<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required] For the fiscal year ended December 31, 1993
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required] For the transition period from
______ to ______
Commission file number 1-9310
CARE ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-3311961
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2742 Dow Avenue, Tustin, California 92680-7245
(Address of principal executive offices) (Zip Code)
(714) 544-4443
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of each class
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes _X_ No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes _X_ No ___
The aggregate market value of voting stock held by nonaffiliates of Registrant
was $88,627,238 as of March 22, 1994.
Number of shares outstanding as of March 22, 1994: Common Stock: 13,243,168
Documents Incorporated By Reference: None.
<PAGE>
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TABLE OF CONTENTS
PART 1 PAGE
Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Results of Votes of Security Holders 10
PART II
Item 5. Market for The Registrant's Common Stock and
Related Matters 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 8. Financial Statements and Supplementary Data 17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 40
PART III
Item 10. Directors and Executive Officers of Registrant 40
Item 11. Executive Compensation 42
Item 12. Security Ownership of Certain Beneficial
Owners and Management 45
Item 13. Certain Relationships and Related Transactions 46
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 48
Signatures 49
Index to Exhibits 51
Schedules 55
Exhibits 59
2
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ITEM 1. BUSINESS
General
- -------
As of February 28, 1994, Care Enterprises, Inc. ("Care" or "the Company")
operated and managed 52 nursing and rehabilitation, developmentally disabled
and retirement centers in California, Ohio, West Virginia and New Mexico, and
home health agencies at 14 locations in California and Ohio. The nursing and
rehabilitation centers provide skilled nursing, subacute, custodial care and
rehabilitative services to patients that do not require acute care
hospitalization and the home health operations provide skilled nursing care,
rehabilitative and homemaker services to patients outside the institutional
setting. Care also has a 26% interest in a pharmacy partnership which
provides products and services to California nursing and other institutional
facilities, including nursing facilities operated by Care.
Recent Development
- ------------------
In December, 1993, Care entered into an Agreement and Plan of Merger with
Regency Health Services, Inc. ("Regency"), a Delaware corporation,
substantially all of whose business operations are conducted in California,
pursuant to which Care would merge with a newly-formed, wholly-owned
subsidiary of Regency, and shareholders of Care would receive 0.71 shares of
Regency common stock for each share of Care. A Special Shareholders Meeting
to vote on the merger is scheduled for April 4, 1994 at 11:00 A.M. at the
Sheraton Hotel, Newport Beach, California. Definitive proxy information
concerning the meeting was mailed to all shareholders of record as of the
close of business on March 3, 1994, the record date fixed by Care's Board of
Directors. In connection with the execution of the Agreement and Plan of
Merger, holders of a majority of Care's outstanding shares agreed with Regency
to vote in favor of the proposed merger. Under Delaware law, the affirmative
vote of a majority of the outstanding shares is required to approve the
merger. No dissenters' rights are available to shareholders of Care in
connection with the merger. Care's Board of Directors has recommended that
shareholders vote to approve the merger.
Recent History
- --------------
In 1992 Care initiated a long range strategic business plan under which Care
undertakes to provide a continuum of quality care through delivery of
specialized medical services from inpatient to in home settings. Care
believes there is an inherent synergy that exists between its home health
agencies and nursing and rehabilitation centers. By taking advantage of that
unique continuum within one company, Care offers an attractive product to the
market, particularly in the managed care arena. It currently has ten
specialized clinical units in various stages of development at its nursing and
rehabilitation centers. These units include ventilator and other complex
medical care such as IV therapies, complex infections, pulmonary care,
diabetic management, chemotherapy, treatment of AIDS patients and wound care.
Care has increased its focus on physical, speech and occupational
rehabilitative therapies, which continue to be a strong source of revenue,
growing approximately from $26,600,000 in 1991 to $30,900,000 in 1992 and
$34,800,000 in 1993. Care now has 16 outpatient therapy units licensed.
Revenue from Care's high acuity specialized clinical programs was
approximately 27% of total revenue in 1992 and approximately 32% for 1993.
3
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Care's home health operations have been extensively involved in program
development. New services such as neonatal care, prenatal care and gero-
psychiatric care and expanded infusion therapy services, ventilator care and
care to AIDS patients were highlights in 1993.
Continued development of a wide base of high acuity services and an integrated
approach to the market with its nursing and rehabilitation and home care
services make clear Care's direction for the future.
Long-term Care Operations
- -------------------------
Care's nursing and rehabilitation centers provide nursing care and
rehabilitative services to persons who do not require the services of an acute
care hospital. Each facility is operated by a licensed administrator and a
director of nursing services, who are assisted on a part-time contract basis
by a physician who acts as a medical director. The services provided at
Care's nursing and rehabilitation centers include 24-hour nursing care by
registered nurses and licensed practical nurses, room, board, housekeeping and
laundry services, dietary planning, the provision of medical supplies and
prescription drugs, and the provision for rehabilitative and other ancillary
services including speech, occupational, physical and respiratory therapies
and contract laboratory and x-ray services.
In support of the health care operations, Care maintains executive and
regional administrative centers which provide supervisory, administrative and
consulting services. Each regional office is staffed by a regional
administrator and support personnel specializing in nursing care,
rehabilitation and dietary programs, medical bookkeeping and maintenance.
Care's executive offices provide centralized management and support services
including operations support, marketing, planning and development, human
resources, accounting, reimbursement and financial services, cash management,
data processing, legal support, risk management, quality control, centralized
purchasing, education, training and consulting support services in the area of
rehabilitative care.
Care's profitability and cash flows are affected by many factors, including
(i) the licensed bed capacity of its nursing facilities; (ii) the extent to
which that bed capacity is occupied; (iii) the extent of rehabilitative and
other ancillary services provided by Care at its skilled nursing facilities;
(iv) the mix of private, Medicare and Medicaid patients; (v) the mix and
volume of services provided by Care's home health agencies; (vi) the cost
reimbursement rates paid by Medicare and Medicaid (see "Health Care
Reimbursement Programs"); and (vii) labor and employee benefits and facility
maintenance expense.
Care, as well as many of its competitors, is affected by many factors that are
indigenous to the long-term care industry, including (i) medical reimbursement
levels, (ii) increased regulatory control and scrutiny as a result of the
implementation of the Omnibus Budget Reconciliation Act of 1987 ("OBRA"); and
(iii) alternatives to the institutional long-term care setting, (i.e., home
health agencies, residential care facilities and acute hospital based nursing
facility distinct parts). These alternatives have increased competition for
employees resulting in an escalation in wages, and have also impacted
competition for patient census. Facilities are now accepting patients with
greater medical needs in order to maximize census and revenue. Care's
specialized clinical units are designed to meet the needs of these high acuity
patients and further enhance ancillary and routine revenues.
4
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The table below shows the number of Care's nursing and rehabilitation centers
and licensed beds at year end, average occupancy rates and annual revenues by
source during each of the last five years.
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------------
1993(1) 1992(1) 1991 1990 1989
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Number of facilities 50 50 51 52 86
Number of licensed beds 4,792 4,792 5,097 5,252 8,622
Average annual occupancy rate 93.0% 93.3% 92.6% 92.3% 91.8%
Nursing facility revenue by
payor source:
Medicaid 53% 56% 57% 58% 49%
Medicare 29 24 23 20 26
Private 15 16 17 20 20
Managed Care and Other 3 4 3 2 5
------ ------ ------ ------ ------
100% 100% 100% 100% 100%
====== ====== ====== ====== ======
</TABLE>
(1) Data excludes a 248 bed facility which is being managed by Care under a
management agreement.
Home Health Operations
- ----------------------
Care Home Health Services, Inc., a wholly-owned subsidiary of Care, has
provided home care services throughout California and Southern Ohio since 1983
and has grown steadily in revenue and visits in every year since its founding.
Through two divisions, Care Home Health and Care At Home, patients at home
receive technical medical support such as infusion and ventilator care and
respite services such as assistance with personal hygiene, cooking and
cleaning.
Home Health management resides in free-standing offices from where clinical
staff is dispatched. One additional office was opened in 1993 for a total of
14 locations as of December 31, 1993. The 1993 revenue mix was approximately
70% Medicare, 17% private, 11% Medicaid and 2% managed care. Home health
revenues increased approximately 39% from $14,700,000 in 1992 to $20,500,000
in 1993.
The home care industry has experienced growth in the last decade due to the
benefits to patients, physicians, hospitals and payors. Patients enjoy the
increased comfort of home and the control of the schedule of nursing visits
and therapies. They welcome earlier discharge from hospitals and
significantly lower costs than hospitalization. Physicians use home care
because it helps minimize distress calls to the doctor and provides ongoing
communication regarding the patients' progress. Hospitals refer patients to
home care to decrease lengths of stay, thereby reducing costs for services
that are reimbursed to them by diagnosis versus time in the hospital. Payors
support home care for cost savings and for the reduction in re-
hospitalizations achieved by home care nurses recognizing clinical problems
earlier and preventing misunderstandings on therapies.
5
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Internal factors supporting continued growth of Care Home Health Services,
Inc. include the steady referral base from Care facilities and the market
appeal of a company that provides a continuum of care from inpatient to
outpatient rehabilitation to home care. Care Home Health Services, Inc. is
well positioned due to its established longevity in this relatively adolescent
industry.
Care Home Health Services, Inc. is state licensed in California (not required
in Ohio), Medicare and Medicaid certified in California and Ohio and
accredited in California and Ohio by the independent Joint Commission on the
Accreditation of Healthcare Organizations ("JCAHO").
Care Combined Operations
- ------------------------
The table below sets forth the approximate percentage of Care's revenues
from each of the following sources:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Nursing and Rehabilitation 90% 91% 88% 89% 92%
Home Health 10 8 6 4 3
Pharmacy (through 3/31/92) -- 1 6 7 5
---- ---- ---- ---- ----
Total Company revenue 100% 100% 100% 100% 100%
==== ==== ==== ==== ====
</TABLE>
Health Care Reimbursement Programs
- ---------------------------------
All but one of the nursing facilities and all of the home health agencies
operated by Care are certified for participation in Medicare and all of the
facilities and home health agencies operated by Care are Medicaid certified.
Payments under the Medicare program received by Care are currently sufficient
to cover all of the operating and fixed costs allocable to Medicare patients.
Payments received by Care under Medicaid programs currently cover a
substantial portion, but not all, of the operating and fixed costs of
furnishing services to Medicaid patients. There is no assurance that payments
under these programs will remain at levels comparable to present levels or
will, in the future, be sufficient to cover the operating and fixed costs
allocable to patients participating in such programs.
Care has made a strategic commitment and has pledged resources to provide
managed care organization members with services ranging from subacute care to
home health care. The scope of care which Care offers along with the talents
of new staff sets Care apart from its competitors in the market. Contracts
have been negotiated with managed care organizations, such as health
maintenance organizations ("HMO's"), preferred provider organizations
("PPO's") and independent provider associations ("IPA's"), including major
medical groups, for care to their members. Numerous contracts have also been
entered into with hospice providers and with the Veterans Administration for
care to eligible veterans.
6
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The last audit of Care with respect to Medicare and Medicaid payments was for
the year ended December 31, 1991. Care believes that its reserves for
potential adjustments related to fiscal years 1992 and 1993 are adequate and
that any future adjustments proposed by these agencies will not have a
material effect on the consolidated financial position or liquidity of Care.
Managed care is playing a larger role in the industry, with HMO's, PPO's,
IPA's and insurance companies creating relationships with long-term care
companies and home health agencies. Managed care reimbursement is predicated
on different levels of services. Care has made a strategic commitment to
develop new payor sources in this growing area.
Regulations
- -----------
Care's nursing and rehabilitation and home health operations are subject to
extensive federal and state regulatory, licensing and inspection requirements.
These requirements relate to, among other things, the adequacy of physical
buildings and equipment, the qualifications of administrative personnel and
nursing staff, the quality of nursing care provided and continuing compliance
with the laws and regulations applicable to the operations of the facilities.
OBRA contains provisions related to nursing care which are more stringent than
those effective prior to its enactment. Care has implemented the provisions
of OBRA applicable to its business through the support of its Corporate
Professional Services Department, which includes quality improvement programs.
In addition, before the acquisition of any existing nursing facility can be
consummated, approval of the local state health care licensing authority must
be obtained, together with certification for participation in its respective
Medicaid and Medicare programs. The nursing and rehabilitation facilities and
home health agencies operated by Care are licensed and certified by various
governmental agencies.
Care's Corporate Professional Services Department sets standards for patient
care, provides training and education, assists in development of specialized
clinical units, investigates patient complaints, reviews citations or
deficiency notices issued by regulatory agencies, consults with facility
management and conducts periodic site inspections to ensure that quality care
is provided and deficiencies are corrected. Peer reviews are also conducted
by teams, whose members are employees of Care's nursing and rehabilitation
facilities, to ensure that Care's standards of quality are upheld.
In the ordinary course of business, Care, like others in the long-term care
industry, receives statements of deficiency for failure to comply with various
federal and state regulatory requirements. Fines may be assessed and
regulatory authorities have the ability to delicense or decertify facilities
operated by any nursing care operator at which there has been failure to
comply with the various regulatory requirements. Care believes that its
present reserves for potential fines and decertification actions are adequate
and that any future actions will not have a material effect on the
consolidated financial position of Care.
Competition
- -----------
Care's approach to revenue enhancement is based on the philosophy that its
facilities must strategically identify the needs of the local market and
develop programs to meet those needs through a diversification of medical
services in order to meet the challenge of a more competitive market. Care is
developing specialized clinical units in its facilities to enhance its
reputation as a high-end provider. Care has historically emphasized
7
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rehabilitation programs (physical, speech and occupational therapies) and has
recently expanded its inpatient programs and is developing new outpatient
therapy units. Currently, 31% of Care's facilities have outpatient therapy
units. Care's specialized clinical units address hospice care, AIDS, wound
care, pulmonary and respiratory, ventilator units, Alzheimers units and others
currently in development. Care's infusion therapy programs have shown
substantial growth in 1993. Increased revenue from these programs comes
primarily through the Medicare program and managed care providers.
Competition from home health agencies has been partially offset by the
continued development of Care's home health operations and the recognition
that Care's facilities can operate in conjunction with the home health
agencies in their local communities.
Employees
- ---------
At February 28, 1994, Care had approximately 5,900 full-time and part-time
employees, of whom approximately 4,850 were employed at Care's nursing and
rehabilitation facilities, approximately 900 at its home health agencies, and
approximately 150 at its administrative, regional and corporate offices.
Approximately 1,100 of the employees were covered by eight collective
bargaining agreements. Care believes that its relations with its employees in
general and the eight collective bargaining units remain very good.
Tax Audits
- ----------
An Internal Revenue Service audit of the Care federal income tax returns for
the years 1987 through 1990 and the Care federal payroll tax returns for the
year 1990 is presently pending, which raises issues concerning the amount of
the net operating loss claimed by Care and certain other issues. Although it
is not possible to predict with certainty the outcome of the audit, in the
opinion of Care management, adequate provision for the audit has been made and
the audit is not expected to have a material adverse effect on Care's
financial position.
Insurance
- ---------
Care maintains general and professional liability insurance for its
operations, subject to a self-insurance retention, in amounts which it
believes to be adequate. Property insurance is maintained to protect against
all perils, including earthquake and flood, subject to deductibles. For
workers' compensation, Care is self-insured in California and Ohio and
purchases insurance for this risk in West Virginia and New Mexico. The cost
of insurance is based on market conditions, claims history and number and type
of company operations. As these factors vary, the cost of insurance can vary.
To secure its obligations to pay benefits under its self-insured workers'
compensation programs, Care has caused various surety bonds and letters of
credit to be issued.
Health Care Reform
- ------------------
On October 27, 1993, President Clinton submitted to the United States Congress
his proposed Health Security Act. As proposed by the Clinton Administration,
the Health Security Act would guarantee comprehensive health care coverage for
all Americans regardless of health or employment status. The Health Security
Act would reduce certain Medicare and Medicaid programs, and permit greater
8
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flexibility in the administration of Medicaid. Changes in reimbursement
levels under Medicare or Medicaid and changes in applicable government
regulations could significantly affect the Company's results of operations.
Several U.S. Senators and Representatives have submitted bills that could
approach the reform of the United States healthcare system in different ways.
In addition to federal initiatives, California, where the Company conducts a
substantial portion of its business, has already enacted various healthcare
reform measures that are expected to have an effect on the business of the
Company. The Company is not able to predict whether the Health Security Act
or any of such other healthcare legislation will be enacted and implemented or
the precise effects of any such legislation. Management of the Company
believes that health services organizations with specialized and diverse
services, such as Care, are likely to be well positioned under any of the
proposed legislative reforms.
Recent Financing
- ----------------
On December 30, 1993, Care entered into a note agreement with a number of
institutional purchasers pursuant to which it issued $30,000,000 of its 8.10%
Senior Secured Notes due December 15, 2000 (the "Notes"). The Notes have an
average maturity of five years and provide for semi-annual interest payments
commencing January 15, 1994. Principal payments of $6,000,000 are due
annually commencing January 15, 1997. The Notes are secured by mortgages on
11 of Care's facilities. Proceeds from the financing were used to retire
$18,851,000 of existing indebtedness, to pay the $495,000 remaining balance of
a capitalized lease obligation and purchase the related facility, and to pay
$1,848,000 of certain other costs and expenses. Net proceeds from the
financing totalled $8,806,000, which, combined with the resulting reduction in
current maturities of long-term debt, has created a working capital surplus of
$5,769,000 at December 31, 1993.
On March 3, 1994, Care entered into an $8,000,000 letter of credit facility
with the Bank of America secured by Care's accounts and notes receivable and
the shares of Care's subsidiary, Healthcare Network, which is a partner in the
pharmacy partnership. These letters of credit are used by Care in connection
with its self-insured workers' compensation programs in California and Ohio.
ITEM 2. PROPERTIES
As of February 28, 1994, Care operated and managed 52 nursing and
rehabilitation, developmentally disabled and retirement centers in California,
Ohio, West Virginia and New Mexico, and home health agencies in 14 locations
in California and Ohio through its subsidiary, Care Home Health Services, Inc.
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Long-Term Care
- --------------
The following table sets forth information regarding the nursing and
rehabilitation centers owned or leased by Care as of February 28, 1994:
<TABLE>
<CAPTION>
Facilities Beds
------------------------ ------------------------
Owned Leased Total Owned Leased Total
------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
California 7 30 37 539 2,874 3,413
Ohio 4 -- 4 400 -- 400
New Mexico -- 3 3 -- 360 360
West Virginia 5 1 6 554 65 619
------------------------ ------------------------
16 34 50 1,493 3,299 4,792
======================== ========================
</TABLE>
In addition, a 248-bed facility is being managed by the Company under a
management agreement and, effective January 1, 1994, Care assumed the
operation of a 64-bed residential facility in Pasadena, California.
During 1993 Care exercised options to purchase three previously leased nursing
facilities with a total of 278 beds.
Home Health
- -----------
Care's subsidiary, Care Home Health Services, Inc., leases facilities
occupying approximately 33,000 square feet for its 14 home health locations.
General Lease Information
- -------------------------
Care leases a 52,000 square foot facility for its corporate offices in Tustin,
California and 7,400 square feet at two regional offices in Suisun, California
and Worthington, Ohio. Substantially all of the leases for its operating
units require Care to pay all taxes, insurance and maintenance costs. The
leases expire at various dates (inclusive of renewal periods) to October 2010.
Care has options to purchase five of the leased facilities. See Note 7 to the
Consolidated Financial Statements for additional information regarding
facility leases.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings other
than ordinary routine litigation incidental to its business. See Note 7 to
the Consolidated Financial Statements for additional information regarding
legal proceedings.
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
None.
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ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED MATTERS
Care's capital structure consists of one class of common stock ("Common
Stock") issued effective December 31, 1990, in accordance with the Joint Plan
of Reorganization (the "Plan"). The previous two classes of common stock,
Class A Common Stock and Class B Common Stock (collectively known as "Old
Common Stock"), were retired in accordance with the Plan. Holders of Common
Stock do not have pre-emptive rights or other rights to subscribe for
additional shares. The Common Stock is not subject to conversion or
redemption and is fully paid and non-assessable.
Price of Common Stock
- ---------------------
The Common Stock commenced trading over-the-counter on January 7, 1991 and is
being quoted on the National Market System of the National Association of
Securities Dealers Automated Quotation System ("NASDAQ NMS") under the symbol
CREI. The last reported sales price per share for the Common Stock as of
March 22, 1994 was $13.00. As of March 22, 1994 Care had approximately 1,100
holders of record.
<TABLE>
<CAPTION>
Common Stock
High Low
1993: --------------------------------
<S> <C> <C>
First Quarter $ 4 1/4 $ 2 11/16
Second Quarter 5 1/8 3 7/8
Third Quarter 5 1/8 3 3/4
Fourth Quarter 9 5/8 4 1/8
Common Stock
High Low
1992: -------------------------------
First Quarter $ 3 1/2 $ 2 1/4
Second Quarter 3 2 1/4
Third Quarter 2 5/8 2
Fourth Quarter 3 3/8 2
Common Stock
High Low
1991: -------------------------------
First Quarter $ 1 1/2 $ 1/4
Second Quarter 1 1/2 7/8
Third Quarter 2 3/4 1 1/4
Fourth Quarter 4 2 1/2
</TABLE>
Dividends and Dividends Policy
- ------------------------------
Dividends were not paid on the Old Common Stock shares during 1989 and 1990.
Covenants in the Company's loan agreement with its secured lenders prohibit
the payment of cash dividends on the Common Stock.
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ITEM 6. SELECTED FINANCIAL DATA
The summary consolidated financial information set forth below should be read
in conjunction with the Consolidated Financial Statements of the Company and
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included elsewhere in this Annual Report on Form
10-K.
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
(in thousands, except per share data)
Pre-reorganization (a)
--------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues $ 200,354 $ 192,048 $ 185,676 $ 215,043 $ 252,949
Costs and expenses
Direct (d) 177,574 168,652 165,725 193,617 241,371
Lease and rent 6,962 7,745 7,854 7,896 11,012
Depreciation and amortization 5,184 5,336 5,878 7,046 9,352
Interest, net 2,494 3,266 4,983 7,692 10,060
---------- ---------- ---------- ---------- ----------
Total costs and expenses 192,214 184,999 184,440 216,251 271,795
Income (loss) before reorganization and
other items, income taxes and
extraordinary item 8,140 7,049 1,236 ( 1,208) ( 18,846)
Reorganization and other items -- 1,543 1,720 35,673 ( 27,838)
Provision for income taxes ( 3,093) ( 2,928) ( 721) -- --
---------- ---------- ---------- ---------- ----------
Income (loss) before extraordinary item 5,047 5,664 2,235 34,465 ( 46,684)
Extraordinary item -- -- -- 73,149 (b) --
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 5,047 $ 5,664 $ 2,235 $ 107,614 $( 46,684)
========== ========== ========== ========== ==========
INCOME PER SHARE
Primary $ 0.38 $ 0.49 $ 0.24 $ (c) $ (c)
========== ========== ========== ========== ==========
Fully diluted $ 0.38 $ 0.49 $ 0.21 $ (c) $ (c)
========== ========== ========== ========== ==========
Weighted average number of shares used in
calculation of per share amounts-primary 13,312 11,667 9,294 (c) (c)
========== ========== ========== ========== ==========
</TABLE>
(a) The pre-reorganization periods are not comparable with 1991, 1992 and 1993
due to the effects of the implementation of "Fresh-Start Reporting" resulting
from the Company's emergence from Chapter 11 reorganization.
(b) Represents an extraordinary gain from discharge of debt in connection with
the reorganization proceedings.
(c) Per share amounts are not meaningful due to Chapter 11 reorganization.
(d) Includes charges related to Care's Share Appreciation Rights Plan of
$2,157,000, $323,000, and $293,000 for 1993, 1992 and 1991, respectively.
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<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
(in thousands, except per share data)
Pre-reorgan-
ization (a)
------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital $ 5,769 $( 12,217) $( 18,192) $( 18,269) (e) $( 35,765)
========== ========== ========== ========== ==========
Total assets 121,398 110,548 108,166 120,453 152,250
========== ========== ========== ========== ==========
Liabilities subject to settlement
under reorganization proceedings -- -- -- -- 162,993
========== ========== ========== ========== ==========
Long-term debt (net of current portion) 41,601 32,743 40,463 54,175 24,999
========== ========== ========== ========== ==========
Shareholders' equity (deficiency) $ 25,473 $ 20,397 $ 10,085 $ 4,275 $(107,189)
========== ========== ========== ========== ==========
OTHER DATA
Average occupancy (f) 93.0% 93.3% 92.6% 92.3% 91.8%
Number of beds at year end 4,792 4,792 5,097 5,252 8,622
Employees at nursing facilities at year end 4,850 4,852 4,993 5,140 8,627
Average employees per bed 1.01 1.01 0.98 0.98 1.00
</TABLE>
(e) The December 31, 1990 balance sheet was restated to record the Plan of
Reorganization and reflect "Fresh-Start Reporting." Accordingly, the
Company's financial position at December 31, 1990 and subsequent thereto is
not comparable to prior periods.
(f) Average occupancy is calculated based on all facilities operated during
the respective years and is not necessarily representative of occupancy for
facilities operated at year end.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Financial Condition, Capital Resources and Liquidity
- ----------------------------------------------------
During most of 1993 Care relied on operations to meet its liquidity needs.
Cash provided by operations totalling $10,570,000 for the year was used to
make principal payments of $9,338,000 on long-term debt, including payments of
$7,180,000 on the Term Notes. Cash used in investing activities totalled
$5,074,000, including routine capital expenditures of $3,884,000 and payments
of an additional $1,542,000 to exercise options to purchase two previously
leased facilities, offset slightly by collections on notes receivable.
On December 30, 1993 Care sold $30,000,000 of its 8.1% Senior Secured Notes to
a number of institutional investors in a private transaction. The notes have
an average maturity of five years and provide for semiannual interest
payments, with annual principal payments of $6,000,000 commencing in January,
1997. The proceeds of the notes were used to pay $18,851,000 of existing
debt, including the remaining balance of $11,569,000 on the Term Notes. An
additional $495,000 was used to pay the outstanding balance of a capitalized
lease obligation and purchase the related facility. Proceeds of the borrowing
were also used to pay costs and expenses of the issuance of the notes
totalling $1,139,000, and $709,000 was used to establish cash escrows with a
title company pending the resolution of certain title and debt payoff related
issues and to pay certain other costs.
The $8,806,000 net cash proceeds from the sale of the Senior Secured Notes,
combined with the reduction in current maturities of long-term debt, has
created a working capital surplus of $5,769,000 at December 31, 1993,
including cash of $12,985,000. Management believes the Company's liquidity,
including cash provided by operating activities, is adequate to finance
planned 1994 capital expenditures of approximately $5,000,000 and other known
operating needs.
In March 1994 Care entered into an $8,000,000 letter of credit facility with
the Bank of America to replace $6,238,000 letters of credit previously issued
by another bank to be used in connection with its self-insured workers'
compensation programs in California and Ohio. The new letter of credit
facility will allow Care to further improve liquidity by substituting an
additional $1,762,000 in letters of credit for cash collateral currently held
by certain regulatory agencies. Accordingly, these deposits have been
included in receivables in the Company's balance sheet as of December 31,
1993.
Comparison of operating results 1993 to 1992
- --------------------------------------------
Revenues for the year ended December 31, 1993 increased by $8,306,000 compared
to 1992. The change consisted of increases of $16,180,000 for nursing and
rehabilitation centers and $5,832,000 for home health, offset by a decrease of
$13,706,000 for operations discontinued in 1992. The increase in nursing and
rehabilitation center revenues is attributable to several factors. Medicare
revenues increased by $11,849,000 due to the continued growth of therapy,
subacute, and other specialized clinical services and a 13% increase in
Medicare utilization. Medicaid revenues increased by $3,642,000 primarily due
to rate increases, offset slightly by lower Medicaid utilization. Home health
revenues increased due to the development of new clinical services and
increased visits resulting from marketing efforts.
14
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<PAGE>
The increase in salaries and employee benefits is the result of wage rate
increases, increased labor hours and the resulting increase in payroll-related
costs for nursing and rehabilitation centers and home health, partially offset
by a decrease of $7,153,000 related to operations discontinued in 1992. The
increase in labor hours is primarily the result of growth of the home health
business.
Share appreciation rights ("SARs") expense increased $1,834,000 due to the
increase in the market price of shares of Care's Common Stock from $2.75 per
share at December 31, 1992 to $9.625 per share at December 31, 1993.
Depending on the future performance of Care's Common Stock, Care may incur
substantial additional charges related to the SARs in future periods, through
December 1995, which will aggregate approximately $333,000 for each one dollar
increase in the market price of Care's Common Stock.
Supplies and other expenses consist of food, routine supplies, costs related
to therapy services, utilities, maintenance and other general and
administrative expenses. The increase in supplies and other expenses is
primarily the result of higher therapy-related costs in the nursing and
rehabilitation centers and home health due to Care's increased provision of
those services, offset by a decrease of $2,588,000 related to operations
discontinued in 1992. The increased emphasis on the provision of therapy
services also resulted in an increase in the cost for contract therapists,
which accounts for most of the increase in purchased services and professional
fees. Other costs and expenses increased due to the imposition of a health
care provider tax in West Virginia.
The decrease in interest expense is primarily due to the lower outstanding
debt balances. The outstanding debt balances were increased on December 30,
1993 and interest expense for 1994 is expected to be substantially higher than
for 1993. Lease and rent expense and depreciation decreased due to the
discontinuance of certain operations in 1992.
Comparison of operating results 1992 to 1991
- --------------------------------------------
During 1992 revenues increased by $6,372,000, consisting of increases of
$11,976,000 for nursing and rehabilitation centers and $3,010,000 for home
health partially offset by a $8,614,000 decrease for pharmacies. The decrease
in pharmacy revenues resulted from the contribution of the pharmacies to an
unconsolidated partnership on April 1, 1992. The increase in nursing and
rehabilitation center revenues is attributable to several factors. The
fastest growing revenue source was occupational, speech, and physical
therapies which increased by approximately $4,300,000. Medicare and Medicaid
revenues increased by $2,553,000 and $6,212,000, respectively, due primarily
to rate increases. Medicaid revenues for 1992 include approximately $865,000
of favorable rate increases related to 1990 and favorable cost report
settlements of $381,000. Medicare revenues for 1992 and 1991 include
favorable settlements on prior years' cost reports of $670,000 and $743,000,
respectively.
The increase in salaries and employee benefits of $2,990,000 is primarily the
result of wage rate increases, increased labor hours, and increases in the
cost of vacation and other employee benefits provided by the Company totalling
$6,724,000. This was offset by a reduction of $3,069,000 for pharmacies and a
$665,000 decrease in the provision for workers' compensation insurance
resulting from favorable loss experience on prior years' claims. The increase
in wage rates was primarily due to nursing salaries which, unlike other staff
salaries, are being driven upwards by increased market competition. The
increase in labor hours is the result of enforcement of OBRA regulations,
15
<PAGE>
<PAGE>
increased acuity levels of patients in the nursing and rehabilitation centers
and increases in home health due to growth in that business.
Supplies and other costs and expenses consist of food, routine supplies, costs
relating to therapy services, utilities, maintenance and other general and
administrative expenses. The decrease in supplies and other expenses was the
result of decreased pharmacy cost of sales, offset by higher therapy-related
costs in the nursing and rehabilitation centers due to Care's increased
provision of therapy services and inflation.
Care's increased emphasis on the provision of therapy services, as discussed
above, resulted in an increase in the cost for contract therapists, which
accounts for most of the increase in purchased services. The professional fee
reduction was the result of the discontinuance of the services of certain
management consultants.
The decrease in the provision for doubtful accounts and losses is the result
of an increased provision in 1991 for losses on mortgage notes receivable
offset by a reduced provision in 1992 resulting from substantial recoveries of
accounts previously written off as uncollectible. Lease and rent expense
decreased due to the contribution of the pharmacies to a partnership, offset
by an increase in rent under a short-term lease of a formerly owned facility.
Depreciation expense decreased due to the disposal of two nursing and
rehabilitation centers in 1991, combined with the elimination of the expense
related to assets contributed to the pharmacy partnership. Interest expense
declined due to lower interest rates on variable rate debt and a decrease in
outstanding debt balances of approximately $7,700,000 during 1992.
Additional financial data for fiscal 1992
- -----------------------------------------
In 1992, Care recognized a gain of $1,007,000 on a nursing facility disposal
which occurred in 1991. The gain represents the difference between the book
value of the nursing facility assets which were acquired in 1991 by a bank in
a non-judicial foreclosure and management's estimate of the value of the
assets surrendered.
Care reduced its reserve for losses on discontinuance of certain operations by
$461,000 and reduced its reserve for fees and expenses in connection with
Chapter 11 proceedings by $75,000.
Impact of Inflation
- -------------------
Care's principal costs are salaries and wages (and related employee benefit
costs) and payments to third parties for services rendered, all of which are
generally sensitive to inflation. A principal source of Care's revenues is
derived from the Medi-Cal program which is not a cost reimbursement type
program. Adjustments to Medi-Cal reimbursement rates are typically made only
on an annual basis and such adjustments may not be sufficient to fully cover
all inflationary cost increases.
16
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<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
Report of Independent Auditors 18
Consolidated Balance Sheets as of December 31, 1993 and 1992 19
Consolidated Statements of Operations,
Years Ended December 31, 1993, 1992 and 1991 20
Consolidated Statements of Shareholders' Equity,
Years Ended December 31, 1993, 1992 and 1991 21
Consolidated Statements of Cash Flows,
Years Ended December 31, 1993, 1992 and 1991 22
Notes to Consolidated Financial Statements 24
17
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<PAGE>
Report of Independent Auditors
Shareholders and Board of Directors
Care Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of Care
Enterprises, Inc. and subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1993. Our
audits also included the financial statement schedules listed in the index at
Item 14(a). These financial statements and schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Care Enterprises, Inc. and subsidiaries at December 31, 1993 and 1992, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
As discussed in notes to the consolidated financial statements, in 1992 the
Company changed its method of accounting for income taxes.
ERNST & YOUNG
Orange County, California
March 10, 1994
18
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<PAGE>
CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares and par values)
<TABLE>
<CAPTION>
As of December 31
---------------------------
1993 1992
---------- ----------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash $ 12,985 $ 7,283
Receivables:
Due from patients, less allowance for doubtful accounts
of $1,633 and $2,595 for 1993 and 1992, respectively 17,149 15,449
Notes, contracts, and other 4,492 1,944
Supplies inventory 1,470 1,395
Prepaid expenses 1,254 1,090
Deferred income taxes 3,982 2,619
---------- ----------
TOTAL CURRENT ASSETS 41,332 29,780
PROPERTY AND EQUIPMENT, net 69,386 69,166
MORTGAGE NOTES RECEIVABLE, less allowance for losses of
$1,664 and $937 for 1993 and 1992, respectively 2,175 2,257
OTHER ASSETS 8,505 9,345
---------- ----------
$ 121,398 $ 110,548
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt $ 1,139 $ 7,683
Accounts payable 11,716 9,679
Accrued liabilities 19,623 15,791
Other current liabilities 3,085 8,844
---------- ----------
TOTAL CURRENT LIABILITIES 35,563 41,997
LONG TERM DEBT 41,601 32,743
DEFERRED INCOME TAXES 6,812 4,624
OTHER NONCURRENT LIABILITIES AND DEFERRED ITEMS 11,949 10,787
---------- ----------
TOTAL LIABILITIES 95,925 90,151
COMMITMENTS & CONTINGENCIES (Note 7) -- --
SHAREHOLDERS' EQUITY
Preferred stock, $1.00 par value;
Authorized 1,000,000 shares; issued and outstanding - none -- --
Common stock, $.01 par value;
Authorized 25,000,000; issued and outstanding - 13,234,000
and 13,222,000 shares for 1993 and 1992, respectively 11,076 11,047
Additional capital 1,451 1,451
Retained earnings 12,946 7,899
---------- ----------
TOTAL SHAREHOLDERS' EQUITY 25,473 20,397
---------- ----------
$ 121,398 $ 110,548
========== ==========
</TABLE>
See Independent Auditors' Report and Notes to Consolidated Financial Statements
19
<PAGE>
<PAGE>
CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
TOTAL REVENUES $ 200,354 $ 192,048 $ 185,676
DIRECT EXPENSES
Salaries and wages 94,087 91,430 88,798
Share appreciation rights 2,157 323 293
Employee benefits 25,660 24,218 23,890
Supplies and other expenses 31,560 31,208 31,440
Purchased services 17,800 15,735 13,842
Professional fees 1,927 2,387 2,805
Other costs and expenses 4,383 3,351 4,657
---------- ---------- ----------
TOTAL DIRECT EXPENSES 177,574 168,652 165,725
PROPERTY EXPENSES
Lease and rent 6,962 7,745 7,854
Depreciation and amortization 5,184 5,336 5,878
Interest, net 2,494 3,266 4,983
---------- ---------- ----------
TOTAL PROPERTY EXPENSES 14,640 16,347 18,715
INCOME BEFORE REORGANIZATION
AND OTHER ITEMS AND INCOME TAXES 8,140 7,049 1,236
REORGANIZATION AND OTHER ITEMS
Gain on sale of facilities -- 1,007 --
Other reorganization items -- 536 1,720
---------- ---------- ----------
TOTAL REORGANIZATION AND OTHER ITEMS 0 1,543 1,720
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 8,140 8,592 2,956
PROVISION FOR INCOME TAXES 3,093 2,928 721
---------- ---------- ----------
NET INCOME $ 5,047 $ 5,664 $ 2,235
========== ========== ==========
INCOME PER SHARE
Primary $ 0.38 $ 0.49 $ 0.24
========== ========== ==========
Fully diluted $ 0.38 $ 0.49 $ 0.21
========== ========== ==========
</TABLE>
See Independent Auditors' Report and Notes to Consolidated Financial Statements
20
<PAGE>
<PAGE>
CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Common Stock
----------------------- Additional Retained
Shares Amount Capital Earnings Total
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE at December 31, 1990 8,956 $ 4,275 $ -- $ -- $ 4,275
Conversion of convertible exchangeable notes 2,679 2,854 2,854
Charge in lieu of income taxes 721 721
Net income 2,235 2,235
---------- ---------- ---------- ---------- ----------
BALANCE at December 31, 1991 11,635 7,129 721 2,235 10,085
Sale of common stock 1,633 3,918 3,918
Retirement of shares acquired by the
company ( 46) --
Charge in lieu of income taxes 730 730
Net income 5,664 5,664
---------- ---------- ---------- ---------- ----------
BALANCE at December 31, 1992 13,222 11,047 1,451 7,899 20,397
Exercise of stock options 12 29 29
Net income 5,047 5,047
---------- ---------- ---------- ---------- ----------
BALANCE at December 31, 1993 13,234 $ 11,076 $ 1,451 $ 12,946 $ 25,473
========== ========== ========== ========== ==========
</TABLE>
See Independent Auditors' Report and Notes to Consolidated Financial Statements.
21
<PAGE>
<PAGE>
CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 5,047 $ 5,664 $ 2,235
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 5,184 5,336 5,878
Provision for doubtful accounts 88 30 1,036
Provision for losses on mortgage notes receivable -- 117 511
Deferred income taxes and charge in lieu of taxes 825 1,746 721
Other, net ( 645) ( 416) ( 173)
Reorganization and other items
Gain on sale of facilities -- ( 1,007) --
Other reorganization items -- ( 536) ( 1,720)
Changes in assets and liabilities, net of effects
from sales or disposals of facilities:
Accounts receivable ( 1,788) 200 ( 218)
Other current assets 748 695 2,446
Notes and contracts receivable ( 320) 1,023 225
Other assets 13 ( 380) 1,188
Accounts payable and accrued liabilities 4,569 ( 2,428) ( 4,249)
Other current liabilities ( 3,149) 1,018 793
Other noncurrent liabilities and deferred items ( 2) 32 309
---------- ---------- ----------
Total adjustments 5,523 5,430 6,747
---------- ---------- ----------
Net cash provided by operating activities 10,570 11,094 8,982
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of assets 44 274 86
Proceeds from payoff of notes receivable -- 700 255
Payments received on mortgage notes receivable 308 294 566
Investment in pharmacy partnership -- ( 238) --
Exercise of options to purchase facilities ( 1,542) -- --
Payments for property additions ( 3,884) ( 3,501) ( 3,579)
---------- ---------- ----------
Net cash used by investing activities ( 5,074) ( 2,471) ( 2,672)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on term notes, mortgage debt
and capitalized leases ( 28,684) ( 9,611) ( 7,674)
Payments on liabilities subject to
reorganization proceedings -- ( 47) ( 4,111)
Proceeds of borrowing, net of expenses 28,861 1,000 2,750
Proceeds from exercise of stock options 29 -- --
Proceeds from sale of common stock, net of expenses -- 3,918 --
---------- ---------- ----------
Net cash provided (used) by financing activities 206 ( 4,740) ( 9,035)
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH 5,702 3,883 ( 2,725)
CASH AT BEGINNING OF YEAR 7,283 3,400 6,125
---------- ---------- ----------
CASH AT END OF YEAR $ 12,985 $ 7,283 $ 3,400
========== ========== ==========
</TABLE>
See Independent Auditors' Report and Notes to Consolidated Financial Statements
22
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<PAGE>
CARE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except facility data)
(Continued)
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL CASH INFORMATION
- -----------------------------
Interest paid $ 3,532 $ 4,014 $ 5,449
========== ========== ==========
Income taxes paid $ 183 $ 542 $ --
========== ========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
- -------------------------------------
NUMBER OF FACILITIES DISPOSED:
Long term care facilities -- -- 2
Pharmacies and distribution centers -- 9 --
FINANCIAL IMPACT OF DISPOSALS:
Net assets $ -- $ 2,026 $ 5,488
Net liabilities -- ( 626) ( 4,781)
---------- ---------- ----------
Net assets sold or disposed -- 1,400 707
Cash proceeds -- -- ( 54)
Additional notes on sale -- -- --
Equity in pharmacy partnership -- ( 1,400) --
Charged against reserves for disposal of facilities -- -- ( 653)
---------- ---------- ----------
Net gain on sales and disposals $ 0 $ 0 $ 0
========== ========== ==========
</TABLE>
In 1992 Care contributed the net assets of five pharmacies and four
distribution centers having a net book value of $1,400,000 to a partnership
formed with another long-term provider. During 1991 Care disposed of
two facilities, one of which the Company continued to operate under a
short term lease agreement through November 1992.
See Independent Auditors' Report and Notes to Consolidated Financial Statements
23
<PAGE>
<PAGE>
NOTE 1 - MERGER AGREEMENT
- -------------------------
On December 20, 1993, Care Enterprises, Inc. ("Care" or "the Company") and
Regency Health Services, Inc., a Delaware corporation ("Regency"), entered
into an Agreement and Plan of Merger (the "Merger Agreement"). Regency
currently operates 43 long-term care facilities with 4,215 beds and one
pharmacy, all located in California. Pursuant to the Merger Agreement, Care
will be merged with and into Regency with Regency as the surviving corporation
(the "Merger") and each share of Care's Common Stock will be converted into
0.71 shares of Regency's Common Stock, par value $0.01 per share in a tax-free
transaction. The Company anticipates that the Merger will be accounted for as
a pooling of interests.
The Merger has been approved by the Board of Directors of both companies and
its completion is subject to, among other things, the approval of regulatory
agencies and the shareholders of each of Care and Regency. In connection with
the Merger Agreement, shareholders holding a majority of Care's Common Stock
and shareholders holding approximately 22% of Regency's Common Stock have
agreed to vote in favor of the Merger under certain circumstances. Care
anticipates that the Merger will be consummated in the second calendar quarter
of 1994.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Nature of Business
- ------------------
Care provides skilled and intermediate nursing, rehabilitative services,
subacute and other specialized medical services. Services are provided in the
Company's owned, leased or managed nursing and rehabilitation facilities
located in California, Ohio, West Virginia and New Mexico. Care, through its
wholly-owned subsidiary Care Home Health Services, Inc., provides patients at
home with technical medical support such as infusion therapy and ventilator
care, and respite services such as assistance with personal hygiene, cooking
and cleaning.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of Care and its
wholly-owned subsidiaries. All material intercompany balances have been
eliminated.
Reclassifications
- -----------------
The Company has reclassified the presentation of certain prior year
information to conform with the current year presentation.
Cash
- ----
Cash consists of cash balances held in banks and petty cash funds. The cash
balance at December 31, 1993 includes $6,238,000 temporarily placed with Wells
Fargo Bank to collateralize letters of credit issued in conjunction with
Care's self-insured workers' compensation programs. An agreement in principle
24
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<PAGE>
was reached in December 1993, and a definitive agreement was signed in March
1994 with the Bank of America to provide an $8,000,000 letter of credit
facility (Note 7) and new letters of credit were obtained to secure the
workers' compensation obligations.
At December 31, 1993 and 1992 the Company held personal funds in trust for
patients approximating $425,000 and $400,000, respectively, which are not
reflected on the accompanying balance sheets.
Supplies Inventory
- ------------------
Supplies inventory is stated at the lower of cost or market using the first-
in, first-out method.
Property and Equipment
- ----------------------
Property and equipment owned by the Company at the time of its emergence from
bankruptcy on December 31, 1990 was adjusted to its then current fair market
value. All other property and equipment is stated at cost. Depreciation and
amortization is provided on the straight-line method over the following
estimated useful lives or, if applicable, over the terms of the leases.
Buildings 20 to 40 years
Leasehold interests and improvements 7 to 30 years
Equipment 5 to 10 years
Assets under capitalized leases 10 to 25 years
Betterments, renewals and extraordinary repairs that extend the life of the
asset are capitalized; other repairs and maintenance are expensed. The cost
and accumulated depreciation applicable to assets retired are removed from the
accounts and any gain or loss on disposition is recognized in income.
Health Care Revenues and Reimbursement Programs
- -----------------------------------------------
Long-term care facilities receive payments for services to certain patients
under Medicare and state Medicaid programs and from the Veterans
Administration. Revenues are recorded at the estimated net realizable amounts
from patients and third party payors in the period in which the service is
provided. Approximately 83% (1993), 82% (1992), and 83% (1991) of total
revenue was derived from federal and state medical assistance programs.
Revenues under these programs are based in part on cost reimbursement
principles which govern reimbursement of current year costs. These revenues
and costs are subject to audit and, in the opinion of management, adequate
provision has been made for any adjustments that may result from such audits.
Differences between estimated provisions and final settlements are reflected
in operations in the year finalized. Approximately 75% (1993) and 78% (1992)
of the Company's accounts receivable were related to federal and state medical
assistance programs including approximately 26% (1993) and 33% (1992) related
to the California Medicaid program.
Interest Expense
- ----------------
Interest expense is reflected net of $712,000, $752,000 and $1,280,000 of
interest income for the years ending December 31, 1993, 1992 and 1991,
25
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<PAGE>
respectively.
Income Taxes
- ------------
During 1991, the Company accounted for income taxes under the provisions of
Statement of Financial Accounting Standards No. 96 ("SFAS 96"). Effective
December 31, 1992, the Company adopted (on a cumulative basis from January 1,
1992) the provisions of Statement of Financial Accounting Standards No. 109
("SFAS 109"), "Accounting for Income Taxes" (Note 3).
In accordance with AICPA Statement of Position 90-7, "Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), SFAS 96
and SFAS 109 tax benefits recognized in periods subsequent to bankruptcy
reorganization, resulting from utilization of pre-reorganization financial
reporting Net Operating Losses ("financial reporting NOL"), are recorded by
the Company as direct additions to additional capital with a corresponding
charge in lieu of taxes included in the provision for income taxes in the
Statement of Operations.
Income Per Share
- ----------------
Income per share for 1993, 1992 and 1991 has been computed on the basis of the
weighted average shares of Common Stock outstanding plus, for 1993, common
equivalent shares arising from dilutive stock options, using the treasury
stock method. For 1992, common equivalent shares arising from dilutive stock
options have been excluded from the determination of income per share due to
immateriality. No such options were outstanding during 1991. For the
computation of fully diluted income per share for 1991, shares issued in
November 1991 for the conversion of the $3,000,000 secured convertible
exchangeable notes are included in the weighted average shares outstanding
from the beginning of 1991 and, accordingly, net income for 1991 has not been
reduced by interest expense on the notes. The weighted average number of
common and common equivalent shares outstanding for the calculation of primary
income per share was 13,312,000 in 1993, 11,667,000 in 1992, and 9,294,000 in
1991. The weighted average number of shares used to compute income per share,
assuming full dilution, was 13,388,000 in 1993, 11,667,000 in 1992, and
11,635,000 in 1991. All common shares issued pursuant to the Plan of
Reorganization have been treated as outstanding as of December 31, 1990.
The income per share calculation does not include the shares reserved for
issuance in connection with the Company's Share Appreciation Rights Plan (Note
8), which provides for settlement of the rights in cash or stock. The
Company's Board of Directors does not presently plan to issue any shares in
settlement of the rights.
Workers' Compensation Self-Insurance
- ------------------------------------
The Company maintains self-insurance programs for workers' compensation in
California and Ohio. The self-insurance liability under these programs is
based on claims filed and estimates of claims incurred but not reported. The
self-insurance liability is discounted at a rate of 10%, which management
believes to be its appropriate market rate of interest based on its current
financial circumstances.
26
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<PAGE>
Professional Liability Insurance
- --------------------------------
The Company maintains approximately $30,000,000 of professional liability
insurance covering substantially all of its operations on a claims-made basis,
with a $10,000 deductible for operations in the states of New Mexico and West
Virginia and a $250,000 self-insurance retention for all other locations. The
estimated amount payable for claims, including unasserted claims, under the
Company's self-insurance retention is recorded as a liability, without
discounting.
NOTE 3 - INCOME TAXES
- ---------------------
During 1991, the Company accounted for income taxes under the provisions of
SFAS 96. Effective December 31, 1992, the Company adopted (on a cumulative
basis from January 1, 1992) the provisions of SFAS 109, which mandates the
liability method of accounting for deferred income taxes and permits the
recognition of net deferred tax assets subject to an ongoing assessment of
realizability. The change in accounting for income taxes did not have a
material effect on the Company's financial statements.
