<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
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
-------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number 000-22771
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CENTENNIAL HEALTHCARE CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1839701
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) (identification No.)
400 Perimeter Center Terrace, Suite 650, Atlanta, Georgia 30346
---------------------------------------------------------------
(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
----- -----
Indicated 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 13,
1999
<PAGE>
CENTENNIAL HEALTHCARE INC
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 24
</TABLE>
<PAGE>
ITEM I - FINANCIAL STATEMENTS
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------- --------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................. $ 3,503 $ 8,087
Patient accounts receivable and third-party payor settlements, net
of allowance for doubtful accounts of approximately
$5,100 and $5,000........................................................ 102,798 99,910
Other receivables......................................................... 3,934 4,382
Deferred income taxes..................................................... 3,738 3,738
Prepaid expenses and other current assets................................. 3,303 2,250
-------- --------
Total current assets.................................................. 117,276 118,367
Property and equipment, net............................................... 73,717 74,813
Intangible assets, net.................................................... 35,493 40,104
Notes receivable and other assets......................................... 57,318 55,088
-------- --------
Total assets.......................................................... $283,804 $288,372
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities.................................. $ 43,837 $ 48,976
Other current liabilities................................................. 17,107 12,816
-------- --------
Total current liabilities............................................. 60,944 61,792
Long-term debt, less current maturities..................................... 115,707 112,849
Other long-term liabilities................................................. 431 48
-------- --------
177,082 174,689
Commitments and contingencies
Shareholders' equity:
Common stock with par value of $.01; 50,000,000 shares
authorized; 11,923,618 shares issued
and outstanding....................................................... 119 119
Paid-in capital........................................................... 102,015 102,015
Retained earnings......................................................... 4,938 11,899
-------- --------
107,072 114,033
Note receivable from shareholder............................................ (350) (350)
-------- --------
Net shareholders' equity.............................................. 106,722 113,683
-------- --------
Total liabilities and shareholders' equity............................ $283,804 $288,372
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
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,
-------------------- -----------------------
1999 1998 1999 1998
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Net patient service revenues......................... $ 97,712 $84,042 $193,364 $167,421
Management fees and other revenues................... 2,148 3,858 4,540 7,551
-------- ------- -------- --------
Total revenues...................................... 99,860 87,900 197,904 174,972
-------- ------- -------- --------
Expenses:
Facility operating expenses:
Salaries, wages and benefits....................... 50,488 43,348 98,475 84,920
Other operating expenses........................... 27,048 23,281 56,602 47,979
Lease expense........................................ 8,223 5,746 16,067 11,155
Corporate administrative costs....................... 5,975 5,247 11,921 10,190
Depreciation and amortization........................ 3,118 2,379 6,035 4,662
Terminated merger transaction costs.................. - - 600 -
Provision for asset revaluation...................... 14,530 - 14,530 -
-------- ------- -------- --------
Total operating expenses........................... 109,382 80,001 204,230 158,906
-------- ------- -------- --------
(9,522) 7,899 (6,326) 16,066
-------- ------- -------- --------
Other income (expense):
Interest income...................................... 429 800 903 921
Interest expense..................................... (2,910) (2,316) (5,408) (4,229)
-------- ------- -------- --------
Total other expense................................ (2,481) (1,516) (4,505) (3,308)
-------- ------- -------- --------
(12,003) 6,383 (10,831) 12,758
Provision (benefit) for income taxes.................. (4,488) 2,489 (4,007) 4,975
-------- ------- -------- --------
Income (loss) before minority interest................ (7,515) 3,894 (6,824) 7,783
Minority interest in net income of subsidiary,
net of income taxes.................................. (58) (60) (137) (123)
-------- ------- -------- --------
Income (loss) applicable to common stock.............. $ (7,573) $ 3,834 $ (6,961) $ 7,660
======== ======= ======== ========
Income (loss) applicable to common stock
per common stock and common stock equivalent share:
Basic................................................ $ (0.64) $ 0.32 $ (0.58) $ 0.64
======== ======= ======== ========
Diluted.............................................. $ (0.64) $ 0.32 $ (0.58) $ 0.63
======== ======= ======== ========
Weighted average number of common stock and
common stock equivalents outstanding:
Basic................................................ 11,924 11,910 11,924 11,888
======== ======= ======== ========
Diluted.............................................. 11,924 12,215 11,924 12,213
======== ======= ======== ========
</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, 1998............ 11,924 $ 119 $102,015 $11,899 $(350) $113,683
Net loss................................ - - - (6,961) - (6,961)
------- ----- -------- ------- ----- --------
Balance at June 30, 1999................ 11,924 $ 119 $102,015 $ 4,938 $(350) $106,722
======= ===== ======== ======= ===== ========
</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)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
----------------------------------
1999 1998
-------- --------
<S> <C> <C>
Operating Activities:
Net income (loss).............................................................. $ (6,961) $ 7,660
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization................................................ 6,034 4,662
Deferred income taxes........................................................ (5,373) -
Provision for asset revaluation.............................................. 14,530 -
Minority interest............................................................ 232 201
Provision for doubtful accounts.............................................. 1,042 684
Change in assets and liabilities:
Accounts receivable........................................................ (2,948) (16,243)
Prepaid expenses and other assets.......................................... (840) (8,100)
Accounts payable, accrued liabilities and other current liabilities........ (4,961) 2,337
Other...................................................................... (323) 22
-------- --------
Cash provided by (used in) operating activities.......................... 432 (8,777)
-------- --------
Investing Activities:
Purchases of property and equipment........................................... (3,693) (3,699)
Notes and other receivables, net of repayments................................ (4,664) (5,447)
Acquisition of leasehold interest............................................. (500) -
Payments for debt service reserves............................................ (336) -
Payments for financing and other deferred costs............................... (2,198) (618)
-------- --------
Cash used in investing activities........................................ (11,391) (9,764)
-------- --------
Financing Activities:
Proceeds from the exercise of stock options................................... - 294
Proceeds from borrowings...................................................... 12,432 21,200
Distributions paid to minority partners....................................... (148) (148)
Borrowings from related party, net of repayments.............................. (335) (307)
Principal payments on long-term debt.......................................... (5,574) (753)
-------- --------
Cash provided by financing activities..................................... 6,375 20,286
-------- --------
Net change in cash and cash equivalents......................................... (4,584) 1,745
Cash and cash equivalents, beginning of period.................................. 8,087 4,011
-------- --------
Cash and cash equivalents, end of period........................................ $ 3,503 $ 5,756
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
<PAGE>
CENTENNIAL HEALTHCARE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
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, 1998
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. 000-22771).
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 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, 1999 are not necessarily
indicative of the results to be expected for the year ending December 31, 1999
or any interim period.
Certain amounts in the 1998 financial statements 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,
1999 1998 1999 1998
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Income (Loss) applicable to common stock................... $(7,573) $ 3,834 $(6,961) $ 7,660
Weighted average common shares outstanding................. 11,924 11,910 11,924 11,888
BASIC EARNINGS PER COMMON SHARE............................ $ (0.64) $ 0.32 $ (0.58) $ 0.64
======= ======= ======= =======
Income (Loss) applicable to common stock................... $(7,573) $ 3,834 $(6,961) $ 7,660
Interest savings on convertible debt (net of tax).......... - 24 - 48
------- ------- ------- -------
Income (Loss) applicable to common stock................... $(7,573) $ 3,858 $(6,961) $ 7,708
Weighted average common shares outstanding................. 11,924 11,910 11,924 11,888
Dilutive effect of stock options........................... - 180 - 200
Conversion of convertible debt............................. - 125 - 125
------- ------- ------- -------
Average diluted common shares outstanding.................. 11,924 12,215 11,924 12,213
DILUTED EARNINGS PER COMMON SHARE.......................... $ (0.64) $ 0.32 $ (0.58) $ 0.63
======= ======= ======= =======
</TABLE>
NOTE 3 - FACILITY ACQUISITIONS
In January 1999, Centennial acquired leasehold interests in six nursing
facilities, totaling 795 licensed available beds, located in Massachusetts. The
total purchase price of $64.0 million was funded under the portion of the
Company's Senior Credit Facility with NationsBank, N.A., ("NationsBank") and
First Union National Bank, as agents and lenders and the other lenders named
therein, (the "Senior Credit Facility"), designated for use in financing certain
facility lease transactions, (the "Lease Facility").
Also in January 1999, the Company acquired leasehold interests in two facilities
that were previously managed by the Company: Hunter Woods Nursing and
Rehabilitation Center, ("Hunter Woods"), a 130-bed facility located in
Charlotte, North Carolina and Choctaw County Medical
<PAGE>
Center, ("Choctaw"), a facility with 68 nursing home beds and 22 hospital beds,
located in Ackerman, Mississippi. The Company paid a total purchase price of
$2.5 million for Hunter Woods; there were no lease acquisition costs associated
with Choctaw.
NOTE 4 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards ("SFAS") 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 133. SFAS 133 is effective for
fiscal years beginning after June 15, 1999. The effect on the financial
statements upon adoption of SFAS 133 has not been determined.
NOTE 5 - SEGMENT INFORMATION
In 1998, Centennial adopted Statement of Financial Accounting Standards ("SFAS")
131, "Disclosures about Segments of an Enterprise and Related Information".
SFAS 131 supersedes FAS 14, "Financial Reporting for Segments of a Business
Enterprise", replacing the "industry segment" approach with the "management"
approach. The management approach designates the internal organization that is
used by management for making operating decisions and assessing performance as
the source of the Company's reportable segments. SFAS 131 also requires
disclosures about products and services, geographic areas, and major customers.
The adoption of SFAS 131 did not affect results of operations or financial
position.
The Company has determined that its reportable segments are those that are based
on the Company's method of internal reporting, which disaggregates its business
by services provided. The Company's reportable segments are management
services/corporate, long-term care facilities and rehabilitative therapy
services. Management fee revenues and all corporate expenses and overhead are
recorded in the management services/corporate segment. The long-term care
facilities segment provides basic healthcare services to patients in a long-term
care setting, including skilled nursing and support, housekeeping, laundry,
dietary, recreational and social services. The rehabilitative therapy services
segment includes specialty healthcare services, including comprehensive
rehabilitation therapy through the Company's subsidiary Paragon Rehabilitation,
Inc. ("Paragon"). The "All Other" category represents the Company's hospital
services, home health services, and PTS, Inc. ("PTS"), the Company's subsidiary
providing intravenous therapy and other services.
Centennial evaluates the performance of its segments and allocates resources to
them based on earnings before interest, taxes, depreciation, amortization and
rent and any noncash, nonrecurring charges (EBITDAR).
The tables below presents information about EBITDAR and total assets used by the
chief operating decision maker of Centennial as well as specific items included
in segment profit/loss as of and for the three and six month periods ended June
30, 1999 and 1998:
As of and for the six months ended June 30, 1999:
(in thousands)
<TABLE>
<CAPTION>
Management Long-Term Rehabilitation
Services/ Care Therapy All Reconciling
Corporate Facilities Services Other Items Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues 4,835 157,866 19,722 28,956 (13,475) 197,904
EBITDAR (3,723) 30,379 145 4,105 - 30,906
Total Assets 129,720 135,040 17,195 27,978 (26,129) 283,804
Interest revenue 844 19 21 19 - 903
Interest expense (2,199) (2,544) (315) (350) - (5,408)
Lease expense (809) (14,498) (265) (495) - (16,067)
Depreciation and Amortization (2,422) (2,433) (914) (266) - (6,035)
Minority Interest (net of tax) (137) - - - - (137)
Provision for Asset Revaluation (1,285) (10,558) (2,687) - - (14,530)
Terminated Merger Costs (600) - - - - (600)
Income tax benefit (expense) 4,275 (572) 1,538 (1,234) - 4,007
Net income (loss) (6,056) (207) (2,477) 1,779 - (6,961)
</TABLE>
As of and for the six months ended June 30, 1998:
(in thousands)
<TABLE>
<CAPTION>
Management Long-Term Rehabilitation
Services/ Care Therapy All Reconciling
Corporate Facilities Services Other Items Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues 7,740 119,588 37,368 10,276 (12,298) 174,972
EBITDAR 1,233 22,630 4,700 3,320 - 31,883
Total Assets 125,651 132,440 23,024 21,192 (29,367) 272,940
Interest revenue 807 13 65 36 - 921
Interest expense (888) (2,675) (315) (351) - (4,229)
Lease expense (648) (9,829) (228) (450) - (11,155)
Depreciation and Amortization (1,336) (2,157) (945) (224) - (4,662)
Minority Interest (net of tax) (123) - - - - (123)
Income tax benefit (expense) 325 (3,113) (1,278) (909) - (4,975)
Net income (loss) (630) 4,869 1,999 1,422 - 7,660
</TABLE>
For the three months ended June 30, 1999:
(in thousands)
<TABLE>
<CAPTION>
Management Long-Term Rehabilitation
Services/ Care Therapy All Reconciling
Corporate Facilities Services Other Items Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues 2,291 80,474 9,684 13,513 (6,102) 99,860
EBITDAR (1,875) 15,826 5,277 1,871 - 16,349
Interest revenue 419 - 1 9 - 429
Interest expense (1,274) (1,304) (158) (174) - (2,910)
Lease expense (416) (7,422) (130) (255) - (8,223)
Depreciation and Amortization (1,317) (1,211) (448) (142) - (3,118)
Minority Interest (net of tax) (58) - - - - (58)
Provision for Asset Revaluation (1,285) (10,558) (2,687) - - (14,530)
Income tax benefit (expense) 2,409 1,492 1,079 (492) - 4,488
Net income (loss) (3,397) (3,177) (1,816) 817 - (7,573)
</TABLE>
For the three months ended June 30, 1998:
(in thousands)
<TABLE>
<CAPTION>
Management Long-Term Rehabilitation
Services/ Care Therapy All Reconciling
Corporate Facilities Services Other Items Total
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues 3,955 59,472 19,651 11,633 (6,811) 87,900
EBITDAR 582 10,881 2,511 2,050 - 16,024
Interest revenue 728 11 27 34 - 800
Interest expense (618) (1,365) (158) (175) - (2,316)
Lease expense (323) (4,935) (144) (344) - (5,746)
Depreciation and Amortization (681) (1,098) (484) (116) - (2,379)
Minority Interest (net of tax) (60) - - - - (60)
Provision for Asset Revaluation - - - - - -
Terminated Merger Costs - - - - - -
Income tax benefit (expense) 107 (1,363) (683) (550) - (2,489)
Net income (loss) (265) 2,131 1,069 899 - 3,834
</TABLE>
<PAGE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Effective May 28, 1999, the Company amended its Senior Credit Facility. As part
of the new agreement, the Company transferred $5.7 million of availability under
the Lease Facility to the revolver portion. The amendment, coupled with previous
1998 amendments to the Lease Facility, increased the Company's interest rate,
which at June 30, 1999 was at 3.0% over LIBOR, and calls for amortization of
principal, or reduction in availability, of $5.7 million on December 31, 1999,
$11.0 million on December 31, 2000, and $22 million during each of the years
ending December 31, 2001 and 2002. As of June 30, 1999, the Company had $82.3
million outstanding and approximately $6.8 million available under the Senior
Credit Facility, net of standby letters of credit of approximately $6.7 million.
The Company was in full compliance with all covenants of the Senior Credit
Facility as of June 30, 1999.
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. Accordingly, the Company has entered into interest rate swap
agreements with certain lenders providing bank financing under the Senior Credit
Facility. Pursuant to the interest rate swap agreements, the Company has
exchanged its floating rate interest obligations on $38.0 million in principal
at an average fixed rate of 5.61% per annum for an average maturity of 4.25
years. 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 agreements is recognized
as an adjustment to interest expense. The Company is exposed to credit loss in
the event of nonperformance by the counterparties to the interest rate swap
agreements. However, the Company does not anticipate nonperformance by these
counterparties, and no material loss would be expected from their
nonperformance. The fair value of the interest rate swap agreements was not
recognized in the condensed consolidated financial statements since they are
accounted for as hedges. At June 30, 1999, the estimated fair value of the
interest rate swap agreements based on current market rates, approximated a net
receivable to the Company of $41,000.
In January 1999, the Company obtained a $5.0 million line of credit from
Nationsbank, which bears interest at NationsBank's Prime Rate or 3.0% over
LIBOR for selected portions, and expired in May 1999. During the second quarter
of 1999, the Company negotiated an amendment with Nationsbank which extends the
maturity date to December 31, 1999. As of June 30, 1999, the Company had $5.0
million outstanding under this agreement which is included in "other current
liabilities" in the Company's accompanying Condensed Consolidated Balance Sheets
at June 30, 1999.
On March 26, 1999 the Company received an investigatory subpoena from the
Department of Health and Human Services, Office of Inspector General ("OIG"),
requesting records in connection with an
<PAGE>
investigation of possible or otherwise improper claims for payment under Title
XVIII (Medicare) of the Social Security Act. The request relates to records for
the period January 1, 1994 to December 31, 1998 concerning certain of the
Company's internal policies and relates to four long-term care facilities
operated by the Company. The Company intends to provide all requested records
and cooperate fully with the OIG.
NOTE 7 - TERMINATED MERGER
On October 22, 1998, Centennial announced that its Board of Directors had
approved the sale of the Company for $16.00 per share in cash to a new company,
("Centennial HealthCare Holdings Corporation), formed by Welsh, Carson, Anderson
& Stowe, whose affiliates currently hold approximately 23% of the Company's
common stock.
On April 2, 1999, Centennial HealthCare Holdings Corporation notified the
Company that it was terminating the definitive merger agreement. As of June 30,
1999, the Company had expensed approximately $4.2 million in transaction costs
associated with the terminated merger. Approximately $600,000 of these costs
were expensed during 1999. The Company does not anticipate any further accruals
of merger costs.
NOTE 8 - PROVISION FOR ASSET REVALUATION
During the second quarter of 1999, the Company continued its evaluation of the
effects of the Medicare Prospective Payment System ("PPS") on the profitability
of its nursing centers and ancillary businesses. Based on operational results
through six months under PPS, the Company noted that profitability at certain of
its nursing centers as well as Paragon, were less than amounts projected in
1998. Accordingly, the Company has recorded write-downs of property and
equipment and intangible assets (primarily goodwill) at several of its nursing
centers, totaling approximately $1.2 million and $2.8 million, respectively. In
addition, the Company wrote-off approximately $2.7 million of goodwill
associated with Paragon. The total carrying value of goodwill after the write-
down associated with Paragon and the nursing facilities was approximately $17.0
million and $18.5 million, respectively. Amortization expense recorded during
the six months ended June 30, 1999, on the fixed assets and intangibles written-
off approximates $54,000.
In connection with the Company's facility management agreements for several
facilities, the Company has made certain advances for working capital needs. The
majority of these centers are start-up or development projects and required
additional funding for personnel and other operating costs prior to
stabilization. The advances are to be repaid from available cash flow and other
funds provided by the owners. It is the Company's policy to periodically review
the collectibility of its advances based upon several factors, including the
projected cash flow of the respective facility, the value of any collateral held
by the Company, the owner's financial position and the underlying asset value of
the nursing center. During the first six months of 1999, certain of the
Company's managed facilities, primarily in North Carolina, have declined due to
deterioration in census and payor mix. In June, 1999, the Company determined
that the operational declines noted during 1999 were unlikely to dissipate in
the near term and, as a result, the ability of the respective nursing facilities
to fully repay cash advanced by the Company was impaired. Accordingly, during
the second quarter of 1999, the Company increased its reserve for managed
facility advances by $7.8 million. The charge represents the carrying value of
advances made to the respective centers considered impaired.
<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, 1999, and 1998.
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.
GENERAL
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.
The Company currently operates 108 owned, leased and managed skilled nursing
facilities with approximately 11,734 licensed available beds in 21 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 may
include comprehensive rehabilitation therapy, respiratory therapy, ventilator
care, infusion therapy, wound care, home healthcare and other subacute and
specialty services. As components of its specialty services, at June 30, 1999,
Centennial provided rehabilitation therapy services on a contract basis to
third-party owned and Company-operated skilled nursing facilities pursuant to
146 internal and external contracts and provided home healthcare services
through licensed home health offices primarily in North Carolina.
In January 1999, Centennial acquired leasehold interests in six nursing
facilities, totaling 795 licensed available beds, located in Massachusetts, (the
"Flatley Facility Leases").
Also in January 1999, the Company acquired leasehold interests in two facilities
that were previously managed by the Company: Hunter Woods Nursing and
Rehabilitation Center, a 130-bed facility located in Charlotte, North Carolina,
and Choctaw County Medical Center, a facility with 68
<PAGE>
nursing home beds and 22 hospital beds, located in Ackerman, Mississippi.
Together, these two facilities are hereafter referred to as the "New Facility
Leases".
On October 22, 1998, Centennial announced that its Board of Directors had
approved the sale of the Company for $16.00 per share in cash to a new company,
("Centennial HealthCare Holdings Corporation"), formed by Welsh, Carson,
Anderson and Stowe, whose affiliates currently hold approximately 23% of the
Company's common stock, (the "Proposed Merger").
