SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED NOVEMBER 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 0-25777
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-3476656
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1983 Marcus Avenue, Lake Success, New York 11042
(Address of principal executive offices) (Zip Code)
(516) 358-1000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
The number of shares of common stock outstanding on January 17,
2000 was 11,809,653 shares.
<PAGE>
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
November 30, 1999 and February 28, 1999 2
Condensed Statements of Consolidated
Operations - Three and nine months ended
November 30, 1999 and 1998 3
Condensed Statements of Consolidated Cash
Flows - Nine months ended November 30, 1999
and 1998 4
Notes to Condensed Consolidated Financial
Statements 5-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9-13
Factors Affecting the Company's Future
Performance 14-16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
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<TABLE>
<CAPTION>
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data) NOVEMBER 30,
1999 FEBRUARY 28,
(UNAUDITED) 1999
ASSETS:
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,697 $ 1,323
Accounts receivable, net of allowance
for doubtful accounts of $2,088 and
$5,083, respectively 51,594 47,884
Tax refund receivable - 1,733
Prepaid expenses and other current assets 2,528 1,886
Total current assets 56,819 52,826
Fixed Assets, net of accumulated depreciation
of $6,232 and $8,800, respectively 19,498 23,574
Intangible Assets, net of accumulated
amortization of $9,336 and $8,926
respectively 4,876 5,126
Other Assets 3,051 4,129
Total $ 84,244 $ 85,655
LIABILITIES:
Current Liabilities:
Accounts payable and accrued expenses $ 33,220 $ 28,039
Accrued payroll and related expenses 23,228 22,225
Current portion of long-term debt 22,239 12,476
Current portion of Medicare and
Medicaid liabilities 8,383 22,673
Total current liabilities 87,070 85,413
Long-Term Debt 12,736 16,024
Long-Term Medicare and Medicaid liabilities 45,071 34,608
Other Liabilities 5,182 4,700
Total Liabilities 150,059 140,745
STOCKHOLDERS' EQUITY (DEFICIT):
Class A Common stock - $.01 par value;
50,000,000 shares authorized; 11,809,653
outstanding at November 30, 1999 and
February 28, 1999 118 118
Additional paid-in capital 50,918 49,346
Accumulated deficit (116,851) (104,554)
Total stockholders' equity (deficit) (65,815) (55,090)
Total $ 84,244 $ 85,655
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS (UNAUDITED)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
November 30, November 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues:
Service revenues $ 61,551 $ 73,976 $196,848 $237,121
Sales of licensees and fees, net 72 1,231 602 1,880
Total Revenues 61,623 75,207 197,450 239,001
Operating Expenses:
Service costs 36,764 47,013 123,196 151,626
General and administrative expenses 25,617 32,101 78,645 90,859
Total Operating Expenses 62,381 79,114 201,841 242,485
(Loss) from Operations (758) (3,907) (4,391) (3,484)
Interest and Other Expenses:
Interest expense 1,413 497 3,282 759
Interest (income) (195) (166) (567) (696)
Depreciation and amortization 1,435 1,098 3,784 3,273
Other (income) expense, net 1,860 543 1,332 428
Medicare and Medicaid audit
adjustments - 29,000 - 29,000
Restructuring costs - 4,500 - 4,500
Total Interest and Other Expenses 4,513 35,472 7,831 37,264
(Loss) Before Income Taxes (5,271) (39,379) (12,222) (40,748)
Provision for Income Taxes 25 5,306 75 5,338
Net (Loss) $ (5,296) $(44,685) $(12,297) $(46,086)
Weighted average number of common
and common equivalent shares:
Basic 11,810 11,423 11,810 11,513
Diluted 11,810 11,423 11,810 11,513
(Loss) per common and
common equivalent share:
Basic $ (.45) $(3.91) $(1.04) $(4.00)
Diluted $ (.45) $(3.91) $(1.04) $(4.00)
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(In thousands)
Nine Months Ended
November 30,
1999 1998
<S> <C> <C>
Cash Flows from Operating Activities:
Net (loss) $(12,297) $(46,086)
Adjustments to reconcile net (loss) to net
cash provided by (used in) operations:
Depreciation and amortization of fixed assets 3,374 2,823
Amortization of intangibles and other assets 410 450
Allowance for doubtful accounts (2,995) 3,414
Income tax refund received 1,733 -
Deferred income taxes - 6,952
Write-off of goodwill and other assets 358 1,161
Write-off of fixed assets 1,609 911
Increase in other long-term liabilities 10,247 4,600
Gain on sale of assets (779) (1,148)
Change in operating assets and liabilities:
Accounts receivable 159 8,900
Prepaid expenses and other current assets (642) (2,229)
Accounts payable and accrued expenses 5,641 (10,082)
Increase (decrease) in Medicare and
Medicaid audit liabilities (3,318) 29,000
Increase (decrease) in periodic interim
payment liability (509) 19,035
Other assets 133 (2,496)
Net cash provided by operating activities 3,124 15,205
Cash Flows from Investing Activities:
Acquisition of businesses - (1,662)
Purchase of fixed assets (1,780) (335)
Proceeds from disposal of assets 917 576
Net cash used in investing activities (863) (1,421)
Cash Flows from Financing Activities:
Proceeds from Employee Stock Purchase Plan - 239
Exercise of stock options - 35
Purchase and retirement of common stock - (4,770)
Decrease in long-term liabilities (887) (9,097)
Net cash used in financing activities (887) (13,593)
Increase (decrease) in Cash and Cash Equivalents 1,374 191
Cash and Cash Equivalents, Beginning of Period 1,323 1,039
Cash and Cash Equivalents, End of Period $ 2,697 $ 1,230
Supplemental Data:
Cash paid for:
Interest $ 2,258 $ 2,355
Income taxes, net $(1,318) $ (1,257)
Fixed assets acquired through
capital lease agreements $ - $ 2,197
Acquisition of businesses through
issuance of notes payable $ 310 $ 325
<FN>
See notes to condensed consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
TENDER LOVING CARE HEALTH CARE SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SPIN-OFF TRANSACTION AND FINANCIAL STATEMENTS - Tender Loving
Care Health Care Services, Inc. ("TLCS" or "the Company") is
a leading national provider of home health care services with
105 locations in 24 states and the District of Columbia. On
October 20, 1999, TLCS began operations as an independent,
publicly traded company resulting from the spin-off of the
home health care operations previously owned by Staff
Builders, Inc. ("SBI"). The spin-off was accomplished by TLCS
acquiring 100% of the outstanding capital stock of the SBI
subsidiaries engaged in the home health care business with a
pro rata distribution made to SBI stockholders of all of the
shares of TLCS common stock owned by SBI ("the Distribution").
The Distribution was made by issuing one share of TLCS common
stock for every two shares of SBI Class A and Class B common
stock which were outstanding on October 12, 1999 ("the Record
Date"). Based upon the 23,619,388 shares of SBI common stock
which were outstanding on the Record Date, 11,809,694 shares
of TLCS common stock were distributed to holders of SBI Class
A and Class B common stock.
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments
(consisting of only normal and recurring accruals) necessary
to present fairly the financial position of TLCS and its
subsidiaries as of November 30, 1999 and February 28, 1999 and
the results of operations for the three and nine months ended
November 30, 1999 and 1998. The financial information for the
prior periods contained in these condensed consolidated
financial statements were obtained from the home health care
operations business segment of the respective periods' SBI
financial statements. During the nine months ended November
30, 1998 ("1998 period"), SBI purchased and retired a total of
5,088,060 shares of its common stock. As discussed above,
TLCS is operating the home health care business previously
owned by SBI. Accordingly, the accompanying 1998 period
consolidated financial statements, including calculations of
earnings (loss) per share, reflect these purchases. Certain
prior period amounts have been reclassified to conform with
the November 1999 presentation.
The results for the three and nine months ended November 30,
1999 and 1998 are not necessarily indicative of the results
for an entire year. It is suggested that these condensed
consolidated financial statements be read in conjunction with
the Information Statement on Form 10 which was issued to
stockholders upon completion of the Distribution on October
20, 1999.
-5-
2. REFINANCING - On December 13, 1999, the Company obtained new
financing for its operations to replace its then existing line
of credit facility. The new financing is an accounts
receivable purchase program with an entity which provides
health care accounts receivable financing under which the
Company may sell to an affiliate of such entity up to $60
million of the Company's eligible receivables. The Company
realized $33.0 million from the initial funding from the new
financing under which it sold trade accounts receivable
approximating $43 million. Of the amount realized,
approximately $18.0 million was paid to the Company's prior
senior lending institution and $15.0 million has been received
by the Company. The proceeds are being used to make payments
on other indebtedness and for working capital purposes. The
new financing is for an initial term of three years. Under
the terms of the new financing, the Company sells its eligible
trade accounts receivable for which the Company receives in
cash approximately 80% of eligible receivables. As cash is
collected from trade customers, the remaining 20% of the sale
price of accounts receivable are paid to the Company, net of
certain fees and reserves. Eligible receivables are defined
as certain trade accounts receivable which have been
outstanding for less than 180 days. In connection with the
closing of the new financing, the Company paid approximately
$1.0 million in non-refundable fees and has granted to its
financing source, to the extent permitted by law, a security
interest in substantially all of the Company's trade accounts
receivable. The Company pays a program fee of 11.5% per annum
on the outstanding amount of eligible receivables.
3. MEDICARE REPAYMENT PLAN - In December 1999, the Company
reached an agreement with the Federal Health Care Financing
Administration ("HCFA") for a five year plan for repayment of
all Medicare overpayments to the Company and its subsidiaries
and for any overpayments previously made to SBI. The
repayment plan will be in effect through September 2004. This
agreement does not establish the amounts owed by the Company
to Medicare, but rather extends the time period within which
the Company must satisfy its liabilities. Under this
agreement, the Company will repay excess periodic interim
payments ("PIP") received as well as certain Medicare audit
liabilities. Under PIP, the Company receives regular bi-
weekly payments based on past Medicare activity of
participating offices. The Medicare repayment plan covers
excess quarterly PIP amounts received through August 31, 1999,
audit liabilities for which assessments have been made to date
and assessments which will be made in future periods through
April 2001. Any overpayments or audit liabilities that are
successfully appealed by the Company will be subtracted from
the total amount owed under the repayment plan. Interest is
accrued from the date of each assessment at the government
rate of interest, as revised from time to time (currently at
13.375% per annum), on all Medicare liabilities except for the
PIP related liability for which interest accrues beginning one
year after the date of the respective assessment, less any
-6-
payments made. Interest expense on Medicare liabilities was
$600 thousand and $1.1 million for the three and nine months
ended November 30, 1999, respectively. Under the repayment
plan, the Company is required to pay principal and interest
aggregating $500 thousand per month for the six months ending
March 2000, $750 thousand per month for the six months ending
September 2000 and $1.0 million per month thereafter through
March 2001. All remaining Medicare liabilities as of April
2001 for periods covered by this repayment plan, including
accrued interest, will then be paid in equal monthly
installments over the remaining 42 months of the repayment
plan through September 2004. The Company has paid $1.5 million
to date under this repayment plan.
If the Company fails to make any payment under the repayment
plan when it becomes due, then all remaining amounts owed
pursuant to the repayment plan would become immediately due
and payable.
4. MEDICARE AND MEDICAID LIABILITIES - During the quarter ended
November 30, 1999, the Medicare fiscal intermediary completed
and issued results of its audits for the fiscal year ended
February 28, 1998. These results indicated a liability of
approximately $7.0 million. This liability was included in
the aggregate liability that was expensed in prior years, and
therefore no adjustment to the condensed consolidated
financial statements is required.
As of November 30, 1999, the Company has recorded an aggregate
liability to Medicare of approximately $44.9 million,
including amounts assessed aggregating approximately $28.0
million. All such amounts are payable under the terms of the
five year repayment plan (see Note 3) which includes
cumulative excess PIP received of approximately $18.5 million
and audit liabilities of approximately $9.5 million.
Additionally, as of November 30, 1999, the Company has
approximately $8.6 million in remaining third party liability
to state Medicaid agencies which have claimed that the Company
did not follow proper billing procedures in certain locations.
The Company continues to appeal many audit issues. During the
three months ended November 30, 1999, the Company met with
representatives of HCFA and representatives of United
Government Services ("UGS"), the Company's Medicare fiscal
intermediary, to mediate UGS audit findings for the year ended
February 28, 1997 ("fiscal 1997"). Based on its preliminary
assessment of the mediation discussions, and the agreements in
principle reached during those discussions, the Company
believes that approximately $3.5 to $4.0 million of Medicare
audit liabilities relating to fiscal 1997 should be reversed.
While the Company continues to negotiate with UGS
representatives to resolve audit issues, it is unable to
predict the ultimate outcome of matters for all open audit
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periods. As such, no adjustment has been made to the
aggregate amount of Medicare liabilities in the accompanying
condensed consolidated financial statements.
5. EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE -
Primary and fully diluted earnings (loss) per share were
calculated for all periods in accordance with the requirements
of Financial Accounting Standards ("FAS") No. 128, "Earnings
per Share."
The shares used in computing basic earnings (loss) per share
were 11,809,653 and 11,512,794 shares for the nine months
ended November 30, 1999 and 1998, respectively. The shares
used in computing basic and diluted earnings (loss) per share
were 11,809,653 and 11,422,754 for the three months ended
November 30, 1999 and 1998, respectively. The calculations of
earnings (loss) per share reflect the weighted average number
of shares outstanding as a result of the Distribution (see
Note 1.) The weighted average number of shares outstanding
reflect the Distribution as if it occurred at the beginning of
the fiscal 1999 period.
6. PROVISION FOR INCOME TAXES - The provision for income taxes
for the three and nine months ended November 30, 1999 and 1998
is based upon the Company's estimated tax provision required
for the full year. The provision for income taxes for the
1998 period was primarily due to a valuation allowance which
was recorded because the Company has no assurance that the
utilization of tax benefits resulting from operating losses
and other temporary differences "are more likely than not" to
be realized, as required by FAS109.
7. CONTINGENCIES - On September 20, 1995, the United States
Attorney for the Eastern District of Pennsylvania alleged that
(i) between 1987 and 1989, a corporation, substantially all
assets and liabilities of which were acquired by a subsidiary
of the Company in 1993, submitted false claims to Medicare.
The alleged false claims and false statements were made before
the Company acquired that corporation in 1993. There have been
significant discussions with the office of the U. S. Attorney
which the Company believes are likely to lead to a settlement
of the outstanding claims for approximately $600 thousand, the
conclusion of which is pending final government approval of
the payment and other settlement terms.
In July 1999, a former licensee of the Company in Port St.
Lucie, Florida pleaded guilty to several counts of Medicare
fraud. The Federal government and the Company have agreed in
principle to settle all financial issues arising out of the
former licensee's illegal conduct for approximately $1.4
million, amounts deemed inappropriately reimbursed during the
period of time that the licensee operated the business. The
government has already recouped approximately $1.0 million
through Medicare hold-backs against current revenues and the
Company expects to pay the remaining balance pursuant to a
settlement agreement which is being presently negotiated.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding
of the Company's results of operations and financial condition.
This discussion should be read in conjunction with the Condensed
Consolidated Financial Statements appearing in Item 1.
Spin-off Transaction
Tender Loving Care Health Care Services, Inc. ("TLCS" or "the
Company") is a leading national provider of home health care
services with 105 locations in 24 states and the District of
Columbia. On October 20, 1999, TLCS began operations as an
independent, publicly traded company resulting from the spin-off of
the home health care operations previously owned by Staff Builders,
Inc. ("SBI"). The spin-off was accomplished by TLCS acquiring 100%
of the outstanding capital stock of the SBI subsidiaries engaged in
the home health care business with a pro rata distribution made to
SBI stockholders of all of the shares of TLCS common stock owned by
SBI ("the Distribution"). The Distribution was made by issuing one
share of TLCS common stock for every two shares of SBI Class A and
Class B common stock which was outstanding on October 12, 1999
("the Record Date"). Based upon the 23,619,388 shares of SBI
common stock which were outstanding on the Record Date, 11,809,694
shares of TLCS common stock were distributed to holders of SBI
Class A and Class B common stock.
Results of Operations
Total revenues decreased by $13.6 million or 18.1% for the three
months ended November 30, 1999 to $61.6 million from $75.2 million
for the three months ended November 30, 1998. For the nine months
ended November 30, 1999 ("the 1999 period"), total revenues
decreased by $41.5 million or 17.4% to $197.5 million from $239.0
million for the nine months ended November 30, 1998. The decrease
for the 1999 period was primarily due to a decrease in Medicare
revenues. This decrease resulted principally from the negative
reimbursement effect of the Medicare Interim Payment System,
enacted under the Balanced Budget Act of 1997. Further, the
decrease in revenues in the 1999 period as compared to the 1998
period reflects a decrease in the number of operating locations to
105 locations as of November 30, 1999 as compared to 157 locations
as of November 30, 1998. There was also a decrease in sales of
licensees and fees in the 1999 period as compared to the 1998
period because the 1998 period included the sale of certain
locations to former licensees aggregating $1.1 million.
The Company's home health care service revenues were $61.6 million
and $74.0 million for the three months ended November 30, 1999 and
1998, and $196.8 million and $237.1 million for the nine months
-9-
ended November 30, 1999 and 1998, respectively. The following are
the Company's home health care service revenues by payment source:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
November 30, November 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Medicare 45.9% 46.6% 45.6% 47.6%
Medicaid and other local
government programs 36.0 33.4 36.9 31.7
Insurance and individuals 16.9 19.1 16.7 19.4
Other 1.2 0.9 0.8 1.3
Total 100.0% 100.0% 100.0% 100.0%
</TABLE>
Service costs were 59.7% and 63.6% of service revenues for the
three months ended November 30, 1999 and 1998, and 62.6% and 63.9%
for the nine months ended November 30, 1999 and 1998, respectively.
The decreases in service costs as a percentage of service revenues
for the three and nine months ended November 30, 1999 were
primarily due to the reduction in service wages as a percentage of
related service revenues. During the 1999 period, the Company
closed many locations in which gross operating margins were not
adequate to cover general and administrative costs. The Company's
gross operating margins are determined primarily as a result of
revenue which is realized according to the specified types of
services delivered, offset by the service wages paid to the home
health care personnel.
General and administrative expenses decreased by $6.5 million, or
20.2%, to $25.6 million for the three months ended November 30,
1999 from $32.1 million for the three months ended November 30,
1998. For the nine months ended November 30, 1999, general and
administrative expenses decreased by $12.2 million, or 13.4%, to
$78.6 million from $90.9 million for the nine months ended November
30, 1998. The decreases in the three and nine months ended
November 30, 1999 as compared to the same periods in the prior year
are due to the decreases in the number of operating locations as
well as reductions in general and administrative expenses in
existing locations.
In the prior year quarter ended November 30, 1998, the Company
recorded expense of $29.0 million to provide for Medicare and
Medicaid audit liabilities. Such expense included $18.0 million
and $11.0 million for Medicare and Medicaid audit liabilities,
respectively.
During the quarter ended November 30, 1999, the Medicare fiscal
intermediary completed and issued results of its audits of branch
operating locations for the fiscal year ended February 28, 1998.
These results indicated a liability of approximately $7.0 million.
This liability was included in the aggregate liability that was
expensed in prior years, and therefore no adjustment to the
condensed consolidated financial statements is required. As of
November 30, 1999, the Company has anticipated aggregate
-10-
liabilities to Medicare totaling approximately $44.9 million,
including amounts assessed to date totaling approximately $28.0
million. Such amounts are payable under the terms of the five year
repayment plan (see Note 3) which includes cumulative excess PIP
amounts received of approximately $18.5 million and audit
liabilities of approximately $9.5 million. Additionally, as of
November 30, 1999, the Company has approximately $8.6 million in
remaining third party liability to state Medicaid agencies which
have claimed that the Company did not follow proper billing
procedures in certain locations. The Company continues to appeal
many audit issues. During the three months ended November 30,
1999, the Company met with representatives of the Health Care
Financing Administration ("HCFA") and representatives of United
Government Services ("UGS"), the Company's Medicare fiscal
intermediary, to mediate UGS audit findings for the year ended
February 28, 1997 ("fiscal 1997"). Based on its preliminary
assessment of the mediation discussions and the agreements in
principle reached during those discussions, the Company believes
that approximately $3.5 to $4.0 million of Medicare audit
liabilities relating to fiscal 1997 should be reversed. While the
Company continues to negotiate with UGS representatives to resolve
audit issues, it is unable to predict the ultimate outcome of
matters for all open audit periods. As such, no adjustment has
been made to the aggregate amount of Medicare liabilities in the
accompanying condensed consolidated financial statements.
