<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
---------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to
Commission file number 001-35118
---------
CENTENNIAL HEALTHCARE CORPORATION
---------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1839701
--------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) identification No.)
400 Perimeter Center Terrace, Suite 650, Atlanta, Georgia 30346
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 770-698-9040
-------------
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
There were 11,923,618 shares of Common Stock outstanding as of August 5, 1998
<PAGE>
CENTENNIAL HEALTHCARE INC
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
INDEX
PART I - FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE>
ITEM I - FINANCIAL STATEMENTS
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
1998 1997
--------- ------------
ASSETS
Current assets:
Cash and cash equivalents............................. $ 5,756 $ 4,011
Patient accounts receivable and
third-party payor settlements, net of
allowance for doubtful accounts of
approximately $3,200 and $3,000..................... 86,987 72,222
Other receivables..................................... 25,737 14,612
Deferred income taxes................................. 2,511 2,511
Prepaid expenses and other current assets............. 2,615 1,259
-------- --------
Total current assets................................ 123,606 94,615
Property and equipment, net............................ 75,301 74,379
Intangible assets, net................................. 50,353 51,331
Notes receivable and other assets...................... 23,680 23,324
-------- --------
Total assets......................................... $272,940 $243,649
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............... $ 41,722 $ 40,785
Other current liabilities.............................. 9,471 8,270
-------- --------
Total current liabilities............................ 51,193 49,055
Long-term debt, less current maturities................. 99,360 78,913
Other long-term liabilities............................. 1,329 2,577
-------- --------
151,882 130,545
Commitments and contingencies (Note 3)
Shareholders' equity:
Common stock with par value of $.01; 50,000,000
shares authorized; 11,923,618 and 11,862,320
shares issued and outstanding....................... 119 119
Paid-in capital........................................ 101,593 101,299
Retained earnings...................................... 19,874 12,214
-------- --------
121,586 113,632
Note receivable from shareholder........................ (528) (528)
-------- --------
Net shareholders' equity............................ 121,058 113,104
-------- --------
Total liabilities and shareholders' equity.......... $272,940 $243,649
======== ========
See accompanying notes to condensed consolidated financial statements.
3
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CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- -------------------
1998 1997 1998 1997
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Net patient service revenues........................................ $ 84,042 $ 70,202 $167,421 $132,573
Management fees and other revenues.................................. 3,858 1,737 7,551 3,601
-------- -------- -------- --------
Total revenues..................................................... 87,900 71,939 174,972 136,174
-------- -------- -------- --------
Expenses:
Facility operating expenses:
Salaries, wages and benefits....................................... 43,348 34,988 84,920 68,261
Other operating expenses........................................... 23,281 20,392 47,979 36,791
Lease expense....................................................... 5,746 5,350 11,155 10,433
Corporate administrative costs...................................... 5,247 3,846 10,190 7,214
Depreciation and amortization....................................... 2,379 1,613 4,662 3,134
-------- -------- -------- --------
Total operating expenses........................................... 80,001 66,189 158,906 125,833
-------- -------- -------- --------
7,899 5,750 16,066 10,341
-------- -------- -------- --------
Other income (expense):
Interest income..................................................... 800 167 921 316
Interest expense.................................................... (2,316) (2,658) (4,229) (5,288)
-------- -------- -------- --------
Total other expense................................................ (1,516) (2,491) (3,308) (4,972)
-------- -------- -------- --------
6,383 3,259 12,758 5,369
Provision for income taxes........................................... 2,489 1,270 4,975 2,094
-------- -------- -------- --------
Income before minority interest...................................... 3,894 1,989 7,783 3,275
Minority interest in net income of subsidiary,
net of income taxes................................................. (60) (105) (123) (150)
-------- -------- -------- --------
Net income......................................................... 3,834 1,884 7,660 3,125
Dividends and accretion on preferred stock........................... - 432 - 1,219
-------- -------- -------- --------
Income applicable to common stock.................................... $ 3,834 $ 1,452 $ 7,660 $ 1,906
======== ======== ======== ========
Income applicable to common stock
per common stock and common stock equivalent share:
Basic............................................................... $0.32 $0.30 $0.64 $0.40
======== ======== ======== ========
Diluted............................................................. $0.32 $0.30 $0.63 $0.39
======== ======== ======== ========
Weighted average number of common stock and
common stock equivalents outstanding:
Basic............................................................... 11,910 4,789 11,888 4,799
======== ======== ======== ========
Diluted............................................................. 12,215 4,828 12,213 4,837
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTE
COMMON STOCK RECEIVABLE
----------------- PAID-IN RETAINED FROM
SHARES AMOUNT CAPITAL EARNINGS SHAREHOLDER NET
-------- ------ ------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997.... 11,862 $ 119 $101,299 $12,214 $ (528) $113,104
Exercise of stock options....... 61 - 294 - - 294
Net income...................... - - - 7,660 - 7,660
------- ----- -------- ------- ------ --------
Balance at June 30, 1998........ 11,923 $ 119 $101,593 $19,874 $ (528) $121,058
======= ===== ======== ======= ====== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
SIX MONTHS
ENDED JUNE 30,
------------------
1998 1997
------- -------
Operating Activities:
Net income............................................ $ 7,660 $ 3,125
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization....................... 4,662 3,134
Amortization of discount on subordinated debt....... - 58
Deferred income taxes............................... - 1,739
Consulting expenses offset against
note receivable................................... 62 62
Minority interest................................... 201 247
Provision for doubtful accounts..................... 684 297
Change in assets and liabilities:
Accounts receivable............................... (16,243) (8,932)
Prepaid expenses and other assets................. (8,100) (3,091)
Accounts payable, accrued liabilities and
other current liabilities....................... 2,337 168
Other............................................. (40) 161
-------- --------
Cash used in operating activities............... (8,777) (3,032)
-------- --------
Investing Activities:
Purchases of property and equipment................... (3,699) (2,030)
Notes and advances receivable, net of repayments...... (5,447) 114
Acquisitions, net of cash acquired.................... - (6,000)
(Increase) decrease in restricted cash................ (5) 4,680
Other................................................. (613) (764)
-------- --------
Cash used in investing activities............... (9,764) (4,000)
-------- --------
Financing Activities:
Proceeds from issuance of preferred stock............. - 10,000
Proceeds from the exercise of stock options........... 294 11
Proceeds from borrowings.............................. 21,200 6,000
Distributions paid to minority partners............... (148) (148)
Payments of dividends to preferred shareholders....... - (249)
Payments on amounts due to related party.............. (307) (192)
Principal payments on long-term debt.................. (753) (887)
-------- --------
Cash provided by financing activities........... 20,286 14,535
-------- --------
Net increase in cash and cash equivalents.............. 1,745 7,503
Cash and cash equivalents, beginning of period......... 4,011 6,030
-------- --------
Cash and cash equivalents, end of period............... $ 5,756 $ 13,533
======== ========
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1--BASIS OF PRESENTATION AND OTHER INFORMATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnote disclosures required by generally accepted accounting principles for
complete financial statements. In the opinion of management, the financial
statements reflect all adjustments considered necessary for a fair statement of
the results of operations and financial position for the interim periods
presented. All such adjustments are of a normal recurring nature. These
unaudited interim financial statements should be read in conjunction with the
audited consolidated financial statements for the year ended December 31, 1997
and notes thereto contained in Centennial HealthCare Corporation's Annual Report
on Form 10-K filed with the Securities and Exchange Commission (Commission File
No. 001-35118).
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The results of operations for
the six months ended June 30, 1998 are not necessarily indicative of the results
to be expected for the year ending December 31, 1998 or any interim period.
Certain amounts in the 1997 financial statements of Centennial HealthCare
Corporation ("Centennial" or the "Company") have been reclassified for
comparative purposes.
NOTE 2--EARNINGS PER SHARE
The calculation of earnings per share is as follows (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------
1998 1997 1998 1997
------- ------ ------- -------
<S> <C> <C> <C> <C>
Income before dividends and accretion on preferred stock....... $ 3,834 $1,884 $ 7,660 $ 3,125
Dividends and accretion of preferred stock..................... - (432) - (1,219)
------- ------ ------- -------
Income applicable to common stock.............................. $ 3,834 $1,452 $ 7,660 $ 1,906
Weighted average common shares outstanding..................... 11,910 4,789 11,888 4,799
BASIC EARNINGS PER COMMON SHARE................................ $ 0.32 $ 0.30 $ 0.64 $ 0.40
======= ====== ======= =======
Income applicable to common stock.............................. $ 3,834 $1,452 $ 7,660 $ 1,906
Interest savings on convertible debt (net of tax).............. 24 - 48 -
------- ------ ------- -------
Income applicable to common stock.............................. $ 3,858 $1,452 $ 7,708 $ 1,906
Weighted average common shares outstanding..................... 11,910 4,789 11,888 4,799
Dilutive effect of stock options............................... 180 39 200 38
Conversion of convertible debt................................. 125 - 125 -
------- ------ ------- -------
Average diluted common shares outstanding...................... 12,215 4,828 12,213 4,837
DILUTED EARNINGS PER COMMON SHARE.............................. $ 0.32 $ 0.30 $ 0.63 $ 0.39
======= ====== ======= =======
</TABLE>
7
<PAGE>
NOTE 3--COMMITMENTS AND CONTINGENCIES
On December 16, 1997, the Company expanded its Senior Credit Facility with
CoreStates Bank, N.A., (now known as First Union National Bank (First Union)),
and NationsBank, N.A., (NationsBank), as agents and lenders and the other
lenders named herein, through an amendment to its existing credit agreement (the
"Senior Credit Facility"). The Company's maximum aggregated advance limit was
increased from $65.0 million to $125.0 million. Company advances under the
Senior Credit Facility may be used for acquisitions, capital expenditures,
working capital and general corporate purposes. Centennial's borrowing capacity
is dependent upon its ability to satisfy certain financial covenants that are
impacted by its debt and capital structure. The Senior Credit Facility was
further expanded in July 1998, (see Note 5).
Effective April 20, 1998, the Company entered into an interest rate swap
agreement with First Union. Under the provisions of the Senior Credit Facility,
Centennial is required to hedge a portion of its floating rate debt outstanding
under the Senior Credit Facility. Through the agreement, the Company has
exchanged its floating rate interest obligations on $18.0 million in principal
to a fixed rate of 5.65% per annum for a period of five years. First Union has
the option of canceling the agreement on April 19, 2001. The fixing of interest
rates for this period reduces in part the Company's exposure to the uncertainty
of floating interest rates. The differential paid or received on the interest
rate swap agreement is recognized as an adjustment to interest expense.
The Company anticipates entering into additional interest rate swap agreements
during the remainder of 1998, in accordance with the provisions of the Senior
Credit Facility noted above.
NOTE 4--RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards No. 133 ("SFAS No.
133"), "Accounting for Derivative Instruments and Hedging Activities," was
issued. This statement requires that all derivatives be recognized in the
statement of financial position as either assets or liabilities and measured at
fair value. In addition, all hedging relationships must be designated,
reassessed and documented pursuant to the provisions of SFAS No. 133. SFAS No.
133 is effective for fiscal years beginning after June 15, 1999. The effect on
the financial statements upon adoption of SFAS No. 133 has not been determined.
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information", ("SFAS
No. 131"). SFAS No. 131 establishes standards for the way that public business
enterprises report information about operating segments in annual and interim
financial statements. SFAS No. 131 is required to be applied beginning with the
Company's 1998 annual financial statements. The Company has not yet determined
the effect, if any, of this statement on its consolidated financial statements.
NOTE 5--SUBSEQUENT EVENTS
In June 1998 the Company signed an agreement to lease ten skilled nursing
facilities totaling 1,024 licensed available beds, located throughout Arkansas,
Florida, Kansas, Wisconsin and North Carolina. The leases, with an initial
fourteen-year term and two ten-year renewal options, will be effective upon
transfer of the licenses to the Company. Two of the licenses transferred on
August 1, 1998, and the remaining facility licenses are expected to be
transferred by October 1998.
In July 1998, the Company refinanced and expanded the Senior Credit Facility
from $125 million to $160 million through a syndication with an expanded bank
group led by NationsBank and First Union as agents and lenders. Under the
expansion, an initial amount of $40.0 million has been reserved for leases of
existing and future facilities. The Company can expand the lease portion of the
commitment up to $80.0 million.
In August 1998, the Company financed three skilled nursing facilities under the
lease component of the expanded credit facility. Royal Terrace Nursing and
Rehabilitation center, a 147-bed facility located in Kansas, was previously
leased by the Company. Chenal Rehabilitation and Healthcare Center, a 70-bed
facility located in Arkansas, was previously managed by the Company. The third
facility, 82-bed Riley Nursing Center, is Centennial's sixth skilled nursing
facility in Mississippi. The total purchase price for these facilities was
$16.1 million.
In December 1995, as part of the Company's merger with Transitional Health
Services, Inc. ("THS"), the Company assumed operations of THS of South Bend, a
191-bed skilled nursing facility located in South Bend, Indiana. As previously
disclosed, prior to its acquisition by the Company, this facility had a history
of operating losses, had received negative state licensure surveys, and was in
jeopardy of losing its license. At the time of the acquisition, the Company
recorded a $3.0 million reserve against a future loss on the disposition of the
facility, which the Company intended to complete within two years. The Company
is currently marketing the facility for sale. The Company is in the process of
recertifying the facility for Medicaid and a hearing has been scheduled in
October 1998 related to the continued licensure of the facility. In addition,
the Company is preparing its response to an action filed by the local county
prosecutor's office. The Company believes that all of these matters will be
resolved successfully and that the previously established reserve should be
adequate to cover any loss on disposition.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the accompanying
Unaudited Condensed Consolidated Statements of Operations for the three and six
month periods ended June 30, 1998 and 1997.
CERTAIN STATEMENTS IN THIS FORM 10-Q, INCLUDING INFORMATION SET FORTH UNDER
THE CAPTION "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS", CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH STATEMENTS INCLUDE
STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF CENTENNIAL
HEALTHCARE CORPORATION AND MEMBERS OF ITS MANAGEMENT TEAM. MANAGEMENT CAUTIONS
THAT A VARIETY OF FACTORS COULD CAUSE CENTENNIAL HEALTHCARE'S ACTUAL RESULTS TO
DIFFER MATERIALLY FROM THE ANTICIPATED RESULTS EXPRESSED IN SUCH FORWARD-LOOKING
STATEMENTS. IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN FORWARD-LOOKING STATEMENTS ARE
SET FORTH IN CENTENNIAL HEALTHCARE'S CAUTIONARY STATEMENTS REGARDING FORWARD-
LOOKING STATEMENTS (EXHIBIT 99.1 TO THIS REPORT), WHICH STATEMENTS ARE
INCORPORATED HEREIN BY REFERENCE.
Centennial HealthCare Corporation ("Centennial" or the "Company") provides a
broad range of long-term healthcare services to meet the medical needs of
elderly and post-acute patients. The Company provides these services through
geographically concentrated networks located in metropolitan and secondary
markets throughout the United States. The Company was organized in 1989 as a
Georgia corporation and conducts business through its operating subsidiaries.
Including eleven facilities, (1,106 beds), under contract but not being operated
as of June 30, 1998, the Company operated 101 owned, leased and managed skilled
nursing facilities with approximately 10,800 licensed available beds in 19
states and the District of Columbia. The Company provides basic and specialty
healthcare services. Basic services include skilled nursing and support,
housekeeping, laundry, dietary, recreational and social services. Specialty
services include comprehensive rehabilitation therapy, respiratory therapy,
ventilator care, infusion therapy, wound care, home health care and other
subacute and specialty services. As components of its specialty services, at
June 30, 1998, Centennial provided rehabilitation therapy services on a contract
basis to third-party owned and Company-operated skilled nursing facilities in 19
states pursuant to 134 contracts and provided home health care services through
30 licensed home health offices.
During the first quarter of 1998, the Company entered into management agreements
for six skilled nursing facilities, with a total of 836 licensed available beds,
located in North Carolina. Also in the first quarter of 1998, Centennial
entered into a management agreement for a 59-bed rural hospital in northern
Florida.
In December 1997, Centennial acquired a 58-bed skilled nursing facility in St.
Petersburg, Florida (the "Florida Facility"), which had previously been managed
by the Company since June 1991. The Florida Facility was formerly owned by an
affiliate of the President of the Company. Total consideration of approximately
$3.3 million included borrowings under the Company's Senior Credit Facility of
approximately $1.1 million, and the reduction of a note receivable to the
Company from the facility of approximately $2.2 million.
9
<PAGE>
In March 1997, the Company acquired a leasehold interest in a rural hospital
located in northern Florida. In October 1996, the Company entered into a
management agreement and a lease agreement with the owner of a hospital and
three licensed home health care offices, located in northern Florida. The
agreement provided that the Company would manage the hospital until all
necessary approvals and licenses were obtained, at which time the Company would
operate the hospital under a long-term lease. The Company accounted for the
transaction as a management agreement beginning in October 1996; in June 1997,
all necessary approvals and licenses were obtained, and the Company has operated
the hospital under a long-term lease since that date. This June 1997 hospital
lease is hereafter referred to as the "Hospital". The above hospital leases
together are hereafter referred to as the "Hospitals".
In August 1997, Centennial acquired substantially all of the business and assets
of Complex Care, Inc., ("CCI"), a provider of physical, occupational and speech
therapy services through 45 contracts with long-term care facilities. The
Company paid total consideration of $7.0 million, utilizing borrowings under its
Senior Credit Facility. The Company may pay additional consideration under an
earn-out agreement.
In May 1997, the Company acquired by merger Total Care Consolidated, Inc.
("TCC"), a provider of home health services, with 25 home health offices. Total
consideration of $8.0 million consisted of $6.0 million in cash, which was
funded under the Senior Credit Facility, and $2.0 million in the form of a
convertible promissory note due April 30, 1999.
RESULTS OF OPERATIONS
Centennial's revenues and earnings for both the three-month and six-month
periods ended June 30, 1998 as compared to the same period for 1997 continued to
grow from both expansion and increases in current operations and as a result of
acquisitions.
THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997
NET PATIENT SERVICE REVENUES. Net patient service revenues increased from $70.2
million in the second quarter of 1997 to $84.0 million in the same period in
1998, an increase of $13.8 million or 19.7%. Total revenues associated with TCC
approximated $6.2 million during the second quarter of 1998, an increase of $1.9
million over the same period in the prior year. Total revenues associated with
the CCI contracts approximated $4.8 million for the three months ended June 30,
1998. For the second quarter of 1998, total revenues associated with the
Hospital and the Florida Facility approximated $1.5 million and $742,000,
respectively. The remaining increase of $4.9 million was attributable to growth
in existing facility revenues and therapy contract revenues. Existing facility
revenues increased approximately $3.4 million during the second quarter of 1998
compared to the same period in 1997, resulting primarily from an increase in the
quality revenue mix of the facilities due to increasing admissions of higher
acuity patients and from the increase in the delivery of specialty services. The
Company also experienced general rate increases at its nursing facilities, which
increased patient service revenues in the second quarter of 1998 compared to the
same period in 1997. Revenues from the Company's subsidiary providing therapy
services increased approximately $1.5 million during the second quarter of 1998
compared to the same period in the prior year, resulting from the net addition
of 14 rehabilitation therapy services contracts.
10
<PAGE>
MANAGEMENT FEES AND OTHER REVENUES. Management fees and other revenues
increased from $1.7 million in the second quarter of 1997 to $3.9 million in the
second quarter of 1998, an increase of $2.2 million, which was attributable
primarily to the addition of facility management agreements subsequent to the
second quarter of 1997 and the performance of additional fee-generating services
to existing managed facilities.
FACILITY OPERATING EXPENSES. Facility operating expenses increased from $55.4
million in the second quarter of 1997 to $66.6 million in the same period in
1998, an increase of $11.2 million or 20.3%, of which TCC and the CCI therapy
contracts added approximately $1.8 million and $3.6 million, respectively, in
the second quarter of 1998 compared to the same period in 1997. The Hospital
and the Florida Facility added $1.1 million and approximately $645,000,
respectively, to operating expenses during the second quarter of 1998. The
Company's expenses from existing contract therapy services increased $1.2
million in the second quarter of 1998 over the prior year period due primarily
to growth in therapy contracts. The remaining balance of $2.9 million was
attributable primarily to an increase in costs at existing long-term care
facilities and to providing care for higher acuity patients in the second
quarter of 1998 as compared to the prior year period.
LEASE EXPENSE. Lease expense increased from $5.4 million in the second quarter
of 1997 to $5.7 million in 1998, an increase of approximately $396,000, or 7.4%.
TCC and the Hospital added approximately $37,000 and $60,000, respectively, in
the second quarter of 1998 compared to the second quarter of 1997. Approximately
$120,000 of the increase represents a correction of rent expense on TCC incurred
in the first quarter of 1998, which was recorded as operating expense. The
remaining overall increase of approximately $179,000 was due primarily to rent
escalations in certain facility leases, which are tied to increases in operating
revenue and income.
CORPORATE ADMINISTRATIVE COSTS. Corporate administrative costs increased from
$3.8 million in 1997 to $5.2 million in 1998, an increase of $1.4 million, or
36.4%, which was due primarily to additional overhead incurred to accommodate
the expansion in therapy services contracts, including the acquisition of the
CCI contracts, the addition of long-term care facility management agreements,
and the acquisition of TCC and the Hospital, and costs incurred in preparing for
the Medicare prospective payment system.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased from
$1.6 million in the second quarter of 1997 to $2.4 million in the same period in
1998, an increase of approximately $766,000, or 47.5%, which was primarily
attributable to acquisitions and additional depreciation expense incurred as a
result of fixed asset purchases.
INTEREST EXPENSE. Interest expense decreased from $2.7 million in 1997 to $2.3
million in 1998, a decrease of approximately $342,000, or 12.9%, which was
primarily attributable to the repayment of $25.3 million of subordinated debt in
the third quarter of 1997, repayment of $35.1 million outstanding under the
Senior Credit Facility in the third and fourth quarters of 1997, as a result of
the completion of the Company's initial public offering, (which occurred in July
1997), and the increase in debt of approximately $44.0 million subsequent to the
second quarter of 1997 related to borrowings for acquisitions and working
capital.
PROVISION FOR INCOME TAXES. The Company's effective tax rate for both the
second quarters of 1998 and 1997 was 39.0%.
11
<PAGE>
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
NET PATIENT SERVICE REVENUES. Net patient service revenues increased from
$132.6 million in the first six months of 1997 to $167.4 million in the same
period in 1998, an increase of $34.8 million or 26.3%. Total revenues associated
with TCC approximated $13.0 million during the first six months of 1998, an
increase of approximately $8.6 million over the same period in the prior year.
Total revenues from the CCI contracts approximated $9.0 million during the first
six months of 1998. Revenues associated with the Hospitals approximated $5.7
million in the first six months of 1998, an increase of approximately $4.1
million over the same period in the prior year. Total revenues for the Florida
Facility approximated $1.6 million for the first six months of 1998. The
remaining increase of $11.5 million was primarily attributable to growth in
existing facility revenues and therapy contract revenues. Revenues associated
with existing facilities increased by approximately $7.8 million during the
first six months of 1998 as compared to the same period in the prior year, and
resulted primarily from an increase in the quality revenue mix of the facilities
due to increasing admissions of higher acuity patients and from an increase in
the delivery of specialty services. The Company also experienced general rate
increases at its nursing facilities, which increased patient service revenues in
the first six months of 1998 compared to the same period in 1997. The increase
in revenues at the Company's subsidiary providing therapy services of
approximately $3.7 million resulted from the net addition of 14 rehabilitation
therapy services contracts subsequent to the second quarter of 1997.
MANAGEMENT FEES AND OTHER REVENUES. Management fees and other revenues
increased from $3.6 million in the first six months of 1997 to $7.6 million in
the first six months of 1998, an increase of $4.0 million, which was
attributable primarily to the addition of facility management agreements
subsequent to the second quarter of 1997 and the performance of additional fee-
generating services to existing managed facilities.
FACILITY OPERATING EXPENSES. Facility operating expenses increased from $105.1
million in the first six months of 1997 to $132.9 million in the same period in
1998, an increase of $27.8 million or 26.4%, of which TCC and the CCI therapy
contracts added approximately $8.1 million and $6.7 million, respectively, in
the first six months of 1998 compared to the same period in 1997. The Hospitals
and the Florida Facility added $3.4 million and $1.3 million, respectively, to
operating expenses during the first six months of 1998 compared to 1997. The
Company's expenses from existing contract therapy services increased $2.6
million in the first six months of 1998 over the prior year period due primarily
to growth in therapy contracts. The remaining $5.7 million was attributable
primarily to an increase in costs at existing long-term care facilities and to
providing care for higher acuity patients in the first six months of 1998 as
compared to the prior year period.
LEASE EXPENSE. Lease expense increased from $10.4 million in 1997 to $11.2
million in 1998, an increase of approximately $722,000, or 6.9%. TCC and the
Hospitals added approximately $157,000 and $176,000, respectively, in the first
six months of 1998 compared to the first six months of 1997. The remaining
increase of approximately $389,000 was due primarily to rent escalations in
certain facility leases, which are tied to increases in operating revenue and
income.
