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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended: May 31, 1998
Commission File No. 0-22155
PERENNIAL HEALTH SYSTEMS, INC.
(Formerly In-House Rehab Corporation)
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(Exact Name of Small Business Issuer as Specified in its Charter)
Colorado 84-0987697
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(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
325 West Main Street, Suite 1400B, Louisville, Kentucky 40202
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(Address of Principal Executive Offices, Including Zip Code)
Issuer's telephone number, including area code: (502) 568-8923
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock.
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 [ ]
As of August 20, 1998, 13,391,072 Shares of the Registrant's No Par Value
Common Stock were outstanding. The aggregate market value of voting stock
held by nonaffiliates of the Registrant on that date was approximately
$14,951,000.
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State Issuer's revenues for its most recent fiscal year: $18,687,000.
Documents incorporated by reference: None
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PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The following exhibits are filed as part of this Report:
EXHIBIT
NUMBER DESCRIPTION LOCATION
- ------- ----------- --------
3.1 Articles of Incorporation, Incorporated by reference to
as amended Exhibit 3.1 to Registrant's
Registration Statement on
Form 10SB
3.2 Bylaws Incorporated by reference to
Exhibit 3.2 to Registrant's
Registration Statement on
Form 10SB
10.1 1996 Stock Option Plan Incorporated by reference to
Exhibit 10.1 to Registrant's
Registration Statement on
Form 10SB
10.2 Employment Agreement with Previously filed
David V. Hall
10.3 Employment Agreement with Previously filed
Robert J. Babine
10.4 Lease Agreement on Office Incorporated by reference to
Space Exhibit 10.4 to Registrant's
Registration Statement on
Form 10SB
10.5 Contracts for Therapy Incorporated by reference to
Program Services with Exhibit 10.5 to Registrant's
Affiliates Form 10-KSB for the year ended
May 31, 1997
10.6 Credit Facility Agreement with Incorporated by reference to
Great Financial Bank and Exhibit 10.7 to Registrant's
related Security Agreement and Form 10-KSB for the year ended
Promissory Note May 31, 1997
10.7 Loan and Security Agreement Filed herewith electronically
with Daiwa Healthco-3 LLC
and related Guaranty of
David V. Hall
10.8 Employment Agreement with Previously filed
Rebecca Krueger
10.9 Employment Agreement with Previously filed
Michael Kitchen
10.10 Employment Agreement with Previously filed
Nicole Perry
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21 Subsidiaries of the Previously filed
Registrant
23 Consent of Strothman & Previously filed
Company PSC
27 Financial Data Schedule Previously filed.
(b) Reports on Form 8-K. No Reports on Form 8-K were filed during the
last quarter of the period covered by this Report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Amended Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PERENNIAL HEALTH SYSTEMS, INC.
(Formerly "In-House Rehab Corporation")
Dated: January 21, 1999 By:/s/ David V. Hall
David V. Hall, President
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LOAN AND SECURITY AGREEMENT
Dated as of August 31, 1998
Among
IN-HOUSE REHAB, INC.
IN-HOUSE MEDICAL RESOURCES, INC.
RT GROUP, INC.
DOCTORS REHAB & THERAPY, INC.
DAILY REHABILITATION INSTITUTE OF PONTE VEDRA, INC.
GATEWAY REHAB, INC.
IN-HOUSE REHAB PARTNERS, LLC
and
PERENNIAL HEALTH MANAGEMENT, INC.
as Borrowers
IN-HOUSE REHAB CORPORATION
as
Primary Servicer and Guarantor
and
DAIWA HEALTHCO-3 LLC
as Lender
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TABLE OF CONTENTS
Page
ARTICLE I. COMMITMENT; AMOUNTS AND TERMS OF THE LOANS
Section 1.01. Revolving Advances 1
Section 1.02. Revolving Commitment and Borrowing Limit 1
Section 1.03. Notice of Borrowing; Borrowers' Certificate 2
Section 1.04. Termination of Revolving Commitment 2
Section 1.05. [Intentionally Omitted.] 2
Section 1.06. [Intentionally Omitted.] 2
Section 1.07. Interest and Non-Utilization Fee 2
Section 1.08. Renewals 3
Section 1.09. Computation of Interest 4
Section 1.10. Procedures for Payment 4
Section 1.11. Indemnities 5
Section 1.12. Telephonic Notice 6
Section 1.13. Maximum Interest 6
ARTICLE II. COLLECTION AND DISTRIBUTION
Section 2.01. Collections on the Receivables 7
Section 2.02. Distribution of Funds 7
Section 2.03. Distribution of Funds at and after the
Maturity Date or upon an Event of Default 8
Section 2.04. Distributions to the Borrowers Generally 8
Section 2.05. Avoidance of Breakage Costs 8
ARTICLE III. REPRESENTATIONS AND WARRANTIES; COVENANTS;
EVENTS OF DEFAULT
Section 3.01. Representations and Warranties; Covenants 8
Section 3.02. Events of Default; Remedies 8
Section 3.03. Attorney-in-Fact 9
ARTICLE IV. SECURITY
Section 4.01. Grant of Security Interest 9
ARTICLE V. MISCELLANEOUS
Section 5.01. Amendments, etc 9
Section 5.02. Notices, etc 10
Section 5.03. Assignability 10
Section 5.04. Further Assurance 10
Section 5.05. Costs and Expenses 10
Section 5.06. Confidentiality 11
Section 5.07. Term and Termination 11
Section 5.08. No Liability of Lender 12
Section 5.09. Joint and Several Liability 13
Section 5.10. Execution in Counterparts 13
Section 5.11. Entire Agreement; Severability 13
Section 5.12. GOVERNING LAW 13
Section 5.13. WAIVER OF JURY TRIAL, JURISDICTION AND
VENUE 13
Section 5.14. No Proceedings 13
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EXHIBITS
Exhibit I Definitions
Exhibit II Conditions of Purchases
Exhibit III Representations and Warranties
Exhibit IV Covenants
Exhibit V Events of Default
Exhibit VI Receivable Information
Exhibit VII Eligibility Criteria
Exhibit VIII Form of Borrowing Base Certificate
Exhibit IX Form of Depositary Agreement
Exhibit X-A Form of Opinion of Counsel
Exhibit X-B Form of Opinion of Counsel
Exhibit XI Primary Servicer Responsibilities
Exhibit XII Form of Borrowers Certificate
SCHEDULES
Schedule I Addresses for Notices
Schedule II Credit and Collection Policy
Schedule III Indebtedness
Schedule III(m) Changes in Principal Place of Business
Schedule III(n) Changes of Borrower Name
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LOAN AND SECURITY AGREEMENT, dated as of August 31, 1998, between
IN-HOUSE REHAB, INC., a Kentucky corporation, IN-HOUSE MEDICAL RESOURCES,
INC., a Kentucky corporation, RT GROUP, INC., an Indiana corporation, DOCTORS
REHAB & THERAPY, INC., a Kentucky corporation, DAILY REHABILITATION INSTITUTE
OF PONTE VEDRA, INC., a Florida corporation, GATEWAY REHAB, INC., an Illinois
corporation, IN-HOUSE REHAB PARTNERS, LLC, a Kentucky limited liability
company, and PERENNIAL HEALTH MANAGEMENT, INC., a Kentucky corporation (each
together with its corporate successors and assigns, a "Borrower" and
collectively, the "Borrowers"), IN-HOUSE REHAB CORPORATION, a Colorado
corporation("Holdings"), as Primary Servicer and Guarantor, and DAIWA
HEALTHCO-3 LLC, a Delaware limited liability company (together with its
successors and assigns, the "Lender"), agree as follows:
Certain terms that are capitalized and used throughout this Agreement are
defined in Exhibit I to this Agreement. References herein and in the Exhibits
and Schedules hereto to the "Agreement" refer to this Agreement, as amended,
restated, modified or supplemented from time to time in accordance with its
terms.
The Borrowers wish to borrow funds from the Lender secured by the
Collateral and the Lender is prepared to make such loans on the terms and
subject to the conditions set forth herein.
Accordingly, the parties agree as follows:
ARTICLE I.
COMMITMENT; AMOUNTS AND TERMS OF THE LOANS
Section 1.01. Revolving Advances. (a) The Lender agrees to lend to the
Borrowers subject to and upon the terms and conditions herein set forth, on
any Funding Date, such amounts as may be requested by the Borrowers (each such
borrowing, a "Revolving Advance" and the outstanding principal balance of all
Revolving Advances from time to time, the "Loan").
(b) Each Revolving Advance shall be in an amount equal to $100,000
or an integral multiple of $10,000 in excess thereof and shall be made on the
date specified in the Written Notice or telephonic notice confirmed in writing
as described in Section 1.03 hereof.
Section 1.02. Revolving Commitment and Borrowing Limit. (a) The
aggregate unpaid principal amount of the Revolving Advances outstanding at any
time shall not exceed an amount equal to the lesser of (i) $5,000,000 (such
amount, or such greater amount after giving effect to an increase pursuant to
the provisions of this Agreement, the "Revolving Commitment"), and (ii) the
Borrowing Base as of such time (the lesser of (i) and (ii) being the
"Borrowing Limit").
(b) Subject to the limitations set forth herein, the Borrowers may
borrow, repay (without premium or penalty) and reborrow the Loan.
(c) If at any time the outstanding principal amount of the Loan
exceeds the Borrowing Limit at such time, the Borrowers shall promptly, in
accordance with Article II hereof, eliminate such excess by paying an amount
equal to such excess until such excess is eliminated in full.
(d) The Authorized Representative of the Borrowers may request that
the Lender increase (but not decrease) the Revolving Commitment, and, the
Lender, in its sole discretion upon such request, may decide to increase the
Revolving Commitment, provided, that such request shall not be made more than
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twice during each calendar year; and further provided that the Revolving
Commitment, as so increased, shall in no event exceed $20,000,000. Each such
increase shall be in an amount equal to $2,500,000 or an integral multiple of
$2,500,000 in excess thereof and the Borrowers shall, upon the effective date
of such increase, pay to the Lender an amount equal to 1.50% of any such
increase.
Section 1.03. Notice of Borrowing; Borrowers' Certificate. Whenever the
Borrowers desire to make a borrowing of a Revolving Advance on a Funding Date,
the Authorized Representative of the Borrowers shall give the Lender not later
than 11:00 a.m. (New York time), at least one Business Day's prior Written
Notice or telephonic notice from an Authorized Representative of the Borrowers
confirmed promptly in writing (which notice shall be irrevocable) of its
desire to make a borrowing of a Revolving Advance. Each notice of borrowing
under this Section 1.03 shall be substantially in the form of Exhibit XII
hereto (each a "Borrowers' Certificate") and specify the date on which the
Borrowers desire to make a borrowing of a Revolving Advance (which in each
instance shall be a Funding Date) and the amount of such borrowing. The
Authorized Representative of the Borrowers shall attach to the Borrowers'
Certificate the Borrowing Base Certificate delivered by the Authorized
Representative of the Borrowers to the Lender on the immediately prior
Thursday (or, if such Thursday was not a Business Day, the next following
date), which figures shall have been confirmed (and, if necessary, adjusted)
by the Program Manager in consultation with the Borrowers. The Lender shall
take all reasonable efforts to cause the Program Manager to examine and
confirm information provided in each Borrowing Base Certificate within two
Business Days of receipt thereof.
Section 1.04. Termination of Revolving Commitment. On the Maturity
Date, the Revolving Commitment shall be canceled. Upon such cancellation, the
Revolving Advances (together with all other Lender Debt) shall become, without
further action by any Person, immediately due and payable together with all
accrued interest thereon to such date plus any fees, premiums, charges or
costs provided for hereunder. Upon the termination of the Revolving
Commitment on any date prior to the Scheduled Maturity Date (unless such
termination results from the effectuation of the Securitization or other
financing arrangement of Holdings and/or the Borrowers with the Lender), the
Borrowers shall pay to the Lender the Early Termination Fee, if any.
Section 1.05. [Intentionally Omitted.]
Section 1.06. [Intentionally Omitted.]
Section 1.07. Interest and Non-Utilization Fee. (a) Interest on Loan.
The Borrowers shall pay interest on the unpaid principal amount of each
Revolving Advance made to it outstanding from time to time (i) on each
Interest Payment Date, and (ii) on the Maturity Date (whether by acceleration
or otherwise) upon demand, in each case at an interest rate per annum equal to
the LIBO Rate for the Interest Period in effect for such Revolving Advance
plus 3.25%. The Lender agrees to consider adjustments downward of the
interest rate set forth above, based on the successful financial performance
of the Borrowers resulting from acquisitions following the Closing Date;
provided, that this sentence shall not constitute (nor be construed as
constituting) an obligation of the Borrowers to make any interest rate
reduction.
(b) Default Interest. Notwithstanding anything to the contrary
contained herein, while any Event of Default is continuing, interest on the
Loans shall be payable on demand at a rate per annum equal to four percentage
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points (4.00%) in excess of the highest rate then otherwise applicable to such
Loan.
(c) LIBO Rate Determination. The Lender, upon determining the LIBO
Rate shall promptly notify by telephone (confirmed promptly in writing) or in
writing the Borrowers of such rates. Such determination shall, in the absence
of manifest error, be conclusive and binding upon the Borrowers.
(d) Non-Utilization Fee. The Borrowers shall pay to the Lender on
the first Funding Date of each month a fee (the "Non-Utilization Fee") equal
to an annual rate of 0.375% on the average amount, calculated on a daily
basis, by which the Revolving Commitment exceeds the outstanding amount of the
Loan during the prior month.
Section 1.08. Renewals. (a) The Borrowers may, from time to time
following the Initial Funding Date and prior to the Maturity Date, renew all
or a portion of their outstanding Revolving Advances so long as the aggregate
principal balance of the portion of the Revolving Advance made to the
Borrowers being renewed, if any, is $100,000 or an integral multiple of
$10,000 in excess of $100,000; provided, however, that the Borrowers shall not
be entitled to renew any Revolving Advance, or portion thereof unless all
accrued interest on the Revolving Advance renewed through the date of such
renewal shall have been paid in full.
(b) Each renewal by the Borrowers of an outstanding Revolving
Advance or portion thereof shall be made on notice to the Lender given not
later than 11:00 a.m. (New York time) on the date at least two Business Days'
prior to the last day of the Interest Period just ending for such Revolving
Advance. Each notice (which notice shall be irrevocable) by Borrowers of the
renewal of a Revolving Advance or portion thereof, shall be in writing or by
telephone from the Authorized Representative of the Borrowers confirmed
promptly in writing and shall specify the amount of such renewal of the
Revolving Advance or portion thereof. Notwithstanding the above, the
Borrowers shall not be entitled to renew a Revolving Advance or a portion
thereof, if at the time of the selection of such renewal there shall exist a
Default or an Event of Default.
(c) Any Revolving Advance or portion thereof as to which the Lender
shall not have received a proper notice of renewal as provided in this Section
1.08 or notice of payment or prepayment by 3:00 p.m. (New York time) at least
two Business Days prior to the last day of the Interest Period just ending for
such Revolving Advance shall, unless a Default or Event of Default has
occurred, either be paid in full or if not paid in full, shall be converted,
in whole or in part, to a new Revolving Advance on the last day of the
Interest Period.
Section 1.09. Computation of Interest. (a) Interest on the Loans and
fees and other amounts calculated by the Lender on the basis of a rate per
annum shall be computed on the basis of actual days elapsed over a 360 day
year.
(b) Whenever any payment to be made hereunder or under any other
Document shall be stated to be due and payable on a day which is not a
Business Day, such payment shall be made on the next succeeding Business Day
and such extension of time shall in such case be included in computing
interest on such payment; provided, however, that if such extension would
cause a payment of a Revolving Advance to be made, or the last day of such
Interest Period for a Revolving Advance to occur, in the next following Month,
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such payment shall be made and the last day of such Interest Period shall
occur on the next preceding Business Day.
Section 1.10. Procedures for Payment. (a) Each payment hereunder shall
be made not later than 12:00 noon (New York City time) on the day when due in
lawful money of the United States of America to the Lender without
counterclaim, offset, claim or recoupment of any kind and free and clear of,
and without deduction for, any present or future withholding or other taxes,
duties or charges of any nature imposed on such payments or prepayments by or
on behalf of any Governmental Entity thereof or therein, except for Excluded
Taxes. If any such taxes, duties or charges are so levied or imposed on any
payment to any Lender, the Borrowers will make additional payments in such
amounts as may be necessary so that the net amount received by the Lender,
after withholding or deduction for or on account of all taxes, duties or
charges, including deductions applicable to additional sums payable under this
Section 1.10, will be equal to the amount provided for herein. Whenever any
taxes, duties or charges are payable by the Borrowers with respect to any
payments hereunder, the Borrowers shall furnish promptly to the Lender
information, including certified copies of official receipts (to the extent
that the relevant Governmental Entity delivers such receipts), evidencing
payment of any such taxes, duties or charges so withheld or deducted. If the
Borrowers fail to pay any such taxes, duties or charges when due to the
appropriate taxing authority or fail to remit to the Lender the required
information evidencing payment of any such taxes, duties or charges so
withheld or deducted, the Borrowers shall indemnify the Lender for any
incremental taxes, duties, charges, interest or penalties that may become
payable by the Lender as a result of any such failure.
(b) Notwithstanding anything to the contrary contained in this
Agreement, the Borrowers agree to pay any present or future stamp or
documentary taxes, any intangibles tax or any other sales, excise or property
taxes, charges or similar levies now or hereafter assessed that arise from and
are attributable to any payment made hereunder or from the execution, delivery
of, or otherwise with respect to, this Agreement or other Documents and any
and all recording fees relating to any Documents securing any Lender Debt
("Other Taxes").
