted and
independent living facilities with 245 beds. As of March 31, 2000, the Company's
operating facilities have a capacity for 4,075 assisted living residents and 169
skilled nursing patients. The Company has discontinued its own rehabilitation
agencies and now exclusively utilizes independent agencies to provide therapy
services.
In addition to the 48 Outlook Pointe(R) signature series assisted living
facilities opened as of March 31, 2000, the Company has signed agreements to
develop and manage an additional four assisted living facilities, which were
under construction at March 31, 2000. Three of the remaining four facilities are
scheduled to open in May. The fourth facility is scheduled to open in September
2000. This will conclude the Company's initial round of development activity
initiated nearly three years ago. Future development will be conducted on a
project-by-project basis.
The Company generates revenue from four primary sources: resident services,
patient services, development fees and management fees. Resident services
include all revenue earned from services provided in the Company's assisted
living facilities except for medical rehabilitation services provided by the
Company's licensed agencies which are included in patient services revenues.
Patient services revenues include charges for room and board, rehabilitation
therapies, pharmacy, medical supplies, sub-acute care, home healthcare, and
other programs provided to patients in skilled nursing facilities as well as
rehabilitation and home health services provided to assisted living facility
residents. Development fees and management fees are earned for developing and
managing assisted living facilities for REITs and other owners or lessees. As a
result of the divestiture of the Missouri operations and the acquisition of the
operations of developed facilities (both discussed under "Recent Developments"
below), the mix of the Company's revenues is expected to change, with revenues
from assisted living resident services increasing as a percentage of total
revenues.
13
<PAGE> 14
The Company classifies its operating expenses into the following
categories: (i) facility operating expenses, which include labor, food,
marketing, rehabilitation therapy costs and other direct facility expenses; (ii)
development, general and administrative expense, which primarily include
corporate office expenses, regional office expense, development expenses and
other overhead costs; (iii) provisions for losses, which include losses relating
to working capital advances made under shortfall funding agreements; (iv) lease
expense, which includes rent for the facilities operated by the Company as well
as corporate office and other rent; and (v) depreciation and amortization.
RECENT DEVELOPMENTS
Equity Transaction
In October 1999, the Company entered into a Subscription Agreement (the
"Subscription Agreement") with IPC Advisors S.A.R.L., a Luxembourg company
("IPC"), under which IPC agreed to make an equity investment of approximately
$21.0 million in the Company (the "Transaction"). Under the first tranche of the
Transaction, which closed on October 11, 1999, the Company issued to IPC
3,300,000 shares of Series C Convertible Preferred Stock, par value $.001 (the
"Series C Preferred Stock"), at a price per share of $1.25, for an aggregate
purchase price of $4,125,000. Under the second tranche of the Transaction, which
was approved by the stockholders on December 15, 1999 and closed on December 21,
1999, the Company issued to IPC 13,400,000 shares of common stock, par value
$.001 (the "Common Stock"), at a price per share of $1.25, for an aggregate
purchase price of $16,750,000, and the outstanding shares of Series C Preferred
Stock automatically converted into 3,300,000 shares of Common Stock. At March
31, 2000, IPC owned approximately 49.9% of the outstanding shares of Common
Stock of the Company.
Property Acquisition
On December 30, 1999, the Company and 12 of its subsidiaries (collectively
the "Subsidiaries"), IPC and New Meditrust Company LLC ("Meditrust"), entered
into a Memorandum of Understanding (the "Memorandum of Understanding"), under
which the Subsidiaries acquired the real property, improvements, furniture,
fixtures and equipment of twelve Outlook Pointe(R) assisted living facilities
located in Pennsylvania (7), Arkansas (3), Ohio (1) and West Virginia (1)
(collectively, the "Tranche One Properties"). Transaction costs of the
acquisition were paid by the Company.
The aggregate purchase price for the Tranche One Properties was $52,073,054
(the "Tranche One Purchase Price"), which was determined based on arms' length
negotiations. The Tranche One Purchase Price was paid as follows: (a)
$44,262,000 in cash by the Company (the "Cash Portion") and (b) $7,811,054
pursuant to a Promissory Note dated as of December 30, 1999, as amended February
9, 2000 (the "Meditrust Note") made jointly by the Company and IPC in favor of
Meditrust.
The Cash Portion of the Tranche One Purchase Price was funded as follows:
(a) $5,262,000 in cash by the Company, (b) $32,000,000 in the form of a loan
(the "Heller Loan") pursuant to a Loan Agreement dated as of December 30, 1999
(the "Heller Loan Agreement") entered into by and among the Subsidiaries and
Heller Healthcare Finance, Inc. ("Heller"), and (c) $7,000,000 pursuant to a
Series One 1999 BCC Discount Note (the "FRR Note") made by the Company in favor
of FRR Investments Limited ("FRR").
On April 27, 2000, the Company requested and Heller agreed to increase the
$32 million Heller Loan by $5 million to $37 million (the "Heller Loan
Increase"). The Heller Loan Increase was made to the Company by Heller on the
same terms and conditions, and using the same collateral, as the original Heller
Loan. The proceeds from the Heller Loan Increase will provide the working
capital required for operations until the Company raises the additional capital
discussed in this section under the heading entitled "Liquidity and Capital
Resources."
As an inducement for IPC to enter into the Meditrust Note, IPC, Meditrust
Mortgage Investments, Inc. ("MMI") and Meditrust Corporation ("MC", and together
with MMI, the "Meditrust Parties") entered into a Right of First Refusal
Agreement dated as of December 30, 1999 (the "Right of First Refusal
Agreement"). Under the Right of First Refusal Agreement, in the event the
Meditrust Parties desire to sell, give or otherwise
14
<PAGE> 15
transfer the 1,081,312 shares of common stock of the Company (the "Stock") owned
by the Meditrust Parties to any party other than an entity that is a direct or
indirect subsidiary of MC, the Meditrust Parties are obligated to offer in
writing to sell the Stock to IPC on the same terms. The Right of First Refusal
Agreement, unless sooner terminated in accordance with the terms thereof, will
remain in effect until December 31, 2009.
As a further inducement for IPC to enter into the Meditrust Note, the
Company entered into an Indemnification, Defense, Hold Harmless and
Reimbursement Agreement dated as of December 29, 1999 (the "Indemnification
Agreement") in favor of IPC, under which the Company has agreed to indemnify,
defend and hold harmless IPC and certain other Indemnified Parties (as defined
in the Indemnification Agreement") from any Losses (as defined in the
Indemnification Agreement") arising under or otherwise related to or in
connection with the Meditrust Note (including, without limitation, all payments
made or to be made by IPC under the Meditrust Note), except for any Losses that
arise as a result of the gross negligence or willful misconduct of any
Indemnified Party or a breach of a fiduciary duty of IPC or any affiliate of IPC
to the Company.
As an inducement for FRR to accept the FRR Note and as additional security
for the Company's obligations under the Indemnification Agreement, the Company
and the Subsidiaries have entered into a Stock Pledge Agreement dated as of
April 18, 2000, (the "Stock Pledge Agreement") with IPC and FRR, under which the
Company pledged the stock of each of the Subsidiaries to IPC and FRR.
Notwithstanding the foregoing, the Company, the Subsidiaries, IPC, FRR and
Heller have entered into a Subordination Agreement in favor of Heller. Under the
Subordination Agreement, IPC and FRR agreed to subordinate their respective
rights under the Stock Pledge Agreement, the FRR Note and the Indemnification
Agreement in favor of Heller and agreed to refrain from taking any action
against the collateral pledged under the Stock Pledge Agreement until the
obligations under the Heller Loan Agreement, as amended, are paid in full;
provided, however, the Subordination Agreement permits IPC, FRR and the Company,
so long as no event of default exists under the Heller Loan Agreement, as
amended, to pay and to collect such sums that are owed under the FRR Note and
the Indemnification Agreement in accordance with the respective terms thereof.
In connection with the foregoing, the Company, IPC and Meditrust also
entered into an Option Agreement dated as of December 30, 1999, as amended
February 9, 2000 (the "Option Agreement"), pursuant to which the Company and IPC
have the right, but not the obligation (the "Option"), to designate various
nominees (each, a "Designee") to acquire the real property, improvements,
furniture, fixtures and equipment of an additional twelve Outlook Pointe(R)
assisted living facilities located in Pennsylvania (3), Arkansas (2), Ohio (2),
Virginia (2), and Tennessee (3) (collectively, the "Tranche Two Properties").
Hereinafter, the Company, IPC and their Designees may be referred to as the
"Buyer".
The Option is jointly exercisable by the Company and IPC upon 30 days'
prior written notice to Meditrust (the "Option Notice") for the period
commencing on January 2, 2000 and continuing up through and including October 1,
2000. The Company and IPC may not exercise the Option with respect to any single
Tranche Two Property, but rather may only exercise the Option with respect to
groups of three or more Tranche Two Properties. Therefore, the acquisition of
the Tranche Two Properties may close in a series of transactions, with the final
closing on any of the Tranche Two Properties to occur no later than October 31,
2000.
The aggregate purchase price for the Tranche Two Properties is $45,530,946
(the "Tranche Two Purchase Price"), which was determined based on arms' length
negotiations. The Tranche Two Purchase Price is allocated among the Tranche Two
Properties as more specifically set forth in the Option Agreement (each, a
"Facility Purchase Price"). The Facility Purchase Price for each Tranche Two
Property for which an Option Notice has been given shall be paid to Meditrust at
closing. The Company expects to exercise the Option on the Tranche Two
Properties with financing to be provided from one or a combination of several
sources, including several third party lenders with whom the Company is
currently negotiating financing, IPC or an affiliate, and Company funds.
15
<PAGE> 16
Divestiture of Missouri Assets
On January 12, 2000, the Company completed the sale of its Missouri assets
to Christian Health Care of Missouri, Inc. and certain of its affiliates
(collectively, "CHM") pursuant to an Asset Purchase Agreement dated October 15,
1999 (as amended, the "Asset Purchase Agreement"). The Company sold its
leasehold interests in eight skilled nursing facilities and nine assisted and
independent living facilities, together with the operations of those facilities.
The Company sold its real property interests and operations in two skilled
nursing facilities.
The aggregate consideration paid by CHM to the Company for the assets was
(i) $51,000,000 in assumed lease obligations, (ii) $6,675,000 in cash, (iii)
$525,000 pursuant to a First Promissory Note dated January 12, 2000 (the "First
Promissory Note"), and (iv) $2,000,000 pursuant to a Second Promissory Note
dated January 12, 2000 (the "Second Promissory Note"). The aggregate
consideration was determined based on arms' length negotiations.
Due to the Company's existing commitments and guarantees as further
described below, the Company has recorded a net deferred gain on the Missouri
Divestiture in the amount of $2.4 million. The net deferred gain will be
amortized into revenue as the Company's continuing commitments in the
transaction, in the form of notes receivable and guaranties discussed below,
expire.
In 1996, Meditrust Mortgage Investments, Inc. (together with its
affiliates, "MT") loaned $41,385,000 (the "Hawthorn Loan") to Hawthorn Health
Properties, Inc. and its subsidiaries (collectively, "HHP") pursuant to a Loan
Agreement dated August 30, 1996 (the "Hawthorn Loan Agreement") for HHP to
purchase seven skilled nursing facilities and three assisted/independent living
facilities (which constitute a portion of the facilities whose leasehold
interests were transferred to CHM). HHP simultaneously leased the facilities to
certain wholly-owned subsidiaries of the Company pursuant to those certain
Facility Lease Agreements dated August 30, 1996 (collectively, the "Facility
Lease Agreements").
MT required the following as conditions to its consent to the transfer of
the leasehold interests in the HHP facilities to CHM:
- The Company, CHM, HHP and MT enter into an Omnibus Assignment and
Assumption Agreement, Amendment to Loan Documents, Amendment to Lease
Documents, Termination of Lease Documents, Consent to Assignment and
Confirmation of Guaranties dated as of January 12, 2000 (the "Omnibus
Agreement").
- The Company and Dixon Management, Inc., a wholly owned subsidiary of the
Company ("DM"), remain as guarantors of CHM's lease obligations pursuant
to the Guaranties previously given by the Company and DM in August 1996
(the "Existing Guaranties") with respect to the Facility Lease
Agreements.
- The Company enter into a Guaranty dated as of January 12, 2000 (the "BCC
Guaranty") in favor of MT to guaranty the obligations of HHP under the
Hawthorn Loan.
- The Company, Balanced Care at Stafford, Inc., a wholly-owned subsidiary
of the Company ("Stafford"), and MT enter into a Cross-Default Agreement
dated as of January 12, 2000 (the "Cross-Default Agreement") that
provides that an "Event of Default" under the Hawthorn Loan Agreement
will constitute an "Event of Default" under the Facility Lease Agreement
dated June 30, 1998 (the "Stafford Facility Lease Agreement") between MT
and Stafford.
- CHM pay a $4,000,000 payment on the Hawthorn Loan on January 12, 2000
(without any prepayment penalty or premium).
- The Existing Guaranties, the BCC Guaranty and the Cross-Default Agreement
will terminate in accordance with the Termination Agreement dated as of
January 12, 2000 (the "Termination Agreement") entered into by and among
the Company, HHP, MT and the other parties referred to therein. Subject
to the provisions of the Termination Agreement:
16
<PAGE> 17
- The Existing Guaranties and the BCC Guaranty will terminate on the
earlier to occur of (a) the complete payment and performance of the
obligations under the Hawthorn Loan or (b) the Termination Date (as
defined below).
- The Cross-Default Agreement will terminate on the earlier to occur of (a)
the Termination Date or (b) such time, if any, as the Leased Property (as
defined in the Stafford Facility Lease Agreement) is transferred in
accordance with the provisions of the Option Agreement dated as of
December 30, 1999 by and among MT, the Company and the other parties
thereto.
As used herein, "Termination Date" means the later to occur of (a) December
31, 2000 or (b) the date upon which the HHP facilities have achieved a combined
Debt Coverage Ratio (as defined in the Termination Agreement) for the prior
fiscal quarter equal to or greater than 1.1 to 1. The Termination Date has not
yet occurred.
In May and August 1997, the Company entered into Lease and Security
Agreements (collectively, the "Lease and Security Agreements") with Health Care
Realty Trust (together with its affiliates, "HCRT") for four
assisted/independent living facilities (which constitute a portion of the
facilities whose leasehold interests were transferred to CHM). In order to
induce HCRT to consent to the transfer of the leasehold interests of these four
facilities to CHM, the Company was required to remain as guarantor of CHM's
lease obligations pursuant to the Guaranties previously given by the Company in
1997 with respect to the Lease and Security Agreements.
OPERATING AND CENSUS TRENDS
The Company's core business continues to improve as a result of operating
and marketing changes implemented in the fiscal year ended June 30, 1999.
The following table sets forth, for the periods indicated, certain resident
capacity and occupancy data for the periods indicated (excluding the Missouri
facilities):
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999
------------------------------- -------------------------------
STABLE STABLE STABLE STABLE
FACILITIES(1) BEDS(1) TOTAL FACILITIES(1) BEDS(1) TOTAL
------------- ------- ----- ------------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
End of Period Capacity Owned...... 17 1,052 1,052 5 332 332
Leased............................ 12 782 782 13 840 840
Managed........................... 10 607 2,496 7 395 1,891
-- ----- ----- -- ----- -----
Total............................. 39 2,441 4,330 25 1,567 3,063
== ===== ===== == ===== =====
End of Period Occupancy Owned..... 92% 92% 83% 83%
Leased............................ 93% 93% 88% 88%
Managed........................... 75% 51% 73% 38%
----- ----- ----- -----
Total............................. 88% 69% 84% 57%
===== ===== ===== =====
</TABLE>
- ---------------
(1) Includes communities or expansions thereof that have (i) achieved 90%
occupancy; (ii) have been opened at least 15 months for 75 bed or less
communities; 18 months for 75 to 100 bed communities; and 24 months for 100+
bed communities; or (iii) were acquired as mature properties.
The above data does not contain divested communities.
17
<PAGE> 18
To provide information on facility operating performance, the following
table summarizes the operations of all Balanced Care facilities in operation as
of the dates indicated, including facilities owned, leased and managed for
special purpose entities and excluding recently divested Missouri operations:
<TABLE>
<CAPTION>
JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31
1999 1999 1999 2000
------- ------------ ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
AT QUARTER END:
Facilities in Operation....................... 50 55 62 64
Resident Capacity............................. 3,297 3,609 4,118 4,330
Census........................................ 1,946 2,278 2,655 2,972
FOR THE THREE MONTH PERIOD ENDED:
Revenue....................................... $11,432 $13,209 $15,587 $17,321
EBITDAR....................................... $ 206 $ 1,624 $ 2,335 $ 2,888
</TABLE>
Operating highlights of the quarter ended March 31, 2000 include: (i) a net
quarterly census increase of 317, a 12% improvement; (ii) revenue increase of
11% in owned, leased, and managed facilities; and (iii) an EBITDAR increase of
24% in owned, leased, and managed facilities.
The above summary is presented for the purpose of demonstrating the
operating trends of the Company's overall portfolio of facilities and is not
necessarily indicative of the Company's reported consolidated results of
operations under Generally Accepted Accounting Principles (GAAP). The results of
operations for the managed facilities are not included in the Company's
consolidated financial statements presented in this Quarterly Report in
accordance with the guidance under GAAP.
Although continued overall improvement in operating performance for the
Company's existing portfolio of owned, leased and managed facilities as of March
31, 2000 is anticipated for the fourth quarter ending June 30, 2000, there could
be a decline in the consolidated GAAP results for the fourth quarter. The
decline is expected as a result of the consolidation of the operating results
for the 10 special purpose entities ("SPEs") for which the Company has exercised
its option to purchase, with an expected closing date of May 31, 2000, as
further discussed in this section under the heading entitled "Liquidity and
Capital Resources." Seven of these 10 SPE operations are in various stages of
the lease-up phase and are currently incurring losses. The Company also could
incur additional GAAP losses due to increased shortfall losses in the fourth
quarter. This is the result of the timing of depletion of SPE working capital.
While the Company could incur increased shortfall losses in the fourth quarter,
management expects the amount of shortfalls to decrease significantly by the
December 31, 2000 fiscal quarter.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain data as
a percentage of total revenue:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31 MARCH 31
-------------- --------------
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Statement of Operations Data:
Resident services................................... 70.3% 29.9% 45.7% 27.9%
Patient services.................................... 28.0 65.7 52.2 60.1
Development fees.................................... 0.4 1.5 1.2 10.0
Management fees..................................... 0.6 2.1 0.5 1.6
Other............................................... 0.7 0.8 0.4 0.4
----- ----- ----- -----
Total revenue....................................... 100.0 100.0 100.0 100.0
Operating expenses:
Facility operating expenses....................... 70.3 77.6 75.7 69.4
Development, general and administrative
expenses....................................... 19.0 18.8 15.2 17.1
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
MARCH 31 MARCH 31
-------------- --------------
2000 1999 2000 1999
----- ----- ----- -----
<S> <C> <C> <C> <C>
Provision for losses on development activities.... -- -- -- 4.1
Provision for losses on shortfall funding
agreements..................................... 5.8 8.4 4.6 6.3
Provision for losses under severance agreements... -- 3.6 -- 1.0
Lease expense..................................... 13.2 15.4 17.3 12.4
Depreciation and amortization..................... 10.4 3.4 5.6 2.7
----- ----- ----- -----
Loss from operations................................ (18.8) (27.1) (18.4) (13.0)
Other income (expense).............................. (12.7) (0.4) (4.5) --
----- ----- ----- -----
Loss before income taxes and extraordinary item..... (31.5) (27.5) (22.9) (13.0)
Provision for income taxes.......................... -- (11.0) -- (2.9)
----- ----- ----- -----
Loss before extraordinary item...................... (31.5) (16.5) (22.9) (10.1)
Extraordinary loss on extinguishment of debt........ -- -- (1.5) --
----- ----- ----- -----
Net loss............................................ (31.5) (16.5) (24.4) (10.1)
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Total Revenue. Total revenue for the three months ended March 31, 2000
decreased by $4,667,000 to $12,070,000 compared to $16,737,000 for the three
months ended March 31, 1999. This decrease is primarily attributable to
decreased patient service revenues of $7,618,000 resulting primarily from the
sale of the Company's Missouri operations. The decrease in revenue was partially
offset by an increase of resident services revenue of $3,491,000 primarily due
to the acquisition of special purpose entities.