CORPORATE ADMINISTRATIVE COSTS. Corporate administrative costs increased from
$7.2 million in 1997 to $10.2 million in 1998, an increase of $3.0 million, or
41.3%, which was due primarily to additional overhead incurred to accommodate
the expansion in therapy services contracts, including the acquisition of the
CCI contracts, the addition of long-term care facility management agreements,
and the acquisition of TCC and the Hospitals, and costs incurred in preparing
for the Medicare prospective payment system.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased from
$3.1 million in the first six months of 1997 to $4.7 million in the same period
in 1998, an increase of approximately $1.6, or 48.8%, which was primarily
attributable to acquisitions and additional depreciation expense incurred as a
result of fixed asset purchases.
12
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INTEREST EXPENSE. Interest expense decreased from $5.3 million in 1997 to $4.2
million in 1998, a decrease of $1.1 million, or 20.0%, which was primarily
attributable to the repayment of $25.3 million of subordinated debt in the third
quarter of 1997, repayment of $35.1 million outstanding under the Senior Credit
Facility in the third and fourth quarters of 1997, as a result of the completion
of the Company's initial public offering, (which occurred in July 1997), and the
increase in debt of approximately $44.0 million subsequent to the second quarter
of 1997 related to borrowings for acquisitions and working capital.
PROVISION FOR INCOME TAXES. The Company's effective tax rate for both the first
six months of 1998 and for the same period in 1997 was 39.0%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash during the first six months of 1998 was
borrowings under its Senior Credit Facility. Cash was used by the Company for
capital improvements at several existing facilities, working capital advances
under arrangements with certain of the Company's managed facilities and the day-
to-day operations of the Company's business. The Company anticipates using
borrowings under the Senior Credit Facility to fund the growth in operations of
its existing facilities, the expansion and development of specialty services,
and the acquisition or management of additional long-term care facilities and
related service providers.
Working capital increased from $45.6 million at December 31, 1997, to $72.4
million at June 30, 1998 primarily attributable to increases in patient accounts
receivable, working capital advances under arrangements with certain of the
Company's managed facilities, and annual deposits for the Company's 1998
insurance contracts. Patient accounts receivable increased from $72.2 million
at December 31, 1997 to $87.0 million at June 30, 1998, an increase of $14.8
million. This increase was comprised of $11.2 million associated with the
Company's long-term care facilities, with the remaining $3.6 million resulting
from increases in rehabilitation therapy contract receivables. The increase in
receivables at the Company's long-term care facilities is due primarily to
increases in settlement receivables due from the Medicare program associated
with the Company's continued expansion of specialty services during 1998. Costs
incurred under the Medicare program are reimbursed on a retroactive basis, which
extends the collection time of these receivables. The Company expects to receive
a substantial interim payment from Medicare on its 1997 and 1998 settlement
receivables (up to the routine cost limits) during the third quarter of 1998. As
a result, receivables from existing facilities should decrease in the third
quarter of 1998. The increase in therapy receivables during 1998 relates
primarily to the addition of 13 new therapy contracts during 1998 which
typically extend payments during the start-up phase of operations. Working
capital advances under arrangements with certain of the Company's managed
facilities increased by approximately $7.1 million, and annual deposits related
to the Company's insurance contracts increased by approximately $1.0 million in
the first six months of 1998.
The Company continued to invest in its leased and owned facilities through
capital expenditures of approximately $3.7 million or approximately $635 per bed
for the six-month period. These expenditures included the expansion of existing
facilities and the selected renovation of certain facilities.
During the first six months of 1998, the Company borrowed $21.2 million in
working capital loans under the Senior Credit Facility which were utilized
primarily to finance capital expenditures at existing facilities and to provide
working capital. As of June 30, 1998, the Company had $62.5 million outstanding
and approximately $55.8 million available under its Senior Credit Facility, net
of issued standby letters of credit of approximately $6.7 million.
The Company believes that operating cash flow and availability under the Senior
Credit Facility will be sufficient to finance its activities and to fund future
acquisitions.
In July 1998, the Company expanded the Senior Credit Facility from $125 million
to $160 million through a syndication with an expanded bank group led by
NationsBank and First Union as agents. Under the expansion, an initial amount
of $40.0 million has been reserved for leases of existing and future facilities.
The Company can expand the lease portion of the commitment up to $80.0 million.
In August 1998, the Company financed three skilled nursing facilities under the
lease component of the expanded credit facility. Royal Terrace Nursing and
Rehabilitation Center, a 147-bed facility located in Kansas, was previously
leased by the Company. Chenal Rehabilitation and Healthcare Center, a 70-bed
facility located in Arkansas, was previously managed by the Company. The third
facility, 82-bed Riley Nursing Center, is Centennial's sixth skilled nursing
facility in Mississippi. The total purchase price for these facilities was $16.1
million.
In June 1998 the Company signed an agreement to lease ten skilled nursing
facilities totaling 1,024 beds, located throughout Arkansas, Florida, Kansas,
Wisconsin and North Carolina. The leases, with an initial fourteen-year term and
two ten-year renewal options, will be effective upon transfer of the licenses.
Two of the licenses were transferred on August 1, 1998, and the remaining
licenses are expected to be transferred by October 1998. Centennial anticipates
using cash resources in the third and fourth quarters of 1998 to fund working
capital requirements under these leases.
13
<PAGE>
HEALTH CARE REFORM
The Balanced Budget Act of 1997, (the "Act"), enacted in August 1997, has
targeted the Medicare program for reductions in spending growth of approximately
$9.5 billion for skilled nursing facilities over the next five years, primarily
through the implementation of a Medicare prospective payment system (PPS) for
skilled services. The PPS per diem, which would cover routine service, ancillary
and capital related costs, will initially be a blended rate based on (i) a
facility-specific payment rate derived from each facility's 1995 cost report,
adjusted by an inflation factor and (ii) a federal per diem rate derived from
all hospital-based and freestanding (skilled nursing facility) 1995 cost
reports, adjusted for case mix and geographic variations in labor costs. The
blended rate will be further adjusted by a facility-specific case mix (acuity)
index.
Management believes that revenues will be lower under PPS; however, reductions
in therapy costs, use of general purchasing agents and proper documentation of
minimum data sets (MDS) should offset the effect of any rate reductions. The
Company can give no assurance that payments under such programs in the future
will remain at a level comparable to the present level or increase, and
decreases in the level of payments could have a material adverse effect on the
Company. During both the second quarter and first six months of 1998, the
Company derived approximately 19% of its total revenues from Medicare at its
long-term care facilities. The Company will incur, over the next four quarters,
training costs, implementation costs and other costs in order to prepare for
PPS. For the remainder of 1998, the Company has increased its budgeted expenses
by $2.5 million related to these costs.
The Act has also targeted the Medicare home health program for reductions in
spending of approximately $16.2 billion over the next five years, also primarily
through the implementation of a prospective payment system. An interim payment
system ("IPS") will remain in effect until the new prospective payment system is
implemented for cost reporting periods beginning on or after October 1, 1999.
The interim payment system is effective for cost reporting periods beginning on
or after October 1, 1997. Under the IPS, home health agencies are reimbursed at
the lesser of:
. Actual costs
. Per visit cost limits reduced to 105% of the median per visit costs for
freestanding home health agencies; or
. A new blended agency-specific per beneficiary annual limit applied to the
agency's unduplicated census count of Medicare patients and based 75% on 98%
of reasonable costs for the agency's twelve-month cost reporting period
ending during fiscal year 1994.
Implementation of these new limits will effectively reduce reimbursement 15-20%
according to industry experts. For both the second quarter and first six months
of 1998, the Company derived approximately 7% of its revenues from home health
care.
Effective April 10, 1998, regulations were adopted by Health Care Financing
Administration which revise the methodology for determining the reasonable cost
for contract therapy services, including physical therapy, respiratory therapy,
occupational therapy and speech language pathology. Under the regulations, the
reasonable costs for contract therapy services are limited to geographically-
adjusted salary equivalency guidelines. However, the revised salary equivalency
guidelines will no longer apply when the PPS system applicable to the particular
setting for contract therapy services (e.g. skilled nursing facilities, home
health agencies, etc.) goes into effect. In most locations the reduced rates
have the effect of
14
<PAGE>
reducing the amount of reimbursement for an hour of occupational or speech
therapy and increasing the amount of reimbursement for an hour of physical and
respiratory therapy. The Company believes that such rate reductions will be
completely or partially offset by cost reductions, changes in the method of
delivering such services and the addition of new therapy contracts. Due to these
changes in operations and cost structure and the relative size of the Company's
therapy business, the Company does not expect these reimbursement changes to
have a material long-term adverse effect on the Company. For both the second
quarter and first six months of 1998, the Company derived approximately 15% of
its revenues from third-party contract therapy services.
IMPACT OF THE YEAR 2000 ISSUE
The "Year 2000 Issue" resulted from the use of two digits rather than four
digits to define the applicable year in certain computer programs. With the
coming millennium, any of the Company's computer programs that have two digit
data-sensitive software may interpret a date of "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
Management is in the process of evaluating the effect of the Year 2000 Issue on
the Company. Based on current findings, the total cost of addressing the Year
2000 Issue is not expected to have a material effect on the Company's business,
financial condition or results of operations. There can be no assurance that
such exposures on the costs of remediating any problems associated therewith
will not materially affect the Company's future business, financial condition or
results of operations.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As of June 30, 1998, the Company did not have any pending legal
proceedings that, based on current information and beliefs, separately
or in the aggregate would be likely to have a material adverse effect
on the business or results of operations of the Company. The Company
is, and may be in the future, party to litigation or administrative
proceedings which arise in the normal course of its business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of the shareholders was held on May 21, 1998. At
this meeting, the following matters were voted upon by the Company's
shareholders.
(a) Election of Class I Directors
J. Stephen Eaton and Andrew M. Paul were elected to serve as Class I
directors of the Company until the 2001 Annual Meeting of Stockholders
or until their successors are elected and qualified. The vote was as
follows:
Votes Cast in Votes Cast Abstentions
Name Favor Against or Withheld Non Votes
---- ------------- ------------------- -----------
J. Stephen Eaton 10,608,989 168,225 1,100,431
Andrew M. Paul 10,608,989 168,225 1,100,431
The following directors continued in office following the meeting:
Name Term Expires
---- ------------
James B. Hoover 1999
Bertil D. Nordin 1999
Alan C. Dahl 2000
Robert A. Ortenzio 2000
(b) Approval of Amendment to the 1997 Stock Plan
The shareholders of the Company approved an increase in the number of
shares of Common stock which may be issued subject to options granted
under the 1997 Stock Plan from 482,790 to 800,000 shares, subject to
certain anti-dilution provisions set forth in the Plan. The vote was
as follows:
Votes Cast in Votes Cast Against or Abstentions
Favor Withheld Non Votes
--------------------------------------------------------------------
10,690,166 52,979 1,134,500
(c) Ratification of Appointment of Independent Public Accountants
The shareholders of the Company ratified the appointment of
PricewaterhouseCoopers LLP by the Audit Committee to continue in the
capacity of auditor for the Company and its subsidiaries for fiscal
year 1998. The vote was as follows:
Votes Cast in Votes Cast Against or Abstentions
Favor Withheld Non Votes
--------------------------------------------------------------------
10,777,114 100 1,100,431
ITEM 5. OTHER INFORMATION.
None
16
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibit
Number Description
- ------ -----------
3.1 Third Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-1, Registration No. 333-24267, as amended)
3.2 Amended and Restated Bylaws of the Company (incorporated by reference to
Exhibit 3.2 of the Company's Registration Statement on Form S-1
Registration No. 333-24267, as amended).
4.1 Third Amended and Restated Articles of Incorporation of the Company,
included without limitation Article III and Article VII (incorporated by
reference to Exhibit 3.1 of the Company's Registration Statement on Form S-
1, Registration No. 333-24267, as amended).
10.1 Third Amended and Restated Credit Agreement by and among the Company and
its subsidiaries and the lenders identified therein dated as of July 31,
1998.
11.1 Statement Regarding Computation of Per Share Earnings
27.1 Financial Data Schedule (For SEC use only)
99.1 Cautionary Statements
Reports on Form 8-K.
None.
17
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: August 13, 1998 CENTENNIAL HEALTHCARE CORPORATION
By: /s/ J. Stephen Eaton
----------------------------------------
J. Stephen Eaton, Chairman of the Board,
President and Chief Executive Officer
Date: August 13, 1998
By: /s/ Alan C. Dahl
------------------------------------------
Alan C. Dahl, Executive Vice President and
Chief Financial Officer
18
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Third Amended and Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-1, Registration No. 333-24267,
as amended)
3.2 Amended and Restated Bylaws of the Company (incorporated by
reference to Exhibit 3.2 of the Company's Registration Statement
on Form S-1 Registration No. 333-24267, as amended).
4.1 Third Amended and Restated Articles of Incorporation of the Company,
included without limitation Article III and Article VII
(incorporated by reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-1, Registration No. 333-24267,
as amended).
10.1 Third Amended and Restated Credit Agreement by and among the Company
and its subsidiaries and the lenders identified therein dated as of
July 31, 1998.
11.1 Statement Regarding Computation of Per Share Earnings
27.1 Financial Data Schedule (For SEC use only)
99.1 Cautionary Statements
19
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EXHIBIT 10.1
THIRD AMENDED AND RESTATED
CREDIT AGREEMENT
BY AND AMONG
CENTENNIAL HEALTHCARE CORPORATION
AND ITS SUBSIDIARIES
IDENTIFIED ON SCHEDULE 1
("Borrowers");
THE LENDERS IDENTIFIED ON
SCHEDULE 2
("Lenders");
FIRST UNION NATIONAL BANK,
as administrative agent for the Lenders
and, with respect to the Collateral Security Documents,
for the Secured Parties
("Agent")
AND
NATIONSBANK, N.A.,
as Syndication Agent
July 31, 1998
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
SECTION 1 - DEFINITIONS.......................................... 2
1.1. Definitions.......................................... 2
1.2. Rule of Construction................................. 11
SECTION 2 - FACILITY............................................. 12
2.1. Commitment........................................... 12
2.2. Promissory Notes..................................... 12
2.3. Lenders' Participation............................... 13
2.4. Use of Proceeds...................................... 13
2.5. Repayment............................................ 13
2.6. Interest............................................. 13
2.7. Advances............................................. 19
2.8. Adjustments to Commitment............................ 21
2.9. Prepayment; Repayment................................ 21
2.10. Funding Costs and Loss of Earnings.................. 22
2.11. Payments............................................ 22
2.12. Commitment Fee...................................... 22
2.13. Closing Fee......................................... 23
2.14. Fees to Agent....................................... 23
2.15. Swing Line Loans.................................... 24
2.16. Regulatory Changes in Capital Requirements.......... 26
2.17. Taxes............................................... 27
2.18. Release of Certain Collateral....................... 27
SECTION 2A - LETTERS OF CREDIT................................... 27
2A.1. Availability of Credits............................. 27
2A.2. Commitment Availability............................. 28
2A.3. Approval and Issuance............................... 28
2A.4. Obligations of the Borrowers........................ 29
2A.5. Payment by Lenders on Letters of Credit............. 30
2A.6. Collateral Security................................. 30
2A.7. General Terms of Credits............................ 31
SECTION 3 - REPRESENTATIONS AND WARRANTIES....................... 32
3.1. Organization and Good Standing....................... 32
3.2. Power and Authority; Validity of Agreement........... 32
</TABLE>
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3.3. No Violation of Laws or Agreements................... 32
3.4. Health Care Facilities............................... 32
3.5. Material Contracts................................... 33
3.6. Compliance........................................... 33
3.7. Litigation........................................... 33
3.8. Title to Assets...................................... 33
3.9. Corporate Organization; Capital Stock................ 33
3.10. Accuracy of Information; Full Disclosure............ 34
3.11. Taxes and Assessments............................... 34
3.12. Indebtedness........................................ 35
3.13. Management Agreements............................... 35
3.14. Investments......................................... 35
3.15. ERISA............................................... 35
3.16. No Extension of Credit for Securities............... 36
3.17. Perfection of Security Interests.................... 36
3.18. Hazardous Substances................................ 36
3.19. Solvency............................................ 36
3.20. Employee Controversies.............................. 37
3.21. Reimbursement from Third Party Payors............... 37
3.22. Fraud and Abuse..................................... 37
3.23. CGC................................................. 38
SECTION 4 - CONDITIONS........................................... 38
4.1. Effectiveness of Agreement; First Advance............ 38
4.2. Subsequent Advances.................................. 40
4.3. Additional Condition to Lenders' Obligations......... 40
SECTION 5 - AFFIRMATIVE COVENANTS................................ 40
5.1. Existence and Good Standing.......................... 40
5.2. Interim Financial Information........................ 40
5.3. Annual Financial Statements.......................... 40
5.4. Quarterly Compliance Certification................... 41
5.5. Receivables Aging Report............................. 41
5.6. Additional Information............................... 41
5.7. Books and Records.................................... 41
5.8. Maintenance of Assets; Insurance..................... 41
5.9. Notifications........................................ 42
5.10. Taxes............................................... 42
5.11. Costs and Expenses.................................. 42
5.12. Additional Collateral Documentation, etc............ 43
</TABLE>
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<TABLE>
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5.13. Compliance.......................................... 43
5.14. ERISA............................................... 44
5.15. Funded Debt to Capital Ratio........................ 44
5.16. Adjusted Total Debt to Adjusted EBITDAR............. 44
5.17. Fixed Charge Coverage Ratio......................... 44
5.18. Management Changes.................................. 45
5.19. Successor Agent..................................... 45
5.20. Transactions Among Affiliates....................... 45
5.21. Inspections......................................... 45
5.22. Interest Rate Hedging............................... 45
5.23. Other Information................................... 45
SECTION 6 - NEGATIVE COVENANTS................................... 45
6.1. Indebtedness......................................... 45
6.2. Guaranties........................................... 46
6.3. Loans................................................ 46
6.4. Liens and Encumbrances............................... 46
6.5. Additional Negative Pledge........................... 47
6.6. Restricted Payments.................................. 47
6.7. Transfer of Assets; Liquidation...................... 47
6.8. Acquisitions and Investments......................... 47
6.9. New Leases........................................... 49
6.10. Capital Expenditures................................ 49
6.11. Use of Proceeds..................................... 49
SECTION 7 - COLLATERAL AND RIGHT OF SET-OFF...................... 50
SECTION 8 - DEFAULT.............................................. 50
8.1. Events of Default.................................... 50
8.2. Remedies............................................. 52
SECTION 9 - THE LENDERS.......................................... 53
9.1. Application of Payments.............................. 53
9.2. Set-Off.............................................. 53
9.3. Modifications and Waivers............................ 53
9.4. Obligations Several.................................. 54
9.5. Lenders' Representations............................. 54
9.6. Investigation........................................ 54
9.7. Powers of Agent...................................... 54
</TABLE>
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9.8. General Duties of Agent, Immunity and Indemnity...... 54
9.9. No Responsibility for Representations
or Validity, etc................................... 55
9.10. Action on Instruction of Lenders; Right
to Indemnity....................................... 56
9.11. Employment of Agents................................ 55
9.12. Reliance on Documents............................... 55
9.13. Agent's Rights as a Lender.......................... 55
9.14. Expenses............................................ 55
9.15. Resignation of Agent................................ 55
9.16. Successor Agent..................................... 57
9.17. Collateral Security................................. 56
9.18. Enforcement by Agent................................ 56
SECTION 10 - MISCELLANEOUS....................................... 56
10.1. Indemnification and Release Provisions.............. 56
10.2. Participations and Assignments...................... 58
10.3. Confidentiality..................................... 57
10.4. Binding and Governing Law........................... 59
10.5. Survival............................................ 58
10.6. No Waiver; Delay.................................... 58
10.7. Modification........................................ 58
10.8. Headings............................................ 58
10.9. Notices............................................. 58
10.10. Payment on Non-Business Days....................... 60
10.11. Time of Day........................................ 59
10.12. Severability....................................... 59
10.13. Counterparts....................................... 59
10.14. Consent to Jurisdiction and Service of Process..... 59
10.15. Waiver of Jury Trial............................... 59
10.16. Acknowledgments.................................... 61
</TABLE>
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LIST OF SCHEDULES AND EXHIBITS
Schedule 1: Borrowers
Schedule 2: The Lenders, their respective Maximum Principal Amounts and
Percentages of Commitment
Exhibit A-1: Advance Request Form
Exhibit A-2: Swing Line Advance Request Form
Exhibit B-1: Letter of Credit Request Form
Exhibit B-2: Letter of Credit Application
Exhibit C: Form of Note
Exhibit D: Funding Costs and Loss of Earnings Calculation
Exhibit E: Disclosure Pursuant to Representations and Warranties
Exhibit F: Compliance Certificate
Exhibit G: Form of Long-Term Management Contract
Exhibit H: Form of Notice of Permitted Acquisition
Exhibit I: UCC Financing Statements
Exhibit J: Permitted Acquisitions Report
Exhibit K: Form of Assignment
Exhibit L: Lease Financing Rules of Usage and Definitions
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THIRD AMENDED AND RESTATED CREDIT AGREEMENT
THIS THIRD AMENDED AND RESTATED CREDIT AGREEMENT (this "Agreement")
is made this 31st day of July, 1998, by and among CENTENNIAL HEALTHCARE
CORPORATION, a Georgia corporation (the "Company") and the subsidiaries of the
Company listed on Schedule 1 attached hereto (together with the Company and such
additional Subsidiaries as may become Borrowers from time to time as hereinafter
provided, each individually, a "Borrower" and individually and collectively,
"Borrowers"); FIRST UNION NATIONAL BANK, a national banking association ("First
Union"), and the other lenders listed on Schedule 2 attached hereto (together
with First Union and such additional financial institutions as may become
lenders from time to time as hereinafter provided, each individually a "Lender"
and individually and collectively, "Lenders"); First Union, as administrative
agent for the Lenders and, with respect to the Collateral Security Documents (as
defined herein) for the Secured Parties (as defined herein) ("Agent"); and
NationsBank, N.A., as Syndication Agent.
W I T N E S S E T H:
WHEREAS, Borrowers are in the business of operating, either by lease,
management agreement or ownership, nursing homes and related ancillary
businesses in the United States of America; and
WHEREAS, Borrowers are parties with the lenders signatory thereto and
First Union as Agent to that certain Second Amended and Restated Credit
Agreement dated December 16, 1997 (the "Existing Credit Agreement"); and
WHEREAS, Borrowers have requested, and First Union and the other
Lenders have agreed, to amend the Existing Credit Agreement to decrease the
aggregate availability to up to One Hundred Twenty Million Dollars
($120,000,000), to provide for a Lease Financing Facility (as further defined
herein) also financed by the Lenders, and in certain additional respects, all on
the terms and conditions as set forth herein.
NOW, THEREFORE, in consideration of the foregoing background and the
promises and the agreements hereinafter set forth, and intending to be legally
bound hereby, the parties hereto hereby amend and restate the Existing Credit
Agreement to read in its entirety as follows:
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SECTION 1
DEFINITIONS
1.1. Definitions. When used in this Agreement, the following terms
shall have the meanings set forth below; certain terms relating to interest
rates are defined in Paragraph 2.6 and shall have the meanings set forth
thereunder.
"Acquisition Price" shall mean, with respect to any Permitted
Acquisition, the total consideration to be paid, incurred or assumed by
Borrowers in connection with such Permitted Acquisition, including the full
amount of any deferred purchase price or contingent obligations.
"Adjusted EBITDAR" shall mean EBITDAR for the Company and its
Consolidated Subsidiaries for the most-recently ended Rolling Period; provided,
that in the event that any Permitted Acquisition has been consummated during
such Rolling Period and Borrowers have delivered to Lenders (or to Existing
Lenders under the Existing Credit Agreement) pro forma combined historical
financial statements in form and substance satisfactory to Required Lenders,
then for purposes of calculating Adjusted EBITDAR hereunder, EBITDAR for such
Rolling Period shall be calculated for the Company and its Consolidated
Subsidiaries including such Permitted Acquisition, based on such pro forma
combined historical financial statements.
"Adjusted Fixed Charges" shall mean the sum of (i) interest expense,
operating lease expense and taxes for the Company and its Consolidated
Subsidiaries for the most-recently ended Rolling Period, plus (ii) current
maturities of Funded Debt for the Company and its Consolidated Subsidiaries as
of the last day of such period; provided, that in the event that any Permitted
Acquisition has been consummated during such Rolling Period and the pro forma
results of the business so acquired are included in the calculation of Adjusted
EBITDAR, then Adjusted Fixed Charges for such Rolling Period shall be calculated
for the Company and its Consolidated Subsidiaries including such Permitted
Acquisition based on such pro forma combined historical financial statements.
"Adjusted Total Debt" shall mean, as of any date of determination,
the sum of (i) all Funded Debt of the Company and its Consolidated Subsidiaries
as of such date, plus (ii) the amount of all operating leases (other than
operating leases financed through the Lease Financing Facility), based on the
present value of all payments required under such operating leases calculated
using a discount rate of ten percent (10%) per annum.
"Advance" shall mean an advance of funds by Lenders under the
Commitment.
"Advance Request Form" shall mean the certificate in the form
attached hereto as Exhibit A-1 to be delivered to the Agent pursuant to
Paragraph 2.7 hereof as a condition to each Advance under the Commitment or the
certificate in the form attached hereto as Exhibit A-2 to be delivered to Agent
pursuant to Paragraph 2.15 hereof as a condition to each Swing Line Loan, as
applicable.