Interest expense was approximately $1.4 million and $500 thousand
for the three months ended November 30, 1999 and 1998, and $3.3
million and $800 thousand for the nine months ended November 30,
1999 and 1998, respectively. The increases in interest expense were
primarily due to interest on amounts payable to Medicare as well as
increases in the amounts borrowed under the Company's then
outstanding revolving line of credit. Interest expense related to
Medicare liabilities was $600 thousand and $1.1 million for the
three and nine months ended November 30, 1999, respectively.
Interest is charged by HCFA to the Company at the government rate
of interest, as revised from time to time (currently at 13.375% per
annum). No interest expense was incurred for Medicare liabilities
for the three and nine months ended November 30, 1998.
Other (income) expense, net was approximately $1.9 million and $500
thousand for the three months ended November 30, 1999 and 1998, and
$1.3 million and $400 thousand for the nine months ended November
30, 1999 and 1998, respectively. Other (income) expense, net for
the nine months ended November 30, 1999 includes approximately $1.6
million for the net cost of computer equipment retired during the
quarter ended November 30, 1999. Such equipment was replaced by
new computer equipment and year 2000 compliant software which was
placed into service in November 1999. Additionally, other (income)
expense, net for the three and nine months ended November 30, 1999
includes approximately $700 thousand of legal and other
professional costs associated with the spin-off transaction.
Offsetting the foregoing amounts is income of approximately $400
thousand and $800 thousand for the three and nine months ended
November 30, 1999, respectively, related to the sale of certain
operating locations and other investments.
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Liquidity and Capital Resources
On December 13, 1999, the Company obtained new financing for its
operations to replace its then existing line of credit facility.
The new financing is an accounts receivable purchase program with
an entity which provides health care related accounts receivable
financing under which the Company may sell to an affiliate of such
entity up to $60 million of the Company's eligible receivables. The
Company realized $33.0 million from the initial funding from the
new financing under which it sold trade accounts receivable
approximating $43 million. Of the amount realized, approximately
$18.0 million was paid to the Company's prior senior lending
institution and $15.0 million has been received by the Company. The
proceeds are being used to make payments on other indebtedness and
for working capital purposes. The new financing is for a three
year term. Under the terms of the new financing, the Company sells
its eligible trade accounts receivable for which the Company
receives in cash approximately 80% of eligible receivables. As
cash is collected from trade customers, the remaining 20% of the
sale price of the accounts receivable is paid to the Company, less
certain fees and reserves. Eligible receivables are defined as
certain trade accounts receivable which have been outstanding for
less than 180 days. In connection with the closing of the new
financing, the Company paid approximately $1.0 million in non-
refundable fees and has granted to its financing source, to the
extent permitted by law, a security interest in substantially all
of the Company's trade accounts receivable. The Company pays a
program fee of 11.5% per annum on the outstanding amount of
eligible receivables.
The Company's working capital deficiency was $(30.3) million at
November 30, 1999. Current liabilities at November 30, 1999
include approximately $8.4 million for the principal portion of
Medicare and Medicaid audit liabilities and $22.2 million for the
current portion of other debt obligations. In December 1999, the
Company reached an agreement with HCFA for a five year plan for
repayment of certain Medicare liabilities. The repayment plan will
be in effect through September 2004. As a result of obtaining this
repayment plan, the Company has reduced the current portion of its
Medicare liabilities. The current principal portion of Medicare
and Medicaid liabilities was $8.4 million and $22.7 million at
November 30, 1999 and February 28, 1999, respectively. Under this
repayment agreement, the Company will repay excess periodic interim
payments ("PIP") received as well as certain Medicare audit
liabilities. Under PIP, the Company receives regular bi-weekly
payments based on past Medicare activity of participating offices.
The Medicare repayment plan covers excess quarterly PIP amounts
received through August 31, 1999, audit liabilities for which
assessments have been made to date and assessments which will be
made in future periods through April 2001. Any overpayments or
audit liabilities that are successfully appealed by the Company
will be subtracted from the total amount owed under the repayment
plan. Interest is accrued from the date of each assessment at the
government rate of interest, as revised from time to time
(currently at 13.375% per annum) on all Medicare liabilities except
for the PIP related liability for which interest accrues beginning
-12-
one year after the date of the respective assessment, less any
payments made. Under the repayment plan, the Company is required to
pay principal and interest aggregating $500 thousand per month for
the six months ending March 2000, $750 thousand per month for the
six months ending September 2000 and $1.0 million per month
thereafter through March 2001. All remaining liabilities as of
April 2001 for periods covered by this repayment plan including
accrued interest, will then be paid in equal monthly installments
over the remaining 42 months of the repayment plan through
September 2004. The Company has paid $1.5 million to date under
this repayment plan. If the Company fails to make any payment under
the repayment plan when it becomes due, then all remaining amounts
owed pursuant to the repayment plan would become immediately due
and payable.
HCFA has scheduled a new prospective payment system ("PPS") to
become effective October 1, 2000. Home health care providers have
an opportunity to generate profits under PPS if costs are contained
under the per-patient reimbursement limits. Currently, most of the
Company's locations are operating under HCFA's maximum
reimbursement rates. Generally, third-party payors have sought to
contain costs by reducing payments to providers. Continued cost
reduction efforts by third-party payors could adversely affect the
Company's cash flow and results of operations.
Based upon the Company's losses from operations, working capital
deficiency and uncertainties regarding third-party reimbursement,
as well as uncertainties as to the continuation of credit
extensions by vendors, such conditions raise doubt about the
ability of the Company to continue as a going concern.
As a result, management continues to pursue various strategies,
including but not limited to, obtaining additional financing, cost
reductions, change in revenue mix and negotiating with payor
sources to render additional services and/or improved reimbursement
rates. Additionally, the Company has obtained favorable extended
payment terms with some of its trade creditors and is continuing to
negotiate extended payment terms with other vendors. There can be
no assurance that the Company's creditors will not demand immediate
payment for amounts in arrears or that they will continue to
extend additional credit to the Company. Additionally, there can
be no assurance that the Company's actions will be successful to
provide adequate funds for the Company's current level of
operations and to pay the Company's past-due obligations.
Year 2000 ("Y2K")
The Company has made upgrades to its computer systems and equipment
supporting its financial and human resources functions. The
installation of these upgrades was completed on October 31, 1999.
The Company experienced no significant operational problems with
respect to complying with Y2K requirements.
-13-
FORWARD-LOOKING STATEMENTS
Certain statements in this report on Form 10-Q constitute
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are
typically identified by the inclusion of phrases such as "the
Company anticipates", "the Company believes" and other phrases of
similar meaning. These forward looking statements are based on the
Company's current expectations. Such forward-looking statements
involve known and unknown risks, uncertainties, and other factors
that may cause the actual results, performance or achievements of
the Company to be materially different from any future results,
performance or achievements expressed or implied by such forward-
looking statements. The potential risks and uncertainties which
could cause actual results to differ materially from the Company's
expectations include the impact of further changes in the Medicare
reimbursement system, including any changes to the current interim
payment system and/or the ultimate implementation of a prospective
payment system; government regulation; health care reform; pricing
pressures from third-party payors, including managed care
organizations; retroactive Medicare audit adjustments; changes in
law and interpretations of law or regulations relating to the
health care industry; and inability to obtain additional financing
on satisfactory terms.
GOVERNMENT REGULATION. As a home health care provider, the Company
is subject to extensive and changing state and Federal regulations
relating to the licensing and certification of its offices and the
sale and delivery of its products and services. The Federal
government and Medicare fiscal intermediaries have become more
vigilant in their review of Medicare reimbursements to home health
care providers generally, and are becoming more restrictive in
their interpretation of those costs for which reimbursement will be
allowed to such providers. State and Federal enforcement officials
also have increased their scrutiny of providers and are applying an
increasingly expansive view of activities they believe to be
fraudulent or abusive. Changes in the law and regulations as well
as new interpretations enforced by the relevant regulatory agencies
could have an adverse effect on the Company's operations and the
cost of doing business. It is anticipated that aggressive auditing
of Medicare reimbursement will continue as substantial Federal
monies continue to be allocated to audit and anti-fraud programs.
In addition, it is anticipated that with the implementation of the
Prospective Payment System for home health agencies, scheduled to
be effective October 1, 2000, new risk areas will be identified by
fiscal intermediary auditors and fraud investigators.
HEALTH CARE REFORM. The Balanced Budget Act of 1997 ("BBA")
resulted in significant changes to cost based reimbursement for
Medicare home health care providers. The BBA retained a cost-based
reimbursement system, the cost limits have been reduced and a per-
beneficiary limit has been implemented. The BBA provided for IPS
which became applicable for the Company on March 1, 1998 and will
remain in effect until the adoption of a new prospective payment
system ("PPS") scheduled to be effective for all home health care
agencies on October 1, 2000. The effect of the changes under IPS
-14-
was to reduce the limits for the amount of costs that are
reimbursable to home health care providers under the Medicare
program. The Company cannot quantify the full effect of IPS on the
Company's future performance because certain components of health
care reform legislation, such as the per-beneficiary limit, require
annual data which will not be known until a final assessment by
Medicare and/or its fiscal intermediary is completed for each
annual period. The Company and its affiliates may not be able to
adjust operating expenses sufficiently to meet the current IPS
reimbursement limitations.
Although the implementation of the Prospective Payment System could
be favorable to the Company because it will reward the efficient
provision of services, there is no assurance that the Program will
be implemented by the present deadline; however, Congress has
mandated that the periodic interim payment system whereby the
Company receives regular Medicare reimbursement payments, which are
audited on a retroactive basis, will cease on October 1, 2000.
BUSINESS CONDITIONS. The Company must continue to establish and
maintain close working relationships with physicians and physician
groups, managed care organizations, hospitals, clinics, nursing
homes, social service agencies and other health care providers.
There can be no assurance that the Company will continue to
establish or maintain such relationships. In addition, various
regulatory reforms aimed at the elimination of inappropriate
certification of patients for Medicare services by doctors have had
a negative effect on doctors' referral for home care. If these
regulatory activities continue, it may be increasingly difficult
for the Company to receive patient referrals from physicians. The
Company expects additional competition will develop in future
periods given the increasing market demand for the type of services
offered. Additionally, certain industry consolidation may produce
health care provider entities that have resources available to meet
the increasing market demand for home health care services.
ATTRACTION AND RETENTION OF CAREGIVERS AND ADMINISTRATIVE
EMPLOYEES. Maintaining quality licensees, managers and branch
administrators will play a significant part in the future success
of the Company. The Company's professional nurses and other health
care personnel are also key to the continued provision of quality
care to the Company's patients. Additionally, cost containment
efforts applied by many of the Company's payor sources serve to
reduce payments to health care providers. As a result, the Company
has restricted ability to increase the wages and/or benefits paid
to its health care personnel. The possible inability to attract and
retain qualified nursing management and sufficient numbers of
credentialed health care professionals and para-professionals as
well as office management and information technology personnel,
could adversely affect the Company's operations and quality of
service.
SATISFACTORY FINANCING. Proceeds from the Company's new financing
program provided some working capital and the ability to pay
portions of certain accumulated indebtedness. We have negotiated
deferred payment terms for certain of our Medicare and Medicaid
-15-
liabilities and have made or are in the process of making
arrangements with many of our other creditors to either reduce our
liability to them, defer or extend payment of the liability, or a
combination of all. Management cannot provide assurance that any
or enough such arrangements can be attained. In such event, or if
our revenues do not meet expectations or our costs escalate, we may
be unable to pay our debts as they become due. Pursuant to the
Company's agreement with HCFA, to repay accumulated Medicare
liabilities, the Company will be required to pay excess periodic
interim payments received as well as certain Medicare liabilities
on a monthly basis through September 2004. If the Company fails to
make payments under the repayment plan as they become due, then all
amounts owed pursuant to this repayment plan would become
immediately due and payable.
With respect to its ongoing appeals of Medicare and audit liability
as well as the third-party Medicaid liability ("TPL") reviews, the
Company may face additional exposure if its efforts to respond to
these audits are unfavorable or if it is unsuccessful on appeals of
such audits.
Based upon the Company's losses from operations, working capital
deficiency and uncertainties regarding third-party reimbursement
and managed care, as well as uncertainties as to the continuation
of credit extensions by vendors, such conditions raise doubt about
the ability of the Company to continue as a going concern.
As a result, management continues to pursue various strategies,
including but not limited to, obtaining additional financing, cost
reductions, change in revenue mix and negotiating with payor
sources to render additional services and/or improved reimbursement
rates. Additionally, the Company has obtained favorable extended
payment terms with some of its trade creditors and is continuing to
negotiate extended payment terms with other vendors. There can be
no assurance that the Company's creditors will not demand immediate
payment for amounts in arrears and that they will continue to
extend additional credit to the Company. Additionally, there can
be no assurance that the Company's actions will be successful to
provide adequate funds for the Company's current level of
operations and to pay the Company's past-due obligations.
-16-
<PAGE>
Part II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - The Company has had several lawsuits
filed against it by former franchisees; however, it believes that
the claims alleged in these lawsuits are wholly without merit and
it intends to vigorously defend the suits.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Reports on Form 8-K
The following Form 8-K report was filed by the Company during the
quarter for which this report is filed:
I. Form 8-K dated October 4, 1999 containing Item 2
(Acquisition or Disposition of Assets) and Item 7 (Financial
Statements and Exhibits).
(B) Exhibits
Exhibit No. Description
3.1 Amended and Restated Certificate of
Incorporation of the Company, filed with
the Secretary of State of Delaware on
October 14, 1999. (A)
3.2 Amended and Restated By-laws of the
Company. (A)
10.1 Sale and Subservicing Agreement by and
between Tender Loving Care Health Care
Services, Inc. and NPF XII, Inc., and
National Premier Financial Services, Inc.
dated December 8, 1999.
10.2 Guaranty agreement made by and between
Tender Loving Care Health Care Services,
Inc. and Matterhorn USA, Inc. dated
December 21, 1999.
NOTES TO EXHIBITS
(A) Incorporated by reference to the Company's Form 10-Q
(File No. 0-25777) filed with the Commission on
October 20, 1999.
-17-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Tender Loving Care Health
Care Services, Inc.
Dated: January 19, 2000 By: /s/ Stephen Savitsky
Stephen Savitsky
Chairman of the Board and
Chief Executive Officer
Dated: January 19, 2000 By: /s/ Dale R. Clift
Dale R. Clift
President and
Chief Operating Officer
Dated: January 19, 2000 By: /s/ Willard T. Derr
Willard T. Derr
Chief Financial Officer and
Senior Vice President,
Corporate Controller
(Principal Financial and
Accounting Officer)
-18-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 2,697
<SECURITIES> 0
<RECEIVABLES> 53,682
<ALLOWANCES> 2,088
<INVENTORY> 0
<CURRENT-ASSETS> 56,819
<PP&E> 25,730
<DEPRECIATION> 6,232
<TOTAL-ASSETS> 84,244
<CURRENT-LIABILITIES> 87,070
<BONDS> 0
0
0
<COMMON> 118
<OTHER-SE> (65,933)
<TOTAL-LIABILITY-AND-EQUITY> 84,244
<SALES> 0
<TOTAL-REVENUES> 197,450
<CGS> 0
<TOTAL-COSTS> 123,196
<OTHER-EXPENSES> 4,549
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,282
<INCOME-PRETAX> (12,222)
<INCOME-TAX> 75
<INCOME-CONTINUING> (12,297)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,297)
<EPS-BASIC> $(1.04)
<EPS-DILUTED> $(1.04)
</TABLE>
EXHIBIT
10.1
SALE AND SUBSERVICING AGREEMENT
Dated as of December 8, 1999
by and among
TENDER LOVING CARE HEALTH CARE SERVICES, INC.,
as Seller and as Subservicer,
NPF XII, INC.,
as Purchaser,
and
NATIONAL PREMIER FINANCIAL SERVICES, INC.,
as Servicer
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Terms . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE II PURCHASE AND SALE; ESTABLISHMENT OF ACCOUNTS . . 14
Section 2.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase and Sale . . . . . . . . . . . . . . . . . . . . 14
Section 2.2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conveyance of Receivables . . . . . . . . . . . . . . . . 14
Section 2.3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Establishment of Accounts; Conveyance of Interests
Therein; Investment . . . . . . . . . . . . . . . . . 16
Section 2.4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Grant of Security Interest. . . . . . . . . . . . . . . . 18
Section 2.5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Further Action Evidencing Purchases . . . . . . . . . . . 18
Section 2.6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eligible Receivables. . . . . . . . . . . . . . . . . . . 19
Section 2.7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Offsets . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2.8. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Administrative Fee. . . . . . . . . . . . . . . . . . . . 19
Section 2.9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Assignment of Agreement . . . . . . . . . . . . . . . . . 19
ARTICLE III CONDITIONS OF PURCHASES. . . . . . . . . . . . . 20
Section 3.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conditions Precedent to Effectiveness of Agreement. . . . 20
Section 3.2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conditions Precedent to All Purchases . . . . . . . . . . 21
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SELLER
. . . . . . . . . . . . . . . . . . . . . . . . 22
Section 4.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Representations and Warranties as to the Seller . . . . . 22
Section 4.2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Representations and Warranties of the Seller as to
Purchased
Receivables . . . . . . . . . . . . . . . . . . . . . 27
Section 4.3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase Obligations. . . . . . . . . . . . . . . . . . 30
ARTICLE V GENERAL COVENANTS OF THE SELLER . . . . . . . . . . . 31
Section 5.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Affirmative Covenants of the Seller . . . . . . . . . . . 31
Section 5.2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reporting Requirements of the Seller. . . . . . . . . . . 31
Section 5.3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Negative Covenants of the Seller. . . . . . . . . . . . . 33
ARTICLE VI ACCOUNTS ADMINISTRATION. . . . . . . . . . . . . 34
Section 6.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Collection Account. . . . . . . . . . . . . . . . . . . . 34
Section 6.2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Determinations of the Servicer. . . . . . . . . . . . . . 34
Section 6.3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distributions from Accounts . . . . . . . . . . . . . . . 35
Section 6.4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allocation of Moneys following Termination Date . . . . . 36
Section 6.5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounting. . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE VII APPOINTMENT OF THE SUBSERVICER. . . . . . . . . . . . 36
Section 7.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appointment of the Subservicer. . . . . . . . . . . . . . 36
Section 7.2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional Subservicers . . . . . . . . . . . . . . . . . 37
Section 7.3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Duties and Responsibilities of the Subservicer. . . . . . 37
Section 7.4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Authorization of the Servicer . . . . . . . . . . . . . . 39
Section 7.5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subservicing Fee; Subservicing Expenses . . . . . . . . . 40
Section 7.6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Annual Statement as to Compliance . . . . . . . . . . . . 40
Section 7.7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer of Servicing Between Subservicer and Servicer. . 41
Section 7.8. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subservicer Not to Resign . . . . . . . . . . . . . . . . 41
Section 7.9. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Appointment of the Successor Subservicer. . . . . . . . . 41
Section 7.10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Duties of the Subservicer to the Successor Servicer . . . 42
Section 7.11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of Termination or Resignation. . . . . . . . . . . 42
ARTICLE VIII EVENTS OF SELLER DEFAULT . . . . . . . . . . . . 43
Section 8.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Events of Seller Default. . . . . . . . . . . . . . . . . 43
ARTICLE IX INDEMNIFICATION. . . . . . . . . . . . . . . . . 45
Section 9.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Indemnities by the Seller . . . . . . . . . . . . . . . . 45
Section 9.2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Interest . . . . . . . . . . . . . . . . . . . . 46
ARTICLE X MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . 47
Section 10.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . 47
Section 10.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Remedies. . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 10.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Binding Effect; Assignability . . . . . . . . . . . . . . 48
Section 10.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs, Expenses and Taxes . . . . . . . . . . . . . . . . 48
Section 10.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
No Proceedings. . . . . . . . . . . . . . . . . . . . . . 49
Section 10.6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amendments; Waivers; Consents . . . . . . . . . . . . . . 49
Section 10.7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
GOVERNING LAW; CONSENT TO JURISDICTION;
WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . 48
Section 10.8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Execution in Counterparts; Severability . . . . . . . . . 50
Schedule 1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ineligible Medicaid States
Schedule 2. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ineligible Blue Cross/Blue Shield Plans
Schedule 3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Seller Month End Report
Schedule 4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Litigation and Judgment Disclosure
Schedule 5. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Seller's Payor and Provider Numbers
Schedule 6. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Status of Medicaid and Medicare Cost Reports
Schedule 7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
List of Names Under Which Seller is Doing Business and Addresses
at Which Seller is Doing Business and/or Maintaining
Records
Exhibit A Form of Notice to Payors
Exhibit B Form of Lockbox Account Agreement
Exhibit C Form of Purchase Assignment
Exhibit D Form of Officer's Certificate for the Seller
Exhibit E Form of Opinion of Counsel for the Seller
Exhibit F Form of Repurchase Assignment
Exhibit G Form of Section 6.2 Determination of the Servicer
<PAGE>
SALE AND SUBSERVICING AGREEMENT (the "Agreement"), dated
as of December 8, 1999, by and among TENDER LOVING CARE HEALTH CARE
SERVICES, INC., a(n) Delaware corporation, as Seller (as such,
together with its successors and permitted assigns, the "Seller"),
and as Subservicer (as such, together with its successors and
permitted assigns, the "Subservicer"), NPF XII, INC., an Ohio
corporation, as Purchaser (as such, together with its successors
and permitted assigns, the "Purchaser"), and NATIONAL PREMIER
FINANCIAL SERVICES, INC., an Ohio corporation, as Servicer (as
such, together with its successors and permitted assigns, the
"Servicer").
