UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended March 31, 1997
--------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
------------- ---------------
Commission File Number: 1-12306
---------------
Integrated Health Services, Inc.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-2428312
-------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10065 Red Run Boulevard, Owings Mills, MD 21117
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(410) 998-8400
--------------------------------------------
(Registrant's telephone, 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.
[ X ] Yes [ ] No
Number of shares of common stock of the registrant outstanding as of
May 12, 1997: 24,882,292 shares.
<PAGE>
INTEGRATED HEALTH SERVICES, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page
Item 1. - Condensed Financial Statements -
----------------------------------
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996 3
Consolidated Statements of Earnings
for the three months ended March 31, 1997
and 1996 4
Consolidated Statement of Changes in
Stockholders' Equity for the three
months ended March 31, 1997 5
Consolidated Statements of Cash Flows
for the three months ended March 31, 1997
and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II: OTHER INFORMATION
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
Page 2 of 19
<PAGE>
INTEGRATED HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------------- -------------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 38,767 39,028
Temporary investments 1,737 2,044
Patient accounts and third-party payor settlements
receivable, less allowance for doubtful receivables
of $36,194 at March 31, 1997 and $41,527 at December 31, 1996 339,496 326,883
Inventories, prepaid expenses
and other current assets 31,887 26,243
Income taxes receivable 10,379 20,992
------------------- -------------------
Total current assets 422,266 415,190
------------------- -------------------
Property, plant and equipment, net 887,395 864,335
Intangible assets 605,487 572,159
Investments in and advances to affiliates 74,499 76,047
Other assets 68,431 65,376
------------------- -------------------
Total assets $ 2,058,078 1,993,107
=================== ===================
Liabilities and Stockholders' Equity
Current Liabilities:
Current maturities of long-term debt $ 15,738 16,547
Accounts payable and accrued expenses 322,642 341,094
------------------- -------------------
Total current liabilities 338,380 357,641
------------------- -------------------
Long-term Debt:
Convertible subordinated debentures 258,750 258,750
Revolving and long-term debt, less current maturities 822,201 779,450
------------------- -------------------
Total long-term debt 1,080,951 1,038,200
------------------- -------------------
Other long-term liabilities 34,562 33,851
Deferred income taxes 23,431 22,283
Deferred gain on sale-leaseback transactions 5,968 6,267
Stockholders' equity:
Preferred stock, authorized 15,000,000 shares; no shares
issued and outstanding - -
Common stock, $0.001 par value. Authorized 150,000,000
shares; issued 24,748,680 at March 31, 1997 and 23,628,250 at
December 31, 1996 25 24
Additional paid-in capital 475,878 445,667
Retained earnings 98,883 79,814
Unrealized gain on available for sale securities - 9,360
------------------- -------------------
Net stockholders' equity 574,786 534,865
------------------- -------------------
Total liabilities and stockholders' equity $ 2,058,078 1,993,107
=================== ===================
</TABLE>
See accompanying Notes to Consolidated Financial Statements
Page 3 of 19
<PAGE>
INTEGRATED HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------------------
1997 1996
---------------- ----------------
Net revenues:
<S> <C> <C>
Basic medical services $ 88,755 97,216
Specialty medical services 362,689 219,525
Management services and other 9,499 10,532
---------------- ----------------
Total revenues 460,943 327,273
---------------- ----------------
Costs and expenses:
Operating expenses 352,412 249,895
Corporate administrative and general 18,016 15,093
Depreciation and amortization 15,030 8,274
Rent 24,009 17,656
Interest, net 21,421 14,214
Other non-recurring income (1,025) -
---------------- ----------------
Total costs and expenses 429,863 305,132
---------------- ----------------
Earnings before equity in earnings
of affiliates and income taxes 31,080 22,141
Equity in earnings of affiliates 181 300
---------------- ----------------
Earnings before income taxes 31,261 22,441
Federal and state income taxes 12,192 8,640
---------------- ----------------
Net earnings $ 19,069 13,801
================ ================
Per Common Shares:
Net earnings-primary $ 0.74 0.62
Net earnings-fully diluted $ 0.63 0.54