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"Affiliate" shall mean, with respect to a Person, (i) any Person
directly or indirectly owning, controlling or holding five percent (5%) or more
of the outstanding beneficial interest in such Person, (ii) any Person five
percent (5%) or more of the outstanding beneficial interest of which is directly
or indirectly owned, controlled, or held by such Person, (iii) any Person
directly or indirectly controlling, controlled by, or under common control with
such other Person, or (iv) any officer, director or partner of such Person. For
purposes hereof, "control" shall mean the power to direct the affairs of any
Person, whether by voting rights, contract or otherwise.
"Agent" shall mean First Union National Bank, in its capacity as
administrative agent for the Lenders hereunder, and any successor appointed
pursuant to Paragraph 9.15 hereof.
"Aggregate Lender Commitment" shall have the meaning set forth in
Paragraph 2.13 hereof.
"Agreement" shall mean this Third Amended and Restated Credit
Agreement and all the exhibits and schedules attached hereto, as amended from
time to time.
"Borrower" shall mean individually, and "Borrowers" shall mean
individually and collectively, each of the Borrowers identified on Schedule 1
attached hereto on the date of this Agreement, as supplemented from time to time
as provided in Paragraph 5.12 hereof.
"Business Day" shall mean any day not a Saturday, Sunday or public
holiday under the laws of the Commonwealth of Pennsylvania.
"Capital" shall mean, as of any date of determination, the sum of
Funded Debt and Consolidated Net Worth for the Company and its Consolidated
Subsidiaries as of such date.
"Capital Expenditures" shall mean expenditures for any fixed assets
or improvements, replacements, substitutions or additions thereto, which have a
useful life of more than one (1) year, including direct or indirect acquisition
of such assets, provided, that Permitted Acquisitions shall not constitute
Capital Expenditures.
"Capital Leases" shall mean capital leases and subleases, as defined
in the Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 13 dated November 1976, as amended and updated from time to time.
"CGC" shall mean CGC Liquidation Company, a Delaware general
partnership.
"CHMC" shall mean Centennial HealthCare Management Corporation
(formerly known as WelCare International Management Corporation), a Georgia
corporation and a wholly-owned Subsidiary of the Company.
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"Code" shall mean the Internal Revenue Code of 1986, as amended and
regulations promulgated thereunder.
"Collateral" shall mean the collateral security afforded to Agent on
behalf of the Lenders from time to time under the Collateral Security Documents.
"Collateral Security Documents" shall mean collectively, this
Agreement; the Pledge Agreements, and related stock certificates and stock
powers and financing statements; and any additional documents granting security
to Agent on behalf of the Lenders pursuant to this Agreement.
"Commitment" shall mean the maximum aggregate principal amount up to
which the Lenders, on a several basis, have agreed to make Advances under
Section 2 hereof and/or participate in the issuance of Letters of Credit under
Section 2A hereof, being One Hundred Twenty Million Dollars ($120,000,000) on
the date hereof, as such maximum aggregate principal amount may be decreased
from time to time pursuant to Paragraph 2.8 hereof.
"Company" shall mean Centennial HealthCare Corporation, a Georgia
corporation.
"Compliance Certificate" shall mean a certificate in the form of
Exhibit F attached hereto delivered by Borrowers to Lenders pursuant to
Paragraph 5.4 or Paragraph 4.1 hereof.
"Consolidated Fixed Charge Coverage Ratio" shall mean, as of any date
of determination, the ratio of Adjusted EBITDAR to Adjusted Fixed Charges.
"Consolidated Net Worth" shall mean, as of any date of determination,
Consolidated Total Assets less Consolidated Total Liabilities.
"Consolidated Subsidiary" shall mean individually, and "Consolidated
Subsidiaries" shall mean individually and collectively, with respect to any
Person, those Subsidiaries of such Person whose accounts, financial results or
position, for financial accounting purposes, are consolidated with those of such
Person. Unless the context specifies otherwise, all references in this Agreement
to a Consolidated Subsidiary shall refer to a Consolidated Subsidiary of the
Company.
"Consolidated Total Assets" shall mean, as of any date of
determination, all assets, as defined in accordance with GAAP, of the Company
and its Consolidated Subsidiaries as of such date.
"Consolidated Total Liabilities" shall mean, as of any date of
determination, all liabilities and deferred items, as defined in accordance with
GAAP, of the Company and its Consolidated Subsidiaries as of such date.
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"Default" shall mean an event or circumstance which, with the giving
of notice or the passage of time or both, would constitute an Event of Default.
"EBITDA" shall mean, for any period, Net Income of the Company and
its Consolidated Subsidiaries for such period plus (to the extent deducted from
revenue in calculating net income) depreciation, amortization and non-recurring
non-cash charges and expenses associated with a sale of assets or refinancing of
Indebtedness or leases permitted hereunder, taxes and interest expense
(including interest expense on Capital Leases) for the Company and its
Consolidated Subsidiaries for such period.
"EBITDAR" shall mean for any period, EBITDA of the Company and its
Consolidated Subsidiaries for such period plus operating lease expense for the
Company and its Consolidated Subsidiaries for such period.
"Effective Date" shall mean the date that this Agreement becomes
effective in accordance with Paragraph 4.1 hereof.
"Environmental Control Statutes" shall mean all federal, state or
local laws and regulations regarding environmental or pollution concerns
including without limitation the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (as amended, "CERCLA"), the Solid Waste
Disposal Act, the Clean Water Act and the Clean Air Act, the Resource
Conservation and Recovery Act of 1976, the Federal Water Pollution Control Act
Amendments of 1972 and the Occupational Safety and Health Act, each as amended
from time to time, and all regulations, directives, policies or interpretations
issued in connection with any such statute.
"EPA" shall mean the United States Environmental Protection Agency,
or any successor thereto.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, all amendments thereto and all rules and regulations in effect at any time
thereunder.
"ERISA Affiliate" shall mean any company, whether or not
incorporated, and any other Person which is considered a single employer or an
affiliated service group with any Borrower under Section 414(b) of the Code.
"Event of Default" shall mean each of the events described in
Paragraph 8.1 hereof.
"Existing Credit Agreement" shall mean the Amended and Restated
Credit Agreement dated December 18, 1996, as amended, among Borrowers, the
lenders signatory thereto and First Union as Agent.
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"Existing Lenders" shall mean the Lenders as defined in the Existing
Credit Agreement.
"Funded Debt" shall mean, as of any date of determination, the sum,
without duplication, of (i) the aggregate amount available to be drawn under
Letters of Credit and the aggregate amount of unreimbursed draws under Letters
of Credit; plus (ii) the aggregate principal amount of all Indebtedness for (A)
borrowed money other than trade indebtedness incurred in the normal and ordinary
course of business for value received, (B) installment purchases of real or
personal property, (C) Capital Leases, and (D) guaranties of Funded Debt of
others; and plus (iii) the aggregate outstanding balance of all Advances under
the Lease Financing Facility, as defined in the Lease Financing Rules of Usage
and Definitions.
"GAAP" shall mean generally accepted accounting principles, which
shall be (i) applied in accordance with Statement on Auditing Standards No. 69
"The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles in the Independent Auditor's Report," (SAS 69) or superseding
pronouncements, issued by the Auditing Standards Board of the American Institute
of Certified Public Accountants and (ii) in the form and content of any
requirements for financial statements filed with the Securities and Exchange
Commission, as long as the Company is subject to such requirements, in all cases
applied on a consistent basis. The requirement that such principles be applied
on a consistent basis shall mean that the accounting principles observed in a
current period are comparable in all material respects to those applied in a
preceding period; provided, however, that changes in the application of
accounting principles required under SAS 69, or superseding pronouncements or
requirements of the Securities and Exchange Commission shall not, by themselves,
be considered inconsistent applications of such principles.
"Hazardous Substance" shall mean petroleum products, explosives, or
any other substance which is defined as a hazardous or toxic substance, waste,
pollutant or contaminant by any of the Environmental Control Statutes.
"HCCC Subordinated Debt" shall mean the Indebtedness of Borrowers to
Health Care Capital Consolidated, Inc. pursuant to that certain 8% Convertible
Subordinated Promissory Note dated May 1, 1997 in the original principal amount
of $2,000,000.
"HCFA" shall mean the Health Care Financing Administration of the
United States Department of Health and Human Services and any successor thereto.
"HCPI" shall mean Health Care Property Investors, Inc., a Maryland
corporation.
"Health Care Facility" shall mean any Nursing Home, Permitted
Hospital or other property or facility which any Borrower or any Subsidiary
owns, leases, operates or manages on or after the date hereof.
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"Holders" shall mean the Holders as defined in the Lease Financing
Rules of Usage and Definitions.
"Indebtedness" shall mean, for any Person, all obligations of such
Person which in accordance with GAAP shall be classified on a balance sheet of
such Person as liabilities of such Person and in any event shall include,
without duplication, all (a) obligations of such Person for borrowed money or
which have been incurred in connection with the acquisition of property or
assets, (b) obligations secured by any lien upon property or assets owned by
such Person, notwithstanding that such Person has not assumed or become liable
for the payment of such obligations, (c) obligations created or arising under
any conditional sale or other title retention agreement with respect to property
acquired by such Person, notwithstanding the fact that the rights and remedies
of the seller, lender or lessor under such agreement in the event of default are
limited to repossession or sale of property, (d) Capital Leases, (e) guarantees
and (f) letters of credit and letter of credit reimbursement obligations.
"Knowledge of Borrowers" shall mean the actual knowledge of any
senior officer of Borrowers, or knowledge which any such senior officers should
have possessed in the ordinary course of managing the business and affairs of
the Borrowers in a manner consistent with the standards of a reasonably prudent
business person in the long-term care industry.
"Lease Financing Facility" shall mean the lease financing facilities
established pursuant to the Operative Agreements, as defined in the Lease
Financing Rules of Usage and Definitions.
"Lease Financing Lender" shall mean each of the Lenders as defined in
the Lease Financing Rules of Usage and Definitions.
"Lease Financing Rules of Usage and Definitions" shall mean the Rules
and Usage and Definitions relating to the Lease Financing Facility, a copy of
which is attached hereto as Exhibit L.
"Lender" shall mean individually and "Lenders" shall mean
individually and collectively, the institutions identified on Schedule 2
attached hereto and their respective successors and assigns in accordance with
Paragraph 10.2 hereof (which as provided therein, requires the prior written
consent of the Borrowers under certain circumstances), so long as such
institution retains any portion of the Commitment or Loan hereunder.
"Lessor" shall mean the Lessor as defined in the Lease Financing
Rules of Usage and Definitions.
"Letter of Credit" shall mean individually, and "Letters of Credit"
shall mean individually and collectively, the letter(s) of credit issued
hereunder or under the Existing Credit Agreement in the form agreed upon at the
time of issuance thereof participated in by all the Lenders pursuant to the
terms and conditions of Section 2A hereof.
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"Letter of Credit Request Form" shall mean the certificate in the
form attached as Exhibit B-1 hereto to be delivered by Borrowers to Agent as a
condition of each issuance of a Letter of Credit pursuant to Paragraph 2A.3
hereof.
"Letter of Credit Sublimit" shall mean the portion of the Commitment
up to which Lenders have agreed to participate in the issuance by Agent of
Letters of Credit pursuant to Section 2A hereof, being Fifteen Million Dollars
($15,000,000).
"Licenses" shall mean all licenses, permits or other grants of
authority obtained or required to be obtained by any Borrower from the United
States government, HCFA or any Local Authority in connection with the ownership
or operation of any Health Care Facility or other business of Borrowers.
"Loan" shall mean the outstanding principal balance of indebtedness
advanced, and the face amount of Letters of Credit issued, under the Commitment
and the Swing Line Commitment, and without duplication the amount of all
unreimbursed draws under Letters of Credit, together with interest accrued on
and fees and expenses incurred in connection with any of the foregoing.
"Loan Documents" shall mean this Agreement, the Notes, the Collateral
Security Documents, and all other agreements, documents and instruments required
hereunder or executed and delivered in connection with this Agreement (or in
connection with the Existing Credit Agreement and confirmed by written agreement
in connection herewith).
"Local Authorities" shall mean individually and collectively all
state and local governmental authorities and administrative agencies which
possess statutory or regulatory authority over the ownership or operation of any
Health Care Facility or other business of Borrowers.
"Long-Term Management Contract" shall mean a contract providing for
the management of a Health Care Facility by a Borrower substantially in the form
of Exhibit G attached hereto having a term of not less than five (5) years.
"Material Adverse Effect" shall mean a material adverse effect on the
business, financial condition, assets or prospects of the Company and its
Consolidated Subsidiaries taken as a whole as a result of any event, condition,
circumstance or contingency.
"Maximum Principal Amount" shall mean the maximum principal amount of
the Commitment up to which the applicable Lender has agreed to lend funds and/or
participate in the issuance of Letters of Credit, as set forth in Schedule 2
attached hereto.
"NC Health Care" shall mean NC Health Care, Inc., a Georgia
corporation.
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"NC Health Care Loans" shall mean the loans by Borrowers to NC Health
Care and subsidiaries of NC Health Care, having an aggregate outstanding balance
of $7,226,024 as of the date hereof.
"NCHC" shall mean NCHC, Inc., a Louisiana corporation.
"NCHC Loan" shall mean the loans by Borrowers to NCHC having an
aggregate outstanding balance of $7,700,747 as of the date hereof.
"Net Cash Proceeds" shall mean, with respect to any Sale of Material
Assets, the cash proceeds received by the seller in such a transaction less (i)
the reasonable costs of the transaction, (ii) reasonable reserves for retained
liabilities, (iii) applicable taxes arising out of the transaction, and (iv) any
Medicare or Medicaid reimbursement adjustments caused by and which are required
to be and are paid or reserved in connection with such transaction.
"Net Income" shall mean, for any period, the net income (or loss) of
the Company and its Consolidated Subsidiaries for such period, as determined in
accordance with GAAP.
"Note" shall mean individually, and "Notes" shall mean individually
and collectively the Notes in the form of Exhibit C attached hereto, to be
delivered by Borrowers to Lenders pursuant to Paragraph 4.1 hereof, as the same
may be amended, modified, extended, consolidated or restated from time to time.
"Nursing Home" shall mean individually and "Nursing Homes" shall mean
individually and collectively the nursing homes owned, leased, operated or
managed by any Borrower on or after the date hereof.
"OGRLP" shall mean Oak Grove of Rutherford Limited Partnership, a
North Carolina limited partnership.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successorthereto.
"Permitted Acquisition" shall mean any acquisition by a Borrower of a
business, by merger or by purchase of stock or assets, if: (i) such business,
when acquired, would be within the Permitted Lines of Business; and (ii) such
transaction otherwise is in compliance with Paragraph 6.8 hereof.
"Permitted Hospital" shall mean a health care facility licensed as a
hospital which (i) is located in a market in which Borrowers have other
operations within a Permitted Line of Business, (ii) has no more than 125
licensed hospital beds, and (iii) engages in the provision of health care
services at any acuity level comparable to other operations of Borrowers as of
the date of this Agreement.
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"Permitted Investments" shall mean (i) investments in commercial
paper maturing in one hundred eighty (180) days or less from the date of
issuance which are rated A1 or better by Standard & Poor's Corporation or P1 or
better by Moody's Investors Services, Inc.; (ii) investments in marketable
direct obligations of the United States of America or obligations of any agency
thereof which are guaranteed by the United States of America, provided that such
obligations mature within three (3) years of the date of acquisition thereof;
(iii) investments in certificates of deposit issued by a bank or trust company
organized under the laws of the United States or any state thereof, having a
rating of A or better from Moody's Investors Services, Inc.; (iv) investments of
Borrowers existing on the date hereof and disclosed on Exhibit E attached
hereto, but without increase in the principal amount thereof after the date of
this Agreement, and (v) interest rate hedging contracts having a notional amount
not in excess of the Commitment. Permitted Investments shall not include the
Shares of any Borrower.
"Permitted Lines of Business" shall mean the provision of nursing
care, home health, speech therapy, occupational therapy, pharmacy, respiratory,
pain and intravenous therapy, enterals and urological therapy or physical
therapy services and products and all other ancillary services related to the
operation of a Nursing Home or Permitted Hospital (subject to the restrictions
set forth in the definition thereof), and the ownership, management, or
operation of facilities related thereto.
"Person" shall mean any individual, corporation, partnership,
company, association, limited liability corporation or other legal entity.
"Plan" shall mean any pension benefit or welfare benefit plan program
or arrangement that is an employee benefit plan within the meaning of Section
3(3) of ERISA covering employees of any Borrower or any ERISA Affiliate or to
which any Borrower or any ERISA Affiliate makes contributions.
"Pledge Agreements" shall mean the pledge agreements and security
agreements executed and delivered or confirmed pursuant to Paragraph 4.1 hereof,
or delivered from time to time pursuant to Paragraph 5.12 of this Agreement, as
the same may be amended, modified or restated from time to time.
"Pro Rata Share" shall mean, as to a Lender at any time, the ratio
which the outstanding principal balance of its portion of the Loan outstanding
at such time hereunder bears to the aggregate outstanding principal balance of
the Loan at such time; or if no indebtedness is outstanding hereunder at such
time, its percentage share of the Commitment as set forth in Schedule 2 attached
hereto.
"Required Lenders" shall mean those Lenders (which may include Agent
in its capacity as a Lender) holding Pro Rata Shares of the Loan aggregating in
excess of fifty percent (50%).
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"Restricted Payments" shall mean redemptions, purchases, repurchases,
dividends and distributions of any kind in respect of Shares of the Company
(except dividends payable solely in the common stock of the Company) and
payments of principal and interest on Subordinated Debt.
"Rolling Period" shall mean a period of four consecutive fiscal
quarters.
"Sale of Material Assets" shall mean the sale or other disposition
(including damage, destruction or condemnation of assets, but excluding any
foreclosure, transfer in lieu of foreclosure or similar event following a
default) by any Borrower, in a single transaction or in the aggregate as to all
transactions within any twelve (12) consecutive months, of assets (including
stock or other investments or interests in a Person) which, valued at the
greater of book value or fair market value, have a value of Ten Million Dollars
($10,000,000) or more; excluding dispositions of equipment no longer used by
Borrowers and inventory, in each case in the ordinary course of business, and
the sale of Permitted Investments for cash or the conversion into cash of
Permitted Investments.
"Secured Parties" shall mean, individually and collectively, Agent,
the Lenders, the Lease Financing Lenders, and, as defined in the Lease Financing
Rules of Usage and Definitions, the Holders, the Lessor, the Owner Trustee, in
its capacity as trustee, the Agent and the Syndication Agent.
"Shares" shall mean, with respect to any Person, any and all shares
of capital stock of any class or other shares, interests, participations or
other equivalents (however designated) in the capital of such Person.
"Subordinated Debt" shall mean the HCCC Subordinated Debt and any
additional Indebtedness of the Company or any Consolidated Subsidiary of the
Company subordinated to the Loan with subordination and repayment provisions and
covenants as are in form and substance satisfactory to Required Lenders.
"Subsidiary" shall mean, with respect to any Person, any other Person
of which such other Person owns, directly or indirectly, more than fifty percent
(50%) of any class or classes of securities and any Partnership of which such
Person is a General Partner.
"Swing Line Commitment" shall mean the obligation of the Agent to
make Swing Line Loans pursuant to Paragraph 2.15 hereof in an aggregate
principal amount of up to Five Million Dollars ($5,000,000).
"Swing Line Loan" shall mean an advance under the Swing Line
Commitment made by the Agent on behalf of the Lenders pursuant to Paragraph 2.15
hereof.
"Taxes" shall have the meaning specified in Paragraph 2.17 hereof.
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"Termination Date" shall mean the earlier of (i) July 31, 2003, or
(ii) the date on which a Commitment is terminated pursuant to Paragraph 2.8
hereof.
"Year 2000 Compliant" means, as to any computer system or application
or micro-processor dependent good or equipment, that it is designed and intended
to be used prior to, during and after the calendar year 2000 AD and that it will
operate as designed and intended during each such time period without error
relating to date data or date information, specifically including any error
relating to, or the product of, date data or date information that represents or
references different centuries or more than one century.
1.2. Rule of Construction. Except as otherwise provided herein,
financial and accounting terms used in the foregoing definitions or elsewhere in
this Agreement shall be defined in accordance with GAAP.
SECTION 2
FACILITY
2.1. Commitment.
(a) Commitment. From time to time prior to the Termination
Date, subject to the provisions below, each Lender severally agrees to make
Advances to Borrowers up to such Lender's Maximum Principal Amount as set forth
on Schedule 2 attached hereto, and Borrowers may repay at the offices of Agent
and reborrow under the Commitment, up to an aggregate principal amount not to
exceed at any time outstanding (together with the amount available to be drawn
under Letters of Credit and any unreimbursed draws under Letters of Credit) the
amount of the Commitment as from time to time in effect, less the amount of any
outstanding Swing Line Loans.
(b) Joint and Several Obligation. The obligations of Borrowers
hereunder are and shall be joint and several.
(c) Authority of the Company. Each of the Borrowers hereby
irrevocably authorizes and requests that the Company execute all Advance Request
Forms, make all elections as to interest rates and take any other actions
required or permitted of Borrowers hereunder, on its respective behalf, in each
case with the same force and effect as if such Borrower had executed such
Advance Request Form, made such election or taken such other action itself.
2.2. Promissory Notes. The indebtedness of Borrowers to each Lender
under the Loan will be evidenced by a Note executed by Borrowers, jointly and
severally, in favor of such Lender. The original principal amount of each
Lender's Note will be the amount identified in Schedule 2 attached hereto as its
Maximum Principal Amount; provided, however, that notwithstanding the face
amount of each such Note, the Borrowers' liability under each such
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Note shall be limited at all times to the actual indebtedness, principal,
interest, fees, and expenses, then outstanding to such Lender under the Loan.
The Notes shall collectively replace and supersede the Notes dated
December 18, 1996 by Borrowers in favor of the lenders under the Existing Credit
Agreement (the "Existing Notes"), provided, that the execution and delivery of
the Notes shall not in any circumstance be deemed to have terminated,
extinguished or discharged the Indebtedness under the Existing Notes, all of
which Indebtedness and the Collateral therefor shall continue under and be
governed by the Notes, this Agreement and the other Loan Documents. The Notes
collectively are a replacement, consolidation, amendment and restatement of the
Existing Notes and are NOT A NOVATION. Nothing herein is intended to modify or
in any way affect the priority of the Collateral which secures the Loan.
2.3. Lenders' Participation. Lenders shall participate in the Loan
in the Maximum Principal Amounts and Pro Rata Shares set forth in Schedule 2
attached hereto.
2.4. Use of Proceeds. Advances under the Commitment may be used
solely (i) for Borrowers' working capital needs, (ii) for Capital Expenditures
and general corporate purposes of Borrowers, (iii) for reimbursement of draws
under Letters of Credit in accordance with Paragraph 2A.4(b) hereof, (iv) to
finance the purchase price and related expenses in connection with Permitted
Acquisitions, (v) to advance working capital financing to other parties in
connection with entering into Long-Term Management Contracts, as permitted
pursuant to Paragraph 6.3(iv) hereof, and (vi) to refinance indebtedness
outstanding under the Existing Credit Agreement; provided, however, that in no
event shall the proceeds of any Advance be advanced to or used by any Subsidiary
that is not a Borrower.
2.5. Repayment. The aggregate outstanding principal balance of the
Loan on July 31, 2003 shall be due and payable in full on such date; provided,
however, that notwithstanding the foregoing, the entire outstanding balance of
the Loan shall be payable in full on the date of acceleration of the Loan
pursuant to Paragraph 8.2 hereof.
2.6. Interest. Portions of the Loan shall bear interest on the
outstanding principal amount thereof in accordance with the following
provisions:
(a) Definitions. As used in this Paragraph 2.6 and elsewhere
in this Agreement, the following words and terms shall have the meanings
specified below:
"Adjusted Libor Rate" shall mean, for any Interest Period, as applied
to a Portion, the rate per annum (rounded upwards, if necessary to the next 1/16
of 1%) determined pursuant to the following formula:
Adjusted Libor Libor Rate
[1 - Reserve Percentage]
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For purposes hereof, "Libor Rate" shall mean, as applied to a Portion, the rate
which appears on the Telerate page 3750 at approximately 9:00 a.m. Philadelphia
time two London Business Days prior to the commencement of such Interest Period
for the offering to leading banks in the London Interbank Market of deposits in
United States dollars ("Eurodollars") or, if such rate does not appear on the
Telerate page 3750, the rate which appears (or, if two or more such rates
appear, the average rounded up to the nearest 1/16 of 1% of the rates which
appear) on the Reuters Screen LIBO Page as of 9:00 a.m. Philadelphia time two
London Business Days prior to the commencement of the Interest Period, in either
case for an amount substantially equal to such Portion as to which Borrower may
elect the Adjusted Libor Rate to be applicable with a maturity of comparable
duration to the Interest Period selected by Borrower for such Portion, as may be
adjusted from time to time in accordance with Paragraph 2.6(f) hereof.