On April 2, 1999, Centennial HealthCare Holdings Corporation notified the
Company that it was terminating the definitive merger agreement. As of June 30,
1999, the Company had expensed approximately $4.2 million in transaction costs
associated with the terminated merger. Approximately $600,000 of these costs
were expensed during 1999. The Company does not anticipate any further accruals
of merger costs.
In August 1998, the Company began leasing four skilled nursing facilities
totaling 349 licensed available beds, located in Mississippi, North Carolina,
Arkansas and Wisconsin. One of these facilities was previously managed by the
Company. In October 1998, the Company began leasing six skilled nursing
facilities totaling 608 licensed available beds, located in Florida, Arkansas,
Kansas, and Wisconsin. In November 1998, the Company began leasing four skilled
nursing facilities totaling 675 licensed available beds, located in Florida and
Missouri. Together, these transactions are hereafter referred to as the "1998
Facility Leases".
In April 1998, the Company entered into management agreements for two skilled
nursing facilities, with a total of 174 licensed available beds, located in
Virginia. In October 1998, the Company discontinued its operations of Wellington
Nursing and Rehabilitation Center, ("Wellington"), a 140-bed facility located in
Charlotte, North Carolina through a sub-lease to a third party operator. In
November 1998, the Company closed THS of South Bend, ("South Bend"), a 191-bed
skilled nursing facility located in South Bend, Indiana. The Company continues
to market the South Bend facility for sale and cannot at this time anticipate
when, if at any time, it will be successful in its efforts to sell this
facility.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE MONTHS ENDED JUNE 30, 1998:
Net patient service revenues. Net patient service revenues increased from $84.0
million in the second quarter of 1998 to $97.7 million in the same period in
1999, an increase of $13.6 million or 16.3%. The 1998 Facility Leases
contributed approximately $13.4 million to revenues during the second quarter of
1999. The New Facility Leases and the Flatley Facility Leases contributed
<PAGE>
approximately $2.8 million and approximately $9.9 million, respectively, to
revenues during the first quarter of 1999. Wellington and South Bend contributed
approximately $1.1 million and $1.4 million, respectively, to revenues for the
quarter ended June 30, 1998. Same store nursing facility revenues decreased by
approximately $2.5 million in the second quarter of 1999, compared to the prior
year period due primarily to decreases in Medicare revenues associated with the
advent of the Medicare prospective payment system ("PPS"), which went into
effect for the majority of the Company's owned and leased nursing facilities on
January 1, 1999. Payor mix at the Company's nursing facilities remained
consistent during 1999 as compared to 1998. The Company experienced a decrease
in its average Medicare Part A rates during the second quarter of 1999 as well
as a slight decrease in census as compared to the prior period on a same store
basis. Revenues from Paragon decreased by approximately $8.5 million in the
second quarter of 1999 compared to the prior year period, due to the loss of
sixteen external contracts subsequent to the second quarter of 1998 and a
general decrease in average revenue per contract. The decrease in revenue per
contract is associated primarily with the pass through effect of Medicare PPS
rate decreases affecting Paragon's nursing center customers. Revenues from PTS,
increased by approximately $600,000 due to increased volume from existing
contracts and the expansion of services provided to the Company's managed
nursing facilities.
Management fees and other revenues. Management fees and other revenues decreased
from $3.8 million in the second quarter of 1998 to $2.1 million in the second
quarter of 1999, a decrease of $1.7 million, or 44.3%. Approximately $330,000 of
this decrease was due to the loss of one management contract subsequent to the
second quarter of 1998, and approximately $213,000 of this decrease was due to
the conversion of three management contracts to leases subsequent to June 30,
1998. The remaining decrease was attributable to revenue recognized during the
second quarter of 1998 for performance of additional services to certain third
party owners and declines in 1999 revenues earned under certain management
agreements in which the Company's fee is based on facility profits.
Facility operating expenses. Facility operating expenses increased from $66.6
million in the second quarter of 1998 to $77.5 million in the same period in
1999, an increase of $10.9 million or 16.3%. The 1998 Facility Leases
contributed approximately $11.0 million to operating expenses during the second
quarter of 1999. The New Facility Leases and the Flatley Facility Leases
contributed approximately $2.4 million and approximately $7.8 million,
respectively, to operating expenses during the second quarter of 1999.
Wellington and South Bend contributed approximately $1.3 million and $1.4
million, respectively, to operating expenses for the prior year period ended
June 30, 1998. Same store nursing facility operating expenses decreased by
approximately $2.5 million in the second quarter of 1999 compared to the prior
year period, primarily resulting from decreases in therapy and other ancillary
costs associated with the re-negotiation of the Company's ancillary contracts
under the PPS methodology. These gains were offset in part by additional costs
associated with continued PPS training during the second quarter of 1999 at the
Company's nursing facilities. Operating expenses from Paragon decreased by
approximately $6.5 million in the second quarter of 1999 compared to the prior
year period, due to the cost-cutting measures put in place by management in
response to the decrease in revenues associated with PPS. Operating expenses
from PTS increased by approximately $500,000 due to increased volume from
existing contracts and the expansion of services provided to the Company's
managed nursing facilities.
<PAGE>
Lease expense. Lease expense increased from $5.7 million in the second quarter
of 1998 to $8.2 million in the second quarter of 1999, an increase of
approximately $2.5 million, or 43.0%. Lease expense from the 1998 Facility
Leases approximated $1.6 million during the second quarter of 1999, while lease
expense from the New Facility Leases and the Flatley Facility leases
approximated $185,000 and $1.3 million, respectively, in the second quarter of
1999. Wellington and South Bend contributed approximately $157,000 and $210,000
to lease expense during the prior year period ended June 30, 1998.
Corporate administrative costs. Corporate administrative costs increased from
$5.2 million in the second quarter of 1998 to $5.9 million in the second quarter
of 1999, an increase of $728,000, or 13.8%, which was due primarily to
additional overhead incurred to accommodate the 1998 Facility Leases, the New
Facility Leases, and the Flatley Facility Leases.
Depreciation and amortization. Depreciation and amortization increased from
$2.3 million in the second quarter of 1998 to $3.1 million in the same period in
1999, an increase of approximately $739,000, or 31.0%, which was primarily
attributable to additional depreciation expense incurred as a result of fixed
asset purchases and amortization of management contract and acquisition costs.
Provision for asset revaluation. During the second quarter of 1999, the Company
recorded a provision for asset revaluation of approximately $14.5 million. This
charge was comprised of a $7.8 million reserve for long-term advances and notes
receivable from managed facilities and a write-down of fixed assets and
intangible assets of $6.7 million related to certain of the Company's nursing
facilities and Paragon.
Interest expense. Interest expense increased from $2.3 million in the second
quarter of 1998 to $2.9 million in the second quarter of 1999, an increase of
approximately $594,000, or 25.6%, which was primarily attributable to the
increase in debt of approximately $24.9 million subsequent to the second quarter
of 1998, related to borrowings for working capital.
Provision for income taxes. The Company's effective tax rate increased from
39.0% in the second quarter of 1998 to 41.0% in the second quarter of 1999
(gross of tax benefits associated with nonrecurring second quarter losses), an
increase in the rate of 2.0%. This increase was primarily attributable to an
anticipated increase in the Company's average state tax rate due to the
Company's expansion into several new states resulting from the Flatley Facility
Leases and the 1998 Facility Leases.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998:
Net patient service revenues. Net patient service revenues increased from
$167.4 million in the first six months of 1998 to $193.3 million in the same
period in 1999, an increase of $25.9 million or 15.5%. The 1998 Facility Leases
contributed approximately $26.8 million to revenues during 1999. The New
Facility Leases and the Flatley Facility Leases contributed approximately $5.2
million and $19.8 million, respectively, to revenues during the first six months
of 1999. Wellington and South Bend contributed approximately $2.4 million and
$2.8 million, respectively, to revenues for the six months ended June 30, 1998.
Same store nursing facility revenues decreased by
<PAGE>
approximately $7.4 million during 1999 compared to the prior year period due
primarily to decreases in Medicare revenues associated with the advent of the
Medicare prospective payment system ("PPS"), which went into effect for the
majority of the Company's owned and leased nursing facilities on January 1,
1999. Payor mix at the Company's nursing facilities remained consistent during
1999 as compared to 1998. The Company experienced a decrease in its average
Medicare Part A rates during the first half of 1999 as well as a slight decrease
in census as compared to the prior period on a same store basis. Revenues from
Paragon decreased by approximately $15.5 million for the first six months of
1999 compared to the prior year period, due to the loss of sixteen external
contracts subsequent to the second quarter of 1998 and a general decrease in
average revenue per contract. The decrease in revenue per contract is associated
primarily with the pass through effect of Medicare PPS rate decreases affecting
Paragon's nursing center customers. Revenues from PTS, increased by
approximately $2.0 million due to increased volume from existing contracts and
the expansion of services provided to the Company's managed nursing facilities.
Management fees and other revenues. Management fees and other revenues
decreased from $7.5 million during the first six months of 1998 to $4.5 million
for the same period of 1999, a decrease of $3.0 million, or 39.8%.
Approximately $660,000 of this decrease was due to the loss of one management
contract subsequent to the second quarter of 1998, and approximately $800,000 of
this decrease was due to the conversion of three management contracts to leases
subsequent to June 30, 1998. The remaining decrease includes approximately
$850,000 attributable to revenue recognized during the second quarter of 1998
for performance of additional services to certain third party owners as well as
decreases in 1999 revenues earned under certain management agreements in which
the Company's fee is based on facility profits.
Facility operating expenses. Facility operating expenses increased from $132.8
million during the first six months of 1998 to $155.1 million for the same
period in 1999, an increase of $22.2 million or 16.7%. The 1998 Facility Leases
contributed approximately $22.1 million to operating expenses during 1999. The
New Facility Leases and the Flatley Facility Leases contributed approximately
$4.5 million and approximately $15.3 million, respectively, to operating
expenses during the six months ended June 30, 1999. Wellington and South Bend
contributed approximately $2.8 million and $2.6 million, respectively, to
operating expenses for the prior year period ended June 30, 1998. Same store
nursing facility operating expenses decreased by approximately $5.3 million
during the first half of 1999 compared to the prior year period, primarily
resulting from decreases in therapy and other ancillary costs associated with
the re-negotiation of the Company's ancillary contracts under the PPS
methodology. These gains were offset in part by additional costs associated with
continued PPS training during 1999 at the Company's nursing facilities.
Operating expenses from Paragon decreased by approximately $10.6 million in the
first six months of 1999 compared to the prior year period, due to cost-cutting
measures put in place by management in response to the decrease in revenues
associated with PPS. Operating expenses from PTS increased by approximately $1.6
million due to increased volume from existing contracts and the expansion of
services provided to the Company's managed nursing facilities.
<PAGE>
Lease expense. Lease expense increased from $11.1 million during the six months
ended June 30, 1998 to $16.1 million during the same period in 1999, an increase
of approximately $4.9 million, or 44.0%. Lease expense from the 1998 Facility
Leases approximated $2.9 million during 1999, while lease expense from the New
Facility Leases and the Flatley Facility leases approximated $386,000 and $2.5
million, respectively, through June 30, 1999. Wellington and South Bend
contributed approximately $313,000 and $420,000 to lease expense during the
prior year period ended June 30, 1998.
Corporate administrative costs. Corporate administrative costs increased from
$10.2 million in 1998 to $11.9 million during the first six months of 1999, an
increase of $1.7 million, or 16.9%, which was due primarily to additional
overhead incurred to accommodate the 1998 Facility Leases, the New Facility
Leases, and the Flatley Facility Leases.
Depreciation and amortization. Depreciation and amortization increased from
$4.7 million during the six months ended June 30, 1998 to $6.0 million in the
same period in 1999, an increase of approximately $1.4 million, or 29.4%, which
was primarily attributable to additional depreciation expense incurred as a
result of fixed asset purchases and amortization of management contract and
acquisition costs.
Provision for asset revaluation. During the second quarter of 1999, the Company
recorded a provision for asset revaluation of approximately $14.5 million. This
charge was comprised of a $7.8 million reserve for long-term advances and notes
receivable from managed facilities and a write-down of fixed assets and
intangible assets of $6.7 million related to certain of the Company's nursing
facilities and Paragon.
Termination Merger Cost. During the first quarter of 1999, the Company accrued
$600,000 of transaction costs associated with the proposed merger.
Interest expense. Interest expense increased from $4.2 million in 1998 to $5.4
million in 1999, an increase of approximately $1.2 million, or 27.8%, which was
primarily attributable to the increase in debt of approximately $24.9 million
subsequent to the second quarter of 1998, related to borrowings for working
capital.
Provision for income taxes. The Company's effective tax rate increased from
39.0% for the first six months of 1998 to 41.0% for the same period of 1999
(gross of tax benefits associated with nonrecurring 1999 losses), an increase in
the rate of 2.0%. This increase was primarily attributable to an anticipated
increase in the Company's average state tax rate due to the Company's expansion
into several new states resulting from the Flatley Facility Leases and the 1998
Facility Leases.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal source of cash during the first quarter of 1999 was
borrowings under the Senior Credit Facility. Cash was used by the Company for
capital improvements at several existing facilities, notes and advances
receivable from certain third parties and payments of deferred costs. The
Company anticipates utilizing cash from operations (through anticipated
reductions of accounts receivable) and anticipated borrowings under the Senior
Credit Facility to fund the growth in operations of its existing facilities,
and the expansion and development of specialty services.
During the six months ended June 30, 1999, the Company generated $432,000 in
cashflow from operating activities. This was comprised of operating cashflow
before noncash charges and changes in assets and liabilities of $9.5 million, an
increase in accounts receivable of $2.9 million and decrease in accounts payable
of $4.9 million. The increase in accounts receivable is comprised of: (a) a
$14.7 million increase in trade receivables at the Company's long-term care
facilities, (b) a $6.5 million decrease in nursing facility settlement
receivables associated with the collection of prior year Medicare cost report
receivables and exception requests and (c) a $4.8 million decrease in Paragon
receivables from third parties. The significant increase in trade receivables
during the period was due primarily to delays by the Company's intermediary in
processing change of ownership packages for the Flatley Facility Leases and the
1998 Facility Leases. The Company was unable to receive any Medicare payments
or, in certain states, Medicaid payments, until this process had been completed.
By June 30, 1999 the intermediary had completed all change of ownership
processing and the Company was beginning to receive payments on most of the
facilities in question. As of June 30, 1999, the Company had outstanding
Medicaid and Medicare receivables associated with these buildings of
approximately $14.6 million. The Company anticipates that significant portions
of these balances should be collected during the remaining two quarters of 1999.
The decrease in account payable consists of $3.6 million of payments on accounts
receivable purchased for the Flatley Facility Leases as of December 31, 1999 and
decreases in accrued group health insurance outstanding due to a reduction in
turnaround time on processing and payment of health claims.
Notes and other receivables from certain third party owners increased by
approximately $4.6 million during the first six months of 1999. The Company
continued to invest in its leased and owned facilities through capital
expenditures of approximately $3.7 million or approximately $460 per bed for the
six month period. These expenditures included the expansion of existing
facilities and the selected rehabilitation of certain facilities. Also during
the period, the Company paid $2.1 million for deferred costs including loan fees
associated with the refinancing of the Senior Credit Facility.
During the first six months of 1999, the Company borrowed a net $7.4 million in
working capital loans under the Senior Credit Facility which were utilized
primarily to finance capital expenditures at existing facilities and other
investing activities. As of June 30, 1999, the Company had $82.3 million
outstanding and approximately $6.8 million available under its Senior Credit
Facility, net of issued standby letters of credit of approximately $6.7 million.
Effective May 28, 1999, the Company amended its Senior Credit Facility to
transfer $5.7 million of availability from the lease portion of its commitment
to the revolver. Also included in the amendment are required amortization of
principal, or reduction of availability, of approximately $5.7 million, $11.0
million , $22.0 million and $22.0 million during each of the years ended
December 31, 1999, 2000, 2001 and 2002, respectively. In January 1999, the
Company obtained a $5.0 million Line of Credit from Nationsbank, which bears
interest at Nationsbank's Prime rate or 3.0% over Libor for selected portions.
Through an amendment during the second quarter of 1999, the Company extended the
maturity date of this commitment to December 31, 1999. As of March 31, 1999, the
Company had $5.0 million outstanding under this agreement.
The Company's Amended Senior Credit Facility restricts the Company's ability to
add new facilities through either acquisitions or leases. Due to these
restrictions, the Company is evaluating the market potential of establishing
management relationships with investor groups interested in acquiring nursing
facilities and outsourcing management. All discussions by the Company with any
investor groups are in a preliminary stage and the availability of such
management opportunities is uncertain.
<PAGE>
The Company anticipates meeting its cash flow requirements in the remaining two
quarters of 1999 through continued collection of current billings, Medicare
settlement receivables and collection of past due trade receivables associated
with the 1998 Facility Leases, the Flatley Facility Leases, and the New Facility
Leases. The Company is also evaluating a possible sale of certain assets to
provide additional liquidity for its day to day operations and required
principal reductions under its Senior Credit Facility.
Depending on the outcome, a settlement of the currently pending investigatory
subpoena from the Department of Health and Human Services, office of Inspector
General could result in a substantial liability for the Company. Neither the
amount or timing of any potential liability can, at this time, be estimated
with any reasonable certainty. It is, however, possible that resolution of this
investigation could have a material adverse effect on the Company's cash flow,
results of operations and consolidated financial position.
<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 ("SNF's") over the next five years,
primarily through the implementation of a Medicare prospective payment system
("PPS") for skilled services. Under the Act, PPS will be phased in over three
cost reporting periods beginning on or after July 1, 1998. Recent data from the
Congressional Budget Office indicates that the estimated reductions to SNF
payments resulting from the implementation of PPS actually approach $16.6
billion.
Generally, the PPS per diem, which covers routine service, ancillary and capital
related costs, has initially been 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 SNF 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 previously indicated a belief that revenues would be lower under PPS,
but noted that reductions in ancillary service costs and proper Minimum Data Set
("MDS") documentation should offset the effect of rate reductions. The Company
can give no assurance that payments under the PPS program in the future will
remain at a level comparable to the present or increase, nor can the Company
give assurance that the trend in cost reductions or utilization remain
consistent with current levels.
Currently, there are legislative efforts underway to provide relief to SNF
providers and restore a portion of the savings estimated in excess of the
targeted $9.5 billion. There is no assurance as to the likelihood that these
legislative efforts will be successful or, if successful, the timing of their
implementation.
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, in general, are
reimbursed at the lessor of (i) actual costs, (ii) per visit cost limits reduced
to 105% of the median per visit costs for freestanding home health agencies; or
(iii) a blended agency-specific per beneficiary annual limit ("PBL") applied to
the agency's unduplicated census count of Medicare patients.
The Act also provides that cost limits and PBL's must be reduced by 15% from the
amount that would otherwise be in effect on September 30, 1999, regardless of
whether the new prospective
<PAGE>
payment system is ready for implementation on October 1, 1999. Implementation of
these new limits will effectively reduce reimbursement 15-20% according to
industry experts.
Provisions of the Act also include limitations on coverage for outpatient
therapy services and the inclusion of inpatient therapy services in a per diem
payment rate based on an acuity measurement tool which classifies patients into
several intensity-based levels of care. The outpatient therapy limits are
$1,500 per year for the combination of Physical and Speech therapy and a
separate $1,500 for Occupational therapy. For payment purposes, inpatient
services are based upon minutes of care delivered and range from 45 minutes per
week to a maximum of 720 minutes per week.
IMPACT OF THE YEAR 2000 ISSUE
Computer systems and other equipment, including biomedical equipment and
building controls, with embedded computer microchips or processors
(collectively, "Business Systems") may use only two digits to represent the
year, which could result in the inability to process accurately certain date
sensitive data or operations before, during or after the year 2000. Business
and governmental entities are at risk for possible miscalculations or systems
failures causing disruptions of operations, including, among other things, a
temporary inability to process transactions, send invoices or engage in similar
normal business activities. This is commonly known as the Year 2000 Issue.
Problems associated with the Year 2000 Issue could affect many of Centennial's
financial and administrative operations as well as its voice and data
communication systems.
The Company is in the process of implementing a Year 2000 compliance plan (the
"Plan") with the objective of having all of its significant internal Business
Systems fully compliant with respect to the Year 2000 Issue by October 1, 1999.
The first component of the Plan is to identify the internal Business Systems of
the Company that are susceptible to processing errors or system failures as a
result of the Year 2000 Issue. This effort is substantially complete, and
priorities for all Business Systems that may require remediation or replacement
have been established. Those Business Systems considered most critical to
continuing operations and resident care are being given the highest priority.
The second component of the Plan involves the actual remediation and replacement
of Business Systems. As of June 30, 1999, substantially all remediation and
replacement of internal Business Systems has been completed.