================ ================
</TABLE>
See accompanying Notes to Consolidated Financial Statements
Page 4 of 19
<PAGE>
INTEGRATED HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(dollars in thousands)
<TABLE>
<CAPTION>
UNREALIZED
GAIN ON
ADDITIONAL AVAILABLE
COMMON PAID-IN RETAINED FOR SALE
STOCK CAPITAL EARNINGS SECURITIES TOTAL
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 24 445,667 79,814 9,360 534,865
Issuance of 976,504 shares of
common stock in payment of earn-out
in connection with prior acquisition 1 26,438 -- -- 26,439
Issuance of 30,248 shares of common
stock in connection with employee
stock purchase plan -- 647 -- -- 647
Exercise of employee stock options
for 113,678 shares of common stock -- 3,126 -- -- 3,126
Realized gain on available for sale
securities -- -- -- (9,360) (9,360)
Net earnings -- -- 19,069 -- 19,069
-----------------------------------------------------------------------------
Balance at March 31, 1997 $ 25 475,878 98,883 -- 574,786
=============================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements
Page 5 of 19
<PAGE>
INTEGRATED HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
1997 1996
--------------- ----------------
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 19,069 13,801
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Other non-recurring income (1,025) 0
Undistributed results of joint ventures 0 (55)
Depreciation and amortization 15,030 8,274
Deferred income taxes and other non-cash items 1,396 1,142
Amortization of gain on sale-leaseback transactions (299) (285)
Increase in patient accounts and third-party
payor settlements receivable, net (10,386) (15,260)
Increase in inventories, prepaid
expenses and other current assets (5,581) (788)
Decrease in accounts payable and accrued expenses (18,935) (22,493)
Decrease in income taxes receivable 10,613 2,950
--------------- ----------------
Net cash provided (used) by operating activities 9,882 (12,714)
--------------- ----------------
Cash flows from financing activities:
Proceeds from issuance of capital stock, net 3,773 1,259
Proceeds from long-term borrowings 139,928 96,737
Repayment of long-term debt (97,639) (11,286)
Dividends paid (471) (435)
Deferred financing costs (698) (329)
--------------- ----------------
Net cash provided by financing activities 44,893 85,946
--------------- ----------------
Cash flows from investing activities:
Sale of temporary investments 355 67
Purchase of temporary investments (48) 0
Business acquisitions (10,975) (16,581)
Purchase of property, plant and equipment (41,096) (35,705)
Other assets (3,272) (30,370)
--------------- ----------------
Net cash used by investing activities (55,036) (82,589)
--------------- ----------------
Decrease in cash and cash equivalents (261) (9,357)
Cash and cash equivalents, beginning of period 39,028 38,917
--------------- ----------------
Cash and cash equivalents, end of period $ 38,767 29,560
=============== ================
</TABLE>
See accompanying Notes to Consolidated Financial Statements
Page 6 of 19
<PAGE>
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements included herein do not contain all
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles. For
further information, such as the significant accounting policies followed by
Integrated Health Services, Inc. ("IHS" or "Company"), refer to the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996. In the
opinion of management, the consolidated financial statements include all
necessary adjustments (consisting of only normal recurring accruals) for a
fair presentation of the financial position and results of operations for the
interim periods presented. The results of operations for the interim periods
presented are not necessarily indicative of the results that may be expected
for the full year.
NOTE 2: EARNINGS PER SHARE
Primary earnings per share is computed based on the weighted average number of
common and common equivalent shares outstanding during the periods. Common
stock equivalents include options and warrants to purchase common stock,
assumed to be exercised using the treasury stock method. Fully diluted earnings
per share is computed as described above, except that the weighted average
number of common equivalent shares is determined assuming the dilution
resulting from the issuance of the aforementioned options and warrants at the
higher of the end-of-period price per share, or the weighted average price for
the period, and the issuance of common shares upon the assumed conversion of
the convertible subordinated debentures. Additionally, interest expense and
amortization of underwriting costs related to such debentures are added, net of
tax, to income for the purpose of calculating fully diluted earnings per share.