"Applicable Margin" means the percentage per annum set forth in the
appropriate column below that corresponds to the ratio of Adjusted Total Debt to
Adjusted EBITDAR (the Applicable Margin being the lowest applicable percentage
per annum as to which the ratio requirement has been attained):
Applicable Margin
Ratio of Adjusted TotalBase Rate Libor
Level Debt to Adjusted EBITDARPortions Portions
I less than or equal to 3.50 to 1 0.00% 0.875%
II less than or equal to 4.00 to 1 0.00% 1.125%
but greater than or 3.50 to 1
III less than or equal to 4.50 to 1 0.00% 1.375%
but greater than 4.00 to 1
IV greater than 4.50 to 1 0.125% 1.625%
The initial Applicable Margin, which shall be applicable commencing on the
Effective Date, shall be based on the Company's financial statements for the
fiscal period ended March 31, 1998 and the Compliance Certificate delivered
pursuant to Paragraph 4.1 hereof; thereafter the Applicable Margin shall adjust
automatically, as appropriate, on the day following delivery of each Compliance
Certificate, provided, that in the event that a Compliance Certificate has not
been delivered as required by Paragraph 5.4 then the Applicable Margin shall
adjust to Level V provided above as of the date of required delivery; provided
further, however, that the Applicable Margin shall adjust on the day after
delivery of such delinquent Compliance Certificate based on the ratio set forth
in such Compliance Certificate. Notwithstanding the foregoing, at any time that
the default rate of interest shall apply in accordance with Paragraph 2.6(b)(ii)
hereof, the Applicable Margin shall be the highest margin provided above with
respect to Base Rate Portions and Libor Portions, respectively.
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"Base Rate" shall mean the higher of (a) the Federal Funds Rate plus
one half of one percent (1/2%) per annum or (b) the Prime Rate.
"Federal Funds Rate" shall mean the daily rate of interest announced
from time to time by the Board of Governors of the Federal Reserve System in
publication H.15 as the "Federal Funds Rate."
"Interest Period" shall mean, with respect to the Adjusted Libor
Rate, a period of one (1), two (2), three (3) or six (6) months' duration, as
Borrowers may elect, during which the Adjusted Libor Rate is applicable;
provided, however, that (a) if any Interest Period would otherwise end on a day
which shall not be a London Business Day, such Interest Period shall be extended
to the next succeeding London Business Day, unless such London Business Day
falls in another calendar month, in which case such Interest Period shall end on
the next preceding London Business Day, subject to clause (c) below; (b)
interest shall accrue from and including the first day of each Interest Period
to, but excluding, the day on which any Interest Period expires; and (c) with
respect to an Interest Period which begins on the last London Business Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period), the Interest Period
shall end on the last London Business Day of a calendar month.
"London Business Day" shall mean any Business Day on which banks in
London, England are open for business.
"Portion" shall mean a portion of the Loan as to which a specific
interest rate and, in the case of a Portion bearing interest based upon the
Adjusted Libor Rate, an Interest Period, has been elected by Borrowers.
"Prime Rate" shall mean the rate of interest announced by Agent from
time to time as its prime rate.
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System, comprising Part 204 of Title 12, Code of Federal
Regulations, as amended, and any successor thereto.
"Reserve" shall mean, for any day, that reserve (expressed as a
decimal) which is in effect (whether or not actually incurred) with respect to a
Lender (or any bank Affiliate of such Lender) on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor or any other
banking authority to which a Lender (or any bank Affiliate of such Lender) is
subject including any board or governmental or administrative agency of the
United States or any other jurisdiction to which a Lender (or any bank Affiliate
of such Lender) is subject), for determining the maximum reserve requirement
(including without limitation any basic, supplemental, marginal or emergency
reserves) for Eurocurrency liabilities as defined in Regulation D.
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"Reserve Percentage" shall mean, for a Lender (or any bank Affiliate
of such Lender) on any day, that percentage (expressed as a decimal) prescribed
by the Board of Governors of the Federal Reserve System (or any successor or any
other banking authority to which a Lender (or any bank Affiliate of such Lender)
is subject, including any board or governmental or administrative agency of the
United States or any other jurisdiction to which a Lender is subject), for
determining the reserve requirement (including without limitation any basic,
supplemental, marginal or emergency reserves) for (i) deposits of United States
Dollars or (ii) Eurocurrency liabilities as defined in Regulation D, in each
case used to fund a Portion subject to an Adjusted Libor Rate or any Loan made
with the proceeds of such deposit. The Adjusted Libor Rate shall be adjusted on
and as of the effective day of any change in the Reserve Percentage.
(b) Interest on Loan.
(i) At the Borrowers' election in accordance with the
provisions of Paragraph 2.6(c) below, in the absence of an Event of Default
hereunder and prior to maturity or judgment, and subject to clause (ii) below,
any Portion of the Loan shall bear interest at either of the following rates:
(A) Base Rate. The Base Rate plus the Applicable
Margin, such rate to change when and as the Base Rate
changes and when and as the Applicable Margin changes.
(B) Adjusted Libor Rate. The Adjusted Libor Rate
plus the Applicable Margin, such rate to change when and as
the Applicable Margin changes.
(ii) Notwithstanding the foregoing, upon the occurrence
and during the continuance of an Event of Default hereunder, including after
maturity and upon judgment, Borrowers hereby agree to pay to Lenders interest
(A) on any outstanding Portion of the Loan or bearing interest based on the
Adjusted Libor Rate, at the rate which is two percent (2%) per annum in excess
of the Adjusted Libor Rate plus the highest margin provided in the definition of
Applicable Margin with respect to Libor Portions through the end of the
applicable Interest Period, and thereafter, at the rate of two percent (2%) per
annum in excess of the Base Rate plus the highest margin provided in the
definition of Applicable Margin with respect to Base Rate Portions, and (B) on
any Portion bearing interest based on the Base Rate, at the rate of two percent
(2%) per annum in excess of the Base Rate plus the highest margin provided in
the definition of Applicable Margin with respect to Base Rate Portions.
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(iii) Borrowers shall pay to Existing Lenders on the
EffectiveDate all accrued and unpaid interest to and including the Effective
Date in accordance with the Existing Credit Agreement together with all funding
costs and loss of earnings associated with the termination of outstanding Libor
Portions as of the Effective Date, calculated in accordance with Exhibit D
attached hereto.
(c) Procedure for Determining Interest Periods and Rates of
Interest.
(i) If Borrowers elect the rate based on the Base Rate
to be applicable to a Portion, Borrowers must notify Agent of such election in
writing prior to eleven o'clock (11:00) a.m. Agent's local time one (1) Business
Day prior to the proposed application of such rate. If Borrowers elect the rate
based on the Adjusted Libor Rate to be applicable to a Portion, Borrowers must
notify Agent of such election and the Interest Period selected prior to eleven
o'clock (11:00) a.m. Agent's local time at least three (3) London Business Days
prior to the commencement of the proposed Interest Period. If Borrowers do not
provide notice for the rate based on the Adjusted Libor Rate, then Borrowers
shall be deemed to have requested that the rate based on the Base Rate shall
apply to any Portion as to which the Interest Period is expiring and to any new
Advance of the Loan until Borrowers shall have given proper notice of a change
in or determination of the rate of interest in accordance with this Paragraph
2.6(c).
(ii) Borrowers shall not elect more than four (4)
different Portions bearing interest at the rate based on the Adjusted Libor Rate
to be applicable to the Loan at one time.
(d) Payment and Calculation of Interest. With respect to
Portions which bear interest at the rate based on the Adjusted Libor Rate,
interest shall be due and payable on the last day of each Interest Period for
each such Portion and, in the case of a Portion with an Interest Period of six
(6) months, on the ninetieth (90th) day after the Portion is advanced and on the
last day of the Interest Period, and with respect to Portions which bear
interest at the rate based on the Base Rate, interest shall be due and payable
on the last Business Day of the month commencing on the first such date after
the first Advance which bears interest at the rate based on the Base Rate.
Interest shall be calculated in accordance with the provisions of Paragraph
2.6(b) hereof; all interest shall be calculated on the basis of the actual
number of days elapsed over a year of three hundred sixty (360) days for
Portions bearing interest at the rate based on the Adjusted Libor Rate, and over
a year of three hundred sixty-five (365) or three hundred sixty-six (366) days,
as the case may be, for Portions bearing interest at the rate based on the Base
Rate.
(e) Reserves. If at any time when a Portion is subject to the
rate based on the Adjusted Libor Rate, a Lender (or a bank Affiliate of such a
Lender) is subject to and incurs a Reserve, other than a Reserve Percentage
provided in the calculation of the applicable Adjusted Libor Rate, Borrowers
hereby agree to pay within five (5) Business Days of demand thereof from time to
time, as billed by Agent on behalf of itself or a Lender, such additional amount
as is necessary to reimburse such Lender (or such Lender's bank Affiliate) for
its costs in
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maintaining such Reserve. Such amount shall be computed by taking into account
the cost incurred by the Lender (or such Lender's bank Affiliate) in maintaining
such Reserve in an amount equal to such Lender's ratable share of the Portion on
which such Reserve is incurred, which computation shall be set forth in any such
demand by Agent on behalf of itself or a Lender. The Agent agrees to bill
Borrowers promptly upon receipt of any such demand from a Lender. The
determination by Agent or any Lender of such costs incurred and the allocation,
if any, of such costs among Borrowers and other customers which have similar
arrangements with such Lender (or such Lender's bank Affiliate) shall be prima
facie evidence of the correctness of the fact and the amount of such additional
costs.
(f) Special Provisions Applicable to Adjusted Libor Rate. The
following special provisions shall apply to the Adjusted Libor Rate:
(i) Change of Adjusted Libor Rate. The Adjusted Libor
Rate may be automatically adjusted by Agent with respect to any Lender on a
prospective basis to take into account the additional or increased cost of
maintaining any necessary reserves for Eurodollar deposits or increased costs
due to changes in applicable law or regulation or the interpretation thereof
occurring subsequent to the commencement of the then applicable Interest Period,
including but not limited to changes in tax laws (except changes of general
applicability in corporate income tax laws) and changes in the reserve
requirements imposed by the Board of Governors of the Federal Reserve System (or
any successor), excluding the Reserve Percentage and any Reserve which has
resulted in a payment pursuant to subparagraph (e) above, that increase the cost
to any Lender of funding the Loan or a Portion thereof bearing interest based on
the Adjusted Libor Rate. Agent shall give Borrowers and each Lender notice of
such a determination and adjustment, which determination shall be prima facie
evidence of the correctness of the fact and the amount of such adjustment.
Borrowers may, by notice to Agent, (A) request Agent to furnish to Borrowers a
statement setting forth the basis for adjusting such Adjusted Libor Rate and the
method for determining the amount of such adjustment; and/or (B) repay the
Portion of the Loan with respect to which such adjustment is made, subject to
the requirements of Paragraph 2.9 and 2.10 hereof.
(ii) Unavailability of Eurodollar Funds. In the event
that Borrowers shall have requested the rate based on the Adjusted Libor Rate in
accordance with Paragraph 2.6(c) and any Lender (or such Lender's bank
Affiliate) shall have reasonably determined that Eurodollar deposits equal to
the amount of the principal of the Portion and for the Interest Period specified
are unavailable, or that the rate based on the Adjusted Libor Rate will not
adequately and fairly reflect the cost of making or maintaining the principal
amount of the Portion specified by Borrowers during the Interest Period
specified, or that by reason of circumstances affecting Eurodollar markets,
adequate and reasonable means do not exist for ascertaining the rate based on
the Adjusted Libor Rate applicable to the specified Interest Period, such Lender
shall give notice to Agent and Agent shall promptly give notice of such
determination to Borrowers that the rate based on the Adjusted Libor Rate is not
available. A determination by such Lender (or such Lender's bank Affiliate)
hereunder shall be prima facie evidence of the correctness of the fact and
amount of such additional costs or unavailability.
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Upon such a determination, (i) the obligation to advance or maintain Portions at
the rate based on the Adjusted Libor Rate shall be suspended until Agent shall
have notified Borrowers and Lenders that such conditions shall have ceased to
exist, and (ii) the rate based on the Base Rate shall be applicable to all
Portions.
(iii) Illegality. In the event that it becomes unlawful
for a Lender (or such Lender's bank Affiliate) to maintain Eurodollar
liabilities sufficient to fund or maintain any Portion of the Loan subject to
the rate based on the Adjusted Libor Rate, then such Lender shall immediately
notify Borrowers thereof (with a copy to Agent) and such Lender's obligations
hereunder to advance or maintain advances at the rate based on the Adjusted
Libor Rate shall be suspended until such time as such Lender (or such Lender's
bank Affiliate) may again cause the rate based on the Adjusted Libor Rate to be
applicable to its share of any Portion of the outstanding principal balance of
the Loan and such Lender's share of any Portion shall then be subject to the
rate based on the Base Rate.
2.7. Advances.
(a) At the time Borrowers provide the requisite notice set
forth in Paragraph 2.6(c) hereof relating to the election of interest rates,
Borrowers shall give Agent written notice of each requested Advance. Such notice
of a requested Advance shall be in the form of the Advance Request Form attached
hereto as Exhibit A, shall be certified by the chief executive or chief
financial officer of the Company, on behalf of Borrowers, and shall contain the
following information and representations, which shall be deemed affirmed and
true and correct as of the date of and upon receipt of the requested Advance:
(i) the aggregate amount of the requested Advance, which
shall be equal to $1,000,000 or an even multiple of $250,000 in excess thereof;
(ii) the date of the requested Advance;
(iii) the interest rate(s) Borrowers have elected to apply
to the Advance and, if more than one interest rate has been elected, the amount
of the Portion as to which each interest rate shall apply and, in the case of
Portions bearing interest at the rate based on the Adjusted Libor Rate, the
Interest Period;
(iv) confirmation of compliance with Paragraphs 5.15
through 5.18 hereof immediately prior to and following such Advance and, if
applicable, consummation of the Permitted Acquisition;
(v) a statement that the Advance will be used for the
purposes permitted by Paragraph 2.4 hereof;
(vi) statements that the representations and warranties
set forth in Section Three hereof and in the Collateral Security Documents are
true and correct in all
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material respects as of the date thereof; no Default or Event of Default has
occurred and is then continuing; and there has been no Material Adverse Effect
or event or circumstance which might reasonably be expected to have a Material
Adverse Effect since the date hereof;
(vii) in the case of an Advance for purposes of making a
Permitted Acquisition:
(A) a statement that based on the pro forma
combined financial statements required pursuant to Paragraph 6.8 hereof, there
would be no Default or Event of Default for the most-recent fiscal period for
which a Compliance Certificate has been delivered and for the remaining life of
the Loan; and
(B) a covenant to deliver such additional documents
as any Lender may reasonably request in accordance with Paragraph 5.12 hereof.
(b) (i)Upon receiving a request for an Advance in accordance
with subparagraph (a) above, Agent shall request by prompt notice to Lenders
that each Lender advance funds to Agent so that each Lender participates in the
requested Advance in the same percentage as it participates in the applicable
Commitment. In the case of a request for an Advance for purposes of making a
Permitted Acquisition, the Agent shall promptly provide copies of the Advance
Request Form and all attachments and information provided to the Lenders. Each
Lender shall advance its applicable percentage of the requested Advance to Agent
by delivering federal funds immediately available at Agent's offices prior to
twelve o'clock (12:00) noon on the date of the Advance. Subject to the
satisfaction of the terms and conditions hereof, Agent shall make the requested
Advance available to Borrowers by crediting such amount to the Company's deposit
account with Agent not later than two o'clock (2:00) p.m. on the day of the
requested Advance; provided, however, that in the event Agent does not receive a
Lender's share of the requested Advance by such time as provided above, Agent
shall not be obligated to advance such Lender's share.
(ii) Unless Agent shall have been notified by a Lender prior to the
time such Lender's share of any such Advance is to be made by such Lender that
such Lender does not intend to make its share of such requested Advance
available to Agent, Agent may assume that such Lender has made such proceeds
available to Agent on such date, and Agent may, in reliance upon such assumption
(but shall not be obligated to), make available to Borrowers a corresponding
amount. If such corresponding amount is not in fact made available to Agent by
such Lender on the date the Advance is made, Agent shall be entitled to recover
such amount on demand from such Lender (or, if such Lender fails to pay such
amount forthwith upon such demand, from Borrowers) together with interest
thereon in respect of each day during the period commencing on the date such
amount was made available to Borrowers and ending on (but excluding) the date
Agent recovers such amount, from such Lender, at a rate per annum equal to the
effective rate for overnight federal funds in New York as reported by the
Federal Reserve Bank of New York for such day (or, if such day is not a Business
Day, for the next
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preceding Business Day) and from Borrowers, at a rate per annum as provided in
Paragraph 2.6(b)(i)(A) hereof.
(c) Each request for an Advance pursuant to this Paragraph 2.7
shall be irrevocable and binding on Borrowers. In the case of any Advance
bearing interest at the rate based upon the Adjusted Libor Rate, Borrowers shall
indemnify each Lender against any loss, cost or expense incurred by such Lender
as a result of any failure to fulfill on or before the date specified in such
request for an Advance the applicable conditions set forth in Section Four
hereof, including, without limitation, any loss, cost or expense incurred by
reason of the liquidation or redeployment of deposits or other funds acquired by
such Lender to fund the Advance to be made by such Lender when such Advance, as
a result of such failure, is not made on such date, as calculated by Agent in
accordance with Exhibit D attached hereto.
2.8. Adjustments to Commitment.
(a) Optional Reduction by Borrowers. Borrowers shall have the
right at any time and from time to time, upon three (3) Business Days' prior
written notice to Agent, to reduce the Commitment in whole or in part pro rata
among the Lenders in increments of $1,000,000, without penalty or premium,
provided that on the effective date of such reduction Borrowers shall make a
payment to the Agent for the account of the Lenders in an amount, if any, by
which the aggregate outstanding principal balance of the Loan exceeds the amount
of the Commitment, as then so reduced, together with accrued interest on the
amount so prepaid, and, if a Portion is paid prior to the last day of an
Interest Period, any amounts which may be due pursuant to Paragraph 2.10 hereof.
(b) Reduction in Connection with Increase in Lease Financing
Facility. The Commitment shall be reduced automatically by an amount equal to
the aggregate amount of any increase in the Holder Commitments and Lender
Commitments (as defined in the Lease Financing Rules of Usage and Definitions)
pursuant to Section 5.11 of the Participation Agreement (as defined in the Lease
Financing Rules of Usage and Definitions). A copy of any notice delivered
pursuant to such Section 5.11 of the Participation Agreement shall
simultaneously be delivered to Agent hereunder.
(c) Termination by Lenders. Pursuant to Paragraph 8.2 hereof,
Required Lenders shall have the right to terminate the Commitment at any time,
in their discretion and upon notice to Borrowers, upon the occurrence of any
Event of Default hereunder. Any payment following the occurrence of an Event of
Default, acceleration and demand for payment shall include the payment of any
amounts due pursuant to Paragraph 2.10 hereof.
(d) Pro Rata Reductions in Maximum Principal Amounts;
Restoration Only with Consent. Any termination or reduction of the Commitment
shall result in pro rata reduction in each Lender's Maximum Principal Amount,
and shall be permanent; and the Commitment and respective Maximum Principal
Amounts cannot thereafter be restored or increased without the written consent
of all Lenders.
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2.9. Prepayment; Repayment.
(a) Voluntary Payments. Upon one (1) Business Day's prior
written notice by Borrowers to Agent, Borrowers may prepay, in whole or in part,
the outstanding principal balance under the Loan at any time without premium or
penalty, provided that (i) any prepayment of the Loan shall be in an amount
equal to $1,000,000 or a multiple of $250,000 in excess thereof; (ii) voluntary
prepayments pursuant to this Paragraph 2.9(a) prior to the Termination Date
shall not reduce the Commitment and may be reborrowed in accordance with this
Agreement, and (iii) such prepayment shall include all accrued interest on the
amount prepaid plus any amounts which may be due pursuant to Paragraph 2.10
hereof.
(b) Mandatory Payments. In addition to any other required
payments hereunder, Borrowers shall make principal payments in the circumstances
and in the amounts set forth below:
(i) Asset Dispositions. In connection with each Sale of
Material Assets approved by Lenders pursuant to Paragraph 6.7 hereof, the Net
Cash Proceeds to the seller of such transaction shall be paid directly to Agent
for the account of Lenders and applied to the Loan as set forth in subparagraph
(iv) below.
(ii) New Debt. In the event a Borrower incurs Indebtedness
consented to by Required Lenders which is not otherwise permitted pursuant to
Paragraph 6.1 hereof, the net cash proceeds of such Indebtedness shall be paid
directly to Agent for the account of the Lenders and applied to the Loan as set
forth in subparagraph (iv) below.
(iii) Equity Issuance. In connection with any issuance of
equity by the Company, fifty percent (50%) of the net cash proceeds to the
Company of such issuance shall be paid directly to Agent for the account of the
Lenders and applied to the Loan as set forth in subparagraph (iv) below;
provided, however, that no such payment shall be required in connection with
proceeds received upon the issuance of shares of Common Stock in connection with
an employee stock purchase plan or in connection with the exercise of employee
and director stock options.
(iv) Application of Payments. Payments made pursuant to
subparagraph 2.9(b)(i) through (iii) above shall be applied to the outstanding
principal balance of the Loan and shall be accompanied by all accrued and unpaid
interest and fees in connection with the amount prepaid (including any amount
payable under Paragraph 2.10 hereof); provided, however, that in the absence of
an Event of Default or Default hereunder the Company shall be entitled to
determine the order in which Portions of the Loan shall be repaid pursuant to
such payments. Any such payments prior to the Termination Date shall not reduce
the Commitment and may be reborrowed in accordance with this Agreement.
2.10. Funding Costs and Loss of Earnings. In connection with any
prepayment or repayment of a Portion bearing interest at a rate based on an
Adjusted Libor Rate made on other
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than the last day of the applicable Interest Period, whether such prepayment or
repayment is voluntary, mandatory, by demand, acceleration or otherwise,
Borrowers shall pay to Lenders all funding costs and loss of earnings which may
arise in connection with such prepayment or repayment, as calculated by Agent in
accordance with Exhibit D attached hereto.
2.11. Payments. All payments of principal, interest, fees and other
amounts due hereunder, including any prepayments thereof, shall be made by
Borrowers to Agent for the accounts of the Lenders in immediately available
funds before twelve o'clock (12:00) noon on any Business Day at the principal
office of Agent set forth at the beginning of this Agreement. Payments received
after twelve o'clock (12:00) noon will be deemed received on the next Business
Day. Borrowers hereby authorize Agent to charge Borrowers' account with Agent
for all payments of principal, interest and fees due hereunder.
2.12. Commitment Fee. Borrowers shall pay to Agent, for the benefit
of the Lenders, a non-refundable commitment fee on the average unused portion of
each Lender's Maximum Principal Amount as from time to time in effect from the
date hereof through the Termination Date at the applicable rate set forth below
based on the ratio of Adjusted Total Debt to Adjusted EBITDAR for the Company
and its Consolidated Subsidiaries:
Ratio of Adjusted
Total Debt to Adjust Commitment
EBITDAR Fee Rate
less than or equal to.200% to 1
less than or equal to.250% to 1
but greater than 3.50 to 1
less than or equal to.250% to 1
but greater than 4.00 to 1
greater than 4.50 to 1 0.375%
The commitment fee shall be payable at the offices of Agent for the account of
the Lenders quarterly in arrears on the first day of each January, April, July
and October, as billed by Agent, and on the Termination Date. The commitment fee
shall be calculated on the basis of the actual number of days elapsed over a
year of three hundred sixty (360) days.
Borrowers and Lenders hereby agree that for purposes of calculating
the commitment fee to be paid from time to time under this Paragraph 2.12, (x)
the unborrowed portion of each Lender's Maximum Principal Amount (on which such
fee is calculated) shall be reduced by such Lender's percentage share of the
amount available to be drawn under outstanding Letters of Credit and the amount
of any unreimbursed draws on any Letters of Credit
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and (y) the unborrowed portion of First Union's Maximum Principal Amount shall
be reduced by the aggregate outstanding balance of all Swing Line Loans.
The commitment fees provided in this Paragraph 2.12 shall apply from
and after the Effective Date, and Borrowers shall pay to Existing Lenders on the
Effective Date all accrued and unpaid commitment fees to and including the
Effective Date in accordance with the Existing Credit Agreement.
2.13. Closing Fee. On the date of execution of this Agreement,
Borrowers shall pay: (i) to each Lender whose Maximum Principal Amount
hereunder, together with its Lender Commitment and Holder Commitment under the
Lease Financing Facility (as defined in the Lease Financing Rules of Usage and
Definitions) (in the aggregate, the Lender's "Aggregate Lender Commitment") is
equal to or in excess of $25,000,000, a fee equal to 15 basis points on such
Lender's Maximum Principal Amount, and (ii) to each Lender whose Aggregate
Lender Commitment is less than $25,000,000, a fee equal to 10 basis points on
such Lender's Maximum Principal Amount.
2.14. Fees to Agents. Borrowers shall pay (a) to Agent the fees as
agreed upon pursuant to that certain letter dated May 15, 1998 between the
Company and Agent, and (b) to NationsBank, N.A. (South) as Syndication Agent the
fees as agreed upon pursuant to that certain letter dated May 5, 1998 between
the Company and NationsBank, N.A. (South).