WITNESSETH:
WHEREAS, the Seller desires to sell certain health care
receivables originated by the Seller;
WHEREAS, the Purchaser is a special purpose corporation
formed for the purpose of purchasing certain health care
receivables and funding such purchases with the proceeds from the
issuance of promissory notes;
WHEREAS, the Seller and the Purchaser intend that the
Purchaser will purchase certain health care receivables from the
Seller from time to time;
WHEREAS, the Purchaser has appointed the Servicer to
perform certain servicing, administrative and collection functions
in respect of the receivables purchased by the Purchaser under this
Agreement (the 'Purchased Receivables');
WHEREAS, in order to effectuate the purposes of this
Agreement, the Purchaser and the Servicer desire that the
Subservicer be appointed to perform certain servicing,
administrative and collection functions in respect of the Purchased
Receivables;
WHEREAS, the Seller has been requested and is willing to
act as the Subservicer; and
WHEREAS, the Seller acknowledges and consents to the
Purchaser's anticipated assignment to an affiliate of all its
right, title, interest and obligations with respect to this
Agreement.
NOW, THEREFORE, the parties agree as follows:
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1 Certain Defined Terms.
As used in this Agreement, the following terms shall have
the following meanings:
"A.M. Best" means A.M. Best Rating Company, and its
successors and assigns.
"Accreditation" means certification by the JCAHO that an
Agency fully complies with the standards set by the JCAHO for
operation of such Agency.
"Additional Subservicer" has the meaning specified in
Section 7.2.
"Additional Subservicing Agreement" has the meaning
specified in Section 7.2.
"Adverse Claim" means any claim of ownership or any lien,
security interest or other charge or encumbrance, or other type of
preferential arrangement having the effect of a lien or security
interest.
"Administrative Fee" means, as of any Purchase Date, an
amount equal to 8.50% of the Net Value of Purchased Receivables
purchased on such Purchase Date, deposited, for subservicing
expenses, with the Servicer, payable, from time to time, in whole
or in part, to the Seller in its capacity as Subservicer as a the
Subservicing Fee.
"Agency" means a home health care provider licensed or
otherwise authorized by a Governmental Authority or similar agency
or body to provide home health care services.
"Affiliate" means, as to any Person, any other Person
that, directly or indirectly, is in control of, is controlled by,
or is under common control with, such Person within the meaning of
control under Section 15 of the Securities Act of 1933.
"Base Rate" means, as of any Purchase Date, a percentage
equal to 11.50% per annum.
"Billed Amount" means, with respect to any Receivable the
amount billed or billable to the related Payor with respect
thereto, for the provision of health care, medical or home care
services or products prior to the related Purchase Date, prior to
the application of any Contractual Allowance.
"Billing Date" means the earlier of (a) the date on which
the claim with respect to a Receivable was submitted to the related
Payor; (b) 60 days from the Discharge Date; or (c) 14 days from the
Service Date if Discharge Date is inapplicable, and as related to
Rebilled Receivables, the date on which a Receivable is initially
billed or rebilled, as the case may be, to the appropriate Payor
provided such rebilling is approved by the Servicer.
"Blue Cross/Blue Shield Contract" means any and all
agreements currently in force between the Seller and any Blue
Cross/Blue Shield plan.
"Business Day" means any day of the year other than a
Saturday, Sunday or any day on which banks are required, or
authorized, by law to close in the State of Ohio or the State of
New York.
"CHAMPUS" means the Civilian Health and Medical Program
of the Uniformed Service, a program of medical benefits covering
retirees and dependents of a member or a former member of a
uniformed service, provided, financed and supervised by the United
States Department of Defense established by 10 USC 1071 et seq.
"CHAMPUS Receivable" means a Receivable payable pursuant
to CHAMPUS.
"CHAMPUS Regulations" means collectively, all regulations
of the Civilian Health and Medical Program of the Uniformed
Services including (a) all federal statutes (whether set forth in
10 USC 1071 or elsewhere) affecting CHAMPUS; and (b) all applicable
provisions of all rules, regulations (including 32 CFR 199),
manuals, orders, and administrative, reimbursement and other
guidelines of all Governmental Authorities (including, without
limitation, HHS, the Department of Defense, the Department of
Transportation, the Assistant Secretary of Defense (Health
Affairs), and the Office of CHAMPUS, or any Person or entity
succeeding to the functions of any of the foregoing) promulgated
pursuant to or in connection with any of the foregoing (whether or
not having the force of law), in each case as may be amended,
supplemented or otherwise modified from time to time.
"CHAMPVA" means the Civilian Health and Medical Program
of the Veterans Administration, a program of medical benefits
covering (a) the dependents of veterans who have been rated by VA
as having a total and permanent disability, (b) the survivors of
veterans who died from VA-rated service-connected conditions, or
(c) those who at the time of death, were rated permanently and
totally disabled from a VA-rated service-connected condition.
"CHAMPVA Receivables" means a Receivable payable pursuant
to CHAMPVA.
"CHAMPVA Regulations" means collectively, all regulations
of the Civilian Health and Medical Program of the Veterans
Administration, including (a) all federal statutes (whether set
forth in 38 USC 1713 or elsewhere) affecting CHAMPVA; and (b) all
applicable provisions of all rules, regulations (including 38 CFR
17), manuals, orders, and administrative, reimbursement and other
guidelines of all Governmental Authorities (including, without
limitation, HHS, the Department of Defense, the Department of
Transportation, the Assistant Secretary of Defense (Health
Affairs), and the Office of CHAMPVA, or any Person or entity
succeeding to the functions of any of the foregoing) promulgated
pursuant to or in connection with any of the foregoing (whether or
not having the force of law), in each case as may be amended,
supplemented or otherwise modified from time to time.
"Closing Date" means December 8, 1999.
"Collection Account" means the trust account maintained
with the Trustee described in Section 2.3(c).
"Collections" means, with respect to any Receivable, all
cash collections and other cash proceeds of such Receivable;
provided, however, in the event the Purchaser consents in writing
to the release or assignment of the Purchaser's security interest
in the Seller's Self-Pay Receivables as described in Section 9.2
hereof, Collections shall be exclusive of all cash collections and
other cash proceeds of such Self-Pay Receivables.
"Commercial Lockbox Account" has the meaning specified in
Section 2.3(a).
"Concentration Limits" means: the following expressed as
a percentage or Dollar amount of the aggregate Net Value of the
Purchased Receivables then outstanding:
(a) Receivables payable by Blue Cross and Blue Shield
Payors - 15%;
(b) Receivables for which any one commercial insurer,
Provider Payor, HMO/PPO or other similar managed care program
is Payor during the time such Payor has a claims paying
ability and/or long-term debt rating of 'BBB-' or better but
less than 'A-' from DCR, or, if not rated by DCR, an
equivalent rating from either A.M. Best, or any two of either,
Fitch IBCA, S & P or Moody's - 2%;
(c) Receivables for which any one commercial insurer,
Provider Payor, HMO/PPO or other similar managed care program
is Payor during the time such Payor is unrated or which has a
claims paying ability and/or long-term debt rating of below
'BBB-' from DCR, or, if not rated by DCR, an equivalent rating
from either A.M. Best, or any two of either, Fitch IBCA, S &
P or Moody's - .50%;
(d) Receivables payable by all commercial insurers,
Provider Payors, HMO's/PPO's or other similar managed care
programs during the time such Payors are unrated or which have
a claims paying ability and/or long-term debt rating of 'BBB-'
or below from DCR, or, if not rated by DCR, an equivalent
rating from either A.M. Best, or any two of either, Fitch
IBCA, S & P or Moody's - 6%; and
(e) Receivables payable by all commercial insurers,
Provider Payors, HMO's/PPO's or other similar managed care
programs during the time such Payors are unrated or which have
a claims paying ability and/or long-term debt rating below
'BBB-' from DCR, or, if not rated by DCR, an equivalent rating
from either A.M. Best, or any two of either, Fitch IBCA, S &
P or Moody's - 2%.
"Contract" means an agreement (or agreements), pursuant
to, or under which, a Payor shall be obligated to pay the Seller
for services rendered or merchandise sold to patients of the Seller
from time to time.
"Contractual Allowance" means an amount verified by the
Servicer in accordance with historical liquidation experience
(actual collections received on the Billed Amount within 180 days
of the Billing Date) and current reimbursement schedules by Payor
Class by which the amount of charges billed or billable to any
Payor are to be adjusted to reflect the entitled reimbursement
pursuant to any contract or other arrangement between such Payor
and the Seller.
"Credit Deficiency" has the meaning specified in Section
6.2(d).
"Current Net Value Amount" has the meaning specified in
Section 6.2(c).
"DCR" means Duff & Phelps Credit Rating Co., its
successors and assigns.
"DRG Code" means the Diagnosis Related Group code
assigned by HCFA.
"Debt" of any Person means (a) indebtedness of such
Person for borrowed money, (b) obligations of such Person evidenced
by bonds, debentures, notes or other similar instruments, (c)
obligations of such Person to pay the deferred purchase price of
property or services, other than trade payables in the ordinary
course of business, (d) obligations of such Person as lessee under
leases which have been or should be, in accordance with generally
accepted accounting principles, recorded as capital leases, (e)
obligations secured by any lien or other charge upon property or
assets owned by such Person, even though such Person has not
assumed or become liable for the payment of such obligations, (f)
obligations of such Person under direct or indirect guaranties in
respect of, and obligations (contingent or otherwise) to purchase
or otherwise acquire, or otherwise to assure a creditor against
loss in respect of, indebtedness or obligations of others of the
kinds referred to in clauses (a) through (e) above, and (g)
liabilities in respect of unfunded vested benefits under plans
covered by Title IV of the Employee Retirement Income Security Act
of 1974, as amended.
"Defaulted Receivable" means a Receivable as to which, on
any Determination Date (a) any part of the Net Value thereof
remains unpaid for more than 180 days from the Billing Date for
such Receivable; or (b) the Payor thereof has taken any action, or
suffered any event to occur, of the type described in Section
8.1(c); or (c) the Servicer or the Subservicer otherwise reasonably
deems any part of the Net Value thereof to be uncollectible.
"Determination Date" means the Business Day preceding the
Purchase Date of each week.
"Discharge Date" means, with respect to any Receivable,
the date of discharge by a Seller of the related patient, in the
case of an in-patient and the Billing Date, in the case of an out-
patient and a Receivable originated by a nursing home.
"Dollar" and "$" means lawful money of the United States
of America.
"Eligible Payor" means a Payor which is
(a) (i) a commercial insurance company, organized under
the laws of any jurisdiction in the United States,
having its principal office in the United States;
(ii) a Blue Cross/Blue Shield plan other than those
listed on Schedule 2; (iii) during such time as the
Seller is the Subservicer hereunder, (A) Medicare,
(B) Medicaid plans other than those administered by
the states listed on Schedule 1, (C) CHAMPUS or (D)
CHAMPVA; (iv) a HMO, PPO or other similar managed
care program, each organized under the laws of any
jurisdiction in the United States, having its
principal office in the United States; or (v) a
Provider Payor provided that a Provider Payor shall
not be an Eligible Payor without the consent of the
Servicer;
(b) not an Affiliate of any of the parties hereto;
(c) in the case of (a) (i) (ii), (iv) and (v) above, in
receipt of a letter substantially in the form of
Exhibit A hereto; and
(d) not subject to bankruptcy or insolvency proceedings
at the time of sale of the Receivable to the
Purchaser.
"Eligible Receivable" means, at any time, a Receivable as
to which the representations and warranties of Section 4.2 are true
and correct in all respects at the time of Purchase.
"Eligible Receivable Amount" means, with respect to any
Eligible Receivable, an amount equal to its Billed Amount after
giving effect to any Contractual Allowance with respect to such
Eligible Receivable.
"Equity Account" means the trust account of the Purchaser
maintained with the Trustee titled "Equity Account."
"Event of Seller Default" has the meaning specified in
Section 8.1.
"Fitch" or "Fitch IBCA" means Fitch IBCA, Inc., and its
successors and assigns.
"Governmental Authority" means the United States of
America, federal, any state, local or other political subdivision
thereof and any entity exercising executive, legislative, judicial,
regulatory or administrative functions thereof or pertaining
thereto.
"Governmental Consents" has the meaning specified in
Section 4.1(h).
"HCFA" means the Health Care Financing Administration, an
agency of the HHS charged with administering and regulating, inter
alia, certain aspects of Medicaid and Medicare.
"Health Facility License" means a license issued by a
state health agency or similar agency or body certifying that the
Agency has been inspected and found to comply with applicable laws
for operating such a Agency.
"HHS" means the Department of Health and Human Services,
an agency of the Federal Government of the United States.
"HMO" means a health maintenance organization.
"Indemnified Amounts" has the meaning specified in
Section 9.1(a).
"Indemnified Party" has the meaning specified in Section
9.1(a).
"Internal Revenue Code" means the Internal Revenue Code
of 1986, as amended.
"Investment Income" means income of any nature from the
investment or deposit of funds in the Seller Credit Reserve Account
or Offset Reserve Account or any other reserve or account required
hereunder.
"JCAHO" means the Joint Commission for Accreditation of
Health Care Organizations.
"Lockbox Account" has the meaning specified in Section
2.3(a).
"Lockbox Account Agreement" means an agreement among the
Servicer and a depository institution satisfactory to the Purchaser
with respect to the Commercial Lockbox Account and among the Seller
and a depository institution satisfactory to the Purchaser with
respect to the Medicare Lockbox Account, in each case (a) providing
that all Collections therein shall be remitted directly by such
depository institution to the Collection Account within one
Business Day of receipt and (b) otherwise satisfactory to the
Purchaser.
"Medicaid" means the medical assistance program
established by Title XIX of the Social Security Act (42 USC 1396
et seq.) and any statutes succeeding thereto.
"Medicaid Certification" means certification of an Agency
by HCFA or a state agency or entity under contract with HCFA that
the Agency fully complies with all the conditions of participation
set forth in Medicaid Regulations.
"Medicaid Provider Agreement" means an agreement entered
into between a federal or state agency or other such entity
administering the Medicaid program and a health care facility under
which the health care facility agrees to provide services or
merchandise for Medicaid patients in accordance with the terms of
the agreement and Medicaid Regulations.
"Medicaid Receivable" means a Receivable payable pursuant
to a Medicaid Provider Agreement.
"Medicaid Regulations" means, collectively, (a) all
federal statutes (whether set forth in Title XIX of the Social
Security Act or elsewhere) affecting Medicaid; (b) all state
statutes and plans for medical assistance enacted in connection
with such statutes and federal rules and regulations promulgated
pursuant to or in connection with such statutes; and (c) all
applicable provisions of all rules, regulations, manuals, orders
and administrative, reimbursement and other guidelines of all
Governmental Authorities (including, without limitation, HHS, HCFA,
the office of the Inspector General for HHS, or any Person
succeeding to the functions of any of the foregoing) promulgated
pursuant to or in connection with any of the foregoing (whether or
not having the force of law), in each case as may be amended,
supplemented or otherwise modified from time to time.
"Medicare" means the health insurance program for the
aged and disabled established by Title XVIII of the Social Security
Act (42 USC 1395 et seq.) and any statutes succeeding thereto.
"Medicare Certification" means certification of the
Agency by HCFA or a state agency or entity under contract with HCFA
that the Agency fully complies with all the conditions of
participation set forth in Medicare Regulations.
"Medicare Lockbox Account" has the meaning specified in
Section 2.3(a).
"Medicare/Medicaid Offset" means, with respect to
Medicare Receivables and Medicaid Receivables, an offset against
payment thereof, which has occurred due to a Medicare or Medicaid
settlement.
"Medicare Provider Agreement" means an agreement entered
into between a federal or state agency or other such entity
administering the Medicare program and a health care facility under
which the health care facility agrees to provide services or
merchandise for Medicare patients in accordance with the terms of
the agreement and Medicare Regulations or (ii) an agreement entered
into between a federal or state agency or other such entity
administering the Medicare program, the Seller and/or the
Subservicer providing for the repayment by the Seller and/or the
Subservicer of Medicare liabilities.
"Medicare Receivable" means a Receivable payable pursuant
to a Medicare Provider Agreement.
"Medicare Regulations" means, collectively, (a) all
federal statutes (whether set forth in Title XVIII of the Social
Security Act or elsewhere) affecting Medicare; and (b) all
applicable provisions of all rules, regulations, manuals, orders
and administrative, reimbursement and other guidelines of all
Governmental Authorities (including, without limitation, HHS, HCFA,
the Office of the Inspector General for HHS, or any Person
succeeding to the functions of any of the foregoing) promulgated
pursuant to or in connection with the foregoing (whether or not
having the force of law), as each may be amended, supplemented or
otherwise modified from time to time.
"Moody's" means Moody's Investors Service, Inc. and its
successors and assigns.
"Net Administrative Fee" means, as of any Purchase Date,
an amount equal to the Administrative Fee minus the Subservicing
Fee for such Purchase Date (but not less than zero).
"Net Subservicing Fee" means, as of any Purchase Date, an
amount equal to the Subservicing Fee minus the Administrative Fee
for such Purchase Date (but not less than zero).
"Net Value" of any Receivable at any time means an amount
(not less than zero) equal to (a)(i) the Eligible Receivable Amount
multiplied by (ii) 0.97; minus (b) all payments received from the
Payor with respect thereto; provided, that if the Servicer makes a
determination that all payments by the Payor with respect to such
Receivable have been made, the Net Value shall be zero, and
provided, further, that for purposes of calculations under Article
VI, the Net Value of a Defaulted Receivable shall be zero and no
deductions in Net Value will be made until such time as the
Servicer has received Collections with respect to a Purchased
Receivable and processed the related Remittance Advice.
"Officers' Certificate" means a certificate signed by two
persons, one of whom shall (a) hold the office of the Chairman of
the Board, President, Vice President or Treasurer and (b) the
second of whom shall hold (i) any of the offices described in the
preceding clause (a) or (ii) the office of Assistant Treasurer,
Secretary or Assistant Secretary.
"Offset Reserve Account" means the trust account
maintained with the Trustee as specified in Section 2.3(b).
"Other Sellers" has the meaning specified in Section 2.7.
"Paid Receivable" means, as of any Determination Date, a
Purchased Receivable as to which a payment by the Payor with
respect to such Receivable has been received.
"Paid Receivables Amount" has the meaning specified in
Section 6.2(b).
"Payor" means, with respect to any Receivable, the Person
primarily obligated to make payments in respect thereto.
"Payor Class" means, with respect to any Payor, one of
the following: (a) commercial insurance Payors; (b) Medicare
Payors; (c) Medicaid Payors; (d) Blue Cross/Blue Shield Payors; (e)
CHAMPUS Payors; (f) CHAMPVA Payors; (g) HMO and PPO Payors; and (h)
Provider Payors.
"Person" means an individual, limited liability company,
partnership, corporation (including a business trust), joint stock
company, trust, voluntary association, joint venture, a government
or any agency or political subdivision thereof, or any other entity
of whatever nature.
"PPO" means a preferred provider organization.
"Principal Amortization Event" means an event under any
loan agreement or indenture following which the funding of the
Purchaser to be utilized in purchasing Receivables hereunder may be
terminated.
"Prior Net Value Amount" has the meaning specified in
Section 6.2(a).
"Program Fee" means, (a) as of the first Purchase Date in
any month, an amount determined by the Servicer, equal to (i) 1/12
of the annualized Base Rate multiplied by (ii) the aggregate Net
Value of all Purchased Receivables including (A) Defaulted
Receivables (net of recoveries) and (B) those Receivables to be
purchased on such Purchase Date; and (b) as of any subsequent
Purchase Date in any month, an amount determined by the Servicer,
equal to (i) 7/360 of the annualized Base Rate multiplied by (ii)
any increase in the aggregate Net Value of all Purchased
Receivables since such first Purchase Date including (A) Defaulted
Receivables (net of recoveries) and (B) those Receivables to be
purchased on such Purchase Date.