Significant governmental entities, service providers, vendors and suppliers that
are believed to be critical to business operations after January 1, 2000, have
been identified and steps are being undertaken in an attempt to reasonably
ascertain their stage of Year 2000 compliance through questionnaires,
interviews, and other available means.
It is currently estimated that the aggregate cost of the Company's Year 2000
efforts will be approximately $150,000 to $200,000, of which approximately
$120,000 has been spent to date. These costs are being expensed as they are
incurred and are being funded through operating cash
<PAGE>
flow. These amounts do not include any costs associated with the implementation
of contingency plans, which are in the process of being developed. The costs
associated with the replacement of computerized systems, hardware or equipment
(currently estimated to be approximately $350,000), substantially all of which
has been capitalized, are not included in the above estimates. The Company does
not expect the costs relating to Year 2000 remediation to have a material effect
on Centennial's results of operations or financial condition.
Because of the interdependent nature of Business Systems, the Company could be
materially adversely affected if federal and state agencies that administer
Medicare and/or Medicaid or private businesses with which the Company does
business or that provide essential services are not Year 2000 compliant. The
business and results of operations of the Company could be materially adversely
affected by a temporary inability of the Company to conduct its businesses in
the ordinary course for a period of time after January 1, 2000.
Concurrently with the Plan described above, the Company is developing a
contingency plan intended to mitigate the possible disruption in business
operations that may result from the Year 2000 Issue, and is developing cost
estimates for this plan. Once developed, the contingency plan and related cost
estimates will be continually refined as additional information becomes
available.
The Company's Plan is an ongoing process and the estimates of costs and
completion dates for various components of the Plan described above are based on
Management's best estimates using assumptions of future events are subject to
change. There can be no assurances that these estimates will be acheived.
SUBSEQUENT EVENT
In July 1999, J. Stephen Eaton, Chief Executive Officer of the Company, and
Alan C. Dahl, Chief Financial Officer of the Company, acquired 100% of the
general and limited partnership interests in a limited partnership that owns
twelve nursing homes currently leased by the Company. These leases were
unchanged by this transaction and will remain in place under their existing
terms and conditions.
<PAGE>
PART II- OTHERINFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As of June 30, 1999, 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 the 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.
On March 26, 1999, the Company received an investigatory subpoena from
the Department of Health & Human Services, Office of Inspector General,
requesting records in connection with an investigation of possible or
otherwise improper claims for payment under Title XVIII (Medicare) of
the Social Security Act. The request relates to records for the period
January 1, 1994 to present and relates to four long-term care
facilities operated by the Company. The Company is cooperating in this
investigation and is currently providing the requested records.
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.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
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 of Form S-1, Registration No. 333-24267, as amended).
<PAGE>
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 Amendment No. 3 to the Third Amended and Restated Credit Agreement by
and among the Company and its subsidiaries and the Lenders identified
therein dated as of May 29, 1999.
10.2 Third Amendment to the Certain Operative Agreements dated as of May 28,
1999 by and among the Company, certain subsidiaries of the Company as
guarantors, First Security Bank National Association, as owner trustee,
the various banks and lending institutions named therein as Lenders,
First Union Capital Markets, as Syndication Agents, and NationsBank,
N.A., as agents.
10.3 Security Agreement dated as of May 28, 1999 by and among the Company,
certain subsidiaries of the Company and First Union National Bank, as
agent for the Lenders identified therein.
27.1 Financial Data Schedule (for SEC use only)
99.1 Cautionary Statements
(b) Reports on Form 8-K
On July 20, 1999, the Company filed a Form 8-K concerning changing the Company's
independent accountants from PricewaterhouseCoopers, LLP to Arthur Andersen,
LLP. On August 3, 1999, the Company filed a Form 8-K/A, amending its previously
filed Form 8-K on July 20, 1999, to provide the required letter from
PricewaterhouseCoopers, LLP related to the change in the Company's independent
accountants.
<PAGE>
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 16, 1999 CENTENNIAL HEALTHCARE CORPORATION
By: /s/ J. Stephen Eaton
--------------------
J. Stephen Eaton, Chairman of the Board,
President and Chief Executive Officer
Date: August 16, 1999 By: /s/ Alan C. Dahl
----------------
Alan C. Dahl, Executive Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
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 of 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 Amendment No. 3 to the Third Amended and Restated Credit Agreement by
and among the Company and its subsidiaries and the Lenders identified
therein dated as of May 29, 1999.
10.2 Third Amendment to the Certain Operative Agreements dated as of May
28, 1999 by and among the Company, certain subsidiaries of the Company
as guarantors, First Security Bank National Association, as owner
trustee, the various banks and lending institutions named therein as
Lenders, First Union Capital Markets, as Syndication Agents, and
NationsBank, N.A., as agents.
10.3 Security Agreement dated as of May 28, 1999 by and among the Company,
certain subsidiaries of the Company and First Union National Bank, as
agent for the Lenders identified therein.
27.1 Financial Data Schedule (for SEC use only)
99.1 Cautionary Statements
<PAGE>
AMENDMENT NO. 3
THIS AMENDMENT NO. 3 (this "Amendment") dated as of May 28, 1999, to that
Third Amended and Restated Credit Agreement referenced below, is by and among
CENTENNIAL HEALTHCARE CORPORATION, a Georgia corporation (the "Company"), the
subsidiaries of the Company that are borrowers under the Credit Agreement, the
Lenders identified herein, FIRST UNION NATIONAL BANK, as administrative agent
(the "Agent"), and NATIONSBANK, N.A., as Syndication Agent. Terms used but not
otherwise defined shall have the meanings provided in the Credit Agreement.
W I T N E S S E T H
WHEREAS, a revolving credit facility has been established in favor of the
Company and the other Borrowers identified therein pursuant to the terms of that
Third Amended and Restated Credit Agreement dated as of July 31, 1998 (as
amended and modified, the "Credit Agreement") among the Borrowers, the lenders
identified therein, First Union National Bank, as administrative agent, and
NationsBank, N.A., as syndication agent;
WHEREAS, the Company has requested certain modifications to the Credit
Agreement;
WHEREAS, the Lenders have agreed to make the requested modifications on
the terms and conditions set forth herein;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1.1 The following definitions in Section 1.1 of the Credit Agreement are
amended and modified, or added, to read as follows:
"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 (A) 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, the 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 and (B)
"Adjusted Fixed Charges" shall not include (i) scheduled commitment
reductions occurring hereunder within one year of the date of
determination or (ii) scheduled commitment reductions and/or sinking fund
payments, or the like, under the Lease Financing Facility occurring within
one year of the date of determination.
"Business Day" shall mean any day not a Saturday, Sunday or other day
on which commercial banks in Charlotte, North Carolina, New York, New York
<PAGE>
or [______], Pennsylvania are authorized or required by law to close.
"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 as used herein "Capital
Expenditures" shall not include (i) Permitted Acquisitions or (ii)
expenditures of proceeds of insurance settlements, condemnation awards and
other settlements in respect of lost, destroyed, damaged or condemned
assets, equipment or other property.
"Collateral Security Documents" shall mean collectively, this
Agreement, the Pledge Agreements, the Security Agreement, the Mortgages,
and related stock certificates and stock powers and financing statements,
the Intercreditor Agreement, if any, and any additional documents granting
security to Agent for the ratable benefit of the Secured Parties.
"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 NINETY MILLION DOLLARS ($90,000,000) on the
date hereof, as such maximum aggregate principal amount may be decreased
from time to time pursuant to Paragraph 2.8 hereof, but shall not include
the Tranche B Commitment under Section 2.1A hereof.
"Consolidated Proforma Fixed Charge Coverage Ratio" shall mean, as of
any date of determination, the ratio of Adjusted EBITDAR to Proforma
Adjusted Fixed Charges.
"Eligible Assignee" means (i) a lender hereunder; (ii) an Affiliate
of a lender hereunder or any fund that invests in bank loans and is
managed by an investment advisor to a Lender; and (iii) any other Person
(other than a Person in a Permitted Line of Business) approved by the
Administrative Agent and, unless an Event of Default has occurred and is
continuing at the time any assignment is effected in accordance with
Section 10.2, the Borrowers (such approval by the Administrative Agent or
the Borrowers not to be unreasonably withheld or delayed and such approval
to be deemed given by the Borrowers if no objection is received by the
assigning lender and the Administrative Agent from the Borrowers within
two Business Days after notice of such proposed assignment has been
provided by the assigning lender to the Borrower); provided, however, that
neither the Borrowers nor an Affiliate of any Borrower shall qualify as an
Eligible Assignee.
"Intercreditor Agreement" means any Intercreditor Agreement entered
into by the Secured Parties relating to the Collateral Security Documents.
"Maximum Tranche B Principal Amount" shall mean the maximum principal
amount of the Tranche B Commitment up to which the applicable Tranche B
Lender has agreed to lend funds, as set forth in Schedule 2 attached
hereto.
"Mortgages" means those mortgages, deeds of trust, security deeds or
like instruments given by the Borrowers to secure the Secured Obligations
referenced therein, as amended and modified.
"Proforma Adjusted Fixed Charges" shall mean the sum of (i) Adjusted
<PAGE>
Fixed Charges, plus (ii) scheduled commitment reductions hereunder
occurring within one year of the date of determination, plus (iii)
scheduled commitment reductions and/or sinking fund payments, or the like,
under the Lease Financing Facility occurring within one year of the date
of determination.
"Secured Parties" shall mean, individually and collectively, Agent,
the Lenders, the Tranche B 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,
NationsBank, N.A., as holder of that $5 million promissory note dated as
of May 28, 1999, as amended and modified, the Agent and the Syndication
Agent.
"Security Agreement" means the security agreement dated as of May 28,
1999 given by the Borrowers to secure the Secured Obligations referenced
therein, as amended and modified.
"Tranche B Advance" shall mean an advance of funds by the Tranche B
Lenders under the Tranche B Commitment.
"Tranche B Advance Request Form" shall mean a certificate in
substantially the same form as the Advance Request Form with appropriate
modifications to reference Tranche B Advances.
"Tranche B Commitment" shall mean the maximum aggregate principal
amount up to which the Tranche B Lenders, on a several basis, have agreed
to make Tranche B Advances under Section 2.1A hereof, being FIVE MILLION
EIGHT HUNDRED SIXTY-NINE THOUSAND FIVE HUNDRED AND NO/100 DOLLARS
($5,869,500) on May 28, 1999 (being the date of Amendment No. 3), as such
maximum aggregate principal amount may be decreased from time to time
hereunder.
"Tranche B Lenders" shall mean individually and "Tranche B 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 Tranche B
Commitment or Tranche B Loan hereunder.
"Tranche B Loan" shall mean the outstanding principal balance of
indebtedness advanced under the Tranche B Commitment, together with
interest accrued on and fees and expenses incurred in connection with any
of the foregoing.
"Tranche B Note" shall mean individually, and "Tranche B Notes" shall
mean individually and collectively the Tranche B Notes in substantially
the form of the Notes shown in Exhibit C attached hereto, to be delivered
by the Borrowers to the Tranche B Lenders pursuant to Section 2.1A(b)
hereof, as the same may be amended, modified, extended, consolidated or
restated from time to time.
"Tranche B Pro Rata Share" shall mean, as to a Tranche B Lender at
any time, the ratio which the outstanding principal balance of its portion
of the Tranche B Loan outstanding at such time hereunder bears to the
aggregate outstanding principal balance of the Tranche B Loan at such
<PAGE>
time.
"Tranche B Required Lenders" shall mean those Tranche B Lenders
(which may include the Agent in its capacity as a Lender) holding Tranche
B Pro Rata Shares of the Tranche B Loan in excess of fifty percent (50%).
"Tranche B Termination Date" shall mean the earlier of (i) December
31, 1999 or (ii) the date on which the Tranche B Commitment may have been
terminated hereunder.
1.2 A new Section 2.1A is inserted immediately following Section 2.1 to
read as follows:
2.1A Tranche B Commitment.
(a) Tranche B Commitment. From time to time prior to the Tranche
B Termination Date, subject to the provisions below, each Tranche B Lender
severally agrees to make Tranche B Advances to Borrowers up to such
Tranche B Lender's Maximum Tranche B Principal Amount as set forth on
Schedule 2 attached hereto, and borrowers may repay at the offices of
Agent and reborrow under the Tranche B Commitment, up to an aggregate
principal amount not to exceed at any time outstanding the amount of the
Tranche B Commitment as from time to time in effect. The obligations of
the Borrowers hereunder are and shall be joint and several. Each of the
Borrowers hereby irrevocably authorizes and requests that the Company
execute all Tranche B 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 Tranche B Advance
Request form, made such election or taken such other action itself.
(b) Tranche B Promissory Notes. The indebtedness of the
Borrowers to each Tranche B Lender under the Tranche B Loans will be
evidenced by a Tranche B Note executed by the Borrowers, jointly and
severally, in favor of such Lender. The original principal amount of each
Tranche B Lender's Tranche B Note will be the amount identified in
Schedule 2 attached hereto as its Maximum Tranche B Principal Amount;
provided, however, that notwithstanding the face amount of each such Note,
the Borrowers' liability under each of such Note shall be limited at all
times to the actual indebtedness, principal, interest, fees and expenses,
then outstanding to such Tranche B Lender under the Tranche B Loan.
(c) Tranche B Lenders' Participation. The Tranche B Lenders
shall participate in the Tranche B Loan in the Maximum Tranche B Principal
Amounts and Tranche B Pro Rata Shares set forth in Schedule 2 attached
hereto.
(d) Use of Proceeds. Tranche B Advances under the Tranche B
Commitment may be used for the same purposes provided in Section 2.4 for
Advances.
(e) Repayment. The aggregate outstanding principal balance of
the Tranche B Loan shall be due and payable in full on the Tranche B
Termination Date; provided, however, that notwithstanding the foregoing,
the entire outstanding balance of the Tranche B Loan shall be payable in
full on the date of acceleration of the Tranche B Loan as provided herein.
<PAGE>
(f) Interest. The Tranche B Loan shall bear interest at the same
rates and as provided in Section 2.8 for Advances.
(g) Tranche B Advances. Tranche B Advances shall be made as
provided in Section 2.9 for Advances (with appropriate modifications to
refer to the Tranche B Advances).
(h) Adjustments to Tranche B Commitment.
(i) 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 Tranche B Commitment in whole
or in part pro rata among the Tranche B 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 Tranche B Lenders in an amount, if any, by which the
aggregate outstanding principal balance of the Tranche B Loan exceeds the
amount of the Tranche B 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.
(ii) Termination by Lenders. Pursuant to Paragraph 8.2
hereof, Tranche B Required Lenders shall have the right to terminate the
Tranche B Commitment at any time, in their sole discretion and upon notice
to Borrowers, upon the occurrence of any Event of Default hereunder. Any
payment following the occurrence of any Event of Default, acceleration and
demand for payment shall include the payment of any amounts due pursuant
to Paragraph 2.10 hereof.
(iii) Pro Rata Reductions in Maximum Tranche B Principal
Amounts; Restoration Only with Consent. Any termination or reduction of
the Tranche B Commitment shall result in pro rata reduction in each
Tranche B Lender's Maximum Tranche B 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 Tranche B Lenders.
(i) Voluntary Prepayments. Voluntary prepayments may be made on
the Tranche B Loan as provided in Section 2.9(a) for Advances.
(j) Funding Costs and Loss of Earnings. The provisions of
Section 2.10 shall apply with equal effect to the Tranche B Loan.
(k) Payments. The provisions of Section 2.11 shall apply with
equal effect to the Tranche B Loan.
(l) Tranche B Commitment Fee. Borrowers shall pay to the Agent,
for the benefit of the Tranche B Lenders, a non-refundable commitment fee
on the average unused portion of each Tranche B Lender's Maximum Tranche B
Principal Amount as from time to time in effect from the date hereof
through the Tranche B Termination Date at the applicable rate, and payable
as, provided in Section 2.12 for the Commitment based on the ratio of
Adjusted Total Debt to Adjusted EBITDAR for the Company and its
Consolidated Subsidiaries.
<PAGE>
(m) Regulatory Changes in Capital Requirements. The provisions
of Section 2.16 shall apply with equal effect to the Tranche B Loan.
(n) Taxes. The provisions of Section 2.17 shall apply with equal
effect to the Tranche B Loan.
(o) Representations and Warranties. The representations and
warranties in Section 3 shall be extended also to the Tranche B Lenders
and apply with equal effect to the Tranche B Loan.
(p) Conditions to Tranche B Advances. The provisions of Sections
4.2 and 4.3 shall apply with equal effect to the Tranche B Advances.
(q) Covenants. The affirmative covenants of Section 5 and the
negative covenants of Section 6 shall be extended also to the Tranche B
Lenders and shall remain in effect until the Tranche B Loan is paid in
full and the Tranche B Commitment has been terminated.
(r) Collateral and Rights of Set-Off. The provisions of Section
7 shall be extended also to the Tranche B Lenders and apply with equal
effect to the Tranche B Loan.
1.3 In Section 2.8 of the Credit Agreement, subsection (b) is amended in
its entirety to read as follows:
(b) Scheduled Permanent Reductions in Commitments. The
Commitments hereunder shall be permanently reduced on the dates and in the
amounts shown below:
Date of Reduction Scheduled Commitment
Reduction Amount
December 31, 2000 $ 6,000,000
December 31, 2001 $12,500,000
December 31, 2002 $12,500,000
1.4A Section 2.9(b)(i) is hereby amended and restated to read as follows:
(i) Asset Dispositions. Prior to January 1, 2000 in connection
with each Sale of Material Assets approved by Lenders pursuant to
Paragraph 6.7 hereof and on and after January 1, 2000 in connection with
any sale of assets (whether or not a Sale of Material Assets subject to
approval pursuant to Section 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.
1.4 The last sentence of subclause (iv) of clause (b) of Section 2.9 is
amended in its entirety to read as follows:
Prepayments made under clauses (ii) in respect of the incurrence of
additional Indebtedness or (iii) in respect of equity issuances above
prior to the Termination Date shall not reduce the Commitment and may be
reborrowed in accordance with this Agreement. Prepayments made under
clause (i) shall serve to reduce the Commitment hereunder on a dollar-for-
dollar basis by the amount of prepayment required thereunder.
<PAGE>
1.5 The following sentence is added to the end of Section 4.3 of the
Credit Agreement:
Each request for an Advance (including extensions and conversions of
an Advance) or a Letter of Credit and each acceptance by the Borrower of
an Advance (including extensions and conversions of an Advance) or a
Letter of Credit shall be deemed to constitute a representation and
warranty by the Borrower as of the date of such request or acceptance of
an Advance or Letter of Credit that the applicable conditions set forth in
the foregoing sentence have been satisfied.
1.6 Section 5.2 is amended to read as follows:
(a) Quarterly Financial Statements. 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, subject to
normal year-end audit adjustments.
(b) Monthly Financial Statements. Furnish Lenders within thirty
(30) days of the end of each fiscal month with unaudited company-prepared
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 in
accordance with GAAP consistently applied excluding footnotes and
narrative disclosures and subject to normal quarterly and year-end audit
adjustments and accruals.
1.7 Section 5.12 of the Credit Agreement is amended to read as follows:
5.12 Additional Collateral Documentation, Etc.
(a) The Borrowers shall, within 45 days from the date of Amendment
No. 3, in the case of unencumbered properties, and within 90 days from the
date of Amendment No. 3, in the case of encumbered properties, deliver to
the Agent, with respect to all real property owned by the Borrowers,
Mortgages and such other documents, instruments and other items of the
types required by the Agent, including, but not limited to, appropriate
UCC-1 financing statements, real estate title insurance policies,
environmental reports, landlord's waivers and favorable opinions of
counsel, all in form, content and scope reasonably satisfactory to the
Agent.