Such amounts and the resulting net earnings for fully diluted earnings per
share purposes are summarized as follows for the three months ended March 31,
1997 and 1996, respectively:
1997 1996
-------- ------
Net earnings $19,069 13,801
Adjustment for interest and underwriting
costs on convertible debentures 2,452 2,472
-------- ------
Net earnings for fully diluted EPS $21,521 16,273
======== ======
Weighted average shares-Primary 25,783 22,257
Weighted average shares-Fully Diluted 34,044 30,317
======== ======
Page 7 of 19
<PAGE>
NOTE 3: NEW ACQUISITIONS
ACQUISITIONS DURING THE THREE MONTHS ENDED MARCH 31, 1997
Acquisitions for the three months ended March 31, 1997 and the
manner of payment are summarized as follows:
<TABLE>
<CAPTION>
COMMON
TOTAL STOCK ACCRUED CASH
MONTH TRANSACTION DESCRIPTION COST ISSUED LIABILITIES PAID
- ----- ----------------------- ---- ------ ----------- ----
<S> <C> <C> <C> <C> <C>
January Stock of In-Home Health
Care, Inc. $ 3,450 $ -- $ 250 $ 3,200
February Assets of Professional
Health Services, Inc. 350 -- 100 250
February Assets of Portable X-Ray
Labs, Inc. 6,200 -- 1,300 4,900
March Assets of Laboratory
Corporation of America 35 -- -- 35
March Assets of Doctor's Home
Health Agency, Inc. 445 -- 95 350
March Payment of earnout in
connection with Achievement
Rehab acquisition in December
1993 26,439 26,439 -- --
Cash payments of
acquisitions costs
accrued in 1995 and 1996 -- -- (2,240) 2,240
------ ------- ------- ------
$ 36,919 $26,439 $ (495) $10,975
====== ======= ======= ======
</TABLE>
Page 8 of 19
<PAGE>
The allocation of the total cost of the 1997 acquisitions to
the assets acquired and the liabilities assumed is summarized
as follows:
<TABLE>
<CAPTION>
PROPERTY
CURRENT PLANT & OTHER INTANGIBLE CURRENT LONG-TERM TOTAL
TRANSACTION ASSETS EQUIPMENT ASSETS ASSETS LIABILITIES LIABILITIES COSTS
- ----------- ------ --------- ------ ------ ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
In-Home Health
Care, Inc. $ 989 $ 229 $ 7 $ 3,856 ($ 797) ($ 834) $ 3,450
Professional
Health Services,
Inc. -- 20 9 321 -- -- 350
Portable X-Ray
Labs, Inc. 1,309 -- 11 5,653 (297) (476) 6,200
Laboratory Corp.
of America,
Indianapolis -- 10 -- 25 -- -- 35
Doctors's Home
Health Agency,
Inc. -- 6 -- 439 -- -- 445
Achievement Rehab -- -- -- 26,439 -- -- 26,439
-------- -------- -------- -------- -------- -------- --------
$ 2,298 $ 265 $ 27 $ 36,733 ($ 1,094) ($ 1,310) $ 36,919
======== ======== ======== ======== ======== ======== ========
</TABLE>
NOTE 4: PHARMACY GAIN
In July 1996, the Company sold its pharmacy division to Capstone
Pharmacy Services, Inc. ("Capstone") for a purchase price of $150
million, consisting of cash of $125 million, and shares of Capstone
stock having a value of $25 million. At the date of sale the Company's
investment in the shares of Capstone's common stock was recorded at
its carry over cost of $14.7 million, which represented less than 20%
of the total Capstone shares. During the first quarter 1997, the
Company realized a gain of $7.6 million on its investment in the
Capstone shares.
NOTE 5: RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share," ("SFAS 128"), which
simplifies the standards for computing earnings per share ("EPS").