Facility Operating Expenses. Facility operating expenses decreased by
$4,492,000 to $8,491,000 for the three months ended March 31, 2000 from
$12,983,000 for the three months ended March 31, 1999. This decrease is
primarily attributable to decreased facility-operating expenses of $6,905,000
relating to the divested Missouri operations. The decrease in facility operating
expense was partially offset by the increased facility operating expense of
$2,425,000 related to the acquisition of special purchase entities. As a
percentage of total revenue, facility-operating expenses were 70% for the three
months ended March 31, 2000 and 78% for the three months ended March 31, 1999.
Development, general and administrative expenses decreased by $845,000 to
$2,298,000 for the three months ended March 31, 2000 from $3,143,000 for the
three months ended March 31, 1999. As a percentage of total revenue, these
expenses were 19% for the three months ended March 31, 2000 and 19% for the
three months ended March 31, 1999. The decrease in expenses is primarily a
result of divesting the Missouri operations and implementation of the Company's
restructuring plan.
Provision for losses under shortfall funding agreements decreased by
$700,000 to $700,000 for the three months ended March 31, 2000 from $1,400,000
for the three months ended March 31, 1999. This decrease was primarily related
to improved financial results of managed communities with a shortfall funding
commitment by the Company.
Provision for losses under severance agreements for the three months ended
March 31, 1999 were $600,000.
Lease expense decreased to $1,599,000 for the three months ended March 31,
2000 from $2,581,000 for the three months ended March 31, 1999, a decrease of
$982,000. This decrease was primarily the result of the sale of Missouri
operations of $1,276,000 and was partially offset by the rent attributed to an
acquired special purpose entity, additional contingent rents for assisted living
facilities and skilled nursing facilities and the rents attributed to the
sale/leaseback of two facilities. As a percentage of total revenue, these
expenses totaled 13% for the three months ended March 31, 2000 and 15% for the
three months ended March 31, 1999.
19
<PAGE> 20
Depreciation and amortization increased by $685,000 to $1,255,000 for the
three months ended March 31, 2000 from $570,000 for the three months ended March
31, 1999. This increase primarily resulted from depreciation and amortization of
$521,000 related to twelve purchased assisted living facilities and additional
depreciation and amortization related to leased or managed facilities.
Other Income (Expense). Interest and other income decreased by $46,000 to
108,000 for the three months ended March 31, 2000 from $154,000 for three months
ended March 31, 1999. Interest expense for the three months ended March 31, 2000
increased by $1,222,000 to $1,349,000 from $127,000 for the three months ended
March 31, 1999. The increase of $1,022,000 primarily resulted from interest
expense related to the twelve purchased assisted living facilities and interest
related to the Line of Credit. The Company incurred $291,0000 on the loss of
purchase options for the three months ended March 31, 2000.
In March 1999, the Company sold and subsequently leased all the fixed
assets including land and buildings of two of its acquired facilities, a skilled
nursing facility located in Bloomsburg, Pennsylvania and an assisted living
facility located in Saxonburg, Pennsylvania, for net proceeds of approximately
$8,901,000. The sale-leaseback resulted in a loss of $102,000 in the three
months ended March 1999.
Provision for Income Taxes (Benefit). Income tax benefit of $1,846,000 for
the three months ended March 31, 1999 is the result of the Company's estimated
fiscal 1999 tax position.
Net Loss. The Company's net loss increased by $1,036,000 to $3,805,000 for
the three months ended March 31, 2000 from a net loss of $2,769,000 for the
three months ended March 31, 1999. The increase was primarily due to increased
interest expense of $1,222,000 and a decrease in the tax benefit of $1,846,000.
The increase was partially offset by: (i) a decrease in the provision for losses
for shortfall funding arrangements of $700,000; (ii) a decrease in the provision
for losses from severance agreements of $600,000; (iii) increased profitability
of acquired, leased, and owned assisted living facilities of $397,000; and (iv)
a $260,000 decrease in losses for the divested Missouri operations.
NINE MONTHS ENDED MARCH 31, 2000 COMPARED TO NINE MONTHS ENDED MARCH 31, 1999
Total Revenue. Total revenue for the nine months ended March 31, 2000
decreased by $10,279,000 to $49,011,000 compared to $59,290,000 for the nine
months ended March 31, 1999. This decrease was the result of: (i) a $5,340,000
decrease in development fees due to a reduction in development activities; (ii)
a $10,050,000 decrease in patient service revenues, due to the change in the
billing rates for Medicare Part B charges adopted by the Balance Budget Act,
lower census and decreased outpatient therapy revenues and the sale of the
Missouri operations. This decrease was partially offset by additional resident
service revenues of $5,901,000, primarily from special purpose entities acquired
subsequent to the nine months ended March 31, 1999. Patient services comprised
52% and 60% of total revenues for the nine months ended March 31, 2000 and 1999
respectively.
Facility Operating Expenses. Facility operating expenses for the nine
months ended March 31, 2000 decreased by $4,112,000 to $37,041,000 from
$41,153,000 for the nine months ended March 31, 1999. As a percentage of total
revenue, facility operating expenses were 76% for the nine months ended March
31, 2000 and 69% for the nine months ended March 31, 1999. The decrease resulted
from: (i) expenses of $6,905,000 related to the divested Missouri operations;
(ii) decreased costs for skilled nursing facilities of $1,312,000 due primarily
to cost reductions in the area of therapy delivery; and (iii) a reduced facility
expense of $507,000 from discontinuing the therapy rehab agencies. The decrease
was partially offset from increased operating expenses at assisted living
facilities of $5,291,000 primarily related to the acquired special purpose
entities.
Development, general and administrative expenses decreased by $2,637,000 to
$7,466,000 for the nine months ended March 31, 2000 from $10,103,000 for the
nine months ended March 31, 1999. The decrease is primarily due to the
implementation of the Company's corporate restructuring plan and the sale of the
Company's Missouri operations. As a percentage of total revenue, these expenses
decreased to 15% for the nine months ended March 31, 2000 from 17% for the nine
months ended March 31, 1999.
Provision for losses under shortfall funding agreements decreased by
$1,510,000 to $2,250,000 for the nine months ended March 31, 2000 from
$3,760,000 for the nine months ended March 31, 1999. This
20
<PAGE> 21
decrease was primarily related to improved financial results of managed
communities with a shortfall funding commitment by the Company.
Provision for losses on development activities and provision for losses
under severance agreements for the nine months ended March 31, 1999 were
$2,400,000 and $600,000, respectively.
Lease expense increased to $8,501,000 for the nine months ended March 31,
2000 from $7,377,000 for the nine months ended March 31, 1999, an increase of
$1,124,000. This increase is attributed to the acquired special purpose
entities, additional contingent rents for assisted living facilities and skilled
nursing facilities and the sale/leaseback of two facilities and was partially
offset by the sale of the Missouri operations. As a percentage of total revenue,
these expenses totaled 17% for the nine months ended March 31, 2000 and 12% for
the nine months ended March 31, 1999.
Depreciation and amortization increased by $1,156,000 to $2,769,000 for the
nine months ended March 31, 2000 from $1,613,000 for the nine months ended March
31, 1999. This increase resulted primarily from the additional depreciation and
amortization related to twelve purchased assisted living facilities and leased
or managed facilities.
Other Income (Expense). Interest and other income decreased by $353,000 to
$280,000 for the nine months ended March 31, 2000 from 633,000 for the nine
months ended March 31, 1999. Interest expense increased by $1,827,000 to
$2,172,000 for the nine months ended March 31, 2000 from $345,000 for the nine
months ended March 31, 1999. The increase primarily resulted from interest
expense related to the twelve purchased assisted living facilities and interest
related to the Line of Credit. The Company incurred $291,000 on the loss of
purchase options for the nine months ended March 31, 2000.
In March 1999, the Company sold all the fixed assets including land and
buildings of two of its facilities: a skilled nursing facility in Bloomsburg,
Pennsylvania and an assisted living facility located in Saxonburg, Pennsylvania
for net proceeds of approximately $8,901,000 under a sale/leaseback transaction.
In December 1998, the Company completed the sale of the assets of its Wisconsin
assisted living facilities for net proceeds of approximately $2,726,000. The
Wisconsin facilities had been classified as an asset held for sale since June
30, 1997. The sale of the above assets resulted in a loss of $302,000 in the
nine months ended March 31, 1999.
Provision for Income Taxes (Benefit). Income tax expense decreased by
$1,733,000 to $5,000 for the nine months ended March 31, 2000 from a $1,738,000
income tax benefit for the nine months ended March 31, 1999. The income taxes
result from taxable income reported on individual state corporate tax returns in
states that do not permit consolidated filings. Income tax benefit resulted from
the Company's estimated fiscal 1999 tax position.
Net Loss. The Company's net loss increased by $5,951,000 to a loss of
$11,943,000 for the nine months ended March 31, 2000 from a net loss of
$5,992,000 for the nine months ended March 31, 1999. The increase was the result
of: (i) a decrease in pretax contribution of $3,662,000 primarily related to
reduced development activities; (ii) decreased contribution of $911,000 from the
skilled nursing facilities primarily due to the change in billing rates for
Medicare Part B charges; (iii) a charge for the early extinguishment of debt of
$739,000; (iv) increased interest expense of $1,827,000 related primarily to
interest on the Line of Credit; (v) reduced management fees of $715,000; and
(vi) a decrease from the tax benefit of $1,743,000. The increase was partially
offset by a decrease in: (i) the provision for losses on termination of
development projects of $2,400,000; (ii) a decrease in the shortfall funding
arrangements of $1,510,000; and (iii) a decrease in losses from severance
agreements of $600,000.
LIQUIDITY AND CAPITAL RESOURCES
Equity Transaction
During its second fiscal quarter, the Company received approximately $19.5
million in cash (net of costs) from the $21 million Transaction with IPC. The
Company used $6.0 million to acquire the real estate of 12 of its Outlook
Pointe(R) signature series assisted living facilities from Meditrust (see
"Meditrust Transaction"
21
<PAGE> 22
discussed below). The remaining $13.5 million has been used primarily to support
the Company's portfolio of assisted living facilities, including the acquisition
of the leasehold interests of seven of the assisted living facilities that the
Company managed for SPEs. A breakdown of the use of proceeds from the IPC
Transaction over the past six months follows (in millions of dollars):
<TABLE>
<S> <C>
- Meditrust Tranche One Property
purchase............................. $ 6.0
- Closing costs on IPC equity.......... 1.5
- SPE take-out and option payments..... 2.0
- Furniture and equipment at
facilities........................... 2.5
- collateral deposits.................. 1.2
-----
$13.2
- Cash for operations October-April.... 7.8
-----
$21.0
</TABLE>
Working Capital Line of Credit
In April 1999, the Company entered into a $15 million revolving Line of
Credit with HCFP Funding, Inc ("HCFP"). The Line of Credit is for a term of
three years, and outstanding borrowings bear interest at a rate per annum of
prime plus 2.75%. In July 1999, the Line of Credit was increased to $20 million.
Prior to July 1999, the Line of Credit was secured by the real estate owned by
five of the Company's subsidiaries (BCC at Darlington, Inc., Balanced Care at
Eyers Grove, Inc., Balanced Care at Butler, Inc., Balanced Care at Sarver, Inc.,
and Balanced Care at North Ridge, Inc.), and the eligible accounts receivable of
the Company's 10 Missouri skilled nursing facilities (the "Accounts Receivable
Borrowers"). In July 1999, the real estate of BCC at Republic Park Care Center,
Inc. and BCC at Nevada Park Care Center, Inc. (the "Skilled Nursing Facility
Borrowers") was added as security to collateralize the Line of Credit. In order
to mortgage the Skilled Nursing Facility Borrowers' real estate in favor of
HCFP, the Company repaid its $3.1 million loan to Meditrust to satisfy the
existing mortgage on this real estate. As a result of this transaction, the
Company reported a loss on the early extinguishment of debt of $739,000 in the
first quarter of Fiscal 2000.
On January 12, 2000, the Company completed the sale of its Missouri assets
(see "Missouri Divestiture" discussed below), which included the real estate,
leasehold interests and operations of the Skilled Nursing Facility Borrowers and
the Accounts Receivable Borrowers (the "Missouri Borrowers"). In order for HCFP
to release the Missouri Borrowers and their respective liens and security
interests under the Line of Credit, the Company agreed to (i) repay $5.4 million
on the Line of Credit attributable to the Missouri Borrowers, (ii) pay a
prepayment fee of approximately $75,000, (iii) reset the availability under the
Line of Credit to $12.0 million as of December 31, 1999 and (iv) cross-default
its obligations under the Line of Credit with future obligations to HCFP,
including the Company's obligations under the Heller Loan (discussed under the
"Meditrust Transaction" section below).
The primary component of the borrowing base for the Line of Credit consists
of 85% of the product of 8.0 to 8.5 times EBITDA of the Real Estate Borrowers
(as defined in the Line of Credit Agreement). At March 31, 2000, the borrowing
base available was approximately $10.4 million and $10.4 million was borrowed
thereunder.
Meditrust Transaction
On December 30, 1999 the Company completed the acquisition of the 12
Tranche One Properties from Meditrust. The Tranche One Properties had a cost
basis of approximately $52 million and were acquired for (i) approximately $44.3
million in cash (plus $2.2 million in closing costs) and (ii) approximately $7.8
million under the Meditrust Note, including transaction costs. The $46.5 million
(including closing costs) was funded by (i) the Heller Loan ($32 million), (ii)
the FRR Note ($7 million) and (iii) cash ($7.5 million) from the Company.
22
<PAGE> 23
The Meditrust Note has a maturity date of April 3, 2001. No interest will
accrue on the Meditrust Note unless the note is not prepaid in full on or before
October 31, 2000, at which time interest will accrue as follows: (i) 12% from
November 1, 2000 through December 31, 2000 and (ii) 14% from January 1, 2001
through April 3, 2001. Payments under the Meditrust Note are discussed below.
The Heller Loan, together with the Heller Loan Increase (hereinafter, the
"Amended Heller Loan"), has a maturity date of December 31, 2001. Interest on
the Amended Heller Loan accrues at a floating rate per annum equal to the Base
Rate (as defined in the Heller Loan Agreement, as amended) plus 3.75%.
Commencing on February 1, 2000, the Company will pay interest monthly in
arrears. In addition, commencing on November 20, 2000, the Company will pay 100%
of the Excess Cash Flow (as defined in the Heller Loan Agreement, as amended),
which will be applied to the principal balance. (For a discussion on capital
requirements, refer to the heading entitled "Operations" below.) Although the
Amended Heller Loan has a two-year term, the exit fee due upon payoff increases
from 1% to 3% after September 30, 2000. The Company's obligations under the
Amended Heller Loan are cross-defaulted with its obligations under the Line of
Credit.
The FRR Note has a maturity date of June 26, 2000. The FRR Note is a
discount note with an issue price of $7,000,000, a maturity value of $7,424,580,
and a yield of 12.6829% per annum. Except as otherwise provided in the FRR Note,
no interest accrues on the outstanding balance of the note.
It is the Company's intention to refinance the Amended Heller Loan and the
FRR Note (collectively, the "Tranche One Debt") by June 30, 2000. Based on the
operational performance of the Tranche One Properties, management believes the
Tranche One Debt can be refinanced for approximately $45 -- $50 million.
Proceeds from the refinancing will be used to repay the Tranche One Debt, with
any remaining funds being used by the Company for the purposes discussed under
the "Equity Transaction" section above.
As part of the Meditrust transaction, the Company obtained an Option to
purchase the real estate of an additional 12 Tranche Two Properties owned by
Meditrust and managed by the Company. The Option may not be exercised with
respect to any single Tranche Two Property, but rather only with respect to
groups of three or more Tranche Two Properties. Therefore, the acquisition of
the Tranche Two Properties may close in a series of transactions, with the final
closing to occur no later than October 31, 2000. If, after exercising the
Option, the Company fails to close, Meditrust may (i) accelerate the amount due
under the Meditrust Note, (ii) receive reimbursement of all reasonable
out-of-pocket expenses (including attorneys' fees and expenses) and (iii)
terminate the Option Agreement.
The Tranche Two Properties have a cost basis of approximately $66 million
and an aggregate purchase price of approximately $46 million. Each time the
Option is exercised for a Tranche Two Property, a preset prepayment is required
under the Meditrust Note. If the Company exercises its Option and closes on all
12 of the Tranche Two Properties, the Meditrust Note will be fully repaid by the
prepayments. The Company expects to exercise the Option on the Tranche Two
Properties with financing to be provided from one or a combination of several
sources, including several third party lenders with whom the Company is
negotiating financing, IPC or an affiliate, and Company funds.
Missouri Sale
In January 2000 the Company sold certain of its Missouri assets to
Christian Health Care of Missouri Inc. and its affiliates for $6.7 million in
cash, $2.5 million in notes, and $51 million in assumed lease obligations. The
$6.7 million was used primarily to pay down debt and to pay closing and
severance costs associated with the Missouri facilities. The cash received on
the collection of receivables has offset the operating costs to wind down the
business operations, which was completed April 30, 2000. As the notes receivable
are collected, the proceeds are expected to be used for general corporate
purposes.
23
<PAGE> 24
To facilitate the understanding of the effect of the Missouri sale on the
continuing operations of the Company, the following table summarizes the results
of the Missouri operations over the first six months of the fiscal year while
owned by the Company:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------
DECEMBER 31 SEPTEMBER 30
1999 1999
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Patient services.......................................... $ 8,959 $ 8,806
Resident services......................................... 913 919
Other revenues............................................ 21 18
------- -------
Total revenues.............................................. 9,893 9,743
------- -------
Operating expenses:
Facility operating expenses............................... 8,262 8,177
Development, general and administrative expense........... 537 425
Lease expense............................................. 1,516 1,483
Depreciation and amortization expense..................... 70 102
------- -------
Total operating expenses.................................... 10,385 10,187
------- -------
Loss from operations........................................ (492) (444)
======= =======
</TABLE>
Operations
The Company has opened 48 of its Outlook Pointe(R) signature series
assisted living facilities as of March 31, 2000. The Company has adequate
financing to complete construction on the remaining four facilities currently
under construction. Three of these projects are expected to open in May 2000 and
the fourth is expected to open in September 2000. This will conclude the
Company's initial round of development activity initiated nearly three years
ago. Future development will be conducted on a project-by-project basis.
The Company's development projects have generally involved entering into
development agreements with third party owners, which are typically REITs (each,
an "Owner"). A third party SPE Operator/Lessee leases the assisted living
facility from the Owner when construction has been completed and provides
funding for the working capital during the initial occupancy period. The Company
manages the assisted living facility pursuant to a management agreement for a
term of two to nine years in return for a management fee approximating 6% of the
net revenue of the facility. The foregoing is an off-balance sheet financing
structure.
