<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1994 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file No. 0-13991
HALLMARK HEALTHCARE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 63-0817574
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
300 GALLERIA PARKWAY, SUITE 650, ATLANTA, GEORGIA 30339
(Address of Principal Executive Offices) (Zip Code)
(404) 933-5500
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
The number of shares of the Registrant's Common Stock outstanding at May 6,
1994:
$0.05 par value Class A common stock - 2,976,498
$0.05 par value Class B common stock - 64,102
<PAGE>
FORM 10-Q
HALLMARK HEALTHCARE CORPORATION
Page No.
--------
Part I - Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at March 31, 1994 and
June 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Operations for the
quarter and nine months ended March 31, 1994 and 1993 . . . . . . 6
Condensed Consolidated Statements of Cash Flows for the
nine months ended March 31, 1994 and 1993 . . . . . . . . . . . . 7
Notes to Condensed Consolidated Financial Statements . . . . . . . . 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . . . 15
Part II - Other Information
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . 21
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . 21
Signatures
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HALLMARK HEALTHCARE CORPORATION
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
PART I - FINANCIAL INFORMATION
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<PAGE>
ITEM 1. FINANCIAL STATEMENTS
HALLMARK HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, 1994 June 30, 1993
-------------- -------------
(Unaudited) *
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . $ 13,769 $ 4,899
Marketable securities, at cost which
approximates market. . . . . . . . . . . . . . 3,960 --
Patient accounts receivable, less allowance
for doubtful accounts of $5,029 and
$4,135 at March 31, 1994 and
June 30, 1993, respectively. . . . . . . . . . 21,747 19,767
Inventories. . . . . . . . . . . . . . . . . . . 4,211 4,103
Other current assets . . . . . . . . . . . . . . 6,376 4,513
Deferred tax asset . . . . . . . . . . . . . . . 2,409 --
--------- ---------
Total current assets . . . . . . . . . . . . . 52,472 33,282
--------- ---------
Property and equipment:
Land and improvements. . . . . . . . . . . . . . 7,540 7,277
Buildings and improvements . . . . . . . . . . . 101,627 98,887
Equipment. . . . . . . . . . . . . . . . . . . . 55,588 53,296
Construction in progress . . . . . . . . . . . . 372 2,227
--------- ---------
165,127 161,687
Less: accumulated depreciation and
amortization . . . . . . . . . . . . . . . . . (59,921) (53,452)
--------- ---------
105,206 108,235
Other assets . . . . . . . . . . . . . . . . . . . 13,737 18,360
--------- ---------
$ 171,415 $ 159,877
--------- ---------
--------- ---------
<FN>
*Condensed from audited financial statements
See accompanying notes
</TABLE>
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<PAGE>
HALLMARK HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
March 31, 1994 June 30, 1993
-------------- -------------
(Unaudited) *
LIABILITIES & STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . $ 9,899 $ 11,819
Accrued payroll, vacation and related taxes. . . 4,596 4,056
Other accrued liabilities. . . . . . . . . . . . 12,916 10,718
Current maturities of long-term debt and
capital lease obligations. . . . . . . . . . . 442 5,306
--------- ---------
Total current liabilities 27,853 31,899
Long-term debt and capital lease obligations . . . 87,591 75,181
Other long-term liabilities. . . . . . . . . . . . 16,686 17,648
Deferred income taxes. . . . . . . . . . . . . . . 7,819 2,060
Deferred debt restructuring credits. . . . . . . . -- 27,041
Commitments and contingencies
Redeemable preferred stock . . . . . . . . . . . . 1,215 1,095
Common stockholders' equity:
Common stock
Class A, $0.05 par value, authorized
25,000,000 shares; issued and outstanding
2,970,408 and 2,585,457 shares at
March 31, 1994 and June 30, 1993,
respectively . . . . . . . . . . . . . . . . 149 129
Class B, $0.05 par value, authorized 2,500,000
shares; issued and outstanding 64,102 and
390,298 shares at March 31, 1994 and
June 30, 1993, respectively. . . . . . . . . 3 19
Additional paid-in capital . . . . . . . . . . 53,605 52,331
Accumulated deficit. . . . . . . . . . . . . . (23,506) (47,526)
--------- ---------
Total common stockholders' equity. . . . . . . 30,251 4,953
--------- ---------
$ 171,415 $ 159,877
--------- ---------
--------- ---------
<FN>
*Condensed from audited financial statements
See accompanying notes
</TABLE>
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<PAGE>
HALLMARK HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
March 31, March 31,
--------- ---------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net patient service revenues . . . . . . . . . . . . . . . . . $ 46,398 $ 45,551 $ 137,563 $ 127,826
Other revenues . . . . . . . . . . . . . . . . . . . . . . . . 2,407 1,665 6,506 4,543
-------- -------- --------- ---------
TOTAL REVENUES . . . . . . . . . . . . . . . . . . . . . 48,805 47,216 144,069 132,369
Expenses:
Salaries and benefits. . . . . . . . . . . . . . . . . . . . 21,351 19,574 62,648 55,539
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . 6,469 5,993 18,290 17,236
Provision for bad debts. . . . . . . . . . . . . . . . . . . 2,966 2,928 9,579 8,607
Other operating expenses . . . . . . . . . . . . . . . . . . 10,459 11,775 35,602 36,562
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500 916 4,989 2,974
Depreciation and amortization. . . . . . . . . . . . . . . . 2,411 2,204 7,042 6,674
-------- -------- --------- ---------
TOTAL EXPENSES . . . . . . . . . . . . . . . . . . . . . 46,156 43,390 138,150 127,592
-------- -------- --------- ---------
Income from operations . . . . . . . . . . . . . . . . . . . . 2,649 3,826 5,919 4,777
Gain on sale of healthcare facility. . . . . . . . . . . . . . -- -- -- 752
-------- -------- --------- ---------
Income before income taxes, extraordinary items
and cumulative effect of accounting change . . . . . . . . . 2,649 3,826 5,919 5,529
Provision for income taxes . . . . . . . . . . . . . . . . . . 1,113 1,485 2,486 2,404
-------- -------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE. . . . . . . . . . . . . . . . . 1,536 2,341 3,433 3,125
Extraordinary items
Gain on restructure of debt, net of income tax effect of
$2,170 for the nine months ended March 31, 1994, and
$549 and $802 for the quarter and nine months ended
March 31, 1993, respectively -- 1,066 19,784 1,556
Credit resulting from utilization of net operating
loss carryforwards . . . . . . . . . . . . . . . . . . . -- 1,826 -- 2,715
-------- -------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE. . . . . . . . . . . . . . . . . . . . . . 1,536 5,233 23,217 7,396
Cumulative effect of accounting change . . . . . . . . . . . . -- -- 805 --
-------- -------- --------- ---------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . 1,536 5,233 24,022 7,396
Accretion of preferred stock redemption requirement. . . . . . 103 88 314 239
-------- -------- --------- ---------
NET INCOME APPLICABLE TO COMMON STOCK. . . . . . . . . . . . . $ 1,433 $ 5,145 $ 23,708 $ 7,157
-------- -------- --------- ---------
-------- -------- --------- ---------
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING. . . . . . . . . . . . . . . . 3,676 3,350 3,673 3,346
-------- -------- --------- ---------
-------- -------- --------- ---------
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE
Income before extraordinary items and cumulative effect
of accounting change . . . . . . . . . . . . . . . . . . . . $ 0.42 $ 0.70 $ 0.93 $ 0.93
Extraordinary items. . . . . . . . . . . . . . . . . . . . . . -- 0.86 5.39 1.28
Cumulative effect of accounting change . . . . . . . . . . . . -- -- 0.22 --
-------- -------- --------- ---------
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE. . . . . . . $ 0.42 $ 1.56 $ 6.54 $ 2.21
-------- -------- --------- ---------
-------- -------- --------- ---------
See accompanying notes
</TABLE>
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<PAGE>
HALLMARK HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
---------------------------
1994 1993
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . $ 24,022 $ 7,396
Adjustments to reconcile net income to
net cash provided by operating activities:
Extraordinary items:
Gain on restructure of debt, net of income tax
effect of $2,170 and $802 for the nine
months ended March 31, 1994, and 1993,
respectively. . . . . . . . . . . . . . . . . . . . . (19,784) (1,556)
Credit resulting from utilization
of net operating loss carryforwards . . . . . . . . . -- (2,715)
Cumulative effect of accounting change . . . . . . . . . (805) --
Depreciation and amortization. . . . . . . . . . . . . . 7,042 6,674
Gain on sale of healthcare facility. . . . . . . . . . . -- (752)
Amortization of deferred debt
restructuring credits. . . . . . . . . . . . . . . . . (2,072) (4,592)
Change in allowance for doubtful accounts 894 213
Change in assets and liabilities net of effects of
healthcare facilities sold:
Patient accounts receivable . . . . . . . . . . . . . (3,474) (4,806)
Other assets. . . . . . . . . . . . . . . . . . . . . 2,575 (446)
Accounts payable. . . . . . . . . . . . . . . . . . . (1,920) 1,680
Other liabilities . . . . . . . . . . . . . . . . . . 3,878 1,688
-------- --------
Net cash provided by operating activities . . . . . . 10,356 2,784
-------- --------
Cash flows from investing activities:
Proceeds from sale of healthcare
facilities . . . . . . . . . . . . . . . . . . . . . . -- 9,336
Purchase of property & equipment, net. . . . . . . . . . (3,318) (4,221)
-------- --------
Net cash (used in) provided by
investing activities . . . . . . . . . . . . . . . . . (3,318) 5,115
-------- --------
Cash flows from financing activities:
Proceeds from issuance of long term debt . . . . . . . . 80,000 --
Costs of issuance of long term debt. . . . . . . . . . . (2,400) --
Principal payments on long-term debt and
capital lease obligations . . . . . . . . . . . . . . . (75,768) (11,917)
-------- --------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . . . . 1,832 (11,917)
-------- --------
Increase (decrease) in cash and cash equivalents 8,870 (4,018)
Cash and cash equivalents at beginning of
period . . . . . . . . . . . . . . . . . . . . . . . . . 4,899 7,749
-------- --------
Cash and cash equivalents at end of period . . . . . . . . $ 13,769 $ 3,731
-------- --------
-------- --------
</TABLE>
See accompanying notes
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<PAGE>
FORM 10-Q
HALLMARK HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1994
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements presented herein, in
the opinion of management, reflect all adjustments considered necessary for a
fair presentation of the results of operations and financial position for the
interim periods covered by this report. All significant intercompany accounts
and transactions have been eliminated in consolidation.
These financial statements should be read in conjunction with the audited
consolidated financial statements of the Company for the year ended June 30,
1993, included in the Company's Annual Report on Form 10-K for the year ended
June 30, 1993.
NOTE 2 - NATURE OF BUSINESS
The Company's business is seasonal in nature and subject to general economic
conditions and other factors. Accordingly, the results of operations for the
interim periods are not necessarily indicative of the results expected for the
year.
NOTE 3 - CHANGE IN OPERATIONS
In fiscal 1993, the Company divested substantially all of the assets of two
hospital subsidiaries for approximately $9,400,000 in cash. The Company
recognized a gain of approximately $752,000 from the sale of one hospital in the
quarter ended September 30, 1992 and recognized no gain or loss on the sale of
one hospital in the quarter ended December 31, 1992. Net proceeds of the sales
approximated $8,500,000, of which approximately $7,000,000 was used to prepay
amounts under the formerly outstanding Bank Credit Agreement and $1,500,000 was
used to acquire a portion of the Company's formerly outstanding 14.5%
Subordinated Debentures. The accompanying condensed consolidated statements of
operations for the nine months ended March 31, 1993, include net revenues and
expenses for one hospital through November 30, 1992. The facilities had no net
revenues or expenses in the quarters ended March 31, 1994 and 1993, and net
revenues of $47,000 for the nine months ended March 31, 1993. For the nine
months ended March 31, 1993, the facilities had total expenses of $1,302,000.
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<PAGE>
NOTE 4 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consisted of the following (in
thousands):
<TABLE>
<CAPTION>
March 31, 1994 June 30, 1993
-------------- -------------
<S> <C> <C>
Senior Subordinated Notes due November 15,
2003, interest at 10 5/8% per annum payable
semi-annually beginning May 15, 1994,
redeemable at the Company's option at a
redemption price of 105.3125% of principal
on or after November 15, 1998, declining to
102.6563% on November 15, 1999 and 100% on
November 15, 2000. $ 80,000 $ --
Amended and Restated Bank Credit Agreement
dated as of January 1, 1989, as amended,
("Bank Credit Agreement"). -- 64,244
Senior Subordinated Debentures due 1999,
interest at 7%. -- 6,238
Senior Subordinated Notes due 1999,
interest at 7%. -- 1,098
Senior Subordinated Notes due 1993
through 1995, interest at 8% or 9%. -- 959
Capital lease obligations and other
indebtedness, interest at varying rates
from 4% to 16% per annum through 2018. 8,033 7,948
--------- ---------
88,033 80,487
Less current portion (442) (5,306)
--------- ---------
Long-term debt and capital lease obligations $ 87,591 $ 75,181
--------- ---------
--------- ---------
</TABLE>
On November 15, 1993, the Company completed a public offering of $80,000,000
principal amount of 10 5/8% Senior Subordinated Notes due 2003 (the "Notes").
The Notes are senior subordinated obligations of the Company, and, as such, are
subordinated to all existing and future senior indebtedness of the Company. The
net proceeds from the offering were approximately $77,600,000, of which
approximately $62,100,000 was used to repay in full the indebtedness outstanding
under the Bank Credit Agreement and approximately $10,700,000 was used to redeem
all of the Company's outstanding subordinated indebtedness. The remaining
proceeds of approximately $4,800,000 will be used for general corporate
purposes.
The indenture contains certain covenants which limit or restrict, among other
items, (i) additional indebtedness, including subordinated debt; (ii) liens;
(iii) issuance of preferred stock by the Company's subsidiaries; (iv)
transactions with affiliates; (v) restricted payments, including, but not
limited to, cash dividends on the Company's equity securities; (vi) investments
and loans; (vii) application of the proceeds of certain asset sales; and (viii)
mergers, consolidations and the transfer
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<PAGE>
of substantially all of the assets of the Company to another person, all as
defined in the indenture. The indenture also contains a provision that in the
event of a change of control, as defined, the Company shall make an offer to
repurchase the notes at a purchase price equal to 101% of the principal amount
thereof, plus accrued interest through the repurchase date.
During fiscal years 1990 through 1993, the Company, through a series of
transactions, underwent a restructuring of certain of its outstanding
indebtedness. The restructuring included modifications to its then outstanding
bank debt and the issuance of several series of senior subordinated notes and
debentures and payments of cash in exchange for certain of its 14 1/2% Senior
Subordinated Debentures (the "14 1/2% Debentures"). Pursuant to the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 15, "Accounting by
Debtors and Creditors for Troubled Debt Restructurings", the Company did not
recognize any gain from the modification of its bank debt or from certain
transactions in the 14 1/2% Debentures. The unrecognized gain from such
transactions was deferred and classified in the accompanying condensed
consolidated balance sheets as "Deferred debt restructuring credits" at June 30,
1993. Such credits were amortized as a reduction of interest expense during the
period that the restructured debt remained outstanding. During the nine months
ended March 31, 1994, interest expense was reduced by $2,072,000 as a result of
amortization of the deferred credits. During the quarter ended December 31,
1993, the Company recognized an extraordinary gain of $19,784,000 (net of income
tax effect of $2,170,000) primarily from the write-off of the remaining balance
of the deferred credits.
During the quarter ended December 31, 1993, the Company entered into a credit
agreement with a financial institution (the "New Credit Agreement") pursuant to
which the Company may borrow up to $25,000,000. The New Credit Agreement
consists of (i) a working capital facility in the principal amount of up to
$15,000,000 and (ii) an acquisition facility in the principal amount of up to
$10,000,000 (collectively, the "Facilities"). Borrowings under the working
capital facility are secured by an assignment by the Company of its patient
accounts receivable to the lender. The Company may not borrow pursuant to the
acquisition facility until it is activated by mutual agreement of the Company
and the lender, which must be no later than December 31, 1994; the acquisition
facility had not been activated as of March 31, 1994. Borrowing capacity under
the working capital facility is based on a percentage of the Company's eligible
patient accounts receivable, as defined. Certain conditions must be satisfied
prior to the Company borrowing under the Facilities, some of which have not yet
been satisfied. There was no borrowing availability at March 31, 1994.
Interest on the Facilities is payable monthly at a variable rate selected by the
Company, which will be either a published rate for thirty day dealer-placed
commercial paper, plus 3% or reserve-adjusted one, two or three month LIBOR,
plus 3%. The working capital facility terminates on December 31, 1998, at which
time the entire unpaid balance under the facility is due. Principal on the
acquisition facility is due in twelve monthly installments commencing on
December 31, 1997. The Facilities bear an unused line fee of 1/2 of 1% of the
average daily unused availability under the Facilities. No unused line fee is
charged for the acquisition facility until such line is activated.
Under the terms of the New Credit Agreement, the Company is required to meet
certain financial covenants, including, among others, a fixed charge coverage
ratio, a minimum interest coverage ratio, a minimum net worth level, an accounts
receivable turnover ratio and a minimum EBITDA level, as defined. In addition,
the New Credit Agreement contains limitations and/or restrictions on
acquisitions, investments, capital expenditures, dividends on the Company's
equity securities and incurrence of additional indebtedness.
At March 31, 1994, the Company had three outstanding letters of credit totalling
$6,187,000 which were issued by a commercial bank and are used to satisfy
certain security requirements of the
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Company's workers' compensation insurance carrier and a lease agreement related
to one of the Company's hospitals.
NOTE 5 - INCOME TAXES
At March 31, 1994, the Company had tax NOL carryforwards of approximately
$25,000,000 which expire in fiscal years 2002 through 2006. Such NOL
carryforwards may be available to offset future taxable income of the Company,
if any.
During the first fiscal quarter of 1994, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".
SFAS No. 109 requires a change in accounting for income taxes to an asset and
liability approach under which deferred tax assets and liabilities are
determined based on the difference between the financial accounting and tax
accounting basis of assets and liabilities. Deferred tax assets or liabilities
at the end of each period are determined using the currently enacted tax rate
expected to apply to taxable income in the periods in which the deferred tax
asset or liability is expected to be realized. The Company recorded a credit of
$805,000 to reflect the cumulative effect of adopting such standard in the
quarter ended September 30, 1993.
During 1991, the Company issued 390,298 shares of Class B common stock in
exchange for $18,620,000 of bank debt. The Company, based on consultation with
outside tax and valuation advisors, believes that the exchange qualified under
the stock-for-debt exception to the recognition of income from discharge of
indebtedness which is available to an insolvent corporation. In the event the
Internal Revenue Service challenges the Company's position successfully, the
Company's current NOL carryforwards could be reduced by as much as $16,000,000.
The Internal Revenue Code contains provisions which limit the use of NOL
carryforwards following significant changes in ownership of a corporation's
stock. A significant change in ownership generally occurs when persons holding
5% or more of the corporation's stock ("5% shareholders") increase their
percentage ownership of such stock, in the aggregate, by more than 50% during
any three year period. The Company believes that no significant change in
ownership has occurred that would limit the Company's use of the NOL
carryforwards described above. However, use of such NOL carryforwards could be
limited in the future as a result of, among other things, future purchases of
the Company's stock by 5% shareholders or the issuance of additional stock
(including the issuance of options under the Company's employee benefit plans).
NOTE 6 - 25% REDEEMABLE PREFERRED STOCK
The Company is authorized to issue 2,500,000 shares of preferred stock (issuable
in series) of which it had outstanding at March 31, 1994 and June 30, 1993,
respectively, 33,175 and 39,569 shares of $5 par value 25% Participating
Convertible Cumulative Redeemable Preferred Stock (the "25% Preferred"). The
25% Preferred has a preference over common stockholders upon liquidation or
dissolution of the Company of $125 per share, minus certain dividends if
previously paid. Each 25% Preferred share is convertible, at any time, into
five shares of Class A common stock, subject to adjustment under certain
conditions, and is entitled to annual dividends equal to 25% of defined net
income, if any, subject to a maximum annual payment of 10% of liquidation
preference, when and if declared by the Board of Directors of the Company out of
funds legally available for such dividends. Such dividends are cumulative and
subject to certain maximums, limits and other conditions. No such dividends
have been declared by the Company's Board of Directors. To date, such
undeclared dividends have been cumulative in an amount equal to 17% of the 25%
Preferred's liquidation value (approximately $705,000 at March 31, 1994).
Dividends are cumulative annually to the extent of 5% of the aggregate
liquidation preference on the last day of the calendar year until
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<PAGE>
all of the 25% preferred has been redeemed. The holders of the 25% Preferred
have voting rights on all matters other than the election of Directors. The 25%
Preferred is redeemable at any time prior to the required redemption at the
Company's option. Based on the current number of shares outstanding, the terms
of the 25% Preferred provide for redemption (but only out of funds legally
available for that purpose and then only to the extent permitted by its loan
agreements, indentures and Certificate of Incorporation) at a price of $125 per
share, minus certain dividends if previously paid, on February 12, 1995 of
approximately $553,000, on February 12, 1999 of approximately $2,212,000, and on
February 12, 2000 of approximately $1,382,000 (for the remaining shares). No
reserve has been provided for dividends on the 25% Preferred.
The 25% Preferred was recorded at issuance at $9.35 per share and is being
accreted to a redemption price of $125 per share through the respective
redemption dates utilizing the interest method. The accretion is charged to
retained earnings, if available, or additional paid-in capital.
During the nine months ended March 31, 1994, 6,394 shares of 25% Preferred were
converted into 31,970 shares of Class A common stock.
NOTE 7 - STOCKHOLDERS' EQUITY
During the quarter ended September 30, 1993, the Board of Directors amended the
Company's Long-Term Cash Incentive Plan, providing in August 1994 for cash
payments of approximately $588,000 and the issuance of approximately 178,000
shares of the Company's Class A common stock. Pursuant to such amendment, an
accrual of approximately $1,302,000 for shares to be issued under the amended
plan has been recorded as additional paid-in capital in the accompanying
Condensed Consolidated Balance Sheet as of March 31, 1994.
In May 1991, 390,298 shares of Class B common stock were issued to the holders
of the Company's bank debt in exchange for $18,620,000 principal amount of
outstanding bank debt. The Class B stock is non-voting and is convertible into
Class A common stock upon its sale or disposition. During the nine months ended
March 31, 1994, 326,191 shares of Class B common stock were converted into a
like number of Class A common shares.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is subject to claims and legal actions by patients and others in the
ordinary course of business. The Company believes that such claims will not
have a material adverse effect on the Company's financial position or results of
operations. The Company is self-insured against a portion of its general and
professional liability risks. The liability recorded for losses incurred and
claims made is based upon individual case estimates for losses reported and upon
estimates on the basis of past experience for incurred but not reported losses.
The Company has established and funded a trust fund to pay certain of its
general and professional liability losses. The balance of such trust fund was
$9,830,000 and $10,573,000 at March 31, 1994 and June 30, 1993, respectively. Of
such amounts, $1,311,000 and $1,300,000 at March 31, 1994 and June 30, 1993,
respectively, is classified in the accompanying condensed consolidated balance
sheets under the caption "Other current assets" and represents the amount of
claims and loss adjustment expenses expected to be paid within the following
twelve months. The remaining balance in such trust fund is classified under the
caption "Other assets". Such self insurance trust has been pledged as
collateral for three letters of credit issued by a commercial bank totalling
$6,187,000.
-12-
<PAGE>
OTHER CONTINGENCIES
The Company has employment agreements with its two executive officers which
provide for certain payments and benefits in the event of a "change in control"
of the Company, as defined. Change in control is generally defined as the
acquisition of that number of shares of the outstanding stock which would allow
such acquiring entity or a concerted group of entities to elect a majority of
the Board of Directors of the Company. The employment agreements for the two
executive officers were initially approved by the Board of Directors in 1989 and
subsequently amended in 1994. Pursuant to their terms, the agreements currently
are for terms which expire on September 30, 1996. Absent notice within
designated periods, such agreements automatically renew for additional one year
terms. The maximum contingent liability under the employment agreements is
approximately $3,100,000.
NOTE 9 - EARNINGS PER SHARE
The following table summarizes the number of common and common equivalent shares
used in computing net income per share at March 31, 1994 and 1993.
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
March 31, March 31,
--------------------- ----------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average Class A common stock
outstanding 2,968,009 2,581,557 2,958,339 2,561,460
Class B common stock outstanding
(convertible to Class A common stock) 64,102 390,298 64,102 390,298
Common stock equivalents:
Effect of the assumed conversion of 25%
Participating Convertible Cumulative
Redeemable Preferred Stock (5 shares of
common for 1 share of preferred) 165,875 198,295 165,875 198,295
Options and other 478,049 180,317 484,768 196,218
--------- --------- --------- ---------
Shares used in computing net income per
share 3,676,035 3,350,467 3,673,084 3,346,271
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
NOTE 10 - SUPPLEMENTAL INFORMATION TO CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
The Company paid approximately $3,402,000 in interest on various obligations in
the nine months ended March 31, 1994, compared to approximately $6,706,000 for
the comparable period a year earlier.
The Company paid approximately $449,000 in state and federal income taxes in the
nine months ended March 31, 1994, compared to approximately $207,000 for the
comparable period a year earlier.
During the quarter ended March 31, 1994, the Company obtained a letter of credit
with a commercial bank in order to secure the Company's obligation under one of
its capital leases. The lease had previously been secured by a collateral
account consisting of approximately $4,100,000 in cash and
-13-
<PAGE>
marketable securities. The collateral account had previously been classified as
Other assets in the condensed consolidated balance sheets. Upon obtaining this
letter of credit by the Company, the collateral account was released as security
for the lease and approximately $4,100,000 in cash and marketable securities
became available for general corporate purposes.
-14-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
HALLMARK HEALTHCARE CORPORATION
March 31, 1994
RESULTS OF OPERATIONS
The following table summarizes, for the periods indicated, changes in selected
operating indicators. The discussion that follows should be read in conjunction
with the Company's Condensed Consolidated Financial Statements and the notes
thereto.
<TABLE>
<CAPTION>
Nine Months Ended March 31,
Percentage Increase
(Decrease) In $
As a Percentage of From
Total Revenues Prior Year
-------------- ----------
1994 1993
---- ----
<S> <C> <C> <C>
Total Revenues . . . . . . . . . . . . . . . . . . 100.0% 100.0% 8.8%
Operating costs:
Salaries and benefits. . . . . . . . . . . . . . 43.5% 42.0% 12.8%
Supplies and other operating expenses. . . . . . 37.4% 40.6% .2%
Provision for bad debts. . . . . . . . . . . . . 6.6% 6.5% 11.3%
-------- ------
Total operating costs. . . . . . . . . . . . . 87.5% 89.1% 6.9%
-------- ------
Operating margin . . . . . . . . . . . . . . . . . 12.5% 10.9% 24.4%
Capital costs:
Interest . . . . . . . . . . . . . . . . . . . . 3.5% 2.2% 67.8%
Depreciation and amortization. . . . . . . . . . 4.9% 5.0% 5.5%
-------- ------
Total capital costs. . . . . . . . . . . . . . 8.4% 7.2% 24.7%
Gain from sale of hospital . . . . . . . . . . . . -- 0.5% (100.0%)
-------- ------
Income before income taxes, extraordinary items and
cumulative effect of accounting change . . . . . 4.1% 4.2% 7.1%
Provision for income taxes . . . . . . . . . . . . 1.7% 1.8% 3.4%
-------- ------
Income before extraordinary items and cumulative
effect of accounting change. . . . . . . . . . . 2.4% 2.4% 9.9%
-------- ------
-------- ------
</TABLE>
-15-
<PAGE>
The following table sets forth certain operating data for the Company on a same-
hospital basis, for the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended March 31,
(Dollars in thousands)
--------------------------
1994(1) 1993(1)
------- -------
<S> <C> <C>
Hospitals at end of period. . . . . . . . . . . 17 17
Licensed beds at end of period. . . . . . . . . 1,405 1,405
Average beds in service . . . . . . . . . . . . 1,205 1,222
Net patient service revenues:
Inpatient. . . . . . . . . . . . . . . . . . $ 95,341 $ 85,574
Outpatient . . . . . . . . . . . . . . . . . 36,407 36,403
Other. . . . . . . . . . . . . . . . . . . . 5,815 5,476
--------- ---------
Total net patient service revenues. . . . $ 137,563 $ 127,454
Patient days. . . . . . . . . . . . . . . . . . 125,015 117,262
Occupancy rate(2) . . . . . . . . . . . . . . . 37.9% 35.0%
Equivalent patient days(3). . . . . . . . . . . 177,652 168,012
<FN>
(1) Same hospital results exclude operating data for two hospitals sold in
fiscal 1993.
(2) Based on average beds in service.
(3) Represents inpatient days adjusted to reflect outpatient utilization.
</TABLE>
Net patient service revenues increased from $45,551,000 in the quarter ended
March 31, 1993 to $46,398,000 in the quarter ended March 31, 1994, an increase
of $847,000, or 1.9%, primarily due to a 7.3% increase in admissions from 7,209
to 7,735 and a 7.9% increase in patient days from 42,952 to 46,338. Net
patient service revenue per patient day declined from $1,061 to $1,001 for the
quarter ended March 31, 1994 compared to the same period a year earlier. The
decline resulted primarily from an increase in psychiatric patient volume and
the Company's strategy of maintaining stable levels of patient charges in an
effort to attract more private-pay patients. Net patient service revenues
increased from $127,826,000 in the nine months ended March 31, 1993, to
$137,563,000, in the nine months ended March 31, 1994, an increase of
$9,737,000, or 7.6%, primarily due to a 5.8% increase in admissions from 20,611
to 21,804 and a 6.6% increase in patient days from 117,262 to 125,015. The
increased admissions resulted primarily from the addition of new or expanded
services in 1993 including geriatric psychiatric and specialty Medicaid
services. Net patient revenues for the quarter and nine months ended March 31,
1994 included credits of approximately $549,000 and $962,000, respectively, from
reductions in the provision for contractual allowances primarily as a result of
favorable settlements of prior year cost reports with program intermediaries.
Net patient revenues for the quarter and nine months ended March 31, 1993
included approximately $1,135,000 and $2,092,000, respectively, of such credits.
A substantial portion of the Company's revenue is derived from the federal
Medicare program and state Medicaid programs. These programs have undergone
changes in recent years designed to reduce healthcare costs, resulting in
pressure on hospitals and other healthcare providers to reduce their costs and
limit the provision of services. These changes have had, and future changes in
such statutes and regulations may have, an adverse effect on the Company. A
number of the Company's hospitals qualify for "geographic reclassification" or
have been qualified as "disproportionate share" or "small dependent" hospitals
under the Medicare and/or Medicaid programs. These hospitals are reimbursed at
a more favorable rate than similar hospitals not receiving such designations. On
a periodic basis, federal and/or state regulatory authorities perform reviews of
participant hospitals to ensure continued compliance with program requirements
and therefore qualification for these designations. There can be no assurance
that the Company will be able to retain these favorable
-16-
<PAGE>
designations in the future for all, or any, of these hospitals, that these
programs will continue or that any programs intended to replace such programs
will be as financially advantageous to the Company as the existing programs.
The loss of such designations or programs could have a material adverse effect
on the Company's operations.
Salaries and benefits expense for the quarter and nine months ended March 31,
1994, increased $1,777,000 or 9.1% and $7,109,000 or 12.8% over the quarter and
nine months ended March 31, 1993, respectively. The increases were primarily
due to an increase in patient volume, a general increase in wage rates and
decreased use of contract services in the Company's hospitals.
Interest expense increased $1,584,000 and $2,015,000 in the quarter and nine
months ended March 31, 1994, to $2,500,000 and $4,989,000. Such increases were
primarily due to the Company's refinancing of its bank debt and subordinated
debt in November 1993. Prior to the refinancing, interest expense on the
Company's debt was significantly reduced by amortization of deferred debt
restructuring credits. As a result of the refinancing, the deferred debt
restructuring credits were eliminated and from the date of the refinancing
forward, interest expense was fully recognized at the effective interest rates
of the Company's debt. Interest expense was reduced by amortization of deferred
debt restructuring credits of $2,072,000 in the nine months ended March 31,
1994, and by $1,454,000 and $4,592,000 in the quarter and nine months ended
March 31, 1993. Interest expense, excluding amortization of deferred debt
restructuring credits, was $2,500,000 in the quarter ended March 31, 1994
compared with $2,370,000 in the comparable period a year earlier.
The following supplemental information represents pro forma results of
operations assuming the refinancing that occurred in the second quarter of
fiscal 1994 had occurred on July 1, 1992. Such pro forma adjustments had no
impact on the quarter ended March 31, 1994, as the effects of the refinancing
were fully reflected in the actual results of that period.
<TABLE>
<CAPTION>
NINE
QUARTER ENDED MONTHS ENDED
MARCH 31, MARCH 31,
------------- --------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total revenues $ 48,805 $ 47,216 $ 144,069 $ 132,369
Operating expenses 41,245 40,270 126,119 117,944
Interest expense 2,500 2,555 7,473 7,757
Depreciation expense 2,411 2,204 7,042 6,674
-------- -------- -------- --------
Total expenses 46,156 45,029 140,634 132,375
Income from operations $ 2,649 $ 2,187 $ 3,435 $ (6)
-------- -------- -------- --------
-------- -------- -------- --------
Income before extraordinary items and
cumulative effect of accounting change $ 1,536 $ 1,390 $ 1,992 $ 351
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average common and
common equivalent shares outstanding 3,676 3,350 3,673 3,346
-------- -------- -------- --------
-------- -------- -------- --------
Earnings per share before extraordinary items
and cumulative effect of accounting change $ 0.42 $ 0.41 $ 0.54 $ 0.10
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
-17-
<PAGE>
Provision for bad debts increased $38,000 and $972,000 for the quarter and nine
months ended March 31, 1994, to $2,966,000 and $9,579,000 primarily due to an
increase in patient volume and an increase in self-pay accounts. Provision for
bad debts as a percentage of net patient service revenues was 6.4% in the
quarter ended March 31, 1994, unchanged from the quarter ended March 31, 1993.
Provision for bad debts as a percentage of net patient service revenues
increased from 6.7% for the nine months ended March 31, 1993, to 7.0% for the
nine months ended March 31, 1994.
Other operating expenses decreased $1,316,000 and $960,000 for the quarter and
nine months ended March 31, 1994 to $10,459,000 and $35,602,000, respectively.
Other operating expenses for the quarter and nine months ended March 31, 1994,
were net of a reduction of the Company's general and professional liability
reserves of $1,323,000 based on updated estimates of the Company's expected
general and professional liability losses compared to a reduction of $1,266,000
recorded in the quarter and nine months ended March 31, 1993. Exclusive of
these reductions and the impact of a facility sold in December 1992, other
operating expenses decreased $1,259,000 and $469,000 or 9.6% and 1.3%,
respectively for the quarter and nine months ended March 31, 1994. The
decreases were primarily the result of decreased use of contract services in the
Company's hospitals partially offset by an increase in volume at the Company's
hospitals.
The Company reported net income of $1,536,000, or $.42 per share, for the
quarter ended March 31, 1994, compared to net income of $5,233,000, or $1.56 per
share, in the quarter ended March 31, 1993. Net income for the nine months
ended March 31, 1994, was $24,022,000, or $6.54 per share, compared to net
income of $7,396,000, or $2.21 per share, for the nine months ended March 31,
1993. Net income for the nine months ended March 31, 1994, included a credit of
$805,000, or $.22 per share, related to the cumulative effect of adoption of
Statement of Financial Accounting Standards ("SFAS") No. 109 "Accounting for
Income Taxes" and an extraordinary gain on restructure of debt of $19,784,000,
or $5.39 per share, net of income tax effect of $2,170,000. Net income for the
quarter and nine months ended March 31, 1993, included extraordinary gains on
restructure of debt of $1,066,000, or $.32 per share, and $1,556,000, or $.47
per share, net of income tax effect of $549,000 and $802,000, respectively, and
extraordinary credits of $1,826,000, or $.54 per share, and $2,715,000, or
$.81 per share, respectively, resulting from the utilization of NOL
carryforwards. In addition, net income for the nine months ended March 31,
1993, included a pre-tax gain of $752,000 from the sale of a hospital in August
1992.
TAX MATTERS
At March 31, 1994, the Company had NOL carryforwards of approximately
$25,000,000, which expire in fiscal years 2002 through 2006. Such NOL
carryforwards may be available to offset future taxable income of the Company,
if any.
During 1991, the Company issued 390,298 shares of Class B common stock in
exchange for $18,620,000 of the indebtedness under the Bank Credit Agreement.
The Company believes, based on consultation with outside tax and valuation
advisors, that the exchange qualified under the stock-for-debt exception to the
recognition of income from discharge of indebtedness which is available to
insolvent corporations. There can be no assurance, however, that the Internal
Revenue Service will not challenge the Company's position. If any such
challenge by the Internal Revenue Service were sustained, the Company's current
NOL carryforwards could be reduced by as much as $16,000,000.
The Internal Revenue Code contains provisions which limit the use of NOL
carryforwards following significant changes in ownership of a corporation's
stock. A significant change in ownership generally occurs when persons holding
5% or more of the corporation's stock ("5% shareholders") increase their
percentage ownership of such stock, in the aggregate, by more than 50% during
any
-18-
<PAGE>
three-year period. The Company believes that no significant change in ownership
has occurred that would limit the Company's use of the NOL carryforwards
described above. However, use of such NOL carryforwards could be limited in the
future as a result of, among other things, future purchases of the Company's
stock by 5% shareholders or the issuance of additional stock (including the
issuance of options under the Company's employee benefit plans).
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1994, the Company had working capital of $24,619,000, which
included cash and marketable securities of $17,729,000. During the quarter
ended December 31, 1993, the Company completed a registered offering of
$80,000,000 principal amount of 10 5/8% senior subordinated notes due 2003. The
net proceeds from the offering were approximately $77,600,000, of which
approximately $62,100,000 was used to repay the Company's then outstanding bank
debt and approximately $10,700,000 to redeem all of the Company's outstanding
senior subordinated indebtedness. The remaining proceeds will be used for
general corporate purposes and to fund certain capital expenditures.
During the quarter ended March 31, 1994, the Company obtained a letter of credit
with a commercial bank in order to secure the Company's obligation under one of
its capital leases. The lease had previously been secured by a collateral
account consisting of approximately $4,100,000 in cash and marketable
securities. The collateral account had previously been classified as Other
assets in the condensed consolidated balance sheets. Upon obtaining this
letter of credit by the Company, the collateral account was released as security
for the lease and approximately $4,100,000 in cash and marketable securities
became available for general corporate purposes.
During the quarter ended December 31, 1993, the Company entered into a credit
agreement with a financial institution pursuant to which the Company may borrow
up to $15,000,000 under a working capital facility and up to $10,000,000 under
an acquisition facility. Certain conditions must be satisfied prior to the
Company borrowing under the credit agreement, some of which had not been
satisfied as of March 31, 1994. The Company anticipates that it will satisfy
the remaining conditions to funding under its new credit agreement.
The Company anticipates that internally generated cash flows and the remaining
unused proceeds from the $80,000,000 senior subordinated note offering will be
sufficient to fund capital expenditures and working capital requirements through
fiscal 1994. During the nine months ended March 31, 1994, the Company expended
$3,318,000 for capital expenditures. Capital expenditures during the nine
months consisted primarily of completion of an outpatient surgery center at one
facility and equipment purchases at various facilities.
Payments received by the Company from the Medicare and Medicaid programs are the
Company's single largest source of cash from operations. During the nine months
ended March 31, 1994, cash provided by operations increased $7,572,000, compared
to the same period a year earlier, primarily due to increased operating income
(excluding interest and depreciation) and decreased interest paid during the
period as a result of the semi-annual interest payment terms of the Notes.
-19-
<PAGE>
HALLMARK HEALTHCARE CORPORATION
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
PART II - OTHER INFORMATION
-20-
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(b) The Company has outstanding 33,175 shares of 25% Participating Convertible
Cumulative Redeemable Preferred Stock (the "25% Preferred"). Each 25%
Preferred share is entitled to annual dividends equal to 25% of defined net
income, if any, subject to a maximum annual payment of 10% of liquidation
preference, when and if declared by the Board of Directors of the Company
out of funds legally available for such dividends. Such dividends are
cumulative and subject to certain maximums, limits and other conditions. No
such dividends have been declared by the Company's Board of Directors. Such
undeclared dividends are cumulative to the extent of 17% of the 25%
Preferred's liquidation value (approximately $705,000 at March 31, 1994).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT INDEX
Item Description Page No.
---- ----------- --------
4.1 Credit Agreement, dated as of December 31, 1993,
between the Registrant, as Borrower, and General
Electric Capital Corporation, as Lender
11 Calculation of Average Number of Common and 23
Common Equivalent Shares (Quarters and Nine
Months ended March 31, 1994 and 1993)
(b) Reports on Form 8-K
None.
-21-
<PAGE>
HALLMARK HEALTHCARE CORPORATION
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HALLMARK HEALTHCARE CORPORATION
Date: May 13, 1994
\s\Robert M. Thornton, Jr.
-----------------------------------------
Robert M. Thornton, Jr.
Chief Financial Officer
-22-
<PAGE>
FORM 10-Q
HALLMARK HEALTHCARE CORPORATION
EXHIBIT XI
CALCULATION OF AVERAGE NUMBER OF PRIMARY AND FULLY DILUTED
COMMON AND COMMON EQUIVALENT SHARES
(in thousands)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
March 31, March 31,
---------- ----------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average Class A common stock
outstanding 2,968 2,582 2,958 2,562
Class B common stock outstanding
(convertible to Class A common stock) 64 390 64 390
Common stock equivalents:
Effect of the assumed conversion of 25%
Participating Convertible Cumulative
Redeemable Preferred Stock (5 shares of
common for 1 share of preferred) 166 198 166 198
Options and other 478 180 485 196
----- ----- ----- -----
Average number of common and common
equivalent shares on a primary and fully
diluted basis 3,676 3,350 3,673 3,346
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
-23-
<PAGE>
EXHIBIT 4.1
EXECUTION COPY
- - -----------------------------------------------------------------------------
U.S. $25,000,000
CREDIT AGREEMENT
DATED AS OF DECEMBER 31, 1993
BETWEEN
HALLMARK HEALTHCARE CORPORATION
AS BORROWER
AND
GENERAL ELECTRIC CAPITAL CORPORATION
AS LENDER
- - ----------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
1. DEFINITIONS; INTERPRETATIONS . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . 20
1.3 Accounting Matters. . . . . . . . . . . . . . . . . . . . . . . 21
2. AMOUNT AND TERMS OF CREDIT . . . . . . . . . . . . . . . . . . . . . 21
2.1 Working Capital Line. . . . . . . . . . . . . . . . . . . . . . 21
2.2 Acquisition Line. . . . . . . . . . . . . . . . . . . . . . . . 22
2.3 Interest on Loans.. . . . . . . . . . . . . . . . . . . . . . . 23
2.4 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.5 Calculation of Interest and Fees. . . . . . . . . . . . . . . . 26
2.6 Early Termination . . . . . . . . . . . . . . . . . . . . . . . 26
2.7 Manner of Payment; Time . . . . . . . . . . . . . . . . . . . . 26
2.8 Application and Allocation of Payments. . . . . . . . . . . . . 26
2.9 Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.11 Increased Commitment or Funding Costs . . . . . . . . . . . . . 28
2.12 LIBOR Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 28
2.13 Special LIBOR Circumstances . . . . . . . . . . . . . . . . . . 29
2.14 Funding Losses. . . . . . . . . . . . . . . . . . . . . . . . . 29
2.15 Funding Sources . . . . . . . . . . . . . . . . . . . . . . . . 30
2.16 Failure to Charge Not Subsequent Waiver . . . . . . . . . . . . 30
2.17 Survivability . . . . . . . . . . . . . . . . . . . . . . . . . 30
3. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . 30
3.1 Conditions to the Initial Advance.. . . . . . . . . . . . . . . 30
3.2 Conditions to Initial Acquisition Advance . . . . . . . . . . . 32
3.3 Further Conditions to Each Advance. . . . . . . . . . . . . . . 33
4. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . 34
4.1 Corporate Existence; Compliance with Law. . . . . . . . . . . . 34
4.2 Executive Offices; Corporate or Other Names . . . . . . . . . . 34
4.3 Corporate Power; Authorization; Enforceable Obligations . . . . 35
4.4 Financial Statements and Projections. . . . . . . . . . . . . . 35
4.5 Material Adverse Change . . . . . . . . . . . . . . . . . . . . 35
4.6 Ownership of Property; Liens. . . . . . . . . . . . . . . . . . 36
4.7 Restrictions; No Default. . . . . . . . . . . . . . . . . . . . 36
4.8 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.9 Ventures, Subsidiaries and Affiliates, and Indebtedness . . . . 37
4.10 Government Regulation . . . . . . . . . . . . . . . . . . . . . 37
4.11 Margin Regulations. . . . . . . . . . . . . . . . . . . . . . . 37
4.12 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
4.13 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
-i-
<PAGE>
<TABLE>
<C> <S> <C>
4.14 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . 39
4.15 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
4.16 Employment Matters. . . . . . . . . . . . . . . . . . . . . . . 40
4.17 Patents, Trademarks, Copyrights, Licenses and Accreditation. . 40
4.18 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . 40
4.19 Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . 40
4.20 Insurance Policies. . . . . . . . . . . . . . . . . . . . . . . 41
4.21 Deposit Accounts. . . . . . . . . . . . . . . . . . . . . . . . 41
4.22 Solvent Financial Condition . . . . . . . . . . . . . . . . . . 41
4.23 Third Party Reimbursement . . . . . . . . . . . . . . . . . . . 41
5. FINANCIAL STATEMENTS AND INFORMATION . . . . . . . . . . . . . . . . 41
5.1 Reports and Notices . . . . . . . . . . . . . . . . . . . . . . 41
5.2 Communication with Accountants. . . . . . . . . . . . . . . . . 44
6. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . 44
6.1 Maintenance of Existence and Conduct of Business. . . . . . . . 44
6.2 Payment of Obligations. . . . . . . . . . . . . . . . . . . . . 44
6.3 Books and Records . . . . . . . . . . . . . . . . . . . . . . . 45
6.4 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.6 Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . 45
6.7 Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.8 Employee Plans. . . . . . . . . . . . . . . . . . . . . . . . . 46
6.9 Environmental Matters . . . . . . . . . . . . . . . . . . . . . 46
6.10 New Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . 46
6.11 Access. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.12 Cash Management . . . . . . . . . . . . . . . . . . . . . . . . 47
6.13 Accreditation and Licensing . . . . . . . . . . . . . . . . . . 48
7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.1 Mergers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.2 Investments; Loans and Advances . . . . . . . . . . . . . . . . 49
7.3 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.4 Affiliate and Employee Loans; Transactions and Employment
Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . 49
7.5 Capital Structure and Business. . . . . . . . . . . . . . . . . 49
7.6 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.7 Sale of Assets. . . . . . . . . . . . . . . . . . . . . . . . . 50
7.8 Events of Default.. . . . . . . . . . . . . . . . . . . . . . . 50
7.9 ERISA.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
7.10 Financial Covenants.. . . . . . . . . . . . . . . . . . . . . . 51
7.11 Hazardous Materials.. . . . . . . . . . . . . . . . . . . . . . 53
7.12 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . 53
7.13 Amendments to Subordinated Notes. . . . . . . . . . . . . . . . 53
7.14 Change in Control . . . . . . . . . . . . . . . . . . . . . . . 53
</TABLE>
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<PAGE>
<TABLE>
<C> <S> <C>
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES . . . . . . . . . . . . . . . 53
8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . 53
8.2 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.3 Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
8.4 Waivers by Borrower . . . . . . . . . . . . . . . . . . . . . . 55
9. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9.1 Complete Agreement; Modification of Agreement . . . . . . . . . 56
9.2 Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . 56
9.3 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
9.4 No Waiver.. . . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.5 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . 58
9.6 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 58
9.7 Conflict of Terms . . . . . . . . . . . . . . . . . . . . . . . 59
9.8 Authorized Signature. . . . . . . . . . . . . . . . . . . . . . 59
9.9 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 59
9.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
9.11 Survival of Obligations Upon Termination of Financing
Arrangement . . . . . . . . . . . . . . . . . . . . . . . . . . 61
9.12 Section Titles. . . . . . . . . . . . . . . . . . . . . . . . . 61
9.13 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . 61
9.14 Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . 62
9.15 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . . 62
9.16 Syndication . . . . . . . . . . . . . . . . . . . . . . . . . . 62
</TABLE>
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<PAGE>
INDEX OF EXHIBITS AND SCHEDULES
Exhibit A-1 - Form of Notice of Working Capital Advance
Exhibit A-2 - Form of Notice of Acquisition Advance
Exhibit A-3 - Form of Notice of Selection of Interest Period
Exhibit B - Form of Borrowing Base Certificate
Exhibit C-1 - Form of Working Capital Note
Exhibit C-2 - Form of Acquisition Note
Exhibit D - Form of Subsidiary Guaranty
Exhibit E-1 - Form of Borrower Security Agreement
Exhibit E-2 - Form of Subsidiary Security Agreement
Exhibit F-1 - Form of Collection Account Agreement
Exhibit F-2 - Form of Concentration Account Agreement
Exhibit G - Form of Accountant/Tax Adviser Disclosure Letter
Exhibit H-1 - Form of Certificate of Borrower
Exhibit H-2 - Form of Certificate of Guarantor
Exhibit I - Form of Opinion of Counsel
Schedule 2.1(b) - Responsible Lending Officer and Lending Office
Schedule 4.4 - Financial Statements and Projections
Schedule 4.5 - Stock Purchase Agreements
Schedule 4.6 - Real Estate and Leases
Schedule 4.9 - Ventures, Subsidiaries and Affiliates; Outstanding
Stock and Indebtedness
Schedule 4.12 - Tax Matters
Schedule 4.13 - ERISA Plans
Schedule 4.14 - Litigation
Schedule 4.15 - Brokers
Schedule 4.16 - Employment Matters
Schedule 4.17 - Patents, Trademarks, Copyrights and Licenses
Schedule 4.19 - Hazardous Materials
Schedule 4.20 - Insurance Policies
Schedule 4.21 - Deposit and Disbursement Accounts
Schedule 7.4 - Affiliate and Employee Loans, Transactions and
Employment Agreements
Schedule 7.6 - Liens
Schedule 9.8 - Authorized Signatures
Schedule A - Schedule of Documents
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<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT, dated as of December 31, 1993, between HALLMARK
HEALTHCARE CORPORATION, a Delaware corporation ("BORROWER"), and GENERAL
ELECTRIC CAPITAL CORPORATION, a New York corporation ("LENDER").
RECITALS
A. Borrower desires to arrange a loan facility (the "REVOLVING
CREDIT FACILITY") under which the Lender will make available to the Borrower
up to Twenty-five Million Dollars ($25,000,000) in two credit lines: (i) a
$15,000,000 working capital line of credit (the "WORKING CAPITAL LINE") and
(ii) a $10,000,000 contingent acquisition line of credit (the "ACQUISITION
LINE"), all upon the terms and conditions set forth herein.
B. Capitalized terms used herein shall have the meanings ascribed
to them in Section 1. All Schedules, Attachments and Exhibits hereto, or
expressly identified to this Agreement, are incorporated herein by reference,
and taken together, shall constitute but a single agreement. As used herein,
the plural shall include the singular, the singular includes the plural, and
pronouns in any gender (masculine, feminine or neuter) all apply to all
genders. These Recitals shall be construed as part of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, the parties hereto agree as follows:
1. DEFINITIONS; INTERPRETATIONS
1.1 DEFINITIONS. Any and all capitalized terms used herein shall
have the following respective meanings when used in the Agreement unless
otherwise specified where used:
"ACCOUNT DEBTOR" shall mean any Person who may become obligated to
any Credit Party under, with respect to, or on account of, an Account
(including third party payors).
"ACCOUNT AGREEMENTS" shall mean any one or both of the agreements
attached hereto as Exhibit F-1 or F-2 among the Borrower, the Lender and the
bank in which such account is held relating to any collection account or the
Concentration Account.
"ACCOUNTS" shall mean, with respect to any Credit Party, all
"accounts," as such term is defined in the Code, now owned or hereafter
acquired by such Credit Party and, in any event, including, without
limitation, (a) all accounts receivable, other receivables, book debts and
other forms of Obligations (other than forms of obligations evidenced by
Chattel Paper, Documents or Instruments) now owned or hereafter received or
acquired by or belonging or owing to such Credit Party, whether arising out
of goods sold or services rendered by it or from any other transaction
(including, without limitation, any such obligations which may be
characterized as an account or contract right under the Code), (b) all of
such Credit Party's rights in, to and under all purchase orders or receipts
now owned or hereafter acquired by it for goods or services, (c) all of such
Credit Party's rights to any goods represented by any of the foregoing
(including, without limitation, unpaid sellers' rights of rescission,
replevin, reclamation and stoppage in transit and rights to returned,
reclaimed or repossessed goods), (d) all monies due or
<PAGE>
to become due to such Credit Party under all purchase orders and contracts
for the sale of goods or the performance of services or both by such Credit
Party or in connection with any other transaction (whether or not yet earned
by performance on the part of Credit Party) now or hereafter in existence,
including, without limitation, the right to receive the proceeds of said
purchase orders and contracts, and (e) all collateral security and guarantees
of any kind, now or hereafter in existence, given by any Person with respect
by any of the foregoing.
"ACQUISITION ADVANCE" shall have the meaning assigned to it in
SECTION 2.2(b).
"ACQUISITION ADVANCE AVAILABILITY" shall have the meaning of
assigned to it in SECTION 2.2(b).
"ACQUISITION COMMITMENT" shall have the meaning of assigned to it
in SECTION 2.2(b)(i).
"ACQUISITION LINE" shall have the meaning ascribed to it in Recital
Paragraph A.
"ACQUISITION LOAN" shall mean the Loan made pursuant to SECTION
2.2.
"ACQUISITION NOTE" shall have the meaning assigned to that term in
SECTION 2.2(e).
"ACQUISITIONS" shall mean acquisitions by the Borrower of all or
substantially all of the capital stock or assets of a hospital under the
terms and conditions set forth in SECTION 7.1.
"ACTIVATION DATE" shall have the meaning of assigned to it in
SECTION 2.2(a).
"ACTIVATION FEE" shall have the meaning of assigned to it in
SECTION 2.4(b).
"ADDITIONAL COLLATERAL" shall have the meaning assigned to it in
SECTION 3.2(d) .
"ADDITIONAL COLLATERAL DOCUMENTS" shall have the meaning assigned
to it in SECTION 3.2(d)
"ADDITIONAL CREDIT PARTY" shall mean any Person that becomes an
Included Subsidiary after the Closing Date.
"ADJUSTED LIBOR" for each Interest Period shall mean LIBOR, rounded
upward if necessary to the next nearest 1/16th of 1%, equal to the rate
obtained by dividing (a) the LIBOR (similarly rounded) for such Interest
Period by (b) a percentage equal to 1 minus the Reserve Requirement in effect
from time to time during such Interest Period.
"ADVANCE" shall mean an advance of funds under either the Working
Capital Line or the Acquisition Line.
"AFFILIATE" shall mean, with respect to any Person, (i) each Person
that, directly or indirectly, owns or controls, whether beneficially, or as a
trustee, guardian or other fiduciary, ten percent (10%) or more of the Stock
having ordinary voting power in the election of directors of
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<PAGE>
such Person, (ii) each Person that controls, is controlled by or is under
common control with such Person or any Affiliate of such Person or (iii) each
of such Person's officers, directors, joint venturers and partners. For the
purpose of this definition, "control" of a Person shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of its
management or policies, whether through the ownership of voting securities,
by contract or otherwise.
"AGREEMENT" shall mean this Credit Agreement, including all
restatements and modifications hereof and amendments and supplements hereto
and any appendices, exhibits or schedules to any of the foregoing, and shall
refer to the Agreement as the same may be in effect at the time such
reference becomes operative.
"ANNUAL BUDGET" shall mean the Borrower's and the Included
Subsidiaries' annual operating budgets which include projected tax payments
and listing tax payments for the preceding Fiscal year, for the period ending
June 30, 1994 on a monthly basis described on SCHEDULE 4.4.
"APPLICABLE LAW" shall mean, anything in SECTION 9.9 to the
contrary notwithstanding, (i) all applicable common law and principles of
equity and (ii) all applicable provisions of all (A) constitutions, statutes,
rules, regulations and orders of governmental bodies, (B) Governmental
Approvals and (C) orders, decisions, judgments and decrees of all courts and
arbitrators.