"Provider Payor" means any medical services provider
reimbursed by an HMO, PPO or managed care program, commercial
insurer, Medicare, Medicaid, CHAMPUS or CHAMPVA organized under the
laws of any jurisdiction in the United States, having its principal
office in the United States.
"Purchase" means a purchase by the Purchaser of Eligible
Receivables from the Seller pursuant to Section 2.2.
"Purchase Account" means the trust account of the
Purchaser maintained with the Trustee titled 'NPF XII - Purchase
Account.'
"Purchase Assignment" means the assignment of Purchased
Receivables entered into between the Seller and the Purchaser on
the initial Purchase Date and any subsequent Purchase Date upon
Purchaser's request substantially in the form of Exhibit C.
"Purchase Commitment" means an amount not to exceed
$60,000,000 for the Seller and its consolidated Subsidiaries.
"Purchase Date" means the Closing Date and thereafter,
Thursday of each week or the preceding Business Day if such day is
not a Business Day.
"Purchase Notice" means a notice in a form acceptable to
the Purchaser, which enables the Purchaser to identify all Eligible
Receivables owned on such date by the Seller, and the Required
Information with respect thereto, segregated by Payor Class.
"Purchase Price" has the meaning specified in Section
2.2(b).
"Purchased Receivable" means any Receivable which has
been purchased by the Purchaser hereunder, including a Rejected
Receivable prior to its repurchase. Notwithstanding anything to
the contrary herein, Purchased Receivable shall only refer to a
Receivable (or part thereof) payable by the primary Payor thereof.
"Purchaser" means NPF XII, Inc., an Ohio corporation,
together with its successors and assigns.
"Rebilled Receivable" means a Receivable which has been
revised and rebilled to an Eligible Payor as a result of
reclassification of such Receivable previously determined by the
Subservicer or the Servicer to be other than an Eligible
Receivable.
"Receivable" means (a) an account receivable billed or
billable to a Payor arising from the provision of health care,
medical or home care services or products (and any services or
sales ancillary thereto) by the Seller including the right to
payment of any interest or finance charges and other obligations of
such Payor with respect thereto;
(b) a health-care-insurance receivable billed or
billable to a Payor arising from the provision of health care,
medical or home care services or products (and any services or
sales ancillary thereto) by the Seller including the right to
payment of any interest or finance charges and other obligations of
such Payor with respect thereto;
(c) all security interests or liens and property subject
thereto from time to time purporting to secure payment by the
Payor;
(d) all guarantees, indemnities and warranties and
proceeds thereof, proceeds of insurance policies, UCC financing
statements and other agreements or arrangements of whatever
character from time to time supporting or securing payment of such
Receivable;
(e) all Collections with respect to any of the
foregoing;
(f) all Records with respect to any of the foregoing;
and
(g) all proceeds of any of the foregoing.
"Records" means all Contracts and other documents, books,
records and other information (including, without limitation,
computer programs, tapes, disks, punch cards, data processing
software and related property and rights) prepared and maintained
by the Seller or the Subservicer with respect to Receivables
(including Purchased Receivables) and the related Payors.
"Rejected Amount" has the meaning specified in Section
6.2(e).
"Rejected Receivable" has the meaning specified in
Section 4.3.
"Related Documents" means each Purchase Assignment, the
Lockbox Account Agreement and all documents required to be
delivered thereunder and under this Agreement.
"Remittance Advice" means, in respect of a Receivable,
written confirmation received by the Servicer from the Subservicer
or the related Payor of the amount paid on a patient specific
Receivable.
"Required Information" means, with respect to a
Receivable, (a) the Payor, (b) the DRG Code, if applicable, (c) the
Eligible Receivable Amount, (d) the Billing Date, (e) the patient
account number and (f) the Discharge Date, if applicable.
"S & P" means Standard & Poor's Corporation, and its
successors and assigns.
"Self-Pay Receivables" means a Receivable with respect to
which an individual recipient (or guardian of a recipient) of
health care, medical or home care services or products (and any
services or sales ancillary thereto) provided by the Seller is the
primary or sole obligor as to the payment of amounts due to the
Seller arising from the Seller's provision of health care, medical
or home care services or products (and any services or sales
ancillary thereto).
"Seller" means, Tender Loving Care Health Care Services,
Inc., a(n) Delaware corporation, together with its successors and
assigns.
"Seller Credit Reserve Account" means the trust account
maintained with the Trustee as specified in Section 2.3(b).
"Seller Month End Report" means the report as set forth
on Schedule 3 attached hereto.
"Service Date" means the date on which services are
rendered or goods are sold to the applicable patient or health care
facility with respect to a particular Receivable.
"Servicer" means National Premier Financial Services,
Inc., an Ohio corporation, or any Person designated as the
successor Servicer, and its successors and assigns, from time to
time.
"Servicing Records" means all documents, books, records
and other information (including, without limitation, computer
programs, tapes, disks, punch cards, data processing software and
related property and rights) prepared and maintained by the
Subservicer or the Servicer with respect to the Purchased
Receivables and the related Payors.
"Specified Credit Reserve Balance" means, with respect to
the Seller in the Seller Credit Reserve Account, as of any Purchase
Date, an amount equal to 6.50% of the Net Value of Purchased
Receivables including (a) Defaulted Receivables (net of recoveries)
and (b) those Receivables to be purchased on such Purchase Date.
"Specified Offset Reserve Balance" means, with respect to
the Seller in the Offset Reserve Account, as of any Purchase Date,
an amount equal to the greater of (a) 2.0% of the Net Value of
Purchased Receivables including (i) Defaulted Receivables (net of
recoveries) and (ii) those Receivables to be purchased on such
Purchase Date; and (b) 1.5 times the most recent year's aggregate
audited Medicare and Medicaid cost report liabilities for the
Seller.
"Subservicer" means Tender Loving Care Health Care
Services, Inc., a Delaware corporation, or any Person designated as
Subservicer, from time to time, hereunder.
"Subservicing Fee" has the meaning specified in Section
7.5.
"Subservicing Officer" means any officer of the
Subservicer involved in, or responsible for, the administration and
servicing of the Purchased Receivables whose name appears on an
Officer's Certificate listing servicing officers furnished to the
Servicer by the Subservicer, as amended, from time to time.
"Subsidiary" means, as to any Person, any corporation or
other entity of which securities or other ownership interests
having ordinary voting power to elect a majority of the board of
directors or other Persons performing similar functions are at the
time directly or indirectly owned by such Person.
"Termination Date" means the earlier of (a) December 31,
2002 or (b) the date of declaration or automatic occurrence of the
Termination Date pursuant to Section 8.1
"Trustee" means Bank One, NA, a national banking
association, or any successor Trustee appointed by the Purchaser.
"UCC" means the Uniform Commercial Code as from time to
time in effect in the state of the location of the Seller's chief
executive office.
Section 1.2 Other Terms.
All accounting terms not specifically defined herein
shall be construed in accordance with generally accepted accounting
principles. All terms used in Article 9 of the UCC, and not
specifically defined herein, are used herein as defined in such
Article 9.
ARTICLE II
PURCHASE AND SALE; ESTABLISHMENT OF ACCOUNTS
Section 2.1 Purchase and Sale.
The Seller does hereby agree to sell, transfer, assign,
set over and convey to the Purchaser, without recourse, all right,
title and interest of the Seller in and to the Purchased
Receivables sold pursuant to this Agreement and the Purchaser does
hereby agree to purchase Purchased Receivables pursuant to the
terms of this Agreement; provided, that with respect to each
Purchased Receivable which is a Medicare Receivable, a Medicaid
Receivable, a CHAMPUS Receivable or a CHAMPVA Receivable, the
Seller, as Subservicer hereunder, shall retain all rights of
collection with respect to such Receivable.
Section 2.2 Conveyance of Receivables.
(a) No later than 2:00 p.m. on the fifth Business Day
prior to each Purchase Date, the Seller shall deliver, or cause to
be delivered, to the Servicer a Purchase Notice. In the event that
the Seller does not provide such notification, the Purchaser will
have no obligation to purchase any Eligible Receivable on such
Purchase Date. Upon receipt of a Purchase Notice, the Servicer, in
its sole discretion, as agent for the Purchaser, shall determine
which, if any, of the Eligible Receivables specified therein the
Purchaser shall purchase. In the event the Servicer determines
(the determination of the Servicer being conclusive in this regard)
that any Receivables identified on such notice are not Eligible
Receivables, such Receivables shall not be eligible for sale on
such Purchase Date. On each Purchase Date, following its
selection, if any of Eligible Receivables, the Servicer will
determine the Purchase Price in accordance with the subsection (b)
hereof. The Seller shall be obligated to execute and deliver to
the Purchaser a Purchase Assignment with respect to Purchased
Receivables as of the initial Purchase Date and thereafter upon the
written request of the Purchaser. Notwithstanding the foregoing,
the Purchaser shall have no obligation to purchase Receivables from
the Seller to the extent the aggregate Net Value of all Purchased
Receivables (other than Defaulted Receivables) is in excess of the
Purchase Commitment.
(b) The Purchase Price with respect to Purchased
Receivables purchased on any Purchase Date shall be an amount (not
less than zero) equal to (i) the aggregate Net Value of such
Purchased Receivables; minus (ii) the sum of (A) the Program Fee as
of such Purchase Date; (B) the amount, if any, by which the amount
in the Seller Credit Reserve Account deposited hereunder (net of
withdrawals required hereunder) is less than the Specified Credit
Reserve Balance as of such Purchase Date (which amount will be the
full Specified Credit Reserve Balance on the initial Purchase
Date); (C) the amount, if any, by which the amount in the Offset
Reserve Account deposited hereunder (net of withdrawals required
hereunder) is less than the Specified Offset Reserve Balance as of
such Purchase Date (which amount will be the full Specified Offset
Reserve Balance on the initial Purchase Date); (D) the Net
Administrative Fee due to the Servicer; and (E) the amount required
to keep the Seller or its consolidated Subsidiaries in full and
complete compliance with the Medicare Provider Agreement to the
extent not already withheld. Following delivery of a duly executed
Purchase Assignment, subject to the satisfaction of the conditions
set forth in Section 3.2, the Purchaser shall, by withdrawal from
the Purchase Account, (u) pay to the Seller the Purchase Price for
all Purchased Receivables purchased on such Purchase Date, (v)
deposit the Program Fee in the Equity Account, (w) make a deposit
in the amount set forth in (B) above, if any, in the Seller Credit
Reserve Account, (x) make a deposit in the amount set forth in (C)
above, if any, in the Offset Reserve Account, (y) pay to the
Servicer the Net Administrative Fee, and (z) pay to HCFA or any
other appropriate party the amount set forth in (E) above. In the
event the Purchase Price is zero on any Purchase Date, the
Purchaser shall only be required to make deposits specified in (w),
(x), (y), and (z) above in an amount equal to the Net Value of such
Purchased Receivables as of such Purchase Date, with priority being
given in the foregoing order. In the event the Net Value of
Purchased Receivables purchased on any Purchase Date is less than
the Program Fee (including where no Receivables are purchased on
such Purchase Date), in order to satisfy the Seller's obligation to
pay the Program Fee on such Purchase Date, the Servicer shall cause
(i) an amount equal to the Net Value of Purchased Receivables
purchased on such Purchase Date to be deposited in the Equity
Account; and (ii) the Trustee to withdraw from the Seller Credit
Reserve Account and deposit in the Equity Account, an amount equal
to the Program Fee on such Purchase Date minus the Net Value of
Purchased Receivables purchased on such Purchase Date to the extent
funds deposited hereunder (net of withdrawals required hereunder)
in the Seller Credit Reserve Account are in excess of the Specified
Credit Reserve Balance. To the extent funds deposited hereunder
(net of withdrawals required hereunder) in the Seller Credit
Reserve Account do not exceed the Specified Credit Reserve Balance,
in order to satisfy the Seller's obligation to pay the Program Fee
on such Purchase Date (i) the Servicer shall cause an amount equal
to the Net Value of Purchased Receivables purchased on such
Purchase Date to be deposited in the Equity Account; and (ii) the
Seller shall, without demand, pay to the Purchaser an amount equal
to the Program Fee on such Purchase Date minus the Net Value of
Purchased Receivables purchased on such Purchase Date and the
Purchaser shall deposit such funds in the Equity Account.
(c) Following payment of the Purchase Price on any
Purchase Date, ownership of each Purchased Receivable will be
vested in the Purchaser. The Seller shall not take any action
inconsistent with such ownership and shall not claim any ownership
interest in any Purchased Receivable. The Seller shall indicate in
its Records that ownership of each Purchased Receivable is held by
the Purchaser. In addition, the Seller shall respond to any
inquiries with respect to ownership of a Purchased Receivable by
stating that it is no longer the owner of such Purchased Receivable
and that ownership of such Purchased Receivable is held by the
Purchaser. Documents (other than medical records, which shall be
retained by the Seller) relating to the Purchased Receivables shall
be held in trust by the Seller and the Subservicer, for the benefit
of the Purchaser as the owner thereof, and possession of any
Required Information or incident relating to the Purchased
Receivables so retained is for the sole purpose of facilitating the
servicing of the Purchased Receivables. Such retention and
possession is at the will of the Purchaser and in a custodial
capacity for the benefit of the Purchaser only. To further
evidence such sale, at the request of the Purchaser, the Seller
shall (i) mark conspicuously each invoice evidencing each Purchased
Receivable with a legend, acceptable to the Purchaser, evidencing
that the Purchaser has purchased all right and title thereto and
interest therein as provided in this Agreement; (ii) mark its
master data processing records evidencing such Purchased
Receivables with such legend; and (iii) send notification to Payors
as to the transfer of such interest in the Purchased Receivables.
Section 2.3 Establishment of Accounts; Conveyance of
Interests Therein; Investment.
(a) Lockbox Account. Prior to the execution and
delivery of this Agreement, the Seller shall (i) establish and
maintain at the Seller's expense (A) an account in the name of the
Seller with a depository institution satisfactory to the Purchaser
into which all Collections in respect of Medicaid, Medicare,
CHAMPUS and CHAMPVA Receivables which are Purchased Receivables
shall be deposited and an account in the name of the Seller with a
depository institution satisfactory to the Purchaser into which all
Collections in respect of Medicaid, Medicare, CHAMPUS and CHAMPVA
Receivables which are other than Purchased Receivables shall be
deposited (together, such accounts are referred to as the 'Medicare
Lockbox Account') and (B) an account in the name of the Servicer
into which all Collections in respect of Receivables other than
Medicaid, Medicare, CHAMPUS and CHAMPVA Receivables and which are
Purchased Receivables shall be deposited and an account in the name
of the Servicer into which all Collections in respect of
Receivables other than Medicaid, Medicare, CHAMPUS and CHAMPVA
Receivables and which are other than Purchased Receivables shall be
deposited (together, such accounts are referred to as the
"Commercial Lockbox Account"); provided that neither the Seller nor
the Servicer shall be permitted to withdraw any amounts from the
Commercial Lockbox Account or change the procedures under the
Lockbox Account Agreement except in the case of an assignment by
the Purchaser of its interests herein under Section 10.3. The
Medicare Lockbox Account and the Commercial Lockbox Account are
referred to collectively in this Agreement as the 'Lockbox
Account') and (ii) enter into the Lockbox Account Agreement. The
provisions of the Lockbox Account Agreement described in the
definition thereof may not be amended without the consent of the
Trustee. The Seller hereby agrees to direct each Payor of each
Receivable to remit all payments with respect to such Receivable
for deposit in the Commercial Lockbox Account (other than the
Payors of Medicaid, Medicare, CHAMPUS and CHAMPVA Receivables which
shall be directed to remit all payments with respect to such
Receivables for deposit in the Medicare Lockbox Account) by
delivering to such Payor a notice attached as Exhibit A hereto.
The Seller further agrees not to change such directive to Payors
without the prior written consent of the Purchaser and the
Servicer. The Seller agrees not to terminate the Medicare Lockbox
Account Agreement without first providing the Purchaser and the
Servicer with written notice at least 30 days prior to the
effective date of such termination. The Seller acknowledges that
payments deposited in the Medicare Lockbox Account will be swept
from the Medicare Lockbox Account to the Collection Account on a
daily basis. The Seller hereby agrees not to change or direct the
custodian thereof to modify such sweep order without first
providing the Purchaser and the Servicer with written notice at
least 30 days prior to the effective date of such change in sweep
order. In the event the Seller terminates the Medicare Lockbox
Account, changes the sweep order with respect to the Medicare
Lockbox Account or the Payors receive any instruction whatsoever
from the Seller indicating that Collections with respect to the
Receivables should be sent to any location other than the Lockbox
Account, the Seller hereby acknowledges and agrees that such
actions would be an express violation of this Agreement, would
cause irreparable harm to the Purchaser for which there would be no
adequate remedy at law, and agrees and consents to grant the
Purchaser specific performance of the terms and provisions of this
Agreement. The custodian of the Lockbox Account may rely upon the
terms and restrictions set forth in subsection 2.3(a).
(b) Seller Credit Reserve Account; Offset Reserve
Account. The Purchaser has established and shall maintain trust
accounts with the corporate trust department of the Trustee titled
'NPF XII - Seller Credit Reserve Account' (the 'Seller Credit
Reserve Account') and 'NPF XII - Offset Reserve Account' (the
'Offset Reserve Account').
(c) Collection Account. The Purchaser has established
and shall maintain a trust account with the corporate trust
department of the Trustee titled 'NPF XII - Collection Account'
(the 'Collection Account').
(d) The Seller does hereby sell, transfer, assign, set
over and convey to the Purchaser all right, title and interest of
the Seller in and to (i) all amounts deposited, from time to time,
in the Seller Credit Reserve Account and the Offset Reserve Account
and (ii) subject to the provisions of Article VI hereunder, all
amounts deposited, from time to time, in the Lockbox Account and
the Collection Account. Any Collections in respect of Receivables
held by the Seller or the Subservicer pending transfer to the
Collection Account as provided in this Agreement, shall be held by
the Seller in trust for the benefit of the Purchaser until such
amounts are deposited into the Collection Account or the Lockbox
Account. In the event Collections in respect of Receivables held
by the Seller (whether in the Lockbox Account or otherwise) shall
not be remitted to the Collection Account on the day of receipt or
the following Business Day if the day of receipt is not a Business
Day in addition to its other remedies hereunder, the Purchaser
shall be entitled to receive a late charge (which shall be in
addition to the Program Fee) equal to 12% per annum or the maximum
rate legally permitted if less than such rate, calculated as of the
first Business Day of such delinquency. The Seller shall pay any
such late charge on demand therefor by the Purchaser.
(e) Notwithstanding anything to the contrary herein, the
Seller may, but shall not be obligated to, make a deposit at any
time in the Seller Credit Reserve Account or the Offset Reserve
Account. Further, the Seller is not entitled to, nor shall the
Seller have any interest in, Investment Income.
Section 2.4 Grant of Security Interest.
It is the intention of the parties hereto that each
payment by the Purchaser to the Seller with respect to Purchased
Receivables to be made hereunder shall constitute part of the
purchase and sale of such Purchased Receivables and not a loan. In
the event, however, that a court of competent jurisdiction were to
hold that the transaction evidenced hereby constitutes a loan and
not a purchase and sale, it is the intention of the parties hereto
that this Agreement shall constitute a security agreement under the
UCC and any other applicable law, and that the Seller shall be
deemed to have granted and hereby grants to the Purchaser a first
priority perfected security interest in all of the Seller's right,
title and interest in, whether now owned and existing or hereafter
acquired and arising to and under the Purchased Receivables; all
payments of principal of or interest on such Purchased Receivables;
all amounts on deposit from time to time in the Seller Credit
Reserve Account and the Offset Reserve Account; and all amounts on
deposit with respect to Receivables from time to time in the
Lockbox Account and the Collection Account, all other rights
relating to and payments made in respect of this Agreement, and all
proceeds of any of the foregoing.
Section 2.5 Further Action Evidencing Purchases
(a) The Seller agrees that, from time to time, at its
expense, it will promptly execute and deliver all further
instruments and documents, and take all further action, that may be
necessary or appropriate, or that the Purchaser may reasonably
request, in order to perfect, protect or more fully evidence the
transfer of ownership of the Receivables; to enable the Purchaser
to exercise or enforce any of its rights hereunder or under any
Purchase Assignment; or that may be necessary or appropriate to
comply with revisions to Article 9 of the Uniform Commercial Code.
Without limiting the generality of the foregoing, the Seller will,
upon the request of the Purchaser, execute and file such financing
or continuation statements, or amendments thereto or assignments
thereof, and such other instruments or notices, as may be necessary
or appropriate, or as the Purchaser may reasonably request.