(c) The Borrowers shall indemnify the Lender for the full amount of
any taxes, duties or charges other than Excluded Taxes and Other Taxes
(including, without limitation, any taxes other than Excluded Taxes and Other
Taxes imposed by any jurisdiction on amounts payable under this Section 1.10)
duly paid or payable by the Lender and any liability (including penalties,
interest and expenses) arising therefrom or with respect thereto.
Indemnification payments shall be made within 30 days from the date the Lender
makes written demand therefor.
(d) Without prejudice to the survival of any other agreement of the
Borrowers hereunder, the agreements and obligations of the Borrowers contained
in this Section 1.10 shall survive the payment in full of principal and
interest hereunder indefinitely.
Section 1.11. Indemnities. (a) Each Borrower hereby agrees to
indemnify the Lender within ten days of demand against any actual and direct
loss or expense which the Lender or its branch or Affiliate may sustain or
incur as a consequence of: (i) the payment or prepayment of the principal
amount of any Loan made to it or any portion thereof, on any day other than
the last day of an Interest Period or the payment of any interest on any Loan
made to it, or portion thereof, on a day other than an Interest Payment Date
for such Loan; or (ii) the failure by the Borrower to accept or make a
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borrowing of a Loan or a renewal of a Loan after it has requested such
borrowing, conversion or renewal; in each case including, but not limited to,
any loss or expense sustained or incurred in liquidating or employing deposits
from third parties acquired to effect or maintain such Loan or any portion
thereof. The Lender shall provide to each such Borrower a statement,
supported when applicable by documentary evidence, explaining the amount of
any such loss or expense it incurs, which statement shall be conclusive absent
manifest error or bad faith.
(b) Each Borrower hereby agrees to indemnify and hold harmless the
Lender and its Affiliates, directors, officers, agents, representatives,
counsel and employees and each other Person, if any, controlling them or any
of its Affiliates within the meaning of either Section 15 of the Securities
Act of 1933, as amended, or Section 20(a) of the Exchange Act (each an
"Indemnified Party"), from and against any and all losses, claims, damages,
costs, expenses (including reasonable counsel fees and disbursements) and
liabilities which may be incurred by or asserted against such Indemnified
Party with respect to or arising out of the commitments hereunder to make the
Loans, or the financings contemplated hereby, the other Documents, the
Collateral (including, without limitation, the use thereof by any of such
Persons or any other Person, the exercise by the Lender of rights and remedies
or any power of attorney with respect thereto, and any action or inaction of
the Lender under and in accordance with any Security Document), the use of
proceeds of any financial accommodations provided hereunder, any
investigation, litigation or other proceeding brought or threatened relating
thereto, or the role of any such Person or Persons in connection with the
foregoing whether or not they or any other Indemnified Party is named as a
party to any legal action or proceeding ("Claims"). The Borrowers will not,
however, be responsible to any Indemnified Party hereunder for any Claims to
the extent that a court having jurisdiction shall have determined that any
such Claim shall have arisen out of or resulted principally from (a)(i)
actions taken or omitted to be taken by such Indemnified Party by reason of
the bad faith, willful misconduct or gross negligence of any Indemnified
Party, or (ii) in violation of any law or regulation applicable to such
Indemnified Party (except to the extent that such violation is attributable to
any breach of any representation, warranty or agreement by or on behalf of the
Borrowers, or any Subsidiary of any Borrower, in each case, as determined by a
final nonappealable decision of a court of competent jurisdiction), or (b) a
successful claim by any Borrower against such Indemnified Party ("Excluded
Claims"). The Indemnified Party shall give the Borrower prompt Written Notice
of any Claim setting forth a description of those elements of the Claim of
which such Indemnified Party has knowledge. The Lender, as an Indemnified
Party shall be permitted hereunder to select counsel to defend such Claim at
the expense of the Borrowers and, if such Indemnified Party shall decide to do
so, then all such Indemnified Parties shall select the same counsel to defend
such Indemnified Parties with respect to such Claim; provided, however, that
if any such Indemnified Party shall in its reasonable opinion consider that
the retention of one joint counsel as aforesaid shall result in a conflict of
interest, such Indemnified Party may, at the expense of the Borrowers, select
its own counsel to defend such Indemnified Party with respect to such Claim.
The Indemnified Parties and the Borrowers and their respective counsel shall
cooperate with each other in all reasonable respects in any investigation,
trial and defense of any such Claim and any appeal arising therefrom.
Section 1.12. Telephonic Notice. Without in any way limiting the
Borrowers' obligation to confirm in writing any telephonic notice of a
borrowing, conversion or renewal, the Lender may act without liability upon
the basis of telephonic notice believed by the Lender in good faith to be from
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an Authorized Representative of the Borrowers prior to receipt of written
confirmation.
Section 1.13. Maximum Interest. (a) No provision of this Agreement
shall require the payment to any Lender or permit the collection by any Lender
of interest in excess of the maximum rate of interest from time to time
permitted (after taking into account all consideration which constitutes
interest) by laws applicable to the Lender Debt and binding on any Lender
(such maximum rate being the Lender's "Maximum Permissible Rate").
(b) If the amount of interest computed without giving effect to
this Section 1.13 and payable on any interest payment date in respect of the
preceding interest computation period would exceed the amount of interest
computed in respect of such period at the Maximum Permissible Rate, the amount
of interest payable to the Lender on such date in respect of such period shall
be computed at the Maximum Permissible Rate.
(c) If at any time and from time to time: (i) the amount of
interest payable to any Lender on any interest payment date shall be computed
at the Maximum Permissible Rate pursuant to the preceding subsection (b); and
(ii) in respect of any subsequent interest computation period the amount of
interest otherwise payable to the Lender would be less than the amount of
interest payable to the Lender computed at the Maximum Permissible Rate, then
the amount of interest payable to the Lender in respect of such subsequent
interest computation period shall continue to be computed at the Maximum
Permissible Rate until the amount of interest payable to the Lender shall
equal the total amount of interest which would have been payable to the Lender
if the total amount of interest had been computed without giving effect to the
preceding subsection (b).
ARTICLE II.
COLLECTION AND DISTRIBUTION
Section 2.01. Collections on the Receivables. (a) The Lender shall be
entitled with respect to all Receivables, (i) to hold as collateral all
Receivables and all Collections on Receivables pursuant to the terms of the
Depositary Agreement, and (ii) to have and to exercise any and all rights to
collect, record, track and take all actions to obtain Collections with respect
to all Receivables.
(b) Each Borrower hereby appoints Holdings as its primary servicer
(the "Primary Servicer") to perform the Primary Servicer Responsibilities.
Each Borrower hereby grants the Primary Servicer access to all files and
information necessary or appropriate in order to fulfill the Primary Servicer
Responsibilities.
(c) Tracking of Collections and other transactions pertaining to
the Receivables shall be administered by the Master Servicer in a manner
consistent with the terms of this Agreement. The responsibilities of the
Primary Servicer to the Master Servicer have been set forth in Exhibit XI
attached hereto. The Borrowers shall cooperate fully with the Master Servicer
in establishing and maintaining the Transmission of the Receivable
Information, including, without limitation, the matters described in Exhibit
XI, and shall provide promptly to the Master Servicer such other information
necessary or desirable for the administration of Collections on the
Receivables as may be requested from time to time.
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(d) On the fifteenth calendar day of each month after the Initial
Funding Date, the Borrowers shall provide the Master Servicer by Transmission
the information listed on Exhibit VI hereto (as such Exhibit may be modified
by the Lender from time to time, the "Receivable Information") with respect to
new Receivables that it has determined constitute Eligible Receivables as of
the last Business Day of the immediately preceding month.
(e) During the continuance of an Event of Default, the Lender may
(and shall, without requirement of notice to any party, upon an Event of
Default resulting from the events described in clause (i) of Exhibit V
hereto), designate the Master Servicer or any other Person to succeed the
Primary Servicer in the performance of the Primary Servicer Responsibilities.
Section 2.02. Distribution of Funds. On each Business Day, and
provided, that no Event of Default is continuing and the Lender has received
the Borrowing Base Certificate most recently due, the Lender shall distribute
any and all Collections received since the immediately prior Funding Date, as
follows: FIRST, to the Lender, an amount in cash equal to the Interest
Shortfall, if any, until such amount has been paid in full; SECOND, to the
Lender, an amount in cash equal to the Principal Shortfall, if any, until such
amount has been paid in full; THIRD, to the Lender, an amount in cash equal to
the payment, if any, of principal on the Loans that may be due and payable on
such Funding Date, until such amount has been paid in full; FOURTH, to the
Lender, an amount in cash equal to the payment of any other Lender Debt due
and payable on such Funding Date, if any, until such amount has been paid in
full; and FIFTH, to the Borrowers, all remaining amounts of Collections.
Section 2.03. Distribution of Funds at and after the Maturity Date or
upon an Event of Default. At the Maturity Date or upon the occurrence and
during the continuance of an Event of Default, subject to the rights and
remedies of the Lender pursuant to Section 3.02 hereof, the Lender shall
distribute any and all Collections and any other proceeds arising from any
collection or any Collateral to the Lender as follows: FIRST, to the Lender,
an amount in cash equal to any and all accrued fees and collection costs as
set forth in Section 5.05, until such amount has been paid in full; SECOND, to
the Lender, an amount in cash equal to all accrued and unpaid interest on the
Loans (at the rate established under Section 1.07(b)) until such amount has
been funded in full; THIRD, to the Lender, an amount in cash equal to the
principal amount of the Loans, until such amount is paid in full; FOURTH, to
the Lender, an amount in cash equal to the payment of any other Lender Debt
due and payable on such Funding Date, until such amount has been paid in full;
and FIFTH, to the Borrowers, all remaining amounts of Collections.
Section 2.04. Distributions to the Borrowers Generally. Distributions
to the Borrowers shall be deposited in the Distribution Account.
Section 2.05. Avoidance of Breakage Costs. So long as no Default or
Event of Default is continuing, the Lender shall not apply out of Collections,
unless requested in writing by the Borrowers, any payment of principal to any
portion of a Loan until the last day of the respective Interest Period thereof
or the earlier maturity of such portion of such Loan by acceleration or
otherwise.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES; COVENANTS;
EVENTS OF DEFAULT
Section 3.01. Representations and Warranties; Covenants. Each Borrower
makes on the Initial Funding Date and on each subsequent Funding Date, the
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representations and warranties set forth in Exhibit III hereto, and hereby
agrees to perform and observe the covenants set forth in Exhibit IV hereto.
Section 3.02. Events of Default; Remedies. (a) If any Event of Default
shall occur and be continuing, the Lender may, by notice to the Authorized
Representative of the Borrowers, take either or both of the following actions:
(x) declare the Maturity Date to have occurred, and (y) without limiting any
rights hereunder but subject to applicable law, replace the Primary Servicer
in its performance of any or all of the Primary Servicer Responsibilities
(which replacement may be effectuated through the outplacement to a qualified
and experienced third-party of all back office duties, including billing,
collection and processing responsibilities, and access to all of Borrowers'
personnel, hardware and software utilized in connection with such
responsibilities); provided, that, with respect to the Event of Default in
clause (i) of Exhibit V, the Maturity Date shall be deemed to have occurred
automatically and without notice. Upon any such declaration or designation,
the Lender shall have, in addition to the rights and remedies which it may
have under this Agreement, all other rights and remedies provided after
default under the UCC and under other applicable law, which rights and
remedies shall be cumulative.
(b) Right of Set-Off. During the continuance of an Event of
Default, the Borrowers hereby irrevocably authorize and instruct the Lender to
set-off the full amount of the any Lender Debt due and payable against (i) any
Collections, or (ii) the principal amount of any Revolving Advance to be
financed on or after such date. No further notification, act or consent of
any nature whatsoever is required prior to the right of the Lender to exercise
such right of set-off; provided, however, a member of the Lender Group shall
notify the Borrowers that a set-off pursuant to this Section 3.02 occurred,
the amount of such set-off and a description of the Lender Debt that was due
and payable.
Section 3.03. Attorney-in-Fact. Each Borrower hereby irrevocably
designates and appoints the Lender, the Master Servicer and each other Person
in the Lender Group, to the extent permitted by applicable law and regulation,
as its attorneys-in-fact, which irrevocable power of attorney is coupled with
an interest, with authority during the continuance of a Default or Event of
Default to (i) endorse or sign its name to financing statements, remittances,
invoices, assignments, checks, drafts or other instruments or documents in
respect of the Receivables, and (ii) bring suit in the its name and settle or
compromise such Receivables as the Lender or the Master Servicer may, in its
discretion, deem appropriate.
ARTICLE IV.
SECURITY
Section 4.01. Grant of Security Interest. (a) As collateral security
for the Borrowers' obligations to pay the Lender Debt when due and payable,
each Borrower hereby grants to the Lender a first priority Lien on and
security interest in and right of set-off against all of the rights, title and
interest of such Borrower in and to (i) the Lockbox and the Lockbox Account,
and (ii) the Collateral, and (iii) all Proceeds of the foregoing.
(b) The Borrowers agree to execute, and hereby authorize the Lender
to file, one or more financing statements or continuation statements or
amendments thereto or assignments thereof in respect of the Lien created
pursuant to this Section 4.01 which may at any time be required or, in the
opinion of the Lender, be desirable, and to do so without the signature of the
Borrowers where permitted by law.
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ARTICLE V.
MISCELLANEOUS
Section 5.01. Amendments, etc. (a) No amendment or waiver of any
provision of this Agreement or consent to any departure therefrom by a party
hereto shall be effective unless in a writing signed by the Lender and each of
the Borrowers and then such amendment, waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
No failure on the part of the Lender or any Borrower to exercise, and no delay
in exercising, any right hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right hereunder preclude any other
or further exercise thereof or the exercise of any other right.
(b) The parties hereto agree to make any change, modification or
amendment to this Agreement as may be requested by Duff & Phelps Credit Rating
Co. or any other rating agency then rating the healthcare financing program
of the Lender, so long as any such change, modification or amendment does not
adversely affect the parties hereto.
Section 5.02. Notices, etc. All notices and other communications
hereunder shall, unless otherwise stated herein, be in writing (which may
include facsimile communication) and shall be faxed or delivered, (i) to each
party hereto (and the Lender hereby agrees that notices to or for its benefit
may be delivered to the Program Manager and such delivery to the Program
Manager shall be deemed received by the Lender and each Borrower agrees that
notices to or for its benefit may be delivered to the Authorized
Representative of the Borrowers and such delivery to the Authorized
Representative of the Borrowers shall be deemed received by each Borrower), at
its address set forth under its name on the signature pages hereof or at such
other address as shall be designated by such party in a Written Notice to the
other parties hereto, and (ii) to the Program Manager and the Master Servicer
at the addresses set forth on Schedule I attached hereto. Notices and
communications by facsimile shall be effective when sent (and shall be
followed by hard copy sent by regular mail), and notices and communications
sent by other means shall be effective when received.
Section 5.03. Assignability. (a) This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
permitted successors and assigns.
(b) Without the prior consent of the Authorized Representative of
the Borrowers (which consent shall not be unreasonably withheld), the Lender
may not assign this Agreement and the Lender's rights, title and interest and
obligations contained herein (including its security interest in the
Collateral) (collectively, "Lender Position"); provided, that (i) the Lender
may assign the Lender Position to another limited purpose bankruptcy-remote
entity sponsored and managed by the Program Manager that is a United States
Person under Section 7701(a)(30) of the Internal Revenue Code of 1986 (as
amended), and (ii) each Borrower hereby acknowledges that the Lender may grant
to its lenders a security interest in the Lender's Position, including without
limitation, this Agreement.
(c) No Borrower may assign its rights or obligations hereunder or
any interest herein without the prior written consent of the Lender.
Section 5.04. Further Assurance. The Borrowers shall, at their cost and
expense, upon the request of the Lender, duly execute and deliver, or cause to
be duly executed and delivered, to the Lender such further instruments and do
and cause to be done such further acts as may be necessary or proper in the
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reasonable opinion of the Lender to carry out more effectively the provisions
and purposes of this Agreement.
Section 5.05. Costs and Expenses. (a) The Borrowers agree to pay on
demand all reasonable costs and expenses in connection with the preparation,
execution and delivery of this Agreement and any waiver, modification,
supplement or amendment hereto, including, without limitation, the reasonable
fees and out-of-pocket expenses of counsel for the Lender and all costs and
expenses, if any (including reasonable counsel fees and expenses), of the
Lender and its Affiliates in connection with the enforcement of this
Agreement. The Borrowers further agree to pay on demand (a) all costs and
expenses incurred by the Lender or its agent in connection with periodic
audits performed as provided in Exhibit IV hereto, (b) all costs and expenses
incurred by the Master Servicer or the Program Manager to accommodate any
significant coding or data system changes made by the Borrowers that would
affect the transmission or interpretation of data received through the
interface, and (c) all costs and expenses incurred by the Lender for
additional time (calculated at a rate of $80 per hour) and material expenses
of the Master Servicer resulting from a lack of cooperation or responsiveness
of the Lender to agreed-upon protocol and schedules with the Master Servicer;
provided, that the Authorized Representative of the Borrowers has been
informed of the alleged lack of cooperation or responsiveness and has been
provided the opportunity to correct such problems.
Section 5.06. Confidentiality. (a) The Borrowers acknowledge that this
Agreement contains confidential and proprietary information. Unless otherwise
required by applicable law, the Borrowers hereby agree to maintain the
confidentiality of this Agreement (and all drafts and other documents
delivered in connection therewith) in communications with third parties and
otherwise and to take all reasonable action to prevent the unauthorized use or
disclosure of and to protect the confidentiality of such information;
provided, that, this Agreement may be disclosed to rating agencies and the
Borrowers' legal counsel, investment bankers and auditors, in each case if
such Person agrees to hold it confidential.