2.15. Swing Line Loans.
(a) Swing Line Commitment. Subject to the terms and conditions
hereof, Agent may in Agent's discretion from the date hereof through and
including the Termination Date make Swing Line Loans to Borrowers on a joint and
several basis from time to time in an aggregate principal amount at any one time
outstanding not to exceed Five Million Dollars ($5,000,000), provided, that, no
Swing Line Loan shall be made if after giving effect to the making of such Swing
Line Loan and the simultaneous application of the proceeds thereof, such Swing
Line Loan shall exceed the aggregate Commitment as from time to time in effect
less (x) outstanding Advances under the Commitment, (y) the amount of all other
outstanding Swing Line Loans, and (z) the aggregate amount of all amounts
available under and unreimbursed draws with respect to Letters of Credit. Except
as otherwise may be agreed upon from time to time between the Company and the
Agent, Borrowers shall give Agent written notice of each requested Advance of a
Swing Line Loan. Such notice of a requested advance of a Swing Line Loan shall
be certified by the chief executive officer or chief financial officer of the
Company and shall be in the form of the Advance Request Form attached hereto as
Exhibit A-2. Within the foregoing limits, the Borrowers may repay and reborrow
under the Swing Line Commitment prior to the Termination Date, subject to and in
accordance with the terms and limitations hereof.
(b) Interest. The interest rate applicable to a Swing Line Loan
shall be the Base Rate and shall be paid to the Agent for its own account on the
last day of each month.
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(c) Payment. Each Swing Line Loan shall be due and payable on
the earlier of: (i) the Termination Date and (ii) one (1) Business Day after the
date on which Agent shall have demanded payment thereof; provided, however, that
the Borrowers may pay the Swing Line Loan on any date in their discretion with
same day notice to the Agent without premium or penalty.
(d) Procedure for Swing Line Loans. Subject to the terms and
conditions hereof, the Borrowers may borrow under the Swing Line Commitment on
any Business Day prior to the Termination Date. Except as otherwise may be
agreed upon from time to time between the Company and the Agent, the Borrowers
shall give Agent irrevocable notice, which notice must be received by the Agent
prior to one o'clock (1:00) p.m. Agent's local time, on the requested date,
specifying in the notice (a) the amount requested to be borrowed and (b) the
requested borrowing date. The proceeds of each Swing Line Loan will be made
available by the Agent to the Borrowers by the Agent crediting the account of
the Borrowers with such proceeds on the requested borrowing date.
(e) Allocating Swing Line Loans; Swing Line Loan Participation.
(i) The Agent, may in its sole and absolute discretion,
direct that all Swing Line Loans owing to it be refunded by delivering a notice
(a "Notice of Swing Line Refunding") to each Lender and, unless an Event of
Default described in Paragraph 8.1(j) (an "Insolvency Event of Default") in
respect of a Borrower has occurred, to the Borrowers. Each such Notice of Swing
Line Refunding shall be deemed to constitute delivery by the Company of an
Advance Request Form requesting an Advance under the Commitment to bear interest
at the Base Rate in an amount equal to the amount of the Swing Line Loans
outstanding on such date. Unless an Insolvency Event of Default shall have
occurred (in which case the procedures of Paragraph 2.15(e)(ii) shall apply),
each Lender (including the Agent in its capacity as a Lender) shall (i)
participate, in accordance with their respective percentage shares of the
Commitment, in an Advance to Borrowers in an amount equal to the aggregate
principal amount of the Swing Line Loans outstanding on the date of delivery of
the applicable Notice of Swing Line Refunding and (ii) make its portion of such
Advance available to the Agent for the account of the Agent at the office of the
Agent prior to twelve o'clock (12:00) noon, Agent's local time, in funds
immediately available to the Agent on the Business Day next succeeding the date
such notice is given. The proceeds of such Advance shall be immediately applied
to repay the outstanding Swing Line Loans.
(ii) If prior to the time an Advance would have otherwise been
made pursuant to Paragraph 2.15(e)(i), an Insolvency Event of Default shall have
occurred in respect of a Borrower, each Lender (other than the Agent) shall, on
the date such Advance would have been made pursuant to the applicable Notice of
Swing Line Refunding (the "Refunding Date"), purchase an undivided participating
interest in the outstanding Swing Line Loans in an amount equal to (i) such
Lender's percentage share of the Commitment times (ii) the aggregate principal
amount of the Swing Line Loans then outstanding which were to have been repaid
with Loans (the "Swing Line Participation Amount"). On the Refunding Date, each
Lender shall
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transfer to the Agent, in immediately available funds, such Lender's Swing Line
Participation Amount.
(iii) Whenever, at any time after the Agent has received from
any Lender such Lender's Swing Line Participation Amount, the Agent receives any
payment on account thereof, the Agent will distribute to such Lender its
participating interest in such amount (appropriately adjusted, in the case of
interest payments, to reflect the period of time during which such Lender's
participating interest was outstanding and funded) in like funds as received;
provided, however, that in the event such payment received by the Agent is
required to be returned, such Lender will return to the Agent any portion
thereof previously distributed by the Agent to it in like funds as such payment
is required to be returned by the Agent.
(iv) Each Lender's obligations pursuant to this Paragraph
2.15(e) to make Advances and to purchase participating interests shall be
absolute and unconditional and shall not be affected by any circumstances
including, without limitation, (i) any setoff counterclaim, recoupment, defense
or other right which such Lender may have against any other Lender or any
Borrower, or any Borrower may have against any Lender or any other person, as
the case may be, for any reason whatsoever; (ii) the occurrence or continuance
of a Default or Event of Default; (iii) any adverse change in the condition
(financial or otherwise) of the Borrowers; (iv) any breach of this Agreement by
any party hereto; (v) the failure to satisfy any condition to the making of any
Advance hereunder; or (vi) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing.
2.16. Regulatory Changes in Capital Requirements. If any Lender shall
have determined that the adoption or the effectiveness after the date hereof of
any law, rule, regulation or guideline regarding capital adequacy, or any change
in any of the foregoing or in the interpretation or administration of any of the
foregoing by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by such
Lender (or any lending office or bank Affiliate of such Lender) or such Lender's
holding company with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on such Lender's capital or on the capital of such Lender's bank Affiliate or
holding company (if any) as a consequence of this Agreement, the Commitment or
the Loan made by such Lender pursuant hereto to a level below that which such
Lender or its holding company or such bank Affiliate of such Lender could have
achieved, but for such adoption, effectiveness, change or compliance (taking
into consideration such Lender's policies and the policies of such Lender's bank
Affiliate or holding company with respect to capital adequacy) by an amount
deemed by such Lender to be material, then from time to time Borrowers shall pay
to such Lender on demand as set forth below such additional amount or amounts as
will compensate such Lender or its bank Affiliate or holding company for any
such reduction suffered together with interest on each such amount from the date
demanded until payment in full thereof at the rate provided in Paragraph
2.6(b)(ii) hereof with respect to amounts not paid when due. Such Lender will
notify Borrowers of any event occurring that will entitle
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such Lender to compensation pursuant to this Paragraph 2.16 as promptly as
practicable within ninety (90) days after it obtains knowledge thereof.
A certificate of such Lender setting forth such amount or amounts as
shall be necessary to compensate such Lender or its holding company as specified
above shall be delivered to Borrowers and shall be conclusive absent manifest
error. Borrowers shall pay such Lender the amount shown as due on any such
certificate delivered by such Lender within ten (10) days after its receipt of
the same.
The Lenders shall determine the applicability of, and the amount due
under, this Paragraph 2.16 consistent with the manner in which they apply
similar provisions and calculate similar amounts payable to them by other
borrowers having in their credit agreements provisions comparable to this
Paragraph 2.16.
Failure on the part of any Lender to demand compensation for
increased costs or reduction in amounts received or receivable or reduction in
return on capital with respect to any period shall not constitute a waiver of
such Lender's right to demand compensation with respect to any other period.
2.17. Taxes. Any and all payments by Borrowers to the Lenders
hereunder shall be made free and clear of and without deduction for any and all
present or future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto, excluding in the case of each Lender,
(i) taxes assessed solely on the net income of such Lender, and (ii) taxes and
withholdings arising solely from a connection between such Lender and the
jurisdiction imposing such tax, other than a connection arising from the
activities of such Lender solely in connection with this Agreement (all such
non-excluded taxes, levies, imposts, deductions, charges, withholding and
liabilities being hereinafter referred to as "Taxes"). If any Taxes shall be
required by law to be paid or deducted from or in respect of any sum payable
hereunder or under any Note to any Lender, the sum payable by Borrowers shall be
increased as may be necessary so that after making all required payments and
deductions (including payments and deductions applicable to additional sums
payable under this Paragraph 2.17) such Lender receives an amount equal to the
sum it would have received had no such payments or deductions been made, but
shall be decreased to take into account any credit, deduction or offset
available in any other jurisdiction as a result of such payment.
SECTION 2A
LETTERS OF CREDIT
2A.1. Availability of Credits. Subject to the terms and conditions
set forth herein, Lenders shall from time to time prior to the Termination Date
participate in the issuance or renewal by Agent of Letters of Credit for the
account of Borrowers on the following terms and conditions:
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(a) at the time of issuance or renewal of the Letter of Credit,
the unborrowed portion of the Commitment, less the amount of any outstanding
Swing Line Loans, shall equal or exceed the sum of the amount available to be
drawn under such Letter of Credit and the amount available to be drawn under and
any unreimbursed draws under all other Letters of Credit;
(b) at the time of issuance or renewal of the Letter of Credit,
the amount available to be drawn under such Letter of Credit and all other
Letters of Credit then outstanding hereunder plus any unreimbursed draws under
all other Letters of Credit shall not exceed, in the aggregate, the Letter of
Credit Sublimit;
(c) the final expiration date of each Letter of Credit shall be
on or before the earlier of (i) one year from the date of issuance thereof or
(ii) the Termination Date; provided, however, that "evergreen" letters of credit
may be issued on terms and conditions reasonably satisfactory to Agent;
(d) there shall not exist at the time of issuance or renewal of
the Letter of Credit, or as a result thereof, any Default or Event of Default;
and
(e) each Letter of Credit issued or renewed under this Section
2A shall be required by a Borrower for purposes reasonably satisfactory to Agent
and within the permitted uses under Paragraph 2.4 hereof.
Upon issuance of each Letter of Credit, each Lender shall have a
participating interest therein based on its percentage share of the Commitment.
On the Effective Date, all Letters of Credit outstanding under the
Existing Credit Agreement shall continue under and be governed by this
Agreement, the Letter of Credit Application delivered in connection with the
issuance thereof, and the other terms of such Letter of Credit.
2A.2. Commitment Availability. The amount available under the
Commitment as from time to time in effect shall be reduced by the amount
available to be drawn under all outstanding Letters of Credit and unreimbursed
amounts of any draws under Letters of Credit. The amount by which the Commitment
is so reduced shall not be available for advances under Paragraph 2.7 hereof,
except advances thereunder which are made to reimburse Agent for draws under the
Letters of Credit as permitted pursuant to Paragraph 2A.4(b) hereof.
2A.3. Approval and Issuance.
(a) Borrowers shall provide Agent not less than three (3)
Business Days' prior written notice of each request for the issuance of a Letter
of Credit by delivery of a Letter of Credit Request Form in the form attached as
Exhibit B-1 hereto and Agent's Letter of Credit Application in the form attached
as Exhibit B-2 hereto. Each Letter of Credit Request
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Form submitted by Borrowers to Agent requesting the issuance of a Letter of
Credit shall be certified by the chief executive or chief financial officer of
the Company, on behalf of Borrowers, and shall, in addition to the matters
described in Paragraph 2.7(a) hereof, list all Letters of Credit outstanding for
the account of Borrowers at that time and, for each Letter of Credit so listed,
its face amount, outstanding undrawn balance and expiration date. It shall be a
condition to the issuance of any Letter of Credit that Agent shall have received
a Letter of Credit Request Form and Letter of Credit Application as described
above and that the conditions set forth in Paragraph 4.3 shall be satisfied.
(b) Agent will promptly provide to Lenders written or telephonic
notification of Agent's receipt of the Letter of Credit Request Form and the
Letter of Credit Application which shall state (i) the amount of the Letter of
Credit requested and (ii) the date of issuance and expiration date of the
requested Letter of Credit.
2A.4. Obligations of the Borrowers.
(a) Borrowers agree to pay to Agent in connection with each
Letter of Credit issued hereunder: (i) immediately upon the demand of Agent for
itself or on behalf of Lenders, the amount paid by Agent or Lenders with respect
to such Letter of Credit; (ii) immediately upon demand of Agent, the amount of
any draft presented purporting to be drawn under such Letter of Credit provided
that the draft and accompanying documents conform to the terms of the Letter of
Credit but subject to the terms of Paragraph 2A.7 (whether or not Agent has at
such time honored such draft) and any other amounts paid thereunder (it being
understood that Agent is not required to make demand upon or proceed against any
Lender or other party or to resort to any Collateral before obtaining payment
from Borrowers); (iii) a non-refundable fee for the benefit of Lenders in
accordance with each Lender's percentage share of the Commitment as set forth on
Schedule 2 attached hereto, calculated on the outstanding face amount of such
Letter of Credit at a rate per annum equal to the Applicable Margin for a Libor
Portion, as set forth in Paragraph 2.6 hereof, and payable quarterly in arrears
as billed by Agent; (iv) on the date of issuance of each Letter of Credit and on
the effective date of any renewal or extension of any Letter of Credit a fee of
one-eighth of one percent (0.00125) per annum on the outstanding face amount of
such Letter of Credit, payable to Agent for its own account; (v) interest on any
indebtedness outstanding with respect to such Letter of Credit, whether for
funds paid on drafts on such Letter of Credit, or otherwise (but such
indebtedness shall not include undrawn balances of such Letter of Credit issued
hereunder) at the rate applicable to Base Rate Portions under Paragraph
2.6(b)(i)(A) hereof from the date of payment by Agent (if not reimbursed by
Borrower on the same day) to the date one (1) Business Day after notice to
Borrowers of such payment, and thereafter at the rate applicable to Base Rate
Portions under Paragraph 2.6(b) hereof. Interest under the preceding clause (v)
shall be paid at the times and in the manner set forth in Paragraph 2.6 hereof,
and shall accrue on amounts paid on a Letter of Credit (if not reimbursed by
Borrower on the same day) from the date of payment by Agent, whether or not
demand is made, until such amounts are reimbursed by Borrowers whether before,
at or after demand.
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(b) On or before the Termination Date, in the absence of a
Default or Event of Default, and subject to the provisions of Paragraph 2.7
hereof, Lenders hereby agree to advance funds to Borrowers under the Loan to
make the payments required under Paragraphs 2A.4(a)(i) and (ii) hereof. If any
payment by the Agent of a draft drawn under a Letter of Credit is for any reason
(including without limitation the occurrence or continuation of a Default or
Event of Default hereunder) not reimbursed prior to or on the date of such
payment, the amount of such payment shall thereupon be deemed for purposes
hereof an advance under Paragraph 2.7 hereof. Such reimbursement obligation
shall be repayable, prepayable, and otherwise subject to all the terms and
conditions thereof as if advanced by Lenders pursuant to Paragraph 2.7 hereof
(but without duplication).
2A.5. Payment by Lenders on Letters of Credit.
(a) With respect to each Letter of Credit, each Lender agrees
that it is irrevocably obligated to pay to Agent, for each such Letter of
Credit, such Lender's Pro Rata Share of each and every payment made or to be
made by Agent under such Letter of Credit (each such payment to be made, a "LOC
Contribution"). Each Lender's LOC Contribution shall be due from such Lender
immediately upon, and in any event no later than the same day as, receipt of
written notice (which may be sent by telex or telecopier) from Agent (except
that if such notice is received after 3:00 p.m. on any Business Day, payment may
be made on the following Business Day, together with interest equal to the
effective rate for overnight funds in New York as reported by the Federal
Reserve Bank of New York for such day (or, if such day is not a Business Day,
for the next preceding Business Day)) that (i) it has made a payment or (ii) a
draft has been presented purporting to be drawn on a Letter of Credit issued
hereunder. Such payment shall be made at Agent's offices in immediately
available federal funds.
(b) The obligation of each Lender to make its LOC Contribution
hereunder is absolute, continuing and unconditional, and Agent shall not be
required first to make demand upon or proceed against Borrowers or any guarantor
or surety, or any others liable with respect to the applicable Letter of Credit
and shall not be required first to resort to any Collateral. LOC Contributions
shall be made without regard to termination of this Agreement or the Commitment,
the existence of an Event of Default or Default hereunder, the acceleration of
indebtedness hereunder or any other event or circumstance.
2A.6. Collateral Security.
(a) The indebtedness, liabilities and obligations of Borrowers
under this Section 2A, however created or incurred, whether now existing or
hereafter arising, due or to become due, absolute or contingent, direct or
indirect, secured or unsecured, are among the obligations secured by the
security interests, liens and encumbrances created by the Collateral Security
Documents delivered to Agent by Borrowers, and Agent and the Lenders are
entitled to the benefit of the collateral security granted thereunder with
respect to such indebtedness.
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(b) Notwithstanding the payment in full of the Loan, the
termination of the Commitment or the occurrence of the Termination Date, the
Collateral shall continue to secure the indebtedness, liabilities and
obligations of Borrowers under this Section 2A until all Letters of Credit shall
have expired and all indebtedness, liabilities and obligations under this
Section 2A shall have been paid in full.
(c) On the termination of the Commitment or the occurrence of an
Event of Default, Required Lenders may require (and in the case of an Event of
Default occurring under Paragraph 8.1(j) it shall be required automatically)
that Borrowers deliver to Agent, cash or U.S. Treasury Bills with maturities of
not more than 90 days from the date of delivery (discounted in accordance with
customary banking practice to present value to determine amount) in an amount
equal at all times to one hundred ten percent (110%) of the outstanding undrawn
amount of all Letters of Credit, such cash or U.S. Treasury Bills and all
interest earned thereon to constitute cash collateral for all such Letters of
Credit. At such time as such collateral is required to be and has not been
deposited, Agent on behalf of Lenders shall be entitled to liquidate such of the
other collateral for the Loan (if any) as is necessary or appropriate in its
sole judgment so as to create such cash collateral.
(d) Any cash collateral deposited under subparagraph (c) above,
and all interest earned thereon, shall be held by Agent and invested and
reinvested, at the reasonable and customary expense of Borrower, in U.S.
Treasury Bills with maturities of no more than ninety (90) days from the date of
investment.
2A.7. General Terms of Credits. The following terms and conditions
apply with respect to each Letter of Credit (a "Credit") notwithstanding
anything to the contrary contained herein:
(a) Borrowers assume all risks of the acts or omissions of the
beneficiary of each Credit with respect to the use of the Credit or with respect
to the beneficiary's obligations to Borrowers. None of the Lenders nor any of
their officers or directors shall be liable or responsible for, and the
Borrowers hereby agree to indemnify and hold Agent, Lenders and any issuer of a
Credit harmless (except for the issuer's gross negligence or willful misconduct)
with respect to: (i) the use which may be made of the Credit or for any acts or
omissions of the beneficiary in connection therewith; (ii) the accuracy, truth,
validity, sufficiency or genuineness of documents, or of any endorsement
thereon, even if such documents should in fact prove to be in any or all
respects false, misleading, inaccurate, invalid, insufficient, fraudulent, or
forged; (iii) the payment by Agent against presentation of documents which do
not comply with the terms of the Credit, including failure of any documents to
bear any reference or adequate reference to a Credit; (iv) any other
circumstances whatsoever in making or failing to make payment under a Credit; or
(v) any inaccuracy, interruption, error or delay in transmission or delivery of
correspondence or documents by post, telegraph or otherwise. In furtherance and
not in limitation of the foregoing, Agent may accept documents that appear on
their face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary.
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(b) Notwithstanding the foregoing, with respect to any Credit,
Borrowers shall have a claim against Agent, and Agent shall be liable to
Borrowers, to the extent, but only to the extent, of any direct, as opposed to
indirect or consequential, damages suffered by Borrowers caused by the Agent's
willful misconduct or gross negligence.
(c) To the extent not inconsistent with this Agreement, the
Uniform Customs and Practices for Documentary Credits (1993 Revision),
International Chamber of Commerce Publication No. 500, are hereby made a part of
this Agreement with respect to obligations in connection with each Credit.
SECTION 3
REPRESENTATIONS AND WARRANTIES
Borrowers represent and warrant to Lenders that, except as set forth
on Exhibit E:
3.1. Organization and Good Standing. Each Borrower and each
Subsidiary is duly organized and existing and in good standing under the laws of
the state of its formation as identified on Schedule 1 attached hereto, has the
power and authority to carry on its business as now conducted, and is qualified
to do business in all other states in which the nature of its business or the
ownership of its properties requires such qualification except where the failure
to so qualify would not have a Material Adverse Effect.
3.2. Power and Authority; Validity of Agreement. Each Borrower has
the power and authority under the law of its state of incorporation and under
its articles or certificate of incorporation and by-laws to enter into and
perform the Loan Documents, to the extent it is a party thereto; all actions
(corporate or otherwise) necessary or appropriate for Borrowers' execution and
performance of the Loan Documents, to the extent it is a party thereto, have
been taken; and, upon their execution, the Loan Documents will constitute the
valid and binding obligations of Borrowers, to the extent each is a party
thereto, enforceable in accordance with their terms.
3.3. No Violation of Laws or Agreements. The entering into and
performance of the Loan Documents by the Borrowers will not: (a) violate any
provisions of any law or regulation, federal, state or local, applicable to a
Borrower, (b) violate any provision of the respective articles or certificates
of incorporation and by-laws of Borrowers or (c) result in any breach or
violation of, or constitute a default under, any agreement or instrument by
which any Borrower or their respective property are bound.
3.4. Health Care Facilities. Exhibit E hereto sets forth a
description of each Health Care Facility owned, leased or managed by Borrowers
or any Subsidiary, and for each Health Care Facility, sets forth the name and
location thereof, the applicable owner, lessor, lessee and manager, all Licenses
and contracts of such Health Care Facility with respect to which the default
thereunder by either party thereto or the failure to maintain in full force and
effect might
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reasonably be expected to have a Material Adverse Effect and the expiration
dates thereof, the number of licensed beds in each Health Care Facility, the
record owners of the real property on which such Health Care Facility is
situated, a description of all mortgages, deeds of trust or assignments of rents
and leases covering such Health Care Facility of which a Borrower or any
Subsidiary is mortgagor or grantor and a description of all real property leases
covering such Health Care Facility on which a Borrower or any Subsidiary is
either lessor or lessee. Each Health Care Facility is certified as a provider of
Medicare and Medicaid services.
3.5. Material Contracts. No Borrower or any Subsidiary is a party to
or in any manner obligated under any contracts under which a default by either
party might reasonably be expected to have a Material Adverse Effect, and, to
the Knowledge of Borrowers, there exists no default under any of such contracts.
3.6. Compliance. Each Borrower, each Subsidiary and each Health Care
Facility is in compliance with all applicable laws and regulations, federal,
state and local (including without limitation those administered by the Local
Authorities and HCFA), material to the conduct of its business and operations
except to the extent that non-compliance would not reasonably be expected to
have a Material Adverse Effect; each Borrower, each Subsidiary and each Health
Care Facility possesses all required Licenses, except to the extent that failure
to possess any such License would not reasonably be expected to have a Material
Adverse Effect; and such Licenses are valid, binding, enforceable and subsisting
without any defaults thereunder or enforceable adverse limitations thereon and
are not subject to any proceedings or claims opposing the issuance, development
or use thereof or contesting the validity thereof except to the extent such
defaults, limitations or proceedings would not reasonably be expected to, in the
aggregate, have a Material Adverse Effect; and no approvals, waivers or
consents, governmental (federal, state or local) or non-governmental, under the
terms of contracts or otherwise, are required by reason of or in connection with
Borrowers' execution and performance of the Loan Documents.
3.7. Litigation. There are no actions, suits, proceedings or claims
which are pending or, to the Knowledge of Borrowers, threatened against any
Borrower or any Subsidiary which, if adversely resolved, might reasonably be
expected to have a Material Adverse Effect.
3.8. Title to Assets. Each Borrower and each Subsidiary has good and
marketable title to all of its assets free and clear of any liens and
encumbrances, except the security interests granted to the Lenders under the
Collateral Security Documents and except as permitted pursuant to Paragraph 6.4
hereof, and all such assets are in substantially good order and repair (normal
wear and tear excepted) and covered by the insurance required under Paragraph
5.8 hereof.
3.9. Corporate Organization; Capital Stock. The Subsidiaries of the
Company are completely and accurately set forth on Exhibit E attached hereto.
The number of shares and classes of the capital stock or partnership interests
of each Borrower (other than the Company) and each Subsidiary and the ownership
thereof as of the date of execution of this Agreement are
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accurately set forth on Exhibit E attached hereto; all such shares or interests
are validly existing, fully paid and non-assessable, and the issuance and sale
thereof are in compliance with all applicable federal and state securities and
other applicable laws; and the ownership thereof is free and clear of any
contractual restrictions, liens and encumbrances, except the pledge to the
Lenders under the Pledge Agreements.
3.10. Accuracy of Information; Full Disclosure.
(a) All information furnished to Lenders concerning the
financial condition of Borrowers, and the Health Care Facilities, including the
audited annual financial statements of the Company and its Consolidated
Subsidiaries dated December 31, 1997, and the unaudited financial statements
dated March 31, 1998, copies of which have been furnished to Lenders, has been
prepared in accordance with GAAP as applicable and fairly presents the financial
condition of Borrowers as of the dates and for the periods covered and discloses
all liabilities of Borrowers required to be disclosed in accordance with GAAP
and there has been no change in the financial condition, business, assets or
prospects of Borrowers from March 31, 1998 to the date hereof except changes
which would not, in the aggregate, reasonably be expected to have a Material
Adverse Effect; and
(b) All financial statements and other documents furnished by
Borrowers to Lenders in connection with the Loan Documents do not and will not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein not misleading.