"AVERAGE COLLECTION PERIOD" means the quotient of (a) accounts
receivable of Borrower, as of the last day of each Fiscal Quarter excluding
accounts receivable directly related to any divested facilities which are
remaining after the divestiture of such facility DIVIDED BY (b) the average
daily gross patient revenue of the Borrower, calculated on the basis of the
gross revenue for the three (3) months ending with such last day of the
Fiscal Quarter.
"BASE RATE" shall mean for each month, the GE Capital Index Rate,
PLUS 3%. Changes in the GE Capital Index Rate shall take effect as of the
beginning of the first day of each month.
"BASE RATE ACQUISITION LOAN" shall mean that portion of the
Acquisition Loan that bears interest at the Base Rate.
"BASE RATE ADVANCE" shall mean an Advance that bears interest at
the Base Rate.
"BASE RATE LOAN" shall mean the portion of a Loan that bears
interest at the Base Rate.
"BASE RATE WORKING CAPITAL LOAN" shall mean that portion of the
Working Capital Loan that bears interest at the Base Rate.
"BORROWER" shall mean Hallmark Healthcare Corporation, a Delaware
corporation.
"BORROWER SECURITY AGREEMENT" shall mean the Borrower Security
Agreement entered into between Lender and Borrower in substantially the form
of EXHIBIT E-1 hereto, including all amendments, modifications and
supplements thereto or replacements therefor, and
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<PAGE>
shall refer to the Borrower Security Agreement as the same may be in effect
at the time such reference becomes operative.
"BORROWING BASE" shall mean at any time an amount equal to the sum
at such time of 82.5% (or such greater or lesser percentage as the Lender
shall reasonably determine is appropriate under circumstances as they exist
from time to time) of the aggregate amount of Eligible Accounts as shown on
the most recently delivered Borrowing Base Certificate delivered by the
Borrower, less such amounts as shall be set aside as reserves for (i) changes
in the status of Accounts since the date of the last Borrowing Base
Certificate received by the Lender and (ii) such other reserves as the Lender
shall deem appropriate.
"BORROWING BASE CERTIFICATE" shall mean a certificate in the form
attached hereto as EXHIBIT B.
"BUSINESS DAY" shall mean any day that is not a Saturday, a Sunday
or a day on which banks are required or permitted to be closed in the State
of New York.
"CAPITAL EXPENDITURES" shall mean all cash payments for any fixed
assets or improvements or for replacements, substitutions or additions
thereto, that have a useful life of more than one year and that are required
to be capitalized under GAAP, all as determined on a consolidated basis.
"CAPITAL LEASE" shall mean, with respect to any Person, any lease
of any property (whether real, personal or mixed) by such Person as lessee
that, in accordance with GAAP, either would be required to be classified and
accounted for as a capital lease on a balance sheet of such Person or
otherwise be disclosed as such in a note to such balance sheet, other than,
in the case of Borrower or any Included Subsidiaries, any such lease under
which Borrower or such Included Subsidiary is the lessor.
"CAPITAL LEASE OBLIGATION" shall mean, with respect to any Capital
Lease, the amount of the obligation of the lessee thereunder that, in
accordance with GAAP, would appear on a balance sheet of such lessee in
respect of such Capital Lease or otherwise be disclosed in a note to such
balance sheet.
"CIVILIAN HEALTH AND MEDICAL PROGRAM OF THE UNIFORMED SERVICES"
("CHAMPUS") shall mean the program authorized under SECTIONS 1079 and
1086 of title 10, United States Code, and includes contracts entered into
under SECTION 1091 or SECTION 1097 of title 10, United States Code, and
demonstration projects under SECTION 1092 of title 10, United States Code.
"CHARGES" shall mean all federal, state, county, city, municipal,
local, foreign or other governmental taxes (including, without limitation,
taxes owed to PBGC at the time due and payable), levies, assessments,
charges, liens, claims or encumbrances upon or relating to (i) the
Collateral, (ii) the Obligations, (iii) the employees, payroll, income or
gross receipts of Borrower or any of the Included Subsidiaries,
(iv) Borrower's or any such Included Subsidiary's ownership or use of any of
its assets, or (v) any other aspect of Borrower's or any such Included
Subsidiary's business.
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<PAGE>
"CHATTEL PAPER" shall mean, with respect to any Credit Party, any
"chattel paper," as such term is defined in the Code, now owned or hereafter
acquired by such Credit Party, wherever located, including, without
limitation, any writing or writings which evidence both a monetary obligation
and a security interest in or a lease of specified Goods.
"CLOSING DATE" shall mean December 31, 1993.
"CLOSING FEE" shall have the meaning assigned to it in SECTION
2.4(a).
"CODE" shall mean the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of New York; PROVIDED, HOWEVER, in
the event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of Lender's security interest in any
Collateral is governed by the Uniform Commercial Code as in effect in a
jurisdiction other than the State of New York, the term "Code" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes
of the provisions hereof relating to such attachment, perfection or priority
and for purposes of definitions related to such provisions.
"COLLATERAL" shall mean the property covered by the Collateral
Documents and any other property, real or personal, tangible or intangible,
now existing or hereafter acquired, that may at any time be or become subject
to a Lien in favor of Lender to secure the Obligations.
"COLLATERAL DOCUMENTS" shall mean the Security Agreements.
"COLLATERAL MONITORING FEE" shall have the meaning of assigned to
it in SECTION 2.4(d).
"COLLECTION ACCOUNT" shall mean any account, lock box or other
depository into which the Borrower or any Included Subsidiary initially
deposits or receives the proceeds of Accounts.
"COMMITMENTS" shall mean the Acquisition Commitment and the Working
Capital Commitment.
"COMMITMENT TERMINATION DATE" shall mean the earliest of (i)
December 31, 1998, (ii) the date of termination of the Commitments pursuant
to SECTION 8.2, and (iii) the date of prepayment in full by Borrower of the
Loans and termination of the Commitments in accordance with the provisions
of SECTION 2.6.
"CONCENTRATION ACCOUNT" shall mean the account into which the
proceeds of Accounts are transferred from the Collection Accounts.
"CONTRACTS" shall mean, with respect to any Credit Party, all the
contracts, undertakings, or agreements (other than rights evidenced by
Chattel Paper, Documents or Instruments) in or under which such Credit Party
may now or hereafter have any right, title or interest, including, any
agreement relating to the terms of payment or the terms of performance of any
Account.
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<PAGE>
"CREDIT PARTIES" shall mean Borrower and the Included
Subsidiaries.
"DEFAULT" shall mean any Event of Default, and any event that, with
the passage of time or the giving of notice or both, would, unless cured or
waived, become an Event of Default.
"DEFAULT RATE" shall mean the Base Rate plus 4%.
"DESIGNATED SUBSIDIARY" shall mean a Subsidiary of the Borrower
designated as a Designated Subsidiary under Section 7.2.
"DISBURSEMENT ACCOUNT" shall mean the zero balance disbursement
account from which the Borrower makes all payments in the ordinary course of
its business.
"DOL" shall mean the United States Department of Labor or any
successor thereto.
"DOCUMENTS" shall mean, with respect to any Credit Party, any
"documents," as such term is defined in the Code, now owned or hereafter
acquired by such Credit Party, wherever located, including without limitation
bills of lading, dock warrants, dock receipts, warehouse receipts or other
documents of title.
"EBITDA" shall mean, for any period of twelve months ending on the
last day of any Fiscal Period, (i) net income before interest and taxes PLUS,
(ii) to the extent deducted in determining such income, depreciation,
amortization and other similar non-cash charges, MINUS (iii) to the extent
recognized in determining such income, extraordinary gains, PLUS (iv) to the
extent recognized in determining such income, the absolute value of
extraordinary losses, in each case of Borrower and the Included Subsidiaries
for such period, all as determined on a consolidated basis.
"ELIGIBLE ACCOUNTS" shall mean the aggregate amount of Accounts of
the Credit Parties that arise in the ordinary course of such Persons'
business in connection with the delivery of patient services and that Lender,
in its sole judgment, deems to be Eligible Accounts. In determining what
constitutes Eligible Accounts, Lender may exclude, without duplication, any
of the following:
(a) that portion of any Account upon which (i) a Credit Party's
right to receive payment is not absolute or is contingent upon the
fulfillment of any condition whatever or (ii) the applicable Credit Party is
not able to bring suit or otherwise enforce its remedies against the Account
Debtor through judicial process;
(b) that portion of any Account against which is asserted or
available any defense, counterclaim or setoff, whether well-founded or
otherwise;
(c) that portion of any Account that is not a true and correct
statement of a bona fide indebtedness incurred in the amount of the Account
for services or goods provided to or for the benefit of the Account Debtor
(or its beneficiary) obligated upon such Account;
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<PAGE>
(d) that portion of any Account for which the patient is solely
liable without benefit of any insurance, plan or Medicare, Medicaid or
CHAMPUS benefit.
(e) any Account with respect to which an invoice, acceptable to
Lender in form and substance, has not been sent (Lender acknowledges that
billing and invoice forms used by Medicare, Medicaid and other major national
payors shall be acceptable to Lender);
(f) any Account that is not owned by such Credit Party, that is
not subject to the Security Interest or is subject to any right, claim, or
interest of another other than the Lien in favor of Lender;
(g) any Account that arises from a sale to or performance of
services for an employee or Affiliate, except to the extent the Account
Debtor (as the result of an assignment of benefits or the provisions of any
applicable health plan) is an insurance company, health maintenance
organization or other health plan in each case not affiliated with such
employee or Affiliate;
(h) any Account that is the obligation of an Account Debtor, other
than one provided under Medicare, Medicaid or CHAMPUS, that is the federal or
state government or a political subdivision thereof unless Lender has agreed
to the contrary in writing and such Credit Party has compiled with the
Federal Assignment of Claims Acts of 1940 or other similar law applicable to
such obligation, and any amendments thereto, with respect to such obligation;
(i) any Account that is the obligation of an Account Debtor to
whom such Credit Party is or may become liable for goods sold or services
rendered by the Account Debtor to such Credit Party;
(j) any Account that is in default; PROVIDED, HOWEVER, that an
Account shall be deemed in default upon the occurrence of any of the
following:
(i) if any Account Debtor obligated upon such Account suspends
business, makes a general assignment for the benefit of creditors, or
fails to pay its debts generally as they come due; or
(ii) if any petition is filed by or against any Account Debtor
obligated upon such Account under any bankruptcy law or any other
national, state or provincial receivership, insolvency relief or other
law or laws for the relief of debtors;
(k) any Account that is the obligation of an Account Debtor that
is in default (as defined in subparagraph (i) above) on 25% or more of the
Accounts upon which such Account Debtor is obligated to any or all of the
Credit Parties;
(l) any Account that remains unpaid more than 120 days from the
discharge date;
(m) any Account in which Lender does not have a first priority
perfected security interest;
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<PAGE>
(n) any portion of an Account that exceeds any credit limit
established by Lender in its sole discretion for the Account Debtor thereon;
(o) any Account as to which any of such Credit Party's
representations or warranties pertaining to such Account in any Loan Document
are untrue;
(p) any Account that is not otherwise acceptable to Lender;
(q) the aggregate amount set aside on the books of the Credit
Parties as reserves for contractual allowances; and
(r) the aggregate amount set aside on the books of the Credit
Parties as reserves for Medicare, Medicaid or other third party payor
settlement liabilities.
"ENVIRONMENTAL LAWS" shall mean all federal, state and local laws,
statutes, ordinances and regulations, now or hereafter in effect, and in each
case as amended or supplemented from time to time, and any applicable
judicial or administrative interpretation thereof, including, without
limitation, any applicable judicial or administrative order, consent decree
or judgment, relative to the applicable real estate, relating to the
regulation and protection of human health, safety, the environment and
natural resources (including, without limitation, ambient air, surface water,
groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic
species and vegetation). Environmental Laws include, but are not limited to,
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended (42 U.S.C. SECTIONS 9601 ET SEQ.) ("CERCLA"); the
Hazardous Material Transportation Act, as amended (49 U.S.C. SECTIONS
1801 ET SEQ.); the Federal Insecticide, Fungicide, and Rodenticide Act, as
amended (7 U.S.C. SECTIONS 136 ET SEQ.); the Resource Conservation
and Recovery Act, as amended (42 U.S.C. SECTIONS 6901 ET SEQ.)
("RCRA"); the Toxic Substance Control Act, as amended (15 U.S.C.
SECTIONS 2601 ET SEQ.); the Clean Air Act, as amended (42 U.S.C. SECTIONS
740 ET SEQ.); the Federal Water Pollution Control Act, as amended
(33 U.S.C. SECTIONS 1251 ET SEQ.); the Occupational Safety and Health
Act, as amended (29 U.S.C. SECTIONS 651 ET SEQ.) ("OSHA"); and the
Safe Drinking Water Act, as amended (42 U.S.C. SECTIONS 300(f) ET
SEQ.), and any and all regulations promulgated thereunder, and all analogous
state and local counterparts or equivalents and any transfer of ownership
notification or approval statutes.
"ENVIRONMENTAL LIABILITIES AND COSTS" shall mean all liabilities,
obligations, responsibilities, remedial actions, losses, damages, punitive
damages, consequential damages, treble damages, costs and expenses
(including, without limitation, all reasonable fees, disbursements and
expenses of counsel, experts and consultants and costs of investigation and
feasibility studies), fines, penalties, sanctions and interest incurred as a
result of any claim, suit, action or demand by any Person, whether based in
contract, tort, implied or express warranty, strict liability, criminal or
civil statute or common law (including, without limitation, any thereof
arising under any Environmental Law, permit, order or agreement with any
Governmental Authority) and that relate to any health or safety condition
regulated under any Environmental Law or in connection with any other
environmental matter or Release or the presence of a Hazardous Material or
threatened Release of a Hazardous Material.
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"ERISA" shall mean the Employee Retirement Income Security Act of
1974 (or any successor legislation thereto), as amended from time to time,
and any regulations promulgated thereunder.
"ERISA AFFILIATE" shall mean, with respect to Borrower any trade or
business (whether or not incorporated) under common control with Borrower and
that, together with Borrower, are treated as a single employer within the
meaning of Sections 414(b), (c), (m) or (o) of the IRC.
"ERISA EVENT" shall mean, with respect to Borrower or any other
ERISA Affiliate, (i) a Reportable Event with respect to a Title IV Plan or a
Multiemployer Plan; (ii) the withdrawal of Borrower, any Included
Subsidiaries or any other ERISA Affiliate from a Title IV Plan subject to
Section 4063 of ERISA during a plan year in which it was a substantial
employer, as defined in Section 4001(a) (2) of ERISA; (iii) the complete or
partial withdrawal of Borrower, any Included Subsidiaries or any other ERISA
Affiliate from any Multiemployer Plan; (iv) the filing of a notice of intent
to terminate a Title IV Plan or the treatment of a plan amendment as a
termination under Section 4041 of ERISA; (v) the institution of proceeding to
terminate a Title IV Plan or Multiemployer Plan by the PBGC; (vi) the failure
to make required contributions to a Qualified Plan; or (vii) any other event
or condition that might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Title IV Plan or Multiemployer Plan or the imposition of
any liability under Title IV of ERISA, other than PBGC premiums due but not
delinquent under Section 4007 of ERISA.
"EXISTING DEBT" shall mean all Indebtedness of Borrower, including,
without limitation, all such Indebtedness listed on part I of SCHEDULE 4.9.
"EVENT OF DEFAULT" shall have the meaning assigned to it in SECTION
8.1.
"FEDERAL RESERVE BOARD" shall have the meaning assigned to it in
SECTION 4.11.
"FEES" shall mean the Closing Fee, the Non-use Fee, the Collateral
Monitoring Fee, the Activation Fee and any other fees due to Lender pursuant
to the Loan Documents.
"FINANCIALS" shall mean the financial statements referred to in
PARAGRAPHS I(a) AND I(b) of SCHEDULE 4.4.
"FISCAL MONTH" shall mean any of the monthly accounting periods of
Borrower.
"FISCAL QUARTER" shall mean any of the quarterly accounting periods
of Borrower.
"FISCAL YEAR" shall mean the 12-month period of Borrower ending
June 30th of each year. Subsequent changes of the fiscal year of Borrower
shall not change the term "Fiscal Year," unless Lender shall consent in
writing to such change.
"FIXED CHARGE COVERAGE RATIO" shall have the meaning assigned to it
in SECTION 7.10(e).
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"FIXED CHARGES" shall mean (without duplication), for any fiscal
period of Borrower, the sum of (i) cash interest expense in respect of Funded
Debt, (ii) required payments of principal on Funded Debt, and (iii) income
taxes paid in cash, in each case of Borrower for such fiscal period, in each
case for the Borrower and each of the Included Subsidiaries.
"FUNDED DEBT" shall mean, without duplication, with respect to
Borrower or any Included Subsidiaries, all of such Person's Indebtedness that
by the terms of the agreement governing or instrument evidencing such
Indebtedness matures more than one year from, or is directly or indirectly
renewable or extendible at the option of the debtor under a revolving credit
or similar agreement obligating the lender or lenders to extend credit over a
period of more than one year from, the date of creation thereof, including
current maturities of long-term debt, revolving credit, and short-term debt
extendible beyond one year at the option of the debtor, and shall also
include, without limitation, the Obligations, and the Subordinated Notes.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time, consistently
applied.
"GE CAPITAL" shall mean General Electric Capital Corporation, a New
York corporation having an office at 5665 New Northside Drive, Suite 200,
Atlanta, Georgia 30328.
"GE CAPITAL INDEX RATE" shall mean for each month, the annualized
yield on 30-day commercial paper, as quoted for high grade unsecured notes
sold through dealers by major corporations in multiples of $1,000 in the
"Money Rates" section of THE WALL STREET JOURNAL for the last day of the
preceding month on which The Wall Street Journal is published containing such
rates or, in the event that THE WALL STREET JOURNAL ceases publication of
such rate, in such other publication of general circulation as Lender may,
from time to time, designate in writing.
"GENERAL INTANGIBLES" shall mean, with respect to any Credit Party,
any "general intangibles," as such term is defined in the Code, now owned or
hereafter acquired by such Credit Party and, in any event, including, without
limitation, all right, title and interest that such Credit Party may now or
hereafter have in or under any Contract, all customer lists, Trademarks,
Patents, services marks, trade names, business names, corporate names, trade
styles, logos and other source or business identifiers, and all applications
therefor and reissues, extensions or renewals thereof, rights in intellectual
property, interests in partnerships, joint ventures and other business
associations, licenses, permits, copyrights, trade secrets, proprietary or
confidential information, inventions (whether or not patented or patentable),
technical information, procedures, designs, knowledge, know-how, software,
data bases, data, skill, expertise, experience, processes, models, drawings,
materials and records, goodwill (including, without limitation, the goodwill
associated with any Trademark, Trademark registration or Trademark licensed
under any Trademark license), all rights and claims in or under insurance
policies, (including, without limitation, insurance for fire, damage, loss,
and casualty, whether covering personal property, real property, tangible
rights or intangible rights, all liability, life, key man, and business
interruption insurance, and all unearned premiums), uncertificated
securities, choses in action, deposit accounts, rights to receive tax refunds
and other payments and rights of indemnification.
"GOODS" shall mean, with respect to any Credit Party, all "goods"
as such term is defined in the Code, now owned or hereafter acquired by such
Credit Party, wherever located,
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including without limitation all things that are movable or that are
fixtures, including further without limitation any equipment, inventory or
other tangible personal property or fixtures.
"GOVERNMENTAL APPROVAL" shall mean an authorization, consent,
approval, license or exemption of, registration or filing with, or report or
notice to, any governmental body, including, without limitation, any such
approval required under ERISA or by the PBGC.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government, any
state or other political subdivision thereof, and any agency, department or
other entity exercising executive legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"GUARANTEED INDEBTEDNESS" shall mean, as to any Person without
duplication, any obligation of such Person guaranteeing any indebtedness,
lease, dividend, or other obligation ("primary obligations") of any other
Person (the "primary obligor") in any manner including, without limitation,
any obligation or arrangement of such Person (i) to purchase or repurchase
any such primary obligation, (ii) to advance or supply funds (a) for the
purchase or payment of any such primary obligation or (b) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency or any balance sheet condition of the primary obligor,
(iii) to purchase property, securities or services primarily for the purpose
of assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation, or (iv) to
indemnify the owner of such primary obligation against loss in respect
thereof.
"GUARANTOR" shall mean each Included Subsidiary and each other
Person who may execute a guarantee or a support, put or other similar
agreement in favor of Lender in connection with the transactions contemplated
by the Agreement.
"GUARANTY" shall mean any agreement to perform, on behalf of
Borrower, the Obligations, made in favor of Lender, in form and substance
satisfactory to Lender, together with all amendments, modifications and
supplements thereto, and shall refer to such Guaranty as the same may be in
effect at the time such reference becomes operative.
"HAZARDOUS MATERIAL" shall mean any substance, material or waste,
the generation, handling, storage, treatment or disposal of which is
regulated by, or form the basis of liability now or hereafter under, any
government authority in any jurisdiction in which Borrower or any Included
Subsidiary has owned, leased, or operated real property or disposed of
hazardous materials, or by any Federal government authority, including,
without limitation, any material or substance that is (i) defined as a "solid
waste," "hazardous waste," "hazardous material," "hazardous substance,"
"extremely hazardous waste" or "restricted hazardous waste" or other similar
term or phrase under any Environmental Laws, (ii) petroleum or any fraction
or by-product thereof, asbestos, polychlorinated biphenyls, a radioactive
substance, methane, volatile hydrocarbons or an industrial solvent, (iii)
designated as a "hazardous substance" pursuant to SECTION 311 of the Clean
Water Act, 33 U.S.C. SECTIONS 1251 ET SEQ. (33 U.S.C. SECTIONS
1321) or listed pursuant to SECTION 307 of the Clean Water Act (33 U.S.C.
SECTION 1317), (iv) defined as a "hazardous waste" pursuant to SECTION 1004
of the Resource Conservation and Recovery Act, 42 U.S.C. SECTION 6901, ET
SEQ. (42 U.S.C. SECTION 6903), or (v) defined as a "hazardous substance"
pursuant to SECTION
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1012 of the Comprehensive Environmental Response, Compensation, and Liability
Act, 42 U.S.C. SECTION 9601 ET SEQ. (42 U.S.C. SECTION 9601).
"INCLUDED SUBSIDIARY" shall mean any Subsidiary of the Borrower
other than a Designated Subsidiary and Pain Care, Inc.
"INDEBTEDNESS" of any Person shall mean, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred
purchase price of property or services (including, without limitation,
reimbursement and all other obligations with respect to surety bonds, letters
of credit and bankers' acceptances, whether or not matured, but not including
obligations to trade creditors incurred (either for goods or services) in the
ordinary course of business that have a term of less than one year), (ii) all
obligations evidenced by notes, bonds, debentures or similar instruments,
(iii) all indebtedness created or arising under any conditional sale or other
title retention agreements with respect to property acquired by such Person
(even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (iv) all Capital Lease Obligations, (v) all Guaranteed
Indebtedness, (vi) all Obligations arising with respect to Mandatorily
Redeemable Stock, (vii) all Indebtedness referred to in clause (i), (ii),
(iii), (iv) or (v) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien upon or in property (including, without limitation, accounts and
contract rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness, (viii) the
Obligations, and (ix) all liabilities under Title IV or ERISA with respect to
unfunded plans.
"INSTRUMENTS" shall mean, with respect to any Credit Party, any
"instrument," as such term is defined in the Code, now owned or hereafter
acquired by such Credit Party, wherever located, including, without
limitation, all certificated securities and all notes and other, without
limitation, evidences of indebtedness, other than instruments that
constitute, or are a part of a group of writings that constitute, Chattel
Paper.
"INTEREST EXPENSE" shall mean, for any fiscal period of Borrower,
cash interest expense of Borrower and the Included Subsidiaries for such
period in respect of their Funded Debt, all as determined on a consolidated
basis.
"INTEREST PERIOD" shall mean, with respect to each LIBOR Loan, a
period commencing on the first day of a calendar month and ending, at the
election of the Borrower, on the last day of the first, second, or third
calendar month thereafter, except that no Interest Period shall extend past
the Commitment Termination Date.
"IRC" shall mean the Internal Revenue Code of 1986, as amended, and
any successor thereto.
"IRS" shall mean the Internal Revenue Service, or any successor
thereto.
"LEASES" shall mean, with respect to Borrower or any Included
Subsidiaries, all of those leasehold estates in real property now owned or
hereafter acquired by such Person, as lessee.
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"LENDER" shall mean GE Capital and, if at any time GE Capital shall
decide to assign or syndicate all or any portion of the Obligations, such
term shall include such assignee or such other members of the syndicate.
"LENDING OFFICE" shall have the meaning assigned to it in SECTION
2.1(b).
"LIBOR" shall mean the rate per annum determined by GE Capital to
be the arithmetic average of the quoted rates on Reuters Screen, page "LIBO",
offered in the London Interbank market at 11:00 a.m., London time, on the
second Business Day preceding the first day of the Interest Period in
question for Dollar deposits in an amount substantially equal to the amount
of the LIBOR Loan in question for a fixed term of 1, 2 or 3 months, adjusted
upwards to the extent necessary, if any, to reflect any reserves that banks
are required to maintain against such deposits pursuant to Regulation D of
the Board of Governors of the Federal Reserve System.
"LIBOR ACQUISITION LOAN" shall mean that portion of the Acquisition
Loan that bears interest based on Adjusted LIBOR.
"LIBOR ADVANCE" shall mean an Advance that bears interest based on
Adjusted LIBOR.
"LIBOR LOAN" shall mean the portion of a Loan that bears interest
based on Adjusted LIBOR.
"LIBOR WORKING CAPITAL LOAN" shall mean that portion of a Working
Capital Loan that shall bear interest based on Adjusted LIBOR.
"LICENSE" shall mean, with respect to any Credit Party, any Patent
License, Trademark License or other license of rights or interests now held
or hereafter acquired by such Credit Party.
"LIEN" shall mean any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangement, lien, charge, claim, security
interest, easement or encumbrance, or preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any lease or title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, and the filing of, or agreement to give, any financing statement
perfecting a security interest under the Code or comparable law of any
jurisdiction).
"LOAN" shall mean a Working Capital Loan or an Acquisition Loan.
"LOAN DOCUMENTS" shall mean the Agreement, the Notes, the
Subsidiary Guaranties, the Collateral Documents and all other agreements,
instruments, documents and certificates identified in the Schedule of Docu-
ments in favor of Lender and including, without limitation, all other
pledges, powers of attorney, consents, assignments and contracts, whether
heretofore, now or hereafter executed by or on behalf of any Credit Party or
any of its Affiliates, or any employee of any Credit Party or any of its
Affiliates, and delivered to Lender in connection with the Agreement or the
transactions contemplated hereby.
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"MANDATORILY REDEEMABLE STOCK" means, as applied to a Person, any
share of such Person's capital stock to the extent that it is redeemable,
payable or required to be purchased or otherwise retired or extinguished
(i) at a fixed or determinable date, whether by operation of a sinking fund
or otherwise, (ii) at the option of any Person other than such Person or
(iii) upon the occurrence of a condition not solely within the control of
such Person, such as a redemption required to be made out of future earnings.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on
(i) the business, assets, operations, prospects or financial or other
condition of Borrower and the Included Subsidiaries taken as a whole, (ii)
Borrower's ability to pay the Obligations in accordance with the terms
thereof, (iii) the Collateral or Lender's Liens on the Collateral or the
priority of any such Lien or (iv) Lender's rights and remedies under the
Agreement or the other Loan Documents.
"MAXIMUM PERMISSIBLE RATE" shall mean with respect to interest (or
amounts deemed interest) payable hereunder, the rate of interest that, if
exceeded, could, under Applicable Law, result in (i) civil or criminal
penalties being imposed on the Lender or (ii) the Lender being unable to
enforce payment of (or if collected, to retain) all or part of any Obligation
or the interest payable thereon.
"MEDICAID" shall mean the program authorized under SECTION 1396 of
title 42, United States Code and as further defined in SECTION 1396a, ET
SEQ., of title 42, United States Code.
"MEDICARE" shall mean the program authorized under SECTION 301 of
title 42, United States Code, and as further defined in SECTIONS 306,
426, 426-1 and 1395, ET SEQ., of title 42, United States Code.
"MULTIEMPLOYER PLAN" shall mean a "multiemployer plan" as defined
in Section 4001(a) (3) of ERISA, and to which Borrower, any Included
Subsidiaries or any other ERISA Affiliate is making, is obligated to make,
has made or been obligated to make, contributions on behalf of participants
who are or were employed by any of them.
"NET WORTH" shall mean shareholders equity of the Borrower and the
Included Subsidiaries, all as determined on a consolidated basis.
"NON-USE FEE" shall have the meaning assigned to it in SECTION
2.4(c).
"NOTE" shall mean any or all of the Working Capital Note and the
Acquisition Note.
"NOTICE OF ACQUISITION ADVANCE" shall have the meaning assigned to
it in SECTION 2.2(c)(ii).
"NOTICE OF SELECTION OF INTEREST PERIOD" shall have the meaning
assigned to it in SECTION 2.3(b).
"NOTICE OF WORKING CAPITAL ADVANCE" shall have the meaning assigned
to it in SECTION 2.1(b)(ii).
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"OBLIGATIONS" shall mean all loans, advances, debts, liabilities,
and obligations, for the performance of covenants, tasks or duties or for
payment of monetary amounts (whether or not such performance is then required
or contingent, or amounts are liquidated or determinable) owing by Borrower
to Lender, and all covenants and duties regarding such amounts, of any kind
or nature, present or future, whether or not evidenced by any note, agreement
or other instrument, arising under any of the Loan Documents. This term
includes, without limitation, all principal, interest, Fees, Charges,
expenses, attorneys' fees and any other sum chargeable to Borrower under any
of the Loan Documents.
"PATENT LICENSE" shall mean, with respect to any Credit Party,
right under any written agreement now owned or hereafter acquired by such
Credit Party granting any right with respect to any invention on which a
Patent is in existence.
"PATENTS" shall mean, with respect to any Credit Party, all of the
following in which such Credit Party now holds or hereafter acquires any
interest: (i) all letters patent of the United States or any other country,
all registrations and recordings thereof, and all applications for letters
patent of the United States or any other country, including registrations,
recordings and applications in the United States Patent and Trademark Office
or in any similar office or agency of the United States, any state or
territory thereof, or any other country, and (ii) all reissues,
continuations, continuations-in-part or extensions thereof.
"PAYMENT ACCOUNT" shall mean an account of the Lender, number 50-
232-854, maintained at Bankers Trust Company; 1 Bankers Trust Plaza; New
York, New York 10006; ABA #021-001-033; Account Title: GECC/CAF DEPOSITORY;
Attention: Terri O'Daniels; Reference: Hallmark Healthcare Corporation into
which payments shall be made by or on behalf of the Borrower.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
successor thereto.
"PENSION PLAN" shall mean an employee pension benefit plan, as
defined in Section 3 (2) of ERISA (other than a Multiemployer Plan), that is
not an individual account plan, as defined in Section 3 (34) of ERISA, and
that Borrower or, if a Title IV Plan, any ERISA Affiliate maintains,
contributes to or has an obligation to contribute to on behalf of
participants who are or were employed by any of them.
"PERMITTED ENCUMBRANCES" shall mean, (a) with respect to Borrower
or any of the Included Subsidiaries, the following encumbrances: (i) Liens
for taxes or assessments or other governmental Charges or levies, either not
yet due and payable or to the extent that nonpayment thereof is permitted by
the terms of SECTION 6.2(b) of the Agreement; (ii) pledges or deposits
securing obligations under workmen's compensation, unemployment insurance,
social security or public liability laws or similar legislation; (iii)
pledges or deposits securing bids, tenders, contracts (other than contracts
for the payment of money) or leases to which such Person is a party as lessee
made in the ordinary course of business; (iv) deposits securing public or
statutory obligations of such Person; (v) inchoate and unperfected workers',
mechanics', suppliers' or similar liens arising in the ordinary course of
business; (vi) carriers', warehousemen's or other similar possessory liens
arising in the ordinary course of business and securing indebtedness not yet
due and payable in an outstanding aggregate amount not in excess of $100,000
at any time;
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(vii) deposits securing, or in lieu of, surety, appeal or customs bonds in
proceedings to which such Person is a party; (viii) any attachment or
judgment lien, unless the judgment it secures shall not, within 30 days after
the entry thereof, have been discharged or execution thereof stayed pending
appeal, or shall not have been discharged within 30 days after the expiration
of any such stay; (ix) zoning restrictions, easements, licenses, or other
restrictions on the use of real property or other minor irregularities in
title (including leasehold title) thereto, so long as the same do not
materially impair the use, value, or marketability of such real property,
leases or leasehold estates; (x) Liens listed on SCHEDULE 7.6; (xi) Purchase
Money Security Interests in an aggregate amount not to exceed $3,000,000 at
any time; (xii) refinancings of any of the items referred to in clauses (x)
and (xi) of this definition so long as the refinancing debt bears interest at
a market rate, does not exceed the principal amount plus reasonable fees and
expenses of the Refinancing, or shorten the remaining average life, of the
debt being refinanced; (xiii) banker's liens and rights of setoff arising by
operation of law incidental to the operation of the Borrower's cash
management system but that do not secure any Indebtedness; (xiv) deposits
securing general and professional liability insurance policies or obligations
to the extent permitted pursuant to Section 6.5; (xv) deposits securing the
obligations of Borrower or an Included Subsidiary with respect to the lease
of the hospital facility in Pocahontas, Arkansas; and (xvi) deposits securing
letters of credit given to secure obligations permitted to be secured
pursuant to clauses (ii), (iii), (iv), (vii), (xiv) or (xv) of this
definition, PROVIDED that (A) the face amount of the letter of credit given
to secure such obligation shall not exceed the amount of the obligation that
would be permitted to be secured by a deposit under the applicable clause of
this definition and (B) the deposit securing such letter of credit shall not
exceed the face amount of such letter of credit or if greater, the issuer of
the Letter of Credit shall have limited its security interest therein to an
amount not greater than such face amount and (b) with respect to any item of
Collateral, any Lien permitted against such Collateral in the Security
Agreement creating the security interest therein.
"PERMITTED INDEBTEDNESS" shall mean Indebtedness of the Borrower or
any Included Subsidiary that is permitted pursuant to Section 7.3.
"PERSON" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, public benefit corporation, entity or government
(whether federal, state, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).
"PLAN" shall mean, with respect to Borrower, any of the Included
Subsidiaries or any other ERISA Affiliate, at any time, an employee benefit
plan, as defined in Section 3(3) of ERISA, that such Person maintains,
contributes to or has an obligation to contribute to on behalf of
participants who are or were employed by any of them.
"PROCEEDS" shall mean "proceeds," as such term is defined in the
Code and, in any event, shall include without limitations with respect to any
Credit Party (i) any and all proceeds of any insurance, indemnity, warranty
or guaranty payable to such Credit Party from time to time with respect to
any of the Collateral, (ii) any and all payments (in any form whatsoever)
made or due and payable to such Credit Party from time to time in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of
all or any part of the Collateral by any governmental body, authority, bureau
or agency (or any person acting under color of governmental authority), (iii)
any claim of such Credit Party against third parties (a) for past, present or
future infringement of any Patent or Patent License or (b) for past, present
or
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future infringement or dilution of any Trademark or Trademark License or for
injury to the goodwill associated with any Trademark, Trademark registration
or Trademark licensed under any Trademark License, (iv) any recoveries by
such Credit Party against third parties with respect to any litigation or
dispute concerning any of the Collateral, and (v) any and all other amounts
from time to time paid or payable under or in connection with any of the
Collateral, upon disposition or otherwise.
"PURCHASE MONEY SECURITY INTEREST" shall mean a Lien granted on an
asset not more than 90 days after the acquisition thereof by the Borrower or
any Included Subsidiary of the Borrower that secures only the Indebtedness
incurred for the purpose of purchasing such asset and no other, that extends
only to the asset purchased and accessions thereto, and that does not exceed
in principal amount the lesser of the purchase price paid for such asset and
the fair market value thereof.
"QUALIFIED PLAN" shall mean an employee pension benefit plan, as
defined in Section 3(2) of ERISA, that is intended to be tax-qualified under
Section 401(a) of the IRC, and that Borrower, any of the Included
Subsidiaries or any other ERISA Affiliate maintains, contributes to or has an
obligation to contribute to on behalf of participants who are or were
employed by any of them.
"RELEASE" shall mean, as to any Person, any release, spill,
emission, leaking, pumping, injection, deposit, disposal, discharge,
dispersal, dumping, leaching or migration of Hazardous Materials in the
indoor or outdoor environment by such Person, including the movement of
Hazardous Materials through or in the air, soil, surface water, ground water
or property.
"REPORTABLE EVENT" shall mean any of the events described in
Section 4043(b) (1), (2), (3), (5), (6), (8) or (9) of ERISA.
"RESERVE REQUIREMENT" shall mean at any time the then current
maximum rate for which reserves (including any marginal, supplemental or
emergency reserve) are required to be maintained under Regulation D by member
banks of the Federal Reserve System in New York City with deposits in excess
of $1,000,000 against "Eurocurrency liabilities", as that term is used in
Regulation D. The Adjusted LIBOR shall be adjusted automatically on and as
of the effective date of any change in the Reserve Requirement.
"RESPONSIBLE OFFICER OF THE BORROWER" shall have the meaning
assigned to it in Section 9.8.
"RESPONSIBLE LENDING OFFICER" shall have the meaning assigned to it
in SECTION 2.1(b).
"RESTRICTED PAYMENT" shall mean (i) the declaration or payment of
any dividend (other than dividends payable solely in shares of any class of
common stock of Borrower) or the occurrence of any liability to make any
other payment or distribution of cash or other property or assets in respect
of Borrower's Stock, (ii) any payment on account of the purchase, redemption,
defeasance or other retirement of Borrower's Stock or any other payment or
distribution made in
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respect thereof, either directly or indirectly, or (iii) any payment, loan,
contribution, or other transfer of funds or other property with respect to,
or on account of, Borrower's Stock.
"RETIREE WELFARE PLAN" shall refer to any Welfare Plan providing
for continuing coverage or benefits for any participant or any beneficiary of
a participant after such participant's termination of employment, other than
continuation coverage provided pursuant to Section 4980B of the IRC and at
the sole expense of the participant or the beneficiary of the participant.
"SCHEDULE OF DOCUMENTS" shall mean the schedule, including all
appendices, exhibits or schedules thereto, listing certain documents and
information to be delivered in connection with the initial closing of the
Loan Documents and the transactions contemplated thereunder, substantially in
the form attached hereto as SCHEDULE A.
"SECURITY AGREEMENTS" shall mean the Borrower Security Agreement
and the Subsidiary Security Agreements.
"SECURITY INTEREST" shall mean the rights and interest of the
Lender in and to the Collateral intended to be conveyed under the Collateral
Documents.
"SOLVENT" shall mean, with respect to any Person, such Person (i)
owns property whose fair saleable value is greater than the amount required
to pay all of such Person's Indebtedness (including contingent debts), (ii)
is able to pay all of its Indebtedness as such Indebtedness matures, and
(iii) has capital sufficient to carry on its business and transactions and
all business and transactions to which it is about to engage.
"STOCK" shall mean all shares, options, warrants, general or
limited partnership interests, participation or other equivalents (regardless
of how designated) of or in a corporation, partnership or equivalent entity
whether voting or nonvoting, including, without limitation, common stock,
preferred stock, or any other "equity security" (as such term is defined in
Rule 3a11-1 of the General Rules and Regulations promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934,
as amended).
"SUBJECT PROPERTY" shall mean all real property owned, leased or
operated by Borrower or any of the Included Subsidiaries.
"SUBORDINATED NOTES" shall mean the Borrower's 10 5/8% Senior
Subordinated Notes due November 15, 2003.
"SUBSIDIARY" shall mean, with respect to any Person, (i) any
corporation of which an aggregate of more than fifty (50%) of the outstanding
Voting Stock of such Person is at the time, directly or indirectly, owned
legally or beneficially by such Person and/or one or more Subsidiaries of
such Person, or with respect to which any such Person has the right to vote
or designate the vote of fifty percent (50%) or more of such Voting Stock
whether by proxy, agreement, operation of law or otherwise and (ii) any
partnership in which such Person and/or one or more Subsidiaries of such
Person shall have an interest (whether in the form of voting or participation
in profits or capital contribution) of more than fifty percent (50%) or of
which any such Person is a general partner or may exercise the powers of a
general partner.
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"SUBSIDIARY GUARANTIES" shall mean the Subsidiary Guaranty
Agreements executed by the Included Subsidiaries in favor of Lender in
substantially the form of EXHIBIT D hereto, including all amendments,
modifications and supplements thereto and replacements therefor, and shall
refer to each and every Subsidiary Guaranty as the same may be in effect at
the time such reference becomes operative.
"SUBSIDIARY SECURITY AGREEMENTS" shall mean the Subsidiary Security
Agreements entered into between the Included Subsidiaries and the Lender,
each in substantially the form of EXHIBIT E-2 hereto, including all
amendments, modifications and supplements thereto and replacements therefor,
and shall refer to each and every Subsidiary Security Agreement as the same
may be in effect at the time such reference becomes operative.
"TAXES" shall mean taxes, levies, imposts, deductions, or
withholdings, and all liabilities with respect thereto, excluding taxes
imposed on or measured by the net income of Lender by the jurisdiction under
the laws of which Lender is organized or any political subdivision thereof.
"TERMINATION DATE" shall mean the date on which the Revolving
Credit Facility and any other Obligations hereunder have been completely
discharged and Borrower shall have no further right to borrow any monies or
obtain other credit extensions or financial accommodations hereunder.
"TITLE IV PLAN" shall mean a Pension Plan, other than a
Multiemployer Plan, that is covered by Title IV of ERISA.
"TRADEMARK LICENSE" shall mean with respect to any Credit Party,
rights under any written agreement now owned or hereafter acquired by such
Credit Party granting any right to use any Trademark or Trademark
registration.
"TRADEMARKS" shall mean all of the following now owned or hereafter
acquired by such Credit Party: (i) all trademarks, trade names, corporate
names, business names, trade styles, service marks, logos, other source or
business identifiers, prints and labels on which any of the foregoing have
appeared or appear, designs and general intangibles of like nature, now owned
or existing or hereafter adopted or acquired, all registrations and
recordings thereof, and all applications in connection therewith, including
registrations, recordings and applications in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
state or territory thereof, or any other country or any political subdivision
thereof, and (ii) all reissues, extensions or renewals thereof.
"UNFUNDED PENSION LIABILITY" shall mean, at any time, the aggregate
amount, if any, of the sum of (i) the amount by which the present value of
all accrued benefits under each Title IV Plan exceeds the fair market value
of all assets of such Title IV Plan allocable to such benefits in accordance
with Title IV of ERISA, all determined as of the most recent valuation date
for each such Title IV Plan using the actuarial assumptions in effect under
such Title IV Plan, and (ii) for a period of five (5) years following a
transaction reasonably likely to be covered by Section 4069 of ERISA, the
liabilities (whether or not accrued) that could be avoided by Borrower, any
of the Included Subsidiaries or any other ERISA Affiliate as a result of such
transaction.
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"VOTING STOCK" shall mean any and all classes of the Stock of any
Person the holders of which are ordinarily, in the absence of contingencies,
entitled to elect a majority of the directors (or Persons performing similar
functions) of such Person.
"WELFARE PLANS" shall mean any welfare plan, as defined in Section
3(1) of ERISA, that is maintained or contributed to by Borrower or any ERISA
Affiliate.
"WITHDRAWAL LIABILITY" shall mean, at any time, the aggregate
amount of the liabilities, if any, pursuant to Section 4201 of ERISA, and any
increase in contributions pursuant to Section 4243 of ERISA with respect to
all Multiemployer Plans.
"WORKING CAPITAL ADVANCE" shall have the meaning assigned to it in
Section 2.1(a).
"WORKING CAPITAL ADVANCE AVAILABILITY" shall have the meaning
assigned to that term in Section 2.1(a).
"WORKING CAPITAL COMMITMENT" shall have the meaning assigned to it
in Section 2.1(a)(i).
"WORKING CAPITAL LOAN" shall mean the Loan made pursuant to Section
2.1.
"WORKING CAPITAL NOTE" shall have the meaning of assigned to it in
SECTION 2.1(d).
1.2 OTHER DEFINITIONAL PROVISIONS.
(a) Except as otherwise specified herein, all references herein
(A) to any Person, other than the Borrower, shall be deemed to include such
Person's successors, transferees and assignees, (B) to the Borrower shall be
deemed to include such Person's successors, (C) to any Applicable Law
specifically defined or referred to herein shall be deemed references to such
Applicable Law as the same may be amended or supplemented from time to time,
(D) to any Contract defined or referred to herein shall be deemed references
to such Contract (and, in the case of any instrument, any other instrument
issued in substitution therefor) as the terms thereof may have been amended,
supplemented, waived or otherwise modified from time to time and (E) to any
Loan Document, as the terms thereof may have been amended, supplemented,
waived or otherwise modified from time to time in accordance with Section 9.1
or any corresponding provision of such Loan Document.
(b) When used in this Agreement, the words "herein", "hereof" and
"hereunder" and words of similar import shall refer to this Agreement as a
whole and not to any provision of this Agreement, and "Section,"
"Subsection," "Schedule" and "Exhibit" shall refer to Sections and
Subsections of, and Schedules and Exhibits to, this Agreement unless
otherwise specified.
(c) Whenever the context so requires, the neuter gender includes
the masculine or feminine, and the singular number includes the plural, and
vice versa.
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(d) All terms defined in this Agreement shall have the same
defined meanings when used in any Note or, except as otherwise expressly
stated therein, any certificate, opinion or other Loan Document or other
document delivered pursuant hereto.
1.3 ACCOUNTING MATTERS. Unless otherwise specified herein, all
accounting determinations hereunder and all computations utilized by the
Borrower and the Guarantors in complying with the covenants contained herein
shall be made, all accounting terms used herein shall be interpreted, and all
financial statements requested to be delivered hereunder shall be prepared,
in accordance with GAAP, except, in the case of such financial statements,
for departures from GAAP that may from time to time be approved in writing by
the Lender and the independent certified public accountants who are at the
time, in accordance with Section 5.1, reporting on the financial statements
of the Borrower and the Included Subsidiaries. If any change in GAAP after
June 30, 1993 in itself materially affects the calculation of any financial
covenant in Section 7 or other financial test contained herein, the Borrower
may by notice to the Lender, or the Lender may by notice to the Borrower,
require that such covenant thereafter be calculated in accordance with GAAP
as in effect, and applied by the Borrower, immediately before such change in
GAAP occurs. If such notice is given, the compliance certificates delivered
pursuant to Section 5 after such change occurs shall be accompanied by
reconciliations of the difference between the calculation set forth therein
and a calculation made in accordance with GAAP as in effect from time to time
after such change occurs.
2. AMOUNT AND TERMS OF CREDIT
2.1 WORKING CAPITAL LINE. (a) CREDIT. Upon and subject to
the terms and conditions hereof, Lender agrees from time to time to make
available by deposit to the Disbursement Account on any Business Day until
the Commitment Termination Date, upon the request of Borrower therefor,
advances (each, a "WORKING CAPITAL ADVANCE") in an aggregate amount
outstanding that shall not at any given time exceed the lesser of (the
"WORKING CAPITAL ADVANCE AVAILABILITY"): (i) $15,000,000, as such amount may
be terminated or reduced from time to time pursuant to the terms of Section
2.6 or 8.2, (the "WORKING CAPITAL COMMITMENT"), and (ii) an amount equal to
the Borrowing Base.
(b) METHOD OF BORROWING. Until the Commitment Termination
Date, Borrower may from time to time borrow, repay and reborrow under this
SECTION 2.1(b). Each Working Capital Advance shall be made on notice by
Borrower to the officer of Lender identified on SCHEDULE 2.1(b) (the
"RESPONSIBLE LENDING OFFICER") given at the office of the Lender specified on
SCHEDULE 2.1(b) (the "LENDING OFFICE") no later than: (i) in the case of a
Working Capital Advance made while the Working Capital Loan is a Base Rate
Loan, 11:00 a.m. on the Business Day of the proposed Advance, and (ii) in the
case of a Working Capital Advance that is to be made while the Working
Capital Loan is a LIBOR Loan, 11:00 a.m. on the Business Day that is three
Business Days prior to the date of the proposed Advance. Each such notice (a
"NOTICE OF WORKING CAPITAL ADVANCE") shall be substantially in the form of
EXHIBIT A-1 hereto, and shall specify therein the requested date (which shall
be a Business Day) of the proposed Advance, the amount of such Advance, the
interest rate option applicable to such Advance, in the case of an Advance
made while no Working Capital Loan is outstanding, and such other information
as may be required by Lender and shall be given in writing (by telecopy,
telex or cable) or by courier, telephone confirmed immediately in writing.
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(c) MANDATORY REPAYMENT. The entire unpaid balance of the Working
Capital Loan, together with all other Obligations, shall be immediately due
and payable on the Commitment Termination Date. In the event that the
outstanding principal balance of the Working Capital Loan shall, at any time,
exceed the Working Capital Advance Availability, Borrower shall immediately
repay the Working Capital Loan in the amount of such excess. If the unpaid
principal balance of the Working Capital Loan should at any time exceed the
above-referenced limit, the excess balance shall nevertheless constitute
Obligations that are secured by the Collateral and entitled to all of the
benefits thereof and of the Loan Documents and shall be evidenced by the
Working Capital Note.
(d) EVIDENCE OF OBLIGATION. The Working Capital Loan shall be
evidenced by a note dated the Closing Date and substantially in the form of
EXHIBIT C-1 (the "WORKING CAPITAL NOTE"). The Working Capital Note shall
represent the obligation of Borrower to pay the amount of the Working
Capital Commitment or, if less, the aggregate unpaid principal amount of all
Working Capital Advances made by Lender to the Borrower, with interest
thereon as prescribed in SECTION 2.3. The date and amount of each Working
Capital Advance and each payment of principal with respect thereto shall be
recorded on the books and records of Lender. Such books and records shall
constitute PRIMA FACIE evidence of the accuracy of the information therein
recorded.
(e) USE OF PROCEEDS. Borrower shall utilize the proceeds of the
Working Capital Advances for the Borrower's and the other Credit Parties'
ordinary working capital needs and other general corporate purposes.
(f) SINGLE LOAN. All Working Capital Advances shall constitute a
single Working Capital Loan hereunder.
2.2 ACQUISITION LINE. (a) ACTIVATION. The Acquisition Line
is being established on the Closing Date as an inactive, reserve facility
that may not be drawn upon. The Lender, upon the request of the Borrower at
least ten Business Days before the first Advance is requested under the
Acquisition Line, and subject to the satisfaction of the conditions set forth
herein, may activate the Acquisition Line by notifying the Borrower of the
date (the "ACTIVATION DATE") upon which the Borrower may request the first
Advance under the Acquisition Line. The Activation Date must occur, if at
all, on or before the first anniversary of the Closing Date.
(b) CREDIT. Upon and subject to the terms and conditions hereof,
Lender agrees from time to time, from and after the Activation Date until the
Commitment Termination Date, to make available on any Business Day by deposit
to the Disbursement Account , upon the request of Borrower therefor, advances
(each, an "ACQUISITION ADVANCE") in an aggregate amount outstanding that
shall not at any given time exceed the lesser of (the "ACQUISITION ADVANCE
AVAILABILITY"): (i) $10,000,000, as such amount may be reduced from time to
time pursuant to the terms of SECTION 8.2 (the "ACQUISITION COMMITMENT"), and
(ii) an amount equal to EBITDA as determined from the financial statements
delivered by the Borrower to the Lender pursuant to SECTION 5.1(b), SECTION
5.1(c), or SECTION 5.1(e). Prior to the fourth anniversary of the Closing
Date, the Borrower may from time to time borrow, repay and reborrow under
this SECTION 2.2(b). From and after such fourth anniversary, the Borrower
may not request or receive any additional Advances under the Acquisition
Line.
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(c) METHOD OF BORROWING. Each Acquisition Advance shall be
made upon notice by Borrower to the Responsible Lending Officer at the
Lending Office, given no later than: (i) in the case of a Acquisition Advance
that is made while the Acquisition Loan is a Base Rate Loan, 11:00 a.m. on
the Business Day of the proposed Advance, and (ii) in the case of a
Acquisition Advance that is made while the Acquisition Loan is a LIBOR Loan,
11:00 a.m. on the Business Day that is three Business Days prior to the date
of the proposed Advance. Each such notice (a "NOTICE OF ACQUISITION
ADVANCE") shall be substantially in the form of EXHIBIT A-2 hereto, and shall
specify therein the requested date (which shall be a Business Day) of the
proposed Advance, the amount of such Advance in the case of an Advance made
while no Acquisition Loan is outstanding, the interest rate option applicable
to such Advance and such other information as may be required by Lender and
shall be given in writing (by courier, telecopy, telex or cable) or by
telephone confirmed immediately in writing.
(d) MANDATORY REPAYMENT. (i) The Acquisition Loan shall be
amortized in 12 equal monthly installments of principal payable on the last
Business Day of each month commencing with the last Business Day of the month
in which the fourth anniversary of the Closing Date shall occur; PROVIDED
that the entire remaining unpaid principal balance of the Acquisition Loan
and all other Obligations shall be immediately due and payable on the
Commitment Termination Date.
(ii) In the event that the outstanding principal balance of
the Acquisition Loan shall, at any time, exceed the Acquisition Advance
Availability, Borrower shall immediately repay the Acquisition Loan in the
amount of such excess. If the unpaid principal balance of the Acquisition
Loan should at any time exceed the above-referenced limit, the excess balance
shall nevertheless constitute Obligations that are secured by the Collateral
and entitled to all of the benefits thereof and of the Loan Documents and
shall be evidenced by the Acquisition Note.
(e) EVIDENCE OF OBLIGATION. The Acquisition Loan shall be
evidenced by a note dated the Activation Date and substantially in the form
of EXHIBIT C-2 (the "ACQUISITION NOTE"). The Acquisition Note shall
represent the obligation of Borrower to pay the amount of the Acquisition
Commitment or, if less, the aggregate unpaid principal amount of all
Acquisition Advances made by Lender to the Borrower, with interest thereon as
prescribed in SECTION 2.3. The date and amount of each Acquisition Advance
and each payment of principal with respect thereto shall be recorded on the
books and records of Lender. Such books and records shall constitute PRIMA
FACIE evidence of the accuracy of the information therein recorded.
(f) USE OF PROCEEDS. Borrower shall utilize the proceeds of the
Acquisition Advances to finance Acquisitions permitted pursuant to this
Agreement.
(g) SINGLE LOAN. All Acquisition Advances shall constitute a
single Acquisition Loan hereunder.
2.3 INTEREST ON LOANS. (a) RATES. Each Loan shall bear
interest on the outstanding principal amount thereof from and including the
date of the making thereof until repaid in full, whether before or after
default judgment, or the institution of proceedings under any bankruptcy,
insolvency or other similar law, as provided in this SECTION 2.3(a). In the
absence of an Event of Default, each Loan shall bear interest at the Base
Rate, PROVIDED that, so
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long as no Default shall have occurred and be continuing and the outstanding
principal amount of either Loan shall equal or exceed $1,000,000 (either
before or after giving effect to an Advance to be made on the first day of
the Interest Period selected by the Borrower), the Borrower may elect
pursuant to SECTION 2.3(c) to have the entire outstanding principal amount of
such Loan bear interest at Adjusted LIBOR, plus 3.0% for the Interest Period
selected by the Borrower. So long as an Event of Default shall have occurred
and be continuing, all Loans and, to the extent permitted by Applicable Law,
all due and unpaid Obligations other than Loans, shall bear interest at the
Default Rate. Each Advance shall initially bear interest at the interest
rate in effect for the applicable Loan on the date such Advance is made,
changing thereafter on the date of each change in the rate of interest in
effect for such Loan as set forth herein.
(b) SELECTION OF LIBOR OPTIONS. If the Borrower desires that any
Loan constitute a LIBOR Loan, subject to the conditions set forth in SECTION
2.3(a), it shall specify such election and the applicable Interest Period (i)
in the Notice of Working Capital Advance or the Notice of Acquisition
Advance, as applicable, in the case of an Advance made while no Working
Capital Loan or Acquisition Loan is outstanding, respectively, or, (ii) with
respect to subsequent Interest Periods, in the duly completed notice in the
form of Exhibit A-3 (the "NOTICE OF SELECTION OF INTEREST PERIOD"). Each
Notice of Selection of Interest Period must be received at the Lending Office
by the Responsible Lending Officer by 11:00 a.m. on a Business Day at least
three Business Days prior to the end of the current Interest Period or the
beginning of the first Interest Period and must specify the length and the
commencement date of such Interest Period. Unless the Lender has, in its
sole and absolute discretion, notified Borrower to the contrary, a selection
of Interest Period may also be made pursuant to a request therefor by
telephone by a Responsible Officer of Borrower received by the Lender by the
required time, in which case Borrower shall confirm such request by promptly
delivering to the Lender a written Notice of Selection of Interest Period
conforming to the preceding sentence (by courier, telecopy, telex or cable).