(b) The Seller hereby authorizes the Purchaser to act as
the Seller's attorney in fact and to file one or more financing
statements, amendments or continuation statements, and amendments
thereto and assignments thereof, relating to all or any of the
Receivables and Collections with respect thereto without the
signature of the Seller. To the extent any financing statements,
amendments or continuation statements, or amendments thereto or
assignments thereof are filed pursuant to this Section 2.5(b), the
Purchaser shall promptly provide the Seller with time-stamped
copies of such filings.
Section 2.6 Eligible Receivables.
All determinations of the Servicer under this Agreement
including, without limitation, whether Receivables are Eligible
Receivables and the Eligible Receivable Amounts, shall be
conclusive, absent manifest error.
Section 2.7 Offsets.
The parties acknowledge that the Purchaser and the
Servicer have entered into a series of agreements in substantially
the form of this Agreement with other sellers of receivables
('Other Sellers') and that the Offset Reserve Account has been
established to provide liquidity to the Purchaser with respect to
Rejected Receivables, whether such receivables were sold to the
Purchaser by the Seller or by Other Sellers. In the event of an
offset with respect to a receivable purchased by the Purchaser from
the Seller or an Other Seller and such Rejected Receivable is not
repurchased by such Seller or Other Seller in the manner set forth
in Section 4.3 herein, the Servicer will cause the Trustee to
withdraw the Net Value of such Rejected Receivable from the Offset
Reserve Account and deposit it in the Purchase Account. In the
event such receivable was sold to the Purchaser by an Other Seller,
the Purchaser agrees to enforce the Other Seller's obligation to
repurchase such receivable under the terms of its agreement with
such Other Seller and to cause the amount of such repurchase by the
Other Seller to be deposited in the Offset Reserve Account. The
Servicer will maintain a detailed accounting record of all deposits
and withdrawals from the Offset Reserve Account including whether
a withdrawal was made with respect to a Medicare/Medicaid Offset on
a receivable sold to the Purchaser by the Seller or an Other
Seller. For purposes of calculating whether the amount in the
Offset Reserve Account deposited by the Servicer on behalf of the
Seller (net of withdrawals required hereunder with respect to the
Seller) is equal to the Specified Offset Reserve Balance, only
withdrawals with respect to a Rejected Receivable sold to the
Purchaser by the Seller will be deemed to be with respect to the
Seller.
Section 2.8 Administrative Fee.
On each Purchase Date, the Seller shall deposit with the
Servicer an amount equal to the Administrative Fee. The
Subservicer acknowledges that such amount may be offset by the
Subservicing Fee pursuant to Section 7.5. Payment of the Net
Administrative Fee may be made by application of amounts otherwise
payable to the Seller (including the Purchase Price to the extent
allocable to the Seller).
Section 2.9 Assignment of Agreement.
The Seller does hereby agree, acknowledge and consent to
the assignment by the Purchaser to an Affiliate of all of the
Purchaser's right, title, interest and obligations with respect to
this Agreement. The Seller does hereby further agree to execute
and deliver to the Purchaser all documents and amendments presented
to the Seller by the Purchaser in order to effectuate the
assignment by the Purchaser in furtherance of this Section 2.9
consistent with the terms and provisions of this Agreement.
ARTICLE III
CONDITIONS OF PURCHASES
Section 3.1 Conditions Precedent to Effectiveness of
Agreement.
The effectiveness of this Agreement is subject to the
condition precedent that the Purchaser and the Servicer shall have
received on or before the Closing Date the following, in form and
substance satisfactory to the Purchaser and the Servicer:
(a) With respect to the Seller:
(i) the certificate or articles of incorporation of the
Seller certified, as of a date no more than ten days prior to
the Closing Date, by the Secretary of State of its state of
incorporation;
(ii) a Good Standing Certificate, dated no more than ten
days prior to the Closing Date, from the respective Secretary
of State of its state of incorporation and each state in which
the Seller is required to qualify to do business;
(iii) a certificate of the Secretary or Assistant
Secretary of the Seller (on which certificate the Servicer and
the Purchaser may conclusively rely until such time as the
Servicer shall receive from the Seller a revised certificate
meeting the requirements of this subsection) certifying as of
the Closing Date: (A) the names and true signatures of the
officers authorized on its behalf to sign this Agreement and
the Related Documents, (B) a copy of the Seller's by-laws or
code of regulations, and (C) a copy of the resolutions of the
board of directors of the Seller approving this Agreement, the
Related Documents and the transactions contemplated thereby;
(iv) an Officer's Certificate in the form of Exhibit D
hereto;
(v) certified copies of Requests for Information or
Copies (Form UCC-11) (or a similar search report certified by
a party acceptable to the Purchaser), dated a date no more
than ten days prior to the Closing Date listing all effective
financing statements which name the Seller (under its present
name and any previous name) as debtor, together with copies of
such financing statements, and searches of applicable federal
and state court and agency dockets and lien records showing
all judgment liens affecting the Seller or the Eligible
Receivables and tax liens; and
(vi) acknowledgment copies of executed but unfiled
financing statements (Form UCC-3), if any, necessary to
release all security interests and other rights of any Person
in the Receivables previously granted by the Seller including,
without limitation, all such releases specified by the Seller
prior to the date hereof;
(b) Consents required by, or of, any Person or
Governmental Authority, if any, to the closing of the transactions
contemplated hereby, in form and substance satisfactory to the
Purchaser;
(c) Acknowledgment copies of proper financing statements
(Form UCC-1), duly filed, in respect of Purchased Receivables,
naming the Seller as the assignor and the Purchaser as the assignee
or other, similar instruments or documents, as may be necessary or,
in the opinion of the Purchaser or the Servicer, desirable under
the UCC of all appropriate jurisdictions or any comparable law to
perfect the Purchaser's ownership interests in all Purchased
Receivables in which an interest may be assigned hereunder;
(d) Fully executed copies of the Lockbox Account
Agreement;
(e) The favorable opinion of counsel to the Seller
substantially in the form attached hereto as Exhibit E;
(f) Such other approvals, opinions, documents and
instruments, as the Purchaser or the Servicer may reasonably
request;
(g) The Seller shall have paid such closing costs as
have previously been agreed with the Purchaser;
(h) The Seller shall have sent each Eligible Payor a
notice substantially in the form of Exhibit A; and
(i) The Seller shall have entered into or be bound by
the terms of the Medicare Provider Agreement and the Purchaser and
the Servicer shall have approved the terms of the Medicare Provider
Agreement.
Section 3.2 Conditions Precedent to All Purchases.
Each Purchase (including the initial Purchase) from the
Seller by the Purchaser shall be subject to the further conditions
precedent that:
(a) The representations and warranties of the Seller set
forth in Sections 4.1 and 4.2 are true and correct on and as of
such date, before and after giving effect to such Purchase and to
the application of the proceeds therefrom, as though made on and as
of such date;
(b) No event has occurred, or would result from such
Purchase or from the application of the proceeds therefrom, which
constitutes an Event of Seller Default or would constitute an Event
of Seller Default, but for the requirement that notice be given or
time elapse or both;
(c) The Seller is in compliance with each of its
covenants set forth herein;
(d) The Termination Date shall not have occurred;
(e) Each Receivable submitted by the Seller for purchase
is an Eligible Receivable; and
(f) The Seller shall have taken such other action,
including delivery of approvals, opinions or documents to the
Purchaser, as the Purchaser may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLER
Section 4.1 Representations and Warranties as to the
Seller
.
The Seller (in its capacities as Seller and Subservicer
hereunder) represents and warrants to the Purchaser and the
Servicer, as of the date hereof and on each subsequent Purchase
Date, as follows:
(a) The Seller is a corporation duly organized, validly
existing and in good standing under the laws of its state of
incorporation and is duly qualified to do business, and is in good
standing in each jurisdiction in which the nature of its business
requires it to be so qualified;
(b) The Seller has the power and authority to own and
convey all of its properties and assets and to execute and deliver,
this Agreement and the Related Documents and to perform the
transactions contemplated hereby and thereby;
(c) The execution, delivery and performance by the
Seller of this Agreement and the Related Documents, and the
transactions contemplated thereby, (i) have been duly authorized by
all necessary corporate or other action on the part of the Seller,
(ii) do not contravene or cause the Seller to be in default under
(A) the Seller's certificate or articles of incorporation or by-
laws or code of regulations, (B) any contractual restriction
contained in any indenture, loan or credit agreement, lease,
mortgage, security agreement, bond, note, or other agreement or
instrument binding on or affecting the Seller or its property or
(C) any law, rule, regulation, order, writ, judgment, award,
injunction, or decree applicable to, binding on or affecting the
Seller or its property and (iii) do not result in or require the
creation of any Adverse Claim upon or with respect to any of the
property of the Seller (other than in favor of the Purchaser as
contemplated hereunder);
(d) This Agreement and the Related Documents have been
duly executed and delivered on behalf of the Seller and each is the
legal, valid and binding obligation of the Seller enforceable
against the Seller in accordance with its terms;
(e) No consent of, or other action by, and no notice to
or filing with, any Governmental Authority or any other party, is
required for the due execution, delivery and performance by the
Seller of this Agreement or any of the Related Documents or for the
perfection of or the exercise by the Purchaser or the Servicer of
any of their rights or remedies thereunder, except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of
creditor's rights generally and by general principles of equity,
regardless of whether such enforceability is considered in a
proceeding in equity or at law;
(f) As of the date of this Agreement, except as set
forth on Schedule 4 attached hereto, there is no pending or
threatened in writing action, suit or proceeding, of a material
nature against or affecting the Seller or its consolidated
Subsidiaries, its officers or directors (in their capacity as
officers and directors), or the property of the Seller, in any
court or tribunal, or before any arbitrator of any kind or before
or by any Governmental Authority (i) asserting the invalidity of
this Agreement or any of the Related Documents, (ii) seeking to
prevent the sale and assignment of any Receivable or the
consummation of any of the transactions contemplated thereby, (iii)
seeking any determination or ruling that might materially and
adversely affect (A) the performance by the Seller or the
Subservicer of its obligations under this Agreement or any of the
Related Documents, (B) the validity or enforceability of this
Agreement or any of the Related Documents, (C) the Receivables or
the Contracts or (D) the federal income tax attributes of the
Purchases, or (iv) asserting a claim for payment of money in excess
of $50,000 (other than such judgments or orders in respect of which
adequate insurance is maintained by the Seller for the payment
thereof) that would be reasonably likely to have a material adverse
effect on the business, financial condition, or results of
operations of the Seller and its consolidated Subsidiaries. The
Seller hereby agrees to provide written notice to the Purchaser and
the Servicer promptly upon the change of any item described in this
Section 4.1 (f) subsequent to the date of this Agreement;
(g) No injunction, bankruptcy petition, writ,
restraining order or other order of any material nature adverse to
the Seller or the conduct of its business or which is inconsistent
with the due consummation of the transactions contemplated by this
Agreement has been issued by or filed with a Governmental
Authority;
(h) The Seller is in compliance with all material
respects with all applicable laws, rules, regulations, and orders
with respect to it, its business and properties and all Receivables
and related Contracts (including without limitation, all applicable
environmental, health and safety requirements) and all restrictions
contained in any indenture, loan or credit agreement, mortgage,
security agreement, bond, note, or other material agreement or
instrument binding on or affecting the Seller or its property, and
has and maintains all permits, licenses, authorizations,
registrations, approvals and consents of Governmental Authorities,
and all certificates of need for the construction or expansion of
or investment in health care facilities, all Health Facility
Licenses, Accreditations, Medicaid Certifications and Medicare
Certifications necessary for the activities and business of the
Seller and each of its Subsidiaries as currently conducted and as
proposed to be conducted, the ownership, use, operation and
maintenance by each of them of its properties, facilities and
assets and the performance by the Seller of this Agreement and the
related Documents (hereinafter referred to collectively as
'Governmental Consents');
(i) Without limiting the generality of the prior
representation: (A) each Health Facility License, Medicaid
Certification, Medicare Certification, Medicaid Provider Agreement,
Medicare Provider Agreement and each of the Blue Cross/Blue Shield
Contracts of the Seller and each of its Subsidiaries is in full
force and effect and has not been amended or otherwise modified,
rescinded or revoked or assigned, (B) the Seller and each
Subsidiary is in compliance with the requirements of Medicaid,
Medicare, CHAMPUS, CHAMPVA and related programs, and the Blue
Cross/Blue Shield Contracts, and (C) no condition exists or event
has occurred which, in itself or with the giving of notice or lapse
of time or both, would result in the suspension, revocation,
impairment, forfeiture, non-renewal of any Governmental Consent
applicable to the Seller or any other health care facility owned or
operated by the Seller or any of its Subsidiaries, or such
facility's participation in any Medicaid, Medicare, CHAMPUS,
CHAMPVA or other similar program, or of any Blue Cross/Blue Shield
Contracts and there is no claim that such Governmental Consent,
participation or contract is not in full force and effect;
(j) The Seller has filed on a timely basis all tax
returns (federal, state, and local) required to be filed and has
paid or made adequate provisions for the payment of all taxes,
assessments, and other governmental charges due from the Seller;
(k) The primary business of the Seller is the provision
of health care services and/or equipment. The Payors' related
provider numbers set forth on Schedule 5 have been issued to the
Seller and Schedule 5 is a true and complete list of all provider
numbers assigned by Payors to the Seller or its Subsidiaries;
(l) The Medicaid and Medicare cost reports of each
facility and of the home office of the Seller for all cost
reporting periods ending on or before February 28, 1993 have been
examined and audited by (A) as to Medicaid, the state agency, or
other HCFA-designated agents or agents of such state agency,
charged with such responsibility or (B) as to Medicare, the
Medicare intermediary or other HCFA-designated agents charged with
such responsibility. The status of the examination and audit of
the Medicaid and Medicare cost reports of each Agency and of the
home office of the Seller for all cost reporting periods subsequent
to the period ending February 28, 1993 is set forth on Schedule 6;
(m) All information heretofore or hereafter furnished by
or on behalf of the Seller or its consolidated Subsidiaries to the
Servicer or the Purchaser in connection with this Agreement or any
transaction contemplated hereby is and will be true and complete in
all material respects and does not and will not omit to state a
material fact necessary to make the statements contained therein
not misleading;
(n) Since the most recent Purchase Date, there has
occurred no event which has or is reasonably likely to have a
material adverse effect on the consolidated financial condition of
the Seller and its consolidated Subsidiaries, including their
ability to perform their obligations under this Agreement. Since
the most recent Purchase Date, except as otherwise disclosed in
writing by the Seller to the Purchaser, there has occurred no event
which has or is reasonably likely to have a material adverse effect
on the business or operations of the Seller or any of its
Subsidiaries, including their ability to perform their obligations
under this Agreement;
(o) Upon consummation of the transactions contemplated
by this Agreement, the Seller is solvent and will not become
insolvent after giving effect to the transactions contemplated by
this Agreement; the Seller has not incurred Debts beyond its
ability to pay; the Seller, after giving effect to the transactions
contemplated by this Agreement, will have an adequate amount of
capital to conduct its business in the foreseeable future; and the
sales of Purchased Receivables hereunder are made in good faith and
without intent to hinder, delay or defraud present and future
creditors of the Seller;
(p) The consolidated balance sheets of the Seller as at
February 28, 1999, and the related consolidated statements of
operations, stockholders' equity and cash flows for the fiscal year
then ended, audited by Deloitte & Touche, LLP, independent
certified public accountants, copies of which have been furnished
to the Purchaser and Servicer, fairly present the consolidated
financial condition, business and operations of the Seller as at
such date and the related consolidated results of the operations
for the period ended on such date, all in accordance with generally
accepted accounting principles consistently applied, and since
February 28, 1999 there has been no material adverse change in any
such condition, business or operations, except as disclosed in the
financial statements set forth in Section 4.1 (q) below or in the
Amendment No. 5 to the Subservicer's Registration Statement on Form
10 filed under the Securities Exchange Act of 1934 pursuant to
which the Subservicer registered its common stock, $.01 par value
per share (the 'Form 10');
(q) The consolidated balance sheets of the Seller as at
September 30, 1999, and the related consolidated statements of
operations, stockholders' equity and cash flows for the seven month
period then ended, prepared internally by the Seller, copies of
which have been furnished to the Purchaser and Servicer, fairly
present the consolidated financial condition, business and
operations of the Seller as at such date and the related
consolidated results of the operations for the period ended on such
date, all in accordance with generally accepted accounting
principles consistently applied, and since September 30, 1999 there
has been no material adverse change in any such condition, business
or operations;
(r) The Medicare Lockbox Account and the Commercial
Lockbox Account are the only lockbox accounts maintained by the
Seller and each Payor of an Eligible Receivable has been directed
upon its receipt of the notice attached as Exhibit A hereto, which
notice was mailed on the Closing Date, and is required to, remit
all payments with respect to such Receivable for deposit in the
Commercial Lockbox Account (other than the Payors of Medicaid,
Medicare, CHAMPUS and CHAMPVA Receivables which have been directed
to remit all payments with respect to such Receivables for deposit
in the Medicare Lockbox Account);
(s) The principal place of business and chief executive
office of the Seller are located at the address of the Seller set
forth under its signature below and there are now no, and during
the past four months there have not been, any other locations where
the Seller is located (as that term is used in the UCC) or keeps
Records except as set forth in the designated space beneath its
signature line in this Agreement;
(t) The legal name of the Seller is as set forth at the
beginning of this Agreement and the Seller has not changed its
legal name in the last six years, and during such period, the
Seller did not use, nor does the Seller now use any tradenames,
fictitious names, assumed names or 'doing business as' names other
than those set forth on Schedule 7 attached hereto;
(u) The Receivables of the Seller have been and will
continue to be adjusted to reflect reimbursement policies of the
Payors with respect thereto; in particular, the Eligible Receivable
Amounts of Receivables relating to such Payors do not and shall not
exceed amounts the Seller is entitled to receive under any
capitation arrangement, fee schedule, discount formula, cost-based
reimbursement, or other adjustment or limitation to the usual
charges of the Seller;
(v) Except as otherwise disclosed in the Form 10, no
Payor of an Eligible Receivable being sold on any Purchase Date has
any claim of a material nature against or affecting the Seller or
the property of the Seller;
(w) The Seller has not done and shall not do anything to
impede or interfere with the collection by the Purchaser of the
Purchased Receivables and shall not amend, waive or otherwise
permit or agree to any deviation from the terms or conditions of
any Purchased Receivable or any related Contract;
(x) The Seller has made and will continue to make all
payments to Payors necessary to prevent any Payor from offsetting
any earlier overpayment to the Seller against any amounts such
Payor owes on a Purchased Receivable;
(y) Each Purchase Notice contains a complete and
accurate list of all Eligible Receivables of the Seller as of its
date;
(z) For federal income tax reporting and accounting
purposes, the Seller will treat the sale of each Purchased
Receivable pursuant to this Agreement as a sale of, or absolute
assignment of its full right, title and ownership interest in, such
Purchased Receivable to the Purchaser and the Seller has not in any
other manner accounted for or treated the transactions in Purchased
Receivables by the Seller contemplated hereby;
(aa) This Agreement constitutes a valid transfer,
assignment, set-over and conveyance to the Purchaser of all right,
title and interest of the Seller in and to the Purchased
Receivables now existing and hereafter created;
(bb) The Seller has valid business reasons for selling
its interests in the Purchased Receivables rather than obtaining a
loan with the Purchased Receivables as collateral;
(cc) As of the date first above written, the Seller
conducts business under those names set forth on Schedule 7
attached hereto and does not operate business under any name other
than those names set forth on Schedule 7 attached hereto. One or
more but no more than those names listed on Schedule 7 hereto are
payees on the payments received from Eligible Payors. As of the
date first above written, the Seller conducts business at the
locations set forth on Schedule 7 attached hereto and does not
operate business at any location other than those locations set
forth on Schedule 7 attached hereto. As of the date first above
written, the Seller's chief executive office (as that term is used
in the UCC) is as set forth beneath the Seller's signature line of
this Agreement;
(dd) For the period commencing March 1, 1999 and ending
September 30, 1999, the Seller and its consolidated Subsidiaries
were performing at $9,500,000 under the applicable HCFA cost
reimbursement cap levels for such period;
(ee) For fiscal year ending February 28, 2000, the
consolidated net profit (loss) before taxes for the Seller and its
consolidated Subsidiaries shall be not less than ($13,200,000).
For fiscal year ending February 28, 2001, the consolidated net
profit (loss) before taxes for the Seller and its consolidated
Subsidiaries shall be not less than $(1,500,000);
(ff) The Seller shall, at all times, pay its Debts, if
any, as they mature. The trade payables of the Seller shall be
aged an average of no more than 65 days;
(gg) The Seller and its consolidated Subsidiaries shall
at all times maintain an aggregate minimum cash on hand balance of
$3,000,000; and
(jj) The Seller shall, at all times, comply with the
terms and provisions of the Medicare Provider Agreement.