For federal tax return purposes, Care Enterprises, Inc. files a consolidated
tax return with its subsidiaries. As of December 31, 1993, the Company had
claimed a federal net operating loss carryforward for tax purposes ("Tax NOL")
of approximately $93,200,000 and credit carryforwards of approximately
$4,021,000. However, when the Company's Plan of Reorganization was confirmed,
an ownership change as defined in Internal Revenue Code ("IRC") Section 382
occurred. As a result, use of Tax NOL and credit carryforwards accumulated on
or before April 20, 1990 ("pre-confirmation") may be subject to an annual
limitation of approximately $300,000. Tax losses and credits generated after
April 20, 1990 ("post-confirmation") are not subject to the above limitation.
Because a portion of the Company's Tax NOL was generated as early as 1985, it
will begin to expire in the year 2000. Considering the annual limitation, it
is currently estimated that as of December 31, 1993, a maximum of $3,300,000
of Tax NOL in the aggregate will be available for use prior to expiration.
Management is pursuing the possibility that the Company may qualify for the
special provisions of IRC Section 382(l)(5), which could reduce the aggregate
Tax NOL and credit carryforwards available but would not limit their annual
use. Should circumstances permit the Company to qualify for this section of
the IRC, a significant portion of the pre-confirmation Tax NOL and credit
carryforwards could become available for use. However, the Merger (discussed
in Note 1) may also result in a limitation on the use of the Company's post-
confirmation Tax NOL and credit carryforwards and, if Section 382(l)(5)
applies, pre-confirmation Tax NOL and carryforwards.
The Internal Revenue Service ("IRS") is examining the Company's income tax
returns for the years 1987 through 1990. Management believes that the outcome
of this examination will not have a material impact on the financial position
or liquidity of the Company, although it may reduce the Tax NOL.
In March 1994 the IRS issued final regulations relating to net operating
losses, and specifically relating to the determination of eligibility for the
use of Section 382(l)(5). Based on the new regulations, management believes
the Company will qualify for use of this section. After applying its
27
<PAGE>
<PAGE>
provisions, the amount of Tax NOL would be approximately $53,000,000, usable
without annual limitation, before the effect of any audit adjustments.
Deferred income tax assets and liabilities originate from differences between
accounting principles and procedures used for book and tax purposes,
principally related to depreciation, contingencies and legal settlements,
workers' compensation, share appreciation rights, bankruptcy costs and fees,
doubtful accounts and reserves for losses on discontinuance of certain
operations.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------
1993 1992 1991
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Current
Federal $ 1,915 $ 844 $ --
State 353 338 --
Deferred
Federal 690 981 --
State 135 35 --
Charge in lieu of income taxes -- 730 721
-------- -------- --------
Total provision for income taxes $ 3,093 $ 2,928 $ 721
======== ======== ========
</TABLE>
A reconciliation of the federal statutory income tax rate with the Company's
effective tax rate follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Federal rate 34.0% 34.0% 34.0%
Reversal of pre-reorganization reserves -- ( 8.0) (15.6)
State taxes net of federal benefit 3.9 7.5 6.0
Permanent differences 0.7 0.5 --
Other, net ( 0.6) -- --
-------- -------- --------
Effective rate 38.0% 34.0% 24.4%
======== ======== ========
</TABLE>
28
<PAGE>
<PAGE>
The tax effect of the temporary differences giving rise to the Company's
deferred tax assets and liabilities are shown on the following table:
<TABLE>
<CAPTION>
As of December 31
----------------------
1993 1992
---------- ----------
<S> <C> <C>
Deferred income tax assets:
Net operating loss carryforward $ 1,351 $ 2,489
Allowance for doubtful accounts 671 1,066
Accrual for contingencies and legal settlements 1,056 1,145
Accrued workers' compensation claims 4,199 4,364
Share appreciation rights 1,106 240
Other 2,291 1,951
Valuation allowance ( 959) --
---------- ----------
Total deferred tax assets 9,715 11,255
---------- ----------
Deferred income tax liabilities:
Depreciation (11,545) (12,260)
Other ( 1,000) ( 1,000)
---------- ----------
Total deferred income tax liabilities (12,545) (13,260)
---------- ----------
Net deferred income taxes $( 2,830) $( 2,005)
========== ==========
</TABLE>
NOTE 4 - PROPERTY AND EQUIPMENT
- -------------------------------
A summary of property and equipment follows:
<TABLE>
<CAPTION>
As of December 31
----------------------
1993 1992
---------- ----------
(in thousands)
<S> <C> <C>
Land and improvements $ 10,489 $ 8,711
Buildings 41,860 37,469
Leasehold interest and improvements 18,822 19,409
Equipment 12,738 10,901
Assets under capitalized leases 650 3,181
---------- ----------
Total property and equipment 84,559 79,671
Less accumulated depreciation and amortization 15,173 10,505
---------- ----------
Total property and equipment, net $ 69,386 $ 69,166
========== ==========
</TABLE>
29
<PAGE>
<PAGE>
NOTE 5 - DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
- --------------------------------------------------
Other assets consist of deposits (primarily related to the Company's self-
insured workers' compensation plans and facility leases), debt service
reserves related to the Industrial Development Bonds, a 26% interest in a
pharmacy partnership, deferred charges and other.
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31
-----------------------
1993 1992
-----------------------
<S> <C> <C>
Accrued payroll and related taxes $ 4,357 $ 3,891
Share appreciation rights 2,693 585
Accrual for contingencies and legal settlements 3,030 3,244
Accrued workers' compensation claims (Net of discounting
of $2,954 and $3,085 for 1993 and 1992, respectively) 10,226 10,627
Accrued employee benefits 3,934 3,875
Reserve for losses on discontinuance of certain operations -- 1,513
Reserve for expenses and fees in connection with Chapter 11 proceedings 153 556
Other accrued liabilities 4,454 1,647
Income taxes payable 2,725 640
-----------------------
Total accrued liabilities 31,572 26,578
Less current portion of accrued liabilities 19,623 15,791
-----------------------
Noncurrent portion $ 11,949 $ 10,787
=======================
</TABLE>
30
<PAGE>
<PAGE>
NOTE 6 - LONG-TERM DEBT AND CREDIT FACILITIES
- ---------------------------------------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31
-----------------------
1993 1992
---------- -----------
(in thousands)
<S> <C> <C>
Senior Secured Notes due December 2000 with interest
at 8.1%, payable semiannually. Annual principal
payments of $6 million commencing January 1997. $ 30,000 $ --
Term Notes with interest at a rate which
approximates the Citibank N.A. prime rate plus 2%
(effectively 8% during 1993), paid in 1993. -- 9,374
Term Notes payable to a shareholder (Note 9),
with interest at a rate which approximates
the Citibank N.A. prime rate plus 2%
(effectively 8% during 1993), paid in 1993. -- 9,375
Mortgage notes payable due through January 1998
in monthly installments of $7,691, including
interest at 8.5%. 287 5,212
Industrial development bonds ("IDBs") due through
August 2012 in varying amounts with interest
at rates from 6.1% to 13.75%. 10,935 12,595
Working capital loan from a shareholder
with interest at the Citibank N.A. prime rate
plus 3% (effectively 9% during 1993), paid in 1993. -- 1,000
Other unsecured indebtedness payable in varying
amounts through August 2017 with interest at
rates from 0% to 13.0%. 1,033 1,436
Capitalized lease obligations payable through
September 1996. 485 1,434
---------- ----------
Total long-term debt 42,740 40,426
Less: Current portion 1,139 7,683
---------- ----------
Long-term portion $ 41,601 $ 32,743
========= ===========
</TABLE>
The repayment of the remaining balances of the Term Notes and the working
capital loan and the reduction of the outstanding balances of IDB's, mortgage
notes payable, and capitalized lease obligations was primarily accomplished
with the proceeds of the Senior Secured Notes, as discussed below.
31
<PAGE>
<PAGE>
The aggregate maturities of long-term debt and capitalized lease obligations
for the ensuing five years and thereafter are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ending December 31
- -----------------------
<S> <C>
1994 $ 1,139
1995 306
1996 297
1997 6,277
1998 6,282
Thereafter 28,439
---------
$ 42,740
=========
</TABLE>
On December 30, 1993, Care entered into a Note Agreement with a number of
institutional purchasers pursuant to which it issued $30,000,000 of its 8.10%
Senior Secured Notes due December 15, 2000 ("Notes"). The Notes have an
average maturity of five years and provide for interest payments on each of
January 15 and July 15, commencing January 15, 1994. Principal payments of
$6,000,000 are due annually commencing on January 15, 1997, with the final
payment due on maturity. The Notes are secured by mortgages on eleven nursing
facilities having an aggregate carrying value of $30,374,000. The Notes
contain covenants which require the maintenance of certain financial ratios
and levels of tangible net worth, restrict the incurrence of new debt, and
limit the payment of dividends on Care's Common Stock.
The proceeds of the Notes were used to pay $18,851,000 of existing debt,
including the remaining balance of $11,569,000 on the Term Notes, the
$1,000,000 working capital loan from a shareholder, and $6,282,000 in other
debt. An additional $495,000 was used to pay the outstanding balance of a
capitalized lease obligation and purchase the related facility. Proceeds of
the borrowing were also used to pay costs and expenses of the issuance of the
notes totalling $1,139,000, and $709,000 was used to establish cash escrows
with a title company pending the resolution of certain title and debt payoff
related issues and to pay certain other costs.
Each of the mortgage notes and IDBs is secured by a first deed of trust on
the related facility. One of the IDBs requires the maintenance of debt
service reserve funds and all of the IDBs contain affirmative and negative
covenants and reporting requirements.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Letters of Credit
- -----------------
The Company is contingently liable under letters of credit principally related
to deposit requirements on its self-insured workers' compensation plans. State
regulations require the maintenance of deposits at specified percentages of
estimated future claim payments which can be satisfied through a combination
of cash deposits, surety bonds and letters of credit. The total amount of
letters of credit outstanding at December 31, 1993 and 1992 were $6,238,000
and $6,250,000, respectively.
32
<PAGE>
<PAGE>
An agreement in principle was reached in December 1993, and a definitive
agreement was signed in March 1994 with the Bank of America to provide an
$8,000,000 letter of credit facility secured by Care's accounts and notes
receivable and the shares of Care's subsidiary, Healthcare Network, which is a
partner in the pharmacy partnership.
Leases
- ------
The Company leases certain facilities and offices under cancelable and
noncancelable agreements expiring at various dates through October 2010. The
leases are generally triple-net leases and provide for the Company's payment
of property taxes, insurance and repairs. Certain leases contain renewal
options and rent escalation clauses. Rent escalation clauses require either
fixed increases or increases tied to the Consumer Price Index. Five leases
include purchase options at fixed or market prices at various dates. Three
leases include put options in the year 2000 at 100% of fair market value.
Rent and lease expenses aggregated $6,897,000 for 1993, $7,682,000 for 1992,
and $7,785,000 for 1991.
Future minimum lease payments (in thousands) for operating leases at December
31, 1993 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1994 $ 7,600
1995 7,716
1996 7,696
1997 6,410
1998 5,297
Thereafter 31,426
----------
Total minimum lease payments $ 66,145
==========
</TABLE>
Guarantees of Leases
- --------------------
The Company is contingently liable for certain operating leases assumed by the
purchasers of the Company's leasehold interests in facilities. The Company is
not aware of any failure on the part of these purchasers to meet the terms of
their obligations, and does not anticipate any expenditures to be incurred in
connection with its guarantees. If a default were to occur, the Company
generally would be able to assume operations of the facility and use the net
revenues thereof to defray the Company's expenditures on these guarantees.
33
<PAGE>
<PAGE>
The following is a schedule of future minimum lease payments (in thousands)
for the operating leases for which the Company is contingently liable:
<TABLE>
<CAPTION>
<S> <C>
1994 $ 1,368
1995 1,371
1996 1,204
1997 1,172
1998 631
Thereafter 5,288
----------
$ 11,034
==========
</TABLE>
Litigation
- ----------
The Company is also subject to various claims and lawsuits which arise in the
normal course of business. In the opinion of management, adequate provision
has been made and such claims or actions are not expected to have a material
adverse effect on the Company's financial position.
NOTE 8 - CAPITAL STRUCTURE
- --------------------------
The Company has authorized capital stock of 26,000,000 shares consisting of
1,000,000 shares of Series A Preferred Stock, $1.00 par value per share, and
25,000,000 shares of Common Stock, $.01 par value per share.
Preferred Stock
- ---------------
The Preferred Stock, none of which has been issued, has certain preferences
upon liquidation or redemption and has voting rights similar to the Common
Stock.
Common Stock
- ------------
On December 21, 1992, the Company sold 1,633,000 shares of Common Stock to
affiliates of Smith Management Company and Foothill Group, Inc., its two
largest shareholders for $4,000,000 (Note 9). In 1992, Care retired 46,000
shares of Common Stock which had been acquired by the Company through
settlement of certain claims.
Stock Option Plan
- -----------------
In 1992, the Board of Directors and the shareholders of the Company approved a
stock option plan providing for the grant of options to employees and certain
consultants to purchase an aggregate of 550,000 shares of the Company's Common
Stock. Under this plan, full-time employees are eligible to receive grants of
either incentive stock options structured to qualify under Section 422 of the
IRC of 1986, or nonqualified stock options which are not intended to meet the
requirements of the IRC. Consultants and certain eligible directors may be
granted only nonqualified stock options. The options vest over a four year
34
<PAGE>
<PAGE>
period and have an exercise price equal to the market price of the Company's
common stock on the date of grant. Outstanding options expire on various dates
through December 15, 1998.
Stock option activity (in shares):
<TABLE>
<CAPTION>
Option Price
Shares Per Share
-------------------------------------
<S> <C> <C>
Options outstanding December 31, 1991: -- --
Granted 378,000 $2.125 to $2.875
Exercised -- --
Canceled ( 39,000) $2.125 to $2.50
-------------------------------------
Options outstanding December 31, 1992: 339,000 $2.125 to $2.875
Granted 88,000 $2.875 to $6.50
Exercised ( 12,000) $2.125 to $2.50
Canceled ( 44,000) $2.125 to $4.875
-------------------------------------
Options outstanding December 31, 1993: 371,000 $2.125 to $6.50
=====================================
Options exercisable at December 31:
1993 68,000 $2.125 to $6.50
1992 -- --
At December 31, 1993 there are 167,000 options available for grant.
</TABLE>
Share Appreciation Rights Plan
- ------------------------------
In January 1991, Care's Board of Directors adopted a Share Appreciation Rights
Plan (the "SAR Plan") which provided for the award of 1,000,000 units to
certain key executives. The SAR Plan was amended by the Board of Directors
and shareholders in May 1992.
The SAR Plan provides that upon award, 25% of the units vest on each of the
first four anniversaries of the award date and vested units must be exercised
before the fifth anniversary of the award. Upon exercise, the awardee is
entitled to receive in cash or stock, at the Company's option, the difference
between the base value awarded and the market value on the date units are
exercised.
As indicated below, of the 900,000 units which were awarded in 1991 at the
base price of $1 per unit, 36,000 were exercised, 531,000 were forfeited and
333,000 remain outstanding, of which 166,500 are vested as of December 31,
1993. The Board of Directors has decided not to award additional rights under
the SAR Plan. During 1993, 1992 and 1991, the Company accrued $2,157,000,
$323,000 and $293,000, respectively, in benefits associated with this plan and
450,000 shares of Common Stock have been reserved for possible issuance in
settlement of the appreciation due awardees.
35
<PAGE>
<PAGE>
Share appreciation rights activity (in units):
<TABLE>
<CAPTION>
1993 1992 1991
--------------------------------
<S> <C> <C> <C>
Outstanding, beginning of year 360,000 450,000 0
Granted 0 0 900,000
Settled ( 13,500) ( 22,500) 0
Canceled ( 13,500) ( 67,500) (450,000)
---------------------------------
Outstanding, end of year 333,000 360,000 450,000
=================================
</TABLE>
NOTE 9 - RELATED PARTY TRANSACTIONS
- ------------------------------------
Smith Management Company and its affiliated companies ("Smith") and Foothill
Capital Corporation, Foothill Group, Inc. and affiliates ("Foothill") are
significant shareholders of the Company.
In January 1992, Foothill acquired from Wells Fargo Bank, N.A. a 50% interest
in the Company's Term Note obligation. Their portion of the Term Notes
amounted to $9,375,000 at December 31, 1992. As part of the transaction,
Foothill also acquired a contingent letter of credit obligation with a
principal amount of $4,316,000. The remaining balance of the Term Notes was
paid on December 30, 1993.
In December, 1992, the Company sold 1,633,000 shares of Common Stock to Smith
and Foothill for $4,000,000. In connection with this transaction, Smith and
Foothill have registration rights whereby they can join the Company in a
registration if the Company chooses to register other shares of its Common
Stock with the Securities and Exchange Commission.
In 1990 and 1991 the Company sold $3,000,000 in secured convertible
exchangeable notes to Smith and Foothill. The notes, which had a maturity
date of December 31, 1993, bore interest at a rate approximating the Citibank,
N.A. prime rate plus 1% payable quarterly, were secured by two of the
Company's nursing facilities. The notes were convertible at any time, at the
option of the holder, into shares of Preferred Stock or Common Stock and would
automatically convert into shares of Common Stock upon the occurrence of
certain events. On November 14, 1991, the requirements for automatic
conversion were met and the notes were converted into 2,679,000 shares of
Common Stock. The holders of these shares have registration rights whereby
they can request, at the Company's expense, that the Common Stock issued be
registered with the Securities and Exchange Commission. Foothill also provided
the Company with a $1,000,000 revolving credit working capital facility which
was terminated, and the outstanding balance paid, in December 1993.
In April 1991, the Company engaged Smith to assist in the development and
implementation of a program which would improve the Company's liquidity.
Under this agreement, the Company paid Smith an aggregate of $218,000 for 1992
and $100,000 for 1991. This agreement expired on December 31, 1992.
The Company has a 26% interest in the pharmacy partnership formed in April
1992. The partnership continues to provide products and services to the
36
<PAGE>
<PAGE>
nursing and rehabilitation centers operated by the Company. For 1993 and 1992
these purchases totalled approximately $5,900,000 and $4,200,000,
respectively.
NOTE 10 - DISPOSAL OF FACILITY
- ------------------------------
In 1992, Care recognized a gain of $1,007,000 on a nursing facility disposal
which occurred in 1991. The gain represents the difference between the book
value of the nursing facility assets which were acquired in 1991 by a bank in
a non-judicial foreclosure and management's estimate of the value of the
assets surrendered.
NOTE 11 - RETIREMENT SAVINGS PLAN
- ---------------------------------
Effective January 1, 1992, the Company began accepting the entry of new
participants and began accepting participant contributions to the Care
Enterprises, Inc. Retirement Savings Plan, which is a qualified cash or
deferred arrangement under Section 401(k) of the Internal Revenue Code. All
employees with at least one year of employment who have attained the age of 21
are eligible to participate. Participants may contribute, on a pretax basis,
up to 15% of their earnings to the plan (subject to certain limitations), for
which the Company matches 15% of the first 3% of contributions for persons
with less than three years of service and 25% of the first 5% for all others.
The Company's contributions are subject to a four-year vesting period.
Matching contributions made by the Company for 1993 and 1992 were $186,000 and
$155,000, respectively.
37
<PAGE>
<PAGE>
NOTE 12 - QUARTERLY FINANCIAL DATA
- ----------------------------------
<TABLE>
<CAPTION>
1993 (Unaudited) First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 47,748 $ 49,865 $ 50,582 $ 52,159 $ 200,354
==============================================================
Income before income taxes 1,661 2,247 2,658 1,574 8,140
Provision for income taxes 665 898 1,063 467 3,093
--------------------------------------------------------------
Net income $ 996 $ 1,349 $ 1,595 $ 1,107 $ 5,047
==============================================================
Income per share-primary:
Net income $ .08 $ .10 $ .12 $ .08 $ .38
==============================================================
Weighted average shares outstanding 13,262 13,323 13,321 13,353 13,312
==============================================================
</TABLE>
During the fourth quarter of 1993 the Company recorded a charge of $1,694,000
for compensation payable under the Share Appreciation Rights Plan. This
charge is the result of an increase in the market price of Care's Common Stock
from $4.00 per share at September 30, 1993 to $9.625 at December 31, 1993.
<TABLE>
<CAPTION>
1992 (Unaudited) First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 47,933 $ 46,401 $ 48,523 $ 49,191 $ 192,048
==============================================================
Income before reorganization items
and income taxes 690 1,356 2,124 2,879 7,049
Reorganization and other items -- -- -- 1,543 1,543
--------------------------------------------------------------
Income before income taxes 690 1,356 2,124 4,422 8,592
Provision for income taxes 276 542 850 1,260 2,928
--------------------------------------------------------------
Net income $ 414 $ 814 $ 1,274 $ 3,162 $ 5,664
==============================================================
Income per share-primary:
Net income $ .04 $ .07 $ .11 $ .27 $ .49
==============================================================
Weighted average shares outstanding 11,635 11,635 11,635 11,809 11,667
==============================================================
</TABLE>
During the fourth quarter of 1992 the Company recognized gains resulting from
the reversal of reserves for losses on the discontinuance of certain
operations of $461,000, the reversal of reserves for expenses and fees
resulting from Chapter 11 proceedings of $75,000 and recognized a gain on the
sale of a facility disposed of in 1991 of $1,007,000.
38
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1991 (Unaudited) First Second Third Fourth
Quarter Quarter Quarter Quarter Total
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 44,455 $ 46,057 $ 46,429 $ 48,735 $ 185,676
==============================================================
Income (loss) before reorganization
items and income taxes ( 166) 492 22 888 1,236
Reorganization and other items -- -- 882 838 1,720
--------------------------------------------------------------
Income (loss) before income taxes ( 166) 492 904 1,726 2,956
Provision for income taxes -- -- 425 296 721
--------------------------------------------------------------
Net income (loss) $( 166) $ 492 $ 479 $ 1,430 $ 2,235
==============================================================
Income (loss) per share:
Net income (loss) $( .02) $ .05 $ .05 $ .14 $ .24
==============================================================
Weighted average shares outstanding 8,956 8,956 8,956 10,296 9,294
==============================================================
</TABLE>
During the second quarter of 1991 Care disposed of one facility and recognized
a loss of $653,000 that was charged against reserves for losses on
discontinuance of certain operations.
During the third quarter of 1991 the Company recognized gains resulting from
the reversal of reserves for losses on the discontinuance of certain
operations of $882,000.
During the fourth quarter of 1991 the Company recognized gains resulting from
the reversal of reserves for losses on the discontinuance of certain
operations of $374,000 and reversal of reserves for expenses and fees
resulting from Chapter 11 proceedings of $464,000.
39
<PAGE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
John W. Adams, 50, has been Chairman of the Board of Directors since May 1990
and was Chief Executive Officer of the Company from September 1991 through
December 1993. He has been President of Smith Management Company, a New York-
based investment firm since January 1984. Mr. Adams served as Co-Chairman of
the Official Creditors' Committee during the Company's reorganization
proceedings from March 1988 to December 1990. From 1975 to 1983, Mr. Adams
was a partner with the law firm of Dillon, Bitar and Luther in New Jersey.
Corley R. Barnes, 42, has been a director of the Company since May 1990. He
is a private investor and a financial consultant to various publicly and
privately held companies, including certain companies in the health care
industry. Mr. Barnes served on the Official Creditors' Committee during the
Company's reorganization proceedings from March 1988 through December 1990.
Laraine K. Beck, 43, has been a director of the Company since May 1990. Since
December 1992, Ms. Beck has been the Senior Credit Manager at Rykoff/Sexton, a
food service distribution company based in Los Angeles, California. Prior to
joining Rykoff, Ms. Beck was the Regional Credit Manager of Kraft Food
Service, a food production and distribution company from 1978 to 1992 and
served as Co-Chairman of the Official Creditors' Committee during the
Company's reorganization proceedings from March 1988 through December 1990.
From 1975 to 1978, Ms. Beck was employed as Credit Manager of White Motor
Credit, a truck manufacturing company, located in Dallas, Texas.
Robert G. Coo, 52, has been a director of the Company since January 1991.
Also since January 1991, Mr. Coo has been Vice President, Chief Financial
Officer and Secretary of Pengo Industries, Inc., the parent company of two
manufacturing companies - Pengo Corporation and Goex, Inc. From 1987 to 1990,
Mr. Coo was Vice President, Finance and Secretary of Renewable Resource
Systems, Inc., a privately owned, diversified venture capital company. Mr.
Coo has been a director of First National Bank, whose headquarters are located
in San Diego, California, since October 1993. Mr. Coo is the brother-in-law
of Mr. Adams.
John F. Nickoll, 59, has been a director of the Company since November 1991.
Since 1970, he has been Vice Chairman, Co-Chief Executive Officer, Chief
Operating Officer and President of The Foothill Group, Inc. and Chairman and
Chief Executive Officer of Foothill Capital Corporation, a subsidiary of The
Foothill Group. Mr. Nickoll is also a director of Carson Pirie Scott & Co.,
Inc.; a director of CIM-High Yield Securities, Inc., a closed-end investment
company; and a director of American Healthcare Management, Inc., an owner and
manager of acute care hospitals.
Arthur J. Pasmas, 59, has been a director of Care since December 1993, when he
was elected to fill the vacancy created by the death of a board member. Since
1987, Mr. Pasmas has served as a Vice President of Smith Management Company.
Prior thereto, he was founder, President, and Chief Executive Officer of
Energy Management Corporation (acquired by Smith Management Company in 1987).
He presently serves as Chairman of the Board of Pengo Industries, Inc. and of
Goex International, Inc., and is a director of Liberty National Bank, Austin,
Texas.
40
<PAGE>
<PAGE>
Richard K. Matros, 40, has been a director of the Company since November 1991,
President and Chief Operating Officer of the Company since September 1991 and
Chief Executive Officer of the Company since January 1994. Prior to September
1991, Mr. Matros was Executive Vice President, Operations of the Company from
March 1988. Before joining the Company, Mr. Matros served as Vice President
of Operations, from 1985 to 1987, and Regional Administrator, from 1983 to
1985, for Beverly Enterprises, the nation's largest long-term care company.
He has over 17 years of experience in the long-term care industry and is
President-elect of the California Association of Health Facilities.
Gary L. Massimino, 57, was appointed Chief Financial Officer of the Company in
March 1990 and Executive Vice President in September 1991. For the previous
eight years, Mr. Massimino was a financial consultant to companies in the
health care, real estate and entertainment industries in various specialized
financial projects. He has also served as Chief Financial Officer, Treasurer
and a Director of Flagg Industries, Inc., a major California-based operator of
nursing homes and real estate ventures.
Barbara A. Garner, 39, was appointed Vice President of Professional Services
in January 1988. Ms. Garner has been an Administrator and Southern Division
Quality Assurance Coordinator since joining Care in 1983. From 1978 to 1983,
she held nursing and administrator responsibilities with National Health
Enterprises and Hillhaven; both companies are providers of skilled nursing
care.
Janet M. Turner, 62, was appointed Vice President of Nursing and
Rehabilitation Centers in July 1992. Prior to her appointment, Ms. Turner was
the Company's Director of Operations from September 1991 to June 1992 and a
Regional Administrator from 1983 to 1988 and again from 1989 to 1991. From
1988 through 1989, Ms. Turner served as a Regional Administrator for ARA
Living Centers, a nationwide long-term care company based in Houston, Texas.
Ms. Turner joined Care Enterprises in 1983 in conjunction with the Company's
acquisition of Casa Blanca Convalescent Homes, Inc., a long-term care company
for which she was then Vice President of Operations for Northern California.
She has over 25 years experience in the long-term care industry including
serving as a statewide Officer for the California Association of Health
Facilities from 1976 through 1980.
Steven C. Ronilo, 44, was appointed Vice President of Human Resources in March
1990. Prior to his appointment, from 1984 to 1990, Mr. Ronilo was the
Corporate Director of Industrial Relations for Beverly Enterprises, Inc., the
nation's largest long-term care company. Prior to joining Beverly
Enterprises, Mr. Ronilo held a variety of positions in upper management
specializing in labor relations, employee relations and industrial relations
for various manufacturing companies. Mr. Ronilo has over 21 years experience
in the field of human resources, including personnel development and
administration and union negotiation.
One report to the Securities and Exchange Commission on Form 5, due February
14, 1994, was filed on March 21, 1994 by Janet M. Turner. The report covered
one transaction in December, 1993.
41
<PAGE>
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
-----------------------------------------
Annual Compensation Awards Payouts
-------------------------------------- ------------------------------ ----------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other
Annual Restricted All Other
Name and Compen- Stock Options/ LTIP Compen-
Principal sation Awards(s) SARs Payouts sation
Position Year Salary($) Bonus($) ($) ($)(1) (#) ($)(2) ($)(3)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John Adams, Chief 1993 (7) 126,000 None None None
Executive Officer 1992 (7) 73,000 None None None
1991 (7) 39,100 None None None
Richard K. Matros, 1993 250,000 125,000 10,829 (6) 25,000
President and Chief 1992 225,000 112,500 7,602 (5) 50,000
Operating Officer 1991 169,387 85,000 7,611 (4) 153,000
Gary L. Massimino, 1993 210,000 84,000 10,810 (6) 18,000
Executive Vice President 1992 190,008 65,000 6,898 (5) 35,000
Chief Financial 1991 174,578 50,000 7,751 (4) 90,000
Officer and Treasurer
Barbara Garner, Vice 1993 132,000 27,000 8,781 None
President Professional 1992 125,008 25,000 9,005 (5) 10,000
Services 1991 114,694 20,000 4,129 (4) 54,000
Janet Turner, Vice 1993 101,000 30,000 (8) 15,325 None
President Operations 1992 94,994 18,400 3,130 (5) 10,000
Long Term Care 1991 90,000 10,750 346 None
</TABLE>
(1) The Company has no restricted stock awards outstanding.
(2) The Company has no long term incentive payout plans.
(3) All compensation is reported in columns c, d, & e.
(4) SARs granted January 1, 1991.
(5) Options granted April 9, 1992.
(6) Options granted February 26, 1993.
(7) Includes $26,000, $23,000, and $14,000 in Director's fees for 1993, 1992,
and 1991, respectively.
(8) Includes $9,688 of compensation resulting from December 20, 1993 exercise
of nonqualified stock options.
42
<PAGE>
<PAGE>
Options/Stock Appreciation Rights (SAR) Grants in Last Fiscal Year
------------------------------------------------------------------
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants Option Term
- ----------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g) (h)
% of Total
Options/ Options/
SARs SARs Granted to Exercise
Granted Employees or Base
in 1993 in Fiscal Price Expiration
Name (#) Year (1) ($/Sh) Date 0%($) 5%($) 10%($)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
John Adams, None N/A N/A N/A N/A N/A N/A
Chief Executive Officer
Richard K. Matros, 25,000 28.9% $2.8750 02/26/98 $0 $19,858 $43,880
President and Chief
Operating Officer
Gary L. Massimino, 18,000 20.8% $2.8750 02/26/98 $0 $14,298 $31,594
Executive Vice President,
Chief Financial Officer
and Treasurer
Barbara Garner, Vice None N/A N/A N/A N/A N/A N/A
President Professional Services
Janet Turner, Vice None N/A N/A N/A N/A N/A N/A
President Operations
- - Long Term Care
(1) - No SARs were granted during 1993.
</TABLE>
43
<PAGE>
<PAGE>
Aggregated Option/SAR Exercises in Fiscal Year ended December 31, 1993 and
- --------------------------------------------------------------------------
December 31, 1993 Option/SAR Value
----------------------------------
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of Value of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
12/31/93 12/31/93 ($) (1)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John Adams, None N/A None None
Chief Executive Officer
Richard K. Matros, None N/A 89,000/ $ 748,875/
President and Chief 139,000 $1,095,750
Operating Officer
Gary L. Massimino, None N/A 53,750/ $ 450,469/
Executive Vice President, 89,250 $ 696,656
Chief Financial Officer
and Treasurer
Barbara Garner, Vice None N/A 29,500/ $ 250,688/
President Professional 34,500 $ 286,313
Services
Janet Turner, Vice 2,500 $9,688 0/ $ 0/
President Operations 7,500 $ 53,438
- - Long Term Care
(1) - These values are based upon the difference between the base price of all SARs awarded (and exercise
price for all options granted) and the December 31, 1993 closing price of the Company's Common Stock of
$9.625.
</TABLE>
44
<PAGE>
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information, as of March 22, 1994, with
respect to all those known by the Company to be the beneficial owners of more
than 5% of its outstanding Common Stock, each director who owns shares of
Common Stock, and all directors and executive officers of the Company as a
group. Except as otherwise indicated, the address of each individual director
is in care of the Company at 2742 Dow Avenue, Tustin, California, 92680.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent of Class
of Beneficial Owner Beneficial Ownership (1)
- ------------------- -------------------- ----------------
<S> <C> <C> <C>
The Smith Group (2) 4,700,554 35.5%
767 Third Avenue
New York, NY 10017
The Foothill Group, Inc. (3) 1,607,961 12.1%
11111 Santa Monica Blvd.
Suite 1500
Los Angeles, CA 90025
General Electric Capital 691,364 5.2%
Corporation
260 Long Ridge Road
Stamford, CT 06927
Directors:
John W. Adams (4) 64,175 *
Corley R. Barnes 15,317 *
Laraine K. Beck 100 *
Robert G. Coo (5) 25,633 *
Richard K. Matros (7) 31,356 *
John F. Nickoll (6) 37,731 *
Arthur J. Pasmas (8) -- --
All executive officers (4) 217,390 1.6%
and directors as a (6)
group (11 persons) (9)
- ----------------------
* less than 1%
</TABLE>
(1) Common Stock consists of 13,243,168 shares issued and outstanding as
of March 22, 1994.
(2) According to reports filed with the Securities and Exchange Commission
and Company records, the aggregate number of shares reported for the
45
<PAGE>
<PAGE>
Smith Group is beneficially owned by a group comprised of SOLVation
Inc., d/b/a/ Smith Management Company, Randall D. Smith, Gary M. Smith,
Energy Management Corporation, Woodstead Associates, L.P., The Durian
Trust and SEGA Associates, L.P.
(3) According to the most recent reports filed with the Commission and Care
records, the aggregate number of shares reported for The Foothill Group
was 3,161,729 and includes shares beneficially owned by The Foothill
Group, Inc., a Delaware corporation, The Foothill Fund, a California
limited partnership, Foothill Capital Corporation, a California
corporation, Foothill Partners L.P., a Delaware Limited Partnership, as
well as 35,803 shares owned directly by John F. Nickoll. On March 3,
1994, The Foothill Fund distributed 1,663,857 shares of Care Common
Stock in connection with the liquidation of the partnership following
the expiration of the partnership term. Of such amount, 1,928 shares
were distributed to John F. Nickoll and 108,161 shares were distributed
to The Foothill Group.
(4) Mr. Adams is the sole general partner of SEGA Associates, L.P. and
accordingly has voting control and beneficial ownership of 64,175 shares
of Care Common Stock held by SEGA Associates, L.P. Mr. Adams is also
the President of Smith Management Company and indirectly owns 4.2% of
Smith Management Company.
(5) Mr. Coo is the brother-in-law of John W. Adams.
(6) John F. Nickoll is the President, Co-Chief Executive Officer and a
Director of The Foothill Group, Inc.
(7) Richard K. Matros is President and Chief Executive Officer of the
Company. Beneficial ownership includes 31,250 shares that could be
purchased within 60 days of March 22, 1994 upon exercise of stock
options, but does not include SARs.
(8) Arthur J. Pasmas is Vice President of Smith Management Company.
(9) Includes 64,500 shares that could be purchased within 60 days of March
22, 1994 upon exercise of stock options, including 31,250 shares that
could be purchased by Mr. Matros, and 22,000 shares that could be
purchased by Mr. Massimino. Does not include SARs.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Smith Management Company and its affiliated companies ("Smith") and Foothill
Capital Corporation ("Foothill Capital"), Foothill Group, Inc. and its
affiliates ("Foothill") are significant shareholders of Care. John W. Adams,
Chairman of the Board of Directors of Care (and, until January 1994, Care's
Chief Executive Officer), is President of Smith Management Company. Arthur J.
Pasmas, a director of Care, is also employed by Smith. Mr. Adams received a
fee for services as chief executive officer of Care at the rate of $50,000 per
annum until December 31, 1992 and at the rate of $100,000 per annum for fiscal
year 1993. John F. Nickoll, a director of Care, is President and Co-Chief
Executive Officer and a director of The Foothill Group, Inc.
In December 1990 and January 1991, Care issued to Smith and Foothill an
aggregate of $3,000,000 of Convertible Exchangeable Notes. These notes were
converted by their terms into 2,679,000 shares of Common Stock in November
1991.
46
<PAGE>
<PAGE>
In April 1991, Care engaged Smith to assist in the development and
implementation of a program that would improve Care's liquidity. Under this
agreement, Care paid Smith an aggregate of $218,000 for 1992 and $100,000 for
1991. This agreement expired on December 31, 1992.
In December 1992, Care sold 1,633,000 shares of Common Stock to Smith and
Foothill Capital for $4,000,000. In connection with this transaction, Smith
and Foothill Capital have registration rights whereby they can join Care in a
registration if Care chooses to register other shares of Common Stock with the
Commission.
In January 1992, Foothill Capital purchased from Wells Fargo Bank, N.A. a Term
Note obligation of Care, which had a principal amount of $13,212,722 and which
was scheduled to mature on April 20, 1995, and accrued interest at the rate of
Prime plus 2%. As part of the Term Note purchase, Foothill Capital also
acquired a standby letter of credit obligation of Care with a principal amount
of $4,316,000. The Term Note obligation was repaid in full by Care on
December 30, 1993.
In March 1993, Care obtained a commitment for a $3,500,000 increase in its
working capital facility provided by Foothill Capital. This facility was
secured by certain of Care's nursing and rehabilitation centers and certain
accounts receivable, and was to bear interest at a rate of Prime plus 3%. The
facility was terminated and the collateral released on December 30, 1993.
Until December 30, 1993, Care had a $1,000,000 working capital facility made
available by Foothill Capital. This facility bore interest at a rate
approximating Citibank N.A.'s prime rate plus 3%, payable quarterly, and was
secured by one of Care's properties. This facility was terminated, all
outstanding indebtedness was retired and the collateral was released on
December 30, 1993.
47
<PAGE>
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K
(a) Set forth below is a list of Financial Statements and Financial Statement
Schedules filed as part of this Report:
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
1. Financial Statements: Page
----
Report of Independent Auditors 18
Consolidated Balance Sheets at December 31, 1993 and 1992 19
Consolidated Statements of Operations,
Years Ended December 31, 1993, 1992 and 1991 20
Consolidated Statements of Shareholders' Equity,
Years Ended December 31, 1993, 1992 and 1991 21
Consolidated Statements of Cash Flows,
Years Ended December 31, 1993, 1992 and 1991 22
Notes to Consolidated Financial Statements 24
2. Financial Statement Schedules:
Schedule IV - Indebtedness of and to related parties - not current 55
Schedule V - Property and equipment 56
Schedule VI - Accumulated depreciation and amortization 57
Schedule VIII - Valuation and qualifying accounts 58
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and therefore have been omitted.
3. Exhibits:
Reference is made to the Exhibit Index which is filed as part of this annual
report.
(b) Reports on Form 8-K:
The Company filed the following reports on Form 8-K during the quarter ended
December 31, 1993:
Date Item Reported
- ------------------------ --------------------------
December 20, 1993 Merger Agreement with Regency
Health Services, Inc.
December 30, 1993 Sale of Senior Secured Notes
48
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
CARE ENTERPRISES, INC.
(Registrant)
March 24, 1994 /S/ John W. Adams
- ---------------------- ------------------------------
Date John W. Adams
Chairman of the Board
March 24, 1994 /S/ Gary L. Massimino
- ---------------------- ------------------------------
Date Gary L. Massimino
Executive Vice President
Chief Financial Officer
49
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on the date or dates indicated below, by the following
persons on behalf of the registrant in the capacities indicated.
CARE ENTERPRISES, INC.
(Registrant)
March 24, 1994 /S/ John W. Adams
- ---------------------- ------------------------------
Date John W. Adams, Chairman
March 24, 1994 /S/ Corley R. Barnes
- ---------------------- ------------------------------
Date Corley R. Barnes, Director
March 24, 1994 /S/ Laraine K. Beck
- ---------------------- ------------------------------
Date Laraine K. Beck, Director
March 24, 1994 /S/ Robert G. Coo
- ---------------------- ------------------------------
Date Robert G. Coo, Director
March 24, 1994 /S/ Richard K. Matros
- ---------------------- ------------------------------
Date Richard K. Matros, Director
March 24, 1994 /S/ John F. Nickoll
- ---------------------- ------------------------------
Date John F. Nickoll, Director
March 24, 1994 /S/ Arthur J. Pasmas
- ---------------------- ------------------------------
Date Arthur J. Pasmas, Director
50
<PAGE>
<PAGE>
INDEX TO EXHIBITS
(ITEM 14(a) (3))
Sequential
Exhibit Numbered
Number Description Page
- ---------- ------------------------------------------------ ------
2.1 Debtors' and Official Creditors Committee's (A)
Joint Plan of Reorganization.
2.2 Order confirming Debtors' and Creditors' (B)
Committee's Joint Consolidated Plan of
Reorganization.
2.5 Agreement and Plan of Merger, dated as of (M)
December 20, 1993, between Regency Health
Services, Inc. and Care Enterprises, Inc.
2.6 Amendment to Agreement and Plan of Merger, (O)
dated as of January 7, 1994, between
Regency Health Services, Inc. and
Care Enterprises, Inc.
3.1 Restated Certificate of Incorporation of (C)
Care Enterprises, Inc., a Delaware
corporation.
3.2 Restated By-Laws of Care Enterprises, Inc. (C)
3.3 Certificate of Amendment of Restated (D)
Certificate of Incorporation of Care
Enterprises, Inc.
4.1 Form of Transfer Restriction Agreement (D)
4.2 Certificate of Designations, Preferences (D)
and Relative, Participating, Optional or
Other Special Rights of Series A Convertible
Preferred Stock of CARE ENTERPRISES, INC.
4.3 1992 Stock Option Plan of the Registrant. (F)
4.4 Form of Incentive Stock Option Agreement for (G)
Employees of the Registrant.
4.5 Form of Nonqualified Stock Option Agreement for (H)
Employees and Consultants of the Registrant.
4.6 Registrant's Share Appreciation Rights Plan, (I)
as amended.
4.7 Form of Agreement Regarding Allocation of Units (J)
Under Registrant's Share Appreciation Rights Plan.
10.14 Stock Purchase Agreement dated as of (K)
December 15, 1992 between Care Enterprises, Inc.,
Foothill Group Inc., Foothill Partners and
Energy Management Corporation
51
<PAGE>
<PAGE>
10.15 Partnership agreement dated April 1, 1992 between (L)
Medisave Pharmacies, Inc. and HealthCare Network,
Incorporated.
10.16 Voting Agreement, dated December 27, 1993 between (M)
Care Enterprises, Inc. and certain shareholders
of Regency Health Services, Inc. named therein.
10.17 Voting Agreement, dated December 27, 1993 between (M)
Regency Health Services, Inc. and certain shareholders
of Care Enterprises, Inc. named therein.
10.18 Note Agreement dated as of December 15, 1993 between (N)
Care Enterprises, Inc. and the Purchasers
named on Schedule I to the Note Agreement.
10.19 Indenture of Trust dated as of December 15, 1993 (N)
between Care Enterprises, Inc. and State Street Bank
and Trust Company of Connecticut, National Association,
as Indenture Trustee.
10.20 Guaranty Agreement dated as of December 15, 1993 in (N)
favor of Note Holders by certain subsidiaries of
Care Enterprises, Inc.
10.21 Letter Agreement dated December 29, 1993 (N)
between Wells Fargo Bank, National Association
and Care Enterprises, Inc.
10.22 Form of Deeds of Trust relating to the 8.1% (O)
Senior Secured Notes with a corresponding
schedule pursuant to Regulation S-K Item 601
instruction 2.
10.23 Form of Open-End Mortgage and Security Agreement (O)
relating to the 8.1% Senior Secured Notes
with a corresponding schedule pursuant to
Regulation S-K Item 601 instruction 2.
10.24 Agreement dated as of December 30, 1993 (O)
between Care Enterprises, Inc. and the
Purchasers of the 8.1% Senior Secured Notes.
10.25 Agreement dated July 1, 1993 between (O)
Mabon Securities Corp. and Care Enterprises,
Inc. to provide investment banking services.
10.26 Agreement dated November 15, 1993 between (O)
Merrill Lynch & Co. and Care Enterprises, Inc.
to provide advisory services.
10.27 Business loan agreement dated as of (O)
March 1, 1994, between Care Enterprises, Inc.
and Bank of America National Trust
and Savings Association.
10.28 Third Amendment to Lease, dated as of (O)
October 22, 1992, by and among certain
lessors and Care Enterprises, West.
52
<PAGE>
<PAGE>
10.29 Amendment to Agreement of Lease re: (O)
Calistoga Convalescent Hospital dated
August 21, 1992 between certain lessors
and Care Enterprises, West.
10.30 Employment Agreement dated January 1, 1993 (O)
between Care Enterprises, Inc. and
Richard K. Matros.
10.31 Employment Agreement dated January 1, 1993 (O)
between Care Enterprises, Inc. and
Gary L. Massimino.
10.32 Form of Deeds of Trust relating to the 8.1% (O)
Senior Secured Notes with a corresponding
schedule pursuant to Regulation S-K Item 601
instruction 2.
21 Subsidiaries of Registrant. (O)
23 Consent of Ernst & Young (O)
99.2 8.10% Senior Secured Note from (N)
Care Enterprises, Inc. to John Hancock
Life Insurance Company of America in the
original principal amount of $1,000,000,
dated December 30, 1993.
99.3 8.10% Senior Secured Note from (N)
Care Enterprises, Inc. to Mellon Bank, N.A.,
Trustee under Master Trust Agreement of
NYNEX Corporation dated January 1, 1984
for Employee Pension Plans - NYNEX -
John Hancock - Private Placement in the
original principal amount of $2,000,000,
dated December 30, 1993.
99.4 8.10% Senior Secured Note from (N)
Care Enterprises, Inc. to Anchor National
Life Insurance Company in the
original principal amount of $15,000,000,
dated December 30, 1993.
99.5 8.10% Senior Secured Note from (O)
Care Enterprises, Inc. to John Hancock
Mutual Life Insurance Company in the
original principal amount of $7,000,000,
dated December 30, 1993.
99.6 8.10% Senior Secured Note from (O)
Care Enterprises, Inc. to John Hancock
Mutual Life Insurance Company in the
original principal amount of $5,000,000,
dated December 30, 1993.
99.7 Annual Report on Form 11-K for (E)
Employee Retirement Savings Plan for
the year ended December 31, 1992.
53
<PAGE>
<PAGE>
(A) Incorporated by reference from Exhibit 28.1 to Care's Current
Report on Form 8-K dated December 29, 1989.
(B) Incorporated by reference from the same numbered exhibit to Care's
Annual Report on Form 10-K for the fiscal year ended December 31,
1989.
(C) Incorporated by reference from the same numbered exhibit to Care's
Current Report on Form 8-K dated April 20, 1990.
(D) Incorporated by reference from the same numbered exhibit to Care's
8-A filed on December 28, 1990.
(E) Incorporated by reference.
(F) Incorporated by reference from Exhibit 4.1 to Care's Registration
Statement on Form S-8 dated March 16, 1992.
(G) Incorporated by reference from Exhibit 4.2 to Care's Registration
Statement on Form S-8 dated March 16, 1992.
(H) Incorporated by reference from Exhibit 4.3 to Care's Registration
Statement on Form S-8 dated March 16, 1992.
(I) Incorporated by reference from Exhibit 4.4 to Care's Registration
Statement on Form S-8 dated March 16, 1992.
(J) Incorporated by reference from Exhibit 4.5 to Care's Registration
Statement on Form S-8 dated March 16, 1992.
(K) Incorporated by reference from Exhibit 10.1 to Care's Current
Report on Form 8-K filed on December 22, 1992.
(L) Incorporated by reference from the same numbered exhibit to Care's
Annual Report on Form 10-K for the fiscal year ended December 31,
1992.
(M) Incorporated by reference from the same numbered exhibit to Care's
Current Report on Form 8-K filed on December 20, 1993.
(N) Incorporated by reference from the same numbered exhibit to Care's
Current Report on Form 8-K filed on December 30, 1993.
(O) Filed with this report.
54
<PAGE>
<PAGE>
CARE ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE IV - INDEBTEDNESS OF AND TO RELATED PARTIES
<TABLE>
<CAPTION>
Indebtedness of - Indebtedness to -
-------------------------------------------------- ---------------------------------------------
Col. A Col. B. Col. C Col. D Col. E Col. F Col. G Col. H Col. I
- ------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at Balance at Balance at Balance
beginning at end of beginning at end of
Description of period Additions Deductions period of period Additions Deductions period
- ------------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended
December 31, 1993
- ------------------
Foothill Capital
Corporation
Term Notes $ 9,375 $ -- $ 9,375 $ --
Working capital loan 1,000 -- 1,000 --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$ -- $ -- $ -- $ -- $ 10,375 $ -- $ 10,375 $ --
========== ========== ========== ========== ========== ========== ========== ==========
Year Ended
December 31, 1992
- ------------------
Foothill Capital
Corporation
Term Notes $ -- $ 13,213 (a) $ 3,838 $ 9,375
Working capital loan -- 1,000 (b) -- 1,000
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$ -- $ -- $ -- $ -- $ -- $ 14,213 $ 3,838 $ 10,375
========== ========== ========== ========== ========== ========== ========== ==========
Year Ended
December 31, 1991
- ------------------
$ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
========== ========== ========== ========== ========== ========== ========== ==========
(a) In January 1992, Foothill Capital Corporation acquired from Wells Fargo
Bank, N.A. a 50% interest in the Company's Term note obligation.
(b) Borrowings under the working capital loan.