Borrowers have disclosed to Lenders in writing any and all facts which might
reasonably be expected to have a Material Adverse Effect, or which could
materially affect Borrowers' ability to perform its obligations under the Loan
Documents.
3.11. Taxes and Assessments.
(a) Each Borrower and each Subsidiary has filed all required tax
returns or has filed for extensions of time for the filing thereof, and has paid
all applicable federal, state and local taxes, other than taxes not yet due or
which may be paid hereafter without penalty; provided that no such taxes shall
be required to be paid if they are being contested in good faith by appropriate
proceedings and are covered by appropriate reserves maintained in accordance
with GAAP.
(b) To the Knowledge of Borrowers there is no material tax
deficiency or additional assessment in connection therewith not provided for in
the financial statements required hereunder.
(c) The net operating losses of the Company and its consolidated
Subsidiaries have been calculated using a reasonable method and they have been
reported on all federal, state or local tax returns. Exhibit E attached hereto
sets forth the amount as of September 30, 1997 of the consolidated net operating
loss of the Company and its consolidated Subsidiaries and the date of expiration
thereof, and (ii) any limitations on the use of such losses
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in the future including the limitations imposed, if any, by the operation of
Sections 269, 382, 383, 384 and 1502 of the Code and any regulation promulgated
thereunder. The projections delivered to Lenders pursuant to Paragraph 4.1(g)
hereof have taken into account and reflect all such limitations on the use of
such losses in the periods covered by such projections.
3.12. Indebtedness. Borrowers and the Subsidiaries have no presently
outstanding Indebtedness or obligations including contingent obligations and
obligations under leases of property from others, except Indebtedness and
obligations permitted by Paragraph 6.1 hereof.
3.13. Management Agreements. No Borrower is a party to any management
agreement for the provision of services to such Borrower, except that a Borrower
provides management services to certain of the Borrowers as set forth on Exhibit
E attached hereto.
3.14. Investments. The Company has no Subsidiaries other than those
identified on Exhibit E attached hereto; and no Borrower has any investments in
or loans to any other individuals or business entities, other than Permitted
Investments, except as described in Exhibit E hereto.
3.15. ERISA. Each Plan is in compliance in all material respects
with all applicable provisions of ERISA, the Code and the regulations
promulgated thereunder; and
(a) No Borrower or any ERISA Affiliate maintains or contributes
to or has maintained or contributed to any multiemployer plan (as defined in
section 4001 of ERISA) under which any Borrower or any ERISA Affiliate could
have any withdrawal liability which might reasonably be expected to have a
Material Adverse Effect;
(b) No Borrower or any ERISA Affiliate, sponsors or maintains
any Plan under which there is an accumulated funding deficiency within the
meaning of ss.412 of the Code, whether or not waived which might reasonably be
expected to have a Material Adverse Effect;
(c) The aggregate liability for accrued benefits and all
ancillary benefits (in each case determined as of the date hereof) under each
Plan that is a defined benefit pension plan (determined on the basis of the
actuarial assumptions prescribed for valuing benefits under terminating defined
benefit plan under Title IV of ERISA) does not exceed the aggregate fair market
value of the assets (determined as of the date of the latest annual report on
Form 5500) under each such defined benefit pension Plan by an amount which might
reasonably be expected to have a Material Adverse Effect;
(d) The aggregate liability of each Borrower and each ERISA
Affiliate arising out of or relating to a failure of any Plan to comply with the
provisions of ERISA or the Code, would not reasonably be expected to have a
Material Adverse Effect; and
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(e) There does not exist any unfunded liability (determined on
the basis of actuarial assumptions utilized by the actuary for the Plan in
preparing the most recent Annual Report) of any Borrower or ERISA Affiliate
under any Plan providing post-retirement life or health benefits.
3.16. No Extension of Credit for Securities. No Borrower is now, or
at any time has it been engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying any securities. The proceeds of the Loan shall be used by Borrowers as
set forth in Paragraph 2.4 hereof and none of the proceeds of the Loan will be
used, directly or indirectly, to purchase or carry margin stock within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System.
3.17. Perfection of Security Interests. Upon the filing of financing
statements in the jurisdictions identified in Exhibit I attached hereto, and
upon delivery of possession to Agent of stock certificates representing all the
outstanding shares of capital stock pledged pursuant to the Pledge Agreements,
no further action, including any filing or recording of any document, is
necessary in order to establish, perfect and maintain the first priority
security interests in the Collateral as described in the Pledge Agreements in
favor of Agent for the benefit of the Secured Parties, except for the periodic
filing of continuation statements with respect to financing statements filed
under the Uniform Commercial Code of the applicable jurisdiction.
3.18. Hazardous Substances. To the Knowledge of Borrowers:
(a) Each Borrower and each Subsidiary has received all permits
and filed all notifications necessary to carry on its respective business(es)
under, and is in compliance in all respects with, all Environmental Control
Statutes.
(b) No Borrower nor any Subsidiary has given any written or oral
notice to the EPA or any state or local governmental agency with jurisdiction
under any Environmental Control Statute with regard to any actual or imminently
threatened "removal," "spill," "release" or "discharge" of Hazardous Substances
on properties owned or leased by any Borrower or in connection with the conduct
of its business and operations. The terms "removal," "spill," "release" and
"discharge," as used in this Paragraph 3.18, have the meanings given to them in
the Environmental Control Statutes.
(c) No Borrower nor any Subsidiary has received written or oral
notice that it is potentially responsible for clean-up, remediation, costs of
clean-up or remediation, fines or penalties with respect to any actual, alleged
or imminently threatened "spill," "release" or "discharge" of Hazardous
Substances pursuant to any Environmental Control Statute.
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3.19. Solvency. To the Knowledge of Borrowers, the Borrowers are, on
a consolidated basis, and after receipt and application of the proceeds of each
Advance under the Commitment and each Swing Line Loan will be, solvent such that
(i) the fair value of their assets on a consolidated basis (including, without
limitation, the fair salable value of goodwill and other intangible property) is
greater than the total amount of their liabilities on a consolidated basis
including without limitation, contingent liabilities, (ii) the present fair
salable value of their assets on a consolidated basis (including without
limitation the fair salable value of the goodwill and other intangible property)
is not less than the amount that will be required to pay the probable liability
on their debts on a consolidated basis as they become absolute and matured, and
(iii) they are able to realize upon their assets and pay their debts and other
liabilities, contingent obligations and other commitments as they mature in the
normal course of business. The Borrowers (i) do not intend to, and do not
believe that they will, incur debts or liabilities on a consolidated basis
beyond their ability to pay as such debts and liabilities mature, and (ii) are
not engaged in a business or transaction, or about to engage in a business or
transaction, for which their property on a consolidated basis would constitute
unreasonably small capital after giving due consideration to the prevailing
practice and industry in which they are engaged. For purposes of this Paragraph
3.19, in computing the amount of contingent liabilities at any time, it is
intended that Borrowers shall compute such liabilities at the amount which, in
light of all the facts and circumstances existing at such time, represents the
amount that reasonably can be expected to become an actual matured liability.
3.20. Employee Controversies. There are no material controversies
pending or, to the Knowledge of Borrowers, threatened or anticipated between any
Borrower or any Subsidiary and any of its respective employees, and there are no
labor disputes, grievances, arbitration proceedings or any strikes, work
stoppages or slowdowns pending, or to the Knowledge of Borrowers, threatened
between any Borrower or any Subsidiary and its respective employees and
representatives which could impair the ability of Borrowers to perform their
obligations under the Loan Documents, or which might reasonably be expected to
have a Material Adverse Effect.
3.21. Reimbursement from Third Party Payors. The accounts receivable
of the Borrowers have been and will continue to be adjusted to reflect
reimbursement policies of third party payors such as Medicare, Medicaid, Blue
Cross/Blue Shield, private insurance companies, health maintenance
organizations, preferred provider organizations, alternative delivery systems,
managed care systems and other third party payors. In particular, the accounts
receivable relating to such third party payors do not and shall not exceed
amounts the Borrowers reasonably believe they are entitled to receive under any
capitation arrangement, fee schedule, discount formula, cost-based reimbursement
or other adjustment or limitation to the usual charges of such person or entity.
3.22. Fraud and Abuse. Neither the Borrowers nor any of their
stockholders, officers or directors have engaged on behalf of the Borrowers
in any of the following:(i) knowingly and willfully making or causing to be
made a false statement or representation of a
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material fact in any applications for any benefit or payment under the Medicare
or Medicaid program; (ii) knowingly and willfully making or causing to be made
any false statement or representation of a material fact for use in determining
rights to any benefit or payment under the Medicare or Medicaid program; (iii)
failing to disclose knowledge of the occurrence of any event affecting the
initial or continued right to any benefit or payment under the Medicare or
Medicaid program on its own behalf or on behalf of another, with intent to
secure such benefit or payment fraudulently; (iv) knowingly and willfully
soliciting or receiving any remuneration (including any kickback, bribe or
rebate), directly or indirectly, overtly or covertly, in cash or in kind or
offering to pay such remuneration (a) in return for referring an individual to a
person or organization for the furnishing or arranging for the furnishing of any
item or service for which payment may be made in whole or in part by Medicare or
Medicaid, or (b) in return for purchasing, leasing or ordering or arranging for
or recommending the purchasing, leasing or ordering of any good, facility,
service, or item for which payment may be made in whole or in part by Medicare
or Medicaid.
3.23. CGC. CGC holds no assets except for certain claims and
receivables and is not engaged in any business activity; and there does not
exist, by virtue of statute, common law, contract or otherwise, any liability
of, or any activity or condition relating to, CGC, including, without
limitation, with respect to any environmental condition, taxes, employee benefit
plan, program or statutory obligation, tort claim or contract dispute, which may
survive the liquidation of CGC (whether by operation of law, express assumption
or otherwise), except for those liabilities which do not in the aggregate exceed
Ten Thousand Dollars ($10,000).
3.24. Year 2000 Compliance. Borrowers are conducting a comprehensive
review and assessment of their computer systems and applications,
micro-processor based goods and equipment owned or used by them in their
business, and all products currently sold by them, and are making inquiry of
their material suppliers, vendors and customers, with respect to functionality
before, during and after the year 2000 (the "Year 2000 Problem"). Borrowers are
preparing a plan to ensure that all such systems, goods, equipment and products
owned or used by them and material to the conduct of their business will be Year
2000 Compliant in a timely manner, and will provide a copy of such plan to the
Lenders when the plan is complete. Borrowers reasonably believe, based on the
foregoing review, assessment and inquiry that the Year 2000 Problem will not
result in a Material Adverse Effect.
SECTION 4
CONDITIONS
4.1. Effectiveness of Agreement; First Advance. The effectiveness of
this Agreement and the obligation of Lenders to make the first Advance or of
Agent to issue the initial Letter of Credit hereunder shall be subject to
receipt by Agent (with sufficient copies for Lenders) of the following
documents, in each case in form and substance satisfactory to Lenders:
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(a) Promissory Notes. The Notes duly executed by Borrowers and
delivered to Lenders.
(b) Pledge Agreements. A Second Amended and Restated Pledge
Agreement in favor of Agent on behalf of the Lenders, the Lease Financing
Lenders and the Holders granting a pledge of all of the outstanding Shares,
partnership interests or other equity interests of each Borrower other than the
Company, as security for the Loan and for the Lease Financing Facility, together
with financing statements and amendments to financing statements, stock
certificates, stock powers executed in blank, and copies of all shareholder
agreements (if any) relating thereto.
(c) Subordination Agreement. An Amended and Restated
Subordination Agreement with respect to the HCCC Subordinated Debt, including to
subordinate such debt to the Lease Financing Facility as well as the Loan.
(d) Insurance. Certificates of insurance evidencing Borrowers'
insurance as required pursuant to Paragraph 5.8 hereof.
(e) Licenses, Etc. If requested by Agent, copies of all Licenses
and contracts which are material in accordance with Paragraphs 3.4 and 3.5
hereof, respectively, including without limitation, those issued by the Local
Authorities, all of which shall be owned by a Borrower and be otherwise
reasonably satisfactory to Lenders.
(f) Opinions of Borrowers' Counsel. An opinion letter from
counsel for Borrowers covering such matters as reasonably requested by Lenders.
(g) Fees. Payment of fees required pursuant to Paragraph 2.13
hereof, and of the Agent's reasonable expenses, costs and fees in connection
with the preparation and entering into of this Agreement and the other Loan
Documents.
(h) Corporate Documents. A certificate of the secretary or
assistant secretary of each Borrower: (i) certifying that there have been no
changes to the articles or certificate of incorporation and by-laws or
comparable governing documents, as applicable, of such Borrower previously
delivered to Banks, or attaching a true and correct copy thereof; (ii) attaching
resolutions of the Board of Directors authorizing the execution and full
performance of the Loan Documents; (iii) setting forth the officers of such
Borrower and their specimen signatures;
(i) Good Standing. Certificates of good standing dated as of a
recent date as to each Borrower in its state of incorporation and in all states
in which it is qualified to do business.
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(j) Closing Compliance Certificates. A Compliance Certificate as
of the most recent fiscal quarter end for which a Compliance Certificate would
be required under the terms hereof and a pro forma compliance certificate
reflecting the effects of any acquisitions since such date.
(k) Initial Advance Request. A completed Advance Request Form
with respect to the initial Advance to be made hereunder as of the Effective
Date.
(l) Lease Financing Facility. The Initial Closing Date with
respect to the Lease Financing Facility, as defined in the Lease Financing Rules
of Usage and Definitions, shall have occurred.
(m) Other Documents. Such additional documents as Lenders
reasonably may request.
4.2. Subsequent Advances. The obligation of Agent or Lenders to make
additional Advances under the Commitment or issue Letters of Credit shall be
subject to their receipt of a completed Advance Request Form or Letter of Credit
Request Form and Letter of Credit Application, as applicable, and in the case of
an Advance for purposes of making a Permitted Acquisition, receipt of the
required information, confirmations and documents.
4.3. Additional Condition to Lenders' Obligations. It shall be a
condition to Agent's or Lenders' obligation hereunder to make any Advance or
issue any Letter of Credit that the representations and warranties set forth
herein and in the Collateral Security Documents shall be true and correct in all
material respects as if made on the date of such Advance, that no Event of
Default or Default shall have occurred and be continuing on the date of such
Advance or be caused by such Advance, that all fees required pursuant to
Paragraphs 2.12, 2.13 and 2.14 hereof have been paid, and there shall have been
no Material Adverse Effect or event or circumstance which might reasonably be
expected to cause a Material Adverse Effect.
SECTION 5
AFFIRMATIVE COVENANTS
Borrowers covenant and agree that so long as the Commitment of
Lenders to Borrowers or any indebtedness of Borrowers to Lenders is outstanding
each Borrower will and will cause each of its Subsidiaries to:
5.1. Existence and Good Standing. Preserve and maintain its existence
as a corporation and its good standing in all states in which it conducts
business and the validity of all its licenses, permits, certificates of need or
other grants of authority required in the conduct of its business.
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5.2. Interim Financial Information. Furnish Lenders within forty-five
(45) days of the end of each of the first three fiscal quarters of each fiscal
year with unaudited quarterly consolidated and consolidating financial
statements of the Company and its Consolidated Subsidiaries, in form and
substance as reasonably required by Lenders, including a balance sheet, a
consolidated statement of income and a statement of cash flows, and a
certificate signed by the chief financial or chief executive officer of
Borrowers stating that the financial statements fairly present the financial
condition of the Company and its Consolidated Subsidiaries as of the date and
for the periods covered and were prepared in accordance with GAAP consistently
applied.
5.3. Annual Financial Statements. Furnish to Lenders within ninety
(90) days after the close of each fiscal year audited consolidated and
consolidating annual financial statements of the Company and its Consolidated
Subsidiaries, including the financial statements and information required under
Paragraph 5.2 hereof, which consolidated financial statements shall be prepared
in accordance with GAAP and shall be certified without qualification by Coopers
& Lybrand L.L.P. or another independent certified public accounting firm
satisfactory to Required Lenders, and cause Lenders to be furnished, within
ninety (90) days after the close of each fiscal year, with a report prepared in
accordance with Statement on Auditing Standards No. 62 "Special Reports," or
superseding pronouncements, issued by the Auditing Standards Board of the
American Institute of Certified Public Accountants, providing that nothing has
come to the attention of such accountants which would lead them to believe that
there is a Default or Event of Default under this Agreement.
5.4. Quarterly Compliance Certification. Furnish to Lenders at the
time of delivery of the quarterly and annual financial statements pursuant to
Paragraphs 5.2 and 5.3 hereof a certificate of the chief financial officer of
the Company in the form of Exhibit F attached hereto showing the calculation of
the covenants set forth in Paragraphs 5.15 through 5.18 hereof and calculation
of the Applicable Margin as of the date of such financial statements, together
with (a) a schedule of operating leases, indicating the imputed outstanding
principal balance thereunder as of the end of the fiscal period to which such
Compliance Certificate relates, and (b) pro forma historical combined financial
statements including any Permitted Acquisitions, as applicable.
5.5. Receivables Aging Report. Furnish to Lenders no later than
forty-five (45) days after the end of each fiscal quarter an accounts receivable
aging report as of the last day of such quarter.
5.6. Additional Information. Deliver to Lenders, (i) promptly upon
transmission thereof, copies of all such financial statements, proxy statements,
notices and reports as it shall send to its stockholders, copies of all
registration statements (without exhibits), and all annual, quarterly or other
reports which it files with the Securities and Exchange Commission (or any
governmental body or agency succeeding to the functions of the Securities and
Exchange Commission) including, without limitation, Form 10-Q and Form 10-K; and
(ii) within ten (10) Business Days of receipt copies of all auditors' annual
management letters delivered to any Borrower.
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5.7. Books and Records. Keep and maintain satisfactory and adequate
books and records of account in accordance with GAAP and make or cause the same
to be made available to Lenders, or their respective agents, during normal
business hours at any reasonable time upon reasonable notice for inspection and
to make extracts thereof and permit any Lender to discuss the contents of same
with senior officers of Borrowers and also with outside auditors and accountants
of Borrowers. With the consent of Borrowers, which consent will not be
unreasonably withheld, any Lender may also meet with other officers and
employees of Borrowers.
5.8. Maintenance of Assets; Insurance. Keep and maintain all of its
property and assets in good order and repair, normal wear and tear excepted, and
adequately covered by insurance with reputable and financially sound insurance
companies against such hazards and in such amounts and with such deductibles and
retentions as are customary in the industry, under policies requiring the
insurer to furnish reasonable notice to Agent and opportunity to cure any
non-payment of premiums prior to termination of coverage; and, upon request of
Agent no more than twice a year, furnish Agent with certificates of such
insurance and cause Agent, as agent for Lenders, to be named as additional
insured.
5.9. Notifications.
(a) Promptly notify Agent in writing of (i) the institution of
any litigation, the commencement of any administrative proceedings, the
happening of any event or the assertion or threat of any claim which, if
resolved in favor of a party adverse to a Borrower, might reasonably be expected
to have a Material Adverse Effect, or would result in the occurrence of any
Event of Default or Default hereunder; (ii) the occurrence of a Default or an
Event of Default; and (iii) the opening of any new place of business, the
entering into of any new contract for the operation or management of any
additional Health Care Facility, or the relocation of any Collateral to a
location at which Lenders do not have a perfected security interest; and
(b) With respect to all matters previously disclosed to Lenders
pursuant to Paragraphs 3.18 or 5.13 hereof, no later than forty-five (45) days
after the last day of each fiscal quarter, deliver to Agent a report describing
any material information or change in circumstances regarding actual or alleged
liability of Borrowers and the quantification thereof.
5.10. Taxes. Pay and discharge all taxes, assessments or other
governmental charges or levies imposed on it or any of its property or assets
prior to the date on which any penalty for non-payment or late payment is
incurred, unless the same are (i) currently being contested in good faith by
appropriate proceedings and (ii) are covered by appropriate reserves maintained
in accordance with GAAP.
5.11. Costs and Expenses. Pay or reimburse Agent for all reasonable
out-of-pocket costs and expenses (including but not limited to reasonable
attorneys' fees and disbursements and costs of Agent's periodic audits) Agent
may pay or incur in connection with the preparation, review, execution, filing
and recording of this Agreement and the other Loan
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Documents and all waivers, consents and amendments in connection therewith and
all other documentation related thereto, the making of the Loan hereunder, and
the collection and enforcement of the Loan, including without limitation, any
reasonable fees and disbursements incurred in defense of or to retain amounts of
principal, interest or fees paid; and pay or reimburse each Lender for all
reasonable out-of-pocket costs and expenses (including, but not limited to,
reasonable attorneys' fees and expenses) in connection with the collection or
enforcement of the Loan following a Default or an Event of Default or maturity,
including without limitation any reasonable fees and disbursements incurred in
defense of or to retain amounts of principal, interest or fees paid. All
obligations provided for in this Paragraph 5.11 shall survive any termination of
this Agreement or the Commitment and the repayment of the Loan.
5.12. Additional Collateral Documentation, etc. In connection with
(1) any Permitted Acquisition, whether or not financed with an Advance
hereunder, at the time of consummation of the Permitted Acquisition or (2) the
creation of any Subsidiary, deliver to Agent, for the benefit of Lenders: (i)
joinders to this Agreement and the Notes by any new Subsidiary formed or
acquired in connection therewith; (ii) a pledge of all Shares of stock,
partnership interests or other equity interests of any such new Borrower to
Agent on behalf of Lenders; (iii) certificates, opinions of counsel, and other
documents and information, as reasonably required by Lenders; and (iv) if such
Permitted Acquisition is made without using the proceeds of an Advance
hereunder, the items and information required to be delivered pursuant to
subparagraph 2.7(a) hereof in connection with Advances for purposes of making a
Permitted Acquisition.
5.13. Compliance.
(a) Comply in all respects with all local, state and federal
laws and regulations applicable to its business, including without limitation
the Environmental Control Statutes, and all laws and regulations of HCFA and the
Local Authorities, and the provisions and requirements of all Licenses and other
like grants of authority held by Borrowers, except where the failure to so
comply could not reasonably be expected to have a Material Adverse Effect; and
notify Agent immediately in detail of any actual or alleged failure to comply
with or perform, breach, violation or default under any such laws or regulations
or under the terms of any of such Licenses, or grants of authority, or of the
occurrence or existence of any facts or circumstances which with the passage of
time, the giving of notice or otherwise could create such a breach, violation or
default or could occasion the termination of any of such License, or grant of
authority, except where the failure to comply with or perform, breach, violation
or default could not reasonably be expected to have a Material Adverse Effect.
(b) With respect to the Environmental Control Statutes, notify
the Agent when any Person (including, without limitation, EPA or any state or
local agency) provides oral or written notification to any Borrower with regard
to an actual or imminently threatened "removal," "spill," or "release" (as
defined in the Environmental Control Statutes) of any Hazardous Substance if the
obligation or liability with respect thereto is reasonably foreseeable
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to exceed at any time or from time to time One Hundred Thousand Dollars
($100,000); and notify the Agent in detail promptly upon the receipt by any
Borrower of an assertion of liability under the Environmental Control Statutes,
of any actual or alleged failure to comply with or perform, breach, violation or
default under any such statute or regulation or of the occurrence or existence
of any facts, events or circumstances which with the passage of time, the giving
of notice, or both, could create such a breach, violation or default if the
obligation or liability with respect thereto is reasonably foreseeable to exceed
at any time or from time to time One Hundred Thousand Dollars ($100,000).
5.14. ERISA.
(a) Comply in all material respects with the provisions of ERISA
and the Code to the extent applicable to any Plan; not incur any accumulated
funding deficiency (within the meaning of ERISA and the regulations promulgated
thereunder), or any liability to the PBGC (as established by ERISA) in excess of
Two Hundred Fifty Thousand Dollars ($250,000); and not take any action (or omit
to take any action) which may result in the institution of termination
proceedings by the PBGC under Section 4042 of ERISA or may result in the
imposition of a lien on its properties or assets; and
(b) Notify Agent in writing promptly after it has come to the
Knowledge of Borrowers that any event has occurred or will occur with respect to
a defined benefit pension plan which must be reported to the PBGC or which is
described in Section 4042(a) of ERISA (relating to the soundness of a Plan) or
which would result in the PBGC's ability to assert a material liability against
it or impose a lien in an amount in excess of One Hundred Thousand Dollars
($100,000) on any Borrower's properties or assets.
5.15. Funded Debt to Capital Ratio. Maintain as of the last day of
each fiscal quarter a ratio of Funded Debt to Capital of not more than 0.60 to
1.
5.16. Adjusted Total Debt to Adjusted EBITDAR. Maintain as of the
last day of each fiscal quarter set forth in the left hand column below a ratio
of Adjusted Total Debt to Adjusted EBITDAR for the Company and its Consolidated
Subsidiaries of not more than the applicable ratio set forth in the right hand
column below:
Fiscal Quarter Ended: Required Ratio:
March 31, 1998 5.50:1
June 30, 1998 and September 30, 1998 5.00:1
December 31, 1998 and thereafter 4.50:1
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5.17. Fixed Charge Coverage Ratio. Maintain as of the last day of
each fiscal quarter set forth in the left-hand column below a Consolidated Fixed
Charge Coverage Ratio of not less than the applicable ratio set forth in the
right-hand column below:
Fiscal Quarter Ended: Required Ratio:
March 31, 1998 1.25:1
June 30, 1998 through December 31, 1999 1.35:1
March 31, 2000 and thereafter 1.50:1
5.18. Management Changes. Notify Agent in writing promptly of
any change of Borrowers' executive officers.