Section 4.2 Representations and Warranties of the
Seller as to Purchased Receivables.
With respect to each Purchased Receivable sold pursuant
to this Agreement (including, without limitation, claims which may
be satisfied by set-off of any amounts due under any Receivable),
the Seller represents and warrants, as of the date hereof and on
each subsequent Purchase Date, as follows:
(a) Such Receivable is the primary liability of an
Eligible Payor and is or will be recognized by the Eligible Payor
as its primary liability;
(b) The Required Information contained in the Purchase
Notice is true and correct;
(c) Such Receivable is not a Defaulted Receivable and
has not become a Paid Receivable;
(d) The Seller has or will submit all necessary
documentation and has or will supply all necessary information for
payment of such Receivable to the Payor and has fulfilled all its
other obligations, in respect thereof, including verification of
the eligibility of the Receivable for payment by such Payor;
(e) Neither the Receivable nor the related Contract has
been satisfied, subordinated or rescinded, or except as disclosed
in writing to the Purchaser, amended in any manner;
(f) The Eligible Receivable Amount set forth in the
applicable Required Information of such Receivable is net of any
Contractual Allowance or other modifications and the Receivable has
not and will not be materially compromised, adjusted, extended,
satisfied, subordinated, rescinded, set-off or modified by the
Seller or Payor, and is not nor will be subject to a material
compromise, adjustment, extension, satisfaction, subordination,
rescission, set-off, counterclaim, defense, abatement, suspension,
deferment, deductible, reduction, termination or modification,
whether arising out of transactions concerning the Contract or
otherwise. The Contract related to the such Receivable has not and
will not be compromised, adjusted, extended, satisfied,
subordinated, rescinded, set-off or modified by the Seller or
Payor, and is not nor will be subject to a compromise, adjustment,
extension, satisfaction, subordination, rescission, set-off,
counterclaim, defense, abatement, suspension, deferment,
deductible, reduction, termination or modification, whether arising
out of transactions concerning the Contract or otherwise
(g) Such Receivable is an account receivable created
through the provision of necessary health care, medical or home
care services or products supplied by the Seller in the ordinary
course of its business and the sales prices of such services or
products were usual, customary and reasonable in the Seller's
community for such services;
(h) Such Receivable is an 'account' within the meaning
of the UCC and is not evidenced by an 'instrument' within the
meaning of the UCC;
(i) Such Receivable has a Net Value which, when added to
the Net Value of all other Receivables of such Payor or in such
Payor Class and which constitute Purchased Receivables hereunder,
does not exceed the Concentration Limits;
(j) Such Receivable (A) has a Purchase Date no later
than 150 days from its Billing Date, (B) with respect to all
Purchases following the initial Purchase, the claim with respect to
the related Receivable must be submitted to the related Payor no
later than 45 days after the Service Date of the patient to whom
the health care services giving rise to the Receivable were
rendered and (C) is not past the statutory limit for billing or
collection applicable to the Payor;
(k) The related Contract is, and was at the time of the
services giving rise to the Receivable, in full force and effect
and constitutes the legal, valid and binding obligation of the
Payor enforceable against such Payor in accordance with its terms,
such Receivable was created in accordance with the requirements of
the Contract and applicable law, including without limitation, to
the extent the Receivable is subject to limitations imposed by
workers' compensation law or a related Contract and is entitled to
be paid pursuant to the terms of the related Contract, and a copy
of any related Contract to which the Seller is a party has been
delivered to the Purchaser, the amount of the Eligible Receivable
does not exceed the limitations so imposed, and each Receivable to
which the fees are so restricted has been clearly identified as
being subject to such restrictions;
(l) Such Receivable is denominated and payable in
Dollars in the United States and the Eligible Receivable Amount of
such Receivable is not in excess of $200,000 it being understood
that the rights to payment for services rendered or goods sold to
(x) different patients or (y) the same patient and billed on
different dates shall each constitute separate Receivables;
provided, that if the Eligible Receivable Amount is in excess of
such amount, only the amount of such excess may be deemed to not be
an Eligible Receivable;
(m) Such Receivable is owned by the Seller free and
clear of any Adverse Claim, and the Seller has the right to sell,
assign and transfer the same and interests therein as contemplated
under this Agreement and, upon such sale, the Purchaser has
acquired a valid ownership interest in such Receivable, free and
clear of any Adverse Claim;
(n) No consent from the Payor or any other Person shall
be required to effect the sale of any Purchased Receivables;
(o) There are no procedures or investigations pending or
threatened before any Governmental Authority (i) asserting the
invalidity of such Receivable or such Contract, (ii) asserting the
bankruptcy or insolvency of the related Payor, (iii) seeking the
payment of such Receivable or payment and performance of such
Contract or (iv) seeking any determination or ruling that might
materially and adversely affect the validity or enforceability of
such Receivable or such Contract;
(p) Neither such Receivable nor the related Contract
contravenes in any material respect any laws, rules or regulations
applicable thereto (including, without limitation, laws, rules and
regulations relating to usury, consumer protection, truth in
lending, fair credit billing, fair credit reporting, equal credit
opportunity, fair debt collection practices and privacy) and no
party to such related Contract is in violation of any such law,
rule or regulation in any material respect;
(q) Such Receivable complies with such additional
criteria and requirements (other than those relating to the
collectibility of such Receivables) as the Purchaser may from time
to time specify to the Seller following 30 days' notice; and
(r) The Seller has no knowledge of any fact which should
have led it to expect at the time of sale of such Receivable to the
Purchaser that the Eligible Receivable Amount of such Receivable
would not be paid in full.
The parties acknowledge that some of the foregoing representations
and warranties may have been made only to the best of the Seller's
knowledge. Nevertheless, notwithstanding the Seller's lack of
knowledge with respect to an inaccuracy of a representation and
warranty, the parties agree that any such inaccuracy shall be
deemed a breach of the applicable representation or warranty.
Section 4.3 Repurchase Obligations.
Upon discovery by any party hereto of a breach of any
representation or warranty in this Article IV which materially and
adversely affects the value of a Purchased Receivable or the
interests of the Purchaser therein, the party discovering such
breach shall give prompt written notice to the other parties
hereto; provided, however, the Purchaser's failure to give such
prompt written notice shall not constitute a waiver of such breach
or in any way 'impair' the Servicer's or Purchaser's right or
remedies hereunder. Thereafter, on the next Purchase Date, the
Purchase Price for new Purchased Receivables, to the extent
sufficient, shall be offset by the Net Value of such Receivable or
the Seller shall, prior to the succeeding Determination Date, remit
to the Purchaser the Net Value of such Receivable or the Purchaser
shall offset the Net Value of such Receivable from other amounts
due to the Seller hereunder. Such amount shall be deemed to be
Collections of such Receivable (each such Receivable, a 'Rejected
Receivable') received and shall be deposited in the Collection
Account. It is understood and agreed that the obligation of the
Seller with respect to any Rejected Receivable pursuant to this
Section 4.3 shall constitute the sole remedy by the Purchaser
against the Seller for the breach of any representation or warranty
in respect of such Receivable; provided, that the foregoing
limitation shall not be construed to limit in any manner the
Purchaser's right to (a) in the event the Seller fails to effect a
repurchase as set forth herein above offset against any amounts it
owes the Seller under this Agreement (including any Purchase
Price), the Net Value of such Rejected Receivable; (b) declare the
Termination Date to have occurred or to terminate the
responsibilities of the Subservicer hereunder to the extent that
such breaches also constitute an Event of Seller Default or (c)
assert claims for fraud, conversion, or other tortious conduct
against the Seller or the Sellers Affiliates. Except as set forth
in Section 4.3, the Seller shall have no right to repurchase or
remit funds with respect to any Purchased Receivable.
ARTICLE V
GENERAL COVENANTS OF THE SELLER
Section 5.1 Affirmative Covenants of the Seller.
The Seller shall, unless the Purchaser shall otherwise
consent in writing:
(a) Comply in all material respects with all applicable
laws, rules, regulations and orders with respect to it, its
business and properties and all Receivables, related Contracts and
Collections with respect thereto;
(b) Subject to Section 5.3(e) below, preserve and
maintain its corporate existence, rights, franchises and privileges
in the jurisdiction of its incorporation and continue to operate
its business in the manner set forth in Section 4.1(a);
(c) Cause to be delivered to the Purchaser on or before
February 28 of each year beginning with February 28, 2001, (i) an
Officer's Certificate of the Seller substantially in the form of
Exhibit D, dated the date of such delivery; and (ii) upon the
reasonable request of the Purchaser, opinions of counsel, in form
and substance satisfactory to the Purchaser, reaffirming as of the
date of the delivery of the opinions of counsel which the Seller
delivered to the Purchaser and the Servicer on the Closing Date
pursuant to Section 3.1(e);
(d) Deposit all Collections received in respect of
Receivables into the appropriate Lockbox Account within one
Business Day of receipt;
(e) Make all payments to any Payors necessary to prevent
the Payor from offsetting a prior overpayment to the Seller against
any amount the Payor owes on a Purchased Receivable;
(f) Timely, pay the Program Fee and all amounts due to
the Purchaser under Sections 2.2, 2.3, 4.3, 6.4, 9.1(a) and (b),
and 10.4 of this Agreement; and
(g) Use its best efforts to release or terminate or
cause the release or termination of any Adverse Claim with respect
to any Receivable or related Contract.
Section 5.2 Reporting Requirements of the Seller
The Seller shall furnish, or cause to be furnished, to
the Purchaser:
(a) As soon as available, and in any event within 40
days after the end of each calendar month, a consolidated and
consolidating financial statements of the Seller and its
consolidated Subsidiaries for the previous calendar month, to be
delivered to the Purchaser and the Servicer for each of the first
twelve (12) calendar months after the date on which this Agreement
is consummated, certified by president, the chief financial officer
or chief accounting officer of the Seller;
(b) As soon as available, and in any event within 45
days after the end of each of the first three quarters of its
fiscal year, a consolidated and consolidating financial statements
of the Seller and its consolidated Subsidiaries as of the end of
such quarter, for the period commencing at the end of the previous
fiscal year and ending with the end of such quarter, certified by
president, chief financial officer or chief accounting officer of
the Seller;
(c) As soon as available, and in any event within 40
days after the end of each month, a Seller Month End Report
substantially in the form as set forth on Schedule 3 attached
hereto;
(d) As soon as available and in any event within 90 days
after the end of its fiscal year, a copy of the consolidated and
consolidating financial statements of the Seller and its
consolidated Subsidiaries, if any, as of the end of such year and
the related consolidated statements of operations, stockholders'
equity and cash flows, of the Seller and its consolidated
Subsidiaries for such year, in each case audited by a 'Big Six'
accounting firm or a firm of independent public accountants
reasonably acceptable to the Servicer;
(e) Promptly after the sending or filing thereof, copies
of all reports which the Seller files with any Governmental
Authority as they relate to the Seller's Receivables or sends to
any of its security holders and a copy of the annual report (if
any) of the Seller;
(f) Within five (5) Business Days of the submission,
sending, filing or otherwise providing Medicare or Medicaid cost
reports of any kind whatsoever, whether or not they be consolidated
or consolidating, to the appropriate agency or Governmental
Authority, the Seller shall deliver copies of such cost reports to
the Purchaser or the Servicer;
(g) As soon as possible and in any event within three
(3) days after the occurrence of an Event of Seller Default
(including without limitation a material adverse change in the
financial condition of the Seller) or each event which, with the
giving of notice or lapse of time or both, would constitute an
Event of Seller Default, the statement of the chief executive
officer of the Seller setting forth complete details of such Event
of Seller Default and the action which the Seller has taken, is
taking and proposes to take with respect thereto;
(h) Upon the reasonable request of the Purchaser on or
before the tenth Business Day following the 45th day and 90th day of
each calendar quarter commencing on the first full calendar quarter
immediately following the Closing Date, federal tax lien search
results in all applicable jurisdictions with respect to the Seller
upon the request of the Purchaser or the Servicer. In the event
Seller fails to timely deliver such search results, the Purchaser
or the Servicer may cause such searches to be completed at the
Seller's sole expense;
(i) As soon as available and in any event at least three
(3) Business Days prior to the filing of any and all public
announcements, press releases, 10-Ks, 10-Qs, 8-Ks and other similar
filings or reports pursuant to the Securities Exchange Act of 1934,
as amended, with the appropriate agency and/or Governmental
Authority, the Seller shall deliver copies drafts of such filings
or reports to the Purchaser and/or the Purchaser's legal counsel;
and
(j) Within five (5) Business Days of the reasonable
request from the Purchaser, such other information, documents,
records or reports with respect to the Receivables or the Contracts
or the condition or operations, financial or otherwise, of the
Seller or any of its Subsidiaries.
Section 5.3 Negative Covenants of the Seller.
The Seller shall not, without the prior written consent
of the Purchaser and the Servicer:
(a) Sell, assign (by operation of law or otherwise) or
otherwise dispose of, or create or suffer to exist any Adverse
Claim upon or with respect to, any Receivable or related Contract
with respect thereto, or, upon or with respect to the Lockbox
Account, the Seller Credit Reserve Account, the Offset Reserve
Account, the Collection Account, or any other account in which any
Collections of any Receivable are deposited, or assign any right to
receive income in respect of any Purchased Receivable;
(b) Materially extend, amend or otherwise modify the
terms of any Purchased Receivable, or amend, modify or waive any
term or condition of any Contract related thereto or in any manner
impede or interfere with the collection of such Purchased
Receivable;
(c) Make any material change in the character of its
business;
(d) Make any change in its instructions to Payors
regarding payments to be made to the Seller or payments to be
deposited to the Lockbox Account;
(e) Be the subject of or have the Person(s) controlling,
directly or indirectly, the Seller be the subject of a merger or
merge with or into or consolidate with or into, or convey,
transfer, lease or otherwise dispose of all or substantially all of
its assets (whether now owned or hereafter acquired), or acquire
all or substantially all of the assets or capital stock or other
ownership interest of, any Person; provided, however, without the
prior written consent of the Purchaser (i) the Seller may merge
with or into or consolidate with or into the Subservicer or a
Subsidiary of the Subservicer, the Seller may convey, sell, assign
or otherwise transfer all or substantially all of its assets
(whether now owned or hereafter acquired) to the Subservicer or a
Subsidiary of the Subservicer, the Subservicer or the Seller may
acquire all or substantially all of the assets (whether now owned
or hereafter acquired) or capital stock or other ownership interest
of a Subsidiary of the Subservicer and (ii) the Seller and the
Subservicer may convey, transfer, or otherwise dispose of all or
substantially all of its assets (whether now owned or hereafter
acquired), or acquire all or substantially all of the assets or
capital stock or other ownership interest of, any Person to the
extent that any one such transaction does not exceed $1,000,000 and
to the extent that any such transactions do not exceed $2,000,000
in the aggregate in any six month period.
(f) Make any change to (i) the location of its chief
executive office or the location of the office where Records are
kept or (ii) its corporate name or use of any tradenames,
fictitious names, assumed names or 'doing business as' names; or
(g) Prepare any financial statements which shall account
for the transactions contemplated hereby in any manner other than
as a sale of the Purchased Receivables by the Seller to the
Purchaser, and will not in any other respect account for or treat
the transactions contemplated hereby (including but not limited to,
for accounting, tax and reporting purposes) in any manner other
than as a sale of the Purchased Receivables by the Seller to the
Purchaser. It is understood and agreed that the obligation of the
Seller to comply with the covenants set forth in this Section 5.3
shall be subject to the Seller's obligation to comply with any
order or directive of a Governmental Authority of competent
jurisdiction and that compliance with such order or directive shall
not constitute a breach of such covenant; provided, that the
foregoing shall not be construed to limit in any manner the
Purchaser's right to declare the Termination Date to have occurred
to the extent that such noncompliance with such covenant (whether
or not resulting from such an order or directive) shall constitute,
or contribute to the determination of, an Event of Seller Default.
ARTICLE VI
ACCOUNTS ADMINISTRATION
Section 6.1 Collection Account.
The Purchaser and the Servicer acknowledge that certain
amounts deposited in the Collection Account may relate to
Receivables other than Purchased Receivables (such as Rejected
Receivables to the extent repurchased by the Seller in accordance
with Section 4.3 of this Agreement) and that such amounts continue
to be owned by the Seller. All such amounts shall be returned to
the Seller in accordance with Section 6.3.
Section 6.2 Determinations of the Servicer.
On each Determination Date, the Servicer will determine:
(a) the Net Value of all Purchased Receivables as of the
prior Determination Date plus the Net Value of all Purchased
Receivables purchased on the prior Purchase Date (the 'Prior Net
Value Amount');
(b) the amount of Collections on all Purchased
Receivables received since the prior Determination Date (the 'Paid
Receivables Amount');
(c) the Net Value of all Purchased Receivables as of the
current Determination Date (the 'Current Net Value Amount');
(d) an amount equal to (i) the Prior Net Value Amount
minus (ii) the Paid Receivables Amount minus (iii) the Current Net
Value Amount (but not less than zero) (the 'Credit Deficiency');
and
(e) the Net Value of Purchased Receivables which became
Rejected Receivables since the prior Determination Date and which
have not been repurchased or offset in the manner set forth in
Section 4.3 or Section 2.7 (the 'Rejected Amount').
The Servicer's determinations of the foregoing amounts shall be
conclusive in the absence of manifest error. The Servicer shall
notify the Seller and the Purchaser of such determinations.
Section 6.3 Distributions from Accounts.
(a) No later than 11:00 a.m. on each Determination Date,
following the determinations set forth in Section 6.2, the Servicer
will notify the Trustee of such determinations and will cause the
Trustee to withdraw in the following priority:
(i) the Paid Receivables Amount from the Collection
Account and deposit such amount in the Purchase Account;
(ii) the Credit Deficiency, if any, from the Seller
Credit Reserve Account and deposit such amount in the Purchase
Account;
(iii) the Rejected Amount, if any, from the
Collection Account and deposit it in the Purchase Account; and
(iv) the remaining amount from the Collection Account and
pay such amount by check or wire transfer to the Seller.
(b) Until the Termination Date on each Purchase Date
following the Purchase on such date, the Servicer shall cause the
Trustee to withdraw (i) all amounts deposited hereunder (net of
withdrawals required hereunder) from the Seller Credit Reserve
Account in excess of the Specified Credit Reserve Balance and (ii)
all amounts deposited hereunder (net of withdrawals required
hereunder) from the Offset Reserve Account in excess of the
Specified Offset Reserve Balance and shall pay such amounts by
check or wire transfer to the Seller.
Section 6.4 Allocation of Moneys following Termination
Date.
(a) Following the Termination Date, the Servicer shall
cause the Trustee to the extent funds deposited hereunder (net of
withdrawals required hereunder) are sufficient, to withdraw an
amount equal to the Program Fee from the Offset Reserve Account on
each Purchase Date and deposit it in the Equity Account. To the
extent that such funds do not equal the Program Fee, the Seller
shall deposit in the Equity Account the balance of the Program Fee
within five Business Days following demand therefor.
(b) On the first Determination Date on which the
aggregate Net Value of all Purchased Receivables (other than
Defaulted Receivables) (i) is less than 10% of the aggregate Net
Value of Purchased Receivables (other than Defaulted Receivables)
on the Termination Date and (ii) is less than the aggregate amounts
deposited hereunder (net of withdrawals required hereunder) and
remaining in the Seller Credit Reserve Account and the Offset
Reserve Account, the Servicer shall cause the Trustee to withdraw
an amount equal to such aggregate Net Value from such accounts and
deposit it in the Purchase Account. Thereupon the Servicer shall
cause the Trustee to disburse to the Seller funds in an amount
equal to the amount held in the Collection Account, the Seller
Credit Reserve Account and the Offset Reserve Account related to
the Seller and all interests of the Purchaser in all Purchased
Receivables owned by the Purchaser shall be reconveyed by the
Purchaser to the Seller and all interests of the Purchaser in all
Purchased Receivables owned by the Purchaser shall be reconveyed by
the Purchaser to the Seller. Following such disbursement and
reconveyance, this Agreement shall be deemed terminated.
Section 6.5 Accounting.
The Servicer shall make all determinations of actual and
required amounts in each of the accounts established pursuant to
this Agreement, maintain detailed accounting records of all
deposits and withdrawals for each such account, including the
Seller and the Receivables with respect to which such deposits and
withdrawals were made and notify the Trustee as to such
determinations.
ARTICLE VII
APPOINTMENT OF THE SUBSERVICER
AND SUCCESSOR SERVICER
Section 7.1 Appointment of the Subservicer.