SFAS 128 is effective for the Company's fourth quarter and year ending
December 31, 1997. Early application is not permitted and prior period
EPS data will be restated.
Under SFAS 128, primary EPS will be replaced with basic EPS. Basic EPS
excludes the dilutive effect of common stock equivalents. Also, under
SFAS 128, fully-diluted EPS will be replaced by diluted EPS. Diluted
EPS is calculated similarly to fully-diluted EPS pursuant to
Accounting Principles Board Opinion 15.
The change in calculation method is not expected to have a material
impact on previously reported earnings per common share data.
NOTE 6: SUBSEQUENT EVENTS
Acquisitions
------------
In April 1997, the Company acquired the assets of Coastal
Rehabilitation, Inc., a rehabilitation company in Florida, for
approximately $1.25 million, and the assets of Mobile Diagnostics,
Inc., a mobile x-ray company in North Carolina for $225,000. In
addition, the Company has reached agreements in principle to acquire a
mobile x-ray company in New Jersey for approximately $1.2 million, a
mobile x-ray company in Maryland for approximately $300,000, a
contract rehabilitation company in the Midwest for approximately $19.7
million, a home healthcare services company in Indiana for
approximately $330,000, a home healthcare services company for
approximately $7.5 million, and a home healthcare services company in
the Southeast for approximately $37.5 million. There can be no
assurance that any of these pending acquisitions will be consummated
on the proposed terms, on different terms, or at all.
Page 9 of 19
<PAGE>
Settlement with Coram
---------------------
On October 19, 1996, IHS and Coram entered into a definitive agreement
and plan of merger (the "Merger Agreement") providing for the merger
of a wholly-owned subsidiary of IHS into Coram, with Coram becoming a
wholly-owned subsidiary of IHS. Under the terms of the Merger
Agreement, holders of Coram common stock were to receive for each
share of Coram common stock 0.2111 of a share of the Company's Common
Stock. As a result of the merger, IHS would have assumed approximately
$375 million of indebtedness. On April 4, 1997, IHS notified Coram
that it had exercised its rights to terminate the Merger Agreement.
IHS also terminated the March 30, 1997 letter amendment, setting forth
proposed revisions to the terms of the merger (which included a
reduction in the exchange ratio to 0.15 of a share of IHS Common Stock
for each share of Coram common stock), prior to the revisions becoming
effective at the close of business on April 4, 1997. On May 5, 1997,
IHS and Coram entered into a settlement agreement pursuant to which
the Company paid Coram $21 million in full settlement of all claims
Coram might have against IHS pursuant to the Merger Agreement, which
the Company will recognize in the second quarter. In addition, during
the first quarter the Company incurred $6.6 million of accounting,
legal and other costs related to the merger.
Tender Offer for Senior Subordinated Notes
------------------------------------------
On April 30, 1997, the Company announced that it had commenced cash
tender offers, subject to certain conditions including, without
limitation, obtaining financing from debt or equity offerings or
borrowings under its credit facility, to purchase all its outstanding
9-5/8% Senior Subordinated Notes due 2002 Series A (the "9-5/8%
Notes"), its 10-3/4% Senior Subordinated Notes due 2004 (the "10-3/4%
Notes" and together with the 9-5/8% Notes, the "Tender Notes") and
related consent solicitations to eliminate certain restrictive
covenants and other provisions in the indentures pursuant to which the
Tender Notes were issued in order to improve the operating and
financial flexibility of the Company.
The total consideration payable pursuant to the tender offer and
consent solicitation to holders of the 9-5/8% Notes who tender their
notes (and thereby deliver consents to the proposed amendments to the
indenture pursuant to which the 9 5/8% Notes were issued) is $1,094
plus accrued and unpaid interest to, but not including, the payment
date, consisting of $1,089 plus accrued and unpaid interest as tender
offer consideration and $5 as a consent payment. Total consideration
payable pursuant to the tender offer and consent solicitation to
holders of the 10-3/4% Notes who tender their notes (and thereby
deliver consents to the proposed amendments to the indenture pursuant
to which the 10 3/4% Notes were issued) is $1,119.50 plus accrued and
unpaid interest to but not including the payment date, consisting of
$1,114.50 plus accrued and unpaid interest as tender offer
consideration and $5 as a consent payment.