(b) As soon as practicable and in any event within 30 days after any
Person becomes a direct or indirect Subsidiary of any Borrower, the
Borrowers shall provide the Agent with written notice thereof setting
<PAGE>
forth information in reasonable detail describing all of the assets of
such Person and shall (i) if such Person is a Domestic Subsidiary, cause
such Person to execute a joinder agreement, in form and substance
satisfactory to the Agent, relating to this Credit Agreement, the Notes,
the Security Agreement and the Pledge Agreement, (ii) if such Person is a
Domestic Subsidiary, cause 100% of the issued and outstanding capital
stock (or other ownership interest) of such Person to be delivered to the
Agent (together with undated stock powers signed in blank) and pledged to
the Agent pursuant to an appropriate pledge agreement(s) in substantially
the form of the Pledge Agreement and otherwise in form acceptable to the
Agent, (iii) if such Person is a direct Foreign Subsidiary of any
Borrower, cause 65% (or such greater percentage which would not result in
material adverse tax consequences) of the issued and outstanding capital
stock (or other ownership interest) entitled to vote (within the meaning
of Treas. Reg. Section 1.956-2(c)(2)) and 100% of the issued and
outstanding capital stock (or other ownership interest) not entitled to
vote (within the meaning of Treas. Reg. Section 1.956-2(c)(2)) of such
Person to be delivered to the Agent (together with undated stock powers
signed in blank (unless, with respect to a Foreign Subsidiary, such stock
powers are deemed unnecessary by the Agent in its reasonable discretion
under the law of the jurisdiction of incorporation of such Person)) and
pledged to the Agent pursuant to an appropriate pledge agreement(s) in
substantially the form of the Pledge Agreement and otherwise in form
acceptable to the Agent and (iv) cause such Person to (A) if such Person
is a Domestic Subsidiary which has any real property, deliver to the
Agent, with respect to such real property, Mortgages and such other
documents, instruments and other items of the types required by the Agent
all in form, content and scope reasonably satisfactory to the Agent and
(B) deliver such other documentation as the Agent may reasonably request
in connection with the foregoing, including, without limitation,
appropriate UCC-1 financing statements, real estate title insurance
policies, environmental reports, landlord's waivers, certified resolutions
and other organizational and authorizing documents of such Person,
favorable opinions of counsel to such Person (which shall cover, among
other things, the legality, validity, binding effect and enforceability of
the documentation referred to above and the perfection of the Agent's
liens thereunder), all in form, content and scope reasonably satisfactory
to the Agent.
(c) If a Borrower shall (a) acquire any intellectual property,
securities, instruments, chattel paper or other personal property required
to be pledged to the Agent hereunder or under any of the Collateral
Security Documents or (b) acquire or lease any real property, the
Borrowers shall promptly notify the Agent of same. Each Borrower shall
take such action at its own expense as requested by the Agent to ensure
that the Agent has a first priority perfected lien to secure the
obligations of the Borrowers under the Loan Documents in (i) all owned
real property and personal property of the Borrowers located in the United
States, and (ii) to the extent deemed to be material by the Agent in its
sole reasonable discretion, all other owned real and personal property of
the Borrowers.
(d) The Borrowers shall promptly execute and deliver at its expense
all further instruments and documents and take all further action that may
be necessary and desirable or that the Agent may reasonably request in
order to (i) perfect and protect the security interest created under the
Collateral Security Documents in the Collateral (as defined in the
<PAGE>
Collateral Security Documents) and (ii) enable the Agent to exercise and
enforce its rights and remedies under the Loan Documents in respect of the
Collateral (as defined in the Collateral Security Documents).
1.8 Sections 5.15, 5.16 and 5.17 are amended, and a new Section 5.17A is
added, to read as follows:
5.15 Funded Debt to Capital Ratio. Maintain as of the last day of
each fiscal quarter of Funded Debt to Capital of not more than:
Fiscal Quarter Ended Required
Ratio
March 31, 1999 0.75:1
June 30, 1999 0.75:1
September 30, 1999 0.75:1
December 31, 1999 0.75:1
March 31, 2000 0.70:1
June 30, 2000 0.70:1
September 30, 2000 0.70:1
December 31, 2000 0.65:1
March 31, 2001 and thereafter 0.60:1
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 no more than the applicable ratio set forth
in the right hand column below:
Fiscal Quarter Ended Required
Ratio
March 31, 1999 5.80:1
June 30, 1999 5.80:1
September 30, 1999 5.80:1
December 31, 1999 5.60:1
March 31, 2000 5.50:1
June 30, 2000 5.25:1
September 30, 2000 5.25:1
December 31, 2000 5.00:1
March 31, 2001 and thereafter 4.50:1
<PAGE>
5.17 Fixed Charge Coverage Ratio. Maintain as of the last day of each
fiscal quarter a Consolidated Fixed Charge Coverage Ratio of not less
than:
Fiscal Quarter Ended Required
Ratio
March 31, 1999 1.35:1
June 30, 1999 through December 31, 2000 1.35:1
March 31, 2001 and thereafter 1.50:1
5.17A Proforma Fixed Charge Coverage Ratio. Maintain as of the last
day of each fiscal quarter a Consolidated Proforma Fixed Charge Coverage
Ratio of not less than 1.0:1.
1.9 Any requirement for additional interest rate protection under Section
5.22 is hereby waived.
1.10 In Section 6.1, clause (i) is amended in its entirety to read as
follows:
(i) Indebtedness pursuant to the Lease Financing Facility, pursuant
to the Loan from the Lenders hereunder and pursuant to the Tranche B Loan
from the Tranche B Lenders hereunder;
1.11 In Section 6.2, the "and" immediately preceding clause (iv) is
deleted and a new clause (v) is added at the end of clause (iv) to read as
follows:
and (v) guaranties by Borrowers of the Tranche B Loan.
1.12 In Section 6.4, clause (i) is amended in its entirety to read as
follows:
(i) liens in favor of the Lenders in respect of the Loan hereunder,
in favor of the Tranche B Lenders in respect of the Tranche B Loan
hereunder and in favor of the Lease Financing Lenders and the Holders in
respect of the Lease Financing Facility, as security for the Loan, the
Tranche B Loan and the Lease Financing Facility;
1.13 Section 6.8(a)(iv), and all language thereafter until the beginning
of 6.8(b), is hereby deleted and replaced with a new Section 6.8(a)(iv) to
read as follows:
"(iv) any other acquisition approved in writing by the Required Lenders
and by the Tranche B Required Lenders".
1.14 In Section 8.1, new subsections (m), (n) and (o) are added, to read
as follows:
(m) if Borrowers shall fail to pay (i) any installment of principal
on the Tranche B Loan when due; or (ii) any payment of interest or any
other sum payable to the Tranche B Lenders hereunder or otherwise within
<PAGE>
three (3) days of when due;
(n) if any Borrower shall default in the performance of any other
agreement or covenant contained herein (other than as provided in
subparagraphs (a), (b), (d) or (m) hereof) 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 the Tranche B Required Lenders;
(o) 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 Tranche B Required 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.
1.15 In Section 8.2, the existing paragraph is renumbered as clause "(i)"
and a new clause (ii) is added to read as follows:
(ii) Upon the happening of any Event of Default and at any time
thereafter, at the election of Tranche B Required Lenders, and by notice
by Agent to Borrowers (except if an Event of Default described in
Paragraph 8.l(j) shall occur in which case acceleration shall occur
automatically without notice), the Tranche B Required Lenders may declare
the entire unpaid balance, principal, interest and fees, of all
Indebtedness of Borrowers to the Tranche B Lenders, hereunder or
otherwise, to be immediately due and payable. Upon such declaration, the
Tranche B Commitment shall immediately and automatically terminate and
Tranche B Lenders shall have no further obligation to make any Tranche B
Advance and, subject only to the terms of the Intercreditor Agreement, if
any, or the terms of the Collateral Security Documents, 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 Tranche B Required Lenders
that the Indebtedness is due and payable following an Event of Default,
the Tranche B Required Lenders may terminate the Tranche B 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 Documents, Tranche B Lenders shall have all the rights
and remedies granted by any applicable law, all of which shall be
cumulative in nature, subject only to the terms of the Intercreditor
Agreement, if any, or the terms of the Collateral Security Documents.
1.16 In Section 9.1, the existing paragraph is renumbered as clause "(i)",
the phrase in the second line of clause (i) "to Lenders on the basis" is
amended to read "in respect of the Loan to the Lenders on the basis" and a
new clause (ii) is added to read as follows:
(ii) Agent shall apply all payments of principal, interest,
commitment fee or other amounts hereunder made to Agent by or on behalf of
Borrowers, in respect of the Tranche B Loan to the Tranche B Lenders on
<PAGE>
the basis of their Tranche B Pro Rata Shares of the outstanding principal
balance of the Tranche B Loan, except for (a) the fees payable under
Paragraph 2.14 hereof, 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.
1.17 In Section 9.2, the existing paragraph is renumbered as clause "(i)"
and a new clause (ii) is added to read as follows:
(ii) In the event a Tranche B 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 Tranche B Pro Rata
Share of such payment based upon the Tranche B Lenders' respective shares
of principal Indebtedness outstanding hereunder immediately before such
payment, such Tranche B Lender shall purchase a portion of the
Indebtedness hereunder owing to each other Tranche B Lenders so that after
such purchase each Tranche B Lender shall hold its Tranche B 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 Tranche B Lender, such purchase shall be rescinded and the purchase
price restored to the extent of any such recovery, with each Tranche B
Lender paying its Tranche B Pro Rata Share of any interest which the
Tranche B Lender from which such recovery is obtained is required to pay.
1.18 In Section 9.3, the existing paragraph is renumbered as clause "(i)"
and a new clause (ii) is added to read as follows:
(ii) No modification or amendment hereof, consent hereunder or waiver
of any Event of Default shall be effective except by written consent of
the Tranche B Required Lenders; provided, however, that the written
consent of each of the Tranche B Lenders directly affected thereby shall
be required to (i) modify, amend, waive, discharge, terminate or suspend
compliance with (A) any rate of interest applicable to the Tranche B Loan
to the extent it is proposed to be decreased, (B) the amount of the
Tranche B Commitment, to the extent it is proposed to be increased, and
the Tranche B Lenders' respective shares thereof; (C) the dates or amounts
of payment of the Tranche B Loan, (D) the commitment fee set forth in
Section 2.1A(l) hereof or other amounts payable by Borrowers in respect of
the Tranche B Loan 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 Tranche B Required
Lenders, or (F) this clause (ii) of this Paragraph 9.3; or (ii) the
release of any 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.
1.19 In Section 9.4, the existing paragraph is renumbered as clause "(i)"
and a new clause (ii) is added to read as follows:
(ii) The obligations of the Tranche B Lenders hereunder are several,
and each Tranche B Lender hereunder shall not be responsible for the
obligations of the other Tranche B Lenders hereunder, nor will the failure
of one Tranche B Lender to perform any of its obligations hereunder
relieve the other Tranche B Lenders from the performance of their
respective obligations hereunder.
<PAGE>
1.20 The provisions of Sections 9.5 through 9.18, and all of the
provisions of Section 10, shall apply with equal effect to the Tranche B
Lenders and the Tranche B Loan.
1.21 Section 10.2 is amended to read as follows:
10.2 Participations and Assignments.
(a) Each Lender may assign to one or more Eligible Assignees all or a
portion of its rights and obligations under this Credit Agreement
(including, without limitation, all or a portion of its Loans, its Notes,
and its Commitment); provided, however, that
(i) each such assignment shall be to an Eligible Assignee;
(ii) except in the case of an assignment to another Lender, an
Affiliate of an existing Lender or any fund that invests in bank
loans and is advised or managed by an investment advisor to an
existing Lender or an assignment of all of a Lender's rights and
obligations under this Credit Agreement, any such partial assignment
shall be in an amount at least equal to $5,000,000 (or, if less, the
remaining amount of the Commitment being assigned by such Lender) or
an integral multiple of $1,000,000 in excess thereof;
(iii) any such assignment shall be of a constant, not varying,
percentage of (A) all of the Obligations and Commitments hereunder
and (B) all of the Tranche B Loans and Tranche B Commitments
hereunder; and
(iv) the parties to such assignment shall execute and deliver to
the Agent for its acceptance an Assignment and Acceptance in the form
of Exhibit K hereto, together with any Note subject to such
assignment and a processing fee of $3,500.
Upon execution, delivery, and acceptance of such Assignment and
Acceptance, the assignee thereunder shall be a party hereto and, to the
extent of such assignment, have the obligations, rights, and benefits of a
Lender hereunder and the assigning Lender shall, to the extent of such
assignment, relinquish its rights and be released from its obligations
under this Credit Agreement. Upon the consummation of any assignment
pursuant to this Section 10.2(a), the assignor, the Agent and the
Borrowers shall make appropriate arrangements so that, if required, new
Notes are issued to the assignor and the assignee. If the assignee is not
a United States person under Section 7701(a)(30) of the Code, it shall
deliver to the Borrower, the Guarantors and the Agent certification as to
exemption from deduction or withholding of Taxes.
(b) The Agent shall maintain a copy of each Assignment and Acceptance
delivered to and accepted by it and a register for the recordation of the
names and addresses of the Lenders and the Commitment of, and principal
amount of the Loans owing to, each Lender from time to time (the
"Register"). The entries in the Register shall be conclusive and binding
for all purposes, absent manifest error, and the Borrower, the Agent and
the Lenders may treat each Person whose name is recorded in the Register
as a Lender hereunder for all purposes of this Credit Agreement. The
<PAGE>
Register shall be available for inspection by the Borrowers or any Lender
at any reasonable time and from time to time upon reasonable prior notice.
Any assignment of any Loan or other obligations shall be effective only
upon an entry with respect thereto being made in the Register.
(c) Upon its receipt of an Assignment and Acceptance executed by the
parties thereto, together with any Note subject to such assignment and
payment of the processing fee, the Agent shall, if such Assignment and
Acceptance has been completed and is in substantially the form of Exhibit
K hereto, (i) accept such Assignment and Acceptance, (ii) record the
information contained therein in the Register and (iii) give prompt notice
thereof to the parties thereto.
(d) Each Lender may sell participations to one or more Persons in all
or a portion of its rights, obligations or rights and obligations under
this Credit Agreement (including all or a portion of its Commitment or its
Loans); provided, however, that (i) such Lender's obligations under this
Credit Agreement shall remain unchanged, (ii) such Lender shall remain
solely responsible to the other parties hereto for the performance of such
obligations, (iii) the participant shall be entitled to the benefit of the
yield protection provisions contained in Section 2.10, Section 2.16 and
Section 2.17, and the right of set-off contained in Section 7, and (iv)
the Borrowers shall continue to deal solely and directly with such Lender
in connection with such Lender's rights and obligations under this Credit
Agreement, and such Lender shall retain the sole right to enforce the
obligations of the Borrowers relating to the Loans and other obligations
owing to such Lender and to approve any amendment, modification, or waiver
of any provision of this Credit Agreement (other than amendments,
modifications, or waivers decreasing the amount of principal of or the
rate at which interest is payable on such Loans or Notes, extending any
scheduled principal payment date or date fixed for the payment of interest
on such Loans or Notes, or extending its Commitment).
(e) Notwithstanding any other provision set forth in this Credit
Agreement, any Lender may at any time assign and pledge all or any portion
of its Loans and its Notes to any Federal Reserve Bank as collateral
security pursuant to Regulation A and any Operating Circular issued by
such Federal Reserve Bank. No such assignment shall release the assigning
Lender from its obligations hereunder.
(f) Any Lender may furnish any information concerning the members of
the Consolidated Group in the possession of such Lender from time to time
to assignees and participants (including prospective assignees and
participants), subject, however, to the provisions of Section 10.2 hereof.
1.22 Schedule 2 to the Credit Agreement is (i) updated to reflect updated
information regarding the Lenders, their respective Maximum Principal
Amounts and Percentages of Commitment, and (ii) amended and restated to
include the Tranche B Lenders, their respective Maximum Tranche B
Principal Amounts and Percentages of Tranche B Commitment, as attached.
1.23 The Borrowers will, in consideration of the establishment of the
Tranche B Commitment hereby, permanently terminate commitments under the
Lease
<PAGE>
Financing Facility in an aggregate amount equal to the aggregate Tranche B
Commitment promptly upon the effectiveness of this Amendment and
establishment of the Tranche B Commitment hereunder.
1.24 The Lenders, by action of the Required Lenders, acknowledge and
consent to the terms of, and authorize and direct the Agent to take
appropriate action to enter into, the Security Agreement and the First
Amendment to Pledge Agreement, forms of which have been provided to the
Lenders.
1.25 The Borrowers covenant and agree that they will deliver Mortgages on
those property locations agreed upon with the Agent and the Required
Lenders (i) within 45 days of the date hereof, in the case of unencumbered
properties, and (ii) within 90 days of the date hereof, in the case of
encumbered properties, together with, in each case certificates of
insurance evidencing flood hazard insurance (for improvements located in
areas having "special flood hazards"), casualty insurance (including
builders' risk and all-risk permanent policies) and liability conforming
to the requirements of this Credit Agreement and the other Credit
Documents, showing the Agent as sole loss payee with respect to the flood
hazard and casualty insurance and as additional insured with respect to
liability insurance, together with evidence of payment of premiums
thereon. Failure to provide the Mortgages and related items in a timely
manner will constitute an Event of Default under the Credit Agreement.
2. This Amendment shall be effective upon satisfaction of the following
conditions:
(a) execution of this Amendment by the Borrowers and the Required
Lenders;
(b) Receipt of the entire amount of the Tranche B Commitments and
execution of this Amendment by all of the Tranche B Lenders and delivery
of executed Tranche B Notes;
(c) receipt by the Agent of corporate resolutions, incumbency
certificates, corporate documents and legal opinions in form and substance
reasonably satisfactory to the Agent and the Required Lenders;
(d) receipt by the Agent of the Security Agreement, the First
Amendment to Pledge Agreement and UCC financing statements relating
thereto, in each case duly executed by the Borrowers;
(e) receipt by the Agent of certificates of insurance on personal
<PAGE>
property;
(f) receipt by the Agent of (i) a waiver fee of twelve and one-half
basis points (0.125%) on the Commitments of the Lenders consenting to the
Waiver dated May 15, 1999 and an amendment fee of thirty-seven and one-
half basis points (0.375%) on the Commitments of Lenders consenting to
this Amendment, and (ii) a commitment fee of thirty-seven and one-half
basis points (0.375%) on the Tranche B Commitments of the Tranche B
Lenders; and
(g) receipt by the Agent if a copy of the executed Amendment to the
Lease Financing Facility providing, among other things, for the scheduled
annual escrow payments, and evidence of payment to the lenders and holders
thereunder of a waiver fee of twelve and one-half basis points (0.125%) on
the Commitments thereunder (after giving effect to the reduction of
commitments contemplated in Section 1.24 hereof) and an amendment fee of
thirty-seven and one-half basis points (0.375%) on the commitments
thereunder (after giving effect to the reduction of commitments
contemplated in Section 1.24 hereof).
3. Except as modified hereby, all of the terms and provisions of the
Credit Agreement (including Schedules and Exhibits) shall remain in full
force and effect.
4. The Borrowers agree to pay all reasonable costs and expenses of the
Agent in connection with the preparation, execution and delivery of this
Amendment, including without limitation the reasonable fees and expenses
of Moore & Van Allen, PLLC.
5. This Amendment may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original and it
shall not be necessary in making proof of this Amendment to produce or
account for more than one such counterpart.
6. This Amendment shall be deemed to be a contract made under, and for all
purposes shall be construed in accordance with the laws of the
Commonwealth of Pennsylvania.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Amendment No. 3 to be duly executed and delivered as of the date 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/ Daryl Griswold By:/s/ Alan C. Dahl
Name: Daryl Griswold Name: Alan C. Dahl
Title:Asst. Secretary Title: EVP
FIRST UNION NATIONAL BANK, for itself
and as Agent
By:/s/ J. Matt Maclver
Name:J. Matt Maclver, Jr.
Title:Vice President
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 Difatta
Name:J. Ken Difatta
Title:Asst. Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By:/s/ Farhood Tavanqar
Name:Farhood Tavanqar
Title:Senior Vice President
NATIONAL CITY BANK OF KENTUCKY
<PAGE>
By:/s/ Roderic M. Brown
Name:Roderic M. Brown
Title:Vice President
WACHOVIA BANK, N.A.
By:/s/ Gary C.Gaskill
Name:Gary C Gaskill
Title:Vice President
SCOTIABANK INC.
By:/s/ Carolyn A. Calloway
Name:Carolyn A. Calloway
Title:Relationship Manager
COMERICA BANK
By:/s/ Craig F. Durno
Name:Craig F. Durno
Title:Asst. V.P.