</TABLE>
55
<PAGE>
<PAGE>
CARE ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE V - PROPERTY AND EQUIPMENT
(in thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Col. A Col. B. Col. C Col. D Col. E Col. F
- ---------------------------- ----------- ----------- ----------- ----------- -----------
Balance at Other Balance
beginning Additions Charges at end of
Classification of period at cost Retirement add (deduct) period
- ----------------------------- ----------- ----------- ----------- ----------- -----------
Year Ended December 31, 1993
----------------------------
<S> <C> <C> <C> <C> <C>
Land and land improvements $ 8,711 $ 657 $ 54 $ 1,175 (a) $ 10,489
Buildings 37,469 1,572 -- 2,819 (a) 41,860
Leasehold interests and
improvements 19,409 1,321 -- ( 1,908)(a) 18,822
Equipment 10,901 1,915 90 12 (a) 12,738
Capitalized leases 3,181 -- -- ( 2,531)(a) 650
----------- ----------- ----------- ----------- -----------
Totals $ 79,671 $ 5,465 $ 144 $( 433) $ 84,559
=========== =========== =========== =========== ===========
Year Ended December 31, 1992
----------------------------
Land and land improvements $ 8,659 $ 166 $ 114 $ -- $ 8,711
Buildings 37,008 470 9 -- 37,469
Leasehold interests and
improvements 18,635 964 190 -- 19,409
Equipment 10,081 1,886 1,066 -- 10,901
Capitalized leases 3,087 94 -- -- 3,181
----------- ----------- ----------- ----------- -----------
Totals $ 77,470 $ 3,580 $ 1,379 $ -- $ 79,671
=========== =========== =========== =========== ===========
Year Ended December 31, 1991
----------------------------
Land and land improvements $ 8,334 $ 101 $ 1,030 $ 1,254 (b) $ 8,659
Buildings 36,415 413 3,327 3,507 (b) 37,008
Leasehold interests and
improvements 13,673 1,167 1,064 4,859 (b) 18,635
Equipment 7,766 1,898 875 1,292 (b) 10,081
Capitalized leases 3,089 -- 2 -- 3,087
----------- ----------- ----------- ----------- -----------
Totals $ 69,277 $ 3,579 $ 6,298 $ 10,912 $ 77,470
=========== =========== =========== =========== ===========
</TABLE>
(a) Reclassification of previously leased assets to owned assets.
(b) Restoration of assets previously classified as held for sale.
56
<PAGE>
<PAGE>
CARE ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION
(in thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
Col. A Col. B. Col. C Col. D Col. E Col. F
- ---------------------------- ----------- ----------- ----------- ----------- -----------
Balance at Additions Other Balance
beginning charged to Charges at end of
Classification of period cost & exp. Retirements add (deduct) period
- ----------------------------- ----------- ----------- ----------- ----------- -----------
Year Ended December 31, 1993
----------------------------
<S> <C> <C> <C> <C> <C>
Land and land improvements $ 78 $ 51 $ -- $ 9 (a) $ 138
Buildings 2,351 1,235 -- 281 (a) 3,867
Leasehold interests and
improvements 4,047 1,780 -- ( 488)(a) 5,339
Equipment 3,560 1,820 35 4 (a) 5,349
Capitalized leases 469 250 -- ( 239)(a) 480
----------- ----------- ----------- ----------- -----------
Totals $ 10,505 $ 5,136 $ 35 $( 433) $ 15,173
=========== =========== =========== =========== ===========
Year Ended December 31, 1992
----------------------------
Land and land improvements $ 30 $ 48 $ -- $ -- $ 78
Buildings 1,167 1,187 3 -- 2,351
Leasehold interests and
improvements 2,127 1,958 38 -- 4,047
Equipment 1,932 1,870 242 -- 3,560
Capitalized leases 232 237 -- -- 469
----------- ----------- ----------- ----------- -----------
Totals $ 5,488 $ 5,300 $ 283 $ -- $ 10,505
=========== =========== =========== =========== ===========
Year Ended December 31, 1991
----------------------------
Land and land improvements $ -- $ 34 $ 4 $ -- $ 30
Buildings -- 1,262 95 -- 1,167
Leasehold interests and
improvements -- 2,268 141 -- 2,127
Equipment -- 2,081 149 -- 1,932
Capitalized leases -- 232 -- -- 232
----------- ----------- ----------- ----------- -----------
Totals $ -- $ 5,877 $ 389 $ -- $ 5,488
=========== =========== =========== =========== ===========
</TABLE>
(a) Reclassification of previously leased assets to owned assets.
57
<PAGE>
<PAGE>
CARE ENTERPRISES, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Col. A Col. B. Col. C Col. D Col. E
- ----------------------------- ------------- ---------------------------- ----------- -----------
Additions
----------------------------
Balance at Charged to Charged to Balance
beginning costs and other accounts at end of
Description of period expenses (describe) Deductions period
- ----------------------------- ------------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Deducted from the assets
to which they apply:
Year Ended
December 31, 1993
- -----------------
Allowance for doubtful accounts $ 2,595 $ 87 $ -- $ 1,049 $ 1,633
Allowance for mortgage loan losses 937 -- 727 (a) -- 1,664
------------- ------------- ------------- ----------- -----------
$ 3,532 $ 87 $ 727 $ 1,049 $ 3,297
============= ============= ============= =========== ===========
Year Ended
December 31, 1992
- -----------------
Allowance for doubtful accounts $ 3,404 $ 30 $ -- $ 839 $ 2,595
Allowance for mortgage loan losses 1,074 117 -- 254 937
------------- ------------- ------------- ----------- -----------
$ 4,478 $ 147 $ -- $ 1,093 $ 3,532
============= ============= ============= =========== ===========
Year Ended
December 31, 1991
- -----------------
Allowance for doubtful accounts $ 2,487 $ 1,036 $ 105 $ 224 $ 3,404
Allowance for mortgage loan losses 2,999 511 -- 2,436 1,074
------------- ------------- ------------- ----------- -----------
$ 5,486 $ 1,547 $ 105 $ 2,660 $ 4,478
============= ============= ============= =========== ===========
(a) Reserve established against note received by Care.
</TABLE>
58
AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
This Amendment to Agreement and Plan of Merger, dated as of January 7,
1994, is entered into by and between Regency Health Services, Inc., a
Delaware corporation ("Regency"),and Care Enterprises, Inc., a Delaware
corporation ("Care").
WHEREAS, Regency and Care entered into the Agreement and Plan of
Merger (the "Merger Agreement"), dated as of December 20, 1993; and
WHEREAS, Regency and Care desire to amend the Merger Agreement to
provide that the Merger (as defined in the Merger Agreement) shall occur
by merging a newly formed wholly owned subsidiary of Regency with and into
Care in a tax-free reorganization under section 368(a)(2)(E) of the
Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the foregoing, and the mutual
covenants and agreements set forth herein and such other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. Section 2.1 of the Merger Agreement is hereby amended and restated
in its entirety as follows:
Section 2.1 The Merger. Upon the terms and subject to the
satisfaction or waiver of the conditions set forth in Article VIII, and
in accordance with the GCL, at the Effective Time, Care Merger Sub,
Inc., a Delaware corporation and wholly owned subsidiary of Regency to
be formed prior to the Effective Time ("Merger Sub"), shall be merged
with and into Care. As a result of the Merger, the separate corporate
existence of Merger Sub shall cease and Care shall continue as the
surviving corporation of the Merger (the "Surviving Subsidiary") and
shall succeed to and assume all the rights and obligations of Merger
Sub.
2. Section 2.4 of the Merger Agreement is hereby amended and restated
in its entirety as follows:
Section 2.4 Certificate of Incorporation and Bylaws.
(a) The Restated Certificate of Incorporation of Regency (the
"Regency Certificate"), attached hereto as Exhibit A, shall be the
Certificate of Incorporation of Regency following the Merger.
(b) The Bylaws of Regency as in effect immediately prior to the
Effective Time shall be the Bylaws of Regency following the Merger
(until duly amended in accordance with applicable law).
(c) The officers and directors of Regency following the Merger
shall be as set forth on Exhibit C.
(d) The Certificate of Incorporation of Merger Sub as in effect
immediately prior to the Effective Time shall be substantially in the
form of Exhibit A and shall be the Certificate of Incorporation of the
Surviving Subsidiary (the "Surviving Subsidiary Certificate"), except
that the name of the corporation specified therein shall be Care
Enterprises, Inc.
(e) The Bylaws of Merger Sub as in effect immediately prior to
the Effective Time shall be substantially in the form of Exhibit B and
shall be the Bylaws of the Surviving Subsidiary (until duly amended in
accordance with applicable law).
(f) The directors of the Surviving Subsidiary following the
Merger shall be those persons set forth on Exhibit C as directors of
Regency. The officers of the Surviving Subsidiary following the Merger
shall be those persons set forth on Exhibit C as officers of Regency,
each to hold the same office that he will hold in Regency.
3. Section 2.6 of the Merger Agreement is hereby amended and restated
in its entirety as follows:
Section 2.6 Conversion of Care Common Stock in the Merger. At the
Effective Time, by virtue of the Merger and without any action on the
part of any holder of any capital stock of Regency, Care or Merger Sub:
(i) each share of Care Common Stock issued and outstanding immediately
prior to the Effective Time (other than any such shares owned by
Regency or any of its Subsidiaries, held in Care's treasury or owned by
any Subsidiary of Care, and other than Dissenting Shares) shall
automatically be converted into 0.71 of a share of Regency Common Stock
(the "Exchange Ratio"); (ii) each share of Care Common Stock issued and
outstanding immediately prior to the Effective Time and owned by
Regency or any of its Subsidiaries, held in Care's treasury or owned by
any Subsidiary of Care, shall be cancelled and cease to exist at and
after the Effective Time and no consideration shall be delivered with
respect thereto; (iii) each share of common stock of Merger Sub shall
be converted into and become one share of Common stock of the Surviving
Subsidiary; and (iv) each share of common stock of Surviving Subsidiary
issued and outstanding and owned by Regency immediately prior to the
Effective Time shall be cancelled and cease to exist at and after the
Effective Time and no consideration shall be delivered with respect
thereto.
4. Section 2.8(e) of the Merger Agreement is hereby amended and
restated in its entirety as follows:
(e) All shares of Regency Common Stock issued upon the
surrender for exchange of shares of Care Common Stock in accordance with
the terms hereof (including any cash paid pursuant to Section 2.8(d))
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Care Common Stock, subject, however, to
the Surviving Subsidiary's obligation to pay any dividends or make any
other distributions with a record date prior to the Effective Time
which may have been declared or made by Care on such shares of Care
Common Stock in accordance with the terms of this Agreement or prior to
the date hereof and which remain unpaid at the Effective Time, and
there shall be no further registration of transfers on the stock
transfer books of the Surviving Subsidiary of shares of Care Common
Stock that were outstanding immediately prior to the Effective Time.
If, after the Effective Time, Certificates are presented to the
Surviving Subsidiary for any reason, they shall be cancelled and
exchanged as provided in this Article II.
5. Section 3.1 of the Merger Agreement is hereby amended and restated
in its entirety as follows:
Section 3.1 Actions to be Taken by Regency and Merger Sub at the
Effective Time with Respect to Corporate Governance. Regency and
Merger Sub shall take all actions necessary to cause each of the
following to occur at the Effective Time:
(a) The Bylaws of Regency (the "Regency Bylaws") shall be
amended and restated in their entirety as set forth in Exhibit B hereto.
(b) The Bylaws of Surviving Subsidiary (the "Surviving
Subsidiary Bylaws") shall be amended and restated in their entirety
substantially as set forth in Exhibit B hereto.
(c) The number of directors constituting the entire Board of
Directors of Regency shall be eight. Initially, such Board of
Directors shall be comprised of the persons listed as such on Exhibit C
hereto, and they shall serve as members of the classes therein
indicated. If, prior to the Effective Time, one or more of such person
are unwilling, or are unable, to serve as a director, their
replacements(s) shall be selected by the Regency Board of Directors if
the word "Regency" appears opposite such person's name on Exhibit C, or
the Care Board of Directors is the word "Care" appears opposite such
person's name on Exhibit C.
(d) The Board of Directors of the Surviving Subsidiary shall be
comprised of those persons listed on Exhibit C as directors of Regency.
(e) The officers of Regency shall be the persons designated on
Exhibit C hereto, holding the positions and having the responsibilities
therein indicated; provided, that if any such persons are unwilling or
unable to serve in such capacities, their replacements shall be
selected by the Regency Board of Directors as constituted immediately
after the Effective Time.
(f) The officers of Surviving Subsidiary shall be the persons
designated on Exhibit C hereto as officers of Regency, each to hold the
same office that he will hold in Regency.
(g) The foregoing directors and officers of Regency and
Surviving Subsidiary shall hold their positions until their death,
resignation or removal or the election or appointment of their successors
in the manner provided in the Regency Certificate and the Regency Bylaws
or the Surviving Subsidiary Certificate and the Surviving Subsidiary
Bylaws, as the case may be, and applicable law.
6. Article VII of the Merger Agreement is hereby amended and
supplemented to add the following Section 7.18:
Section 7.18 Merger Sub Activities. Until the Effective Time (i)
except in connection with or furtherance of the transactions
contemplated by this Agreement, Merger Sub will incur no obligations or
liabilities nor engage in any business or activities of any type or
kind whatsoever or enter into any agreements or arrangements with any
person or entity and (ii) Merger Sub will take no action that would
jeopardize the treatment of the transactions contemplated hereby as a
"pooling of interests" for accounting purposes.
7. Section 8.3(e) is hereby amended and restated in its entirety as
follows:
(e) Care shall have received an opinion of Sidley & Austin, in
form and substance satisfactory to Care, dated the Effective Time,
substantially to the effect that on the basis of facts, representation
and assumptions set forth in such opinion which are consistent with the
state of facts existing as of the Effective Time:
(i) The Merger will constitute a reorganization for Federal
income tax purposes within the meaning of Section 368(a) of the
Code, and Care, Merger Sub and Regency will each be a party to
that reorganization within the meaning of Section 368(b) of the
Code;
(ii) No gain or loss will be recognized by Care as a result
of the Merger;
(ii) No gain or loss will be recognized by the stockholders
of Care upon the conversion of their Care Common Stock into
shares of Regency Common Stock pursuant to the Merger except
with respect to cash, if any, received in lieu of fractional
shares of Regency Common Stock;
(iv) The aggregate tax basis of the shares of Regency
Common Stock received in exchange for shares of Care Common
Stock pursuant to the Merger will be the same as the aggregate
tax basis of such shares of Care Common Stock, decreased by the
amount of any tax basis allocable to the fractional share
interest for which cash is received; and
(v) The holding period for shares of Regency Common Stock
received in exchange for shares of Care Common Stock pursuant
to the Merger will include the period that such shares of
Common Stock were held by the holder, provided such shares of
Care Common Stock were held as capital assets by the holder on
the Effective Time.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
signed by their respective officers thereunto duly authorized as of the
date first written above.
REGENCY HEALTH SERVICES, INC.
By: /S/ Cecil Mays
----------------------
Name: Cecil Mays
Title: Chairman of the Board
of Directors, Chief
Executive Officer and
President
CARE ENTERPRISES, INC.
By: /S/ Richard K. Matros
----------------------
Name: Richard K. Matros
Title: President and
Chief Executive
Officer
DEED OF TRUST AND SECURITY AGREEMENT
DATED AS OF DECEMBER 15, 1993
FROM
CARE ENTERPRISES, INC.
(the "Grantor")
TO
CHICAGO TITLE COMPANY
(the "Deed of Trust Trustee")
FOR THE BENEFIT OF
STATE STREET BANK AND TRUST COMPANY
OF CONNECTICUT, NATIONAL ASSOCIATION
AND
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, NATIONAL ASSOCIATION
(the "Beneficiary")
(___________ County, California)
This instrument was prepared by
and after recordation this instrument
should be returned to:
Shelley J. Bacastow
Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
TABLE OF CONTENTS
SECTION HEADING PAGE
Parties 1
Granting Clauses 2
Section 1. Definitions 5
Section 2. General Covenants and Warranties 6
Section 2.1. Note Covenants 6
Section 2.2. Ownership of Granted Property 6
Section 2.3. Further Assurances 7
Section 2.4. Payment of Indebtedness Hereby Secured 7
Section 2.5. Maintenance of Granted Property, Other
Liens, Compliance with Laws, etc 7
Section 2.6. Insurance 8
Section 2.7. Payment of Taxes and Other Charges 9
Section 2.8. Limitation on Liens 10
Section 2.9. Advances 11
Section 2.10. Recordation 11
Section 2.11. After-Acquired Property 11
Section 2.12. Sale, Lease or Assignment of
Granted Property 12
Section 3. Possession, Use and Release of Property 12
Section 3.1. Grantor's Right of Possession 12
Section 3.2. Release of Granted Property 12
Section 3.3. Eminent Domain 12
Section 4. Application of Insurance Proceeds and
Condemnation Awards 13
Section 5. Defaults and Remedies Therefor 14
Section 5.1. Events of Default 14
Section 5.2. Remedies 14
Section 5.3. Application of Proceeds 16
Section 5.4. Waiver of Extension, Appraisement and
Stay Laws 16
Section 5.5. Effect of Discontinuance of Proceedings 17
Section 5.6. Delay or Omission Not a Waiver 17
Section 5.7. Costs and Expenses of Foreclosure 17
Section 6. Miscellaneous 18
Section 6.1. Successors and Assigns 18
Section 6.2. Partial Invalidity 18
Section 6.3. Addresses for Notices and Demands 18
Section 6.4. Headings and Table of Contents 18
Section 6.5. Release of Deed of Trust 18
Section 6.6. Governing Law 19
Section 6.7. Counterparts 19
Section 6.8. Successor Deed of Trust Trustee 19
Signature 20
Attachments to Deed of Trust:
Annex A - Legal Description of Real Property
This Deed of Trust and Security Agreement dated as of December 15, 1993
("Deed of Trust") is from Care Enterprises, Inc., a Delaware corporation (the
"Grantor"), having its principal office at 2742 Dow Avenue, Tustin, California
92680, Attention: Chief Financial Officer, telephone: (714) 544-4443,
telefacsimile: (714) 544-4443, ext. 2701, to Chicago Title Company, a
California corporation, as Trustee (the "Deed of Trust Trustee"), having its
post office address at 700 S. Flower Street, Los Angeles, California,
telephone: (213) 488-4300, telefacsimile: (213) 488-0282, for the benefit
of, and to, State Street Bank and Trust Company of Connecticut, National
Association, as Indenture Trustee, and to, State Street Bank and Trust Company
of California, National Association, as Indenture Co-Trustee, for the holders
of the indebtedness secured hereby (collectively, the "Beneficiary"), having
their principal office at 750 Main Street, Hartford, Connecticut 06103,
Attention: Securities Investment Division, telephone: (203) 244-1800,
telefacsimile: (203) 244-1890.
Recitals:
A. The Grantor has executed and delivered the Note Agreement, dated
as of December 15, 1993 (the "Note Agreement"), providing for the terms and
conditions under which the purchasers named in Schedule I thereto will
purchase $30,000,000 aggregate principal amount of the 8.10% Senior Secured
Notes due December 15, 2000 issued by the Grantor (the "Notes"). The Notes
are to be issued under the Indenture of Trust dated as of December 15, 1993
(the "Indenture") between the Grantor and State Street Bank and Trust Company
of Connecticut, National Association, as indenture trustee (the "Indenture
Trustee"). The Notes will each be dated the date of issue thereof, will bear
interest at the rate of 8.10% per annum prior to maturity, will be subject to
prepayments of principal as specified in Section 5 of the Indenture and will
otherwise be in the form and shall have the terms, provisions and
characteristics set forth in the Indenture. The holder or holders of the
Notes from time to time are sometimes hereinafter referred to as the "Holders"
and the initial Holders are sometimes referred to as the "Purchasers";
B. The Grantor owns a parcel of real property located in ___________
County, California and described in Exhibit A hereto, upon which a nursing
care facility is located, which facility is leased to and operated by Care
Enterprises West, a Utah corporation, a subsidiary of the Grantor, pursuant to
the terms of that certain Skilled Nursing Facility Lease dated December 30,
1993 (the "Lease Agreement") between the Grantor, as lessor and Care
Enterprises West, a Utah corporation, as tenant.
C. The Purchasers have required as a condition to their purchase of
Notes from the Grantor that the Grantor execute and deliver this Deed of Trust
and Security Agreement and similar mortgages on other parcels of real property
upon which the Grantor owns skilled nursing care facilities, as security for
the payment of the Notes;
D. The Notes and all principal thereof and interest thereon and
premium, if any, and all additional amounts and other sums at any time due and
owing from, or required to be paid by, the Grantor under the terms of the
Notes, the Note Agreement, the Indenture and this Deed of Trust and Security
Agreement are hereinafter sometimes referred to as the "indebtedness hereby
secured";
E. The Grantor is duly authorized under all applicable provisions of
law, its charter and by-laws, to execute and deliver this Deed of Trust and to
encumber, grant, convey and assign the Granted Property (as hereinafter
defined) to the Deed of Trust Trustee, in trust, for the benefit of, and to,
Beneficiary on behalf of the Purchasers and any subsequent holders of the
indebtedness hereby secured for the security of the Notes, and all corporate
action and all consents, approvals and other authorizations and all other acts
and things necessary to make this Deed of Trust the valid, binding and legal
instrument for the security of the Notes have been done and performed; and
F. This Deed of Trust is also a Security Agreement and Financing
Statement under the Uniform Commercial Code of the State of California, and in
compliance therewith the names of the debtor and secured party are as follows:
Debtor: Care Enterprises, Inc.
2742 Dow Avenue
Tustin, California 92680
Secured Party: State Street Bank and Trust Company of
Connecticut, National Association,
as indenture trustee
750 Main Street
Hartford, Connecticut 06103
Now, therefore, this Deed of Trust witnesseth: That the Grantor, in
consideration of the premises, the purchase and acceptance of the Notes by the
Purchasers and of the sum of Ten Dollars received by the Grantor from the
Purchasers and other good and valuable consideration, receipt whereof is
hereby acknowledged, and in order to secure the payment of all indebtedness
hereby secured and the performance and observance of all the covenants,
agreements and conditions contained in this Deed of Trust, any other mortgage
or deed of trust from time to time entered into by the Grantor for the benefit
of the holders of the Notes, the Note Agreement, and the Indenture, the
Grantor does hereby warrant, mortgage, pledge, assign, bargain, hypothecate,
convey, grant, transfer and set over unto the Beneficiary and its successors
and assigns, IN TRUST, WITH POWER OF SALE, in and to all and singular the
following described properties, rights, interest and privileges and all of the
Grantor's estate, right, title and interest therein, thereto and thereunder
(to the extent such properties, rights and interests constitute real
property), and does hereby grant to the Beneficiary a security interest in the
following described properties, rights and privileges which do not constitute
real property (all of which properties hereby mortgaged, assigned and pledged
or intended so to be are hereinafter collectively referred to as the "Granted
Property") and does further grant a security interest to the Beneficiary and
its successors and assigns, in all such Granted Property in which a security
interest may be granted:
Granting Clause First
The parcels of land in ____________ County, State of California,
described in Annex A attached hereto and made a part hereof, together with the
entire interest of the Grantor in and to all buildings, structures,
improvements and appurtenances now standing, or at any time hereafter
constructed or placed, upon such land, including all right, title and interest
of the Grantor, if any, in and to all building material, building equipment
and fixtures of every kind and nature whatsoever on said land or in any
building, structure or improvement now or hereafter standing on said land
which are classified as fixtures under applicable law and which are used in
connection with the operation, maintenance or protection of said buildings,
structures and improvements as such (including, without limitation, all
boilers, air conditioning, ventilating, plumbing, heating, lighting and
electrical systems and apparatus, all communications equipment and intercom
systems and apparatus, all sprinkler equipment and apparatus and all elevators
and escalators), and are used in connection with the operation of any business
conducted upon said parcels of land, and the reversion or reversions,
remainder or remainders, in and to said land, and together with the entire
interest of the Grantor in and to all and singular the tenements,
hereditaments, easements, rights of way, rights, privileges and appurtenances
to said land, belonging or in anywise appertaining thereto, including, without
limitation, the entire right, title and interest of the Grantor in, to and
under any streets, ways, alleys, gores or strips of land adjoining said land,
and all claims or demands whatsoever of the Grantor either in law or in
equity, in possession or expectancy, of, in and to said land, it being the
intention of the parties hereto that, so far as may be permitted by law, all
property of the character hereinabove described, which is now owned or is
hereafter acquired by the Grantor and is affixed or attached or annexed to
said land, shall be and remain or become and constitute a portion of said land
and the security covered by and subject to the lien of this Deed of Trust,
together with all accessions, parts and appurtenances appertaining or attached
thereto and all substitutions, renewals or replacements of and additions,
improvements, accessions and accumulations to any and all thereof, and
together with all rents, income, revenues, awards, issues and profits thereof.
Granting Clause Second
All right, title and interest of the Grantor in the equipment and other
personal property located on and used or useable in connection with, the
property described in Granting Clause First hereof, including without
limitation any and all air conditioners, antennae, appliances, apparatus,
awnings, basins, bathtubs, beds, bidets, boilers, bookcases, cabinets,
carpets, coolers, curtains, dehumidifiers, disposals, doors, drapes, dryers,
ducts, dynamos, elevators, engines, equipment, escalators, fans, fittings,
floor coverings, furnaces, furnishings, furniture, hardware, heaters,
humidifiers, incinerators, lighting, machinery, motors, ovens, pictures,
pipes, plants and containers, plumbing, pumps, radiators, ranges, recreational
facilities, refrigerators, screens, security systems, shades, shelving, sinks,
sprinklers, stokers, stoves, telephone systems, toilets, ventilators, wall
coverings, washers, windows, window coverings, and wiring, as the same are now
and will hereafter be constituted, whether now owned or hereafter acquired by
the Grantor, together with all appliances, instruments, improvements,
accessories, equipment, parts and appurtenances appertaining or attached
thereto, or from time to time incorporated therein or installed as part
thereof, and all substitutions, renewals and replacements of and additions,
improvements, accessions and accumulations to any and all thereof which are
now owned or hereafter acquired by the Grantor, together with all the rents,
issues, incomes, profits, accounts, proceeds and avails thereof, and all
rights to receive all insurance proceeds, condemnation awards and other
payments with respect thereto.
Granting Clause Third
The Lease Agreement and any other leases, admittance, residency and
occupancy agreements (collectively, the "Other Agreements") and all of the
Grantor's estate, right, title, interest, claim and demand as lessor in, to
and under the Lease Agreement and the Other Agreements, including all
extensions and renewals of the term thereof, and all existing or future
amendments, supplements or modifications of the Lease Agreement (and to any
short form memorandum of the Lease Agreement executed for recording purposes)
and the Other Agreements, but subject, however, to the right of the Grantor,
prior to the occurrence and continuation of an Event of Default hereunder, to
collect rents and otherwise act in its own name under the Lease Agreement and
the Other Agreements.
Subject, however, to Permitted Encumbrances, as defined in Section 1
hereof;
To Have and To Hold the Granted Property unto the Deed of Trust
Trustee, IN TRUST, and to the Beneficiary and their respective successors and
assigns, forever, WITH POWER OF SALE (to the extent permitted by law), for the
purpose of securing performance of each agreement, covenant and warranty of
the Grantor contained herein, in the Note Agreement and in the Indenture and
for the benefit and security of the payment of the indebtedness hereby
secured.
It is agreed and understood by the parties hereto that:
1. The Notes are to be secured by other mortgages and deeds of
trust on other real estate in other counties and states. Each and all of said
mortgages and deeds of trust are intended to and shall constitute security for
the entire indebtedness hereby secured.
2. Any part of the security herein described, and any security
described in any other mortgage or other instrument now or hereafter given to
secure the indebtedness which is secured by this Deed of Trust, may be
released by the Beneficiary without affecting the lien hereof on the
remainder.
3. The Grantor for itself and all who may claim through or
under it waives any and all right to have the property and estates comprising
the Granted Property marshalled upon any foreclosure of the lien hereof, or to
have the Granted Property hereunder and the property covered by any other
lien, mortgage or deed of trust securing the indebtedness hereby secured
marshalled upon any foreclosure of any of said liens, mortgages or deeds of
trust, and agrees that any court having jurisdiction to foreclose such lien
may order the Granted Property sold as an entirety.
4. Upon the occurrence of an Event of Default hereunder, the
Deed of Trust Trustee has, among other things, the right to foreclose on the
Granted Property and dispose of the same. The Deed of Trust Trustee's deed or
other instrument of conveyance, transfer or release (which may be in the name
of the Deed of Trust Trustee or, as may otherwise be required by law) shall be
effective to convey and transfer to the grantee an indefeasible title to the
property covered thereby, discharged of all rights of redemption by the
Grantor or any person claiming under it, and to bar forever all claims by the
Grantor or the Beneficiary (or, as the case may be, the Deed of Trust Trustee)
to the property covered thereby and no grantee from the Beneficiary (or, as
the case may be, the Deed of Trust Trustee) shall be under any duty to inquire
as to the authority of the Beneficiary (or, as the case may be, the Deed of
Trust Trustee) to execute the same, or to see to the application of the
purchase money.
Section 1. Definitions.
Capitalized terms used in this Deed of Trust and not defined herein
shall have the meaning provided therefor in the Note Agreement. The following
terms shall have the following meanings for all purposes of this Deed of
Trust:
"Alterations" shall have the meaning set forth in Section 2.5(a).
"Default" shall mean any event which would constitute an Event of
Default if any requirement in connection therewith for the giving of notice,
or the lapse of time, or the happening of any further condition, event or
action had been satisfied.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA shall be construed to also refer to any
successor sections.
"Event of Default" shall mean any event specified in Section 5.1.
"Event of Loss" with respect to the Mortgaged Facility shall mean the
condemnation, loss or destruction of the Mortgaged Facility or a material
portion thereof, which shall include damage to an extent rendering repair or
replacement impractical or uneconomical, or any other event which shall render
the Mortgaged Facility permanently unfit for normal use.
"Holders" shall have the meaning set forth in Recital A.
"indebtedness hereby secured" shall have the meaning set forth in
Recital D.
"Indenture" shall have the meaning set forth in Recital A.
"Mortgaged Facility" mean the skilled nursing home, intermediate care
facility, retirement or convalescent living center or home for the mentally
retarded or other facility providing residential health care owned by the
Grantor and located on the Granted Property.
"Granted Property" shall have the meaning set forth in the introductory
language to the Granting Clauses.
"Notes" shall mean the 8.10% Senior Secured Notes due December 15, 2000
of the Grantor issued under and pursuant to the Indenture.
"Note Agreement" shall have the meaning set forth in Recital A.
"Permitted Encumbrances" shall mean the liens described in clauses (a)
through (f) of Section 2.8.
"Purchasers" shall have the meaning set forth in Recital A.
"Responsible Officer" shall mean the person holding the office of the
President, any Vice President, Secretary, Assistant Secretary or Treasurer of
the Grantor.
Section 2. General Covenants and Warranties.
The Grantor covenants, warrants and agrees as follows:
Section 2.1. Note Covenants. Each and all of the terms,
provisions, restrictions, covenants and agreements set forth in the Notes, the
Note Agreement and the Indenture, and in each and every supplement thereto or
amendment thereof which may at any time or from time to time be executed and
delivered by the parties thereto or their successors and assigns, are
incorporated herein by reference to the same extent as though each and all of
said terms, provisions, restrictions, covenants and agreements were fully set
out herein; and the Grantor does hereby covenant and agree well and truly to
abide by, perform and be governed and restricted by each and all of the
matters provided for by the Notes, the Note Agreement and the Indenture and so
incorporated herein to the same extent and with the same force and effect as
if each and all of said terms, provisions, restrictions, covenants and
agreements so incorporated herein by reference were set out and repeated
herein at length.
No amendment, modification or waiver of, or any action taken or not
taken under or pursuant to, any of the terms and provisions of any Note, the
Note Agreement or the Indenture, shall affect or modify any of the terms or
provisions of this Deed of Trust or any of the obligations of the Grantor
hereunder, except and to the extent expressly provided for in any such
amendment, modification or waiver.
Section 2.2. Ownership of Granted Property. The Grantor covenants
and warrants that it has good and marketable fee simple title (or its
equivalent under applicable law) to the real property included in Granting
Clause First hereof and has good and marketable title to all other property
included in the Granted Property hereinbefore conveyed to the Beneficiary free
and clear of all liens, charges and encumbrances whatever except Permitted
Encumbrances, and the Grantor has full right, power and authority to convey,
transfer and mortgage the same to the Beneficiary for the uses and purposes in
this Deed of Trust set forth; and the Grantor will warrant and defend the
title to the Granted Property against all claims and demands whatsoever.
Section 2.3. Further Assurances. The Grantor will, at its own
expense, do, execute, acknowledge and deliver all and every further act, deed,
conveyance, transfer and assurance necessary or proper for the better
assuring, conveying, assigning and confirming unto the Beneficiary all of the
Granted Property, or property intended so to be, whether now owned or
hereafter acquired, including providing the Beneficiary with a currently
executed Deed of Trust with respect thereto and any other documents as shall
be reasonably necessary in connection with any recordation.
Section 2.4. Payment of Indebtedness Hereby Secured. The Grantor
will duly and punctually pay the indebtedness hereby secured according to its
terms.
Section 2.5. Maintenance of Granted Property, Other Liens,
Compliance with Laws, et (a) Without limiting any provisions of the Note
Agreement or the Indenture, the Grantor shall (i) promptly repair, restore or
rebuild, in a good and workmanlike manner, any buildings or improvements now
or hereafter on the Granted Property which may become damaged or be destroyed,
unless an Event of Loss occurs with respect thereto, (ii) keep the Granted
Property in good condition and repair and free from all claims, liens, charges
and encumbrances other than Permitted Encumbrances, (iii) pay when due any
indebtedness which may be secured by a lien or charge on the Granted Property
on parity with or superior to the lien hereof, and upon request exhibit
satisfactory evidence of the discharge of such prior lien to the Beneficiary,
(iv) comply with all requirements of law or municipal ordinances with respect
to the Granted Property and the use thereof, failure to comply with which
would result in any material interference with the use or operation of the
Granted Property by the Grantor, and (v) make no material additions,
alterations, substitutions or replacements ("Alterations") in said Granted
Property except as required by law or municipal ordinance; provided, however,
with respect to clause (v), the Grantor may make any Alterations of any kind
to the Granted Property if (A) the market value or usefulness of the Granted
Property would not be impaired thereby, (B) the Alterations shall be performed
in a good and a workmanlike manner and (C) such Alterations shall be
expeditiously completed in compliance with all laws, ordinances, orders,
rules, regulations and requirements applicable thereto, except where failure
to so comply could not reasonably be expected to have a material adverse
effect on the ability of the Grantor to perform under this Deed of Trust, the
Notes, the Note Agreement or the Indenture, including to the extent necessary
to maintain in full force and effect the policies of insurance required by
Section 2.6. The Grantor shall promptly pay all costs and expenses of each
such Alteration, discharge all liens filed against the Granted Property
arising out of the same and procure and pay for all permits and licenses
required in connection therewith, provided, however, that the Grantor shall
not be required to pay any such costs or expenses if (i) the validity,
applicability or amount thereof is being contested in good faith by
appropriate actions or proceedings which will prevent the forfeiture or sale
of the Granted Property or any material interference with the use thereof by
the Grantor, and (ii) the Grantor shall set aside on its books, reserves
deemed by it to be adequate with respect thereto or, if greater, such reserves
as are required by GAAP.
(b) The Grantor may, at its expense, (i) construct upon the Granted
Property additional buildings, structures and other improvements and (ii)
install, assemble and place upon the Granted Property any items of machinery
and equipment used or useful in the Grantor's business, in each case upon
compliance with the provisions of paragraph (a) of this Section 2.5. All such
buildings, structures and other improvements shall be and remain part of the
realty and shall be subject to this Deed of Trust with respect thereto. Such
machinery and equipment shall be and remain the property of the Grantor and
shall be deemed part of the Granted Property.
(c) The Grantor or the lessee under the Lease Agreement, as the case
may be, shall use and operate the Granted Property as a skilled nursing care
facility.
Section 2.6. Insurance.
(a) Insurance Against Loss or Damage. Without limiting any provisions
of the Note Agreement, the Grantor will maintain or cause to be maintained
with respect to the Granted Property insurance against loss by fire, windstorm
and explosion and with extended coverage and against such other risks of
physical loss as are customarily insured against, and in such amounts as are
customarily carried by companies owning property of a similar character and
engaged in a business similar to that engaged in by the Grantor; provided,
however, that the amount of such insurance with respect to the Granted
Property shall not at any time be less than the replacement value thereof.
The Grantor may self-insure with respect to the first portion of any loss
claimed under such insurance by way of deductible provisions in insurance
policies up to such amount as is customary for corporations of established
reputation engaged in the same or a similar business as the Grantor and
similarly situated and which maintain such insurance on property similar to
the Granted Property, provided that the Grantor shall set aside on its books
reserves deemed by it to be adequate with respect thereto.
(b) Insurance Against Public Liability and Property Damage. The
Grantor will maintain or cause to be maintained comprehensive general public
liability insurance written by companies of recognized national standing
against claims for bodily injury, death or property damage occurring on, in or
about the Granted Property with limits of not less than $1,000,000 with
respect to injuries or deaths arising out of a single occurrence and not less
than $2,500,000 in the aggregate for all claims made against the Grantor in
any policy year.
(c) Form of Policies. Any insurance policies carried in accordance
with Section 2.6(a) shall be written by companies of recognized national
standing authorized to do business in the state in which the Granted Property
is located and shall provide that: (i) Beneficiary, both in its individual
and trust capacities, shall be named as an additional insured on any liability
policy, (ii) losses, if any, shall be payable to the Beneficiary under a
standard mortgage loss payable clause satisfactory to the Beneficiary, (iii)
the Beneficiary's interest shall be insured regardless of any breach or
violation by the Grantor of any warranties, declarations or conditions
contained in such policies, (iv) such insurance, as to the interest of the
Beneficiary therein, shall not be invalidated by the use or operation of the
Granted Property for purposes which are not permitted by such policies, (v)
the insurers shall waive any right of subrogation of the insurers to any
set-off or counterclaim or any other deduction, whether by attachment or
otherwise, in respect of any liability of the Grantor, (vi) if any premium or
installment is not paid when due, or if such insurance would lapse or be
cancelled, terminated or materially changed for any reason whatsoever, the
insurers will promptly notify the Beneficiary and any such lapse,
cancellation, termination or change shall not be effective as to the
Beneficiary for thirty days after receipt of such notice, and (vii)
appropriate certification shall be made to the Beneficiary by each insurer
with respect thereto. Provided no Default or Event of Default has occurred or
is continuing, the loss, if any, under any policy pertaining to loss by reason
of damage to or destruction of any portion of the Granted Property shall be
adjusted with the insurance companies by the Grantor, subject to the approval
of the Beneficiary if the loss exceeds $200,000. The loss so adjusted shall
be paid to the Beneficiary pursuant to said loss payable clause unless said
loss is $200,000 or less (in which case said loss shall be paid directly to
the Grantor provided that no Default or Event of Default has occurred and is
continuing).
Section 2.7. Payment of Taxes and Other Charges. Without limiting
the provisions of Section 4.3 of the Note Agreement, the Grantor will pay and
discharge, before the same shall become delinquent, together with interest and
penalties thereon, if any, (a) all taxes, assessments (including assessments
for benefits from public works or improvements whenever begun or completed),
levies, fees, water and sewer rents and charges, and all other governmental
charges, general and special, ordinary and extraordinary, which are at any
time levied upon or assessed against it or the Granted Property or any part
thereof or upon this Deed of Trust or the indebtedness secured hereby or upon
the revenues, rents, issues, income and profits in respect of the Granted
Property, or arising in respect of the occupancy, use or possession thereof,
which failure to pay would result in the creation of a lien upon the Granted
Property or any part thereof, or upon the revenues, rents, issues, income and
profits of the Granted Property or in the diminution thereof or would result
in any material interference with the use or operation of the Granted Property
by the Grantor, (b) all corporate franchise, excise and other taxes, fees and
charges assessed, levied or imposed in respect of its corporate existence or
its right to do business in its state of incorporation, the state where the
Granted Property is located and any other state where failure to do so would
materially and adversely affect the business and properties of the Grantor,
(c) all income, excess profits, excise, sales, franchise, gross receipts and
other taxes, duties or imposts, whether of a like or different nature,
assessed, levied or imposed by any governmental authority on it or the Granted
Property, or any portion thereof, or upon the revenues, rents, issues, income
and profits of the Granted Property whether or not the failure to pay any such
tax, duty or impost might result in the creation of a lien upon the Granted
Property or any part thereof or upon the revenues, rents, issues, income and
profits of the Granted Property or in the diminution thereof, and whether or
not any such tax, duty or impost is payable directly by the Grantor or is
subject to withholding at the source and (d) all lawful claims and demands of
mechanics, laborers, materialmen and others which, if unpaid, might result in
the creation of a lien on the Granted Property or upon the revenues, rents,
issues, income and profits of the Granted Property and, in general, will do or
cause to be done everything necessary so that the lien hereof shall be fully
preserved, at the expense of the Grantor, without expense to the Beneficiary.
Nothing shall require the payment of any sum which is otherwise required
to be paid by the Grantor pursuant to this Section 2.7 so long as the Grantor
shall in good faith contest its obligation so to do by appropriate proceedings
which will prevent the forfeiture or sale of any property of the Grantor or
any material interference with the use or operation thereof by the Grantor,
and shall set up a reserve, reasonably adequate, in the opinion of the
President or any Vice President of the Grantor against any such payment.
Section 2.8. Limitation on Liens. The Grantor will not create or
incur or suffer to be incurred or to exist, any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind upon the Granted Property,
whether now owned or hereafter acquired, except the following:
(a) liens for property taxes and assessments or governmental charges
(other than liens arising under ERISA) or levies and liens securing claims or
demands of mechanics and materialmen, provided that payment thereof is not
overdue or, if overdue, is being contested in accordance with the provisions
of Section 4.3 of the Note Agreement in good faith by appropriate actions or
proceedings;
(b) liens of or resulting from any judgment or award, the time for the
appeal or petition for rehearing of which shall not have expired, or in
respect of which the Grantor shall at any time in good faith be prosecuting an
appeal or proceeding for a review and in respect of which a stay of execution
pending such appeal or proceeding for review shall have been secured and
remain in effect;
(c) liens (other than liens arising under ERISA), deposits, pledges or
letters of credit in connection with or to secure payment of worker's
compensation, patient trust funds, unemployment insurance, old-age pensions,
other social security and other like laws or regulations, warehousemen's and
attorneys' liens and statutory landlords' liens and liens to secure the
performance of bids, tenders or trade contracts, or to secure statutory
obligations, surety or appeal bonds or other liens of like general nature
incurred in the ordinary course of business and not in connection with the
borrowing of money; provided in each case, the obligation secured is not
overdue or, if overdue, is being contested in good faith by appropriate
actions or proceedings which will prevent the forfeiture or sale of any
property of the Grantor or any material interference with the use thereof by
the Company or its lessee, as the case may be;
(d) minor survey exceptions or minor encumbrances, easements or
reservations of, or rights of others for rights-of-way, utilities and other
similar purposes, or zoning or other restrictions as to the use of real
properties, which encumbrances, easements, reservations, rights and
restrictions do not in the aggregate materially detract from the value of the
Granted Property or materially impair their use in the operation of the
business of the Grantor;
(e) the lien of any lease between the Grantor, as lessor, and any
corporation (including any subsidiary of the Grantor), as lessee, of all or
any portion of the Granted Property, provided that (i) any such lease shall by
its terms be expressly made subject and subordinate to the lien of this Deed
of Trust, and any rights (but not any of the obligations) of the Grantor
therein shall be assigned to the Beneficiary, (ii) such lessee shall use and
operate the Granted Property as a nursing care facility, and (iii) the Grantor
shall remain primarily liable in respect of all obligations under this Deed of
Trust; and
(f) the lien and security interest of this Deed of Trust.
Section 2.9. Advances. If the Grantor shall fail to comply with
the covenants contained herein with respect to the procuring of insurance, the
payment of taxes, assessments and other charges, or the keeping of the Granted
Property in repair and free of other liens, the Beneficiary may make advances
to perform the same; and the Grantor agrees to repay all sums so advanced upon
demand with interest at the prime commercial loan rate charged by the
Indenture Trustee, from time to time for short term borrowings by large
business borrowers, plus two (2%) percent per annum; and all sums so advanced,
with interest, shall be secured hereby in priority to the indebtedness
evidenced by the Notes; but no such advance shall be deemed to relieve the
Grantor from any default hereunder.
Section 2.10. Recordation. The Grantor will, at its own expense,
cause this Deed of Trust, all supplements hereto, and any financing statements
and continuation statements required by law, including the Uniform Commercial
Code, in respect thereof at all times to be kept recorded and filed at its own
expense in such manner and in such places as may be required by law in order
to fully preserve and protect the rights of the Beneficiary hereunder, and
will furnish to the Beneficiary promptly after the execution and delivery of
any supplement to this Deed of Trust an endorsement to the Deed of Trust Title
Insurance Policy delivered with respect to this Deed of Trust pursuant to
Section 3.1(g) of the Note Agreement indicating that this Deed of Trust
continues to constitute a first Deed of Trust lien upon the property described
in such Policy and that such supplement has been properly recorded or filed
for record so as to make effective of record the lien intended to be created
hereby.
Section 2.11. After-Acquired Property. Any and all property
hereafter acquired which is of the kind or nature described in the Granting
Clauses hereof and is or is intended to become a part thereof, shall ipso
facto, and without any further conveyance, assignment or act on the part of
the Grantor or the Beneficiary become and be, subject to the lien of this Deed
of Trust as fully and completely as though specifically described herein; but
nevertheless the Grantor shall from time to time, if requested by the
Beneficiary, execute and deliver any and all such further assurances,
conveyances and assignments thereof as the Beneficiary may reasonably require
for the purpose of expressly and specifically subjecting to the lien of this
Deed of Trust any and all such additional property.
Section 2.12. Sale, Lease or Assignment of Granted Property. Except
as specifically permitted by this Deed of Trust, the Indenture and the Note
Agreement, the Grantor will not sell, assign, transfer, convey, lease,
sublease or otherwise dispose of any of its estate, right, title and interest
in and to the Granted Property or the right to possession of the Granted
Property.
Section 3. Possession, Use and Release of Property.
Section 3.1. Grantor's Right of Possession. Provided no Default or
Event of Default has occurred and is continuing, the Grantor shall be suffered
and permitted to remain in full possession, enjoyment and control of the
Granted Property subject always to the observance and performance of the terms
of this Deed of Trust, the Note Agreement and the Indenture.
Section 3.2. Release of Granted Property. In addition to releases
pursuant to this Deed of Trust, the Indenture and the Note Agreement, the
Grantor may (i) sell or otherwise dispose of any Granted Property then subject
to the lien of this Deed of Trust or any mortgage supplement hereto, and the
Beneficiary shall release the same from the lien hereof to the extent and on
the terms and upon compliance with the conditions provided for in any written
consent given thereto at any time or from time to time by the Beneficiary and
(ii) sell or otherwise dispose of any Granted Property then subject to the
lien of this Deed of Trust, granted pursuant to Granting Clause Second above,
in any instance where the Grantor has determined in its sound business
judgment that such Granted Property has become inadequate, obsolete,
unsuitable or unnecessary or otherwise replaceable and the Grantor continues
to maintain and install adequate equipment and personal property to
efficiently operate the Mortgaged Facility.
Section 3.3. Eminent Domain. Should any of the Granted Property be
taken by the exercise of the power of eminent domain or should any
condemnation proceedings be commenced against the same, the Grantor may accept
any award or consideration stated in a certificate of the President or any
Vice President of the Grantor delivered to the Beneficiary to be satisfactory
to the Grantor, and the Beneficiary shall release the property taken or
proposed to be taken upon receipt of: (a) either (i) an order of a competent
court condemning such property or (ii) an opinion of counsel satisfactory to
the Beneficiary to the effect that such property has been taken or, upon the
completion of the pending proceedings, such property will be taken, by the
exercise of the power of eminent domain, and (b) compliance by the Grantor
with the terms and provisions of Section 4. In the event of such proceeding,
the Beneficiary may be represented by counsel compensated by the Grantor and
the Beneficiary may or may not become a party thereto as the Beneficiary in
its discretion may determine. The proceeds of all property so taken shall be
paid over to the Beneficiary and shall be held and disbursed or applied upon
the terms and conditions provided in Section 4.
Section 4. Application of Insurance Proceeds and Condemnation Awards.
(a) If an Event of Loss shall have occurred, all proceeds of insurance
or any condemnation award, as the case may be, received by the Beneficiary in
connection therewith shall be applied to prepay Notes as set forth in Section
5.4 of the Indenture; provided, however, that in the event that any Holder
shall fail to deliver a Put Notice pursuant to Section 5.4(b) of the
Indenture, the Beneficiary shall remit to the Grantor all such proceeds which
would have been payable to such Holder. In the event of any damage,
destruction or condemnation of Granted Property which does not constitute an
Event of Loss, all proceeds of fire and extended coverage insurance and
condemnation awards and compensation covering the Granted Property (except (i)
where received under a general public liability policy maintained pursuant to
Section 2.6(b) or (ii) in cases where the amount payable in respect of any one
occurrence of damage, destruction or condemnation is less than $200,000 and no
Default or Event of Default shall have occurred and be continuing under this
Deed of Trust, in which case the amount payable in respect of any such
occurrence may be received by the Grantor, and if received by the Beneficiary
shall be paid over to the Grantor for use by the Grantor in paying for
replacement or repairs of or substitutes for the damaged or destroyed
property) received by the Beneficiary under the provisions of this Deed of
Trust, or under any policy or policies of insurance covering the Granted
Property or any part thereof, shall be held (or if received by the Grantor
immediately paid over to the Beneficiary and shall be held) by the Beneficiary
as part of the Granted Property and shall be applied by the Beneficiary to pay
the Grantor from time to time upon a written application signed by the
President or any Vice President of the Grantor and accompanied by an approving
certificate of an architect or engineer selected by the Grantor and approved
by the Beneficiary, for the payment of the reasonable cost, as shown by such
certificate, of repairing or replacing part or all of the property damaged or
destroyed, but only if written application is made therefor within 12 months
of the receipt of such proceeds by the Beneficiary, and then only for and to
the extent that the Grantor shows by such architect's or engineer's
certificates or other evidence satisfactory to the Beneficiary that the
portion of such proceeds remaining on deposit with the Beneficiary, together
with any additional funds irrevocably allocated or otherwise provided for in a
manner satisfactory to the Beneficiary for such purpose, shall be sufficient
to complete such repairs or replacements and restore the Granted Property as
nearly as possible to the market value and condition which existed immediately
prior to the damage, destruction, condemnation or taking, free from liens or
encumbrances except this Deed of Trust and Permitted Encumbrances. Every such
application for the payment of such proceeds, condemnation award or
compensation shall state that no Default or Event of Default has occurred and
is continuing and shall be accompanied by an opinion of counsel to the effect
that upon completion of the repair or replacement the property will be subject
to the lien of this Deed of Trust as a first lien thereon subject only to
Permitted Encumbrances.