The Servicer and the Purchaser hereby appoint the Seller
to act as Subservicer hereunder. The Subservicer shall service the
Purchased Receivables and enforce the Purchaser's respective rights
and interests in and under each Purchased Receivable and each
related Contract and shall serve in such capacity, including, in
the event the Servicer has resigned or been terminated, until the
termination of its responsibilities pursuant to Section 7.9, 7.11,
or 8.1. The Subservicer hereby agrees to perform the duties and
obligations with respect thereto set forth herein. Notwithstanding
any term or provision hereof to the contrary, the Seller, the
Subservicer, and the Purchaser hereby acknowledge and agree that
the Servicer acts as agent hereunder for the Purchaser and has no
duties or obligations to, will incur no liabilities or obligations
to, and does not act as an agent in any capacity for, the Seller or
the Subservicer.
Section 7.2 Additional Subservicers.
The Subservicer may, with the prior consent of the
Purchaser and the Servicer, which consent shall not be unreasonably
withheld, subcontract with a subservicer (each such servicer, an
'Additional Subservicer') for collection, servicing or
administration of the Receivables, provided, that (a) the
Subservicer shall continue to perform its obligations with respect
to collections of Medicaid Receivables, Medicare Receivables,
CHAMPUS Receivables and CHAMPVA Receivables, (b) the Subservicer
shall remain liable for the performance of the duties and
obligations of the Additional Subservicer pursuant to the terms
hereof and (c) any subservicing agreement that may be entered into
and any other transactions or services relating to the Purchased
Receivables involving an Additional Subservicer (each such
agreement, an 'Additional Subservicing Agreement') shall be deemed
to be between the Additional Subservicer and the Subservicer alone
and the Purchaser and Servicer shall not be deemed parties thereto
and shall have no obligations, duties or liabilities with respect
to the Additional Subservicer.
Section 7.3 Duties and Responsibilities of the
Subservicer.
(a) The Subservicer shall conduct the servicing,
administration and collection of the Purchased Receivables and
shall take, or cause to be taken, all such actions as may be
necessary or advisable to service, administer and collect each
Purchased Receivable, from time to time, all in accordance with (i)
customary and prudent servicing procedures for health care
receivables of a similar type, and (ii) all applicable laws, rules
and regulations.
(b) The duties of the Subservicer shall include, without
limitation:
(i) preparation and submission of claims to, and post-
billing liaison with, Eligible Payors;
(ii) arranging for the direct remittance of all
Collections on Receivables to the Commercial Lockbox Account
(other than Collections with respect to Medicaid Receivables,
Medicare Receivables, CHAMPUS Receivables and CHAMPVA
Receivables, in respect of which it shall arrange for the
direct remittance of such Collections to the Medicare Lockbox
Account);
(iii) remitting any Collections with respect to
Medicaid Receivables, Medicare Receivables, CHAMPUS
Receivables and CHAMPVA Receivables it may receive directly
for deposit in the Medicare Lockbox Account and remitting any
Collections on other Receivables it may receive directly for
deposit in the Commercial Lockbox Account, in each case no
later than by the end of the day of receipt or the following
Business Day if the day of receipt is not a Business Day;
(iv) maintaining all necessary Servicing Records with
respect to the Purchased Receivables and promptly delivering
such reports to the Purchaser or the Servicer in respect of
the servicing of the Purchased Receivables (including
information relating to its performance under this Agreement)
as may be required hereunder or as the Purchaser or the
Servicer may reasonably request;
(v) maintaining and implementing administrative and
operating procedures (including, without limitation, an
ability to recreate Servicing Records evidencing the Purchased
Receivables in the event of the destruction of the originals
thereof) and keeping and maintaining all documents, books,
records and other information reasonably necessary or
advisable for the collection of the Purchased Receivables
(including, without limitation, records adequate to permit the
identification of each new Purchased Receivable and all
Collections of and adjustments to each existing Purchased
Receivable);
(vi) identifying each Purchased Receivable clearly and
unambiguously in its Servicing Records to reflect that such
Purchased Receivable is owned by the Purchaser;
(vii) complying in all material respects with all
applicable laws, rules, regulations and orders with respect to
it, its business and properties and all Purchased Receivables
and related Contracts and Collections with respect thereto;
(viii) preserving and maintaining its corporate
existence, rights, franchises and privileges in the
jurisdiction of its incorporation, and qualifying and
remaining qualified in good standing as a foreign corporation
and qualifying to and remaining authorized to perform
obligations as Subservicer (including enforcement of
collection of Purchased Receivables on behalf of the
Purchaser) in each jurisdiction where the failure to preserve
and maintain such existence, rights, franchises, privileges
and qualification would materially adversely affect (A) the
rights or interests of the Purchaser in the Purchased
Receivables, (B) the collectibility of any Purchased
Receivable or (C) the ability of the Subservicer to perform
its obligations hereunder or under the Contracts;
(ix) any time and from time to time at reasonable
intervals upon notice to the Subservicer and during regular
business hours, permitting the Purchaser, the Servicer or any
of their agents or representatives, (A) to examine and make
copies of and abstracts from all Servicing Records, and (B) to
visit the offices and properties of the Subservicer for the
purpose of examining such Servicing Records, and to discuss
matters relating to the Receivables or the Subservicer's
performance under this Agreement with any officer or employee
of the Subservicer having knowledge of such matters;
(x) at the request of the Servicer, maintaining at its
own expense, a blanket fidelity bond with broad coverage, with
responsible companies acceptable to the Servicer, on all
officers, employees or other persons acting on behalf of the
Subservicer in any capacity with regard to the Purchased
Receivables; provided that the fidelity bond currently
maintained by the Subservicer is acceptable to the Servicer as
of the Closing Date, including those handling funds, money,
documents and papers relating to the Purchased Receivables.
Any such fidelity bond shall protect and insure the
Subservicer (and through the Subservicer, the Servicer and the
Purchaser) against losses commonly protected against by bonds
of a similar type, including forgery, theft, embezzlement,
fraud, and negligent acts of such persons and shall be
maintained at a level acceptable to the Servicer. No
provision of this Section requiring such fidelity bond shall
diminish or relieve the Subservicer from its duties and
obligations as set forth in this Agreement. Any amounts
received under any such bond with respect to Purchased
Receivables shall be deposited by the Subservicer in the
Collection Account and treated in the same manner as
Collections with respect to such Purchased Receivables. Upon
request of the Purchaser or the Servicer, the Subservicer
shall cause to be delivered to the Purchaser and the Servicer
a certification evidencing coverage under such fidelity bond.
Promptly upon receipt of any notice from the surety or the
insurer that such fidelity bond has been terminated or
modified in a materially adverse manner, the Subservicer shall
notify the Servicer of any such termination or modification;
(xi) notifying the Purchaser and the Servicer of any
action, suit, proceeding, dispute, offset, deduction, defense
or counterclaim that is or may be asserted by a Payor with
respect to any Purchased Receivable; and
(xii) providing the Purchaser and the Servicer with
a report on each Determination Date substantially in the form
of Exhibit G.
(c) Notwithstanding anything herein to the contrary, all
collection functions in respect of Medicaid Receivables, Medicare
Receivables, CHAMPUS Receivables and CHAMPVA Receivables shall be
performed in accordance with Medicaid Regulations, Medicare
Regulations, CHAMPUS Regulations and CHAMPVA Regulations.
(d) The Purchaser shall not have any obligation or
liability with respect to any Purchased Receivables or related
Contracts, nor shall it be obligated to perform any of the
obligations of the Subservicer hereunder.
Section 7.4 Authorization of the Servicer.
The Seller hereby authorizes the Servicer (including any
successors thereto) to take any and all reasonable steps in its
name and on its behalf necessary or desirable and not inconsistent
with the sale of the Purchased Receivables to the Purchaser, in the
determination of the Servicer as the case may be, to collect all
amounts due under any and all Purchased Receivables and process all
Collections and related Remittance Advices. The Servicer shall
process such Collections and related Remittance Advices within five
Business Days of receipt thereof. Further, the Servicer is
authorized, to the extent permitted under and in compliance with
applicable law and regulations, to commence proceedings with
respect to enforcing payment of such Purchased Receivables and the
related Contracts, and adjusting, settling or compromising the
account or payment thereof, to the same extent as the Seller could
have done if it had continued to own such Receivable. The Seller
shall furnish the Servicer (and any successors thereto) with any
powers of attorney and other documents necessary or appropriate to
enable the Servicer to carry out its servicing and administrative
duties hereunder, and shall cooperate with the Servicer to the
fullest extent in order to ensure the collectibility of the
Purchased Receivables. Notwithstanding anything to the contrary
contained herein, the Servicer shall have the absolute and
unlimited right to direct the Subservicer to commence or settle any
legal action to enforce collection of any Purchased Receivable or
to foreclose upon, repossess or take any other action which the
Servicer deems necessary or advisable with respect thereto. In no
event shall the Subservicer be entitled to make the Purchaser or
the Servicer a party to any litigation without such party's express
prior written consent.
Section 7.5 Subservicing Fee; Subservicing Expenses.
On each Purchase Date, the Subservicer shall be paid a
subservicing fee by the Servicer for its performance as Subservicer
hereunder (the 'Subservicing Fee') from the Servicer's own funds in
an amount equal to 8.5% of the Collections, if any, with respect to
Purchased Receivables that were received by the Servicer during the
period from the prior Determination Date to such Determination
Date; provided that, if the Seller ceases to be Subservicer
hereunder, the Servicer's obligation to pay the Subservicing Fee
shall terminate. The Servicer shall offset the Subservicing Fee
from the Administrative Fee to be deposited with the Servicer on
such Purchase Date. In the event the Subservicing Fee is greater
than the Administrative Fee to be deposited on such Purchase Date,
the Servicer shall pay to the Subservicer an amount equal to the
Net Subservicing Fee for such Purchase Date. The Subservicer shall
be required to pay for all expenses incurred by the Subservicer in
connection with its activities hereunder (including any payments to
accountants, counsel or any other Person) and shall not be entitled
to any payment or reimbursement therefor.
Section 7.6 Annual Statement as to Compliance.
The Subservicer shall deliver to the Purchaser and the
Servicer on or before February 28 of each year beginning with
February 28, 2001, an Officer's Certificate stating, as to each
signer thereof, that (a) a review of the activities of the
Subservicer during the preceding calendar year and of performance
under this Agreement has been made under such officer's
supervision; (b) to the best of such officer's knowledge, based on
such review, the Subservicer has fulfilled in all material respects
all its obligations as Subservicer under this Agreement throughout
such year, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default known to such
officer and the nature and status thereof.
Section 7.7 Transfer of Servicing Between Subservicer
and Servicer.
(a) Upon determination by the Servicer that greater than
10% of the Purchased Receivables remain outstanding for greater
than 120 days after their respective Billing Date, the Servicer may
immediately give notice to the Subservicer that the Servicer will
assume servicing of such portion of the Purchased Receivables that
remain outstanding for greater than 120 days after their respective
Billing Date. Thereupon, the Servicer shall assume the servicing
responsibilities of Subservicer in respect of such Purchased
Receivables. The Subservicer shall thereupon provide the Servicer
with all information, documents and records (including original
copies of documents), to the extent required by the Servicer to
perform its duties (including such records stored electronically on
computer tapes, magnetic discs and the like as may be reasonably
requested by the Servicer).
(b) Notwithstanding the provisions of the preceding
clause (a), the Subservicer shall maintain ongoing payment records
with respect to each Purchased Receivable serviced by the Servicer.
(c) The Subservicer shall pay all reasonable fees and
costs of the Servicer in connection with its duties under this
Section 7.7.
Section 7.8 Subservicer Not to Resign.
The Subservicer shall not resign from the obligations and
duties hereby imposed on it except upon determination that (a) the
performance of its duties hereunder has become impermissible under
applicable law and (b) there is no reasonable action which the
Subservicer could take to make the performance of its duties
hereunder permissible under applicable law. Any such determination
permitting the resignation of the Subservicer shall be evidenced as
to clause (a) above by an opinion of counsel to such effect
delivered to the Purchaser and the Servicer. No such resignation
shall become effective until the earlier of the date required by
applicable law or the Servicer shall have assumed the
responsibilities and obligations of the Subservicer in accordance
with Section 7.9.
Section 7.9 Appointment of the Successor Subservicer.
In connection with the termination of the Subservicer's
responsibilities under this Agreement pursuant to Section 8.1, the
Servicer may, in its discretion, except with respect to Section
8.1(c) in which case the Servicer shall, (a) succeed to and assume
all of the Subservicer's responsibilities, rights, duties and
obligations as Servicer (but not in any other capacity) under this
Agreement except with respect to Medicaid Receivables, Medicare
Receivables, CHAMPUS Receivables and CHAMPVA Receivables or (b)
require the Seller to continue to act as Subservicer for all of its
outstanding Purchased Receivables at the time of the Event of
Seller Default.
Section 7.10 Duties of the Subservicer to the Successor
Servicer.
At any time following the succession of the Servicer to
the responsibilities of Subservicer under Section 7.9(a):
(a) The Subservicer agrees that it will terminate its
activities as Subservicer hereunder, except its collection
functions in respect of Medicaid, Medicare, CHAMPUS and CHAMPVA
Receivables, in a manner acceptable to the Servicer so as to
facilitate the transfer of servicing to the Servicer including,
without limitation, timely delivery (i) to the Servicer of any
funds that were required to be remitted to the Servicer for deposit
in the Collection Account, and (ii) to the Servicer, at a place
selected by the Servicer, of all information, documents and records
(including original copies of documents), to the extent required by
the Servicer to perform its duties under the Agreement (including
such records stored electronically on computer tapes, magnetic
discs and the like as may be reasonably requested by the Servicer).
The Subservicer shall account for all funds and shall execute and
deliver such instruments and do such other things as may reasonably
be required to more fully and definitely vest and confirm in the
Servicer all rights, powers, duties, responsibilities, obligations
and liabilities of the Subservicer.
(b) The Subservicer shall terminate each Additional
Subservicing Agreement that may have been entered into and the
Servicer shall not be deemed to have assumed any of the
Subservicer's interest therein or to have replaced the Subservicer
as a party to any such Additional Subservicing Agreement.
(c) Notwithstanding any termination of the Seller as
Subservicer hereunder, the Seller agrees that it will continue to
follow the procedures set forth in Section 7.3(b)(iii) with respect
to Collections on Purchased Receivables.
Section 7.11 Effect of Termination or Resignation.
Any termination or resignation of the Subservicer under
this Agreement shall not affect any claims that the Purchaser or
the Servicer may have against the Subservicer for events or actions
taken or not taken by the Subservicer arising prior to any such
termination or resignation.
ARTICLE VIII
EVENTS OF SELLER DEFAULT
Section 8.1 Events of Seller Default.
If any of the following events (each, an 'Event of Seller
Default') shall occur and be continuing:
(a) The Seller (either as Seller or Subservicer) shall
materially fail to perform or observe any term, covenant or
agreement contained in this Agreement;
(b) A default shall have occurred and be continuing
under any instrument or agreement evidencing, securing or providing
for the issuance of Debt of the Seller in excess of $250,000;
(c) The Seller shall generally not pay any of its
respective Debts as such Debts become due, or shall admit in
writing its inability to pay its Debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding
shall be instituted by or against (and not dismissed within 60 days
to the extent instituted against the Seller seeking to adjudicate
it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or
composition of it or any of its Debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a
receiver, trustee, custodian or other similar official for it or
for any substantial part of its property, or any of the actions
sought in such proceeding (including, without limitation, the entry
of an order for relief against, or the appointment of a receiver,
trustee, custodian or other similar official for, it or for any
substantial part of its property) shall occur; or the Seller shall
take any corporate action to authorize any of the actions set forth
in this subsection;
(d) Except as set forth on Schedule 4 attached hereto,
judgments or orders for the payment of money (other than such
judgments or orders in respect of which adequate insurance is
maintained for the payment thereof) in excess of $100,000 in the
aggregate against the Seller, its consolidated Subsidiaries and any
of its Affiliates shall remain unpaid, unstayed on appeal,
undischarged, unbonded or undismissed for a period of 30 days or
more;
(e) There is a material breach of any of the
representations and warranties set forth in Sections 4.1 or 4.2
that has remained uncured for a period of 30 days;
(f) Any Governmental Authority (including the Internal
Revenue Service or the Pension Benefit Guaranty Corporation) shall
file notice of a lien with regard to any of the assets of the
Seller or with regard to the Seller other than a lien that does not
materially adversely affect the financial condition of the Seller
or the Seller's ability to perform as Subservicer and that (1) is
limited by its terms to assets other than Receivables or (2)
remains undischarged for a period of 30 days;
(g) As of the first day of any month, the aggregate Net
Value of Purchased Receivables which became Defaulted Receivables
or Rejected Receivables (other than those with respect to which a
withdrawal has previously been made from the Offset Reserve
Account) during the prior three-month period shall exceed 8% of the
average aggregate Net Values of all Purchased Receivables then
owned by the Purchaser (other than Defaulted Receivables) at the
end of each of such three months;
(h) The Servicer shall have reasonably determined that
any event which materially adversely affects the collectibility of
the Receivables has occurred, or that any other event which
materially adversely affects the financial condition of the Seller,
the ability of the Seller to collect Purchased Receivables in its
capacity as Subservicer or the ability of the Seller (either as
Seller or Subservicer) to perform hereunder has occurred;
(i) A deterioration has taken place in the quality of
servicing of Purchased Receivables or other Receivables serviced by
the Seller (in its capacity as Subservicer) which the Servicer, in
its sole discretion, determines to be material;
(j) This Agreement shall for any reason cease to
evidence the transfer to the Purchaser (or its assignees or
transferees) of the legal and equitable title to, and ownership of,
the Purchased Receivables;
(k) The Lockbox Account Agreement shall have been
amended or terminated without the written consent of the Purchaser
and the Servicer;
(l) The amount deposited hereunder (net of withdrawals
required hereunder) in the Seller Credit Reserve Account has
remained at less than the Specified Credit Reserve Balance for
fourteen consecutive days;
(m) The amount deposited hereunder (net of withdrawals
required hereunder) in the Offset Reserve Account has remained at
less than the Specified Offset Reserve Balance for fourteen
consecutive days;
(n) The Seller shall fail to fully or completely comply
with the reporting requirements set forth in Section 5.2 of this
Agreement;
(o) The Seller shall at any time fail to fully or
completely comply with the terms and provisions of the Medicare
Provider Agreement;
(p) The consolidated net profit (loss) before taxes for
the Seller and its consolidated Subsidiaries for the fiscal year
ending February 29, 2000 is less than $(14,500,000);
(q) The consolidated net profit (loss) before taxes for
the Seller and its consolidated Subsidiaries for the fiscal year
ending February 28, 2001 is less than ($3,000,000);
(r) The trade payables of the Seller and its
consolidated Subsidiaries are aged on average more than 71.5 days;
or
(s) A Principal Amortization Event shall have been
declared;
then and in any such event, the Servicer shall, by notice to the
Seller and the Purchaser declare that an Event of Seller Default
shall have occurred and, the Termination Date shall forthwith
occur, without demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Seller and the
Purchaser shall make no further Purchases from the Seller. Upon
any such declaration or automatic occurrence, the Purchaser and the
Servicer shall have, in addition to all other rights and remedies
under this Agreement, all other rights and remedies provided under
the UCC and other applicable law, which rights shall be cumulative
provided, that, if an event of the kind described in 8.1(c) occurs
with regard to the Seller, an Event of Seller Default shall be
deemed to have occurred automatically.
ARTICLE IX
INDEMNIFICATION
Section 9.1 Indemnities by the Seller.
(a) Without limiting any other rights that the
Purchaser, the Servicer, or any director, officer, employee or
agent of either such party (each an 'Indemnified Party') may have
hereunder or under applicable law, the Seller hereby agrees to
indemnify each Indemnified Party from and against any and all
claims, losses, liabilities, obligations, damages, penalties,
actions, judgments, suits, and related costs and expenses of any
nature whatsoever, including reasonable attorneys' fees and
disbursements (all of the foregoing being collectively referred to
as 'Indemnified Amounts') which may be imposed on, incurred by or
asserted against an Indemnified Party in any way arising out of or
relating to any breach of the Seller's representations warranties,
covenants or obligations under this Agreement (except with respect
to the Purchaser's remedies set forth in Section 4.3 hereof) or
Related Documents or the ownership of the Purchased Receivables or
in respect of any Receivable or any Contract, excluding, however,
(i) Indemnified Amounts to the extent resulting from gross
negligence or willful misconduct on the part of such Indemnified
Party or (ii) recourse for unpaid Purchased Receivables. Without
limiting or being limited by the foregoing, the Seller shall pay on
demand to each Indemnified Party any and all amounts necessary to
indemnify such Indemnified Party from and against any and all
Indemnified Amounts relating to or resulting from:
(A) reliance on any representation or warranty made or
deemed made by the Seller (or any of its officers) under or in
connection with this Agreement (except with respect to a
Purchased Receivable, as to which the Purchaser's remedies are
set forth in Section 4.3), any report or any other information
delivered by the Seller pursuant hereto, which shall have been
incorrect in any material respect when made or deemed made or
delivered;
(B) the failure by the Seller to comply with any term,
provision or covenant contained in this Agreement, or any
agreement executed by it in connection with this Agreement or
with any applicable law, rule or regulation with respect to
any Purchased Receivable, the related Contract, or the
nonconformity of any Purchased Receivable or the related
Contract with any such applicable law, rule or regulation; or
(C) the failure to vest and maintain vested in the
Purchaser, or to transfer to the Purchaser, legal and
equitable title to and ownership of the Receivables which are,
or are purported to be, Purchased Receivables, together with
all Collections in respect thereof, free and clear of any
Adverse Claim (except as permitted hereunder) whether existing
at the time of the Purchase of such Receivable or at any time
thereafter.