5.19. Successor Agent. In the event of the appointment of any
successor Agent pursuant to Paragraph 9.16 hereof, execute and deliver any
documents reasonably requested by Lenders to effectuate and confirm the transfer
to such successor Agent of all rights, powers, duties, obligations and property
vested in its predecessor Agent hereunder.
5.20. Transactions Among Affiliates. Cause all transactions between
and among Affiliates to be on an arms-length basis in the ordinary course and on
such terms and conditions as are customary in the applicable industry between
and among unrelated entities.
5.21. Inspections. Permit Lenders from time to time to conduct
inspections of the Health Care Facilities during normal business hours at
reasonable times and without undue disruption of operations at any such Health
Care Facility.
5.22. Interest Rate Hedging. Maintain interest rate protection
agreements in a form acceptable to Agent and from one or more of the Lenders or
an institution acceptable to Agent, with respect to at least thirty percent
(30%) of the aggregate balance of the Loan and Advances under the Lease
Financing Facility, combined, and for a period of at least eighteen months after
the date of this Agreement; provided, however, that (a) the protected rate shall
be no greater than 1.50% above the all-in rate on the date hereof; (b) Borrower
hereby grants a security interest in the Collateral to the Agent for the benefit
of such Lenders as security for Borrower's obligations with respect to any such
interest rate protection agreements, which security interest shall be pari passu
with the security interests of Agent for the benefit of such Lenders for
Borrower's obligations under the Loan Documents; and (c) all documentation for
such interest rate protection shall conform to ISDA standards and must be
acceptable to Agent with respect to intercreditor issues.
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5.23. Year 2000 Compliance. Borrowers shall take all action necessary
to assure that Borrowers' computer systems and applications, micro-processor
based goods and equipment owned or used by them in their business, and all
products currently sold by them will be Year 2000 Compliant in a timely manner;
and use reasonable best efforts to assure the Year 2000 Compliance of their
material vendors and suppliers or to assure that failures to be Year 2000
Compliant by such vendors and suppliers will not have a Material Adverse Effect.
Borrowers shall provide to Lenders any material updates or revisions to its plan
for Year 2000 Compliance delivered pursuant to Paragraph 3.22 and, at the
request of Agent, Borrower shall provide Agent assurances acceptable to Agent
regarding the Year 2000 Compliance and/or contingency plans related thereto, of
Borrowers and their material vendors and suppliers.
5.24. Other Information. Provide Lenders with any other documents and
information, financial or otherwise, reasonably requested by Lenders from time
to time.
SECTION 6
NEGATIVE COVENANTS
So long as the Commitment or any Indebtedness of Borrowers to Lenders
remains outstanding hereunder, each Borrower covenants and agrees that it will
not and will not permit any Subsidiary to:
6.1. Indebtedness. Borrow any monies or create or permit to exist any
Indebtedness except: (i) Indebtedness pursuant to the Lease Financing Facility
and from Lenders hereunder; (ii) trade indebtedness in the normal and ordinary
course of business for value received; (iii) Indebtedness incurred to purchase
or lease fixed or capital assets (other than acquisitions pursuant to Paragraph
6.8 hereof), provided, however, that the aggregate principal amount of such
Indebtedness shall not exceed Three Million Five Hundred Thousand Dollars
($3,500,000); (iv) intercompany loans among the Borrowers or from Borrowers to
OGRLP, provided, that the aggregate amount of all advances to OGRLP shall not at
any time that OGRLP is not a Borrower exceed Two Hundred Thousand Dollars
($200,000); (v) Indebtedness outstanding on the date hereof, as described on
Exhibit E attached hereto, as reduced by payments required thereunder; (vi)
leases permitted pursuant to Paragraph 6.9 hereof; and (vii) additional
Indebtedness which, together with the amount of any guaranties permitted
pursuant to Paragraph 6.2(iii) hereof, shall not exceed Five Hundred Thousand
Dollars ($500,000) at any time outstanding.
6.2. Guaranties. Guarantee or assume or be or agree to become liable
in any way, either directly or indirectly, for any additional indebtedness or
liability of others except: (i) endorsement of checks or drafts in the ordinary
course of business; (ii) guarantees in existence on the date hereof as described
on Exhibit E attached hereto, but without increase in the principal amount
thereof; (iii) guaranties the liability under which, together with the amount of
Indebtedness permitted pursuant to Paragraph 6.1(vii) hereof, shall not exceed
Five Hundred
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Thousand Dollars ($500,000) at any time outstanding, and (iv) guaranties by
Borrowers of the obligation of the Lessor to the Lease Financing Lenders
pursuant to the Lease Financing Facility.
6.3. Loans. Make or permit to exist any loans or advances to others
other than: (i) intercompany loans among the Borrowers or to OGRLP, provided
that the aggregate amount of all such advances to OGRLP shall not at any time
that OGRLP is not a Borrower exceed Two Hundred Thousand Dollars ($200,000),
(ii) loans by the Company to certain officers and employees of the Company in an
aggregate principal amount not to exceed Two Hundred Fifty Thousand Dollars
($250,000) outstanding at any time, (iii) the NCHC Loan and the NC Health Care
Loan outstanding on the date hereof, as reduced by payments thereunder, (iv)
advances to third parties that own or operate facilities or operations within a
Permitted Line of Business, in connection with the entering into of a Long-Term
Management Contract with respect to such facility or operation, provided that
the aggregate principal amount of all such advances made after March 31, 1998
shall not exceed Three Million Dollars ($3,000,000), and (v) loan to Randall
Bufford with a principal balance as of the date hereof of $550,000, as reduced
by payments thereunder, (vi) Permitted Investments.
6.4. Liens and Encumbrances. Create, permit or suffer the creation or
existence of any liens, security interests, or any other encumbrances on any of
its property, real or personal, except (i) liens in favor of Lenders, the Lease
Financing Lenders and the Holders, as security for the Loan and the Lease
Financing Facility; (ii) liens in favor of the Lessor pursuant to the Lease
Financing Facility; (iii) liens arising in favor of sellers or lessors for
indebtedness and obligations permitted under Paragraph 6.1(iii) hereof incurred
to purchase or lease fixed or capital assets; provided, however, that such liens
secure only the indebtedness and obligations created thereunder and are limited
to the assets purchased or leased pursuant thereto; (iv) liens for taxes,
assessments or other governmental charges, federal, state or local, which are
then being currently contested in good faith by appropriate proceedings and are
covered by appropriate reserves maintained in accordance with GAAP; (v) pledges
or deposits to secure obligations under workmen's compensation, unemployment
insurance or social security laws or similar legislation; (vi) deposits to
secure performance or payment bonds, bids, tenders, contracts, leases,
franchises or public and statutory obligations required in the ordinary course
of business; (vii) deposits to secure surety, appeal or custom bonds required in
the ordinary course of business; (viii) liens in effect as of the date hereof as
described on Exhibit E; and (ix) liens for taxes which are not yet due and
payable. The foregoing negative pledge shall not apply to any "margin stock" (as
defined in Regulations T, U or X of the Board of Governors of the Federal
Reserve System) to the extent that the application of such negative pledge to
such margin stock would require filings or other action by any Lender under such
regulation(s) or otherwise result in a violation of such regulation(s).
6.5. Additional Negative Pledge. Enter into an agreement with or
covenant or promise to any Person other than Lenders that in any manner
restricts its ability to pledge its assets or properties or otherwise grant
liens, security interests or encumbrances on its property.
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6.6. Restricted Payments. Make any Restricted Payments; provided,
however, that in the absence of an Event of Default hereunder, and if such
payment would not cause an Event of Default hereunder, Borrowers may make
current payments of principal and interest on the HCCC Subordinated Debt if
required to be made under the terms of the HCCC Subordinated Debt as the same
come due in accordance with the terms thereof as in effect on the date hereof.
6.7. Transfer of Assets; Liquidation.
(a) Sell, lease, transfer or otherwise dispose of any assets;
provided, however, Borrowers may (i) dispose of assets in the ordinary course of
business provided that the disposition does not constitute a Sale of Material
Assets, (ii) convert Permitted Investments into cash and cash into Permitted
Investments, (iii) transfer assets to the Lessor pursuant to the Lease Financing
Facility and (iv) transfer assets to and merge with or into another Borrower.
Borrowers may request from time to time the right to consummate a sale or other
disposition of assets and Lenders shall have the absolute discretion to withhold
consent to any proposed disposition of assets.
(b) Discontinue, liquidate, or change in any material respect
any substantial part of its operations or business, except if one or more other
Borrowers are the successor to substantially all such operations or business.
6.8. Acquisitions and Investments.
(a) Purchase or otherwise acquire (including without limitation
by way of share exchange) any part or amount of the capital stock or assets of,
or make any investments in, any other firm or corporation, or enter into any
joint venture or partnership except: (i) Borrowers may own the Subsidiaries
owned by them on the date hereof as set forth on Exhibit E attached hereto and
Borrowers may be general partners in partnerships in which they are general
partners as of the date hereof as set forth on Exhibit E; (ii) Borrowers may
form additional wholly-owned Subsidiaries, provided they comply with paragraph
5.12 hereof in connection therewith; (iii) Borrowers may make Permitted
Investments, subject to the conditions and limitations set forth in the
definition thereof; (iv) Borrowers may invest in joint ventures engaged in a
Permitted Line of Business operating solely in the United States of America with
less than 100% ownership, provided that the aggregate fair market amount
contributed to such joint ventures (including without limitation guaranties
issued on behalf of or loans or advances to such joint ventures) shall not
exceed at any time the sum of Three Million Dollars ($3,000,000) for any single
joint venture or Six Million Dollars ($6,000,000) in the aggregate for all such
joint ventures; (v) Borrowers may acquire all outstanding partnership interests
in OGRLP, provided Borrowers shall comply with the requirements of Paragraph
5.12 in connection therewith; and (vi) in the absence of an Event of Default or
a Default, and if such contemplated action would not cause an Event of Default
or a Default, Borrowers may make Permitted Acquisitions, subject to the
conditions and limitations set forth in the definition thereof, provided,
however, that (A) no Permitted Acquisition may be made pursuant to this clause
(v) without the prior written consent of Required Lenders if the Acquisition
Price in such acquisition, together with the Acquisition
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Price in connection with all other Permitted Acquisitions consummated without
the consent of Required Lenders within the prior twelve months is in excess of
Thirty-Five Million Dollars ($35,000,000) (it being understood and agreed that
the acquisition by Borrowers of Health Care Facilities which were leased by
Borrowers immediately prior to the date hereof and which at any time are made
subject to the Lease Financing Facility shall not be included for purposes of
this limitation), (B) each Permitted Acquisition of a Nursing Home shall be
effected pursuant to the Lease Financing Facility or shall be by the acquisition
of ownership thereof, free and clear of any liens, claims or encumbrances except
as permitted pursuant to Paragraph 6.4 hereof, (C) any Subsidiary formed or
acquired in connection with such Permitted Acquisition shall be wholly-owned by
one or more Borrower; (D) no Permitted Acquisition may be consummated unless
Borrowers shall have complied with Paragraph 5.12 hereof, and (E) without regard
to whether such Permitted Acquisition is being funded by an Advance hereunder,
Borrowers shall provide to Lenders no later than fifteen (15) Business Days
prior to a Permitted Acquisition, a notice of Permitted Acquisition in the form
of Exhibit H attached hereto together with:
(I) a narrative description of the proposed acquisition
which describes the terms of the proposed acquisition and demonstrates it to be
a Permitted Acquisition, and describes the business to be acquired, the legal
structure for the acquisition, the acquisition price to be paid, and other
material features of the proposed acquisition;
(II) copies of financial statements of the business to be
acquired for the three most-recently ended fiscal years of such business and for
the most recently-ended interim fiscal period of such business for which
financial statements are available;
(III) a proposed amendment or supplement to Exhibit E hereto,
to include the information required to be disclosed pursuant to the
representations and warranties set forth in Section Three thereof, as applied to
such business, which amendment or supplement shall be subject to approval of
Required Lenders as provided herein;
(IV) pro forma combined financial statements of the business
to be acquired and the Company and its Consolidated Subsidiaries giving effect
to the proposed acquisition on an historical basis for the most recent period
for which a Compliance Certificate has been delivered and on a projected basis
for the remaining life of the Loan, including calculations demonstrating pro
forma covenant compliance for the most recent period for which a Compliance
Certificate has been delivered and prospective covenant compliance for the
remaining life of the Loan; and
(V) a report with respect to the Permitted Acquisitions and
all other Permitted Acquisitions completed within the prior twelve months in the
form of Exhibit J attached hereto.
In addition, Borrowers shall deliver in connection with any Permitted
Acquisition, prior to consummation thereof, such additional information
regarding the acquisition as Required Lenders may reasonably request.
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With respect to any Permitted Acquisition requiring approval of
Required Lenders hereunder, Borrowers shall request such approval by delivering
such request in writing to Lenders together with the Notice of Acquisition and
information required by clause (a)(vi)(E) above. Not later than fifteen (15)
Business Days after receipt of a completed Notice of Acquisition, including all
of the information specified above, each Lender shall either indicate to Agent
and Borrowers that its approval will not be given (with a failure to respond on
a timely basis being deemed to be the equivalent of approval not being given),
or shall execute and return to Agent and Borrowers the Notice of Acquisition,
indicating such Lender's approval as to (x) the amendment or supplement to
Exhibit E hereto as required pursuant to clause (a)(vi)(E)(III) above; (y) the
pro forma financial information, as required pursuant to the definitions of
Adjusted EBITDAR; and (z) if applicable, the Permitted Acquisition, as required
pursuant to this Paragraph 6.8.
(b) Enter into any new business activities or ventures not
within the Permitted Lines of Business; or merge or consolidate with or into any
other Person (other than (i) any merger or consolidation among Borrowers; (ii)
any joint venture permitted pursuant to Paragraph 6.8 (a)(iv); and (iii) any
other merger having as its effect a Permitted Acquisition, subject to the
provision of subparagraph (a) above); or, except in connection with an
acquisition permitted by subparagraph (a) above or the creation of a Subsidiary
in which the requirements of Paragraph 5.12 have been met, create any
Subsidiary, become a general partner in any partnership, or acquire in excess of
fifty percent (50%) of the outstanding partnership interests of any partnership.
6.9. New Leases. Enter into or assume, or otherwise become obligated
under or permit to exist, any operating lease of a Health Care Facility, except
for (i) leases pursuant to the Lease Financing Facility and (ii) additional
leases requiring payments in any fiscal year in the aggregate together with all
other operating leases of Health Care Facilities (other than those under the
Lease Financing Facility) not in excess of Twenty Four Million Dollars
($24,000,000).
6.10. Capital Expenditures. Make Capital Expenditures in excess of
Ten Million Dollars ($10,000,000) in any fiscal year.
6.11. Use of Proceeds. Use any of the proceeds of the Loan, directly
or indirectly, to purchase or carry margin securities within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System; or engage
as its principal business in the extension of credit for purchasing or carrying
such securities.
SECTION 7
COLLATERAL AND RIGHT OF SET-OFF
As additional collateral for the payment of any and all of Borrowers'
indebtedness and obligations to Lenders, whether matured or unmatured, now
existing or hereafter incurred or created hereunder or otherwise, each Borrower
hereby grants to Lenders a security interest in and
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lien upon all funds, balances or other property of any kind of such Borrower, or
in which such Borrower has an interest, limited to the interest of Borrowers
therein, whether now or hereafter in the possession, custody or control of any
Lender.
Each Lender (and any Lender's bank Affiliate) is hereby authorized
from time to time, to the fullest extent permitted by law, to set-off and apply
any and all deposits (general or special, time or demand, provisional or final)
at any time held and other indebtedness at any time owing by such Lender (or
such Lender's bank Affiliate) to or for the credit or the account of any
Borrower against any and all of the obligations of Borrowers now or hereafter
existing under any of the Loan Documents, irrespective of whether such Lender
shall have made any demand thereunder. Each Lender agrees promptly to notify
Borrowers after any such set-off and application made by such Lender (or such
Lender's bank Affiliate); provided, however, that the failure to give such
notice shall not affect the validity of such set-off and application. The rights
of each Lender under this Section Seven are in addition to other rights and
remedies (including, without limitation, other rights of set-off) which such
Lender (or such Lender's bank Affiliate) may have.
SECTION 8
DEFAULT
8.1. Events of Default. Each of the following events shall be an
Event of Default hereunder:
(a) If Borrowers shall fail to pay (i) any installment of
principal when due; or (ii) any payment of interest or any other sum payable to
Lenders hereunder or otherwise within three (3) days of when due;
(b) If any representation or warranty made herein or in
connection herewith or in any statement, certificate or other document furnished
hereunder shall be false or misleading in any material respect when made;
(c) If Borrowers shall default in the payment or performance of
any terms of (i) the Lease Financing Facility, (ii) any lease of a Health Care
Facility or Indebtedness secured by real property, whether now or hereafter
entered into, or (iii) any other obligation or indebtedness to another of Five
Hundred Thousand Dollars ($500,000) or more, whether now or hereafter incurred;
(d) If any Borrower shall default in or fail to observe at any
time the covenants set forth in Section 6 hereof or Paragraph 5.9(a)(ii), or
default in or fail to observe at any test date the covenants set forth in
Paragraphs 5.15 through 5.17 hereof;
(e) If any Borrower shall default in the performance of any
other agreement or covenant contained herein (other than as provided in
subparagraphs (a), (b) or (d)
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above) or in any document executed or delivered in connection herewith,
including without limitation any Collateral Security Document and such default
shall continue uncured for twenty (20) days after notice thereof to any Borrower
given by Agent pursuant to the direction of Required Lenders;
(f) If the Company shall cease to own directly or indirectly one
hundred percent (100%) of each other Borrower;
(g) If (i) any person or group within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "1934 Act") and
the rules and regulations promulgated thereunder (other than (x) J. Stephen
Eaton and members of his immediate family or trust for the benefit of such
family members, (y) South Atlantic Venture Fund II, Limited Partnership and
South Atlantic Venture Fund III, Limited Partnership, and (z) Welsh, Carson,
Anderson & Stowe VI, L.P., WCAS Capital Partners II, L.P., WCAS Health Care
Partners, L.P. and CID Equity Capital III, L.P.) shall have beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act), directly or indirectly, of
securities of the Company (or other securities convertible into such securities
within the time specified in Rule 13d-3 of the 1934 Act) representing ten
percent (10%) or more of the combined voting power of all securities of the
Company entitled to vote in the election of directors (hereinafter called a
"Controlling Person"); or (ii) a majority of the board of directors of the
Company shall cease for any reason to consist of (A) individuals who on the date
hereof were serving as directors of Borrowers and (B) individuals who
subsequently become members of the Board if such individuals' nominations for
election or elections to the Board are recommended or approved by a majority of
the Board of Directors of the Company. For purposes of clause (i) above, a
person or group shall not be a Controlling Person if such person or group holds
voting power in good faith, and not for the purpose of circumventing this
Paragraph 8.1(h) as an agent, bank, broker, nominee, trustee, or holder of
revocable proxies given in response to a solicitation pursuant to the 1934 Act,
for one or more beneficial owners who do not individually, or, if they are a
group acting in concert, as a group, have the voting power specified in clause
(i) above;
(h) If J. Stephen Eaton shall cease to be Chief Executive
Officer of the Company, provided that if such cessation of service is as a
result of death or permanent disability then there shall be no Event of Default
under this Paragraph 8.1(i) if a replacement is named within thirty (30) days of
such death or permanent disability and Required Lenders have not given written
notice to the Company of their objection to such replacement within fifteen (15)
days after such naming;
(i) If custody or control of any substantial part of the
property of any Borrower shall be assumed by any governmental agency or any
court of competent jurisdiction at the instance of any governmental agency; if
any License to operate a Health Care Facility or any other material License
shall be suspended, revoked, not renewed at expiration or otherwise terminated
(other than suspensions of Licenses that do not and are not reasonably expected
to prevent the legal operation of the affected Health Care Facility, affect the
ability of the Borrowers to receive reimbursement with respect to such
operations, or otherwise have a Material Adverse
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Effect); or if any governmental regulatory authority or judicial body shall make
any other final non-appealable determination which, in any of the foregoing
instances, might reasonably be expected to have a Material Adverse Effect;
(j) If any Borrower becomes insolvent, bankrupt or generally
fails to pay its debts as such debts become due; or is adjudicated insolvent or
bankrupt; or admits in writing its inability to pay its debts; or shall suffer a
custodian, receiver or trustee for it or substantially all of its property to be
appointed and if appointed without its consent, not be discharged within thirty
(30) days; or makes an assignment for the benefit of creditors; or suffers
proceedings under any law related to bankruptcy, insolvency, liquidation or the
reorganization, readjustment or the relief of debtors to be instituted against
it and if contested by it not dismissed or stayed within thirty (30) days; or if
proceedings under any law related to bankruptcy, insolvency, liquidation, or the
reorganization, readjustment or the relief of debtors is instituted or commenced
by any Borrower; or if any order for relief is entered relating to any of the
foregoing proceedings; or if any Borrower shall call a meeting of its creditors
with a view to arranging a composition or adjustment of its debts; or if any
Borrower shall by any act or failure to act indicate its consent to, approval of
or acquiescence in any of the foregoing;
(k) If judgment, writ, warrant or attachment or execution or
similar process which calls for payment or presents liability in excess of Five
Hundred Thousand Dollars ($500,000) shall be rendered, issued or levied against
any Borrower or its respective property and such process shall not be paid,
waived, stayed, vacated, discharged, settled, satisfied or fully bonded within
sixty (60) days after its issuance or levy.
(l) If any event or condition shall occur or exist with respect
to any activity or substance regulated under the Environmental Control Statutes
and as a result of such event or condition, Borrowers have incurred or in the
opinion of Lenders are reasonably likely to incur a liability or liabilities in
excess of Five Hundred Thousand Dollars ($500,000) during any consecutive twelve
(12) month period.
8.2. Remedies. Upon the happening of any Event of Default and at any
time thereafter, at the election of Required Lenders, and by notice by Agent to
Borrowers (except if an Event of Default described in Paragraph 8.1(j) shall
occur in which case acceleration shall occur automatically without notice),
Required Lenders may declare the entire unpaid balance, principal, interest and
fees, of all Indebtedness of Borrowers to Lenders, hereunder or otherwise, to be
immediately due and payable. Upon such declaration, the Commitment shall
immediately and automatically terminate and Lenders shall have no further
obligation to make any Advance and they shall have the immediate right to
enforce or realize on any Collateral in a commercially reasonable manner in any
manner or order they deem expedient without regard to any equitable principles
of marshaling or otherwise. Whether such a declaration has been made by Required
Lenders that the Indebtedness is due and payable following an Event of Default,
Required Lenders may terminate the Commitment at any time following an Event of
Default by notice thereof by Agent to Borrowers. In addition to any rights
granted hereunder or in any documents delivered in connection herewith,
including without limitation, the Collateral Security
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Documents, Lenders shall have all the rights and remedies granted by any
applicable law, all of which shall be cumulative in nature.
SECTION 9
THE LENDERS
This Section sets forth the relative rights and duties of Agent and
Lenders respecting the Loan and, with the exception of Paragraphs 9.3 and 9.15
hereof, does not confer any enforceable rights on Borrowers against Lenders or
create on the part of Lenders any duties or obligations to Borrowers.
9.1. Application of Payments. Agent shall apply all payments of
principal, interest, commitment fee or other amounts hereunder made to Agent by
or on behalf of Borrowers, to Lenders on the basis of their Pro Rata Shares of
the outstanding principal balance of the Loan, except for (a) interest and fees
outstanding under the Existing Credit Agreement and required to be paid to
Existing Lenders on the Effective Date, (b) the fees payable under Paragraph
2.14 hereof, which shall be paid solely to Agent, and (c) fees payable pursuant
to Paragraph 2A.4(iv) hereof, and payments with respect to any Swing Line Loan,
which shall be paid solely to Agent. Such distribution of payments shall be made
promptly in federal funds immediately available at the office of each Lender set
forth above.
9.2. Set-Off. In the event a Lender, by exercise of its right of
set-off, or otherwise, receives any payment of Indebtedness owing to it,
hereunder or otherwise, in an amount greater than its Pro Rata Share of such
payment based upon the Lenders' respective shares of principal Indebtedness
outstanding hereunder immediately before such payment, such Lender shall
purchase a portion of the Indebtedness hereunder owing to each other Lender so
that after such purchase each Lender shall hold its Pro Rata Share of all the
Indebtedness then outstanding hereunder, provided that if all or any portion of
such excess payment is thereafter recovered from such Lender, such purchase
shall be rescinded and the purchase price restored to the extent of any such
recovery, with each Lender paying its Pro Rata Share of any interest which the
Lender from which such recovery is obtained is required to pay.