Each Interest Period must commence on the first day of a calendar month. In
the absence of such notice, a LIBOR Loan shall be converted into a Base Rate
Loan at the end of the current Interest Period.
(c) PAYMENT. Interest shall be payable in arrears on the first
Business Day of each month with respect to interest accrued through the last
day of the preceding month and on the Commitment Termination Date. Interest
at the Default Rate shall be payable on demand.
(d) CONVERSION TO BASE RATE LOANS. In the event that the
outstanding principal amount of any Loan should fail to equal or exceed
$1,000,000 during an Interest Period, such Loan shall automatically and
without further action on the part of the Lender convert from a LIBOR Loan to
a Base Rate Loan. Upon the occurrence of an Event of Default, all LIBOR
Loans shall automatically and without further action by the Lender convert to
Base Rate Loans.
(e) MAXIMUM PERMISSIBLE RATE. Notwithstanding anything to the
contrary set forth in this SECTION 2.3, if, at any time until payment in full
of all of the Obligations, the amount deemed interest payable hereunder
exceeds the Maximum Permissible Rate, then in such event and so long as the
Maximum Permissible Rate would be so exceeded, the rate of interest payable
hereunder shall be equal to the Maximum Permissible Rate; PROVIDED, HOWEVER,
that if at any time thereafter the rate of interest payable hereunder is less
than the Maximum Permissible Rate, Borrower shall continue to pay interest
hereunder at the Maximum Permissible Rate until such time as the total
interest received by Lender from the making of Advances hereunder is equal to
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the total interest which Lender would have received had the interest rate
payable hereunder been (but for the operation of this paragraph) the interest
rate payable since the Closing Date as otherwise provided in this Agreement.
Thereafter, the interest rate payable hereunder shall be the rate of interest
provided in SECTION 2.3(a) of this Agreement, unless and until the rate of
interest again exceeds the Maximum Permissible Rate, in which event this
paragraph shall again apply. In no event shall the total interest received
by Lender pursuant to the terms hereof exceed the amount which Lender could
lawfully have received had the interest due hereunder been calculated for the
full term hereof at the Maximum Permissible Rate. In the event the Maximum
Permissible Rate is calculated pursuant to this paragraph, such interest
shall be calculated at a daily rate equal to the Maximum Permissible Rate
divided by the number of days in the year in which such calculation is made.
In the event that a court of competent jurisdiction, notwithstanding the
provisions of this SECTION 2.3(e), shall make a final determination that
Lender has received interest hereunder or under any of the Loan Documents in
excess of the Maximum Permissible Rate, Lender shall, to the extent permitted
by Applicable Law, promptly apply such excess first to any interest due and
not yet paid hereunder, then to the outstanding principal of the Obligations,
then to Fees and any other unpaid Obligations and thereafter shall refund any
excess to Borrower or as a court of competent jurisdiction may otherwise
order.
2.4 FEES. (a) CLOSING FEE. As additional compensation for
Lender's costs and risks in making this Revolving Credit Facility available
to Borrower during its initial term, Borrower agrees to pay to Lender, a non-
refundable fee (the "CLOSING FEE") in an amount equal to $200,000 less any
remaining portion of the $50,000 initial deposit made on September 20, 1993.
The Closing Fee consists of $300,000 for the Working Capital Commitment plus
$25,000 for the Acquisition Commitment, less the $125,000 commitment delivery
fee previously paid to Lender by the Borrower and, as stated in the preceding
sentence, less any remaining portion of the $50,000 initial deposit made on
September 20, 1993. The Closing Fee shall be fully earned and shall be due
on the Closing Date.
(b) ACTIVATION FEE. As additional compensation for Lender's
costs and risks upon activation of the Acquisition Line, Borrower agrees to
pay to Lender a non-refundable fee (the "ACTIVATION FEE") in an amount equal
to $250,000. The Activation Fee shall be fully earned and shall be due on
the Activation Date.
(c) NON-USE FEE. As additional compensation for Lender's costs
and risks in making the Commitments available to Borrower, Borrower agrees to
pay to Lender, in arrears for the preceding month, on the first Business Day
of each month prior to the Commitment Termination Date and on the Commitment
Termination Date, a fee for Borrower's non-use of available commitments (the
"NON-USE FEE") in an amount equal to one half of one percent (0.5%) per annum
of the sum of: (i) the difference between the daily averages of (A) the
Working Capital Advance Availability (as determined from the most recently
delivered Borrowing Base Certificate) and (B) the Working Capital Loan, PLUS
(ii) the difference between the (A) the Acquisition Commitment (from and
including the Activation Date) and (B) the daily average outstanding
Acquisition Loan.
(d) COLLATERAL MONITORING FEE. Borrower agrees to pay to Lender
a non-refundable annual collateral monitoring fee (the "COLLATERAL MONITORING
FEE") in the amount of $50,000. The Collateral Monitoring Fee shall be
payable annually in advance on the Closing Date and on each anniversary
thereof occurring prior to, but not including, the Commitment
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Termination Date. The Collateral Monitoring Fee shall be payable in addition
to Lender's out-of-pocket expenses incurred in connection with this Facility
or the monitoring of the Collateral, including, without limitation a field
examination fee of $500 per person, per day in connection with Lender's
conduct of any field examination of the Collateral.
2.5 CALCULATION OF INTEREST AND FEES. All computations of
interest and periodic fees shall be made by Lender on the basis of a three
hundred and sixty (360) day year for the actual number of days occurring in
the period for which such interest or fee is payable (including the first but
excluding the last day). If the date for any payment of principal is
extended (whether by operation of this Agreement, any provision of law or
otherwise), fees payable pursuant to this Agreement as well as interest,
shall be payable for such extended time. Each determination by Lender of an
interest rate or fee hereunder shall be conclusive and binding for all
purposes, absent arithmetical or other manifest error or bad faith.
2.6 EARLY TERMINATION. Borrower shall have the right at any time
on 60 days' prior written notice to Lender to voluntarily prepay the entire
Working Capital Loan and Acquisition Loan and terminate this Agreement,
without premium or penalty, except that no such termination shall result in
the prepayment of a LIBOR Loan prior to the end of an applicable Interest
Period. Upon such prepayment and termination, Borrower's right to receive
Working Capital Advances or Acquisition Advances shall simultaneously
terminate. Each such prepayment and termination shall be accompanied by the
payment of all accrued and unpaid interest and all fees and other remaining
Obligations.
2.7 MANNER OF PAYMENT; TIME. (a) MANNER OF PAYMENT. Borrower
shall make each payment under this Agreement not later than 11:00 a.m. on the
day when due in lawful money of the United States of America in immediately
available funds to the Payment Account without any deduction whatsoever,
including, but not limited to, any deduction for any set-off, recoupment,
counterclaim or Tax. Amounts received to the Payment Account shall be deemed
received (i) upon the irrevocable deposit therein of collected funds, and
(ii) receipt of notice of such deposit by the Lender. From and after the
date that the sweeping of the Collection and Concentration Accounts shall
commence, amounts received to the Payment Account shall be applied against
the outstanding Obligations pursuant to Section 2.8.
(b) TIME. All references to time contained in this Agreement,
unless otherwise specified, shall be to local time in effect in Atlanta,
Georgia.
2.8 APPLICATION AND ALLOCATION OF PAYMENTS. Borrower irrevocably
waives the right to direct the application of any and all payments at any
time or times hereafter received from or on behalf of Borrower, and Borrower
irrevocably agrees that Lender shall have the continuing exclusive right to
apply any and all such payments against the then due and payable Obligations
of Borrower as Lender may deem advisable. In the absence of a specific
determination by Lender with respect thereto, the same shall be applied in
the following order: (i) then due and payable Fees and expenses; (ii) then
due and payable interest payments; (iii) Obligations other than Fees,
expenses and interest and principal payments; and (iv) then due and payable
principal payments on the Loans. When applying amounts received in the
Payment Account pursuant the sweeping of the Collection and Concentration
Accounts to the prepayment of principal of the Loans, the Lender shall apply
such amounts to the prepayment of the Working Capital Loan before prepaying
the Acquisition Loan. Lender is authorized to, and at its option
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may, make or cause to be made Advances on behalf of Borrower under this
Agreement for payment of all Fees, expenses, Charges, costs, interest, or
other Obligations owing by Borrower under this Agreement or any of the Loan
Documents if and to the extent Borrower fails to promptly pay any such
amounts as and when due; PROVIDED that, before making or causing any Advance
to pay amounts due hereunder that are not scheduled, the Lender shall give
the Borrower 3 Business Day's advance notice. At Lender's option and to the
extent permitted by law, any Advances so made may be deemed Advances
constituting part of the Working Capital Loan hereunder whether or not the
making of such Advances shall cause the Working Capital Loan to exceed the
Working Capital Advance Availability.
2.9 ACCOUNTING. Lender will provide a monthly accounting of
transactions under the Revolving Credit Facility to Borrower. Each and every
such accounting shall (absent arithmetical or other manifest error or bad
faith) be deemed final, binding and conclusive upon Borrower in all respects
as to all matters reflected therein, unless Borrower, within 30 days after
the date any such accounting is rendered, shall notify Lender in writing of
any objection which Borrower may have to any such accounting, describing the
basis for such objection with specificity. In that event, only those items
expressly objected to in such notice shall be deemed to be disputed by
Borrower. Lender's determination, based upon the facts available, of any
item objected to by Borrower in such notice shall (absent arithmetical or
other manifest error or bad faith) be final, binding and conclusive on
Borrower, unless Borrower shall commence a judicial proceeding to resolve
such objection within 30 days following Lender's notifying the Borrower of
such determination.
2.10 TAXES. (a) Any and all payment by or on behalf of the
Borrower hereunder or under any Note or any other Loan Document shall be
made, in accordance with this SECTION 2.10, free and clear of and without
deduction for any and all present or future Taxes. If Borrower or any other
Person shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder or under any Note or any other Loan Document to Lender,
(i) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this SECTION 2.10) Lender receives an amount equal to the
sum it would have received had no such deductions been made by the Borrower
or such other Person, (ii) Borrower or such other Person shall make such
deductions, and (iii) Borrower or such other Person shall pay the full amount
deducted to the relevant taxing or other authority in accordance with
Applicable Law.
(b) Borrower shall indemnify and pay, within 10 days of demand
therefor, Lender for the full amount of Taxes (including without limitation,
any Taxes imposed by any jurisdiction on amounts payable under this SECTION
2.10) paid by Lender and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto, whether or not such
Taxes were correctly or legally asserted. Upon further indemnification from
the Borrower satisfactory to the Lender and to the extent determined by the
Lender in its sole discretion that any contest or refund request with respect
to any Taxes or other amounts paid by Borrower to Lender pursuant to this
SECTION 2.10(b) is not contrary to the Lender's corporate tax policy or its
interests, the Lender shall permit the Borrower to contest the payment of any
such Tax or seek a refund thereof, but the provisions of this sentence shall
not diminish or delay the payment of any such Tax required to be paid on
behalf of or refunded to the Lender pursuant to this Section. To the extent
that the Borrower prevails in any final determination in any action seeking
such a refund or contesting the payment of any Tax previously paid, the
Lender shall
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turn over to the Borrower any such refund, or to the extent that the Lender
otherwise receives credit against any future required payment of Tax as a
result of such determination, shall refund to the Borrower, without interest,
the corresponding amount of any Tax collected from the Borrower under this
SECTION 2.10(b). The Lender shall promptly refund such payment to Borrower,
upon receipt of evidence satisfactory to the Lender, that such determination
or refund has been obtained and is subject to no further appeal or
proceedings.
(c) Within 30 days after the date of any payment of Taxes,
Borrower shall furnish or cause to be furnished to Lender, at its address
referred to in SECTION 9.10, the original or a certified copy of a receipt
evidencing payment thereof.
2.11 INCREASED COMMITMENT OR FUNDING COSTS. If the Lender
reasonably determines that either (a) the introduction of or any change in
any Laws or in the interpretation or administration of any Law by any
Governmental Authority charged with the interpretation or administration
thereof after the date of this Agreement relating to the regulation of banks
or commercial lenders or (b) compliance with any guideline or request issued
or made after the date hereof from any such Governmental Authority relating
to the regulation of banks or commercial lenders (whether or not having the
force of law) has or would have the effect of reducing the rate of return on
the capital of the Lender or any corporation controlling the Lender as a
consequence of or with reference to the lender's funding, incurring or
maintaining any Commitment, Advance, Loan or other extension of credit or
transaction hereunder below the rate that Lender or such other corporation
could have achieved but for such introduction, change or compliance (taking
into account the policies of the Lender or corporation with regard to
capital), then Borrower shall from time to time, upon demand by the Lender,
pay to the Lender additional amounts sufficient to compensate the Lender or
other corporation for such reduction. Any notice under this SECTION 2.11
shall be given to Borrower as promptly as practicable after the Lender
obtains knowledge of such change, guideline or request and shall be
accompanied by a certificate from the Lender setting forth in reasonable
detail the nature and calculation of the relevant amounts.
2.12 LIBOR COSTS. Upon notice from the Lender, Borrower shall
promptly reimburse the Lender for any increase after the date of this
Agreement in Lender's costs, including taxes (other than any tax, or changes
in the rate of any tax, based upon the income, profits, receipts or business
of the Lender, or upon any personal property or franchise of the Lender, or
any similar tax which may be levied upon the Lender, or any change in the
rate of any such similar tax by the United States, or any other government
having jurisdiction, or any political subdivision or taxing authority of any
thereof, and other than withholding tax covered by SECTION 2.10), fees,
charges, and/or reserve requirements directly or indirectly resulting from or
relating to funding, incurring or maintaining the Loans as a LIBOR Loan due
to any change after the date of this Agreement in any Law, guideline or
interpretation or application thereof by an Governmental Authority. As used
in the preceding sentence, "reserve requirements" shall be calculated after
taking into account any compensation received by the Lender through the
computation of Adjusted LIBOR. Amounts payable to the Lender under this
SECTION 2.12 shall be determined solely by the Lender on the assumption that
the Lender funded and maintained 100% of the LIBOR Loans in the London
interbank market for a corresponding amount of Dollars and term, regardless
of whether the Lender did so in fact. In attributing the Lender's general
costs relating to its eurocurrency operations to any transaction under this
Agreement, or averaging any cost over a period of time, the Lender may use
any reasonable attribution and/or averaging method it deems appropriate and
practical. Any notice under this SECTION 2.12 shall be
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given to Borrower as promptly as practicable after the Lender obtains
knowledge of such change and shall be accompanied by a certificate from the
Lender setting forth in reasonable detail the nature and calculation of the
relevant amounts.
2.13 SPECIAL LIBOR CIRCUMSTANCES.
(a) If any change in any Law, guideline or interpretation or
applicable thereof by an Governmental Authority or any other circumstance
relating to the London interbank market shall at any time in the reasonable
opinion of the Lender make it unlawful or impracticable for the Lender to
fund or maintain the Loans in the London interbank market for a corresponding
amount of Dollars or term, or to continue that funding or maintaining, or to
determine or charge interest rates based upon the LIBOR, the Lender shall
promptly notify the Borrower of such change or circumstance. Upon the giving
of such notice, the obligation of the Lender to fund or maintaining a LIBOR
Loan shall terminate, and such LIBOR Loan shall convert to a Base Rate Loan
commencing on the day following the last day of the applicable Interest
Period or on such earlier date as shall be required by Law.
(b) In the event that, prior to the first day of any Interest
Period by reason of circumstances affecting the London interbank market,
either (i) the Lender shall have determined in good faith (which
determination shall be conclusive and binding upon all parties hereto), that
(A) Dollar deposits of the relevant amount and for the relevant Interest
Period are not available to the Lender, or (B) LIBOR applicable to such
Interest Period cannot be ascertained, or (ii) the Lender shall have
determined in good faith that LIBOR applicable to such Interest Period will
not adequately reflect the cost of funding or maintaining any Loan as a LIBOR
Loan, the Lender shall promptly give the Borrower notice of such
determination, whereupon Borrower's right to elect to have a Loan constitute
a LIBOR Loan pursuant to SECTION 2.3(b) shall be suspended for so long as
such circumstances shall exist. At all times during the period of such
suspension, no Loan shall constitute a LIBOR Loan.
2.14 FUNDING LOSSES. In order to induce the Lender to fund and
maintain any Loan, as a LIBOR Loan, on the terms provided herein and in
consideration of the entering into by Lenders of funding arrangements from
time to time in contemplation thereof, whether or not funded in the London
interbank market, if any LIBOR Loan is repaid or converted to a Base Rate
Loan, in whole or in part on any day other than the last day of the Interest
Period therefor (whether any such repayment or conversion is made pursuant to
any provision of this Agreement or any other Loan Document or is the result
of acceleration, by operation of law or otherwise), Borrower shall indemnify
and hold harmless the Lender from and against and in respect of any and all
losses, costs and expenses resulting from, or arising out of or imposed upon
or incurred by the Lender by reason of the liquidation or reemployment of
funds acquired or committed to be acquired by the Lender to fund or maintain
such Loan as a LIBOR Loan pursuant to such Lender's customary funding
arrangements. The amount of any losses, costs or expenses resulting in an
obligation of Borrower to make a payment pursuant to the foregoing sentence
shall not include any losses attributable to the lender's lost profit, but
shall represent the excess, if any, of (a) the Lender's cost or deemed cost
of obtaining funding for the amount necessary to fund or maintain such Loan
as a LIBOR Loan pursuant to such Lender's customary funding arrangements,
whether or not funded in the LIBOR market, as reasonably determined by the
Lender (which may be computed by the Lender on the basis of such funds having
been borrowed at a rate equal to one percent (1%) over the interest rate on
United States Treasury bills or notes
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with a maturity that most closely approximated the end of the relevant
Interest Period as quoted by Telerate News Service (page 5) at the close of
business on the date when the Loan was made as, converted to or renewed as a
LIBOR Loan), over (b) the return the Lender would receive on its reemployment
of such funds, as reasonably determined by the Lender (which, if the Lender's
cost of obtaining funding is computed pursuant to the parenthetical to clause
(a) above, may be computed by the Lender on the basis of its reinvestment of
such funds in United States Treasury bills or notes with a maturity that most
closely approximates the end of the relevant Interest Period as quoted by
Telerate News Service (page 5) at the close of business on the date of
repayment or conversion of such LIBOR Loan); PROVIDED, that if the Lender
terminates any funding arrangements in respect of any LIBOR Loan, the amount
of such losses, costs and expenses shall also include the cost to such Lender
of such termination. The determination of such amount by the Lender, when
evidenced by a certificate from the Lender giving a reasonably detailed
calculation of the amount of said cost, expense, claim, penalty, liability,
loss, fee, damage or other charge, shall be presumed correct in the absence
of arithmetical or other manifest error or bad faith.
2.15 FUNDING SOURCES. Nothing in this Agreement shall be deemed to
obligate the Lender to obtain the funds for any Loan in the LIBOR market or
in any other particular place or manner or to constitute a representation by
the Lender that it has obtained or will obtain the funds for its Loans in the
LIBOR market or in any other particular place or manner, but the Lender
shall, for purposes hereof, be entitled to compute the amounts due to it
under SECTIONS 2.11, 2.12 and 2.14 as if such funds had been obtained in the
London interbank market, without any requirement of tracing or matching such
funds.
2.16 FAILURE TO CHARGE NOT SUBSEQUENT WAIVER. Any failure by the
Lender to require payment of any interest (including interest at the Default
Rate), fee, cost or other amount payable under any Loan Document, or to
calculate any amount payable by a particular method, on any occasion shall in
no way limit to be deemed a waiver of the Lender's right to require full
payment of any such interest, fee, cost or other amount payable by another
method, on any other or subsequent occasion.
2.17 SURVIVABILITY. All of Borrower's obligations under SECTION
2.10, 2.11, 2.12 and 2.14 shall survive the payment in full of all
obligations hereunder.
3. CONDITIONS PRECEDENT
3.1 CONDITIONS TO THE INITIAL ADVANCE. Notwithstanding any other
provision of this Agreement and without affecting in any manner the rights of
Lender hereunder, the Borrower shall have no rights under this Agreement (but
shall have all applicable obligations hereunder), and the Lender shall not be
obligated to make any Advances, or to take, fulfill, or perform any other
action hereunder, until each and every of the following conditions have been
fulfilled to the Lender's sole satisfaction or waived in writing by the
Lender:
(a) This Agreement or counterparts thereof, and the Notes shall
have been duly executed by, and delivered to, the Borrower and the Lender.
(b) The Lender shall have received such documents, instruments and
agreements as the Lender shall request in connection with the transactions
contemplated by this
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Agreement, including all documents, instruments, agreements listed in the
Schedule of Documents, each in form and substance satisfactory to the Lender.
(c) The Lender shall have received evidence satisfactory to the
Lender that no Indebtedness (other than Permitted Indebtedness) is
outstanding, and that no Liens exist upon any of the property of Borrower or
the Included Subsidiaries other than Permitted Encumbrances.
(d) The Lender shall have received evidence satisfactory to Lender
that Borrower has obtained consents and acknowledgments of all Persons whose
consents and acknowledgments may be required, including, but not limited to,
all requisite Governmental Authorities, to the terms, and to the execution
and delivery, of this Agreement, the Loan Documents and the consummation of
the transactions contemplated hereby and thereby.
(e) The Lender shall have received evidence satisfactory to Lender
that such action (including, without limitation, the filing of appropriately
completed and duly executed Uniform Commercial Code financing statements) as
may be necessary or desirable, in the opinion of the Lender and its counsel,
to perfect the Security Interest shall have been taken;
(f) The Lender shall have received UCC, Lien, judgment and tax
search reports for each jurisdiction in which the Borrower or any Included
Subsidiary is located or has Collateral, showing no Liens or financing
statements of record against the Borrower or such Included Subsidiary, except
Permitted Encumbrances, all in form and substance satisfactory to the Lender;
(g) The Lender shall have received evidence satisfactory to the
Lender that the insurance policies provided for in SECTION 4.20 and SCHEDULE
4.20 are in full force and effect, together with appropriate evidence showing
loss payable and/or additional insured clauses or endorsements, as
appropriate, in favor of the Lender and in form and substance satisfactory to
the Lender.
(h) The Borrower shall have provided the Lender with an interim
consolidated balance sheet and statement of cash flows for the most recently
completed fiscal quarter of the Borrower and the Included Subsidiaries for
which such statements are available, together with a budget for the then
Fiscal Year and showing in detail the Borrower's and the Included
Subsidiaries' projected expenditures by category on a monthly basis, all in
such detail as the Lender shall request and in form and substance
satisfactory to the Lender. The consolidated balance sheet and statement of
cash flows shall be certified as to conformity to GAAP (except the effect for
normal year-end adjustments and the absence of complete footnotes) by the
chief financial officer of the Borrower. The budget shall be certified by
the chief financial officer of the Borrower to be based on reasonable
estimates and assumptions made from the best information then available.
(i) The Borrower shall have provided the Lender with a duly
executed and completed Borrowing Base Certificate.
(j) The Lender shall have completed not more than 5 days prior to
the Closing Date, its legal and due diligence prefunding review of the
Borrower, the Included Subsidiaries and the Collateral, and in connection
therewith shall have had such access to the
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books, records, facilities, Collateral, customers, suppliers, accountants,
advisors, and employees of the Borrower and the Included Subsidiaries as it
shall have required.
(k) The Lender shall have received evidence satisfactory to the
Lender that, as of the Closing Date, and after giving effect to the
transactions contemplated hereby, the Borrower and each of the Included
Subsidiaries is Solvent; PROVIDED, that Lender shall not require Borrower, in
order to satisfy this condition, to obtain solvency opinions from a
valuation, appraisal, accounting or investment banking firm.
(l) The Lender shall have received evidence satisfactory to the
Lender that, as of the Closing Date, the Borrower is in compliance in all
material respects with all Applicable Law, including those relating to labor,
environmental and ERISA matters. Such evidence may include environmental
studies and compliance audits of the Borrower, the Included Subsidiaries and
their respective assets.
(m) The Borrower shall have paid all of the Fees due on the
Closing Date as provided in SECTION 2.4 above together with all fees, costs
and expenses of closing incurred by Lender (including fees of consultants and
special counsel to Lender presented as of the Closing Date).
(n) The Lender shall have received evidence satisfactory to the
Lender that the Borrower and each of the Included Subsidiaries has
established, the cash management system described in Section 6.12.
(o) The Lender shall have received evidence satisfactory to the
Lender that immediately after the Closing Date, after giving effect to all
transactions to occur on such date, the Borrower will have unrestricted cash
on hand of at least $6,000,000.
3.2 CONDITIONS TO INITIAL ACQUISITION ADVANCE. It shall be a
condition to the initial Acquisition Advance that, and the Borrower shall
have no right to receive and the Lender no obligation to make any Acquisition
Advance until, the Lender shall have received each of the following in form
and in substance satisfactory to the Lender:
(a) Notice of the activation of the Acquisition Line as required
pursuant to SECTION 2.2(a), and the Activation Date specified therein shall
have occurred;
(b) Payment of the Acquisition Fee;
(c) The Acquisition Note, duly executed and completed by the
Borrower;
(d) Such documents and instruments as the Lender shall require
(the "ADDITIONAL COLLATERAL DOCUMENTS") for the Credit Parties to grant to
the Lender a first priority perfected security interest in all of their
properties not previously pledged to the Lender pursuant to the Collateral
Documents (the "ADDITIONAL COLLATERAL"), which shall serve as additional
security for all of the Obligations;
(e) Evidence of the filing of such of the Additional Collateral
Documents and such other documents and instruments necessary or desirable to
perfect the security interest of the
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Lender in the Additional Collateral, evidence of the payment of all taxes and
fees required in connection with the Additional Collateral Documents or such
filings, and mortgagee title insurance policies and surveys with respect to
that portion of the Additional Collateral that constitutes real estate;
(f) Such third party consents and approvals, including
Governmental Approvals, as shall be necessary or desirable, in the judgment
of the Lender, to protect the Lender's rights and the priority of its
interest in the Additional Collateral;
(g) Evidence of all corporate action by all Credit Parties
necessary to approve the activation of the Acquisition Line and the execution
and delivery of the Additional Collateral Documents;
(h) Evidence of the continued validity and binding effect of the
Loan Documents and the rights of the Lender granted thereunder with respect
to all the Credit Parties and the Obligations, and of the continuing
existence, enforceability and priority of the Security Interest as modified
by the Additional Collateral Documents, and evidence of the due execution and
delivery and the enforceability of the Additional Collateral Documents
against all Credit Parties, including opinions of counsel to the Borrower and
the other Credit Parties;
(i) Such other documents, instruments, evidences and opinions as
the Lender shall reasonably require.
3.3 FURTHER CONDITIONS TO EACH ADVANCE. It shall be a further
condition to the funding of the initial and each subsequent Advance that each
and every one of the following statements shall be true on and as of the
Closing Date and as of the date of each such funding:
(a) Each of the representations and warranties contained herein or
in any of the other Loan Documents is true and correct, except to the extent
that any such representation or warranty expressly relates to an earlier date
and except for changes therein expressly permitted or expressly contemplated
by this Agreement, both before and after giving effect to such Advance;
(b) No Default has occurred and is continuing either before or
after giving effect to the requested Advance;
(c) After giving effect to such Advance, the aggregate principal
amount of the Working Capital Loan or Acquisition Loan, as the case may be,
does not exceed the Working Capital Advance Availability or the Acquisition
Advance Availability, respectively, without requiring that a payment be made
to Lender;
(d) In the case of an Acquisition Advance, the Lender shall have
consented to the Acquisition in writing based on the criteria set forth in
SECTION 7.1; and
(e) The cash management system required to be maintained pursuant
to Section 6.12 is operating pursuant to that section as if a Loan were
outstanding hereunder.
The request or acceptance by Borrower of the proceeds of any Advance shall be
deemed to constitute, as of the date of such request or acceptance, (i) a
representation and warranty by
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Borrower and each other Credit Party that the conditions in this SECTION 3.3
have been satisfied and (ii) a confirmation by Borrower and each other Credit
Party of the granting and continuance of Lender's Liens pursuant to the
Collateral Documents, unless in each case (i) or (ii), a notice to the
contrary specifically captioned "Disclosure Statement" is received by the
Lender from the Borrower prior to 2:00 p.m. on the Business Day preceding the
date of the Advance. To the extent that the Lender agrees to make any
Advance after receipt of a Disclosure Statement in accordance with the
preceding sentence, the representations and warranties and confirmation
pursuant to the preceding sentence will be deemed made as modified by the
contents of such statement and repeated at the time of the making of such
Advance as so modified. Any such modification shall be effective only for
the occasion on which the Lender elects to make such Advance, and unless
expressly agreed by the Lender in writing to the contrary as provided in
Section 9.1, shall not be deemed a waiver or modification of any condition to
any future Advance.
4. REPRESENTATIONS AND WARRANTIES
To induce the Lender to make this Revolving Credit Facility
available to the Borrower, and to make Advances,as herein provided for,
Borrower makes (as to itself and each of the Included Subsidiaries) the
following representations and warranties to the Lender, each and all of which
shall be true and correct as of the date of execution and delivery of this
Agreement and shall survive the execution and delivery of this Agreement:
4.1 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. The Borrower and
each of the Included Subsidiaries (i) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation or organization and is duly qualified to do business and is
in good standing in each other jurisdiction where its ownership or lease of
property or the conduct of its business requires such qualification, except
where the failure to so qualify or be in good standing could not reasonably
be expected to have a Materially Adverse Effect; (ii) has the requisite
corporate power and authority and the legal right to own, pledge, mortgage or
otherwise encumber and operate its properties, to lease the property it
operates under lease, and to conduct its business as now, heretofore and
proposed to be conducted, except where the failure to have such legal right
could not reasonably be expected to have a Materially Adverse Effect; (iii)
has all licenses, permits, consents or approvals from or by, and has made all
filings with, and has given all notices to, all Governmental Authorities
having jurisdiction, to the extent required for such ownership, lease
operation and conduct, except such of the foregoing, that the failure to
have, to have made or to have given which could not reasonably be expected to
have a Materially Adverse Effect; (iv) is in compliance with its certificate
or articles of incorporation and by-laws; and (v) is in compliance with all
provisions of Applicable Law where the failure to comply could reasonably be
expected to have a Materially Adverse Effect.
4.2 EXECUTIVE OFFICES; CORPORATE OR OTHER NAMES. The current
locations of Borrower's and each other Credit Party's executive offices and
principal places of business are as set forth on SCHEDULE III to the Security
Agreement executed by such Credit Party. During the preceding five (5)
years, each Credit Party has not been known as or used any corporate,
fictitious or trade names except as disclosed on SCHEDULE III to the Security
Agreement executed by such Credit Party.
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4.3 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS. The
execution, delivery and performance by each Credit Party of the Loan
Documents executed by it and of all instruments and documents to be delivered
by such Credit Party hereunder and thereunder and the creation of all Liens
provided for herein and therein: (i) are within such Credit Party's
corporate power; (ii) have been duly authorized by all necessary corporate
and shareholder action; (iii) are not in contravention of any provision of
such Credit Party's certificate or articles of incorporation or by-laws; (iv)
do not violate any law or regulation, or any order or decree of any court or
governmental instrumentality applicable to such Credit Party; (v) do not
conflict with or result in the breach or termination of, constitute a default
under or accelerate any performance required by, any indenture, mortgage,
deed of trust, lease, note, loan agreement or other agreement or instrument
to which such Credit Party is a party or by which any such Person or any of
its property is bound; (vi) do not result in the creation or imposition of
any Lien upon any of the property of such Credit Party other than those in
favor of Lender, created pursuant to the Loan Documents; and (vii) do not
require the consent or approval of any Governmental Authority or any other
Person, except those delivered to Lender pursuant to SECTION 3.1(d) and
except those not yet required to have been obtained, all of which will have
been duly obtained, made or complied with. Each of the Loan Documents has
been duly executed and delivered for the benefit of or on behalf of the
Credit Party that executed it and each constitutes the legal, valid and
binding obligation of such Credit Party, enforceable against it in accordance
with its terms.
4.4 FINANCIAL STATEMENTS AND PROJECTIONS. SCHEDULE 4.4 sets forth
all the financial statements and Annual Budget that Borrower has delivered to
Lender prior to the date of this Agreement. All of the balance sheets and
statements of income, retained earnings and cash flows of Borrower and the
Included Subsidiaries listed on SCHEDULE 4.4 have been, except as noted
therein, prepared in conformity with GAAP and present fairly the financial
position of Borrower and the Included Subsidiaries in each case as at the
dates thereof, and the results of operations and cash flows for the periods
then ended (as to the unaudited interim financial statements, subject to
normal year-end audit adjustments and the absence of footnotes). The Annual
Budget discloses all material assumptions made with respect to general
economic, financial and market conditions in formulating such Annual Budget.
No facts exist as of the date of any making of this representation that would
result in any material change in any of such Annual Budget. The Annual
Budget is based upon reasonable estimates and assumptions, all of which are
reasonable in light of conditions existing at the Closing Date, have been
prepared on the basis of the assumptions stated therein, and reflect the
reasonable estimate of Borrower of the results of operations and other
information projected therein.
4.5 MATERIAL ADVERSE CHANGE. Except as disclosed in its balance
sheet, dated June 30, 1993, that was delivered to the Lender, neither
Borrower nor any of the Included Subsidiaries, has any obligations,
contingent liabilities, or liabilities for Charges, long-term leases or
unusual forward or long-term commitments that could, alone or in the
aggregate, have or result in a Material Adverse Effect. Since June 30, 1993,
(i) there has been no material adverse change in the business, assets,
operations, prospects or financial or other condition of Borrower and the
Included Subsidiaries taken as a whole or in the industry in which the
Borrower and the Included Subsidiaries operate, and (ii) neither the Borrower
nor any Included Subsidiary has paid, made or declared any dividend, advance
or other distribution to any stockholder of the Borrower, except as permitted
pursuant to this Agreement. No shares of stock of Borrower have been, or are
now required to be, redeemed, retired, purchased or otherwise acquired for
value by Borrower or any Included Subsidiary and there exists no present
agreement, understanding or
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requirements (contingent or otherwise) to redeem, retire, purchase or
otherwise acquire for value any such shares in the future except as disclosed
on SCHEDULE 4.5.
4.6 OWNERSHIP OF PROPERTY; LIENS. (a) The real estate listed on
SCHEDULE 4.6 constitutes all of the real property owned, leased, or used in
its business by Borrower or any of the Included Subsidiaries. Except as
disclosed on SCHEDULE 4.6, each of Borrower and the Included Subsidiaries
owns: (i) good and marketable fee simple title to all of the real estate
owned or used by it other than such as its holds as lessee, and (ii) valid
and marketable leasehold interests in all of such Person's Leases (both as
lessor and lessee, sublessee or assignee). Except as disclosed on SCHEDULE
4.6, each of the Borrower and the Included Subsidiaries holds title to, or
valid leasehold interests in, all of its other properties and assets. None
of the properties or assets of the Borrower or any of the Included
Subsidiaries is subject to any Liens, except (x) Permitted Encumbrances and
(y) the Lien in favor of Lender pursuant to the Collateral Documents. The
Borrower and each of the Included Subsidiaries has received all deeds,
assignments, waivers, consents, non-disturbance and recognition or similar
agreements, bills of sale and other documents, and duly effected all
recordings, filings and other actions necessary to establish, protect and
perfect such Person's right, title and interest in and to all such real
estate and other assets or property. Except as described on SCHEDULE 4.6,
(i) neither Borrower, any of the Included Subsidiaries, nor any other party
to any such Lease described on SCHEDULE 4.6 is in default of its obligations
thereunder or has delivered or received any notice of default under any such
Lease, and no event has occurred which, with the giving of notice, the
passage of time or both, would constitute a default under any such Lease,
(ii) neither Borrower nor any of the Included Subsidiaries owns or holds, or
is obligated under or a party to, any option, right of first refusal or any
other contractual right to purchase, acquire, sell, assign or dispose of any
real property owned or leased by such Person, and (iii) no portion of any
real property owned or leased by Borrower or any of the Included Subsidiaries
has suffered any material damage by fire or other casualty loss or a Release
which has not heretofore been completely repaired and restored to its
original condition or is being remedied. All permits required to have been
issued or appropriate to enable the real property owned or leased by Borrower
or any of the Included Subsidiaries to be lawfully occupied and used for all
of the purposes for which they are currently occupied and used, have been
lawfully issued and are, as of the date hereof, in full force and effect.
4.7 RESTRICTIONS; NO DEFAULT. No contract, lease, agreement or
other instrument to which Borrower or any of the Included Subsidiaries is a
party or by which any such Person or any of its properties or assets is bound
or affected and no provision of existing Applicable Law has or results in a
Material Adverse Effect, or insofar as Borrower can reasonably foresee could
have or result in a Material Adverse Effect. Neither Borrower nor any of the
Included Subsidiaries is in default, and to Borrower's knowledge no third
party is in default, under or with respect to any material contract,
agreement, lease or other instrument to which Borrower or any such Included
Subsidiary is a party. No Default has occurred and is continuing.
4.8 LABOR MATTERS. There are no strikes or other labor disputes
against Borrower or any of the Included Subsidiaries that are pending or, to
Borrower's knowledge, threatened which could have or result in a Material
Adverse Effect or could cause or result in the incurrence by any Credit Party
of a material liability, contingent or liquidated. Hours worked by and
payment made to employees of Borrower and the Included Subsidiaries have not
been in
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violation of the Fair Labor Standards Act or any other applicable law dealing
with such matters which could have or result in a Material Adverse Effect or
could cause or result in the incurrence by any Credit Party of a material
liability, contingent or liquidated. All payments due from Borrower or any
of the Included Subsidiaries on account of employee health and welfare
insurance which could have or result in a Material Adverse Effect or could
cause or result in the incurrence by any Credit Party of a material
liability, contingent or liquidated, if not paid have been paid or accrued as
a liability on the books of Borrower or such Included Subsidiary. Neither
Borrower nor any of the Included Subsidiaries has any obligation under any
collective bargaining agreement or any employment agreement (other than an
obligation under an employment agreement relating to senior management
described in the exception to SECTION 4.16). There is no organizing activity
involving Borrower or any of the Included Subsidiaries pending or threatened
by any labor union or group of employees. Except as set forth on SCHEDULE
4.14, there are no representation proceedings involving employees of Borrower
or any of the Included Subsidiaries pending or threatened with the National
Labor Relations Board, and no labor organization or group of employees of
Borrower or any of the Included Subsidiaries has made a pending demand for
recognition. Except as set forth on SCHEDULE 4.14, there are no complaints
or charges against Borrower or any of the Included Subsidiaries pending or
threatened to be filed with any federal, state, local or foreign court,
governmental agency or arbitrator based on, arising out of, in connection
with, or otherwise relating to the employment or termination of employment by
Borrower or such Included Subsidiary of any individual.
4.9 VENTURES, SUBSIDIARIES AND AFFILIATES, AND INDEBTEDNESS.
Except as set forth on SCHEDULE 4.9, Borrower has no Subsidiaries, is not
engaged in any joint venture or partnership with any other Person, and is not
an Affiliate of any other Person. All outstanding Stock and Indebtedness of
Borrower and each of its Subsidiaries are described on SCHEDULE 4.9.
4.10 GOVERNMENT REGULATION. Neither Borrower nor any of the
Included Subsidiaries is an "investment company" or an "affiliated person"
of, or "promoter" or "principal underwriter" for, an "investment company," as
such terms are defined in the Investment Company Act of 1940 as amended.
Neither Borrower nor any of the Included Subsidiaries is subject to
regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act or any other federal or state statute
that restricts or limits such Person's ability to incur Indebtedness, pledge
its assets or to perform its obligations hereunder or under any other Loan
Document and the making of the Advances by Lender, the application of the
proceeds and repayment thereof by Borrower or the other Credit Parties and
the consummation of the transactions contemplated by this Agreement and the
other Loan Documents will not violate any provision of any such statute or
any rule, regulation or order issued by the Securities and Exchange
Commission (except that no representation is made concerning whether any
syndication or assignment by Lender might or would violate any Federal
securities laws, regulations or orders).
4.11 MARGIN REGULATIONS. Neither Borrower nor any of the Included
Subsidiaries own any "margin security", as that term is defined in
Regulations G and U of the Board of Governors of the Federal Reserve System
(the "FEDERAL RESERVE BOARD"), and none of the proceeds of the Advances will
be used, directly or indirectly, for the purpose of purchasing or carrying
any margin security, for the purpose of reducing or retiring any indebtedness
which was originally incurred to purchase or carry any margin security or for
any other purpose which might cause any of the loans or other extensions of
credit under this Agreement to be considered
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a "purpose credit" within the meaning of Regulation G, T, U or X of the
Federal Reserve Board. Borrower will not take or permit to be taken any
action which might cause this Agreement or any document or instrument
delivered pursuant hereto to violate any regulation of the Federal Reserve
Board.
4.12 TAXES. All federal, state, local and foreign tax returns,
reports and statements required to be filed by Borrower or any of the
Included Subsidiaries (except for sales tax returns involving, in the
aggregate, immaterial amounts), have been filed with the appropriate
Governmental Authority and all Charges and other impositions shown thereon to
be due and payable have been paid prior to the date on which any fine,
penalty, interest or late charge may be added thereto for nonpayment thereof,
or any such fine, penalty, interest, late charge or loss has been paid. Each
of Borrower and the Included Subsidiaries has paid when due and payable all
Charges required to be paid by it. Proper and accurate amounts have been
withheld by each of Borrower and the Included Subsidiaries from its
respective employees for all periods in full and complete compliance with the
tax, social security and unemployment withholding provisions of applicable
federal, state, local and foreign law and such withholdings have been timely
paid to the respective Governmental Authorities. SCHEDULE 4.12 sets forth
those taxable years for which any of Borrower's or the Included Subsidiaries'
tax returns are currently being audited by the IRS or any other applicable
Governmental Authority and any assessments or threatened assessments in
connection with such audit or which are otherwise currently outstanding.
Except as described on SCHEDULE 4.12, neither Borrower nor any of the
Included Subsidiaries has executed or filed with the IRS or any other
Governmental Authority any agreement or other document extending, or having
the effect of extending, the period for assessment or collection of any
Charges. Neither Borrower nor any of the Included Subsidiaries has filed a
consent pursuant to IRC Section 341(f) or agreed to have IRC Section 341(f)
(2) apply to any dispositions of subsection (f) assets (as such term is
defined in IRC Section 341(f)(4)). None of the property owned by Borrower or
any of the Included Subsidiaries is property which Borrower or such Included
Subsidiary is required to treat as being owned by any other Person pursuant
to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954,
as amended, and in effect immediately prior to the enactment of the Tax
Reform Act of 1986 or is "tax-exempt use property" within the meaning of the
IRC Section 168(h). Neither Borrower nor any of the Included Subsidiaries
has agreed or been requested to make any adjustment under IRC Section 481 (a)
by reason of a change in accounting method or otherwise. Neither Borrower
nor any of the Included Subsidiaries has any obligation under any written tax
sharing agreement except as set forth on SCHEDULE 4.12.
4.13 ERISA. (a) SCHEDULE 4.13 lists all Plans maintained or
contributed to by Borrower or any of the Included Subsidiaries and all
Qualified Plans maintained or contributed to by any other ERISA Affiliate,
and separately identifies the Title IV Plans, Multiemployer Plans, any
multiple employer plans subject to Section 4064 of ERISA, unfunded Pension
Plans, Welfare Plans and Retiree Welfare Plans. Each Qualified Plan has been
determined by the IRS to qualify under IRC Section 401, and the trusts
created thereunder have been determined to be exempt from tax under the
provisions of IRC Section 501, and to the best knowledge of Borrower nothing
has occurred that would cause the loss of such qualification or tax-exempt
status. Each Plan is in compliance with the applicable provisions of ERISA
and the IRC, including the filing of reports required under the IRC or ERISA
which are true and correct as of the date filed, and with respect to each
Plan, other than a Qualified Plan, all required contributions and benefits
have been paid in accordance with the provisions of each such Plan. Neither
Borrower, any of
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the Included Subsidiaries, nor any other ERISA Affiliate, with respect to any
Qualified Plan, has failed to make any contribution or pay any amount due as
required by IRC Section 412 or Section 302 of ERISA or the terms of any such
Plan. With respect to all Retiree Welfare Plans, the present value of future
anticipated expenses pursuant to the latest actuarial projections of
liabilities does not exceed $50,000, and copies of such latest projections
have been provided to Lender; with respect to Pension Plans, other than
Qualified Plans, the present value of the liabilities for current
participants thereunder using PBGC interest assumptions does not exceed
$50,000. Neither Borrower nor any of the Included Subsidiaries has engaged
in a prohibited transaction, as defined in Section 4975 of the IRC or Section
406 of ERISA, in connection with any Plan, which would subject Borrower or
such Included Subsidiary (after giving effect to any exemption) to a material
tax on prohibited transactions imposed by IRC Section 4975 or any other
material liability.
(b) Except as set forth on SCHEDULE 4.13: (i) no Title IV Plan
has any Unfunded Pension Liability; (ii) No ERISA Event or event described in
Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is
reasonably expected to occur; (iii) there are no pending, or to the knowledge
of Borrower, threatened claims, actions or lawsuits (other than claims for
benefits in the normal course), asserted or instituted against (x) any Plan
or its assets, (y) any fiduciary with respect to any Plan or (z) Borrower,
any of the Included Subsidiaries or any other ERISA Affiliate with respect to
any Plan; (iv) neither Borrower, any of the Included Subsidiaries nor any
other ERISA Affiliate has incurred or reasonably expects to incur any
Withdrawal Liability (and no event has occurred which, with the giving of
notice under Section 4219 of ERISA, would result in such liability) under
Section 4201 of ERISA as a result of a complete or partial withdrawal from a
Multiemployer Plan; (v) within the last five years neither Borrower, any of
the Included Subsidiaries, nor any other ERISA Affiliate has engaged in a
transaction which resulted in a Title IV Plan with Unfunded Liabilities being
transferred outside of the "controlled group" (within the meaning of Section
4001(a)(14) of ERISA) of any such entity; (vi) no plan which is a Retiree
Welfare Plan provides for continuing benefits or coverage for any participant
or any beneficiary of a participant after such participant's termination of
employment (except as may be required by IRC Section 4980B and at the sole
expense of the participant or the beneficiary of the participant); Borrower
and each of the Included Subsidiaries and other ERISA Affiliates have
complied with the notice and continuation coverage requirements of IRC
Section 4980B and the regulations thereunder except where the failure to
comply could not have or result in any Material Adverse Effect; and (vii) no
liability under any Plan has been funded, nor has such obligation been
satisfied, with the purchase of a contract from an insurance company that is
not rated AAA by the Standard & Poor's Corporation and the equivalent by each
other nationally recognized rating agency.
4.14 NO LITIGATION. Except as set forth on SCHEDULE 4.14, no
action, claim or proceeding is now pending or, to the knowledge of an officer
of Borrower, threatened against Borrower or any of the Included Subsidiaries
at law, in equity or otherwise, before any court, board, commission, agency
or instrumentality of any federal, state or local government, or of any
agency or subdivision thereof, or before any arbitrator or panel of
arbitrators, (i) that challenges Borrower's or any other Credit Party's
right, power or competence to enter into or perform any of its obligations
under the Loan Documents, or the validity or enforceability of the Security
Interest or of any Loan Document or any action hereunder or thereunder or
(ii) that if determined adversely, could have or result in a Material Adverse
Effect or could cause or result in the incurrence by any Credit Party of a
material liability, contingent or liquidated, nor to the
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knowledge of an officer of Borrower does a state of facts exist that is
reasonably likely to give rise to any such action, claim or proceeding.
4.15 BROKERS. Except as set forth on SCHEDULE 4.15, no broker or
finder acting on behalf of Borrower or any of the Included Subsidiaries
brought about the obtaining, making or closing of the loans made pursuant to
this Agreement or the transactions contemplated by the Loan Documents and
neither Borrower nor any of the Included Subsidiaries has any obligation to
any Person in respect of any finder's or brokerage fees in connection
therewith.
4.16 EMPLOYMENT MATTERS. Except as set forth on SCHEDULE 4.16 or
in the proxy statement relating to the 1993 annual meeting of the Borrower,
there are no employment, consulting or management agreements covering
management of Borrower or any of the Included Subsidiaries. A true and
complete copy of each such agreement has been furnished to Lender by
Borrower.
4.17 PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES AND ACCREDITATION.
Except as otherwise set forth on SCHEDULE 4.17, each of Borrower or any of
the Included Subsidiaries owns or has undisputed possession of all licenses,
patents, patent applications, copyrights, service marks, trademarks,
trademark applications, trade names, certificates of need and accreditation
and other rights, the failure to own or possess which could have a Material
Adverse Effect or could cause or result in the incurrence by any Credit Party
of a material liability, contingent or liquidated, each of which is listed,
together with Patent and Trademark Office application or registration
numbers, where applicable, on SCHEDULE 4.17. The Borrower and each of the
Included Subsidiaries is in full compliance with the provisions of each of
the foregoing, except for non-compliances that could not reasonably be
expected to have a Material Adverse Effect or to cause or result in the
incurrence by any Credit Party of a material liability, contingent or
liquidated. SCHEDULE 4.17 lists all tradenames or other names under which
each of Borrower and the Included Subsidiaries conducts business. The
Borrower and each of the Included Subsidiaries conducts its business without
infringement or claim of infringement of any license, patent, copyright,
service mark, trademark, trade name, trade secret or other intellectual
property right of others, except where such infringement or claim of
infringement could not have or result in a Material Adverse Effect or could
not cause or result in the incurrence by any Credit Party of a material
liability, contingent or liquidated. There is no infringement or claim of
infringement by others of any material license, patent, copyright, service
mark, trademark, trade name, trade secret or other intellectual property
right of Borrower or any of the Included Subsidiaries.
4.18 FULL DISCLOSURE. No information contained in this Agreement,
the other Loan Documents, the Projections, the Financials or any written
statement furnished to the Lender by or on behalf of Borrower or any of the
Included Subsidiaries pursuant to the terms of this Agreement or any other
Loan Document, contains any untrue statement of a material fact or omits to
state a material fact necessary to make the statements contained herein or
therein not misleading in light of the circumstances under which they were
made. The Security Interests granted to Lender pursuant to the Collateral
Documents will at all times be fully perfected first priority Liens in and to
the Collateral described therein. No event has occurred since June 30, 1993
and is continuing that has had or could have or result in a Material Adverse
Effect.
4.19 HAZARDOUS MATERIALS. Except as set forth on SCHEDULE 4.19,
the Subject Property is free of contamination from any Hazardous Material.
In addition, SCHEDULE 4.19
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discloses potential material environmental liabilities of any of Borrower or
the Included Subsidiaries of which an officer of Borrower has knowledge (i)
related to noncompliance with the Environmental Laws or (ii) associated with
the Subject Property. Neither Borrower nor any of the Included Subsidiaries
has caused or suffered to occur any Release with respect to any Hazardous
Material at, under, above or within any real property that it owns or leases.
Neither Borrower nor any of the Included Subsidiaries is involved in
operations that could reasonably be expected to lead to the imposition of any
liability or Lien on it, its property, or any premises that it occupies or
any owner thereof, under the Environmental Laws, and neither Borrower nor any
of the Included Subsidiaries has permitted any tenant or occupant of such
premises to engage in any such activity.
4.20 INSURANCE POLICIES. SCHEDULE 4.20 PART II lists all insurance
of any nature maintained by Borrower or any of the Included Subsidiaries, as
well as a summary of the terms of such insurance. Such insurance complies
with the standards set forth on SCHEDULE 4.20 PART I, and all policies listed
on such schedule are in full force and effect.
4.21 DEPOSIT ACCOUNTS. SCHEDULE 4.21 lists all banks and other
financial institutions at which any of Borrower or the other Credit Party
maintains deposits and/or other accounts, and identifies as such each
Collection Account, the Concentration Account and the Disbursement Account,
and such Schedule correctly identifies the name, address and telephone number
of each depository, the name in which the account is held, a description of
the purpose of the account, and the complete account number.
4.22 SOLVENT FINANCIAL CONDITION. Each of Borrower and the other
Credit Parties is now, and after giving effect to the incurrence of the
obligations and the granting of the Security Interests contemplated hereunder
and under the other Loan Documents, will be Solvent.
4.23 THIRD PARTY REIMBURSEMENT. If the Borrower or any Included
Subsidiary is or has been audited by "Medicare", "Medicaid" or similar
governmental third party payors, (i) none of such audits provides for
adjustments in reimbursable costs or asserts claims for reimbursement or
repayment by such Person of costs and/or payments theretofore made by such
governmental third party payor that, if adversely determined, would have a
Materially Adverse Effect, and (ii) none has had requests or assertions of
claims for reimbursement or repayment by such Person of costs and/or payments
heretofore made by any other third party payor that, if adversely determined,
would result in a Material Adverse Effect, in each case (i) and (ii) except
as described on SCHEDULE 4.3.
5. FINANCIAL STATEMENTS AND INFORMATION
5.1 REPORTS AND NOTICES. Borrower covenants and agrees that from
and after the Closing Date and until the Termination Date, it shall deliver
or cause to be delivered to Lender each of the following at the Lender's
address specified pursuant to SECTION 9.10, provided, that, so long as no
borrowings are outstanding under this Agreement, Borrower shall be obligated
to deliver or cause to be delivered only the information required by clauses
(a), (c), (d), (e), (f) and (g) below.
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(a) On the 20th day of each Fiscal Month, a Borrowing Base
Certificate as of the last day of the preceding month, in each case
accompanied by such supporting detail and documentation as is satisfactory to
Lender;
(b) Within 30 days after the end of each Fiscal Month, financial
and other information for such Fiscal Month certified by an officer of
Borrower, including, without limitation, (i) an internally-prepared
consolidated statement of income and cash flow and balance sheet, as well as
a summary aged receivable trial balance (by payor category), each of which
shall provide comparisons to the internally prepared statement for the prior
year's equivalent period and (ii) the certification of the chief executive
officer or chief financial officer of Borrower that all such financial
statements present fairly in accordance with GAAP (subject to normal year-end
audit adjustments and the absence of footnotes) the financial position, the
results of operations and the statements of cash flow of Borrower and the
Included Subsidiaries as at the end of such month and for the period then
ended, that such aged receivable trial balance is complete and correct in all
material respects as of its date and that no Default exists;
(c) Within 50 days after the end of each of the first three Fiscal
Quarters, a copy of the unaudited condensed consolidated balance sheet of
Borrower and the Included Subsidiaries as of the close of such quarter and
the related condensed consolidated statement of income and cash flow for such
quarter and that portion of the Fiscal Year ending as of the close of such
quarter, all prepared in accordance with GAAP (subject to normal year-end
audit adjustments and the absence of complete footnotes) and accompanied by
(A) a statement in reasonable detail showing the calculations used in
determining Borrower's compliance with the financial covenants set forth in
SECTION 7.10 AS OF THE CLOSE OF SUCH QUARTER, and (B) the certification of
the chief executive officer or chief financial officer of Borrower that all
such financial statements present fairly in accordance with GAAP (subject to
normal year-end audit adjustments and the absence of footnotes) the financial
position the results of operations of Borrower and the Included Subsidiaries
as at the end of such quarter and for the period then ended, and that no
Default exists;
(d) Not more than 60 days after the beginning of each Fiscal Year,
an operating plan for Borrower and the Included Subsidiaries, approved by
Borrower's board of directors, for such Fiscal Year that includes a monthly
budget for the following year and includes for such year, operating profit
estimates and plans for capital expenditures and facilities and that is
accompanied by a certificate of the Borrower's chief executive officer or
chief financial officer that such operating plan is based upon reasonable
estimates and assumptions, all of which are reasonable in light of conditions
then existing, have been prepared on the basis of the assumptions stated
therein, and reflect the reasonable estimate of Borrower of the expected
results of operations and other information projected therein;
(e) Within 100 days after the end of each Fiscal Year, audited
consolidated financial statements of Borrower and the Included Subsidiaries,
consisting of balance sheets and statements of income, cash flows and
changes in financial position, which financial statements shall be prepared
in accordance with GAAP, reported on (only with respect to the financial
statements) without qualification by a firm of independent certified public
accountants of recognized national standing selected by Borrower and
reasonably acceptable to Lender, and accompanied by (i) a schedule in
reasonable detail showing the calculations used in determining Borrower's and
the Included Subsidiaries' compliance with the financial covenants set forth
in
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SECTION 7.10, (ii) a report from such accountants to the effect that in
connection with their audit examination, nothing has come to their attention
to cause them to believe that a Default has occurred, (iii) the annual letter
from Borrower's chief financial officer to such accountants in connection
with their audit examination detailing Borrower's and the Included
Subsidiaries' contingent liabilities and material litigation matters
involving Borrower or any of the Included Subsidiaries, and (iv) a
certification of the chief executive officer or chief financial officer of
Borrower that all such financial statements present fairly in accordance with
GAAP the financial position, the results of operations and the cash flows of
Borrower and the Included Subsidiaries as at the end of such year and for the
period then ended and that no Default exists; provided, that the provisions
of clause (ii) shall not apply if such a report would be contrary to the then
current recommendations of the American Institute of Certified Public
Accountants or the Company's independent public accountants have in effect a
policy, of general applicability with respect to their clients, that such
accountants will not give such reports;
(f) As soon as practicable, but in any event within two (2)
Business Days after any officer of Borrower becomes aware of the existence of
any Default, or any development or other information that could reasonably be
expected to have or result in a Material Adverse Effect, telephonic or
telegraphic notice specifying the nature of such Default or development or
information, including the anticipated effect thereof, which notice shall be
promptly confirmed in writing within five (5) Business Days;
(g) Promptly upon filing thereof, copies of such financial
statements and reports as the Borrower shall send to its stockholders and all
registration statements except those on Form S-8 or a successor form) and all
regular or periodic reports that the Borrower shall file, or may be required
to file, with the Securities and Exchange Commission or any successor
commission;
(h) Promptly upon receipt thereof, copies of all reports, if any,
submitted to the Borrower or its board of directors by its independent
certified public accountants, including without limitation any management
report;
(i) As often as Lender may request, such statements and schedules
further identifying and describing the Collateral and such other reports in
connection therewith as Lender may request, all in reasonable detail;
(j) Promptly upon learning thereof, Borrower shall advise Lender
in reasonable detail of (i) any material Lien (other than as permitted under
SECTION 7.6) attaching to or asserted against any of the Collateral, (ii) any
material change in the composition of the Collateral or (z) the occurrence of
any other event that could reasonably be expected to have or result in a
material adverse effect upon the Collateral and/or Lender's Liens thereon;
and
(k) Such other information respecting Borrower's or any of the
Included Subsidiaries' business, financial condition or prospects as Lender
may, from time to time, reasonably request; provided, that Borrower shall not
be obligated to provide information the provision of which would violate any
law or regulation or would be inconsistent with any common industry practice
relating to patient confidentiality.