<PAGE>
Schedule 2
Schedule of Lenders
and respective
Maximum Principal Amounts and Percentages of Commitments
Existing Commitments Tranche B Commitments
Maximum Maximum Tranche B
Principal Amount Percent Principal Amount Percent
NationsBank, N.A. $15,750,000 17.50% $1,174,062.50 21.81%
Atlanta Plaza Building
600 Peachtree Street NE
GA1-006-19-22
Atlanta, GA 30303
Attn: Melinda Bergbom
Tel: (404) 607-4761
Fax: (404) 607-6343
First Union National Bank $15,750,000 17.50% $1,174,062.50 21.81%
301 South College Street
One First Union Center, TW-5
Charlotte, NC 28288
Attn: Matt MacIver
Tel: (704) 374-4187
Fax: (704) 383-9144
AmSouth Bank $11,250,000 12.50% $812,500.00 15.10%
1900 Fifth Avenue North
SONAT - 7th Floor
Birmingham, AL 35203
Attn: Ken DiFatta
Tel: (205) 801-0103
Fax: (205) 326-4790
Credit Lyonnais $11,250,000 12.50% $788,125.00 14.64%
1301 Avenue of the Americas
New York, NY 10019-6022
Attn: Marty Golden / Henry Reukauf
Tel: (212) 261-7791 (Mr. Golden)
Fax: (212) 261-3440
RaboBank $9,000,000 10.00% $0 0%
1201 West Peachtree Street
Suite 3450
Atlanta, GA 30309-3450
Attn: Terrell Boyle
Tel: (404) 877-9106
Fax: (404) 877-9150
Comerica Bank $6,750,000 7.50% $472,875.00 8.79%
500 Woodward Avenue
9th Floor
Detroit, MI 48226
Attn: Craig Durno
Tel: (313) 222-7542
Fax: (313) 222-3420
National City Bank of $6,750,000 7.50% $472,875.00 8.79%
Kentucky
101 South Fifth Street
Louisville, KY 40202
Attn: Roderic M. Brown
Tel: (502) 581-4369
Fax: (502) 581-4424
Scotiabanc Inc. $6,750,000 7.50% $487,500.00 9.06%
600 Peachtree Street, N.E.
Suite 2700
Atlanta, GA 30308
Attn: Carolyn Calloway
Tel: (404) 877-1507
Fax: (404) 888-8998
Wachovia Bank, N.A. $6,750,000 7.50% $0 .0%
MC: GA212
191 Peachtree Street NE
Atlanta, GA 30303-1757
Attn: Gary Gaskill
Tel: (404) 332-6519
Fax: (404) 332-6920
------------- -------- ------------ ---------
TOTAL $90,000,000 100.00% $5,382,000.00 100.00%
<PAGE>
THIRD AMENDMENT TO CERTAIN OPERATIVE AGREEMENTS
THIS THIRD AMENDMENT TO CERTAIN OPERATIVE AGREEMENTS (this "Amendment")
dated as of May 28, 1999 is by and among CENTENNIAL HEALTHCARE CORPORATION, a
Georgia corporation (the "Lessee" or the "Construction Agent"); the various
parties listed on the signature pages hereto as guarantors (subject to the
definition of Guarantors in Appendix A to the Participation Agreement referenced
below, individually, a "Guarantor" and collectively, the "Guarantors"); FIRST
SECURITY BANK, NATIONAL ASSOCIATION, a national banking association, not
individually but solely as the Owner Trustee under the Centennial Real Estate
Trust 1998-1 (the "Owner Trustee" or the "Lessor"); the various banks and other
lending institutions listed on the signature pages hereto as holders of
certificates issued with respect to the Centennial Real Estate Trust 1998-1
(subject to the definition of Holders in Appendix A to the Participation
Agreement referenced below, individually, a "Holder" and collectively, the
"Holders"); the various banks and other lending institutions listed on the
signature pages hereto as lenders with respect to the Centennial Real Estate
Trust 1998-1 (subject to the definition of Lenders in Appendix A to the
Participation Agreement referenced below, individually, a "Lender" and
collectively, the "Lenders"); FIRST UNION CAPITAL MARKETS, A DIVISION OF WHEAT
FIRST SECURITIES, INC., a Virginia corporation, as syndication agent (the
"Syndication Agent"); and NATIONSBANK, N.A., a national banking association, as
the agent for the Lenders and respecting the Security Documents, as the agent
for the Lenders and the Holders, to the extent of their interests
Page 1
<PAGE>
(in such capacity, the "Agent"). Capitalized terms used in this Amendment but
not otherwise defined herein shall have the meanings set forth in Appendix A to
the Participation Agreement (hereinafter defined).
W I T N E S S E T H
WHEREAS, the parties to this Amendment are parties to that certain
Participation Agreement dated as of July 29, 1998 (as amended, modified,
supplemented, restated and/or replaced from time to time, the "Participation
Agreement"), certain of the parties to this Amendment are parties to that
certain Credit Agreement dated as of July 29, 1998 (as amended, modified,
supplemented, restated and/or replaced from time to time, the "Credit
Agreement"), certain of the parties to this Amendment are parties to that
certain Trust Agreement dated as of July 29, 1998 (as amended, modified,
supplemented, restated and/or replaced from time to time, the "Trust
Agreement"), certain of the parties to this Amendment are parties to that
certain Security Agreement dated as of July 29, 1998 (as amended, modified,
supplemented, restated and/or replaced from time to time, the "Security
Agreement"), certain of the parties to this Amendment are parties to that
certain First Amendment to Certain Operative Agreements dated as of October 23,
1998 (as amended, modified, supplemented, restated and/or replaced from time to
time, the "First Amendment"), certain of the parties to this Amendment are
parties to that certain Second Amendment to Certain Operative Agreements dated
as of December 30, 1998 (as amended, modified, supplemented, restated and/or
replaced from time to time, the "Second Amendment"), and certain of the parties
to this Amendment are parties to the other Operative Agreements relating to a
$135,000,000.00 synthetic lease facility (the "Facility") that has been
established in favor of the Lessee;
Page 2
<PAGE>
WHEREAS, the Lessee has requested certain modifications to the
Participation Agreement, the Credit Agreement, the Lease Agreement, the Security
Agreement, the Trust Agreement and the other Operative Agreements in connection
with the Facility;
WHEREAS, the Financing Parties which are signatories hereto have agreed to
the requested modifications on the terms and conditions set forth herein;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Participation Agreement. The Participation Agreement is amended as
follows.
(a) Section 8.7(a) is deleted in its entirety and replaced with the
following:
"(a) Each Credit Party has agreed pursuant to Section 5.8 and
otherwise in accordance with the terms of this Agreement to pay to (i) the
Agent any and all Rent and any and all other amounts of any kind or type
under any of the Operative Agreements due and owing or payable to any
Person (excluding Excepted Payments) and (ii) each Person as appropriate
the Excepted Payments. Promptly after receipt, the Agent shall apply and
allocate, in accordance with the terms of this Section 8.7, such amounts
received from any Credit Party and all other payments, receipts and other
consideration of any kind whatsoever received by the Agent pursuant to the
Security Agreement or otherwise received by the Agent, the Holders or any
of the Lenders in connection with the Collateral, the Security Documents
or any of the other Operative Agreements. Ratable distributions among the
Lenders and the Holders under this Section 8.7 shall be made based
Page 3
<PAGE>
on (in the case of the Lenders) the ratio of the outstanding Loans to the
aggregate Property Cost and (in the case of the Holders) the ratio of the
outstanding Holder Advances to the aggregate Property Cost. Ratable
distributions among the Tranche A Lenders under this Section 8.7 shall be
made based on the ratio of the individual Tranche A Lender's outstanding
Tranche A Loans to the aggregate of all the outstanding Tranche A Loans.
Ratable distributions among the Tranche B Lenders under this Section 8.7
shall be made based on the ratio of the individual Tranche B Lender's
outstanding Tranche B Loans to the aggregate of all the Tranche B Loans.
Ratable distributions among the Lenders (in situations where the Tranche A
Lenders are not differentiated from the Tranche B Lenders) shall be made
based on the ratio of the individual Lender's outstanding Loans to the
aggregate of all the Lenders' outstanding Loans. Ratable distributions
among the Holders under this Section 8.7 shall be based on the ratio of
the individual Holder's Holder Amount to the aggregate of all the Holder
Amounts."
(b) Section 8.7(b)(iv) is deleted in its entirety and replaced with
the following:
"(iv)Subject to Section 8.7(c), an amount equal to (A) any such
payment identified as a payment pursuant to Section 22.1(b) of the
Lease (or otherwise) of the Maximum Residual Guarantee Amount (and
any such lesser amount as may be required by Section 22.1(b) of the
Lease) in respect of the Properties, (B) any other amount payable
upon any exercise of remedies after the occurrence of an Event of
Default not covered by Sections 8.7(b)(i) or 8.7(b)(iii) above
(including without limitation any amount received in connection
Page 4
<PAGE>
with an Acceleration which does not represent proceeds from the sale
or liquidation of the Properties), (C) any other amount payable by
any Guarantor pursuant to Section 6B and (D) any other amount that is
a Cash Collateral Payment shall be applied and allocated by the Agent
first, ratably, to the payment of the principal and interest balance
of Tranche A Loans then outstanding, second, ratably to the payment
of the principal and interest balance of the Tranche B Loans then
outstanding, third, ratably to the payment of the principal balance
of all Holder Advances plus all outstanding Holder Yield with respect
to such outstanding Holder Advances, fourth, to the payment of any
other amounts owing to the Lenders hereunder or under any of the
other Operative Agreement, and fifth, to the extent moneys remain
after application and allocation pursuant to clauses first through
fourth above, to the Owner Trustee for application and allocation to
Holder Advances and Holder Yield and any other amounts owing to the
Holders or the Owner Trustee as the Holders shall determine."
(c) Section 8.9 is added to the Participation Agreement as follows:
"8.9.Collateralized Principal Payment Account.
The Lessee shall as of each date listed below make a deposit
into a cash collateral account (a "Cash Collateral Account") (to
be created on terms and conditions reasonably satisfactory to
the Agent). All deposits shall be immediately available funds in
United States Dollars. The Agent shall be entitled to draw on
any and all amounts in the Cash Collateral Account and apply
such amounts in accordance with the terms of the
Page 5
<PAGE>
Operative Agreements upon the occurrence and during the
continuation of any Event of Default and upon any election of
the Sale Option by the Lessee with respect to which (a) there is
any Deficiency Balance and/or (b) Lessor has retained any
Property in accordance with the second sentence of the second
paragraph of Section 22.1(a) of the Lease.
Date Amount
December 31, 2000 $5,000,000.00
December 31, 2001 $10,000,000.00
December 31, 2002 $10,000,000.00
The Agent shall invest all such amounts held in the Cash
Collateral Account in Permitted Investments at the direction of
the Lessee. Any and all gains from such amounts in Permitted
Investments shall remain in the Cash Collateral Account as
additional amounts, but such gains shall not affect the amounts
to be deposited by the Lessee as set forth above. In the event
there is a loss regarding such amounts in Permitted Investments
that causes the total amount in the Cash Collateral Account to
be less than the aggregate of the deposits paid or scheduled to
be paid on or prior to such date, then the Lessee shall, upon
notice from the Agent, promptly deposit an amount equal to the
deficit of the funds in the Cash Collateral Amount minus the
aggregate of the deposits paid or scheduled to be paid on or
prior to such date."
(d) Section 10.1 of the Participation Agreement is amended by adding
the following after the first sentence of Section 10.1:
"(As an example, if a Lender holds under the Lessee
Page 6
<PAGE>
Credit Agreement, a commitment percentage of 12.5% of each facility
thereunder and under the Credit Agreement a commitment percentage of
12.0% regarding each of the Tranche A Commitments and the Tranche B
Commitments and if such Lender desires to sell an assignment of 20.0%
of its interests under the Lessee Credit Agreement and the Credit
Agreement, then such Lender shall sell under the Lessee Credit
Agreement an interest of 2.5% of all available commitments and of all
outstandings thereunder, assuming all other requirements are met
thereunder, and under the Credit Agreement an interest of 2.4% of all
of the Available Commitments for Tranche A Loans and all outstanding
Tranche A Loans and an interest of 2.4% of all of the Available
Commitments for Tranche B Loans and all outstanding Tranche B
Loans.)"
(e) Appendix A to the Participation Agreement shall be amended in the
following respects:
(i) The following definitions shall be added in the appropriate
alphabetical order:
""Cash Collateral Account" shall have the meaning set forth
therefore in Section 8.9 of the Participation Agreement.";
""Cash Collateral Payment" shall mean any payment to the Agent
made from the deposits or proceeds of such deposits in the Cash
Collateral Account." and
""Permitted Investments" shall mean any one or more of the
following types of investments:
(a) marketable obligations of the United States, the full
and timely payment of which are backed by the full faith and
Page 7
<PAGE>
credit of the United States of America and that have a maturity
of not more than 270 days from the date of acquisition;
(b) marketable obligations, the full and timely payment of
which are directly and fully guaranteed by the full faith and
credit of the United States and that have a maturity of not more
than 270 days from the date of acquisition;
(c) bankers' acceptances and certificates of deposit and
other interest-bearing obligations (in each case having a
maturity of not more than 270 days from the date of acquisition)
denominated in dollars and issued by any bank with capital,
surplus and undivided profits aggregating at least $100,000,000,
the short-term obligations of which are rated of least A-1 by
S&P and P-1 by Moody's;
(d) repurchase obligations with a term of not more than ten
days for underlying securities of the types described in clauses
(a), (b) and (c) above entered into with any bank of the type
described in clause (c) above;
(e) commercial paper rated at least A-1 by S&P and P-1 by
Moody's; and,
(f) demand deposits, time deposits or certificates of
deposit (having original maturities of no more than 365 days) of
depository institutions or trust companies incorporated under
the laws of the United States of America or any state thereof
(or domestic branches of any foreign bank) and subject to
supervision and examination by federal or state banking or
depository institution authorities; provided, however that at
Page 8
<PAGE>
the time such investment, or the commitment to make such
investment, is entered into, the short-term debt rating of such
depository institution or trust company shall be at least A-1 by
S&P and P-1 by Moody's."
(ii) The definition of "Holder Commitments" is amended by
deleting it in its entirety and replacing it with the following:
""Holder Commitments" shall mean the aggregate committed
amount set forth in Schedule I to the Trust Agreement as
such Schedule I may be amended and replaced from time to
time in accordance with the provisions of the Operative
Agreements; the Holder Commitment of each Holder shall be
as set forth in Schedule I to the Trust Agreement as such
amount may be increased or reduced from time to time in
accordance with the provisions of the Operative
Agreements."
(iii) The definition of "Lender Commitments" is amended by
deleting it in its entirety and replacing it with the following:
""Lender Commitments" shall mean the aggregate committed
amount set forth in Schedule 1.1 to the Credit Agreement as
such Schedule 1.1 may be amended and replaced from time to
time in accordance with the provisions of the Operative
Agreements; the Lender Commitment of each Lender shall be
as set forth in Schedule 1.1 to the Credit Agreement as
such amount may be increased or reduced from time to time
in accordance with the provisions of the Operative
Agreements."
Page 9
<PAGE>
(iv) The definition of "Maximum Residual Guarantee Amount" is
amended by deleting it in its entirety and replacing it with the
following"
""Maximum Residual Guarantee Amount" shall mean an amount
equal to the product of the aggregate Property Cost for all
Properties multiplied by eighty-six (86%)."
2. Credit Agreement.
Pursuant to Section 9.1(b) of the Participation Agreement and Section
2.5(a) of the Credit Agreement (except as noted below), the Lessee (on
behalf of the Owner Trustee) hereby elects to reduce the Tranche A
Commitments by $5,720,000 and to reduce the Tranche B Commitments by
$585,000. With regard to such election by the Lessee, Schedule 1.1 to the
Credit Agreement is deleted in its entirety and replaced by the following
and the parties to the Amendment agree to the terms of this Section 2
notwithstanding the provisions of Section 2.5(a) of the Credit Agreement
which require reductions in Lender Commitments to be in even multiples of
$1,000,000:
Schedule 1.1
A. LENDER COMMITMENTS EXCLUDING
THE FLATLEY COMMITMENT AVAILABLE FOR LOANS
Tranche A Tranche B
Commitment Commitment
Name and Address of Amount Percentage Amount Percentage
Lenders
First Union National Bank $9,779,000 17.500000% $1,000,125 17.500000%
301 South College Street
Charlotte, North Carolina
28288
Attn.: Matt MacIver
Telephone: (704) 374-4187
Facsimile: (704) 383-9144
Page 10
<PAGE>
NationsBank, N.A. $9,779,000 17.500000% $1,000,125 17.500000%
Atlanta Plaza Building
600 Peachtree Street, NE,
19th Floor
Atlanta, Georgia 30308
Attn.: J. Walter Bland
Telephone: (404) 607-5861
Facsimile: (404) 607-6338
AmSouth Bank $6,985,000 12.500000% $714,375 12.500000%
SONAT - 7th Floor
1900 Fifth Avenue, North
Birmingham, Alabama 35203
Attn.: Ken DiFatta
Telephone: (205) 801-0103
Facsimile: (205) 326-4790
Credit Lyonnais New York $6,985,000 12.500000% $714,375 12.500000%
Branch
1301 Avenue of the Americas
New York, New York
10019-6022
Attn.: Henry Reukauf
Telephone: (212) 261-7791
Facsimile: (212) 261-3440
RaboBank Nederland New $5,588,000 10.00000% $571,500 10.00000%
York Branch
245 Park Avenue, 37th
Floor
New York, New York 10167
Attn.: Corporate Services
Telephone: (212) 916-7800
Facsimile: (212) 888-0233
Comerica Bank $4,191,000 7.500000% $428,625 7.500000%
500 Woodward Avenue, 9th
Floor
Detroit, Michigan 48226
Attn.: Manager, Health
Education Group
Telephone: (313) 222-7542
Facsimile: (313) 222-3420
Page 11
<PAGE>
National City Bank of $4,191,000 7.500000% $428,625 7.500000%
Kentucky
101 South 5th Street, 8th
Floor
Louisville, Kentucky 40202
Attn.: Roderic Brown
Telephone: (502) 581-4369
Facsimile: (502) 581-4424
Wachovia, N.A. $4,191,000 7.500000% $428,625 7.500000%
191 Peachtree Street,
30th Floor
Atlanta, Georgia 30303
Attn.: Gary Gaskill
Telephone: (404) 332-6519
Facsimile: (404) 332-6920)
Scotiabanc, Inc. $4,191,000 7.500000% $428,625 7.500000%
600 Peachtree Street,
Suite 2700
Atlanta, Georgia 30308
Attn.: Carolyn Calloway
Telephone: (404) 877-1507
Facsimile: (404) 888-0998
TOTAL *$55,880,000 100.000000% *5,715,000 100.000000%
- --------------
* As such amounts and percentages may be reduced from time to time in accordance
with the provisions of the Operative Agreements.
B. LENDER COMMITMENTS CONSTITUTING
THE FLATLEY COMMITMENT AVAILABLE FOR LOANS
Tranche A Tranche B
Commitment Commitment
Name and Address of Amount Percentage Amount Percentage
Lenders
First Union National $27,950,000 50.000000% $3,575,000 50.000000%
Bank
301 South College Street
Charlotte, North
Carolina 28288
Attn.: Matt MacIver
Telephone: (704) 374-4187
Facsimile: (704) 383-9144
Page 12
<PAGE>
NationsBank, N.A. $27,950,000 50.000000% $3,575,000 50.000000%
Atlanta Plaza Building
600 Peachtree Street,
NE, 19th Floor
Atlanta, Georgia 30308
Attn.: J. Walter Bland
Telephone:(404)-607-5861
Facsimile:(404)-607-6338
TOTAL $55,900,000 100.000000% $7,150,000 100.000000%
[The aggregate Lender Commitment (including without limitation
the Flatley Commitment available for Loans) equals $124,645,000.]
3. Lease Agreement. Section 17.1 of the Lease Agreement is amended by
adding subsection 17.1(w) as follows:
"(w) Lessee shall fail to make a deposit into the Cash Collateral
Account in accordance with Section 8.9 of the Participation Agreement
within three (3) days after the same has become due;".
4. Security Agreement. The Security Agreement is amended as follows.
(a) The first paragraph of the Preliminary Statement in the Security
Agreement is amended in the following respects:
(i) The reference to "$130,950,000" is amended by deleting such
reference and replacing it with a reference to "the aggregate Lender
Commitments from time to time" and
(ii) The reference to "$4,050,000" is amended by deleting such
reference and replacing it with a reference to "the aggregate Holder
Commitments from time to time".
Page 13
<PAGE>
(b) Section 2 of the Security Agreement is amended by (i) deleting
the subsection heading "(p)" and replacing it with a subsection heading
"(q)", (ii) deleting the "; and" from subsection "(o)" and replacing it
with ";" and (iii) adding the following as subsection (p):
"(p) all right, title and interest of the Borrower in and to the
Cash Collateral Account; and".
5. Trust Agreement. The amended Schedule I to the Trust Agreement
referenced below evidences a reduction of $195,000 in the Holder Commitments
(excluding the Flatley Commitment available for Holder Advances). Schedule I to
the Trust Agreement is amended by deleting it in its entirety and replacing it
with the following and the Holders executing this Amendment agree to the terms
of this Section 5:
SCHEDULE I
HOLDER COMMITMENTS
A. HOLDER COMMITMENTS EXCLUDING THE FLATLEY COMMITMENT
AVAILABLE FOR HOLDER ADVANCES
Holder Commitment
Name of Holder Amount Percentage
FIRST UNION NATIONAL BANK $690,562.50 36.250000%
301 South College Street
Charlotte, North Carolina 28288
Attn.: Matt MacIver
Telephone: (704) 374-4187
Facsimile: (704) 383-9144
NATIONSBANK, N.A. $690,562.50 36.250000%
Atlanta Plaza Building
600 Peachtree Street, NE,
17th Floor
Atlanta, Georgia 30308
Attn.:J. Walter Bland
Telephone: (404) 607-5861
Facsimile: (404) 607-6338
AMSOUTH BANK $238,125.00 12.500000%
SONAT - 7th Floor
1900 Fifth Avenue, North
Birmingham, Alabama 35203
Attn.: Ken DiFatta
Telephone: (205) 801-0103
Facsimile: (205) 326-4790
Page 14
<PAGE>
WACHOVIA BANK, N.A. $142,875.00 7.500000%
191 Peachtree Street, 30th Floor
Atlanta, Georgia 30303
Attn.: Gary Gaskill
Telephone: (404) 332-6519
Facsimile: (404) 332-6920
SCOTIABANC INC. $142,875.00 7.500000%
600 Peachtree Street, Suite 2700
Atlanta, Georgia 30308
Attn.: Carolyn Calloway
Telephone: (404) 877-1507
Facsimile: (404) 888-0998
TOTAL $1,905,000. *100.000000%
- ----------------
*As such amounts and percentages may be reduced from time to time
in accordance with the provisions of the Operative Agreements."