(b) All insurance proceeds or condemnation awards, as the case may be,
other than proceeds or condemnation awards received with respect to an Event
of Loss shall be applied for the purposes specified in Section 4(a) within the
twelve-month period provided for thereby.
Section 5. Defaults and Remedies Therefor.
Section 5.1. Events of Default. The Grantor acknowledges and
agrees that each and all of the terms and provisions of Sections 6.1 through
6.3, both inclusive, of the Indenture have been and are incorporated into this
Deed of Trust by reference to the same extent as though fully set out herein
and that the term "Event of Default" wherever used in this Deed of Trust shall
mean either: (a) an Event of Default as defined in Section 6.1 of the
Indenture or (b) the failure of the Grantor to comply with any covenant,
agreement or warranty contained in this Deed of Trust, or any other mortgage
or deed of trust from time to time entered into by the Grantor for the benefit
of the holders of the Notes, within 30 days after the earlier of (i) notice
from any registered holder of the Notes to the Grantor specifying such failure
and demanding the same to be remedied, or (ii) such failure first becoming
known to any Responsible Officer of the Grantor (it being understood that such
30 day grace period shall apply only to any such failure of the Grantor to
comply with any covenant, agreement or warranty hereunder).
Section 5.2. Remedies. When any Event of Default has occurred and
is continuing, the Beneficiary may exercise (or, as may be required by law,
cause the Deed of Trust Trustee to exercise) any one or more or all, and in
any order, of the remedies hereinafter set forth, it being expressly
understood that no remedy herein or in the Indenture conferred is intended to
be exclusive of any other remedy or remedies; but each and every remedy shall
be cumulative and shall be in addition to every other remedy given herein or
now or hereafter existing at law or in equity or by statute:
(a) The Beneficiary may, by notice in writing to the Grantor declare
the entire unpaid balance of the Notes to be immediately due and payable; and
thereupon all such unpaid balance, together with all accrued interest thereon
and premium, if any, shall be and become immediately due and payable.
(b) The Beneficiary (or, as may be required be law, the Deed of Trust
Trustee), personally or by agents or attorneys may enter into and take
possession of all or any part of the Granted Property, and may forthwith
subject to the provisions of the Lease Agreement, if applicable, use, operate
and manage the Granted Property, collect the earnings and income therefrom,
pay all principal charges including taxes and assessments levied thereon and
operating and maintenance expenses and all disbursements and liabilities of
the Grantor hereunder and apply the net proceeds arising from any such
operation of the Granted Property as provided in Section 5.3 in respect of the
proceeds of a sale of the Granted Property.
(c) The Beneficiary (or, as may be required be law, the Deed of Trust
Trustee), may, if at the time such action may be lawful and always subject to
compliance with any mandatory legal requirements, either with or without
taking possession and either before or after taking possession and without
instituting any legal proceedings whatsoever and having first given notice of
such sale by registered mail to the Grantor once at least 10 days prior to the
date of such sale, and any other notice which may be required by law, sell and
dispose of said Granted Property or any part thereof at public auction or
private sale to the highest bidder, which may be the Grantor, in one lot as an
entirety or in separate lots (the Grantor for itself and for all who may claim
by, through or under it hereby expressly waiving and releasing all rights to
have the property covered by the lien of this Deed of Trust marshalled), and
either for cash or on credit and on such terms as the Beneficiary may
determine and at any place (whether or not it be the location of the Granted
Property or any part thereof) designated in the notice above referred to. Any
such sale or sales may be adjourned from time to time by announcement at the
time and place appointed for such sale or sales or for any such adjourned sale
or sales, without further published notice.
(d) The Beneficiary (or, as may be required be law, the Deed of Trust
Trustee) may proceed to protect and enforce its rights by a suit or suits in
equity or at law, or for the specific performance of any covenant or agreement
contained herein, in the Note Agreement or in the Indenture, or in aid of the
execution of any power herein or therein granted, or for the foreclosure of
this Deed of Trust, or for the enforcement of any other appropriate legal or
equitable remedy. Upon the bringing of any suit to foreclose this Deed of
Trust or to enforce any other remedy available hereunder, the plaintiff shall
be entitled as a matter of right, without notice and without giving bond to
the Grantor or anyone claiming under, by or through it, and without regard to
the solvency or insolvency of the Grantor or the then value of the premises,
to have a receiver appointed of all the Granted Property and of the earnings,
income, rents, issues, profits and proceeds thereof, with such power as the
court making such appointment shall confer, and the Grantor does hereby
irrevocably consent to such appointment.
(e) In case of any sale of the Granted Property, or of any part
thereof, pursuant to any judgment or decree of any court or otherwise in
connection with the enforcement of any of the terms of this Deed of Trust, the
principal of the Notes, if not previously due, and the interest accrued
thereon, shall at once become and be immediately due and payable; also in the
case of any such sale, the Beneficiary may bid and become the purchaser, and
the purchaser or purchasers, for the purpose of making settlement for or
payment of the purchase price, shall be entitled to turn in and use the Notes
and any claims for interest and premium matured and unpaid thereon, in order
that there may be credited as paid on the purchase price the sum apportionable
and applicable to the Notes, including principal and interest and premium
thereof, out of the net proceeds of such sale after allowing for the
proportion of the total purchase price required to be paid in cash. If at any
foreclosure proceeding the Granted Property shall be sold for a sum less than
the total amount of indebtedness for which judgment is therein given, the
judgment creditor shall be entitled to the entry of a deficiency decree
against the Grantor and against the property of the Grantor for the amount of
such deficiency.
(f) The Beneficiary (or, as may be required be law, the Deed of Trust
Trustee) shall have any and all rights and remedies (including, without
limitation, extra-judicial power of sale) provided to a secured party by the
Uniform Commercial Code of the State of California with respect to any and all
parts of the Granted Property which are and which are deemed to be governed by
the Uniform Commercial Code of the State of California. Without limiting the
generality of the foregoing, the Beneficiary (or, as may be required by law,
cause the Deed of Trust Trustee to exercise) shall, with respect to any part
of the Granted Property constituting property of the type in respect of which
realization on a lien or security interest granted therein is governed by the
Uniform Commercial Code of the State of California, have all the rights,
options and remedies of a secured party under the Uniform Commercial Code of
the State of California, including, without limitation, the right to the
possession of any such property, or any part thereof, and the right to enter
without legal process any premises where any such property may be found. Any
requirement of said Code for reasonable notification shall be met by mailing
written notice to the Grantor at its address set forth herein at least 10 days
prior to the sale or other event for which such notice is required.
It is understood and agreed that the Notes are also secured by other
mortgages and deeds of trust and that in case of default in any of the terms,
conditions or provisions of this Deed of Trust, the Notes or the Note
Agreement, the Beneficiary may resort to part or all of the security for the
Notes, and may foreclose the mortgages and deeds of trust in any order. The
pendency of any proceeding with respect to any one of the above-mentioned
mortgages and deeds of trust shall not be grounds for the abatement of, or for
hindering, delaying or preventing any proceeding with respect to foreclosure
of this Deed of Trust.
Section 5.3. Application of Proceeds. The purchase money proceeds
and avails of any sale of the Granted Property, or any part thereof and the
proceeds and avails of any remedy hereunder shall be paid to and applied as
set forth in Section 6.9 of the Indenture.
Section 5.4. Waiver of Extension, Appraisement and Stay Laws. The
Grantor covenants that, upon the occurrence of an Event of Default and the
acceleration of the Notes pursuant to Section 5.1 and Section 5.2 and to the
extent that such rights may then be lawfully waived, it will not at any time
thereafter insist upon or plead, or in any manner whatever claim or take any
benefit or advantage of, any stay or extension law now or at any time
hereafter in force, or claim, take or insist upon any benefit or advantage of
or from any law now or hereafter in force providing for the valuation or
appraisement of the Granted Property or any part thereof prior to any sale or
sales thereof to be made pursuant to any provision herein contained, or to the
decree, judgment or order of any court of competent jurisdiction or, after
conformation of any such sale or sales claim or exercise any right under any
statute now or hereafter made or enacted by any state or otherwise to redeem
the property so sold or any part thereof, and hereby expressly waives for
itself and on behalf of each and every person, except decree or judgment
creditors of the Grantor acquiring any interest in or title to the Granted
Property or any part thereof, subsequent to the date of this Deed of Trust all
benefit and advantage of any such law or laws which would otherwise be
available to any such person in connection with the enforcement of any of the
Beneficiary's or the Deed of Trust Trustee's remedies hereunder; and covenants
that it will not in connection with any such enforcement proceedings invoke or
utilize any such law or laws or otherwise hinder, delay or impede the
execution of any power herein granted and delegated to the Beneficiary or the
Deed of Trust Trustee but will suffer and permit the execution of every such
power as though no such law or laws had been made or enacted.
The Grantor hereby waives any and all rights of redemption from sale
under any order or decree of foreclosure pursuant to rights herein granted, on
behalf of the Grantor, and each and every Person acquiring any interest in or
title to the Granted Property described herein subsequent to the date of this
Deed of Trust, and on behalf of all other Persons to the extent permitted by
applicable law.
Any sale, whether under any power of sale hereby given or by virtue of
judicial proceedings, shall operate to divest all right, title, interest,
claim and demand whatsoever, either at law or in equity, of the Grantor in and
to the property sold and shall be a perpetual bar, both at law and in equity,
against the Grantor, its successors and assigns, and against any and all
persons claiming the property sold or any part thereof under, by or through
the Grantor, its successors or assigns.
Section 5.5. Effect of Discontinuance of Proceedings. In case the
Beneficiary shall have proceeded to enforce (or, cause the Deed of Trust
Trustee to enforce) any right under this Deed of Trust by foreclosure, sale,
entry or otherwise, and such proceedings shall have been discontinued or
abandoned for any reason or shall have been determined adversely, then and in
every such case the Grantor and the Deed of Trust Trustee and the Beneficiary
shall be restored to their former position and rights hereunder with respect
to the property subject to the lien of this Deed of Trust.
Section 5.6. Delay or Omission Not a Waiver. No delay or omission
of the Deed of Trust Trustee and the Beneficiary to exercise any right or
power arising from any default on the part of the Grantor shall exhaust or
impair any such right or power or prevent its exercise during the continuance
of such default. No waiver by either the Deed of Trust Trustee or the
Beneficiary of any such default, whether such waiver be full or partial, shall
extend to or be taken to affect any subsequent default, or to impair the
rights resulting therefrom, except as may be otherwise provided herein. No
remedy hereunder is intended to be exclusive of any other remedy but each and
every remedy shall be cumulative and in addition to any and every other remedy
given hereunder or otherwise existing; nor shall the giving, taking or
enforcement of any other or additional security, collateral or guaranty for
the payment of the indebtedness secured under this Deed of Trust operate to
prejudice, waive or affect the security of this Deed of Trust or any rights,
powers or remedies hereunder; nor shall the Deed of Trust Trustee or the
Beneficiary be required to first look to, enforce or exhaust such other or
additional security, collateral or guaranties.
Section 5.7. Costs and Expenses of Foreclosure. In any suit to
foreclose the Lien or security interest hereon there shall be allowed and
included as additional Indebtedness Hereby Secured in the decree for sale all
reasonable expenditures and reasonable expenses which may be paid or incurred
by or on behalf of the Deed of Trust Trustee or the Beneficiary for attorneys'
fees, appraiser's fees, outlays for documentary and expert evidence,
stenographic charges, publication costs and costs (which may be estimated as
the items to be expended after the entry of the decree) of procuring all such
abstracts of title, title searches and examination, guarantee policies, and
similar data and assurances with respect to title as the Beneficiary may deem
to be reasonably necessary either to prosecute any foreclosure action or to
evidence to the bidder at any sale pursuant thereto the true condition of the
title to or the value of the Granted Property, all of which expenditures shall
become so much additional Indebtedness Hereby Secured which the Grantor agrees
to pay and all of such shall be immediately due and payable with interest
thereon from the date of expenditure until paid at the prime commercial loan
rate charged by Beneficiary from time to time for short term borrowings by
large business borrowers, plus 2% per annum.
Section 6. Miscellaneous.
Section 6.1. Successors and Assigns. Whenever any of the parties
hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party; and all the covenants, premises and
agreements in this Deed of Trust contained by or on behalf of the Grantor, or
by or on behalf of the Deed of Trust Trustee or the Beneficiary, shall bind
and inure to the benefit of the respective successors and assigns of such
parties whether so expressed or not.
Section 6.2. Partial Invalidity. The unenforceability or
invalidity of any provision or provisions of this Deed of Trust shall not
render any other provision or provisions herein contained unenforceable or
invalid.
Section 6.3. Addresses for Notices and Demands. All communications
provided for hereunder shall be in writing and, if to the Beneficiary,
delivered or mailed prepaid by registered or certified mail or overnight air
courier, or by facsimile communication, in each case addressed to the
Beneficiary at its address as set forth herein or such other address as the
Beneficiary may designate to the Grantor in writing, and if to the Grantor,
delivered or mailed by registered or certified mail or overnight air courier,
or by facsimile communication, to the Grantor at its address as set forth
herein or to such other address as the Beneficiary may in writing designate to
the Beneficiary; provided, however, that a notice to any party to this
Agreement by overnight air courier shall only be effective if delivered to
such party at a street address designated for such purpose in accordance with
this Section 6,3, and a notice to such party by facsimile communication shall
only be effective if made by confirmed transmission to such party at a
telephone number designated for such purpose in accordance with this Section
6.3 and promptly followed by the delivery of such notice by registered or
certified mail or overnight air courier, as set forth above.
Section 6.4. Headings and Table of Contents. The headings of the
sections of this Deed of Trust and the table of contents are inserted for
purposes of convenience only and shall not be construed to affect the meaning
or construction of any of the provisions hereof.
Section 6.5. Release of Deed of Trust. The Beneficiary shall
release this Deed of Trust and the lien hereof by proper instrument or
instruments upon presentation of satisfactory evidence that all indebtedness
secured hereby has been fully paid or discharged. Any part of the security
herein described, or other instrument now or hereafter given to secure the
indebtedness which is secured by this Deed of Trust, may be released by the
Beneficiary without affecting the lien hereof on the remainder.
Section 6.6. Governing Law. This Deed of Trust shall be governed
by and construed in accordance with the laws of the State of California.
Section 6.7. Counterparts. This Deed of Trust may be executed,
acknowledged and delivered in any number of counterparts, each of such
counterparts constituting an original but all together only one Deed of Trust.
Section 6.8. Successor Deed of Trust Trustee. The Beneficiary may,
at any time and for any or no reason, by instrument in writing, appoint a
successor or successors to, or discharge and appoint a new Deed of Trust
Trustee in the place of any Deed of Trust Trustee named herein or acting
hereunder, which instrument, when executed and acknowledged by the
Beneficiary, and recorded in Official Records of ___________ County,
California, shall be conclusive proof of the proper substitutions of such
successor or successors of new Deed of Trust Trustee, who shall have all the
estate powers, duties, rights, and privileges of the predecessor Deed of Trust
Trustee.
IN WITNESS WHEREOF, the Grantor has caused this Deed of Trust to be
executed in its behalf, all as of the day and year first above written.
Care Enterprises, Inc
By /S/ Gary L. Massimino
---------------------------
Its Chief Financial Officer
State of Illinois )
) SS
County of Cook )
On December 30, 1993, before me, Julia R. Browne (Notary Public),
personally appeared Gary L. Massimino, personally know to me (or proved to me
on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
/S/ Julia R. Browne
______________________
Notary's Signature
Seal stamped here
Commission expires: March 4, 1997
Schedule of Deed of Trust and Security Agreements
Pursuant to Regulation S-K Item 601 Instruction 2
<TABLE>
<CAPTION>
Facility County State
- -------- ------ -----
<S> <C> <C>
Care West Calistoga Nursing & Napa County California
Rehabilitation Center
Care West Intercommunity Los Angeles County California
Nursing & Rehabilitation Center
Care West Weed Nursing & Siskiyou County California
Rehabilitation Center
Care West Washington Alameda County California
Manor Nursing &
Rehabilitation Center
Care West Arizona Nursing Los Angeles County California
& Rehabilitation Center
Care West Hilltop Nursing San Diego County California
& Rehabilitation Center
</TABLE>
OPEN-END MORTGAGE AND SECURITY AGREEMENT
DATED AS OF DECEMBER 15, 1993
FROM
CARE ENTERPRISES, INC.
(the "Mortgagor")
TO
STATE STREET BANK AND TRUST COMPANY
OF CONNECTICUT, NATIONAL ASSOCIATION
(the "Mortgagee")
(___________, ___________ County, Ohio)
This instrument was prepared by
and after recordation this instrument
should be returned to:
Shelley J. Bacastow
Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
TABLE OF CONTENTS
SECTION HEADING PAGE
Parties 1
Granting Clauses 2
Section 1. Definitions 5
Section 2. General Covenants and Warranties 6
Section 2.1. Note Covenants 6
Section 2.2. Ownership of Mortgaged Property 6
Section 2.3. Further Assurances 7
Section 2.4. Payment of Indebtedness Hereby Secured 7
Section 2.5. Maintenance of Mortgaged Property, Other
Liens, Compliance with Laws, etc 7
Section 2.6. Insurance 8
Section 2.7. Payment of Taxes and Other Charges 9
Section 2.8. Limitation on Liens 10
Section 2.9. Advances 11
Section 2.10. Recordation 11
Section 2.11. After-Acquired Property 11
Section 2.12. Sale, Lease or Assignment of
Mortgaged Property 11
Section 3. Possession, Use and Release of Property 12
Section 3.1. Mortgagor's Right of Possession 12
Section 3.2. Release of Mortgaged Property 12
Section 3.3. Eminent Domain 12
Section 4. Application of Insurance Proceeds and
Condemnation Awards 12
Section 5. Defaults and Remedies Therefor 13
Section 5.1. Events of Default 13
Section 5.2. Remedies 14
Section 5.3. Application of Proceeds 16
Section 5.4. Waiver of Extension, Appraisement and
Stay Laws 16
Section 5.5. Effect of Discontinuance of Proceedings 17
Section 5.6. Delay or Omission Not a Waiver 17
Section 5.7. Costs and Expenses of Foreclosure 17
Section 6. Miscellaneous 17
Section 6.1. Successors and Assigns 17
Section 6.2. Partial Invalidity 18
Section 6.3. Addresses for Notices and Demands 18
Section 6.4. Headings and Table of Contents 18
Section 6.5. Release of Mortgage 18
Section 6.6. Governing Law 18
Section 6.7. Counterparts 18
Section 6.8. Future Advances 18
Section 6.9 Dating of Mortgage for Convenience 19
Signature 20
Attachments to Mortgage:
Annex A - Legal Description of Real Property
<PAGE>
THIS OPEN-END MORTGAGE AND SECURITY AGREEMENT dated as of December 15,
1993 ("Mortgage") is from Care Enterprises, Inc., a Delaware corporation (the
"Mortgagor"), having its principal office at 2742 Dow Avenue, Tustin,
California 92680, Attention: Chief Financial Officer, telephone: (714)
544-4443, telefacsimile: (714) 544-4443, ext. 2701, to State Street Bank and
Trust Company of Connecticut, National Association, as Indenture Trustee for
the holders of the indebtedness secured hereby (the "Mortgagee"), having its
principal office at 750 Main Street, Hartford, Connecticut 06103, Attention:
Securities Investment Division, telephone: (203) 244-1800, telefacsimile:
(203) 244-1890.
Recitals:
A. The Mortgagor has executed and delivered the Note Agreement, dated
as of December 15, 1993 (the "Note Agreement"), providing for the terms and
conditions under which the purchasers named in Schedule I thereto will
purchase $30,000,000 aggregate principal amount of the 8.10% Senior Secured
Notes due December 15, 2000 issued by the Mortgagor (the "Notes"). The Notes
are to be issued under the Indenture of Trust dated as of December 15, 1993
(the "Indenture") between the Mortgagor and State Street Bank and Trust
Company of Connecticut, National Association, as indenture trustee (the
"Indenture Trustee"). The Notes will each be dated the date of issue thereof,
will bear interest at the rate of 8.10% per annum prior to maturity, will be
subject to prepayments of principal as specified in Section 5 of the Indenture
and will otherwise be in the form and shall have the terms, provisions and
characteristics set forth in the Indenture. The holder or holders of the
Notes from time to time are sometimes hereinafter referred to as the "Holders"
and the initial Holders are sometimes referred to as the "Purchasers";
B. The Mortgagor owns a parcel of real property located in
_________________, Ohio and described in Exhibit A hereto, upon which a
nursing care facility is located, which facility is leased to and operated by
_________________, a subsidiary of the Mortgagor, pursuant to the terms of
that certain Skilled Nursing Facility Lease dated December 30, 1993 (the
"Lease Agreement") between the Mortgagor, as lessor and _____________, as
tenant.
C. The Purchasers have required as a condition to their purchase of
Notes from the Mortgagor that the Mortgagor execute and deliver this Mortgage
and Security Agreement and similar mortgages on other parcels of real property
upon which the Mortgagor owns skilled nursing care facilities, as security for
the payment of the Notes;
D. The Notes and all principal thereof and interest thereon and
premium, if any, and all additional amounts and other sums at any time due and
owing from, or required to be paid by, the Mortgagor under the terms of the
Notes, the Note Agreement, the Indenture and this Mortgage and Security
Agreement are hereinafter sometimes referred to as the "indebtedness hereby
secured";
E. The Mortgagor is duly authorized under all applicable provisions
of law, its charter and by-laws, to execute and deliver this Mortgage and to
mortgage, convey and assign the Mortgaged Property (as hereinafter defined) to
the Mortgagee on behalf of the Purchasers and any subsequent holders of the
indebtedness hereby secured for the security of the Notes, and all corporate
action and all consents, approvals and other authorizations and all other acts
and things necessary to make this Mortgage the valid, binding and legal
instrument for the security of the Notes have been done and performed; and
F. This Mortgage is also a Security Agreement and Financing Statement
under the Uniform Commercial Code of the State of Ohio, and in compliance
therewith the names of the debtor and secured party are as follows:
Debtor: Care Enterprises, Inc.
2742 Dow Avenue
Tustin, California 92680
Secured Party: State Street Bank and Trust Company of
Connecticut, National Association,
as indenture trustee
750 Main Street
Hartford, Connecticut 06103
Now, therefore, this Mortgage witnesseth: That the Mortgagor, in
consideration of the premises, the purchase and acceptance of the Notes by the
Purchasers and of the sum of Ten Dollars received by the Mortgagor from the
Purchasers and other good and valuable consideration, receipt whereof is
hereby acknowledged, and in order to secure the payment of all indebtedness
hereby secured and the performance and observance of all the covenants,
agreements and conditions contained in this Mortgage, any other mortgage or
deed of trust from time to time entered into by the Mortgagor for the benefit
of the holders of the Notes, the Note Agreement, and the Indenture, the
Mortgagor does hereby warrant, mortgage, pledge, assign, bargain, hypothecate,
convey, grant, transfer and set over unto the Mortgagee and its successors and
assigns, in and to all and singular the following described properties,
rights, interest and privileges and all of the Mortgagor's estate, right,
title and interest therein, thereto and thereunder (all of which properties
hereby mortgaged, assigned and pledged or intended so to be are hereinafter
collectively referred to as the "Mortgaged Property") and does further grant a
security interest to the Mortgagee and its successors and assigns, in all such
Mortgaged Property in which a security interest may be granted:
Granting Clause First
The parcels of land in ______________ County, State of Ohio, described
in Annex A attached hereto and made a part hereof, together with the entire
interest of the Mortgagor in and to all buildings, structures, improvements
and appurtenances now standing, or at any time hereafter constructed or
placed, upon such land, including all right, title and interest of the
Mortgagor, if any, in and to all building material, building equipment and
fixtures of every kind and nature whatsoever on said land or in any building,
structure or improvement now or hereafter standing on said land which are
classified as fixtures under applicable law and which are used in connection
with the operation, maintenance or protection of said buildings, structures
and improvements as such (including, without limitation, all boilers, air
conditioning, ventilating, plumbing, heating, lighting and electrical systems
and apparatus, all communications equipment and intercom systems and
apparatus, all sprinkler equipment and apparatus and all elevators and
escalators), and are used in connection with the operation of any business
conducted upon said parcels of land, and the reversion or reversions,
remainder or remainders, in and to said land, and together with the entire
interest of the Mortgagor in and to all and singular the tenements,
hereditaments, easements, rights of way, rights, privileges and appurtenances
to said land, belonging or in anywise appertaining thereto, including, without
limitation, the entire right, title and interest of the Mortgagor in, to and
under any streets, ways, alleys, gores or strips of land adjoining said land,
and all claims or demands whatsoever of the Mortgagor either in law or in
equity, in possession or expectancy, of, in and to said land, it being the
intention of the parties hereto that, so far as may be permitted by law, all
property of the character hereinabove described, which is now owned or is
hereafter acquired by the Mortgagor and is affixed or attached or annexed to
said land, shall be and remain or become and constitute a portion of said land
and the security covered by and subject to the lien of this Mortgage, together
with all accessions, parts and appurtenances appertaining or attached thereto
and all substitutions, renewals or replacements of and additions,
improvements, accessions and accumulations to any and all thereof, and
together with all rents, income, revenues, awards, issues and profits thereof.
Granting Clause Second
All right, title and interest of the Mortgagor in the equipment and
other personal property located on and used or useable in connection with, the
property described in Granting Clause First hereof, including without
limitation any and all air conditioners, antennae, appliances, apparatus,
awnings, basins, bathtubs, beds, bidets, boilers, bookcases, cabinets,
carpets, coolers, curtains, dehumidifiers, disposals, doors, drapes, dryers,
ducts, dynamos, elevators, engines, equipment, escalators, fans, fittings,
floor coverings, furnaces, furnishings, furniture, hardware, heaters,
humidifiers, incinerators, lighting, machinery, motors, ovens, pictures,
pipes, plants and containers, plumbing, pumps, radiators, ranges, recreational
facilities, refrigerators, screens, security systems, shades, shelving, sinks,
sprinklers, stokers, stoves, telephone systems, toilets, ventilators, wall
coverings, washers, windows, window coverings, and wiring, as the same are now
and will hereafter be constituted, whether now owned or hereafter acquired by
the Mortgagor, together with all appliances, instruments, improvements,
accessories, equipment, parts and appurtenances appertaining or attached
thereto, or from time to time incorporated therein or installed as part
thereof, and all substitutions, renewals and replacements of and additions,
improvements, accessions and accumulations to any and all thereof which are
now owned or hereafter acquired by the Mortgagor, together with all the rents,
issues, incomes, profits, proceeds and avails thereof, and all rights to
receive all insurance proceeds, condemnation awards and other payments with
respect thereto.
Granting Clause Third
The Lease Agreement and any other leases, admittance, residency and
occupancy agreements (collectively, the "Other Agreements") and all of the
Mortgagor's estate, right, title, interest, claim and demand as lessor in, to
and under the Lease Agreement and the Other Agreements, including all
extensions and renewals of the term thereof, and all existing or future
amendments, supplements or modifications of the Lease Agreement (and to any
short form memorandum of the Lease Agreement executed for recording purposes)
and the Other Agreements, but subject, however, to the right of the Mortgagor,
prior to the occurrence and continuation of an Event of Default hereunder, to
collect rents and otherwise act in its own name under the Lease Agreement and
the Other Agreements.
Subject, however, to Permitted Encumbrances, as defined in Section 1
hereof;
To Have and To Hold the Mortgaged Property unto the Mortgagee and
its successors and assigns, forever, with power of sale (to the extent
permitted by law), for the purpose of securing performance of each agreement,
covenant and warranty of the Mortgagor contained herein, in the Note Agreement
and in the Indenture and for the benefit and security of the payment of the
indebtedness hereby secured.
It is agreed and understood by the parties hereto that:
1. The Notes are to be secured by other mortgages and deeds of
trust on other real estate in other counties and states. Each and all of said
mortgages and deeds of trust are intended to and shall constitute security for
the entire indebtedness hereby secured.
2. Any part of the security herein described, and any security
described in any other mortgage or other instrument now or hereafter given to
secure the indebtedness which is secured by this Mortgage, may be released by
the Mortgagee without affecting the lien hereof on the remainder.
3. The Mortgagor for itself and all who may claim through or
under it waives any and all right to have the property and estates comprising
the Mortgaged Property marshalled upon any foreclosure of the lien hereof, or
to have the Mortgaged Property hereunder and the property covered by any other
lien, mortgage or deed of trust securing the indebtedness hereby secured
marshalled upon any foreclosure of any of said liens, mortgages or deeds of
trust, and agrees that any court having jurisdiction to foreclose such lien
may order the Mortgaged Property sold as an entirety.
4. Upon the occurrence of an Event of Default hereunder, the
Mortgagee has, among other things, the right to foreclose on the Mortgaged
Property and dispose of the same. The Mortgagee's deed or other instrument of
conveyance, transfer or release (which may be in the name of the Mortgagee or
as attorney for the Mortgagor, and the Mortgagee is hereby irrevocably
appointed attorney for the Mortgagor) shall be effective to convey and
transfer to the grantee an indefeasible title to the property covered thereby,
discharged of all rights of redemption by the Mortgagor or any person claiming
under it, and to bar forever all claims by the Mortgagor or the Mortgagee to
the property covered thereby and no grantee from the Mortgagee shall be under
any duty to inquire as to the authority of the Mortgagee to execute the same,
or to see to the application of the purchase money.
Section 1. Definitions.
Capitalized terms used in this Mortgage and not defined herein shall
have the meaning provided therefor in the Note Agreement. The following terms
shall have the following meanings for all purposes of this Mortgage:
"Alterations" shall have the meaning set forth in Section 2.5(a).
"Default" shall mean any event which would constitute an Event of
Default if any requirement in connection therewith for the giving of notice,
or the lapse of time, or the happening of any further condition, event or
action had been satisfied.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA shall be construed to also refer to any
successor sections.
"Event of Default" shall mean any event specified in Section 5.1.
"Event of Loss" with respect to the Mortgaged Facility shall mean the
condemnation, loss or destruction of the Mortgaged Facility or a material
portion thereof, which shall include damage to an extent rendering repair or
replacement impractical or uneconomical, or any other event which shall render
the Mortgaged Facility permanently unfit for normal use.
"Holders" shall have the meaning set forth in Recital A.
"indebtedness hereby secured" shall have the meaning set forth in
Recital D.
"Indenture" shall have the meaning set forth in Recital A.
"Mortgaged Facility" mean the skilled nursing home, intermediate care
facility, retirement or convalescent living center or home for the mentally
retarded or other facility providing residential health care owned by the
Mortgagor and located on the Mortgaged Property.
"Mortgaged Property" shall have the meaning set forth in the
introductory language to the Granting Clauses.
"Notes" shall mean the 8.10% Senior Secured Notes due December 15, 2000
of the Mortgagor issued under and pursuant to the Indenture.
"Note Agreement" shall have the meaning set forth in Recital A.
"Permitted Encumbrances" shall mean the liens described in clauses (a)
through (f) of Section 2.8.
"Purchasers" shall have the meaning set forth in Recital A.
"Responsible Officer" shall mean the person holding the office of the
President, any Vice President, Secretary, Assistant Secretary or Treasurer of
the Mortgagor.
Section 2. General Covenants and Warranties.
The Mortgagor covenants, warrants and agrees as follows:
Section 2.1. Note Covenants. Each and all of the terms,
provisions, restrictions, covenants and agreements set forth in the Notes, the
Note Agreement and the Indenture, and in each and every supplement thereto or
amendment thereof which may at any time or from time to time be executed and
delivered by the parties thereto or their successors and assigns, are
incorporated herein by reference to the same extent as though each and all of
said terms, provisions, restrictions, covenants and agreements were fully set
out herein; and the Mortgagor does hereby covenant and agree well and truly to
abide by, perform and be governed and restricted by each and all of the
matters provided for by the Notes, the Note Agreement and the Indenture and so
incorporated herein to the same extent and with the same force and effect as
if each and all of said terms, provisions, restrictions, covenants and
agreements so incorporated herein by reference were set out and repeated
herein at length.
No amendment, modification or waiver of, or any action taken or not
taken under or pursuant to, any of the terms and provisions of any Note, the
Note Agreement or the Indenture, shall affect or modify any of the terms or
provisions of this Mortgage or any of the obligations of the Mortgagor
hereunder, except and to the extent expressly provided for in any such
amendment, modification or waiver.
Section 2.2. Ownership of Mortgaged Property. The Mortgagor
covenants and warrants that it has good and marketable fee simple title (or
its equivalent under applicable law) to the real property included in Granting
Clause First hereof and has good and marketable title to all other property
included in the Mortgaged Property hereinbefore conveyed to the Mortgagee free
and clear of all liens, charges and encumbrances whatever except Permitted
Encumbrances, and the Mortgagor has full right, power and authority to convey,
transfer and mortgage the same to the Mortgagee for the uses and purposes in
this Mortgage set forth; and the Mortgagor will warrant and defend the title
to the Mortgaged Property against all claims and demands whatsoever.
Section 2.3. Further Assurances. The Mortgagor will, at its own
expense, do, execute, acknowledge and deliver all and every further act, deed,
conveyance, transfer and assurance necessary or proper for the better
assuring, conveying, assigning and confirming unto the Mortgagee all of the
Mortgaged Property, or property intended so to be, whether now owned or
hereafter acquired, including providing the Mortgagee with a currently
executed Mortgage with respect thereto and any other documents as shall be
reasonably necessary in connection with any recordation.
Section 2.4. Payment of Indebtedness Hereby Secured. The Mortgagor
will duly and punctually pay the indebtedness hereby secured according to its
terms.
Section 2.5. Maintenance of Mortgaged Property, Other Liens,
Compliance with Laws, et (a) Without limiting any provisions of the Note
Agreement or the Indenture, the Mortgagor shall (i) promptly repair, restore
or rebuild, in a good and workmanlike manner, any buildings or improvements
now or hereafter on the Mortgaged Property which may become damaged or be
destroyed, unless an Event of Loss occurs with respect thereto, (ii) keep the
Mortgaged Property in good condition and repair and free from all claims,
liens, charges and encumbrances other than Permitted Encumbrances, (iii) pay
when due any indebtedness which may be secured by a lien or charge on the
Mortgaged Property on parity with or superior to the lien hereof, and upon
request exhibit satisfactory evidence of the discharge of such prior lien to
the Mortgagee, (iv) comply with all requirements of law or municipal
ordinances with respect to the Mortgaged Property and the use thereof, failure
to comply with which would result in any material interference with the use or
operation of the Mortgaged Property by the Mortgagor, and (v) make no material
additions, alterations, substitutions or replacements ("Alterations") in said
Mortgaged Property except as required by law or municipal ordinance; provided,
however, with respect to clause (v), the Mortgagor may make any Alterations of
any kind to the Mortgaged Property if (A) the market value or usefulness of
the Mortgaged Property would not be impaired thereby, (B) the Alterations
shall be performed in a good and a workmanlike manner and (C) such Alterations
shall be expeditiously completed in compliance with all laws, ordinances,
orders, rules, regulations and requirements applicable thereto, except where
failure to so comply could not reasonably be expected to have a material
adverse effect on the ability of the Mortgagor to perform under this Mortgage,
the Notes, the Note Agreement or the Indenture, including to the extent
necessary to maintain in full force and effect the policies of insurance
required by Section 2.6. The Mortgagor shall promptly pay all costs and
expenses of each such Alteration, discharge all liens filed against the
Mortgaged Property arising out of the same and procure and pay for all permits
and licenses required in connection therewith, provided, however, that the
Mortgagor shall not be required to pay any such costs or expenses if (i) the
validity, applicability or amount thereof is being contested in good faith by
appropriate actions or proceedings which will prevent the forfeiture or sale
of the Mortgaged Property or any material interference with the use thereof by
the Mortgagor, and (ii) the Mortgagor shall set aside on its books, reserves
deemed by it to be adequate with respect thereto or, if greater, such reserves
as are required by GAAP.
(b) The Mortgagor may, at its expense, (i) construct upon the
Mortgaged Property additional buildings, structures and other improvements and
(ii) install, assemble and place upon the Mortgaged Property any items of
machinery and equipment used or useful in the Mortgagor's business, in each
case upon compliance with the provisions of paragraph (a) of this Section 2.5.
All such buildings, structures and other improvements shall be and remain part
of the realty and shall be subject to this Mortgage with respect thereto.
Such machinery and equipment shall be and remain the property of the Mortgagor
and shall be deemed part of the Mortgaged Property.
(c) The Mortgagor or the lessee under the Lease Agreement, as the case
may be, shall use and operate the Mortgaged Property as a skilled nursing care
facility.
Section 2.6. Insurance.
(a) Insurance Against Loss or Damage. Without limiting any provisions
of the Note Agreement, the Mortgagor will maintain or cause to be maintained
with respect to the Mortgaged Property insurance against loss by fire,
windstorm and explosion and with extended coverage and against such other
risks of physical loss as are customarily insured against, and in such amounts
as are customarily carried by companies owning property of a similar character
and engaged in a business similar to that engaged in by the Mortgagor;
provided, however, that the amount of such insurance with respect to the
Mortgaged Property shall not at any time be less than the replacement value
thereof. The Mortgagor may self-insure with respect to the first portion of
any loss claimed under such insurance by way of deductible provisions in
insurance policies up to such amount as is customary for corporations of
established reputation engaged in the same or a similar business as the
Mortgagor and similarly situated and which maintain such insurance on property
similar to the Mortgaged Property, provided that the Mortgagor shall set aside
on its books reserves deemed by it to be adequate with respect thereto.
(b) Insurance Against Public Liability and Property Damage. The
Mortgagor will maintain or cause to be maintained comprehensive general public
liability insurance written by companies of recognized national standing
against claims for bodily injury, death or property damage occurring on, in or
about the Mortgaged Property with limits of not less than $1,000,000 with
respect to injuries or deaths arising out of a single occurrence and not less
than $2,500,000 in the aggregate for all claims made against the Mortgagor in
any policy year.
(c) Form of Policies. Any insurance policies carried in accordance
with Section 2.6(a) shall be written by companies of recognized national
standing authorized to do business in the state in which the Mortgaged
Property is located and shall provide that: (i) Mortgagee, both in its
individual and trust capacities, shall be named as an additional insured on
any liability policy, (ii) losses, if any, shall be payable to the Mortgagee
under a standard mortgage loss payable clause satisfactory to the Mortgagee,
(iii) the Mortgagee's interest shall be insured regardless of any breach or
violation by the Mortgagor of any warranties, declarations or conditions
contained in such policies, (iv) such insurance, as to the interest of the
Mortgagee therein, shall not be invalidated by the use or operation of the
Mortgaged Property for purposes which are not permitted by such policies, (v)
the insurers shall waive any right of subrogation of the insurers to any
set-off or counterclaim or any other deduction, whether by attachment or
otherwise, in respect of any liability of the Mortgagor, (vi) if any premium
or installment is not paid when due, or if such insurance would lapse or be
cancelled, terminated or materially changed for any reason whatsoever, the
insurers will promptly notify the Mortgagee and any such lapse, cancellation,
termination or change shall not be effective as to the Mortgagee for thirty
days after receipt of such notice, and (vii) appropriate certification shall
be made to the Mortgagee by each insurer with respect thereto. Provided no
Default or Event of Default has occurred or is continuing, the loss, if any,
under any policy pertaining to loss by reason of damage to or destruction of
any portion of the Mortgaged Property shall be adjusted with the insurance
companies by the Mortgagor, subject to the approval of the Mortgagee if the
loss exceeds $200,000. The loss so adjusted shall be paid to the Mortgagee
pursuant to said loss payable clause unless said loss is $200,000 or less (in
which case said loss shall be paid directly to the Mortgagor provided that no
Default or Event of Default has occurred and is continuing).
Section 2.7. Payment of Taxes and Other Charges. Without limiting
the provisions of Section 4.3 of the Note Agreement, the Mortgagor will pay
and discharge, before the same shall become delinquent, together with interest
and penalties thereon, if any, (a) all taxes, assessments (including
assessments for benefits from public works or improvements whenever begun or
completed), levies, fees, water and sewer rents and charges, and all other
governmental charges, general and special, ordinary and extraordinary, which
are at any time levied upon or assessed against it or the Mortgaged Property
or any part thereof or upon this Mortgage or the indebtedness secured hereby
or upon the revenues, rents, issues, income and profits in respect of the
Mortgaged Property, or arising in respect of the occupancy, use or possession
thereof, which failure to pay would result in the creation of a lien upon the
Mortgaged Property or any part thereof, or upon the revenues, rents, issues,
income and profits of the Mortgaged Property or in the diminution thereof or
would result in any material interference with the use or operation of the
Mortgaged Property by the Mortgagor, (b) all corporate franchise, excise and
other taxes, fees and charges assessed, levied or imposed in respect of its
corporate existence or its right to do business in its state of incorporation,
the state where the Mortgaged Property is located and any other state where
failure to do so would materially and adversely affect the business and
properties of the Mortgagor, (c) all income, excess profits, excise, sales,
franchise, gross receipts and other taxes, duties or imposts, whether of a
like or different nature, assessed, levied or imposed by any governmental
authority on it or the Mortgaged Property, or any portion thereof, or upon the
revenues, rents, issues, income and profits of the Mortgaged Property whether
or not the failure to pay any such tax, duty or impost might result in the
creation of a lien upon the Mortgaged Property or any part thereof or upon the
revenues, rents, issues, income and profits of the Mortgaged Property or in
the diminution thereof, and whether or not any such tax, duty or impost is
payable directly by the Mortgagor or is subject to withholding at the source
and (d) all lawful claims and demands of mechanics, laborers, materialmen and
others which, if unpaid, might result in the creation of a lien on the
Mortgaged Property or upon the revenues, rents, issues, income and profits of
the Mortgaged Property and, in general, will do or cause to be done everything
necessary so that the lien hereof shall be fully preserved, at the expense of
the Mortgagor, without expense to the Mortgagee.
Nothing shall require the payment of any sum which is otherwise required
to be paid by the Mortgagor pursuant to this Section 2.7 so long as the
Mortgagor shall in good faith contest its obligation so to do by appropriate
proceedings which will prevent the forfeiture or sale of any property of the
Mortgagor or any material interference with the use or operation thereof by
the Mortgagor, and shall set up a reserve, reasonably adequate, in the opinion
of the President or any Vice President of the Mortgagor against any such
payment.
Section 2.8. Limitation on Liens. The Mortgagor will not create or
incur or suffer to be incurred or to exist, any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind upon the Mortgaged Property,
whether now owned or hereafter acquired, except the following:
(a) liens for property taxes and assessments or governmental charges
(other than liens arising under ERISA) or levies and liens securing claims or
demands of mechanics and materialmen, provided that payment thereof is not
overdue or, if overdue, is being contested in accordance with the provisions
of Section 4.3 of the Note Agreement in good faith by appropriate actions or
proceedings;
(b) liens of or resulting from any judgment or award, the time for the
appeal or petition for rehearing of which shall not have expired, or in
respect of which the Mortgagor shall at any time in good faith be prosecuting
an appeal or proceeding for a review and in respect of which a stay of
execution pending such appeal or proceeding for review shall have been secured
and remain in effect;
(c) liens (other than liens arising under ERISA), deposits, pledges or
letters of credit in connection with or to secure payment of worker's
compensation, patient trust funds, unemployment insurance, old-age pensions,
other social security and other like laws or regulations, warehousemen's and
attorneys' liens and statutory landlords' liens and liens to secure the
performance of bids, tenders or trade contracts, or to secure statutory
obligations, surety or appeal bonds or other liens of like general nature
incurred in the ordinary course of business and not in connection with the
borrowing of money; provided in each case, the obligation secured is not
overdue or, if overdue, is being contested in good faith by appropriate
actions or proceedings which will prevent the forfeiture or sale of any
property of the Mortgagor or any material interference with the use thereof by
the Company or its lessee, as the case may be;
(d) minor survey exceptions or minor encumbrances, easements or
reservations of, or rights of others for rights-of-way, utilities and other
similar purposes, or zoning or other restrictions as to the use of real
properties, which encumbrances, easements, reservations, rights and
restrictions do not in the aggregate materially detract from the value of the
Mortgaged Property or materially impair their use in the operation of the
business of the Mortgagor;
(e) the lien of any lease between the Mortgagor, as lessor, and any
corporation (including any subsidiary of the Mortgagor), as lessee, of all or
any portion of the Mortgaged Property, provided that (i) any such lease shall
by its terms be expressly made subject and subordinate to the lien of this
Mortgage, and any rights (but not any of the obligations) of the Mortgagor
therein shall be assigned to the Mortgagee, (ii) such lessee shall use and
operate the Mortgaged Property as a nursing care facility, and (iii) the
Mortgagor shall remain primarily liable in respect of all obligations under
this Mortgage; and
(f) the lien and security interest of this Mortgage.
Section 2.9. Advances. If the Mortgagor shall fail to comply with
the covenants contained herein with respect to the procuring of insurance, the
payment of taxes, assessments and other charges, or the keeping of the
Mortgaged Property in repair and free of other liens, the Mortgagee may make
advances to perform the same; and the Mortgagor agrees to repay all sums so
advanced upon demand with interest at the prime commercial loan rate charged
by the Indenture Trustee, from time to time for short term borrowings by large
business borrowers, plus two (2%) percent per annum; and all sums so advanced,
with interest, shall be secured hereby in priority to the indebtedness
evidenced by the Notes; but no such advance shall be deemed to relieve the
Mortgagor from any default hereunder.
Section 2.10. Recordation. The Mortgagor will, at its own expense,
cause this Mortgage, all supplements hereto, and any financing statements and
continuation statements required by law, including the Uniform Commercial
Code, in respect thereof at all times to be kept recorded and filed at its own
expense in such manner and in such places as may be required by law in order
to fully preserve and protect the rights of the Mortgagee hereunder, and will
furnish to the Mortgagee promptly after the execution and delivery of any
supplement to this Mortgage an endorsement to the Mortgage Title Insurance
Policy delivered with respect to this Mortgage pursuant to Section 3.1(g) of
the Note Agreement indicating that this Mortgage continues to constitute a
first Mortgage lien upon the property described in such Policy and that such
supplement has been properly recorded or filed for record so as to make
effective of record the lien intended to be created hereby.
Section 2.11. After-Acquired Property. Any and all property
hereafter acquired which is of the kind or nature described in the Granting
Clauses hereof and is or is intended to become a part thereof, shall ipso
facto, and without any further conveyance, assignment or act on the part of
the Mortgagor or the Mortgagee become and be, subject to the lien of this
Mortgage as fully and completely as though specifically described herein; but
nevertheless the Mortgagor shall from time to time, if requested by the
Mortgagee, execute and deliver any and all such further assurances,
conveyances and assignments thereof as the Mortgagee may reasonably require
for the purpose of expressly and specifically subjecting to the lien of this
Mortgage any and all such additional property.
Section 2.12. Sale, Lease or Assignment of Mortgaged Property.
Except as specifically permitted by this Mortgage, the Indenture and the Note
Agreement, the Mortgagor will not sell, assign, transfer, convey, lease,
sublease or otherwise dispose of any of its estate, right, title and interest
in and to the Mortgaged Property or the right to possession of the Mortgaged
Property.
Section 3. Possession, Use and Release of Property.
Section 3.1. Mortgagor's Right of Possession. Provided no Default
or Event of Default has occurred and is continuing, the Mortgagor shall be
suffered and permitted to remain in full possession, enjoyment and control of
the Mortgaged Property subject always to the observance and performance of the
terms of this Mortgage, the Note Agreement and the Indenture.
Section 3.2. Release of Mortgaged Property. In addition to
releases pursuant to this Mortgage, the Indenture and the Note Agreement, the
Mortgagor may (i) sell or otherwise dispose of any Mortgaged Property then
subject to the lien of this Mortgage or any mortgage supplement hereto, and
the Mortgagee shall release the same from the lien hereof to the extent and on
the terms and upon compliance with the conditions provided for in any written
consent given thereto at any time or from time to time by the Mortgagee and
(ii) sell or otherwise dispose of any Mortgaged Property then subject to the
lien of this Mortgage, granted pursuant to Granting Clause Second above, in
any instance where the Mortgagor has determined in its sound business judgment
that such Mortgaged Property has become inadequate, obsolete, unsuitable or
unnecessary or otherwise replaceable and the Mortgagor continues to maintain
and install adequate equipment and personal property to efficiently operate
the Mortgaged Facility.
Section 3.3. Eminent Domain. Should any of the Mortgaged Property
be taken by the exercise of the power of eminent domain or should any
condemnation proceedings be commenced against the same, the Mortgagor may
accept any award or consideration stated in a certificate of the President or
any Vice President of the Mortgagor delivered to the Mortgagee to be
satisfactory to the Mortgagor, and the Mortgagee shall release the property
taken or proposed to be taken upon receipt of: (a) either (i) an order of a
competent court condemning such property or (ii) an opinion of counsel
satisfactory to the Mortgagee to the effect that such property has been taken
or, upon the completion of the pending proceedings, such property will be
taken, by the exercise of the power of eminent domain, and (b) compliance by
the Mortgagor with the terms and provisions of Section 4. In the event of
such proceeding, the Mortgagee may be represented by counsel compensated by
the Mortgagor and the Mortgagee may or may not become a party thereto as the
Mortgagee in its discretion may determine. The proceeds of all property so
taken shall be paid over to the Mortgagee and shall be held and disbursed or
applied upon the terms and conditions provided in Section 4.
Section 4. Application of Insurance Proceeds and Condemnation Awards.