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5.2 COMMUNICATION WITH ACCOUNTANTS. Borrower authorizes (for
itself and on behalf of the Included Subsidiaries) Lender to communicate
directly with its and the Included Subsidiaries' independent certified public
accountants and tax advisors and authorizes those accountants to disclose to
Lender any and all financial statements and other supporting financial
documents and schedules including copies of any management letter with
respect to the business, financial condition and other affairs of Borrower
and the Included Subsidiaries.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees (for itself and the Included
Subsidiaries) that, unless Lender shall otherwise consent in writing, from
and after the date hereof and until the Termination Date:
6.1 MAINTENANCE OF EXISTENCE AND CONDUCT OF BUSINESS. Borrower
shall and shall cause each of the Included Subsidiaries to: (a) do or cause
to be done all things necessary to preserve and keep in full force and effect
its corporate existence and its rights and franchises, PROVIDED, however that
this Section 6.1(a) shall not prohibit any merger, consolidation,
liquidation, dissolution or disposition permitted pursuant to Section 7.1, (b)
continue to conduct its business substantially as now conducted or as
otherwise permitted hereunder, (c) at all times maintain, preserve and protect
all of its licenses, patents, patent applications, copyrights, service marks,
trademarks, trademark applications, trade names, certificates of need,
accreditation and other rights, the failure to preserve which could have a
Material Adverse Effect, and (d) preserve all the remainder of its property,
in use or useful in the conduct of its business, and keep the same in good
repair, working order and condition (taking into consideration ordinary wear
and tear) and from time to time make, or cause to be made, all necessary or
appropriate repairs, replacements and improvements thereto consistent with
industry practices, and (e) in the case of each Credit Party, transact
business only in its corporate name or such fictitious or trade names as are
expressly disclosed in the Security Agreement executed by such Credit Party.
6.2 PAYMENT OF OBLIGATIONS. (a) Borrower shall and shall cause
each of the Included Subsidiaries to: (i) pay and discharge or cause to be
paid and discharged all the Obligations, and (ii) prior to an Event of
Default, pay and discharge, or cause to be paid and discharged, its
Indebtedness other than the Obligations, and (iii) subject to SECTION 6.2(b),
pay and discharge promptly all (A) Charges imposed upon such Person, its
income and profits, or any of its property (real, personal or mixed), and (B)
lawful claims for labor, materials, supplies and services or otherwise,
before any thereof shall become in default.
(b) Borrower or any Included Subsidiary may in good faith contest,
by proper legal actions or proceedings, the validity or amount of any Charges
or claims described in SECTION 6.2(a)(iii); PROVIDED, that at the time of
commencement of any such action or proceeding, and during the pendency
thereof (i) no Event of Default shall exist, (ii) adequate reserves with
respect thereto are maintained on the books of the contesting Person in
accordance with GAAP, (iii) such contest together with any bond that is a
Permitted Encumbrance operates to suspend collection of the contested Charges
or claims and such contest is maintained and prosecuted continuously and with
diligence, (iv) none of the Collateral would be subject to forfeiture or loss
or any Lien, except for a Permitted Encumbrance, by reason of the institution
or prosecution of such contest, (v) no Lien shall exist, be imposed or be
attempted to be imposed for such Charges or claims during such action or
proceeding, and (vi) the contesting Person shall promptly pay or
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discharge such contested Charges and all additional charges, interest,
penalties and expenses, if any, and shall deliver to Lender evidence
acceptable to Lender of such compliance, payment or discharge, if such
contest is terminated or discontinued adversely to the contesting Person.
6.3 BOOKS AND RECORDS. Borrower shall, and shall cause each of
the Included Subsidiaries to, keep adequate records and books of account with
respect to such Person's business activities, in which proper entries,
reflecting its financial transactions in accordance with sound accounting
practices, are made in accordance with GAAP (to the extent it applies to
books and records) and on a basis consistent with preparation of the
Financials referred to in PARAGRAPH I(b) of SCHEDULE 4.4.
6.4 LITIGATION. Borrower shall notify Lender in writing, promptly
upon learning thereof, of any litigation commenced or threatened against
Borrower or any of the Included Subsidiaries, and of the institution against
Borrower or any of the Included Subsidiaries of any suit or administrative
proceeding, that (a) may involve an amount in excess of $500,000 or (b) could
reasonably be expected to have or result in a Material Adverse Effect if
adversely determined.
6.5 INSURANCE. (a) Borrower, at its or the Included
Subsidiaries' sole cost and expense, shall maintain or cause to be maintained
the policies of insurance described on SCHEDULE 4.20 in form, with such
endorsements and with insurers recognized as adequate by Lender. Such
polices shall be in such amounts as are set forth on SCHEDULE 4.20 or such
lesser amounts as the Lender shall reasonably agree in writing. Borrower
shall notify Lender promptly of any casualty occurrence causing a material
loss or decline in value of any real or personal property and the estimated
(or actual, if available) amount of such loss or decline. In the event
Borrower at any time or times hereafter shall fail to obtain or maintain (or
cause to be obtained or maintained) any of the policies of insurance required
above that insure the Collateral or to pay (or cause to be paid) any premium
in whole or in part relating thereto, Lender, without waiving or releasing
any Obligation or Default hereunder, may at any time or times thereafter (but
shall not be obligated to) obtain and maintain such policies of insurance and
pay such premium and take any other action with respect thereto which Lender
deems advisable. All sums so disbursed, including reasonable attorneys'
fees, court costs and other charges related thereto, shall be payable, on
demand, by Borrower to Lender and shall be additional Obligations hereunder
secured by the Collateral, PROVIDED, that if and to the extent Borrower fails
to promptly pay any of such sums upon Lender's demand therefor, Lender is
authorized to, and at its option may, make or cause to be made Advances on
behalf of Borrower for payment thereof.
(b) Borrower shall, if so requested by Lender, deliver to Lender,
as often as Lender may request, a report of a reputable insurance broker,
satisfactory to Lender with respect to its insurance policies.
(c) Borrower shall deliver to Lender endorsements to all of its
and the Included Subsidiaries' general liability and other liability policies
naming Lender an additional insured.
6.6 COMPLIANCE WITH LAWS. Borrower shall, and shall cause each of
the Included Subsidiaries to, comply in all material respects with all
Applicable Laws, including,
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without limitation, those relating to licensing, environmental, consumer
credit, ERISA and labor matters.
6.7 AGREEMENTS. Borrower shall, and shall cause each of the
Included Subsidiaries to, perform, within all required time periods (after
giving effect to any applicable grace periods), all of such Person's
obligations and enforce all of such Person's rights under each agreement to
which such Person is a party, including, without limitation, any lease and
customer contracts to which such Person is a party where the failure to so
perform and enforce could reasonably be expected to have a Material Adverse
Effect or to cause or result in the incurrence by any Credit Party of a
material liability, contingent or liquidated. Borrower shall not terminate
or modify, or permit any of the Included Subsidiaries to terminate or modify,
any provision of any agreement to which it is a party which termination or
modification could reasonably be expected to have or result in a Material
Adverse Effect or to cause or result in the incurrence by any Credit Party of
a material liability, contingent or liquidated.
6.8 EMPLOYEE PLANS. Borrower shall notify Lender of (i) any and
all claims, actions, or lawsuits asserted or instituted, and of any
threatened litigation or claims, against Borrower or against any Included
Subsidiary or other ERISA Affiliate of Borrower in connection with any Plan
maintained, at any time, by any such Person or to which any such Person has
or had at any time any obligation to contribute, or/and against any such Plan
itself, or against any fiduciary of or service provided to any such Plan, and
(ii) the occurrence of any "Reportable Event" with respect to any Pension
Plan of Borrower or any Included Subsidiary or other ERISA Affiliate of
Borrower.
6.9 ENVIRONMENTAL MATTERS. Borrower shall, and shall cause each
of the Included Subsidiaries to, (i) comply in all respects with the
Environmental Laws applicable to such Person except for such non-compliances
as singly or in the aggregate, could not reasonably be expected to have a
Materially Adverse Effect, (ii) notify Lender promptly after Borrower becomes
aware of any Release upon any premises owned or occupied by such Person that
could reasonably be expected to have a Materially Adverse Effect or result in
the incurrence by any Credit Party of a material liability, actual or
contingent, and (iii) promptly forward to Lender a copy of any order, notice,
permit, application, or any communication or report received by such Person
in connection with any such Release or in connection with any other matter
relating to the Environmental Laws that, singly or in the aggregate, may
adversely affect the use or value of such premises in any material respect.
The provisions of this SECTION 6.9 shall apply whether or not the
Environmental Protection Agency, any other federal agency or any state or
local environmental agency has taken or threatened any action in connection
with any Release or the presence of any Hazardous Materials.
6.10 NEW SUBSIDIARIES. Prior to creating any Subsidiary (other
than a Designated Subsidiary) after the Closing Date, the Borrower shall (a)
provide not less than 15 days prior written notice to Lender, and (b) cause
such Subsidiary to become an Additional Credit Party hereunder.
6.11 ACCESS. Borrower shall, and shall cause each of the Included
Subsidiaries to, (i) provide access during normal business hours to Lender
and any of its officers, employees and agents, upon 5 days advance notice
(unless a Default shall have occurred and be continuing, in which event no
notice shall be required and Lender shall have access at any and all times),
to
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the properties and facilities of Borrower or any of the Included
Subsidiaries; (ii) permit Lender and any of its officers, employees and
agents to inspect, audit and make extracts from all of Borrower's or any
Included Subsidiary's records, files and books of account, and (iii) permit
Lender to inspect, review and evaluate Borrower's or any of the Included
Subsidiaries' accounts and other records (excluding attorney-client
privileged documents), at Borrower's or such Included Subsidiary's locations
and at premises not owned by or leased to Borrower or such Included
Subsidiary. Borrower shall, and shall cause each of the Included
Subsidiaries to, make available to Lender and its counsel, as quickly as
practicable under the circumstances, copies of all books, records, board
minutes, contracts, insurance policies, environmental audits, business plans,
files, financial statements (actual and pro forma), filings with federal,
state and local regulatory agencies, and other instruments and documents
(excluding attorney-client privileged documents) that Lender may request.
Borrower shall, and shall cause each of the Included Subsidiaries to, deliver
any document or instrument reasonably necessary for Lender, as it may from
time to time request, to obtain records from any service bureau or other
Person which maintains records for Borrower or any of the Included
Subsidiaries, and shall maintain duplicate records or supporting
documentation on media, including, without limitation, computer tapes and
discs owned by Borrower or such Included Subsidiary. Borrower shall, and
shall cause each of the Included Subsidiaries to, instruct its certified
public accountants and its banking and other financial institutions to make
available to Lender such information and records as Lender may reasonably
request. Any provision of this SECTION 6.11 to the contrary notwithstanding,
Borrower shall not be obligated to provide information relating to patient
confidentiality the provision of which would violate any law or regulation or
would be inconsistent with any common industry practice.
6.12 CASH MANAGEMENT. (a) The Borrower shall and shall cause
each Credit Party, so long as any Loan or other Obligation shall be
outstanding, to: (i) deposit or cause to be deposited directly, in either
case on the date of receipt thereof and in the form received, all cash,
checks, notes, drafts or other similar items of payment relating to or
constituting payments made in respect of any and all Collateral only into the
Collection Accounts; (ii) disburse or permit the disbursement of amounts in
the Collection Accounts only to the Concentration Account; and (iii) disburse
or permit the disbursement of amounts in the Concentration Account only to
the Payment Account or to the Disbursement Account.
(b) So long as no Default has occurred, Borrower may add or
replace a Collection Account or replace the Concentration Account; PROVIDED,
HOWEVER, that (i) Lender shall have consented to the opening of such account
with the relevant bank, and (ii) at the time of the opening of such account,
the appropriate Credit Party and such bank shall have executed and delivered
to Lender a triparty account agreement, in form and substance satisfactory to
Lender.
(c) (i) From and after the date that the amount of the Working
Capital Loan outstanding hereunder shall equal or exceed $5,000,000, or (ii)
so long as a Default shall have occurred and be continuing, the Borrower
agrees to cause the banks to daily sweep all collected funds from the
Collection Accounts into the Concentration Account and the banks and the
Lender shall daily sweep amounts from the Concentration Account to the Lender
for application against the Obligations as described in SECTION 2.7; PROVIDED
that, in the absence of a Default, from and after the date that the aggregate
amount of the Working Capital Loan shall have been reduced to, and maintained
at, zero for a period of 60 days, the daily sweeps may be suspended at the
request of the Borrower until the amount of the Working Capital Loan shall
again equal or
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exceed $5,000,000 or a Default shall have occurred and be continuing, in
which case the Borrower agrees that the sweeps shall resume. Borrower shall
and shall cause the other Credit Parties to take all such steps as the Lender
shall request to facilitate the arrangements described in this SECTION 6.12
and to preserve the Lender's security interest granted in the amount
deposited to such accounts pursuant to the Loan Documents. The Borrower and,
by its execution of the Guaranty, each Credit Party, agrees, to the fullest
extent permitted under Applicable Law, that the Lender shall be entitled to
obtain an immediate court order for specific performance of the obligations
of the Borrower and the other Credit Parties under this Section in the event
of a failure of any Credit Party to comply with this Section, it being agreed
in advance that any remedy at law would be inadequate in the event of such a
failure.
6.13 ACCREDITATION AND LICENSING. The Borrower shall (i) except as
provided below or on SCHEDULE 6.13, keep each hospital that it or any of the
Included Subsidiaries operates at all times fully accredited by the Joint
Commission on the Accreditation of Health Care Organizations or any
substitute organization acceptable to the Lender that is nationally
recognized as performing the functions now performed by such Commission, (ii)
keep itself and each Included Subsidiary fully licensed with all licenses
required to operate its business under Applicable Law, and (iii) maintain its
qualification for participation in, and payment under, Medicare and Medicaid
and other federal, state and local governmental programs and private programs
providing for payment or reimbursement for services rendered by such Persons,
except, in the case of the requirements of clauses (i) and (iii), to the
extent that the loss or relinquishment of such qualification will not have a
Materially Adverse Effect. The Borrower will promptly furnish copies of all
reports and correspondence relating to a loss or proposed revocation of any
qualification described in the preceding sentence to the Lender.
7. NEGATIVE COVENANTS
Borrower covenants and agrees (for itself and the Included
Subsidiaries) that, without Lender's prior written consent, from and after
the date hereof until the Termination Date:
7.1 MERGERS, ETC. Neither Borrower nor any of the Included
Subsidiaries shall, directly or indirectly, by operation of law or otherwise,
merge with, consolidate with, acquire all or substantially all of the assets
or capital stock of, or otherwise combine with, any Person or, except as
otherwise permitted by SECTION 6.10 or SECTION 7.2, form any Subsidiary;
PROVIDED that the Borrower may acquire all or substantially all of the assets
or capital stock of another Person (a) if such acquisition would not violate
any provision of this Agreement, (b) if in the case of an acquisition made
with consideration other than the proceeds of a Loan hereunder, the aggregate
purchase price thereof (including any debt assumed), together with the
aggregate purchase price of all other acquisitions made under this provision
since the Closing Date, does not exceed $5,000,000 and (c) if, in the case of
an acquisition with respect to which an Advance is requested by Borrower, so
long as the Borrower demonstrates to the Lender's satisfaction: (i) that the
Borrower (on a pro forma basis after giving effect to such acquisition) will
remain in compliance with all financial covenants set forth herein, (ii) the
acquisition target is, and will continue to be cash flow positive or the
acquisition target is a strategic acquisition made in an existing market for
the purpose of protecting or enhancing an existing hospital of such Person
then operating in that market, (iii) the acquisition target is a related
business that is: (A) if the acquisition is of a Hospital, the sole or
dominant provider in its market or is the sole or dominant provider in its
market of the type or group of services that are the primary services that it
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provides, or (B) a competitor of the Borrower or one of the Included
Subsidiaries in such Person's market, (iv) no Default exists or would result
therefrom, and (v) the purchase price does not exceed 6 times the EBITDA of
acquisition target as shown on the most recently available 12 months of
financial statements of the acquisition target; PROVIDED, FURTHER that any
Included Subsidiary may merge, consolidate or otherwise combine with or
acquire the assets of another Included Subsidiary and any Included Subsidiary
may merge, consolidate or otherwise combine with or transfer its assets to
the Borrower.
7.2 INVESTMENTS; LOANS AND ADVANCES. Except as otherwise
permitted by the following sentence, SECTIONS 6.10, 7.1 or 7.4, or as
otherwise set forth on SCHEDULE 4.9, neither Borrower nor any of the Included
Subsidiaries shall make or maintain any investment in, or make or accrue
loans or advances of money to any Person, through the direct or indirect
holding of securities or otherwise (all of the foregoing "Investments"). The
Borrower may make Investments (i) in Included Subsidiaries and Included
Subsidiaries may make Investments in the Borrower, and (ii) in any Subsidiary
of the Borrower created or acquired after the Closing Date that the Borrower
shall designate to the Lender in writing at the time of the creation or
acquisition thereof to be a "Designated Subsidiary", PROVIDED that the gross
fair market value of the assets invested in such Subsidiary, determined in
the reasonable judgment of the Board of Directors of the Borrower at the time
of the Investment, together with the gross fair market value of all assets
previously Invested in all Designated Subsidiaries hereunder, shall not
exceed $3,000,000 over the term of this Agreement, and PROVIDED FURTHER that
the Borrower promptly notify the Lender of each such Investment in such
Subsidiary and of the determined gross fair market value of the assets
invested in connection therewith.
7.3 INDEBTEDNESS. Neither Borrower nor any of the Included
Subsidiaries shall create, incur, assume or permit to exist any Indebtedness,
except (i) Indebtedness in an aggregate amount not to exceed $3,000,000, (ii)
the Obligations, (iii) unfunded pension fund and other employee benefit plan
obligations and liabilities not to exceed $500,000 and then only to the
extent they are permitted to remain unfunded under Applicable Law, (iv)
Indebtedness of any Subsidiary to Borrower or another Included Subsidiary of
Borrower, (v) Indebtedness of Borrower to any Credit Party and (vi) other
Indebtedness set forth on SCHEDULE 4.9 or SCHEDULE 7.4.
7.4 AFFILIATE AND EMPLOYEE LOANS; TRANSACTIONS AND EMPLOYMENT
AGREEMENTS. Except as expressly permitted hereunder, Borrower shall not (and
shall not permit any of the Included Subsidiaries to) enter into any lending,
borrowing or other commercial transaction with any of its employees,
directors or Affiliates (other than the Included Subsidiaries) without the
prior written consent of Lender, including, without limitation, payment of
any management consulting, advisory or similar fee based on or related to
Borrower's or any such Included Subsidiary's operating revenue, performance
or income or any percentage thereof other than (a) pursuant to the
transactions described on SCHEDULE 7.4 and (b) full-time employment
agreements and incentive compensation programs with employees on commercially
reasonable terms substantially similar to the agreements in effect on the
Closing Date and described on SCHEDULE 7.4.
7.5 CAPITAL STRUCTURE AND BUSINESS. Borrower shall not make any
changes in any of its or any of the Included Subsidiaries' business
objectives, purposes, or operations which could in any way be reasonably
expected to adversely affect the repayment of the Obligations, the
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<PAGE>
security interests granted under the Collateral Documents or to have or
result in a Material Adverse Effect. Borrower and the Included Subsidiaries
shall not engage in any business other than the business currently engaged in
by them.
7.6 LIENS. Borrower shall not, and shall not permit any of the
Included Subsidiaries to, create or permit any Lien on any of such Person's
properties or assets except presently existing or hereafter created Liens in
favor of Lender, Liens set forth on SCHEDULE 7.6 and Permitted Encumbrances.
Borrower also shall defend, and shall cause each of the other Credit Parties
to defend, the right, title and interest of Lender and any of Borrower's or
such other Credit Party's rights, titles and interest in, to and under the
Collateral against the claims and demands of all Persons whomsoever and shall
not enter into any agreement that prohibits the Borrower or any of the
Included Subsidiaries from granting any additional Liens to the Lender.
7.7 SALE OF ASSETS. Borrower shall not, and shall not permit any
of the Included Subsidiaries to, sell, transfer, convey, assign or otherwise
dispose of any such Person's assets or properties, including, without
limitation, its Accounts, except for sales in the ordinary course of business
consistent with past practice, and the creation of Liens permitted pursuant
to SECTION 7.6.
7.8 EVENTS OF DEFAULT. Borrower shall not, and shall not permit
any of the Included Subsidiaries to, take any action or omit to take any
action, which act or omission would constitute (a) a Default pursuant to, or
noncompliance with any of, the terms of any of the Loan Documents or (b) a
material default or an event of default pursuant to, or noncompliance with,
any other contract, lease, mortgage, deed of trust or instrument to which
such Person is a party or by which it or any of its property is bound, or any
document creating a Lien, except, in the case of the clause (b) only, for
such actions or omissions that, in the reasonable judgment of the Lender,
could not be expected to have a Materially Adverse Effect.
7.9 ERISA. Neither Borrower nor any Included Subsidiary or other
ERISA Affiliate of Borrower shall without Lender's prior written consent
acquire any new ERISA Affiliate that maintains or has an obligation to
contribute to a Pension Plan that has either an "accumulated funding
deficiency," as defined in Section 302 of ERISA, or any "unfunded vested
benefits," as defined in Section 4006(a)(3)(e)(iii) of ERISA, in the case of
any plan other than a Multiemployer Plan, and in Section 4211 of ERISA in the
case of a Multiemployer Plan. Additionally, neither Borrower nor any
Included Subsidiary or other any ERISA Affiliate of Borrower shall, without
Lender's prior written consent, permit or suffer any condition set forth on
SCHEDULE 4.13 to cease to be met and satisfied at any time; terminate any
Pension Plan that is subject to Title IV of ERISA where such termination
could reasonably be anticipated to result in liability to any such Person;
permit any accumulated funding deficiency, as defined in Section 302(a)(2) of
ERISA, to be incurred with respect to any Pension Plan; fail to make any
contributions or fail to pay any amounts due and owing as required by the
terms of any Plan before such contributions or amounts become delinquent;
make a complete or partial withdrawal (within the meaning of Section 4201 of
ERISA) from any Multiemployer Plan; or at any time fail to provide Lender
with copies of any Plan documents or governmental reports or filings, if
reasonably requested by Lender.
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7.10 FINANCIAL COVENANTS. Borrower shall not breach or fail to
comply with any of the following financial covenants, each of which shall be
calculated on a consolidated basis in accordance with GAAP, consistently
applied:
(a) MAXIMUM CAPITAL EXPENDITURES. Borrower and the Included
Subsidiaries shall not make Capital Expenditures that exceed in the
aggregate for all such Persons, taken as a whole, during any Fiscal Year
the amount set forth opposite such Fiscal Year below:
<TABLE>
<CAPTION>
Fiscal Year ended Maximum Capital Expenditures
----------------- ----------------------------
<S> <C>
June 30, 1994 $12,500,000
June 30, 1995 $12,500,000
June 30, 1996 $12,500,000
June 30, 1997 $ 6,500,000
June 30, 1998 and thereafter $ 6,500,000
</TABLE>
Permitted Capital Expenditures for each Fiscal Year shall be
increased by (i) the unused portion of Capital Expenditures permitted
and not used for the prior Fiscal Year, not to exceed 1/2 of the amount
originally permitted for such year without giving effect to any
increases permitted pursuant to this sentence, and (ii) 100% of the net
proceeds received in such year from the sale of capital assets.
(b) MINIMUM NET WORTH. Borrower shall have and maintain at all
times during each of the Fiscal Years set forth below Net Worth equal to
or greater than the amount set forth opposite such date:
<TABLE>
<CAPTION>
Fiscal Year ended Minimum Net Worth
----------------- -----------------
<S> <C>
June 30, 1994 $22,500,000
June 30, 1995 $21,000,000
June 30, 1996 $21,000,000
June 30, 1997 $20,000,000
June 30, 1998 and thereafter $20,000,000
</TABLE>
(c) MINIMUM EBITDA. Borrower shall have EBITDA, measured as at
the end of each Fiscal Quarter for the twelve month period ended on such
date of not less than the amount set forth below opposite the fiscal
period in which such quarter occurs:
<TABLE>
<CAPTION>
Fiscal Quarter ended Minimum EBITDA
-------------------- --------------
<S> <C>
December 31, 1993 16,500,000
March 31, 1994 17,500,000
June 30, 1994 19,000,000
Fiscal Year ended
-----------------
June 30, 1995 $18,500,000
</TABLE>
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<TABLE>
<S> <C>
June 30, 1996 $18,500,000
June 30, 1997 $18,000,000
June 30, 1998 and thereafter $17,500,000
</TABLE>
(d) MINIMUM INTEREST COVERAGE RATIO. Borrower shall have a ratio
of (i) EBITDA MINUS Capital Expenditures to (ii) Interest Expense, in
each case measured as at the end of each Fiscal Quarter for the twelve
months ended on such date, of not less than the amount set forth below
opposite the fiscal period in which such quarter occurs, below:
<TABLE>
<CAPTION>
Fiscal Quarter ended Minimum Ratio
-------------------- -------------
<S> <C>
December 31, 1993 0.40
March 31, 1994 0.50
June 30, 1994 0.65
Fiscal Year ended
-----------------
June 30, 1995 0.60
June 30, 1996 0.60
Fiscal Quarter ended
--------------------
September 30, 1996 0.70
December 31, 1996 0.85
March 31, 1997 0.95
June 30, 1997 and thereafter 1.10
</TABLE>
(e) MINIMUM FIXED CHARGE COVERAGE RATIO. Borrower shall have a
ratio of (i) EBITDA MINUS Capital Expenditures to (ii) Fixed Charges, in
each case measured as at the end of each Fiscal Quarter for the twelve
month period ended on such date (the "FIXED CHARGE COVERAGE RATIO"), of
not less than the amount set forth opposite the fiscal period in which
such quarter occurs below:
<TABLE>
<CAPTION>
Fiscal Quarter Ended Minimum Ratio
-------------------- -------------
<S> <C>
September 30, 1996 0.65
December 31, 1996 0.80
March 31, 1997 0.90
June 30, 1997 1.00
Fiscal Year ended:
------------------
June 30, 1998 and thereafter 1.00
</TABLE>
(f) AVERAGE COLLECTION PERIOD. The Borrower shall maintain and
shall cause each of the Included Subsidiaries to maintain, an Average
Collection Period for each
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twelve month period, computed at the end of each Fiscal Quarter, of not
greater than 72 days.
7.11 HAZARDOUS MATERIALS. Except as set forth on SCHEDULE 4.19,
Borrower shall not and shall not permit any of the Included Subsidiaries or
any other Person within the control of Borrower to cause or permit a Release
or the presence, use, generation, manufacture, installation, Release,
discharge, storage or disposal of any Hazardous Materials on, under, in,
above, or about any of its real estate or the transportation of any Hazardous
Materials to or from any real estate where such Release or presence, use,
generation, manufacture, installation, Release, discharge, storage or
disposal would violate any Environmental Laws.
7.12 RESTRICTED PAYMENTS. Borrower shall not make any Restricted
Payment, except, in the absence of a Default, for the following: (i)
declaration and payment of dividends on and redemption of the class of
Borrower's Preferred Stock outstanding on the date of this Agreement; (ii)
purchase or other acquisition of options to purchase shares of Borrower's
common stock from employees or directors upon termination of employment or
service as a director in an aggregate amount over the term of this agreement
not to exceed $2,000,000; and (iii) declaration and payment of cash dividends
on Borrower's common stock to the extent the aggregate amount of such
dividends from the date of this Agreement does not exceed 8% of the net cash
proceeds to Borrower from sales of shares of its common stock made after the
date of this Agreement.
7.13 AMENDMENTS TO SUBORDINATED NOTES. Borrower shall not amend
or modify the terms of the Subordinated Notes or purchase, repay or acquire,
directly or indirectly, any Subordinated Note without the prior written
consent of the Lender.
7.14 CHANGE IN CONTROL. Borrower shall not permit the acquisition
after the date of this Agreement by any Person, or by any group (within the
meaning of Rule 13d-3 of the Securities and Exchange Commission), of
beneficial ownership (within the meaning of such rule) of 45% or more of the
outstanding Voting Stock of Borrower, except for acquisitions by Persons who
are members of the Board of Directors of Borrower on the Closing Date.
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
8.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events (regardless of the reason therefor) shall constitute an
"Event of Default" hereunder:
(a) Borrower shall fail to make any payment in respect of any
Obligations hereunder or under any of the other Loan Documents when and as
due and payable or declared due and payable.
(b) Borrower shall fail or neglect to perform, keep or observe
any of the provisions of SECTION 2.8, SECTION 6.2(a)(i) or SECTION 7, or any
Credit Party shall fail or neglect to perform, keep or observe any of the
provisions of Section 5(e) of the Security Agreement executed by such Person.
(c) Borrower or any other Credit Party shall fail or neglect to
perform, keep or observe any term or provision of this Agreement (other than
any such term or provision
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referred to in PARAGRAPHS (a) or (b) above) or of any of the other Loan
Documents, and the same shall remain unremedied for a period ending on the
first to occur of 30 days after Borrower or such Credit Party shall receive
written notice of any such failure from Lender or 60 days after Borrower or
such other Credit Party shall become aware thereof.
(d) A default shall occur under any other agreement, document or
instrument to which Borrower or any of the Included Subsidiaries is a party
or by which any such Person or its property is bound and such default (i)
involves the failure to make any payment (whether of principal, interest or
otherwise) due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) in respect of any Indebtedness of such
Person in an aggregate amount exceeding $500,000 or (ii) causes (or permits
or, with the passage of time or the giving of notice or both, would permit
any holder of such Indebtedness or a trustee to cause) such Indebtedness, or
a portion thereof in an aggregate amount exceeding $500,000 to become due
prior to its stated maturity or prior to its regularly scheduled dates of
payment.
(e) Any representation or warranty herein or in any Loan Document
or in any written statement pursuant thereto or hereto, any report, financial
statement or certificate made or delivered to Lender by Borrower or any other
Credit Party shall be untrue or incorrect in any material respect, as of the
date when made or deemed made (including those made or deemed made pursuant
to SECTION 3.3).
(f) Any of the assets having a book or market value in excess of
$500,000 of Borrower or any of the Included Subsidiaries shall be attached,
seized, levied upon or subjected to a writ or distress warrant, or come
within the possession of any receiver, trustee, custodian or assignee for the
benefit of creditors of such Person and such matter shall remain unstayed or
undismissed for thirty (30) consecutive days; or any Person other than
Borrower shall apply for the appointment of a receiver, trustee or custodian
for any of Borrower's or any of the Included Subsidiaries' assets and such
matter shall remain unstayed or undismissed for thirty (30) consecutive days;
or Borrower or any of the Included Subsidiaries shall have concealed, removed
or permitted to be concealed or removed, any part of such Person's property,
with intent to hinder delay or defraud its creditors or any of them or made
or suffered a transfer of any of its property or the incurring of an
obligation which may be fraudulent under any bankruptcy, fraudulent
conveyance or other similar law.
(g) A case or proceeding shall have been commenced against
Borrower or any of the Included Subsidiaries in a court having competent
jurisdiction seeking a decree or order (i) under Title 11 of the United
States Code, as now constituted or hereafter amended, or any other applicable
federal, state or foreign bankruptcy, insolvency, moratorium or other similar
law, (ii) appointing a custodian, receiver, liquidator, assignee, trustee or
sequestrator (or similar official) or Borrower or any of the Included
Subsidiaries or of any substantial part of its or their properties, or (iii)
ordering the winding up or liquidation of the affairs of Borrower or any of
the Included Subsidiaries and such case or proceeding shall remain
undismissed or unstayed for thirty (30) consecutive days or such court shall
enter a decree or order granting the relief sought in such case or
proceeding.
(h) Borrower or any of the Included Subsidiaries shall (i) file a
petition seeking relief under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other applicable federal, state or
foreign bankruptcy, insolvency, moratorium or other
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<PAGE>
similar law, (ii) consent to the institution of proceedings thereunder or to
the filing of any such petition or to the appointment of or taking possession
by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or
similar official) of Borrower or such Included Subsidiary or of any
substantial part of such Person's properties, (iii) fail generally pay its
debts as such debts become due, or (iv) take any corporate action in
furtherance of any such action.
(i) Final judgment or judgments (after the expiration of all
times to appeal therefrom) for the payment or money in excess of $500,000 in
the aggregate shall be rendered against Borrower or any of the Included
Subsidiaries unless the same shall be (i) fully covered by insurance in
accordance with SECTION 6.5 or (ii) vacated, stayed, bonded, paid or
discharged within a period or fifteen (15) days from the date of such final
judgment.
(j) Any other event shall have occurred which could reasonably be
expected to have or result in a material adverse change in the business,
assets, operations, prospects or financial or other condition of Borrower and
the Included Subsidiaries taken as a whole and Lender shall have given
Borrower at least ten (10) days notice thereof.
(k) Any provisions of any Included Subsidiary Guaranty or any
Collateral Document, after delivery thereof pursuant to SECTION 3.1, shall
for any reason cease to be valid, binding and enforceable in accordance with
its terms, or any security interest created under any Collateral Document
shall cease to be valid and perfected security interest or Lien having the
first priority (or other priority, if and as provided for by the Collateral
Document establishing such Lien) in any of the Collateral purported to be
covered thereby, or any Included Subsidiary shall terminate or revoke its
Guaranty of any of the Obligations.
8.2 REMEDIES. If any Event of Default shall have occurred and be
continuing, Lender may, without notice, (a) declare all or any portion of the
Obligations to be forthwith due and payable, whereupon such Obligations shall
become and be due and payable, without presentment, demand, protest or
further notice of any kind, all of which are expressly waived by Borrower;
and (b) exercise any rights and remedies provided to Lender under the Loan
Documents and/or at law or equity, including all remedies provided under the
Code; PROVIDED, HOWEVER, that upon the occurrence of an Event of Default
specified in SECTIONS 8.1(f), (g) or (h), the Obligations shall become
immediately due and payable and any obligation on Lender's part to make any
further Advances shall immediately terminate, all without declaration, notice
or demand by Lender.
8.3 REMEDIES. Lender's rights and remedies under this Agreement
shall be cumulative and nonexclusive of any other rights and remedies which
Lender may have under any other agreement, including without limitation, the
Loan Documents, by operation of law or otherwise. Recourse to the Collateral
shall not be required.
8.4 WAIVERS BY BORROWER. Except as otherwise provided for in
this Agreement and to the fullest extent permitted by Applicable Law,
Borrower waives (i) presentment, demand and protest and notice of
presentment, dishonor, notice of intent to accelerate, notice of
acceleration, protest, default, nonpayment, maturity, release, compromise,
settlement, extension or renewal of any or all commercial paper, accounts,
contract rights, documents, instruments, chattel paper and guaranties at any
time held by Lender on which Borrower may in any way be liable, and hereby
ratifies and confirms whatever Lender may do in
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<PAGE>
this regard, (ii) all rights to notice and a hearing prior to Lender's taking
possession or control of, or to Lender's replevy, attachment or levy upon,
the Collateral or any bond or security which might be required by any court
prior to allowing Lender to exercise any of its remedies, and (iii) the
benefit of all valuation, appraisal and exemption laws. Borrower
acknowledges that it has been advised by counsel of its choice with respect
to this Agreement, the other Loan Documents and the transactions evidenced by
this Agreement and the other Loan Documents.
9. MISCELLANEOUS
9.1 COMPLETE AGREEMENT; MODIFICATION OF AGREEMENT. The Loan
Documents constitute the complete agreement between the parties with respect
to the subject matter thereof, supersede all prior agreements, understandings
or inducements (whether express or implied, or oral or written), and may not
be modified, altered or amended except by an agreement in writing signed by
Borrower and Lender. Without limiting the generality of the immediately
preceding sentence, any letter of interest or commitment letter between
Borrower and Lender or any of its affiliates, predating this Agreement and
relating to a financing of substantially similar form, purpose or effect
shall be merged with and into and superseded by this Agreement.
9.2 FEES AND EXPENSES. Borrower shall reimburse Lender for all
reasonable out-of-pocket expenses incurred in connection with (i) the
preparation, negotiation or consummation of the Loan Documents (including the
reasonable fees and expenses of all of its counsel, advisors, consultants and
auditors retained in connection with the Loan Documents and the transactions
contemplated thereby and advice in connection therewith) and (ii) wire
transfers to the account of Borrower. Borrower shall reimburse Lender for
all fees, costs and expenses, including, without limitation, the reasonable
fees, costs and expenses of counsel or other advisors (including
environmental and management consultants) for advice, assistance, or other
representation in connection with:
(a) the forwarding to Borrower or any other Person on behalf of
Borrower by Lender of the proceeds of the Advances;
(b) any amendment, modification or waiver of, or consent with
respect to, any of the Loan Documents or advice in connection with the
administration of the loans made pursuant hereto or its rights hereunder or
thereunder;
(c) any litigation, contest, dispute, suit, proceeding or action
(whether instituted by Lender, Borrower or any other Person) in any way
relating to the Collateral, any of the Loan Documents or any other agreement
to be executed or delivered in connection therewith or herewith, whether as
party, witness, or otherwise, including any litigation, contest, dispute,
suit, case, proceeding or action, and any appeal or review thereof, in
connection with a case commenced by or against Borrower or any other Person
that may be obligated to Lender by virtue of the Loan Documents;
(d) any attempt to enforce any rights of Lender against Borrower
or any other Person that may be obligated to Lender by virtue of any of the
Loan Documents;
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<PAGE>
(e) any attempt to (i) monitor the Loan, (ii) evaluate, observe,
assess Borrower or its affairs, and (iii) verify, protect, evaluate, assess,
appraise, collect, sell, liquidate or otherwise dispose of the Collateral;
including, without limitation, the reasonable attorneys' and other
professional and service providers' fees arising from such services,
including those in connection with any appellate proceedings; and all
expenses, costs, charges and other fees incurred by such counsel and others
in any way or respect arising in connection with or relating to any of the
events or actions described in this SECTION 9.2 shall be payable, on demand,
by Borrower to Lender. Without limiting the generality of the foregoing,
such expenses, costs, charges and fees may include: reasonable fees, costs
and expenses of accountants, environmental advisors, appraisers, investment
bankers, management and other consultants and paralegals; court costs and
expenses; photocopying and duplication expenses; court report fees, costs and
expenses; long distance telephone charges; air express charges; telegram
charges, secretarial overtime charges; and expenses for travel, lodging and
food paid or incurred in connection with the performance of such legal or
other advisory services.
9.3 INDEMNITY. (a) Borrower shall indemnify and hold Lender and
Lender's Affiliates, officers, directors, employees, attorneys and agents
(each, an "INDEMNIFIED PERSON"), harmless from and against any and all suits,
actions, proceedings, claims, damages, losses, liabilities and expenses
(including reasonable attorneys' fees and disbursements and other costs of
investigation or defense, including those incurred upon any appeal) that may
be instituted or asserted against or incurred by such Indemnified Person as
the result of credit having been extended under this Agreement and the other
Loan Documents or in connection with or arising out of the transactions
contemplated hereunder and thereunder, including any claim, action, suit,
proceeding, loss, cost, damage, liability, deficiency, fine, penalty,
punitive, exemplary or consequential damage or expense (including reasonable
attorneys' and consultants' fees, investigation and laboratory fees, court
costs and litigation expenses), directly or indirectly resulting from,
arising out of, or based upon (i) the presence, Release, use, manufacture,
installation, generation, discharge, storage or disposal, at any time, of any
Hazardous Materials on, under, in or about, or the transportation of any such
materials to or from, any of the Subject Property, or (ii) the violation or
alleged violation by Borrower or any Included Subsidiary of any law, statute,
ordinance, order, rule, regulation, permit, judgment or license relating to
the use, generation, manufacture, installation, Release, discharge, storage
or disposal of Hazardous Materials to or from any of the Subject Property;
which indemnity shall include, without limitation, (A) any damage, liability,
fine, penalty, punitive, exemplary or consequential damage, cost or expense
arising from or out of any claim, action, suit or proceeding for personal
injury (including sickness, disease, death, pain or suffering), tangible or
intangible property damage, compensation for lost wages, business income,
profits or other economic loss, damage to the natural resources or the
environment, nuisance, pollution, contamination, leak, Release or other
adverse effect on the environment, and (B) the cost of any required or
necessary repair, cleanup, treatment, remediation or detoxification of any of
the Subject Property and the preparation and implementation of any closure,
disposal, remedial or other required actions in connection with any of the
Subject Property; PROVIDED, that Borrower shall not be liable for any
indemnification to such Indemnified Person to the extent that any such suit,
action, proceeding, claim, damage, loss, liability or expense results solely
from such Indemnified Person's gross negligence or willful misconduct.
NEITHER LENDER NOR ANY OTHER INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR
LIABLE TO ANY OTHER PARTY HERETO, ANY
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SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER
PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT,
PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES THAT MAY BE ALLEGED AS A RESULT
OF CREDIT HAVING BEEN EXTENDED UNDER THE LOAN DOCUMENTS.
(b) Borrower hereby acknowledges and agrees that Lender (i) is not
now, and has not ever been, in control of any of the Subject Property or the
affairs of Borrower or any of the Included Subsidiaries, and (ii) does not
have the capacity through the provisions of the Loan Documents to influence
Borrower's or any such Included Subsidiary's conduct with respect to the
ownership, operation or management of any of the Subject Property.
9.4 NO WAIVER. Lender's failure, at any time or times, to require
strict performance by Borrower or any other Credit Party of any provision of
this Agreement or any of the other Loan Documents shall not waive, affect or
diminish any right of Lender thereafter to demand strict compliance and
performance therewith. Any suspension or waiver of any Default under the
Loan Documents shall not suspend, waive or affect any other Default under
this Agreement or any of the other Loan Documents whether the same is prior
or subsequent thereto and whether of the same or of a different type. None
of the undertakings, agreements, warranties, covenants and representations of
Borrower or any other Credit Party contained in this Agreement or any of the
other Loan Documents and no Default by Borrower under this Agreement and no
defaults by Borrower or any other Credit Party under any of the other Loan
Documents shall be deemed to have been suspended or waived by Lender, unless
such waiver or suspension is by an instrument in writing signed by an officer
of or other authorized employee of Lender and directed to Borrower specifying
such suspension or waiver.
9.5 SUCCESSORS AND ASSIGNS. This Agreement and the other Loan
Documents shall be binding on and shall inure to the benefit of Borrower,
Lender, and their respective successors and assigns, except as otherwise
provided herein or therein. Borrower may not assign, transfer, hypothecate
or otherwise convey its rights, benefits, obligations or duties hereunder or
under any of the other Loan Documents without the prior express written
consent of Lender. Any such purported assignment, transfer, hypothecation or
other conveyance by Borrower without the prior express written consent of
Lender shall be void. The Lender may assign its rights and obligations
hereunder to one or more financial institutions, PROVIDED that the Lender
shall give the Borrower Advance Notice of such assignment and of the identity
of the proposed assignee, and the Borrower shall consent to the identity of
the assignee, which consent shall not be unreasonably withheld or delayed by
the Borrower. The terms and provisions of this Agreement and the other Loan
Documents are for the purpose of defining the relative rights and obligations
of Borrower and Lender with respect to the transactions contemplated hereby
and there shall be no third party beneficiaries of any of the terms and
provisions of this Agreement or any of the other Loan Documents.
9.6 SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
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9.7 CONFLICT OF TERMS. Except as otherwise provided in this
Agreement or any of the other Loan Documents by specific reference to the
applicable provisions of this Agreement, if any provision contained in this
Agreement is in conflict with, or inconsistent with, any provision in any of
the other Loan Documents, the provision contained in this Agreement shall
govern and control.
9.8 AUTHORIZED SIGNATURE; ORAL INSTRUCTIONS. Until Lender shall
be notified by Borrower to the contrary, each of the Persons listed on
Schedule 9.8 (AN "AUTHORIZED BORROWER REPRESENTATIVE") is authorized to act
on behalf of the Borrower in all respects hereunder and the Lender shall be
protected in all respect when acting in accordance with instructions given by
such Person. The signature upon any document or instrument delivered
pursuant hereto of any such Person shall bind Borrower and be deemed to be
the act of Borrower affixed pursuant to and in accordance with resolutions
duly adopted by Borrower's Board of Directors. The Lender has permitted
telephonic instructions hereunder as an accommodation to the Borrower. In
exchange for such accommodation, the Borrower agrees that the Lender's
understanding of any oral instruction shall be binding and conclusive upon
the Borrower and the Credit Parties, notwithstanding any divergence between
such understanding and any later written confirmation thereof, and the Lender
shall in all respects be protected and held harmless when acting in
accordance with such understanding, it being the intention of the parties
that the Borrower and the Credit Parties assume all risks of the use of oral
communication.
9.9 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY
OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE OBLIGATIONS
ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS
MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE LAWS OF THE UNITED
STATES OF AMERICA. BORROWER HEREBY CONSENTS AND AGREES THAT THE STATE OR
FEDERAL COURTS LOCATED IN THE CITY AND COUNTY OF NEW YORK, SHALL HAVE
EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
BORROWER AND LENDER PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS, PROVIDED, THAT LENDER AND BORROWER
ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A
COURT LOCATED OUTSIDE OF THE CITY AND COUNTY OF NEW YORK AND, PROVIDED,
FURTHER, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO
PRECLUDE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER
JURISDICTION TO COLLECT THE OBLIGATIONS, REALIZE ON THE COLLATERAL OR ANY
OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT
ORDER IN FAVOR OF LENDER. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE
TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND
BORROWER HEREBY WAIVES ANY OBJECTION THAT BORROWER MAY HAVE BASED UPON LACK
OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES
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<PAGE>
PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY
SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND
OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO
BORROWER AT THE ADDRESS SET FORTH ON IN SECTION 9.10 OF THIS AGREEMENT AND
THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF BORROWER'S
ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS,
PROPER POSTAGE PREPAID.
9.10 NOTICES. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval,
declaration or other communication shall or may be given to or served upon
either of the parties by the other party, or whenever either of the parties
desires to give or serve upon the other party any communication with respect
to this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall be deemed to
have been validly served, given or delivered (i) upon the earlier of actual
receipt and three days after deposit in the United States Mail, registered or
certified mail, return receipt requested, with proper postage prepaid, (ii)
upon transmission, when sent by telecopy or other similar facsimile
transmission (with such telecopy or facsimile promptly confirmed by delivery
of a copy by personal delivery or United States Mail as otherwise provided in
this SECTION 9.10, (iii) one Business Day after deposit with a reputable
overnight courier with all charges prepaid or (iv) when delivered, if hand-
delivered by messenger, all of which shall be addressed to the party to be
notified and sent to the address or facsimile number indicated below:
(a) If to Lender:
General Electric Capital Corporation
5665 New Northside Drive
Suite 200
Atlanta, Georgia 30328
Attention: David Teszler
Telecopy No.: (404) 988-2329
With copies to:
General Electric Capital Corporation
44 Old Ridgebury Road
Danbury, Connecticut 06810-5105
Attention: Legal Counsel
Telecopy No.: (203) 796-2458
and
Kilpatrick & Cody
Suite 2800
1100 Peachtree Street
Atlanta, Georgia 30309
Attention: Colvin T. Leonard, III
Telecopy No.: (404) 815-6555
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<PAGE>
(b) If to Borrower, at:
Hallmark HealthCare Corporation
300 Galleria Parkway
Suite 650
Atlanta, Georgia 30339
Attention: Chief Financial Officer
Telecopy No.: (404) 933-1886
With copies to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: Robert W. Miller
Telecopy No.: (404) 572-5144
or to such other address (or facsimile number) as may be substituted by
notice given as herein provided. The giving of any notice required hereunder
may be waived in writing by the party entitled to receive such notice.
Failure or delay in delivering copies of any notice, demand, request,
consent, approval, declaration or other communication to any Person (other
than Borrower or Lender) designated above to receive copies shall in no way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration or other communication.
9.11 SURVIVAL OF OBLIGATIONS UPON TERMINATION OF FINANCING
ARRANGEMENT. Except as otherwise expressly provided for in the Loan
Documents, no termination or cancellation (regardless or cause or procedure)
of any financing arrangement under this Agreement shall in any way affect or
impair the obligations, duties and liabilities of Borrower or any other
Credit Party or the rights of Lender relating to any unpaid Obligation, due
or not due, liquidated, contingent or unliquidated or any transaction or
event occurring prior to such termination, or any transaction or event, the
performance of which is not required until after the Termination Date.
Except as otherwise expressly provided herein or in any other Loan Document,
all undertakings, agreements, covenants, warranties and representations of or
binding upon Borrower or any other Credit Party, and all rights of Lender,
all as contained in the Loan Documents shall not terminate or expire, but
rather shall survive such termination or cancellation and shall continue in
full force and effect until such time as all of the Obligations have been
indefeasibly paid in full in accordance with the terms of the agreements
creating such Obligations.
9.12 SECTION TITLES. The Section titles and Table of Contents
contained in this Agreement are and shall be without substantive meaning or
content of any kind whatsoever and are not a part of the agreement between
the parties hereto.
9.13 COUNTERPARTS. This Agreement may be executed in any number
of separate counterparts, each of which shall collectively and separately
constitute one agreement.
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<PAGE>
9.14 TIME OF ESSENCE. Time is of the essence of this Agreement
and each of the other Loan Documents.
9.15 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION
WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT THEIR DISPUTES BY RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE
LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE
JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY
DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN LENDER AND
BORROWER ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
9.16 SYNDICATION. The Borrower and the other Credit Parties agree
to take such steps as the Lender shall reasonably request to assist Lender in
the sale and/or syndication of the credit provided herein to one or more
other financial institutions. Such steps may include, at the discretion, of
the Lender, the preparation and dissemination of financial and other
disclosure documents to prospective purchasers, discussions by management
with such Persons and such amendments to the Loan Documents as shall be
required to cause them to conform with customary syndicated bank documents.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
date first written above.
HALLMARK HEALTHCARE CORPORATION
By: /s/ Robert M. Thorton, Jr.
------------------------------
Title: President and Chief Operating Officer
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Brian G. Reynolds
------------------------------
Title: Senior Vice-President
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<PAGE>
EXHIBIT A-1
to
CREDIT AGREEMENT
Dated as of December 31, 1993
FORM OF NOTICE OF WORKING CAPITAL ADVANCE
-----------------------------------------
[DATE]
General Electric Capital Corporation
Suite 200
5665 New Northside Drive
Atlanta, Georgia 30328
Attention:
---------------------------
Ladies and Gentlemen:
The undersigned, Hallmark Healthcare Corporation, refers to the Credit
Agreement, dated as of December 31, 1993 (the "CREDIT AGREEMENT", the
capitalized terms defined therein being used herein as therein defined), between
the undersigned and General Electric Capital Corporation, and hereby gives you
notice, irrevocably, pursuant to SECTION 2.1(b) of the Credit Agreement that the
undersigned hereby requests a Working Capital Advance under the Credit
Agreement, and in that connection sets forth below the information relating to
such Working Capital Advance as required by SECTION 2.1(b) of the Credit
Agreement:
(i) The Date of the requested Working Capital Advance shall be
________________, 19___, a Business Day;
(ii) The aggregate amount of the requested Working Capital Advance is
$_______________;
*[(iii) The requested Working Capital Advance shall bear interest at
the Base Rate/Adjusted LIBOR plus 3.0%;]
**[(iv) The Interest Period shall be __________[1/2/3] months ending
on , 19 , a Business Day; and]
----------------- ----- ---
**[(v) The outstanding principal amount of the Working Capital Loan
equals or exceeds $1,000,000 (either before or after giving effect to an
Advance to be made on the first day of the Interest Period selected by
Borrower)].
- - -------------------------
* Required only when an Advance is requested while no Working Capital Loan is
outstanding.
** Required only if Adjusted LIBOR is selected pursuant to clause (iii).
A-1-1
<PAGE>
The undersigned hereby certifies that the statements contained in
SECTION 3.3 of the Credit Agreement are true on the date hereof, and will be
true on the date of the requested Working Capital Advance, before and after
giving effect thereto and to the application of the proceeds therefrom.
Very truly yours,
HALLMARK HEALTHCARE CORPORATION
By:
----------------------------------
Name:
-----------------------------
Title:
-----------------------------
A-1-2
<PAGE>
EXHIBIT A-2
to
CREDIT AGREEMENT
Dated as of December 31, 1993
FORM OF NOTICE OF ACQUISITION ADVANCE
-------------------------------------
[DATE]
General Electric Capital Corporation
Suite 200
5665 New Northside Drive
Atlanta, Georgia 30328
Attention:
---------------------------
Ladies and Gentlemen:
The undersigned, Hallmark Healthcare Corporation, refers to the Credit
Agreement, dated as of December 31, 1993 (the "CREDIT AGREEMENT", the
capitalized terms defined therein being used herein as therein defined), between
the undersigned and General Electric Capital Corporation, and hereby gives you
notice, irrevocably, pursuant to SECTION 2.2(c) of the Credit Agreement that the
undersigned hereby requests an Acquisition Advance under the Credit Agreement,
and in that connection sets forth below the information relating to such
Acquisition Advance as required by SECTION 2.2(c) of the Credit Agreement:
(i) The Date of the requested Acquisition Advance shall be
, 19 , a Business Day;
----------------- ---
(ii) The aggregate amount of the requested Acquisition Advance is
$---------------;
*[(iii) The requested Acquisition Advance shall bear interest at the
Base Rate/Adjusted LIBOR plus 3.0%;]
**[(iv) The Interest Period shall be___________[1/2/3] months ending
on , 19 , a Business Day; and]
------------------ ---- ---
**[(v) The outstanding principal amount of the Acquisition Loan
equals or exceeds $1,000,000 (either before or after giving effect to an
Advance to be made on the first day of the Interest Period selected by
Borrower)].
- - -------------------------
* Required only when an Advance is requested while no Acquisition Loan is
outstanding.
** Required only if Adjusted LIBOR is selected pursuant to clause (iii).
A-2-1
<PAGE>
The undersigned hereby certifies that the statements contained in
SECTION 3.3 of the Credit Agreement are true on the date hereof, and will be
true on the date of the requested Acquisition Advance, before and after giving
effect thereto and to the application of the proceeds therefrom.