(b) The Borrowers understand and agree that the Lender may suffer
irreparable harm if the Borrowers breach their obligations under this Section
5.06 and that monetary damages shall be inadequate to compensate the Lender
for such breach. Accordingly, the Borrowers agree that, in the event of a
breach by the Borrowers of this Section 5.06 the Lender, in addition and not
in limitation of its rights and remedies under law, shall be entitled to a
temporary restraining order, preliminary injunction and permanent injunction
to prevent or restrain any such breach by the Borrowers.
Section 5.07. Term and Termination. (a) The obligations of the Lender
under this Agreement shall continue in full force and effect from the date
hereof until the Maturity Date. Upon the payment in full of all Lender Debt,
the Lender shall take all actions and deliver all assignments, certificates,
releases, notices and other documents, at the Borrowers' expense, as the
Borrowers may reasonably request to effect such termination.
(b) The Borrowers may terminate this Agreement at any time prior to
the Maturity Date upon (i) lapse of not less than ten days' prior Written
Notice (which shall be irrevocable) to the Lender of Default of the commitment
by the Lender pursuant to Article I hereof to make Revolving Advances, and
(ii) payment of all Lender Debt, including all due and payable applicable
fees, charges, premiums and costs, all as provided hereunder.
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(c) The termination of this Agreement shall not affect any rights
of the Lender or any obligations of the Borrowers arising on or prior to the
effective date of such termination, and the provisions hereof shall continue
to be fully operative until all Lender Debt incurred on or prior to such
termination have been paid and performed in full.
(d) Upon the giving of notice of an Event of Default of this
Agreement, all Lender Debt shall be due and payable on the date of the Event
of Default specified in such notice. Upon the (i) the termination of all
commitments and obligations of the Lender, and (ii) the indefeasible payment
in full of all Lender Debt, the Lender shall, at the request and sole cost and
expense of the Authorized Representative of the Borrowers, execute and deliver
to the Borrowers such documents as the Borrowers shall reasonably request to
evidence such termination.
(e) The Liens and rights granted to the Lender hereunder shall
continue in full force and effect, notwithstanding the termination of this
Agreement, until all of the Lender Debt has been indefeasibly paid in full in
cash.
(f) All indemnities representations, warranties, covenants, waivers
and agreements contained herein shall survive termination hereof unless
otherwise provided.
(g) Notwithstanding the foregoing, if after receipt of any payment
of all or any part of the Lender Debt, the Lender is for any reason compelled
to surrender such payment to any Person or entity because such payment is
determined to be void or voidable as a preference, an impermissible setoff, a
diversion of trust funds or for any other reason, this Agreement shall
continue in full force (except that the Revolving Commitment of the Lender
shall have been terminated), and the Borrowers and Holdings shall be liable
to, and shall indemnify and hold the Lender harmless for the amount of such
payment surrendered until the Lender shall have been finally and irrevocably
paid in full. The provisions of the foregoing sentence shall be and remain
effective notwithstanding any contrary action which may have been taken by the
Lender in reliance upon such payment, and any such contrary action so taken
shall be without prejudice to the Lender's rights under this Agreement and
shall be deemed to have been conditioned upon such payment having become final
and irrevocable.
Section 5.08. No Liability of Lender. (a) Neither this Agreement nor
any document executed in connection herewith shall constitute an assumption by
the Lender of any obligation to any Person making payment in respect of the
Receivable or a patient of the Borrowers.
(b) Notwithstanding any other provision herein, no recourse under
any obligation, covenant, agreement or instrument of the Lender contained
herein or with respect hereto shall be had against any Related Person whether
arising by breach of contract, or otherwise at law or in equity (including any
claim in tort), whether express or implied, it being understood that the
agreements and other obligations of the Lender herein and with respect hereto
are solely its corporate obligations; provided, however, nothing herein above
shall operate as a release of any liability which may arise as a result of
such Related Person's gross negligence or willful misconduct. The provisions
of this Section 5.08 shall survive the termination of this Agreement.
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Section 5.09. Joint and Several Liability. Each Borrower hereby
acknowledges and agrees that all obligations of the Borrowers hereunder,
including, without limitation, the obligation to pay all Lender Debt when due,
are joint and several in all respects.
Section 5.10. Execution in Counterparts. This Agreement may be executed
in counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the
same agreement.
Section 5.11. Entire Agreement; Severability. (a) This Agreement
embodies the entire agreement and understanding of the parties concerning the
subject matter contained herein. This Agreement supersedes any and all prior
agreements and understandings between the parties, whether written or oral.
(b) If any provision of this Agreement shall be declared invalid or
unenforceable, the parties hereto agree that the remaining provisions of this
Agreement shall continue in full force and effect.
Section 5.12. GOVERNING LAW. THIS AGREEMENT SHALL, IN A MANNER
CONSISTENT WITH SECTION 5-1401 OF THE GENERAL OBLIGATION LAW OF THE STATE OF
NEW YORK, BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO
ANY CONFLICTS OF LAWS PRINCIPLES THEREOF THAT WOULD CALL FOR THE APPLICATION
OF THE LAWS OF ANY OTHER JURISDICTION.
Section 5.13. WAIVER OF JURY TRIAL, JURISDICTION AND VENUE. EACH
BORROWER, HOLDINGS AND THE PRIMARY SERVICER HEREBY WAIVES ALL RIGHTS TO A
TRIAL BY JURY IN THE EVENT OF ANY LITIGATION WITH RESPECT TO ANY MATTER
RELATED TO THIS AGREEMENT, AND HEREBY IRREVOCABLY CONSENTS TO THE JURISDICTION
OF THE STATE AND FEDERAL COURTS LOCATED IN NEW YORK COUNTY, NEW YORK CITY, NEW
YORK IN CONNECTION WITH ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT. IN ANY SUCH LITIGATION, EACH BORROWER , HOLDINGS AND THE
PRIMARY SERVICER WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER
PROCESS AND AGREES THAT SERVICE THEREOF MAY BE MADE BY CERTIFIED OR REGISTERED
MAIL DIRECTED TO THE BORROWER AT ITS ADDRESS SET FORTH ON THE SIGNATURE PAGE
HEREOF. EACH BORROWER SHALL APPEAR IN ANSWER TO SUCH SUMMONS, COMPLAINT OR
OTHER PROCESS WITHIN THE TIME PRESCRIBED BY LAW, FAILING WHICH THE BORROWER
SHALL BE DEEMED IN DEFAULT AND JUDGMENT MAY BE ENTERED BY THE LENDER FOR THE
AMOUNT OF THE CLAIM AND OTHER RELIEF REQUESTED THEREIN.
Section 5.14. No Proceedings. Each Borrower, Holdings and the Primary
Servicer hereby agree that it will not institute against the Lender any
proceeding of the type referred to in clause (i) of Exhibit V so long as any
senior indebtedness issued by the Lender shall be outstanding or there shall
not have elapsed one year plus one day since the last day on which any such
senior indebtedness shall have been outstanding.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
IN-HOUSE REHAB CORPORATION, as
Guarantor and Primary Servicer
By:/s/ David V. Hall
Name: David V. Hall
Title: President
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Address:
325 West Main Street
Waterfront Plaza, Ste. 1400B
Louisville, KY 40202
Attention: David V. Hall
Facsimile Number: (502) 585-2358
IN-HOUSE REHAB, INC., as Borrower
By:/s/ David V. Hall
Name: David V. Hall
Title: President
Address:
325 West Main Street,
Louisville, KY 40202
Attention: David V. Hall
Facsimile Number: (502) 585-2358
IN-HOUSE MEDICAL RESOURCES, INC., as Borrower
By:/s/ David V. Hall
Name: David V. Hall
Title: President
Address:
325 West Main Street,
Louisville, KY 40202
Attention: David V. Hall
Facsimile Number: (502) 585-2358
RT GROUP, INC., as Borrower
By:/s/ David V. Hall
Name: David V. Hall
Title: President
Address:
325 West Main Street,
Louisville, KY 40202
Attention: David V. Hall
Facsimile Number: (502) 585-2358
DOCTORS REHAB & THERAPY, INC., as Borrower
By:/s/ David V. Hall
Name: David V. Hall
Title: President
Address:
694 Goodlette Road,
Naples, FL 34102
Attention: David V. Hall
Facsimile Number: (502) 585-2358
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DAILY REHABILITATION INSTITUTE OF
PONTE VEDRA, INC., as Borrower
By:/s/ David V. Hall
Name: David V. Hall
Title: President
Address:
200 Solana Road,
Ponte Vedra, FL 32082
Attention: David V. Hall
Facsimile Number: (502) 585-2358
GATEWAY REHAB, INC., as Borrower
By:/s/ David V. Hall
Name: David V. Hall
Title: President
Address:
1802 No. Div., Suite 602,
Morris, IL 60450
Attention: David V. Hall
Facsimile Number: (502) 585-2358
IN-HOUSE REHAB PARTNERS, LLC, as Borrower
By:/s/ David V. Hall
Name: David V. Hall
Title: President
Address:
325 West Main Street
Louisville, KY 40202
Attention: David V. Hall
Facsimile Number: (502) 585-2358
PERENNIAL HEALTH MANAGEMENT, INC., as Borrower
By:/s/ David V. Hall
Name: David V. Hall
Title: President
Address:
325 West Main Street,
Louisville, KY 40202
Attention: David V. Hall
Facsimile Number: (502) 585-2358
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DAIWA HEALTHCO-3 LLC, as Lender
By:/s/ Richard L. Taiano
Name: Richard L. Taiano
Title: Vice President
c/o Lord Securities Corporation
Two Wall Street
New York, NY 10005
Attention: Dwight Jenkins
Facsimile Number: (212) 346-9012
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EXHIBIT I.
DEFINITIONS
As used in the Agreement (including its Exhibits and Schedules), the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Accounts Receivable Turnover" means, at any date, for the 12-month
period then most recently ended, the product obtained by multiplying (a) the
quotient obtained by dividing (i) aggregate Receivables of the Borrowers as of
such date, by (ii) aggregate gross revenue of the Borrower for the 12-month
period then ended, by (b) 365 days.
"Affiliate" means, as to any Person, any other Person that, directly or
indirectly, is in control of, is controlled by or is under common control with
such Person or is a director or officer of such Person. For the purposes of
this definition, "control", when used with respect to any specified Person,
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise.
"Agreement" has the meaning set forth in the preamble hereto.
"Authorized Representative" means each Person who is an officer of
Holdings and is designated from time to time, as appropriate, in a Written
Notice by the Primary Servicer to the Lender for the purposes of giving
notices of borrowing, conversion or renewal of Revolving Advances or for any
other purpose set forth in this Agreement, which designation shall continue in
force and effect until terminated in a Written Notice to the Lender.
"Borrower" has the meaning set forth in the preamble hereto.
"Borrowers' Certificate" has the meaning set forth in Section 1.03.
"Borrowing Base" means, as of any time, an amount equal to eighty-five
percent (85%) of the Expected Net Value of Eligible Receivables of the
Borrowers other than the Specified Borrowers as of such time, as determined by
reference to and as set forth in the most recent Borrowing Base Certificate
delivered to the Lender by the Borrowers as of such time pursuant to Exhibit
IV, Clause (k)(i).
"Borrowing Base Certificate" means a certificate (which may be sent by
Transmission), in substantially the form set forth in Exhibit VIII hereto,
which shall provide the most recently available information (including updated
information) with respect to the Eligible Receivables of the Borrowers
(segregated by the classes set forth in the definition of "Net Value Factor")
that is set forth in the general trial balance of the Borrowers, in form and
substance satisfactory to the Lender and the Master Servicer.
"Borrowing Base Deficiency" means, as of any date, the positive
difference, if any, between (x) the outstanding principal amount of the Loan,
minus (y) the Borrowing Base indicated on the most recent Borrowing Base
Certificate.
"Borrowing Limit" has the meaning set forth in Section 1.02.
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"Business Day" means any day on which banks are not authorized or
required to close in New York City, and, if the applicable Business Day
relates to the LIBO Rate, on which dealings are carried on in the London
interbank market.
"Capital Lease" means, as applied to any Person, any lease of any
Property (whether real, personal or mixed) by that Person as lessee, the
obligations of which are required, in accordance with GAAP, to be capitalized
on the balance sheet of that Person.
"Change of Control" means the occurrence of any of the following: (x)
any Person or two or more Persons acting as a group (as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended) shall have
acquired, since the date hereof, beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended) of 30% or more of the outstanding shares of
voting stock of any Borrower (exclusive of shares owned by such Person(s) on
the date hereof), or (y) individuals, who, as of the date hereof, constitute
the board of directors of any Borrower or are otherwise Continuing Directors
cease for any reason without the Lender's prior written consent to constitute
at least a majority of the board of directors of such Borrower.
"Claims" has the meaning set forth in Section 1.11(b).
"Collateral" means all of the Borrowers':
(a) Receivables;
(b) machinery, equipment, vehicles, furniture and fixtures and all
attachments, accessories and equipment now or hereafter owned or acquired in
the Borrower's business or used in connection therewith, and all substitutions
and replacements thereof, wherever located, whether now owned or hereafter
acquired by the Borrowers;
(c) present and future general intangibles of every kind and
description, including (without limitation) patents, patent applications,
trade names and trademarks and the goodwill of the business symbolized
thereby, Federal, state and local tax refund claims of all kinds;
(d) raw materials, work in process, finished goods and all other
inventory (as such term is defined in the UCC), whether now owned or hereafter
acquired, and all wrapping, packaging, advertising and shipping materials, and
any documents relating thereto;
(e) right, title and interest in and to all present and future
securities, security entitlement and securities accounts;
(f) consideration received from the sale, exchange, lease or other
disposition of any asset or property which constitutes Collateral, any other
value received as a consequence of the possession of any Collateral and any
payment received from any insurer or other person or entity as a result of the
destruction, loss, theft or other involuntary conversion of whatever nature of
any asset or property that constitutes Collateral, and shall include, without
limitation, all cash and negotiable instruments received or held by the
Lender;
(g) all instruments, files, records, ledger sheets and documents
covering or relating to any of the foregoing; and
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(h) all proceeds of the foregoing;
provided, however, that the Collateral shall not include Receivables sold,
assigned, pledged or otherwise disposed of by the Borrowers pursuant to the
Securitization.
"Collections" means all cash collections, wire transfers, electronic
funds transfers and other cash Proceeds of Receivable deposited in the Lockbox
Account, including, without limitation, all cash Proceeds thereof.
"Continuing Directors" means the directors of each of the Borrowers on
the date of this Agreement and each other director thereof, if such director's
nomination for election to the Board of Directors of such Borrower is now or
hereafter recommended by a majority of the then Continuing Directors.
"Credit and Collection Policy" means those receivables credit and
collection policies and practices of the Borrowers in effect on the date of
the Agreement and described in Schedule II hereto, as modified from time to
time with the consent of the Lender.
"Debt" means as to any Person at any time (without duplication): (i)
all obligations of such Person for borrowed money, (ii) all financial or
monetary obligations of such Person evidenced by bonds, notes, debentures, or
other similar instruments, (iii) all obligations of such Person to pay the
deferred purchase price of Property or services, other than (A) trade
liabilities incurred in the ordinary course of business and payable in
accordance with customary practices which are not more than 90 days past due,
and (B) operating leases entered into in the ordinary course of business, (iv)
all Capital Leases of such Person, (v) all Debt or other financial or monetary
obligations of others Guaranteed by such Person, (vi) all financial or
monetary obligations secured by a Lien existing on Property owned by such
Person, whether or not the obligations secured thereby have been assumed by
such Person or are non-recourse to the credit of such Person (but only to the
extent of the value of such Property), (vii) all financial or monetary
reimbursement obligations of such Person (whether contingent or otherwise) in
respect of letters of credit, bankers' acceptances, surety or other bonds and
similar instruments, (viii) all financial or monetary liabilities of such
Person in respect of unfunded vested benefits under any Plan, (ix) all
financial or monetary obligations of such Person to redeem or retire shares of
equity interests in such Person, and (x) all financial or monetary obligations
and liabilities of such Person under interest rate protection agreements.
"Debt Service" means, at any date of determination, Total Interest
Expense plus the principal due on Debt of the Borrowers within the twelve (12)
month period ending on such date of determination.
"Default" means an event, act or condition which with the giving of
notice or the lapse of time (including any cure periods contained herein), or
both, would constitute an Event of Default.
"Defaulted Receivables"means a Receivable (i) as to which the applicable
Borrower, Primary Servicer or any other Person obligated thereon has taken any
action, or suffered any event to occur, of the type described in paragraph (i)
of Exhibit V or (ii) which, consistent with the Credit and Collection Policy,
would be written off such Borrower's books as uncollectible.
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"Delinquency Ratio" means, as of the last Business Day of each month, a
percentage equal to:
DR
----
AORA
where:
DR = The Expected Net Value of all Eligible Receivables which
became Delinquent Receivables in the four week period
immediately prior to the date of calculation.
AORA = The average outstanding amount of the Expected Net Value
of all Eligible Receivables, calculated as the arithmetic
average of all daily balances.
"Delinquent Receivable" means any Receivable for which payment required
thereunder is more than 180 days past the Last Service Date.
"Depositary Agreement" means that certain Depositary Account Agreement,
dated the date hereof, among the Borrowers, Holdings, the Lender and the
Lockbox Bank, in substantially the form attached hereto as Exhibit IX, as such
agreement may be amended, modified or supplemented from time to time in
accordance with its terms.