For development projects utilizing the SPE structure, the Company has the
option to purchase the equity or assets of the Operator/Lessee at a purchase
price based on a formula set forth in an Option Agreement and a Shortfall
Funding Agreement, respectively. As consideration for the option, which is
exercisable by the Company at any time during the term of the Option Agreement,
the Company pays option payments to the equity owner of the SPE (the "Equity
Owner"). Without the Owner's prior consent, the Equity Owner may not sell the
equity or assets of the SPE to any third party other than the Company. The
Company has closed 51 development projects for which the Company holds or held
the foregoing type of option. To date, the Company has exercised its option to
purchase 12 SPEs financed under the SPE structure for a total purchase price of
approximately $11.9 million of which $5.4 million was paid in cash and the lease
base of the facilities was increased by $6.5 million. Eleven of the 12
facilities were part of the property acquisition discussed under "Recent
Developments" of this Quarterly Report. The Company estimates it will require
approximately $35 -- $40 million to buy the equity of the SPEs affiliated with
the 39 Outlook Pointe(R)facilities that remain under the SPE structure through
calendar 2002. The Company has obtained commitments from certain REITs that
currently own developed properties under the SPE structure to finance the
Company's capital requirements to exercise its purchase options under the
aforementioned option agreements. Generally, this take-out financing will be
structured as an increase to the existing facility lease base at a blended
annual lease rate. This financing
24
<PAGE> 25
structure will provide approximately $20 million of the estimated $35-$40
million capital requirement. The balance will be funded with cash raised from
the financing transactions discussed above, new financing transactions, possible
asset divestitures and cash to be provided from operations.
The Company has exercised its options to purchase 10 SPEs it currently
manages in the fourth quarter and expects to close on the transactions by May
31, 2000. The capital required to exercise the options for these ten SPEs is
approximately $10 million and will be funded by the property owners, Nationwide
Health Properties, Inc. and its affiliates ("NHP"), through an increase in the
lease base, as discussed above. Upon closing, the Company's obligation to pay a
27.5% return to the Equity Owners of the 10 SPEs automatically terminates. The
Company will be making option payments in future quarters or other managed
properties to maintain its purchase options for certain Outlook Pointe(R)
facilities utilizing the SPE structure.
Based on current forecasts, management estimates an additional $15 million
in capital will be required to fully stabilize the Company's portfolio of
assisted living properties. This estimate assumes the Company exercises its
options to purchase the 11 SPE operations which are part of the 12 Meditrust
Tranche Two Properties (one property was an acquisition) and utilizes cash from
operations when available to acquire the remaining SPE operations. The Company
expects to generate the cash from operations to begin purchasing these remaining
operations by October 2001 and continuing through calendar year 2002. The
following table summarizes the Company's acquisitions, or planned acquisitions,
of black box operations:
<TABLE>
<S> <C> <C>
- - Outlook Pointe operations currently owned by the Company.... 13
- - NHP SPE Operations to be purchased by May 31, 2000.......... 10
- - Meditrust SPE Operations to be purchased in conjunction with
Tranche Two................................................. 11
- - Remaining SPE operations to be acquired with cash from owned
operations (October 2001 through December 2002)............. 18
---
52
---
</TABLE>
In addition to the $15 million in capital required to stabilize operations,
management estimates that an additional $5-10 million could be required to allow
the Company to purchase the real estate underlying the Tranche Two Properties
from Meditrust by October 31, 2000. The amount of capital required to purchase
the Tranche Two Properties is dependent upon the size of the loan that
management is successful in negotiating to finance this transaction.
As discussed above, on April 27, 2000, the Company closed on the $5 million
Heller Loan Increase. The proceeds from the Heller Loan Increase will provide
the working capital required for operations until the Company raises the $15
million, discussed above. The total amount of debt outstanding from the purchase
of the Tranche One Properties is the $37 million Amended Heller Loan and the $7
million FRR Note. The Company is currently pursuing various financing
alternatives to refinance the Tranche One Debt. The alternatives under
consideration include permanent and mini-permanent financing that would yield
adequate funds to refinance 100% of the existing Tranch One Debt. Management
expects to close on this financing by June 30, 2000. To raise the approximately
$15 million that is estimated to be required to stabilize the existing portfolio
of assets, the Company is actively pursuing these alternatives: (i) a credit
facility; (ii) mezzanine financing on properties; (iii) real estate asset
sale/manage-back; (iv) asset sales; or (v) convertible securities.
While management believes it can raise adequate capital to meet the
Company's business plan, there is no assurance that is the case, or that the
terms will not be dilutive to existing investors. The inability of the Company
to raise additional capital could have a material adverse effect on the
Company's business, results of operations and financial commitment.
Many of the facilities operated or managed by the Company are leased under
long-term operating leases. Lease obligations for the next 12 months are
approximately $5,300,000. The lease documents contain financial covenants and
other restrictions which, unless waived by the REIT,: (i) require the Company to
meet certain financial tests and maintain certain escrow funds, (ii) limit,
among other things, the ability of the Company and certain of its subsidiaries
to borrow additional funds, dispose of assets or engage in mergers or other
business combinations, (iii) cross-default certain of the Company's obligations
and (iv) prohibit the Company
25
<PAGE> 26
from operating competing facilities within a designated radius of existing
facilities. Management believes the Company is either in compliance or has
obtained the necessary waivers with respect to these lease covenants.
The Company's lease arrangements are generally for initial terms of 9 to 15
years with aggregate renewal terms ranging from 15 to 25 years and provide for
contractually fixed rent plus additional rent, subject to certain limits. The
additional rent is capped at 2% to 3% of the prior year's total rent and is
based on either the annual increase in gross revenues of the facility or the
increase in the consumer price index. The Company's lease arrangements generally
contain an option to purchase the facility at its fair market value at the end
of the initial lease term and each renewal term.
Operating Activities
Cash used by operations increased by $10,731,000 to $15,944,000 for the
nine months ended March 31, 2000 from cash used by operations of $5,213,000 for
the nine months ended March 31, 1999. The increase in cash used was due to
increased operating losses, a decrease in accounts payable, accrued payroll and
accrued expenses, and partially offset by a decrease in development contracts in
process.
Investing and Financing Activities
Cash used for investing activities increased by $55,140,000 to $55,507,000
for the nine months ended March 31, 2000 from $367,000 for the nine months ended
March 31, 1999. Cash provided by financing activities increased by $61,625,000
to $66,856,000 for the nine months ended March 31, 2000 from $5,231,000 for the
nine months ended March 31, 1999. Cash used for financing activities and
provided by investing activities was the result of the property acquisitions,
the equity transaction, and the seven SPE acquisitions discussed above, and
repayment on the Line of Credit.
YEAR 2000 READINESS DISCLOSURE
In response to concerns that computer software and/or hardware that was
designed to define the year with a two-digit date field rather than a four-digit
field might fail or miscalculate data in the year 2000, causing disruption to
the operations or business activities of the Company. The Company had previously
formed a committee to research and assess the potential risk to the Company's
internal operations systems and to test its hardware and software systems for
compliance. The costs incurred by the Company relating to this project were
immaterial. To date, no significant disruptions to the operations of the Company
or computer hardware and software systems have been experienced.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company did not have any investment securities subject to market risk
as of, or during the nine months ended, March 31, 2000.
26
<PAGE> 27
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
3.1 Certificate of Elimination of Series C Convertible Preferred
Stock of Balanced Care Corporation dated April 14, 2000
(filed herewith)
10.1 Amendment to Loan Documents by and among Heller Healthcare
Finance, Inc., Balanced Care Realty at Berwick, Inc.,
Balanced Care Realty at Lewistown, Inc., Balanced Care
Realty at Mansfield, Inc., Balanced Care Realty at
Martinsburg, Inc., Balanced Care Realty at Maumelle, Inc,
Balanced Care Realty at Mountain Home, Inc., Balanced Care
Realty at Peckville, Inc., Balanced Care Realty at Reading,
Inc., Balanced Care Realty at Scranton, Inc., Balanced Care
Realty at Sherwood, Inc., and Balanced Care Realty at State
College, Inc. dated as of April 27, 2000 (filed herewith)
10.2 Amended and Restated Promissory Note A in favor of Heller
Healthcare Finance, Inc., by Balanced Care Realty at
Berwick, Inc., Balanced Care Realty at Lewistown, Inc.,
Balanced Care Realty at Mansfield, Inc., Balanced Care
Realty at Martinsburg, Inc., Balanced Care Realty at
Maumelle, Inc, Balanced Care Realty at Mountain Home, Inc.,
Balanced Care Realty at Peckville, Inc., Balanced Care
Realty at Reading, Inc., Balanced Care Realty at Scranton,
Inc., Balanced Care Realty at Sherwood, Inc., and Balanced
Care Realty at State College, Inc. dated as of April 27,
2000 (filed herewith)
10.3 Amended and Restated Promissory Note B in favor of Heller
Healthcare Finance, Inc., by Balanced Care Realty at
Berwick, Inc., Balanced Care Realty at Lewistown, Inc.,
Balanced Care Realty at Mansfield, Inc., Balanced Care
Realty at Martinsburg, Inc., Balanced Care Realty at
Maumelle, Inc, Balanced Care Realty at Mountain Home, Inc.,
Balanced Care Realty at Peckville, Inc., Balanced Care
Realty at Reading, Inc., Balanced Care Realty at Scranton,
Inc., Balanced Care Realty at Sherwood, Inc., and Balanced
Care Realty at State College, Inc. dated as of April 27,
2000 (filed herewith)
10.4 First Amendment to Promissory Note by and among IPC Advisors
S.a.r.l., Balanced Care Corporation, and New Meditrust
Company LLC dated February 9, 2000 (filed herewith)
10.5 First Amendment to Option Agreement by and among IPC
Advisors S.a.r.l., Balanced Care Corporation, and New
Meditrust Company LLC dated February 9, 2000 (filed
herewith)
10.6 Subordination Agreement by and among FRR Investments
Limited, IPC Advisors S.a.r.l., Heller Healthcare Finance,
Inc., Balanced Care Corporation, and the entities listed on
Exhibit A and Exhibit D thereto dated April 18, 2000 (filed
herewith)
10.7 Stock Pledge Agreement by and among FRR Investments Limited,
IPC Advisors S.a.r.l., Balanced Care Corporation, and the
parties listed on Schedule 1 and Schedule 2 thereto dated
April 18, 2000 (filed herewith)
27.1 Financial Data Schedule (filed herewith)
</TABLE>
(B) Reports on Form 8-K
1. Current Report on Form 8-K dated January 12, 2000 regarding the sale by
the Company of its Missouri assets to certain affiliates of Christian
Health Care of Missouri, Inc. including a pro forma Consolidated Balance
Sheet as of September 30, 1999 and pro forma Consolidated Statements of
Operations for the year ended June 30, 1999 and the three months ended
September 30, 1999.
2. Current Report on Form 8-K/A dated December 15, 1999 regarding the
acquisition by the Company of the real property, improvements,
furniture, fixtures and equipment of twelve Outlook Pointe(R) assisted
living facilities that closed December 30, 1999 and the divestiture by
the Company of its Missouri operations that closed January 12, 2000,
including pro forma Consolidated Balance Sheet as of December 31, 1999
and pro forma Consolidated Statements of Operations for the year ended
June 30, 1999 and the six months ended December 31, 1999.
27
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities and Exchange Act of 1934, as amended, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BALANCED CARE CORPORATION
By: /s/ CLINT T. FEGAN
------------------------------------
Clint T. Fegan
Chief Financial Officer
Date: May 15, 2000
28
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Certificate of Elimination of Series C Convertible Preferred
Stock of Balanced Care Corporation dated April 14, 2000
(filed herewith)
10.1 Amendment to Loan Documents by and among Heller Healthcare
Finance, Inc., Balanced Care Realty a Berwick, Inc.,
Balanced Care Realty at Lewistown, Inc., Balanced Care
Realty at Mansfield, Inc., Balanced Care Realty at
Martinsburg, Inc., Balanced Care Realty at Maumelle, Inc,
Balanced Care Realty at Mountain Home, Inc., Balanced Care
Realty at Peckville, Inc., Balanced Care Realty at Reading,
Inc., Balanced Care Realty at Scranton, Inc., Balanced Care
Realty at Sherwood, Inc., and Balanced Care Realty at State
College, Inc. dated as of April 27, 2000 (filed herewith)
10.2 Amended and Restated Promissory Note A in favor of Heller
Healthcare Finance, Inc., by Balanced Care Realty at
Berwick, Inc., Balanced Care Realty at Lewistown, Inc.,
Balanced Care Realty at Mansfield, Inc., Balanced Care
Realty at Martinsburg, Inc., Balanced Care Realty at
Maumelle, Inc, Balanced Care Realty at Mountain Home, Inc.,
Balanced Care Realty at Peckville, Inc., Balanced Care
Realty at Reading, Inc., Balanced Care Realty at Scranton,
Inc., Balanced Care Realty at Sherwood, Inc., and Balanced
Care Realty at State College, Inc. dated as of April 27,
2000 (filed herewith)
10.3 Amended and Restated Promissory Note B in favor of Heller
Healthcare Finance, Inc., by Balanced Care Realty at
Berwick, Inc., Balanced Care Realty at Lewistown, Inc.,
Balanced Care Realty at Mansfield, Inc., Balanced Care
Realty at Martinsburg, Inc., Balanced Care Realty at
Maumelle, Inc, Balanced Care Realty at Mountain Home, Inc.,
Balanced Care Realty at Peckville, Inc., Balanced Care
Realty at Reading, Inc., Balanced Care Realty at Scranton,
Inc., Balanced Care Realty at Sherwood, Inc., and Balanced
Care Realty at State College, Inc. dated as of April 27,
2000 (filed herewith)
10.4 First Amendment to Promissory Note by and among IPC Advisors
S.a.r.l., Balanced Care Corporation, and New Meditrust
Company LLC dated February 9, 2000 (filed herewith)
10.5 First Amendment to Option Agreement by and among IPC
Advisors S.a.r.l., Balanced Care Corporation, and New
Meditrust Company LLC dated February 9, 2000 (filed
herewith)
10.6 Subordination Agreement by and among FRR Investments
Limited, IPC Advisors S.a.r.l., Heller Healthcare Finance,
Inc., Balanced Care Corporation, and the entities listed on
Exhibit A and Exhibit D thereto dated April 18, 2000 (filed
herewith)
10.7 Stock Pledge Agreement by and among FRR Investments Limited,
IPC Advisors S.a.r.l., Balanced Care Corporation, and the
parties listed on Schedule 1 and Schedule 2 thereto dated
April 18, 2000 (filed herewith)
27.1 Financial Data Schedule (filed herewith)
</TABLE>
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF ELIMINATION
of
SERIES C CONVERTIBLE PREFERRED STOCK
of
BALANCED CARE CORPORATION
Pursuant to Section 151(g) of the
General Corporation Law of the State of Delaware
Balanced Care Corporation, a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify as follows:
FIRST: That by the unanimous written consent of the Board of Directors
of the Corporation, resolutions were duly adopted setting forth the proposed
elimination of the Series C Convertible Preferred Stock, par value $.001 per
share (the "Series C Preferred Stock") of the Corporation (for which a
Certificate of Powers, Designations, Preferences and Rights (the "Certificate of
Designations") was originally filed with the Secretary of State of the State of
Delaware on October 8, 1999) as set forth herein:
RESOLVED, that no authorized shares of the Series C Preferred
Stock of the Corporation are outstanding and none will be issued
subject to the Certificate of Designations;
RESOLVED, that a Certificate of Elimination be prepared, which
shall have the effect when filed with the Secretary of State of the
State of Delaware of eliminating from the Amended and Restated
Certificate of Incorporation of the Corporation all matters set forth
in the Certificate of Designations previously filed with respect to the
Series C Preferred Stock of the Corporation, and that the appropriate
officers of the Corporation be, and they hereby are, authorized to
execute and file on behalf of the Corporation such Certificate of
Elimination with the Secretary of State of the State of Delaware.
SECOND: That none of the authorized shares of the Series C Preferred
Stock of the Corporation are outstanding and none will be issued.
THIRD: That in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, the Amended and Restated
Certificate of Incorporation of the
<PAGE> 2
Corporation is hereby amended to eliminate all matters set forth in the
Certificate of Designations previously filed with respect to the Series C
Preferred Stock of the Corporation.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Brad E. Hollinger, its President, Chief Executive Officer and Chairman
of the Board, on this 14th day of April, 2000.
BALANCED CARE CORPORATION
By:/s/Brad E. Hollinger
Brad E. Hollinger
President, Chief
Executive Officer
And Chairman of the Board
2
<PAGE> 1
Exhibit 10.1
Loan Number 20- [99-407]
AMENDMENT TO LOAN DOCUMENTS
This AMENDMENT TO LOAN DOCUMENTS (this "Amendment") is made this 27th
day of April, 2000, among HELLER HEALTHCARE FINANCE, INC., a Delaware
corporation formerly known as HCFP FUNDING, INC. ("Lender") and BALANCED CARE
CORPORATION (a Delaware corporation referred to herein as "Guarantor"), BALANCED
CARE REALTY AT STATE COLLEGE, INC., BALANCED CARE REALTY AT ALTOONA, INC.,
BALANCED CARE REALTY AT LEWISTOWN, INC., BALANCED CARE REALTY AT READING, INC.,
BALANCED CARE REALTY AT BERWICK, INC., BALANCED CARE REALTY AT PECKVILLE, INC.,
BALANCED CARE REALTY AT SCRANTON, INC., BALANCED CARE REALTY AT MARTINSBURG,
INC., BALANCED CARE REALTY AT MAUMELLE, INC., BALANCED CARE REALTY AT SHERWOOD,
INC., BALANCED CARE REALTY AT MOUNTAIN HOME, INC., and BALANCED CARE REALTY AT
MANSFIELD, INC. (all Delaware corporations collectively referred to herein as
"Outlook Pointe Borrowers"), BCC AT DARLINGTON, INC., BALANCED CARE AT EYERS
GROVE, INC., BALANCED CARE AT BUTLER, INC., BALANCED CARE AT SARVER, INC., and
BALANCED CARE AT NORTH RIDGE, INC. (all Delaware corporations collectively
referred to herein as "BCC Borrowers"). The Outlook Pointe Borrowers and BCC
Borrowers are collectively referred to herein as "Borrowers."
RECITALS:
A. Lender has made available to BCC Borrowers a revolving credit
facility in the maximum principal amount of $12,000,000 (the "Revolving Credit
Facility") subject to the terms and conditions contained in a Loan and Security
Agreement dated April 22, 1999, as amended by an Amendment No. 1 to Loan and
Security Agreement dated July 1, 1999 (the "First Amendment"), an Amendment No.
2 to Loan and Security Agreement dated July 29, 1999 (the "Second Amendment"),
and an Amendment No. 3 to Loan and Security Agreement dated December 31, 1999
(the "Third Amendment"), all among the Lender and BCC Borrowers (as well as
other entities that have since been released from the terms and conditions of
the Loan and Security Agreement as amended). The Loan and Security Agreement, as
amended by the First Amendment, the Second Amendment, and the Third Amendment,
is referred to herein as the "Loan and Security Agreement." The Loan and
Security Agreement and all other loan documents executed in connection with the
Loan and Security Agreement and the
<PAGE> 2
Revolving Credit Facility are collectively referred to herein as the "Revolving
Credit Facility Loan Documents."
B. Lender has also made a loan (the "Outlook Pointe Loan") of
Thirty-Two Million and No/100 Dollars ($32,000,000.00) to Outlook Pointe
Borrowers subject to the terms and conditions contained in a Loan Agreement
dated December 30, 1999, between Lender and Outlook Pointe Borrowers (the Loan
Agreement, including all exhibits thereto and the Senior Housing Rider of even
date therewith, as amended from time to time, is referred to herein as the "Loan
Agreement"). The Outlook Pointe Loan is evidenced by a Promissory Note A of even
date with the Loan Agreement in the original principal amount of Twenty-Five
Million Six Hundred Thousand and No/100 Dollars ($25,600,000.00) ("Note A") and
by a Subordinated Promissory Note B of even date with the Loan Agreement in the
original principal amount of Six Million Four Hundred Thousand and No/100
Dollars ($6,400,000.00) ("Note B") (Note A and Note B and all amendments thereto
and substitutions therefor are hereinafter referred to collectively as the
"Note").
C. As additional security for the Outlook Pointe Loan, Guarantor has
executed and delivered a Guaranty dated December 30, 1999, in favor of Lender
(as amended from time to time, the "Guaranty").