Very truly yours,
HALLMARK HEALTHCARE CORPORATION
By:
----------------------------------
Name:
-----------------------------
Title:
----------------------------
A-2-2
<PAGE>
EXHIBIT A-3
to
CREDIT AGREEMENT
Dated as of December 31, 1993
FORM OF NOTICE OF SELECTION OF INTEREST PERIOD
----------------------------------------------
[DATE]
General Electric Capital Corporation
Suite 200
5665 New Northside Drive
Atlanta, Georgia 30328
Attention:
---------------------------
Ladies and Gentlemen:
The undersigned, Hallmark Healthcare Corporation, refers to the Credit
Agreement, dated as of December 31, 1993 (the "CREDIT AGREEMENT", the
capitalized terms defined therein being used herein as therein defined), between
the undersigned and General Electric Capital Corporation, and hereby gives you
notice, irrevocably, pursuant to SECTION 2.3(b) of the Credit Agreement that the
undersigned hereby requests that:
(i) All of the outstanding Working Capital Loan shall constitute a LIBOR
Working Capital Loan, effective upon the date specified in clause (iii)
below and on such date, after giving effect to any Advances made on such
Date, the outstanding principal amount of such Loan shall equal or exceed
$1,000,000;
(ii) All of the outstanding Acquisition Loan as of the date shall
constitute a LIBOR Acquisition Loan, effective upon the date specified in
clause (iii) below and on such date, after giving effect to any Advances
made on such Date, the outstanding principal amount of such Loan shall
equal or exceed $1,000,000;
(iii) The Interest Period for such LIBOR Loans shall commence on ____,
19___, the first Business Day of a calendar month; and
(iv) The Interest Period for such LIBOR Loans shall be ________[1/2/3]
months ending on______________, 19__, a Business Day.
A-3-1
<PAGE>
The undersigned hereby certifies that the statements contained in
SECTION 3.3 of the Credit Agreement are true on the date hereof, and will be
true on the first day of the Interest Period specified above.
Very truly yours,
HALLMARK HEALTHCARE CORPORATION
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
A-3-2
<PAGE>
EXHIBIT B
to
CREDIT AGREEMENT
Dated as of December 31, 1993
FORM OF BORROWING BASE CERTIFICATE
----------------------------------
TO: General Electric Capital Corporation
5654 New Northside Drive, Suite 200
Atlanta, Georgia 30328
Gentlemen:
The undersigned is an officer of Hallmark Healthcare Corporation, a
Delaware corporation (the "BORROWER"), and is authorized to make and deliver
this Borrowing Base Certificate pursuant to that certain Credit Agreement dated
as of December 31, 1993, between the Borrower and General Electric Capital
Corporation (such credit agreement as the same may be amended, restated,
supplemented or otherwise modified from time to time is hereinafter referred to
as the "CREDIT AGREEMENT"). All terms defined in the Credit Agreement shall
have the same meaning herein.
This Borrowing Base Certificate is submitted pursuant to Section 5.1(a) of
the Credit Agreement.
1. Accounts @ __/__/9__ (Aging Attached) $________.__
2. Ineligibles:
a. Accounts with respect to which no invoice
acceptable to Lender has been sent __________.__
b. Accounts that remain unpaid for more than 120
days from discharge date __________.__
c. That portion of Accounts which are
"self-pay" __________.__
d. Reserves for Contractual Allowances __________.__
e. Reserves for Medicare, Medicaid or other third
party payor settlement liabilities __________.__
f. Other ineligibles - From Schedule I __________.__
Subtotal ineligibles __________.__
B-1
<PAGE>
3. Total Eligible (1 Minus 2) __________.__
4. Advance @ 82.5% (3 multiplied by 82.5%) __________.__
5. Loan Balance __________.__
6. Excess Available (4 minus 5) __________.__
In connection with the foregoing and pursuant to the terms and provisions
of the Credit Agreement, the undersigned hereby certifies that all information
supplied above is true, correct, and complete as of the date hereof.
Date: _____________, 19__.
BORROWER:
HALLMARK HEALTHCARE CORPORATION
By:_____________________________
Name:________________________
Title:_______________________
B-2
<PAGE>
SCHEDULE I
to
BORROWING BASE CERTIFICATE
--------------------------
1. Accounts where payment is not absolute or where no suit
or enforcement can be sought against Account Debtor _________.__
2. Accounts against which is asserted or available any
defense, counterclaim or setoff _________.__
3. Accounts that are not a true and correct statement of
indebtedness _________.__
4. Accounts not owned by a Credit Party or not subject to
Security Interest or subject to any right, claim or
interest of another Person (except Liens in favor
of Lender) _________.__
5. Accounts arising from sale or performance of services to
employee or Affiliate except where Account Debtor is an
insurance company, HMO or other health plan not affiliated
with such employee or Affiliate _________.__
6. Accounts that are the obligation of the federal or state
government (other than Medicare, Medicaid or
CHAMPUS Accounts) unless Credit Party has complied with
the Federal Assignment of Claims Act of 1940 or similar
state statute _________.__
7. Accounts that are the obligation of an Account Debtor
to whom such Credit Party is or may become liable to the
Account Debtor _________.__
8. Accounts that are in default or Accounts with respect to
which the Account Debtor is not solvent or with respect
to which the Account Debtor is the subject of a bankruptcy
proceeding _________.__
9. Accounts that are the obligation of an Account Debtor that
is in default on 25% or more of the Accounts upon which it
is obligated to any or all of the Credit Parties _________.__
10. Accounts which Lender does not have a first priority
perfected security interest _________.__
B-3
<PAGE>
11. Accounts that exceed any credit limit established
by Lender _________.__
12. Accounts as to which a Credit Party's representations or
warranties pertaining to such Accounts are untrue _________.__
13. Accounts not acceptable to Lender _________.__
Subtotal of Schedule I ineligibles _________.__
B-4
<PAGE>
EXHIBIT C-1
to
CREDIT AGREEMENT
Dated as of December 31, 1993
FORM OF WORKING CAPITAL NOTE
----------------------------
$15,000,000 December 31, 1993
FOR VALUE RECEIVED, the undersigned, HALLMARK HEALTHCARE CORPORATION, a
Delaware corporation ("BORROWER"), HEREBY PROMISES TO PAY to the order of
GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("LENDER"), at
Lender's principal office in New York, New York, or at such other place as the
holder of this Working Capital Note may designate from time to time in writing,
in lawful money of the United States of America and in immediately available
funds, the amount of FIFTEEN MILLION DOLLARS ($15,000,000) or, if less, the
aggregate unpaid principal amount of all advances made pursuant to
SECTION 2.1(a) of the "Credit Agreement" (as hereinafter defined). All
capitalized terms, unless otherwise defined herein, shall have the respective
meanings assigned to such terms in the Credit Agreement.
This Working Capital Note is issued pursuant to that certain Credit
Agreement dated as of December 31, 1993 between Borrower and Lender (as amended,
restated, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"), and is entitled to the benefit and security of the Loan Documents
referred to therein, to which Credit Agreement reference is hereby made for a
statement of all of the terms and conditions under which the loans evidenced
hereby were made.
The principal amount of the indebtedness evidenced hereby shall be payable
in the amounts and on the dates specified in the Credit Agreement. Interest
thereon shall be paid until such principal amount is paid in full at such
interest rates and at such times as are specified in the Credit Agreement.
If any payment on this Working Capital Note becomes due and payable on a
day other than a Business Day, the maturity thereof shall be extended to the
next succeeding Business Day and, with respect to payments of principal,
interest thereon shall be payable at the then applicable rate during such
extension.
Upon and after the occurrence of an Event of Default, this Working Capital
Note may, as provided in the Credit Agreement, and without demand, notice or
legal process of any kind, be declared by Lender, and immediately shall become,
due and payable.
Demand, presentment, notice, notice of demand, notice for payment, protest
and notice of dishonor are hereby waived by Borrower.
C-1-1
<PAGE>
This Working Capital Note shall be interpreted, governed by and construed
in accordance with, the internal laws (as opposed to conflicts of law
provisions) of the State of New York.
HALLMARK HEALTHCARE CORPORATION
By:
------------------------------
Title:
C-1-2
<PAGE>
EXHIBIT C-2
to
CREDIT AGREEMENT
Dated as of December 31, 1993
FORM OF ACQUISITION NOTE
------------------------
$10,000,000 , 199
--------------- --
FOR VALUE RECEIVED, the undersigned, HALLMARK HEALTHCARE CORPORATION, a
Delaware corporation ("BORROWER"), HEREBY PROMISES TO PAY to the order of
GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation ("LENDER"), at
Lender's principal office in New York, New York, or at such other place as the
holder of this Acquisition Note may designate from time to time in writing, in
lawful money of the United States of America and in immediately available funds,
the amount of TEN MILLION DOLLARS ($10,000,000) or, if less, the aggregate
unpaid principal amount of all advances made pursuant to SECTION 2.2(b) of the
"Credit Agreement" (as hereinafter defined). All capitalized terms, unless
otherwise defined herein, shall have the respective meanings assigned to such
terms in the Credit Agreement.
This Acquisition Note is issued pursuant to that certain Credit Agreement
dated as of December 31, 1993 between Borrower and Lender (as amended, restated,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"),
and is entitled to the benefit and security of the Loan Documents referred to
therein, to which Credit Agreement reference is hereby made for a statement of
all of the terms and conditions under which the loans evidenced hereby were
made.
The principal amount of the indebtedness evidenced hereby shall be payable
in the amounts and on the dates specified in the Credit Agreement. Interest
thereon shall be paid until such principal amount is paid in full at such
interest rates and at such times as are specified in the Credit Agreement.
If any payment on this Acquisition Note becomes due and payable on a day
other than a Business Day, the maturity thereof shall be extended to the next
succeeding Business Day and, with respect to payments of principal, interest
thereon shall be payable at the then applicable rate during such extension.
Upon and after the occurrence of an Event of Default, this Acquisition Note
may, as provided in the Credit Agreement, and without demand, notice or legal
process of any kind, be declared by Lender, and immediately shall become, due
and payable.
Demand, presentment, notice, notice of demand, notice for payment, protest
and notice of dishonor are hereby waived by Borrower.
C-2-1
<PAGE>
This Acquisition Note shall be interpreted, governed by and construed in
accordance with, the internal laws (as opposed to conflicts of law provisions)
of the State of New York.
HALLMARK HEALTHCARE CORPORATION
By:
-----------------------------
Title:
C-2-2
<PAGE>
EXHIBIT D
to
CREDIT AGREEMENT
Dated as of 31, 1993
FORM OF SUBSIDIARY GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT (this "Guaranty"), dated as of December 31,
1993, made by and among NATIONAL HEALTHCARE OF CULLMAN, INC., NATIONAL
HEALTHCARE OF DECATUR, INC., THE L.V. STABLER MEMORIAL HOSPITAL OF GREENVILLE,
INC., NATIONAL HEALTHCARE OF HARTSELLE, INC., NATIONAL HEALTHCARE OF NEWPORT,
INC., NATIONAL HEALTHCARE OF POCAHONTAS, INC., NATIONAL HEALTHCARE OF HOLMES
COUNTY, INC., HEALTH CARE OF FORSYTH COUNTY, INC., HEALTH CARE OF BERRIEN
COUNTY, INC., BERRIEN NURSING CENTER, INC., NATIONAL HEALTHCARE OF MT. VERNON,
INC., NATIONAL HEALTHCARE OF LEESVILLE, INC., NATIONAL HEALTHCARE OF SABINE
INC., NATIONAL HEALTHCARE OF CLEVELAND, INC., SCENIC MOUNTAIN MEDICAL CENTER,
INC., NHCI OF HILLSBORO, INC., NATIONAL HEALTHCARE OF MCMINNVILLE, INC.,
HOSPITAL CORPORATION OF WHITE COUNTY, HALLMARK HEALTHCARE MANAGEMENT
CORPORATION, NATIONAL HEALTHCARE OF CLANTON, INC., NATIONAL HEALTHCARE OF
WASHINGTON COUNTY, INC., PHYSICIANS HOSPITAL OF DADEVILLE, INC., NATIONAL
HEALTHCARE OF ENGLAND, ARKANSAS, INC., GEORGIA HOME SERVICES INC., NORTHGATE
HOSPITAL, INC., NATIONAL HEALTHCARE OF EUFAULA, INC., NATIONAL HEALTHCARE OF
DALLAS COUNTY, INC., HEALTH CARE OF VIENNA, GEORGIA, INC., KSA MANAGEMENT
COMPANY, NATIONAL HEALTHCARE OF LAMAR COUNTY, INC., NATIONAL HEALTHCARE OF
BARNWELL, INC., RHC-TENNESSEE PROPERTIES, INC., WAYNE COUNTY HOME HEALTHCARE,
INC., NATIONAL HEALTHCARE CENTER OF WAYNESBORO, INC., NATIONAL HEALTHCARE OF
ELBA, ALABAMA, INC., POPLAR BLUFF MANAGEMENT, INC., NATIONAL HEALTHCARE VENTURE
I, INC., NHI HOLDINGS, INC., HOME INFUSION THERAPY, INC., CONTINUAL CARE, INC.,
ALTERNATIVE HEALTH SERVICES, INC., N.H. OF WEST SEATTLE, INC., HEALTHCARE PLUS,
INC., HOMEBOUND HEALTH CARE AGENCY, INC., NEURO TREATMENT, INC. AND NATIONAL
HEALTH/CARE PLAN, INC. (each individually a "Guarantor" and collectively
"GUARANTORS"), in favor of GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation (the "GUARANTEED PARTY").
W I T N E S S E T H:
WHEREAS, Hallmark Healthcare Corporation, a Delaware corporation (the
"BORROWER"), and the Guaranteed Party are parties to a Credit Agreement, dated
as of December 31, 1993 (as the same may hereafter be amended, restated,
supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT;"
the terms defined therein and not otherwise defined herein
D-1
<PAGE>
being used herein as therein defined), pursuant to which the Guaranteed Party
has committed to make a certain Working Capital Loan available to the Borrower
and to establish an Acquisition Line; and
WHEREAS, Borrower and the Guarantors share an identity of interests as
members of a consolidated group of companies engaged in healthcare businesses,
the Borrower provides certain centralized financial, accounting and management
services to the Guarantors and the making of such Working Capital Loan available
to Borrower and the establishing of such Acquisition Line will facilitate
expansion and enhance the overall financial strength and stability of the
corporate group, including each Guarantor; and
WHEREAS, it is a condition precedent to the Guaranteed Party's
obligations to make such Working Capital Loan available and establish such
Acquisition Line under the Credit Agreement that each Guarantor execute and
deliver this Guaranty, and each Guarantor desires to execute and deliver this
Guaranty to satisfy such condition precedent.
NOW, THEREFORE, in consideration of the premises and in order to
induce the Guaranteed Party to make the aforesaid Working Capital Loan available
and to establish such Acquisition Line under the Credit Agreement, each Guaran-
tor hereby agrees as follows:
1. GUARANTY OF OBLIGATIONS. (a) Each Guarantor hereby jointly,
severally, absolutely, unconditionally and irrevocably guarantees to the
Guaranteed Party the prompt payment when due, whether at stated maturity, by
acceleration or otherwise, of the Working Capital Loan made to Borrower, the
Acquisition Loan made to Borrower and all other Obligations (including all
renewals, extensions, modifications, and refinancings thereof) now or hereafter
existing, whether for principal, interest, fees, expenses or otherwise, and all
expenses (including reasonable attorney's fees and expenses) incurred by the
Guaranteed Party in enforcing any of its rights under the Credit Agreement and
the other Loan Documents (all of the foregoing, collectively, the "GUARANTEED
OBLIGATIONS"). Any and all payments made by any Guarantor hereunder shall be
made free and clear of and without deduction for any set-off, counterclaim, or
withholdings so that, in each case, the Guaranteed Party shall receive the full
amount that it would otherwise be entitled to receive with respect to the
Guaranteed Obligations.
(b) Each Guarantor acknowledges and agrees that this Guaranty is a
guaranty of payment and not of collection and that the liability of each
Guarantor under this Guaranty shall be immediate and primary and shall not be
contingent upon the exercise or enforcement by the Guaranteed Party of any
remedies the Guaranteed Party may have against the Borrower, any of the other
Guarantors or any other person or the enforcement of any lien or realization
upon any collateral the Guaranteed Party may at any time possess for any of the
Guaranteed Obligations.
2. MAXIMUM LIABILITY; CONTRIBUTION RIGHTS. (a) It is the intention of
each Guarantor and the Guaranteed Party that such Guarantor's obligations
hereunder shall be in, but not in excess of, the maximum amount permitted by
applicable federal bankruptcy, state insolvency, fraudulent conveyance or
transfer or similar laws ("APPLICABLE LAW"). To that end, but only to the
extent such obligations would otherwise be subject to avoidance under Applicable
Law if any Guarantor is not deemed to have received valuable consideration, fair
value or reasonably equivalent value for its obligations hereunder, such
Guarantor's respective obligations hereunder shall be reduced to that
D-2
<PAGE>
amount which, after giving effect thereto, would not render such Guarantor
insolvent, or leave such Guarantor with unreasonably small capital to conduct
its business, or cause such Guarantor to have incurred debts (or intended to
have incurred debts) beyond its ability to pay such debts as they mature, at the
time such obligations are deemed to have been incurred under Applicable Law. As
used herein, the terms "insolvent" and "unreasonably small capital" shall
likewise be determined in accordance with Applicable Law. This Section is
intended solely to preserve the rights of the Guaranteed Party hereunder to the
maximum extent permitted by Applicable Law, and none of the Guarantors or any
other Persons shall have any right or claim under this Section that would not
otherwise be available under Applicable Law.
(b) If and to the extent that any Guarantor shall, under this Guaranty
make a payment (a "GUARANTOR PAYMENT") of all or any portion of the Guaranteed
Obligations, then such Guarantor shall be entitled to contribution and
indemnification from, and shall be reimbursed by, each of the other Guarantors
(collectively the "CONTRIBUTING GUARANTORS") in an amount, for each such
Contributing Guarantor, equal to such Guarantor Payment multiplied by a
fraction, the numerator of which is such Contributing Guarantor's Allocable
Amount (as defined below) and the denominator of which is the sum of all of the
Allocable Amounts of all of the Guarantors. As of any date of determination
thereof and with respect to any Guarantor Payment, the "ALLOCABLE AMOUNT" of
each Guarantor shall be equal to the maximum amount of liability (but not less
than zero) that could be asserted against such Contributing Guarantor with
respect to such Guarantor Payment without (i) rendering such Contributing
Guarantor insolvent, (ii) leaving such Contributing Guarantor with unreasonably
small capital to conduct its business, or (iii) causing such Contributing
Guarantor to have incurred debts beyond its ability to pay such debts as they
mature. As used in this Section 2(b), the terms "insolvent" and "unreasonably
small capital" shall be determined in accordance with Applicable Law. This
Section 2(b) is intended only to define the relative rights and obligations of
the Guarantors with respect to any and all Guarantor Payments, and nothing set
forth in this Section 2(b) is intended to or shall otherwise modify, affect or
impair the obligations of the Guarantors, jointly and severally, to pay any or
all of the Guaranteed Obligations as and when the same shall become due and
payable in accordance with the terms of this Guaranty. Each of the Guarantors
hereby acknowledges that the rights of contribution and indemnification
hereunder shall constitute assets in favor of each Guarantor to which such
contribution and indemnification is owing hereunder. The agreements contained
in this Section 2(b) shall continue in full force and effect and may not be
terminated or otherwise revoked by any Guarantor until all of the Guaranteed
Obligations have been indefeasibly paid in full and the Credit Agreement and the
other Loan Documents shall been terminated in accordance with the terms thereof.
3. GUARANTY ABSOLUTE. This Guaranty shall in all respects be an
absolute, unconditional, joint, several and irrevocable guaranty of payment of
the Guaranteed Obligations and each Guarantor guarantees that the Guaranteed
Obligations will be paid strictly in accordance with the terms of the Loan
Documents under which they arise, regardless of any law, regulation or order now
or hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Guaranteed Party with respect thereto. To the extent permitted by
Applicable Law, the liability of each Guarantor under this Guaranty shall remain
in full force and effect without regard to, and shall not be released,
suspended, discharged, terminated, modified or otherwise affected by any
circumstance or occurrence whatsoever, including without limitation any of the
following (whether or not any Guarantor consents thereto or has notice thereof):
(i) any change in or waiver of the time,
D-3
<PAGE>
place or manner of payment, or any other term, of any of the Guaranteed
Obligations or Loan Documents, any waiver of or any renewal, extension,
increase, amendment or modification of or addition, consent or supplement to or
deletion from, or any other action or inaction under or in respect of, any of
the Guaranteed Obligations or Loan Documents or any other document, instrument
or agreement referred to therein or any assignment or transfer of any of the
Guaranteed Obligations or Loan Documents; (ii) any lack of validity, legality or
enforceability of any of the Guaranteed Obligations or Loan Documents or any
other document, instrument, or agreement referred to therein or of any
assignment or transfer of any of the foregoing; (iii) any furnishing to the
Guaranteed Party of any additional collateral for any of the Guaranteed
Obligations or any sale, exchange, release or surrender of, or realization on,
any collateral for any of the Guaranteed Obligations; (iv) any settlement,
release or compromise of any of the Guaranteed Obligations or Loan Documents,
any collateral therefor, or any liability of any other party (including without
limitation any other guarantor) with respect to any of the Guaranteed
Obligations or Loan Documents, or any subordination of payment of any of the
Guaranteed Obligations to the payment of any other indebtedness, liability or
obligation of the Borrower; (v) any bankruptcy, insolvency, reorganization,
composition, adjustment, merger, consolidation, dissolution, liquidation or
other like proceeding or occurrence relating to the Borrower or any other change
in the ownership, composition or nature of the Borrower; (vi) any non-
perfection, subordination, release, avoidability or voidability of any security
interest, security title, pledge, collateral assignment or other lien of the
Guaranteed Party on any collateral for any of the Guaranteed Obligations or this
Guaranty; (vii) any application of sums paid by the Borrower or any other person
with respect to any of the Guaranteed Obligations, except to the extent actually
applied against the Guaranteed Obligations, regardless of what other liabilities
of the Borrower remain unpaid; (viii) the failure of the Guaranteed Party to
assert any claim or demand or to enforce any right or remedy against the
Borrower or any other person (including any other guarantor of any of the
Guaranteed Obligations) under the provisions of any of the Loan Documents or
otherwise, or any failure of the Guaranteed Party to exercise any right or
remedy against any other guarantor of or any collateral or other security for
any of the Guaranteed Obligations; (ix) any other act or failure to act by the
Guaranteed Party which may adversely affect any Guarantor; or (x) any other
circumstance that might otherwise constitute a defense against, or a legal or
equitable discharge of, any Guarantor's liability under this Guaranty.
4. GUARANTY CONTINUING; REINSTATEMENT. This Guaranty shall in all
respects be a continuing and irrevocable guaranty of payment (and not merely of
collection) and shall remain in full force and effect until the Loan Documents
are no longer in effect and no Guaranteed Obligations are outstanding. If claim
is ever made upon the Guaranteed Party for repayment or recovery of any amount
received by the Guaranteed Party in payment or on account of any of the
Guaranteed Obligations, and if the Guaranteed Party repays all or part of said
amount by reason of (i) any judgment, decree or order of any court or
administrative body having jurisdiction over the Guaranteed Party or any of its
property or (ii) any settlement or compromise of any such claim effected by the
Guaranteed Party with any such claimant (including without limitation the
Borrower or a trustee, conservator or receiver for the Borrower), then and in
such event each Guarantor agrees that any such judgment, decree, order,
settlement or compromise shall be binding upon such Guarantor, notwithstanding
any revocation or cancellation of this Guaranty or of any of the Loan Documents,
and each Guarantor shall be and remain liable to the Guaranteed Party hereunder
for the amount so repaid or recovered to the same extent as if such amount had
never originally been paid to the Guaranteed Party and each Guarantor's
obligations and liabilities to the Guaranteed Party
D-4
<PAGE>
under this Guaranty shall be reinstated to such extent and this Guaranty and any
collateral for this Guaranty shall remain in full force and effect (or shall be
reinstated) to such extent. Each Guarantor hereby expressly waives the benefit
of any applicable statute of limitations and agrees that it shall be liable
under this Guaranty whenever the Guaranteed Party seeks to enforce such
liability against such Guarantor or its property.
5. WAIVERS AND CONSENTS. To the extent permitted by Applicable Law, each
Guarantor hereby waives: (i) notice of acceptance of this Guaranty by the
Guaranteed Party; (ii) notice of the creation, existence, acquisition,
extension, or renewal of any of the Guaranteed Obligations; (iii) notice of the
amount of the Guaranteed Obligations outstanding from time to time, subject,
however, to each Guarantors' right to make inquiry of the Guaranteed Party at
reasonable intervals to ascertain the amount of Guaranteed Obligations then
outstanding; (iv) notice of any default or event of default under any of the
Loan Documents or with respect to any of the Guaranteed Obligations or notice of
any other adverse change in the Borrower's financial condition or means or
ability to pay any of the Guaranteed Obligations or perform its obligations
under any of the Loan Documents or notice of any other fact which might increase
any Guarantor's risk hereunder; (v) notice of presentment, demand, protest, and
notice of dishonor or nonpayment as to any instrument; (vi) notice of any
acceleration or other demand for payment of any of the Guaranteed Obligations;
and (vii) all other notices and demands to which the Guarantors might otherwise
be entitled with respect to any of the Guaranteed Obligations or the Loan
Documents or with respect to the Guaranteed Party's enforcement of its rights
and remedies thereunder. Each Guarantor further waives any right such Guarantor
may have, by statute or otherwise, to require the Guaranteed Party to seek
recourse first against the Borrower or any other person, or to realize upon any
collateral for any of the Guaranteed Obligations, as a condition precedent to
enforcing such Guarantor's joint and several liability and obligations under
this Guaranty, and each Guarantor further waives any defense arising by reason
of any incapacity or other disability of the Borrower or by reason of any other
defense which the Borrower may have on any of the Guaranteed Obligations or
under any of the Loan Documents. Each Guarantor consents and agrees that,
without notice to or consent by any Guarantor and without affecting or impairing
the liability of any Guarantor under this Guaranty, the Guaranteed Party may
compromise or settle, extend the period of duration or the time for the payment,
discharge or performance of any of the Guaranteed Obligations or Loan Documents,
or may refuse to enforce or may release all or any parties to any or all of the
Guaranteed Obligations (including without limitation any other guarantor
thereof) or any collateral or security therefor, or may grant other indulgences
to any or the Borrower or such other parties in respect thereof, or may waive,
amend or supplement in any manner the provisions of any of the Loan Documents or
any other document, instrument or agreement relating to or securing any of the
Guaranteed Obligations (other than this Guaranty), or may release, surrender,
exchange, modify, or compromise any and all collateral securing any of the
Guaranteed Obligations or in which the Guaranteed Party may at any time have a
lien, or may refuse to enforce its rights or may make any compromise or
settlement or agreement therefor, in respect of any and all of such collateral,
or with any party to any of the Guaranteed Obligations or Loan Documents, or
with any other person, or may release or substitute any one or more of the other
endorsers or guarantors of the Guaranteed Obligations whether parties to this
Guaranty or not, or may exchange, enforce, waive or release any collateral for
any guaranty of any of the Guaranteed Obligations. Each Guarantor further
consents and agrees that the Guaranteed Party shall not be under any obligation
to marshal any assets in favor of any Guarantor or against or in payment of any
of the Guaranteed Obligations.
D-5
<PAGE>
6. WAIVER OF CERTAIN RIGHTS. Except for the contribution and indemnity
rights set forth in Section 2(b) hereof, each Guarantor expressly waives any and
all rights of subrogation, reimbursement, indemnity, exoneration or contribution
or any other claim which such Guarantor may now or hereafter have against the
Borrower or against any property of the Borrower arising from the existence,
payment, performance or enforcement of such Guarantor's obligations and
liabilities under this Guaranty.
7. CROSS-COLLATERALIZATION. Each Guarantor's joint and several
obligations and liabilities to the Guaranteed Party under this Guaranty shall be
secured by (i) any and all property pledged by such Guarantor to the Guaranteed
Party or in which the Guaranteed Party is granted a Lien pursuant to any
Collateral Documents from such Guarantor to the Guaranteed Party and any and all
other security interests, security titles, pledges, collateral assignments or
other Liens which the Guaranteed Party may now or hereafter have or acquire in,
to or on any real or personal property assets of such Guarantor, whether such
assets now exist or are hereafter acquired, except to the extent that such
Guarantor's obligations and liabilities hereunder are expressly excluded from
the coverage of any such Lien under the express terms of the mortgage, security
deed, security agreement, pledge agreement, collateral assignment or other
document which granted or grants such Lien.
8. GUARANTOR DUE DILIGENCE AND BENEFIT. Each Guarantor is fully aware of
the financial condition, assets and prospects of the Borrower, and each
Guarantor is executing and delivering this Guaranty based solely upon such
Guarantor's own independent investigation thereof and in no part upon any
representation, warranty or statement of the Guaranteed Party with respect to
the Borrower's financial condition, assets or prospects. Each Guarantor is in a
position to and hereby assumes full responsibility for obtaining any and all
information concerning the Borrower's financial condition, assets and prospects
as such Guarantor may now or hereafter deem material to such Guarantor's
decision to enter into and become liable under this Guaranty and such Guarantor
is not relying upon, nor does such Guarantor expect the Guaranteed Party to
furnish such Guarantor with any information which may be now or hereafter in the
Guaranteed Party's possession concerning the Borrower's financial condition,
assets or prospects. Each Guarantor hereby knowingly accepts the full range of
risks encompassed within a contract of guaranty, which risks such Guarantor
understands may include, without limitation, the possibility that the Borrower
may incur additional indebtedness to the Guaranteed Party for which such
Guarantor may be liable hereunder after the Borrower's financial condition or
means or ability to pay its lawful debts when they fall due has deteriorated.
Each Guarantor further acknowledges and agrees that any credit or other
financial accommodations now or hereafter extended by the Guaranteed Party to
the Borrower and any and all forbearances with respect to the Borrower or its
assets which the Guaranteed Party may now or hereafter grant are and will be of
direct interest, benefit and advantage to such Guarantor.
9. GUARANTEED PARTY'S ACCOUNTS AND RECORDS; APPLICATION OF PAYMENTS. Each
Guarantor agrees that, in the absence of manifest error, any and all books and
records relating to the Guaranteed Obligations which are prepared and maintained
by the Guaranteed Party shall constitute PRIMA FACIE evidence of the existence
and amount of the Guaranteed Obligations. In the event that the Guaranteed
Party sends to the Borrower any periodic or other statements of account with
respect to any or all of the Guaranteed Obligations, each such statement
rendered by the Guaranteed Party shall, in the absence of manifest error, be
deemed final, binding and conclusive upon each Guarantor unless the Guaranteed
Party is notified by the Borrower in writing to the contrary within thirty (30)
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days after the date such statement was sent by the Guaranteed Party to the
Borrower (and each such notice shall only be deemed an objection to those items
specifically objected to therein). Each Guarantor irrevocably waives the right
to direct the application of any and all payments and collections at any time
hereafter received by the Guaranteed Party from or on behalf of the Borrower,
any Guarantor or otherwise with respect to any of the Guaranteed Obligations and
each Guarantor does hereby irrevocably agree that the Guaranteed Party shall
have the continuing exclusive right to apply and re-apply any and all such
payments and collections received at any time hereafter by the Guaranteed Party
against the Guaranteed Obligations in such manner and order as the Guaranteed
Party may deem advisable, notwithstanding any contrary entry by the Guaranteed
Party upon any of its books and records.
10. AUTOMATIC ACCELERATION OF GUARANTY. Upon the occurrence of any Event
of Default described in SECTION 8.1(f), (g) or (h) of the Credit Agreement, all
of the Guaranteed Obligations shall be deemed immediately due and payable,
without notice or demand of any kind by the Guaranteed Party, and each Guarantor
agrees immediately to pay the Guaranteed Obligations in full, irrespective of
whether any or all of the Guaranteed Obligations can then be accelerated against
the Borrower and irrespective of any right which the Borrower then may have
under any bankruptcy, receivership, insolvency
11. NOTICES TO GUARANTORS. All notices, demands and other communications
hereunder or under any of the other Loan Documents by the Guaranteed Party to
any Guarantor shall be effective (i) if given by telecopy, when such
communication is transmitted to the telecopy number set forth beneath or
opposite such Guarantor's signature below (with such telecopy promptly confirmed
by delivery of a copy by personal delivery or U.S. mail as otherwise provided in
this Section), (ii) if given by mail within the United States of America, three
days after such communication is deposited in the United States mail with first
class postage prepaid, return receipt requested addressed to such Guarantor at
such Guarantor's address set forth beneath or opposite such Guarantor's
signature below, (iii) if sent for overnight delivery within the United States
of America by Federal Express or other reputable national overnight delivery
service, one Business Day after such communication is entrusted to such service
for overnight delivery and with recipient signature required, addressed as
aforesaid or (iv) if given by any other means, when delivered at the address of
the party to whom such notice is being delivered. Any Guarantor may designate a
different address or telecopy number for such Guarantor's receipt of such
notices or other communications but no such change shall be effective unless and
until the Guaranteed Party actually receives written notice thereof from such
Guarantor.
12. COLLECTION COSTS. Each Guarantor shall be liable to the Guaranteed
Party for, and shall pay to the Guaranteed Party on demand, all reasonable costs
(including without limitation reasonable attorney's fees and expenses) incurred
by the Guaranteed Party in enforcing performance of or collecting any payments
due under this Guaranty.
13. ASSIGNMENT AND TRANSFER. This Guaranty shall be binding upon each
Guarantor and such Guarantor's respective successors and permitted assigns and
shall inure to the benefit of and be enforceable by the Guaranteed Party and its
successors and assigns. Without limiting the generality of the preceding
sentence, the Guaranteed Party may assign or grant participations in all
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or any part of the Guaranteed Obligations, whereupon such assignee or
participant shall become entitled to all of the rights in respect thereof
granted to the Guaranteed Party herein.
14. GOVERNING LAW. THIS GUARANTY SHALL BE GOVERNED BY THE INTERNAL LAWS
OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAW RULES).
15. SUBORDINATION OF THE BORROWER'S OBLIGATIONS TO GUARANTOR. As an
independent covenant, and subject to the terms and conditions of the Credit
Agreement, each Guarantor hereby expressly covenants and agrees for the benefit
of the Guaranteed Party that all present or future indebtedness, obligations and
liabilities of the Borrower to such Guarantor of whatsoever description
(collectively, the "JUNIOR CLAIMS") shall be subordinate and junior in right of
payment to all Obligations of the Borrower to the Guaranteed Party
(collectively, the "SENIOR CLAIMS"), effective upon the occurrence of an Event
of Default under the Credit Agreement. If an Event of Default under the Credit
Agreement shall occur or be caused thereby, then, unless and until such Event of
Default shall have been cured or shall have ceased to exist, no direct or
indirect payment (in cash, property, securities by set-off or otherwise) shall
be made by the Borrower to such Guarantor on account of or in any manner in
respect of any Junior Claim except such payments and distributions the proceeds
of which shall be applied to the Senior Claims. In the event of a Proceeding
(as hereinafter defined), all Senior Claims shall first be paid in full before
any direct or indirect payment or distribution (in cash, property, securities by
set-off or otherwise) shall be made to any Guarantor on account of or in any
manner in respect of any Junior Claim except such payments and distributions the
proceeds of which shall be applied to the Senior Claims. For the purposes of
the previous sentence, a "Proceeding" shall occur if the Borrower shall make an
assignment for the benefit of creditors, file a petition in bankruptcy, have
entered against or in favor of it an order for relief under the Bankruptcy Code
or similar law of any other jurisdiction, generally fail to pay its debts as
they come due (either as to number or amount), admit in writing its inability to
pay its debts generally as they mature, make a voluntary assignment for the
benefit of creditors, commence any proceeding relating to it under any
reorganization, arrangement, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction, whether now or hereafter in effect, or by
any act, indicate its consent to, approval of or acquiescence in any such
proceeding or in the appointment of any receiver of, or trustee or custodian (as
defined in the Bankruptcy Code) for itself, or any substantial part of its
property, or a trustee or a receiver shall be appointed for the Borrower or for
a substantial part of the property of the Borrower, or a petition under any
bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or
liquidation law or statute or any jurisdiction (whether now or hereafter in
effect) shall be filed against the Borrower. In the event any direct or
indirect payment or distribution is made to any Guarantor in contravention of
this Section, such payment or distribution shall be deemed received in trust for
the benefit of the Guaranteed Party and shall be promptly paid over to the
Guaranteed Party for application against the Guaranteed Obligations. Each
Guarantor agrees to execute such additional documents as the Guaranteed Party
may reasonably request to evidence the subordination provided for in this
Section.
16. MISCELLANEOUS. (a) This Guaranty (together with any Collateral
Documents executed by any Guarantor to secure its obligations and liabilities
hereunder) constitutes the sole and entire agreement between the Guarantors and
the Guaranteed Party with respect to the subject matter hereof and supersedes
and replaces any and all prior agreements, understandings, negotiations or
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correspondence between them with respect thereto, including without limitation
any and all prior guaranty agreements executed by each Guarantor in favor of the
Guaranteed Party with respect to any or all of the Guaranteed Obligations.
(b) Time is of the essence of this Guaranty.
(c) Words importing the singular number hereunder shall include the plural
number and vice versa and any pronouns used herein shall be deemed to cover all
genders. The term "person" as used herein means any individual, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated association, or government (or any agency or political
subdivision thereof).
(d) Wherever possible, any provision in this Guaranty which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any one jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(e) No amendment or waiver of any provision of this Guaranty, nor consent
to any departure by any Guarantor therefrom, shall be effective or binding upon
the Guaranteed Party unless the Guaranteed Party shall first have given written
consent thereto. Any such amendment, waiver or consent which is so granted by
the Guaranteed Party shall apply only to the specific occasion which is the
subject of such amendment, waiver or consent and shall not apply to the
occurrence of the same or any similar event on any future occasion. No failure
on the part of the Guaranteed Party to exercise, and no delay by the Guaranteed
Party in exercising, any right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any right hereunder preclude any other
or further exercise thereof or the exercise of any other right by the Guaranteed
Party. No notice to or demand on any Guarantor in any case by the Guaranteed
Party hereunder shall entitle such Guarantor to any further notice or demand in
any similar or other circumstances or constitute a waiver of the rights of the
Guaranteed Party to take any other or future action in any circumstances without
notice or demand. The remedies provided to the Guaranteed Party in this
Guaranty are cumulative and not exclusive of any other remedies provided by law.
(f) This Guaranty may be executed in one or more counterparts and each
such counterpart shall constitute an original and all such counterparts together
shall constitute one and the same instrument.
(g) All section headings herein are for convenience of reference only and
shall not limit or otherwise affect the meaning or interpretation of the
provisions of this Guaranty.
(h) Each of the Guarantors shall be jointly and severally liable under
this Guaranty.
17. JURY TRIAL WAIVER. BECAUSE DISPUTES ARISING IN CONNECTION WITH
COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND EACH GUARANTOR WISHES APPLICABLE STATE AND
FEDERAL LAWS TO APPLY (RATHER THAN
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<PAGE>
ARBITRATION RULES), EACH GUARANTOR DESIRES THAT THEIR DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, EACH GUARANTOR HERETO
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO
RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN
GUARANTEED PARTY AND ANY GUARANTOR ARISING OUT OF, CONNECTED WITH, RELATED TO,
OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH,
THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED
THERETO.
18. CONSENT TO JURISDICTION AND VENUE. EACH GUARANTOR HEREBY CONSENTS AND
AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN THE CITY AND COUNTY OF NEW
YORK, SHALL HAVE EXCLUSIVELY JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES BETWEEN GUARANTEED PARTY AND ANY GUARANTOR PERTAINING TO THIS GUARANTY
OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY MATTER ARISING OUT OF OR RELATING TO
THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS PROVIDED, THAT EACH GUARANTOR
ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE THE CITY AND COUNTY OF NEW YORK AND, PROVIDED, FURTHER THAT
NOTHING IN THIS GUARANTY SHALL BE DEEMED OR OPERATE TO PRECLUDE GUARANTEED PARTY
FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO
COLLECT THE GUARANTEED OBLIGATIONS, REALIZE ON THE COLLATERAL OR ANY OTHER
SECURITY FOR THE GUARANTEED OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT
ORDER IN FAVOR OF GUARANTEED PARTY. EACH GUARANTOR EXPRESSLY SUBMITS AND
CONSENTS IN ADVANCE TO SUCH JURISDICTION AND ANY ACTION OR SUIT COMMENCED IN ANY
SUCH COURT, AND EACH GUARANTOR HEREBY WAIVES ANY OBJECTION THAT SUCH GUARANTOR
MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF
AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH GUARANTOR HEREBY WAIVES PERSONAL
SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR
SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY
BE MADE BY REGISTERED OR CERTIFIED MAIL, ADDRESSED TO SUCH GUARANTOR AT SUCH
GUARANTOR'S ADDRESS SET FORTH BENEATH OR OPPOSITE SUCH GUARANTOR'S SIGNATURE
BELOW AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
SUCH GUARANTOR'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSITED INTO
THE U.S. MAIL, PROPER POSTAGE PREPAID.
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<PAGE>
IN WITNESS WHEREOF, each Guarantor has executed and delivered this
Guaranty as of the date first above written.
NATIONAL HEALTHCARE OF CULLMAN, INC.,
NATIONAL HEALTHCARE OF DECATUR, INC.,
THE L.V. STABLER MEMORIAL HOSPITAL OF
GREENVILLE, INC., NATIONAL HEALTHCARE
OF HARTSELLE, INC., NATIONAL HEALTH-
CARE OF POCAHONTAS, INC., NATIONAL
HEALTHCARE OF HOLMES COUNTY, INC.,
HEALTH CARE OF FORSYTH COUNTY, INC.,
HEALTH CARE OF BERRIEN COUNTY, INC.,
BERRIEN NURSING CENTER, INC.,
NATIONAL HEALTHCARE OF MT. VERNON,
INC., NATIONAL HEALTHCARE OF
LEESVILLE, INC., NATIONAL HEALTHCARE
OF SABINE INC., NATIONAL HEALTHCARE
OF CLEVELAND, INC., SCENIC MOUNTAIN
MEDICAL CENTER, INC., NHCI OF
HILLSBORO, INC., NATIONAL HEALTHCARE
OF MCMINNVILLE, INC., HOSPITAL CORPO-
RATION OF WHITE COUNTY, NORTHGATE
HOSPITAL, INC., NATIONAL HEALTHCARE
OF LAMAR COUNTY, INC., NATIONAL
HEALTHCARE OF ELBA, ALABAMA, INC.,
POPLAR BLUFF MANAGEMENT, INC., ALTER-
NATIVE HEALTH SERVICES, INC.,
By:
---------------------------------------,
WILLIAM E. HOFFMAN, JR.
Title: _______________ of each of the
above corporations
Address for Notice:
-------------------
------------------------------------------
------------------------------------------
Attn:
------------------------------------
Telecopy: ( )
---- ------------------------
D-11
<PAGE>
NATIONAL HEALTHCARE OF NEWPORT, INC.,
HALLMARK HEALTHCARE MANAGEMENT CORPORA-
TION, NATIONAL HEALTHCARE OF CLANTON,
INC., NATIONAL HEALTHCARE OF WASHINGTON
COUNTY, INC., PHYSICIANS HOSPITAL OF
DADEVILLE, INC., NATIONAL HEALTHCARE OF
ENGLAND, ARKANSAS, INC., NATIONAL
HEALTHCARE OF EUFAULA, INC., NATIONAL
HEALTHCARE OF DALLAS COUNTY, INC., HEALTH
CARE OF VIENNA, GEORGIA, INC., KSA
MANAGEMENT COMPANY, NATIONAL HEALTHCARE OF
BARNWELL, INC., RHC-TENNESSEE PROPERTIES,
INC., WAYNE COUNTY HOME HEALTHCARE, INC.,
NATIONAL HEALTHCARE CENTER OF WAYNESBORO,
INC., NATIONAL HEALTHCARE VENTURE I, INC.,
NHI HOLDINGS, INC., HOME INFUSION THERAPY,
INC., CONTINUAL CARE, INC., N.H. OF WEST
SEATTLE, INC., HEALTHCARE PLUS, INC.,
HOMEBOUND HEALTH CARE AGENCY, INC.,
NATIONAL HEALTH/CARE PLAN, INC.,
By:
---------------------------------------,
ROBERT M. THORNTON, JR.
Title: _______________ of each of the
above corporations
Address for Notice:
-------------------
------------------------------------------
------------------------------------------
Attn:
-------------------------------------
Telecopy: ( ) -
---- ---- -------------------
D-12
<PAGE>
NEURO TREATMENT, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Address for Notice:
-------------------
------------------------------------------
------------------------------------------
Attn:
-------------------------------------
Telecopy: ( ) -
---- ---- -------------------
GEORGIA HOME SERVICES INC.
By:
---------------------------------------
MARIA E. ROBINSON
Title: of each of the
---------------
above corporations
Address for Notice:
-------------------
------------------------------------------
------------------------------------------
Attn:
-------------------------------------
Telecopy: ( ) -
---- ---- -------------------
SECTION 15 OF THE FOREGOING
GUARANTY ACKNOWLEDGED AND
AGREED TO:
HALLMARK HEALTHCARE CORPORATION
By:
-----------------------------
Title:
----------------------
D-13
<PAGE>
EXHIBIT E-1
to
CREDIT AGREEMENT
Dated as of December 31, 1993
BORROWER SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of December 31, 1993, made by HALLMARK
HEALTHCARE CORPORATION, a Delaware corporation having its chief executive office
at 300 Galleria Parkway, Suite 650, Atlanta, Georgia 30339 ("BORROWER"), in
favor of GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation having an
office at Suite 200, 5665 New Northside Drive, Atlanta, Georgia 30328
("LENDER").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Credit Agreement dated as of
December 31, 1993 by and between Borrower and Lender (as the same from time to
time may be amended, restated, supplemented or otherwise modified, the "CREDIT
AGREEMENT"), Lender has agreed, among other things, to make a Working Capital
Loan (as defined in the Credit Agreement) available to Borrower and to establish
an Acquisition Line (as defined in the Credit Agreement); and
WHEREAS, Lender is willing to make the Working Capital Loan and any
other extensions of credit provided for in the Credit Agreement available to
Borrower and to establish the Acquisition Line, but only upon the condition,
among others, that Borrower shall have executed and delivered this Security
Agreement in favor of Lender;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. DEFINED TERMS.
a. When used herein, the following terms shall have the following
meanings (terms defined in the singular to have the same meaning when used in
the plural and vice versa):
PERMITTED LIEN: means (i) a Lien listed in SCHEDULE I hereto or
consented to in writing by the Lender, (ii) a Lien securing a tax
assessment or other governmental charge or levy (excluding any Lien arising
under any of the provisions of the Employee Retirement Income Security Act
of 1975, as amended), the claim of a materialman, mechanic, carrier,
warehouseman or landlord for labor, materials, supplies or rentals incurred
in the ordinary course of business, or a money judgment rendered by a court
or administrative tribunal, but in each case only if (A) such amount is not
over due and payable or, in the case of a tax assessment or other
governmental charge or levy, if payment thereof shall not at the time be
required to be made in accordance with SECTION 6.2 of the Credit Agreement,
(B) foreclosure, distraint, sale or other similar proceeding
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<PAGE>
shall not have been commenced or if commenced, such proceeding is being
contested in good faith by appropriate action and any execution in respect
thereof has been bonded or stayed, and (C) such Lien, together with all
other such Liens, secures obligations which do not exceed $100,000 in the
aggregate and (iii) a Lien created in favor of the Lender under any of the
Collateral Documents.
b. Unless otherwise defined herein, capitalized terms defined in the
Credit Agreement are used herein as therein defined.
2. GRANT OF SECURITY INTEREST.
a. To secure the prompt and complete payment, performance and
observance of all of the Obligations, and to induce Lender to enter into the
Credit Agreement and to make the Working Capital Loan and other extensions of
credit provided for therein available to Borrower in accordance with the
respective terms thereof and to induce Lender to establish the Acquisition Line
in accordance with the terms of the Credit Agreement, Borrower hereby grants to
Lender a security interest in all of Borrower's right, title and interest in, to
and under the following whether now owned by or owing to, or hereafter acquired
by or arising in favor of Borrower (including, without limitation, under any
trade names, styles or divisions thereof), and regardless of where located (all
of which being hereinafter collectively referred to as the "COLLATERAL"):
(i) all Accounts, including, without limitation, all accounts
arising under Medicare, Medicaid and CHAMPUS;
(ii) all Chattel Paper;
(iii) all Contracts;
(iv) all Documents;
(v) all Instruments (excluding any stock of any Subsidiary);
(vi) all General Intangibles;
(vii) all rights, titles and interests of Borrower in, to or under
any or all of the Collection Account, the Concentration Account, the
Disbursement Account, any other cash management account, lockbox
account, or cash collateral account, and in any other account into
which there shall be deposited at any time any Proceeds of the
Collateral, in each case which may be now or hereafter established by
Lender under the Credit Agreement, and in all monies or other property
of Borrower now or hereafter on deposit therein;
(viii) all money, cash or cash equivalents of Borrower;
(ix) all books and records (including without limitation credit
files, customer lists, computer files, computer programs, computer
printouts, or other
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<PAGE>
computer material of Borrower pertaining to any of the Collateral
described above; and
(x) all Proceeds of any of the Collateral described above.
b. In addition, to secure the prompt and complete payment,
performance and observance of the Obligations and in order to induce Lender as
aforesaid, Borrower hereby grants to Lender, a security interest in all property
of Borrower held by Lender, including, without limitation, all property of every
description, now or hereafter in the possession or custody of or in transit to
Lender for any purpose, including safekeeping, collection or pledge, for the
account of Borrower, or as to which Borrower may have any right or power.
3. LENDER'S RIGHTS; LIMITATIONS ON LENDER'S OBLIGATIONS.
a. It is expressly agreed by Borrower that, anything herein to the
contrary notwithstanding, Borrower shall remain liable under each of its
Contracts and each of its Licenses to observe and perform all the conditions and
obligations to be observed and performed by it thereunder and Lender shall have
no obligation or liability under any Contract or License by reason of or arising
out of this Security Agreement or the granting herein of a security interest
therein or the receipt by Lender of any payment relating to any Contract or
License pursuant hereto, nor shall Lender be required or obligated in any manner
to perform or fulfill any of the obligations of Borrower under or pursuant to
any Contract or License, or to make any payment, or to make any inquiry as to
the nature or the sufficiency of any payment received by it or the sufficiency
of any performance by any party under any Contract or License, or to present or
file any claims, or to take any action to collect or enforce any performance or
the payment of any amounts which may have been assigned to it or to which it may
be entitled at any time or times.
b. Lender may at any time after the occurrence of and during the
continuance of an Event of Default (i) upon five (5) days prior written notice
to Borrower, notify Account Debtors, parties to the Contracts, and obligors in
respect of Instruments, that the Accounts and the right, title and interest of
Borrower in and under such Contracts and Instruments have been assigned to
Lender and that payments shall be made directly to Lender; (ii) require a
Borrower to notify Account Debtors, parties to Contracts, and obligors in
respect of Instruments; and (iii) upon five (5) days prior written notice to
Borrower, notify obligors in respect of Chattel Paper that the right, title and
interest of Borrower in and under such Chattel Paper have been assigned to
Lender and that payments shall be made directly to Lender.
c. Upon reasonable prior notice to Borrower (unless an Event of
Default has occurred and is continuing in which case no notice is necessary),
Lender shall have the right to make test verifications of the Accounts and
verifications and appraisals of the other Collateral in a commercially
reasonable manner and Borrower agrees to furnish all such assistance and
information as Lender may reasonably require in connection therewith. Upon the
occurrence and continuation of an Event of Default, Borrower, at its own
expense, shall cause the certified public accountant then engaged by Borrower,
to prepare and deliver to Lender at any time and from time to time promptly upon
Lender's request the following reports: (i) a reconciliation of
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<PAGE>
all Accounts; (ii) an aging of all Accounts; (iii) trial balances; and (iv) a
test verification of such Accounts as Lender may request.
4. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants that:
a. Except for the security interest granted to Lender under this
Security Agreement and any other Permitted Lien, Borrower is the sole owner of
each item of the Collateral in which it purports to grant a security interest
hereunder, having good and marketable title thereto free and clear of any and
all liens, security interests or other encumbrances.
b. No effective security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering all or any part
of the Collateral is on file or of record in any public office, except as may be
set forth on SCHEDULE I hereto, or such as may have been filed by Borrower in
favor of Lender pursuant to this Security Agreement.
c. This Security Agreement creates a valid and continuing lien on
and security interest in favor of Lender in the Collateral, which lien and
security interest has been duly perfected and is prior to all other Liens except
those Liens specifically designated on SCHEDULE I as being prior to Lender's
Liens, and except Permitted Liens that would be prior to Lender's Liens as a
matter of law, and is enforceable as such as against all third parties. All
action necessary or desirable to protect and perfect such security interest in
each item of the Collateral has been duly taken.
d. SCHEDULE II hereto lists all Instruments of Borrower. All action
necessary or desirable to protect and perfect the security interest of Lender in
each item set forth on SCHEDULE II, including the delivery of all originals
thereof to Lender, has been duly taken. The security interest of Lender in the
Collateral listed on SCHEDULE II hereto is prior to all other Liens except those
Liens specifically designated on SCHEDULE I as being prior to Lender's Liens and
Permitted Liens that would be prior to Lender's Liens as a matter of law, and is
enforceable against all third parties.
e. Borrower's chief executive office, principal place of business,
corporate offices, and the locations of all of its records concerning the
Collateral are set forth on SCHEDULE III hereto, and Borrower shall not change
such chief executive office, principal place of business, corporate offices or
location of its records concerning the Collateral, or remove such records unless
it has taken such action as is necessary to cause the Lien of Lender in the
Collateral to continue to be perfected. Borrower shall not change its chief
executive office, principal place of business, corporate offices, or location of
its records concerning the Collateral without giving at least thirty (30) days'
prior written notice thereof to Lender.
f. During the five (5) year period preceding the date of this
Security Agreement, Borrower has not been known as or used and Borrower
presently does not use any corporate name other than its name as set forth in
its signature below and those other corporate, fictitious or trade names (if
any) of Borrower as disclosed on SCHEDULE III hereto. If such schedule sets
forth any fictitious or trade names for Borrower (collectively, the "TRADE
NAMES"), Borrower certifies to and agrees with Lender that: (i) any Collateral
arising out of any sales
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under and of the Trade Names is the property of and belongs to Borrower; (ii)
each of the Trade Names is a trade name or trade style (and not an independent
or separate corporation or other legal entity) by which Borrower may identify or
market itself or under which Borrower may sell certain products, render certain
devices or otherwise conduct some or all of its business; (iii) any Collateral
which arises from any sales made, services rendered or other business conducted
under any of the Trade Names shall be owned solely by Borrower; and (iv)
Borrower hereby appoints Lender to be its attorney-in-fact to file such
certificates disclosing Borrower's use of the Trade Names and to take such other
actions on Borrower's behalf as Lender considers appropriate to comply with any
statutes or regulations relating to the use of fictitious or assumed business
names.
g. (i) The Accounts represent bona fide sales of inventory or the
provision of services to customers in the ordinary course of Borrower's business
completed in accordance with the terms and provisions contained in the documents
available to Lender with respect thereto and are not evidenced by a judgment,
Instrument or Chattel Paper; (ii) the amounts shown on any aged receivables
trial balance delivered by Borrower to Lender pursuant to the terms of this
Security Agreement or the Credit Agreement and on Borrower's books and records
and all invoices and statements which may be delivered to the Lender with
respect thereto are actually and absolutely owing to Borrower and are not in any
way contingent; (iii) no payments have been or shall be made thereon except
payments immediately delivered to a collection account and payments made prior
to the date of this Security Agreement; (iv) there are no setoffs, claims or
disputes existing or asserted with respect thereto and Borrower has not made any
agreement with any Account Debtor for any deduction therefrom except a discount
or allowance allowed by Borrower in the ordinary course of its business for
prompt payment; (v) to the best of Borrower's knowledge, there are no facts,
events or occurrences which in any way impair the validity or enforcement
thereof or tend to reduce the amount payable thereunder as shown on the
respective aged receivable trial balances, Borrower's books and records and all
invoices and statements delivered to Lender with respect thereto; (vi) to the
best of Borrower's knowledge, all Account Debtors have the capacity to contract;
(vii) Borrower has received no notice of proceedings or actions which are
threatened or pending against any Account Debtor which might result in any
material adverse change in such Account Debtor's financial condition and (viii)
Borrower has no knowledge that any Account Debtor is unable generally to pay its
debts as they become due.