"Designated Receivable" means any Receivable owed by a Borrower.
"Distribution" means any dividend payment or other distribution of
assets, properties, cash, rights, obligations or securities on account of any
capital interest in the Borrowers, or return any capital to its members as
such, or purchase, retire, defease, redeem or otherwise acquire for value or
make any payment in respect of any shares of any class of capital interests in
the Borrowers or any warrants, rights or options to acquire any such
interests, now or hereafter outstanding.
"Distribution Account" means account # 412813985 of the Authorized
Representative of the Borrowers at Star Bank NA, for the benefit of the
Borrowers, or such other bank account designated by the Authorized
Representative of the Borrowers by Written Notice to the Master Servicer, the
Lender and the Program Manager from time to time.
"Documents" means this Agreement, the Depositary Agreement, the Guaranty,
the Hall Guaranty, the Pledge Agreement, each Borrower's Certificate, each
Borrowing Base Certificate and each other document or instrument now or
hereafter executed and delivered to the Lender by or on behalf of the
Borrowers or the Guarantors pursuant to or in connection herewith or
therewith.
"Early Termination Fee" means an amount equal to the product of (x)
Revolving Commitment, multiplied by (y):
(1) from the Initial Funding Date until August 31, 1999, 3%;
(2) from September 1, 1999 until August 31, 2000, 2%; or
(3) from September 1, 2000 until August 31, 2001, 1%;
provided, that nothing in this definition shall obligate the Lender to extend
the Scheduled Maturity Date hereunder.
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"EBITDA" means, for any period, the sum for the Holdings and its
Subsidiaries of (a) net income (or net loss) of the Holdings and its
Subsidiaries (calculated before extraordinary items), plus (b) Total Interest
Expense for such period deducted in the determination of such net income (or
net loss) plus (c) depreciation and amortization for such period to the extent
included in the determination of net income (or net loss) plus or minus (d)
all taxes accrued for such period on or measured by income to the extent
deducted or credited in determining such net income (or net loss) minus or
plus (e) gains (or losses) from asset dispositions outside of the normal
course of business and any other non-cash gains to the extent included in
determining such net income (or net loss).
"Eligible Receivables" means Receivables that satisfy the Eligibility
Criteria, as determined by the Lender Group in its sole and absolute
discretion, which determination shall be binding absent bad faith or willful
misconduct.
"Eligibility Criteria" means the criteria and basis for determining
whether a Receivable shall be deemed by the Lender Group to qualify as an
Eligible Receivable, all as set forth in Exhibit VII hereto, as such
Eligibility Criteria may be modified from time to time by the Lender upon
written notice to the Authorized Representative of the Borrowers.
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(3) of ERISA maintained by the Borrowers, the Holdings or
any ERISA Affiliate, or with respect to which any of them have any liability.
"EOB" means the explanation of benefit that identifies the services
rendered on account of the Receivable specified therein.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any entity which is under common control with the
Borrowers or the Holdings within the meaning of ERISA or which is treated as a
single employer with the Borrowers or the Holdings under the Internal Revenue
Code of 1986, as amended.
"Estimation Ratio" means, as of the last day of each month, an amount
equal to:
C
---
ENV
where:
C = Collections received by the Lender from obligors on those
Receivables included in the Borrowing Base during the
preceding 180-day period.
ENV = Expected Net Value of those Receivables included in the
Borrowing Base and with respect to which, during the
preceding 180-day period, final collection has been received
or which (without duplication) are, as of the date of
measurement, outstanding in whole or in part more than 360
days after the Last Service Date thereof.
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"Event of Default" means any of the events specified in Exhibit V hereto.
"Excluded Claims" has the meaning set forth in Section 1.11(b).
"Excluded Taxes" means taxes, duties or charges: (a) upon or determined
by reference to the Lender's net income imposed by the jurisdiction that any
such Lender is organized or has its principal or registered office, (b)
imposed to the extent the Lender was not a "United States person" as defined
in Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended; (c)
imposed as a result of any sale, assignment or other transfer of the Lender's
interest in the Loan; and (d) any withholding taxes, to the extent that the
Lender is eligible to claim a reduction in or exclusion from such withholding
taxes under applicable statutes or tax treaties in effect at the time such
withholding taxes are imposed.
"Expected Net Value" means, with respect to any Eligible Receivable, the
gross unpaid amount of such Receivable on date of creation thereof, times the
Net Value Factor minus any Collections received or other adjustments or
allowances posted against such Receivable.
"Funding Date" means any single Business Day in each week; provided, that
there shall not be more than one Funding Date in any single week.
"GAAP" means generally accepted accounting principles in the United
States of America, applied on a consistent basis as set forth in Opinions of
the Accounting Principles Board of the American Institute of Certified Public
Accountants and/or in statements of the Financial Accounting Standards Board
and/or the rules and regulations of the Securities and Exchange Commission
and/or their respective successors and which are applicable in the
circumstances as of the date in question.
"Governmental Entity" means the United States of America, any state, any
political subdivision of a state and any agency or instrumentality of the
United States of America or any state or political subdivision thereof and any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Guarantors" mean Holdings as Guarantor under the Guaranty and David Hall
as Guarantor under the Hall Guaranty.
"Guaranty" means the guaranty, executed by Holdings, of the obligation of
the Borrowers to pay the Lender Debt hereunder.
"Hall Guaranty" means the guaranty executed by David Hall, of the
obligation of the Borrowers to pay the Lender Debt hereunder, up to an amount
of $1,000,000.
"Indemnified Party" has the meaning set forth in Section 1.11(b).
"Initial Funding Date" means the date of the initial Revolving Advance in
respect of Receivables hereunder.
"Interest Payment Date" means the last day of the Interest Period for the
applicable Revolving Advance.
"Interest Period" means the period, with respect to all Loans, commencing
on, as the case may be, the borrowing or conversion date with respect to such
Revolving Advance and ending one month thereafter; provided, however, that no
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Interest Period may be selected that expires later than the Maturity Date; and
provided, further, that any Interest Period that begins on the last Business
Day of a Month (or on a day for which there is no numerically corresponding
day in the Month at the end of such Interest Period) shall, subject to the
foregoing proviso, end on the last Business Day of a Month.
"Interest Shortfall" as of any Funding Date, means the amount, if any, of
interest that is due and payable and has not otherwise been paid in full.
"Last Service Date" means, with respect to any Receivable, the date set
forth on the related invoice or statement as the most recent date on which
services or merchandise were provided by a Borrower to the related patient.
"Lender" has the meaning set forth in the preamble hereto.
"Lender Debt" means and includes any and all amounts due under the
Agreement, including, without limitation, any and all principal, interest
penalties, fees, charges, premiums, indemnities and costs owed or owing to the
Lender, the Program Manager or the Master Servicer by the Guarantors, the
Borrowers or any Affiliate of the Borrowers, arising under or in connection
with this Agreement; the Guaranty, the Hall Guaranty, the Pledge Agreement or
the Depositary Agreement, in each instance, whether absolute or contingent,
secured or unsecured, due or not, arising by operation of law or otherwise,
and all interest and other charges thereon, including, without limitation,
post-petition interest whether or not such interest is an allowable claim in a
bankruptcy.
"Lender Group" means (i) the Lender, the Program Manager and the Master
Servicer, and (ii) the Lender's agents and delegates identified from time to
time to effectuate this Agreement.
"Lender Position" has the meaning set forth in Section 5.03.
"LIBO Rate" means an annualized 30-day interest rate (calculated on the
basis of actual days elapsed over a 360-day year) in the London Interbank
market, as determined by the Program Manager from time to time.
"Lien" means any lien, mortgage, security interest, tax lien, pledge,
hypothecation, assignment, preference, priority, other charge or encumbrance,
or any other type of preferential arrangement of any kind or nature whatsoever
by or with any Person (including, without limitation, any conditional sale or
title retention agreement), whether arising by contract, operation of law, or
otherwise.
"Loan" has the meaning set forth in Section 1.01.
"Lockbox" means the lockbox number 711242 located at KeyBank, National
Association, Cincinnati, Ohio 45271-1242, to receive checks and EOB's with
respect to Receivables.
"Lockbox Account" means the lockbox account # 350001006997 at the Lockbox
Bank associated with the Lockbox established by the Lender to deposit
Collections, including Collections received in the Lockbox and Collections
received by wire transfer directly, all as more fully set forth in the
Depositary Agreement.
"Lockbox Bank" means KeyBank, National Association, as lockbox bank under
the Depositary Agreement.
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"Loss-to-Liquidation Ratio" means, as of the last Business Day of each
Month, a percentage equal to:
DR
----
AORA
where:
DR = The Expected Net Value of all Eligible Receivables which
became Defaulted Receivables in the four week period
immediately prior to the date of calculation.
AORA = The average outstanding amount of the Expected Net Value of
all Eligible Receivables calculated as the arithmetic average
of all daily balances.
"Master Servicer" means Daiwa Securities America Inc. or any other Person
then identified by the Lender to the Borrower as being authorized to
administer and service Receivables.
"Maturity Date" means the earlier of (a) the Scheduled Maturity Date, and
(b) the occurrence of an Event of Default unless such event is waived by the
Lender in writing.
"Material Adverse Effect" means any event, condition, change or effect
that (a) has a materially adverse effect on the business, Properties,
capitalization, liabilities, operations, prospects or financial condition of
any Borrower, (b) materially impairs the ability of any Borrower to perform
its obligations under this Agreement, (c) materially impairs the validity or
enforceability of, or materially impairs the rights, remedies or benefits
available with respect to the Collateral, or (d) materially impairs the
validity or enforceability of, or materially impairs the rights, remedies or
benefits available to the Lender under this Agreement.
"Maximum Permissible Rate" has the meaning set forth in Section 1.13.
"Month" means a calendar month.
"Multiemployer Plan" means a plan, within the meaning of Section 3(37) of
ERISA, as to which any Borrower or any ERISA Affiliate of any Borrower
contributed or was required to contribute within the preceding five (5) years.
"Net Income" means, for any period, for any Person, the net income (loss)
of such Person for such period determined in accordance with GAAP.
"Net Value Factor" means (i) the historical actual final collections
received on the Borrowers' Receivables within 180 days of the Last Service
Date of such Receivables, divided by (ii) the gross value of such Receivables.
"Net Worth" means, at any date of determination, an amount equal to (a)
the total assets of the Borrowers minus (b) the total liabilities of the
Borrowers.
"Non-Utilization Fee"has the meaning set forth in Section 1.07(d).
"Other Corporations" means the Borrowers, their direct and indirect
parents or subsidiaries other than the Borrowers.
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"Other Taxes" has the meaning set forth in Section 1.10(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or
agency thereof.
"Pledge Agreement" means the Pledge Agreement executed by Holdings
whereby the stock of the Borrowers is pledged as collateral security for the
payment of the Lender Debt.
"Primary Servicer" has the meaning set forth in Section 2.01(b).
"Primary Servicer Responsibilities" means the administration and
servicing obligations set forth in Exhibit XI hereto.
"Principal Shortfall" as of any funding date, means the amount, if any,
of principal outstanding which is in excess of the Borrowing Base.
"Program Manager" means (i) Daiwa Securities America Inc. or (ii) any
other Person then identified by the Lender to the Authorized Representative of
the Borrowers as being authorized to provide administrative services with
respect to the Lender and the Lender's finance, funding and collection of
healthcare receivables.
"Property" means property of all kinds, real, personal or mixed, tangible
or intangible (including, without limitation, all rights relating thereto),
whether owned or acquired on or after the date of this Agreement.
"Receivable Information" has the meaning set forth Section 2.01(d).
"Receivables" means all accounts, general intangibles and other
obligations for the payment of money, whether now existing or hereafter
arising, owing (or in the case of Unbilled Receivables, to be owing) to the
Borrowers, including those arising out of the rendition of medical, surgical,
diagnostic or other professional medical services or the sale of medical
products by the Borrowers, including all rights to reimbursement under any
agreements with and payments from Governmental Entities and insurers, together
with, to the maximum extent permitted by law, all rights, remedies,
guaranties, security interests and Liens in respect of the foregoing, all
books, records and other Property evidencing or related to the foregoing and
all Proceeds of any of the foregoing.
"Related Person" means any incorporator, stockholder, Affiliate (other
than the Program Manager), agent, attorney, officer, director, member,
manager, employee or partner of the Lender or its stockholders.
"Revolving Advance" has the meaning set forth in Section 1.01.
"Revolving Commitment" has the meaning set forth in Section 1.02.
"Scheduled Maturity Date" means August 31, 2001.
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"Securitization" means the sale of Receivables by one or more Borrowers
to one of their Affiliates or DH-3 or one of its Affiliates pursuant to a
Receivables Purchase and Transfer Agreement, to be entered into by one or more
Borrowers and/or one or more of its Affiliates and DH-3 or one of its
Affiliates in form and substance reasonably acceptable to the Program Manager.
"Specified Borrowers" means In-House Medical Resources, Inc., Doctors
Rehab & Therapy, Inc., Daily Rehabilitation Institute of Ponte Vedra, Inc. and
Gateway Rehab, Inc.
"Subsidiary" means any corporation or entity of which at least a majority
of the outstanding shares of stock or other ownership interests having by the
terms thereof ordinary voting power to elect a majority of the board of
directors (or Persons performing similar functions) of such corporation or
entity (irrespective of whether or not at the time, in the case of a
corporation, stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any contingency)
is at the time directly or indirectly owned or controlled by the Borrower.
"Total Interest Expense" means, for any period, the aggregate amount of
interest expense (excluding amortization of debt issuance costs) accrued
during such period on Debt of the Borrowers, including the interest portion of
payments under Capital Leases.
"Transmission" means the transmission of Receivable Information through
computer interface to the Master Servicer, all in a manner satisfactory to the
Master Servicer.
"UCC" means the Uniform Commercial Code as from time to time in effect in
the specified jurisdiction.
"Unbilled Receivable" means a Receivable in respect of which the goods
have been shipped, or the services rendered, to the relevant customer or
patient, and rights to payment therefor have accrued, but the invoice has not
been rendered to the applicable obligor.
"Written Notice" and "in writing" mean any form of written communication
or a communication by means of telex, telecopier device, telegraph or cable.
Other Terms. All accounting terms not specifically defined herein shall
be construed in accordance with GAAP. All terms used in Article 9 of the UCC
in the State of New York, and not specifically defined herein, are used herein
as defined in such Article 9.
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EXHIBIT II.
CONDITIONS OF REVOLVING ADVANCES
1. Conditions Precedent on Initial Funding Date. The making of the
Loans on the Initial Funding Date is subject to the conditions precedent that
the Lender shall have received on or before the Initial Funding Date the
following, each (unless otherwise indicated) dated such date, in form and
substance satisfactory to the Lender:
(a) A certificate issued by the Secretary of State of the state of
(i) the Holdings' and each Borrower's organization, dated as of a recent date,
as to the legal existence and good standing of such Borrower and (ii) each
jurisdiction in which the Holdings and each Borrower are qualified to do
business as to the good standing of such Borrower.
(b) Certified copies of (i) the charter and by-laws of the Holdings
and each Borrower and resolutions of the Board of Directors of the Holdings
and each Borrower approving the Agreement (and in the case of the Holdings,
the Guaranty and the Pledge Agreement) and (ii) all documents evidencing other
necessary partnership or corporate action and Governmental Entity approvals,
if any, with respect to the Agreement.
(c) A certificate of the Secretary or Assistant Secretary of the
Holdings and each Borrower certifying the names and true signatures of the
officers of the Holdings or such Borrower authorized to sign on behalf of the
Holdings or such Borrower the Agreement and the other Documents to be
delivered by such Borrower hereunder.
(d) Certified copies of the balance sheets of the Holdings and each
Borrower as at May 31, 1998, and the related statements of income and expense
and retained earnings of the Holdings and each Borrower for the fiscal year
then ended, certified in a manner acceptable to the Lender by the chief
financial officer of the Holdings and each Borrower, together with a
certificate of such chief financial officer that no Material Adverse Effect
has occurred since May 31, 1998.
(e) Executed copies of proper financing statements (showing each
Guarantor and each Borrower as debtor and the Lender as secured party) to be
duly filed on or immediately after the Initial Funding Date under the UCC of
all jurisdictions that the Lender may deem necessary or desirable in order to
perfect the ownership interests contemplated by the Agreement.
(f) Releases of, and acknowledgment copies of proper termination
statements (Form UCC-2 or UCC-3, as applicable in the relevant jurisdiction),
if any, necessary to evidence the release of all security interests, ownership
and other rights of any Person previously granted by any Guarantor or Borrower
in Receivables.
(g) A certificate from the Master Servicer stating that all
computer linkups and interfaces necessary or desirable, in the judgment of the
Master Servicer, to effectuate the transactions and information transfers
contemplated hereunder, are fully operational to the satisfaction of the
Master Servicer.
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(h) A copy of all of the forms of patient consent of the Borrowers
to be signed by each patient for which a Receivable is created which
authorizes the demographic and medical information with respect to such
patient to be disclosed by the Borrowers to their servicing agents and by such
servicing agents to any third party obligors thereon, certified by a Secretary
or Assistant Secretary of each Borrower as being true, complete and correct.
(i) A favorable opinion of counsel for the Borrowers and
Guarantors, addressed to the Lender, substantially in the form attached
hereto as Exhibit X-A.
(j) A favorable opinion of counsel for the Borrowers, addressed to
the Lender, substantially in the form attached hereto as Exhibit X-B.
(k) Payment of all costs and expenses (including, but not limited
to reasonable attorneys' fees and disbursements) incurred by the Lender Group.