(a) If an Event of Loss shall have occurred, all proceeds of insurance
or any condemnation award, as the case may be, received by the Mortgagee in
connection therewith shall be applied to prepay Notes as set forth in Section
5.4 of the Indenture; provided, however, that in the event that any Holder
shall fail to deliver a Put Notice pursuant to Section 5.4(b) of the
Indenture, the Mortgagee shall remit to the Mortgagor all such proceeds which
would have been payable to such Holder. In the event of any damage,
destruction or condemnation of Mortgaged Property which does not constitute an
Event of Loss, all proceeds of fire and extended coverage insurance and
condemnation awards and compensation covering the Mortgaged Property (except
(i) where received under a general public liability policy maintained pursuant
to Section 2.6(b) or (ii) in cases where the amount payable in respect of any
one occurrence of damage, destruction or condemnation is less than $200,000
and no Default or Event of Default shall have occurred and be continuing under
this Mortgage, in which case the amount payable in respect of any such
occurrence may be received by the Mortgagor, and if received by the Mortgagee
shall be paid over to the Mortgagor for use by the Mortgagor in paying for
replacement or repairs of or substitutes for the damaged or destroyed
property) received by the Mortgagee under the provisions of this Mortgage, or
under any policy or policies of insurance covering the Mortgaged Property or
any part thereof, shall be held (or if received by the Mortgagor immediately
paid over to the Mortgagee and shall be held) by the Mortgagee as part of the
Mortgaged Property and shall be applied by the Mortgagee to pay the Mortgagor
from time to time upon a written application signed by the President or any
Vice President of the Mortgagor and accompanied by an approving certificate of
an architect or engineer selected by the Mortgagor and approved by the
Mortgagee, for the payment of the reasonable cost, as shown by such
certificate, of repairing or replacing part or all of the property damaged or
destroyed, but only if written application is made therefor within 12 months
of the receipt of such proceeds by the Mortgagee, and then only for and to the
extent that the Mortgagor shows by such architect's or engineer's certificates
or other evidence satisfactory to the Mortgagee that the portion of such
proceeds remaining on deposit with the Mortgagee, together with any additional
funds irrevocably allocated or otherwise provided for in a manner satisfactory
to the Mortgagee for such purpose, shall be sufficient to complete such
repairs or replacements and restore the Mortgaged Property as nearly as
possible to the market value and condition which existed immediately prior to
the damage, destruction, condemnation or taking, free from liens or
encumbrances except this Mortgage and Permitted Encumbrances. Every such
application for the payment of such proceeds, condemnation award or
compensation shall state that no Default or Event of Default has occurred and
is continuing and shall be accompanied by an opinion of counsel to the effect
that upon completion of the repair or replacement the property will be subject
to the lien of this Mortgage as a first lien thereon subject only to Permitted
Encumbrances.
(b) All insurance proceeds or condemnation awards, as the case may be,
other than proceeds or condemnation awards received with respect to an Event
of Loss shall be applied for the purposes specified in Section 4(a) within the
twelve-month period provided for thereby.
Section 5. Defaults and Remedies Therefor.
Section 5.1. Events of Default. The Mortgagor acknowledges and
agrees that each and all of the terms and provisions of Sections 6.1 through
6.3, both inclusive, of the Indenture have been and are incorporated into this
Mortgage by reference to the same extent as though fully set out herein and
that the term "Event of Default" wherever used in this Mortgage shall mean
either: (a) an Event of Default as defined in Section 6.1 of the Indenture or
(b) the failure of the Mortgagor to comply with any covenant, agreement or
warranty contained in this Mortgage, or any other mortgage or deed of trust
from time to time entered into by the Mortgagor for the benefit of the holders
of the Notes, within 30 days after the earlier of (i) notice from any
registered holder of the Notes to the Mortgagor specifying such failure and
demanding the same to be remedied, or (ii) such failure first becoming known
to any Responsible Officer of the Mortgagor (it being understood that such 30
day grace period shall apply only to any such failure of the Mortgagor to
comply with any covenant, agreement or warranty hereunder).
Section 5.2. Remedies. When any Event of Default has occurred and
is continuing, the Mortgagee may exercise any one or more or all, and in any
order, of the remedies hereinafter set forth, it being expressly understood
that no remedy herein or in the Indenture conferred is intended to be
exclusive of any other remedy or remedies; but each and every remedy shall be
cumulative and shall be in addition to every other remedy given herein or now
or hereafter existing at law or in equity or by statute:
(a) The Mortgagee may, by notice in writing to the Mortgagor declare
the entire unpaid balance of the Notes to be immediately due and payable; and
thereupon all such unpaid balance, together with all accrued interest thereon
and premium, if any, shall be and become immediately due and payable.
(b) The Mortgagee personally or by agents or attorneys may enter into
and take possession of all or any part of the Mortgaged Property, and may
forthwith subject to the provisions of the Lease Agreement, if applicable,
use, operate and manage the Mortgaged Property, collect the earnings and
income therefrom, pay all principal charges including taxes and assessments
levied thereon and operating and maintenance expenses and all disbursements
and liabilities of the Mortgagor hereunder and apply the net proceeds arising
from any such operation of the Mortgaged Property as provided in Section 5.3
in respect of the proceeds of a sale of the Mortgaged Property.
(c) The Mortgagee may, if at the time such action may be lawful and
always subject to compliance with any mandatory legal requirements, either
with or without taking possession and either before or after taking possession
and without instituting any legal proceedings whatsoever and having first
given notice of such sale by registered mail to the Mortgagor once at least 10
days prior to the date of such sale, and any other notice which may be
required by law, sell and dispose of said Mortgaged Property or any part
thereof at public auction or private sale to the highest bidder, which may be
the Mortgagor, in one lot as an entirety or in separate lots (the Mortgagor
for itself and for all who may claim by, through or under it hereby expressly
waiving and releasing all rights to have the property covered by the lien of
this Mortgage marshalled), and either for cash or on credit and on such terms
as the Mortgagee may determine and at any place (whether or not it be the
location of the Mortgaged Property or any part thereof) designated in the
notice above referred to. Any such sale or sales may be adjourned from time
to time by announcement at the time and place appointed for such sale or sales
or for any such adjourned sale or sales, without further published notice.
(d) The Mortgagee may proceed to protect and enforce its rights by a
suit or suits in equity or at law, or for the specific performance of any
covenant or agreement contained herein, in the Note Agreement or in the
Indenture, or in aid of the execution of any power herein or therein granted,
or for the foreclosure of this Mortgage, or for the enforcement of any other
appropriate legal or equitable remedy. Upon the bringing of any suit to
foreclose this Mortgage or to enforce any other remedy available hereunder,
the plaintiff shall be entitled as a matter of right, without notice and
without giving bond to the Mortgagor or anyone claiming under, by or through
it, and without regard to the solvency or insolvency of the Mortgagor or the
then value of the premises, to have a receiver appointed of all the Mortgaged
Property and of the earnings, income, rents, issues, profits and proceeds
thereof, with such power as the court making such appointment shall confer,
and the Mortgagor does hereby irrevocably consent to such appointment.
(e) In case of any sale of the Mortgaged Property, or of any part
thereof, pursuant to any judgment or decree of any court or otherwise in
connection with the enforcement of any of the terms of this Mortgage, the
principal of the Notes, if not previously due, and the interest accrued
thereon, shall at once become and be immediately due and payable; also in the
case of any such sale, the Mortgagee may bid and become the purchaser, and the
purchaser or purchasers, for the purpose of making settlement for or payment
of the purchase price, shall be entitled to turn in and use the Notes and any
claims for interest and premium matured and unpaid thereon, in order that
there may be credited as paid on the purchase price the sum apportionable and
applicable to the Notes, including principal and interest and premium thereof,
out of the net proceeds of such sale after allowing for the proportion of the
total purchase price required to be paid in cash. If at any foreclosure
proceeding the Mortgaged Property shall be sold for a sum less than the total
amount of indebtedness for which judgment is therein given, the judgment
creditor shall be entitled to the entry of a deficiency decree against the
Mortgagor and against the property of the Mortgagor for the amount of such
deficiency.
(f) The Mortgagee shall have any and all rights and remedies
(including, without limitation, extra-judicial power of sale) provided to a
secured party by the Uniform Commercial Code of the State of Ohio with respect
to any and all parts of the Mortgaged Property which are and which are deemed
to be governed by the Uniform Commercial Code of the State of Ohio. Without
limiting the generality of the foregoing, the Mortgagee shall, with respect to
any part of the Mortgaged Property constituting property of the type in
respect of which realization on a lien or security interest granted therein is
governed by the Uniform Commercial Code of the State of Ohio, have all the
rights, options and remedies of a secured party under the Uniform Commercial
Code of the State of Ohio, including, without limitation, the right to the
possession of any such property, or any part thereof, and the right to enter
without legal process any premises where any such property may be found. Any
requirement of said Code for reasonable notification shall be met by mailing
written notice to the Mortgagor at its address set forth herein at least 10
days prior to the sale or other event for which such notice is required.
It is understood and agreed that the Notes are also secured by other
mortgages and deeds of trust and that in case of default in any of the terms,
conditions or provisions of this Mortgage, the Notes or the Note Agreement,
the Mortgagee may resort to part or all of the security for the Notes, and may
foreclose the mortgages and deeds of trust in any order. The pendency of any
proceeding with respect to any one of the above-mentioned mortgages and deeds
of trust shall not be grounds for the abatement of, or for hindering, delaying
or preventing any proceeding with respect to foreclosure of this Mortgage.
Section 5.3. Application of Proceeds. The purchase money proceeds
and avails of any sale of the Mortgaged Property, or any part thereof and the
proceeds and avails of any remedy hereunder shall be paid to and applied as
set forth in Section 6.9 of the Indenture.
Section 5.4. Waiver of Extension, Appraisement and Stay Laws. The
Mortgagor covenants that, upon the occurrence of an Event of Default and the
acceleration of the Notes pursuant to Section 5.1 and Section 5.2 and to the
extent that such rights may then be lawfully waived, it will not at any time
thereafter insist upon or plead, or in any manner whatever claim or take any
benefit or advantage of, any stay or extension law now or at any time
hereafter in force, or claim, take or insist upon any benefit or advantage of
or from any law now or hereafter in force providing for the valuation or
appraisement of the Mortgaged Property or any part thereof prior to any sale
or sales thereof to be made pursuant to any provision herein contained, or to
the decree, judgment or order of any court of competent jurisdiction or, after
conformation of any such sale or sales claim or exercise any right under any
statute now or hereafter made or enacted by any state or otherwise to redeem
the property so sold or any part thereof, and hereby expressly waives for
itself and on behalf of each and every person, except decree or judgment
creditors of the Mortgagor acquiring any interest in or title to the Mortgaged
Property or any part thereof, subsequent to the date of this Mortgage, all
benefit and advantage of any such law or laws which would otherwise be
available to any such person in connection with the enforcement of any of the
Mortgagee's remedies hereunder; and covenants that it will not in connection
with any such enforcement proceedings invoke or utilize any such law or laws
or otherwise hinder, delay or impede the execution of any power herein granted
and delegated to the Mortgagee but will suffer and permit the execution of
every such power as though no such law or laws had been made or enacted.
The Mortgagor hereby waives any and all rights of redemption from sale
under any order or decree of foreclosure pursuant to rights herein granted, on
behalf of the Mortgagor, and each and every Person acquiring any interest in
or title to the Mortgaged Property described herein subsequent to the date of
this Mortgage, and on behalf of all other Persons to the extent permitted by
applicable law.
Any sale, whether under any power of sale hereby given or by virtue of
judicial proceedings, shall operate to divest all right, title, interest,
claim and demand whatsoever, either at law or in equity, of the Mortgagor in
and to the property sold and shall be a perpetual bar, both at law and in
equity, against the Mortgagor, its successors and assigns, and against any and
all persons claiming the property sold or any part thereof under, by or
through the Mortgagor, its successors or assigns.
Section 5.5. Effect of Discontinuance of Proceedings. In case the
Mortgagee shall have proceeded to enforce any right under this Mortgage by
foreclosure, sale, entry or otherwise, and such proceedings shall have been
discontinued or abandoned for any reason or shall have been determined
adversely, then and in every such case the Mortgagor and the Mortgagee shall
be restored to their former position and rights hereunder with respect to the
property subject to the lien of this Mortgage.
Section 5.6. Delay or Omission Not a Waiver. No delay or omission
of the Mortgagee to exercise any right or power arising from any default on
the part of the Mortgagor shall exhaust or impair any such right or power or
prevent its exercise during the continuance of such default. No waiver by the
Mortgagee of any such default, whether such waiver be full or partial, shall
extend to or be taken to affect any subsequent default, or to impair the
rights resulting therefrom, except as may be otherwise provided herein. No
remedy hereunder is intended to be exclusive of any other remedy but each and
every remedy shall be cumulative and in addition to any and every other remedy
given hereunder or otherwise existing; nor shall the giving, taking or
enforcement of any other or additional security, collateral or guaranty for
the payment of the indebtedness secured under this Mortgage operate to
prejudice, waive or affect the security of this Mortgage or any rights, powers
or remedies hereunder; nor shall the Mortgagee be required to first look to,
enforce or exhaust such other or additional security, collateral or
guaranties.
Section 5.7. Costs and Expenses of Foreclosure. In any suit to
foreclose the Lien or security interest hereon there shall be allowed and
included as additional Indebtedness Hereby Secured in the decree for sale all
reasonable expenditures and reasonable expenses which may be paid or incurred
by or on behalf of the Mortgagee for attorneys' fees, appraiser's fees,
outlays for documentary and expert evidence, stenographic charges, publication
costs and costs (which may be estimated as the items to be expended after the
entry of the decree) of procuring all such abstracts of title, title searches
and examination, guarantee policies, and similar data and assurances with
respect to title as the Mortgagee may deem to be reasonably necessary either
to prosecute any foreclosure action or to evidence to the bidder at any sale
pursuant thereto the true condition of the title to or the value of the
Mortgaged Property, all of which expenditures shall become so much additional
Indebtedness Hereby Secured which the Mortgagor agrees to pay and all of such
shall be immediately due and payable with interest thereon from the date of
expenditure until paid at the prime commercial loan rate charged by Mortgagee
from time to time for short term borrowings by large business borrowers, plus
2% per annum.
Section 6. Miscellaneous.
Section 6.1. Successors and Assigns. Whenever any of the parties
hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party; and all the covenants, premises and
agreements in this Mortgage contained by or on behalf of the Mortgagor, or by
or on behalf of the Mortgagee, shall bind and inure to the benefit of the
respective successors and assigns of such parties whether so expressed or not.
Section 6.2. Partial Invalidity. The unenforceability or
invalidity of any provision or provisions of this Mortgage shall not render
any other provision or provisions herein contained unenforceable or invalid.
Section 6.3. Addresses for Notices and Demands. All communications
provided for hereunder shall be in writing and, if to the Mortgagee, delivered
or mailed prepaid by registered or certified mail or overnight air courier, or
by facsimile communication, in each case addressed to the Mortgagee at its
address as set forth herein or such other address as the Mortgagee may
designate to the Mortgagor in writing, and if to the Mortgagor, delivered or
mailed by registered or certified mail or overnight air courier, or by
facsimile communication, to the Mortgagor at its address as set forth herein
or to such other address as the Mortgagee may in writing designate to the
Mortgagee; provided, however, that a notice to any party to this Agreement by
overnight air courier shall only be effective if delivered to such party at a
street address designated for such purpose in accordance with this Section
6.3, and a notice to such party by facsimile communication shall only be
effective if made by confirmed transmission to such party at a telephone
number designated for such purpose in accordance with this Section 6.3 and
promptly followed by the delivery of such notice by registered or certified
mail or overnight air courier, as set forth above.
Section 6.4. Headings and Table of Contents. The headings of the
sections of this Mortgage and the table of contents are inserted for purposes
of convenience only and shall not be construed to affect the meaning or
construction of any of the provisions hereof.
Section 6.5. Release of Mortgage. The Mortgagee shall release this
Mortgage and the lien hereof by proper instrument or instruments upon
presentation of satisfactory evidence that all indebtedness secured hereby has
been fully paid or discharged. Any part of the security herein described, or
other instrument now or hereafter given to secure the indebtedness which is
secured by this Mortgage, may be released by the Mortgagee without affecting
the lien hereof on the remainder.
Section 6.6. Governing Law. This Mortgage shall be governed by and
construed in accordance with the laws of the State of Ohio.
Section 6.7. Counterparts. This Mortgage may be executed,
acknowledged and delivered in any number of counterparts, each of such
counterparts constituting an original but all together only one Mortgage.
Section 6.8. Future Advances. (a) This Mortgage shall secure
unpaid balances of loan advances or future advances made by the Mortgagee at
the request of the Obligors or their respective successors or assigns or at
the request of the Company or its successor in title after this Mortgage is
delivered to the ________________ County, Ohio Recorder for recording pursuant
to the provisions of Ohio Revised Code Section 5301.232, to the extent that
such unpaid balances or future advances in the aggregate and exclusive of
interest accrued thereon do not exceed the maximum amount of $30,000,000 at
any time.
(b) In addition to any other debt or obligation which this Mortgage
may secure, this Mortgage shall secure unpaid balances of advances made with
respect to the Real Property, after the Mortgage is delivered to the _________
County, Ohio Recorder for recording, pursuant to the provisions of Ohio
Revised Code Section 5301.233, for the payment of taxes, assessments,
insurance premiums or costs incurred for the protection of the Real Property.
Section 6.9 Dating of Mortgage for Convenience. This Mortgage is dated
as of December 15, 1993 solely for convenience of identification, and is
effective and binding upon the Mortgagor only from and after the date executed
and delivered by the Mortgagor, as evidenced by the acknowledgement attached
to this Mortgage.
In witness whereof, the Mortgagor has caused this Mortgage to be
executed in its behalf, all as of the day and year first above written.
Care Enterprises, Inc
By /S/ Gary L. Massimino
---------------------------
Its Chief Financial Officer
Signed and acknowledged
in the presence of:
Witnesses:
/S/ Karen E. Patrick
- ------------------------------
Printed Name: Karen E. Patrick
/S/ Marie L. Paquet
- ------------------------------
Printed Name: Marie L. Paquet
State of Illinois )
) SS
County of Cook )
Before me, a notary public, in and for said county, personally appeared
Gary L. Massimino, known to me to be the person who, as Chief Financial
Officer of Care Enterprises, Inc, a Delaware corporation, the corporation
which executed the foregoing instrument, signed the same, and acknowledged
that he did so sign said instrument in the name and on behalf of said
corporation as such officer; that the same is his free act and deed as such
officer and the free and corporate act and deed of said corporation; that he
was duly authorized thereunto by its board of directors.
In testimony whereof, I hereunto subscribed my name, and affixed my
seal, at Chicago, Illinois, this 30th day of December, 1993.
/S/ Julia R. Browne
---------------------
Notary Public
Seal Stamped here
Commission expires: March 4, 1997
This instrument was prepared by and
after recordation this instrument
should be returned to:
Shelley J. Bacastow
Attorney at Law
Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
Schedule of Open-End Mortgage and Security Agreements
Pursuant to Regulation S-K Item 601 Instruction 2
<TABLE>
<CAPTION>
Tenant
Facility (Subsidiary) City County State
- -------- ------------ ---- ------ -----
<S> <C> <C> <C> <C>
Americare Homestead N/A Lancaster Fairfield Ohio
Nursing Center County
Americare Marion Marion Health Marion Marion Ohio
Nursing Center Care Corp. County
Americare Circleville Circleville Circleville Pickaway Ohio
Nursing Center Health Care County
Corp.
</TABLE>
CARE ENTERPRISES, INC.
2742 DOW AVENUE
TUSTIN, CA 92680-7245
December 30, 1993
To the Purchasers of
Care Enterprises, Inc.
8.10% Senior Secured Notes
due December 15, 2000
Ladies and Gentlemen:
Please refer to that certain Note Agreement dated as of December 15,
1993 ("Note Agreement") between the undersigned ("Care") and you
(collectively, the "Purchasers"), pursuant to which the Purchasers agreed
to purchase an aggregate of $30,000,000 of Care's 8.10% Senior Secured
Notes due December 15, 2000 (the "Notes"). Please also refer to the
Indenture of Trust dated as of December 15, 1993 ("Indenture"), pursuant
to which the Notes are issued.
On December 20, 1993, Care entered into an Agreement and Plan of
Merger ("Merger Agreement") with Regency Health Services, Inc., a Delaware
corporation ("Regency"), pursuant to which Care will either merge directly
into Regency, with Regency as the survivor, or Care will merge with a
newly formed subsidiary of Regency, with Care as the survivor. The final
structure is dependent on certain tax and other legal considerations. The
term "Merger" as used in this letter refers to the Merger consummated with
Regency, whether on a direct basis or with the Regency subsidiary.
1. Consent. Each of the Purchasers consents to the Merger, provided
that the provisions hereof and of Sections 4.13(a)(2)(ii), (iii) and (iv)
of the Note Agreement are complied with.
2. Waiver of Change of Control Put. Purchasers waive any rights to
declare their Notes due and payable pursuant to Section 5.5. of the
Indenture as a result of the Merger.
3. Effect of Merger. In the event the Merger is structured as a
Merger of a subsidiary of Regency with and into Care, then Regency shall
assume or guaranty the Notes in form and substance reasonably satisfactory
to each of the Purchasers, and the Note Agreement will be amended in form
and substance reasonably satisfactory to each Purchaser such that the
various covenants contained in Section 4 (and the related definitions)
shall be deemed made by (or have reference to) Regency, and Care shall be
deemed to be a Restricted Subsidiary. Regency shall also execute an
instrument, in form and substance reasonably satisfactory to each
Purchaser, whereby Regency either guarantees or becomes directly liable
for the obligations of the Issuer under the Indenture, and the Events of
Default under Section 6 shall be made applicable to Regency. If the
Merger is directly with Regency, with Regency as the surviving
corporation, Regency shall execute an instrument of assumption in form and
substance reasonably satisfactory to each of the Purchasers, whereby
Regency assumes all of the obligations of Care under the Note Agreement,
the Notes, and the Indenture, and all references therein to "Company"
shall be references to Regency and Care shall be a Restricted Subsidiary.
4. Financial Covenants. In the event the Merger is completed, the
following financial covenants will be modified pursuant to an amendment to
the Note Agreement in form and substance reasonably satisfactory to the
Holders, as follows:
a. Section 4.6. The minimum consolidated Current Ratio will
be 1.50 to 1.0 at all times from and after the closing of the Merger.
b. Section 4.7. The minimum Consolidated Tangible Net Worth
will be an amount equal to the greater of (i) 75% of the Tangible Net
Worth of Regency on a consolidated basis immediately after the Merger,
or (ii) 75% of the Tangible Net Worth of Regency on a consolidated basis
immediately after the Merger plus 50% of the Consolidated Net Income
for the period commencing from the first day of the fiscal quarter
commencing immediately following the completion of the Merger, to the
date of determination thereof, considered as a single accounting
period.
c. Section 4.8. The table in Section 4.8(a)(6)(i) shall be
as follows:
From and after the Merger
through December 31, 1994 0.65 to 1.00
January 1, 1995 through
December 31, 1995 0.60 to 1.00
January 1, 1996 through
December 31, 1996 0.55 to 1.00
January 1, 1997 and thereafter 0.50 to 1.00
d. The Fixed Charges Coverage Ratio will, from and after the
fiscal quarter during which the Merger occurs and thereafter on a
trailing four quarters basis beginning with the fiscal quarter in
which the Merger occurs, be not less than 1.50 to 1.00.
e. While Care is deemed a Restricted Subsidiary, Indebtedness
of Care will not be deemed Debt for Borrowed Money of a Restricted
Subsidiary, but rather will be deemed Indebtedness of "Company" for
purposes of the definition of "Basket Debt" and, further, Care will be
deemed a Wholly-Owned Subsidiary irrespective of whether it has
Indenture owed to persons other than Regency.
f. The definition of "Basket Debt" will exclude, in addition
to all secured and subsidiary borrowings which Care has in place on the
date hereof, all secured or subsidiary borrowings which Regency or its
Restricted Subsidiaries has in place on the Merger date. Further, the
applicable percentage of Tangible Net Worth shall be 15% from and
after the completion of the Merger provided that Regency's
Consolidated Tangible Net Worth is at least $75,000,000, and 20% at
all times that Regency's Consolidated Tangible Net Worth is at least
$100,000,000.
5. The Purchasers and the Company will, in good faith, consider
other modifications to the Indenture and the Note Agreement such that various
dollar threshold amounts and limitations appearing in the documents
executed today will be reevaluated in the context of the pro forma
financial statements of Care and Regency and projected business activities
of the combined companies.
6. Fiscal Year Change. Regency intends to change its fiscal year
from June 30 to December 31, effective December 31, 1994.
7. Merger Transaction Expenses. The Purchasers agree that
irrespective of the treatment therefor required by GAAP, the out-of-pocket
costs and expenses incurred by Care and Regency (not to exceed $4,000,000)
in connection with the Merger shall not be deemed a charge to Consolidated
Net Income unless the Merger is not completed by June 30, 1994, at which
time all such costs and expenses incurred by Care will be treated as
required by GAAP.
8. Expiration. The agreements set forth in this letter expire on
June 30, 1994.
Please acknowledge your agreement to the foregoing by returning a copy
of this letter.
Very truly yours,
CARE ENTERPRISES, INC.
By /S/ Gary L. Massimino
----------------------------
Its Executive Vice President
AGREED:
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By /S/ Steven J. Blewitt
- ----------------------------
Its Investment Manager
JOHN HANCOCK LIFE INSURANCE
COMPANY OF AMERICA
By /S/ John P. Shea
- ----------------------------
Its Vice President/Investments
MELLON BANK, N.A., as Trustee for
NYNEX MASTER PENSION TRUST,
as Directed by John Hancock Mutual
Life Insurance Company
By /S/ Judith A. Manion
- ----------------------------
Its Paralegal
ANCHOR NATIONAL LIFE INSURANCE COMPANY
By /S/ Lynn A. Hopton
- ----------------------------
Its Director, Corporate Finance
SunAmerica Investments, Inc.
MABON SECURITIES CORP.
Members New York Stock Exchange, Inc.
One Liberty Plaza
165 Broadway, New York, NY 10006
July 1, 1993
CONFIDENTIAL
- ------------
Richard K. Matros
President and Chief Operating Officer
Care Enterprises, Inc.
2742 Dow Avenue
Tustin, CA 92680-7245
Gentlemen:
This letter agreement (the "Agreement") confirms the understanding and
agreement between Mabon Securities Corp. ("Mabon") and Care Enterprises,
Inc. ("Care") or the "Company") whereby the Company engages Mabon to
provide investment banking services subject to the following terms and
conditions:
1. Mabon is hereby engaged as exclusive financial advisor to the
Company in connection with arranging an approximate $30 million
private placement of Senior Secured Notes for the Company (the
"Financing").
2. In connection with the Financing, Mabon will: (i) advise the
Company with respect to the form and structure of the Financing;
(ii) assist the Company in developing an offering memorandum
satisfactory to the Company (subject to Section 9 below) to be
provided to prospective investors (the "Investors"); (iii)
identify and make initial contacts with Investors; (iv) assist
the Company in conducting presentations and due diligence
meetings with Investors; (v) assist in closing the Financing;
and (vi) provide such other financial advisory and investment
banking services as may from time to time be mutually
agreed. It is recognized that the Company shall retain the
right to control all negotiations with Investors, and shall
retain the right to approve or reject any proposed Financing
terms in its sole discretion.
3. Mabon will be engaged as exclusive financial advisor to the
Company with respect to the Financing for a period commencing on
the date of this Agreement and ending on the earlier of four (4)
months from such date or the closing of the Financing; provided,
however, that the Company at its option may extend such
engagement period for up to an additional four (4) months, by
notice to Mabon. If the Company terminates this engagement
prior to the expiration of the engagement period, or if the
engagement period expires prior to the completion of the
Financing, Mabon will provide the Company, within 10 days,
with a list of Investors contacted by Mabon who had expressed
interest in investing in the Financing and a desire to have
further conversations with Mabon or with the Company concerning
investing in the Financing. Except as provided in Section 7,
if within ten (10) months from the date of this letter, the
Company completes any part of the Financing with
any of such Investors, Mabon will be compensated as follows:
(a) in the event that the Company retains a full-service
investment bank (which for purpose hereof shall be deemed
an investment bank which engages in securities
underwritings as well as private placements) subsequent
to the expiration or termination of this agreement, and
closes the Financing or any portion thereof with any such
Investors, Mabon will receive 50% of its fees as defined
in Section 4 below with respect to the amount of the
Financing purchased by such Investors; or
(b) in the event that the Company, subsequent to the
expiration or termination of this agreement, without
retaining a full-service investment bank, closes
the Financing or any portion thereof with any such
Investors, Mabon will receive its fees as
defined in Section 4 below with respect to the amount
of the Financing purchased by such Investors.
This engagement may be terminated by either the Company or Mabon,
at any time and for any reason, upon ten (10) days' written
notice from one party to the other. Notwithstanding
anything to the contrary contained herein, the provisions
concerning confidentiality, indemnification, contribution and the
Company's obligations to pay fees and reimburse expenses incurred
up to the point of termination, which are contained herein and in
the Indemnification Provisions (as hereinafter defined) will
survive any such termination.
4. As compensation for the services provided by Mabon hereunder, the
Company agrees to pay to Mabon certain fees as follows:
(a) The Company will pay Mabon a retainer fee (the "Retainer
Fee") of $25,000, which will be payable in cash upon
signing this Agreement.
(b) Upon completion of an offering memorandum satisfactory to
the Company, prior to going to market, the Company will
pay Mabon an additional $25,000, payable in cash. If for
any reason, not the fault of the Company, Mabon is
unsuccessful in arranging the Financing, Mabon agrees to
reimburse the Company for the additional $25,000 payment,
payable in cash.
(c) Upon successful completion of the Financing, Mabon will
receive an amount, payable in cash, equal to 2.00% of the
Company's gross proceeds from the Financing, less the
$50,000 previously paid.
5. In addition to any fees that may be payable to Mabon, the Company
will reimburse Mabon, promptly upon request from time to time,
for its reasonable out-of-pocket expenses incurred in
connection with this engagement, including without limitation
the reasonable professional fees and expenses incurred by Mabon,
including reasonable fees and expenses of legal counsel, if any
Mabon will receive prior approval from the Company before
incurring any expenses for which it intends to seek reimbursement
that exceed $15,000 of total reimbursements hereunder.
6. During the period that Mabon is engaged by the Company, the
Company shall not directly or indirectly initiate any discussions
or other contacts, or solicit any inquiries or indications,
concerning the Financing except through Mabon. The Company shall
promptly furnish Mabon with the names of all parties that the
Company, its directors, officers and its controlling shareholders
have conducted any discussions with, received inquiries from, or
had any other contacts with, prior to the date hereof, concerning
an investment in the Company and shall promptly inform Mabon of
the identity of any third party that subsequently makes any such
inquiry or whose interest in a possible investment in the
Financing subsequently becomes known to the Company.
7. In the event the Company experiences a "change in control"
transaction (a merger in which the Company is a participant or a
sale of shares of outstanding stock of the Company in either case
the result of which is to cause a change in the beneficial
holdings of more than 30% of the outstanding shares of stock of
the Company, or a sale of all or substantially all of the assets
of the Company) during their term of this engagement, or if
initial discussions regarding a change in control occur during
our engagement period which will delay or prevent the Financing
(collectively, the "Disruption") and as a consequence, the
Company terminates this engagement prior to the expiration of the
engagement period or the engagement period expires prior to the
completion of the Financing (in either case subject to the right
of the Company to extend the engagement period as set forth in
Section 3), then either (i) the Company will negotiate to engage
Mabon as financial advisor in connection with such transaction,
in such capacity and on such terms as shall be acceptable to the
Company and Mabon, each in their sole discretion respectively; or
(ii) in lieu of any amounts then remaining payable under Sections
3 or 4 above, the Company agrees to compensate Mabon for its work
on the Financing based on the following schedule:
a) The Company will pay Mabon $25,000 if the
Disruption occurs prior to the delivery of an
offering memorandum satisfactory to the Company; or
b) The Company will pay Mabon $75,000 if the
Disruption occurs subsequent to the delivery to the
Company of a satisfactory offering memorandum and
prior to the receipt by Mabon of written
commitments from investors to purchase
up to $6.25 million of the Financing; or
c) If the Disruption occurs subsequent to the receipt
of written commitments from Investors to purchase
in excess of $6.25 million of the Financing, the
Company will pay Mabon 2% of the amount represented
by written commitments from Investors, less any
amounts already paid under Sections 4(a) and 4(b).
For purposes of the above paragraphs (b) and (c) a "commitment" from an
Investor is a writing signed by the Investor which commits the Investor to
purchase a portion of the Financing pursuant to the terms of the offering
memorandum reasonably satisfactory to the Company and any documents
delivered pursuant thereto. These commitments may be subject to
reasonably satisfactory documentation, customary "accuracy" and material
adverse change" representations and warranties and closing of the entire
Financing.
The amounts payable under (a) or (b) above shall be in addition to any
amounts already paid to Mabon under Sections 4 (a) and 4 (b) above.
8. In consideration of Mabon's services on behalf of the Company in
connection with the Financing, the Company agrees to indemnify
and hold harmless Mabon and each of its affiliates, stockholders,
directors, officers, employees and controlling persons (within
the meaning of Section 15 of the Securities Act of 1933, as
amended, or Section 20 of the Securities Exchange Act of 1934) to
the extent and as provided for in the indemnification and
contribution provisions (the "Indemnification Provisions")
attached hereto as Addendum A and incorporated herein in their
entirety.
9. The Company will provide to Mabon all the information requested
by Mabon for the purpose of rendering investment banking services
hereunder (the "Information"). The Company recognizes and
confirms that:
(a) Mabon will use and rely on the Information and on
information available from generally recognized public
sources in performing the services contemplated by this
Agreement without having independently verified the same;
and
(b) Mabon does not assume responsibility for the accuracy or
completeness of the Information and such other
information.
Mabon agrees to keep confidential all material, non-public
Information provided to it by the Company, except as required by
law or as contemplated by the terms of this Agreement. Mabon will
use all non-public Information provided to it by the Company
solely for the purpose of rendering services pursuant to and in
accordance with this Agreement and will not, without the prior
written consent of the Company, disclose any non-public
Information to any person except in connection with the
Financing. In the event of termination of this Agreement, Mabon
will promptly return to the Company all non-public Information
(and all copies thereof) furnished to Mabon by or on behalf of
the Company pursuant to this Agreement. Notwithstanding the
termination of this Agreement and such return of non-public
Information, Mabon and its agents and advisors shall continue to
be bound by its obligations of confidentiality under this
Agreement. Mabon agrees that the Company shall have ultimate
control over the content of any written materials prepared or
utilized by Mabon hereunder, including the right to review and
edit all such materials in advance of their use or distribution.
10. During the term of this Agreement and prior to the closing of the
Financing, the Company will promptly notify Mabon of any material
event or development relating to the financial condition,
business operations or business prospects of the Company and
promptly deliver to Mabon copies of all material filings made by
the Company with any regulatory agency and copies of all press
releases issued by the Company.
11. Any offering of debt will be made as a private placement to one
or more corporate or institutional investors each of which
investors must qualify as an "accredited investor" under
Regulation D of the Securities and Exchange Commission. It is
intended that such offering qualify for an exemption from
registration under the Securities Act of 1933, as amended.
Mabon shall conduct such offering by means other than "general
solicitation" as that term is used under Regulation D.
12. The Company agrees that Mabon, following the successful
completion of the Financing, has the right to place "tombstone"
advertisements in financial and other newspaper and journals, at
its own expense, describing its services to the Company
hereunder; provided, however, that Mabon will submit copies of
such advertisements to the Company so that the Company may
consent to the form of such advertisements, which consent shall
not be unreasonably withheld or delayed.
13. This Agreement shall be governed by the laws of the State of New
York. The parties hereto agree to submit to arbitration any
dispute arising under this Agreement. Such arbitration shall
occur in Los Angeles, California and shall be conducted under the
authority of the National Association of Securities Dealers,
Inc., in accordance with its rules and regulations.
14. Formal approval by Care's Board of Directors is required prior to
Mabon going to market with the Financing.
If the foregoing is in accordance with your understanding of the terms
of our agreement, please sign and return to us the enclosed duplicate
hereof.
Very truly yours,
MABON SECURITIES CORP.
By: /S/ Mark P. Clein
---------------------
Mark P. Clein
Director
Accepted and agreed to as of the
date first written above subject
to formal approval by the Company's
Board of Directors:
CARE ENTERPRISES, INC.
By: /S/ Richard K. Matros
-----------------------
Richard K. Matros
President and Chief Operating Officer
ADDENDUM A
Indemnification Provisions
--------------------------
In connection with the engagement of Mabon Securities Corp. ("Mabon")
by Care Enterprises, Inc. (the "Company") pursuant to a letter agreement
dated July 1, 1993 between the Company and Mabon, as it may be amended
from time to time (the "Agreement"), the Company hereby agrees as follows:
1. To the extent permitted by law, the Company will indemnify Mabon
and its affiliates, stockholders, directors, officers, employees
and controlling persons (within the meaning of Section 15 of the
Securities Act of 1933, as amended, or Section 20 of the Securities
Act of 1934) against all losses, claims, damages or liabilities, as
the same are incurred (including the reasonable fees and expenses
of counsel), relating to or arising out of its services hereunder,
except to the extent that any losses, claims, damages or
liabilities (or actions in respect thereof) are found in a final
judgment by a court of law to have resulted from Mabon's willful or
bad faith misconduct, recklessness, or gross negligence in
performing the services described herein.
2. Promptly after receipt by Mabon of notice of any claim or the
commencement of any action or proceeding with respect to which
Mabon is entitled to indemnity hereunder, Mabon will notify the
Company in writing of such claim or of the commencement of such
action or proceeding, and the Company will assume the defense of
such action or proceeding and will employ counsel reasonably
satisfactory to Mabon and will pay the fees and expenses of such
counsel. Notwithstanding the preceding sentence, Mabon will be
entitled to employ counsel separate from counsel for the Company
and any other party in such action if a conflict of interests
exists which makes representation by counsel chosen by the Company
not advisable. In such event, the reasonable fees and
disbursements of such separate counsel will be paid by the Company.
3. To the extent permitted by law, Mabon will indemnify the Company
and its affiliates, stockholders, directors, officers, employees
and controlling persons (within the meaning of Section 15 of the
Securities Act of 1933, as amended, or Section 20 of the Securities
Exchange Act of 1934) against all losses, claims, damages or
liabilities, as the same are incurred (including the reasonable
fees and expenses of counsel) relating to or arising out of this
Agreement, but only to the extent that any losses, claims, damages
or liabilities (or actions in respect thereof) are found in a final
judgement by a court of law to have resulted from Mabon's willful
or bad faith misconduct, recklessness, or gross negligence in
performing its services described herein.
4. Promptly after receipt by the Company of notice of any claim or the
commencement of any action or proceeding with respect to which the
Company is entitled to indemnity hereunder, the Company will notify
Mabon in writing of such claim or of the commencement of such
action or proceeding, and Mabon will assume the defense of such
action or proceeding and will employ counsel reasonably
satisfactory to the Company and will pay the fees and expenses of
such counsel. Notwithstanding the preceding sentence, the Company
will be entitled to employ counsel separate from counsel for Mabon
and from any other party in such action if a conflict of interest
exists which makes representation by counsel chosen by Mabon not
advisable. In such event, the reasonable fees and disbursements of
such separate counsel will be paid by Mabon.
5. The Company agrees to notify Mabon promptly of the assertion
against it or any other person of any claim or the commencement of
any action or proceeding relating to a transaction contemplated by
the Agreement.
6. If for any reason the foregoing indemnity is unavailable to the
indemnified party insufficient to hold such indemnified party
harmless, then the indemnifying party shall contribute to the
amount paid or payable by the indemnified party as a result of such
losses, claims, damages or liabilities in such proportion as is
appropriate to reflect not only the relative benefits received by
the Company on the one hand and Mabon on the other, but also the
relative fault of the Company on the one hand and Mabon on the
other that resulted in such losses, claims, damages or liabilities,
as well as any relevant equitable considerations. The amounts paid
or payable by an indemnifying party in respect of losses, claims,
damages, and liabilities referred to above shall be deemed to
include any legal or other fees and expense reasonably incurred in
defending any litigation, proceeding or other action or claim.
Notwithstanding the provisions hereof, Mabon's share of the
liability hereunder shall not be in excess of the amount of fees
actually received by Mabon under the Agreement (excluding any
amounts received as reimbursement of expenses incurred by Mabon).
7. These Indemnification Provisions shall remain in full force and
effect whether or not the Financing contemplated by the Agreement
is completed and shall survive the termination of the Agreement,
and shall be in addition to any liability that either party might
otherwise have to any other party under the Agreement or otherwise.
MABON SECURITIES CORP.
By: /S/ Mark P. Clein
---------------------
Mark P. Clein
Director
Accepted and agreed to as of the
date first written above subject
to formal approval by the Company's
Board of Directors:
CARE ENTERPRISES, INC.
By: /S/ Richard K. Matros
-----------------------
Richard K. Matros
President and Chief Operating Officer
Merrill Lynch Capital Markets
World Financial Center
North Tower
New York, New York 10281-1324
212 449 1000
MERRILL LYNCH Investment Banking
November 15, 1993
Care Enterprises, Inc.
2742 Dow Avenue
Tustin, California 92680-7245
Attention: John W. Adams
Chairman and Chief Executive Officer
Gentlemen:
Care Enterprises, Inc. (the "Company") and Regency Health
Services, Inc. ("Regency") propose to enter into an agreement
(the "Agreement") pursuant to which Regency and the Company will
enter into a business combination in a transaction (the "Business
Combination") for consideration to be set forth in such
agreements. As used in this letter agreement, the term "Business
Combination" means, whether effected in one transaction or a
series of transactions, (a) any merger, consolidation,
reorganization or other business combination pursuant to which
the business of the Company is combined with that of Regency,
including, without limitation, any joint venture, (b) the
acquisition, directly or indirectly, by Regency of more than 66
2/3% of the then outstanding capital stock of the Company by way
of negotiated tender or exchange offer, negotiated purchase or
other means, as approved by the Board of Directors of the
Company, (c) the acquisition, directly or indirectly, by Regency
of all or a substantial portion of the assets of, or of any right
to all or a substantial portion of the revenues or income of, the
Company by way of a negotiated purchase, lease, license,
exchange, joint venture or other means, (d) the negotiated
acquisition, directly or indirectly, by Regency of control of the
Company otherwise than through the acquisition of the Company's
capital stock. This letter agreement is to confirm the retention
of Merrill Lynch & Co. ("Merrill Lynch") by the Company to advise
the Board of Directors and render its opinion (the "Opinion") as
to whether or not the proposed consideration to be received by
the stockholders in the Business Combination is fair from a
financial point of view to the stockholders of the Company.
The Company agrees to pay the following fees to Merrill
Lynch as compensation for Merrill Lynch's services in rendering
the Opinion:
(1) A retainer fee of $50,000, payable in cash on the date of
this letter agreement;
(2) A fee of $500,000, payable in cash on the date Merrill
Lynch delivers the Opinion. Any fee previously paid to Merrill
Lynch pursuant to clause (1) of this paragraph will be deducted
from any fee to which Merrill Lynch is entitled pursuant to this
clause (2).
In the event that an offer is received by the Company from
another party to acquire the Company or all or substantially all
of its assets or business by merger or otherwise and the Board of
Directors of the Company considers such other offer, additional
compensation may be payable in an amount to be agreed upon by the
Company and Merrill Lynch for such services as it may perform at
the request of the Board of Directors in advising the Board of
Directors with respect to such other offer.
In addition to any fees that may be payable to Merrill
Lynch under this letter agreement, the Company agrees to
reimburse Merrill Lynch, upon request made from time to time, for
its reasonable out-of-pocket expenses incurred in connection with
its activities under this letter agreement, including the
reasonable fees and disbursements of its legal counsel.
It is understood that the Opinion will be dated as of a date
reasonably proximate to the date on which the Board of Directors
of the Company approves the Business Combination. It is further
understood that the Opinion and all other material which is
presented to the Board of Directors of the Company by Merrill
Lynch will be prepared solely for the confidential use of the
Board of Directors of the Company and, except as set forth in the
next sentence, will not be reproduced, summarized, described or
referred to or given to any other person without Merrill Lynch's
prior written consent. It is further understood that, if the
Opinion is included in the proxy statement to be mailed to the
shareholders of the Company in connection with the Business
Combination, the Opinion will be reproduced in such proxy
statement in full, and any description of or reference to Merrill
Lynch or summary of the Opinion in such proxy statement will be
in a form acceptable to Merrill Lynch and its counsel. Except as
provided in this letter agreement, the Opinion will not be
reproduced, summarized, described or referred to without Merrill
Lynch's prior written consent.
The Company will furnish Merrill Lynch (and will request
that Regency furnish Merrill Lynch) with such information as
Merrill Lynch believes appropriate to its assignment (all such
information so furnished being the "Information"). The Company
recognizes and confirms that Merrill Lynch (a) will use and rely
primarily on the Information and on information available from
generally recognized public sources in rendering the Opinion
without having independently verified the same, (b) does not
assume responsibility for the accuracy or completeness of the
Information and such other information and (c) will not make an
appraisal of any assets of Regency or the Company.
Merrill Lynch agrees to keep all Information confidential
except Information that (i) is or becomes generally available to
the public (other than as a result of a disclosure by Merrill
Lynch), (ii) was available to Merrill Lynch on a nonconfidential
basis prior to its disclosure by the Company, (iii) becomes
available to Merrill Lynch on a nonconfidential basis from a
person other than the Company who, to the knowledge of Merrill
Lynch, is not bound by a confidentiality agreement with the
Company or otherwise prohibited from transferring such
information to Merrill Lynch, (iv) the Company agrees may be
disclosed or (v) Merrill Lynch is requested pursuant to, or
required by, law, regulation, legal process or regulatory
authority to disclose. The obligations of Merrill Lynch under
the immediately preceding sentence shall terminate upon the
second anniversary of this letter agreement.
The Company agrees to indemnify Merrill Lynch and its
affiliates and their respective directors, officers, employees,
agents and controlling persons (Merrill Lynch and each such
person being an "Indemnified Party") from and against any and all
losses, claims, damages and liabilities, joint or several, to
which such Indemnified Party may become subject under any
applicable federal or state law, or otherwise, and related to or
arising out of the Business Combination contemplated by this
letter agreement or the engagement of Merrill Lynch pursuant to,
and the performance by Merrill Lynch of the services contemplated
by, this letter agreement and will reimburse any Indemnified
Party for all expenses (including counsel fees and expenses) as
they are incurred in connection with the investigation of,
preparation for or defense of any pending or threatened claim or
any action or proceeding arising therefrom, whether or not such
Indemnified Party is a party and whether or not such claim,
action or proceeding is initiated or brought by or on behalf of
the Company. The Company will not be liable under the foregoing
indemnification provision to the extent that any loss, claim,
damage, liability or expense is found in a final judgment by a
court to have resulted from Merrill Lynch's bad faith or gross
negligence. The Company also agrees that no Indemnified Party
shall have any liability (whether direct or indirect, in contract
or tort or otherwise) to the Company or its security holders or
creditors related to or arising out of the engagement of Merrill
Lynch pursuant to, or the performance by Merrill Lynch of the
services contemplated by, this letter agreement except to the
extent that any loss, claim, damage or liability is found in a
final judgment by a court to have resulted from Merrill Lynch's
bad faith or gross negligence.
If the indemnification of an Indemnified Party provided for
in this letter agreement is for any reason held unenforceable,
the Company agrees to contribute to the losses, claims, damages
and liabilities for which such indemnification is held
unenforceable (i) in such proportion as is appropriate to reflect
the relative benefits to the Company, on the one hand, and
Merrill Lynch, on the other hand, of the Business Combination as
contemplated (whether or not the Business Combination is
consummated) or (ii) if (but only if) the allocation provided for
in clause (i) is for any reason held unenforceable, in such
proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) but also the relative fault of
the Company, on the one hand, and Merrill Lynch, on the other
hand, as well as any other relevant equitable considerations.
The Company agrees that for the purposes of this paragraph the
relative benefits to the Company and Merrill Lynch of the
Business Combination as contemplated shall be deemed to be in the
same proportion that the total value received or contemplated to
be received by the Company or its security holders, as the case
may be, as a result of or in connection with the Business
Combination bears to the fees paid or to be paid to Merrill Lynch
under this letter agreement; provided, however, that, to the
extent permitted by applicable law, in no event shall the
Indemnified Parties be required to contribute an aggregate amount
in excess of the aggregate fees actually paid to Merrill Lynch
under this letter agreement for rendering the Opinion.
The Company agrees that, without Merrill Lynch's prior
written consent, it will not settle, compromise or consent to the
entry of any judgment in any pending or threatened claim, action
or proceeding in respect of which indemnification could be sought
under the indemnification provision in this letter agreement (if
Merrill Lynch or any other Indemnified Party is an actual party
to such claim, action or proceeding or such claim, action or
proceeding is brought on behalf of the Company), unless such
settlement, compromise or consent includes an unconditional
release of each Indemnified Party from all liability arising out
of such claim, action or proceeding. The Company may settle,
compromise or consent to the entry of any such judgment in any
such pending or threatened claim, action or proceeding on behalf
of the Indemnified Parties if such settlement, compromise or
consent (i) includes solely the payment of money by the Company
and (ii) an unconditional release of each Indemnified Party from
all liability arising out of such claim, action or proceeding.
The Company acknowledges and agrees that Merrill Lynch has
been retained solely to render the Opinion and to advise the
Board of Directors of the Company with respect to such Opinion.
In such capacity, Merrill Lynch shall act as an independent
contractor, and any duties of Merrill Lynch arising out of its
engagement pursuant to this letter agreement shall be owed solely
to the Company.
In the event that an Indemnified Party is requested or
required to appear as a witness in any action brought by or on
behalf of or against the Company or any Acquiror in which such
Indemnified Party is not named as a defendant, the Company agrees
to reimburse Merrill Lynch for all expenses incurred by it in
connection with such Indemnified Party's appearing and preparing
to appear as such a witness, including, without limitation, the
fees and disbursements of its legal counsel, and to compensate
Merrill Lynch in an amount to be mutually agreed upon which is
reasonably related to the time and effort expended by Merrill
Lynch and its employees.
The Company acknowledges that Merrill Lynch may, at its
option and expense, place an announcement in such newspapers and
periodicals as it may choose, stating that Merrill Lynch has
rendered an opinion in connection with a Business Combination.
No waiver, amendment or other modification of this letter
agreement shall be effective unless in writing and signed by each
party to be bound thereby.
This letter agreement shall be governed by, and construed in
accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in that state.
Each of Merrill Lynch and the Company (in its own behalf
and, to the extent permitted by applicable law, on behalf of its
shareholders) waives all right to trial by jury in any action,
proceeding or counterclaim (whether based upon contract, tort or
otherwise) related to or arising out of the engagement of Merrill
Lynch pursuant to, or the performance by Merrill Lynch of the
services contemplated by, this letter agreement.
Please confirm that the foregoing correctly sets forth our
agreement by signing and returning to Merrill Lynch the duplicate
copy of this letter agreement enclosed herewith.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
By Kathleen E. White
Director
Investment Banking Group
Accepted and Agreed to as of the date first written above:
CARE ENTERPRISES, INC.