D. Also in connection with the Outlook Pointe Loan, Guarantor and
Outlook Pointe Borrowers have executed and delivered a Hazardous Materials
Indemnity Agreement dated December 30, 1999, in favor of Lender (as amended from
time to time, the "Environmental Indemnity"). (The Loan Agreement, the Guaranty,
and the Environmental Indemnity, the New Note (as defined below), together with
all mortgages, deeds of trust and other documents and instruments executed and
delivered by one or more of the Outlook Pointe Borrowers or the Guarantor in
connection the Outlook Pointe Loan, are collectively referred to herein as the
"Outlook Pointe Loan Documents," and the Outlook Pointe Loan Documents,
collectively with the Revolving Credit Facility Loan Documents, are referred to
herein as the "Loan Documents.") Capitalized terms used herein without
definition shall have the meanings provided in the Loan Agreement.
E. Also in connection with the Outlook Pointe Loan, Lender, Guarantor,
Outlook Pointe Borrowers, and various other entities have entered into a
Subordination Agreement dated April 18, 2000 (the "Subordination Agreement"),
addressing debt that is junior to the Outlook Pointe Loan.
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<PAGE> 3
F. Lender has agreed to increase the Outlook Pointe Loan amount by Five
Million and No/100 Dollars ($5,000,000.00) (the "New Funds") to Thirty-Seven
Million and No/100 Dollars ($37,000,000.00) and in consideration thereof
requires Borrowers and Guarantor to enter into this Amendment amending the Loan
Documents. In conjunction with this Amendment, Outlook Pointe Borrowers have
executed and delivered to Lender an Amended and Restated Promissory Note A (the
"New Note A"), an Amended and Restated Promissory Note B (the "New Note B")
(said amended and restated promissory notes collectively referred to herein as
the "New Note"), and amendments to the mortgages and deeds of trust constituting
Outlook Pointe Loan Documents (the "Outlook Pointe Mortgages"), all of even date
herewith. In conjunction with this Amendment, BCC Borrowers have executed and
delivered to Lender amendments to the mortgages and deeds of trust constituting
Revolving Credit Facility Loan Documents (the "Revolving Credit Facility
Mortgages").
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual conditions and agreements contained herein, and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), Lender, the Borrowers and Guarantor hereby agree as follows:
1. Conditions Precedent. Lender's obligation to disburse the New Funds
is subject to satisfaction of all of the following conditions:
A. Lender shall have received the following documents, all in
form and substance reasonably satisfactory to Lender:
(i) this Amendment;
(ii) the New Note; and
(iii) amendments to the Outlook Pointe Mortgages and
the Revolving Credit Facility Mortgages (the "Mortgage Amendments");
B. Lender shall have received an endorsement to each existing
Title Policy reasonably acceptable to Lender dating down the Title Policy to the
date hereof and increasing the coverage amount to the new Loan Allocation Amount
for each Property set forth as the "Total Loan Allocation" amount in Exhibit A
attached hereto;
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<PAGE> 4
C. Borrower shall have paid Lender a commitment fee in the
amount of One Hundred Thousand and No/100 Dollars ($100,000.00), which
commitment fee shall be nonrefundable and shall be deemed fully earned upon
receipt, and the balance due of which Lender acknowledges shall be Seventy-Five
Thousand and No/100 Dollars ($75,000.00) (reflecting a credit of the good faith
deposit in the amount of Twenty-five Thousand and No/100 Dollars ($25,000.00))
provided that all of the requirements have been met as set forth in Section 33
(Good Faith Deposit and Commitment Fee) of the Application for Loan dated March
31, 2000, from Guarantor;
D. Lender shall have determined that the annualized Net
Operating Income (as defined in Schedule I attached to the Loan Agreement) of
the Project is at least Five Million and No/100 Dollars ($5,000,000);
E. Lender shall have received such opinions of counsel to
Borrowers as Lender may reasonably require; and
F. Lender shall have received such other items as Lender may
reasonably require.
2. Payment of Expenses. At the time of Lender's disbursement of the New
Funds, Outlook Pointe Borrowers shall pay all Expenses (as defined below)
incurred by Lender in connection with the transaction contemplated by this
Amendment, including without limitation, Lender's expenses incurred in the
negotiation and documentation related to the New Funds and this Amendment. For
the purposes hereof "Expenses" means all reasonable expenditures and expenses
that may be paid or incurred by or on behalf of Lender, including attorneys'
fees (of outside and inside counsel), engineers' fees, accountants' fees,
independent consultants' fees (including environmental consultants), all costs
and expenses incurred in connection with any of the foregoing fees and expenses,
Lender's out-of-pocket costs and expenses related to any audit or inspection of
the Project (as defined in the Loan Agreement), stamp taxes, mortgage taxes,
intangibles taxes, and costs for procuring any abstracts of title, title
searches, lien and UCC searches, and examination, title insurance policies and
endorsements, Torrens' Certificates (if applicable), and similar data and
assurances with respect to title as Lender may deem reasonably necessary.
3. The New Funds shall not constitute Gross Revenue for purposes of
calculating Net Cash Flow under the Loan Agreement, nor shall any Expenses,
commitment fees or other expenses incurred by the Outlook Pointe Borrowers in
connection
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<PAGE> 5
with the loan of the New Funds constitute an "operating expense" for purposes of
calculating Net Cash Flow.
4. Section 1.9 (Exit Fee) of the Loan Agreement is replaced in its
entirety with following language:
Exit Fee. As additional consideration for the Loan, Borrowers,
on the date payment in full of the Loan is made, shall pay to Lender an
amount (the "Final Exit Fee") equal to (A) One Million Two Hundred
Sixty Thousand and No/100 Dollars ($1,260,000.00) if payment in full is
made on or after October 1, 2000, otherwise Five Hundred Twenty
Thousand and No/100 Dollars ($520,000.00), (B) less the sum of the
Proportionate Exit Fees, if any, paid to Lender under Section 2.2
below. The Proportionate Exit Fees, if any, payable to Lender and the
Final Exit Fee payable to Lender are collectively referred to as the
"Exit Fee."
5. All references to the "Loan" in the Outlook Pointe Loan Documents,
including without limitation the Guaranty and Environmental Indemnity, shall
include the loan of the New Funds hereunder. Each "Loan Allocation Amount"
listed on Exhibit A of the Loan Agreement is replaced with the amount described
on Exhibit A attached hereto as the "Total Loan Allocation" assigned to that
Property. The two amounts shown as the "Proportionate Exit Fee" for each
Property, as listed on Exhibit A of the Loan Agreement, are replaced with the
two amounts described on Exhibit A attached hereto as the "Total Exit Fee"
assigned to that Property.
6. All references in the Loan Documents to any of the Outlooke Pointe
Loan Documents shall mean the applicable Outlook Pointe Loan Document, as
amended hereby and by the Mortgage Amendments, New Note A, New Note B or the New
Note, as applicable.
7. All references in the Loan Documents to any of the Revolving Credit
Facility Loan Documents shall mean the applicable Revolving Credit Facility Loan
Document as amended hereby and by the Mortgage Amendments.
8. Except as expressly provided herein, in the New Note and in the
Mortgage Amendments, the Loan Documents (including without limitation the
Guaranty, Environmental Indemnity, Subordination Agreement, and the undated
Consent Form with attached letter dated February 16, 2000, to Lender and Heller
Financial, Inc. from Balanced Care Corporation) shall
-5-
<PAGE> 6
remain unmodified and in full force and effect and are hereby ratified and
confirmed as amended by this Amendment.
9. The provisions of this Amendment that pertain to the Outlook Pointe
Loan, the Outlook Pointe Loan Documents, and the Outlook Pointe Borrowers shall
be governed by and construed in accordance with the internal laws of the State
of Illinois. The provisions of this Amendment that pertain to the Revolving
Credit Facility, the Revolving Credit Facility Loan Documents, and the BCC
Borrowers shall be governed by and construed in accordance with the internal
laws of the State of Maryland.
(Signature pages follow.)
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed this Amendment or
have caused this Amendment to be executed by their duly authorized
representatives as of the date first above written.
OUTLOOK POINTE BORROWERS:
BALANCED CARE REALTY AT STATE
COLLEGE, INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT ALTOONA,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT LEWISTOWN,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT READING,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT BERWICK,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
-7-
<PAGE> 8
BALANCED CARE REALTY AT PECKVILLE,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT SCRANTON,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT MARTINSBURG,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT MAUMELLE,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT SHERWOOD,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT MOUNTAIN
HOME, INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
-8-
<PAGE> 9
BALANCED CARE REALTY AT MANSFIELD,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BCC BORROWERS:
BCC AT DARLINGTON, INC.,
a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE AT EYERS GROVE, INC.,
a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE AT BUTLER, INC.,
a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE AT SARVER, INC.,
a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
-9-
<PAGE> 10
BALANCED CARE AT NORTH RIDGE, INC.,
a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
GUARANTOR:
BALANCED CARE CORPORATION,
a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Senior Vice President and Legal
Counsel & Assistant Secretary
LENDER:
HELLER HEALTHCARE FINANCE, INC.,
a Delaware corporation formerly
known as HCFP FUNDING, INC.
By /s/Kevin J. McMeen
Name Kevin J. McMeen
Its Sr. V.P.
Accepted and agreed to on the date first set forth above.
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<PAGE> 11
MANAGERS OF PROJECTS:
BCC AT STATE COLLEGE, INC.,
a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
TC REALTY OF ALTOONA, INC.,
a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
TC REALTY OF LEWISTOWN, INC.,
a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
TC REALTY OF READING, INC.,
a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
-11-
<PAGE> 12
TC REALTY OF BERWICK, INC.,
a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BLACK BOX OF PECKVILLE, INC.,
a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
TC REALTY CORPORATION III,
a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE AT MARTINSBURG, INC.,
a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE AT MAUMELLE, INC.,
a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
-12-
<PAGE> 13
BALANCED CARE AT SHERWOOD, INC.,
a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE AT MOUNTAIN HOME,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
TC REALTY CORPORATION II,
a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
-13-
<PAGE> 1
Exhibit 10.2
Loan No. 99-407
AMENDED AND RESTATED
PROMISSORY NOTE A
$30,600,000.00 April 27, 2000
1. Promise to Pay.
FOR VALUE RECEIVED, BALANCED CARE REALTY AT STATE COLLEGE,
INC., a Delaware corporation, BALANCED CARE REALTY AT ALTOONA, INC., a Delaware
corporation, BALANCED CARE REALTY AT LEWISTOWN, INC., a Delaware corporation,
BALANCED CARE REALTY AT READING, INC., a Delaware corporation, BALANCED CARE
REALTY AT BERWICK, INC., a Delaware corporation, BALANCED CARE REALTY AT
PECKVILLE, INC., a Delaware corporation, BALANCED CARE REALTY AT SCRANTON, INC.,
a Delaware corporation, BALANCED CARE REALTY AT MARTINSBURG, INC., a Delaware
corporation, BALANCED CARE REALTY AT MAUMELLE, INC., a Delaware corporation,
BALANCED CARE REALTY AT SHERWOOD, INC., a Delaware corporation, BALANCED CARE
REALTY AT MOUNTAIN HOME, INC., a Delaware corporation and BALANCED CARE REALTY
AT MANSFIELD, INC., a Delaware corporation (collectively "Maker"), each of which
has its address c/o Balanced Care Corporation, 1215 Manor Drive, Mechanicsburg,
Pennsylvania 17055, Attention: Clint Fegan, Chief Financial Officer, jointly and
severally promises to pay to the order of HELLER HEALTHCARE FINANCE, INC., a
Delaware corporation, and its successors and assigns ("Holder") the sum of
Thirty Million Six Hundred Thousand and No/100 Dollars ($30,600,000.00),
together with all other amounts added thereto pursuant to this Amended and
Restated Promissory Note A ("this Note") or otherwise payable to Holder under
the Loan Documents (as hereinafter defined), including, but not limited to, the
"Exit Fee" as defined and set forth in the Loan Agreement (as hereinafter
defined) (or so much thereof as may from time to time be outstanding), together
with interest thereon as hereinafter set forth, all payable in lawful money of
the United States of America (collectively, the "Loan"). Payments shall be made
to Holder at 500 West Monroe Street, Attention: Real Estate Financial Services,
Chicago, Illinois 60661 (or such other address as Holder may hereafter designate
in writing to Maker).
This Note is secured by, among other things, the Mortgages
encumbering the Project. This Note, the Amended and Restated Subordinated
Promissory Note B made by Maker in favor of Holder dated the date hereof in the
original principal amount of Six Million Four Hundred Thousand and No/100
Dollars
<PAGE> 2
($6,400,000.00) ("Note B"), the Mortgages, the Loan Agreement dated December 30,
1999, between Maker and Holder, as amended by the Amendment to Loan Documents of
even date herewith between Maker and Holder (as so amended, the "Loan
Agreement") and any other documents evidencing or securing the Loan or executed
in connection therewith, and any modification, renewal or extension of any of
the foregoing are collectively called the "Loan Documents". Except as otherwise
provided herein, capitalized terms used in this Note shall have the same
meanings as are assigned to such terms in the Loan Agreement.
2. Interest.
So long as no Event of Default (as hereinafter defined)
exists, interest shall accrue on the principal balance hereof from time to time
outstanding and Maker shall pay interest thereon at a rate equal to a floating
rate per annum equal to three and seventy-five hundredths percent (3.75%) plus
the Base Rate (the aggregate rate referred to as the "Interest Rate"). "Base
Rate" shall mean the rate published each business day in the Wall Street Journal
for notes maturing three (3) months after issuance under the caption "Money
Rates, London Interbank Offered Rates (LIBOR)". The Interest Rate for each
calendar month shall be fixed based upon the Base Rate published prior to and in
effect on the first (1st) business day of such month; provided, however, the
Interest Rate from and including the date hereof through December 31, 1999 shall
be fixed based upon the Base Rate in effect on December 30, 1999. Interest shall
be calculated based on a 360 day year and charged for the actual number of days
elapsed.
3. Payment.
(a) Commencing on February 1, 2000, Maker shall pay interest
computed at the Interest Rate monthly in arrears on the first (1st) day
of each month; provided, however, interest for the period from and
after the date hereof through December 31, 1999, shall be paid in
advance on the date hereof.
(b) In addition to monthly payments of interest, commencing
November 20, 2000, and on the twentieth (20th) day after the end of
each calendar month thereafter until the Repayment Date, Maker shall
pay Holder one hundred percent (100%) of the Excess Cash Flow
corresponding to such calendar month then ended, to be applied in
repayment of the principal balance hereof.
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<PAGE> 3
(c) This Note shall be due and payable on or before December
31, 2001, or any earlier date on which this Note shall be required to
be paid in full, whether by acceleration or otherwise (the "Maturity
Date").
4. Intentionally Omitted.
5. Prepayment.
Maker may prepay this Note in full or in part at any time;
provided Maker gives Holder at least thirty (30) days prior written notice
thereof and pays the Exit Fee (as defined in the Loan Agreement) then due
Lender.
6. Exit Fee.
As additional consideration for entering into the Loan
Agreement and making the Loan pursuant thereto, Borrower shall pay to Holder the
Final Exit Fee and, if applicable, the Proportionate Exit Fees, all as provided
in the Loan Agreement.
7. Default.
7.1. Events of Default.
Any of the following shall constitute an "Event of Default"
under this Note: (a) failure to pay any amounts owed pursuant to this Note or
Note B within ten (10) calendar days after such payment is due; or (b) the
occurrence of any default under any of the other Loan Documents, which,
continues uncured default beyond any applicable grace or cure period.
7.2. Remedies.
So long as an Event of Default remains outstanding: (a)
interest shall accrue at a rate equal to the Interest Rate plus four percent
(4%) per annum (the "Default Rate"); (b) Holder may, at its option and without
notice (such notice being expressly waived), declare this Note immediately due
and payable; and (c) Holder may pursue all rights and remedies available under
the Mortgages or any other Loan Documents. Holder's rights, remedies and powers,
as provided in this Note and the other Loan Documents, are cumulative and
concurrent, and may be pursued singly, successively or together against Maker,
any guarantor of the Loan, the security described in the Loan Documents, and any
other security given at any time to secure the payment hereof, all at the sole
discretion of Holder. Additionally, Holder may resort to
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<PAGE> 4
every other right or remedy available at law or in equity without first
exhausting the rights and remedies contained herein, all in Holder's sole
discretion. Failure of Holder, for any period of time or on more than one
occasion, to exercise its option to accelerate the Maturity Date shall not
constitute a waiver of the right to exercise the same at any time during the
continued existence of any Event of Default or any subsequent Event of Default.
If any attorney is engaged: (i) to collect the Loan or any
sums due under the Loan Documents, whether or not legal proceedings are
thereafter instituted by Holder; (ii) to represent Holder in any bankruptcy,
reorganization, receivership or other proceedings affecting creditors' rights
and involving a claim under this Note; (iii) to protect the liens of any
Mortgage or any of the Loan Documents; (iv) to represent Holder in any other
proceedings whatsoever in connection with any Mortgage or any of the Loan
Documents including post judgment proceedings to enforce any judgment related to
the Loan Documents; or (v) in connection with seeking an out-of-court workout or
settlement of any of the foregoing, then Maker shall pay to Holder all
reasonable costs, attorneys' fees and expenses in connection therewith, in
addition to all other amounts due hereunder.
8. Late Charge.
If payments of principal or interest due under this Note, or
any other amounts due under the other Loan Documents, are not timely made and
remain overdue for a period of ten (10) days, Maker, without notice or demand by
Holder, promptly shall pay an amount ("Late Charge") equal to four percent (4%)
of each delinquent payment.
9. Governing Law; Severability.
This Note shall be governed by and construed in accordance
with the internal laws of the State of Illinois. The invalidity, illegality or
unenforceability of any provision of this Note shall not affect or impair the
validity, legality or enforceability of the remainder of this Note, and to this
end, the provisions of this Note are declared to be severable.
10. Waiver.
Maker, for itself and all endorsers, guarantors and sureties
of this Note, and their respective heirs, legal representatives, successors and
assigns, hereby waives presentment for payment, demand, notice of nonpayment,
notice of dishonor, protest of any dishonor, notice of protest and protest of
this
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<PAGE> 5
Note, and all other notices in connection with the delivery, acceptance,
performance, default or enforcement of the payment of this Note, and agrees that
their respective liability shall be unconditional and without regard to the
liability of any other party and shall not be in any manner affected by any
indulgence, extension of time, renewal, waiver or modification granted or
consented to by Holder. Maker, for itself and all endorsers, guarantors and
sureties of this Note and their respective heirs, legal representatives,
successors and assigns, hereby consents to every extension of time, renewal,
waiver or modification that may be granted by Holder with respect to the payment
or other provisions of this Note, and to the release of any makers, endorsers,
guarantors or sureties, and their heirs, legal representatives, successors and
assigns, and of any collateral given to secure the payment hereof, or any part
hereof, with or without substitution, and agrees that additional makers,
endorsers, guarantors or sureties and their heirs, legal representatives,
successors and assigns, may become parties hereto without notice to Maker or to
any endorser, guarantor or surety and without affecting the liability of any of
them.
11. Security, Application of Payments.
This Note is secured by the liens, encumbrances and
obligations created hereby and by the other Loan Documents and the terms and
provisions of the other Loan Documents are hereby incorporated herein. Payments
will be applied, at Holder's option, first to any fees, expenses or other costs
Maker is obligated to pay under this Note or the other Loan Documents, second to
current interest due on this Note, third to any past due interest payable under
this Note, fourth to current interest due on Note B, fifth to any past due
interest payable under Note B, sixth to the outstanding principal balance of
this Note, seventh to the outstanding principal balance of Note B and eighth to
the Exit Fee.
12. Miscellaneous.
12.1. Amendments.
This Note may not be terminated or amended orally, but only by
a termination or amendment in writing signed by Holder and Maker.