The tender offer and consent solicitation for each of the 9 5/8% Notes
and the 10 3/4% Notes expires at 12:00 midnight, New York City time,
on May 29, 1997, unless extended (the "Expiration Date"). Holders must
validly tender their Tender Notes prior to 12:00 midnight on the
Expiration Date in order to receive the tender offer consideration. In
order to receive the consent payment, holders must validly tender ther
Tender Notes (and thereby deliver their consent to the proposed
amendments to the indenture pursuant to which their Tender Notes were
issued) prior to 12:00 midnight, New York City time, on the Consent
Date. The Consent Date for each of the 9 5/8% Notes and the 10 3/4%
Notes is the later of May 14, 1997 or the Consent Achievement Date for
such Tender Notes. The Consent Achievement Date for each of the 9 5/8%
Notes and the 10 3/4% Notes is the date that the Company receives duly
executed consents from holders representing a majority in principal
amount of such Tender Notes outstanding.
An aggregate of $115 million principal amount of 9-5/8% Notes is
presently outstanding. An aggregate of $100 million principal amount
of 10-3/4% Notes is presently outstanding. Each tender offer and
consent solicitation is conditioned upon, among other things, the
availability to the Company of funds sufficient to pay the aggregate
consideration and related costs and expenses of the offers on terms
and conditions satisfactory to the Company in its sole discretion. The
Company intends to pay the aggregate consideration due in connection
with the tender offer and consent solicitations with the proceeds of a
private debt financing.
Page 10 of 19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997
COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
Net revenues for the three months ended March 31, 1997 increased $133.7
million, or 41%, to $460.9 million from the comparable period in 1996. Of the
$133.7 million increase, $119.0 million, or 89%, was due to the acquisition of
companies providing home health, mobile x-ray, rehabilitation therapy,
respiratory therapy and electrocardiogram services subsequent to March 31, 1996,
partially offset by a reduction in revenue resulting from the sale of the
Company's pharmacy division in July 1996 and the sale of a majority interest in
its assisted living services division in October 1996. Revenues in the first
quarter of 1996 include revenues of $22.4 million for the pharmacy division and
revenues of $5.6 million from its assisted living services division. The
remaining increase was due primarily to facilities and ancillary companies
acquired during the first quarter of 1996, subsequent to the first quarter of
1996 and increased revenues from facilities and ancillary companies in operation
during both periods.
Basic medical services revenue decreased 9% from $97.2 million to $88.8
million. This decrease primarily results from the conversion by the Company of
its skilled nursing beds to Medical Specialty Unit (MSU) beds after March 31,
1996, and the sale of a majority interest in its assisted living services
division in October 1996.
Specialty medical services revenue increased $143.2 million from $219.5
million to $362.7 million. Of the $143.2 million increase, $124.6 million, or
87%, was attributable to revenue from acquisitions subsequent to March 31, 1996,
partially offset by a reduction in specialty medical services revenue as a
result of the sale of the Company's pharmacy division in July 1996. The
remaining increase is due to increased revenue from facilities and ancillary
companies in operation in both periods, facilities and ancillary companies
acquired during the first quarter of 1996, facilities and ancillary companies
acquired subsequent to the first quarter of 1996, as well as skilled nursing
beds being converted to MSU beds after March 31, 1996.
Management services and other revenues decreased 10% from $10.5 million
to $9.5 million.
Page 11 of 19
<PAGE>
Total expenses for the period increased to $429.9 million from $305.1
million, an increase of 41%. Of the $124.8 million increase in total expenses,
$102.5 million, or 82%, was due to an increase in operating expenses. A
substantial portion of the increase in operating expenses was due to
acquisitions consummated subsequent to March 31, 1996, partially offset by the
disposal of the Company's pharmacy division in July 1996 and the sale of a
majority interest in its assisted living services division in October 1996.