5. COVENANTS. Borrower covenants and agrees with Lender that from
and after the date of this Security Agreement and until the termination of this
Security Agreement pursuant to SECTION 16 hereof:
a. FURTHER ASSURANCES; PLEDGE OF INSTRUMENTS. At any time and from
time to time, upon the written request of Lender and at the sole expense of
Borrower, Borrower shall promptly and duly execute and deliver any and all such
further instruments and documents and take such further action as Lender may
reasonably deem desirable to obtain for the Lender the full benefits of this
Security Agreement and of the interests, rights and powers herein granted,
including (i) using its best efforts to secure all consents and approvals
necessary or appropriate for the assignment to or for the benefit of Lender of
any Collateral held by Borrower or in which Borrower has any rights not
heretofore assigned, (ii) filing any financing or continuation statements under
the Code and giving any notices or attaching any legends required under non-Code
law with respect to the liens and security interests intended to be granted
hereunder or
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under any other Loan Document and (iii) transferring Collateral to Lender's
possession (if such Collateral consists of Chattel Paper or if a security
interest in such Collateral can be perfected only by possession). Borrower also
hereby authorizes Lender to file any financing or continuation statement without
the signature of Borrower to the extent permitted by applicable law. If any
amount payable under or in connection with any of the Collateral is or shall
become evidenced by any Instrument, such Instrument, other than checks and notes
received in the ordinary course of business, shall be duly endorsed in a manner
satisfactory to Lender promptly upon Borrower's receipt thereof and delivered to
Lender.
b. MAINTENANCE OF RECORDS. Borrower shall keep and maintain, at its
own cost and expense, satisfactory and complete records of the Collateral,
including a record of any and all payments received and any and all credits
granted with respect to the Collateral and all other dealings with the
Collateral. Borrower shall mark its books and records, and following an Event
of Default its invoices and insurance assignments and/or claim forms pertaining
to the Collateral to evidence this Security Agreement and the security interests
granted hereby. All Chattel Paper shall be marked with the following legend:
"This writing and the obligations evidenced or secured hereby are subject to the
security interest of General Electric Capital Corporation." For Lender's
further security, Borrower agrees that Lender shall have a special property
right and security interest in all of Borrower's books and records pertaining to
the Collateral and, upon the occurrence and during the continuation of any Event
of Default, Borrower shall deliver and turn over any such books and records to
Lender or to its representatives at any time on demand of Lender. Prior to the
occurrence of an Event of Default and upon reasonable notice from Lender,
Borrower shall permit any representative of Lender to inspect such books and
records and shall provide photocopies thereof to Lender as more specifically set
forth in SECTION 5(G) below.
c. INDEMNIFICATION. In any suit, proceeding or action brought by
Lender relating to any Account, Chattel Paper, Contract, General Intangible,
Instrument or Document for any sum owing thereunder, or to enforce any provision
of any Account, Chattel Paper, Contract, General Intangible, Instrument, or
Document, Borrower shall save, indemnify and keep Lender harmless from and
against all expense, loss or damage suffered by reason of any claim, defense,
setoff, counterclaim, recoupment or reduction of liability whatsoever of the
obligor thereunder arising out of a breach by Borrower of any obligation
thereunder or arising out of any other agreement, indebtedness or liability at
any time owing to, or in favor of, such obligor or its successors from Borrower,
and all such obligations of Borrower shall be and remain enforceable against,
and only against, Borrower and shall not be enforceable against Lender.
d. COMPLIANCE WITH TERMS OF ACCOUNTS, ETC. In all material
respects, Borrower shall perform and comply with all obligations in respect of
Accounts, Chattel Paper, Contracts, Licenses, Instruments and Documents, and all
other agreements to which it is a party or by which it or any of its property is
bound.
e. LIMITATION ON LIENS ON COLLATERAL. Borrower shall not create,
permit or suffer to exist, and shall defend the Collateral against and take such
other action as is necessary to remove, any Lien on the Collateral except for
Permitted Liens. Borrower shall further defend the right, title and interest of
Lender in and to any of Borrower's rights under the Chattel Paper,
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Contracts, Documents, General Intangibles and Instruments and any other
Collateral, and in and to the Proceeds thereof, against the claims and demands
of all Persons whomsoever.
f. LIMITATIONS ON MODIFICATIONS OF ACCOUNTS. Subject to the terms
of the Credit Agreement, upon the occurrence and during the continuation of any
Event of Default, Borrower shall not, without Lender's prior written consent,
(i) grant any extension of the time of payment of any of the Accounts, Chattel
Paper, Instruments or amounts due under any Contract; (ii) compromise or settle
the same for less than the full amount thereof; (iii) release, in whole or in
part, any Person liable for the payment thereof; or (iv) allow any credit or
discount whatsoever thereon other than trade discounts granted in the ordinary
course of business of Borrower.
g. RIGHT OF INSPECTION. Upon reasonable notice to Borrower (unless
an Event of Default has occurred and is continuing, in which case no notice is
necessary), Lender shall at all times have full and free access during normal
business hours to all the books and records and correspondence of Borrower, and
Lender or its representatives may examine the same, take extracts therefrom and
make photocopies thereof, and Borrower agrees to render to Lender, at Borrower's
cost and expense, such clerical and other assistance as may be reasonably
requested with regard thereto. Upon reasonable notice to Borrower (unless an
Event of Default has occurred and is continuing, in which case no notice is
necessary), Lender and its representatives shall also have the right to enter
into and upon any premises where any of the Collateral is located for the
purpose of inspecting the same, observing its use or otherwise protecting
Lender's interests in the Collateral.
h. CONTINUOUS PERFECTION. Borrower shall not change its name,
identity or corporate structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously misleading within
the meaning of section 9-402(7) of the Code or any other then applicable
provision of the Code unless Borrower shall have given Lender at least thirty
(30) days' prior written notice thereof and shall have taken all action (or made
arrangements to take such action substantially simultaneously with such change
if it is impossible to take such action in advance) necessary or reasonably
requested by Lender to amend such financing statement or continuation statement
so that it is not seriously misleading.
6. LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT.
a. Borrower hereby irrevocably constitutes and appoints Lender and
any officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of Borrower and in the name of Borrower or in its own name, from time
to time in Lender's discretion, for the purpose of carrying out the terms of
this Security Agreement, to take any and all appropriate action and to execute
and deliver any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Security Agreement and, without
limiting the generality of the foregoing, hereby grants to Lender the power and
right, on behalf of Borrower, without notice to or assent by Borrower, and at
any time, to do the following while the provisions of SECTION 6.12(C) of the
Credit Agreement (requiring cash sweeps) shall be operative:
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(i) in the name of Borrower, in its own name or otherwise, take
possession of, endorse and receive payment of any checks, drafts, notes,
acceptances, or other Instruments for the payment of monies due under any
Collateral;
(ii) continue any insurance existing pursuant to the terms of this
Security Agreement, and pay all or any part of the premiums therefor and
the costs thereof; and
(iii) receive payment of any and all monies, claims, and other
amounts due or to become due at any time arising out of or in respect of
any Collateral.
b. Borrower hereby irrevocably constitutes and appoints Lender and
any officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of Borrower and in the name of Borrower or in its own name, from time
to time in Lender's discretion, for the purpose of carrying out the terms of
this Security Agreement, to take any and all appropriate action and to execute
and deliver any and all documents and instruments which may be necessary or
reasonably desirable to accomplish the purposes of this Security Agreement and,
without limiting the generality of the foregoing, hereby grants to Lender the
power and right, on behalf of Borrower, without notice to or assent by Borrower,
upon the occurrence and during the continuation of an Event of Default, to do
the following:
(i) ask, demand, collect, receive and give acquittances and receipts
for any and all money due or to become due under any Collateral;
(ii) pay or discharge taxes, liens, security interest, or other
encumbrances levied or placed on or threatened against the Collateral;
(iii) obtain any insurance called for by the terms of the Credit
Agreement and pay all or any part of the premiums therefor and costs
thereof;
(iv) direct any party liable for any payment under or in respect of
any of the Collateral to make payment of any and all monies due or to
become due thereunder, directly to Lender or as Lender shall direct;
(v) sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts, drafts against debtors, assignments,
verifications, and notices in connection with accounts and other documents
constituting or related to the Collateral;
(vi) settle, compromise or adjust any suit, action, or proceeding
described above and, in connection therewith, give such discharges or
releases as Lender may deem appropriate;
(vii) file any claim or take or commence any other action or proceeding
in any court of law or equity or otherwise deemed appropriate by Lender for
the purpose of collecting any and all such monies due under any Collateral
whenever payable (including without limitation, any action to require the
payment of any amounts due from Medicare,
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Medicaid or similar government programs directly to an account under the
exclusive control of Lender, to which such action the Borrower hereby
consents, agrees and stipulates to the requested action in advance to the
fullest extent permitted by Applicable Law);
(viii) commence and prosecute any suits, actions or proceedings of law
or equity in any court of competent jurisdiction to collect the Collateral
or any part thereof and to enforce any other right in respect of any
Collateral;
(ix) defend any suit, action or proceeding brought against Borrower
with respect to any Collateral if Borrower does not defend such suit,
action or proceeding or if Lender believes that Borrower is not pursuing
such defense in a manner that will maximize the recovery with respect to
such Collateral; and
(x) sell, transfer, pledge, make any agreement with respect to, or
otherwise deal with any of the Collateral as fully and completely as though
Lender were the absolute owner thereof for all purposes, and to do, at
Lender's option and Borrower's expense, at any time, or from time to time,
all acts and things which Lender reasonably deems necessary to perfect,
preserve, or realize upon the Collateral and Lender's Lien thereon in order
to effect the intent of this Security Agreement, all as fully and
effectively as Borrower might do.
c. Borrower hereby ratifies, to the extent permitted by law, all
that said attorneys-in-fact shall lawfully do or cause to be done by virtue
hereof. The power of attorney granted pursuant to this SECTION 6 is a power
coupled with an interest and shall be irrevocable until all Working Capital
Loans, all Acquisition Loans and all other Obligations have been completely
discharged and Borrower shall not have any further right to borrow any monies or
obtain other credit extensions or financial accommodations under the Credit
Agreement.
d. The powers conferred on Lender hereunder are solely to protect
Lender's interests in the Collateral and shall not impose any duty upon it to
exercise any such powers. Lender shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers and none of its
officers, directors, employees, agents or representatives shall be responsible
to Borrower for any act or failure to act, except for their own gross negligence
or willful misconduct.
e. Borrower also authorizes Lender, at any time and from time to
time upon the occurrence of and during continuance of an Event of Default, to
(i) communicate in its own name with any party to any Contract with regard to
the assignment of the right, title and interest of Borrower in and under the
Accounts, the Contracts and other matters relating thereto and (ii) execute, in
connection with the sale provided for in SECTION 8 hereof, any endorsements,
assignments or other instruments of conveyance or transfer with respect to the
Collateral.
7. PERFORMANCE BY LENDER OF BORROWER'S OBLIGATIONS. If Borrower
fails to perform or comply with any of its agreements contained herein or in any
of the other Loan Documents, and Lender, as provided for by the terms of this
Security Agreement or any of the other Loan Documents, shall itself perform or
comply, or otherwise cause
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<PAGE>
performance of or compliance, with such agreement, the reasonable expenses,
including attorneys' fees, of Lender incurred in connection with such
performance or compliance, together with interest thereon at the rate then in
effect in respect of the Working Capital Loan, shall be payable by Borrower to
Lender on demand and shall constitute Obligations secured hereby.
8. REMEDIES; RIGHTS UPON DEFAULT.
a. If any Event of Default shall occur and be continuing, Lender may
exercise in addition to all other rights and remedies granted to it under this
Security Agreement, the Credit Agreement, the other Loan Documents and under any
other instrument or agreement securing, evidencing, guaranteeing or otherwise
relating to the Obligations, all rights and remedies of a secured party under
the Code. Without limiting the generality of the foregoing, Borrower expressly
agrees that in any such event Lender, without demand of performance or other
demand, advertisement or notice of any kind (except the notice specified below
of time and place of public or private sale) to or upon Borrower or any other
Person (all and each of which demands, advertisements and notices are hereby
expressly waived to the maximum extent permitted by the Code and other
applicable law), may forthwith enter upon the premises of Borrower where any
Collateral is located through self-help, without judicial process, without first
obtaining a final judgment or giving Borrower notice and opportunity for a
hearing on Lender's claim or action, and without paying rent to Borrower, and
collect, receive, assemble, process, appropriate and realize upon the
Collateral, or any part thereof, and may forthwith sell, lease, assign, give an
option or options to purchase, or sell or otherwise dispose of and deliver said
Collateral (or contract to do so), or any part thereof, in one or more parcels
at public or private sale or sales, at any exchange at such prices as it may
deem best, for cash or on credit or for future delivery without assumption of
any credit risk. Lender shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase for the benefit of Lender the whole or any part of said Collateral
so sold, free of any right or equity of redemption, which equity of redemption
Borrower hereby releases. Such sales may be adjourned and continued from time
to time with or without notice. Lender shall have the right to conduct such
sales on Borrower's premises or elsewhere and shall have the right to use
Borrower's premises without charge for such time or times as Lender deems
necessary or advisable.
Borrower further agrees, at Lender's request, to assemble the
Collateral and make it available to Lender at places which Lender shall
reasonably select, whether at Borrower's premises or elsewhere. Until Lender is
able to effect a sale, lease, or other disposition of Collateral, Lender shall
have the right to use, operate or administer Collateral on behalf of Lender, or
any part thereof, to the extent that it deems appropriate for the purpose of
preserving Collateral or its value or for any other purpose deemed appropriate
by Lender. Lender shall have no obligation to Borrower to maintain or preserve
the rights of Borrower as against third parties with respect to Collateral while
Collateral is in the possession of Lender. Lender may, if it so elects, seek
the appointment of a receiver or keeper to take possession of Collateral and to
enforce any of Lender's remedies with respect to such appointment without prior
notice or hearing. Lender shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale as provided in SECTION 8D
hereof, Borrower remaining liable for any deficiency remaining unpaid after such
application, and only after so paying over such net proceeds and after the
payment by Lender of any other amount required by any provision of law,
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including section 9-504(1)(c) of the Code (but only after Lender has received
what Lender considers reasonable proof of a subordinate party's security
interest), need Lender account for the surplus, if any, to Borrower. To the
maximum extent permitted by applicable law, Borrower waives all claims, damages,
and demands against Lender arising out of the repossession, liquidation,
collection, retention or sale of the Collateral except such as arise out of the
gross negligence or willful misconduct of such party. Borrower agrees that five
(5) days' prior notice by Lender of the time and place of any public sale or of
the time after which a private sale may take place is reasonable notification of
such matters. Borrower shall remain liable for any deficiency if the proceeds
of any sale or disposition of the Collateral are insufficient to pay all amounts
to which Lender is entitled, Borrower also being liable for any reasonable
attorneys' fees incurred by Lender to collect such deficiency.
b. Borrower agrees to pay any and all costs of Lender, including,
without limitation, reasonable attorneys' fees, incurred in connection with the
enforcement of any of its rights and remedies hereunder.
c. Except as otherwise specifically provided herein, Borrower hereby
waives presentment, demand, protest or any notice (to the maximum extent
permitted by applicable law) of any kind in connection with this Security
Agreement or any Collateral.
d. The Proceeds of any sale, disposition or other realization upon
all or any part of the Collateral shall be distributed by Lender upon receipt,
in the following order of priorities:
FIRST, to Lender in an amount sufficient to pay in full the
reasonable expenses of Lender in connection with such sale,
disposition or other realization, including all expenses, liabilities
and advances incurred or made by Lender in connection therewith,
including reasonable attorney's fees;
SECOND, to Lender in an amount equal to the then due and unpaid
accrued interest, fees and prepayment premiums, if any, on the
Obligations;
THIRD, to Lender in an amount equal to any other Obligations or
amounts owed, if any, in connection with the Obligations;
FOURTH, to Lender in an amount equal to any other Obligations
which are then unpaid; and
FINALLY, upon payment in full of all of the Obligations, to
Borrower or its representatives or to whomsoever may be lawfully
entitled to receive the same, or as a court of competent jurisdiction
may direct.
9. GRANT OF LICENSE TO USE PATENT AND TRADEMARK COLLATERAL. For the
purpose of enabling Lender to exercise rights and remedies under SECTION 8
hereof (including, without limiting the terms of SECTION 8 hereof, in order to
take possession of, hold, preserve, process, assemble, prepare for sale, market
for sale, sell, liquidate or otherwise dispose of Collateral) at such time as
Lender shall be lawfully entitled to exercise
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such rights and remedies, Borrower hereby grants to Lender an irrevocable, non-
exclusive license (exercisable without payment of royalty or other compensation
to Borrower) to use, transfer, license or sublicense any Patent, Trademark,
trade secret, or copyright now owned or hereafter acquired by Borrower, and
wherever the same may be located, and including in such license reasonable
access to all media in which any of the licensed items may be recorded or stored
and to all computer and automatic machinery software and programs used for the
compilation or printout thereof.
10. LIMITATION ON LENDER'S DUTY IN RESPECT OF COLLATERAL. Lender
shall use reasonable care with respect to the Collateral in its possession or
under its control. Lender shall not have any other duty as to any Collateral in
its possession or control or in the possession or control of any agent or
nominee of Lender, or any income thereon or as to the preservation of rights
against prior parties or any other rights pertaining thereto. Upon request of
Borrower, Lender shall account for any monies received by Lender in respect of
any foreclosure on or disposition of the Collateral.
11. REINSTATEMENT. This Security Agreement shall remain in full
force and effect and continue to be effective should any petition be filed by or
against Borrower for liquidation or reorganization, should Borrower become
insolvent or make an assignment for the benefit of creditors or should a
receiver or trustee be appointed for all or any significant part of Borrower's
assets, and shall continue to be effective or be reinstated, as the case may be,
if at any time payment and performance of the Obligations, or any part thereof,
is, pursuant to Applicable Law, rescinded or reduced in amount, or must
otherwise be restored or returned by any obligee of the Obligations, whether as
a "voidable preference," "fraudulent conveyance," or otherwise, all as though
such payment or performance had not been made. In the event that any payment,
or any part thereof, is rescinded, reduced, restored or returned, the
Obligations shall be reinstated and deemed reduced only by such amount paid and
not so rescinded, reduced, restored or returned.
12. NOTICES. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon either of the
parties by the other party, or whenever either of the parties desires to give or
serve upon the other party any communication with respect to this Security
Agreement, each such notice, demand, request, consent, approval, declaration or
other communication shall be in writing and shall be given in the manner, and
deemed received, as provided for in SECTION 9.10 of the Credit Agreement.
13. SEVERABILITY; COMPLETE AGREEMENT. Any provision of this Security
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. This Security
Agreement is to be read, construed and applied together with the Credit
Agreement and the other Loan Documents which, taken together, set forth the
complete understanding and agreement of Lender and Borrower with respect to the
matters referred to herein and therein and supersede all prior agreements,
understandings or inducements whether express or implied, or oral or written.
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14. NO WAIVER; CUMULATIVE REMEDIES. Lender shall not by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
Lender and then only to the extent therein set forth. A waiver by Lender of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which Lender would otherwise have had on any future
occasion. No failure to exercise nor any delay in exercising on the part of
Lender, any right, power or privilege hereunder, shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or future exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
hereunder provided are cumulative and may be exercised singly or concurrently,
and are not exclusive of any rights and remedies provided by law. None of the
terms or provisions of this Security Agreement may be waived, altered, modified
or amended except by an instrument in writing, duly executed by Lender and
Borrower.
15. LIMITATION BY LAW; TIME OF ESSENCE. All rights, remedies and
powers provided in this Security Agreement may be exercised only to the extent
that the exercise thereof does not violate any applicable provision of law, and
all the provisions of this Security Agreement are intended to be subject to all
applicable mandatory provisions of law that may be controlling and to be limited
to the extent necessary so that they shall not render this Security Agreement
invalid, unenforceable, in whole or in part, or not entitled to be recorded,
registered, or filed under the provisions of any Applicable Law. Time is of the
essence of this Security Agreement.
16. TERMINATION OF THIS SECURITY AGREEMENT. Subject to SECTION 11
hereof, this Security Agreement shall terminate upon the first day following the
termination of the Commitments and the repayment in full of all Secured
Obligations.
17. SUCCESSORS AND ASSIGNS. This Security Agreement and all
obligations of Borrower hereunder shall be binding upon the successors and
assigns of Borrower, and shall, together with the rights and remedies of Lender
hereunder, inure to the benefit of Lender, all future holders of any instrument
evidencing any of the Obligations and their respective successors and assigns.
No sales of participations, other sales, assignments, transfers or other
dispositions of any agreement governing or instrument evidencing the Obligations
or any portion thereof or interest therein shall in any manner affect the
security interest granted to Lender hereunder. Borrower may not assign, sell or
otherwise transfer an interest in this Security Agreement.
18. EXECUTION IN COUNTERPARTS. This Security Agreement may be
executed in any number of counterparts, all of which shall collectively and
separately constitute one agreement.
19. GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE. EXCEPT AS
OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY
AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
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APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. BORROWER HEREBY CONSENTS AND AGREES THAT
THE STATE OR FEDERAL COURTS LOCATED IN THE CITY AND COUNTY OF NEW YORK SHALL
HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN
BORROWER AND LENDER PERTAINING TO THIS SECURITY AGREEMENT OR TO ANY MATTER
ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT, THE CREDIT AGREEMENT OR
ANY OF THE OTHER LOAN DOCUMENTS, PROVIDED, THAT LENDER AND BORROWER ACKNOWLEDGE
THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED
OUTSIDE OF THE CITY AND COUNTY OF NEW YORK AND, PROVIDED, FURTHER, THAT NOTHING
IN THIS SECURITY AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM
BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE
ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A
JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LENDER. BORROWER EXPRESSLY SUBMITS
AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN
ANY SUCH COURT, AND BORROWER HEREBY WAIVES ANY OBJECTION WHICH BORROWER MAY HAVE
BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS
AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS
DEEMED APPROPRIATE BY SUCH COURT. BORROWER HEREBY WAIVES PERSONAL SERVICE OF
THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO BORROWER IN ACCORDANCE WITH SECTION 12
OF THIS SECURITY AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED
UPON THE EARLIER OF BORROWER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER
DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
20. MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL
SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER
SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN THE PARTIES ARISING OUT OF,
CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED
BETWEEN THEM IN CONNECTION WITH, THIS SECURITY AGREEMENT, THE CREDIT AGREEMENT,
OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
E-1-14
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Security Agreement to be
executed and delivered by its duly authorized officer as of the date first set
forth above.
HALLMARK HEALTHCARE CORPORATION
By:
---------------------------------------------
Title:
--------------------------------------
ACCEPTED AS OF DECEMBER 31, 1993:
GENERAL ELECTRIC CAPITAL CORPORATION
By:
------------------------------
Title:
-----------------------
E-1-15
<PAGE>
SCHEDULE I
to
SECURITY AGREEMENT
Dated as of December 31 1993
PERMITTED LIENS
E-1-16
<PAGE>
SCHEDULE II
to
SECURITY AGREEMENT
Dated as of December 31, 1993
INSTRUMENTS
E-1-17
<PAGE>
SCHEDULE III
to
SECURITY AGREEMENT
Dated as of December 31, 1993
SCHEDULE OF OFFICES AND RECORDS CONCERNING
COLLATERAL AND OTHER NAMES
I. Chief Executive Office and principal place of business of Borrower:
II. Other Corporate Offices of Borrower:
III. Locations of Borrower's Records Concerning Collateral:
IV. Other Corporate, Fictitious or Trade Names of Borrower:
E-1-18
<PAGE>
EXHIBIT E-2
to
CREDIT AGREEMENT
Dated as of December 31, 1993
FORM OF SUBSIDIARY SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of December 31, 1993, made by NATIONAL
HEALTHCARE OF CULLMAN, INC., NATIONAL HEALTHCARE OF DECATUR, INC., THE L.V.
STABLER MEMORIAL HOSPITAL OF GREENVILLE, INC., NATIONAL HEALTHCARE OF HARTSELLE,
INC., NATIONAL HEALTHCARE OF NEWPORT, INC., NATIONAL HEALTHCARE OF POCAHONTAS,
INC., NATIONAL HEALTHCARE OF HOLMES COUNTY, INC., HEALTH CARE OF FORSYTH COUNTY,
INC., HEALTH CARE OF BERRIEN COUNTY, INC., BERRIEN NURSING CENTER, INC.,
NATIONAL HEALTHCARE OF MT. VERNON, INC., NATIONAL HEALTHCARE OF LEESVILLE, INC.,
NATIONAL HEALTHCARE OF SABINE INC., NATIONAL HEALTHCARE OF CLEVELAND, INC.,
SCENIC MOUNTAIN MEDICAL CENTER, INC., NHCI OF HILLSBORO, INC., NATIONAL
HEALTHCARE OF MCMINNVILLE, INC., HOSPITAL CORPORATION OF WHITE COUNTY, HALLMARK
HEALTHCARE MANAGEMENT CORPORATION, NATIONAL HEALTHCARE OF CLANTON, INC.,
NATIONAL HEALTHCARE OF WASHINGTON COUNTY, INC., PHYSICIANS HOSPITAL OF
DADEVILLE, INC., NATIONAL HEALTHCARE OF ENGLAND, ARKANSAS, INC., GEORGIA HOME
SERVICES INC., NORTHGATE HOSPITAL, INC., NATIONAL HEALTHCARE OF EUFAULA, INC.,
NATIONAL HEALTHCARE OF DALLAS COUNTY, INC., HEALTH CARE OF VIENNA, GEORGIA,
INC., KSA MANAGEMENT COMPANY, NATIONAL HEALTHCARE OF LAMAR COUNTY, INC.,
NATIONAL HEALTHCARE OF BARNWELL, INC., RHC-TENNESSEE PROPERTIES, INC., WAYNE
COUNTY HOME HEALTHCARE, INC., NATIONAL HEALTHCARE CENTER OF WAYNESBORO, INC.,
NATIONAL HEALTHCARE OF ELBA, ALABAMA, INC., POPLAR BLUFF MANAGEMENT, INC.,
NATIONAL HEALTHCARE VENTURE I, INC., NHI HOLDINGS, INC., HOME INFUSION THERAPY,
INC., CONTINUAL CARE, INC., ALTERNATIVE HEALTH SERVICES, INC., N.H. OF WEST
SEATTLE, INC., HEALTHCARE PLUS, INC., HOMEBOUND HEALTH CARE AGENCY, INC., NEURO
TREATMENT, INC. AND NATIONAL HEALTH/CARE PLAN, INC. (individually a "GUARANTOR"
and collectively "GUARANTORS"), in favor of GENERAL ELECTRIC CAPITAL
CORPORATION, a New York corporation having an office at Suite 200, 5665 New
Northside Drive, Atlanta, Georgia 30328 ("LENDER").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Credit Agreement dated as of
December 31, 1993 by and between Hallmark Healthcare Corporation ("BORROWER")
and Lender (as the same from time to time may be amended, restated, supplemented
or otherwise modified, the "CREDIT AGREEMENT"), Lender has agreed, among other
things, to make a Working Capital Loan (as defined
<PAGE>
in the Credit Agreement) available to Borrower and to establish an Acquisition
Line (as defined in the Credit Agreement) pursuant to the terms of the Credit
Agreement; and
WHEREAS, Borrower and Guarantors share an identity of interests as
members of a consolidated group of companies engaged in healthcare businesses;
the Borrower provides certain centralized financial, accounting and management
services to the Guarantors; and the making of the Working Capital Loan available
to the Borrower and the establishment of the Acquisition Line will facilitate
expansion and enhance the overall financial strength and stability of the
Borrower's corporate group, including the Guarantors; and
WHEREAS, it is a condition precedent to the Lender's making the
Working Capital Loan available to Borrower and to Lender's establishment of the
Acquisition Line that each of the Guarantors execute and deliver the Subsidiary
Guaranty Agreement, dated as of the date hereof (as the same may be amended,
restated, supplemented or otherwise modified, the "GUARANTY") in favor of Lender
under which each of the Guarantors agrees to jointly and severally guarantee
repayment of the Working Capital Loan, the Acquisition Loan and all other
Obligations which may be now or hereafter owing by Borrower to Lender; and
WHEREAS, it is an additional condition precedent to the Lender's
making the Working Capital Loan available to Borrower and to the Lender's
establishment of the Acquisition Line that each Guarantor secure its liability
under the Guaranty by executing and delivering this Security Agreement.
NOW, THEREFORE, in consideration of the premises and in order to
induce Lender to make the Working Capital Loan available to Borrower and to
establish the Acquisition Line, the parties hereto agree as follows:
1. DEFINED TERMS.
a. When used herein, the following terms shall have the following
meanings (terms defined in the singular to have the same meaning when used in
the plural and vice versa):
PERMITTED LIEN: means (i) a Lien listed in SCHEDULE I hereto or
consented to in writing by the Lender, (ii) a Lien securing a tax
assessment or other governmental charge or levy (excluding any Lien arising
under any of the provisions of the Employee Retirement Income Security Act
of 1975, as amended), the claim of a materialman, mechanic, carrier,
warehouseman or landlord for labor, materials, supplies or rentals incurred
in the ordinary course of business, or a money judgment rendered by a court
or administrative tribunal, but in each case only if (A) such amount is not
over due and payable or, in the case of a tax assessment or other
governmental charge or levy, if payment thereof shall not at the time be
required to be made in accordance with Section 6.2 of the Credit Agreement,
(B) foreclosure, distraint, sale or other similar proceeding shall not have
been commenced or if commenced, such proceeding is being contested in good
faith by appropriate action and any execution in respect thereof has been
bonded or stayed, and (C) such Lien, together with all other such Liens,
secures obligations which do not exceed $100,000
E-2-2
<PAGE>
in the aggregate and (iii) a Lien created in favor of the Lender under any
of the Collateral Documents.
b. Unless otherwise defined herein, capitalized terms defined in the
Credit Agreement are used herein as therein defined.
2. GRANT OF SECURITY INTEREST.
a. To secure the prompt and complete payment, performance and
observance of all of the indebtedness, obligations or liabilities of each
Guarantor to Lender which may now exist or hereafter arise under the Guaranty or
this Security Agreement (collectively the "SECURED OBLIGATIONS"), and to induce
Lender to enter into the Credit Agreement and to make the Working Capital Loan
and any other extensions of credit provided for therein available to Borrower in
accordance with the respective terms thereof, each Guarantor hereby grants to
Lender a security interest in all of such Guarantor's right, title and interest
in, to and under the following whether now owned by or owing to, or hereafter
acquired by or arising in favor of such Guarantor (including, without
limitation, under any trade names, styles or divisions thereof), and regardless
of where located (all of which being hereinafter collectively referred to as the
"COLLATERAL"):
(i) all Accounts, including, without limitation, all accounts
arising under Medicare, Medicaid and CHAMPUS;
(ii) all Chattel Paper;
(iii) all Contracts;
(iv) all Documents;
(v) all Instruments (excluding the stock of any Subsidiary);
(vi) all General Intangibles;
(vii) all rights, titles and interests of such Guarantor in, to or
under any or all of the Collection Account, the Concentration Account,
and any other cash management account, lockbox account or cash
collateral account, and in any other account into which there shall be
deposited at any time any Proceeds of the Collateral, in each case
which may be now or hereafter established by Lender under the Credit
Agreement, and in all monies or other property of such Guarantor now
or hereafter on deposit therein;
(viii) all money, cash or cash equivalents of such Guarantor;
(ix) all books and records (including without limitation credit
files, customer lists, computer files, computer programs, computer
printouts, or other computer material) of such Guarantor pertaining to
any of the Collateral described above; and
E-2-3
<PAGE>
(x) all Proceeds of any of the Collateral described above.
b. In addition, to secure the prompt and complete payment,
performance and observance of the Secured Obligations and in order to induce
Lender as aforesaid, each Guarantor hereby grants to Lender, a security interest
in all property of such Guarantor held by Lender, including, without limitation,
all property of every description, now or hereafter in the possession or custody
of or in transit to Lender for any purpose, including safekeeping, collection or
pledge, for the account of such Guarantor, or as to which such Guarantor may
have any right or power.
3. LENDER'S RIGHTS; LIMITATIONS ON LENDER'S OBLIGATIONS.
a. It is expressly agreed by each Guarantor that, anything herein to
the contrary notwithstanding, each Guarantor shall remain liable under each of
its Contracts and each of its Licenses to observe and perform all the conditions
and obligations to be observed and performed by it thereunder and Lender shall
have no obligation or liability under any Contract or License by reason of or
arising out of this Security Agreement or the granting herein of a security
interest therein or the receipt by Lender of any payment relating to any
Contract or License pursuant hereto, nor shall Lender be required or obligated
in any manner to perform or fulfill any of the obligations of a Guarantor under
or pursuant to any Contract or License, or to make any payment, or to make any
inquiry as to the nature or the sufficiency of any payment received by it or the
sufficiency of any performance by any party under any Contract or License, or to
present or file any claims, or to take any action to collect or enforce any
performance or the payment of any amounts which may have been assigned to it or
to which it may be entitled at any time or times.
b. Lender may at any time after the occurrence of and during the
continuance of an Event of Default (i) without prior notice to a Guarantor,
notify Account Debtors, parties to the Contracts, and obligors in respect of
Instruments, that the Accounts and the right, title and interest of such
Guarantor in and under such Contracts and Instruments have been assigned to
Lender and that payments shall be made directly to Lender; (ii) require a
Guarantor to notify Account Debtors, parties to Contracts, and obligors in
respect of Instruments; and (iii) without prior notice to a Guarantor, notify
obligors in respect of Chattel Paper that the right, title and interest of any
Guarantor in and under such Chattel Paper have been assigned to Lender and that
payments shall be made directly to Lender.
c. Upon reasonable prior notice to a Guarantor (unless an Event of
Default has occurred and is continuing in which case no notice is necessary),
Lender shall have the right to make test verifications of the Accounts and
verifications and appraisals of the other Collateral in a commercially
reasonable manner, and such Guarantor agrees to furnish all such assistance and
information as Lender may require in connection therewith. Upon the occurrence
and continuation of an Event of Default, each Guarantor, at its own expense,
shall cause the certified public accountant then engaged by such Guarantor, to
prepare and deliver to Lender at any time and from time to time promptly upon
Lender's request the following reports: (i) a reconciliation of all Accounts;
(ii) an aging of all Accounts; (iii) trial balances; and (iv) a test
verification of such Accounts as Lender may request.
E-2-4
<PAGE>
4. REPRESENTATIONS AND WARRANTIES. Each Guarantor hereby represents
and warrants that:
a. Except for the security interest granted to Lender under this
Security Agreement and any other Permitted Liens, each Guarantor is the sole
owner of each item of the Collateral in which it purports to grant a security
interest hereunder, having good and marketable title thereto free and clear of
any and all liens, security interests or other encumbrances.
b. No effective security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering all or any part
of the Collateral is on file or of record in any public office, except as may be
set forth on SCHEDULE I hereto, such as may have been filed by any Guarantor in
favor of Lender pursuant to this Security Agreement or such as relate to other
Permitted Liens.
c. This Security Agreement creates a valid and continuing lien on
and security interest in favor of Lender in the Collateral, which lien and
security interest has been duly perfected and is prior to all other Liens except
those Liens specifically designated on SCHEDULE I as being prior to Lender's
Liens, and except Permitted Liens that would be prior to Lender's Liens as a
matter of law, and is enforceable as such against all third parties. All action
necessary or desirable to protect and perfect such security interest in each
item of the Collateral has been duly taken.
d. SCHEDULE II hereto lists all Instruments of each Guarantor. All
action necessary or desirable to protect and perfect the security interest of
Lender in each item set forth on SCHEDULE II, including the delivery of all
originals thereof to Lender, has been duly taken. The security interest of
Lender in the Collateral listed on SCHEDULE II hereto is prior to all other
Liens except those Liens specifically designated on SCHEDULE I as being prior to
Lender's Liens and Permitted Liens that would be prior to Lender's Liens as a
matter of law, and is enforceable against all third parties.
e. Each of Guarantor's chief executive office, principal place of
business, corporate offices, and the locations of all of its records concerning
the Collateral are set forth on SCHEDULE III hereto, and each Guarantor shall
not change such chief executive office, principal place of business, corporate
offices or location of its records concerning the Collateral, or remove such
records unless it has taken such action as is necessary to cause the Lien of
Lender in the Collateral to continue to be perfected. Each Guarantor shall not
change its chief executive office, principal place of business, corporate
offices, or the location of its records concerning the Collateral without giving
at least thirty (30) days' prior written notice thereof to Lender.
f. During the five (5) year period preceding the date of this
Security Agreement, no Guarantor has been known as or used and no Guarantor
presently does use any corporate name other than its name as set forth in its
signature below and those other corporate, fictitious or trade names (if any) of
such Guarantor as disclosed on SCHEDULE III hereto. If such schedule sets forth
any fictitious or trade names for a Guarantor (collectively, the "TRADE NAMES"),
such Guarantor represents and warrants to and agrees with Lender that: (i) any
Collateral arising out of any sales under any of the Trade Names is the property
of and belongs to such Guarantor; (ii) each of the Trade Names is a trade name
or trade style (and not an independent or separate
E-2-5
<PAGE>
corporation or other legal entity) by which such Guarantor may identify or
market itself or under which such Guarantor may sell certain products, render
certain services or otherwise conduct some or all of its business; (iii) any
Collateral which arises from any sales made, services rendered or other business
conducted under any of the Trade Names shall be owned solely by such Guarantor;
and (iv) such Guarantor hereby appoints Lender to be its attorney-in-fact to
file such certificates disclosing such Guarantor's use of the Trade Names and to
take such other actions on such Guarantor's behalf as Lender considers
appropriate to comply with any statutes or regulations relating to the use of
fictitious or assumed business names.
g. (i) The Accounts represent bona fide sales of inventory or the
provision of services to customers in the ordinary course of each Guarantor's
business completed in accordance with the terms and provisions contained in the
documents available to Lender with respect thereto and are not evidenced by a
judgment, Instrument or Chattel Paper; (ii) the amounts shown on any aged
receivables trial balance delivered by each Guarantor to Lender pursuant to the
terms of this Security Agreement or the Credit Agreement and on each Guarantor's
books and records and all invoices and statements which may be delivered to the
Lender with respect thereto are actually and absolutely owing to such Guarantor
and are not in any way contingent; (iii) no payments have been or shall be made
thereon except payments immediately delivered to a collection account and
payments made prior to the date of this Security Agreement; (iv) there are no
setoffs, claims or disputes existing or asserted with respect thereto and no
Guarantor has made any agreement with any Account Debtor for any deduction
therefrom except a discount or allowance allowed by such Guarantor in the
ordinary course of its business for prompt payment; (v) to the best of each
Guarantor's knowledge, there are no facts, events or occurrences which in any
way impair the validity or enforcement thereof or tend to reduce the amount
payable thereunder as shown on the respective aged receivable trial balances,
such Guarantor's books and records and all invoices and statements delivered to
Lender with respect thereto; (vi) to the best of each Guarantor's knowledge, all
Account Debtors have the capacity to contract; (vii) no Guarantor has received
any notice of proceedings or actions which are threatened or pending against any
Account Debtor which might result in any material adverse change in such Account
Debtor's financial condition; and (viii) no Guarantor has any knowledge that any
Account Debtor is unable generally to pay its debts as they become due.
5. COVENANTS. Each Guarantor covenants and agrees with Lender that
from and after the date of this Security Agreement and until the termination of
this Security Agreement pursuant to Section 16 hereof:
a. FURTHER ASSURANCES; PLEDGE OF INSTRUMENTS. At any time and from
time to time, upon the written request of Lender and at the sole expense of the
Guarantors, each Guarantor shall promptly and duly execute and deliver any and
all such further instruments and documents and take such further action as
Lender may reasonably deem desirable to obtain for the Lender the full benefits
of this Security Agreement and of the interests, rights and powers herein
granted, including (i) using its best efforts to secure all consents and
approvals necessary or appropriate for the assignment to or for the benefit of
Lender of any Collateral held by such Guarantor or in which such Guarantor has
any rights not heretofore assigned, (ii) filing any financing or continuation
statements under the Code and giving any notices or attaching any legends
required under non-Code law, with respect to the liens and security interests
intended to be granted hereunder
E-2-6
<PAGE>
or under any other Loan Document and, (iii) transferring Collateral to Lender's
possession (if such Collateral consists of Chattel Paper or if a security
interest in such Collateral can be perfected only by possession). Each
Guarantor also hereby authorizes Lender to file any financing or continuation
statement without the signature of such Guarantor to the extent permitted by
applicable law. If any amount payable under or in connection with any of the
Collateral is or shall become evidenced by any Instrument, such Instrument,
other than checks and notes received in the ordinary course of business, shall
be duly endorsed in a manner satisfactory to Lender promptly upon such
Guarantor's receipt thereof and delivered to Lender.
b. MAINTENANCE OF RECORDS. Each Guarantor shall keep and maintain,
at its own cost and expense, satisfactory and complete records of the
Collateral, including a record of any and all payments received and any and all
credits granted with respect to the Collateral and all other dealings with the
Collateral. Each Guarantor shall mark its books and records, and following an
Event of Default its invoices and insurance assignments and/or claim forms
pertaining to the Collateral to evidence this Security Agreement and the
security interests granted hereby. All Chattel Paper shall be marked with the
following legend: "This writing and the obligations evidenced or secured hereby
are subject to the security interest of General Electric Capital Corporation".
For Lender's further security, each Guarantor agrees that Lender shall have a
special property right and security interest in all of such Guarantor's books
and records pertaining to the Collateral and, upon the occurrence and during the
continuation of any Event of Default, each Guarantor shall deliver and turn over
any such books and records to Lender or to its representatives at any time on
demand of Lender. Prior to the occurrence of an Event of Default and upon
reasonable notice from Lender, each Guarantor shall permit any representative of
Lender to inspect such books and records and shall provide photocopies thereof
to Lender as more specifically set forth in SECTION 5g below.
c. INDEMNIFICATION. In any suit, proceeding or action brought by
Lender relating to any Account, Chattel Paper, Contract, General Intangible,
Instrument or Document for any sum owing thereunder, or to enforce any provision
of any Account, Chattel Paper, Contract, General Intangible, Instrument, or
Document, each Guarantor shall save, indemnify and keep Lender harmless from and
against all expense, loss or damage suffered by reason of any claim, defense,
setoff, counterclaim, recoupment or reduction of liability whatsoever of the
obligor thereunder arising out of a breach by such Guarantor of any obligation
thereunder or arising out of any other agreement, indebtedness or liability at
any time owing to, or in favor of, such obligor or its successors from such
Guarantor, and all such obligations of such Guarantor shall be and remain
enforceable against, and only against, such Guarantor and shall not be
enforceable against Lender.
d. COMPLIANCE WITH TERMS OF ACCOUNTS, ETC. In all material
respects, each Guarantor shall perform and comply with all obligations in
respect of Accounts, Chattel Paper, Contracts, Licenses, Instruments and
Documents, and all other agreements to which it is a party or by which it or any
of its property is bound.
e. LIMITATION ON LIENS ON COLLATERAL. No Guarantor shall create,
permit or suffer to exist, and each Guarantor shall defend the Collateral
against and take such other action as is necessary to remove, any Lien on the
Collateral except for Permitted Liens. Each Guarantor shall further defend
the right, title and interest of Lender in and to any of such Guarantor's rights
E-2-7
<PAGE>
under the Chattel Paper, Contracts, Documents, General Intangibles and
Instruments and any other Collateral, and in and to the Proceeds thereof,
against the claims and demands of all Persons whomsoever.
f. LIMITATIONS ON MODIFICATIONS OF ACCOUNTS. Subject to the terms
of the Credit Agreement, upon the occurrence and during the continuation of any
Event of Default, no Guarantor shall, without Lender's prior written consent,
(i) grant any extension of the time of payment of any of the Accounts, Chattel
Paper, Instruments or amounts due under any Contract; (ii) compromise or settle
the same for less than the full amount thereof; (iii) release, in whole or in
part, any Person liable for the payment thereof; or (iv) allow any credit or
discount whatsoever thereon other than trade discounts granted in the ordinary
course of business of such Guarantor.
g. RIGHT OF INSPECTION. Upon reasonable notice to a Guarantor
(unless an Event of Default has occurred and is continuing, in which case no
notice is necessary), Lender shall at all times have full and free access during
normal business hours to all the books and records and correspondence of such
Guarantor, and Lender or its representatives may examine the same, take extracts
therefrom and make photocopies thereof, and each Guarantor agrees to render to
Lender, at such Guarantor's cost and expense, such clerical and other assistance
as may be reasonably requested with regard thereto. Upon reasonable notice to a
Guarantor (unless an Event of Default has occurred and is continuing, in which
case no notice is necessary), Lender and its representatives shall also have the
right to enter into and upon any premises where any of the Collateral is located
for the purpose of inspecting the same, observing its use or otherwise
protecting Lender's interests in the Collateral.
h. CONTINUOUS PERFECTION. No Guarantor shall change its name,
identity or corporate structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously misleading within
the meaning of section 9-402(7) of the Code or any other then applicable
provision of the Code unless such Guarantor shall have given Lender at least
thirty (30) days' prior written notice thereof and shall have taken all action
(or made arrangements to take such action substantially simultaneously with such
change if it is impossible to take such action in advance) necessary or
reasonably requested by Lender to amend such financing statement or continuation
statement so that it is not seriously misleading.
6. LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT.
a. Each Guarantor hereby irrevocably constitutes and appoints Lender
and any officer or agent thereof, with full power of substitution, as its true
and lawful attorney-in-fact with full irrevocable power and authority in the
place and stead of such Guarantor and in the name of such Guarantor or in its
own name, from time to time in Lender's discretion, for the purpose of carrying
out the terms of this Security Agreement, to take any and all appropriate action
and to execute and deliver any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Security Agreement
and, without limiting the generality of the foregoing, hereby grants to Lender
the power and right, on behalf of such Guarantor, without notice to or assent by
such Guarantor, and at any time to do the following while the provisions of
Section 6.12(c) of the Credit Agreement (requiring cash sweeps) shall be
operative:
E-2-8
<PAGE>
(i) in the name of such Guarantor, in its own name or otherwise, take
possession of, endorse and receive payment of any checks, drafts, notes,
acceptances, or other Instruments for the payment of monies due under any
Collateral;
(ii) continue any insurance existing pursuant to the terms of this
Security Agreement, and pay all or any part of the premiums therefor and
the costs thereof; and
(iii) receive payment of any and all monies, claims, and other amounts
due or to become due at any time arising out of or in respect of any
Collateral.
b. Each Guarantor hereby irrevocably constitutes and appoints Lender
and any officer or agent thereof, with full power of substitution, as its true
and lawful attorney-in-fact with full irrevocable power and authority in the
place and stead of such Guarantor and in the name of such Guarantor or in its
own name, from time to time in Lender's discretion, for the purpose of carrying
out the terms of this Security Agreement, to take any and all appropriate action
and to execute and deliver any and all documents and instruments which may be
necessary or reasonably desirable to accomplish the purposes of this Security
Agreement and, without limiting the generality of the foregoing, hereby grants
to Lender the power and right, on behalf of such Guarantor, without notice to or
assent by such Guarantor, upon the occurrence and during the continuation of an
Event of Default, to do the following:
(i) ask, demand, collect, receive and give acquittances and receipts
for any and all money due or to become due under any Collateral;
(ii) pay or discharge taxes, liens, security interest, or other
encumbrances levied or placed on or threatened against the Collateral;
(iii) obtain any insurance called for by the terms of the Credit
Agreement and pay all or any part of the premiums therefor and costs
thereof;
(iv) direct any party liable for any payment under or in respect of
any of the Collateral to make payment of any and all monies due or to
become due thereunder, directly to Lender or as Lender shall direct;
(v) sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts, drafts against debtors, assignments,
verifications, and notices in connection with accounts and other documents
constituting or related to the Collateral;
(vi) settle, compromise or adjust any suit, action, or proceeding
described above and, in connection therewith, give such discharges or
releases as Lender may deem appropriate;
(vii) file any claim or take or commence any other action or proceeding
in any court of law or equity or otherwise deemed appropriate by Lender for
the
E-2-9
<PAGE>
purpose of collecting any and all such monies due under any Collateral
whenever payable (including, without limitation, any action to require the
payment of any amounts due from Medicare, Medicaid or similar government
programs directly to an account under the exclusive control of the Lender,
to which action such Guarantor hereby consents, agrees and stipulates to
the requested action in advance to the fullest extent permitted by
Applicable Law);
(viii) commence and prosecute any suits, actions or proceedings of law
or equity in any court of competent jurisdiction to collect the Collateral
or any part thereof and to enforce any other right in respect of any
Collateral; and
(ix) defend any suit, action or proceeding brought against such
Guarantor with respect to any Collateral if such Guarantor does not defend
such suit, action or proceeding or if Lender believes that such Guarantor
is not pursuing such defense in a manner that will maximize the recovery
with respect to such Collateral;
(x) sell, transfer, pledge, make any agreement with respect to, or
otherwise deal with any of the Collateral as fully and completely as though
Lender were the absolute owner thereof for all purposes, and to do, at
Lender's option and the Guarantors' expense, at any time, or from time to
time, all acts and things which Lender reasonably deems necessary to
perfect, preserve, or realize upon the Collateral and Lender's Lien thereon
in order to effect the intent of this Security Agreement, all as fully and
effectively as such Guarantor might do.
c. Each Guarantor hereby ratifies, to the extent permitted by law,
all that said attorneys-in-fact shall lawfully do or cause to be done by virtue
hereof. The power of attorney granted pursuant to this SECTION 6 is a power
coupled with an interest and shall be irrevocable until all Working Capital
Loans, all Acquisition Loans and all other Secured Obligations have been
completely discharged and Borrower shall not have any further right to borrow
any monies or obtain other credit extensions or financial accommodations under
the Credit Agreement.
d. The powers conferred on Lender hereunder are solely to protect
Lender's interests in the Collateral and shall not impose any duty upon it to
exercise any such powers. Lender shall be accountable only for amounts that it
actually receives as a result of the exercise of such powers and none of its
officers, directors, employees, agents or representatives shall be responsible
to Guarantor for any act or failure to act, except for their own gross
negligence or willful misconduct.
e. Each Guarantor also authorizes Lender, at any time and from time
to time, upon the occurrence of and during continuance of an Event of Default to
(i) communicate in its own name with any party to any Contract with regard to
the assignment of the right, title and interest of such Guarantor in and under
the Accounts, the Contracts and other matters relating thereto and (ii) execute,
in connection with the sale provided for in SECTION 8 hereof, any endorsements,
assignments or other instruments of conveyance or transfer with respect to the
Collateral.
E-2-10
<PAGE>
7. PERFORMANCE BY LENDER OF GUARANTOR'S OBLIGATIONS. If any
Guarantor fails to perform or comply with any of its agreements contained herein
or in any of the other Loan Documents, and Lender, as provided for by the terms
of this Security Agreement or any of the other Loan Documents, shall itself
perform or comply, or otherwise cause performance of or compliance, with such
agreement, the reasonable expenses, including attorneys' fees, of Lender
incurred in connection with such performance or compliance, together with
interest thereon at the rate then in effect in respect of the Base Rate Working
Loan, shall be payable by the Guarantors to Lender on demand and shall
constitute Secured Obligations secured hereby.
8. REMEDIES; RIGHTS UPON DEFAULT.
a. If any Event of Default shall occur and be continuing, Lender may
exercise in addition to all other rights and remedies granted to it under this
Security Agreement, the Credit Agreement, the other Loan Documents and under any
other instrument or agreement securing, evidencing, guaranteeing or otherwise
relating to the Secured Obligations, all rights and remedies of a secured party
under the Code. Without limiting the generality of the foregoing, each
Guarantor expressly agrees that in any such event Lender, without demand of
performance or other demand, advertisement or notice of any kind (except the
notice specified below of time and place of public or private sale) to or upon
such Guarantor or any other Person (all and each of which demands,
advertisements and notices are hereby expressly waived to the maximum extent
permitted by the Code and other applicable law), may forthwith enter upon the
premises of such Guarantor where any Collateral is located through self-help,
without judicial process, without first obtaining a final judgment or giving
such Guarantor notice and opportunity for a hearing on Lender's claim or action,
and without paying rent to such Guarantor, and collect, receive, assemble,
process, appropriate and realize upon the Collateral, or any part thereof, and
may forthwith sell, lease, assign, give an option or options to purchase, or
sell or otherwise dispose of and deliver said Collateral (or contract to do so),
or any part thereof, in one or more parcels at public or private sale or sales,
at any exchange at such prices as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. Lender shall have the
right upon any such public sale or sales, and, to the extent permitted by law,
upon any such private sale or sales, to purchase for the benefit of Lender the
whole or any part of said Collateral so sold, free of any right or equity of
redemption, which equity of redemption such Guarantor hereby releases. Such
sales may be adjourned and continued from time to time with or without notice.
Lender shall have the right to conduct such sales on any Guarantor's premises or
elsewhere and shall have the right to use such Guarantor's premises without
charge for such time or times as Lender deems necessary or advisable.
Each Guarantor further agrees, at Lender's request, to assemble the
Collateral and make it available to Lender at places which Lender shall
reasonably select, whether at such Guarantor's premises or elsewhere. Until
Lender is able to effect a sale, lease, or other disposition of Collateral,
Lender shall have the right to use, operate or administer Collateral on behalf
of Lender, or any part thereof, to the extent that it deems appropriate for the
purpose of preserving Collateral or its value or for any other purpose deemed
appropriate by Lender. Lender shall have no obligation to any Guarantor to
maintain or preserve the rights of such Guarantor as against third parties with
respect to Collateral while Collateral is in the possession of Lender. Lender
may, if it so elects, seek the appointment of a receiver or keeper to take
possession of Collateral and to enforce
E-2-11
<PAGE>
any of Lender's remedies with respect to such appointment without prior notice
or hearing. Lender shall apply the net proceeds of any such collection,
recovery, receipt, appropriation, realization or sale as provided in SECTION 8D
hereof, each Guarantor remaining liable for any deficiency remaining unpaid
after such application, and only after so paying over such net proceeds and
after the payment by Lender of any other amount required by any provision of
law, including section 9-504(1)(c) of the Code (but only after Lender has
received what Lender considers reasonable proof of a subordinate party's
security interest), need Lender account for the surplus, if any, to any
Guarantor. To the maximum extent permitted by applicable law, each Guarantor
waives all claims, damages, and demands against Lender arising out of the
repossession, liquidation, collection, retention or sale of the Collateral
except such as arise out of the gross negligence or willful misconduct of such
party. Each Guarantor agrees that five (5) days' prior notice by Lender of the
time and place of any public sale or of the time after which a private sale may
take place is reasonable notification of such matters. Each Guarantor shall
remain liable for any deficiency if the proceeds of any sale, liquidation,
collection, or disposition of the Collateral are insufficient to pay all amounts
to which Lender is entitled, each Guarantor also being liable for any reasonable
attorneys' fees incurred by Lender to collect such deficiency.
b. Each Guarantor agrees to pay any and all costs of Lender,
including, without limitation, reasonable attorneys' fees, incurred in
connection with the enforcement of any of its rights and remedies hereunder.
c. Except as otherwise specifically provided herein, each Guarantor
hereby waives presentment, demand, protest or any notice (to the maximum extent
permitted by applicable law) of any kind in connection with this Security
Agreement or any Collateral.
d. The Proceeds of any sale, disposition or other realization upon
all or any part of the Collateral shall be distributed by Lender upon receipt,
in the following order of priorities:
FIRST, to Lender in an amount sufficient to pay in full the
reasonable expenses of Lender in connection with such sale,
disposition or other realization, including all expenses, liabilities
and advances incurred or made by Lender in connection therewith,
including reasonable attorney's fees;
SECOND, to Lender in an amount equal to the then due and unpaid
accrued interest, fees and prepayment premiums, if any, on the Secured
Obligations;
THIRD, to Lender in an amount equal to any other Secured
Obligations or amounts owed, if any, in connection with the Secured
Obligations;
FOURTH, to Lender in an amount equal to any other Secured
Obligations which are then unpaid; and
FINALLY, upon payment in full of all of the Secured Obligations,
to the Guarantors or their respective representatives or to whomsoever
may be
E-2-12
<PAGE>
lawfully entitled to receive the same, or as a court of competent
jurisdiction may direct.
9. GRANT OF LICENSE TO USE PATENT AND TRADEMARK COLLATERAL. For the
purpose of enabling Lender to exercise rights and remedies under SECTION 8
hereof (including, without limiting the terms of SECTION 8 hereof, in order to
take possession of, hold, preserve, process, assemble, prepare for sale, market
for sale, sell, liquidate or otherwise dispose of Collateral) at such time as
Lender shall be lawfully entitled to exercise such rights and remedies, each
Guarantor hereby grants to Lender an irrevocable, non-exclusive license
(exercisable without payment of royalty or other compensation to any Guarantor)
to use, transfer, license or sublicense any Patent, Trademark, trade secret, or
copyright now owned or hereafter acquired by such Guarantor, and wherever the
same may be located, and including in such license reasonable access to all
media in which any of the licensed items may be recorded or stored and to all
computer and automatic machinery software and programs used for the compilation
or printout thereof.