12.2. Lawful Rate of Interest.
In no event whatsoever shall the amount of interest paid or
agreed to be paid to Holder pursuant to this Note or any of the Loan Documents
exceed the highest lawful rate of interest
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<PAGE> 6
permissible under applicable law. If, from any circumstances whatsoever,
fulfillment of any provision of this Note and the other Loan Documents shall
involve exceeding the lawful rate of interest which a court of competent
jurisdiction may deem applicable hereto ("Excess Interest"), then ipso facto,
the obligation to be fulfilled shall be reduced to the highest lawful rate of
interest permissible under such law and if, for any reason whatsoever, Holder
shall receive, as interest, an amount which would be deemed unlawful under such
applicable law, such interest shall be applied to the Loan (whether or not due
and payable), and not to the payment of interest, or refunded to Maker if such
Loan has been paid in full. Neither Maker nor any guarantor, endorser or surety
nor their heirs, legal representatives, successors or assigns shall have any
action against Holder for any damages whatsoever arising out of the payment or
collection of any such Excess Interest.
12.3. Captions.
The captions of the Paragraphs of this Note are for
convenience of reference only and shall not be deemed to modify, explain,
enlarge or restrict any of the provisions hereof.
12.4. Notices.
Notices shall be given under this Note in conformity with the
terms and conditions of the Loan Agreement.
12.5. Intentionally Omitted.
12.6. Time of Essence.
Time is of the essence of this Note and the performance of
each of the covenants and agreements contained herein.
13. Intentionally Omitted.
14. Sale of Loan.
Holder, at any time and without the consent of Maker, may
grant participations in or sell, transfer, assign and convey all or any portion
of its right, title and interest in and to the Loan, this Note, the Mortgages
and the other Loan Documents, any guaranties given in connection with the Loan
and any collateral given to secure the Loan.
-6-
<PAGE> 7
15. Consent to Jurisdiction.
MAKER 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 HOLDER'S ELECTION, ALL ACTIONS OR
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS NOTE OR THE OTHER LOAN DOCUMENTS
SHALL BE LITIGATED IN SUCH COURTS. MAKER EXPRESSLY SUBMITS AND CONSENTS TO THE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS. MAKER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND
AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON MAKER BY CERTIFIED OR
REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO MAKER, AT THE ADDRESS
SET FORTH IN THIS NOTE AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER
THE SAME HAS BEEN POSTED.
16. Jury Trial Waiver.
MAKER, AND HOLDER BY ITS ACCEPTANCE OF THIS NOTE, HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED
UPON, OR RELATED TO, THE SUBJECT MATTER OF THIS NOTE AND THE BUSINESS
RELATIONSHIP THAT IS BEING ESTABLISHED. THIS WAIVER IS KNOWINGLY, INTENTIONALLY
AND VOLUNTARILY MADE BY MAKER AND BY HOLDER, AND MAKER ACKNOWLEDGES THAT NEITHER
HOLDER NOR ANY PERSON ACTING ON BEHALF OF HOLDER HAS MADE ANY REPRESENTATIONS OF
FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR HAS TAKEN ANY ACTIONS WHICH IN
ANY WAY MODIFY OR NULLIFY ITS EFFECT. MAKER AND HOLDER ACKNOWLEDGE THAT THIS
WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT
MAKER AND HOLDER HAVE ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS NOTE
AND THAT EACH OF THEM WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED
FUTURE DEALINGS. MAKER AND HOLDER FURTHER ACKNOWLEDGE THAT THEY HAVE BEEN
REPRESENTED (OR HAVE HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF
THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL.
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<PAGE> 8
IN WITNESS WHEREOF, Maker has executed this Note or has caused
the same to be executed by its duly authorized representatives as of the date
first set forth above.
MAKER:
BALANCED CARE REALTY AT STATE
COLLEGE, INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT ALTOONA,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT LEWISTOWN,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT READING,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT BERWICK,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
-8-
<PAGE> 9
BALANCED CARE REALTY AT PECKVILLE,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT SCRANTON,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT MARTINSBURG,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT MAUMELLE,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT SHERWOOD,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT MOUNTAIN
HOME, INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
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<PAGE> 10
BALANCED CARE REALTY AT MANSFIELD,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
-10-
<PAGE> 1
Exhibit 10.3
Loan No. 99-407
AMENDED AND RESTATED
SUBORDINATED PROMISSORY NOTE B
$6,400,000.00 April 27, 2000
1. Promise to Pay.
FOR VALUE RECEIVED, BALANCED CARE REALTY AT STATE COLLEGE,
INC., a Delaware corporation, BALANCED CARE REALTY AT ALTOONA, INC., a Delaware
corporation, BALANCED CARE REALTY AT LEWISTOWN, INC., a Delaware corporation,
BALANCED CARE REALTY AT READING, INC., a Delaware corporation, BALANCED CARE
REALTY AT BERWICK, INC., a Delaware corporation, BALANCED CARE REALTY AT
PECKVILLE, INC., a Delaware corporation, BALANCED CARE REALTY AT SCRANTON, INC.,
a Delaware corporation, BALANCED CARE REALTY AT MARTINSBURG, INC., a Delaware
corporation, BALANCED CARE REALTY AT MAUMELLE, INC., a Delaware corporation,
BALANCED CARE REALTY AT SHERWOOD, INC., a Delaware corporation, BALANCED CARE
REALTY AT MOUNTAIN HOME, INC., a Delaware corporation and BALANCED CARE REALTY
AT MANSFIELD, INC., a Delaware corporation (collectively "Maker"), each of which
has its address c/o Balanced Care Corporation, 1215 Manor Drive, Mechanicsburg,
Pennsylvania 17055, Attention: Clint Fegan, Chief Financial Officer, jointly and
severally promises to pay to the order of HELLER HEALTHCARE FINANCE, INC., a
Delaware corporation, and its successors and assigns ("Holder") the sum of Six
Million Four Hundred Thousand and No/100 Dollars ($6,400,000.00), together with
all other amounts added thereto pursuant to this Amended and Restated
Subordinated Promissory Note B ("this Note") or otherwise payable to Holder
under the Loan Documents (as hereinafter defined), including, but not limited
to, the "Exit Fee" as defined and set forth in the Loan Agreement (as
hereinafter defined) (or so much thereof as may from time to time be
outstanding), together with interest thereon as hereinafter set forth, all
payable in lawful money of the United States of America (collectively, the
"Loan"). Payments shall be made to Holder at 500 West Monroe Street, Attention:
Real Estate Financial Services, Chicago, Illinois 60661 (or such other address
as Holder may hereafter designate in writing to Maker).
This Note is secured by, among other things, the Mortgages
encumbering the Project. This Note, the Amended and Restated Promissory Note A
made by Maker in favor of Holder dated the date hereof in the original principal
amount of Thirty Million Six Hundred Thousand and No/100 Dollars
($30,600,000.00) ("Note A"), the Mortgages, the Loan Agreement dated December
30, 1999,
<PAGE> 2
among Maker and Holder, as amended by the Amendment to Loan Documents of even
date herewith among Maker and Holder (as so amended, the "Loan Agreement") and
any other documents evidencing or securing the Loan or executed in connection
therewith, and any modification, renewal or extension of any of the foregoing
are collectively called the "Loan Documents." Except as otherwise provided
herein, capitalized terms used in this Note shall have the same meanings as are
assigned to such terms in the Loan Agreement.
2. Interest.
So long as no Event of Default (as hereinafter defined)
exists, interest shall accrue on the principal balance hereof from time to time
outstanding and Maker shall pay interest thereon at a rate equal to a floating
rate per annum equal to three and seventy-five hundredths percent (3.75%) plus
the Base Rate (the aggregate rate referred to as the "Interest Rate"). "Base
Rate" shall mean the rate published each business day in the Wall Street Journal
for notes maturing three (3) months after issuance under the caption "Money
Rates, London Interbank Offered Rates (LIBOR)". The Interest Rate for each
calendar month shall be fixed based upon the Base Rate published prior to and in
effect on the first (1st) business day of such month; provided, however, the
Interest Rate from and including the date hereof through December 31, 1999 shall
be fixed based upon the Base Rate in effect on December 30, 1999. Interest shall
be calculated based on a 360 day year and charged for the actual number of days
elapsed.
3. Payment.
(a) Commencing on February 1, 2000, Maker shall pay interest
computed at the Interest Rate monthly in arrears on the first (1st) day
of each month; provided, however, interest for the period from and
after the date hereof through December 31, 1999, shall be paid in
advance on the date hereof.
(b) In addition to monthly payments of interest, commencing
November 20, 2000, and on the twentieth (20th) day after the end of
each calendar month thereafter until the Repayment Date, Maker shall
pay Holder an amount equal to (i) one hundred percent (100%) of the
Excess Cash Flow (as defined in the Loan Agreement) corresponding to
such calendar month then ended, less (ii) the amount of Excess Cash
Flow paid by
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<PAGE> 3
Maker pursuant to Section 3(b) of Note A, said amount to be applied as
provided in Section 11 below.
(c) This Note shall be due and payable on or before December
31, 2001, or any earlier date on which this Note shall be required to
be paid in full, whether by acceleration or otherwise (the "Maturity
Date").
4. Intentionally Omitted.
5. Prepayment.
Maker may prepay this Note in full or in part at any time;
provided Maker gives Holder at least thirty (30) days prior written notice
thereof, Maker also prepays Note A in full and pays the Exit Fee (as defined in
the Loan Agreement) then due Lender.
6. Exit Fee.
As additional consideration for entering into the Loan
Agreement and making the Loan pursuant thereto, Borrower shall pay to Holder the
Final Exit Fee and, if applicable, the Proportionate Exit Fees, as provided in
the Loan Agreement.
7. Default.
7.1. Events of Default.
Any of the following shall constitute an "Event of Default"
under this Note: (a) failure to pay any amounts owed pursuant to this Note or
Note A within ten (10) calendar days after such payment is due; or (b) the
occurrence of any default under any of the other Loan Documents, which default
continues uncured beyond any applicable grace or cure period.
7.2. Remedies.
So long as an Event of Default remains outstanding: (a)
interest shall accrue at a rate equal to the Interest Rate plus four percent
(4%) per annum (the "Default Rate"); (b) Holder may, at its option and without
notice (such notice being expressly waived), declare this Note immediately due
and payable; and (c) Holder may pursue all rights and remedies available under
the Mortgages or any other Loan Documents. Holder's rights, remedies and powers,
as provided in this Note and the other Loan Documents, are cumulative and
concurrent, and may be pursued singly, successively or together against Maker,
any guarantor of the Loan,
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<PAGE> 4
the security described in the Loan Documents, and any other security given at
any time to secure the payment hereof, all at the sole discretion of Holder.
Additionally, Holder may resort to every other right or remedy available at law
or in equity without first exhausting the rights and remedies contained herein,
all in Holder's sole discretion. Failure of Holder, for any period of time or on
more than one occasion, to exercise its option to accelerate the Maturity Date
shall not constitute a waiver of the right to exercise the same at any time
during the continued existence of any Event of Default or any subsequent Event
of Default.
If any attorney is engaged: (i) to collect the Loan or any
sums due under the Loan Documents, whether or not legal proceedings are
thereafter instituted by Holder; (ii) to represent Holder in any bankruptcy,
reorganization, receivership or other proceedings affecting creditors' rights
and involving a claim under this Note; (iii) to protect the liens of any
Mortgage or any of the Loan Documents; (iv) to represent Holder in any other
proceedings whatsoever in connection with any Mortgage or any of the Loan
Documents including post judgment proceedings to enforce any judgment related to
the Loan Documents; or (v) in connection with seeking an out-of-court workout or
settlement of any of the foregoing, then Maker shall pay to Holder all
reasonable costs, attorneys' fees and expenses in connection therewith, in
addition to all other amounts due hereunder.
8. Late Charge.
If payments of principal or interest due under this Note, or
any other amounts due under the other Loan Documents, are not timely made and
remain overdue for a period of ten (10) days, Maker, without notice or demand by
Holder, promptly shall pay an amount ("Late Charge") equal to four percent (4%)
of each delinquent payment.
9. Governing Law; Severability.
This Note shall be governed by and construed in accordance
with the internal laws of the State of Illinois. The invalidity, illegality or
unenforceability of any provision of this Note shall not affect or impair the
validity, legality or enforceability of the remainder of this Note, and to this
end, the provisions of this Note are declared to be severable.
10. Waiver.
Maker, for itself and all endorsers, guarantors and sureties
of this Note, and their respective heirs, legal
-4-
<PAGE> 5
representatives, successors and assigns, hereby waives presentment for payment,
demand, notice of nonpayment, notice of dishonor, protest of any dishonor,
notice of protest and protest of this Note, and all other notices in connection
with the delivery, acceptance, performance, default or enforcement of the
payment of this Note, and agrees that their respective liability shall be
unconditional and without regard to the liability of any other party and shall
not be in any manner affected by any indulgence, extension of time, renewal,
waiver or modification granted or consented to by Holder. Maker, for itself and
all endorsers, guarantors and sureties of this Note and their respective heirs,
legal representatives, successors and assigns, hereby consents to every
extension of time, renewal, waiver or modification that may be granted by Holder
with respect to the payment or other provisions of this Note, and to the release
of any makers, endorsers, guarantors or sureties, and their heirs, legal
representatives, successors and assigns, and of any collateral given to secure
the payment hereof, or any part hereof, with or without substitution, and agrees
that additional makers, endorsers, guarantors or sureties and their heirs, legal
representatives, successors and assigns, may become parties hereto without
notice to Maker or to any endorser, guarantor or surety and without affecting
the liability of any of them.
11. Security, Application of Payments.
This Note is secured by the liens, encumbrances and
obligations created hereby and by the other Loan Documents and the terms and
provisions of the other Loan Documents are hereby incorporated herein. Payments
will be applied, at Holder's option, first to any fees, expenses or other costs
Maker is obligated to pay under this Note or the other Loan Documents, second to
current interest due on Note A, third to any past due interest payable under
Note A, fourth to current interest due on this Note, fifth to any past due
interest payable under this Note, sixth to the outstanding principal balance of
Note A, seventh to the outstanding principal balance of this Note and eighth to
the Exit Fee.
12. Miscellaneous.
12.1. Amendments.
This Note may not be terminated or amended orally, but only by
a termination or amendment in writing signed by Holder and Maker.
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<PAGE> 6
12.2. Lawful Rate of Interest.
In no event whatsoever shall the amount of interest paid or agreed to
be paid to Holder pursuant to this Note or any of the Loan Documents exceed the
highest lawful rate of interest permissible under applicable law. If, from any
circumstances whatsoever, fulfillment of any provision of this Note and the
other Loan Documents shall involve exceeding the lawful rate of interest which a
court of competent jurisdiction may deem applicable hereto ("Excess Interest"),
then ipso facto, the obligation to be fulfilled shall be reduced to the highest
lawful rate of interest permissible under such law and if, for any reason
whatsoever, Holder shall receive, as interest, an amount which would be deemed
unlawful under such applicable law, such interest shall be applied to the Loan
(whether or not due and payable), and not to the payment of interest, or
refunded to Maker if such Loan has been paid in full. Neither Maker nor any
guarantor, endorser or surety nor their heirs, legal representatives, successors
or assigns shall have any action against Holder for any damages whatsoever
arising out of the payment or collection of any such Excess Interest.
12.3. Captions.
The captions of the Paragraphs of this Note are for convenience of
reference only and shall not be deemed to modify, explain, enlarge or restrict
any of the provisions hereof.
12.4. Notices.
Notices shall be given under this Note in conformity with the terms and
conditions of the Loan Agreement.
12.5. Intentionally Omitted.
12.6. Time of Essence.
Time is of the essence of this Note and the performance of
each of the covenants and agreements contained herein.
13. Intentionally Omitted.
14. Sale of Loan.
Holder, at any time and without the consent of Maker, may
grant participations in or sell, transfer, assign and convey all or any portion
of its right, title and interest in and to the Loan, this Note, the Mortgages
and the other Loan Documents, any
-6-
<PAGE> 7
guaranties given in connection with the Loan and any collateral given to secure
the Loan.
15. Consent to Jurisdiction.
MAKER 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 HOLDER'S ELECTION, ALL ACTIONS OR
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS NOTE OR THE OTHER LOAN DOCUMENTS
SHALL BE LITIGATED IN SUCH COURTS. MAKER EXPRESSLY SUBMITS AND CONSENTS TO THE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS. MAKER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND
AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON MAKER BY CERTIFIED OR
REGISTERED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO MAKER, AT THE ADDRESS
SET FORTH IN THIS NOTE AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER
THE SAME HAS BEEN POSTED.
16. Jury Trial Waiver.
MAKER, AND HOLDER BY ITS ACCEPTANCE OF THIS NOTE, HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED
UPON, OR RELATED TO, THE SUBJECT MATTER OF THIS NOTE AND THE BUSINESS
RELATIONSHIP THAT IS BEING ESTABLISHED. THIS WAIVER IS KNOWINGLY, INTENTIONALLY
AND VOLUNTARILY MADE BY MAKER AND BY HOLDER, AND MAKER ACKNOWLEDGES THAT NEITHER
HOLDER NOR ANY PERSON ACTING ON BEHALF OF HOLDER HAS MADE ANY REPRESENTATIONS OF
FACT TO INDUCE THIS WAIVER OF TRIAL BY JURY OR HAS TAKEN ANY ACTIONS WHICH IN
ANY WAY MODIFY OR NULLIFY ITS EFFECT. MAKER AND HOLDER ACKNOWLEDGE THAT THIS
WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT
MAKER AND HOLDER HAVE ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS NOTE
AND THAT EACH OF THEM WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED
FUTURE DEALINGS. MAKER AND HOLDER FURTHER ACKNOWLEDGE THAT THEY HAVE BEEN
REPRESENTED (OR HAVE HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF
THIS NOTE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL.
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<PAGE> 8
IN WITNESS WHEREOF, Maker has executed this Note or has caused
the same to be executed by its duly authorized representatives as of the date
first set forth above.
MAKER:
BALANCED CARE REALTY AT STATE
COLLEGE, INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT ALTOONA,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT LEWISTOWN,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT READING,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT BERWICK,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
-8-
<PAGE> 9
BALANCED CARE REALTY AT PECKVILLE,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT SCRANTON,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT MARTINSBURG,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT MAUMELLE,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT SHERWOOD,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
BALANCED CARE REALTY AT MOUNTAIN
HOME, INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
-9-
<PAGE> 10
BALANCED CARE REALTY AT MANSFIELD,
INC., a Delaware corporation
By /s/Robin L. Barber
Printed Name Robin L. Barber
Its Vice President and Secretary
-10-
<PAGE> 1
Exhibit 10.4
FIRST AMENDMENT TO PROMISSORY NOTE
THIS FIRST AMENDMENT is executed as of February 9, 2000, is made by and
among IPC ADVISORS S.A.R.L., a Luxembourg corporation (hereinafter referred to
as "IPC"), having for the purposes of this Amendment, an address at 38-40 Rue
Sainte Zithe, Luxembourg L-2763, BALANCED CARE CORPORATION, a Delaware
corporation (hereinafter referred to as "BCC"), having an address at 1215 Manor
Drive, Mechanicsburg, Pennsylvania 17055 (IPC and BCC are hereinafter
collectively referred to as the "Maker") and NEW MEDITRUST COMPANY LLC, a
Delaware limited liability company (hereinafter referred to as the "Lender"),
having an address at 197 First Avenue, Needham Heights, Massachusetts 02494.
Reference is made to that certain Promissory Note, dated as of December
30, 1999, in the original principal amount of SEVEN MILLION EIGHT HUNDRED ELEVEN
THOUSAND FIFTY-FOUR DOLLARS ($7,811,054), made by the Maker to the order of the
Lender (the Note).
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Maker and the Lender hereby agree as follows:
1. The Note is hereby amending by extending the Maturity Date, as
defined in the Note, from November 30, 2000 to April 3, 2001.