(l) A duly executed Depositary Agreement, together with evidence
satisfactory to the Lender that the Lockbox and the Lockbox Account have been
established.
(m) Affirmation by Duff & Phelps Credit Rating Co. or an equivalent
rating agency acceptable to the Lender of the transactions contemplated
hereunder.
(n) An advisory fee of $75,000.
(o) An executed copy of the Hall Guaranty, the Guaranty and the
Pledge Agreement.
(p) All bracketed language and blanks contained in the Agreement
shall be clarified, completed or otherwise resolved to the satisfaction of the
parties hereto.
2. Conditions Precedent on All Funding Dates. Each Revolving Advance on
a Funding Date (including the Initial Funding Date) shall be subject to the
further conditions precedent that the Borrowers and the Lender shall have
agreed upon the terms of such Revolving Advance and also that:
(a) The Holdings shall have delivered to the Lender or the Master
Servicer, as the case may be, on or prior to such Funding Date, in form and
substance satisfactory to the Lender the most recent Borrowing Base
Certificate, which shall include completed Receivable Information with respect
to the calculation of the Borrowing Base as of preceding such Funding Date
(such Receivable Information having been delivered on or prior to the most
recent Friday (or next succeeding Business Day)), together with such
additional information as may reasonably be requested by the Lender or the
Master Servicer;
(b) On such Funding Date the following statements shall be true
(and acceptance of the proceeds of such Revolving Advance shall be deemed a
representation and warranty by each Borrower, Holdings and the Primary
Servicer that such statements are then true):
(i) the representations and warranties contained in Exhibits
III and VII are correct on and as of the date of such Revolving Advance as
though made on and as of such date, and
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(ii) no event has occurred and is continuing, or would result
from such Revolving Advance, that constitutes an Event of Default or that
would constitute an Event of Default but for the requirement that notice be
given or time elapse or both; and
(c) The Lender shall have received such other approvals, opinions
or documents as it may reasonably request.
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EXHIBIT III.
REPRESENTATIONS AND WARRANTIES
Each Borrower, Holdings and the Primary Servicer represent and warrant as
follows:
(a) Such Person is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation and is
duly qualified to do business, and is in good standing, in every jurisdiction
where the nature of its business requires it to be so qualified.
(b) The execution, delivery and performance by such Person of the
Agreement and the other Documents to be delivered by it thereunder, (i) are
within such Person's powers, (ii) have been duly authorized by all necessary
corporate action, (iii) do not contravene (1) its articles of incorporation or
by-laws, (2) any law, rule or regulation applicable to it, (3) any contractual
restriction binding on or affecting it or its Property, or (4) any order,
writ, judgment, award, injunction or decree binding on or affecting it or its
Property, and (iv) do not result in or require the creation of any Liens upon
or with respect to any of its Properties, other than the interest created by
the Agreement or the other Documents. The Agreement and the other Documents
have been duly executed and delivered by such Person. Such Person has
previously furnished to the Lender a correct and complete copy of its articles
of incorporation or by-laws, including all amendments thereto.
(c) No authorization or approval or other action by, and no notice
to or filing with, any Governmental Entity is required for the due execution,
delivery and performance by such Person of the Agreement or any other Document
to be delivered thereunder.
(d) The Agreement constitutes the legal, valid and binding
obligation of such Person, enforceable against such Person in accordance with
its terms.
(e) Such Person has all power and authority, and has all permits,
licenses, accreditations, certifications, authorizations, approvals, consents
and agreements of all Governmental Entities, accreditation agencies and any
other Person (including, without limitation, accreditation by the appropriate
Governmental Entities and industry accreditation agencies and accreditation
and certifications as such Person of healthcare services eligible to perform
services participate under Medicare, Medicaid, Champus/Champva, Blue
Cross/Blue Shield and other equivalent programs), necessary or required for it
(i) to own the assets (including Receivables) that it now owns, (ii) to carry
on its business as now conducted, except where failure to have such permits,
licenses, agreements with third-party payors, accreditation and certifications
(including, without limitation, accreditation by the appropriate Governmental
Entities and industry accreditation agencies and accreditation and
certifications as such Person of healthcare services eligible to participate
under Medicare, Medicaid, Champus/Champva, Blue Cross/Blue Shield and other
equivalent programs) would not have a Material Adverse Effect, and (iii) to
execute, deliver and perform the Agreement.
(f) Such Person has not been notified by any, Governmental Entity
or instrumentality, accreditation agency or any other person, during the
immediately preceding 24 month period, that such party has rescinded or not
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renewed, or intends to rescind or not renew, any such permit, license,
accreditation, certification, authorization, approval, consent or agreement
granted by it to such Borrower or to which it and such Borrower are parties.
(g) As of the Initial Funding Date, all conditions precedent set
forth in Exhibit II have been fulfilled or waived in writing by the Lender,
and as of each Funding Date, the conditions precedent set forth in paragraph 2
of such Exhibit II shall have been fulfilled or waived in writing by the
Lender.
(h) The balance sheets of each of the Holdings and its Subsidiaries
as at May 31, 1998, and the related statements of income and expense, cash
flows and retained earnings of the Holdings and its Subsidiaries for the
fiscal period then ended, copies of which have been furnished to the Lender,
fairly present the financial condition of the Holdings and its Subsidiaries as
at such date and the results of the operations of the Holdings and its
Subsidiaries for the period ended on such date, all in accordance with
generally accepted accounting principles consistently applied, and since May
31, 1998, there has been no change in the business, operations, Property or
financial or other condition of any Borrower that could reasonably be expected
to result in a Material Adverse Effect.
(i) There is no pending or threatened action or proceeding or
injunction, writ or restraining order affecting such Person or any of its
Subsidiaries before any court, Governmental Entity or arbitrator that could
reasonably be expected to result in a Material Adverse Effect, or which
purports to affect the legality, validity or enforceability of the Agreement
or the other Documents, and such Person (or any Subsidiary) is not currently
the subject of, and such Person has no present intention of commencing, an
insolvency proceeding or petition in bankruptcy.
(j) Such Borrower is the legal and beneficial owner of its
Receivables and the Collateral free and clear of any Liens; the Lender
maintains a valid security interest in the Receivables, the Collateral and in
the Collections with respect thereto subject to no third-party claims of
interest thereon. No effective financing statement or other instrument
similar in effect covering any contract or any Receivable, the Collateral or
the Collections with respect thereto is on file in any recording office,
except those filed in favor of the Lender relating to the Agreement, and no
competing notice or notice inconsistent with the transactions contemplated in
the Agreement has been sent to any other Person.
(k) All Receivable Information, information provided in the
application for the program effectuated by the Agreement, and each other
Document, report and Transmission provided by such Person to the Lender Group
is or shall be accurate in all material respects as of its date and as of the
date so furnished, and no such Document contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements contained therein, in the light of
the circumstances under which they were made, not misleading.
(l) The principal place of business and chief executive office of
such Borrower and the office where such Borrower keeps its records concerning
the Receivables are located at the address referred to on the signature page
of the Agreement and there have been no other location for the four
immediately prior months.
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(m) Other than as set forth on Schedule III(m), such Borrower has
not changed its principal place of business or chief executive office in the
last five years.
(n) The exact name of such Person is as set forth on the signature
pages of the Agreement, and except as set forth on such signature pages or
Schedule III(n), such Person has not changed its name in the last five years,
and during such period such Person has not used, nor does such Person now use,
any fictitious or trade name.
(o) The Lockbox Account is the only lockbox account maintained by
such Borrower and the Lockbox is the only post office box maintained by such
Borrower for the receipt of Receivables.
(p) With respect to such Person or any of its Subsidiaries, there
has occurred no event which has or is reasonably likely to be a Material
Adverse Effect.
(q) To the best of such Person's knowledge, such Person is not in
violation under any applicable statute, rule, order, decree or regulation of
any court, arbitrator or Governmental Entity having jurisdiction over such
Person which could result in a Material Adverse Effect.
(r) Such Person has filed on a timely basis all tax returns
(federal, state and local) required to be filed and has paid, or made adequate
provision for payment of, all taxes, assessments and other governmental
charges due from such Person. No tax Lien has been filed and is now effective
against such Person or any of its Properties. There is no pending
investigations of such Person by any taxing authority or any pending but
unassessed tax liability of such Person. Such Person has no obligations under
any tax sharing agreement.
(s) Such Person is solvent and will not become insolvent after
giving effect to the transactions contemplated by this Agreement; such Person
has not incurred debts or liabilities beyond its ability to pay; such Person
will, after giving effect to the transaction contemplated by this Agreement,
have an adequate amount of capital to conduct its business in the foreseeable
future.
(t) Each pension plan or profit sharing plan to which such Person
is a party has been fully funded in accordance with the obligations of such
Person set forth in such plan.
(u) There are no pending civil or criminal investigations by any
Governmental Entity involving such Person or its officers or directors and
neither such Person nor any of its officers or directors has been involved in,
or the subject of, any civil or criminal investigation by any Governmental
Entity.
(v) The primary business of such Borrower is the provision of
healthcare services and/or equipment.
(w) The assets of such Person are free and clear of any Liens in
favor of the Internal Revenue Service, any Employee Benefit Plan or the PBGC.
(x) With respect to each Employee Benefit Plan of such Person,
including to such Person's knowledge as to any Multiemployer Plan, such
Employee Benefit Plan has complied and been administered in accordance with
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its terms and in substantial compliance with all applicable provisions of
ERISA and the Internal Revenue Code of 1986, as amended; none of such Person
nor any ERISA Affiliate has been notified by the sponsor of a Multiemployer
Plan that such Multiemployer Plan is in reorganization or has been terminated,
within the meaning of Title IV of ERISA; and such Person has any no material
unpaid liability for any Employee Benefit Plan.
(y) None of the Eligible Receivables constitutes or has constituted
an obligation of any Subsidiary, or other Person which is an Affiliate of such
Borrower.
(z) No transaction contemplated under this Agreement requires
compliance with any bulk sales act or similar law.
(aa) Such Borrower has valid provider identification numbers and
licenses to generate the Eligible Receivables.
(bb) As of the Initial Funding Date, such Person has no Debt other
than as set forth on Schedule III hereto.
(cc) Such Person is not engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulation G, T, U,
or X of the Board of Governors of the Federal Reserve System), and no part of
the proceeds of any extension of credit under this Agreement will be used to
purchase or carry any such margin stock or to extend credit to others for the
purpose of purchasing or carrying margin stock.
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EXHIBIT IV.
COVENANTS
Until the payment in full of all Lender Debt and the termination of the
Revolving Commitment hereunder:
(a) Compliance with Laws, etc. Each Borrower, Holdings and the
Primary Servicer will comply in all material respects with all applicable
laws, rules, regulations and orders, and preserve and maintain their corporate
existence, rights, franchises, qualifications, and privileges, except to the
extent that the failure so to comply with such laws, rules and regulations or
the failure so to preserve and maintain such existence, rights, franchises,
qualifications, and privileges would not result in a Material Adverse Effect.
(b) Offices, Records and Books of Account. Each Borrower, Holdings
and the Primary Servicer will keep their principal place of business and chief
executive office and the office where they keep their records concerning the
Receivables at the address of such Borrower, Holdings and the Primary Servicer
set forth under their names on the signature pages to the Agreement or, upon
30 days' prior written notice to the Lender, at any other locations in
jurisdictions where all actions reasonably requested by the Lender or
otherwise necessary to protect and perfect the Lender's interest in the
Receivables have been taken and completed. Each Borrower, Holdings and the
Primary Servicer shall keep their books and accounts in accordance with
generally accepted accounting principles. Each Borrower, Holdings and the
Primary Servicer shall maintain and implement administrative and operating
procedures (including, without limitation, an ability to recreate records
evidencing Receivables and related contracts in the event of the destruction
of the originals thereof), and keep and maintain all documents, books, records
and other information reasonably necessary or advisable for collecting all
Receivables (including, without limitation, records adequate to permit the
daily identification of each Receivable and all Collections of and adjustments
to each existing Receivable) and for providing the Receivable Information.
(c) Performance and Compliance with Contracts and Credit and
Collection Policy. Each Borrower, Holdings and the Primary Servicer will, at
their expense, timely and fully perform and comply with all material
provisions, covenants and other promises required to be observed by them under
the contracts related to the Receivables, and timely and fully comply in all
material respects with the Credit and Collection Policy in regard to each
Receivable and the related contract, and each Borrower, Holdings and the
Primary Servicer shall maintain, at their expense, in full operation the
lockbox and lockbox account required to be maintained under the Agreement.
Holdings, the Primary Servicer and the Borrowers shall not do anything to
impede or interfere with the collection by the Lender or the Master Servicer,
on behalf of the Lender, of the Receivables. Each Receivable that is an
Unbilled Receivable will be, or has been, billed and mailed to the Obligor of
such Receivable within 45 days of the Last Service Date.
(d) Notice of Breach of Representations and Warranties. The
Primary Servicer, Holdings or any Borrower shall promptly (and in no event
later than one Business Day following actual knowledge thereof) inform the
Lender and the Master Servicer of any breach of covenants or representations
and warranties by such Person (or in the case of Holdings and the Primary
Servicer and any Borrower) hereunder, including, without limitation, upon
discovery of a breach of the criteria set forth in Exhibit VII hereof.
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(e) Sales, Liens, etc. No Borrower shall sell, assign (by
operation of law or otherwise) or otherwise dispose of, or incur, create,
assume, or suffer to exist any Liens on any of the Collateral whether now
owned or hereafter acquired except (i) up to $100,000 by the Borrowers in the
aggregate in any fiscal year, in the ordinary course of business, (ii) mergers
exclusively among the Borrowers, or (iii) upon written consent of the Lender.
(f) Extension or Amendment of Receivables. No Borrower shall
amend, waive or otherwise permit or agree to any deviation from the terms or
conditions of any Receivable.
(g) Change in Business or Credit and Collection Policy. The
Primary Servicer, Holdings and the Borrowers shall not make any change in the
Credit and Collection Policy or make any change in the character of its
business that, in either event, could result in a Material Adverse Effect.
The Primary Servicer, Holdings, and the Borrowers shall not make any other
changes in the Credit and Collection Policy without the prior written consent
of the Lender.
(h) Audits and Visits. Each Borrower, Holdings and the Primary
Servicer shall at any time, and from time to time, during regular business
hours, and upon two days notice (provided that during the continuation of any
Default or Event of Default no such notice shall be required), as requested by
the Lender, permit the Lender, or its agents or representatives (including the
Master Servicer), (i) to examine and make copies of and abstracts from all
books, records and documents (including, without limitation, computer tapes
and disks) in the possession or under the control of such Person relating to
Receivables including, without limitation, the related contracts, and (ii) to
visit the offices and properties of such Person for the purpose of examining
such materials described in clause (i) above, and to discuss matters relating
to Receivables or such Person's performance hereunder or under the contracts
with any of the officers or employees of such Person having knowledge of such
matters. Each Borrower, Holdings and the Primary Servicer shall permit the
Master Servicer to have at least one of its agents or representatives
physically present in such Person's administrative office during normal
business hours to assist such Person in performing its obligations under the
Agreement, including its obligations with respect to the collection of
Receivables pursuant to Article I of the Agreement.
(i) Change in Payment Instructions. None of the Authorized
Representative of the Borrowers, the Primary Servicer, Holdings or any
Borrower shall terminate the Lockbox or the Lockbox Account or make any change
or replacement in the instructions contained in any notice to the payor of any
Receivable, in the Standing Revocable Instruction referred to in the
Depositary Agreement or otherwise, or regarding payments to be made to each
such Person, the Lender or the Master Servicer, except upon the prior and
express direction of the Program Manager or the Lender.
(j) Deposits to the Lockbox Account. At all times, (i) each
Borrower shall deposit, or cause to be deposited, all Collections of
Designated Receivables to the Lockbox Account and (ii) no Borrower shall
deposit or otherwise credit, or cause or permit to be so deposited or
credited, to the Lockbox Account cash or cash proceeds other than Collections
of Designated Receivables.