10. LIMITATION ON LENDER'S DUTY IN RESPECT OF COLLATERAL. Lender
shall use reasonable care with respect to the Collateral in its possession or
under its control. Lender shall not have any other duty as to any Collateral in
its possession or control or in the possession or control of any agent or
nominee of Lender, or any income thereon or as to the preservation of rights
against prior parties or any other rights pertaining thereto. Upon request of
the Guarantors, Lender shall account for any monies received by Lender in
respect of any foreclosure on or disposition of the Collateral.
11. REINSTATEMENT. This Security Agreement shall remain in full
force and effect and continue to be effective should any petition be filed by or
against any Guarantor for liquidation or reorganization, should any Guarantor
become insolvent or make an assignment for the benefit of creditors or should a
receiver or trustee be appointed for all or any significant part of any
Guarantor's assets, and shall continue to be effective or be reinstated, as the
case may be, if at any time payment and performance of the Secured Obligations,
or any part thereof, is, pursuant to Applicable Law, rescinded or reduced in
amount, or must otherwise be restored or returned by any obligee of the Secured
Obligations, whether as a "voidable preference," "fraudulent conveyance," or
otherwise, all as though such payment or performance had not been made. In the
event that any payment, or any part thereof, is rescinded, reduced, restored or
returned, the Secured Obligations shall be reinstated and deemed reduced only by
such amount paid and not so rescinded, reduced, restored or returned.
12. NOTICES. Except as otherwise provided herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon either of the
parties by the other party, or whenever either of the parties desires to give or
serve upon the other party any communication with respect to this Security
Agreement, each such notice, demand, request, consent, approval, declaration or
other communication shall be in writing and shall be given in the manner, and
deemed received, as provided for in SECTION 11 of the Guaranty.
13. SEVERABILITY; COMPLETE AGREEMENT. Any provision of this Security
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such
E-2-13
<PAGE>
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. This Security
Agreement is to be read, construed and applied together with the Guaranty, the
Credit Agreement and the other Loan Documents which, taken together, set forth
the complete understanding and agreement of Lender, Borrower and the Guarantors
with respect to the matters referred to herein and therein and supersede all
prior agreements, understandings or inducements whether express or implied, or
oral or written.
14. NO WAIVER; CUMULATIVE REMEDIES. Lender shall not by any act,
delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
Lender and then only to the extent therein set forth. A waiver by Lender of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which Lender would otherwise have had on any future
occasion. No failure to exercise nor any delay in exercising on the part of
Lender, any right, power or privilege hereunder, shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or future exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies
hereunder provided are cumulative and may be exercised singly or concurrently,
and are not exclusive of any rights and remedies provided by law. None of the
terms or provisions of this Security Agreement may be waived, altered, modified
or amended except by an instrument in writing, duly executed by Lender and the
Guarantors.
15. LIMITATION BY LAW; TIME OF ESSENCE. All rights, remedies and
powers provided in this Security Agreement may be exercised only to the extent
that the exercise thereof does not violate any applicable provision of law, and
all the provisions of this Security Agreement are intended to be subject to all
applicable mandatory provisions of law that may be controlling and to be limited
to the extent necessary so that they shall not render this Security Agreement
invalid, unenforceable, in whole or in part, or not entitled to be recorded,
registered, or filed under the provisions of any Applicable Law. Time is of the
essence of this Security Agreement.
16. TERMINATION OF THIS SECURITY AGREEMENT. Subject to SECTION 11
hereof, this Security Agreement and the security interests conveyed hereunder
shall remain in full force and effect until such time as (i) the Secured
Obligations have been indefeasibly paid in full and (ii) the Guaranty is no
longer in effect.
17. SUCCESSORS AND ASSIGNS. This Security Agreement and all
obligations of each Guarantor hereunder shall be binding upon the successors and
assigns of such Guarantor, and shall, together with the rights and remedies of
Lender hereunder, inure to the benefit of Lender, all future holders of any
instrument evidencing any of the Secured Obligations and their respective
successors and assigns. No sales of participations, other sales, assignments,
transfers or other dispositions of any agreement governing or instrument
evidencing the Secured Obligations or any portion thereof or interest therein
shall in any manner affect the security interest granted to Lender hereunder.
No Guarantor may assign, sell or otherwise transfer an interest in this Security
Agreement.
E-2-14
<PAGE>
18. EXECUTION IN COUNTERPARTS. This Security Agreement may be
executed in any number of counterparts, each of which shall collectively and
separately constitute one agreement.
19. GOVERNING LAW; CONSENT TO JURISDICTION AND VENUE. EXCEPT AS
OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS,
INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS SECURITY
AGREEMENT AND THE SECURED OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. EACH GUARANTOR HEREBY CONSENTS AND AGREES
THAT THE STATE OR FEDERAL COURTS LOCATED IN THE CITY AND COUNTY OF NEW YORK
SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
BETWEEN SUCH GUARANTOR AND LENDER PERTAINING TO THIS SECURITY AGREEMENT OR TO
ANY MATTER ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT, THE CREDIT
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, PROVIDED, THAT EACH GUARANTOR
ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT
LOCATED OUTSIDE OF THE CITY AND COUNTY OF NEW YORK, AND, PROVIDED, FURTHER, THAT
NOTHING IN THIS SECURITY AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER
FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO
REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE SECURED OBLIGATIONS, OR
TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LENDER. EACH GUARANTOR
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
SUIT COMMENCED IN ANY SUCH COURT, AND EACH GUARANTOR HEREBY WAIVES ANY OBJECTION
WHICH SUCH GUARANTOR MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER
VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL
OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH GUARANTOR
HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS
ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO SUCH GUARANTOR IN ACCORDANCE WITH SECTION 12 OF THIS SECURITY
AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF
SUCH GUARANTOR'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE
U.S. MAILS, PROPER POSTAGE PREPAID.
20. MUTUAL WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN
CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY
RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE
STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES
DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO
E-2-15
<PAGE>
ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE, BETWEEN THE PARTIES ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN
CONNECTION WITH, THIS SECURITY AGREEMENT, THE CREDIT AGREEMENT, OR ANY OF THE
OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.
IN WITNESS WHEREOF, each Guarantor has caused this Security Agreement
to be executed and delivered by its duly authorized officer as of the date first
set forth above.
NATIONAL HEALTHCARE OF CULLMAN, INC.,
NATIONAL HEALTHCARE OF DECATUR, INC.,
THE L.V. STABLER MEMORIAL HOSPITAL OF
GREENVILLE, INC., NATIONAL HEALTHCARE OF
HARTSELLE, INC., NATIONAL HEALTHCARE OF
POCAHONTAS, INC., NATIONAL HEALTHCARE OF
HOLMES COUNTY, INC., HEALTH CARE OF
FORSYTH COUNTY, INC., HEALTH CARE OF
BERRIEN COUNTY, INC., BERRIEN NURSING
CENTER, INC., NATIONAL HEALTHCARE OF MT.
VERNON, INC., NATIONAL HEALTHCARE OF
LEESVILLE, INC., NATIONAL HEALTHCARE OF
SABINE INC., NATIONAL HEALTHCARE OF
CLEVELAND, INC., SCENIC MOUNTAIN MEDICAL
CENTER, INC., NHCI OF HILLSBORO, INC.,
NATIONAL HEALTHCARE OF MCMINNVILLE,
INC., HOSPITAL CORPORATION OF WHITE
COUNTY, NORTHGATE HOSPITAL, INC.,
E-2-16
<PAGE>
NATIONAL HEALTHCARE OF LAMAR COUNTY,
INC., NATIONAL HEALTHCARE OF ELBA,
ALABAMA, INC., POPLAR BLUFF MANAGEMENT,
INC., ALTERNATIVE HEALTH SERVICES, INC.,
By:___________________________________,
WILLIAM E. HOFFMAN, JR.
Title: _______________ of each of the
above corporations
Address for Notice:
-------------------
---------------------------------------
---------------------------------------
Attn:__________________________________
Telecopy: (____) ____-________________
NATIONAL HEALTHCARE OF NEWPORT, INC.,
HALLMARK HEALTHCARE MANAGEMENT
CORPORATION, NATIONAL HEALTHCARE OF
CLANTON, INC., NATIONAL HEALTHCARE OF
WASHINGTON COUNTY, INC., PHYSICIANS
HOSPITAL OF DADEVILLE, INC., NATIONAL
HEALTHCARE OF ENGLAND, ARKANSAS, INC.,
NATIONAL HEALTHCARE OF EUFAULA, INC.,
NATIONAL HEALTHCARE OF DALLAS COUNTY,
INC., HEALTH CARE OF VIENNA, GEORGIA,
INC., KSA MANAGEMENT COMPANY, NATIONAL
HEALTHCARE OF BARNWELL, INC.,
RHC-TENNESSEE PROPERTIES, INC., WAYNE
COUNTY HOME HEALTHCARE, INC., NATIONAL
HEALTHCARE CENTER OF WAYNESBORO, INC.,
NATIONAL HEALTHCARE VENTURE I, INC., NHI
HOLDINGS, INC., HOME INFUSION THERAPY,
INC., CONTINUAL CARE,
E-2-17
<PAGE>
INC., N.H. OF WEST SEATTLE, INC.,
HEALTHCARE PLUS, INC., HOMEBOUND HEALTH
CARE AGENCY, INC., NATIONAL HEALTH/CARE
PLAN, INC.,
By:___________________________________,
ROBERT M. THORNTON, JR.
Title: _______________ of each of the
above corporations
Address for Notice:
-------------------
---------------------------------------
---------------------------------------
Attn:__________________________________
Telecopy: (____) ____-________________
NEURO TREATMENT, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
Address for Notice:
-------------------
---------------------------------------
---------------------------------------
Attn:__________________________________
Telecopy: (____) ____-________________
E-2-18
<PAGE>
GEORGIA HOME SERVICES INC.
By:___________________________________,
MARIA E. ROBINSON
Title: _______________ of each of the
above corporations
Address for Notice:
-------------------
---------------------------------------
---------------------------------------
Attn:__________________________________
Telecopy: (____) ____-________________
ACCEPTED AS OF DECEMBER 31, 1993:
GENERAL ELECTRIC CAPITAL CORPORATION
By:__________________________________
Title:___________________________
E-2-19
<PAGE>
SCHEDULE I
to
SECURITY AGREEMENT
Dated as of December 31, 1993
PERMITTED LIENS
E-2-20
<PAGE>
SCHEDULE II
to
SECURITY AGREEMENT
Dated as of December 31, 1993
INSTRUMENTS
E-2-21
<PAGE>
SCHEDULE III
to
SECURITY AGREEMENT
Dated as of December 31, 1993
SCHEDULE OF OFFICES AND RECORDS CONCERNING
COLLATERAL AND OTHER NAMES
A.
I. Chief Executive Office and principal place of business of Guarantor:
II. Other Corporate Offices of Guarantor:
III. Locations of Guarantor's Records Concerning Collateral:
IV. Other Corporate, Fictitious or Trade Names of Guarantor:
B.
E-2-22
<PAGE>
EXHIBIT F-1
TO
CREDIT AGREEMENT
Dated as of December 31, 1993
COLLECTION ACCOUNT AGREEMENT
THIS AGREEMENT is made and entered into as of this __ day of
__________________ , 1993, by and among _____________________________________ a
_________________________(the "BANK"),_________________________________________
___________________________________, a_________________________ corporation (the
"GUARANTOR"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation
(the "LENDER").
STATEMENT OF FACTS
Pursuant to a Credit Agreement, dated as of December 31, 1993 (the
"CREDIT AGREEMENT"), among Hallmark Healthcare Corporation (the "BORROWER") and
the Lender, the Lender has made or will make certain loans (the "LOANS") to the
Borrower. Pursuant to the Subsidiary Guaranty, dated as of December 31, 1993
(the "GUARANTY"), the Guarantor has agreed to jointly and severally guarantee
repayment of the Loans.
The Guarantor has established with the Bank a special bank account
number________________________(the "COLLECTION ACCOUNT") into which it is
contemplated that the Guarantor from time to time may deposit payments or other
remittances now or hereafter received by the Guarantor on some or all of its
accounts, contract rights, chattel paper, instruments, drafts, general
intangibles or other property, and the Guarantor has granted to Lender a
security interest in the Collection Account and all funds on deposit therein to
secure Guarantor's obligations to Lender under the Guaranty.
The parties desire to enter into this Agreement in order to set forth
their relative rights and duties with respect to the Collection Account and all
amounts on deposit therein from time to time.
NOW, THEREFORE, in consideration of $10.00 in hand paid by each party
hereto to the other, as well as other good and valuable consideration, and to
induce the Lender to extend credit from time to time to the Borrower in
connection with the Credit Agreement, the parties hereby agree as follows:
STATEMENT OF TERMS
1. The Guarantor and the Bank hereby confirm to the Lender that the
Collection Account has been established by the Guarantor with the Bank. Until
further notice from the Guarantor, the Bank is hereby directed to transfer on
each of its Business Days the entire balance of available funds in the
Collection Account by way of a wire transfer or
F-1-1
<PAGE>
automated clearing house transfer to the following bank and for credit to the
following account (the "Concentration Account"):
Bank Name:__________________________
Location: __________________________
ABA Routing No.:____________________
Attn:_______________________________
Credit Account No.:_________________
2. The Bank hereby agrees that, so long as this Agreement is in
effect, it will not exercise or claim any right of set-off or banker's lien
against the Collection Account or any funds on deposit therein, and the Bank
hereby further waives during the term of this Agreement any such right or lien
which it may have against any of the funds deposited in the Collection Account,
except to the extent expressly set forth in Section 4 below.
3. The Guarantor hereby grants to the Lender a present and
continuing security interest in the Collection Account and all funds on deposit
therein from time to time to the Lender as collateral security for the
Guarantor's obligations to the Lender under the Guaranty, and the Guarantor
hereby authorizes and directs the Bank to hold the Collection Account and all
funds on deposit therein from time to time as bailee for the Lender, and the
Bank hereby agrees to act as such bailee for the Lender from and after the date
that the Lender notifies the Bank that an Event of Default exists under the
Credit Agreement.
4. From and after the date that the Lender notifies the Bank that an
Event of Default exists under the Credit Agreement, the Lender shall have the
sole right to direct that any distributions, transfers or withdrawals be made
from the Collection Account. If any checks, drafts or other items deposited in
the Collection Account are returned unpaid or otherwise dishonored during the
term of this Agreement, the Bank shall have the right to charge any and all such
returned or dishonored items against the Collection Account or to demand
reimbursement therefor from the Guarantor directly. If the balance of collected
funds in the Collection Account is insufficient for such purpose, the Bank will
immediately notify the Guarantor and the Lender of such fact and the Lender will
reimburse the Bank for any loss it may suffer if such items cannot be collected
but (1) only if the proceeds of such items have been previously transferred to
the Lender pursuant to this Agreement and (ii) only to the extent the Bank is
not reimbursed therefor by the Guarantor after demand by the Bank upon the
Guarantor.
5. This Agreement may be terminated by the Guarantor but only with
the express prior written consent of the Lender, and in that case the Lender and
the Guarantor shall jointly notify the Bank of such termination. This Agreement
may be terminated by the Lender at any time upon its delivery of written notice
thereof to each of the Guarantor and the Bank. This Agreement may be terminated
by the Bank at any time on not less than thirty (30) day's prior written notice
of such intention delivered by it to each of the Guarantor and the Lender. The
Bank's reimbursement and indemnity rights against the Guarantor and the Lender
under Section 4 above and Section 7 below shall survive any termination of this
Agreement. Upon any termination of this Agreement, all funds in the Collection
Account shall be forwarded by the
F-1-2
<PAGE>
Bank in accordance with the instructions of the party entitled to control
disbursement thereof pursuant to this Agreement (free of any set-off by the
Bank).
6. The Bank shall be entitled to rely conclusively upon any notice
or instruction it receives from the Lender and the Bank shall have no obligation
to investigate or verify the genuineness or correctness of any such notice or
instruction. The Bank shall have no liability to Guarantor for the Bank's
honoring of any instructions or directions regarding the Collection Account
which the Bank receives from Lender during the term of this Agreement and the
Bank shall be fully discharged from liability with respect to any funds on
deposit in the Collection Account to the extent it honors such instructions and
transfers same to or at the direction of the Lender.
7. The Lender hereby agrees to indemnify the Bank and hold it
harmless against any loss, damage or expense it may suffer (including attorney's
fees, court costs and other litigation expenses) as a result of the Bank's
entering into this Agreement, and, subject to Section 1, honoring any
instructions or directions it receives from the Lender with respect to the
Collection Account during the term of this Agreement or not honoring any
instructions it receives from the Guarantor with respect to the Collection
Account during the term of this Agreement, except to the extent such loss,
damage or expense is the result of the Bank's own gross negligence or wilful
misconduct.
8. All notices or other communications required or provided under
this Agreement shall be in writing and shall be sent to each party at its
respective address set forth beneath its signature below (or at such other
address as such party may designate in writing to the other parties). Such
notices or communications shall be effective on the date received if received
prior to 12:00 Noon ([_______________] time) on any business day of the Bank
(or, if after 12:00 Noon or if on a non-business day, such notice or
communication shall be effective on the immediately succeeding business day of
the Bank).
9. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns, but
neither the Guarantor nor the Bank shall be entitled to assign or delegate any
of its rights or duties hereunder without first obtaining the express prior
written consent of the Lender.
10. This Agreement shall be governed by the laws of the State of New
York (without giving effect to its conflicts of law rules).
11. This Agreement may be executed in any number of several
counterparts.
F-1-3
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed and delivered
this Agreement as of the day and year first above set forth.
BANK:____________________________
_________________________________
By:______________________________
Title:________________________
Address:_________________________
_________________________
_________________________
GUARANTOR:
_________________________________
By:______________________________
Title:_______________________
Address: _______________________
Attn:___________________
LENDER:
GENERAL ELECTRIC CAPITAL
CORPORATION
By:_______________________________
Title:________________________
Address: Suite 200
5665 New Northside Drive
Atlanta, Georgia 30328
Attn:___________________
F-1-4
<PAGE>
EXHIBIT F-2
TO
CREDIT AGREEMENT
Dated as of December 31, 1993
CONCENTRATION ACCOUNT AGREEMENT
THIS AGREEMENT is made and entered into as of this ____ day of ______,
1993, by and among _______________________ a __________________ (the "BANK"),
HALLMARK HEALTHCARE CORPORATION, a Delaware corporation (the "BORROWER"), and
GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation (the "LENDER").
Statement of Facts
Pursuant to a Credit Agreement, dated as of December 31, 1993 (the
"CREDIT AGREEMENT"), among the Borrower and the Lender, the Lender has made or
will make certain loans to the Borrower.
The Borrower has established with the Bank a special bank account
number ______________________ (the "CONCENTRATION ACCOUNT") into which it is
contemplated that the Borrower from time to time may deposit payments or other
remittances now or hereafter received by the Borrower on some or all of its
accounts, contract rights, chattel paper, instruments, drafts, general
intangibles or other property, and the Borrower has granted to Lender a security
interest in the Concentration Account and all funds on deposit therein to secure
Borrower's obligations to Lender under the Credit Agreement.
The parties desire to enter into this Agreement in order to set forth
their relative rights and duties with respect to the Concentration Account and
all amounts on deposit therein from time to time.
NOW, THEREFORE, in consideration of $10.00 in hand paid by each party
hereto to the other, as well as other good and valuable consideration, and to
induce the Lender to extend credit from time to time to the Borrower in
connection with the Credit Agreement, the parties hereby agree as follows:
STATEMENT OF TERMS
1. The Borrower and the Bank hereby confirm to the Lender that the
Concentration Account has been established by the Borrower with the Bank, and
the Borrower hereby irrevocably authorizes, instructs and directs the Bank, so
long as this Agreement is in effect, to honor only the instructions and
directions of the Lender with respect to any distributions, transfers or
withdrawals of funds from or the investment of funds in the Concentration
Account; PROVIDED, HOWEVER, that unless and until the Lender gives the Bank
written instructions to the contrary, the Bank shall transfer on each of its
business days the entire balance of available funds in the Concentration Account
(commencing on the date that Lender
F-2-1
<PAGE>
notifies the Bank to begin transferring such balance of available funds) by way
of a wire transfer or automated clearing house transfer to the following bank
and for credit to the following account:
Bank Name:
--------------------------------------------------------
Location:
--------------------------------------------------------
ABA Routing No.:
--------------------------------------------------
Attn:
--------------------------------------------------------------
Credit Account No.:
------------------------------------------------
2. The Bank hereby agrees that, so long as this Agreement is in
effect, it will not exercise or claim any right of set-off or banker's lien
against the Concentration Account or any funds on deposit therein, and the Bank
hereby further waives during the term of this Agreement any such right or lien
which it may have against any of the funds deposited in the Concentration
Account, except to the extent expressly set forth in Section 4 below.
3. The Borrower hereby grants to the Lender a present and continuing
security interest in the Concentration Account and all funds on deposit therein
from time to time to the Lender as collateral security for the Borrower's
obligations to the Lender under the Credit Agreement and the other loan or
collateral documents described therein, and the Borrower hereby authorizes and
directs the Bank to hold the Concentration Account and all funds on deposit
therein from time to time as bailee for the Lender, and the Bank hereby agrees
to act as such bailee for the Lender.
4. So long as this Agreement is in effect, the Lender shall have the
sole right to direct that any distributions, transfers or withdrawals be made
from the Concentration Account and the Borrower shall not have any right during
the term of this Agreement to transfer or withdraw any sums from the
Concentration Account, whether by check, draft, wire transfer or otherwise. If
any checks, drafts or other items deposited in the Concentration Account are
returned unpaid or otherwise dishonored during the term of this Agreement, the
Bank shall have the right to charge any and all such returned or dishonored
items against the Concentration Account or to demand reimbursement therefor from
the Borrower directly. If the balance of collected funds in the Concentration
Account is insufficient for such purpose, the Bank will immediately notify the
Borrower and the Lender of such fact and the Lender will reimburse the Bank for
any loss it may suffer if such items cannot be collected but (1) only if the
proceeds of such items have been previously transferred to the Lender pursuant
to this Agreement and (ii) only to the extent the Bank is not reimbursed
therefor by the Borrower after demand by the Bank upon the Borrower.
5. This Agreement may be terminated by the Borrower but only with
the express prior written consent of the Lender, and in that case the Lender and
the Borrower shall jointly notify the Bank of such termination. This Agreement
may be terminated by the Lender at any time upon its delivery of written notice
thereof to each of the Borrower and the Bank. This Agreement may be terminated
by the Bank at any time on not less than thirty (30) day's prior written notice
of such intention delivered by it to each of the Borrower and the Lender. The
Bank's reimbursement and indemnity rights against the Borrower and the Lender
under Section 4
F-2-2
<PAGE>
above and Section 7 below shall survive any termination of this Agreement. Upon
any termination of this Agreement, all funds in the Concentration Account shall
be forwarded by the Bank directly to the Lender (free of any set-off by the
Bank).
6. The Bank shall be entitled to rely conclusively upon any notice
or instruction it receives from the Lender and the Bank shall have no obligation
to investigate or verify the genuineness or correctness of any such notice or
instruction. The Bank shall have no liability to Borrower for the Bank's
honoring of any instructions or directions regarding the Concentration Account
which the Bank receives from Lender during the term of this Agreement and the
Bank shall be fully discharged from liability with respect to any funds on
deposit in the Concentration Account to the extent it honors such instructions
and transfers same to or at the direction of the Lender.
7. The Lender hereby agrees to indemnify the Bank and hold it
harmless against any loss, damage or expense it may suffer (including attorney's
fees, court costs and other litigation expenses) as a result of the Bank's
entering into this Agreement, honoring any instructions or directions it
receives from the Lender with respect to the Concentration Account during the
term of this Agreement or not honoring any instructions it receives from the
Borrower with respect to the Concentration Account during the term of this
Agreement, except to the extent such loss, damage or expense is the result of
the Bank's own gross negligence or wilful misconduct.
8. All notices or other communications required or provided under
this Agreement shall be in writing and shall be sent to each party at its
respective address set forth beneath its signature below (or at such other
address as such party may designate in writing to the other parties). Such
notices or communications shall be effective on the date received if received
prior to 12:00 Noon ([_______________] time) on any business day of the Bank
(or, if after 12:00 Noon or if on a non-business day, such notice or
communication shall be effective on the immediately succeeding business day of
the Bank).
9. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns, but
neither the Borrower nor the Bank shall be entitled to assign or delegate any of
its rights or duties hereunder without first obtaining the express prior written
consent of the Lender.
10. This Agreement shall be governed by the laws of the State of New
York (without giving effect to its conflicts of law rules).
11. This Agreement may be executed in any number of several
counterparts.
F-2-3
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed and delivered
this Agreement as of the day and year first above set forth.
BANK:
------------------------------------------
By:
---------------------------------------
Title:
--------------------------------
Address:
--------------------------------
---------------------------------
---------------------------------
BORROWER:
HALLMARK HEALTHCARE CORPORATION
By:
---------------------------------------
Title:
--------------------------------
Address:
--------------------------------
------------------------------
Attn:
-----------------------------
LENDER:
GENERAL ELECTRIC CAPITAL
CORPORATION
By:
----------------------------------------
Title:
---------------------------------
Address: Suite 200
5665 New Northside Drive
Atlanta, Georgia 30328
Attn:
----------------------------
F-2-4
<PAGE>
EXHIBIT G
to
CREDIT AGREEMENT
Dated as of December 31, 1993
December 31, 1993
[Insert Name and Address of
Each Accountant and Tax Advisor]
Re: Credit Agreement, dated as of December 31, 1993,
between Hallmark Healthcare Corporation and General
Electric Capital Corporation (the "CREDIT AGREEMENT")
Ladies and Gentlemen:
This letter is being sent to you pursuant to SECTION 3.1 and/or
SECTION 5.2 of the above-referenced Credit Agreement.
Please be advised that Hallmark Healthcare Corporation (for itself and
on behalf of its subsidiaries) has authorized General Electric Capital
Corporation to communicate directly with Hallmark Healthcare Corporation's and
its subsidiaries' independent certified public accountants and tax advisors, and
Hallmark Healthcare Corporation hereby authorizes you (in your capacity as
accountants and/or tax advisors for Hallmark Healthcare Corporation and/or its
subsidiaries) to disclose to General Electric Capital Corporation any and all
financial statements and other supporting financial documents and schedules
including copies of any management letter with respect to the business,
financial condition and other affairs of Hallmark Healthcare Corporation and its
subsidiaries.
Please acknowledge your receipt of this letter and your agreement to
be bound by its terms by signing a copy of it in the space indicated below and
returning it to me so that I may forward it to General Electric Capital
Corporation.
Very truly yours,
HALLMARK HEALTHCARE CORPORATION
By:________________________
Name:__________________
Title:_________________
RECEIVED AND AGREED TO:
- - -----------------------
Name:__________________
Title:_________________
Date:__________________, 1993
G-1
<PAGE>
EXHIBIT H-1
to
CREDIT AGREEMENT
Dated as of December 31, 1993
CERTIFICATE OF BORROWER
The undersigned officers of HALLMARK HEALTHCARE CORPORATION (the
"BORROWER"), a Delaware corporation, hereby certify and covenant in their
representative capacities on behalf of the Borrower as follows:
1. Unless otherwise expressly defined herein, all capitalized terms
used herein shall have the meanings given such terms in, and this Certificate is
being executed and delivered pursuant to SECTION 3.1 and SCHEDULE A of, the
Credit Agreement, dated as of December 31, 1993, between the Borrower and
General Electric Capital Corporation (the "CREDIT AGREEMENT").
2. Each of the representations and warranties made by the Borrower
set forth in the Credit Agreement and the other Loan Documents executed by
Borrower are true and correct in all material respects on and as of the date of
this Certificate.
3. The Borrower is in compliance with all the terms and provisions
set forth in the Credit Agreement and the other Loan Documents to which it is a
party on and as of the date of this Certificate.
4. No Default or Event of Default has occurred and is continuing on
and as of the date of this Certificate.
5. Since the date of the most recent financial statements described
in SECTION 4.4 to the Credit Agreement, there has been no change which has had
or could reasonably be expected to have a Material Adverse Effect.
6. There is no action or proceeding instituted or pending before any
court or governmental authority or, to the knowledge of the Borrower, threatened
(i) which reasonably could be expected to have a Material Adverse Effect, or
(ii) which seeks to prohibit or restrict any Credit Party's ownership or
operation of any material portion of its business or assets or compel any Credit
Party to dispose of or hold separate all or any material portion of its business
or assets, and which reasonably could be expected to have a Material Adverse
Effect.
7. Attached hereto as EXHIBIT 1 is a true and correct copy of
resolutions of the Board of Directors of the Borrower which were duly adopted on
December 13, 1993 (collectively, the "RESOLUTIONS") and which authorize the
execution, delivery and performance of the Loan Documents to which the Borrower
is a party. The Resolutions were adopted in accordance with the Certificate or
Articles of Incorporation and By-laws of the Borrower. A true, correct and
complete copy of the Borrower's by-laws as in effect on this date (collectively,
H-1-1
<PAGE>
the "BY-LAWS") is attached hereto as EXHIBIT 2. The Resolutions and the By-Laws
are in full force and effect and have not been amended, altered or repealed as
of the date hereof except as shown on such Exhibits.
8. The persons named below are on the date hereof the duly elected
and qualified incumbents of the offices of the Borrower set forth below next to
their respective names, and the signatures appearing at the right of their
respective names below are the genuine signatures of such officers:
NAME AND TITLE SIGNATURE
-------------- ---------
_________________, _____________________ __________________________________
_________________, _____________________ ___________________________________
9. The corporate seal affixed to this Certificate and the Loan
Documents executed on behalf of the Borrower is the legally adopted, proper and
only official corporate seal of the Borrower.
10. The chief executive office and principal place of business of the
Borrower as of this date (within the meaning of Code Section 9-103(3)(d) and
Code Section 9-401(1)(b)) are located in __________________ County,
______________________________.
IN WITNESS WHEREOF, the undersigned have executed this Certificate on
behalf of the Borrower and affixed its corporate seal hereto, all as of this 31
day of December, 1993.
(CORPORATE SEAL) _____________________________
_________________, __________ of
Hallmark Healthcare Corporation
_____________________________
_________________, __________ of
Hallmark Healthcare Corporation
H-1-2
<PAGE>
EXHIBIT 1
BOARD RESOLUTIONS OF
HALLMARK HEALTHCARE CORPORATION
(THE "CORPORATION")
WHEREAS, the Corporation desires to borrow money and obtain other financial
accommodations from time to time from General Electric Capital Corporation (the
"LENDER") under the terms and conditions of a proposed Credit Agreement (the
"CREDIT AGREEMENT"), substantially in the form reviewed by the Board of
Directors of the Corporation, to be entered into between the Corporation and the
Lender; and
WHEREAS, the Corporation's indebtedness to the Lender for the working
capital loans which may be made to it under the Credit Agreement will be
evidenced by a Working Capital Note in favor of the Lender, substantially in the
form attached to the Credit Agreement as an exhibit thereto (the "WORKING
CAPITAL NOTE"); and
WHEREAS, the Corporation's indebtedness to the Lender for the acquisition
loans which may be made to it under the Credit Agreement will be evidenced by an
Acquisition Note in favor of Lender, substantially in the form attached to the
Credit Agreement as an exhibit thereto (the "ACQUISITION NOTE"; the Working
Capital Note and the Acquisition Note are collectively referred to as the
"NOTES"); and
WHEREAS, the Corporation's indebtedness to the Lender under the Credit
Agreement and the Notes as well as all other indebtedness or obligations of the
Corporation to the Lender will be secured by certain assets of the Corporation
pursuant to the Borrower Security Agreement substantially in the form attached
as an exhibit to the Credit Agreement, to be executed by the Corporation in
favor of the Lender pursuant thereto (the "SECURITY AGREEMENT"); and
WHEREAS, the Board of Directors of the Corporation deems it to be in the
best interest of the Corporation and its shareholders that the Corporation enter
into and execute the Credit Agreement, the Notes and the Security Agreement
(collectively, the "CREDIT DOCUMENTS");
NOW, THEREFORE, BE IT RESOLVED, that the Credit Documents, together with
all transactions contemplated thereby, are hereby approved in their entirety;
and
FURTHER RESOLVED, that the chairman, the president, any vice president,
treasurer, secretary or assistant secretary of the Corporation are each hereby
authorized and directed to execute and deliver the Credit Documents, in
substantially the same forms as reviewed by the Board of Directors of the
Corporation, but with such changes or additions thereto as the chairman, the
president or any vice president shall deem to be in the best interest of the
Corporation (the chairman's, the president's or any vice president's execution
of the same
H-1-3
<PAGE>
containing any such changes or additions being deemed to evidence conclusively
his decision that such changes or additions are in the best interest of the
Corporation); and
FURTHER RESOLVED, that the aforesaid officers of the Corporation are
hereby severally authorized and directed to do or to cause to be done all such
other acts and things (including the execution and delivery of such other
documents, security agreements, blocked account agreements, instruments,
financing statements, certificates and agreements) as any such officer may deem
necessary or desirable in order to carry out and effectuate fully the purposes
of the foregoing resolutions.
H-1-4
<PAGE>
EXHIBIT H-2
to
CREDIT AGREEMENT
Dated as of December 31, 1993
CERTIFICATE OF INCLUDED SUBSIDIARY
The undersigned officers of [____________________] (the GUARANTOR"), a
[________________] corporation, hereby certify and covenant on
behalf of the Guarantor as follows:
1. Unless otherwise expressly defined herein, all capitalized terms
used herein shall have the meanings given such terms in, and this Certificate is
being executed and delivered pursuant to SECTION 3.1 and SCHEDULE A of the
Credit Agreement, dated as of December 31, 1993, between Hallmark Healthcare
Corporation and General Electric Capital Corporation (the "CREDIT AGREEMENT").
2. Each of the representations and warranties pertaining to the
Guarantor set forth in the Credit Agreement and the other Loan Documents
executed by the Guarantor are true and correct in all material respects on and
as of the date of this Certificate.
3. The Guarantor is in compliance with all the terms and provisions
set forth in the Loan Documents to which it is a party as well as all of the
terms and provisions set forth in the Credit Agreement which are applicable to
the Guarantor, all on and as of the date of this Certificate.
4. Attached hereto as EXHIBIT 1 is a true and correct copy of
Resolutions of the Board of Directors of the Guarantor which were duly adopted
on [_____________], 1993 (collectively, the "RESOLUTIONS") and which authorize
the execution, delivery and performance of the Loan Documents to which the
Guarantor is a party. The Resolutions were adopted in accordance with the
Certificate or Articles of Incorporation and the By-Laws of the Guarantor. A
true, correct and complete copy of the Guarantor's By-laws as in effect on this
date (the "BY-LAWS") is attached hereto as EXHIBIT 2. The Resolutions and the
By-Laws are in full force and effect and have not been amended, altered or
repealed as of the date hereof except as shown on such Exhibits.
5. The persons named below are on the date hereof duly elected and
qualified incumbents of the offices of the Guarantor set forth below next to
their respective names, and the signatures appearing at the right of their
respective names below are the genuine signatures of such officers.
H-2-1
<PAGE>
Name and Title Signature
-------------- ---------
______________________, _________________ _____________________________
______________________, _________________ _____________________________
6. The corporate seal affixed to this Certificate and the Loan
Documents executed on behalf of the Guarantor is the legally adopted, proper and
only official corporate seal of the Guarantor.
7. The chief executive office and principal place of business of the
Guarantor as of this date (within the meaning of Code Section 9-103(3)(d) and
Code Section 9-401(1)(b)) are located in __________________ County,
____________________________.
IN WITNESS WHEREOF, the undersigned have executed this Certificate on
behalf of the Guarantor and have affixed its corporate seal hereto, all as of
this 31 day of December, 1993.
(CORPORATE SEAL) ______________________________
________________, ____________
of____________________________
______________________________
_________________, ___________
of ___________________________
H-2-2
<PAGE>
EXHIBIT 1
BOARD RESOLUTIONS OF
[_______________________________]
(THE "CORPORATION")
WHEREAS, the Corporation is a direct or indirect subsidiary of
Hallmark Healthcare Corporation (the "PARENT"); and
WHEREAS, the Parent desires to borrow money and obtain other financial
accommodations from time to time from General Electric Capital Corporation under
the terms and conditions of a proposed Credit Agreement (the "CREDIT
AGREEMENT"), substantially in the form reviewed by the Board of Directors of the
Corporation, to be entered into between the Parent and the Lender; and
WHEREAS, the Lender has required that the Corporation guarantee all of
the Parent's present and future indebtednesses and liabilities to the Lender
under the Credit Agreement or otherwise, which guaranty would be provided
pursuant to the Subsidiary Guaranty Agreement to be executed by the Corporation
and certain other parties in favor of the Lender in substantially the form
attached as an exhibit to the Credit Agreement (the "GUARANTY"); and
WHEREAS, the Corporation's guaranty liability to the Lender will be
secured by certain assets of the Corporation pursuant to a Subsidiary Security
Agreement substantially in the form attached as an exhibit to the Credit
Agreement, to be executed by the Corporation and certain other parties in favor
of the Lender pursuant thereto (the "SECURITY AGREEMENT"); and
WHEREAS, it is to the direct benefit of and it is in the best interest
of the Corporation that the Parent be able to obtain loans and other financial
accommodations from the Lender under the Credit Agreement; and
WHEREAS, the Board of Directors of the Corporation therefore deems it
to be in the best interest of the Corporation and its shareholder that the
Corporation enter into and execute the Guaranty and the Security Agreement
(collectively, the "CREDIT DOCUMENTS");
NOW, THEREFORE, BE IT RESOLVED, that the Credit Agreement and the
Credit Documents, together with all transactions contemplated thereby, are
hereby approved in their entirety; and
FURTHER RESOLVED, that the chairman, the president or any vice
president, treasurer, secretary or assistant secretary of the Corporation are
each hereby authorized and directed to execute and deliver the Credit Documents,
in substantially the same forms as reviewed by the Board of Directors of the
Corporation, but with such changes or additions thereto as the chairman, the
president or any vice president shall deem to be in the best interest of the
Corporation (the chairman's, the president's or any vice president's execution
of the same
H-2-3
<PAGE>
containing any such changes or additions being deemed to evidence conclusively
his decision that such changes or additions are in the best interest of the
Corporation); and
FURTHER RESOLVED, that the aforesaid officers of the Corporation are
hereby severally authorized and directed to do or cause to be done all such
other acts and things (including the execution and delivery of such other
documents, security agreements, blocked account agreements, instruments,
financing statements, certificates and agreements) as any such officer may deem
necessary or desirable in order to carry out and effectuate fully the purposes
of the foregoing resolutions.
H-2-4
<PAGE>
EXHIBIT I
TO
CREDIT AGREEMENT
Dated as of December 31, 1993
FORM OF OPINION OF BORROWER'S AND GUARANTORS' COUNSEL
December 31, 1993
General Electric Capital Corporation
Suite 200
5665 New Northside Drive
Atlanta, Georgia 30328
Kilpatrick & Cody
Suite 2800
1100 Peachtree Street
Atlanta, Georgia 30309-4530
Gentlemen:
We have acted as counsel for Hallmark Healthcare Corporation, a
Delaware corporation ("BORROWER"), as well as for the other corporations listed
on SCHEDULE I hereto (collectively, the "GUARANTORS;" the Borrower and the
Guarantors being hereinafter collectively referred to as the "CREDIT PARTIES"),
in connection with the loan transactions of even date which arise under the
Credit Agreement, dated as of December 31, 1993 (the "CREDIT AGREEMENT"),
between Borrower and General Electric Capital Corporation ("LENDER"). This
opinion is furnished pursuant to SECTION 3.1 and SCHEDULE A of the Credit
Agreement. Capitalized terms used herein and not otherwise expressly defined
herein shall have the meanings given such terms in the Credit Agreement.
We have reviewed fully executed counterparts of the following
documents (collectively, the "CREDIT DOCUMENTS"):
(a) The Credit Agreement;
(b) The Working Capital Note;
(c) The Acquisition Note;
(d) The Subsidiary Guaranties;
I-1
<PAGE>
(e) The Security Agreements; and.
(f) The Account Agreements.
We also have examined and relied upon originals or copies of the
following additional documents:
(i) Copies of the respective Certificates or Articles of
Incorporation of each of the Credit Parties as
certified by the Secretary of State of the
jurisdictions of incorporation of such persons listed
on SCHEDULE I and under the dates shown on such
Schedule;
(ii) Good standing certificates or certificates of existence
for each of the Credit Parties issued by the Secretary
of State (or other appropriate official) of each of the
jurisdictions described on SCHEDULE I attached hereto
and dated as of the dates shown on such schedule;
(iii) Certificates of the Credit Parties, dated as of the date
hereof, and executed and delivered concurrently herewith
pursuant to SECTION 3.1 and SCHEDULE A of the Credit
Agreement and to which are attached certified copies of the
Credit Parties' respective by-laws and authorizing board
resolutions as well as specimen officer signatures;
(iv) Uniform Commercial Code financing statements for each
of the Credit Parties as debtor and Lender as secured
party for each of the jurisdictions listed on SCHEDULE
II (collectively, the "FINANCING STATEMENTS"), and
which have been filed in each of the public offices for
each of the Credit Parties listed on such Schedule (the
"FILING OFFICES");
(v) Written reports of examination of the Uniform
Commercial Code financing statement and federal tax
lien indices of the Filing Offices (collectively, the
"RECORD EXAMINATION REPORTS"), which examinations were
conducted by ___________________________________ under
the names of the Credit Parties as shown above, a copy
of which reports have been delivered to the Lender; and
(vi) Such additional documents, instruments, agreements and
other materials as we have considered necessary for the
opinions or confirmations herein expressed.
I-2
<PAGE>
During the course of such examinations, we have assumed (i) the
genuineness of all signatures (other than those on behalf of the Credit
Parties), (ii) the authenticity of all documents submitted to us as originals,
(iii) the conformity to original documents of all documents submitted to us as
certified, conformed or photostatic copies, and (iv) the authority of each
person or persons who executed any document on behalf of another person (other
than the Credit Parties). We have also assumed, with your permission, that
Lender has all requisite power and authority to execute, deliver and perform its
obligations under the Loan Documents executed by it.
We also have assumed, in reviewing the Record Examination Reports,
that (i) the Record Examination Reports are accurate and complete, (ii) any and
all Uniform Commercial Code financing statements naming any of the Credit
Parties as debtor and filed in the Filing Offices have been properly filed and
indexed, and (iii) no Uniform Commercial Code financing statements naming any of
the Credit Parties as debtor and covering any of the Collateral described in any
of the Security Agreements (collectively, the "PERSONALTY COLLATERAL") have been
filed in the Filing Offices after the effective date and time of the Record
Examination Reports and before the filing of the Financing Statements therein.
Based on the foregoing, and on such other matters as we have deemed
necessary for rendering this opinion, and subject to the exceptions,
qualifications and assumptions noted herein, it is our opinion that:
1. Each of the Credit Parties is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation as noted above and is duly qualified to do business and is in good
standing in each other jurisdiction where its ownership or lease of property or
the conduct of its business requires such qualification except where the failure
to be so qualified would not have a Material Adverse Effect.
2. The execution, delivery and performance by each Credit Party of
the Credit Documents executed by it and the creation of all Liens provided for
therein: (i) are within such Credit Party's corporate power; (ii) have been duly
authorized by all necessary or proper corporate and shareholder action on the
part of such Credit Party; (iii) are not in contravention of any provision of
such Credit Party's Certificate or Articles of Incorporation or By-Laws; (iv)
will not violate any law or regulation, or to our knowledge any order to decree
of any court or governmental instrumentality, which is applicable to Borrower or
any of its Subsidiaries or any of their respective properties; (v) will not
conflict with or result in the breach or termination of, or constitute a default
under, or accelerate any performance required by any indenture, mortgage, deed
of trust, lease, agreement or other instrument to which Borrower or any of its
Subsidiaries is a party or by which any such Person or any of its property is
bound and which is known to us; (vi) to our knowledge will not result in the
creation or imposition of any Lien upon any property of Borrower or any of its
Subsidiaries other than those in favor of Lender pursuant to the Credit
Documents; and (vii) do not require the consent or approval of any Governmental
Authority or to our knowledge any other Person.
I-3
<PAGE>
3. Each of the Credit Documents have been duly executed and
delivered on behalf of each Credit Party which executed it and constitutes a
legal, valid and binding obligation of such Credit Party, enforceable against
such Credit Party in accordance with its terms.
4. To our knowledge, there is no action, claim or proceeding now
pending or threatened against Borrower or any of its Subsidiaries at law, in
equity or otherwise, before any court, board, commission, agency or
instrumentality of any federal, state or local government or of any agency or
subdivision thereof, or before any arbitrator or panel of arbitrators, (i) which
challenges any Credit Party's right, power or competence to enter into or
perform any of its obligations under the Credit Documents or the validity or
enforceability of any Credit Document or any action thereunder, or (ii) which,
if adversely determined, could have or result in a Material Adverse Effect.
5. Assuming that the proceeds of the Working Capital Advances and
Acquisition Advances are used in accordance with the terms and conditions of the
Credit Agreement and the other Credit Documents, none of the transactions
contemplated by the Credit Documents will violate or result in a violation of
Regulation G, T, U or X of the Federal Reserve Board.
6. To our knowledge, neither Borrower nor any of its Subsidiaries is
an "investment company" or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company", as such terms are defined
in the Investment Company Act of 1940, as amended. To our knowledge, neither
Borrower nor any of its Subsidiaries is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Interstate
Commerce Act or any other federal or state statute that restricts or limits such
Person's ability to incur Indebtedness or pledge its assets or perform its
obligations under any of the Credit Documents, and the making of the Working
Capital Advances and Acquisition Advances by Lender, the application of the
proceeds thereof and repayment thereof by Borrower and the other Credit Parties
and the consummation of the transactions contemplated by the Credit Agreement
and the other Credit Documents will not violate any provision of any applicable
statute or any rule, regulation or order issued by the Securities and Exchange
Commission.
7. The Credit Parties have granted in favor of Lender under the
Security Agreements legal, valid, binding and enforceable security interests in
the Personalty Collateral, which security interests secure the Secured
Obligations (as defined in the Security Agreements) and have been perfected by
the filing in the Filing Office of the Financing Statements. All filing and
recording fees and taxes required to be paid in connection with the execution,
delivery, filing or recording of the Security Agreement or the Financing
Statements have been paid. Based solely on the Record Examination Reports, the
security interest of the Lender in the Personalty Collateral granted by each
Credit Party under the Security Agreement executed by such Credit Party will
have priority over any other consensual non-purchase money Uniform Commercial
Code security interest in such Personalty Collateral that is perfected by the
filing of a Uniform Commercial Code financing statement naming such Credit Party
as debtor in the Filing Office.
Our opinions set forth above are subject to the following
qualifications:
I-4
<PAGE>
A. We are qualified to practice law in the State[s] of
______________________________________________________ and our opinions herein
are limited to the laws of such states and any applicable federal laws of the
United States of America.
B. Our opinions above regarding the legality, validity, binding
effect, enforceability, perfection or priority of any Credit Documents or any
security interest granted thereunder are subject to the effect of any applicable
bankruptcy, fraudulent transfer, insolvency or other similar laws affecting
creditors' rights generally and to general equitable principles.
This opinion is furnished solely for the benefit of the Lender and its
successors, assigns, participants and counsels in connection with the
transactions contemplated by the Credit Documents and may not be relied upon by
any other person or for any other purpose without our express written
permission. We expressly disclaim any duty to update this letter in the future
in the event there are any changes in relevant fact or law that may affect any
of our opinions expressed herein.
Very truly yours,
I-5
<PAGE>
SCHEDULE 2.1(B)
to
CREDIT AGREEMENT
Dated as of December 31, 1993
RESPONSIBLE LENDING OFFICER AND LENDING OFFICE
LENDING OFFICER:
David Teszler
LENDING OFFICE:
General Electric Capital Corporation
5665 New Northside Drive
Suite 200
Atlanta, Georgia 30328
<PAGE>
SCHEDULE 4.4
to
CREDIT AGREEMENT
Dated as of December 31, 1993
FINANCIAL STATEMENTS AND ANNUAL BUDGET
I. FINANCIAL STATEMENTS. All of the following balance sheets and
statements of income, retained earnings and cash flows of Borrower and the
Included Subsidiaries, copies of which are attached hereto and have been
furnished by Borrower to Lender prior to the date of the Agreement, have
been, except as noted therein, prepared in conformity with GAAP and present
fairly the financial position of Borrower and the Included Subsidiaries in
each case as at the dates thereof, and the results of operations and cash
flows for the periods then ended (as to the unaudited interim financial
statements, subject to normal year-end audit adjustments and the absence of
footnotes):
(i) the unaudited consolidated balance sheets of Borrower and
the Included Subsidiaries as at September 30, 1993 and the related
consolidated statements of income, retained earnings and cash flows for the 3
Fiscal Months of the Fiscal Year ending June 30, 1994; and
(ii) the audited consolidated balance sheet of Borrower and
the Included Subsidiaries as of June 30, 1993, and the related consolidated
statements of income, retained earnings and cash flows for the year then
ended, with the report thereon of Arthur Anderson & Company.
II. ANNUAL BUDGETS. The Annual Budgets of Borrower's and the
Included Subsidiaries' annual income statements, attached hereto, for the
period ending June 30, 1994 on a monthly basis (the "ANNUAL BUDGETS"), copies
of which have been delivered by Borrower to Lender, disclose all assumptions
made with respect to general economic, financial and market conditions in
formulating such Annual Budgets. No facts exist that would result in any
material change in any of such Annual Budgets. The Annual Budgets are based
upon reasonable estimates and assumptions, all of which are fair in light of
current conditions, have been prepared on the basis of the assumptions stated
therein, and reflect the reasonable estimate of Borrower of the results of
operations and other information projected therein.
<PAGE>
ATTACHMENT TO SCHEDULE 4.4
FINANCIAL STATEMENTS
Attached.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
HALLMARK HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, 1993 June 30, 1993
----------------- -------------
(Unaudited) *
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . $ 10,574 $ 4,899
Patient accounts receivable, less allowance
for doubtful accounts of $4,537 and
$4,135 at December 31, 1993 and
June 30, 1993, respectively. . . . . . . . . 19,271 19,767
Inventories. . . . . . . . . . . . . . . . . . 4,194 4,103
Other current assets . . . . . . . . . . . . . 5,150 4,513
Deferred tax asset . . . . . . . . . . . . . . 3,252 --
---------- ----------
Total current assets . . . . . . . . . . . . 42,441 33,282
---------- ----------
Property and equipment:
Land and improvements. . . . . . . . . . . . . 7,540 7,277
Buildings and improvements . . . . . . . . . . 101,360 98,887
Equipment. . . . . . . . . . . . . . . . . . . 55,046 53,296
Construction in progress . . . . . . . . . . . 463 2,227
---------- ----------
. . . . . . . . . . . . . . . . . . . . . . . . 164,409 161,687
Less: accumulated depreciation and
amortization . . . . . . . . . . . . . . . . (57,640) (53,452)
---------- ----------
. . . . . . . . . . . . . . . . . . . . . . . . 106,769 108,235
Other assets . . . . . . . . . . . . . . . . . . 20,096 18,360
---------- ----------
. . . . . . . . . . . . . . . . . . . . . . . . $ 169,306 $ 159,877
---------- ----------
---------- ----------
</TABLE>
*Condensed from audited financial statements
See accompanying notes
-4-
<PAGE>
HALLMARK HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
December 31, 1993 June 30, 1993
----------------- -------------
(Unaudited) *
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . $ 10,957 $ 11,819
Accrued payroll, vacation and related taxes. . 3,706 4,056
Other accrued liabilities. . . . . . . . . . . 11,194 10,718
Current maturities of long-term debt and
capital lease obligations. . . . . . . . . . 585 5,306
---------- ----------
Total current liabilities. . . . . . . . . . 26,442 31,899
Long-term debt and capital lease obligations . . 87,613 75,181
Other long-term liabilities. . . . . . . . . . . 17,658 17,648
Deferred income taxes. . . . . . . . . . . . . . 7,818 2,060
Deferred debt restructuring credits. . . . . . . - 27,041
Commitments and contingencies
Redeemable preferred stock . . . . . . . . . . . 1,120 1,095
Common stockholders' equity:
Common stock
Class A, $0.05 par value, authorized
25,000,000 shares; issued and outstanding
2,958,608 and 2,585,457 shares at
December 31, 1993 and June 30, 1993,
respectively . . . . . . . . . . . . . . . 148 129
Class B, $0.05 par value, authorized 2,500,000
shares; issued and outstanding 64,102 and
390,298 shares at December 31, 1993 and
June 30, 1993, respectively. . . . . . . . 3 19
Additional paid-in capital . . . . . . . . . 53,546 52,331
Accumulated deficit. . . . . . . . . . . . . (25,042) (47,526)
---------- ----------
Total common stockholders' equity. . . . . . 28,655 4,953
---------- ----------
$ 169,306 $ 159,877
---------- ----------
---------- ----------
</TABLE>
*Condensed from audited financial statements
See accompanying notes
-5-
<PAGE>
HALLMARK HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31, December 31,
------------- ----------------
1993 1992 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net patient service revenues . . . . . . . . . . . . . . . . $ 45,876 $ 41,891 $ 91,165 $ 82,275
Other revenues . . . . . . . . . . . . . . . . . . . . . . . 2,060 1,681 4,099 2,878
--------- --------- --------- ---------
TOTAL REVENUES. . . . . . . . . . . . . . . . . . . 47,936 43,572 95,264 85,153
Expenses:
Salaries and benefits. . . . . . . . . . . . . . . . . . . 20,999 18,122 41,297 35,965
Supplies . . . . . . . . . . . . . . . . . . . . . . . . . 6,058 5,624 11,822 11,243
Provision for bad debts. . . . . . . . . . . . . . . . . . 3,422 2,800 6,613 5,679
Other operating expenses . . . . . . . . . . . . . . . . . 12,473 12,558 25,144 24,787
Interest . . . . . . . . . . . . . . . . . . . . . . . . . 1,653 957 2,490 2,058
Depreciation and amortization. . . . . . . . . . . . . . . 2,231 2,352 4,630 4,470
--------- --------- --------- ---------
TOTAL EXPENSES. . . . . . . . . . . . . . . . . . . 46,836 42,413 91,996 84,202
--------- --------- --------- ---------
Income from operations . . . . . . . . . . . . . . . . . . . 1,100 1,159 3,268 951
Gain on sale of healthcare facility. . . . . . . . . . . . . -- -- -- 752
--------- --------- --------- ---------
Income before income taxes, extraordinary items
and cumulative effect of accounting change . . . . . . . . 1,100 1,159 3,268 1,703
Provision for income taxes . . . . . . . . . . . . . . . . . 462 586 1,373 919
--------- --------- --------- ---------
INCOME BEFORE EXTRAORDINARY ITEMS AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGE. . . . . . . . . . . . . . . . 638 573 1,895 784
Extraordinary items
Gain on restructure of debt, net of income tax effect of
$2,170 for the quarter and six months ended
December 31, 1993, and $253 for the quarter
and six months ended December 31, 1992 . . . . . . . . 19,784 490 19,784 490
Credit resulting from utilization of net operating
loss carryforwards . . . . . . . . . . . . . . . . . . -- 646 -- 889
--------- --------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE. . . . . . . . . . . . . . . . . . . . . 20,422 1,709 21,679 2,163
Cumulative effect of accounting change . . . . . . . . . . . -- -- 805 --
--------- --------- --------- ---------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . 20,422 1,709 22,484 2,163
Accretion of preferred stock redemption requirement. . . . . 110 79 210 151
--------- --------- --------- ---------
NET INCOME APPLICABLE TO COMMON STOCK. . . . . . . . . . . . $ 20,312 $ 1,630 $ 22,274 $ 2,012
--------- --------- --------- ---------
--------- --------- --------- ---------
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING. . . . . . . . . . . . . . . 3,760 3,346 3,759 3,343
--------- --------- --------- ---------
--------- --------- --------- ---------
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE
Income before extraordinary items and cumulative effect
of accounting change . . . . . . . . . . . . . . . . . . . $ 0.17 $ 0.17 $ 0.50 $ 0.24
Extraordinary items. . . . . . . . . . . . . . . . . . . . . 5.26 0.34 5.26 0.41
Cumulative effect of accounting change . . . . . . . . . . . -- -- .22 --
--------- --------- --------- ---------
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE. . . . . . $ 5.43 $ 0.51 $ 5.98 $ 0.65
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes
-6-
<PAGE>
HALLMARK HEALTHCARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended December 31,
-----------------------------
1993 1992
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,484 $ 2,163
Adjustments to reconcile net income to
net cash provided by operating activities:
Extraordinary items:
Gain on restructure of debt, net of income tax
effect of $ 2,170 and $ 253 for the six months
ended Decmeber 31, 1993, and 1992,
respectively. . . . . . . . . . . . . . . . . . . . . . . . . . (19,784) (490)
Credit resulting from utilization
of net operating loss carryforwards . . . . . . . . . . . . . . -- (889)
Cumulative effect of accounting change . . . . . . . . . . . . . . (805) --
Depreciation and amortization. . . . . . . . . . . . . . . . . . . 4,630 4,470
Gain on sale of healthcare facility. . . . . . . . . . . . . . . . -- (752)
Amortization of deferred debt
restructuring credits . . . . . . . . . . . . . . . . . . . . . (2,071) (3,138)
Change in allowance for doubtful accounts. . . . . . . . . . . . . 402 430
Change in assets and liabilities net of effects of
healthcare facilities sold:
Patient accounts receivable . . . . . . . . . . . . . . . . . . (506) (2,368)
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . 701 (1,703)
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . (862) 2,014
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . 2,077 795
--------- --------
Net cash provided by operating activities . . . . . . . . . . . 6,266 532
--------- --------
Cash flows from investing activities:
Proceeds from sale of healthcare
facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,336
Purchase of property & equipment, net. . . . . . . . . . . . . . . (2,600) (2,776)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --------- --------
Net cash (used in) provided by
investing activities . . . . . . . . . . . . . . . . . . . . . . (2,600) 6,560
--------- --------
Cash flows from financing activities:
Proceeds from issuance of long term debt . . . . . . . . . . . . . 80,000 --
Costs of issuance of long term debt. . . . . . . . . . . . . . . . (2,400) --
Principal payments on long-term debt and
capital lease obligations . . . . . . . . . . . . . . . . . . . . (75,591) (10,484)
--------- --------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . . . . . . . . . 2,009 (10,484)
--------- --------
Increase (decrease) in cash and cash equivalents . . . . . . . . . . 5,675 (3,392)
Cash and cash equivalents at beginning of
period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,899 7,749
--------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . . . $ 10,574 $ 4,357
--------- --------
--------- --------
See accompanying notes
</TABLE>
-7-
<PAGE>
FORM 10-Q
HALLMARK HEALTHCARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
December 31, 1993
NOTE 1 - BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements presented herein, in
the opinion of management, reflect all adjustments considered necessary for a
fair presentation of the results of operations and financial position for the
interim periods covered by this report. All significant intercompany accounts
and transactions have been eliminated in consolidation.