By John W. Adams
Chairman and Chief Executive Officer
BUSINESS LOAN AGREEMENT
This Agreement, dated as of March 1, 1994, is among Bank of America
National Trust and Savings Association (the "Bank"), Care Enterprises, Inc.
("CEI"), and each other entity whose name appears on the signature pages to
this Agreement (collectively, with CEI, the "Borrowers").
1. LETTERS OF CREDIT
1.1 Letters of Credit. At the request of the Borrowers or any
of them, between the date of this Agreement and June 30, 1995 (the "Expiration
Date"), the Bank will issue standby letters of credit to support self-insured
workers compensation programs maintained by any of the Borrowers. Each letter
of credit must be issued before the Expiration Date, but may expire at any
time.
If for any reason the Bank fails to renew its agreement to issue letters of
credit beyond the Expiration Date (a "Failure to Renew"), however, the
Borrowers shall arrange for the cancellation of each outstanding letter of
credit, which shall be effective no later than the Expiration Date.
1.2 Amount. The face amount of all letters of credit
outstanding at any one time, plus all drawn and unreimbursed amounts under all
of the letters of credit (collectively, the "L/C Liabilities") may not exceed
Eight Million Dollars ($8,000,000).
1.3 Other Terms. Each Borrower agrees:
(a) if there is a default under this Agreement, to
immediately prepay and make the Bank whole for any
outstanding letters of credit.
(b) the issuance of any letter of credit and any
amendment to a letter of credit is subject to the Bank's
written approval and must be in form and content
satisfactory to the Bank and in favor of a
beneficiary acceptable to the Bank.
(c) to sign the Bank's form Application and Agreement
for Standby letter of credit for which such Borrower
Letter of Credit with respect to each applies hereunder.
(d) to pay any fees that the Bank notifies the
Borrowers will be charged for issuing and
processing letters of credit for the Borrowers.
(e) to allow the Bank to automatically charge its
checking account for applicable fees, discounts,
and other charges.
(f) to pay the Bank a non-refundable fee equal to 1.50%
per annum of the outstanding undrawn amount of each standby
letter ofcredit, payable annually in advance, calculated on
the outstanding undrawn amount on the day the fee is
calculated. In the event of a Failure to Renew, the
Bank shall refund to the appropriate Borrower a pro-rated
portion of each such fee previously paid by such Borrower
within the twelve months prior to the Expiration Date,
equal to a fraction of such fee whose numerator is the
difference between 360 and the number of days that have
elapsed since such fee was paid, and whose denominator is
360.
2. FEES AND EXPENSES
2.1 Fees
(a) Unused commitment fee. The Borrowers agree to pay
a fee on any difference between $8,000,000 and the weighted
average L/C Liabilities during the specified period. The
fee will be calculated at .25% per year, will be calculated
in arrears at the end of each fiscal quarter of CEI, and
will be payable on March 31, 1994, and at the end of each
quarter thereafter.
(b) Loan Fee. The Borrowers agree to pay a $25,000
fee, on the date this Agreement is executed by CEI.
2.2 Expenses.
(a) The Borrowers agree to immediately repay the Bank
for expenses that include, but are not limited to, filing,
recording and search fees, audit fees, title report fees,
and documentation fees.
(b) The Borrowers agree to reimburse the Bank for any
expenses it incurs in the preparation of this Agreement
and any agreement or instrument required by this Agreement.
Expenses include, but are not limited to, reasonable
attorneys' fees, including any allocated costs of the
Bank's in-house counsel.
3. COLLATERAL
3.1 Personal Property. The Borrowers' obligations to the Bank
under this Agreement will be secured by personal property the Borrowers now
own or will own in the future as listed below. The collateral is further
defined in security agreements executed by the Borrowers. In addition, all
personal property collateral securing this Agreement shall also secure all
other present and future obligations of the Borrowers or any one of them to
the Bank. All personal property collateral securing any other present or
future obligations of the Borrowers or any one of them to the Bank shall also
secure this Agreement.
(a) Accounts receivable of all Borrowers.
(b) All issued and outstanding stock of HealthCare
Network held by CEI.
(c) Promissory notes described on Schedule 3.1(d)
attached hereto, together with all rights and powers under
any guaranty, security, agreement, deed of trust, or other
document executed in connection with any such note.
4. DISBURSEMENTS, PAYMENTS AND COSTS
4.1 Requests for Credit. Each request for an extension of
credit will be made in writing in a manner acceptable to the Bank, or by
another means acceptable to the Bank.
4.2 Direct Debit.
(a) The Borrowers agree that and any fees and other
amounts owing hereunder will be deducted automatically
on the due date from account number 14562-50445 of
Care Finance, Inc. with the Bank, or such other of
Borrowers' accounts with the Bank as may be
designated in writing by the Borrowers.
(b) The Bank will debit the account on the dates the
payments become due. If a due date does not fall on a
banking day, the Bank will debit the account on the
first banking day following the due date.
(c) The Borrowers will maintain sufficient funds in the
account on the dates the Bank enters debits authorized by
this Agreement. If there are insufficient funds in the
account on the date the Bank enters any debit authorized by
this Agreement, the debit will be reversed.
4.3 Banking Days. Unless otherwise provided in this Agreement,
a banking day is a day other than a Saturday or a Sunday on which the Bank is
open for business in California. All payments and disbursements which would
be due on a day which is not a banking day will be due on the next banking
day. All payments received on a day which is not a banking day will be
applied to the credit on the next banking day.
4.4 Taxes. If any payments to the Bank under this Agreement
are made outside the United States, the Borrowers will not deduct any foreign
taxes from any payments they make to the Bank. If any such taxes are imposed
on any payments made by the Borrowers (including payments under this
paragraph), the Borrowers will pay the taxes and will also pay to the Bank, at
the time interest is paid, any additional amount which the Bank specifies as
necessary to preserve the after-tax yield the Bank would have received if such
taxes had not been imposed. The Borrowers will confirm that they have paid
the taxes by giving the Bank official tax receipts (or notarized copies)
within 30 days after the due date.
4.5 Additional Costs. The Borrowers will pay the Bank, on
demand, for the Bank's increased costs or losses arising from any statute or
regulation, or any request or requirement of a regulatory agency which is
applicable to all national banks or a class of all national banks. The costs
and losses will be allocated to the loan in a manner determined by the Bank,
using any reasonable method. The costs include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets
and commitments for credit.
4.6 Interest Calculation. Except as otherwise stated in this
Agreement, all interest and fees, if any, will be computed on the basis of a
360-day year and the actual number of days elapsed. This results in more
interest or a higher fee than if a 365-day year is used.
4.7 Interest on Late Payments. At the Bank's sole option in
each instance, any amount not paid when due under this Agreement shall bear
interest from the due date at the Bank's Reference Rate plus 2 percentage
points. This may result in compounding of interest.
The Reference Rate is the rate of interest publicly announced from time to
time by the Bank in San Francisco, California, as its Reference Rate. The
Reference Rate is set by the Bank based on various factors, including the
Bank's costs and desired return, general economic conditions and other
factors, and is used as a reference point for pricing some loans. The Bank
may price loans to its customers at, above or below the Reference Rate. Any
change in the Reference Rate will take effect at the opening of business on
the day specified in the public announcement of a change in the Bank's
Reference Rate.
4.8 Default Rate. Upon the occurrence and during the
continuation of any default under this Agreement, at the option of the Bank,
the fee described in subparagraph 1.3(f) will be increased to 3.50% per annum,
effective as of the day that the Bank provides notice of the increase to the
Borrowers.
5. CONDITIONS
The Bank must receive the following items, in form and content
acceptable to the Bank, before it is required to extend any credit to the
Borrowers under this Agreement:
5.1 Authorizations. Evidence that the execution, delivery and
performance by each Borrower of this Agreement and any instrument or agreement
required under this Agreement have been duly authorized.
5.2 Security Agreements. Signed original security agreements,
assignments, and financing statements (together with collateral in which the
Bank requires a possessory security interest), which the Bank requires.
5.3 Evidence of Priority. Evidence that security interests and
liens in favor of the Bank are valid, enforceable, and prior to all others'
rights and interests, except those the Bank consents to in writing.
5.4 Legal Opinion. A written opinion from the Borrowers' legal
counsel, covering such matters as the Bank may require. The legal counsel and
the terms of the opinion must be acceptable to the Bank.
5.5 Other Items. Any other items that the Bank reasonably
requires.
6. REPRESENTATIONS AND WARRANTIES.
When the Borrowers sign this Agreement, and until the Bank is repaid
in full, each Borrower makes the following representations and warranties.
Each request for an extension of credit constitutes a renewed representation:
6.1 Organization of Borrowers. Each Borrower is a corporation
duly formed and existing under the laws of the state where organized.
6.2 Authorization. This Agreement, and any instrument or
agreement required hereunder, are within each Borrower's powers, have been
duly authorized, and do not conflict with any of its organizational papers.
6.3 Enforceable Agreement. This Agreement is a legal, valid
and binding agreement of each Borrower, enforceable against each Borrower in
accordance with its terms, and any instrument or agreement required hereunder,
when executed and delivered, will be similarly legal, valid, binding and
enforceable.
6.4 Good Standing. In each state in which each Borrower does
business, it is properly licensed, in good standing, and, where required, in
compliance with fictitious name statutes.
6.5 No Conflicts. This Agreement does not conflict with any
law, agreement, or obligation by which any Borrower is bound.
6.6 Financial Information. All financial and other information
that has been or will be supplied to the Bank, including CEI's consolidated
financial statement dated as of November 30, 1993, is:
(a) sufficiently complete to give the Bank accurate
knowledge of CEI's consolidated financial
condition as of its date.
(b) in form and content as required by the Bank.
(c) in material compliance with all government regulations
that apply.
Since the date of the financial statement specified above, there has been no
material adverse change in the assets or the financial condition of CEI on a
consolidated basis, except for any such change attributable to the
transactions evidenced by the Note Agreement (as defined in paragraph 7.5).
6.7 Lawsuits. There is no lawsuit, tax claim or other
proceeding or dispute pending or threatened against any Borrower in any court
or before any governmental authority or arbitration board or tribunal which,
if lost, would materially impair the Borrowers' financial condition or ability
to repay obligations to the Bank, except as have been disclosed in writing to
the Bank.
6.8 Collateral. All collateral required in this Agreement is
owned by the grantor of the security interest free of any title defects or any
liens or interests of others (except for rights of offset).
6.9 Permits, Franchises. Each Borrower possesses all permits,
memberships, franchises, contracts and licenses required and all trademark
rights, trade name rights, patent rights and fictitious name rights necessary
to enable it to conduct the business in which it is now engaged, unless the
failure to do so would not have a material adverse effect on the consolidated
condition or operations of CEI. Except as disclosed in writing to the Bank
and except where lack of eligibility would not have a material adverse effect
on the consolidated condition or operations of CEI, each health care facility
operated or owned by Borrowers is eligible to receive benefits or payments
under the Medicare and Medicaid programs.
6.10 Other Obligations. No Borrower is in default on any
obligation for borrowed money, any purchase money obligation or any other
lease, commitment, contract, instrument or obligation, where such default
would have a material adverse effect on CEI's consolidated condition or
operations.
6.11 Income Tax Returns. Except as disclosed to the Bank in
writing, no Borrower has any knowledge of any pending assessments or
adjustments of its income tax for any year.
6.12 No Event of Default. There is no event which is, or with
notice or lapse of time or both would be, a default under this Agreement.
6.13 ERISA Plans.
(a) Each Borrower has fulfilled its obligations, if
any, under the minimum funding standards of ERISA and the
Code with respect to each Plan and is in compliance in all
material respects with the presently applicable provisions
of ERISA and the Code, and has not incurred any liability
with respect to any Plan under Title IV of ERISA.
(b) No reportable event has occurred under Section
4043(b) of ERISA for which the PBGC requires 30 day notice.
(c) No action by any Borrower to terminate or withdraw
from any Plan has been taken and no notice of intent to
terminate a Plan has been filed under Section 4041 of
ERISA.
(d) No proceeding has been commenced with respect to a
Plan under Section 4042 of ERISA, and no event has occurred
or condition exists which might constitute grounds for the
commencement of such a proceeding.
(e) The following terms have the meanings indicated for
purposes of this Agreement:
(i) "Code" means the Internal Revenue Code of 1986,
as amended from time to time.
(ii) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended from time to time.
(iii) "PBGC" means the Pension Benefit Guaranty
Corporation established pursuant to Subtitle A of
Title IV of ERISA.
(iv) "Plan" means any employee pension benefit plan
maintained or contributed to by the Borrower and
insured by the Pension Benefit Guaranty
Corporation under Title IV of ERISA.
6.15 Location of Borrowers. Each Borrower's chief executive
office is located at the address listed under CEI's signature on this
Agreement.
7. COVENANTS
The Borrowers agree, so long as credit is available under this
Agreement and until the Bank is repaid in full:
7.1 Use of Proceeds. To obtain letters of credit under this
Agreement only to support workers compensation obligations of one or more
Borrowers.
7.2 Financial Information. To provide the following financial
information and statements and such additional information as requested by the
Bank from time to time:
(a) Within 90 days of CEI's fiscal year end, CEI's annual
financial statements. These financial statements must be
audited with an unqualified opinion by a Certified Public
Accountant ("CPA") acceptable to the Bank. The statements
shall be prepared on a consolidated basis, and shall be
accompanied by consolidating schedules, which may be
unaudited.
(b) Within 30 days of the period's end, CEI's monthly
financial statements. These financial statements may be
Borrower-prepared. The statements shall be prepared on a
consolidated basis.
(c) Within 120 days of CEI's fiscal year end, copies of
all CPA management letters for such fiscal year, and,
as soon as available, copies of Borrowers' responses
thereto.
(d) Within 45 days of the end of each of its first
three fiscal quarters, and 90 days of the end of
each of its fiscal years, financial statements of Medisave
Pharmacies Partnership ("Medisave"), prepared by Medisave.
(e) Prior to the end of each fiscal year of CEI, a
projection in form reasonably acceptable to the Bank
for the next fiscal year, and, as soon as
available, copies of any material revision to any
such projection.
(f) Within 45 days of the end of each of the first
three fiscal quarters of CEI, and within 90 days of CEI's
fiscal year end, a compliance certificate executed by
CEI's chief financial officer.
(g) Copies of CEI's Form 10-K Annual Report, Form 10-Q
Quarterly Report, Form 8-K Current Report, and any other
similar reports, within 10 days after the date of filing
with the Securities and Exchange Commission.
(h) Any other business or financial information
reasonably requested by the Bank.
7.3 Current Ratio. To maintain on a consolidated basis for CEI
a ratio of current assets to current liabilities of at least 1.0:1.0.
7.4 Tangible Net Worth. To maintain on a consolidated basis
for CEI Tangible Net Worth equal to at least the sum of the following:
(a) Twenty-Three Million Dollars ($23,000,000); plus
(b) 75% of the sum of the following:
(i) net income after income taxes (without
subtracting losses) earned in each quarterly accounting
period; plus
(ii) any increase in stockholders' equity resulting
from charges in lieu of taxes, to the extent such
charges are not reflected as an extraordinary or other
similar credit in determination of net income after
taxes.
"Tangible Net Worth" means the gross book value of CEI's consolidated assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, deferred research and
development costs, deferred marketing expenses, and other like intangibles,
less total liabilities, including but not limited to accrued and deferred
income taxes, and any reserves against assets.
7.5 Funded Debt Ratio. To maintain on a consolidated basis for
CEI a ratio of Debt for Borrowed Money (including any Basket Debt) to the sum
of Tangible Net Worth and Debt for Borrowed Money not exceeding 0.65 to 1.00.
"Basket Debt" means an amount equal to the sum of (i) the aggregate unpaid
principal amount of Debt for Borrowed Money of all Borrowers other than CEI
plus (but without duplication) (ii) the aggregate amount of all indebtedness
of the Borrowers secured by liens other than liens permitted under that
certain Note Agreement dated as of December 15, 1993 among CEI, State Street
Bank and Trust Company of Connecticut, National Association, and the
purchasers named therein (as amended or amended and restated from time to
time, the "Note Agreement").
"Debt for Borrowed Money" means (i) all indebtedness for borrowed money or
which has been incurred in connection with the acquisition of property or
assets, (ii) all capitalized rentals, (iii) all guaranties of Debt for
Borrowed Money of others (other than guaranties of any subsidiary of CEI with
respect to operating leases that have been subleased to a third party, which
(x) remain a contingent liability or (y) with respect to which CEI has assumed
directly the obligations for rentals payable thereunder) and all reimbursement
obligations in respect of credit enhancement instruments, including letters of
credit and bankers' acceptances (excluding letters of credit and surety bonds
issued in the ordinary course of business and reflected as a liability on
CEI's balance sheet or which secure the payment of sums which are so reflected
as a liability), (iv) obligations (other than nonrecourse obligations) arising
in connection with any sale of accounts receivable and (v) obligations secured
by any lien upon property or assets, whether or not the Borrower that owns
such property or assets has assumed or become liable for the payment of such
obligations.
7.6 Fixed Charge Coverage Ratio. To maintain on a consolidated
basis for CEI a Fixed Charge Coverage Ratio of at least 1.05:1.0.
"Fixed Charge Coverage Ratio" means the ratio of EBITDA to Expenses. "EBITDA"
means the sum of consolidated earnings before taxes, interest, depreciation,
amortization, reorganization and other extraordinary items. "Expenses" means
the sum of net interest expense (not including amortization of deferred loan
fees), income taxes (not including charges in lieu of taxes), non-financed
capital expenditures (not including any capital expenditures related to any
Borrower's exercise of facility purchase options in connection with the
transactions described in the Note Agreement), current portion of long term
debt, 8.333% of the gross proceeds paid to CEI from the purchase of the Notes
described in the Note Agreement, 20% of all L/C Liabilities, and any amounts
paid to any shareholder of CEI in accordance with paragraph 7.12. This ratio
will be calculated at the end of each fiscal quarter, using the results of
that quarter and each of the 3 immediately preceding quarters. The current
portion of long term debt will be measured as of the last day of the preceding
fiscal year.
7.7 Profitability. To maintain on a consolidated basis for CEI
a positive net income after taxes for each quarterly accounting period.
7.8 Liquidity. To maintain consolidated Liquid Assets of CEI
with a value in excess of $4,000,000.
"Liquid Assets" means:
(a) commercial paper maturing in 270 days or less from
the date of issuance which, at the time of acquisition by
CEI, is rated A-1 or better by Standard & Poor's
Corporation ("S&P") or Prime-1 or better by Moody's
Investors Service, Inc. ("Moody's");
(b) direct obligations of the United States of America
or any agency or instrumentality of the United States of
America, the payment or guarantee of which constitutes a
full faith and credit obligation of the United States of
America, in either case, maturing in twelve months or less
from the date of acquisition thereof;
(c) interest-bearing or non-interest bearing deposits
in banks, trust companies or other financial
institutions which in each case
are either (i) fully insured by the Federal Deposit
Insurance Corporation, the Federal Savings and
Loan Insurance Corporation, or the Securities Investor
Protection Corporation, or (ii) issued or
sponsored by a bank, trust company or other financial
institution organized under the laws of the United
States or any state thereof, which has capital, surplus,
and undivided profits aggregating at
least $100,000,000 and whose certificates of deposit
maturing in one year or less are, at the time
of the acquisition thereof by
CEI, rated A-1 or better by S&P or Prime-1 or better by
Moody's;
(d) deposits in any funds managed by Pacific Horizon
Funds, Inc.;
(e) other deposit accounts or money market accounts in
amounts which aggregate no more than $1,000,000;
(f) Eurodollar deposits maturing within one year from
the date of issuance thereof, and issued by a bank or trust
company, having capital, surplus and undistributed profits
aggregating at least $1,000,000,000 and whose deposits of
such type are, at the time of acquisition thereof by CEI,
rated A-1 or better by Prime-1 or better by Moody's; and
(g) repurchase agreements maturing within 30 days from
the date of acquisition thereof, with respect to
obligations of the type described in paragraph (b)
above entered into with a bank or trust
company organized under the laws of the United States or
any state thereof and meeting the
requirements of paragraph (c), above.
7.9 Other Debts. Not to have outstanding or incur any direct or
contingent debts or capitalized lease obligations (other than those to the
Bank), or become liable for the debts of others without the Bank's written
consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal
trade credit.
(b) Endorsing negotiable instruments received in the
usual course of business.
(c) Obtaining surety bonds in the usual course of
business.
(d) Debts and capitalized leases in existence on the
date of this agreement and disclosed on Schedule 7.9 (d)
attached hereto.
(e) Additional debts and capitalized lease obligations
for the acquisition of fixed or capital assets,
to the extent permitted elsewhere in this Agreement.
(f) Additional debts and capitalized lease obligations
of Borrowers for business purposes which do not exceed an
aggregate of the lesser of: (i) a total principal
amount of Ten Million Dollars ($10,000,000), or (ii) the
aggregate amount of Debt for Borrowed Money permitted
under subsection 4.8(a)(6) of the Note Agreement.
(g) Additional Debt for Borrowed Money of CEI permitted
under subsection 4.8(a)(7) of the Note Agreement.
(h) Any guaranty by any Borrower of the debts of
another Borrower.
7.10 Other Liens. Not to create, assume, or allow any security
interest or lien (including judicial liens) on a material part of any property
any Borrower now or later owns, except:
(a) Deeds of trust and security agreements in favor of
the Bank.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement and
disclosed on Schedule 7.10(c) attached hereto.
(d) Additional liens against the property of the
Borrowers or any one of them to secure any indebtedness
incurred in accordance with subparagraph 7.9(f) of this
Agreement, and which liens are permitted under
subsection 4.10(h) of the Note Agreement.
(e) Mechanics' liens, bailees' liens, and other liens
of a similar nature.
7.11 Capital Expenditures. With respect to CEI on a
consolidated basis, not to spend or incur obligations (including the total
amount of any capital leases) for more than Six Million Dollars ($6,000,000)
in any single fiscal year to acquire fixed assets.
7.12 Dividends. Not to declare or pay any dividends on any of
CEI's shares, except dividends payable in capital stock of CEI, and not to
purchase, redeem or otherwise acquire for value any of CEI's shares, or create
any sinking fund in relation thereto, except that CEI may repurchase its own
stock held by its employees, in an aggregate amount not exceeding $200,000 in
each fiscal year.
7.13 Notices to Bank. To promptly notify the Bank in writing
of:
(a) any lawsuit not covered by insurance over Two
Hundred Fifty Thousand Dollars ($250,000) against any one
or more of the Borrowers.
(b) any dispute between any Borrower and any
governmental authority, which could, either
individually or in the aggregate, reasonably be
expected to have a material adverse effect on
CEI's consolidated financial condition or operations.
(c) any occurrence that is or with the passage of time
would become a default hereunder.
(d) any material adverse change in CEI's consolidated
financial condition or operations.
(e) any change in any Borrower's name, legal structure,
place of business, or chief executive office if such
Borrower has more than one place of business.
7.14 Books and Records. To maintain adequate books and records.
7.15 Audits. To allow the Bank and its agents to inspect the
Borrowers' properties and examine, audit and make copies of books and records
at any reasonable time. If any of the Borrowers' properties, books or records
are in the possession of a third party, the Borrowers authorize that third
party to permit the Bank or its agents to have access to perform inspections
or audits and to respond to the Bank's requests for information concerning
such properties, books and records.
7.16 Compliance with Laws. To comply with the laws (including
any fictitious name statute), regulations, and orders of any government body
with authority over each Borrower's business.
7.17 Preservation of Rights. To maintain and preserve all
rights, privileges, and franchises material to its business that each Borrower
now has.
7.18 Maintenance of Properties. To make any necessary repairs
or replacements to keep each Borrower's properties in good working condition.
7.19 Perfection of Liens. To help the Bank perfect and protect
its security interests and liens, and reimburse it for related costs it incurs
to protect its security interests and liens.
7.20 Cooperation. To take any action requested by the Bank to
carry out the intent of this Agreement, including, without limitation, using
their best efforts to obtain the agreement of any entity that pays amounts
owing to any Borrower from the Medicaid or Medicare programs that such entity
will remit such payments to the Bank at the Bank's request.
7.21 Additional Negative Covenants. Not to, without the Bank's
written consent (which shall not be unreasonably withheld):
(a) engage in any business activities substantially
different from the Borrowers' present business of operating
and managing nursing and rehabilitation centers, home
health agencies, retirement and psychiatric facilities,
and similar facilities, and providing pharmacy services.
(b) liquidate or dissolve the Borrowers' or any
Borrower's business.
(c) enter into any consolidation, merger, pool, joint
venture, syndicate, or other combination, except for
mergers or consolidations between or among two
or more Borrowers; provided, however, that if CEI is a
party to any such merger or consolidation, it shall be the
surviving entity thereof.
(d) lease, or dispose of all or a substantial part of
CEI's consolidated business or assets.
(e) acquire or purchase a business or its assets.
(f) sell or otherwise dispose of any assets for less
than fair market value or enter into any sale and
leaseback agreement covering any of the Borrowers' or any
Borrower's fixed or capital assets, except for sales
or other dispositions between Borrowers.
(g) make any material modifications to, or terminate or
replace, the Note Agreement.
7.22 ERISA Plans. To give prompt written notice to the Bank of:
(a) The occurrence of any reportable event under
Section 4043(b) of ERISA for which the PBGC
requires 30 day notice.
(b) Any action by any Borrower to terminate or withdraw
from a Plan or the filing of any notice of
intent to terminate under Section 4041 of ERISA.
(c) Any notice of noncompliance made with respect to a
Plan under Section 4041(b) of ERISA.
(d) The commencement of any proceeding with respect to
a Plan under Section 4042 of ERISA.
7.23 Insurance.
(a) General Business Insurance. To maintain insurance
reasonably satisfactory to the Bank as to amount,
nature and carrier covering property damage (including
loss of use and occupancy) to any of the Borrowers'
properties, public liability insurance including
coverage for contractual liability, product liability and
workers' compensation, and any other insurance which is
usual for the Borrowers' businesses; provided, however,
that the Borrowers may continue to self-insure in a manner
consistent with their past practices.
(b) Evidence of Insurance. Upon the request of the
Bank, to deliver to the Bank a copy of each insurance
policy, or, if permitted by the Bank, a certificate of
insurance listing all insurance in force.
8. HAZARDOUS WASTE INDEMNIFICATION
The Borrowers will indemnify and hold harmless the Bank from any loss
or liability directly or indirectly arising out of the use, generation,
manufacture, production, storage, release, threatened release, discharge,
disposal or presence of a hazardous substance. This indemnity will apply
whether the hazardous substance is on, under or about the Borrowers' or any
Borrower's property or operations or property leased to the Borrowers or any
Borrower. The indemnity includes but is not limited to attorneys' fees
(including the reasonable estimate of the allocated cost of in-house counsel
and staff). The indemnity extends to the Bank, its parent, subsidiaries and
all of their directors, officers, employees, agents, successors, attorneys and
assigns. For these purposes, the term "hazardous substances" means any
substance which is or becomes designated as "hazardous" or "toxic" under any
federal, state or local law. This indemnity will survive repayment of the
Borrowers' obligations to the Bank.
9. DEFAULT
If any of the following events occur, the Bank may do one or more of
the following: declare the Borrowers in default, stop making any additional
credit available to the Borrowers, and require the Borrowers to pay
immediately and without prior notice the aggregate amount of the L/C
Liabilities. If the occurrence consists solely of CEI's proceeding with a
merger between CEI and a subsidiary of Regency Health Services, Inc.
("Regency"), as described in that certain Agreement and Plan of Merger dated
as of December 20, 1993 between CEI and Regency, however, without the Bank's
written consent, the Bank agrees that such occurrence shall not be a default
hereunder if (a) the Bank requires the Borrowers to deposit cash with the Bank
as security for the Borrowers' obligations hereunder, in the full amount of
the L/C Liabilities, and the Borrowers do so no later than the date of such
merger, and (b) within 90 days after such deposit, all letters of credit
issued hereunder have expired or have been cancelled. If an event of default
occurs under the paragraph entitled "Bankruptcy," below, with respect to any
Borrower, then the amount of the L/C Liabilities will automatically be due
immediately.
9.1 Failure to Pay. Any Borrower fails to make a payment under
this Agreement when due.
9.2 Lien Priority. The Bank fails to have an enforceable first
lien (except for any prior liens to which the Bank has consented in writing)
on or security interest in any property given as security for the Borrowers'
obligations under this Agreement.
9.3 False Information. Any Borrower has given the Bank false
or misleading information or representations.
9.4 Bankruptcy. Any Borrower files a bankruptcy petition, a
bankruptcy petition is filed against any Borrower, or any Borrower makes a
general assignment for the benefit of creditors. The default will be deemed
cured if any bankruptcy petition filed against any Borrower is dismissed
within a period of 60 days after the filing; provided, however, that the Bank
will not be obligated to extend any additional credit to the Borrowers during
that period.
9.5 Receivers. A receiver or similar official is appointed for
any Borrower's business, and is not removed within 60 days of such
appointment, or the business is terminated.
9.6 Lawsuits and Notices. Any lawsuit or lawsuits are filed
against any one or more of Borrowers in an aggregate amount of Five Million
Dollars ($5,000,000) or more in excess of any insurance coverage and the Bank
determines that the commencement or settlement of, or entry of judgment in,
such lawsuit or lawsuits will likely have a material adverse effect on CEI's
consolidated financial condition or properties; or any governmental authority
notifies any Borrower that it may terminate any certification or licensure for
operation of any facility owned or operated by such Borrower, and such
termination would likely have a material adverse impact on CEI's consolidated
financial condition or properties.
9.7 Judgments. Final judgment or judgments or arbitration
awards for the payment of money aggregating in excess of $250,000 is or are
outstanding against any Borrower or against any property or assets of any of
them and any one of such judgments or awards has remained unpaid, unvacated,
unbonded or unstayed by appeal or otherwise for a period of 30 days from the
date of its entry or, in any event, within 10 days of execution of any writ of
attachment.
9.8 Government Action. Any government authority takes action
that the Bank believes materially adversely affects CEI's financial condition
or the Borrowers' ability, taken as a whole, to pay their obligations to the
Bank.
9.9 Material Adverse Change. A material adverse change occurs
in CEI's consolidated financial condition or properties, or in the Borrowers'
ability, taken as a whole, to pay their obligations to the Bank.
9.10 Cross-default. Any default occurs under any agreement
(including without limitation the Note Agreement) in connection with any
credit any Borrower has obtained from anyone else or which any Borrower has
guaranteed, if the aggregate amount of all such credit under which defaults
have occurred exceeds Five Hundred Thousand Dollars ($500,000).
9.11 Default under Related Documents. Any security agreement or
other document required by this Agreement is violated or no longer in effect.
9.12 Other Bank Agreements. Any Borrower fails in a material
way to meet the conditions of, or fails to perform any obligation under any
other agreement any Borrower has with the Bank or any affiliate of the Bank.
9.13 ERISA Plans. The occurrence of any one or more of the
following events with respect to any Borrower, provided such event or events
are reasonably likely, in the judgment of the Bank, to subject such Borrower
to any tax, penalty or liability (or any combination of the foregoing) which,
in the aggregate, would likely have a material adverse effect on CEI's
consolidated financial condition with respect to a Plan:
(a) A reportable event shall occur with respect to a
Plan which is, in the reasonable judgment of the
Bank, likely to result in the termination of such Plan
for purposes of Title IV of ERISA, and which is likely
to result in withdrawal liability in excess of $250,000.
(b) Any Plan termination (or commencement of
proceedings to terminate a Plan) or such Borrower's
full or partial withdrawal from a Plan, which is
likely to result in withdrawal liability in
excess of $250,000.
9.14 Other Breach Under Agreement. Any Borrower fails to meet
the conditions of, or fails to perform any obligation under, any term of this
Agreement not specifically referred to in this Article. If, in the Bank's
opinion, the breach is capable of being remedied, the breach will not be
considered an event of default under this Agreement for a period of thirty
(30) days after the date on which the Bank gives written notice of the breach
to the Borrowers; provided, however, that the Bank will not be obligated to
extend any addition credit to the Borrowers during that period.
10. ENFORCING THIS AGREEMENT; MISCELLANEOUS
10.1 GAAP. Except as otherwise stated in this Agreement, all
financial information provided to the Bank and all financial covenants will be
made under generally accepted accounting principles, consistently applied.
10.2 California Law. This Agreement is governed by California
law.
10.3 Successors and Assigns. This Agreement is binding on the
Borrowers' and the Bank's successors and assignees. The Borrowers agree that
they may not assign this Agreement without the Bank's prior consent. The Bank
may sell participations in or assign this loan, and may exchange financial
information about the Borrowers with actual or potential participants or
assignees. If a participation is sold or the loan is assigned, the purchaser
will have the right of set-off against the Borrowers following the occurrence
of a default hereunder.
10.4 Arbitration.
(a) This paragraph concerns the resolution of any
controversies or claims between any one or more of
Borrowers and the Bank, including but not limited
to those that arise from:
(i) This Agreement (including any renewals,
extensions or modifications of this Agreement);
(ii) Any document, agreement or procedure related to
or delivered in connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any
business conducted between any one or more of
Borrowers and the Bank, including claims for
injury to persons, property or business
interests (torts).
(b) At the request of any Borrower or the Bank, any
such controversies or claims will be settled by
arbitration in accordance with the United States
Arbitration Act. The United States Arbitration Act
will apply even though this Agreement
provides that it is governed by California law.
(c) Arbitration proceedings will be administered by the
American Arbitration Association and will be subject
to its commercial rules of arbitration.
(d) For purposes of the application of the statute of
limitations, the filing of an arbitration pursuant to this
paragraph is the equivalent of the filing of a lawsuit,
and any claim or controversy which may be arbitrated under
this paragraph is subject to any applicable statute
of limitations. The arbitrators will have the
authority to decide whether any such claim or controversy
is barred by the statute of limitations and, if so, to
dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issue is
arbitrable, the arbitrators will have the authority to
resolve any such dispute.
(f) The decision that results from an arbitration
proceeding may be submitted to any authorized court of law
to be confirmed and enforced.
(g) The procedure described above will not apply if the
controversy or claim, at the time of the proposed
submission to arbitration, arises from or relates to an
obligation to the Bank secured by real property
located in California. In this case, both the Borrowers
and the Bank must consent to submission of
the claim or controversy to arbitration. If all
parties do not consent to arbitration, the controversy
or claim will be settled as follows:
(i) The Borrowers and the Bank will designate a
referee (or a panel of referees) selected under
the auspices of the American Arbitration Association
in the same manner as arbitrators are
selected in Association-sponsored proceedings;
(ii) The designated referee (or the panel of
referees) will be appointed by a court as provided
in California Code of Civil Procedure Section 638
and the following related sections;
(iii) The referee (or the presiding referee of the
panel) will be an active attorney or a retired
judge; and
(iv) The award that results from the decision of
the referee (or the panel) will be entered as a
judgment in the court that appointed the referee,
in accordance with the provisions of California
Code of Civil Procedure Sections 644 and 645.
(h) This provision does not limit the right of the
Borrowers or the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal
property collateral; or
(iii) act in a court of law, before, during or after
the arbitration proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for
interim, additional or supplementary remedies, or
the filing of a court action, does not constitute
a waiver of the right of the Borrowers or the Bank,
including the suing party, to submit the
controversy or claim to arbitration if the other party
contests the lawsuit. However, if the controversy or
claim arises from or relates to an obligation to the
Bank which is secured by real property located in
California at the time of the proposed submission to
arbitration, this right is limited according to the
provision above requiring the consent of both the
Borrowers and the Bank to seek resolution through
arbitration.
(j) If the Bank forecloses against any real property
securing this Agreement, the Bank has the option to
exercise the power of sale under the deed of trust
or mortgage, or to proceed by judicial foreclosure.
10.5 Severability; Waivers. If any part of this Agreement is
not enforceable, the rest of the Agreement may be enforced. The Bank retains
all rights, even if it makes a loan after default. If the Bank waives a
default, it may enforce a later default. Any consent or waiver under this
Agreement must be in writing.
10.6 Administration Costs. The Borrowers shall pay the Bank for
all reasonable costs incurred by the Bank in connection with administering
this Agreement.
10.7 Attorneys' Fees. The Borrowers shall reimburse the Bank
for any reasonable costs and attorneys' fees incurred by the Bank in
connection with (a) the enforcement or preservation of any rights or remedies
after a default under this Agreement and any other documents executed in
connection with this Agreement, and (b) any amendment, waiver, "workout" or
restructuring under this Agreement. In the event of a lawsuit or arbitration
proceeding, the prevailing party is entitled to recover costs and reasonable
attorneys' fees incurred in connection with the lawsuit or arbitration
proceeding, as determined by the court or arbitrator. As used in this
paragraph, "attorneys' fees" includes the allocated costs of the Bank's
in-house counsel.
10.8 Joint and Several Liability.
(a) Each Borrower agrees that it is jointly and
severally liable to the Bank for the payment of all
obligations arising under this Agreement, and that
such liability is independent of the obligations of
the other Borrowers. The Bank may bring an action
against any Borrower, whether an action is brought
against the other Borrowers. Without limiting
the foregoing, each Borrower specifically agrees that
it shall be jointly and severally liable for the
performance and payment by all other Borrowers of
all obligations under all standby letter of credit
applications and agreements executed by any of such
other Borrowers at any time in favor of the Bank.
(b) Each Borrower agrees that any release which may be
given by the Bank to the other Borrowers or any
guarantor will not release such Borrower from its
obligations under this Agreement.
(c) Each Borrower waives any right to assert against
the Bank any defense, setoff, counterclaim, or claims
which such Borrower may have against the other Borrowers
or any other party liable to the Bank for the
obligations of the Borrowers under this Agreement.
(d) Each Borrower agrees that it is solely responsible
for keeping itself informed as to the financial
condition of the other Borrowers and of all circumstances
which bear upon the risk of nonpayment. Each Borrower
waives any right it may have to require the Bank to
disclose to such Borrower any information which the
Bank may now or hereafter acquire concerning the financial
condition of the other Borrowers.
(e) Each Borrower waives all rights to notices of
default or nonperformance by any other Borrower under this
Agreement. Each Borrower further waives all rights to
notices of the existence or the creation of new
indebtedness by any other Borrower.
(f) The Borrowers represent and warrant to the Bank
that each will derive benefit, directly and indirectly,
from the collective administration and availability
of credit under this Agreement. The Borrowers agree
that the Bank will not be required to inquire
as to the use by any Borrower of any credit extended to
such Borrower under this Agreement.
(g) Each Borrower waives any right of subrogation,
reimbursement, indemnification and contribution
(contractual, statutory or otherwise), including without
limitation, any claim or right of subrogation under the
Bankruptcy Code (Title 11 of the U.S. Code)
or any successor statute, which such Borrower may now or
hereafter have against any other Borrower with respect
to the indebtedness incurred under this Agreement. Each
Borrower waives any right to enforce any remedy which
the Bank now has or may hereafter have against any other
Borrower, and waives any benefit of, and any right to
participate in, any security now or hereafter held
by the Bank.
10.9 One Agreement. This Agreement and any related security or
other agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and
agreements between the Bank and the Borrowers
concerning this credit;
(b) replace any prior oral or written agreements
between the Bank and the Borrowers concerning
this credit; and
(c) are intended by the Bank and the Borrowers as the
final, complete and exclusive statement of the terms
agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
10.10 Notices. All notices required under this Agreement shall
be personally delivered or sent by first class mail, postage prepaid, to the
addresses on the signature page of this Agreement, or to such other addresses
as the Bank and the Borrowers may specify from time to time in writing. A
single notice to CEI shall be deemed to have been delivered or sent to all
Borrowers.
10.11 Headings. Article and paragraph headings are for reference
only and shall not affect the interpretation or meaning of any provisions of
this Agreement.
10.12 Counterparts. This Agreement may be executed in as many
counterparts as necessary or convenient, and by the different parties on
separate counterparts each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
agreement.
This Agreement is executed as of the date stated at the top of the first page.
BANK OF AMERICA NATIONAL CARE ENTERPRISES, INC.
TRUST AND SAVINGS ASSOCIATION
By /s/ David M. Lawrence By /s/ Gary L. Massimino
--------------------- -----------------------
Title Vice President Title Chief Financial Officer
Address where notices to the Address for notices to all
Bank are to be sent: Borrowers:
North Orange County Regional 2742 Dow Avenue
Commercial Banking Office Tustin, CA 92680
300 S. Harbor Boulevard
Anaheim, CA 92805
CARE FINANCE, INC.
By /s/ Gary L. Massimino
-----------------------
Title Chief Financial Officer
CARE HOME HEALTH SERVICES
By /s/ Gary L. Massimino
-----------------------
Title Chief Financial Officer
HEALTHCARE NETWORK
By /s/ Gary L. Massimino
-----------------------
Title Chief Financial Officer
AMERICARE HOMECARE, INC.
By /s/ Gary L. Massimino
-----------------------
Title Chief Financial Officer
AMERICARE MIDWEST, INC.
By /s/ Gary L. Massimino
-----------------------
Title Chief Financial Officer
CIRCLEVILLE HEALTH CARE CORP.
By /s/ Gary L. Massimino
-----------------------
Title Chief Financial Officer
MARION HEALTH CARE CORP.
By /s/ Gary L. Massimino
-----------------------
Title Chief Financial Officer
NEW LEXINGTON HEALTH CARE CORP.
By /s/ Gary L. Massimino
-----------------------
Title Chief Financial Officer
CARE ENTERPRISES WEST
By /s/ Gary L. Massimino
-----------------------
Title Chief Financial Officer
AMERICARE OF WEST VIRGINIA, INC.
By /s/ Gary L. Massimino
-----------------------
Title Chief Financial Officer
BECKLEY HEALTH CARE CORP.
By /s/ Gary L. Massimino
-----------------------
Title Chief Financial Officer
DUNBAR HEALTH CARE CORP.
By /s/ Gary L. Massimino
-----------------------
Title Chief Financial Officer
GLENVILLE HEALTH CARE, INC.
By /s/ Gary L. Massimino
-----------------------
Title Chief Financial Officer
PUTNAM HEALTH CARE CORP.
By /s/ Gary L. Massimino
-----------------------
Title Chief Financial Officer
SALEM HEALTH CARE CORP.
By /s/ Gary L. Massimino
-----------------------
Title Chief Financial Officer
THIRD AMENDMENT TO LEASE
THIRD AMENDMENT TO LEASE, dated as of October 22, 1992, by and among
Charles Caplan, John P. "Jack" Spaun, as successor-in-interest to Josephine
Spaun and James Spaun, Albert Geller, Margaret Geller (collectively,
"Landlord") and Care Enterprises West, a Utah corporation ("Tenant").
W I T N E S S E T H :
-------------------
WHEREAS, Landlord and Thomas Erdosi, Zoltan Erdosi and Frida Erdosi, as
original tenants, entered into that certain Lease dated September 27, 1966
(the "Lease") which Lease was recorded in Book M 2352, pages 85-87 of Official
Records in the Office of the Los Angeles County Recorder and which Lease
relates to the premises located at 12627 Studebaker Road, Norwalk, California;
WHEREAS, the Lease was amended by Amendment to Lease dated December 1,
1967 between Landlord and the original tenants ("First Amendment");
WHEREAS, the Lease was amended by Amendment to Lease dated June 8, 1976
between Landlord and Perry M. Seton, as assignee of the original tenants
("Second Amendment"). The Lease, First Amendment and Second Amendment are
collectively referred to herein as the "Lease";
WHEREAS, Perry M. Seton assigned his interest as a tenant in the Lease to
David E. Sorenson on or about March 30, 1978 who in turn assigned his interest
as a tenant in the Lease to Tenant on or about December, 1984, so that the
current parties to the Lease are Landlord and Tenant;
WHEREAS, certain disputes arose under the Lease between Landlord and
Tenant, and Landlord and Tenant have entered into a Settlement Agreement of
even date herewith (the "Settlement Agreement") to settle such dispute; and
WHEREAS, Settlement Agreement provides, inter alia, that the parties
hereto shall enter into this Third Amendment;
NOW, THEREFORE, for good and valuable consideration the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as
follows:
1. Term. Article II of the Lease shall be amended to read in
full as follows: "The term of this Lease shall continue and remain in full
force and effect until September 30, 1997 subject, however, to earlier
termination as may be provided in this Lease."
2. Rental. (a) Article V of the Lease shall be amended to read
in full as follows:
"The rental for the Leased Property shall be paid in monthly
installments in lawful money of the United States by TENANT to
LANDLORD in advance on the 1st day of each calendar month during the
term of this Lease, said monthly rental installments shall be
as follows: Commencing October 1, 1992 the rental for the Leased
Premises shall be $6,622 and thereafter, on each October 1 during
the remainder of the term of this Lease, the rental shall be
increased by the amount of ten percent (10%) per annum based on the
then current monthly rental payment. TENANT shall make payment of
the monthly rental by three separate checks, each made out for
one-third of the monthly rental amount, made payable to:
(i) Mr. Albert Geller (ii) Dr. Charles Caplan and (ii) Mr. John P.
"Jack" Spaun."
(b) Landlord acknowledges that it has already received
the amount of $6,020 toward the October rental payment and Tenant agrees that
it will pay to Landlord the balance of the October rental payment, an
aggregate amount of $602, in three separate checks as set forth above, on or
prior to November 1, 1992.
3. Option to Purchase. (a) Article XXI (OPTION TO PURCHASE) of
the Lease is revised to read in full as follows:
"Tenant shall have the option ("Purchase Option") to purchase
the real estate (Convalescent Home), which is the subject of this
Lease together will all improvements and fixtures thereon and all
other personal property used in connection therewith. The purchase
price for the Convalescent Home ("Purchase Price") shall be
calculated as of the closing of such purchase and sale (the
"Closing") as follows:
CLOSING DATE PURCHASE PRICE
------------ --------------
October 1, 1992 through $ 800,000
March 31, 1994
April 1, 1994 through $ 840,000
September 30, 1994
October 1, 1994 through $ 880,000
September 30, 1995
October 1, 1995 through $ 968,000
September 1, 1996
October 1, 1996 through $1,064,800
end of lease term
"The Purchase Price shall be paid in full in cash at the
Closing. The Purchase Option can be exercised by Tenant at any time by
giving at least 60 days written notice thereof to Landlord prior to the
expiration of the term of the Lease. Within seventy-two hours of the
giving of such notice, Landlord and Tenant shall open an escrow for the
sale of said property upon the terms and conditions herein with any
escrow company mutually selected by them. Escrow shall close on (and no
sooner than) the sixtieth day following the opening of escrow, provided,
however, that all documents required to be provided by Landlord shall be
provided to Tenant at least 30 days prior to the Closing.
"Landlord shall deliver title at the Closing free and clear of
all liens and encumbrances except for real and/or personal property taxes
which are a lien thereon but which have not yet become due and payable,
and any similar assessments and bonds and such other matters of record as
of the date of sale which are a lien but which have not yet become due
and payable.
"Tenant shall pay all escrow, recording and title policy costs
and other closing fees subject only to Tenant's receipt and approval of
preliminary title report."
(b) Landlord acknowledges that Tenant has delivered to
Landlord, pursuant to the terms of the Settlement Agreement, a payment of
$75,000 in consideration for Landlord's agreement to extend the term of the
Purchase Option as set forth herein.
4. All notices, demands or other communications to be given under
the Lease shall be in writing and shall be validly given or made to another
party if served personally, or be telex, facsimile or air courier, or
deposited in the United States mail, certified or registered, postage prepaid,
return receipt requested. If such notice, demand or other communication be
personally served, or by telex, facsimile or air courier, service shall be
conclusively deemed made at the time of such service. If such notice, demand
or other communication to be given by mail, it shall be conclusively deemed
given three (3) days after the deposit thereof in the United States mail,
addressed to the party to whom such notice, demand or other communication is
to be given as hereinafter set forth:
If to Tenant: Care Enterprises West
2742 Dow Avenue
Tustin, CA 92680-7245
Attn: Legal Department
If to Landlord: Dr. Charles Caplan
949 N. Kings Road, #308
Los Angeles, CA 90069
Mr. Albert Geller
Ms. Margaret Geller
2153 Century Hill
Los Angeles, CA 90067
Mr. John P. "Jack" Spaun
c/o Citrus College
1000 West Foothill Blvd.
Glendora, CA 91740
5. Except as expressly modified by this Third Amendment, the
Lease is hereby ratified and confirmed in all respects. To the extent the
terms of this Third Amendment shall conflict with any term or provision of the
Lease, the terms of this Third Amendment shall control.
6. The Lease and the Third Amendment represent the entire
Agreement by the parties with respect to the subject matter hereof and
supersedes any prior written or oral agreements between the parties with
respect to the subject matter hereof.
7. This Agreement may be executed in counterparts, each of which
shall be deemed an original and all of which taken together shall be and
constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have set their hands as of the date
first above-written.
LANDLORD: By /S/ Dr. Charles Caplan
-------------------------
DR. CHARLES CAPLAN
By /S/ John P. "Jack" Spaun
-------------------------
JOHN P. "JACK" SPAUN
By /S/ Albert Geller
-------------------------
ALBERT GELLER
By /S/ Margaret Geller
-------------------------
MARGARET GELLER
TENANT: CARE ENTERPRISES WEST, INC.
By /S/ Gary L. Massimino
-------------------------
Gary L. Massimino
Vice President and
Chief Financial Officer
AMENDMENT TO AGREEMENT OF LEASE
RE CALISTOGA CONVALESCENT HOSPITAL
THIS AMENDMENT to Agreement of Lease re Calistoga Convalescent Hospital
is entered into this 21st day of August, 1992, by and between REYNOLD R.
PALADINI and MARGARETE J. PALADINI, trustees of the Reynold R. and
Margarete J. Paladini Family Living Trust, as to an undivided 1/2
interest; and BURTON R. HALL, M.D. and VIRGINIA HALL, trustees of the
Burton R. Hall, M.D. and Virginia Hall Trust of March 26, 1984, as to an
undivided 1/2 interest (hereinafter referred to as "Lessor") and CARE
ENTERPRISES WEST, a Utah corporation (hereinafter referred to as
"Lessee").
RECITALS:
A. Lessor's predecessor in interest and Lessee's predecessor in
interest entered into an "Agreement of Lease re Calistoga Convalescent
Hospital" dated June 1, 1977.
B. The parties desire to amend paragraph 33 entitled "Option to
Purchase" as contained herein.