2. Paragraph 2 of the Note is hereby deleted in its entirety and
restated to read as follows:
2. Interest Rate. Except as otherwise expressly in Paragraph 4
or 5 hereof, interest shall accrue on the outstanding
principal balance hereunder as follows:
(i) no interest shall accrue hereunder from December
30, 1999 through and including October 31, 2000;
(ii) from November 1, 2000 through December 31, 2000,
interest shall accrue at 12% per annum; and
(iii) from January 1, 2001 through April 3, 2001,
interest shall accrue at 14% per annum.
<PAGE> 2
3. Paragraph 3 of the Note is hereby deleted in its entirety and
is restated to read as follows:
3. Prepayment. The indebtedness evidenced by this Note may be
prepaid, in whole or in part, at any time from December 30,
1999 through and including October 31, 2000, without
prepayment penalty fee or premium. Thereafter, the Maker may
not make any partial prepayments of the indebtedness evidenced
by this Note; provided, however, that notwithstanding the
foregoing, the indebtedness evidenced by this Note may be
prepaid in whole at any time without prepayment penalty, fee
or premium.
4. This Amendment shall be deemed to amend the Note solely as expressly
set forth herein and, as amended hereby, the Note is hereby ratified, approved
and confirmed in every aspect and is valid, binding and in full force and
effect.
5. This Amendment shall be binding upon the Maker and the Lender and
all of their respective successors and assigns.
6. This Amendment shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the Maker and the Lender have caused this Amendment
to be signed in their respective corporate names as an instrument under seal by
their respective duly authorized officers on the date and in the year first
above written.
MAKER:
WITNESS: IPC ADVISORS S.A.R.L., a Luxembourg
corporation
/s/Nicole Rioux By:/s/J.B. Unsworth
Name: Nicole Rioux Name: J.B. Unsworth
Title: Manager
<PAGE> 3
WITNESS: BALANCED CARE CORPORATION, a
Delaware corporation
/s/Jaynelle D. Covert By:/s/Robin L. Barber
Name:Jaynelle D. Covert Name: Robin L. Barber
Title: Senior Vice President
and Legal Counsel &
Assistant Secretary
WITNESS: LENDER:
NEW MEDITRUST COMPANY LLC, a
Delaware limited liability company
/s/Annemarie Wasniewski By:/s/ Michael J. Benjamin
Name:Annemarie Wasniewski Name: Michael J. Benjamin,
Esq.
Title:Senior Vice President
<PAGE> 1
Exhibit 10.5
FIRST AMENDMENT TO OPTION AGREEMENT
THIS FIRST AMENDMENT is executed as of February 9, 2000, is made by and
among IPC ADVISORS S.A.R.L., a Luxembourg corporation (hereinafter referred to
as "IPC"), having for the purposes of this Amendment, an address at 38-40 Rue
Sainte Zithe, Luxembourg L-2763, BALANCED CARE CORPORATION, a Delaware
corporation (hereinafter referred to as "BCC"), having an address at 1215 Manor
Drive, Mechanicsburg, Pennsylvania 17055 (IPC and BCC are hereinafter
collectively referred to as the "Buyer") and NEW MEDITRUST COMPANY LLC, a
Delaware limited liability company (hereinafter referred to as the "Seller"),
having an address at 197 First Avenue, Needham Heights, Massachusetts 02494.
Reference is made to that certain Option Agreement, dated as of
December 30, 1999 (the "Option Agreement), by and among the Seller and the
Buyer.
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Buyer and the Seller hereby agree as follows:
1. The definition of Exercise Period as set forth in Section 1 of the
Option Agreement is hereby deleted in its entirety and restated as follows:
Exercise Period: The period from and
including January 2, 2000 through and
including September 30, 2000.
2. This Amendment shall be deemed to amend the Option Agreement solely
as expressly set forth herein and, as amended hereby, the Option Agreement is
hereby ratified, approved and confirmed in every aspect and is valid, binding
and in full force and effect.
3. This Amendment shall be binding upon the Buyer and the Seller and
all of their respective successors and assigns.
4. This Amendment shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
<PAGE> 2
IN WITNESS WHEREOF, the Buyer and the Seller have caused this Amendment
to be signed in their respective corporate names as an instrument under seal by
their respective duly authorized officers on the date and in the year first
above written.
BUYER:
WITNESS: IPC ADVISORS S.A.R.L., a Luxembourg
corporation
/s/Nicole Rioux By:/s/J.B. Unsworth
Name: Nicole Rioux Name: J.B. Unsworth
Title: Manager
WITNESS: BALANCED CARE CORPORATION, a
Delaware corporation
/s/Jaynelle D. Covert By:/s/Robin L. Barber
Name:Jaynelle D. Covert Name: Robin L. Barber
Title:Senior Vice President
and Legal Counsel &
Assistant Secretary
WITNESS: SELLER:
NEW MEDITRUST COMPANY LLC, a
Delaware limited liability company
/s/Annemarie Wasniewski By:/s/Michael J. Benjamin
Name:Annemarie Wasniewski Name: Michael J. Benjamin,
Esquire
Title:Senior Vice President
<PAGE> 1
Exhibit 10.6
Loan No. 99-407
SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "Agreement") is made as of
April 18, 2000, by and among the entities listed on Exhibit A hereto, each a
Delaware corporation (collectively, "Borrowers"), BALANCED CARE CORPORATION, a
Delaware corporation ("BCC"), the entities listed on Exhibit D hereto, each a
Delaware corporation, which are direct or indirect subsidiaries of BCC and
shareholders of one or more of the Borrower's (collectively "BCC Subs", and
collectively with BCC, "Pledgor"), FRR Investments Limited, a Cayman Island
corporation ("FRR"), IPC Advisors, S.a.r.l., a Luxembourg corporation ("IPC"),
(FRR and IPC together with any successors or assigns in such capacity, are
collectively referred to herein as the "Junior Lender"), and HELLER HEALTHCARE
FINANCE, INC., a Delaware corporation, (together with any successors or assigns
in such capacity, "Senior Creditor").
W I T N E S S E T H:
WHEREAS, Borrowers have executed and delivered a Promissory
Note A in the principal amount of Twenty Five Million Six Hundred Thousand and
No/100 Dollars ($25,600,000.00) in favor of Senior Creditor (the "Senior Note
A") and a Subordinated Promissory Note B in the principal amount of Six Million
Four Hundred Thousand and No/100 Dollars ($6,400,000.00) in favor of Senior
Creditor (the "Senior Note B"; Senior Note A and Senior Note B being referred to
herein collectively as the "Senior Notes") (all amounts owed by Borrowers to the
Senior Creditor under the Senior Notes, or otherwise under the Senior Security
Documents (as defined below) being hereinafter referred to as the "Senior
Debt");
WHEREAS, the Senior Debt is secured by, among other things,
those certain mortgages and deeds of trust, each dated December 30, 1999 listed
on Exhibit B hereto (collectively, the "Senior Mortgages"), covering certain
real property as more particularly described on Exhibit C attached hereto and
incorporated herein by reference (collectively, the "Properties");
WHEREAS, (i) FRR agreed to loan an amount not to exceed Seven
Million and No/100 Dollars ($7,000,000.00) to BCC, which loan is evidenced by a
Series One 1999 BCC Discount Note dated December 29, 1999 (the "Junior Note"),
executed by BCC in favor of FRR and (ii) BCC has executed and delivered in favor
of IPC that certain Indemnification, Defense, Hold Harmless and Reimbursement
Agreement dated as of December 29, 1999 (the "Indemnification Agreement") (the
indebtedness and other
<PAGE> 2
obligations of BCC to each Junior Lender under the Junior Note and
Indemnification Agreement being hereinafter referred to as the "Junior Debt");
WHEREAS, the Junior Debt is secured by a Pledge Agreement
pursuant to which Pledgor is pledging the capital stock of Borrowers (the
"Stock") to Junior Lender as security for the Junior Debt (the "Pledge
Agreement", and together with the Junior Note and Indemnification Agreement, the
"Junior Loan Documents");
WHEREAS, Junior Lender has agreed to fully subordinate the
Junior Debt and the Junior Loan Documents to the Senior Debt and Senior Security
Documents;
WHEREAS, that certain Loan Agreement dated December 30, 1999
among Lender and Borrowers (the "Loan Agreement"), the Senior Mortgages, the
Senior Notes and all other documents evidencing, securing or otherwise executed
in connection with the Senior Notes or the Senior Debt (other than this
Agreement) are referred to herein as the "Senior Security Documents"; and
WHEREAS, all capitalized terms used herein and not defined
herein shall have the meanings assigned to them in the Loan Agreement.
NOW, THEREFORE, in consideration of the premises, and for
other good and valuable consideration, the parties agree as follows:
1. The Junior Loan Documents and the Junior Debt and the
liens, security interests and assignments created thereunder (including without
limitation the Pledge Agreement and any liens created thereby) are and shall
continue to be expressly subject and subordinate to (a) the liens, security
interests and assignments created by the Senior Security Documents (regardless
of the relative times and method of attachment or perfection thereof or the
order of filing of financing statements, mortgages, deeds of trust, assignments
or other security agreements or documents, or anything in the Junior Loan
Documents or this Agreement to the contrary); (b) all the terms, covenants and
conditions contained in the Senior Security Documents and any extensions,
replacements, consolidation, modifications and supplements thereto, including
without limitation any and all advances (whether or not obligatory), in whatever
amounts and whenever made, with interest thereon, and to any expenses, charges
and fees incurred thereby, including any and all advances, interest, expenses,
charges and fees which may increase the indebtedness secured by the Senior
Security Documents above the original principal amount thereof and any
post-petition
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<PAGE> 3
interest which accrues, or would have accrued but for such filing, after the
commencement of any case under the Federal Bankruptcy Code, to the full extent
of all of the foregoing; and (c) any amounts advanced or incurred, in the sole
judgment of Senior Creditor whether or not in accordance with the Senior
Security Documents, for the benefit of the Properties or for costs and expenses
associated with the Senior Debt or otherwise. In foreclosing on the Senior
Creditor's security interests and liens, Senior Creditor may proceed to
foreclose on its security interests and liens in any manner which Senior
Creditor, in its sole discretion, chooses, even though a higher price might have
been realized if Senior Creditor had proceeded to foreclose on its security
interests and liens in another manner. Notwithstanding the foregoing to the
contrary, nothing in this Agreement shall be construed to prevent Junior Lender
from receiving payment of the Junior Debt at any time from BCC.
2. (a)Until the Senior Debt has been satisfied in full, Junior
Lender shall not be entitled to receive or retain any payment made by any of the
Borrowers or any of the BCC Subs with respect to the Junior Debt or under the
Junior Loan Documents. The BCC Subs and Borrowers agree that they shall not,
directly or indirectly, make any payments (whether of principal, interest or
otherwise) on account of the Junior Debt or redeem, purchase or otherwise
acquire, directly or indirectly, any Junior Debt, and Junior Lender agrees that
it will not accept any such payment (or, except with respect to payments from
BCC, payment from any other source including, without limitation, proceeds of
insurance or any condemnation award) or participate in any such redemption,
purchase or other acquisition.
(b) Until the Senior Debt has been satisfied in full, Junior
Lender agrees that it shall not exercise any remedies whatsoever with respect to
the capital shares of any of the Borrowers or of any of the Pledgors, whether
under the Junior Loan Documents or otherwise.
(c) Until the Senior Debt has been fully satisfied, Junior
Lender shall not take, require or accept from any Borrower or any BCC Sub any
security or collateral for the Junior Debt or any guaranty of the Junior Debt
(except for pledges of shares by the BCC Subs and other security granted by the
BCC Subs under the Pledge Agreement).
3. At all times during which the Senior Debt is outstanding,
Junior Lender agrees that it shall not (i) vote for any plan of reorganization
of Borrowers or Pledgor without the written consent of the Senior Creditor; (ii)
commence or join
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<PAGE> 4
with any other creditor or creditors of Borrowers or Pledgor in commencing any
bankruptcy, reorganization or insolvency proceeding against Borrowers or
Pledgor; (iii) object to any motion filed in any bankruptcy proceeding that
rents from the Properties, or any of them, shall constitute cash collateral of
the Senior Creditor; (iv) oppose any motion filed by the Senior Creditor to lift
the automatic stay in a bankruptcy proceeding; or (v) take any action to appoint
a receiver for Pledgor, Borrowers or any of the Properties.
4. Nothing contained in this Agreement is intended to or shall
impair the obligations of Borrowers, which are absolute and unconditional, to
pay to Senior Creditor the principal of, the prepayment premium, if any, and the
interest on the Senior Debt as and when the same shall become due and payable in
accordance with its terms, or to affect the relative rights of Senior Creditor
and creditors of Borrowers or Pledgor, other than Junior Lender.
5. Should any payment on account of or any Stock as collateral
for any part of the Junior Debt be paid to Junior Lender in violation of the
terms of this Agreement, such payment or collateral shall be delivered forthwith
to Senior Creditor by the recipient for application to the Senior Debt, in the
form received. Senior Creditor is irrevocably authorized to supply any required
endorsement or assignment which may have been omitted. Until so delivered, any
such payment or collateral shall be held by Junior Lender in trust for Senior
Creditor and shall not be commingled with other funds or property of Junior
Lender.
6. Each of FRR and IPC represents that it has not transferred
or assigned its rights under the Junior Note, in the case of FRR, and the
Indemnification Agreement, in the case of IPC, and no part thereof has been
subordinated in favor of anyone except Senior Creditor. Junior Lender may not
sell, assign or transfer its collateral interest in the Stock without Senior
Creditor's consent.
7. The rights in favor of Senior Creditor created hereunder
are solely for its benefit and protection and for the benefit and protection of
its participants, successors and assigns. Nothing herein contained shall impose
on Senior Creditor any duties with respect to any property of Borrowers, Pledgor
or the Junior Lender.
8. Senior Creditor is hereby authorized to demand specific
performance of this Agreement, whether or not Borrowers or Pledgor shall have
complied with the provisions hereof
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<PAGE> 5
applicable to it, at any time when Junior Lender shall have failed to comply
with any provision hereof applicable to it. Junior Lender hereby irrevocably
waives any defense based on the adequacy of a remedy at law which might be
asserted as a bar to the remedy of specific performance hereof in any action
brought therefor by Senior Creditor. Junior Lender consents that, without the
necessity of any reservation of rights against Junior Lender, and without notice
to or further assent by Junior Lender:
(a) any demand for payment of any Senior Debt may be rescinded
in whole or in part, and any Senior Debt may continue;
(b) the Senior Debt, or the liability of Borrowers or any
other party upon or for any part thereof, or any collateral security therefor or
guaranty thereof or right of offset with respect thereto, may, from time to
time, in whole or in part, be renewed, extended, modified, compromised, waived,
surrendered or released;
(c) the Senior Notes and any other agreement or instrument
evidencing the Senior Debt or governing the terms of the Senior Debt, and any
collateral security documents or guaranties or documents signed in connection
therewith, may be amended, modified, supplemented or terminated, in whole or in
part, as Senior Creditor may deem advisable from time to time; and
(d) any collateral security at any time held by the Senior
Creditor for the payment of any of the Senior Debt may be sold, waived,
surrendered or released, and Senior Creditor may take any other action it deems
desirable with respect to the collateral for the Senior Debt.
9. Junior Lender shall execute and deliver to the Senior
Creditor such further instruments and shall take such further action as the
Senior Creditor may reasonably request from time to time in order to carry out
the provisions and intent of this Agreement or to enable Senior Creditor to
exercise and enforce its rights and remedies hereunder.
10. Junior Lender and Senior Creditor agree to provide to each
other estoppel certificates current to the date of such request within thirty
(30) business days of the request of the other party, but not more frequently
than three times per year, which estoppel certificate shall provide that the
Junior Loan or Senior Debt (as the case may be) is in full force and effect,
that, to the affirming party's knowledge, no defaults have
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<PAGE> 6
occurred and are continuing thereunder, and as to any other matters reasonably
requested by the requesting party.
11. Junior Lender agrees that in the event of a casualty to
one or more of the Properties or a condemnation or taking under a power of
eminent domain of all or any portion of one or more of the Properties, or a
threat of such a condemnation or taking, all adjustments of insurance claims,
condemnation claims and settlements in anticipation of such a condemnation or
taking shall be prosecuted, at Senior Creditor's election, by Senior Creditor or
at Senior Creditor's direction pursuant to the terms and provisions of the
Senior Security Documents, and all payments and settlements of insurance claims
or condemnation awards or payments in anticipation of condemnation or a taking
shall be paid to Senior Creditor or at Senior Creditor's direction for use and
application pursuant to the terms and provisions of the Senior Security
Documents. Junior Lender irrevocably assigns to Senior Creditor all of its
interest, if any, in any such claims, settlements or awards and irrevocably
grants to Senior Creditor authorization to execute any and all documents on
Junior Lender's behalf necessary in connection with the prosecution or
settlement of such claims, awards and payments.
12. The execution of this Agreement shall not create or be
construed as creating a partnership, joint venture or other joint enterprise
between the Senior Creditor and the Junior Lender, and shall not be construed as
creating any special relationship between Senior Creditor and Junior Lender.
Except as provided in Sections 5 and 15, nothing in this Agreement shall be
construed to constitute the Senior Creditor or the Junior Lender as trustee or
other fiduciary for the other or to impose on either of them any duty,
responsibility or obligation other than those expressly provided for herein,
including, without limitation, any duty of good faith and fair dealing. Each of
the Senior Creditor and the Junior Lender has, independently and without
reliance on the other and based on such documents and information as it has
deemed appropriate, made its own credit analysis of the Borrowers and/or
Pledgor, as applicable, and agrees that it will, independently and without
reliance upon the other, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own independent analysis and
decisions in taking or not taking action under this Agreement, the Senior
Security Documents or the Junior Loan Documents, respectively.
13. In the event there exists a conflict between the terms and
provisions of the Senior Security Documents, the Junior
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<PAGE> 7
Loan Documents and this Agreement, the terms and provisions of this Agreement
will prevail. Senior Lender hereby consents to, and waives any default under the
Senior Security Documents in connection with, the execution and delivery of the
Junior Loan Documents, and the performance thereunder of the parties thereto,
subject to the terms and conditions of this Agreement.
14. If Junior Lender shall acquire by subrogation or
otherwise, any lien, estate, right, or other interest in the Properties which is
or may be prior in right to the Senior Creditor, including, but not limited to,
advances made by the Junior Lender for real estate taxes and assessments, such
lien, estate, right or other interest shall be subordinate to the Senior
Security Documents and Junior Lender shall not exercise any such subrogation or
other rights until all amounts due under the Senior Security Documents are paid
in full and all obligations thereunder are fully satisfied.
15. Upon any distribution of the assets of one or more of the
Borrowers in connection with any dissolution, winding up, liquidation or
reorganization of one or more of the Borrowers (whether in bankruptcy
proceedings or upon an assignment for the benefit of creditors or any other
marshaling of the assets and liabilities of a Borrower or otherwise), or the
distribution of insurance proceeds or condemnation awards received with respect
to one or more of the Properties in the event of a casualty or condemnation,
Senior Creditor shall first be entitled to receive payment in full of all Senior
Creditor claims which claims shall include, without limitation, the right to
payment in full of the Senior Debt (the "Senior Claims") before Junior Lender
shall be entitled to receive any payment from such proceeds in respect of the
claims of the Junior Lender (the "Junior Claims"). Upon any such dissolution,
winding up, liquidation or reorganization, any payment or distribution of assets
of Borrower of any kind or character, whether in cash, property or securities,
to which Senior Creditor is entitled shall be made directly to Senior Creditor
by the liquidating trustee or agent or other persons making such payment or
distribution (whether a trustee in bankruptcy, a receiver or liquidating trustee
or otherwise) (a "Paying Party"). If the aggregate amount of such payments or
distributions on the Senior Claims is insufficient to pay the Senior Claims in
full, then Junior Lender hereby irrevocably authorizes the Paying Party to remit
promptly to Senior Creditor, and Junior Lender hereby assigns to Senior
Creditor, the lesser of the proceeds Junior Lender is entitled to receive by
reason of any payment or distribution on the Junior Claims, or the difference
between the aggregate amount of the Senior Claims and the proceeds Senior
Creditor receives by reason of any payment on
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<PAGE> 8
distribution on the Senior Claims. In furtherance of the foregoing, but not by
way of limitation thereof, if one or more of the Borrowers are subject to any
proceeding, with the result that such Borrower or Borrowers are excused from the
obligation to pay all or part of the interest otherwise payable in respect of
the Senior Claims during the period subsequent to the commencement of any such
Proceedings, Junior Lender agrees that such interest (calculated at the rate of
interest set forth in the Senior Security Documents) shall be payable out of
payments or distributions made by the Paying Party in respect of the Junior
Claims.