B. HOLDER COMMITMENTS CONSTITUTING
THE FLATLEY COMMITMENT AVAILABLE FOR HOLDER ADVANCES
Holder Commitment
Name of Holder Amount Percentage
First Union National Bank $975,000 50.000000%
301 South College Street
Charlotte, North Carolina 28288
Attn.: Matt MacIver
Telephone: (704) 374-4187
Facsimile: (704) 383-9144
NationsBank, N.A. $975,000 50.000000%
Atlanta Plaza Building
600 Peachtree Street, NE,
19th Floor
Atlanta, Georgia 30308
Attn.: J. Walter Bland
Telephone: (404) 607-5861
Facsimile: (404) 607-6338
TOTAL $1,950,000 100.000000%
Page 15
<PAGE>
[The aggregate Holder Commitment (including without limitation the Flatley
Commitment available for Holder Advances) equals $3,855,000.]
6. Conditions Precedent. This Amendment shall be effective as of May 28,
1999 upon satisfaction of the following conditions:
(a) execution of this Amendment by the Credit Parties, the Agent and
the Majority Secured Parties;
(b) receipt by the Agent of legal opinions of counsel to the Credit
Parties relating to this Amendment and resolutions from the board of
directors of each of the Credit Parties authorizing the provisions of this
Amendment, in each case in form and substance reasonably satisfactory to
the Agent;
(c) receipt by the Agent of a waiver fee of twelve and one-half basis
points (0.125%) on the Commitments (as such have been adjusted pursuant to
this Amendment) such waiver fee is payable pro rata to the Lenders and
Holders providing the Commitments; and
(d) receipt by the Agent of an amendment fee of thirty-seven and one-
half basis points (0.375%) on the Commitments (as such have been adjusted
pursuant to this Amendment) payable pro rata to the Lenders and Holders
providing the Commitments to the extent, but only to the extent, such
Lender and Holders have executed this Amendment.
7. Amendment to UCC Financing Statements. The Lessee shall cause each and
every UCC Financing Statement filed to be amended to include the Cash Collateral
Account as Collateral set forth in the UCC Financing Statements (unless the
Agent determines that any one or more such UCC Financing Statements does not
require such an amendment) and Lessee shall cause the amended UCC Financing
Statements to be filed in the appropriate jurisdiction by June 15, 1999.
Page 16
<PAGE>
8. Costs and Expenses. The Lessee agrees to pay all reasonable costs and
expenses of the Agent in connection with the preparation, execution and delivery
of this Amendment, including without limitation the reasonable fees and expenses
of Moore & Van Allen, PLLC.
9. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when executed and delivered shall be deemed to be an
original and it shall not be necessary in making proof of this Amendment to
produce or account for more than one such counterpart.
10. Continued Effectiveness of Operative Agreements. Except as modified
hereby, all of the terms and conditions of the Operative Agreements shall remain
in full force and effect.
11. Governing Law. This Amendment shall be governed by, and construed in
accordance with, the laws of the State of North Carolina.
[The remainder of this page has been intentionally left blank.]
Page 17
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment
to be duly executed and delivered as of the date first above written.
CONSTRUCTION AGENT
AND LESSEE: CENTENNIAL HEALTHCARE CORPORATION,
as the Construction Agent and as
the Lessee
By: /s/Alan Dahl
Name:Alan Dahl
Title:EVP
GUARANTORS: CENTENNIAL/ASHTON PROPERTIES
CORPORATION, a Georgia corporation
By:/s/Alan Dahl
Name:Alan Dahl
Title:EVP
CENTENNIAL HEALTHCARE PROPERTIES
CORPORATION, a Georgia corporation
By:/s/Alan Dahl
Name:Alan Dahl
Title:EVP
CENTENNIAL HEALTHCARE MANAGEMENT
CORPORATION, a Georgia corporation
By:/s/Alan Dahl
Name:Alan Dahl
Title:EVP
CENTENNIAL ACQUISITION CORPORATION,
a Georgia corporation
By:/s/Alan Dahl
Name:Alan Dahl
Title:EVP
CENTENNIAL PROFESSIONAL THERAPY
SERVICES CORPORATION, a Georgia
corporation
By:/s/Alan Dahl
Name:Alan Dahl
Title:EVP
Page 18
<PAGE>
CENTENNIAL HEALTHCARE INVESTMENT
CORPORATION, a Georgia corporation
By:/s/Alan Dahl
Name:Alan Dahl
Title:EVP
CENTENNIAL HEALTHCARE HOSPITAL
CORPORATION, a Georgia corporation
By:/s/Alan Dahl
Name:Alan Dahl
Title:EVP
TRANSITIONAL HEALTH SERVICES, INC.,
a Delaware corporation
By:/s/Alan Dahl
Name:Alan Dahl
Title:EVP
TRANSITIONAL FINANCIAL SERVICES,
INC.,
a Delaware corporation
By:/s/Alan Dahl
Name:Alan Dahl
Title:EVP
PARAGON REHABILITATION, INC., a
Delaware corporation
By:/s/Alan Dahl
Name:Alan Dahl
Title:EVP
THS PARTNERS I, INC., a Delaware
corporation
Page 19
<PAGE>
By:/s/Alan Dahl
Name:Alan Dahl
Title:EVP
THS PARTNERS II, INC., a Delaware
corporation
By:/s/Alan Dahl
Name:Alan Dahl
Title:EVP
TRANSITIONAL HEALTH PARTNERS d/b/a
TRANSITIONAL HEALTH SERVICES, a
Delaware general partnership
By: THS PARTNERS I, INC., its
general partner
By:/s/Alan Dahl
Name:Alan Dahl
Title:EVP
By: THS PARTNERS II, INC., its
general partner
By:/s/Alan Dahl
Name:Alan Dahl
Title:EVP
PARKVIEW PARTNERSHIP, a Delaware
general partnership
By: THS PARTNERS I, INC., its
general partner
By:/s/Alan Dahl
Name:Alan Dahl
Title:EVP
By: THS PARTNERS II, INC., its
general partner
By:/s/Alan Dahl
Name:Alan Dahl
Title:EVP
Page 20
<PAGE>
TOTAL CARE CONSOLIDATED, INC., a
North Carolina corporation
By:/s/Alan Dahl
Name:Alan Dahl
Title:EVP
TOTAL CARE, INC., a North Carolina
corporation
By:/s/Alan Dahl
Name:Alan Dahl
Title:EVP
TOTAL HEALTH CARE SERVICES, INC., a
North Carolina corporation
By:/s/Alan Dahl
Name:Alan Dahl
Title:EVP
TOTAL CARE OF THE CAROLINAS, INC.,
a North Carolina corporation
By:/s/Alan Dahl
Name:Alan Dahl
Title:EVP
HCC HOME HEALTH OF LOUISIANA, INC.,
a Louisiana corporation
By:/s/Alan Dahl
Name:Alan Dahl
Title:EVP
OWNER TRUSTEE AND
LESSOR: FIRST SECURITY BANK, NATIONAL
ASSOCIATION, not individually,
except as expressly stated herein,
but solely as the Owner Trustee
Page 21
<PAGE>
under the Centennial Real Estate
Trust 1998-1
By:/s/ Val T. Orton
Name:Val T. Orton
Title:V.P.
SYNDICATION AGENT: FIRST UNION CAPITAL MARKETS, A
DIVISION OF WHEAT FIRST SECURITIES,
INC., as the Syndication Agent
By:/s/ Matt McIver
Name:Matt McIver Jr.
Title:V.P.
AGENT AND LENDERS: NATIONSBANK, N.A., as an Agent and
as a Lender
By:/s/ J. Walter Bland
Name:J. Walter Bland
Title:SR. V.P.
FIRST UNION NATIONAL BANK, as a
Lender
By:/s/ Matt McIver
Name:J. Matt McIver Jr.
Title:V.P.
AMSOUTH BANK, as a Lender
By:/s/ J/ Ken Diafata
Name:Asst. V.P.
Title:
CREDIT LYONNAIS NEW YORK BRANCH, as
a Lender
Page 22
<PAGE>
By:/s/Martin Golden
Name:Martin Golden
Title:V.P.
COOPERATIVE CENTRALE
RAIFFEISEN-BOERENLEENBANK, B.A.
"RABOBANK NEDERLAND", NEW YORK
BRANCH, as a Lender
By:
COMERICA BANK, as a Lender
By:/s/ Craig Durno
Name:Craig Durno
Title:Asst. V.P.
NATIONAL CITY BANK OF KENTUCKY, as
a Lender
By:/s/Roderic M. Brown
Name:Roderic M. Brown
Title:V.P.
WACHOVIA BANK, N.A., as a Lender
By:/s/ Gary Gaskill
Name:Gary Gaskill
Title:V.P.
SCOTIABANC INC., as a Lender
By:/s/ Carolyn A. Calloway
Name:Carolyn A. Calloway
Title:Relationship Manager
Page 23
<PAGE>
HOLDERS: FIRST UNION NATIONAL BANK, as a
Holder
By:/s/ J. Matt McIver
Name:J. Matt McIver
Title:V.P
NATIONSBANK, N.A., as a Holder
By:/s/ J. Walter Bland
Name:J. Walter Bland
Title:Sr. V.P.
AMSOUTH BANK, as a Holder
By:/s/ J. Ken Diafata
Name:J. Ken Diafata
Title:Asst. V.P.
WACHOVIA BANK, N.A., as a Holder
By:/s/ Gary C. Gaskill
Name:Gary C. Gaskill
Title:V.P.
SCOTIABANC INC., as a Holder
By:/s/ Carolyn A. Calloway
Name:Carolyn A. Calloway
Title:Relationship Manager
Page 24
<PAGE>
Receipt of the original counterpart of the foregoing Amendment is hereby
acknowledged on this ___ day of _____, 1999. 1
NATIONSBANK, N.A., as Agent
By:
Name:
Title:
Page 25
<PAGE>
SECURITY AGREEMENT
SECURITY AGREEMENT dated as of May 28, 1999 (as amended and modified, the
"Security Agreement" or this "Agreement") by and among CENTENNIAL HEALTHCARE
------------------ ---------
CORPORATION, a Georgia corporation (the "Company"), the subsidiaries of the
-------
Company that are identified on the signature pages attached hereto (the
"Subsidiaries" and collectively with the Company, the "Credit Parties"), and
- ------------- --------------
FIRST UNION NATIONAL BANK, as agent (in such capacity, the "Administrative
--------------
Agent" or "Agent") for the Lenders identified hereinbelow.
- ----- -----
W I T N E S S E T H
WHEREAS, (i) a $96.5 million revolving credit facility has been established
in favor of the Company and certain subsidiaries pursuant to the terms of the
Credit Documents, (ii) a $128.5 million lease financing facility has been
established in favor of the Company pursuant to the terms of the TROL
Transaction Documents and (iii) a $5 million additional working capital loan has
been made to the Company pursuant to the terms of, and as evidenced by, the
Additional Working Capital Note;
WHEREAS, the Lenders have made this Security Agreement a condition to
further extensions of credit under the Credit Agreement and the TROL Transaction
Documents;
NOW, THEREFORE, in consideration of the premises and to induce the Lenders
to make their respective loans and extensions of credit thereunder, the Credit
Parties hereby agree with the Administrative Agent, for the ratable benefit of
the Lenders, as follows:
1. Defined Terms.
-------------
1.1 Definitions. (a) Unless otherwise defined herein, terms defined
-----------
in the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement, and the following terms which are defined in the Uniform
Commercial Code in effect in the State of Georgia on the date hereof are used
herein as so defined: Accounts, Chattel Paper, Documents, Equipment, Farm
Products, Fixtures, General Intangibles, Instruments, Inventory, Investment
Property and Proceeds.
(b) The following terms shall have the following meanings:
"Agency Agreement": such term as referenced and defined in Appendix A
----------------
of the Participation Agreement.
"Collateral": as defined in Section 2 of this Agreement; provided
---------- --------
that Collateral shall not include any property which is subject to a Lien
permitted under Section 6.4 of the Credit Agreement securing Indebtedness
permitted under Section 6.1 of the Credit Agreement to the extent that the
grant of a security interest hereunder would be prohibited by such Lien or
by the terms of such Indebtedness.
"Collateral Account": any collateral account established by the
------------------
Administrative Agent as provided in subsection 3.3 hereof or subsection 7.2
hereof.
"Contracts": all other contracts and agreements to which a Credit
---------
Party is a party, as each may be amended, supplemented or otherwise
modified from time to time, including, without limitation, (i) all rights
of a Credit Party to receive moneys due and to become due to it thereunder
or in connection therewith, (ii) all rights of a Credit Party to damages
arising out of or for breach or default in respect thereof and (iii) all
rights of a Credit Party to exercise all remedies thereunder.
"Copyright Licenses": any written agreement, naming any Credit Party
------------------
as licensor, granting any right under any Copyright including, without
limitation, any thereof referred to in Schedule 3 hereto.
----------
"Copyrights": (i) all United States copyrights in all Works, now
----------
existing or hereafter created or acquired, all registrations and recordings
thereof, and all applications in connection therewith, including, without
limitation, registrations, recordings and applications in the United States
Copyright office
<PAGE>
including, without limitation, any thereof referred to in
Schedule 3 hereto, and (ii) all renewals thereof including, without
----------
limitation, any thereof referred to in Schedule 3 hereto.
----------
"Credit Agreement": that Third Amended and Restated Credit Agreement
----------------
dated as of July 31, 1998, as amended, modified, supplemented, extended,
renewed or replaced, among the Company and the subsidiaries and affiliates
identified therein, as Borrowers, the lenders identified therein and First
Union National Bank, as administrative agent.
"Credit Documents": the Loan Documents as referenced and defined in
----------------
the Credit Agreement, including the Credit Agreement, the Notes, the Pledge
Agreement, the Security Agreement, the Mortgages and the other Collateral
Security Documents, in each case as amended, modified, supplemented,
extended, renewed or replaced. Terms used but not otherwise defined have
the meanings provided in the Credit Agreement.
"Credit Facility": the revolving credit facility established in favor
---------------
of the Company pursuant to the terms of the Credit Agreement.
"Guarantors": the Persons which give a guaranty in respect of any of
----------
the Secured Obligations.
"Lease Agreements": such term as referenced and defined in Appendix A
----------------
of the Participation Agreement.
"Lease Finance Facility": the lease financing facility established in
----------------------
favor of the Company pursuant to the terms of the TROL Transaction
Documents.
"Lenders": the holders of the Secured Obligations.
-------
"Operative Agreements": such term as referenced and defined in
--------------------
Appendix A of the Participation Agreement.
"Participation Agreement": that Participation Agreement dated as of
-----------------------
July 29, 1998, as amended, modified, supplemented, extended, renewed or
replaced, among the Company, the Guarantors identified therein, First
Security Bank, National Association, as Owner Trustee under the Centennial
Real Estate Trust 1998-1, the Lenders and Holders identified therein and
from time to time party thereto, First Union Capital Markets, a division of
Wheat First Securities, Inc., as Syndication Agent and NationsBank, N.A.,
as Agent.
"Patent License": all agreements, whether written or oral, providing
--------------
for the grant by or to a Credit Party of any right to manufacture, use or
sell any invention covered by a Patent, including, without limitation, any
thereof referred to in Schedule 4 hereto.
----------
"Patents": (a) all letters patent of the United States or any other
-------
country and all reissues and extensions thereof, including, without
limitation, any thereof referred to in Schedule 4 hereto, and (b) all
----------
applications for letters patent of the United States or any other country
and all divisions, continuations and continuations-in-part thereof,
including, without limitation, any thereof referred to in Schedule 4
----------
hereto.
"Secured Obligations": the collective reference to the following:
-------------------
(i) all unpaid principal of and interest on (including interest
accruing after maturity and after the commencement of bankruptcy or
insolvency proceedings) the loans and other obligations owing under the
Credit Agreement, and all other indebtedness, liabilities and obligations
owing thereunder or under the other Credit Documents, whether now existing
or hereafter arising, and whether primary, secondary, direct, contingent,
or joint and several;
2
<PAGE>
(ii) any and all obligations now existing or hereafter arising,
owing by the Company, the Guarantors and/or any of their affiliates under
or pursuant to the TROL Transaction Documents, including specifically
without limitation all obligations and liabilities of the Company, the
Guarantors and their affiliates under or with respect to the Participation
Agreement, the Lease Agreement, the Agency Agreement and each of the other
Operative Agreements;
(iii) all unpaid principal of and interest on (including
interest accruing after maturity and after the commencement of bankruptcy
or insolvency proceedings) the loans and other obligations owing under the
Additional Working Capital Note, and all other indebtedness, liabilities
and obligations owing thereunder or under any other documents executed in
connection therewith, whether now existing or hereafter arising, and
whether primary, secondary, direct, contingent, or joint and several;
(iv) the net amount of liabilities and obligations, now
existing or hereafter arising, owing by the Company, any Guarantor or any
Credit Party to any Lender or any affiliate of a Lender arising under
interest rate protection agreements and/or foreign currency exchange
agreements to the extent permitted under the Credit Agreement; and
(v) all indebtedness, liabilities and obligations of any kind
or nature, now existing or hereafter arising, owing by the Credit Parties
to any Lender or the Administrative Agent, arising under this Security
Agreement, any mortgages, deeds of trust, deeds to secure debt or security
deeds, or any of the other Credit Documents, TROL Transaction Documents,
the Additional Working Capital Note or any documents relating to the
Hedging Obligations
"Security Documents": such term as referenced and defined in Appendix
------------------
A of the Participation Agreement.
"Trademark License": any agreement, written or oral, providing for
-----------------
the grant by or to a Credit Party of any right to use any Trademark,
including, without limitation, any thereof referred to in Schedule 5
----------
hereto.
"Trademarks": (a) all trademarks, trade names, corporate names,
----------
company names, business names, fictitious business names, trade styles,
service marks, logos and other source or business identifiers, and the
goodwill associated therewith, now existing or hereafter adopted or
acquired, all registrations and recordings thereof, and all applications in
connection therewith, whether in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any State
thereof or any other country or any political subdivision thereof, or
otherwise, including, without limitation, any thereof referred to in
Schedule 5 hereto, and (b) all renewals
----------
thereof.
"TROL Transaction Documents": collectively, the Participation
--------------------------
Agreement, the Lease Agreement, the Agency Agreement and each of the other
Operative Agreements, in each case as amended, modified, supplemented,
extended, renewed or replaced.
"Uniform Commercial Code": the Uniform Commercial Code as from time
-----------------------
to time in effect in the State of Georgia.
"Work": any work which is subject to copyright protection pursuant to
----
Title 17 of the United States Code.
1.2 Other Definitional Provisions. (a) The words "hereof," "herein"
-----------------------------
and "hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and section and paragraph references are to this Agreement unless
otherwise specified.
(b) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
3
<PAGE>
2. Grant of Security Interest. As collateral security for the prompt
--------------------------
and complete payment and performance when due (whether at the stated maturity,
by acceleration or otherwise) of the Secured Obligations, each of the Credit
Parties hereby grants to the Administrative Agent, for the ratable benefit of
the Lenders, a security interest in all of the following property now owned or
at any time hereafter acquired by such Credit Party or in which such Credit
Party now has or at any time in the future may acquire any right, title or
interest (collectively, the "Collateral"):
----------
(a) all Accounts;
(b) all Chattel Paper;
(c) all Contracts;
(d) all Copyrights;
(e) all Copyright Licenses;
(f) all Documents;
(g) all Equipment;
(h) all Fixtures;
(i) all General Intangibles, including Contracts;
(j) all Instruments;
(k) all Inventory;
(l) all Investment Property;
(m) all Patents;
(n) all Patent Licenses;
(o) all Trademarks;
(p) all Trademark Licenses;
(q) all books, records, ledger cards, files, correspondence,
computer programs, tapes, disks, and related data processing
software (owned by such Credit Party or in which it has an
interest) that at any time evidence or contain information
relating to any Collateral or are otherwise necessary or helpful
in the collection thereof or realization thereupon; and
(r) to the extent not otherwise included, all Proceeds and
products of any and all of the foregoing;
provided that this Agreement shall not constitute an assignment of, or a grant
- --------
of a security interest in or lien on, any fixtures, contract, lease or other
agreement to which any Credit Party is a party if such assignment or grant of a
security interest or lien is prohibited by the terms of such contract, lease or
agreement.