C. Except for paragraph 33, the parties desire that the lease remain
in full force and effect for the duration of its term as provided therein.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
1. Paragraph 33 entitled "Option to Purchase" shall be deleted in it
entirety.
2. The following paragraph is substituted in its place:
"33. OPTION TO PURCHASE.
Lessor hereby grants to Lessee an option to purchase the lease
premises under the following terms and conditions:
a. The purchase price will be $720,000.00.
b. The option may be exercised by written notice from Lessee to
Lessor at the following address:
REYNOLD R. PALADINI and MARGARETE J. PALADINI, Trustees and
BURTON R. HALL, M.D. and VIRGINIA HALL, Trustees
c/o Reynold R. Paladini, M.D.
2425 Grant Street
Calistoga, CA 94515
c. The option may be exercised at any time before August 21,
1997.
d. Both parties agree to close escrow within 90 days of the date
of exercise of the option.
e. Lessee and Lessor will cooperate in completing a tax-free
exchange if Lessor so elects provided such an exchange will be
completed within the 90-day period between exercise of the option and
close of escrow."
IN WITNESS WHEREOF, the parties hereto executed this Amendment to
Agreement the day and year heretofore set forth.
REYNOLD R. PALADINI and MARGARETE J. PALADINI, trustees of the
Reynold R. and Margarete J. Paladini Family Living Trust, as to
an undivided 1/2 interest; and BURTON R. HALL, M.D. and
VIRGINIA HALL, trustees of the Burton R. Hall, M.D. and
Virginia Hall Trust of March 26, 1984, as to an undivided 1/2
interest
By /S/ Reynold R. Paladini
-------------------------
REYNOLD R. PALADINI
By /S/ Margarete J. Paladini
-------------------------
MARGARETE J. PALADINI
By /S/ Burton R. Hall
-------------------------
BURTON R. HALL
By /S/ Virginia Hall
-------------------------
VIRGINIA HALL
CARE ENTERPRISES WEST, a Utah corporation,
By /S/ Gary L. Massimino
-------------------------
Gary L. Massimino
Executive Vice President
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made as of the first
day of January, 1993, is entered into by CARE ENTERPRISES, INC., a Delaware
corporation with its principal place of business at 2742 Dow Avenue, Tustin,
California (the "Company"), and Richard K. Matros, residing at 1214 Swarthmore
Drive, Glendale, California 91206 (the "Executive").
The Company desires to continue to employ the Executive, and the
Executive desires to continue to be employed by the Company. In consideration
of the mutual covenants and promises contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the parties hereto agree as follows:
1. Term of Employment. The Company hereby agrees to
continue to employ the Executive, and the Executive hereby accepts such
continued employment with the Company, upon the terms set forth in this
Agreement, for the period commencing on January 1, 1993 (the "Commencement
Date") and ending on December 31, 1995, unless sooner terminated in accordance
with the provisions of Section 4 (the "Employment Period"). The Employment
Period shall be extended if the parties so agree in writing.
2. Title; Capacity; Duties. The Executive shall serve as
President of the Company or in such other position as the Company's Board of
Directors (the "Board") may determine from time to time, including rendering
services to, and serving as an officer and director of, any corporation
controlled by, under common control with directly or indirectly, Company
("Company Affiliates"), provided that such services are generally consistent
with the duties Executive has heretofore been performing for Company, and
Executive's stature and experience. The Executive shall be subject to the
supervision of, and shall have such authority as is delegated to him by, the
Board, the Company's Chief Executive Officer or such other senior executive(s)
as the Board or the Chief Executive Officer shall determine.
The Executive hereby accepts such employment and agrees, using
diligent efforts, to undertake the duties and responsibilities inherent in
such position and such other duties and responsibilities as the Board shall
from time to time reasonably assign to him consistent with this Agreement.
During the Employment Period, the Executive agrees to devote all of his time
during normal working hours to the business and interests of the Company. The
right of Company to Executive's services shall be exclusive to Company and
Company's Affiliates, provided, however, that Executive shall be entitled to
devote reasonable time to personal matters provided it does not materially
interfere with Executive's duties for Company.
3. Compensation and Benefits.
3.1. Salary. The Company shall pay the Executive
commencing on the Commencement Date, in regular periodic installments,
consistent with the Company's general pay practices, an annual base salary of
$250,000 for each one year period during the Employment Period ("Base
Salary"). Such salary shall be subject to adjustment as determined by the
Board in its annual review of Executive's performance hereunder. Executive
specifically acknowledges that Company has no obligation to increase said
salary as a result of such review, but may not reduce said salary below the
amount stated in this paragraph.
3.2. Fringe Benefits and Bonus. The Executive
shall be entitled to participate in all benefit programs that the Company
establishes and makes available to its executive employees, including, but not
limited to, any 401(k), profit sharing, pension, stock option, stock bonus or
purchase plans, all to the extent that Executive's position, tenure, salary,
age, health and other qualifications make him eligible (or not ineligible) to
participate in such plans. Executive may receive bonuses and other merit
compensation as determined from time to time by the Board in its sole
discretion ("Bonus Compensation"). The Bonus Compensation may be related to a
formula based upon the Company's financial performance ("Formula Bonus") or
some other method as determined by the Board in its sole discretion.
3.3. Reimbursement of Expenses; Car Phone. The
Company shall, subject to prior approval of the Chief Executive Officer,
reimburse the Executive during the Employment Period, in accordance with
Company policy, for all reasonable travel, entertainment and other expenses
incurred or paid by the Executive in connection with, or related to, the
performance of his duties, responsibilities or services under this Agreement,
upon presentation by the Executive of documentation, expense statements,
vouchers and/or such other supporting information as the Board may request.
During the Employment Period, the Company shall also provide to Executive use
of a single cellular or car phone for business and personal use and Company
shall pay all monthly payments and costs of reasonable maintenance, repair and
insurance for such telephone.
3.4. Life, Health and Disability Insurance.
Company shall procure and maintain during the Employment Period, at the
Company's expense, a term life insurance policy in an amount of not less than
$500,000 insuring the life of Executive, which policy shall designate the
Executive (or his named beneficiary) as the sole beneficiary thereof.
Executive further agrees to cooperate in all respects with any requirements of
issuance of such policy, including, without limitation, any medical
examination requirements. Company shall also maintain during the Employment
Period for the benefit of Executive senior executive level health insurance
and disability insurance as currently in effect.
3.5 Vacation. During each year of the Employment
Period, Executive shall be entitled to paid vacation leave in accordance with
Company's policies. Such vacations shall be taken at such time or times
during the applicable year as may be determined by Executive subject to
Company's business needs. Any additional vacation period shall be determined
by Company consistent with the general customs and practices of the Company
applicable to its executives.
4. Employment Termination. The employment of the Executive
by the Company pursuant to this Agreement shall terminate upon the occurrence
of any of the following:
4.1. Expiration of the Employment Period in
accordance with Section 1;
4.2. At the election of the Company, for cause,
immediately upon written notice by the Company to the Executive. For the
purposes of this Section 4.2, cause for termination shall be deemed to exist
upon: (a) a good faith finding by the Board of a material and repeated failure
of the Executive to perform his assigned duties for the Company, or gross
negligence or willful misconduct; (b) the conviction of the Executive of, or
the entry of a pleading of guilty or nolo contendere by the Executive to, any
crime involving moral turpitude or any felony; or (c) any theft, embezzlement,
fraud or other act of dishonesty whether or not involving the Company, which,
in the good faith finding of the Board, could reasonably be expected to have a
material adverse affect on the Company if Executive's employment by the
Company were to continue;
4.3. Upon the Executive's death or in the event of
the inability of the Executive to provide services due to illness, disability,
or physical or emotional incapacity ("Disability"). In the event of the
Disability of Executive, Executive's employment shall only be terminated on
the first day of the calendar month following the end of the Disability
Period. The Disability Period shall end: (i) if the Disability is continuous
throughout the six (6) consecutive months following the month during which the
Disability occurs, on the last day of such sixth consecutive calendar month;
or (ii) if the Disability is intermittent, then on the date as of which
Executive has been unable to perform his duties under this Agreement for a
total of 180 days during the last 365 days.
4.4. At the election of the Company, without cause
at any time during the Employment Period, by written notice of termination to
Executive.
4.5. At the election of the Executive, upon a
material breach of this Agreement by the Company which breach shall remain
uncured for a period of thirty (30) days following written notice by the
Executive to the Company specifying in reasonable detail the purported breach.
5. Effect of Termination.
5.1. Termination at Election of the Company. In
the event the Executive's employment is terminated at the election of the
Company pursuant to Section 4.2, the Company shall pay to the Executive the
compensation and benefits otherwise payable to him under Section 3 through the
last day of his actual employment by the Company.
5.2 Non-Renewal of Employment Term. In the event
the Employment Term is not renewed or extended, otherwise than (i) due to a
termination under Sections 4.2, 4.3, 4.4 or 4.5, or (ii) due to executive's
unwillingness to accept the Company's offer to extend or renew the Agreement
at an annual Base Salary not less than that paid by Company to Executive
during the last 12 months of the Employment Term, then Company shall pay to
Executive as a severance payment, on the last day of each month commencing on
the last day of the first month following the date of termination, an amount
equal to one twelfth (1/12) of the sum of the Base Salary in effect during the
last twelve (12) months of the Employment Term plus one-half of the aggregate
bonuses paid during the last twelve (12) months of the Employment Term (i.e.,
.0833 [(Base Salary) + (50% x Bonuses)]), for a period equal to the longer of
(i) twelve (12) months from the date of termination, or (ii) eighteen (18)
months from the date the Company provided written notice to Executive that it
would not offer to renew or extend the Employment Term at an annual Base
Salary not lower than that paid by Company during the last twelve (12) months
of the Employment Term, or if no such notice was ever given, eighteen (18)
months.
5.3 Termination Without Cause. If Executive's
employment is terminated pursuant to Section 4.4, the Executive shall receive
a lump sum severance payment equal to one and one-half (1.5) times the sum of
(i) the Base Salary paid during such year plus (ii) an amount equal to the
Bonus Compensation paid during the prior fiscal year.
5.4 Termination by Executive. Should this
Agreement terminate pursuant to Section 4.5 hereof, Executive shall not be
entitled to any severance benefit, but shall be entitled to accept other
employment and recover such damages as may be available under applicable law
arising from such breach.
5.5. Termination for Death or Disability. In the
event Executive's employment is terminated by death or because of Disability
pursuant to Section 4.3, the Company shall pay to the estate of the Executive,
or to the Executive, as the case may be, the compensation which would
otherwise be payable to the Executive up to the end of the month in which the
termination of his employment occurs because of death or Disability. In the
event of Disability, during the Disability Period but prior to termination,
the Base Salary shall continue to be paid to Executive as a disability benefit
("Disability Benefit"). Any disability insurance proceeds actually received
by Executive during the Disability Period with respect to such Disability
shall reduce on a dollar-for-dollar basis the Disability Benefit otherwise
payable by Company during the Disability Period pursuant to this Section 5.5.
5.6. Survival. The provisions of Sections 6, 7,
and 8 shall survive the termination of this Agreement.
5.7 Liquidated Damages. The severance payments
provided for in Section 5 shall constitute liquidated damages for, and full
and complete satisfaction of, any and all claims which the Executive may
otherwise have against Company based on the Company's termination or
non-renewal of the Employment Term, whether based on wrongful termination or
otherwise. Executive shall be entitled to no other compensation or benefits
following his last day of employment with Company except for those benefits
available under applicable law to all former employees (e.g., COBRA).
6. Breach of Contract by Executive. Executive recognizes
that the Company is entering into this Agreement in order to obtain the
exclusive use of his personal services during the Employment Period, that
Executive's services are of a special, unique, unusual, extraordinary,
creative and intellectual character, and that the commercial success of the
enterprise for which Executive has been hired depends primarily upon the
unique character of his services. Executive therefore agrees that the
termination of employment by the Executive or the diversion of a substantial
portion of the Executive's services to unrelated endeavors during the
Employment Period, in violation of this Agreement and without consent of the
Company, shall be a material breach of this Agreement. The Executive
understands that such loss or diversion of his services could neither be cured
by the hiring of other executives nor could damages be reasonably or
adequately calculated and recovered in an action at law, and therefore
Executive further agrees that, to the extent permitted by law, any material
breach of this Agreement may, without limiting any other remedies, be
prevented or cured by an action for specific performance or injunctive relief,
without the need for the Company to post bond or other security.
7. Non-Competition.
7.1. During the Employment Period, the Executive
will not directly or indirectly as an individual proprietor, partner,
stockholder, officer, Executive, director, joint venturer, investor, lender,
or in any other capacity whatsoever (other than as a holder of not more than
one percent (1%) of the total outstanding stock of a publicly held company),
engage in the business of developing, providing managing, marketing, selling,
or of performing, providing, or offering, products and/or services of the kind
or type developed or being developed, produced, marketed, sold, offered,
provided or performed by the Company while the Executive was employed by the
Company.
7.2. Recognizing the Executive's full and complete
access to all of Company's trade secrets and Proprietary Information (as
defined below), and the level of compensation payable to Executive hereunder,
during the Employment Period and for the next succeeding twelve (12) months,
the Executive will not directly or indirectly:
7.2.1 recruit, solicit or induce, or
attempt to induce, any executive, or any prospective or past accounts, vendors
or customers, employees or consultants of the Company or any other person or
entity having any continuing or periodic relationship with the Company to
terminate their employment with, or otherwise cease their relationship with,
the Company; or
7.2.2 solicit, divert or take away, or
attempt to divert or to take away, the business or patronage of any of the
customers or accounts, or prospective customers or accounts, of the Company
which were contacted, solicited or served by the Executive while employed by
the Company.
7.3. If any restriction set forth in this Section 7
is found by a court of competent jurisdiction to be unenforceable because it
extends for too long a period of time or over too great a range of activities
or in too broad a geographic area, it shall be interpreted to extend only over
the maximum period of time, range of activities or geographic areas as to
which it may be enforceable.
7.4. The restrictions contained in this Section 7
are necessary for the protection of the business and goodwill of the Company
and are considered by the Executive to be reasonable for such purpose. The
Executive agrees that any breach of this Section 7 will cause the Company
substantial and irrevocable damage and therefore, in the event of any such
breach, in addition to such other remedies which may be available, the Company
shall have the right, in addition to any other remedies it may have, to seek
specific performance and injunctive relief, without the need to post a bond or
other security.
8. Proprietary Information and Developments.
8.1. Proprietary Information.
8.1.1 Executive agrees that all
information and know-how, whether or not in writing, of a private, secret or
confidential nature concerning the Company's business or financial affairs
(including pricing policies and cost reimbursement methodology), business
methods, internal controls, suppliers or customers (collectively, "Proprietary
Information") is and shall be the exclusive property of the Company.
Executive will not disclose any Proprietary Information to others outside the
Company or use the same for any unauthorized purposes without written approval
by the Board, either during or after his employment, unless and until such
Proprietary Information has become public knowledge without fault of the
Executive.
8.1.2 Executive agrees that all files,
letters, memoranda, reports, records, data, sketches, drawings, flow charts,
business methods, promotional materials, video or sound recordings, program
listings, customer lists, customer accountings, market studies or other
written, photographic, or other tangible material containing Proprietary
Information, whether created by the Executive or others, which shall come into
his custody or possession, shall be and are the exclusive property of the
Company to be used by the Executive only in the performance of his duties for
the Company.
8.1.3 Executive agrees that his
obligation not to disclose or use information, know-how and records of the
types set forth in subsections 8.1.1 and 8.1.2 above, also extends to such
types of information, know-how, records and tangible property of customers of
the Company or suppliers to the Company or other third parties who may have
disclosed or entrusted the same to the Company or to the Executive in the
course of the Company's business.
8.2. Developments.
8.2.1 Executive will make full and prompt
disclosure to the Company of all inventions, improvements, discoveries,
methods, developments, software and works of authorship, whether patentable,
copyrightable or not, which are created, made, conceived or reduced to
practice by the Executive or under his direction or jointly with others during
his employment by the Company, whether or not during normal working hours or
on the premises of the Company (all of which are collectively referred to in
this Agreement as "Developments").
8.2.2 Executive agrees to assign and does
hereby assign to the Company (or any person or entity designated by the
Company) all his right, title and interest in and to all Developments and all
related patents, patent applications, copyrights and copyright applications.
However, this Section 8.2(b) shall not apply to Developments which do not
relate to the present or planned business or research and development of the
Company and which are made and conceived by the Executive not during normal
working hours, not on the Company's premises and not using the Company's
tools, devices, equipment or Proprietary Information.
8.2.3 Executive agrees to cooperate fully
with the Company, both during and after his employment with the Company, with
respect to the procurement, maintenance and enforcement of copyrights, patents
and other intellectual and intangible property rights (both in the United
States and foreign countries) relating to Proprietary Information and
Developments. Executive shall sign all papers, including, without limitation,
copyright applications and/or assignments, patent applications and/or
assignments, declarations, oaths, formal assignments, assignments of
proprietary rights, and powers of attorney, which the Company may deem
necessary or desirable in order to protect its rights and interests in any
Proprietary Information or Development.
8.3. Other Agreements. Executive hereby represents
that he is not bound by the terms of any agreement with any previous employer
or other party to refrain from using or disclosing any trade secret or
confidential or proprietary information in the course of his employment with
the Company or to refrain from competing, directly or indirectly, with the
business of such previous employer or any other party. Executive further
represents that his performance of all the terms of this Agreement and as an
Executive of the Company does not and will not breach any agreement to keep in
confidence proprietary information, knowledge or data acquired by him in
confidence or in trust prior to his employment with the Company.
9. Indemnification. Executive shall be entitled throughout
the Employment Period to the benefit of any and all indemnification provisions
contained in the Bylaws and/or Certificate of Incorporation of Company, or any
of Company Affiliates for whom services are performed, to the fullest extent
permitted by applicable law at the time of the assertion of any liability
against Executive, and, in any event, to the most favorable indemnification
provisions or agreements available to any other senior executive of the
Company during the Employment Period.
10. Securities Laws; Company's Policies. Executive shall not
purchase or sell any of Company's securities while in possession of any
material, non-public information, nor communicate such information to any
other person. Executive agrees to abide by the rules, regulations,
instructions, personnel practices and policies of the Company and any changes
therein which may be adopted from time to time by the Company.
11. Notices. All notices required or permitted under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the United States Post Office, by registered or
certified mail, postage prepaid, addressed to the other party at the address
shown above, or at such other address or addresses as either party shall
designate to the other in accordance with this Section 10. A copy of all
notices given by Executive to the Company shall be sent to each member of the
Board.
12. Pronouns. Whenever the context may require, any pronouns
used in this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular forms of nouns and pronouns shall include the
plural, and vice versa.
13. Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject matter of
this Agreement.
14. Amendment. This Agreement may be amended or modified
only by a written instrument executed by both the Company and Executive.
15. Governing Law. This Agreement shall be construed,
interpreted and enforced in accordance with the law of the State of
California.
16. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of both parties and their respective successors
and assigns, including any corporation with which or into which the Company
may be merged or which may succeed to its assets or business, provided,
however, that the obligations of Executive are personal and shall not be
assigned by him.
17. Miscellaneous.
17.1. No delay or omission by the Company in exercising
any right under this Agreement shall operate as a waiver of that or any other
right. A waiver of consent given by the Company on any one occasion shall be
effective only in that instance and shall not be construed as a bar or waiver
of any right on any other occasion.
17.2. The captions of the sections of this Agreement are
for convenience of reference only and in no way define, limit or affect the
scope or substance of any section of this Agreement.
17.3. In case any provision of this Agreement shall be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year set forth above.
CARE ENTERPRISES, INC.,
a Delaware corporation
By:/s/ John W. Adams
Its: Chairman and Chief Executive
Officer
EXECUTIVE:
/s/ Richard K.Matros
_____________________________
Richard K. Matros
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made as of the first day of
January, 1993, is entered into by CARE ENTERPRISES, INC., a Delaware
corporation with its principal place of business at 2742 Dow Avenue, Tustin,
California (the "Company"), and Gary L. Massimino, residing at 3567 Figueroa,
Glendale, California 91206 (the "Executive").
The Company desires to continue to employ the Executive, and the
Executive desires to continue to be employed by the Company. In consideration
of the mutual covenants and promises contained herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the parties hereto agree as follows:
1. Term of Employment. The Company hereby agrees to continue to
employ the Executive, and the Executive hereby accepts such continued
employment with the Company, upon the terms set forth in this Agreement, for
the period commencing on January 1, 1993 (the "Commencement Date") and ending
on December 31, 1995, unless sooner terminated in accordance with the
provisions of Section 4 (the "Employment Period"). The Employment Period
shall be extended if the parties so agree in writing.
2. Title; Capacity; Duties. The Executive shall serve as
Executive Vice President and Chief Financial Officer of the Company or in such
other position as the Company's Board of Directors (the "Board") may determine
from time to time, including rendering services to, and serving as an officer
and director of, any corporation controlled by, under common control with
directly or indirectly, Company ("Company Affiliates"), provided that such
services are generally consistent with the duties Executive has heretofore
been performing for Company, and Executive's stature and experience. The
Executive shall be subject to the supervision of, and shall have such
authority as is delegated to him by, the Board, the Company's Chief Executive
Officer or such other senior executive(s) as the Board or the Chief Executive
Officer shall determine.
The Executive hereby accepts such employment and agrees, using diligent
efforts, to undertake the duties and responsibilities inherent in such
position and such other duties and responsibilities as the Board shall from
time to time reasonably assign to him consistent with this Agreement. During
the Employment Period, the Executive agrees to devote all of his time during
normal working hours to the business and interests of the Company. The right
of Company to Executive's services shall be exclusive to Company and Company's
Affiliates, provided, however, that Executive shall be entitled to devote
reasonable time to personal matters provided it does not materially interfere
with Executive's duties for Company.
3. Compensation and Benefits.
3.1. Salary. The Company shall pay the Executive
commencing on the Commencement Date, in regular periodic installments,
consistent with the Company's general pay practices, an annual base salary of
$210,000 for each one year period during the Employment Period ("Base
Salary"). Such salary shall be subject to adjustment as determined by the
Board in its annual review of Executive's performance hereunder. Executive
specifically acknowledges that Company has no obligation to increase said
salary as a result of such review, but may not reduce said salary below the
amount stated in this paragraph.
3.2. Fringe Benefits and Bonus. The Executive shall be
entitled to participate in all benefit programs that the Company establishes
and makes available to its executive employees, including, but not limited to,
any 401(k), profit sharing, pension, stock option, stock bonus or purchase
plans, all to the extent that Executive's position, tenure, salary, age,
health and other qualifications make him eligible (or not ineligible) to
participate in such plans. Executive may receive bonuses and other merit
compensation as determined from time to time by the Board in its sole
discretion ("Bonus Compensation"). The Bonus Compensation may be related to a
formula based upon the Company's financial performance ("Formula Bonus") or
some other method as determined by the Board in its sole discretion.
3.3. Reimbursement of Expenses; Car Phone. The Company
shall, subject to prior approval of the Chief Executive Officer, reimburse the
Executive during the Employment Period, in accordance with Company policy, for
all reasonable travel, entertainment and other expenses incurred or paid by
the Executive in connection with, or related to, the performance of his
duties, responsibilities or services under this Agreement, upon presentation
by the Executive of documentation, expense statements, vouchers and/or such
other supporting information as the Board may request. During the Employment
Period, the Company shall also provide to Executive use of a single cellular
or car phone for business and personal use and Company shall pay all monthly
payments and costs of reasonable maintenance, repair and insurance for such
telephone.
3.4. Life, Health and Disability Insurance. Company
shall procure and maintain during the Employment Period, at the Company's
expense, a term life insurance policy in an amount of not less than $500,000
insuring the life of Executive, which policy shall designate the Executive (or
his named beneficiary) as the sole beneficiary thereof. Executive further
agrees to cooperate in all respects with any requirements of issuance of such
policy, including, without limitation, any medical examination requirements.
Company shall also maintain during the Employment Period for the benefit of
Executive senior executive level health insurance and disability insurance as
currently in effect.
3.5 Vacation. During each year of the Employment
Period, Executive shall be entitled to paid vacation leave in accordance with
Company's policies. Such vacations shall be taken at such time or times
during the applicable year as may be determined by Executive subject to
Company's business needs. Any additional vacation period shall be determined
by Company consistent with the general customs and practices of the Company
applicable to its executives.
4. Employment Termination. The employment of the Executive by the
Company pursuant to this Agreement shall terminate upon the occurrence of any
of the following:
4.1. Expiration of the Employment Period in accordance
with Section 1;
4.2. At the election of the Company, for cause,
immediately upon written notice by the Company to the Executive. For the
purposes of this Section 4.2, cause for termination shall be deemed to exist
upon: (a) a good faith finding by the Board of a material and repeated failure
of the Executive to perform his assigned duties for the Company, or gross
negligence or willful misconduct; (b) the conviction of the Executive of, or
the entry of a pleading of guilty or nolo contendere by the Executive to, any
crime involving moral turpitude or any felony; or (c) any theft, embezzlement,
fraud or other act of dishonesty whether or not involving the Company, which,
in the good faith finding of the Board, could reasonably be expected to have a
material adverse affect on the Company if Executive's employment by the
Company were to continue;
4.3. Upon the Executive's death or in the event of the
inability of the Executive to provide services due to illness, disability, or
physical or emotional incapacity ("Disability"). In the event of the
Disability of Executive, Executive's employment shall only be terminated on
the first day of the calendar month following the end of the Disability
Period. The Disability Period shall end: (i) if the Disability is continuous
throughout the six (6) consecutive months following the month during which the
Disability occurs, on the last day of such sixth consecutive calendar month;
or (ii) if the Disability is intermittent, then on the date as of which
Executive has been unable to perform his duties under this Agreement for a
total of 180 days during the last 365 days.
4.4. At the election of the Company, without cause at any
time during the Employment Period, by written notice of termination to
Executive.
4.5. At the election of the Executive, upon a material
breach of this Agreement by the Company which breach shall remain uncured for
a period of thirty (30) days following written notice by the Executive to the
Company specifying in reasonable detail the purported breach.
5. Effect of Termination.
5.1. Termination at Election of the Company. In the
event the Executive's employment is terminated at the election of the Company
pursuant to Section 4.2, the Company shall pay to the Executive the
compensation and benefits otherwise payable to him under Section 3 through the
last day of his actual employment by the Company.
5.2 Non-Renewal of Employment Term. In the event the
Employment Term is not renewed or extended, otherwise than (i) due to a
termination under Sections 4.2, 4.3, 4.4 or 4.5, or (ii) due to executive's
unwillingness to accept the Company's offer to extend or renew the Agreement
at an annual Base Salary not less than that paid by Company to Executive
during the last 12 months of the Employment Term, then Company shall pay to
Executive as a severance payment, on the last day of each month commencing on
the last day of the first month following the date of termination, an amount
equal to one twelfth (1/12) of the sum of the Base Salary in effect during the
last twelve (12) months of the Employment Term plus one-half of the aggregate
bonuses paid during the last twelve (12) months of the Employment Term (i.e.,
.0833 [(Base Salary) + (50% x Bonuses)]), for a period equal to the longer of
(i) twelve (12) months from the date of termination, or (ii) eighteen (18)
months from the date the Company provided written notice to Executive that it
would not offer to renew or extend the Employment Term at an annual Base
Salary not lower than that paid by Company during the last twelve (12) months
of the Employment Term, or if no such notice was ever given, eighteen (18)
months.
5.3 Termination Without Cause. If Executive's
employment is terminated pursuant to Section 4.4, the Executive shall receive
a lump sum severance payment equal to one and one-half (1.5) times the sum of
(i) the Base Salary paid during such year plus (ii) an amount equal to the
Bonus Compensation paid during the prior fiscal year.
5.4 Termination by Executive. Should this Agreement
terminate pursuant to Section 4.5 hereof, Executive shall not be entitled to
any severance benefit, but shall be entitled to accept other employment and
recover such damages as may be available under applicable law arising from
such breach.
5.5. Termination for Death or Disability. In the event
Executive's employment is terminated by death or because of Disability
pursuant to Section 4.3, the Company shall pay to the estate of the Executive,
or to the Executive, as the case may be, the compensation which would
otherwise be payable to the Executive up to the end of the month in which the
termination of his employment occurs because of death or Disability. In the
event of Disability, during the Disability Period but prior to termination,
the Base Salary shall continue to be paid to Executive as a disability benefit
("Disability Benefit"). Any disability insurance proceeds actually received
by Executive during the Disability Period with respect to such Disability
shall reduce on a dollar-for-dollar basis the Disability Benefit otherwise
payable by Company during the Disability Period pursuant to this Section 5.5.
5.6. Survival. The provisions of Sections 6, 7, and 8
shall survive the termination of this Agreement.
5.7 Liquidated Damages. The severance payments provided
for in Section 5 shall constitute liquidated damages for, and full and
complete satisfaction of, any and all claims which the Executive may otherwise
have against Company based on the Company's termination or non-renewal of the
Employment Term, whether based on wrongful termination or otherwise.
Executive shall be entitled to no other compensation or benefits following his
last day of employment with Company except for those benefits available under
applicable law to all former employees (e.g., COBRA).
6. Breach of Contract by Executive. Executive recognizes that the
Company is entering into this Agreement in order to obtain the exclusive use
of his personal services during the Employment Period, that Executive's
services are of a special, unique, unusual, extraordinary, creative and
intellectual character, and that the commercial success of the enterprise for
which Executive has been hired depends primarily upon the unique character of
his services. Executive therefore agrees that the termination of employment
by the Executive or the diversion of a substantial portion of the Executive's
services to unrelated endeavors during the Employment Period, in violation of
this Agreement and without consent of the Company, shall be a material breach
of this Agreement. The Executive understands that such loss or diversion of
his services could neither be cured by the hiring of other executives nor
could damages be reasonably or adequately calculated and recovered in an
action at law, and therefore Executive further agrees that, to the extent
permitted by law, any material breach of this Agreement may, without limiting
any other remedies, be prevented or cured by an action for specific
performance or injunctive relief, without the need for the Company to post
bond or other security.
7. Non-Competition.
7.1. During the Employment Period, the Executive will not
directly or indirectly as an individual proprietor, partner, stockholder,
officer, Executive, director, joint venturer, investor, lender, or in any
other capacity whatsoever (other than as a holder of not more than one percent
(1%) of the total outstanding stock of a publicly held company), engage in the
business of developing, providing managing, marketing, selling, or of
performing, providing, or offering, products and/or services of the kind or
type developed or being developed, produced, marketed, sold, offered, provided
or performed by the Company while the Executive was employed by the Company.
7.2. Recognizing the Executive's full and complete access
to all of Company's trade secrets and Proprietary Information (as defined
below), and the level of compensation payable to Executive hereunder, during
the Employment Period and for the next succeeding twelve (12) months, the
Executive will not directly or indirectly:
7.2.1 recruit, solicit or induce, or attempt to
induce, any executive, or any prospective or past accounts, vendors or
customers, employees or consultants of the Company or any other person or
entity having any continuing or periodic relationship with the Company to
terminate their employment with, or otherwise cease their relationship with,
the Company; or
7.2.2 solicit, divert or take away, or attempt to
divert or to take away, the business or patronage of any of the customers or
accounts, or prospective customers or accounts, of the Company which were
contacted, solicited or served by the Executive while employed by the Company.
7.3. If any restriction set forth in this Section 7 is
found by a court of competent jurisdiction to be unenforceable because it
extends for too long a period of time or over too great a range of activities
or in too broad a geographic area, it shall be interpreted to extend only over
the maximum period of time, range of activities or geographic areas as to
which it may be enforceable.
7.4. The restrictions contained in this Section 7 are
necessary for the protection of the business and goodwill of the Company and
are considered by the Executive to be reasonable for such purpose. The
Executive agrees that any breach of this Section 7 will cause the Company
substantial and irrevocable damage and therefore, in the event of any such
breach, in addition to such other remedies which may be available, the Company
shall have the right, in addition to any other remedies it may have, to seek
specific performance and injunctive relief, without the need to post a bond or
other security.
8. Proprietary Information and Developments.
8.1. Proprietary Information.
8.1.1 Executive agrees that all information and
know-how, whether or not in writing, of a private, secret or confidential
nature concerning the Company's business or financial affairs (including
pricing policies and cost reimbursement methodology), business methods,
internal controls, suppliers or customers (collectively, "Proprietary
Information") is and shall be the exclusive property of the Company.
Executive will not disclose any Proprietary Information to others outside the
Company or use the same for any unauthorized purposes without written approval
by the Board, either during or after his employment, unless and until such
Proprietary Information has become public knowledge without fault of the
Executive.
8.1.2 Executive agrees that all files, letters,
memoranda, reports, records, data, sketches, drawings, flow charts, business
methods, promotional materials, video or sound recordings, program listings,
customer lists, customer accountings, market studies or other written,
photographic, or other tangible material containing Proprietary Information,
whether created by the Executive or others, which shall come into his custody
or possession, shall be and are the exclusive property of the Company to be
used by the Executive only in the performance of his duties for the Company.
8.1.3 Executive agrees that his obligation not to
disclose or use information, know-how and records of the types set forth in
subsections 8.1.1 and 8.1.2 above, also extends to such types of information,
know-how, records and tangible property of customers of the Company or
suppliers to the Company or other third parties who may have disclosed or
entrusted the same to the Company or to the Executive in the course of the
Company's business.
8.2. Developments.
8.2.1 Executive will make full and prompt disclosure
to the Company of all inventions, improvements, discoveries, methods,
developments, software and works of authorship, whether patentable,
copyrightable or not, which are created, made, conceived or reduced to
practice by the Executive or under his direction or jointly with others during
his employment by the Company, whether or not during normal working hours or
on the premises of the Company (all of which are collectively referred to in
this Agreement as "Developments").
8.2.2 Executive agrees to assign and does hereby
assign to the Company (or any person or entity designated by the Company) all
his right, title and interest in and to all Developments and all related
patents, patent applications, copyrights and copyright applications. However,
this Section 8.2(b) shall not apply to Developments which do not relate to the
present or planned business or research and development of the Company and
which are made and conceived by the Executive not during normal working hours,
not on the Company's premises and not using the Company's tools, devices,
equipment or Proprietary Information.
8.2.3 Executive agrees to cooperate fully with the
Company, both during and after his employment with the Company, with respect
to the procurement, maintenance and enforcement of copyrights, patents and
other intellectual and intangible property rights (both in the United States
and foreign countries) relating to Proprietary Information and Developments.
Executive shall sign all papers, including, without limitation, copyright
applications and/or assignments, patent applications and/or assignments,
declarations, oaths, formal assignments, assignments of proprietary rights,
and powers of attorney, which the Company may deem necessary or desirable in
order to protect its rights and interests in any Proprietary Information or
Development.
8.3. Other Agreements. Executive hereby represents that
he is not bound by the terms of any agreement with any previous employer or
other party to refrain from using or disclosing any trade secret or
confidential or proprietary information in the course of his employment with
the Company or to refrain from competing, directly or indirectly, with the
business of such previous employer or any other party. Executive further
represents that his performance of all the terms of this Agreement and as an
Executive of the Company does not and will not breach any agreement to keep in
confidence proprietary information, knowledge or data acquired by him in
confidence or in trust prior to his employment with the Company.
9. Indemnification. Executive shall be entitled throughout the
Employment Period to the benefit of any and all indemnification provisions
contained in the Bylaws and/or Certificate of Incorporation of Company, or any
of Company Affiliates for whom services are performed, to the fullest extent
permitted by applicable law at the time of the assertion of any liability
against Executive, and, in any event, to the most favorable indemnification
provisions or agreements available to any other senior executive of the
Company during the Employment Period.
10. Securities Laws; Company's Policies. Executive shall not
purchase or sell any of Company's securities while in possession of any
material, non-public information, nor communicate such information to any
other person. Executive agrees to abide by the rules, regulations,
instructions, personnel practices and policies of the Company and any changes
therein which may be adopted from time to time by the Company.
11. Notices. All notices required or permitted under this
Agreement shall be in writing and shall be deemed effective upon personal
delivery or upon deposit in the United States Post Office, by registered or
certified mail, postage prepaid, addressed to the other party at the address
shown above, or at such other address or addresses as either party shall
designate to the other in accordance with this Section 10. A copy of all
notices given by Executive to the Company shall be sent to each member of the
Board.
12. Pronouns. Whenever the context may require, any pronouns used
in this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular forms of nouns and pronouns shall include the
plural, and vice versa.
13. Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject matter of
this Agreement.
14. Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and Executive.
15. Governing Law. This Agreement shall be construed, interpreted
and enforced in accordance with the law of the State of California.
16. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business, provided, however, that
the obligations of Executive are personal and shall not be assigned by him.
17. Miscellaneous.
17.1. No delay or omission by the Company in exercising any
right under this Agreement shall operate as a waiver of that or any other
right. A waiver of consent given by the Company on any one occasion shall be
effective only in that instance and shall not be construed as a bar or waiver
of any right on any other occasion.
17.2. The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope
or substance of any section of this Agreement.
17.3. In case any provision of this Agreement shall be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or
impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year set forth above.
CARE ENTERPRISES, INC.,
a Delaware corporation
By: John W. Adams
Its: Chairman and Chief Executive
Officer
EXECUTIVE:
/s/ Gary L. Massimino
_________________________
Gary L. Massimino
DEED OF TRUST AND SECURITY AGREEMENT
DATED AS OF DECEMBER 15, 1993
FROM
CARE ENTERPRISES, INC.
(the "Grantor")
TO
MARTIN R. SMITH, JR.
OR
ARTHUR M. STANDISH
(collectively, the "Deed of Trust Trustee")
FOR THE BENEFIT OF
STATE STREET BANK AND TRUST COMPANY
OF CONNECTICUT, NATIONAL ASSOCIATION
(the "Beneficiary")
Address:
___________________________________
___________________, West Virginia ______
TABLE OF CONTENTS
SECTION HEADING PAGE
Parties 1
Granting Clauses 2
Section 1. Definitions 5
Section 2. General Covenants and Warranties 6
Section 2.1. Note Covenants 6
Section 2.2. Ownership of Granted Property 7
Section 2.3. Further Assurances 7
Section 2.4. Payment of Indebtedness Hereby Secured 7
Section 2.5. Maintenance of Granted Property, Other
Liens, Compliance with Laws, etc 7
Section 2.6. Insurance 8
Section 2.7. Payment of Taxes and Other Charges 9
Section 2.8. Limitation on Liens 10
Section 2.9. Advances 11
Section 2.10. Recordation 11
Section 2.11. After-Acquired Property 11
Section 2.12. Sale, Lease or Assignment of
Granted Property 12
Section 3. Possession, Use and Release of Property 12
Section 3.1. Grantor's Right of Possession 12
Section 3.2. Release of Granted Property 12
Section 3.3. Eminent Domain 12
Section 4. Application of Insurance Proceeds and
Condemnation Awards 13
Section 5. Defaults and Remedies Therefor 14
Section 5.1. Events of Default 14
Section 5.2. Remedies 14
Section 5.3. Application of Proceeds 16
Section 5.4. Waiver of Extension, Appraisement and
Stay Laws 16
Section 5.5. Effect of Discontinuance of Proceedings17
Section 5.6. Delay or Omission Not a Waiver 17
Section 5.7. Costs and Expenses of Foreclosure 18
Section 6. Miscellaneous 18
Section 6.1. Successors and Assigns 18
Section 6.2. Partial Invalidity 18
Section 6.3. Addresses for Notices and Demands 18
Section 6.4. Headings and Table of Contents 19
Section 6.5. Release of Deed of Trust 19
Section 6.6. Governing Law 19
Section 6.7. Counterparts 19
Section 6.8. Successor Deed of Trust Trustee 19
Signature 20
Attachments to Deed of Trust:
Annex A - Legal Description of Real Property
Exhibit A-1 Form of Note
Exhibit A-2 Amounts Borrowed Under Each Note
THIS DEED OF TRUST AND SECURITY AGREEMENT dated as of December 15,
1993 ("Deed of Trust") is from Care Enterprises, Inc., a Delaware
corporation (the "Grantor"), having its principal office at 2742 Dow
Avenue, Tustin, California 92680, Attention: Chief Financial Officer,
telephone: (714) 544-4443, telefacsimile: (714) 544-4443, ext. 2701, to
Martin R. Smith, Jr. or Arthur M. Standish, both of whom reside in Kanawha
County, West Virginia, as Trustee (the "Deed of Trust Trustee"), having
their post office address at c/o Steptoe & Johson, 715 Charleston National
Plaza, Charleston, West Virginia 25326, telephone: (304) 353-8000,
telefacsimile: (304) 353-8180, for the benefit of, and to, State Street
Bank and Trust Company of Connecticut, National Association, as Indenture
Trustee, for the holders of the indebtedness secured hereby (the
"Beneficiary"), having its principal office at 750 Main Street, Hartford,
Connecticut 06103, Attention: Securities Investment Division, telephone:
(203) 244-1800, telefacsimile: (203) 244-1890.
Recitals:
A. The Grantor has executed and delivered the Note Agreement,
dated as of December 15, 1993 (the "Note Agreement"), providing for the
terms and conditions under which the purchasers named in Schedule I
thereto will purchase $30,000,000 aggregate principal amount of the 8.10%
Senior Secured Notes due December 15, 2000 issued by the Grantor (the
"Notes"). The Notes are to be issued under the Indenture of Trust dated
as of December 15, 1993 (the "Indenture") between the Grantor and State
Street Bank and Trust Company of Connecticut, National Association, as
indenture trustee (the "Indenture Trustee"). The Notes will each be dated
the date of issue thereof, will bear interest at the rate of 8.10% per
annum prior to maturity, will be subject to prepayments of principal as
specified in Section 5 of the Indenture and will otherwise be in the form
and shall have the terms, provisions and characteristics set forth in the
Indenture. A copy of the form of the Notes is attached hereto as Exhibit
A-1 and the respective principal amounts borrowed by Grantor under each
Note is set forth on Exhibit A-2 attached hereto, each of which exhibits
by this reference is incorporated herein and made a part hereof. The
holder or holders of the Notes from time to time are sometimes hereinafter
referred to as the "Holders" and the initial Holders are sometimes
referred to as the "Purchasers";
B. The Grantor owns a parcel of real property located in
___________ County, West Virginia and described in Exhibit A hereto, upon
which a nursing care facility is located, which facility is leased to and
operated by Care Enterprises West, a Utah corporation, a subsidiary of the
Grantor, pursuant to the terms of that certain Skilled Nursing Facility
Lease dated December 30, 1993 (the "Lease Agreement") between the Grantor,
as lessor and Care Enterprises West, a Utah corporation, as tenant.
C. The Purchasers have required as a condition to their purchase
of Notes from the Grantor that the Grantor execute and deliver this Deed
of Trust and Security Agreement and similar mortgages on other parcels of
real property upon which the Grantor owns skilled nursing care facilities,
as security for the payment of the Notes;
D. The Notes and all principal thereof and interest thereon and
premium, if any, and all additional amounts and other sums at any time due
and owing from, or required to be paid by, the Grantor under the terms of
the Notes, the Note Agreement, the Indenture and this Deed of Trust and
Security Agreement are hereinafter sometimes referred to as the
"indebtedness hereby secured";
E. The Grantor is duly authorized under all applicable provisions
of law, its charter and by-laws, to execute and deliver this Deed of Trust
and to encumber, grant, convey and assign the Granted Property (as
hereinafter defined) to the Deed of Trust Trustee, in trust, for the
benefit of, and to, Beneficiary on behalf of the Purchasers and any
subsequent holders of the indebtedness hereby secured for the security of
the Notes, and all corporate action and all consents, approvals and other
authorizations and all other acts and things necessary to make this Deed
of Trust the valid, binding and legal instrument for the security of the
Notes have been done and performed; and
F. This Deed of Trust is also a Security Agreement and Financing
Statement under the Uniform Commercial Code of the State of West Virginia,
and in compliance therewith the names of the debtor and secured party are
as follows:
Debtor: Care Enterprises, Inc.
2742 Dow Avenue
Tustin, California 92680
Secured Party: State Street Bank and Trust Company of
Connecticut, National Association,
as indenture trustee
750 Main Street
Hartford, Connecticut 06103
Now, therefore, this Deed of Trust witnesseth: That the Grantor, in
consideration of the premises, the purchase and acceptance of the Notes by
the Purchasers and of the sum of $30,000,000.00 received by the Grantor
from the Purchasers and other good and valuable consideration, receipt
whereof is hereby acknowledged, and in order to secure the payment of all
indebtedness hereby secured and the performance and observance of all the
covenants, agreements and conditions contained in this Deed of Trust, any
other mortgage or deed of trust from time to time entered into by the
Grantor for the benefit of the holders of the Notes, the Note Agreement,
and the Indenture, the Grantor does hereby warrant, pledge, assign,
bargain, hypothecate, convey, grant, transfer and set over unto the
Beneficiary and its successors and assigns, IN TRUST, WITH POWER OF SALE,
in and to all and singular the following described properties, rights,
interest and privileges and all of the Grantor's estate, right, title and
interest therein, thereto and thereunder (to the extent such properties,
rights and interests constitute real property), and does hereby grant to
the Beneficiary a security interest in the following described properties,
rights and privileges which do not constitute real property (all of which
properties hereby granted, conveyed, mortgaged, assigned and pledged or
intended so to be are hereinafter collectively referred to as the "Granted
Property") and does further grant a security interest to the Beneficiary
and its successors and assigns, in all such Granted Property in which a
security interest may be granted:
Granting Clause First
The parcels of land in ____________ County, State of West Virginia,
described in Annex A attached hereto and made a part hereof, together with
the entire interest of the Grantor in and to all buildings, structures,
improvements and appurtenances now standing, or at any time hereafter
constructed or placed, upon such land, including all right, title and
interest of the Grantor, if any, in and to all building material, building
equipment and fixtures of every kind and nature whatsoever on said land or
in any building, structure or improvement now or hereafter standing on
said land which are classified as fixtures under applicable law and which
are used in connection with the operation, maintenance or protection of
said buildings, structures and improvements as such (including, without
limitation, all boilers, air conditioning, ventilating, plumbing, heating,
lighting and electrical systems and apparatus, all communications
equipment and intercom systems and apparatus, all sprinkler equipment and
apparatus and all elevators and escalators), and are used in connection
with the operation of any business conducted upon said parcels of land,
and the reversion or reversions, remainder or remainders, in and to said
land, and together with the entire interest of the Grantor in and to all
and singular the tenements, hereditaments, easements, rights of way,
rights, privileges and appurtenances to said land, belonging or in anywise
appertaining thereto, including, without limitation, the entire right,
title and interest of the Grantor in, to and under any streets, ways,
alleys, gores or strips of land adjoining said land, and all claims or
demands whatsoever of the Grantor either in law or in equity, in
possession or expectancy, of, in and to said land, it being the intention
of the parties hereto that, so far as may be permitted by law, all
property of the character hereinabove described, which is now owned or is
hereafter acquired by the Grantor and is affixed or attached or annexed to
said land, shall be and remain or become and constitute a portion of said
land and the security covered by and subject to the lien of this Deed of
Trust, together with all accessions, parts and appurtenances appertaining
or attached thereto and all substitutions, renewals or replacements of and
additions, improvements, accessions and accumulations to any and all
thereof, and together with all rents, income, revenues, awards, issues and
profits thereof.
Granting Clause Second
All right, title and interest of the Grantor in the equipment and
other personal property located on and used or useable in connection with,
the property described in Granting Clause First hereof, including without
limitation any and all air conditioners, antennae, appliances, apparatus,
awnings, basins, bathtubs, beds, bidets, boilers, bookcases, cabinets,
carpets, coolers, curtains, dehumidifiers, disposals, doors, drapes,
dryers, ducts, dynamos, elevators, engines, equipment, escalators, fans,
fittings, floor coverings, furnaces, furnishings, furniture, hardware,
heaters, humidifiers, incinerators, lighting, machinery, motors, ovens,
pictures, pipes, plants and containers, plumbing, pumps, radiators,
ranges, recreational facilities, refrigerators, screens, security systems,
shades, shelving, sinks, sprinklers, stokers, stoves, telephone systems,
toilets, ventilators, wall coverings, washers, windows, window coverings,
and wiring, as the same are now and will hereafter be constituted, whether
now owned or hereafter acquired by the Grantor, together with all
appliances, instruments, improvements, accessories, equipment, parts and
appurtenances appertaining or attached thereto, or from time to time
incorporated therein or installed as part thereof, and all substitutions,
renewals and replacements of and additions, improvements, accessions and
accumulations to any and all thereof which are now owned or hereafter
acquired by the Grantor, together with all the rents, issues, incomes,
profits, accounts, proceeds and avails thereof, and all rights to receive
all insurance proceeds, condemnation awards and other payments with
respect thereto.
Granting Clause Third
The Lease Agreement and any other leases, admittance, residency and
occupancy agreements (collectively, the "Other Agreements") and all of the
Grantor's estate, right, title, interest, claim and demand as lessor in,
to and under the Lease Agreement and the Other Agreements, including all
extensions and renewals of the term thereof, and all existing or future
amendments, supplements or modifications of the Lease Agreement (and to
any short form memorandum of the Lease Agreement executed for recording
purposes) and the Other Agreements, but subject, however, to the right of
the Grantor, prior to the occurrence and continuation of an Event of
Default hereunder, to collect rents and otherwise act in its own name
under the Lease Agreement and the Other Agreements.
Subject, however, to Permitted Encumbrances, as defined in Section 1
hereof;
To Have and To Hold the Granted Property unto the Deed of
Trust Trustee, IN TRUST, and to the Beneficiary and their respective
successors and assigns, forever, WITH POWER OF SALE (to the extent
permitted by law), for the purpose of securing performance of each
agreement, covenant and warranty of the Grantor contained herein, in the
Note Agreement and in the Indenture and for the benefit and security of
the payment of the indebtedness hereby secured.
It is agreed and understood by the parties hereto that:
1. The Notes are to be secured by other mortgages and deeds
of trust on other real estate in other counties and states. Each and all
of said mortgages and deeds of trust are intended to and shall constitute
security for the entire indebtedness hereby secured.
2. Any part of the security herein described, and any
security described in any other mortgage or other instrument now or
hereafter given to secure the indebtedness which is secured by this Deed
of Trust, may be released by the Beneficiary without affecting the lien
hereof on the remainder.