If any payment or distribution of assets of a Borrower of any
kind or character (including any distribution of insurance proceeds or
condemnation awards received with respect to the Property owned by such Borrower
in the event of a casualty or condemnation), whether in cash, property or
securities, and whether or not pursuant to any dissolution, winding up,
liquidation or reorganization, not permitted by or in accordance with the
provisions of this Agreement shall be received by Junior Lender in connection
with the Junior Claims, such payment or distribution to Junior Lender shall be
held in trust for the benefit of, and shall be paid over or delivered to, Senior
Creditor, or to its representative, in precisely the form received (except for
the endorsement or assignment of Junior Lender where necessary). In the event of
any failure by Junior Lender to make any such endorsement or assignment, Senior
Creditor is hereby irrevocably authorized to make same.
16. This Agreement shall be binding upon the parties hereto
until all of the Senior Debt shall have been paid and fully satisfied.
17. Junior Lender agrees that: (a) Senior Creditor shall be
entitled to manage and supervise the Senior Debt and its relationship to
Borrowers and BCC as it deems appropriate under the circumstances; (b) Senior
Creditor shall not have any responsibility to Junior Lender to advise it of
information known to Senior Creditor regarding the financial condition of the
Borrowers or Pledgor or of any circumstances bearing upon the risk of
non-payment of the Senior Debt or any other indebtedness of Borrowers or
Pledgor; and (c) Senior Creditor shall have the right at all times to determine
the order in which any or all of the collateral for the Senior Debt shall be
subjected to the remedies provided by the Senior Security Documents. In any
event, Senior Creditor shall not have any liability to Junior Lender for, and
Junior Lender hereby waives any claim which it may now or hereafter have against
Senior Creditor arising out of any
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<PAGE> 9
amendment to, waiver or departure from, any term of the Senior Security
Documents and any and all actions to which Senior Creditor, takes or omits to
take with respect to Borrowers, Pledgor, the Senior Security Documents or any
collateral (including, without limitation, (i) actions with respect to the
taking, perfection or release of liens or security interests in any other
collateral, (ii) actions with respect to the foreclosure upon sale of, release
of or failure to realize upon, any collateral or to the collection of the Senior
Debt or the valuation, use or protection of any collateral, and (iii) actions
under any guaranty of the Senior Debt.)
18. All notices or other written communications hereunder
shall be deemed to have been properly given (i) upon delivery, if delivered in
person or by facsimile transmission with receipt acknowledged by the recipient
thereof, (ii) one (1) Business Day (defined below) after having been deposited
for overnight delivery with any reputable overnight courier service, or (iii)
three (3) Business Days after having been deposited in any post office or mail
depository regularly maintained by the U.S. Postal Service and sent by
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
If to Senior Creditor: Heller Healthcare Finance, Inc.
Loan No. 99-407
2 Wisconsin Circle
Suite 400
Chevy Chase, Maryland 20815
Attn: Steven M. Curwin
Facsimile No. (301) 664-9866
with a copy to: Heller Financial, Inc.
Real Estate Financial Services
Loan No. 99-407
500 West Monroe Street
Chicago, Illinois 6066
Attn: Manager, Loan
Administration
Facsimile No. (312) 441-7119
with a copy to: Heller Financial, Inc.
Real Estate Financial Services
Loan No. 99-407
500 West Monroe Street
Chicago, Illinois 6066
Attn: Group General Counsel
Facsimile No. (312) 441-7871
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<PAGE> 10
If to Junior Lender: IPC Advisors, S.a.r.l.
38-40 Rue Sainte Zithe
Luxembourg L-2763
Attn: J. B. Unsworth
Facsimile No.:
FRR Limited Investments
Walter House
Mary Street
George Town, Grand Cayman
Attn: J. B. Unsworth
Facsimile No.:
with copies to: Goodman, Phillips & Vineberg
250 Young Street, Suite 2400
Toronto, Ontario M5B 2M6
Attn: Stephen Pincus, Esq.
Facsimile No.: (416) 979-1234
Unsworth and Associates
Herengracht 483, 1017 BT
Amsterdam, Netherlands
Attn: J. B. Unsworth
Facsimile No.:
If to Borrowers, BCC or the Balanced Care Corporation
BCC Subs: 1215 Manor Drive
Mechanicsburg, Pennsylvania 17055
Attn: Clint Fegan, Chief Financial
Officer
Telecopy: (717) 796-6150
with a copy to: Balanced Care Corporation
1215 Manor Drive
Mechanicsburg, Pennsylvania 17055
Attn: Robin L. Barber, Esq.
Telecopy: (717) 796-6294
with a copy to: Kirkpatrick & Lockhart LLP
1500 Oliver Building
Pittsburgh, Pennsylvania 15222
Attn: Steven J. Adelkoff, Esq.
Telecopy: (412) 355-6501
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<PAGE> 11
or addressed as such party may from time to time designate by written notice to
the other parties.
Either party by notice to the other may designate additional
or different addresses for subsequent notices or communications.
For purposes of this Section, "Business Day" shall mean a day
on which commercial banks are not authorized or required by law to close in
Chicago, Illinois, and a day which is not any of the first, second, seventh or
eighth day of Passover, the first or second day of Shavuoth, the first or second
day of Rosh Hashanah, Yom Kippur, the first or second day of Sukkoth, Shemini
Azerth or Simchas Torah.
19. Time is of the essence with respect to the obligations
contained herein.
20. The Agreement shall be binding upon BCC, BCC Subs,
Borrowers, Senior Creditor, Junior Lender and their respective successors and
assigns, and shall inure to the benefit of Senior Creditor and its successors
and assigns. The term "Borrowers" as used herein shall also refer to the
successors and assigns of Borrowers, including, without limitation, a receiver,
trustee, custodian or debtor in possession.
21. This Agreement may be executed in any number of
counterparts, but all such counterparts shall together constitute but one
agreement. In making proof of this Agreement, it shall not be necessary to
produce or account for more than one counterpart signed by each of the parties
hereto.
22. This Agreement and the rights and obligations of the
parties hereunder shall in all respects be construed, governed, applied and
enforced in accordance with the laws of the State of Illinois (without regard to
conflicts of laws principles) and the applicable laws of the United States of
America. PLEDGOR, BORROWERS AND JUNIOR LENDER HEREBY CONSENT TO THE JURISDICTION
OF ANY STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF COOK, STATE OF
ILLINOIS AND IRREVOCABLY AGREE THAT, SUBJECT TO SENIOR CREDITOR'S ELECTION, ALL
ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE
LITIGATED IN SUCH COURTS. PLEDGOR, BORROWERS AND JUNIOR LENDER EXPRESSLY SUBMIT
AND CONSENT TO THE JURISDICTION OF THE AFORESAID COURTS AND WAIVE ANY DEFENSE OF
FORUM NON CONVENIENS. PLEDGOR, BORROWERS AND JUNIOR LENDER HEREBY WAIVE PERSONAL
SERVICE OF ANY AND ALL PROCESS AND AGREE THAT ALL SUCH SERVICE OF PROCESS MAY BE
MADE UPON PLEDGOR, BORROWERS AND JUNIOR LENDER BY CERTIFIED OR REGISTERED MAIL,
RETURN RECEIPT REQUESTED, ADDRESSED TO PLEDGOR,
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<PAGE> 12
BORROWERS AND JUNIOR LENDER, AT THE ADDRESSES SET FORTH IN THIS AGREEMENT AND
SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED.
23. Pledgor and Borrowers are executing this Agreement for the
sole purpose of evidencing their consent to the terms hereof and the agreements
made between Senior Creditor and Junior Lender evidenced hereby; however,
neither Pledgor nor Borrowers shall be entitled to enforce any of the provisions
of this Agreement, but nonetheless are permitted to rely on (i) the consent by
Senior Creditor to the pledge to Junior Lender of the stock owned by Pledgor in
Borrowers, (ii) the waiver of any default under any Senior Security Document as
a result of entering into the Pledge Agreement and making the Junior Debt and
(iii) the Senior Creditor's assent to permit the repayment of the Junior Debt
(subject to the terms of this Agreement). There are no third party beneficiaries
to this Agreement.
{remainder of page intentionally left blank}
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
JUNIOR LENDER:
IPC Advisors, S.a.r.l.
By:/s/J.B. Unsworth
Name: J.B. Unsworth
Title: Manager
FRR Investment Limited
By:/s/J.B. Unsworth
Name: J.B. Unsworth
Title: Director
SENIOR CREDITOR:
HELLER HEALTHCARE FINANCE, INC.,
a Delaware corporation
By:/s/Raymond J. Lewis
Name: Raymond J. Lewis
Title: Senior Vice President
BCC:
BALANCED CARE CORPORATION,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Senior Vice President and
Counsel; Assistant Secretary
BORROWERS:
BALANCED CARE REALTY AT STATE COLLEGE, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
-13-
<PAGE> 14
BALANCED CARE REALTY AT ALTOONA, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY AT LEWISTOWN, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title:Vice President and Secretary
BALANCED CARE REALTY AT READING, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title:Vice President and Secretary
BALANCED CARE REALTY AT BERWICK, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY AT PECKVILLE, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY AT SCRANTON, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
-14-
<PAGE> 15
BALANCED CARE REALTY AT MARTINSBURG, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY AT MAUMELLE, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY AT SHERWOOD, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY AT MOUNTAIN HOME, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY AT MANSFIELD, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BCC SUBS:
BALANCED CARE REALTY I, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
-15-
<PAGE> 16
BALANCED CARE REALTY II, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY III, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY IV, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY V, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY VI, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY VII, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY VIII, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
-16-
<PAGE> 17
BALANCED CARE REALTY IX, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY X, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XI, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XII, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XIII, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XIV, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XV, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
-17-
<PAGE> 18
BALANCED CARE REALTY XVI, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XVII, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XVIII, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XIX, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XX, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XXI, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XXII, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
-18-
<PAGE> 19
BALANCED CARE REALTY XXIII, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XXIV, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XXV, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XXVI, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XXVII, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XXVIII, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XXIX, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
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<PAGE> 20
BALANCED CARE REALTY XXX, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XXXI, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XXXII, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XXXIII, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XXXIV, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XXXV, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XXXVI, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
-20-
<PAGE> 21
BALANCED CARE REALTY XXXVII, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XXXVIII, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
BALANCED CARE REALTY XXXIX, INC.,
a Delaware corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
-21-
<PAGE> 22
EXHIBIT A
Borrowers
1. Balanced Care Realty at State College, Inc.
2. Balanced Care Realty at Altoona, Inc.
3. Balanced Care Realty at Lewistown, Inc.
4. Balanced Care Realty at Reading, Inc.
5. Balanced Care Realty at Berwick, Inc.
6. Balanced Care Realty at Peckville, Inc.
7. Balanced Care Realty at Scranton, Inc.
8. Balanced Care Realty at Martinsburg, Inc.
9. Balanced Care Realty at Maumelle, Inc.
10. Balanced Care Realty at Sherwood, Inc.
11. Balanced Care Realty at Mountain Home, Inc.
12. Balanced Care Realty at Mansfield, Inc.
<PAGE> 23
EXHIBIT B
Senior Mortgages
1. Open-End Mortgage, Assignment of Rents and Security Agreement executed by
Balanced Care Realty at State College, Inc. in favor of Senior Creditor
2. Open-End Mortgage, Assignment of Rents and Security Agreement executed by
Balanced Care Realty at Altoona, Inc. in favor of Senior Creditor
3. Open-End Mortgage, Assignment of Rents and Security Agreement executed by
Balanced Care Realty at Lewistown, Inc. in favor of Senior Creditor
4. Open-End Mortgage, Assignment of Rents and Security Agreement executed by
Balanced Care Realty at Reading, Inc. in favor of Senior Creditor
5. Open-End Mortgage, Assignment of Rents and Security Agreement executed by
Balanced Care Realty at Berwick, Inc. in favor of Senior Creditor
6. Open-End Mortgage, Assignment of Rents and Security Agreement executed by
Balanced Care Realty at Peckville, Inc. in favor of Senior Creditor
7. Open-End Mortgage, Assignment of Rents and Security Agreement executed by
Balanced Care Realty at Scranton, Inc. in favor of Senior Creditor
8. Credit Line Deed of Trust, Assignment of Rents and Security Agreement
executed by Balanced Care Realty at Martinsburg, Inc. in favor of Senior
Creditor
9. Mortgage, Assignment of Rents and Security Agreement executed by Balanced
Care Realty at Maumelle, Inc. in favor of Senior Creditor
10. Mortgage, Assignment of Rents and Security Agreement executed by Balanced
Care Realty at Sherwood, Inc. in favor of Senior Creditor
11. Mortgage, Assignment of Rents and Security Agreement executed by Balanced
Care Realty at Mountain Home, Inc. in favor of Senior Creditor
<PAGE> 24
12. Open-End Mortgage, Assignment of Rents and Security Agreement executed by
Balanced Care Realty at Mansfield, Inc. in favor of Senior Creditor
-2-
<PAGE> 25
EXHIBIT C
Properties
Borrower Property
Balanced Care Realty 1901 Circleville Road (Lot 2R,
at State College, Inc. Valley Vista Drive),
State College, PA 16803
Fergusun Township, Centre County
Balanced Care Realty 170 Red Fox Drive,
at Altoona, Inc. Duncansville, PA 16635
Allegheny Township, Blair County
Balanced Care Realty 55 Carriage House Lane,
at Lewistown, Inc. Reedsville, PA 17084
Mifflin County
Balanced Care Realty 9 Colin Court,
at Reading, Inc. Reading, PA 19606
Exeter Township, Berks County
Balanced Care Realty 2050 West Front Street (State
at Berwick, Inc. Route 11),
Berwick, PA 18603
Columbia County
Balanced Care Realty Sturges Road,
at Peckville, Inc. Peckville, PA 18452
Mid Valley, Lackawanna County
Balanced Care Realty 815-819 Jeffersona Avenue,
at Scranton, Inc. Scranton, PA 18503
Lackawanna County
Balanced Care Realty Gloucester Parkway,
at Martinsburg, Inc. Martinsburg District, WV 25401
Berkeley County
Balanced Care Realty 100 Bringler Drive,
at Maumelle, Inc. Maumelle, AR 72113
Pulaski County
Balanced Care Realty 9880 Brockingham Road,
at Sherwood, Inc. Sherwood, AR 72120
Pulaski County
-3-
<PAGE> 26
Balanced Care Realty 715 West 6th Street,
at Mountain Home, Inc. Mountain Home, AR 72653
Baxter County
Balanced Care Realty 2010 Walker Lake Road,
at Mansfield, Inc. Mansfield, OH 44906
Ontario Village, Richland County
-4-
<PAGE> 27
EXHIBIT D
BCC Subs
1. Balanced Care Realty I, Inc.
2. Balanced Care Realty II, Inc.
3. Balanced Care Realty III, Inc.
4. Balanced Care Realty IV, Inc.
5. Balanced Care Realty V, Inc.
6. Balanced Care Realty VI, Inc.
7. Balanced Care Realty VII, Inc.
8. Balanced Care Realty VIII, Inc.
9. Balanced Care Realty IX, Inc.
10. Balanced Care Realty X, Inc.
11. Balanced Care Realty XI, Inc.
12. Balanced Care Realty XII, Inc.
13. Balanced Care Realty XIII, Inc.
14. Balanced Care Realty XIV, Inc.
15. Balanced Care Realty XV, Inc.
16. Balanced Care Realty XVI, Inc.
17. Balanced Care Realty XVII, Inc.
18. Balanced Care Realty XVIII, Inc.
19. Balanced Care Realty XIX, Inc.
20. Balanced Care Realty XX, Inc.
21. Balanced Care Realty XXI, Inc.
22. Balanced Care Realty XXII, Inc.
23. Balanced Care Realty XXIII, Inc.
24. Balanced Care Realty XXIV, Inc.
25. Balanced Care Realty XXV, Inc.
26. Balanced Care Realty XXVI, Inc.
27. Balanced Care Realty XXVII, Inc.
28. Balanced Care Realty XXVIII, Inc.
29. Balanced Care Realty XXIX, Inc.
30. Balanced Care Realty XXX, Inc.
31. Balanced Care Realty XXXI, Inc.
32. Balanced Care Realty XXXII, Inc.
33. Balanced Care Realty XXXIII, Inc.
34. Balanced Care Realty XXXIV, Inc.
35. Balanced Care Realty XXXV, Inc.
36. Balanced Care Realty XXXVI, Inc.
37. Balanced Care Realty XXXVII, Inc.
38. Balanced Care Realty XXXVIII, Inc.
39. Balanced Care Realty XXXIX, Inc.
<PAGE> 1
Exhibit 10.7
STOCK PLEDGE AGREEMENT
THIS AGREEMENT is made and entered into as of April 18, 2000
(this "Agreement") by and among Balanced Care Corporation, a Delaware
corporation ("BCC"), the other parties listed on Schedule 1 attached hereto, all
of which are Delaware corporations and are wholly owned subsidiaries of BCC
(collectively referred to herein as "Subsidiaries", and together with BCC,
collectively the "Pledgor"), the parties listed on Schedule 2 attached hereto,
all of which are Delaware corporations (individually, a "Company" and
collectively, the "Companies"), FRR Investments Limited, a Cayman Island
corporation ("FRR"), and IPC Advisors S.A.R.L., a Luxembourg corporation ("IPC",
and together with FRR, "Secured Party").
WITNESSETH:
WHEREAS, Pledgor is the owner of 100% of the common stock of
each Company (the "Equity Interests"), which Equity Interests represent 100% of
the equity interests in each Company; and
WHEREAS, BCC has executed that certain Series One 1999 BCC
Discount Note dated December 29, 1999 in favor of FRR (the "Note") evidencing a
loan made by FRR to BCC in the issued amount of $7,424,580, the proceeds of
which have been advanced by BCC to each Company in order for each Company to
purchase certain real property; and
WHEREAS, Pledgor, being all of the shareholders of the
Companies, have received a direct benefit from the consummation of the
transactions evidenced by the Note and other Loan Documents; and
WHEREAS, BCC has executed and delivered to IPC an
Indemnification, Defense, Hold Harmless and Reimbursement Agreement dated as of
December 29, 1999 (the "Indemnification Agreement"), whereby BCC has agreed to
certain indemnification obligations in connection with the BCC-IPC Note (as
defined in the Indemnification Agreement); and
WHEREAS, it is a condition precedent to the willingness of
Secured Party to enter into the other Loan Documents that Pledgor execute and
deliver this Agreement in favor of Secured Party.
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
1. Equity Pledge. Pledgor hereby pledges, grants a security
interest in, mortgages, assigns, transfers, delivers, sets over and confirms
unto Secured Party, its successors and assigns, all of Pledgor's right, title
and interest in and to all Equity Interests owned by Pledgor (collectively, the
"Pledged Interests"), and delivers to FRR, as agent for itself and IPC, the
certificates representing or evidencing the Pledged Interests on the date
hereof, which certificates are listed on Schedule 3 attached hereto
(collectively, the "Certificates"), with equity powers attached duly endorsed in
blank by each Pledgor, receipt of which is acknowledged by FRR, as agent for
itself and IPC, as security for Pledgor's complete payment and performance of
all obligations of Pledgor and each Company under the Loan Documents (the
"Secured Obligations"). Upon the payment and satisfaction in full of the Secured
Obligations, this Agreement and the security interests granted hereby in the
Pledged Interests shall be released (with FRR, as agent for itself and IPC,
returning all certificates evidencing Pledged Interests and Secured Party taking
such other action as Pledgor may reasonably request to release the security
interests granted hereby).