This Agreement shall create a continuing security interest in the
Collateral which shall remain in effect until all the Secured Obligations (other
than unasserted indemnity claims), now existing or hereafter arising, have been
paid in full, the commitments relating thereto have been terminated and the
Credit Agreement, the Security Documents or the TROL Transaction Document shall
no longer be in effect.
4
<PAGE>
3. Provisions Relating to Accounts.
-------------------------------
3.1 Credit Parties Remain Liable under Accounts. Anything herein to
-------------------------------------------
the contrary notwithstanding, each of the Credit Parties shall remain liable
under each of the Accounts to observe and perform all the conditions and
obligations to be observed and performed by it thereunder, all in accordance
with the terms of any agreement giving rise to each such Account. Neither the
Administrative Agent nor any Lender shall have any obligation or liability under
any Account (or any agreement giving rise thereto) by reason of or arising out
of this Agreement or the receipt by the Administrative Agent or any Lender of
any payment relating to such Account pursuant hereto, nor shall the
Administrative Agent or any Lender be obligated in any manner to perform any of
the obligations of a Credit Party under or pursuant to any Account (or any
agreement giving rise thereto), to make any payment, to make any inquiry as to
the nature or the sufficiency of any payment received by it or as to the
sufficiency of any performance by any party under any Account (or any agreement
giving rise thereto), to present or file any claim, to take any action to
enforce any performance or to collect the payment of any amounts which may have
been assigned to it or to which it may be entitled at any time or times.
3.2 Analysis of Accounts. The Administrative Agent shall have the
--------------------
right, once during each calendar year or at any time after the occurrence of an
Event of Default, to make test verifications of the Accounts in any manner and
through any medium that it reasonably considers advisable, and the Credit
Parties shall furnish all such assistance and information as the Administrative
Agent may require in connection with such test verifications. At any time after
the occurrence, and during the continuance of, an Event of Default, upon the
Administrative Agent's request and at the expense of the Credit Parties, the
Credit Parties shall cause independent public accountants or others satisfactory
to the Administrative Agent to furnish to the Administrative Agent reports
showing reconciliations, aging and test verifications of, and trial balances
for, the Accounts. The Administrative Agent in its own name or in the name of
others may communicate with account debtors on the Accounts to verify with them
to the Administrative Agent's satisfaction the existence, amount and terms of
any Accounts.
3.3 Collections on Accounts. (a) The Administrative Agent hereby
-----------------------
authorizes the Credit Parties to collect the Accounts, provided that the
--------
Administrative Agent may curtail or terminate said authority at any time after
the occurrence of an Event of Default. If required by the Administrative Agent
at any time after the occurrence of an Event of Default, any payments of
Accounts, when collected by the Credit Parties, (i) shall be forthwith (and, in
any event, within two Business Days) deposited by the Credit Parties in a
Collateral Account maintained under the sole dominion and control of the
Administrative Agent, subject to withdrawal by the Administrative Agent for the
account of the Lenders only as provided in Section 7.3 hereof, and (ii) until so
turned over, shall be held by the Credit Parties in trust for the Administrative
Agent and the Lenders, segregated from other funds of the Credit Parties.
(b) Each such deposit of Proceeds of Accounts shall be accompanied by a
report identifying in reasonable detail the nature and source of the payments
included in the deposit.
(c) At the Administrative Agent's request after the occurrence of an Event
of Default, the Credit Parties shall deliver to the Administrative Agent copies
of documents in its possession or control (or as to which they have a right or
ability to get) evidencing, and relating to, the agreements and transactions
which gave rise to the Accounts which are necessary for collection of such
Accounts by the Administrative Agent.
4. Provisions Relating to Contracts.
--------------------------------
4.1 Credit Parties Remain Liable under Contracts. Anything herein to
--------------------------------------------
the contrary notwithstanding, each of the Credit Parties shall remain liable
under each of the Contracts to observe and perform all the conditions and
obligations to be observed and performed by it thereunder, all in accordance
with and pursuant to the terms and provisions of each Contract. Neither the
Administrative Agent nor any Lender shall have any obligation or liability under
any Contract by reason of or arising out of this Agreement or the receipt by the
Administrative Agent or any such Lender of any payment relating to such Contract
pursuant hereto, nor shall the Administrative Agent or any Lender be obligated
in any manner to perform any of the obligations of a Credit Party under or
pursuant to any Contract, to make any payment, to make any inquiry as to the
nature or the sufficiency of any payment received by
5
<PAGE>
it or as to the sufficiency of any performance by any party under any Contract,
to present or file any claim, to take any action to enforce any performance or
to collect the payment of any amounts which may have been assigned to it or to
which it may be entitled at any time or times.
4.2 Communication with Contracting Parties. The Administrative Agent
--------------------------------------
in its own name or in the name of others, at any time after the occurrence of an
Event of Default or in connection with any audit of a Contract by the
Administrative Agent or any other Person designated by the Administrative Agent,
may communicate with parties to the Contracts to verify with them to the
Administrative Agent's satisfaction the existence, amount and terms of any
Contract.
5. Representations and Warranties. Each Credit Party hereby
------------------------------
represents and warrants that:
5.1 Title; No Other Liens. Except for Permitted Liens, the Credit
---------------------
Party owns each item of the Collateral free and clear of any and all Liens or
claims of others. No security agreement, financing statement or other public
notice with respect to all or any part of the Collateral is on file or of record
in any public office, except such as have been filed in favor of the
Administrative Agent, for the ratable benefit of the Lenders, pursuant to this
Agreement or as are permitted pursuant to the Credit Agreement or the TROL
Transaction Documents.
5.2 Perfected First Priority Liens. Except as otherwise expressly
------------------------------
provided in this Agreement, the security interests granted pursuant to this
Agreement (a) upon completion of the filings and other actions specified on
Schedule 2 attached hereto, and possession of such Collateral with respect to
- ----------
which perfection is acquired by possession, will constitute perfected security
interests in the Collateral in favor of the Administrative Agent, for the
ratable benefit of the Lenders, (b) are prior to all other Liens on the
Collateral in existence on the date hereof except for Permitted Liens and (c)
are enforceable as such against (i) all creditors of and purchasers from the
Credit Party (except purchasers of Inventory in the ordinary course of business)
and (ii) any Person having any interest in the real property where any of the
Equipment is located.
5.3 Inventory and Equipment. The Inventory and the Equipment of the
-----------------------
Credit Party are kept at the locations listed on Schedule 1 hereto.
----------
5.4 Chief Executive Office. The Credit Party's chief executive
----------------------
office and chief place of business, and the place where it keeps its books and
records, is located at the address shown on Schedule 1 hereto.
----------
5.5 Farm Products. None of the Collateral constitutes, or is the
-------------
Proceeds of, Farm Products.
5.6 Representations and Warranties Relating to Contracts. (a) No
----------------------------------------------------
consent of any party (other than the Credit Party) to any Contract is required,
or purports to be required, in connection with the execution, delivery and
performance of this Agreement.
(b) Each Contract is in full force and effect and constitutes a valid and
legally enforceable obligation of the parties thereto, except as affected by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing.
(c) No consent or authorization of, filing with or other act by or in
respect of any Governmental Authority is required in connection with the
execution, delivery, performance, validity or enforceability of any of the
Contracts by any party thereto other than those which have been duly obtained,
made or performed, are in full force and effect and do not subject the scope of
any such Contract to any material adverse limitation, either specific or general
in nature.
(d) Neither the Credit Party nor (to the best of the Credit Party's
knowledge) any other party to any Contract is in default or is likely to become
in default in any material respects in the performance or observance of any of
the terms thereof.
6
<PAGE>
(e) The Credit Party has fully performed in all material respects all its
obligations under each Contract.
(f) The right, title and interest of the Credit Party in, to and under
each Contract are not subject to any defense, offset, counterclaim or claim
which would materially adversely affect the value of such Contract as
Collateral, nor have any of the foregoing been asserted or alleged against the
Credit Party as to any Contract which would materially adversely affect the
value of such Contract.
(g) No amount payable to the Credit Party under or in connection with any
Contract is evidenced by any Instrument or Chattel Paper which has not been
delivered to the Administrative Agent.
(h) Except as set forth on Schedule 6 hereto, none of the parties to
----------
any Contracts is a Governmental Authority.
5.7 Copyrights, Patents and Trademarks. (a) Schedule 3 hereto
---------------------------------- ----------
includes all Copyrights and Copyright Licenses owned by the Credit Party in its
own name as of the date hereof. Schedule 4 hereto includes all Patents and
----------
Patent Licenses owned by the Credit Party in its own name as of the date hereof.
Schedule 5 hereto includes all Trademarks and Trademark Licenses owned by the
- ----------
Credit Party in its own name as of the date hereof.
(b) To the best of the Credit Party's knowledge, each Copyright
registration, issued Patent and Trademark registration of the Credit Party is
valid, subsisting, unexpired, enforceable and has not been abandoned.
(c) Except as set forth in either Schedule 4 hereto or Schedule 5
---------- ----------
hereto, no Copyright registration, issued Patent and Trademark registration of
the Credit Party is the subject of any licensing or franchise agreement.
(d) No holding, decision or judgment has been rendered by any Governmental
Authority which would limit, cancel or question the validity of any Copyright
registration, issued Patent or Trademark registration of the Credit Party.
(e) No action or proceeding is pending seeking to limit, cancel or
question the validity of any Copyright registration, issued Patent or Trademark
registration of the Credit Party, or which, if adversely determined, would have
a material adverse effect on the value of any Copyright registration, issued
Patent or Trademark registration.
6. Covenants. Each Credit Party covenants and agrees with the
---------
Administrative Agent and the Lenders that, from and after the date of this
Agreement until the Secured Obligations (other than unasserted indemnity claims)
have been satisfied in full and the Commitments have been terminated:
6.1 Delivery of Instruments and Chattel Paper. If any amount payable
-----------------------------------------
under or in connection with any of the Collateral shall be or become evidenced
by any Instrument or Chattel Paper, such Instrument or Chattel Paper shall be
immediately delivered to the Administrative Agent, duly indorsed in a manner
satisfactory to the Administrative Agent, to be held as Collateral pursuant to
this Agreement.
6.2 Marking of Records. The Credit Party will mark its books and
------------------
records pertaining to the Collateral to evidence this Agreement and the security
interests created hereby.
6.3 Maintenance of Perfected Security Interest; Further Documentation. (a)
---------------------------------------------------
The Credit Party shall maintain the security interest created by this Agreement
as a perfected security interest subject only to Permitted Liens and shall
defend such security interest against claims and demands of all Persons
whomsoever.
(b) At any time and from time to time, upon the written request of the
Administrative Agent, and at the sole expense of the Credit Parties, the Credit
Party will promptly and duly execute and deliver such further instruments and
documents and take such further action (including without limitation all actions
required under the Federal Assignment of Claims Act or any similar state
statute) as the Administrative Agent may reasonably request for the purpose of
obtaining or preserving the full benefits of this Agreement and of the rights
and powers herein
7
<PAGE>
granted, including, without limitation, the filing of any financing or
continuation statements under the Uniform Commercial Code in effect in any
jurisdiction with respect to the security interests created hereby.
6.4 Changes in Locations, Name, etc. The Credit Party will not:
-------------------------------
(a) permit any of the Inventory or Equipment to be kept at a location
other than those listed on Schedule 1 hereto, unless it shall have given
----------
the Administrative Agent and the Lenders at least 30 days' prior written
notice of such change and any filings required under the Uniform Commercial
Code in effect in the affected jurisdiction to maintain the perfected
security interest granted pursuant to this Agreement shall have been made,
except that Equipment may be moved from such location for a reasonable
period of time for purposes of repair of such Equipment or for testing in
the ordinary cause of business;
(b) change the location of its chief executive office and chief place
of business or the location at which it maintains its books and records
from that specified on Schedule 1 hereto, unless it shall have given the
----------
Administrative Agent and the Lenders at least 30 days' prior written notice
of such change and any filings required under the Uniform Commercial Code
in effect in the affected jurisdiction to maintain the perfected security
interest granted pursuant to this Agreement shall have been made; or
(c) change its name, identity or corporate structure to such an extent
that any financing statement filed by the Administrative Agent in
connection with this Agreement would become seriously misleading, unless it
shall have given the Administrative Agent and the Lenders at least 30 days'
prior written notice of such change and any filings required under the
Uniform Commercial Code in effect in the affected jurisdiction to maintain
the perfected security interest granted pursuant to this Agreement shall
have been made.
6.5 Further Identification of Collateral. The Credit Party will furnish to
------------------------------------
the Administrative Agent and the Lenders from time to time upon request, but
prior to the occurrence and during the continuance of an Event of Default, not
more than once in any calendar year, statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Administrative Agent may reasonably request, all in
reasonable detail.
6.6 Indemnification. The Credit Parties agree to pay, and to save the
---------------
Administrative Agent and the Lenders harmless from, any and all liabilities,
costs and expenses (including, without limitation, reasonable legal fees and
expenses) (i) with respect to, or resulting from any delay in paying, any and
all excise, sales or other taxes which may be payable or determined to be
payable with respect to any of the Collateral, (ii) with respect to, or
resulting from, any delay in complying with any Requirement of Law applicable to
any of the Collateral and (iii) in connection with any of the transactions
contemplated by this Agreement, except for any such liabilities which result
from the gross negligence or willful misconduct of the Administrative Agent. In
any suit, proceeding or action brought by the Administrative Agent or any Lender
under any Account for any sum owing thereunder, the Credit Parties will save,
indemnify and keep the Administrative Agent and such Lender harmless from and
against all expense, loss or damage suffered by reason of any defense, setoff,
counterclaim, recoupment or reduction or liability whatsoever of the account
debtor thereunder, arising out of a breach by any Credit Party of any obligation
thereunder or arising out of any other agreement, indebtedness or liability at
any time owing to or in favor of such account debtor or its successors from any
Credit Parties.
6.7 Covenants Relating to Accounts Upon Default. At any time after the
-------------------------------------------
occurrence of an Event of Default:
(a) the amount represented by the Credit Party to the Lenders from
time to time as owing by each account debtor or by all account debtors in
respect of the Accounts will at such time be the correct amount and
believed by the Credit Party to be actually owing by such account debtor or
debtors thereunder;
8
<PAGE>
(b) the Credit Party will not amend, modify, terminate or waive any
agreement giving rise to an Account in any manner which would reasonably be
expected to materially adversely affect the value of the Accounts as
Collateral;
(c) the Credit Party will not fail to exercise promptly and diligently
each and every material right which it may have under each agreement giving
rise to an Account (other than any right of termination);
(d) the Credit Party will not fail to deliver to the Administrative
Agent a copy of each material demand, notice or document received by it
relating in any way to any agreement giving rise to an Account; and
(e) other than in the ordinary course of business as generally
conducted by the Credit Party, the Credit Party will not grant any
extension of the time of payment of any of the Accounts, compromise,
compound or settle the same for less than the full amount thereof, release,
wholly or partially, any Person liable for the payment thereof, or allow
any credit or discount whatsoever thereon.
6.8 Covenants Relating to Contracts. (a) The Credit Party will perform and
-------------------------------
comply in all material respects with all its obligations under the Contracts and
all its other Contractual Obligations relating to the Collateral.
(b) The Credit Party will promptly provide upon request to the
Administrative Agent copies of particular Contracts and each material demand,
notice or document relating thereto.
(c) In any suit, proceeding or action brought by the Administrative Agent
or any Lender under any Contract for any sum owing thereunder, or to enforce any
provisions of any Contract, the Credit Party will save, indemnify and keep the
Administrative Agent and such Lenders harmless from and against all expense,
loss or damage suffered by reason of any defense, setoff, counterclaim,
recoupment or reduction or liability whatsoever of the Credit Party thereunder,
arising out of a breach by the Credit Party of any obligation thereunder or
arising out of any other agreement, indebtedness or liability at any time owing
to or in favor of such obligor or its successors from the Credit Party except
for any such expense, loss or damage which results from the gross negligence of
the willful misconduct of the Administrative Agent or such Lender.
6.9 Covenants Relating to Copyrights. (a) The Credit Party will employ the
--------------------------------
Copyright for each Work with such notice of copyright as may be required by law
to secure copyright protection.
(b) The Credit Party will not do any act or knowingly omit to do any act
whereby any material Copyright may become invalidated and (i) will not do any
act, or omit to do any act, whereby any material Copyright may become injected
into the public domain; (ii) shall notify the Administrative Agent immediately
if it knows, or has reason to know, that any material Copyright may become
injected into the public domain or of any adverse determination or development
(including, without limitation, the institution of, or any such determination or
development in, any court or tribunal in the United States or any other country)
regarding the Credit Party's ownership of any such Copyright or its validity;
(iii) will take all necessary steps as it shall deem appropriate under the
circumstances, to maintain and pursue each application (and to obtain the
relevant registration) and to maintain each registration of each material
Copyright owned by the Credit Party including, without limitation, filing of
applications for renewal where necessary; and (iv) will promptly notify the
Administrative Agent of any material infringement of any material Copyright of
the Credit Party of which it becomes aware and will take such actions as it
shall reasonably deem appropriate under the circumstances to protect such
Copyright, including, where appropriate, the bringing of suit for infringement,
seeking injunctive relief and seeking to recover any and all damages for such
infringement.
6.10 Covenants Relating to Patents and Trademarks. (a) The Credit
--------------------------------------------
Party (either itself or through licensees) will, except with respect to any
Trademark that the Credit Party shall reasonably determine is of negligible
economic value to it, (i) continue to use each Trademark on each and every
trademark class of goods applicable to its current line as reflected in its
current catalogs, brochures and price lists in order to maintain such
9
<PAGE>
Trademark in full force free from any claim of abandonment for non-use, (ii)
maintain as in the past the quality of products and services offered under such
Trademark, (iii) employ such Trademark with the appropriate notice of
registration, (iv) not adopt or use any mark which is confusingly similar or a
colorable imitation of such Trademark unless the Administrative Agent, for the
ratable benefit of the Lenders, shall obtain a perfected security interest in
such mark pursuant to this Agreement, and (v) not (and not permit any licensee
or sublicensee thereof to) do any act or knowingly omit to do any act whereby
any Trademark may become invalidated.
(b) The Credit Party will not, except with respect to any Patent that the
Credit Party shall reasonably determine is of negligible economic value to it,
do any act, or omit to do any act, whereby any Patent may become abandoned or
dedicated.
(c) The Credit Party will notify the Administrative Agent and the Lenders
immediately if it knows, or has reason to know, that any application or
registration relating to any Patent or Trademark may become abandoned or
dedicated, or of any adverse determination or development (including, without
limitation, the institution of, or any such determination or development in, any
proceeding in the United States Patent and Trademark Office or any court or
tribunal in any country) regarding the Credit Party's ownership of any Patent or
Trademark or its right to register the same or to keep and maintain the same.
(d) Whenever the Credit Party, either by itself or through any agent,
employee, licensee or designee, shall file an application for the registration
of any Patent or Trademark with the United States Patent and Trademark Office or
any similar office or agency in any other country or any political subdivision
thereof, the Credit Party shall report such filing to the Administrative Agent
and the Lenders within five Business Days after the last day of the fiscal
quarter in which such filing occurs. Upon request of the Administrative Agent,
the Credit Party shall execute and deliver any and all agreements, instruments,
documents and papers as the Agent may request to evidence the Administrative
Agent's and the Lenders' security interest in any Patent or Trademark and the
goodwill and general intangibles of the Credit Party relating thereto or
represented thereby.
(e) The Credit Party will take all reasonable and necessary steps,
including, without limitation, in any proceeding before the United States Patent
and Trademark Office, or any similar office or agency in any other country or
any political subdivision thereof, to maintain and pursue each application (and
to obtain the relevant registration) and to maintain each registration of the
Patents and Trademarks, including, without limitation, filing of applications
for renewal, affidavits of use and affidavits of incontestability.
(f) In the event that any Patent or Trademark included in the Collateral
is infringed, misappropriated or diluted by a third party, the Credit Party
shall promptly notify the Administrative Agent and the Lenders after it learns
thereof and shall, unless the Credit Party shall reasonably determine that such
Patent or Trademark is of negligible economic value to the Credit Party which
determination the Credit Party shall promptly report to the Administrative Agent
and the Lenders, promptly sue for infringement, misappropriation or dilution, to
seek injunctive relief where appropriate and to recover any and all damages for
such infringement, misappropriation or dilution, or take such other actions as
the Credit Party shall reasonably deem appropriate under the circumstances to
protect such Patent or Trademark.
6.11 Covenants Relating to Inventory and Equipment
---------------------------------------------
(a) The Credit Party will, upon ten (10) days' written notice from the
Administrative Agent, provide a physical history of Inventory and/or Equipment
on a quarterly basis or, after the occurrence of an Event of Default, more
frequently .