(k) Reporting Requirements. The Holdings shall provide to the
Lender (in multiple copies, if requested by the Lender) the following:
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(i) on or before the 15th calendar day of each month (or if
such day is not a Business Day, the immediately following Business Day), a
Borrowing Base Certificate together with the Receivable Information (to be
sent by Transmission);
(ii) as soon as available and in any event within 45 days
after the end of each of the first three quarters of each fiscal year of the
Holdings and its Subsidiaries, balance sheets of the Holdings and its
Subsidiaries as of the end of such quarter and statements of income, cash
flows and retained earnings of the Holdings and its Subsidiaries for the
period commencing at the beginning of the current fiscal year and ending with
the end of such quarter, certified by the chief financial officer of the
Holdings and its Subsidiaries;
(iii) as soon as available and in any event within 105 days
after the end of each fiscal year of the Holdings and its Subsidiaries, a copy
of the audited consolidated financial statements (together with explanatory
notes thereon) and the auditor's report letter for such year for the Holdings
and its Subsidiaries, containing consolidated financial statements for such
year audited by a nationally recognized independent public accounting firm
reasonably acceptable to the Lender;
(iv) on or before the 15th of each month, monthly and
year-to-date statistical and financial reports, including volume and time
business reports (to be requested by the Lender) and unaudited profit and loss
reports, from the chief financial officer of Holdings and its Subsidiaries;
(v) as soon as possible and in any event within five days
after the occurrence of each Event of Termination or event which, with the
giving of notice or lapse of time, or both, would constitute an Event of
Termination, a statement of the chief financial officer of the Holdings and
its Subsidiaries setting forth details of such Event of Termination or event,
and the action that the Holdings and its Subsidiaries have taken and propose
to take with respect thereto;
(vi) promptly after the filing or receiving thereof, copies of
all reports and notices that the Holdings or any Affiliate files under ERISA
with the Internal Revenue Service or the PBGC or the U.S. Department of Labor
or that the Holdings or any Affiliate receives from any of the foregoing or
from any Multiemployer Plan to which the Holdings or any Affiliate is or was,
within the preceding five years, a contributing employer, in each case in
respect of the assessment of withdrawal liability or an event or condition
which could, in the aggregate, result in the imposition of liability on the
Holdings and/or any such Affiliate in excess of $100,000;
(vii) at least ten Business Days prior to any change in the
Primary Servicer's, Holdings' or any Borrower's name, a notice setting forth
the new name and the proposed effective date thereof;
(viii) immediately (and in no event later than one Business
Day following actual knowledge thereof), written notice in reasonable detail,
of (w) any Lien asserted or claim made against a Receivable or any of the
Collateral, (x) the occurrence of a Servicer Termination Event, (y) the
occurrence of any other event which is a Material Adverse Effect or (z) any
cost report or similar audits being conducted by any Governmental Entity or
its agents or designees;
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(ix) within 90 days after the end of each fiscal year of
Holdings and its Subsidiaries, a certificate of the independent certified
public accountants to Holdings and its Subsidiaries (x) stating that to their
knowledge no Event of Termination, including those listed in subsections (f),
(l), (m), (n), (o), (aa), (cc), (dd) and (ee) of Exhibit V, has occurred and
exists as of the end of the subject fiscal year under this Agreement, or if in
their opinion such an Event of Termination has occurred and is continuing, a
statement as to the nature thereof, and (y) confirming the calculations set
forth in the officer's certificate previously delivered to such independent
public accountants, which officer's certificate shall be simultaneously
delivered therewith;
(x) at least 30 days prior to the commencement of each fiscal
year, an operating plan (together with a complete statement of the assumptions
on which such plan is based) of the Holdings and its Subsidiaries approved by
the Board of Directors of each of the Holdings and its Subsidiaries, which
operating plan will include monthly budgets for the prospective year in
reasonable detail acceptable to the Lender and will integrate operating profit
and cash flow projections and personnel, capital expenditures, and facilities
plans;
(xi) promptly upon receipt thereof, a copy of any management
letter or written report submitted to the Holdings and its Subsidiaries by
independent certified public accountants with respect to the business,
condition (financial or otherwise), operations, prospects, or Properties of
the Holdings and its Subsidiaries;
(xii) immediately upon the commencement thereof, written
notice of all actions, suits, and proceedings before any Governmental Entity
or arbitrator affecting the Primary Servicer, Holdings or any Borrower which,
if determined adversely to the Primary Servicer or such Borrower, could result
in a Material Adverse Effect;
(xiii) promptly after the furnishing thereof, copies of any
statement or report furnished by the Primary Servicer, Holdings or any
Borrower to any other party pursuant to the terms of any indenture, loan, or
credit or similar agreement and not otherwise required to be furnished to the
Lender pursuant to this Agreement;
(xiv) as soon as possible and in any event within five (5)
days after becoming aware of the occurrence thereof, written notice of any
matter that could reasonably be expected to result in a Material Adverse
Effect;
(xv) as soon as available, one copy of each financial
statement, report, notice or proxy statement sent by Holdings or any Borrower
to its shareholders generally and one copy of each regular, periodic or
special report, registration statement, or prospectus filed by Holdings or any
Borrower or any Subsidiary with any securities exchange or the Securities and
Exchange Commission or any successor agency or the Bankruptcy Court, and all
press releases and other statements made available by Holdings or any Borrower
to the public concerning developments in the business (including, without
limitation, the issuance of tax-exempt indebtedness) of Holdings, such
Borrower or any Subsidiary;
(xvi) within the sixty (60) day period prior to the end of
each fiscal year of the Holdings and the Borrowers, a report satisfactory in
form to the Lender, listing all material insurance coverage maintained as of
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the date of such report Holdings and by the Borrowers and all material
insurance planned to be maintained by Holdings and the Borrowers in the
subsequent fiscal year; and
(xvii) such other information respecting the Receivables, the
Collateral or the condition or operations, financial or otherwise, of the
Primary Servicer, Holdings and the Borrowers or any of their Subsidiaries as
the Lender may from time to time reasonably request.
(l) Notice of Proceedings; Overpayments. The Primary Servicer
shall promptly notify the Master Servicer (and modify the next Borrowing Base
Certificate to be delivered hereunder) in the event of any action, suit,
proceeding, dispute, set-off, deduction, defense or counterclaim that is or
may be asserted with respect to any Receivable. The Borrowers shall make all
payments to prevent offsetting any earlier overpayment to the Borrowers
against any amounts owing on any Receivables.
(m) Further Instruments, Continuation Statements. The Borrowers,
Guarantors and the Primary Servicer shall, at their expense, promptly execute
and deliver all further instruments and documents, and take all further action
that the Program Manager or the Lender may reasonably request, from time to
time, in order to perfect, protect or more fully evidence the assignment as
security of the Receivables, or to enable the Lender or the Program Manager to
exercise or enforce the rights of the Lender hereunder or under the
Receivables. Without limiting the generality of the foregoing, the Borrowers
and Guarantors will upon the request of the Program Manager execute and file
such UCC financing or continuation statements, or amendments thereto or
assignments thereof, and such other instruments or notices, as may be, in the
opinion of the Program Manager, necessary or appropriate. The Borrowers and
Guarantors hereby authorize the Program Manager, upon two Business Days'
notice, to file one or more financing or continuation statements and
amendments thereto and assignments thereof, relative to all or any of the
Receivables now existing or hereafter arising without the signature of the
relevant Borrower or Guarantor where permitted by law. If the Primary
Servicer, Holdings or any Borrower fails to perform any of its agreements or
obligations under the Agreement, the Program Manager may (but shall not be
required to) itself perform, or cause performance of, such agreement or
obligation, and the expenses of the Program Manager incurred in connection
therewith shall be payable by the Borrowers.
(n) Taxes. The Holdings and the Borrowers shall pay any and all
taxes relating to the transactions contemplated under this Agreement.
(o) Deviation from Terms of Receivable, etc. The Primary Servicer,
Holdings and the Borrowers shall not, without the prior written consent of the
Lender:
(i) compromise, adjust, extend, satisfy, subordinate, rescind,
set off, waive, amend or otherwise modify, or otherwise permit or agree to any
deviation from, the terms and conditions of any Receivable, or amend, modify
or waive any term or condition of any contract related thereto;
(ii) (x) amend, modify, supplement or delete in any way or to
any extent any provision for uncollectible accounts and free care applicable
to any Receivable or (y) amend, modify or supplement in any way or to any
extent any financial category or change in any way or to any extent the manner
in which any financial category is treated or reflected in Holdings' or the
Borrowers' records;
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(iii) alter or modify (x) their claims processing system, or
(y) their third party billing system, as applicable; or
(iv) change, modify or rescind any direction contained in any
previously delivered Notice.
(p) Merger, Consolidation. Neither Holdings nor any Borrower shall
merge with or into or consolidate with or into, another Person, or convey,
transfer, lease or otherwise dispose of all or substantially all of its assets
(whether now owned or hereafter acquired) except for mergers and
consolidations among the Borrowers or upon the written consent of the Lender.
(q) No "Instruments". The Primary Servicer, Holdings and the
Borrowers shall not take any action which would allow, result in or cause any
Receivable to be evidenced by an "instrument" within the meaning of the UCC of
the applicable jurisdiction.
(r) Preservation of Corporate Existence. Each Borrower and
Holdings shall preserve and maintain its corporate existence, rights,
franchises and privileges in the jurisdiction of its organization, and qualify
and remain qualified in good standing as a foreign corporation in each
jurisdiction where the failure to preserve and maintain such existence,
rights, franchises, privileges and qualification would materially adversely
affect the interests of the Lender or the Program Manager or their ability of
to perform their respective obligations hereunder.
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EXHIBIT V.
EVENTS OF DEFAULT
Each of the following shall be an "Event of Default":
(a) The Borrowers shall default in the due and punctual payment of
the principal of the Loans, when and as the same shall become due and payable
(except that the Borrowers shall have up to ten (10) Business Days to cure
such a default with respect to a Borrowing Base Deficiency) whether pursuant
to Section 2 hereof, at maturity, by acceleration or otherwise.
(b) The Borrowers shall default in the due and punctual payment of
any installment of interest on any of the Loans or any other Lender Debt or of
any fee or expense owing to the Lender pursuant to any of the Documents, when
and as such amount of interest, fee or expense shall become due and payable
and such default shall continue unremedied for five (5) Business Days.
(c) The Primary Servicer shall fail to perform or observe any term,
covenant or agreement included in the Primary Servicer Responsibilities and
such failure shall remain unremedied for five (5) Business Days.
(d) The Primary Servicer, any Guarantor or any Borrower (other than
defaults by the Specified Borrowers that do not, in the aggregate, constitute
a Material Adverse Effect) shall default in the performance or observance of,
or shall occur under, any covenant, agreement or provision (other than as
described in clause (a) or (b) above) contained in this Agreement or any other
Document or in any instrument or document evidencing or creating any
obligation, guaranty or Lien in favor of the Lender in connection with or
pursuant to this Agreement or any Lender Debt, and such default continues for
a period of thirty days (or, in the case where agreements and covenants
contained in any Document provide for a grace period that is less than thirty
days, continuance of a default for such shorter period) after there has been
given Written Notice of such default to the Authorized Representative of the
Borrowers by the Lender; or if this Agreement or any other Document or any
such other instrument or document shall terminate, be terminated or become
void or unenforceable for any reason whatsoever without the written consent of
the Lender.
(e) Any representation or warranty made or deemed made by any
Borrower (other than representations and warranties made by the Specified
Borrowers that, if proven to be incorrect or untrue, would not, in the
aggregate, constitute a Material Adverse Effect; and other than with respect
to the eligibility of Receivables as Eligible Receivables hereunder) under or
in connection with the Agreement or any information or report delivered by the
pursuant to the Agreement shall prove to have been incorrect or untrue in any
material respect when made or deemed made or delivered.
(f) Any Borrower or any of their Subsidiaries shall fail to pay any
principal of or premium or interest on any of its Debt which is outstanding in
a principal amount of at least $100,000 in the aggregate when the same becomes
due and payable (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise), and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such Debt; or any other event shall occur or condition shall exist
under any agreement or instrument relating to any such Debt and shall continue
after the applicable grace period, if any, specified in such agreement or
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instrument, if the effect of such event or condition is to accelerate, or to
permit the acceleration of, the maturity of such Debt; or any such Debt shall
be declared to be due and payable, or required to be prepaid (other than by a
regularly scheduled required prepayment), redeemed, purchased or defeased, or
an offer to repay, redeem, purchase or defease such Debt shall be required to
be made, in each case prior to the stated maturity thereof.
(g) This Agreement shall for any reason (other than pursuant to the
terms hereof) fail or cease to create or fail or cease to be a valid and
perfected first priority security interest in the Receivables, the Collateral
and the Collections with respect thereto free and clear of all Liens;
provided, however, that the Borrowers shall have five (5) Business Days to
cure any Default occurring under this subsection (g) caused by any Person
other than the Borrowers, Holdings and any Affiliate of Borrowers or Holdings.
(h) The Borrowers shall fail to enter into a Securitization, or
other financing arrangement of Holdings and/or the Borrowers with the Lender,
by November 26, 1998.
(i) Any Borrower or Guarantor shall generally not pay its debts as
such debts become due, or shall admit in writing its inability to pay its
debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against any Borrower or
Guarantor seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part of its
Property and, in the case of any such proceeding instituted against it (but
not instituted by it), either such proceeding shall remain undismissed or
unstayed for a period of 45 days, or any of the actions sought in such
proceeding (including, without limitation, the entry of an order for relief
against, or the appointment of a receiver, trustee, custodian or other similar
official for, it or for any substantial part of its Property) shall occur; or
any Borrower or Guarantor shall take any action to authorize any of the
actions set forth above in this paragraph (i).
(j) There shall have occurred any change in the financial condition
or operations of the Borrowers since May 31, 1998 that has resulted in a
Material Adverse Effect.
(k) The Borrowers shall have consummated, or have entered into any
transaction or executed any document which contemplates or is intended to
result in the consummation of (i) the merger or consolidation of the
Borrowers, (ii) the acquisition of all or a substantial portion of the assets
of any Person, (iii) the transfer, sale, assignment, lease or other
disposition of all or a substantial portion of the Collateral or the
Borrowers' assets or Properties, (iv) a change in the general nature of the
Borrowers' business, or (v) the sale of a controlling interest, directly or
indirectly, in the Borrowers, in each case which, in the aggregate, involves
greater than 20% of the then aggregate net worth of the Borrowers at such
time, unless expressly permitted elsewhere in the Agreement.
(l) The Estimation Ratio shall be less than 90% for any two 180-day
periods (which may be overlapping) within any 18-month period.
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(m) The Loss-to-Liquidation Ratio in any four week period exceeds
10%.
(n) The arithmetic average of the Loss-to-Liquidation Ratios in any
three consecutive four week periods exceeds 10%.
(o) The Delinquency Ratio in any four week period exceeds 20%.
(p) Judgments or orders for payment of money (other than judgments
or orders in respect of which adequate insurance is maintained for the payment
thereof) in excess of $50,000 in the aggregate against the Borrowers remain
unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period
of 45 days or more.
(q) Any Governmental Entity (including, without limitation, the
Internal Revenue Service or the PBGC) files a notice of a Lien against the
assets of any Borrower or Guarantor other than a Lien (i) that is limited by
its terms to assets other than Receivables and (ii) that does not result in a
Material Adverse Effect.
(r) The Borrowers shall fail to discharge within a period of
forth-five (45) days after the commencement thereof any attachment,
sequestration, forfeiture, or similar proceeding or proceedings involving an
aggregate amount in excess of $50,000 against any of their Properties.
(s) The Borrowers do not maintain, keep, and preserve all of the
Collateral and their Properties necessary or useful in the proper conduct of
its business in good repair, working order, and condition (ordinary wear and
tear excepted) and make all necessary repairs, renewals, replacements,
betterments, and improvements thereof.
(t) The Borrowers do not pay or discharge at or before maturity or
before becoming delinquent (i) all taxes, levies, assessments, and
governmental charges imposed on them or their income or profits or any of the
Collateral and their Property, and (ii) all lawful claims for labor, material,
and supplies, which, if unpaid, might become a Lien upon any of the Collateral
and their Property, unless the same is being contested in good faith by such
Borrower and adequate reserves have been taken by the Borrowers in accordance
with GAAP.
(u) The Borrowers do not keep insured by financially sound and
reputable insurers all the Collateral and their Property of a character
usually insured by corporations engaged in the same or similar business
similarly situated against loss or damage of the kinds and in the amounts
customarily insured against by such corporations and carry such other
insurance as is usually carried by such corporations. Each policy referred to
in this Subsection (u) shall provide that it will not be canceled, amended, or
reduced except after not less than thirty (30) days' prior written notice to
the Lender and shall also provide that the interests of the Lender shall not
be invalidated by any act or negligence of the Borrowers. The Borrowers do
not advise the Lender promptly of any policy cancellation, reduction, or
amendment. Any insurance policy for property, casualty, liability and
business interruption coverage for the Borrowers do not name the Lender as
loss payee (as the Lender's interests may appear) or an additional insured, as
appropriate.
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(v) Any Borrower, Holdings or the Primary Servicer does not
maintain proper books of record and account in which full, true and correct
entries in conformity with GAAP are made of all dealings and transactions in
relation to its business and activities.
(w) Any Borrower, Holdings or the Primary Servicer does not comply
in all material respects with (i) any document directly relating to the
responsibilities of such Person under the Agreement or (ii) any agreement,
contract, or instrument that results in a Material Adverse Effect.
(x) Any Borrower does not comply with all minimum funding
requirements and all other material requirements of ERISA, if applicable, so
as not to give rise to any liability thereunder.
(y) The Borrowers incur, create, assume, or permit to exist any
Lien upon any of the Collateral or their Property or revenues, whether now
owned or hereafter acquired, except:
(i) the Lien on Receivables in favor of the Lender pursuant to
this Agreement;
(ii) obsolete or worn out Property (including fixed assets)
disposed of in the ordinary course of business;
(iii) the sale or transfer of inventory or equipment in the
ordinary course of business;
(iv) transfers resulting from any casualty or condemnation of
Property;
(v) any sale or other transfer, in any single transaction or
series of related transactions, for cash, of any Property or business not to
exceed $100,000 in the aggregate;
(vi) any sale or other transfer of any Property constituting
fixed assets for cash, provided that the aggregate net cash proceeds of the
sales and transfers made pursuant to this subsection do not exceed $250,000 in
any fiscal year; and
(vii) licenses or sublicenses of intellectual property and
leases or subleases of other personal Property in the ordinary course of
business.
(z) Any Borrower or Holdings engages in any line or lines of
business activity other than the businesses in which it is engaged on the date
hereof or for which it has obtained the express written consent of the Lender
to engage in.
(aa) The Borrowers permit their consolidated tangible Net Worth,
calculated at the end of each fiscal quarter of the Borrowers, to be less than
$3,000,000.
(bb) [Intentionally Omitted.]
(cc) The Borrowers permit their consolidated Accounts Receivable
Turnover, calculated as of the end of each fiscal quarter of the Borrowers for
the four fiscal quarters of the Borrowers then most recently ended, to be more
than 180 days.
V-4
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(dd) The Borrowers permit the ratio of EBITDA to Debt Service to be
less than 1.5:1.00 at any time.