2. Representations and Warranties. Each Pledgor and each
Company jointly and severally represent and warrant to each Secured Party that:
(i) except for restrictions under applicable Federal
and state securities laws, there are no restrictions upon the transfer of the
Pledged Interests and Pledgor has good and valid title to the Pledged Interests
free and clear of any and all liens, charges, options, shareholder agreements,
refusal rights, restrictions or encumbrances of any kind or nature thereon or
affecting title thereto (except for the pledge of the Pledged Interests to
Secured Party as provided in this Agreement);
(ii) the Pledged Interests (a) have been duly
authorized and issued by all requisite corporate action taken on the part of
each Company, and are fully paid and non-assessable and (b) the Pledged
Interests are evidenced by the Certificates listed on Schedule 3 attached hereto
on the books and records of the appropriate Company;
(iii) each Pledgor and each Company (a) is a
corporation duly organized, validly existing and in good standing
2
<PAGE> 3
under the laws of the State of Delaware, (b) has the power and holds all
licenses necessary to carry on its business as it is being conducted and (c) is
duly qualified to transact business in each jurisdiction in which qualification
is required and where failure to do so would have a material adverse effect on
the business of such Company;
(iv) no equity interests of any kind or nature of any
Company (whether voting or non-voting, common stock, preferred stock, warrants,
convertible securities or otherwise), other than the Pledged Interests, are
outstanding;
(v) there are no outstanding subscriptions, warrants,
calls, options, rights, commitments, securities or agreements calling for the
issuance of, or convertible or exchangeable into, any equity interests or common
stock of any Company or for the issuance of any securities convertible or
exchangeable, actually or contingently, into such equity interests;
(vi) each Pledgor and each Company have full power,
authority and legal right and any approval required by law to enter into and
carry out the terms, provisions and agreements contained herein and in the other
Loan Documents, and to make the representations and warranties contained herein
and the other Loan Documents;
(vii) the execution, delivery and performance of this
Agreement and the other Loan Documents by each Pledgor and each Company (to the
extent a party) and the delivery of the Pledged Interests to FRR, as agent for
itself and IPC, by each Pledgor do not contravene and will not result in the
breach of any of the terms and provisions of, or constitute a default under, the
charter documents of any Pledgor or any Company or any note, indenture,
mortgage, deed of trust, other agreement, commitment, contract, or other
instrument, obligation or restriction affecting any Pledgor, any Company or any
property owned by any Pledgor or any Company, or violate any statute, ordinance,
by-law, code, rule, ruling, regulation, restriction, order, judgment, decree,
writ, judicial or administrative interpretation or injunction of any
governmental authority having jurisdiction over any Pledgor, any Company or any
property owned by any Pledgor or by any Company;
(viii) except as already obtained or filed, as the
case may be, no consent or approval or other authorization of, or exemption by,
or declaration or filing with, any Person and no waiver of any right by any
Person is required to authorize or
3
<PAGE> 4
permit, or is otherwise required as a condition to the delivery of the Pledged
Interests to FRR, as agent for itself and IPC, by any Pledgor, the execution and
delivery of this Agreement by any Pledgor and/or any Company or any of the other
Loan Documents to which any Pledgor and/or any Company is a party to and the
performance of their respective obligations hereunder and thereunder or as a
condition to the validity or enforceability of any of the same;
(ix) this Agreement and the delivery of the Pledged
Interests to FRR, as agent for itself and IPC, creates a duly perfected first
and prior possessory security interest in the Pledged Interests in FRR, as agent
for itself and IPC; and
(x) this Agreement and the other Loan Documents
represent the legal, valid and binding obligation of each Pledgor and each
Company (to the extent a party thereto) enforceable in accordance with their
respective terms, except as enforceability may be limited by bankruptcy and
creditor's rights laws, and general principles of equity.
3. Covenants. Each Pledgor covenants that, until such time as
the Secured Obligations have been paid and performed in full, each Pledgor:
(i) except as expressly permitted pursuant to the
Loan Documents, shall not, directly or indirectly, sell, assign, exchange,
convey, pledge, alienate, hypothecate, gift, devise or otherwise transfer or
grant any option with respect to any of Pledgor's rights to the Pledged
Interests, whether voluntarily or by operation of law;
(ii) shall not, directly or indirectly, create or
suffer to exist any lien, security interest or other charge or encumbrance
against, in or with respect to any of the Pledged Interests, whether voluntarily
or by operation of law, except for the pledge hereunder and the security
interest created hereby;
(iii) shall warrant and defend the Pledged Interests
and the lien thereon conveyed to Secured Party by this Agreement against the
claims of all Persons;
(iv) shall pay, when due, all taxes and any other
charges which may form the basis of a lien, claim or expense upon or in
connection with the Pledged Interests or any interest therein;
4
<PAGE> 5
(v) without limiting the covenants set forth above in
clause (ii) of this Section 3, shall provide written notice to Secured Party of
all encumbrances of any kind or nature hereafter placed on the Pledged
Interests, such notice to be delivered to Secured Party within five (5) days of
the occurrence of any such encumbrance; and
(vi) shall keep in effect each Company's existence
and rights as a corporation under the laws of the State of Delaware.
Each Pledgor and each Company jointly and severally covenant
that, until all Secured Obligations have been paid in full (a) they shall not
agree to a termination of, any supplement to or any amendment or modification of
the charter documents of any Company and (b) no additional equity interests
(whether voting or non-voting, common stock, preferred stock, warrants,
convertible securities or otherwise) of any Company shall be issued, authorized,
sold, pledged or transferred after the date hereof, other than pursuant to this
Agreement.
4. Pledgor to Hold In Trust. Subsequent to the occurrence of
any Event of Default (as hereinafter defined), and regardless of whether Secured
Party makes any demand or request on Pledgor, Pledgor shall hold in trust for
Secured Party any and all cash, checks, drafts, items, or other instruments or
writings for the payment of money which may be received by Pledgor as dividends
or otherwise with respect to the Pledged Interests, in precisely the form
received. Pledgor shall immediately upon request by Secured Party endorse,
transfer and deliver any and all such payments to FRR, as agent for itself and
IPC, for application against the Secured Obligations. Notwithstanding the
foregoing or any other provision contained in any Loan Document, until the
occurrence of an Event of Default, each Pledgor shall have the right to vote on
matters related to each Company in their respective capacities as Shareholders,
and shall have the right to receive dividends from each Company.
5. Events of Default/Rights and Remedies. (a) Any one or more
of the following events shall be an "Event of Default":
(i) the failure to pay any sum due under the Note or
the other Loan Documents on the date when such payment is due;
(ii) if Pledgor or any Company shall (A) voluntarily
be adjudicated a bankrupt or insolvent, (B) seek or consent to the appointment
of a receiver or trustee for itself or for any of its
5
<PAGE> 6
properties, (C) file a petition seeking relief under the bankruptcy or other
similar laws of the United States or any other country, any state or any other
jurisdiction, (D) make a general assignment for the benefit of creditors, or (E)
make or offer a composition of its debts with substantially all of its
creditors;
(iii)if any court shall enter an order, judgment or
decree appointing, without the consent of Pledgor or any Company (as
applicable), a receiver or trustee for such entity or for any of its properties,
and such order, judgment or decree shall remain in force, undischarged or
unstayed, sixty (60) days after it is entered;
(iv) if any petition is filed against Pledgor or any
Company which seeks relief under the bankruptcy or other similar laws of the
United States, any other country, any state or any other jurisdiction and such
petition is not dismissed within ninety (90) days after it is filed;
(v) Pledgor or any Company shall default in any
obligation hereunder, or any representation or warranty made herein shall be
false or misleading in any material respect, and in either case the same shall
not have been cured within 15 days after written notice is received of any such
default or breach; or
(vi) Pledgor shall otherwise default under any other
Loan Document beyond the applicable grace or cure period.
(b) Upon the occurrence of an Event of Default hereunder,
Secured Party, in its sole discretion and without further notice or demand, may
do one or more of the following: (i) declare the Secured Obligations to be
immediately due and payable; (ii) proceed immediately to exercise any and all of
a secured party's rights, powers and privileges with respect to the Pledged
Interests, including, without limitation, the right to sell or otherwise dispose
of the Pledged Interests or any part thereof (to itself or to any third party)
in such manner as Secured Party, in its reasonable discretion may choose, (iii)
take over all obligations, duties, liabilities, management and operations of any
Company to the exclusion of each Pledgor and receive all profits of such Company
or (iv) exercise any other right or remedy not inconsistent with the foregoing
which is available to Secured Party under the Pennsylvania Uniform Commercial
Code or otherwise available by agreement or under federal or state law. The
foregoing remedies are cumulative and
6
<PAGE> 7
may be exercised concurrently.
(c) Upon an Event of Default hereunder, FRR, as agent for
itself and IPC, shall act as the authorized agent and attorney-in-fact of
Pledgor in disposing of the Pledged Interests, and in that capacity it is
authorized to take such action on behalf of Pledgor as will further such a
disposition, including, without limitation, any necessary endorsement or
signature in its or Pledgor's name. Pledgor expressly acknowledges that
compliance with federal and state securities and other laws may limit the
disposition of the Pledged Interests by FRR, as agent for itself and IPC. No
disposition of the Pledged Interests by FRR, as agent for itself and IPC, upon a
default shall be deemed to be a breach of duty to any Pledgor or to be
commercially unreasonable because a better sales price might have been attained
through an alternative disposition, if FRR, as agent for itself and IPC, in good
faith has determined that the alternative disposition may constitute a violation
of state or federal laws. Without limiting the generality of the foregoing, FRR,
as agent for itself and IPC, may at any sale of the Pledged Interests restrict
the prospective bidders or purchasers of the Pledged Interests to Persons who
will represent and agree that they are purchasing the Pledged Interests for
their own account for investment, and not with a view to distribution or sale.
Any purchaser at a sale conducted pursuant to the terms of this Agreement shall
hold the property sold absolutely, free from any claim or right on the part of
Pledgor and Pledgor hereby waives any right of redemption, stay or appraisal
under present or future law. Each and every purchaser of any of the Pledged
Interests shall be vested with equity holder's rights provided by the equity
purchased, including, without limitation, all voting and dividend rights.
Pledgor agrees that Secured Party may purchase the Pledged Interests or any part
thereof at any sale.
6. Deficiencies. No disposition of any of the Pledged
Interests shall extinguish any obligation of Pledgor except to the extent that
the net proceeds are applied thereto.
7. Governing Law. This Agreement and the construction and
enforcement thereof shall be governed in all respects by the laws of the
Commonwealth of Pennsylvania, exclusive of its conflicts of laws principles.
8. Waiver. No delay or omission in exercising any right
hereunder shall operate as a waiver of such right or any other right.
7
<PAGE> 8
9. Binding Effect; Assignment. This Agreement shall be binding
upon and shall insure to the benefit of the parties hereto and their respective
successors and assigns. Pledgor may not assign its interest in this Agreement
without the prior written consent of Secured Party, which consent may be
withheld in its sole and absolute discretion.
10. Further Cooperation. Pledgor agrees to execute and deliver
to Secured Party or FRR, as agent for itself and IPC, such further instruments,
notices, certificates, affidavits, financing statements and any other writing or
agreement as Secured Party may reasonably request in connection with this
Agreement.
11. Interpretation. Capitalized terms used but not defined
herein have the meanings set forth for such terms in the Note, and the rules of
interpretation provided in the Note shall apply to this Agreement.
12. Notice. Any notice, request, demand, statement or consent
made hereunder shall be in writing and shall be deemed duly given if personally
delivered, sent by certified mail, return receipt requested, or sent by a
nationally recognized commercial overnight delivery service with provision for a
receipt, postage or delivery charges prepaid, and shall be deemed given when
postmarked or placed in the possession of such mail or delivery service and
addressed as follows:
If to Pledgor Balanced Care Corporation
or any Company: 1215 Manor Drive
Mechanicsburg, Pennsylvania 17055
Attention: President
With copies to: Balanced Care Corporation
1215 Manor Drive
Mechanicsburg, Pennsylvania 17055
Attention: Legal Department
and Kirkpatrick & Lockhart LLP
Henry W. Oliver Building
535 Smithfield Street
Pittsburgh, Pennsylvania 15235
Attention: Steven J. Adelkoff, Esq.
If to Secured Party:IPC Advisors S.A.R.L.
38-40 Rue Sainte Zithe
Luxembourg L-2763
Attention: J.B. Unsworth
8
<PAGE> 9
and Walker House
Mary Street
George Town, Grand Cayman
Attention: J.B. Unsworth
With copies to: Goodman, Phillips & Vineberg
250 Young Street; Suite 2400
Toronto, Ontario M5B 2M6
Attention: Stephen Pincus
and Unsworth & Associates
Herengracht 483, 1017 BT
Amsterdam, Netherlands
Attention: J.B. Unsworth
or at such other place as Pledgor, any Company or Secured Party may from time to
time hereafter designate to the other in writing. Any notice given to one party
hereto by another party hereto at any time shall not imply that such notice or
any further or similar notice was or is required.
13. Captions and Headings. The captions and headings set forth
in this Agreement are included for convenience and reference only and the words
contained therein shall in no way be held or deemed to define, limit, describe,
explain, modify, amplify or add to the interpretation, construction or meaning
of any provisions of, or the scope or intent of, this Agreement or any portion
hereof.
14. Counterparts. The parties hereto may execute this
Agreement in any number of counterparts, each of which, when executed and
delivered, shall have the force and effect of an original; but all such
counterparts shall constitute one and the same instrument.
15. Subordination Agreement. This Agreement and the rights of
the Secured Party and FRR, as agent for itself and IPC, are subject in all
respects to that certain Subordination Agreement dated as of even date herewith
among Heller Healthcare Finance, Inc., the Secured Party, the Pledgor and the
Realty Companies.
9
<PAGE> 10
IN WITNESS WHEREOF, Pledgor, each Company and Secured Party
have caused this Agreement to be duly executed and delivered under hand and
seal, all as of the day and year first above written.
PLEDGORS:
Balanced Care Corporation
By: /s/Robin L. Barber
Name: Robin L. Barber
Title: Senior Vice President and
Legal Counsel
Balanced Care Realty I, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty II, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty III, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty IV, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
S-1
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<PAGE> 11
Balanced Care Realty V, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty VI, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty VII, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty VIII, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty IX, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty X, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
S-2
[Stock Pledge Agreement]
<PAGE> 12
Balanced Care Realty XI, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XII, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XIII, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XIV, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XV, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XVI, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
S-3
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<PAGE> 13
Balanced Care Realty XVII, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XVIII, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XIX, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XX, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XXI, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XXII, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
S-4
[Stock Pledge Agreement]
<PAGE> 14
Balanced Care Realty XXIII, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XXIV, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XXV, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XXVI, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XXVII, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XXVIII, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
S-5
[Stock Pledge Agreement]
<PAGE> 15
Balanced Care Realty XXIX, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XXX, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XXXI, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XXXII, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XXXIII, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XXXIV, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
S-6
[Stock Pledge Agreement]
<PAGE> 16
Balanced Care Realty XXXV, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XXXVI, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XXXVII, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XXXVIII, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty XXXIX, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
COMPANIES:
Balanced Care Realty at Altoona, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty at Berwick, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
S-7
[Stock Pledge Agreement]
<PAGE> 17
Balanced Care Realty at Lewistown, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty at Mansfield, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty at Martinsburg, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty at Maumelle, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty at Mountain Home, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
S-8
[Stock Pledge Agreement]
<PAGE> 18
Balanced Care Realty at Peckville, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty at Reading, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty at Scranton, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty at Sherwood, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
Balanced Care Realty at State College, Inc.
By: /s/ Robin L. Barber
Name: Robin L. Barber
Title: Vice President and Secretary
S-9
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<PAGE> 19
SECURED PARTY:
FRR Investments Limited
By: /s/J.B. Unsworth
Name: J.B. Unsworth
Title: Director
IPC Advisors S.A.R.L.
By: /s/J.B. Unsworth
Name: J.B. Unsworth
Title: Manager
S-10
[Stock Pledge Agreement]
<PAGE> 20
SCHEDULE 1
SUBSIDIARIES
1. Balanced Care Realty I, Inc.
2. Balanced Care Realty II, Inc.
3. Balanced Care Realty III, Inc.
4. Balanced Care Realty IV, Inc.
5. Balanced Care Realty V, Inc.
6. Balanced Care Realty VI, Inc.
7. Balanced Care Realty VII, Inc.
8. Balanced Care Realty VIII, Inc.
9. Balanced Care Realty IX, Inc.
10. Balanced Care Realty X, Inc.
11. Balanced Care Realty XI, Inc.
12. Balanced Care Realty XII, Inc.
13. Balanced Care Realty XIII, Inc.
14. Balanced Care Realty XIV, Inc.
15. Balanced Care Realty XV, Inc.
16. Balanced Care Realty XVI, Inc.
17. Balanced Care Realty XVII, Inc.
18. Balanced Care Realty XVIII, Inc.
19. Balanced Care Realty XIX, Inc.
20. Balanced Care Realty XX, Inc.
21. Balanced Care Realty XXI, Inc.
22. Balanced Care Realty XXII, Inc.
23. Balanced Care Realty XXIII, Inc.
24. Balanced Care Realty XXIV, Inc.
25. Balanced Care Realty XXV, Inc.
26. Balanced Care Realty XXVI, Inc.
27. Balanced Care Realty XXVII, Inc.
28. Balanced Care Realty XXVIII, Inc.
29. Balanced Care Realty XXIX, Inc.
30. Balanced Care Realty XXX, Inc.
31. Balanced Care Realty XXXI, Inc.
32. Balanced Care Realty XXXII, Inc.
33. Balanced Care Realty XXXIII, Inc.
34. Balanced Care Realty XXXIV, Inc.
35. Balanced Care Realty XXXV, Inc.
36. Balanced Care Realty XXXVI, Inc.
37. Balanced Care Realty XXXVII, Inc.
38. Balanced Care Realty XXXVIII, Inc.
39. Balanced Care Realty XXXIX, Inc.
1-1
<PAGE> 21
SCHEDULE 2
COMPANIES
1. Balanced Care Realty at Altoona, Inc.
2. Balanced Care Realty at Berwick, Inc.
3. Balanced Care Realty at Lewistown, Inc.
4. Balanced Care Realty at Mansfield, Inc.
5. Balanced Care Realty at Martinsburg, Inc.
6. Balanced Care Realty at Maumelle, Inc.
7. Balanced Care Realty at Mountain Home, Inc.
8. Balanced Care Realty at Peckville, Inc.
9. Balanced Care Realty at Reading, Inc.
10. Balanced Care Realty at Scranton, Inc.
11. Balanced Care Realty at Sherwood, Inc.
12. Balanced Care Realty at State College, Inc.
2-1
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 3,565
<SECURITIES> 0
<RECEIVABLES> 9,134
<ALLOWANCES> 3,130
<INVENTORY> 0
<CURRENT-ASSETS> 15,120
<PP&E> 75,784
<DEPRECIATION> 3,864
<TOTAL-ASSETS> 118,340
<CURRENT-LIABILITIES> 15,782
<BONDS> 0
0
0
<COMMON> 35
<OTHER-SE> 45,917
<TOTAL-LIABILITY-AND-EQUITY> 118,340
<SALES> 12,070
<TOTAL-REVENUES> 12,070
<CGS> 0
<TOTAL-COSTS> 14,343
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<INTEREST-EXPENSE> 1,349
<INCOME-PRETAX> (3,805)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,805)
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<NET-INCOME> (3,805)
<EPS-BASIC> (.11)
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