(b) The Credit Party shall, at its own expense, maintain insurance with
respect to the Equipment and Inventory in such amounts, against such risks, in
such form and with such insurers, as shall be reasonably satisfactory to the
Administrative Agent from time to time. Each policy for liability insurance
shall provide for all losses to be paid on behalf of the Administrative Agent
and the Credit Party as their interests may appear, and each policy for property
damage insurance shall provide for all losses (except for losses of less than
$_____ per occurrence) to be paid directly to the Administrative Agent. Each
such policy shall in addition (i) name the Credit Party and the Administrative
Agent as insured parties thereunder (without any representation or warranty by
or
10
<PAGE>
obligation upon the Administrative Agent) as their interests may appear, (ii)
contain the agreement by the insurer that any loss thereunder shall be payable
to the Administrative Agent notwithstanding any action, inaction or breach of
representation or warranty by the Credit Party, (iii) provide that there shall
be no recourse against the Administrative Agent for payment of premiums or other
amounts with respect thereto and (iv) provide that at least thirty (30) days'
prior written notice of cancellation or lapse shall be given to the
Administrative Agent by the insurer. The Credit Party shall, if so requested by
the Administrative Agent, deliver to the Administrative Agent original or
duplicate policies of such insurance and, as often as the Administrative Agent
may reasonably request, a report of a reputable insurance broker with respect to
such insurance. Further, the Credit Party shall, at the request of the
Administrative Agent, duly exercise and deliver instruments of assignment of
such insurance policies to comply with the requirements of Section 6.3 hereof
and cause the insurers to acknowledge notice of such assignment.
(c) In the case of any loss involving damage to Equipment or Inventory of
the Credit Party, the Credit Party shall make or cause to be made the necessary
repairs to or replacements of such Equipment or Inventory, and any proceeds of
insurance properly received by or released to the Credit Party shall be used by
the Credit Party, except as otherwise required or permitted hereunder or by the
Credit Agreement, to pay or as reimbursement for the costs of such repairs or
replacements.
(d) So long as no Event of Default shall have occurred, all insurance
payments received by the Administrative Agent in connection with any loss,
damage or destruction of any Inventory or Equipment shall be released by the
Administrative Agent to the Credit Party for the repair, replacement or
restoration thereof. To the extent that (i) the amount of any such insurance
payments exceeds the cost of any such repair, replacement or restoration, or
(ii) such insurance payments are not otherwise required by the Credit Party to
complete any such repair, replacement or restoration required hereunder, the
Administrative Agent shall not be required to release the amount thereof to the
Credit Party and may hold or continue to hold such amount in a Collateral
Account as additional security for the Secured Obligations (except that any such
amount shall be released by the Administrative Agent to the Credit Party if no
Event of Default has occurred). If an Event of Default has occurred, the
Administrative Agent may elect, in its sole and absolute discretion, to release
any such insurance payments for the purposes set forth in the first sentence of
this Section 6.11(d), or to hold such insurance payments as additional
Collateral hereunder or apply the same in the order set forth is Section 3.14(b)
of the Credit Agreement.
7. Remedies. Notwithstanding anything contained herein to the
--------
contrary, an exercise of remedies under this Security Agreement shall be made
only by direction of Lenders holding a majority in interest of the Secured
Obligations.
7.1 Notice to Account Debtors and Contract Parties. Upon the request
----------------------------------------------
of the Administrative Agent at any time after the occurrence of an Event of
Default, the Credit Parties shall notify account debtors on the Accounts and
parties to the Contracts that the Accounts and the Contracts have been assigned
to the Administrative Agent for the ratable benefit of the Lenders and that
payments in respect thereof shall be made directly to the Administrative Agent.
7.2 Proceeds to be Turned Over To Administrative Agent. In addition
--------------------------------------------------
to the rights of the Administrative Agent and the Lenders specified in Section
3.3 hereof with respect to payments of Accounts, after the occurrence of an
Event of Default all Proceeds received by the Credit Parties consisting of cash,
checks and other near-cash items shall be held by the Credit Parties in trust
for the Administrative Agent and the Lenders, segregated from other funds of the
Credit Parties, and shall, forthwith upon receipt by the Credit Parties, be
turned over to the Administrative Agent in the exact form received by the Credit
Parties (duly indorsed by the Credit Parties to the Administrative Agent in a
manner satisfactory to the Administrative Agent, if required by the
Administrative Agent) and held by the Administrative Agent in a Collateral
Account maintained under the sole dominion and control of the Administrative
Agent. All Proceeds while held by the Administrative Agent in a Collateral
Account (or by the Credit Parties in trust for the Administrative Agent and the
Lenders) shall continue to be held as collateral security for all the Secured
Obligations and shall not constitute payment thereof until applied as provided
in subsection 7.3 hereof.
11
<PAGE>
7.3 Application of Proceeds. At such intervals as may be agreed
-----------------------
upon by the Credit Parties and the Administrative Agent or at any time after an
Event of Default shall have occurred, at the Administrative Agent's election,
the Administrative Agent may apply all or any part of Proceeds held in any
Collateral Account in ratable payment of the Secured Obligations, and any part
of such funds which the Administrative Agent elects not so to apply and deems
not required as collateral security for the Secured Obligations shall be paid
over from time to time by the Administrative Agent to the Credit Parties or to
whomsoever may be lawfully entitled to receive the same. Any balance of such
Proceeds remaining after the Secured Obligations shall have been satisfied in
full and the Commitments shall have been terminated shall be paid over to the
Credit Parties or to whomsoever may be lawfully entitled to receive the same.
7.4 Code Remedies. At any time after an Event of Default shall have
-------------
occurred, the Administrative Agent, on behalf of the Lenders, may exercise, in
addition to all other rights and remedies granted in this Agreement and in any
other instrument or agreement securing, evidencing or relating to the Secured
Obligations, all rights and remedies of a secured party under the Uniform
Commercial Code. Without limiting the generality of the foregoing, the
Administrative Agent, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon the Credit Parties or any other
Person (all and each of which demands, defenses, advertisements and notices are
hereby waived), may in such circumstances forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, lease, assign, give option or options to purchase, or otherwise
dispose of and deliver the Collateral or any part thereof (or contract to do any
of the foregoing), in one or more parcels at public or private sale or sales, at
any exchange, broker's board or office of the Administrative Agent or any Lender
or elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. The Administrative Agent or any Lender shall have
the right upon any such public sale or sales, and, to the extent permitted by
law, upon any such private sale or sales, to purchase the whole or any part of
the Collateral so sold, free of any right or equity of redemption in a Credit
Party, which right or equity is hereby waived and released. The Credit Parties
further agree, at the Administrative Agent's request, to assemble the Collateral
and make it available to the Administrative Agent at places which the
Administrative Agent shall reasonably select, whether at the respective Credit
Party's premises or elsewhere. The Administrative Agent shall apply the net
proceeds of any such collection, recovery, receipt, appropriation, realization
or sale, after deducting all reasonable costs and expenses of every kind
incurred therein or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the
Administrative Agent and the Lenders hereunder, including, without limitation,
reasonable attorneys' fees and disbursements, to the payment in whole or in part
of the Secured Obligations, in the order set forth in the Credit Agreement, and
only after such application and after the payment by the Administrative Agent of
any other amount required by any provision of law, including, without
limitation, Section 9-504(1)(c) of the Uniform Commercial Code, need the
Administrative Agent account for the surplus, if any, to each of the Credit
Parties. To the extent permitted by applicable law, each Credit Party waives all
claims, damages and demands it may acquire against the Administrative Agent or
any Lender arising out of the exercise by them of any rights hereunder. If any
notice of a proposed sale or other disposition of Collateral shall be required
by law, such notice shall be deemed reasonable and proper if received by the
Credit Parties at least 20 days before such sale or other disposition.
7.5 Deficiency. The Credit Parties shall remain liable for any
----------
deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to pay the Secured Obligations and the fees and disbursements
of any attorneys employed by the Administrative Agent or any Lender to collect
such deficiency.
8. Administrative Agent's Appointment as Attorney-in-Fact; Administrative
-------------------------------------------------------
Agent's Performance of Credit Parties' Obligations.
- ---------------------------------------------------
8.1 Powers. Each Credit Party hereby irrevocably constitutes and
------
appoints the Administrative Agent and any officer or agent of the Administrative
Agent, with full power of substitution, as its true and lawful attorney-in-fact
with fully irrevocable power and authority in the place and stead of such Credit
Party and in the name of such Credit Party or in the name of the Administrative
Agent, from time to time in the Administrative Agent's discretion, for the
purpose of carrying out the terms of this Agreement, to take any and all
appropriate action and to execute any and all documents and instruments which
may be necessary or desirable to secure the Secured Obligations and grant
security interests in the Collateral as contemplated by this Agreement, and,
without limiting
12
<PAGE>
the generality of the foregoing, each Credit Party hereby gives the
Administrative Agent the power and right, on behalf of such Credit Party,
without notice to or assent by such Credit Party, to do the following:
(a) in the case of any Account, at any time when the authority of
such Credit Party to collect the Accounts has been curtailed or terminated
pursuant to Section 3.3(a) hereof, or in the case of any other Collateral,
at any time after an Event of Default has occurred, in the name of such
Credit Party or in the name of the Administrative Agent, or otherwise, to
take possession of and indorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
Account, Instrument or General Intangible or with respect to any other
Collateral and to file any claim or to take any other action or proceeding
in any court of law or equity or otherwise deemed appropriate by the
Administrative Agent for the purpose of collecting any and all such moneys
due under any Account, Instrument or General Intangible or with respect to
any other Collateral whenever payable;
(b) in the case of any Copyrights, Patents or Trademarks, at any time
after an Event of Default has occurred, to execute and deliver any and all
agreements, instruments, documents, and papers as the Administrative Agent
may request to evidence the Administrative Agent's and the Lenders'
security interest in any Copyright, Patent or Trademark and the goodwill
and general intangibles of such Credit Party relating thereto or
represented thereby;
(c) at any time after an Event of Default has occurred, to pay or
discharge taxes and Liens levied or placed on or threatened against the
Collateral, to effect, any repairs or any insurance called for by the terms
all or any part of the premiums therefor and the costs thereof;
(d) to execute, in connection with the sale provided for in Section
7.4 hereof, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral; and
(e) at any time after an Event of Default has occurred, (i) to direct
any party liable for any payment under any of the Collateral to make
payment of any and all moneys due or to become due thereunder directly to
the Administrative Agent or as the Administrative Agent shall direct; (ii)
to ask or demand for, collect, receive payment of and receipt for, any and
all moneys, claims and other amounts due or to become due at any time in
respect of or arising out of any Collateral; (iii) to sign and indorse any
invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications, notices and
other documents in connection with any of the Collateral; (iv) to commence
and prosecute any suits, actions or proceedings at law or in equity in any
court of competent jurisdiction to collect the Collateral or any thereof
and to enforce any other right in respect of any Collateral; (v) to defend
any suit, action or proceeding brought against the Credit Party with
respect to any Collateral; (vi) to settle, compromise or adjust any such
suit, action or proceeding and, in connection therewith, to give such
discharges or releases as the Administrative Agent may deem appropriate;
(vii) to assign or grant licenses, any Copyright, Patent or Trademark
(along with the goodwill of the business to which any such Copyright,
Patent or Trademark pertains), throughout the world for such term or terms,
on such conditions, and in such manner, as the Administrative Agent shall
in its sole discretion determine; and (viii) generally, to sell, transfer,
pledge and make any agreement with respect to or otherwise deal with any of
the Collateral as fully and completely as though the Administrative Agent
were the absolute owner thereof for all purposes, and to do, at the
Administrative Agent's option and such Credit Party's expense, at any time,
or from time to time, all reasonable acts and things which the
Administrative Agent deems necessary to protect, preserve or realize upon
the Collateral and the Administrative Agent's and the Lenders' security
interests therein and to effect the intent of this Agreement, all as fully
and effectively as such Credit Party might do.
The Administrative Agent agrees that, except after the occurrence of an Event of
Default, it will forbear from exercising the power of attorney or any rights
granted to the Administrative Agent pursuant to this Section 8.1.
8.2 Performance by Administrative Agent of Credit Parties' Obligations. If
-------------------------------------------------------------------
the Credit Parties fail to perform or comply with any of their agreements
contained herein, the Administrative Agent, at its option, but
13
<PAGE>
without any obligation to do so, may perform or comply, or otherwise cause
performance or compliance, with such agreement.
8.3 Credit Parties' Reimbursement Obligation. The expenses of the
----------------------------------------
Administrative Agent incurred in connection with actions undertaken as provided
in this Section 8, together with interest thereon at the post-default rate per
annum set forth in the Credit Agreement for Base Rate Loans from the date of
payment by the Administrative Agent to the date reimbursed by the Credit
Parties, shall be payable by the Credit Parties to the Administrative Agent on
demand.
8.4 Ratification; Power Coupled With An Interest. The Credit Parties
--------------------------------------------
hereby ratify all that said attorneys shall lawfully do or cause to be done by
virtue hereof. All powers, authorizations and agencies contained in this
Agreement are coupled with an interest and are irrevocable until the Secured
Obligations have been satisfied in full and the Commitments have been
terminated.
9. Duty of Administrative Agent. The Administrative Agent's sole
----------------------------
duty with respect to the custody, safekeeping and physical preservation of the
Collateral in its possession, under Section 9-207 of the Uniform Commercial Code
or otherwise, shall be to deal with it in the same manner as the Administrative
Agent deals with similar property for its own account, except that the
Administrative Agent shall have no obligation to invest funds held in any
Collateral Account and may hold the same as demand deposits. Neither the
Administrative Agent, any Lender nor any of their respective directors,
officers, employees or agents shall be liable for failure to demand, collect or
realize upon any of the Collateral or for any delay in doing so or shall be
under any obligation to sell or otherwise dispose of any Collateral upon the
request of any Credit Party or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof. The powers
conferred on the Administrative Agent and the Lenders hereunder are solely to
protect the Administrative Agent's and the Lenders' interests in the Collateral
and shall not impose any duty upon the Administrative Agent or any Lender to
exercise any such powers. The Administrative Agent and the Lenders shall be
accountable only for amounts that they actually receive as a result of the
exercise of such powers, and neither they nor any of their officers, directors,
employees or agents shall be responsible to the Credit Parties for any act or
failure to act hereunder, except for their own gross negligence or willful
misconduct.
10. Execution of Financing Statements. Pursuant to Section 9-402 of
---------------------------------
the Uniform Commercial Code, each Credit Party authorizes the Administrative
Agent to file financing statements with respect to the Collateral without the
signature of such Credit Party in such form and in such filing offices as the
Administrative Agent reasonably determines appropriate to perfect the security
interests of the Administrative Agent and the Lenders under this Agreement. A
carbon, photographic or other reproduction of this Agreement shall be sufficient
as a financing statement for filing in any jurisdiction.
11. Authority of Administrative Agent. Each Credit Party acknowledges that
---------------------------------
the rights and responsibilities of the Administrative Agent under this Agreement
with respect to any action taken by the Administrative Agent or the exercise or
non-exercise by the Administrative Agent of any option, voting right request,
judgment or other right or remedy provided for herein or resulting or arising
out of this Agreement shall, as between the Administrative Agent and the
Lenders, be governed by the Credit Agreement and the TROL Transaction Documents,
and by such other agreements with respect thereto as may exist from time to time
among them, but, as between the Administrative Agent and such Credit Party, the
Administrative Agent shall be conclusively presumed to be acting as agent for
the Lenders with full and valid authority so to act or refrain from acting, and
such Credit Party shall be under no obligation, or entitlement, to make any
inquiry respecting such authority.
12. Notices. All notices shall be given or made in accordance with
-------
Section 11.1 of the Credit Agreement.
13. Severability. Any provision of this Agreement which is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
14
<PAGE>
14. Amendments in Writing; No Waiver; Cumulative Remedies.
-----------------------------------------------------
14.1 Amendments in Writing. None of the terms or provisions of this
---------------------
Agreement may be waived, amended, supplemented or otherwise modified except by a
written instrument executed by the Administrative Agent and the Credit Parties
directly affected thereby; provided that any provision of this Agreement may be
--------
waived by the Administrative Agent and the Lenders in a letter or agreement
executed by the Administrative Agent or by facsimile transmission from the
Administrative Agent.
14.2 No Waiver by Course of Conduct. Neither the Administrative
------------------------------
Agent nor any Lender shall by any act (except by a written instrument pursuant
to Section 14.1 hereof), delay, indulgence, omission or otherwise be deemed to
have waived any right or remedy hereunder or to have acquiesced in any Default
or Event of Default or in any breach of any of the terms and conditions hereof.
No failure to exercise, nor any delay in exercising, on the part of the
Administrative Agent or any Lender, any right, power or privilege hereunder
shall operate as a waiver thereof. No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. A waiver by the
Administrative Agent or any Lender of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which the
Administrative Agent or such Lender would otherwise have on any future occasion.
14.3 Remedies Cumulative. The rights and remedies herein provided are
-------------------
cumulative, may be exercised singly or concurrently and are not exclusive of any
other rights or remedies provided by law.
15. Section Headings. The section and subsection headings used in
----------------
this Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
16. Successors and Assigns. This Agreement shall be binding upon the
----------------------
successors and assigns of the Credit Parties and shall inure to the benefit of
the Administrative Agent and the Lenders and their successors and assigns,
provided that the Credit Parties may not assign any of their rights or
- --------
obligations under this Agreement without the prior written consent of the
Administrative Agent and any such purported assignment without such prior
written consent shall be null and void.
17. Term of Agreement. This Agreement and the security interests
-----------------
granted hereunder shall remain in full force and effect until the Secured
Obligations have been satisfied in full and the Commitments have been
terminated, at which time the Administrative Agent shall release and terminate
the security interests granted to it hereunder. Upon such release and
termination, (i) the Credit Parties shall be entitled to the return, at the
Credit Parties' expense, of any and all funds in the Collateral Account and such
of the Collateral held by the Administrative Agent as shall not have been sold
or otherwise applied pursuant to the terms hereof and (ii) the Administrative
Agent will, at the Credit Parties' expense, execute and deliver to the Credit
Parties such UCC termination statements and other documents as the Credit
Parties shall reasonably request to evidence such release and termination.
18. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
-------------
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA.
[Remainder of Page Intentionally Left Blank]
15
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Security Agreement to
be duly executed and delivered as of the date first above written.
CREDIT PARTIES:
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/ Daryl R. Griswold By:/s/ Alan Dahl
Name: Daryl R. Griswold Name: Alan Dahl
Title: Asst. Secretary Title: EVP
ADMINISTRATIVE FIRST UNION NATIONAL BANK,
AGENT: for itself and as Agent
By: /s/ J. Matt MacIver, Jr.
Name:J. Matt MacIver, Jr.
Title:V.P.
ADMINISTRATIVE
AGENT: FIRST UNION NATIONAL BANK,
as Administrative Agent
By: /s/ J. Matt McIver, Jr.
Name:J. Matt McIver, Jr.
Title:V.P.
<PAGE>
Schedule 1
----------
CChief Executive Office and Locations of Collateral
Schedule Omitted
<PAGE>
Schedule 2
----------
Filings and Actions required to Perfect Security Interests
Schedule Omitted
<PAGE>
Schedule 3
----------
Copyrights and Copyright Licenses
Schedule Omitted
<PAGE>
Schedule 4
----------
Patents and Patent Licenses
Schedule Omitted
<PAGE>
Schedule 5
----------
Trademarks and Trademark Licenses
Schedule Omitted
<PAGE>
Schedule 6
----------
Contracts with Governmental Authorities
Schedule Omitted
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1999 APR-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 3,503 3,503
<SECURITIES> 0 0
<RECEIVABLES> 107,898 107,898
<ALLOWANCES> (5,100) (5,100)
<INVENTORY> 0 0
<CURRENT-ASSETS> 117,276 117,276
<PP&E> 96,730 96,730
<DEPRECIATION> (23,013) (23,013)
<TOTAL-ASSETS> 283,804 283,804
<CURRENT-LIABILITIES> (60,944) (60,944)
<BONDS> (115,707) (115,707)
0 0
0 0
<COMMON> (119) (119)
<OTHER-SE> (106,603) (106,603)
<TOTAL-LIABILITY-AND-EQUITY> (106,722) (106,722)
<SALES> (197,904) (99,860)
<TOTAL-REVENUES> (197,904) (99,860)
<CGS> 0 0
<TOTAL-COSTS> 203,464 109,011
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 5,408 2,910
<INCOME-PRETAX> 10,968 12,061
<INCOME-TAX> (4,007) (4,488)
<INCOME-CONTINUING> 6,961 7,573
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,961 7,573
<EPS-BASIC> .58 .64
<EPS-DILUTED> .58 .64
</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.
16. The Company's ability to achieve required reductions in expenses or reach
required levels of revenue as PPS is fully implemented.
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.
17. The assertion of claims against the Company, including the outcome of the
pending investigation by the Department of Health and Human Services, office of
Inspector General.