These financial statements should be read in conjunction with the audited
consolidated financial statements of the Company for the year ended June 30,
1993, included in the Company's Annual Report on Form 10-K for the year ended
June 30, 1993.
NOTE 2 - NATURE OF BUSINESS
The Company's business is seasonal in nature and subject to general economic
conditions and other factors. Accordingly, the results of operations for the
interim periods are not necessarily indicative of the results expected for the
year.
NOTE 3 - CHANGE IN OPERATIONS
In fiscal 1993, the Company divested substantially all of the assets of two
hospital subsidiaries for approximately $9,400,000 in cash. The Company
recognized a gain of approximately $752,000 from the sale of one hospital in the
quarter ended September 30, 1992 and recognized no gain or loss on the hospital
sale in December 1992. Net proceeds of the sales approximated $8,500,000, of
which approximately $7,000,000 was used to prepay amounts under the formerly
outstanding Bank Credit Agreement and $1,500,000 was used to acquire a portion
of the Company's formerly outstanding 14.5% Subordinated Debentures. The
accompanying condensed consolidated statements of operations for the quarter and
six months ended December 31, 1993 and 1992, include net revenues and expenses
for one hospital through November 30, 1992. The facilities had no net revenues
in the quarter ended December 31, 1992, and net revenues of $97,000 for the six
months then ended. For the quarter and six months ended December 31, 1992, the
facilities had total expenses of $359,000 and $1,296,000, respectively.
-8-
<PAGE>
NOTE 4 - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt and capital lease obligations consisted of the following (in
thousands):
<TABLE>
<CAPTION>
December 31, 1993 June 30, 1993
----------------- -------------
<S> <C> <C>
Senior Subordinated Notes due November 15, 2003,
interest at 10 5/8% per annum payable semi-
annually beginning May 15, 1994, redeemable at the
Company's option at a redemption price of
105.3125% of principal on or after November 15,
1998, declining to 102.6563% on November 15,
1999 and 100% on November 15, 2000. $ 80,000 $ --
Amended and Restated Bank Credit Agreement
dated as of January 1, 1989, as amended, ("Bank
Credit Agreement"). -- 64,244
Senior Subordinated Debentures due 1999, interest
at 7%. -- 6,238
Senior Subordinated Notes due 1999, interest at 7%. -- 1,098
Senior Subordinated Notes due 1993 through 1995,
interest at 8% or 9%. -- 959
Capital lease obligations and other indebtedness,
interest at varying rates from 4% to 16% per
annum through 2018. 8,198 7,948
------- -------
Less current portion 88,198 80,487
Long-term debt and capital lease obligations (585) (5,306)
------- -------
$ 87,613 $ 75,181
------- -------
------- -------
</TABLE>
On November 15, 1993, the Company completed a public offering of $80,000,000
principal amount of 10 5/8% Senior Subordinated Notes due 2003 (the "Notes").
The Notes are senior subordinated obligations of the Company, and, as such, are
subordinated to all existing and future senior indebtedness of the Company. The
net proceeds from the offering were approximately $77,600,000, of which
approximately $62,100,000 was used to repay in full the indebtedness outstanding
under the Bank Credit Agreement and approximately $10,700,000 was used to redeem
all of the Company's outstanding subordinated indebtedness. The remaining
proceeds of approximately $4,800,000 will be used for general corporate
purposes.
The indenture contains certain covenants which limit or restrict, among other
items, (i) additional indebtedness, including subordinated debt; (ii) liens;
(iii) issuance of preferred stock by the Company's subsidiaries; (iv)
transactions with affiliates; (v) restricted payments; (vi) investments and
loans; (vii) application of the proceeds of certain asset sales; and (viii)
mergers, consolidations and the transfer of substantially all of the assets of
the Company to another person, all as defined in the indenture. The
-9-
<PAGE>
indenture also contains a provision that in the event of a change of control, as
defined, the Company shall make an offer to repurchase the notes at a purchase
price equal to 101% of the principal amount thereof, plus accrued interest
through the repurchase date.
During fiscal years 1990 through 1993, the Company, through a series of
transactions, underwent a restructuring of certain of its outstanding
indebtedness. The restructuring included modifications to its then outstanding
bank debt and the issuance of several series of senior subordinated notes and
debentures and payments of cash in exchange for certain of its 14 1/2% Senior
Subordinated Debentures (the "14 1/2% Debentures"). Pursuant to the provisions
of Financial Accounting Standard No. 15 "Accounting by Debtors and Creditors for
Troubled Debt Restructurings", the Company did not recognize any gain from the
modification of its bank debt or from certain transactions in the 14 1/2%
Debentures. The unrecognized gain from such transactions was deferred and
classified in the accompanying condensed consolidated balance sheets as
"Deferred debt restructuring credits" at June 30, 1993. Such credits were
amortized as a reduction of interest expense during the period that the
restructured debt remained outstanding. During the quarter and six months ended
December 31, 1993, interest expense was reduced by $690,000 and $2,071,000
respectively, as a result of amortization of the deferred credits. During the
quarter ended December 31, 1993, the Company recognized an extraordinary gain of
$19,784,000 (net of income tax effect of $2,170,000) primarily from the write-
off of the remaining balance of the deferred credits.
During the quarter ended December 31, 1993, the Company entered into a credit
agreement with a financial institution (the "New Credit Agreement") pursuant to
which the Company may borrow up to $25,000,000. The New Credit Agreement
consists of (i) a working capital facility in the principal amount of up to
$15,000,000 and (ii) an acquisition facility in the principal amount of up to
$10,000,000 (collectively, the "Facilities"). Borrowings under the working
capital facility are secured by an assignment by the Company to the lender of
its patient accounts receivable. The Company may not borrow pursuant to the
acquisition facility until it is activated by mutual agreement of the Company
and the lender, which must be no later than December 31, 1994; the acquisition
facility had not been activated as of December 31, 1993. Borrowing capacity
under the working capital facility is based on a percentage of the Company's
eligible patient accounts receivable, as defined. Certain conditions exist
prior to the Company borrowing under the Facilities, some of which have not yet
been satisfied; accordingly, there was no borrowing availability at December 31,
1993.
Interest on the Facilities is payable monthly at a variable rate selected by the
Company, which will be either a published rate for thirty day dealer-placed
commercial paper, plus 3% or reserve-adjusted one, two or three month LIBOR,
plus 3%. The working capital facility terminates on December 31, 1998, at which
time the entire unpaid balance under the facility is due. Principal on the
acquisition facility is due in twelve monthly installments commencing on
December 31, 1997. The Facilities bear an unused line fee of 1/2 of 1% of the
average daily unused availability under the Facilities. No unused line fee is
charged for the acquisition facility until such line is activated.
Under the terms of the New Credit Agreement, the Company is required to meet
certain financial covenants, including, among others, a fixed charge coverage
ratio, a minimum interest coverage ratio, a minimum net worth level, an accounts
receivable turnover ratio and a minimum EBITDA level, as defined. In addition,
the Credit Agreement contains limitations and/or restrictions on acquisitions,
investments, capital expenditures, dividends on the Company's equity securities
and incurrence of additional indebtedness.
At December 31, 1993, the Company had two outstanding letters of credit
totalling $2,212,000 which were issued by a commercial bank and are used to
satisfy certain security requirements of the Company's workers' compensation
insurance carrier.
-10-
<PAGE>
NOTE 5 - INCOME TAXES
At December 31, 1993, the Company had tax NOL carryforwards of approximately
$28,000,000, which expire in fiscal years 2002 through 2006. Such NOL
carryforwards may be available to offset future taxable income of the Company,
if any.
During the first fiscal quarter of 1994, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".
SFAS No. 109 requires a change in accounting for income taxes to an asset and
liability approach under which deferred tax assets and liabilities are
determined based on the difference between the financial accounting and tax
accounting basis of assets and liabilities. Deferred tax assets or liabilities
at the end of each period are determined using the currently enacted tax rate
expected to apply to taxable income in the periods in which the deferred tax
asset or liability is expected to be realized. The Company recorded a credit of
$805,000 to reflect the cumulative effect of adopting such standard in the
quarter ended September 30, 1993.
During 1991, the Company issued 390,298 shares of Class B common stock in
exchange for $18,620,000 of bank debt. The Company, based on consultation with
outside tax and valuation advisors, believes that the exchange qualified under
the stock-for-debt exception to the recognition of income from discharge of
indebtedness which is available to an insolvent corporation. In the event the
Internal Revenue Service challenges the Company's position successfully, the
Company's current NOL carryforwards could be reduced by as much as $16,000,000.
The Internal Revenue Code contains provisions which limit the use of NOL
carryforwards following significant changes in ownership of a corporation's
stock. A significant change in ownership generally occurs when persons holding
5% or more of the corporation's stock ("5% shareholders") increase their
percentage ownership of such stock, in the aggregate, by more than 50% during
any three year period. The Company believes that no significant change in
ownership has occurred that would limit the Company's use of the NOL
carryforwards described above. However, use of such NOL carryforwards could be
limited in the future as a result of, among other things, future purchases of
the Company's stock by 5% shareholders or the issuance of additional stock
(including the issuance of options under the Company's employee benefit plans).
NOTE 6 - 25% REDEEMABLE PREFERRED STOCK
The Company is authorized to issue 2,500,000 shares of preferred stock (issuable
in series) of which it had outstanding at December 31, 1993 and June 30, 1993,
respectively, 33,407 and 39,569 shares of $5 par value 25% Participating
Convertible Cumulative Redeemable Preferred Stock (the "25% Preferred"). The
25% Preferred has a preference over common stockholders upon liquidation or
dissolution of the Company of $125 per share, minus certain dividends if
previously paid. Each 25% Preferred share is convertible, at any time, into
five shares of Class A common stock, subject to adjustment under certain
conditions, and is entitled to annual dividends equal to 25% of defined net
income, if any, subject to a maximum annual payment of 10% of liquidation
preference, when and if declared by the Board of Directors of the Company out of
funds legally available for such dividends. Such dividends are cumulative and
subject to certain maximums, limits and other conditions. No such dividends
have been declared by the Company's Board of Directors. To date, such
undeclared dividends have been cumulative in an amount equal to 17% of the 25%
Preferred's liquidation value (approximately $710,000 at December 31, 1993).
Dividends are cumulative annually to the extent of 5% of the aggregate
liquidation preference on the last day of the calendar year until all of the 25%
preferred has been redeemed. The holders of the 25% Preferred have voting
rights on all matters other than the election of Directors. The 25% Preferred
is redeemable at any time prior to the required redemption at the Company's
option. Based on the current number of shares outstanding, the terms of the 25%
Preferred provide for redemption (but only out of funds legally available
-11-
<PAGE>
for that purpose and then only to the extent permitted by its loan agreements,
indentures and Certificate of Incorporation) at a price of $125 per share, minus
certain dividends if previously paid, on February 12, 1995 of approximately
$557,000, on February 12, 1999 of approximately $2,227,000, and on February 12,
2000 of approximately $1,392,000 (for the remaining shares). No reserve has
been provided for dividends on the 25% Preferred.
The 25% Preferred was recorded at issuance at $9.35 per share and is being
accreted to a redemption price of $125 per share through the respective
redemption dates utilizing the interest method. The accretion is charged to
retained earnings, if available, or additional paid-in capital.
During the six months ended December 31, 1993, 6,162 shares of 25% Preferred
were converted into 30,810 shares of Class A common stock.
NOTE 7 - STOCKHOLDERS' EQUITY
During the quarter ended September 30, 1993, the Board of Directors amended the
Company's Long Term Cash Incentive Plan, providing for cash payments of
approximately $600,000 and the issuance of approximately 181,000 shares of the
Company's Class A common stock in August 1994. Pursuant to such amendment, an
accrual of approximately $1,187,000 for shares to be issued under the amended
plan has been recorded as additional paid-in capital in the accompanying
Condensed Consolidated Balance Sheets as of December 31, 1993.
In May 1991, the Class B common stock was issued to the holders of the Company's
bank debt in exchange for $18,620,000 principal amount of outstanding bank debt.
The Class B stock is non-voting and is convertible into Class A common stock
upon its sale or disposition. During the six months ended December 31, 1993,
326,191 shares of Class B common stock were converted into a like number of
Class A common shares.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is subject to claims and legal actions by patients and others in the
ordinary course of business. The Company believes that such claims will not
have a material adverse effect on the Company's financial position or results of
operations. The Company is self-insured against a portion of its general and
professional liability risks. The liability recorded for losses incurred and
claims made is based upon individual case estimates for losses reported and upon
estimates on the basis of past experience for incurred but not reported losses.
The Company has established and funded a trust fund to pay certain of its
general and professional liability losses. The balance of such trust fund was
$9,942,000 and $10,573,000 at December 31, 1993 and June 30, 1993, respectively.
Of such amounts, $1,272,000 and $1,300,000 at December 31, 1993 and June 30,
1993, respectively, is classified in the accompanying condensed consolidated
balance sheets under the caption "Other current Assets" and represents the
amount of claims and loss adjustment expenses expected to be paid within the
following twelve months. The remaining balance in such trust fund is classified
under the caption "Other Assets". Such self insurance trust has been pledged as
collateral for two letters of credit issued by a commercial bank totalling
$2,212,000.
-12-
<PAGE>
OTHER CONTINGENCIES
The Company has employment agreements with its two executive officers which
provide for certain payments and benefits in the event of a "change in control"
of the Company, as defined. Change in control is generally defined as the
acquisition of that number of shares of the outstanding stock which would allow
such acquiring entity or a concerted group of entities to elect a majority of
the Board of Directors of the Company. The employment agreements for the two
executive officers were initially approved by the Board of Directors in 1989.
Pursuant to their terms, the agreements currently are for terms which expire on
June 30, 1994. Absent notice within designated periods, such agreements
automatically renew for additional one year terms. The maximum contingent
liability under the employment agreements is approximately $3,100,000.
NOTE 9 - EARNINGS PER SHARE
The following table summarizes the number of common and common equivalent shares
used in computing net income per share at December 31, 1993 and 1992.
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31, December 31,
------------ ------------
1993 1992 1993 1992
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average Class A common stock
outstanding 2,957,334 2,554,894 2,952,450 2,542,880
Class B common stock (convertible to
Class A common stock) outstanding 64,102 390,298 64,102 390,298
Common stock equivalents:
Effect of the assumed conversion of 25%
Participating Convertible Cumulative
Redeemable Preferred Stock (5 shares of
common for 1 share of preferred) 167,035 207,045 167,035 207,045
Options and other 571,916 193,745 575,093 203,090
--------- --------- --------- ---------
Shares used in computing net income per
share 3,760,387 3,345,982 3,758,680 3,343,313
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
NOTE 10 - SUPPLEMENTAL INFORMATION TO CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
The Company paid approximately $1,152,000 and $3,126,000 in interest on various
obligations in the quarter and six months ended December 31, 1993, respectively,
and paid approximately $2,431,000 and $4,639,000 for the comparable periods a
year earlier.
The Company paid approximately $270,000 and $396,000 in state and federal income
taxes in the quarter and six months ended December 31, 1993, respectively, and
paid approximately $126,000 and $140,000 for the comparable periods a year
earlier.
-13-
<PAGE>
ATTACHMENT TO SCHEDULE 4.4
ANNUAL BUDGETS
The Annual Budgets are located at the office of General Electric Capital
Corporation.
<PAGE>
SCHEDULE 4.5
to
CREDIT AGREEMENT
Dated as of December 31, 1993
STOCK PURCHASE AGREEMENTS
None.
<PAGE>
SCHEDULE 4.6
REAL ESTATE AND LEASES
<TABLE>
<CAPTION>
OWNED
ENTITY OR LEASED ADDRESS COUNTY STATE
- - ------ --------- ------- ------ -----
<S> <C> <C> <C> <C>
HALLMARK HEALTHCARE
CORPORATION
Corporate Office Leased 300 Galleria Pkwy. Cobb Georgia
Suite 650
Atlanta, GA 30309
Storage Leased 1600 Wilson Way Cobb Georgia
Suite 500
Smyrna, GA
NATIONAL HEALTHCARE OF
CULLMAN, INC.
Woodland Community Hosp. 1910 Cherokee Ave., SW Cullman Alabama
Hospital Owned
Medical Office Bldg. Owned
Storage Bldg. Owned
Office Space Leased Highway 31 - South Cullman Alabama
Hantsville, AL
Office Space Leased Highway 69
Cullman, AL
NATIONAL HEALTHCARE OF
DECATUR, INC.
Parkway Medical Center 1852-1874 Beltline Rd,SW Morgan Alabama
Decatur, AL
Hospital Owned
Medical Office Bldgs (2) Owned/Leased
Trailer Owned
Storage Bldgs (2) Owned
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OWNED
ENTITY OR LEASED ADDRESS COUNTY STATE
- - ------ --------- ------- ------ -----
<S> <C> <C> <C> <C>
THE L.V. STABLER MEMORIAL
HOSPITAL OF GREENVILLE, INC.
L.V. Stabler Hospital Highway 10 West Butler Alabama
Greenville, AL
Hospital Owned
Medical Office Bldg. Owned
Storage Owned
HARTSELLE MEDICAL CENTER 203-307 W. Pine St. Morgan Alabama
Hartselle, AL
Hospital Owned
Doctors Clinic Owned
Medical Arts Clinic Owned
Maint./Purch Bldg Owned
Church Bldg. Owned
Physician Office Owned
Eva Clinic Owned P.O. Box 9 Morgan Alabama
Eva, AL
NATIONAL HEALTHCARE OF Jackson Arkansas
NEWPORT, INC.
Harris Hospital Owned 1205 McLain Jackson Arkansas
Newport, Arkansas
Hospital Owned
Medical Office Bldg. Owned
& Pharm.
Medical Office Bldg. Owned
Storage Owned 1010 McLain Jackson Arkansas
Newport, Arkansas
Storage Bldg. Leased Pecan Street Jackson Arkansas
Newport, Arkansas
Doctor Office Spaces (A) Leased 1301 McLain Jackson Arkansas
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OWNED
ENTITY OR LEASED ADDRESS COUNTY STATE
- - ------ --------- ------- ------ -----
<S> <C> <C> <C> <C>
NATIONAL HEALTHCARE OF
POCAHONTAS, INC.
Randolph County Medical Center 2801 Medical Center Dr. Randolph Arkansas
Pocahontas, AR
Hospital Leased
Maintenance Bldg. (2) Leased
NATIONAL HEALTHCARE OF
HOLMES COUNTY, INC.
Doctor's Memorial Hospital 401 East Byrd Ave. Holmes Florida
Bonifay, FL
Hospital Leased
Maintenance Bldg. Leased
HEALTH CARE OF BERRIEN
COUNTY, INC.
Berrien County Hospital 1221 East McPherson Berrien Georgia
Nashville, GA
Hospital Owned
Maintenance Bldg. Owned
Office Space Leased 106 Dogwood Berrien Georgia
Nashville, GA
Specialty Clinic Leased 427 East Dennis Berrien Georgia
Nashville, GA
BERRIEN NURSING CENTER, INC.
Berrien Nursing Center 1221 East McPherson Berrien Georgia
Nashville, GA
Nursing Home (B) Leased
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OWNED
ENTITY OR LEASED ADDRESS COUNTY STATE
- - ------ --------- ------- ------ -----
<S> <C> <C> <C> <C>
NATIONAL HEALTHCARE OF
MT. VERNON, INC.
Crossroads Community Hospital 8 Doctors Park Rd. Jefferson Illinois
Mt. Vernon, IL
Hospital Owned
Maintenance Bldg. Owned
Storage Bldg. Leased Mt. Vernon, IL Jefferson Illinois
Southern Illinois Clinic Bldg. Leased Doctors Park Rd Jefferson Illinois
Mt. Vernon, IL
Physician Office Leased South 42nd St. Jefferson Illinois
Mt. Vernon, IL
NATIONAL HEALTHCARE OF
LEESVILLE, INC.
Byrd Memorial Hospital 1020-1022 Fertitta Blvd. Vernon Louisiana
Leesville, LA
Hospital Owned
Bus. Office & Data Proc. Owned
Medical Arts Plaza Owned
Maintenance Bldg. Owned
Storage Bldg. Leased 6th Street Vernon Louisiana
Leesville, LA
NATIONAL HEALTHCARE OF
SABINE, INC.
Sabine Medical Center 240 Highland St. Sabine Louisiana
Many, LA
Hospital Owned
Maintenance Bldg. Owned
Home Health Office Owned
Old Fraser Hospital Owned South Capital St. Sabine Louisiana
Many, LA
Private Residence Owned Dogwood Acres Sabine Louisiana
Many, LA
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OWNED
ENTITY OR LEASED ADDRESS COUNTY STATE
- - ------ --------- ------- ------ -----
<S> <C> <C> <C> <C>
NEURO TREATMENT, INC.
RiverNorth Hospital 5505 Shreveport Hwy. Rapides Louisiana
Pineville, LA
Hospital Owned
Laundry Owned
Maintenance Bldg. Owned
Central Supply Storage Owned
Business Office Leased 5438 Shreveport Hwy. Rapides Louisiana
Pineville, LA
Outreach Clinic Leased 210 N. Monroe St. Avoyelles Louisiana
Marksville, LA
NATIONAL HEALTHCARE OF
CLEVELAND, INC.
Cleveland Comm. Hosp. 2800-25 Westside Dr. Bradley Tennessee
Cleveland, TN
Hospital Owned
Medical Office Bldg. (2) Owned
SCENIC MNT. MED. CENTER, INC. 1601 West Eleventh Pl. Howard Texas
Big Spring, TX
Hospital Owned
Medical Office Bldg. Owned
Trailer Leased
Storage Leased 610-C Warehouse Rd. Howard Texas
Big Spring, TX
Home Health Office Leased 501 E. Birdwell Ln. Howard Texas
Big Spring, TX
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OWNED
ENTITY OR LEASED ADDRESS COUNTY STATE
- - ------ --------- ------- ------ -----
<S> <C> <C> <C> <C>
NHCI OF HILLSBORO, INC.
Hill Regional Hospital 101 Circle Dr. Hill Texas
Hillsboro, TX
Hospital and Clinic Owned
Storage Leased 609-613 Corsicana Hwy. Hill Texas
Hillsboro, TX
Clinic Leased 106 W. Adams Street Hill Texas
Itasca, TX 76055
Storage Leased Abbot Street Hill Texas
Hillsboro, TX
Land Owned Circle Dr. Hill Texas
Hillsboro, TX
Land Owned Franklin & Elm Hill Texas
Hillsboro, TX
Land Owned Old Brandon Rd & June Ln. Hill Texas
Hillsboro, TX
HOSPITAL CORPORATION OF
WHITE COUNTY
White Co. Comm. Hospital 401 Sewell Rd. White Tennessee
Sparta, TN
Hospital Owned
Medical Office Bldg. Owned
Storage Bldg. Owned
Medical Office Bldg. II Owned
NATIONAL HEALTHCARE OF
ENGLAND ARKANSAS, INC.
England Nursing Home Owned England, AR Lonoke Arkansas
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
OWNED
ENTITY OR LEASED ADDRESS COUNTY STATE
- - ------ --------- ------- ------ -----
<S> <C> <C> <C> <C>
GEORGIA HOME HEALTH SERVICES
Office Space Leased 2310 North Patterson Bldg. Lowndes Georgia
Suite 6
Valdosta, GA
Office Space Leased 335 W. Thigpen Lanier Georgia
Lakeland, GA
HEALTH CARE OF VIENNA, GA, INC.
Healthcare Assoc. Bldg. Owned Pitts Road Dooly Georgia
Vienna, GA
HEALTH CARE OF FORSYTH, GA, INC.
Medical Office Bldg. Owned Hwy. 20 East Gwinnett Georgia
Sugar Hill, GA
Land Owned Parcel #C07-053 Forysth Georgia
MISCELLANEOUS
Land/Dwelling Owned Highway 73 Lexington S. Carolina
West Columbia, SC
Land Owned Tract #2, Chancery Court Wayne Tennessee
Waynesboro, TN
<FN>
- - -------------------------------------------------------------------------------
(A) Pursuant to that lease agreement dated September 15, 1993, by and between
O.E. Guinn, Anna Jean Guinn and K.E., Inc. and National Healthcare of
Newport, Inc., d/b/a Harris Hospital ("Harris"), Harris has the option to
purchase the leased property for a price of $75,000 at any time before the
expiration of the lease on September 14, 1995.
(B) Pursuant to an Option to Purchase Real Estate Agreement, as amended (the
"Agreement"), between Berrien Nursing Center, Inc. ("Berrien") and Richard
B. Griffin, Berrien has exclusive right and option to purchase leased
property in Berrien County, Georgia, more particularly described in the
Agreement, at a purchase price to be determined as provided in the
Agreement. Berrien's right to purchase the leased property expires in
September, 2018.
</TABLE>
<PAGE>
SCHEDULE 4.9
TO
CREDIT AGREEMENT
DATED AS OF DECEMBER 31, 1993
<TABLE>
<CAPTION>
II. ISSUED AND OUTSTANDING STOCK OF BORROWER AND ITS SUBSIDIARIES
SHARES PAR VALUE
SUBSIDIARY OUTSTANDING PER SHARE
- - ------------------------------------------------------ ----------- ---------
<S> <C> <C>
NATIONAL HEALTHCARE OF CULLMAN, INC. 1,000 $1.00
NATIONAL HEALTHCARE OF DECATUR, INC. 1,000 $1.00
THE L.V. STABLER MEMORIAL HOSPITAL OF GREENVILLE, INC. 1,000 $1.00
NATIONAL HEALTHCARE OF HARTSELLE, INC. 1,000 $1.00
NATIONAL HEALTHCARE OF NEWPORT, INC. 1,000 $1.00
NATIONAL HEALTHCARE OF POCAHONTAS, INC. 2,500 $1.00
NATIONAL HEALTHCARE OF HOLMES COUNTY, INC. 100 $1.00
HEALTH CARE OF FORSYTH COUNTY, INC. 875 $1.00
HEALTH CARE OF BERRIEN COUNTY, INC. 1 $1,000.00
BERRIEN NURSING CENTER, INC. 15,000 NO PAR
NATIONAL HEALTHCARE OF MT. VERNON, INC. 100 $1.00
NATIONAL HEALTHCARE OF LEESVILEE, INC. 1,000 $1.00
NATIONAL HEALTHCARE OF SABINE, INC. 1,000 $1.00
NATIONAL HEALTHCARE OF CLEVELAND, INC. 1,000 $1.00
SCENIC MOUNTAIN MEDICAL CENTER, INC. 1,000 $1.00
NHCI OF HILLSBORO, INC. 1,000 $1.00
NATIONAL HEALTHCARE OF MCMINNVILLE, INC. 1,000 $1.00
HOSPITAL CORPORATION OF WHITE COUNTY 1,000 $1.00
HALLMARK HEALTHCARE MANAGEMENT CORPORATION 10 $100.00
NATIONAL HEALTHCARE OF CLANTON, INC. 1,000 $1.00
NATIONAL HEALTHCARE OF WASHINGTON COUNTY, INC. 1,000 $1.00
PHYSICIANS HOSPITAL OF DADEVILLE, INCORPORATED 150 NO PAR
NATIONAL HEALTHCARE OF ENGLAND, ARKANSAS, INC. 300 $1.00
GEORGIA HOME SERVICES INC. 300 $1.00
NORTHGATE HOSPITAL, INC. 300 $1.00
NATIONAL HEALTHCARE OF EUFAULA, INC. 1,000 $1.00
NATIONAL HEALTHCARE OF DALLAS COUNTY, INC. 300 $1.00
HEALTH CARE OF VIENNA, GEORGIA, INC. 500 $1.00
KSA MANAGEMENT COMPANY 1,000 $1.00
NATIONAL HEALTHCARE OF LAMAR COUNTY, INC. 1,000 $1.00
NATIONAL HEALTHCARE OF BARNWELL, INC 1,000 $1.00
RHC-TENNESSEE PROPERTIES, INC. 10 $100.00
WAYNE COUNTY HOME HEALTHCARE, INC. 100 NO PAR
NATIONAL HEALTHCARE CENTER OF WAYNESBORO, INC. 100 $10.00
NATIONAL HEALTHCARE OF ELBA, ALABAMA, INC. 10 $100.00
POPLAR BLUFF MANAGEMENT, INC. 1,000 $1.00
NATIONAL HEALTHCARE VENTURE I, INC. 1,000 $1.00
NHI HOLDINGS, INC. 1,000 $1.00
HOME INFUSION THERAPY, INC. 10 $100.00
CONTINUAL CARE, INC. 1,000 $0.01
ALTERNATIVE HEALTH SERVICES, INC. 1,000 $1.00
N.H. OF WEST SEATTLE, INC. 1,000 $1.00
HEALTHCARE PLUS, INC. 1,000 NO PAR
HOMEBOUND HEALTH CARE AGENCY, INC. 5,600 $10.00
NEURO TREATMENT, INC. 2,000 $1.00
NATIONAL HEALTH/CARE PLAN, INC. 1,000 NO PAR
</TABLE>
<PAGE>
SCHEDULE 4.9
TO
CREDIT AGREEMENT
DATED AS OF DECEMBER 31, 1993
III. OUTSTANDING INDEBTEDNESS OF BORROWER AND ITS SUBSIDIARIES:
HALLMARK HEALTHCARE CORPORATION
- 10-5/8% Senior Subordinated Notes, principal amount: $80,000,000.00, dated
11/15/93 and due 11/15/2003.
- Financing agreement between Hallmark Healthcare Corporation and A.I. Credit
Corp. (AICCO) for Directors and Officers Insurance policy dated 11/18/93.
Ten payments, $48,513.80 each, to be paid monthly beginning 12/15/93 and
ending 9/15/94. Principal amount: $475,000.00, annual percentage rate:
4.63%.
- 35,998 shares of 25% Participating Cumulative Convertible Redeemable
Preferred Stock.
- Hallmark Healthcare Corporation is the guarantor of a consumer loan dated
December 16, 1991, between Bank South and Jack Morgenstern for the
principal amount of $60,000.00.
- Letter of Credit Agreement, dated December 22, 1993, by and between
Hallmark Healthcare Corporation and AmSouth Bank N.A. in the principal
amount of $1,162,000. Agreement expires on May 15, 1994 unless renewed by
AmSouth Bank N.A.
- Letter of Credit Agreement, dated December 31, 1993, by and between
Hallmark Healthcare Corporation and AmSouth Bank N.A. in the principal
amount of $1,050,000. Agreement expires on May 15, 1994 unless renewed by
AmSouth Bank N.A.
NATIONAL HEALTHCARE OF DECATUR, INC.
Lease agreement by and between National Healthcare of Decatur, Inc. d/b/a
Parkway Medical Center Hospital and SpaceLabs Medical, Inc. beginning 5/13/93 to
lease certain patient monitoring equipment for a period of 24 months (2 years).
The lease provides for minimum payments of $5,551.00 per month which includes
principal and interest.
NATIONAL HEALTHCARE OF POCAHONTAS, INC.
National Healthcare of Pocahontas, Inc. leases its hospital facility from
Randolph County, Arkansas pursuant to a lease agreement dated 9/1/79 and
expiring 10/1/2012. The lease agreement is between Randolph County Medical
Center, Inc. and Randolph County, Arkansas, and was assumed by National
Healthcare of Pocahontas, Inc. as part of the stock purchase of Randolph County
Medical Center, Inc. as of 12/31/85. The hospital lease provides for minimum
payments of $50,000.00 per month which includes principal and interest
(effective interest rate of 14%). The lease agreement runs concurrently with
the maturity of $3,895,000 principal amount of Randolph County Arkansas First
Mortgage Hospital Revenue Refunding and Improvement Bonds, Series 1979. At
November 30, 1993, the Company had $4,180,747 of restricted funds held by a
trustee as collateral for the Company's obligation under such capital lease.
<PAGE>
SCHEDULE 4.9
TO
CREDIT AGREEMENT
DATED AS OF DECEMBER 31, 1993
III. OUTSTANDING INDEBTEDNESS OF BORROWER AND ITS SUBSIDIARIES (CONTINUED);
NATIONAL HEALTHCARE OF HOLMES COUNTY, INC.
National Healthcare of Holmes County, Inc. leases its hospital facility from
Holmes County Hospital Corporation pursuant to a lease agreement dated 11/1/84
for a period of 25 years. The lease provides for minimum payments of $21,666.67
per month which includes principal and interest (effective interest rate of
14.6%).
BERRIEN NURSING CENTER, INC.
- Lease agreement by and between Berrien Nursing Center, Inc. and Richard B.
Griffin Investments dated 4/1/88 to lease the hospital beginning 8/1/88 for
a period of 30 years. The lease provides for minimum payments of
$22,500.00 per month which includes principal and interest (effective
interest rate of 15.88%).
- Lease agreement by and between Berrien Nursing Center, Inc. and Bell South
beginning 10/1/88 to lease certain telephone equipment for a period of 7
years. The lease provides for minimum payments of $887.75 per month which
includes principal and interest (effective interest rate of 10.02%).
SCENIC MOUNTAIN MEDICAL CENTER, INC.
Lease agreement by and between Scenic Mountain Medical Center, Inc. and
Industrial Leasing Corporation beginning June 1, 1989 to lease certain medical
equipment for a period of 60 months (5 years). The lease provides for minimum
payments of $597.43 per month which includes principal and interest.
<PAGE>
SCHEDULE 4.12
to
CREDIT AGREEMENT
Dated as of December 31, 1993
TAX MATTERS
None.
<PAGE>
SCHEDULE 4.13
1. Section 401(k) plan.
2. Hallmark Healthcare Corporation Group Welfare Benefits Plan.
(Administrator - First Benefit Corporation).
<PAGE>
SCHEDULE 4.14
to
CREDIT AGREEMENT
Dated as of December 31, 1993
LITIGATION
None.
<PAGE>
SCHEDULE 4.15
to
CREDIT AGREEMENT
Dated as of December 31, 1993
BROKERS
None.
<PAGE>
SCHEDULE 4.16
to
CREDIT AGREEMENT
Dated as of December 31, 1993
EMPLOYMENT MATTERS
None.
<PAGE>
SCHEDULE 4.17
TO
CREDIT AGREEMENT
PATENTS, TRADEMARKS, COPYRIGHTS, LICENSES AND ACCREDITATIONS
I. None
II. Trade Names
A. Hallmark Healthcare Corporation
(Formerly National Healthcare, Inc.)
B. Hallmark Healthcare Management Corporation
(Formerly National Healthcare Management, Inc.)
C. National Healthcare of England Arkansas, Inc.
D. Northgate Hospital, Inc.
d/b/a Northgate Hospital
E. Georgia Home Services, Inc.
d/b/a Georgia Home Health Services
F. Health Care of Vienna, Georgia, Inc.
G. RHC - Tennessee Properties, Inc.
H. National Healthcare Center of Waynesboro, Inc.
I. National Healthcare of Elba, Alabama, Inc.
d/b/a Elba General Hospital
d/b/a Elba Nursing Home
J. National Healthcare of Dallas County, Inc.
K. National Healthcare of Eufaula, Inc.
<PAGE>
L. Physicians Hospital of Dadeville, Incorporated
M. National Healthcare of Mt. Vernon, Inc.
d/b/a Crossroads Community Hospital
N. National Healthcare of Newport, Inc.
d/b/a Harris Hospital
d/b/a National Healthcare of Jackson County, Inc.
d/b/a Nightengale Home Health Agency
d/b/a Harris Home Health
d/b/a Harris Senior Care
O. National Healthcare of Clanton, Inc.
P. Wayne County Home Healthcare, Inc.
Q. National Health/Care Plan, Inc.
R. Healthcare Plus, Inc.
S. Neuro Treatment, Inc.
d/b/a RiverNorth Hospital
d/b/a CANDI
T. KSA Management Company
U. National Healthcare of Sabine, Inc.
d/b/a Sabine Medical Center
d/b/a Sabine Medical Center Rural Health Clinic
d/b/a Healthlink
V. National Healthcare of Holmes County, Inc.
d/b/a Doctors Memorial Hospital
W. Health Care of Berrien County, Inc.
d/b/a Berrien County Hospital
X. National Healthcare of Pocahontas, Inc.
d/b/a Randolph County Medical Center
d/b/a Randolph County Medical Center Home Health Agency
d/b/a Randolph County Medical Center Senior Care
Y. N. H. of West Seattle, Inc.
Z. National Healthcare of Lamar County, Inc.
<PAGE>
AA. National Healthcare of Barnwell, Inc.
AB. National Healthcare of Decatur, Inc.
d/b/a Parkway Medical Center Hospital
AC. National Healthcare of Hartselle, Inc.
d/b/a Hartselle Medical Center
AD. National Healthcare of Cullman, Inc.
d/b/a Woodland Community Hospital
d/b/a Woodland Hills Treatment Center
AE. Homebound Health Care Agency, Inc.
AF. Alternative Health Services, Inc.
d/b/a Alternative Behavioral Health Center
d/b/a Anxiety Disorders Institute
AG. National healthcare of Cleveland, Inc.
d/b/a Cleveland Community Hospital
d/b/a Pineridge Treatment Center
AH. Poplar Bluff Management, Inc.
AI. NHI Holdings, Inc.
AJ. NHCI of Hillsboro, Inc.
d/b/a Hill Regional Hospital
d/b/a Hill Regional Medical Clinic of Itasca
d/b/a Hill Regional Senior Care
AK. Scenic Mountain Medical Center, Inc.
d/b/a Scenic Mountain Medical Center
d/b/a Reflections
AL. The L.V. Stabler Memorial Hospital of Greenville, Inc.
d/b/a L.V. Stabler Memorial Hospital
AM. Hospital Corporation of White County
d/b/a White County Community Hospital
d/b/a Urgent Care Clinic
AN. National Healthcare of Washington County, Inc.
AQ. Berrien Nursing Center, Inc.
d/b/a Berrien Nursing Center
AP. National Healthcare of Leesville, Inc.
d/b/a Byrd Regional Hospital
d/b/a Byrd Regional Hospital Senior Care Unit
AQ. National Healthcare Venture I, Inc.
<PAGE>
AR. Continual Care, Inc.
AS. Pain Care, Inc.
AT. Pain Care of Tennessee, Inc.
AU. Pain Care of Arkansas, Inc.
AV. Pain Care of Georgia, Inc.
AW. Pain Care of Kentucky, Inc.
AX. Home Infusion Therapy, Inc.
AY. National Healthcare of McMinnville, Inc.
AZ. Health Care of Forsyth County, Inc.
\PJP\FACILIT.94
<PAGE>
SCHEDULE 4.19
to
CREDIT AGREEMENT
Dated as of December 31, 1993
HAZARDOUS MATERIALS
None.
<PAGE>
SCHEDULE 4.20
to
CREDIT AGREEMENT
Dated as of December 31, 1993
INSURANCE POLICIES
I. COVERAGE REQUIREMENTS. The insurance policies maintained by
Borrower and its Subsidiaries shall provide for, without limitation, the
following insurance coverage:
(a) "All Risk" physical damage insurance on all of Borrower's and
its Subsidiaries' tangible real and personal property and assets, wherever
located;
(b) comprehensive general and professional liability insurance on
a "claims made" basis against claims for personal injury, bodily injury and
property damage with a minimum limit of $15,000,000 per occurrence and
$25,000,000 in the aggregate. Such coverage includes, without limitation,
premises/operations, broad form contractual liability, underground explosion
and collapse hazard, independent contractors, broad form property coverage,
products and completed operations liability; such insurance may include
deductibles of not greater than $3,000,000 per occurrence and $6,000,000
annual aggregate with respect to professional liability claims and $3,000,000
per occurrence and $6,000,000 annual aggregate with respect to general
liability;
(c) statutory limits of worker's compensation insurance that
includes employee's occupational disease and employer's liability in the
amount of $1,000,000 for each accident or occurrence;
(d) automobile liability insurance for all owned, non-owned or
hired automobiles against claims for personal injury, bodily injury and
property damage with a minimum combined single limit of $1,000,000 per
occurrence;
(e) business interruption insurance in the amount of $25,000,000.
All of such policies are in full force and effect and in form and with
insurers recognized as adequate by Lender and provide coverage of such risks
and for such amounts as is customarily maintained for businesses of the scope
and size of Borrower's and as otherwise acceptable to Lender. Borrower has
delivered to Lender a certificate of insurance that evidences the existence
of each policy of insurance, payment of all premiums therefor and compliance
with all provisions of the Agreement.
II. SUMMARY OF TERMS OF INSURANCE, ETC.
<PAGE>
Schedule 4.20
PART II
HALLMARK HEALTHCARE CORPORATION
SUMMARY OF INSURANCE COVERAGE
COMPANY
POLICY NUMBER
COVERAGE POLICY PERIOD LIMIT
- - -------- ------------- -----
Professional and American International $25,000,000
General Liability Surplus Lines Insurance SIR: $2,000,000
Company per occurrence
BE7730487 $6,000,000
7-1-93/94 annual aggregate (hospital
professional) and $1,000,000
per occurrence $3,000,000
annual aggregate
(commercial gen. liability)
Property-all risk Hartford Steam Boiler $269,780,849 for real and
94-50192 personal property and
11-1-91/94 business interruption
94-50204(Texas) $50,000,000 Earthquake
$50,000,000 Flood
$5,000,000 Newly Acquired
Locations
$250,000 Transit
$180,000 Valuable Papers
$3,000,000 Errors and
Omissions
$1,000,000 Radioactive
Contamination
$5,000,000 Demolition
$22,985,326 Accounts
Receivable
$1,421,520 Rental Value
$1,000,000 Extra Expense
$1,000,000 Service
Interruption
$200,000 Expediting Expense
$25,000 Hazardous Substance
$25,000 Consequential Damage
Workers' Compensation Ins. Co. of the State Statutory $1,000,000
of Pennsylvania Bodily injury/accident
RMWC1449283 $1,000,000
5-1-93/94 Bodily injury/disease
National Union $1,000,000
RMEL1759300 Bodily injury/employee
5-1-93/94 $250,000 per claim
deductible
Automobile Insurance The Hartford $1,000,000 combined
20-UEN-LQ5477 single limit (Bodily
2-1-93/94 Injury and Property
20-UEN-LQ5478 (Texas) Damage)
<PAGE>
HALLMARK HEALTHCARE CORPORATION
SUMMARY OF INSURANCE COVERAGE
COMPANY
POLICY NUMBER
COVERAGE POLICY PERIOD LIMIT
- - -------- ------------- -----
Fidelity The Aetna $3,000,000
BZ100722929BCA
11-1-92/93
Directors & Officers National Union $10,000,000
Liability 004401526
11-15-92/93
Aetna $5,000,000 excess of
100668602 $10,000,000
11-15-92/93
<PAGE>
Schedule 4.21
<TABLE>
<CAPTION>
BANK SOUTH & BARNETT
BANK CONFIRMATION INFORMATION
- - ---------------------------------------------------------------------------------------------
BANK SOUTH BANK SOUTH
FACILITY CITY ACCOUNT NAME ACCT #
- - ---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
1 SCENIC MTN BIG SPRING, TX HALLMARK HEALTHCARE 9597042
2 DOCTOR'S MEMORIAL BONIFAY, FL HALLMARK HEALTHCARE 9596836
3 CLEVELAND COMM CLEVELAND, TN HALLMARK HEALTHCARE 9596801
4 WOODLAND COMM CULLMAN, AL HALLMARK HEALTHCARE 9598448
5 PARKWAY MEDICAL DECATUR, AL HALLMARK HEALTHCARE 9596992
6 L.V. STABLER GREENVILLE, AL HALLMARK HEALTHCARE 9596933
7 HARTSELLE MEDICAL HARTSELLE, AL HALLMARK HEALTHCARE 9596887
8 HILL REGIONAL HILLSBORO, TX HALLMARK HEALTHCARE 9596895
9 BYRD MEMORIAL LEESVILLE, LA HALLMARK HEALTHCARE 9596798
10 SABINE MEDICAL MANY, LA HALLMARK HEALTHCARE 9597034
11 CROSSROADS COMM MT. VERNON, IL HALLMARK HEALTHCARE 9596828
12 BERRIEN COUNTY NASHVILLE, GA HALLMARK HEALTHCARE 9596763
13 BERRIEN NURSING HOME NASHVILLE, GA HALLMARK HEALTHCARE 9596771
14 HARRIS HOSPITAL NEWPORT, AR HALLMARK HEALTHCARE 9596879
15 RIVERNORTH TREATMENT PINEVILLE, LA HALLMARK HEALTHCARE 9597026
16 RANDOLPH COUNTY POCAHONTAS, AR HALLMARK HEALTHCARE 9597018
17 WHITE COUNTY SPARTA, TN HALLMARK HEALTHCARE 9598421
18 GA HOME HEALTH NASHVILLE, GA HALLMARK HEALTHCARE 9596860
19 HHC-CASH CONC ATLANTA, GA HALLMARK HEALTHCARE 6709710
20 HHC-FEDERAL TAX ATLANTA, GA HALLMARK HEALTHCARE 6709672
21 HHC-STATE TAX ATLANTA, GA HALLMARK HEALTHCARE 90101448
22 HHC-MGMT P/R ATLANTA, GA HALLMARK HEALTHCARE 9599703
23 HHC-CORP A/P ATLANTA, GA HALLMARK HEALTHCARE 9596976
24 HHC-CORP P/R ATLANTA, GA HALLMARK HEALTHCARE 9599711
25 HHC-INSURANCE ATLANTA, GA HALLMARK HEALTHCARE 9598766
26 HAI MANAGEMENT CO INC ATLANTA, GA HALLMARK HEALTHCARE 9561536
27 NORTHGATE HOSPITAL PINEVILLE, LA HALLMARK HEALTHCARE 9561749
28 NORTHGATE - MANY PINEVILLE, LA HALLMARK HEALTHCARE IN PROCESS
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Bank Accounts
Facility Depository Account Payroll Account
Information Information
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
White County Hospital Bank Name: First Union Bank First Union Bank
City, State: Sparta, TN 38583 Sparta, TN 38583
Account #: 2094091643794 2094009461926
Account Name: Hospital Corp of White County Hospital Corp of White County
ABA #: 064000059 064000059
Cleveland Community Bank Name: First American National Bank American National Bank and Trust
City, State: Cleveland, TN Chattanooga, TN
Account #: 000005-741-4 548926-1
Account Name: Cleveland Community Hospital National Healthcare of Cleveland
ABA #: 064000017 061300419
Woodland Community Hospital Bank Name: South Trust South Trust
City, State: Cullman, AL Cullman, AL
Account #: 68-744-329 68-744-318
Account Name: Woodland Community Hospital Woodland Community Hospital
ABA #: 062201494 062201494
Sabine Medical Center Bank Name: Sabine State Bank & Trust Sabine State Bank & Trust
City, State: Many, LA Many, LA
Account #: 001-870-8 000-035-3
Account Name: Sabine Medical Center Sabine Medical Center
ABA #: 111102059 111102059
LV Stabler Bank Name: First National Bank of Greenville First National Bank of Greenville
City, State: Greenville, AL Greenville, AL
Account #: 34886 34878
Account Name: LV Stabler Memorial Hospital of Greenville LV Stabler Memorial Hospital of Greenville
ABA #: 062101219 062101219
Scenic Mountain Medical Bank Name: The First National Bank The First National Bank
City, State: Big Spring, TX Big Spring, TX
Account #: 0232942 0232959
Account Name: Scenic Mountain Medical Center Scenic Mountain Medical Center
ABA #: 111302354 111302354
Hartselle Medical Center Bank Name: Colonial Bank Colonial Bank
City, State: Hartselle, AL Hartselle, AL
Account #: 0101305201 0101369801
Account Name: Hartselle Medical Center Hartselle Medical Center
ABA #: 062201119 062201119
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
Facility Depository Account Payroll Account
Information Information
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Doctors Memorial Bank Name: South Trust Bank Bank of Bonifay
City, State: Bonifay, FL Bonifay, FL
Account #: 01-330-736 9-10023-7
Account Name: Doctors Memorial Hospital Doctors Memorial Hospital
ABA #: 063201066 063201435
Harris Hospital Bank Name: Merchants and Planters Bank Merchants and Planters Bank
City, State: Newport, Arkansas Newport, Arkansas
Account #: 42781 42773
Account Name: National Healthcare of Newport, Inc. National Healthcare of Newport, Inc.
ABA #: 082907561 082907561
Parkway Medical Center Bank Name: First American Bank First American Bank
City, State: Decatur, AL Decatur, AL
Account #: 1006802 1006791
Account Name: Depository Account Payroll Account
ABA #: 062203298 062203298
Randolph County Medical Bank Name: Bank of Pocahontas Planters & Stockmen
City, State: Pocahontas, AR Pocahontas, AR
Account #: 6023738 0575485102
Account Name: National Healthcare of Pocahontas Randolph County Medical Center
ABA #: 084102979 084107893
Northgate - Pineville Bank Name: Rapides Bank & Trust Company N/A
City, State: Tioga, LA
Account #: 21156
Account Name: Northgate Hospital
ABA #: 065200230
RiverNorth - Pineville Bank Name: Hibernia National Bank Hibernia National Bank
City, State: Tioga, LA Tioga, LA
Account #: 0269166 772033613
Account Name: Woodview Regional Hospital RiverNorth Treatment Center
ABA #: 065000090 065000090
Northgate - Many Bank Name: Sabine State Bank & Trust
City, State: Many, LA
Account #: 0025496
Account Name: Northgate - Many
ABA #: 111102059
HAI Management Bank Name: Bank South Bank South
City, State: Atlanta, GA Atlanta, GA
Account #: 90171748 90171721
Account Name: HAI Management Co HAI Management Co
ABA #: 61000078 61000078
</TABLE>
-3-
<PAGE>
SCHEDULE 7.4
1. Employment Agreement, dated 7/1/89, with James T. McAfee, Jr.
2. Employment Agreement, dated 7/1/89, with Robert M. Thornton, Jr.
3. Incentive Compensation Programs - as described in Hallmark's proxy
statements for its annual meetings held in 1992 and 1993.
4. Employee Profit Sharing Plan (quarterly hospital employee bonus program).
5. Physician Search Agreements between various hospital subsidiaries and
Jackson & Coker, Inc.
6. Loans to employees in the ordinary course of business not exceeding in the
aggregate at any time outstanding of $500,000.
<PAGE>
SCHEDULE 7.6
LIENS
1). National Healthcare of Pocahontas Arkansas, Inc.
Capital lease with Randolph County, Arkansas expiring 10/1/2012. The lease
relates to the Hospital Building and provides for payments of $50,000 per
month. The lessor also has a security interest in approximately $4.2
million in restricted investments held by a trustee as collateral for the
Company's obligation under such capital lease.
2). National Healthcare of Holmes County, Inc.
Capital lease with Holmes County Hospital Corporation expiring on
11/1/2009. The lease relates to the Hospital Building and certain
equipment in the facility and provides for payments of $21,666.67 per
month.
3). Berrien Nursing Center, Inc.
Capital lease with Richard B. Griffin Investments expiring 8/1/2018. The
lease relates to the nursing home and provides for lease payments of
$22,500 per month.
Capital lease with Bell South expiring 10/1/95. The lease relates to
certain telephone equipment and provides for minimum lease payments of
$887.75 per month.
4). National Healthcare of Decatur, Inc.
Capital lease with Space Labs Medical, Inc. expiring 5/13/95. The lease
relates to certain patient monitoring equipment and provides for lease
payments of $5,551.00 per month.
5). Scenic Mountain Medical Center, Inc.
Capital lease with Industrial Leasing Corporation expiring 6/1/94. The
lease relates to certain medical equipment and provides for lease payments
of $597.43 per month.
<PAGE>
SCHEDULE 9.8
to
CREDIT AGREEMENT
AUTHORIZED BORROWER REPRESENTATIVE
James T. McAfee, Jr.
Chairman and Chief Excutive Officer
Robert M. Thornton, Jr.
President, Chief Operating Officer
and Chief Financial Officer
<PAGE>
SCHEDULE A
to
CREDIT AGREEMENT
Dated as of December 31, 1993
SCHEDULE OF DOCUMENTS
At or before the making of the initial Working Capital Advance,
Lender shall have received the following documents, instruments
and agreements, each in form and substance satisfactory to Lender:
(a) The duly completed and executed Working Capital Note;
(b) The duly completed and executed Borrower Security
Agreement;
(c) The duly completed and executed Subsidiary Guaranties and
Subsidiary Security Agreements;
(d) The Account Agreements for each of the accounts listed
on SCHEDULE 4.21 to the Credit Agreement, all duly executed and
completed by the parties thereto;
(e) Satisfactory evidence of the recording of such Uniform
Commercial Code Financing Statement in such filing offices as Lender may
deem necessary or appropriate to perfect Lender's Liens under the
Collateral Documents as well as written reports of examinations of the
public records of such filing offices and of such other filing offices
as Lender deems appropriate and in each case indicating that
there are no other Liens of record covering any of the Collateral covered
by the Collateral Documents (excepts Liens permitted under SECTION 7.6 of the
Credit Agreement);
(f) Certificates of each of the Credit Parties in the form of
EXHIBIT H and duly executed and appropriately completed by each such Person and
to which shall be attached certified copies of such person's by-laws, the
authorizing resolutions of such person's board of directors and specimen
signatures for such person's officers;
(g) An opinion of counsel for the Credit Parties in the form of
EXHIBIT I;
(h) Copies of the Certificate or Articles of Incorporation of each
of the Credit Parties (certified in each case by the Secretary of State
or other appropriate official of the state of such Credit Party's
incorporation) together with current good standing certificates or
certificates of existence for each of the Credit Parties issued by the
Secretary of State or other appropriate official of such Credit
Party's jurisdiction of incorporation and of such other jurisdictions where
such Credit Party presently is qualified to do business as a foreign
corporation and which the Lender may reasonably request;
<PAGE>
(i) Duly completed and executed letters from
Borrower and each of its Subsidiaries to their respective independent
accountants authorizing such accountants to discuss such Person's
financial affairs with Lender, each in the form of EXHIBIT G;
(j) Copies of all documents and instruments, including
all consents, authorizations and filings, required from any Governmental
Authority or from any other Person in connection with the execution, delivery,
performance, validity and enforceability of the Loan Documents, and such
consents, authorizations, filings and orders shall be reasonably
satisfactory in form and substance to Lender and shall be in full force
and effect and all applicable waiting periods therein shall have expired.
(k) A duly completed and executed Borrowing Base
Certificate, dated as of the last day of the month ended immediately prior
to the date of initial Working Capital Advance; and
(l) Such other documents, certificates, approvals or filings as
Lender may reasonably request.
(m) A duly completed and executed Borrowing Base Certificate,
dated as of the last day of the month ended immediately prior to the date of
the initial Revolving Credit Advance; and
(n) Such other documents, certificates, approvals of filings as
Lender may reasonably request.