(b) Any Indemnified Amounts subject to the
indemnification provisions of this Section shall be paid to the
Indemnified Party within five Business Days following demand
therefor, together with interest at the lesser of 12% per annum or
the highest rate permitted by law from the date such Indemnified
Amount is paid by the Indemnified Party.
Section 9.2 Security Interest.
The Seller hereby grants to the Purchaser a first
priority perfected security interest in the Seller's right, title
and interest, whether now owned and existing or hereafter acquired
or arising, in, to and under all of the Seller's Receivables not
sold to the Purchaser hereunder, other than Self-Pay Receivables,
including all rights to payments under any related Contracts or
other agreements with related Payors; the Collections with respect
to the foregoing; the Records with respect to the foregoing;
contract rights, instruments, documents, chattel paper, and general
intangibles (including, without limitation, choses in action, tax
refunds and insurance proceeds) with respect to the foregoing; any
other obligations or rights of the Seller to receive any payments
in money or kind with respect to the foregoing; all guarantees of
the foregoing and security therefor; all of the right, title and
interest of the Seller in and with respect to the goods, services
or other property which gave rise to or which secure any of the
foregoing; insurance policies and proceeds relating thereto; all of
the rights of the Seller as an unpaid seller of goods or services,
including, without limitation, the rights of stoppage in transit,
replevin, reclamation and resale; and all cash or non-cash proceeds
of all of the foregoing, as security for the timely payment and
performance of any and all obligations the Seller or the
Subservicer may owe the Purchaser under Sections 2.2, 2.3, 4.3,
5.1(f), 6.4, 9.1(a) and (b), and 10.4, but excluding recourse for
unpaid Purchased Receivables. This Section 9.2 shall constitute a
security agreement under the UCC and any other applicable law and
the Purchaser shall have the rights and remedies of a secured party
thereunder. Such security interest shall be further evidenced by
Seller's execution of appropriate UCC-1 financing statements
prepared by and acceptable to the Purchaser, and such other further
assurances that may be reasonably requested by the Purchaser from
time to time.
(b) The Seller hereby grants to the Purchaser a first
priority perfected security interest in the Seller's right, title
and interest, whether now owned and existing or hereafter acquired
or arising, in, to and under all of the Seller's Self-Pay
Receivables, to the extent not otherwise consented to in writing by
the Purchaser, including all rights to payments under any related
Contracts or other agreements with related Payors; the Collections
with respect to the foregoing; the Records with respect to the
foregoing; contract rights, instruments, documents, chattel paper,
and general intangibles (including, without limitation, choses in
action, tax refunds and insurance proceeds) with respect to the
foregoing; any other obligations or rights of the Seller to receive
any payments in money or kind with respect to the foregoing; all
guarantees of the foregoing and security therefor; all of the
right, title and interest of the Seller in and with respect to the
goods, services or other property which gave rise to or which
secure any of the foregoing; insurance policies and proceeds
relating thereto; all of the rights of the Seller as an unpaid
seller of goods or services, including, without limitation, the
rights of stoppage in transit, replevin, reclamation and resale;
and all cash or non-cash proceeds of all of the foregoing, as
security for the timely payment and performance of any and all
obligations the Seller or the Subservicer may owe the Purchaser
under Sections 2.2, 2.3, 4.3, 5.1(f), 6.4, 9.1(a) and (b), and
10.4, but excluding recourse for unpaid Purchased Receivables.
This Section 9.2 shall constitute a security agreement under the
UCC and any other applicable law and the Purchaser shall have the
rights and remedies of a secured party thereunder. Such security
interest shall be further evidenced by Seller's execution of
appropriate UCC-1 financing statements prepared by and acceptable
to the Purchaser, and such other further assurances that may be
reasonably requested by the Purchaser from time to time.
ARTICLE X
MISCELLANEOUS
Section 10.1 Notices, Etc.
All notices and other communications provided for
hereunder shall, unless otherwise stated herein, shall be in
writing and mailed or telecommunicated, or delivered as to each
party hereto, at its address set forth under its name on the
signature pages hereof or at such other address as shall be
designated by such party in a written notice to the other parties
hereto. All such notices and communications shall not be effective
until received by the party to whom such notice or communication is
addressed.
Section 10.2 Remedies.
No failure on the part of the Purchaser or the Servicer
to exercise, and no delay in exercising, any right hereunder or
under any Purchase Assignment shall operate as a waiver thereof;
nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of
any other right. The remedies herein provided are cumulative and
not exclusive of any remedies provided by law.
Section 10.3 Binding Effect; Assignability.
This Agreement shall be binding upon and inure to the
benefit of the Seller, the Subservicer, the Purchaser, the Servicer
and their respective successors and permitted assigns. Neither the
Seller nor the Subservicer may assign any of their rights and
obligations hereunder or any interest herein without the prior
written consent of the Purchaser and the Servicer. The Purchaser
may, at any time, without the consent of the Seller or the
Subservicer, assign any of its rights and obligations hereunder or
interest herein to any Person. Any such assignee may further
assign at any time its rights and obligations hereunder or
interests herein without the consent of the Seller or the
Subservicer. Without limiting the generality of the foregoing, the
Seller acknowledges that the Purchaser has assigned its rights
hereunder to the Trustee for the benefit of third parties. This
Agreement shall create and constitute the continuing obligations of
the parties hereto in accordance with its terms, and shall remain
in full force and effect until its termination, provided, that the
rights and remedies with respect to any breach of any
representation and warranty made by the Seller or the Servicer
pursuant to Article IV and the indemnification and payment
provisions of Article IX shall be continuing and shall survive any
termination of this Agreement.
Section 10.4 Costs, Expenses and Taxes.
(a) In addition to the rights of indemnification under
Article IX, the Seller agrees to pay upon demand, all reasonable
costs and expenses in connection with the administration (including
periodic auditing, modification and amendment) of this Agreement,
and the other documents to be delivered hereunder, including
without limitation: (i) the reasonable fees and out-of-pocket
expenses of counsel for the Purchaser or the Servicer with respect
to (A) advising the Purchaser as to its rights and remedies under
this Agreement or (B) the enforcement (whether through
negotiations, legal proceedings or otherwise) of this Agreement,
the Purchase Assignment or the other documents to be delivered
hereunder; and (ii) any and all stamp, sales, excise and other
taxes and fees payable or determined to be payable in connection
with the execution, delivery, filing or recording of this
Agreement, each Purchase Assignment or the other agreements and
documents to be delivered hereunder, and agrees to indemnify and
save each Indemnified Party from and against any and all
liabilities with respect to or resulting from any delay in paying
or omission to pay such taxes and fees.
(b) If the Seller or the Subservicer fails to pay any
Lockbox Agreement fees or to pay or perform any agreement or
obligation contained herein, the Purchaser may, or may direct to
the Servicer to, (but shall not be required to) itself pay or
perform, or cause payment or performance of, such agreement or
obligation, and the expenses of the Purchaser or the Servicer
incurred in connection therewith shall be payable by the party
which has failed to so perform upon the Purchaser's or the
Servicer's demand therefor.
Section 10.5 No Proceedings.
The Seller and the Subservicer each hereby agree that it
will not, directly or indirectly, institute, or cause to be
instituted, against the Purchaser any proceeding of the type
referred to in Section 8.1(c) so long as there shall not have
elapsed one year plus one day since the latest maturing note issued
by the Purchaser has been paid in full in cash.
Section 10.6 Amendments; Waivers; Consents.
No modification, amendment or waiver of, or with respect
to, any provision of this Agreement, and all other agreements,
instruments and documents delivered pursuant hereto or thereto, nor
consent to any departure by the Seller or the Subservicer from any
of the terms or conditions thereof, shall be effective unless it
shall be in writing and signed by each of the parties hereto. Any
waiver or consent shall be effective only in the specific instance
and for the purpose for which given. No consent to or demand on
the Seller or the Subservicer in any case shall, in itself, entitle
it to any other consent or further notice or demand in similar or
other circumstances. This Agreement, the Related Documents and the
documents referred to therein embody the entire agreement among the
Seller, the Subservicer, the Purchaser and the Servicer, and
supersede all prior agreements and understandings relating to the
subject hereof, whether written or oral.
Section 10.7 GOVERNING LAW; CONSENT TO JURISDICTION;
WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF
LAWS PROVISIONS) OF THE STATE OF OHIO, EXCEPT TO THE EXTENT THAT
THE VALIDITY OR PERFECTION OF THE INTERESTS OF THE PURCHASER IN THE
PURCHASED RECEIVABLES OR REMEDIES HEREUNDER OR THEREUNDER, IN
RESPECT THEREOF, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF OHIO.
(b) THE SELLER AND THE SUBSERVICER HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF OHIO AND THE
UNITED STATES DISTRICT COURT LOCATED IN THE SOUTHERN DISTRICT OF
OHIO, AND EACH WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON
IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY
REGISTERED MAIL DIRECTED TO THE ADDRESS SET FORTH ON THE SIGNATURE
PAGE HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED
FIVE DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S.
MAILS, POSTAGE PREPAID. THE SELLER, AND THE SUBSERVICER EACH
HEREBY WAIVE ANY OBJECTION BASED ON FORUM NON CONVENIENS, AND ANY
OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND CONSENTS
TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION SHALL AFFECT THE
RIGHT OF THE PURCHASER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR AFFECT THE RIGHT OF THE PURCHASER TO BRING ANY
ACTION OR PROCEEDING AGAINST THE SELLER OR ITS PROPERTY, OR THE
SUBSERVICER OR ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION. THE SELLER AND THE SUBSERVICER EACH HEREBY AGREE
THAT THE EXCLUSIVE AND APPROPRIATE FORUMS FOR ANY DISPUTE HEREUNDER
ARE THE COURTS OF THE STATE OF OHIO AND THE UNITED STATES DISTRICT
COURT LOCATED IN THE SOUTHERN DISTRICT OF OHIO AND AGREE NOT TO
INSTITUTE ANY ACTION IN ANY OTHER FORUM.
(c) THE SELLER, AND THE SUBSERVICER EACH HEREBY WAIVES
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE,
WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR IN CONNECTION WITH THIS AGREEMENT.
INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH
TRIAL WITHOUT A JURY.
Section 10.8 Execution in Counterparts; Severability.
This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be
an original and all of which when taken together shall constitute
one and the same agreement. In case any provision in or obligation
under this Agreement shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality and enforceability of the
remaining provisions or obligations, or of such provision or
obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
[INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
TENDER LOVING CARE HEALTH CARE
SERVICES, INC., as Seller and as
Subservicer
By: /s/ Dale R. Clift
Name: Dale R. Clift
Title: President
Address at which the chief executive
office is located:
Address: 1983 Marcus Avenue
Lake Success, NY 11042
Attention: Dale R. Clift
Phone number: 516-358-1000
Telecopier number: 516-327-8636
Additional names under which Seller
does business:
Additional locations at which Seller
does business and maintains Records:
NPF XII, INC.
By: /s/ Donald H. Ayers
Name: Donald H. Ayers
Title: Vice President
Address: 6125 Memorial Drive
Dublin, OH 43017
Attention: Donald H. Ayers
Phone number: (614) 764-9944
Telecopier number: (614) 764-0602
NATIONAL PREMIER FINANCIAL
SERVICES, INC.
By: /s/ Donald H. Ayers
Name: Donald H. Ayers
Title: Vice President
Address: 6125 Memorial Drive
Dublin, OH 43017
Attention: Lance K. Poulsen
Phone number: (614) 764-9944
Telecopier number:(614) 764-0602
EXHIBIT
10.2
<PAGE>
GUARANTY
Agreement of Guaranty made as of this 21st day
of December, 1999, by the undersigned hereof (the
"Guarantor"), to MATTERHORN USA, INC., having an address
at c/o BDG Management, Inc., 6800 Jericho Turnpike,
Syosset, New York (hereinafter together with the
successors and assigns "Landlord");
WITNESSETH:
WHEREAS, by that certain First Amendment to Lease between
Landlord and STAFF BUILDERS, INC. ("Tenant"), dated October
28,1998, which amendment consolidated and modified certain leases
previously entered into between Landlord's predecessor in interest,
Triad III Associates, as landlord and Tenant (hereinafter
collectively referred to as the "Lease"), Landlord leased to Tenant
premises comprising a portion of the building known as 1983 Marcus
Avenue, Lake Success, New York and which premises is defined in the
Lease as the "Demised Premises"; and
WHEREAS, Guarantor is the parent company of Tenant and
Guarantor desires to execute and deliver this Guaranty to Landlord;
and
NOW, THEREFORE, in consideration of the premises,
Guarantor hereby unconditionally covenants and agrees to and with
Landlord as follows:
(1) Guarantor hereby unconditionally jointly and
severally guarantees the full payment, performance and observance
of all of the covenants, conditions and agreements to be paid,
performed and observed under the Lease.
(2) Guarantor hereby agrees that its liability hereunder
shall be unaffected by (i) any agreement or modification of the
provisions of the Lease or any other instrument made to or with the
Landlord by the Tenant or any person who succeeds the Tenant, (ii)
any extension of time for performance required thereby, (iii) any
assignment of the Lease (unless Tenant is expressly released from
all of its obligations under the Lease) or sublet of the Demised
Premises hereunder, (iv) exculpatory provisions, if any, in any of
said instruments, (v) the release of the Tenant (unless Tenant is
expressly released from all of its obligations under the Lease),
the Guarantor or any other person or entity from performance or
observance of any of the agreements, terms or conditions contained
in any said instruments by operation of law, whether made with or
without notice to the Guarantor, or (vi) any bankruptcy,
insolvency, reorganization, arrangement, assignment for the benefit
of creditors, receivership or trusteeship affecting the Tenant, the
Demised Premises, and/or the Guarantor or any of its respective
successors or assigns whether or not any notice thereof is given to
the Guarantor.
(3) Guarantor hereby waives any and all legal
requirements that Landlord shall institute any action or
proceedings at law or in equity against Tenant, or anyone else, in
respect of the Lease, or in respect of any other security held by
Landlord, as a condition precedent to bringing an action against
the Guarantor upon this Guarantee. All remedies afforded to
Landlord by reason of this Guarantee are separate and cumulative
remedies and it is agreed that no one of such remedies, whether
exercised by Landlord or not, shall be deemed to be an exclusion of
any of the other remedies available to Landlord and shall not limit
or prejudice any other legal or equitable remedy which Landlord may
have.
(4) It is understood and agreed that the Guarantor shall
not be released by any act or thing which might, but for this
provision of this instrument, be deemed a legal or equitable
discharge of a surety or a guarantor, or by reason of any waiver,
extension, modification, forbearance or delay or other act or
omission of Landlord or its failure to proceed promptly or
otherwise, or by reason of any action taken or omitted or
circumstance which may or might vary the risk or affect the rights
or remedies of Guarantor or any of them or by reason of any further
dealings between Tenant and Landlord, whether relating to the Lease
or otherwise, and the Guarantor hereby expressly waives and
surrenders any defense o its liability hereunder based upon any of
the foregoing acts, omissions, things, agreements, waivers or any
of them and hereby expressly waives and relinquishes all other
rights and remedies accorded by applicable law to guarantors and
sureties; it being the purpose and intent of the parties hereto
that the obligations of Guarantor hereunder are absolute and
unconditional under any and all circumstances.
(5) Guarantor hereby waives notice of acceptance of this
Guarantee by Landlord and of presentment for payment, demand, protest,
notice of protest and of dishonor, notices of default and all other
notices of every kind and description now or hereafter provided by any
statute or rule of law.
(6) Guarantor waives any claim (as such term is defined
in the United States Bankruptcy Code, as amended from time to time)
it has or may have against Tenant, including, but not limited to,
the right to receive any bankruptcy or other distribution to which
Guarantor may be entitled by reason of having executed and
performed under this Guaranty, and Guarantor waives any legal or
equitable right to indemnification, contribution or reimbursement,
or any other contingent claim, arising out of or in connection with
the Lease or this Guaranty.
(7) Any notice, demand or request by Landlord to
Guarantor shall be made in writing and shall be deemed to have been
duly given or made if mailed by certified or registered mail
addressed to the Guarantor at its respective address set forth at
the foot hereof
(8) This Guaranty is, and shall be deemed to be, a
contract entered into under and pursuant to the laws of the State
of New York and shall be in all respects governed, construed,
applied and enforced in accordance with the laws of said State; and
no defense given or allowed by the laws of any other State or
Country shall be interposed in any action or proceeding hereon
unless such defense is also given or allowed by the laws of the
State of New York. The undersigned agrees to submit to personal
jurisdiction in the State of New York in any action or proceeding
arising out of this Guaranty.
(9) The Guarantor hereby represents and warrants that:
(a) The most recent financial statement of the
Guarantor, copies of which statements have been furnished to the
Landlord, fairly present the financial condition of the Guarantor
as of such dates in accordance with generally accepted accounting
principles applied on a consistent basis, and since the date of
each of such financial statements, there has been no material
adverse change in such condition or operations.
(b) There are no actions, suits or proceedings
pending, or to the knowledge of the Guarantor, threatened against
or affecting the Guarantor or the properties of the Guarantor
before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which, if
determined adversely to the Guarantor, would have a material
adverse effect on the financial condition, properties or operations
of the Guarantor.
(c) The Guarantor is not a party to any indenture,
loan or credit agreement or any lease or other agreement or
instrument or subject to any charter or other restriction which
would have a material adverse effect on the ability of the
Guarantor to carry out its obligation under this Guaranty.
(d) No information, exhibit or report furnished by
the Guarantor to the Landlord in connection with the negotiation of
this Guaranty contained as of the date thereof, or, if there be no
such date, the date of furnishing thereof, any material
misstatement of fact or omitted to state a material fact or any
fact necessary to make the statements contained therein not
misleading.
(10) The Guarantor hereby agrees to indemnify the
Landlord against loss, cost or expense caused by the assertion by
the Tenant of any unsuccessful defense to its obligations under the
Lease or the assertion by the Guarantor of any unsuccessful defense
to the obligations of the Guarantor under this Guarantee.
(11) The Guarantor hereby agrees that should
Landlord be obligated by any bankruptcy or other law to repay to
the Guarantor, or to any trustee, receiver or other representative
of it, any amounts previously paid in respect of and/or pursuant to
this Guaranty, then this Guaranty shall be reinstated to include
the amount of such repayment. Landlord shall not be required to
litigate or otherwise dispute Guarantor's obligation to make such
repayments if it, in good faith and on the written advice of
counsel, believes that such obligation exists.
(12) If any action, suit or proceeding which either
directly or indirectly involves this Guaranty is commenced, the
Guarantor waives its right to any jury trial in connection
therewith.
(13) This Guaranty is separate, distinct and in
addition to any liability and/or obligations that the Guarantor may
have under any other guaranty or any other agreement executed by
the Guarantor in connection with the Lease and no other agreement
or guaranty executed in connection with the Lease shall act to
reduce or set-off the Guarantor's liability hereunder.
(14) If any of the provisions of this Guaranty, or
the application thereof to any person or circumstances, shall, to
any extent, be invalid or unenforceable, the remainder of the
Guaranty, or the application of such provision or provisions to
persons or circumstances other than those as to whom or which it is
held invalid or unenforceable, shall not be affected thereby, and
every provision of this Guaranty shall be valid and enforceable to
the fullest extent permitted by law.
This Guaranty shall be binding upon the respective heirs, legal
representatives, successors and assigns of the Guarantor and
shall inure to the benefit of the Landlord and its successors and
assigns.
IN WITNESS WHEREOF, Guarantor has duly executed this
Guaranty as of the day and year first above written.
TENDER LOVING CARE HEALTH CARE
SERVICES, INC., a Delaware corporation
By: /s/ Dale R. Clift
Name: Dale R. Clift
Title: President