During the first quarter 1997, the Company realized a $7.6 million gain
on its investment in Capstone Shares, offset by $6.6 million of accounting,
legal and other costs resulting from the Coram transaction. As a result, the
Company has recorded in its statement of earnings $1.0 million of non-recurring
income.
Corporate administrative and general expenses for the three months
ended March 31, 1997 increased by $2.9 million, or 19%, over the comparable
period in 1996. This increase primarily represents additional operations,
information systems, accounting, finance and other personnel to support the
growth through acquisition of ancillary businesses. Depreciation and
amortization increased to $15.0 million during the three months ended March 31,
1997, an 82% increase as compared to $8.3 million in the same period in 1996.
This increase is primarily the result of acquisitions consummated subsequent to
the first quarter of 1996. Rent expense increased by $6.4 million, or 36%, over
the comparable period in 1996, primarily as a result of an increase in
contingent rentals which are based on gross revenues of certain leased
facilities and rent at ancillary companies acquired subsequent to March 31,
1996, partially offset by a reduction resulting from the sale of the pharmacy
division and the sale of a majority interest in its assisted living services
division. Interest expense, net increased 51%, or $7.2 million, during the three
months ended March 31, 1997 to $21.4 million in the first quarter of 1997. The
increase in interest expense was primarily due to the Company's issuance of $150
million principal amount of 10-1/4% Senior Subordinated Notes issued in May 1996
and increased borrowings under the Company's current $700 million revolving
credit facility.
Earnings before equity in earnings of affiliates and income taxes
increased 40% to $31.1 million for the three months ended March 31, 1997, as
compared to $22.1 million for the comparable period in the prior year.
Page 12 of 19
<PAGE>
Earnings before income taxes increased 39% to $31.3 million for the
three months ended March 31, 1997, as compared to $22.4 million for the
comparable period in the prior year. The provision for federal and state income
taxes was $12.2 million for the three months ended March 31, 1997, and $8.6
million for the same period in the prior year. Net earnings and fully diluted
earnings per share for the quarter were $19.1 million in 1997, or 63 cents per
share, as compared to $13.8 million or 54 cents per share for the same period in
1996. Weighted average shares (fully-diluted) increased 3.7 million shares, or
12%, to 34.0 million shares from the comparable period in 1996.
Page 13 of 19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company had working capital of $83.9 million, as
compared with $57.5 million at December 31, 1996. The increase in working
capital was primarily due to an increase in patient accounts and third party
payor settlements receivable and other current assets and a decrease in accounts
payable and accrued expenses. There were no material capital commitments for
capital expenditures as of March 31, 1997. Net patient accounts and third-party
payor settlements receivable increased $12.6 million to $339.5 million at March
31, 1997, as compared to $326.9 million at December 31, 1996. Of the $12.6
million increase in accounts receivable, $2.2 million was attributable to
related services businesses acquired subsequent to December 31, 1996 and $10.4
million was due to increased accounts receivable at facilities and services
businesses owned at both December 31, 1996 and March 31, 1997. Patient accounts
receivable were $356.1 million at March 31, 1997, as compared with $340.8
million at December 31, 1996. Third-party payor settlements receivable from
federal and state governments (i.e., Medicare and Medicaid cost reports) was
$19.6 million at March 31, 1997, as compared to $27.6 million at December 31,
1996. Approximately $10.3 million, or 52%, of the third-party payor settlements
receivable from federal and state governments at March 31, 1997 represent the
costs for its MSU patients which exceed regional reimbursement limits
established under Medicare.
The Company's cost of care for its MSU patients generally exceeds
regional reimbursement limits established under Medicare. The Company's ability
to obtain reimbursement for those costs which exceed the Medicare established
reimbursement limits will depend on obtaining waivers of these cost limitations.