3. The Grantor for itself and all who may claim through or
under it waives any and all right to have the property and estates
comprising the Granted Property marshalled upon any foreclosure of the
lien hereof, or to have the Granted Property hereunder and the property
covered by any other lien, mortgage or deed of trust securing the
indebtedness hereby secured marshalled upon any foreclosure of any of said
liens, mortgages or deeds of trust, and agrees that any court having
jurisdiction to foreclose such lien may order the Granted Property sold as
an entirety.
4. Upon the occurrence of an Event of Default hereunder,
the Beneficiary has, among other things, the right to foreclose on (or
cause the Deed of Trust Trustee to foreclose on) the Granted Property and
dispose of the same. The Beneficiary's deed or other instrument of
conveyance, transfer or release (which may be in the name of the
Beneficiary (or, as may be required by law, the Deed of Trust Trustee) or
as attorney for the Grantor, and the Beneficiary is hereby irrevocably
appointed attorney for the Grantor) shall be effective to convey and
transfer to the grantee an indefeasible title to the property covered
thereby, discharged of all rights of redemption by the Grantor or any
person claiming under it, and to bar forever all claims by the Grantor or
the Beneficiary (or, as the case may be, the Deed of Trust Trustee) to the
property covered thereby and no grantee from the Beneficiary (or, as the
case may be, the Deed of Trust Trustee) shall be under any duty to inquire
as to the authority of the Beneficiary (or, as the case may be, the Deed
of Trust Trustee) to execute the same, or to see to the application of the
purchase money.
Section 1. Definitions.
Capitalized terms used in this Deed of Trust and not defined herein
shall have the meaning provided therefor in the Note Agreement. The
following terms shall have the following meanings for all purposes of this
Deed of Trust:
"Alterations" shall have the meaning set forth in Section 2.5(a).
"Default" shall mean any event which would constitute an Event of
Default if any requirement in connection therewith for the giving of
notice, or the lapse of time, or the happening of any further condition,
event or action had been satisfied.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, together
with the regulations thereunder, in each case as in effect from time to
time. References to sections of ERISA shall be construed to also refer to
any successor sections.
"Event of Default" shall mean any event specified in Section 5.1.
"Event of Loss" with respect to the Mortgaged Facility shall mean
the condemnation, loss or destruction of the Mortgaged Facility or a
material portion thereof, which shall include damage to an extent
rendering repair or replacement impractical or uneconomical, or any other
event which shall render the Mortgaged Facility permanently unfit for
normal use.
"Holders" shall have the meaning set forth in Recital A.
"indebtedness hereby secured" shall have the meaning set forth in
Recital D.
"Indenture" shall have the meaning set forth in Recital A.
"Mortgaged Facility" mean the skilled nursing home, intermediate
care facility, retirement or convalescent living center or home for the
mentally retarded or other facility providing residential health care
owned by the Grantor and located on the Granted Property.
"Granted Property" shall have the meaning set forth in the
introductory language to the Granting Clauses.
"Notes" shall mean the 8.10% Senior Secured Notes due December 15,
2000 of the Grantor issued under and pursuant to the Indenture.
"Note Agreement" shall have the meaning set forth in Recital A.
"Permitted Encumbrances" shall mean the liens described in clauses
(a) through (f) of Section 2.8.
"Purchasers" shall have the meaning set forth in Recital A.
"Responsible Officer" shall mean the person holding the office of
the President, any Vice President, Secretary, Assistant Secretary or
Treasurer of the Grantor.
Section 2. General Covenants and Warranties.
The Grantor covenants, warrants and agrees as follows:
Section 2.1. Note Covenants. Each and all of the terms,
provisions, restrictions, covenants and agreements set forth in the Notes,
the Note Agreement and the Indenture, and in each and every supplement
thereto or amendment thereof which may at any time or from time to time be
executed and delivered by the parties thereto or their successors and
assigns, are incorporated herein by reference to the same extent as though
each and all of said terms, provisions, restrictions, covenants and
agreements were fully set out herein; and the Grantor does hereby covenant
and agree well and truly to abide by, perform and be governed and
restricted by each and all of the matters provided for by the Notes, the
Note Agreement and the Indenture and so incorporated herein to the same
extent and with the same force and effect as if each and all of said
terms, provisions, restrictions, covenants and agreements so incorporated
herein by reference were set out and repeated herein at length.
No amendment, modification or waiver of, or any action taken or not
taken under or pursuant to, any of the terms and provisions of any Note,
the Note Agreement or the Indenture, shall affect or modify any of the
terms or provisions of this Deed of Trust or any of the obligations of
the Grantor hereunder, except and to the extent expressly provided for in
any such amendment, modification or waiver.
Section 2.2. Ownership of Granted Property. The Grantor
covenants and warrants that it has good and marketable fee simple title
(or its equivalent under applicable law) to the real property included in
Granting Clause First hereof and has good and marketable title to all
other property included in the Granted Property hereinbefore conveyed to
the Beneficiary free and clear of all liens, charges and encumbrances
whatever except Permitted Encumbrances, and the Grantor has full right,
power and authority to convey, transfer and mortgage the same to the
Beneficiary for the uses and purposes in this Deed of Trust set forth; and
the Grantor will warrant and defend the title to the Granted Property
against all claims and demands whatsoever.
Section 2.3. Further Assurances. The Grantor will, at its own
expense, do, execute, acknowledge and deliver all and every further act,
deed, conveyance, transfer and assurance necessary or proper for the
better assuring, conveying, assigning and confirming unto the Beneficiary
all of the Granted Property, or property intended so to be, whether now
owned or hereafter acquired, including providing the Beneficiary with a
currently executed Deed of Trust with respect thereto and any other
documents as shall be reasonably necessary in connection with any
recordation.
Section 2.4. Payment of Indebtedness Hereby Secured. The
Grantor will duly and punctually pay the indebtedness hereby secured
according to its terms.
Section 2.5. Maintenance of Granted Property, Other Liens,
Compliance with Laws, et (a) Without limiting any provisions of the Note
Agreement or the Indenture, the Grantor shall (i) promptly repair, restore
or rebuild, in a good and workmanlike manner, any buildings or
improvements now or hereafter on the Granted Property which may become
damaged or be destroyed, unless an Event of Loss occurs with respect
thereto, (ii) keep the Granted Property in good condition and repair and
free from all claims, liens, charges and encumbrances other than Permitted
Encumbrances, (iii) pay when due any indebtedness which may be secured by
a lien or charge on the Granted Property on parity with or superior to the
lien hereof, and upon request exhibit satisfactory evidence of the
discharge of such prior lien to the Beneficiary, (iv) comply with all
requirements of law or municipal ordinances with respect to the Granted
Property and the use thereof, failure to comply with which would result in
any material interference with the use or operation of the Granted
Property by the Grantor, and (v) make no material additions, alterations,
substitutions or replacements ("Alterations") in said Granted Property
except as required by law or municipal ordinance; provided, however, with
respect to clause (v), the Grantor may make any Alterations of any kind to
the Granted Property if (A) the market value or usefulness of the Granted
Property would not be impaired thereby, (B) the Alterations shall be
performed in a good and a workmanlike manner and (C) such Alterations
shall be expeditiously completed in compliance with all laws, ordinances,
orders, rules, regulations and requirements applicable thereto, except
where failure to so comply could not reasonably be expected to have a
material adverse effect on the ability of the Grantor to perform under
this Deed of Trust, the Notes, the Note Agreement or the Indenture,
including to the extent necessary to maintain in full force and effect the
policies of insurance required by Section 2.6. The Grantor shall promptly
pay all costs and expenses of each such Alteration, discharge all liens
filed against the Granted Property arising out of the same and procure and
pay for all permits and licenses required in connection therewith,
provided, however, that the Grantor shall not be required to pay any such
costs or expenses if (i) the validity, applicability or amount thereof is
being contested in good faith by appropriate actions or proceedings which
will prevent the forfeiture or sale of the Granted Property or any
material interference with the use thereof by the Grantor, and (ii) the
Grantor shall set aside on its books, reserves deemed by it to be adequate
with respect thereto or, if greater, such reserves as are required by
GAAP.
(b) The Grantor may, at its expense, (i) construct upon the
Granted Property additional buildings, structures and other improvements
and (ii) install, assemble and place upon the Granted Property any items
of machinery and equipment used or useful in the Grantor's business, in
each case upon compliance with the provisions of paragraph (a) of this
Section 2.5. All such buildings, structures and other improvements shall
be and remain part of the realty and shall be subject to this Deed of
Trust with respect thereto. Such machinery and equipment shall be and
remain the property of the Grantor and shall be deemed part of the Granted
Property.
(c) The Grantor or the lessee under the Lease Agreement, as the
case may be, shall use and operate the Granted Property as a skilled
nursing care facility.
Section 2.6. Insurance.
(a) Insurance Against Loss or Damage. Without limiting any
provisions of the Note Agreement, the Grantor will maintain or cause to be
maintained with respect to the Granted Property insurance against loss by
fire, windstorm and explosion and with extended coverage and against such
other risks of physical loss as are customarily insured against, and in
such amounts as are customarily carried by companies owning property of a
similar character and engaged in a business similar to that engaged in by
the Grantor; provided, however, that the amount of such insurance with
respect to the Granted Property shall not at any time be less than the
replacement value thereof. The Grantor may self-insure with respect to
the first portion of any loss claimed under such insurance by way of
deductible provisions in insurance policies up to such amount as is
customary for corporations of established reputation engaged in the same
or a similar business as the Grantor and similarly situated and which
maintain such insurance on property similar to the Granted Property,
provided that the Grantor shall set aside on its books reserves deemed by
it to be adequate with respect thereto.
(b) Insurance Against Public Liability and Property Damage. The
Grantor will maintain or cause to be maintained comprehensive general
public liability insurance written by companies of recognized national
standing against claims for bodily injury, death or property damage
occurring on, in or about the Granted Property with limits of not less
than $1,000,000 with respect to injuries or deaths arising out of a single
occurrence and not less than $2,500,000 in the aggregate for all claims
made against the Grantor in any policy year.
(c) Form of Policies. Any insurance policies carried in
accordance with Section 2.6(a) shall be written by companies of recognized
national standing authorized to do business in the state in which the
Granted Property is located and shall provide that: (i) Beneficiary, both
in its individual and trust capacities, shall be named as an additional
insured on any liability policy, (ii) losses, if any, shall be payable to
the Beneficiary under a standard mortgage loss payable clause satisfactory
to the Beneficiary, (iii) the Beneficiary's interest shall be insured
regardless of any breach or violation by the Grantor of any warranties,
declarations or conditions contained in such policies, (iv) such
insurance, as to the interest of the Beneficiary therein, shall not be
invalidated by the use or operation of the Granted Property for purposes
which are not permitted by such policies, (v) the insurers shall waive any
right of subrogation of the insurers to any set-off or counterclaim or any
other deduction, whether by attachment or otherwise, in respect of any
liability of the Grantor, (vi) if any premium or installment is not paid
when due, or if such insurance would lapse or be cancelled, terminated or
materially changed for any reason whatsoever, the insurers will promptly
notify the Beneficiary and any such lapse, cancellation, termination or
change shall not be effective as to the Beneficiary for thirty days after
receipt of such notice, and (vii) appropriate certification shall be made
to the Beneficiary by each insurer with respect thereto. Provided no
Default or Event of Default has occurred or is continuing, the loss, if
any, under any policy pertaining to loss by reason of damage to or
destruction of any portion of the Granted Property shall be adjusted with
the insurance companies by the Grantor, subject to the approval of the
Beneficiary if the loss exceeds $200,000. The loss so adjusted shall be
paid to the Beneficiary pursuant to said loss payable clause unless said
loss is $200,000 or less (in which case said loss shall be paid directly
to the Grantor provided that no Default or Event of Default has occurred
and is continuing).
Section 2.7. Payment of Taxes and Other Charges. Without
limiting the provisions of Section 4.3 of the Note Agreement, the Grantor
will pay and discharge, before the same shall become delinquent, together
with interest and penalties thereon, if any, (a) all taxes, assessments
(including assessments for benefits from public works or improvements
whenever begun or completed), levies, fees, water and sewer rents and
charges, and all other governmental charges, general and special, ordinary
and extraordinary, which are at any time levied upon or assessed against
it or the Granted Property or any part thereof or upon this Deed of Trust
or the indebtedness secured hereby or upon the revenues, rents, issues,
income and profits in respect of the Granted Property, or arising in
respect of the occupancy, use or possession thereof, which failure to pay
would result in the creation of a lien upon the Granted Property or any
part thereof, or upon the revenues, rents, issues, income and profits of
the Granted Property or in the diminution thereof or would result in any
material interference with the use or operation of the Granted Property by
the Grantor, (b) all corporate franchise, excise and other taxes, fees and
charges assessed, levied or imposed in respect of its corporate existence
or its right to do business in its state of incorporation, the state where
the Granted Property is located and any other state where failure to do so
would materially and adversely affect the business and properties of the
Grantor, (c) all income, excess profits, excise, sales, franchise, gross
receipts and other taxes, duties or imposts, whether of a like or
different nature, assessed, levied or imposed by any governmental
authority on it or the Granted Property, or any portion thereof, or upon
the revenues, rents, issues, income and profits of the Granted Property
whether or not the failure to pay any such tax, duty or impost might
result in the creation of a lien upon the Granted Property or any part
thereof or upon the revenues, rents, issues, income and profits of the
Granted Property or in the diminution thereof, and whether or not any such
tax, duty or impost is payable directly by the Grantor or is subject to
withholding at the source and (d) all lawful claims and demands of
mechanics, laborers, materialmen and others which, if unpaid, might result
in the creation of a lien on the Granted Property or upon the revenues,
rents, issues, income and profits of the Granted Property and, in general,
will do or cause to be done everything necessary so that the lien hereof
shall be fully preserved, at the expense of the Grantor, without expense
to the Beneficiary.
Nothing shall require the payment of any sum which is otherwise
required to be paid by the Grantor pursuant to this Section 2.7 so long as
the Grantor shall in good faith contest its obligation so to do by
appropriate proceedings which will prevent the forfeiture or sale of any
property of the Grantor or any material interference with the use or
operation thereof by the Grantor, and shall set up a reserve, reasonably
adequate, in the opinion of the President or any Vice President of the
Grantor against any such payment.
Section 2.8. Limitation on Liens. The Grantor will not create
or incur or suffer to be incurred or to exist, any mortgage, pledge,
security interest, encumbrance, lien or charge of any kind upon the
Granted Property, whether now owned or hereafter acquired, except the
following:
(a) liens for property taxes and assessments or governmental
charges (other than liens arising under ERISA) or levies and liens
securing claims or demands of mechanics and materialmen, provided that
payment thereof is not overdue or, if overdue, is being contested in
accordance with the provisions of Section 4.3 of the Note Agreement in
good faith by appropriate actions or proceedings;
(b) liens of or resulting from any judgment or award, the time for
the appeal or petition for rehearing of which shall not have expired, or
in respect of which the Grantor shall at any time in good faith be
prosecuting an appeal or proceeding for a review and in respect of which a
stay of execution pending such appeal or proceeding for review shall have
been secured and remain in effect;
(c) liens (other than liens arising under ERISA), deposits,
pledges or letters of credit in connection with or to secure payment of
worker's compensation, patient trust funds, unemployment insurance,
old-age pensions, other social security and other like laws or
regulations, warehousemen's and attorneys' liens and statutory landlords'
liens and liens to secure the performance of bids, tenders or trade
contracts, or to secure statutory obligations, surety or appeal bonds or
other liens of like general nature incurred in the ordinary course of
business and not in connection with the borrowing of money; provided in
each case, the obligation secured is not overdue or, if overdue, is being
contested in good faith by appropriate actions or proceedings which will
prevent the forfeiture or sale of any property of the Grantor or any
material interference with the use thereof by the Company or its lessee,
as the case may be;
(d) minor survey exceptions or minor encumbrances, easements or
reservations of, or rights of others for rights-of-way, utilities and
other similar purposes, or zoning or other restrictions as to the use of
real properties, which encumbrances, easements, reservations, rights and
restrictions do not in the aggregate materially detract from the value of
the Granted Property or materially impair their use in the operation of
the business of the Grantor;
(e) the lien of any lease between the Grantor, as lessor, and any
corporation (including any subsidiary of the Grantor), as lessee, of all
or any portion of the Granted Property, provided that (i) any such lease
shall by its terms be expressly made subject and subordinate to the lien
of this Deed of Trust, and any rights (but not any of the obligations) of
the Grantor therein shall be assigned to the Beneficiary, (ii) such lessee
shall use and operate the Granted Property as a nursing care facility, and
(iii) the Grantor shall remain primarily liable in respect of all
obligations under this Deed of Trust; and
(f) the lien and security interest of this Deed of Trust.
Section 2.9. Advances. If the Grantor shall fail to comply
with the covenants contained herein with respect to the procuring of
insurance, the payment of taxes, assessments and other charges, or the
keeping of the Granted Property in repair and free of other liens, the
Beneficiary may make advances to perform the same; and the Grantor agrees
to repay all sums so advanced upon demand with interest at the prime
commercial loan rate charged by the Indenture Trustee, from time to time
for short term borrowings by large business borrowers, plus two (2%)
percent per annum; and all sums so advanced, with interest, shall be
secured hereby in priority to the indebtedness evidenced by the Notes; but
no such advance shall be deemed to relieve the Grantor from any default
hereunder.
Section 2.10. Recordation. The Grantor will, at its own
expense, cause this Deed of Trust, all supplements hereto, and any
financing statements and continuation statements required by law,
including the Uniform Commercial Code, in respect thereof at all times to
be kept recorded and filed at its own expense in such manner and in such
places as may be required by law in order to fully preserve and protect
the rights of the Beneficiary hereunder, and will furnish to the
Beneficiary promptly after the execution and delivery of any supplement to
this Deed of Trust an endorsement to the Deed of Trust Title Insurance
Policy delivered with respect to this Deed of Trust pursuant to Section
3.1(g) of the Note Agreement indicating that this Deed of Trust continues
to constitute a first Deed of Trust lien upon the property described in
such Policy and that such supplement has been properly recorded or filed
for record so as to make effective of record the lien intended to be
created hereby.
Section 2.11. After-Acquired Property. Any and all property
hereafter acquired which is of the kind or nature described in the
Granting Clauses hereof and is or is intended to become a part thereof,
shall ipso facto, and without any further conveyance, assignment or act on
the part of the Grantor or the Beneficiary become and be, subject to the
lien of this Deed of Trust as fully and completely as though specifically
described herein; but nevertheless the Grantor shall from time to time, if
requested by the Beneficiary, execute and deliver any and all such further
assurances, conveyances and assignments thereof as the Beneficiary may
reasonably require for the purpose of expressly and specifically
subjecting to the lien of this Deed of Trust any and all such additional
property.
Section 2.12. Sale, Lease or Assignment of Granted Property.
Except as specifically permitted by this Deed of Trust, the Indenture and
the Note Agreement, the Grantor will not sell, assign, transfer, convey,
lease, sublease or otherwise dispose of any of its estate, right, title
and interest in and to the Granted Property or the right to possession of
the Granted Property.
Section 3. Possession, Use and Release of Property.
Section 3.1. Grantor's Right of Possession. Provided no
Default or Event of Default has occurred and is continuing, the Grantor
shall be suffered and permitted to remain in full possession, enjoyment
and control of the Granted Property subject always to the observance and
performance of the terms of this Deed of Trust, the Note Agreement and the
Indenture.
Section 3.2. Release of Granted Property. In addition to
releases pursuant to this Deed of Trust, the Indenture and the Note
Agreement, the Grantor may (i) sell or otherwise dispose of any Granted
Property then subject to the lien of this Deed of Trust or any mortgage
supplement hereto, and the Beneficiary shall release the same from the
lien hereof to the extent and on the terms and upon compliance with the
conditions provided for in any written consent given thereto at any time
or from time to time by the Beneficiary and (ii) sell or otherwise dispose
of any Granted Property then subject to the lien of this Deed of Trust,
granted pursuant to Granting Clause Second above, in any instance where
the Grantor has determined in its sound business judgment that such
Granted Property has become inadequate, obsolete, unsuitable or
unnecessary or otherwise replaceable and the Grantor continues to maintain
and install adequate equipment and personal property to efficiently
operate the Mortgaged Facility.
Section 3.3. Eminent Domain. Should any of the Granted
Property be taken by the exercise of the power of eminent domain or should
any condemnation proceedings be commenced against the same, the Grantor
may accept any award or consideration stated in a certificate of the
President or any Vice President of the Grantor delivered to the
Beneficiary to be satisfactory to the Grantor, and the Beneficiary shall
release the property taken or proposed to be taken upon receipt of: (a)
either (i) an order of a competent court condemning such property or
(ii) an opinion of counsel satisfactory to the Beneficiary to the effect
that such property has been taken or, upon the completion of the pending
proceedings, such property will be taken, by the exercise of the power of
eminent domain, and (b) compliance by the Grantor with the terms and
provisions of Section 4. In the event of such proceeding, the Beneficiary
may be represented by counsel compensated by the Grantor and the
Beneficiary may or may not become a party thereto as the Beneficiary in
its discretion may determine. The proceeds of all property so taken shall
be paid over to the Beneficiary and shall be held and disbursed or applied
upon the terms and conditions provided in Section 4.
Section 4. Application of Insurance Proceeds and Condemnation Awards.
(a) If an Event of Loss shall have occurred, all proceeds of
insurance or any condemnation award, as the case may be, received by the
Beneficiary in connection therewith shall be applied to prepay Notes as
set forth in Section 5.4 of the Indenture; provided, however, that in the
event that any Holder shall fail to deliver a Put Notice pursuant to
Section 5.4(b) of the Indenture, the Beneficiary shall remit to the
Grantor all such proceeds which would have been payable to such Holder.
In the event of any damage, destruction or condemnation of Granted
Property which does not constitute an Event of Loss, all proceeds of fire
and extended coverage insurance and condemnation awards and compensation
covering the Granted Property (except (i) where received under a general
public liability policy maintained pursuant to Section 2.6(b) or (ii) in
cases where the amount payable in respect of any one occurrence of damage,
destruction or condemnation is less than $200,000 and no Default or Event
of Default shall have occurred and be continuing under this Deed of Trust,
in which case the amount payable in respect of any such occurrence may be
received by the Grantor, and if received by the Beneficiary shall be paid
over to the Grantor for use by the Grantor in paying for replacement or
repairs of or substitutes for the damaged or destroyed property) received
by the Beneficiary under the provisions of this Deed of Trust, or under
any policy or policies of insurance covering the Granted Property or any
part thereof, shall be held (or if received by the Grantor immediately
paid over to the Beneficiary and shall be held) by the Beneficiary as part
of the Granted Property and shall be applied by the Beneficiary to pay the
Grantor from time to time upon a written application signed by the
President or any Vice President of the Grantor and accompanied by an
approving certificate of an architect or engineer selected by the Grantor
and approved by the Beneficiary, for the payment of the reasonable cost,
as shown by such certificate, of repairing or replacing part or all of the
property damaged or destroyed, but only if written application is made
therefor within 12 months of the receipt of such proceeds by the
Beneficiary, and then only for and to the extent that the Grantor shows by
such architect's or engineer's certificates or other evidence satisfactory
to the Beneficiary that the portion of such proceeds remaining on deposit
with the Beneficiary, together with any additional funds irrevocably
allocated or otherwise provided for in a manner satisfactory to the
Beneficiary for such purpose, shall be sufficient to complete such repairs
or replacements and restore the Granted Property as nearly as possible to
the market value and condition which existed immediately prior to the
damage, destruction, condemnation or taking, free from liens or
encumbrances except this Deed of Trust and Permitted Encumbrances. Every
such application for the payment of such proceeds, condemnation award or
compensation shall state that no Default or Event of Default has occurred
and is continuing and shall be accompanied by an opinion of counsel to the
effect that upon completion of the repair or replacement the property will
be subject to the lien of this Deed of Trust as a first lien thereon
subject only to Permitted Encumbrances.
(b) All insurance proceeds or condemnation awards, as the case may
be, other than proceeds or condemnation awards received with respect to an
Event of Loss shall be applied for the purposes specified in Section 4(a)
within the twelve-month period provided for thereby.
Section 5. Defaults and Remedies Therefor.
Section 5.1. Events of Default. The Grantor acknowledges and
agrees that each and all of the terms and provisions of Sections 6.1
through 6.3, both inclusive, of the Indenture have been and are
incorporated into this Deed of Trust by reference to the same extent as
though fully set out herein and that the term "Event of Default" wherever
used in this Deed of Trust shall mean either: (a) an Event of Default as
defined in Section 6.1 of the Indenture or (b) the failure of the Grantor
to comply with any covenant, agreement or warranty contained in this Deed
of Trust, or any other mortgage or deed of trust from time to time entered
into by the Grantor for the benefit of the holders of the Notes, within 30
days after the earlier of (i) notice from any registered holder of the
Notes to the Grantor specifying such failure and demanding the same to be
remedied, or (ii) such failure first becoming known to any Responsible
Officer of the Grantor (it being understood that such 30 day grace period
shall apply only to any such failure of the Grantor to comply with any
covenant, agreement or warranty hereunder).
Section 5.2. Remedies. When any Event of Default has occurred
and is continuing, the Beneficiary may exercise (or, as may be required by
law, cause the Deed of Trust Trustee to exercise) any one or more or all,
and in any order, of the remedies hereinafter set forth, it being
expressly understood that no remedy herein or in the Indenture conferred
is intended to be exclusive of any other remedy or remedies; but each and
every remedy shall be cumulative and shall be in addition to every other
remedy given herein or now or hereafter existing at law or in equity or by
statute:
(a) The Beneficiary may, by notice in writing to the Grantor
declare the entire unpaid balance of the Notes to be immediately due and
payable; and thereupon all such unpaid balance, together with all accrued
interest thereon and premium, if any, shall be and become immediately due
and payable, and the indebtedness hereby secured may be collected by
proper action, foreclosure of this Deed of Trust, or any other legal or
equitable proceeding.
(b) The Beneficiary (or, as may be required by law, the Deed of
Trust Trustee), personally or by agents or attorneys, may forthwith,
without notice, separately or jointly, (a) enter into and take possession
of all or any part of the Granted Property, and may forthwith subject to
the provisions of the Lease Agreement, if applicable, use, operate and
manage the Granted Property, collect the earnings and income therefrom,
(past due or become due), pay all principal charges including taxes and
assessments levied thereon and operating and maintenance expenses and all
disbursements and liabilities of the Grantor hereunder and apply the net
proceeds arising from any such operation of the Granted Property as
provided in Section 5.3 in respect of the proceeds of a sale of the
Granted Property or (b) have a receiver appointed by any court having
jurisdiction to take charge of the Granted Property and collect and
receive and apply the rents, issues and profits thereof. In either case,
any person or persons in possession of the Granted Property, or any part
thereof, shall be deemed a tenant at will and shall at once surrender such
possession on demand of the Beneficiary or Deed of Trust Trustee or
receiver.
(c) The Beneficiary or Deed of Trust Trustee may (i) obtain the
required insurance covering the Granted Property and pay the premiums
thereon or pay any unpaid premiums on any insurance procured by Grantor;
(ii) pay any taxes, assessments and other governmental charges and fees
together with any penalties and interest accrued thereon, and redeem the
Granted Property from a tax sale if it has been sold, and shall be
subrogated to the lien of the governmental body to which such payment was
made; (iii) make and pay for any and all repairs which they or any of them
deem necessary to place or keep the Granted Property in good condition and
repair; (iv) stop or mitigate waste on or in the Granted Property or any
part thereof; or (v) stop or prevent removal, destruction, demolition or
structure alteration of any building or improvement on the Granted
Property; or (vi) stop or prevent the violation of any law, ordinance,
rule or regulation relating to the use or maintenance of the Granted
Property or of any requirement, direction or order or notice of violation
thereof issued by any governmental agency, body or officer.
(d) The Beneficiary (or, as may be required by law, the Deed of
Trust Trustee) may proceed to protect and enforce its rights by a suit or
suits in equity or at law, or for the specific performance of any covenant
or agreement contained herein, in the Note Agreement or in the Indenture,
or in aid of the execution of any power herein or therein granted, or for
the enforcement of any other appropriate legal or equitable remedy.
(e) This instrument shall, with respect to all items constituting
personal property and fixtures subject to the lien hereof, be deemed to
grant a security interest to the Beneficiary under the Uniform Commercial
Code of West Virginia (the "Uniform Commercial Code"), and shall be filed
for record in the real estate records of the county in which the Granted
Property is located, so as to serve as a fixture filing pursuant to West
Virginia Code Section 46-9-402. The Beneficiary (or, as may be required
by law, the Deed of Trust Trustee) shall have any and all rights and
remedies (including, without limitation, extra-judicial power of sale)
provided to a secured party by the Uniform Commercial Code with respect to
any and all parts of the Granted Property which are and which are deemed
to be governed by the Uniform Commercial Code. Without limiting the
generality of the foregoing, the Beneficiary (or, as may be required by
law, the Deed of Trust Trustee) shall, with respect to any part of the
Granted Property constituting property of the type in respect of which
realization on a lien or security interest granted therein is governed by
the Uniform Commercial Code, have all the rights, options and remedies of
a secured party under the Uniform Commercial Code, including, without
limitation, the right to the possession of any such property, or any part
thereof, and the right to enter without legal process any premises where
any such property may be found. Any requirement of said Uniform
Commercial Code for reasonable notification shall be met by mailing
written notice to the Grantor at its address set forth herein at least 10
days prior to the sale or other event for which such notice is required.
(f) At any time after the exercise by the Beneficiary of the
option to declare the indebtedness hereby secured to be immediately due
and payable, Deed of Trust Trustee, upon the written request of the
Beneficiary, shall foreclose upon and sell the Granted Property to satisfy
the indebtedness hereby secured at public auction at the front door of the
courthouse of the county (or any county if more than one) in the State of
West Virginia in which the Granted Property is located, for cash in hand
on the day of sale, after first giving notice of such sale by publishing
such notice in a qualified newspaper of general circulation published in
said county, or if there be no such newspaper in a qualified newspaper of
general circulation in said county, once a week for two successive weeks
preceding the day of sale and after giving notice to Grantor and to any
subordinate lienholder who has previously notified the Beneficiary of the
existence of a subordinate lien, at least 20 days prior to the sale, and
no other notice of such sale shall be required.
It is understood and agreed that the Notes are also secured by other
mortgages and deeds of trust and that in case of default in any of the
terms, conditions or provisions of this Deed of Trust, the Notes or the
Note Agreement, the Beneficiary may resort to part or all of the security
for the Notes, and may foreclose the mortgages and deeds of trust in any
order. The pendency of any proceeding with respect to any one of the
above-mentioned mortgages and deeds of trust shall not be grounds for the
abatement of, or for hindering, delaying or preventing any proceeding with
respect to foreclosure of this Deed of Trust.
Grantor agrees that any sale made hereunder may be adjourned from time to
time without notice other than oral proclamation of such adjournment at
the time and place of sale, or at the time and place of any adjourned
sale.
In the event that foreclosure proceedings are instituted hereunder but are
not completed, Deed of Trust Trustee shall be reimbursed for all costs and
expenses incurred by them in commencing such proceedings, and all costs
and expenses so incurred by Deed of Trust Trustee, together with interest
thereon until paid at the Overdue Rate, shall be payable by Grantor on
demand, and shall be and become a part of the indebtedness hereby secured
and shall be collectible as such.
Deed of Trust Trustee, or either or them, or the survivor thereof, may act
in the execution of this trust, and in the event either Deed of Trust
Trustees shall act alone, the authority and power of the Deed of Trust
Trustee so acting shall be as full and complete as if the powers and
authority granted to the Deed of Trust Trustees herein jointly had been
granted to such Deed of Trust Trustee along; and either or both the Deed
of Trust Trustees are hereby authorized to act by agent or attorney in the
executive of this trust. It shall not be necessary for any Deed of Trust
Trustee to be present in person at any foreclosure sale hereunder.
Section 5.3. Application of Proceeds. The purchase money
proceeds and avails of any sale of the Granted Property, or any part
thereof and the proceeds and avails of any remedy hereunder shall be paid
to and applied as set forth in Section 6.9 of the Indenture.
Section 5.4. Waiver of Extension, Appraisement and Stay Laws.
The Grantor covenants that, upon the occurrence of an Event of Default and
the acceleration of the Notes pursuant to Section 5.1 and Section 5.2 and
to the extent that such rights may then be lawfully waived, it will not at
any time thereafter insist upon or plead, or in any manner whatever claim
or take any benefit or advantage of, any stay or extension law now or at
any time hereafter in force, or claim, take or insist upon any benefit or
advantage of or from any law now or hereafter in force providing for the
valuation or appraisement of the Granted Property or any part thereof
prior to any sale or sales thereof to be made pursuant to any provision
herein contained, or to the decree, judgment or order of any court of
competent jurisdiction or, after conformation of any such sale or sales
claim or exercise any right under any statute now or hereafter made or
enacted by any state or otherwise to redeem the property so sold or any
part thereof, and hereby expressly waives for itself and on behalf of each
and every person, except decree or judgment creditors of the Grantor
acquiring any interest in or title to the Granted Property or any part
thereof, subsequent to the date of this Deed of Trust, all benefit and
advantage of any such law or laws which would otherwise be available to
any such person in connection with the enforcement of any of the
Beneficiary's or the Deed of Trust Trustee's remedies hereunder; and
covenants that it will not in connection with any such enforcement
proceedings invoke or utilize any such law or laws or otherwise hinder,
delay or impede the execution of any power herein granted and delegated to
the Beneficiary or the Deed of Trust Trustee but will suffer and permit
the execution of every such power as though no such law or laws had been
made or enacted.
The Grantor hereby waives any and all rights of redemption from sale
under any order or decree of foreclosure pursuant to rights herein
granted, on behalf of the Grantor, and each and every Person acquiring any
interest in or title to the Granted Property described herein subsequent
to the date of this Deed of Trust, and on behalf of all other Persons to
the extent permitted by applicable law.
Any sale, whether under any power of sale hereby given or by virtue
of judicial proceedings, shall operate to divest all right, title,
interest, claim and demand whatsoever, either at law or in equity, of the
Grantor in and to the property sold and shall be a perpetual bar, both at
law and in equity, against the Grantor, its successors and assigns, and
against any and all persons claiming the property sold or any part thereof
under, by or through the Grantor, its successors or assigns.
Section 5.5. Effect of Discontinuance of Proceedings. In case
the Beneficiary shall have proceeded to enforce (or, cause the Deed of
Trust Trustee to enforce) any right under this Deed of Trust by
foreclosure, sale, entry or otherwise, and such proceedings shall have
been discontinued or abandoned for any reason or shall have been
determined adversely, then and in every such case the Grantor, the Deed of
Trust Trustee and the Beneficiary shall be restored to their former
position and rights hereunder with respect to the property subject to the
lien of this Deed of Trust.
Section 5.6. Delay or Omission Not a Waiver. No delay or
omission of the Deed of Trust Trustee or the Beneficiary to exercise any
right or power arising from any default on the part of the Grantor shall
exhaust or impair any such right or power or prevent its exercise during
the continuance of such default. No waiver by either the Deed of Trust
Trustee or the Beneficiary of any such default, whether such waiver be
full or partial, shall extend to or be taken to affect any subsequent
default, or to impair the rights resulting therefrom, except as may be
otherwise provided herein. No remedy hereunder is intended to be
exclusive of any other remedy but each and every remedy shall be
cumulative and in addition to any and every other remedy given hereunder
or otherwise existing; nor shall the giving, taking or enforcement of any
other or additional security, collateral or guaranty for the payment of
the indebtedness secured under this Deed of Trust operate to prejudice,
waive or affect the security of this Deed of Trust or any rights, powers
or remedies hereunder; nor shall the Deed of Trust Trustee or the
Beneficiary be required to first look to, enforce or exhaust such other or
additional security, collateral or guaranties.
Section 5.7. Costs and Expenses of Foreclosure. In any suit to
foreclose the Lien or security interest hereon there shall be allowed and
included as additional Indebtedness Hereby Secured in the decree for sale
all reasonable expenditures and reasonable expenses which may be paid or
incurred by or on behalf of the Deed of Trust Trustee or the Beneficiary
for attorneys' fees, appraiser's fees, outlays for documentary and expert
evidence, stenographic charges, publication costs and costs (which may be
estimated as the items to be expended after the entry of the decree) of
procuring all such abstracts of title, title searches and examination,
guarantee policies, and similar data and assurances with respect to title
as the Beneficiary may deem to be reasonably necessary either to prosecute
any foreclosure action or to evidence to the bidder at any sale pursuant
thereto the true condition of the title to or the value of the Granted
Property, all of which expenditures shall become so much additional
Indebtedness Hereby Secured which the Grantor agrees to pay and all of
such shall be immediately due and payable with interest thereon from the
date of expenditure until paid at the prime commercial loan rate charged
by Beneficiary from time to time for short term borrowings by large
business borrowers, plus 2% per annum.
Section 6. Miscellaneous.
Section 6.1. Successors and Assigns. Whenever any of the
parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party; and all the covenants, premises
and agreements in this Deed of Trust contained by or on behalf of the
Grantor, or by or on behalf of the Deed of Trust Trustee or the
Beneficiary, shall bind and inure to the benefit of the respective
successors and assigns of such parties whether so expressed or not.
Section 6.2. Partial Invalidity. The unenforceability or
invalidity of any provision or provisions of this Deed of Trust shall not
render any other provision or provisions herein contained unenforceable or
invalid.
Section 6.3. Addresses for Notices and Demands. All
communications provided for hereunder shall be in writing and, if to the
Beneficiary, delivered or mailed prepaid by registered or certified mail
or overnight air courier, or by facsimile communication, in each case
addressed to the Beneficiary at its address as set forth herein or such
other address as the Beneficiary may designate to the Grantor in writing,
and if to the Grantor, delivered or mailed by registered or certified mail
or overnight air courier, or by facsimile communication, to the Grantor at
its address as set forth herein or to such other address as the
Beneficiary may in writing designate to the Beneficiary; provided,
however, that a notice to any party to this Agreement by overnight air
courier shall only be effective if delivered to such party at a street
address designated for such purpose in accordance with this Section 6,3,
and a notice to such party by facsimile communication shall only be
effective if made by confirmed transmission to such party at a telephone
number designated for such purpose in accordance with this Section 6.3 and
promptly followed by the delivery of such notice by registered or
certified mail or overnight air courier, as set forth above.
Section 6.4. Headings and Table of Contents. The headings of
the sections of this Deed of Trust and the table of contents are inserted
for purposes of convenience only and shall not be construed to affect the
meaning or construction of any of the provisions hereof.
Section 6.5. Release of Deed of Trust. The Beneficiary shall
cause to be released this Deed of Trust and the lien hereof by proper
instrument or instruments upon presentation of satisfactory evidence that
all indebtedness secured hereby has been fully paid or discharged. Any
part of the security herein described, or other instrument now or
hereafter given to secure the indebtedness which is secured by this Deed
of Trust, may be released by the Beneficiary without affecting the lien
hereof on the remainder.
Section 6.6. Governing Law. This Deed of Trust shall be
governed by and construed in accordance with the laws of the State of West
Virginia.
Section 6.7. Counterparts. This Deed of Trust may be executed,
acknowledged and delivered in any number of counterparts, each of such
counterparts constituting an original but all together only one Deed of
Trust.
Section 6.8. Successor Deed of Trust Trustee. The Beneficiary
may, at any time and for any or no reason, by instrument in writing,
appoint a successor or successors to, or discharge and appoint a new Deed
of Trust Trustee in the place of any Deed of Trust Trustee named herein or
acting hereunder, which instrument, when executed and acknowledged by the
Beneficiary, and recorded in the Office of the Clerk of the County
Commission of ______________ County, West Virginia shall be conclusive
proof of the proper substitutions of such successor or successors of new
Deed of Trust Trustee, who shall have all the estate powers, duties,
rights, and privileges of the predecessor Deed of Trust Trustee.
IN WITNESS WHEREOF, the Grantor has caused this Deed of Trust to be
executed in its behalf, all as of the day and year first above written.
Care Enterprises, Inc
By /S/ Gary L. Massimino
---------------------------
Its Chief Financial Officer
State of Illinois )
) to-wit:
County of Cook )
The foregoing instrument was acknowledged before me this 30th day of
December, 1993, by Gary L. Massimino, the Chief Financial Officer of Care
Enterprises, Inc., a Delaware corporation, on behalf of said corporation.
Commission expires: March 4, 1997
/S/ Julia R. Browne
______________________
Notary Public
Seal stamped here
This instrument was prepared by
and after recordation this instrument
should be returned to:
Shelley J. Bacastow
Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
Schedule of Deed of Trust and Security Agreements
Pursuant to Regulation S-K Item 601 Instruction 2
Facility Address City County
- -------- ------- ---------- -----------
Americare Dunbar 501 Caldwell Lane Dunbar Kanawha
Nursing and
Rehabilitation Centers
Americare Arlington 1716 Gihon Road Parkersburg Wood County
Nursing and
Rehabilitation Centers
CARE ENTERPRISES, INC.
8.10% Senior Secured Note
Due December 15, 2000
PPN: 14165# AA 6
No. 5
December 30, 1993
$7,000,000.00
Care Enterprises, Inc., a Delaware corporation (the
"Company"), for value received, hereby promises to pay to
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
or registered assigns
on the fifteenth day of December, 2000
the principal amount of
SEVEN MILLION AND 00/100 DOLLARS ($7,000,000.00)
and to pay interest (computed on the basis of a 360-day year of
twelve 30-day months) on the principal amount from time to time
remaining unpaid hereon at the rate of 8.10% per annum from the
date hereof until maturity, payable semiannually on the fifteenth
day of each January and July in each year (commencing January 15,
1994) and at maturity. The Company agrees to pay interest on
overdue principal (including any overdue required or optional
prepayment of principal) and premium, if any, and (to the extent
legally enforceable) on any overdue installment of interest, at
the rate of 10.10% per annum after the due date, whether by
acceleration or otherwise, until paid.
Payments of principal, premium, if any, and interest shall
be made in such coin or currency of the United States of America
as at the time of payment is legal tender for the payment of
public and private debts. Such principal, premium, if any, and
interest shall be payable upon presentation of this Note at the
principal corporate trust office of State Street Bank and Trust
Company of Connecticut, National Association, (the "Indenture
Trustee"), located at 750 Main Street, Hartford, Connecticut
06103, the Indenture Trustee under the Indenture of Trust dated
as of December 15, 1993 (herein together with any supplements and
amendments thereto called the "Indenture") between the Company
and the Indenture Trustee.
This Note is one of the 8.10% Senior Secured Notes due
December 15, 2000 (the "Notes") of the Company in the aggregate
principal amount of $30,000,000 issued or to be issued under and
equally and ratably secured by the Indenture and the Mortgages
referred to therein and is entitled to the benefits of the
Guaranty Agreement dated as of December 15, 1993 from certain
subsidiaries of the Company named therein. Reference is hereby
made to the Indenture and said Mortgages for a description of the
property subject thereto, the nature and extent of the security
for the Notes, the rights of the holders of the Notes, the
Indenture Trustee and the Company in respect thereof, and the
terms upon which the Notes are to be authenticated and delivered.
This Note and the other Notes outstanding under the
Indenture may be declared due prior to their expressed maturity
dates and certain prepayments are required to be made thereon,
all in the events, on the terms and in the manner and amounts as
provided in the Indenture.
The Notes are not subject to prepayment or redemption at
the option of the Company prior to their expressed maturity dates
except on the terms and conditions and in the amounts and with
the premium, if any, set forth in the Indenture.
On and subject to the conditions contained in the
Indenture, this Note is transferable by the registered holder
hereof in person or by its duly authorized attorney on the
Register (as defined in the Indenture) to be kept for the purpose
at said principal office of the Indenture Trustee. On and
subject to the conditions contained in the Indenture, this Note
is exchangeable for Notes of other denominations. The Company
and the Indenture Trustee shall deem and treat the person in
whose name a Note is registered on said Register as the absolute
owner and holder hereof (whether or not this Note shall be
overdue) for the purpose of receiving payment and for all other
purposes, and neither the Company nor the Indenture Trustee shall
be affected by any notice to the contrary.
This Note shall not be valid until the certificate of
authentication hereon shall have been signed by the Indenture
Trustee.
This Note and the Indenture are governed by the laws of the
State of New York.
This Note shall not be valid or become obligatory for any
purpose unless and until the Certificate of Authentication hereon
shall have been executed by the Indenture Trustee.
CARE ENTERPRISES, INC.
By /S/ GARY L. MASSIMINO
--------------------------
Its Executive Vice President/
Chief Financial Officer
CERTIFICATE OF AUTHENTICATION
This Note is one of the Notes described in the
within-mentioned Indenture.
State Street Bank and Trust
Company of Connecticut,
National Association,
as Indenture Trustee
By /S/ VICKIE LAMO
--------------------------
Authorized Officer
CARE ENTERPRISES, INC.
8.10% Senior Secured Note
Due December 15, 2000
PPN: 14165# AA 6
No. 6
December 30, 1993
$5,000,000.00
Care Enterprises, Inc., a Delaware corporation (the
"Company"), for value received, hereby promises to pay to
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
or registered assigns
on the fifteenth day of December, 2000
the principal amount of
FIVE MILLION AND 00/100 DOLLARS ($5,000,000.00)
and to pay interest (computed on the basis of a 360-day year of
twelve 30-day months) on the principal amount from time to time
remaining unpaid hereon at the rate of 8.10% per annum from the
date hereof until maturity, payable semiannually on the fifteenth
day of each January and July in each year (commencing January 15,
1994) and at maturity. The Company agrees to pay interest on
overdue principal (including any overdue required or optional
prepayment of principal) and premium, if any, and (to the extent
legally enforceable) on any overdue installment of interest, at
the rate of 10.10% per annum after the due date, whether by
acceleration or otherwise, until paid.
Payments of principal, premium, if any, and interest shall
be made in such coin or currency of the United States of America
as at the time of payment is legal tender for the payment of
public and private debts. Such principal, premium, if any, and
interest shall be payable upon presentation of this Note at the
principal corporate trust office of State Street Bank and Trust
Company of Connecticut, National Association, (the "Indenture
Trustee"), located at 750 Main Street, Hartford, Connecticut
06103, the Indenture Trustee under the Indenture of Trust dated
as of December 15, 1993 (herein together with any supplements and
amendments thereto called the "Indenture") between the Company
and the Indenture Trustee.
This Note is one of the 8.10% Senior Secured Notes due
December 15, 2000 (the "Notes") of the Company in the aggregate
principal amount of $30,000,000 issued or to be issued under and
equally and ratably secured by the Indenture and the Mortgages
referred to therein and is entitled to the benefits of the
Guaranty Agreement dated as of December 15, 1993 from certain
subsidiaries of the Company named therein. Reference is hereby
made to the Indenture and said Mortgages for a description of the
property subject thereto, the nature and extent of the security
for the Notes, the rights of the holders of the Notes, the
Indenture Trustee and the Company in respect thereof, and the
terms upon which the Notes are to be authenticated and delivered.
This Note and the other Notes outstanding under the
Indenture may be declared due prior to their expressed maturity
dates and certain prepayments are required to be made thereon,
all in the events, on the terms and in the manner and amounts as
provided in the Indenture.
The Notes are not subject to prepayment or redemption at
the option of the Company prior to their expressed maturity dates
except on the terms and conditions and in the amounts and with
the premium, if any, set forth in the Indenture.
On and subject to the conditions contained in the
Indenture, this Note is transferable by the registered holder
hereof in person or by its duly authorized attorney on the
Register (as defined in the Indenture) to be kept for the purpose
at said principal office of the Indenture Trustee. On and
subject to the conditions contained in the Indenture, this Note
is exchangeable for Notes of other denominations. The Company
and the Indenture Trustee shall deem and treat the person in
whose name a Note is registered on said Register as the absolute
owner and holder hereof (whether or not this Note shall be
overdue) for the purpose of receiving payment and for all other
purposes, and neither the Company nor the Indenture Trustee shall
be affected by any notice to the contrary.
This Note shall not be valid until the certificate of
authentication hereon shall have been signed by the Indenture
Trustee.
This Note and the Indenture are governed by the laws of the
State of New York.
This Note shall not be valid or become obligatory for any
purpose unless and until the Certificate of Authentication hereon
shall have been executed by the Indenture Trustee.
CARE ENTERPRISES, INC.
By /S/ GARY L. MASSIMINO
--------------------------
Its Executive Vice President/
Chief Financial Officer
CERTIFICATE OF AUTHENTICATION
This Note is one of the Notes described in the
within-mentioned Indenture.
State Street Bank and Trust
Company of Connecticut,
National Association,
as Indenture Trustee
By /S/ VICKIE LAMO
--------------------------
Authorized Officer
EXHIBIT "21"
SUBSIDIARIES OF THE REGISTRANT
The following are subsidiaries of Care as of March 21, 1994.
<TABLE>
<CAPTION>
State or Other Jurisdiction of
Subsidiary of Incorporation or Organization
- -------------------------- --------------------------------
<S> <C>
Care Enterprises West Utah
Brel, Inc. California
HealthCare Network California
Care Development Corp. California
Care Home Health Services, Inc. California
Americare Midwest, Inc. Ohio
Hampshire Insurance Company, Ltd. Turks and Caicos Islands
Americare Home Care, Inc. Ohio
Americare Home Care of
West Virginia, Inc. West Virginia
Americare Nursing Centers, Inc. Ohio
Sunset Villa Corp. New Mexico
Americare West Virginia, Inc. West Virginia
Beckley Health Care Corp. West Virginia
Dunbar Health Care Corp. West Virginia
Putnam Health Care Corp. West Virginia
Salem Health Care Corp. West Virginia
Circleville Health Care Corp. Ohio
Health Spectrum, Inc. Ohio
Lancaster Health Care Corp. Ohio
Marion Health Care Corp. Ohio
New Lexington Health Care Corp. Ohio
Monroe Park Care Center, Inc. Ohio
Pomeroy Health Care Corp. Ohio
Rittman Health Care Corp. Ohio
Americare Development Corp. Ohio
Carefree Living of New Mexico, Inc. New Mexico
Sandia Vista Development Corp. New Mexico
Care Finance, Inc. California
CKM Corporation, Inc. Delaware
Care Finance II, Inc. California
Glenville Health Care Corp. West Virginia
</TABLE>
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-46395) pertaining to the 1992 Stock Option Plan
of Care Enterprises, Inc. of our report dated March 10, 1994, with respect to
the consolidated financial statements and schedules of Care Enterprises, Inc.
included in the Annual Report (Form 10-K) for the year ended December 31,
1993.
ERNST & YOUNG
March 25, 1994