(ee) The Borrowers permit the ratio of current assets to current
liabilities (both determined in accordance with GAAP) to be less than
1.10:1.00.
(ff) The Borrowers sell, lease, assign, transfer, or otherwise
dispose of any of their Property, except as permitted or contemplated under
this Agreement.
(gg) Any Borrower or Holdings declares or makes any Distribution,
unless both prior and subsequent to the effectiveness of such proposed
Distribution, (i) no Event of Default is continuing, (ii) such Distribution is
in full compliance with applicable law, including the law of the State of
Delaware as in effect at such time, and (iii) the Borrower or Holdings and the
recipient of such Distribution have taken all necessary and appropriate
corporate action to effectuate such Distribution.
(hh) If, at any date, the aggregate Expected Net Value of all
Delinquent Receivables that became Delinquent during the prior 3 months is in
excess of 20% of the aggregate Expected Net Value of all Receivables included
in the Borrowing Base by the Borrowers to the Lender during the prior 3 months
(regardless of whether the Denied Receivables are reassigned by the Borrower
pursuant to Article IV of the Agreement).
(ii) As of any date after the Initial Funding Date, (i) the
dollar-weighted average days outstanding with respect to all outstanding
Eligible Receivables on such date and on the same day of each of the two
preceding Months (or if there is no corresponding day in any such preceding
month, the last day of such month) is greater than 120 days, or (ii) the
average over the preceding 90-day period of the dollar-weighted average days
outstanding with respect to all outstanding Eligible Receivables on each day
during such period is greater than 110 days.
(jj) As of any date, after the Initial Funding Date more than 25%
of all outstanding Eligible Receivables are aged more than 120 days but less
than 181 days from the respective Last Service Dates of such Eligible
Receivables.
(kk) The Primary Servicer, Holdings and the Borrowers shall fail to
create and implement a Credit and Collection Policy acceptable to the Lender
by November 30, 1998.
(ll) Executed UCC-3 termination statements are not either filed or
delivered to the Lender or its counsel for filing (x) by Tuesday, September 8,
1998 with respect to the UCC-1 financing statements filed by Star Bank,
National Association (or its predecessor) and Total Rehab South, Inc. and (y)
by Thursday, September 17, 1998 with respect to the UCC-1 financing statement
filed by Community Hospital of Anderson and Madison County.
(mm) The merger between RT Group, Inc. and In-House Rehab, Inc.
shall not have been consummated, and evidence thereof provided to the Lender
or its counsel by Wednesday, September 16, 1998.
V-5
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<PAGE>
(nn) The Borrowers permit the ratio of EBITDA to interest expense,
calculated on a rolling four quarter basis, to be less than 2.00:1.00;
provided, however, that for the purposes of calculating this ratio, the
Borrowers shall be permitted to exclude the one time charge of $632,000
associated with writing off the Receivables owed by Chartwell Healthcare.
V-6
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<PAGE>
EXHIBIT VI.
RECEIVABLE INFORMATION
The following information shall be provided by the Primary Servicer to
the Master Servicer with respect to each Receivable, as appropriate, together
with such other information and in such form as may reasonably be requested
from time to time by the Master Servicer (the "Receivable Information"):
(i) patient demographic information (i.e., patient's age, sex,
occupation, diagnosis and residence);
(ii) insured party demographic and other policy-related information
(i.e., insured party's age, sex, occupation and residence);
(iii) services classification information (i.e., D.R.G. and other
like information established by Borrowers from time to time to classify
services rendered at the Borrowers' institutions);
(iv) other information provided in the ordinary course of business
pursuant to any agreement, contract or other arrangement with respect to such
Receivable; and
(v) billing information (i.e., all information provided by a
Borrower on invoices to Obligors and any other information required to be
provided pursuant to the Credit and Collection Policy and, to the extent the
Transmission will not be via computer interface, including a copy of the
admitting face sheet, UB 82/UBF/1500 Form and a detailed copy of the bill).
VI-1
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<PAGE>
EXHIBIT VII.
ELIGIBILITY CRITERIA
The following shall constitute the eligibility criteria for acceptance of
Receivables for financing and inclusion in the Borrowing Base under the
Agreement (the "Eligibility Criteria"):
(a) The information provided by the Primary Servicer with respect
to such Receivable is complete and correct and all documents, attestations and
agreements relating thereto that have been delivered to the Lender are true
and correct. The Borrowers have, or have the right to use, valid provider
identification numbers and licenses, if any, that are necessary to generate
valid Receivables. Except with respect to Unbilled Receivables the Borrowers
have billed the applicable obligor and all information set forth in the bill
and supporting claim documents with respect to such Receivable is true,
complete and correct; if additional information is requested by the obligor to
the Borrowers or the Borrowers have or will promptly provide the same, and if
any error has been made with respect to such information, the Borrowers will
promptly correct the same and, if necessary, rebill such Receivable.
(b) There is no basis for any Governmental Entity to assert an
offset against the Borrowers.
(c) Such Receivable (i) is payable, in an amount not less than its
Expected Net Value, (ii) is based on an actual and bona fide rendition of
services or sale of goods to the patient by the Borrowers in the ordinary
course of business, (iii) is denominated and payable only in U.S. dollars in
the United States, (iv) is an account receivable or general intangible within
the meaning of the UCC of the state in which the relevant Borrower has its
principal place of business, or is a right to payment under a policy of
insurance or proceeds thereof, and is not evidenced by any instrument or
chattel paper, and (v) shall be subject to a patient consent form approved by
the Lender and executed by the applicable patient.
(d) Such Receivable (i) is not the subject of any action, suit,
proceeding or dispute (pending or threatened), setoff, counterclaim, defense,
abatement, suspension, deferment, deductible, reduction or termination, (ii)
is not past, or within 60 days of, the statutory limit for collection or is
not aged more than 180 days from its Last Service Date, or (iii) was not
billed on a date more than 45 days after the Last Service Date.
(e) The Borrowers have no guaranty of, letter of credit providing
credit support for, or collateral security for, such Receivable, other than
any such guaranty, letter of credit or collateral security as has been
assigned to the Lender, and any such guaranty, letter of credit or collateral
security is not subject to any Lien in favor of any other person. The fees
for services which are subject to limitations imposed by worker's compensation
regulations or by contracts for reimbursement do not exceed the limitations so
imposed, and each Receivable for which the fees are so restricted is clearly
identified as being subject to such restriction.
(f) The goods or services provided and reflected by such Receivable
were medically necessary for the patient, and the patient has received such
goods or services.
VII-1
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(g) The fees charged for the goods or services constituting the
basis for such Receivable are consistent with the usual, customary and
reasonable fees charged by other similar medical goods or service providers
for the same or similar goods or services in the relevant Borrower's community
and in the community in which the patient resides. The fees for services
which are subject to limitations imposed by worker's compensation regulations
or by contracts for reimbursement from do not exceed the limitations so
imposed, and each Receivable for which the fees are so restricted is clearly
identified as being subject to such restriction.
(h) The obligor of such Receivable is (i) not currently the
subject of any bankruptcy, insolvency or receivership proceeding, nor is it
unable to make payments on its obligations when due, (ii) located in the
United States, and (iii) one of the following: (x) a Person which in the
ordinary course of its business or activities agrees to pay for healthcare
services received by individuals, including, without limitation, commercial
insurance companies and non-profit insurance companies (such as Blue Cross and
Blue Shield) issuing health or other types of insurance, employers or unions
which self-insure for employee or member health insurance, prepaid healthcare
organizations, preferred provider organizations, health maintenance
organizations or any other similar person, (y) a state, an agency or
instrumentality of a state or a political subdivision of a state, or (z) the
United States of America or an agency or instrumentality of the United States
of America.
(i) The financing of such Receivables hereunder is made in good
faith and without actual intent to hinder, delay or defraud present or future
creditors of the Borrowers.
(j) Each contract or other instrument with respect to any
Receivable (i) does not contain any provision prohibiting the grant of a
security interest in such payment obligation, (ii) has been duly authorized
and, together with such Receivable, constitutes the legal, valid and binding
obligation of the parties thereto in accordance with its terms, (iii) together
with such Receivable, does not contravene in any material respect any
requirement of law applicable thereto, and (iv) was in full force and effect
and applicable to the patient at the time the goods or services constituting
the basis for such Receivable were sold or performed.
(k) No consents by any third party to the sale of such Receivable
are required other than consents previously obtained in writing by the
Borrowers, a copy of such consents having been provided to the Lender.
(l) The inclusion of such Receivable in the Borrowing Base would
not increase the fraction expressed as a percentage where (i) the numerator is
the sum of the then outstanding principal amount of Eligible Receivables for
any obligor (or group of obligors) listed below included in the Borrowing
Base, and (ii) the denominator is the Borrowing Base for all Receivables,
above the corresponding maximum percentage listed below:
VII-2
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<PAGE>
Maximum
Obligor Percentage
Medicare 50%
Medicaid 75%
Blue Cross/Blue Shield 25%
Commercial/Managed Care 100%
Any Individual Facility 4%
Any Facility Group 25%
(m) Unless specifically verified and accepted by the Master
Servicer or Program Manager, no single Eligible Receivable has an Expected Net
Value greater than $500,000 for outpatient services.
(n) No prior sale or assignment of security interest has been made
with respect to or granted in any Eligible Receivable.
VII-3
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<PAGE>
EXHIBIT VIII
FORM OF BORROWING BASE CERTIFICATE
DAIWA HEALTHCO-3 LLC
Borrowing Base Report
Report Submission Date:[_____________]
As of Date:[______________]
1) Beginning A/R Balance (from Previous Report)
2) Additions:
a) New billings
b) Late Charges/Adjustments
Total Additions
3) Deductions:
a) Collections
b) Contractual/Discounts
c) Transfers to Bad Debt
d) Other Discounts/Adjustments
Total Deductions
4) Accounts Receivable Balance
5) Less: Ineligible Collateral
a) Over 180 Days
b) In Excess of Concentration Limits
Total Ineligible Collateral
6) Total Eligible Collateral (Gross)
7) Estimated Net Value % 100%
8) Total Eligible Collateral (Net)
9) Less: Unposted Cash
10) Adjusted Net Eligible Collateral
11) Advance Rate Percentage 85%
12) Maximum Loan Availability on Collateral
13) Maximum Loan Availability per Agreement $5,000,000
14) TOTAL LOAN AVAILABILITY (LESSOR OF 12 OR 13)
15) Outstanding Loan Balance Prior Report
16) Less Collections (Net Cash)
17) Plus Draws Since Prior Report
18) Interest Due/Fees
19) Additional Advance Requested
20) LOAN BALANCE THIS REPORT
21) NET AVAILABILITY (14. Minus 20.)
The undersigned represents and warrants that the foregoing information is
true, complete and correct and that the collateral reflected herein complies
with the conditions, terms, warrantees, representations and covenants set
forth in the Loan and Security Agreement between the undersigned and DAIWA
HEALTHCO-3 LCC and any supplements and amendments, if any, thereto (the
"Agreement"). The undersigned promises to pay to DAIWA HEALTHCO-3 LCC the new
loan balances reflected above, plus interest, as set forth in the Agreement.
VIII-1
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<PAGE>
IN-HOUSE REHAB CORPORATION
By:_____________________________ Date:[____________]
Name:
VII-2
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<PAGE>
EXHIBIT IX
IN-HOUSE REHAB CORPORATION
325 West Main Street
Waterfront Plaza, Suite 1400B
Louisville, KY 40202
August __, 1998
KeyBank, National Association
525 Vine Street
6th Floor
Cincinnati, OH 45202
Attention: Mark Mullin
Re: Account Number [ ]
Gentlemen:
Reference is made to your arrangements with In-House Rehab Corporation
("In-House") concerning box #[box number], [address] (the "Lockbox") and
account number [account number] (the "In-House Account"). Any and all checks,
instruments, cash and other amounts delivered to the Lockbox shall, subject to
the terms and conditions set forth herein, be disbursed by you only as
follows:
1. Any and all checks, instruments, cash or other amounts delivered
(including, without limitation, any such checks, instruments, cash and amounts
delivered by In-House, In-House Rehab, Inc., In-House Medical Resources, Inc.,
RT Group, Inc., Doctors Rehab & Therapy, Inc., Daily Rehabilitation Institute
of Ponte Vedra, Inc., Gateway Rehab, Inc., In-House Rehab Partners, LLC,
Perennial Health Management, Inc. and Rehab Tools, Inc., ) to the Lockbox (the
"In-House Funds"), shall be deposited into the In-House Account on the
business day of their delivery. Under no circumstances shall the In-House
Funds be commingled with any other checks, instruments, cash or other amounts,
nor shall any checks, instruments, cash or other amounts other than the
In-House Funds be deposited into the In-House Account;
2. Each business day, as set forth below or pursuant to further
instructions by Daiwa Securities America Inc. ("Daiwa"), you shall transfer
all funds from the In-House Account to the account set forth in the following
wire transfer instructions: [bank], ABA Number: [ABA number], Account
Name:[account name].
The instructions set forth in paragraphs 1 and 2 above may be changed or
otherwise modified only by the delivery to you of a written notice signed by
Daiwa. You shall not honor instructions from anyone other than Daiwa, nor
shall anyone other than Daiwa be granted access to the Lockbox or the In-House
Account.
IX-1
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<PAGE>
Each of the signatories of this letter shall be deemed to be a
beneficiary of this letter. This letter may be executed in any number of
counterparts, and by different parties hereto in separate counterparts, each
of which shall be deemed to be an original, but all of which taken together
shall constitute one and the same instrument.
IN-HOUSE REHAB CORPORATION
By:_______________________________
Name:
Title:
IN-HOUSE REHAB, INC.
By:_______________________________
Name:
Title:
GATEWAY REHAB, INC.
By:_______________________________
Name:
Title:
IN-HOUSE REHAB PARTNERS, LLC
By:_______________________________
Name:
Title:
PERENNIAL HEALTH MANAGEMENT, INC.
By:_______________________________
Name:
Title:
DAILY REHABILITATION INSTITUTE OF PONTE VEDRA, INC.
By:_______________________________
Name:
Title:
IN-HOUSE MEDICAL RESOURCES, INC.
By:_______________________________
Name:
Title:
RT GROUP, INC.
By:_______________________________
Name:
Title:
DOCTORS REHAB & THERAPY, INC.
By:_______________________________
Name:
Title:
IX-2
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<PAGE>
REHAB TOOLS, INC.
By:_______________________________
Name:
Title:
DAIWA SECURITIES AMERICA INC.
By:________________________________
Name:
Title:
Accepted and acknowledged as of
this ____ day of August, 1998:
KEYBANK, NATIONAL ASSOCIATION
By:_________________________
Name:
Title:
IX-3
<PAGE>
<PAGE>
EXHIBIT X-A
Opinion of Counsel
See Opinion of Tab ____.
<PAGE>
EXHIBIT X-B
Form of Patient Consent Opinion
To be delivered.
X-1
<PAGE>
<PAGE>
EXHIBIT XI
PRIMARY SERVICER RESPONSIBILITIES
The Primary Servicer shall be responsible for the following
administration and servicing obligations (the "Primary Servicer
Responsibilities") which shall be performed by the Primary Servicer on behalf
of the Borrower until such time as a successor servicer shall be designated
and shall accept appointment pursuant to Section 2.01(e) or 3.02(a) of the
Agreement:
(a) Servicing Standards and Activities. The Primary Servicer agrees to
administer and service its Receivables (i) to the extent consistent with the
standards set forth in clauses (b) (i) through (iv) below, with the same care
that it exercises in administering and servicing similar receivables for its
own account, (ii) within the parameters of the Credit and Collection Policy,
(iii) in compliance at all times with applicable law and with the agreements,
covenants, objectives, policies and procedures set forth in the Agreement, and
(iv) in accordance with industry standards for servicing healthcare
receivables unless such standards conflict with the procedures set forth in
paragraph (b) of this Exhibit XI in which case the provisions of paragraph (b)
shall control. The Primary Servicer shall establish and maintain electronic
data processing services for monitoring, administering and collecting the
Receivables in accordance with the foregoing standards and shall, within five
(5) Business Days of the deposit of any checks, other forms of cash deposits,
EOB's or other written matter into a Lockbox, post such information to its
electronic data processing services.
(b) Parameters of Primary Servicing. The Primary Servicer
Responsibilities shall be performed within the following parameters:
(i) Subject to the review and authority of the Lender or the Master
Servicer and except as otherwise provided herein, the Primary Servicer shall
have full power and authority to take all actions that it may deem necessary
or desirable, consistent in all material respects with its existing policies
and procedures with respect to the administration and servicing of accounts
receivable, in connection with the administration and servicing of
Receivables. Without limiting the generality of the foregoing, the Primary
Servicer shall, in the performance of its servicing obligations hereunder, act
in accordance with all legal requirements and subject to the terms and
conditions of the Agreement.
(ii) Neither the Primary Servicer nor any Borrower shall change in
any material respect its existing policies and procedures with respect to the
administration and servicing of accounts receivable (including, without
limitation, the amount and timing of write-offs) without the prior written
consent of the Lender.
(iii) The Primary Servicer will be responsible for monitoring and
collecting the Receivables, including, without limitation, contacting
obligors that have not made payment on their respective Receivables within the
customary time period for such obligor, and resubmitting any claim rejected by
an obligor due to incomplete information.
(iv) If the Primary Servicer determines that a payment with respect
to a Receivable has been received directly by a patient or any other Person,
the Primary Servicer shall promptly advise the Lender, and shall promptly
demand that such patient or other Person remit and return such funds. If such
XI-1
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<PAGE>
funds are not promptly received by the the Primary Servicer or applicable
Borrower, the Primary Servicer or such Borrower shall take all reasonable
steps to obtain such funds.