9.3. Modifications and Waivers. No modification or amendment hereof,
consent hereunder or waiver of any Event of Default shall be effective except by
written consent of the Required Lenders; provided, however, that the written
consent of all Lenders shall be required to (i) modify, amend, waive, discharge,
terminate or suspend compliance with (A) any rate of interest applicable to the
Loan to the extent it is proposed to be decreased, (B) the amount of the
Commitment, to the extent it is proposed to be increased, and the Lenders'
respective shares thereof; (C) the dates or amounts of payment of the Loan or
the circumstances requiring payment under Paragraph 2.9(b) hereof, (D) the
commitment fee set forth in Paragraph 2.12 hereof or other amounts payable by
Borrowers hereunder or dates on which they are paid except if payable solely to
the Agent, to the extent any such amount is proposed to be postponed or
decreased, (E) the definition of Required Lenders, or (F) this Paragraph 9.3; or
(ii) the release of any
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Borrower having net equity value in excess of $500,000 or the release of any
Collateral valued in excess of $500,000 in the aggregate in any calendar year
other than in the ordinary course of business.
9.4. Obligations Several. The obligations of the Lenders hereunder
are several, and each Lender hereunder shall not be responsible for the
obligations of the other Lenders hereunder, nor will the failure of one Lender
to perform any of its obligations hereunder relieve the other Lenders from the
performance of their respective obligations hereunder.
9.5. Lenders' Representations. Each Lender represents and warrants to
the other Lenders that (i) it has been furnished all information it has
requested for the purpose of evaluating its proposed participation under this
Agreement; and (ii) it has decided to enter into this Agreement on the basis of
its independent review and credit analysis of Borrowers, this Agreement and the
documentation in connection therewith and has not relied for such analysis on
any information or analysis provided by any other Lender.
9.6. Investigation. No Lender shall have any obligation to the others
to investigate the condition of Borrowers or any of the Collateral or any other
matter concerning the Loan.
9.7. Powers of Agent. Agent shall have and may exercise those powers
specifically delegated to Agent herein, together with such powers as are
reasonably incidental thereto.
9.8. General Duties of Agent, Immunity and Indemnity. Upon receipt of
notices and reports delivered by Borrowers to the Agent under this Agreement,
the Agent shall promptly deliver the same in the form received to the Lenders.
In performing its duties as Agent hereunder, Agent will take the same care as it
takes in connection with loans in which it alone is interested, subject to the
limitations on liabilities contained herein; provided that Agent shall not be
obligated to ascertain or inquire as to the performance of any of the terms,
covenants or conditions hereof by Borrowers. Neither Agent nor any of its
directors, officers, agents or employees shall be liable for any action or
omission by any of them hereunder or in connection herewith except for gross
negligence or willful misconduct. Subject to such exception, each of the Lenders
hereby indemnifies Agent (in its capacity as Agent) on the basis of such
Lender's Pro Rata Share, against any liability, claim, loss or expense arising
from or relating to any action taken or omitted to be taken with respect to this
Agreement, a Collateral Security Document or the transactions contemplated
thereby or Borrowers, to the extent that the Agent has not been reimbursed
therefor by Borrowers.
9.9. No Responsibility for Representations or Validity, etc. Each
Lender agrees that Agent shall not be responsible to any Lender for any
representations, statements, or warranties of Borrowers herein. Neither Agent
nor any of its directors, officers, employees or agents shall be responsible for
the validity, effectiveness, sufficiency, perfection or enforceability
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of this Agreement and any Collateral, or any documents relating thereto or for
the priority of any of Lenders' security interests in any such Collateral.
9.10. Action on Instruction of Lenders; Right to Indemnity. Agent
shall act upon written instruction of the Required Lenders or Lenders, as
appropriate, and in all cases Agent shall be fully protected in acting or
refraining from acting hereunder in accordance with such written instructions to
it signed by Required Lenders unless the consent of all the Lenders is expressly
required hereunder in which case Agent shall be so protected when acting in
accordance with such instructions from all the Lenders. Such instructions and
any action taken or failure to act pursuant thereto shall be binding on all the
Lenders, provided that except as otherwise provided herein, Agent may act
hereunder in its own discretion without requesting such instructions.
9.11. Employment of Agents. In connection with its activities
hereunder, Agent may employ agents and attorneys-in-fact and shall not be
answerable, except as to money or securities received by it or its authorized
agents, for the default or misconduct of agents or attorneys-in-fact selected
with reasonable care.
9.12. Reliance on Documents. Agent shall be entitled to rely upon (a)
any paper or document believed by it to be genuine and correct and to have been
signed or sent by the proper person or persons and (b) upon the opinion of its
counsel with respect to legal matters.
9.13. Agent's Rights as a Lender. With respect to its share of the
indebtedness hereunder, Agent shall have the same rights and powers hereunder as
any other Lender and may exercise the same as though it were not Agent. Each of
the Lenders may accept deposits from and generally engage in other banking or
trust business with Borrowers as if it were not Agent or a Lender hereunder.
9.14. Expenses. Each of the Lenders shall reimburse Agent, from time
to time at the request of Agent, for its Pro Rata Share of any expenses incurred
by Agent in connection with the performance of its functions hereunder, provided
however that in the event Lenders shall reimburse Agent for expenses for which
Borrowers subsequently reimburses Agent, Agent shall remit to each Lender the
respective amount received from such Lender against such expenses.
9.15. Resignation of Agent. Agent may at any time resign its position
as Agent, without affecting its position as a Lender, by giving written notice
to Lenders and Company. Such resignation shall take effect upon the appointment
of a successor agent in accordance with this Paragraph 9.15. In the event Agent
shall resign, Required Lenders with the consent of the Company (which consent
shall not be required in the event that any Event of Default has occurred and is
continuing) shall appoint a Lender with banking powers as successor agent. If
within thirty (30) days of the Agent's notice of resignation no successor agent
shall have been appointed by Lenders and accepted such appointment, then Agent,
in its discretion may appoint any other Lender with banking powers as a
successor agent.
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9.16. Successor Agent. The successor Agent appointed pursuant to
Paragraph 9.15 shall execute and deliver to its predecessor and Lenders an
instrument in writing accepting such appointment, and thereupon such successor,
without any further act, deed or conveyance, shall become fully vested with all
the properties, rights, duties and obligations of its predecessor Agent. The
predecessor Agent shall deliver to its successor Agent forthwith all Collateral,
documents and moneys held by it as Agent, if any, whereupon such predecessor
Agent shall be discharged from its duties and obligations as Agent under this
Agreement.
9.17. Collateral Security. Agent will hold, administer and manage any
Collateral pledged from time to time hereunder either in its own name or as
Agent, but each Secured Party shall hold a direct, undivided pro-rata beneficial
interest therein, on the basis of its proportionate interest in the secured
obligations, by reason of and as evidenced by this Agreement, the Collateral
Security Documents and the Operative Agreements with respect to the Lease
Financing Facility.
9.18. Enforcement by Agent. All rights of action under this Agreement
and under the Notes and all rights to the Collateral hereunder may be enforced
by Agent and any suit or proceeding instituted by Agent in furtherance of such
enforcement shall be brought in its name as Agent without the necessity of
joining as plaintiffs or defendants any other Lenders, and the recovery of any
judgment shall be for the benefit of Lenders subject to the expenses of Agent.
SECTION 10
MISCELLANEOUS
10.1. Indemnification and Release Provisions. Borrowers hereby agree
to defend Agent and each Lender and its respective directors, officers, agents
and employees from, and hold each of them harmless against, any and all losses,
liabilities (including, without limitation, settlement costs and amounts,
transfer taxes, documentary taxes, or assessments or charges made by any
governmental authority), claims, damages, interests, judgments, costs, or
expenses, including without limitation reasonable fees and disbursements of
counsel incurred by any of them arising out of or in connection with or by
reason of this Agreement, the Commitment, the making of the Loan or any
Collateral Security Document, including without limitation, any and all losses,
liabilities, claims, damages, interests, judgments, costs or expenses relating
to or arising under any Environmental Control Statute or License or the
application of any such Statute to any of Borrowers' properties or assets,
excluding, however, those caused by such party's respective gross negligence or
willful misconduct. Borrowers hereby release Agent and each Lender and its
respective directors, officers, agents and employees from any and all claims for
loss, damages, costs or expenses caused or alleged to be caused by any act or
omission on the part of any of them except for those caused by such party's
respective gross negligence or willful misconduct. All obligations provided for
in this Paragraph 10.1 shall survive any termination of this Agreement or the
Commitment and the repayment of the Loan.
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10.2. Participations and Assignments. Borrowers hereby acknowledge
and agree that a Lender may at any time: (a) grant participations in its Loan or
any Note or of its right, title and interest therein or in or to this Agreement
(collectively, "Participations") to any other lending office or to any other
bank, lending institution or other Person which (x) in the absence of an Event
of Default hereunder, is not a Person in a Permitted Line of Business and (y)
has the requisite sophistication to evaluate the merits and risks of investments
in Participations ("Participants"); provided, however, that: (i) all amounts
payable by Borrowers hereunder shall be determined as if such Lender had not
granted such Participation; and (ii) any agreement pursuant to which any Lender
may grant a Participation: (A) shall provide that such Lender shall retain the
sole right and responsibility to enforce the obligations of Borrowers hereunder
including, without limitation, the right to approve any amendment, modification
or waiver of any provisions of this Agreement; (B) may provide that such Lender
will not agree to any modification, amendment or waiver of this Agreement
requiring approval of all Lenders pursuant to Paragraph 9.3 hereof without the
consent of the Participant and (C) shall not relieve such Lender from its
obligations, which shall remain absolute, to make Advances hereunder; and (b)
assign (i) all or any percent of its Loan or any Note or right, title and
interest therein or in and to this Agreement, to (x) a Lender; (y) any Affiliate
of a Lender; or (z) any Federal Reserve Bank; or (ii) all or any part of its
Loan or any Note or right, title and interest therein or in and to this
Agreement to a third party; provided, however, that in the absence of an Event
of Default or Default hereunder no assignment pursuant to (b)(ii) above shall be
made without the prior written consent of the Agent and Borrowers, which consent
shall not be unreasonably withheld. Any assignments pursuant to subparagraph (b)
shall be in an amount not less than and shall not result in the Maximum
Principal Amount of the assigning Lender, if such assigning Lender remains as a
Lender hereunder, being less than Five Million Dollars ($5,000,000); and any
such assignment must be accompanied by a pro rata assignment of the assigning
Lender's participation as a Lease Financing Lender and as a Holder under the
Lease Financing Facility. Any assignment pursuant to subparagraph (b) shall
require payment by the applicable Lender to Agent of a $3,500 transfer fee. Any
assignment pursuant to subparagraph (b) shall be in the form attached hereto as
Exhibit K.
10.3. Confidentiality. All Confidential Information (as defined
below) received by a Lender hereunder shall be kept confidential by such Lender
and shall be used solely in connection with such Lender's' role as a Lender
hereunder. "Confidential Information" shall mean all information delivered to a
Lender by Borrowers hereunder, other than information which (i) is generally
available to the public other than as a result of disclosure by such Lender, or
(ii) is or becomes available to such Lender from a person or entity other than
Borrowers or another Lender, unless such Lender knows, or should have known,
that such person or entity is bound by a confidentiality agreement or covenant
with Borrowers prohibiting such person or entity from publicly disclosing such
information. Notwithstanding the foregoing, nothing herein shall prevent Lenders
from making disclosure to any of their Affiliates, outside auditors, counsel and
other professional advisors in connection with this Agreement or as reasonably
required by any potential transferee, participant or assignee, so long as said
recipient agrees to keep such Confidential Information or Disclosures
confidential pursuant to the terms of this Agreement, or
-58-
<PAGE>
as requested by any examiner, governmental agency or representative thereof or
pursuant to legal process or in connection with the exercise of remedies under a
Loan Document.
10.4. Binding and Governing Law. This Agreement and all documents
executed hereunder shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns and shall be governed
as to their validity, interpretation and effect by the laws of the Commonwealth
of Pennsylvania.
10.5. Survival. All agreements, representations, warranties and
covenants of Borrowers contained herein or in any documentation required
hereunder shall survive the execution of this Agreement and the making of the
Loan hereunder and except for Paragraphs 5.11 and 10.1 which provide otherwise,
will continue in full force and effect as long as any Indebtedness or other
obligation of Borrowers to any Lender under this Agreement or any Collateral
Security Document, or any Commitment, remains outstanding.
10.6. No Waiver; Delay. If Lenders or any of them shall waive any
power, right or remedy arising hereunder or under any applicable law, such
waiver shall not be deemed to be a waiver upon any other Lender or the later
occurrence or recurrence of any of said events with respect to any Lender. No
delay by Lenders in the exercise of any power, right or remedy shall, under any
circumstances, constitute or be deemed to be a waiver, express or implied, of
the same and no course of dealing between the parties hereto shall constitute a
waiver of Lenders' powers, rights or remedies. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
10.7. Modification. Except as otherwise provided in this Agreement,
no modification or amendment hereof shall be effective unless made in a writing
signed by appropriate officers of all of the parties hereto.
10.8. Headings. The various headings in this Agreement are inserted
for convenience only and shall not affect the meaning or interpretation of this
Agreement or any provision hereof.
10.9. Notices. Any notice, request or consent required hereunder or
in connection herewith shall be deemed satisfactorily given if in writing and
delivered by hand, telecopied or mailed (registered or certified mail) to the
parties at their respective addresses and telecopy numbers set forth in this
Agreement or such other addresses as may be given by any party to the others in
writing, if to any Borrower at the address and telecopy numbers of such Borrower
set forth in Schedule 1 attached hereto, with a copy to Paul A. Quiros, Esq.,
King & Spalding, 191 Peachtree Street, Atlanta, GA 30303-1763, telecopy (404)
572-5100; and if to the Agent and the Lenders to the individuals at the
addresses and telecopy numbers set forth in Schedule 2 attached hereto and, in
the case of Agent, with a copy to Lisa D. Kabnick, Esq., Pepper Hamilton LLP
3000 Two Logan Square, Philadelphia, PA 19103, telecopy (215) 981-4750. Any
communication from or to the Company, and any agreement to an amendment,
modification or
-59-
<PAGE>
waiver with respect hereto by the Company, shall be effective as to and binding
upon all of the Borrowers.
10.10. Payment on Non-Business Days. Whenever any payment to be made
hereunder shall be stated to be due on a day other than a Business Day, such
payment may be made on the next succeeding Business Day, provided however that
such extension of time shall be included in the computation of interest due in
conjunction with such payment or other fees due hereunder, as the case may be.
10.11. Time of Day. All time of day restrictions imposed herein shall
be calculated using Agent's local time, as determined by reference to the
location of the address to which notices are to be given pursuant hereto.
10.12. Severability. If any provision of this Agreement or the
application thereof to any Person or circumstance shall be invalid or
unenforceable to any extent, the remainder of this Agreement and the application
of such provisions to other Persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
10.13. Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all the signatures on such counterparts
appeared on one document, and each such counterpart shall be deemed to be an
original.
10.14. Consent to Jurisdiction and Service of Process. Borrowers each
hereby consent that any action or proceeding against it be commenced and
maintained in any court within the Commonwealth of Pennsylvania or in the United
States District Court for the Eastern District of Pennsylvania by service of
process on Borrowers at the offices of the Registered Agent for service of
process of the Company set forth on Schedule 1 attached hereto with a copy to
Paul A. Quiros, Esq., King & Spalding, 191 Peachtree Street, Atlanta, GA
30303-1763 and Borrowers agree that the courts of the Commonwealth of
Pennsylvania and the United States District Court for the Eastern District of
Pennsylvania shall have jurisdiction with respect to the subject matter hereof
and the person of each Borrower and waive any defense that such a court is an
inconvenient forum. Notwithstanding the foregoing, the Agent, in its absolute
discretion may also initiate proceedings in the courts of any other jurisdiction
in which Borrowers may be found or in which any of their properties or
Collateral may be located.
10.15. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON OR ARISING OUT OF, UNDER
OR IN CONNECTION WITH THIS AGREEMENT OR THE NOTES OR COLLATERAL SECURITY
DOCUMENTS OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF ANY LENDER OR AGENT. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR LENDERS' ENTERING INTO THIS AGREEMENT.
-60-
<PAGE>
10.16. Acknowledgments. BORROWERS ACKNOWLEDGE THAT THEY HAVE HAD THE
ASSISTANCE OF COUNSEL IN THE REVIEW AND EXECUTION OF THIS AGREEMENT AND,
SPECIFICALLY, PARAGRAPH 10.15 HEREOF, AND FURTHER ACKNOWLEDGE THAT THE MEANING
AND EFFECT OF THE FOREGOING WAIVER OF JURY TRIAL HAS BEEN FULLY EXPLAINED TO
BORROWERS BY SUCH COUNSEL.
IN WITNESS WHEREOF, the undersigned, by their duly authorized
officers, have executed this Agreement the day and year first above written.
CENTENNIAL HEALTHCARE TRANSITIONAL FINANCIAL SERVICES, INC.
CORPORATION PARAGON REHABILITATION, INC.
CENTENNIAL/ASHTON PROPERTIES THS PARTNERS I, INC.
CORPORATION THS PARTNERS II, INC.
CENTENNIAL HEALTHCARE TRANSITIONAL HEALTH PARTNERS
PROPERTIES CORPORATION BY: THS PARTNERS I, INC. and THS
CENTENNIAL HEALTHCARE PARTNERS II, INC., its general partners
MANAGEMENT CORPORATION PARKVIEW PARTNERSHIP
CENTENNIAL ACQUISITION BY: THS PARTNERS I, INC. and THS
CORPORATION PARTNERS II, INC., its general partners
CENTENNIAL PROFESSIONAL TOTAL CARE CONSOLIDATED, INC.
THERAPY SERVICES CORPORATION TOTAL CARE, INC.
CENTENNIAL HEALTHCARE TOTAL HEALTH CARE SERVICES, INC.
INVESTMENT CORPORATION TOTAL CARE OF THE CAROLINAS, INC.
CENTENNIAL HEALTHCARE HOSPITAL HCC HOME HEALTH OF LOUISIANA, INC.
CORPORATION
TRANSITIONAL HEALTH SERVICES, INC.
Attest:
By:/s/Stephen Eaton By:/s/ Alan C. Dahl
- ----------------------- -----------------------
Name: Stephen Eaton Name:Alan C. Dahl
Title: President and Title:Chief Financial
Chief Executive Officer Officer
FIRST UNION NATIONAL BANK, for itself
and as Agent
By:/S/ Joseph H. Towell
--------------------------
Name:Joseph H. Towell
Title:Sr. Vice President
[EXECUTIONS CONTINUED]
-61-
<PAGE>
NATIONSBANK, N.A., for itself and as
Syndication Agent
By:/S/ J. Walter Bland
----------------------
Name: J. Walter Bland
Title:Vice President
AMSOUTH BANK
By:/s/ J. Ken Difata
----------------------------
Name:J. Ken Difata
Title:Asst. Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By:/S/ John Oberle
----------------------
Name:John Oberle
Title:Vice President
NATIONAL CITY BANK OF KENTUCKY
By:/S/ Charles P Denny
--------------------------
Name:Charles P Denny
Title:Sr. Vice President
[EXECUTIONS CONTINUED]
-62-
<PAGE>
COOPERATIVE CENTRALE RAIFFEISEN
BOERENLEENBANK B.A.
"RABOBANK NEDERLAND,"
NEW YORK BRANCH
By:/S/ Terrell Boyle
----------------------
Name:Terrell Boyle
Title:Vice President
By:/S/ Robert B Benoit
------------------------
Name:Robert B. Benoit
Title:SR. Vice President
WACHOVIA BANK, N.A.
By:/S/ Gary C. Caskill
----------------------
Name:Gary C. Gaskill
Title:Vice President
SCOTIABANC INC.
By:/S/Carolyn A Lopez
----------------------------
Name:Carolyn A. Lopez
Title:Relationship Manager
COMERICA BANK
By: /S/ Craig P.Durno
------------------------
Name:Craig F. Durno
Title:Account Officer
-63-
<PAGE>
EXHIBIT 11.1
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
----- ------ ------ ------
<S> <C> <C> <C> <C>
Income before dividends and accretion on preferred stock......... $ 3,834 $1,884 $ 7,660 $ 3,125
Dividends and accretion of preferred stock....................... - (432) (1,219)
------- ------ ------- -------
Income applicable to common stock................................ $ 3,834 $1,452 $ 7,660 $1,906
Weighted average common shares outstanding....................... 11,910 4,789 11,888 4,799
BASIC EARNINGS PER COMMON SHARE.................................. $ 0.32 $ 0.30 $ 0.64 $ 0.40
======= ====== ======= ======
Income applicable to common stock................................ $ 3,834 $1,452 $ 7,660 $1,906
Interest savings on convertible debt (net of tax)................ 24 - 48 -
------- ------ ------- -------
Income applicable to common stock................................ $ 3,858 $1,452 $ 7,708 $1,906
Weighted average common shares outstanding....................... 11,910 4,789 11,888 4,799
Dilutive effect of stock options................................. 180 39 200 38
Conversion of convertible debt................................... 125 - 125 -
------- ------ ------- -------
Average diluted common shares outstanding........................ 12,215 4,828 12,213 4,837
DILUTED EARNINGS PER COMMON SHARE................................ $ 0.32 $ 0.30 $ 0.63 $ 0.39
======= ====== ======= ======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10Q PERIOD
ENDING JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1998 JUN-30-1998
<CASH> 5,756 5,756
<SECURITIES> 0 0
<RECEIVABLES> 115,924 115,924
<ALLOWANCES> (3,200) (3,200)
<INVENTORY> 0 0
<CURRENT-ASSETS> 123,606 123,606
<PP&E> 88,711 88,711
<DEPRECIATION> (13,410) (13,410)
<TOTAL-ASSETS> 272,940 272,940
<CURRENT-LIABILITIES> (51,193) (51,193)
<BONDS> (99,360) (99,360)
0 0
0 0
<COMMON> (119) (119)
<OTHER-SE> (120,939) (120,939)
<TOTAL-LIABILITY-AND-EQUITY> (272,940) (272,940)
<SALES> 0 0
<TOTAL-REVENUES> (87,900) (174,972)
<CGS> 0 0
<TOTAL-COSTS> 79,469 158,222
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 532 684
<INTEREST-EXPENSE> 2,316 4,229
<INCOME-PRETAX> (6,383) (12,758)
<INCOME-TAX> 2,489 4,975
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,834) (7,660)
<EPS-PRIMARY> (0.32) (0.64)
<EPS-DILUTED> (0.32) (0.63)
</TABLE>
<PAGE>
EXHIBIT 99.1
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q, including information set forth under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations" constitute "Forward-Looking Statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "1933 Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "1934 Act").
The Company desires to take advantage of certain "safe harbor" provisions of the
1933 Act and 1934 Act and is including this reference to enable the Company to
do so. Forward-looking statements included in this Form 10-Q or in documents
incorporated by reference, or hereafter included in other publicly available
documents filed with the Securities and Exchange Commission, reports to the
Company's stockholders and other publicly available statements issued or
released by the Company involve known and unknown risks, uncertainties, and
other factors which could cause the Company's actual results, performance
(financial or operating) or achievements to differ materially from the future
results, performance (financial or operating) or achievements expressed or
implied by such forward-looking statements. The Company believes the following
risks, uncertainties and other factors could cause such material differences to
occur:
1. The Company's ability to continue to grow through the acquisition and
development of long-term care facilities or the acquisition of ancillary
businesses.
2. The Company's ability to identify suitable acquisition candidates or to
profitably operate or successfully integrate acquired operations into the
Company's other operations.
3. The occurrence of changes in the mix of payment sources utilized by the
Company's patients to pay for the Company's services.
4. The adoption of cost containment measures by private pay sources such as
commercial insurers and managed care organizations, as well as efforts by
governmental reimbursement sources to impose cost containment measures.
5. Changes in the United States health care system, including the Balanced
Budget Act of 1997, changes in reimbursement levels under Medicaid and Medicare,
and other changes in applicable government regulations that might affect the
profitability of the Company.
6. The Company's continued ability to operate in a heavily regulated
environment and to satisfy regulatory authorities, thereby avoiding a number of
potentially adverse consequences, such as the imposition of fines, temporary
suspension of admission of patients, restrictions on the ability to acquire new
facilities, suspension or decertification from Medicaid or Medicare programs,
and in extreme cases, revocation of a facility's license or the closure of a
facility, including as a result of unauthorized activities by employees.
<PAGE>
7. The Company's ability to secure the capital and the related cost of such
capital necessary to fund its future growth through acquisition and development,
as well as internal growth.
8. Changes in certificate of need laws that might increase competition in the
Company's industry, including, particularly, in the states in which the Company
currently operates or anticipates operating in the future.
9. Changes in federal or state legislation or budgetary controls that may
negatively impact the amount and method of Medicaid payments, especially in
North Carolina, Michigan and Indiana, in which states a majority of the
Company's facilities are located.
10. The Company's ability to staff its facilities appropriately with qualified
health care personnel (including administrators), including in times of
shortages of such personnel and to maintain a satisfactory relationship with
labor unions.
11. The level of competition in the Company's industry, including without
limitation, increased competition from acute care hospitals, providers of
assisted and independent living and providers of home health care and changes in
the regulatory system in the states in which the Company operates that
facilitate such competition.
12. The continued availability of insurance for the inherent risks of liability
of providing services in the health care industry.
13. Price increases in medical supplies, durable medical equipment and other
items.
14. The Company's reputation for delivering high-quality care and its ability
to attract and retain patients, including patients with relatively high acuity
levels.
15. Changes in general economic conditions, including changes that pressure
governmental reimbursement sources to reduce the amount and scope of health care
coverage.
The foregoing review of significant factors should not be construed as
exhaustive or as an admission regarding the adequacy of disclosures previously
made by the Company.