(v) Notwithstanding anything to the contrary contained herein,
neither the Primary Servicer nor any Borrower may amend, waive or otherwise
permit or agree to any deviation from the terms or conditions of any
Receivable in any material respect without the prior consent of the Lender.
(c) Aged Term Servicing. The parties hereby agree that at such time as
any Receivable is unpaid for more than 270 days after the Last Service Date,
the the Primary Servicer or applicable Borrower shall, upon the request of the
Lender, turn over all of its Primary Servicer Responsibilities under this
Agreement with respect to such Receivable to a successor servicer selected by
the Lender, and such servicer shall thereafter service such Receivable.
(d) Termination of Primary Servicer Responsibilities; Cooperation. Upon
the replacement of the Primary Servicer in accordance with the terms of this
Agreement, the Primary Servicer shall immediately transfer to a successor
servicer designated by the Lender all records, computer access and other
information as shall be necessary or desirable, in the judgment of such
successor servicer, to perform such responsibilities. The Primary Servicer
and each Borrower shall otherwise cooperate fully with such successor
servicer.
XI-2
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<PAGE>
EXHIBIT XII
FORM OF BORROWERS' CERTIFICATE
Daiwa Healthco-3 LLC
Two Wall Street
New York, New York 10005
Ladies and Gentlemen:
The undersigned refers to the Loan and Security Agreement, dated as
of _____________ __, 1998 (as the same may be amended, supplemented, restated,
or modified from time to time, the "Loan Agreement") between In-House Rehab,
Inc., In-House Medical Resources, Inc., RT Group, Inc., Doctors Rehab &
Therapy, Inc., Daily Rehabilitation Institute of Ponte Vedra, Inc., Gateway
Rehab, Inc., In-House Rehab Partners, LLC and Perennial Health Management,
Inc., as Borrowers (each a "Borrower" and collectively, the "Borrowers"),
In-House Rehab Corporation as Primary Servicer and Guarantor and Daiwa
Healthco-3 LLC as Lender (the "Lender"). Capitalized terms used herein and
not otherwise defined shall have the meanings ascribed to them in the Loan
Agreement.
In accordance with Section 1.03 of the Loan Agreement the Borrower hereby
gives you irrevocable notice that the undersigned requests a Revolving Advance
under the Loan Agreement, and in connection therewith sets forth below the
information relating to such Advance as required by Section 1.03 of the Loan
Agreement:
Proposed Revolving Advance:
(i) The Funding Date of such Revolving Advance is requested to
be _______ __, 199_;
(ii) The amount of the Revolving Advance is requested to be
$_______________; and
(iii) Attached is the Borrowing Base Certificate delivered to
you on the immediately prior [ Day ].
The Borrower hereby certifies that the following statements are true and
correct on the date hereof, and will be true and correct on the date of the
proposed Revolving Advance:
(A) the representations and warranties contained in Exhibits III
and IV of the Loan Agreement are and will be true and correct, both before and
after giving effect to the Revolving Advance requested herein and to the
application of the proceeds thereof, as though made on and as of such date (it
being understood and agreed that any representation or warranty which by its
terms is made on a specified date shall be required to be true and correct
only as of such specified date); and
(B) no event has occurred and is continuing, or would result
from the Revolving Advance requested herein or from the application of the
proceeds thereof that constitutes or an Event of Default; and
XII-1
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(C) the aggregate outstanding principal amount of the Revolving
Advances after giving effect to the Revolving Advance requested herein is not
in excess of the lesser of the Revolving Commitment and the Borrowing Limit.
Very truly yours,
IN-HOUSE REHAB, INC.
IN-HOUSE MEDICAL RESOURCES, INC.
RT GROUP, INC.
DOCTORS REHAB & THERAPY, INC.
DAILY REHABILITATION INSTITUTE OF
PONTE VEDRA, INC.
GATEWAY REHAB, INC.
IN-HOUSE REHAB PARTNERS, LLC
PERENNIAL HEALTH MANAGEMENT, INC.
By:______________________________________
Name:
XII-2
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<PAGE>
SCHEDULE I
ADDRESSES FOR NOTICE
If to the Program Manager: Daiwa Securities America Inc.
Financial Square
32 Old Slip
New York, New York 10005-3538
Attention: Isaac Soleiman
Tel: (212) 612-6289
Fax: (212) 612-7122
If to the Master Servicer: Daiwa Securities America Inc.
Financial Square
32 Old Slip
New York, New York 10005-3538
Attention: Isaac Soleiman
Tel: (212) 612-6289
Fax: (212) 612-7122
If to Primary Servicer
& Guarantor: In-House Rehab Corporation
325 West Main Street
Suite 1400B
Louisville, Kentucky 40202
Attention: Robert J. Babine
Tel: (502) 568-8923
Fax: (502) 585-2358
If to Borrower: In-House Rehab, Inc.
325 West Main Street
Suite 1400B
Louisville Kentucky 40202
Attention Robert J. Babine
Tel: (502) 568-8923
Fax: (502) 585-2358
<PAGE>
<PAGE>
SCHEDULE II
CREDIT AND COLLECTION POLICY
[To be delivered.]
<PAGE>
<PAGE>
SCHEDULE III
INDEBTEDNESS
Other than indebtedness that has been incurred in the ordinary course of
business which is listed below as "Trade Payables" and Debt incurred
hereunder, the following is a schedule of the Borrowers' Debt:
Principal Interest Total
Star Bank $2,865,657.19 $ 20,408.84 $2,886,066.03
First Midwest, NA $ 853,678.00 - $ 853,678.30
Trade Payables
In-House Rehab, Inc. $115,261.09
Daily Rehabilitation Institute of
Ponte Vedra, Inc. $ (1.05)
RT Group, Inc. $ 7,773.64
In-House Partners, LLC $ 6,556.00
Doctors Rehab & Therapy, Inc. $ 378.90
Gateway Rehab, Inc. $140,533.16
<PAGE>
<PAGE>
SCHEDULE III(m)
CHANGES IN PRINCIPAL PLACE OF BUSINESS
In February, 1997 each of Holdings, In-House Rehab, Inc., In-House Medical
Resources, Inc. and RT Group, Inc. relocated their principal place of business
from 9505 Williamsburg Plaza, Louisville, Kentucky 40222 to its location on
the date hereof.
<PAGE>
<PAGE>
SCHEDULE III(n)
CHANGES OF BORROWER NAME
Prior to September 10, 1997 In-House Medical Resources, Inc. was known as
Regal Healthcare Systems, Inc.
Prior to December 9, 1996 Holdings was known as Perennial Development
Corporation.
<PAGE>
<PAGE>
GUARANTY, dated as of August 31, 1998, made by David Hall (the
"Guarantor") in favor of DAIWA HEALTHCO-3 LLC ("Lender").
PRELIMINARY STATEMENTS. Lender is party to that certain Loan and
Security Agreement, dated as of the date hereof (as amended, modified or
supplemented from time to time in accordance with its terms, the "Loan
Agreement"), among In-House Rehab, Inc., In-House Medical Resources, Inc., RT
Group, Inc., Doctors Rehab & Therapy, Inc., Daily Rehabilitation Institute of
Ponte Vedra, Inc., Gateway Rehab, Inc., In-House Rehab Partners, LLC,
Perennial Health Management, Inc. and Rehab Tools, Inc. (each individually, a
"Borrower" and, collectively, the "Borrowers"), and In-House Rehab
Corporation, as Primary Servicer and Guarantor ("Parent"). All terms not
otherwise defined herein shall have the meanings set forth in the Loan
Agreement.
The Guarantor, is a substantial equity holder of the Parent and will
derive substantial benefit from the transactions contemplated by the Loan
Agreement.
It is a condition precedent to the effectiveness of the Loan Agreement
and the making of any financial accommodations thereunder that the Guarantor
shall have executed and delivered this Guaranty.
NOW, THEREFORE, in consideration of the premises and in order to induce
Lender under the Loan Agreement to make Loan to Borrowers or other financial
accommodations under the Loan Agreement, the Guarantor hereby agrees as
follows:
SECTION 1. Guaranty; Limitation of Liability. (a) The Guarantor hereby
unconditionally and irrevocably guarantees the punctual payment when due of
all Lender Debt under the Loan Agreement (the "Guaranteed Obligations"), and
the Guarantor agrees to pay any and all reasonable costs and expenses
(including reasonable counsel fees and expenses) paid or incurred in enforcing
any rights under this Guaranty; provided, however, that the aggregate amount
of payments of Guaranteed Obligations made or to made by the Guarantor
hereunder shall not exceed $1,000,000.
(b) Any and all payments by or on behalf of the Guarantor hereunder
shall be made free and clear of and without deduction or withholding for any
and all present or future taxes unless required by law.
SECTION 2. Guaranty Absolute. The Guarantor guarantees that the
Guaranteed Obligations will be paid in accordance with the terms of the Loan
Agreement regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of the
Lender with respect thereto. The obligations of the Guarantor hereunder are
independent of the obligations of the Borrowers under the Loan Agreement or of
any other guarantor under any other guaranty and a separate action or actions
may be brought or prosecuted against the Guarantor to enforce this Guaranty,
irrespective of whether action is brought against the Borrowers or any other
guarantor or whether the Borrowers or any other guarantor are joined in any
such action or actions. The liability of the Guarantor under this Guaranty
shall be absolute and unconditional, and shall not be affected or released in
any way, irrespective of:
(a) any lack of validity or enforceability of the Loan Agreement or any
guaranty, agreement or instrument relating thereto (collectively, the
"Documents");
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(b) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Guaranteed Obligations, or any other
amendment or waiver of or any consent to departure from any Document
including, without limitation, any increase in the Guaranteed Obligations;
(c) any taking and holding of collateral or additional guarantees for
all or any of the Guaranteed Obligations, or any amendment, alteration,
exchange, substitution, transfer, enforcement, waiver, subordination,
termination or release of any collateral or such guarantees, or non-perfection
or delay in perfection of any collateral, or any consent to departure from any
such guaranty, for all or any of the Guaranteed Obligations;
(d) any manner of application of collateral, or proceeds thereof, to all
or any of the Guaranteed Obligations, or any commercially reasonable manner of
sale or other disposition of any collateral for all or any of the Guaranteed
Obligations or any other assets of any Borrower or any other Person;
(e) any consent by Lender, any Borrower, or any other Person to the
change, restructure or termination of the corporate structure or existence of
a Borrower, or any of their affiliates and any corresponding restructure of
the Guaranteed Obligations, or any other restructure or refinancing of the
Guaranteed Obligations or any portion thereof; or
(f) any other circumstance which might otherwise constitute a defense
available to, or a discharge of a Borrower.
Without limiting the generality of the foregoing, the Guarantor hereby
consents to, and hereby agrees, that the rights of Lender hereunder, and the
liability of the Guarantor hereunder, shall not be affected by any and all
releases of any collateral, whether for purposes of commercially reasonable
sales or other dispositions of assets or for any other purpose.
SECTION 3. Waivers. The Guarantor hereby waives:
(a) promptness, diligence, notice of acceptance and any other notice
with respect to any of the Guaranteed Obligations and this Guaranty;
(b) any requirement that the Lender or any other Person protect, secure,
perfect or insure any Lien or any property subject thereto or exhaust any
right or take any action against the Borrowers or any other Person or any
collateral; and
(c) any duty on the part of the Lender or any other Person to disclose
to the Guarantor any matter, fact or thing relating to the business, operation
or condition of the Borrowers and their assets now known or hereafter known by
such Person.
SECTION 4. Waiver of Subrogation and Contribution. Until the later to
occur of the Maturity Date and payment in full of all Guaranteed Obligations,
the Guarantor hereby irrevocably waives any claim or other rights which he may
now or hereafter acquire against any Borrower that arises from the existence,
payment, performance or enforcement of the Guarantor's obligations under this
Guaranty, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution or indemnification and any right to
participate in any claim or remedy against a Borrower or any collateral which
the Lender now has or hereafter acquires, whether or not such claim, remedy or
right arises in equity, or under contract, statute or common law, including,
without limitation, the right to take or receive from a Borrower or, directly
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or indirectly, in cash or other property or by set-off or in any other manner,
payment or security on account of such claim, remedy or other right. If any
amount shall be paid to the Guarantor in violation of the preceding sentence
at any time prior to the later to occur of the Maturity Date and payment in
full of all Guaranteed Obligations, such amount shall be deemed to have been
paid to the Guarantor for the benefit of, and held in trust for the benefit
of, the Lender, and shall forthwith be paid to the Lender to be credited and
applied to the Guaranteed Obligations and all other amounts payable under this
Guaranty, whether matured or unmatured, in accordance with the terms of the
Documents, or to be held as collateral for any Guaranteed Obligations or other
amounts payable under this Guaranty thereafter arising. The Guarantor
acknowledges that he will receive direct and indirect benefits from the
financing arrangements contemplated by the Documents and that the waiver set
forth in this subsection is knowingly made in contemplation of such benefits.
SECTION 5. Representations and Warranties. The Guarantor hereby
represents and warrants as follows:
(a) no authorization, consent, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body or any
other Person is required for the due execution, delivery and performance by
the Guarantor of this Guaranty except for consents which have been obtained;
and
(b) he has, independently and without reliance upon the Lender and based
on such documents and information as it has deemed appropriate, made his own
credit analysis and decision to enter into this Guaranty.
SECTION 6. Covenants. The Guarantor agrees he shall maintain a minimum
personal tangible net worth of $1,000,000, exclusive of debt instruments from
any of the Borrowers. The Guarantor further agrees, upon the written request
of the Borrower, to provide annual statements of his personal net worth as of
the prior calendar year end to the Lender.
SECTION 7. Amendments, Etc. No amendment or waiver of any provision of
this Guaranty nor consent to any departure by the Guarantor therefrom shall in
any event be effective unless the same shall be in writing and signed by the
Lender (and, if an amendment, by the Guarantor), and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 8. No Waiver; Remedies. No failure on the part of the Lender to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right
hereunder preclude any other or further exercise thereof or the exercise of
any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law or any other Document.
SECTION 9. Continuing Guaranty; Assignment. This Guaranty is a
continuing guaranty and shall (a) remain in full force and effect until the
earlier to occur of (i) the later of the Maturity Date and payment in full of
all Guaranteed Obligations or (ii) such time that the Borrowing Base
Certificates (each of which contains information determined to be true and
correct) for six consecutive months each indicate that Trade Receivables (as
defined below) for such month constitute less than 50% of all Eligible
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Receivables and no Event of Default shall have occurred or be continuing
during such six consecutive month period, (b) be binding upon the Guarantor,
his successors and assigns, and (c) inure to the benefit of and be enforceable
by the Lender and its successors and assigns.
For the purposes of this Section 9, "Trade Receivables" shall mean all
Receivables other than Receivables payable directly to the Borrower by an
obligor that is either (x) a Governmental Entity, or (y) a commercial or
non-profit insurance company (such as any Blue Cross, Blue Shield entity),
employers or union which self-insures for employee or member health insurance,
prepaid health care organization, preferred provider organization or health
maintenance organization.,
SECTION 10. Financial Condition of the Providers. The Guarantor
represents to the Lender that he is now and will be completely familiar with
the prospects, business, operations and condition (financial and otherwise) of
each Borrower, and the Guarantor hereby waives and relinquishes any duty on
the part of the Lender or any other Person to disclose any matter, fact or
thing relating to the prospects, business, assets, liabilities, operations or
condition (financial or otherwise) of the Borrowers now known or hereafter
known by the Lender or any other Person.
SECTION 11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
SECTION 12. WAIVER OF JURY TRIAL, JURISDICTION AND VENUE. THE PARTIES
HERETO HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY IN THE EVENT OF ANY
LITIGATION WITH RESPECT TO ANY MATTER RELATED TO THIS AGREEMENT, AND HEREBY
IRREVOCABLY CONSENT TO THE JURISDICTION OF THE STATE AND FEDERAL COURTS
LOCATED IN NEW YORK COUNTY, NEW YORK CITY, NEW YORK IN CONNECTION WITH ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. IN ANY
SUCH LITIGATION, THE PARTIES HERETO WAIVE PERSONAL SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER PROCESS AND AGREES THAT SERVICE THEREOF MAY BE MADE BY
CERTIFIED OR REGISTERED MAIL DIRECTED TO THE OTHER PARTY AT ITS ADDRESS SET
FORTH ON THE SIGNATURE PAGE HEREOF. THE PARTIES HERETO SHALL APPEAR IN ANSWER
TO SUCH SUMMONS, COMPLAINT OR OTHER PROCESS WITHIN THE TIME PRESCRIBED BY LAW,
FAILING WHICH THE PARTY FAILING TO SO APPEAR SHALL BE DEEMED IN DEFAULT AND
JUDGMENT MAY BE ENTERED BY THE OTHER PARTY FOR THE AMOUNT OF THE CLAIM AND
OTHER RELIEF REQUESTED THEREIN.
SECTION 13. Severability. If any term or provision of this Guaranty is
or shall become illegal, invalid or unenforceable in any jurisdiction, all
other terms and provisions of this Guaranty shall remain legal, valid and
enforceable in such jurisdiction and such illegal, invalid or unenforceable
provision shall be legal, valid and enforceable in all other jurisdictions.
SECTION 14. Section Titles. The Section titles contained in this
Guaranty are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreement between the parties hereto.
IN WITNESS WHEREOF, this 31 day of August 1998, the Guarantor has caused
this Guaranty to be duly executed and delivered as of the date first above
written.
/s/ David Hall
David Hall