The Company has submitted waiver requests for 225 cost reports, covering all
cost report periods through December 31, 1995. To date, final action has been
taken by the Health Care Financing Administration ("HCFA") on all 221 waiver
requests covering cost report periods through December 31, 1995. The Company's
final rates as approved
Page 14 of 19
<PAGE>
by HCFA represent approximately 95% of the requested rates as submitted in the
waiver requests. There can be no assurance, however, that the Company will be
able to recover its excess costs under any waiver requests which may be
submitted in the future. The Company's failure to recover substantially all
these excess costs would adversely affect its results of operations and could
adversely affect its MSU strategy.
Net cash provided by operating activities for the three months ended
March 31, 1997, was $9.9 million as compared to $12.7 million used by operating
activities for the comparable period in 1996.
Net cash provided by financing activities was $44.9 million for the
three month period in 1997 as compared to $85.9 million for the comparable
period in 1996. In both periods, the Company received net proceeds from
long-term borrowings and issuance of common stock and made repayments on certain
debt.
Net cash used by investing activities was $55.0 million for the three
month period ended March 31, 1997 as compared to $82.6 million for the three
month period ended March 31, 1996. Cash used for the acquisition of facilities
and service businesses was $11.0 million in 1997 as compared to $16.6 million
for 1996. Cash used for the purchase of property, plant and equipment was $41.1
million in 1997 and $35.7 million in 1996.
The Company's contingent liabilities (other than liabilities in respect
of litigation and the contingent payments in respect of the First American
acquisition) aggregated approximately $72.3 million as of March 31, 1997. The
Company is obligated to purchase its GreenBriar facility upon a change in
control of the Company. The net purchase price of the facility is approximately
$4.0 million. The Company has guaranteed approximately
Page 15 of 19
<PAGE>
$6.6 million of the lessor's indebtedness. The Company is required, upon certain
defaults under the lease, to purchase its Orange Hills facility at a purchase
price equal to the greater of $7.1 million or the facility's fair market value.
The Company entered into a guaranty agreement whereby the Company guaranteed
approximately $4.0 million owed by Tutera Group, Inc. and Sunset Plaza Limited
Partnership, a partnership affiliated with a partnership in which the Company
has a 49% interest, to Finova Capital Corporation. The Company has guaranteed
approximately $8.9 million owed by Litchfield Asset Management Corporation to
National Health Investors, Inc. The Company has established several irrevocable
letters of credit with the Bank of Nova Scotia totalling $15.7 million at March
31, 1997 to secure certain of the Company's workers' compensation, health
benefits and other obligations. The Company has guaranteed a maximum of $539,062
owed by Dunns Creek to National Health Investors. The Company entered into a
guaranty agreement whereby the Company has guaranteed a maximum of $49,900 owed
by Newco Management to First Union National Bank of Florida. The Company has
guaranteed approximately $4.8 million owed by Community Care of America ("CCA"),
a related party company to which IHS provides certain management services, to
Daiwa Health Company. The Company has also guaranteed approximately $10.0
million owed by CCA to Health and Retirement Properties Trust under a loan and
lease financing agreement. In addition, the Company has established an
irrevocable standby line of credit with CCA with a maximum amount of $500,000
available to CCA at March 31, 1997. The Company has also established three
Irrevocable Standby Letter of Credit in the total amount of $10.0 million. In
addition, the Company has obligations under operating leases aggregating
approximately $224.0 million at March 31, 1997. The Company owns warrants to
purchase approximately 14.9% of CCA, and the Company's Chairman and Chief
Executive Officer beneficially owns approximately 21.1% of CCA's outstanding
common stock. In addition, with respect to certain acquired businesses the
Company is obligated to make certain contingent payments if earnings of the
acquired business increase or earnings targets are met. The Company is also
obligated under certain circumstances to make contingent payments of up to $155
million in respect of its acquisition of First American.
The liquidity of the Company will depend in large part on the timing of
payments by private third-party and governmental payors, including payments in
excess of regional cost reimbursement limitations established under Medicare.
Costs in excess of the regional reimbursement limits relate primarily to the
delivery of services and patient care to the Company's MSU patients.
Page 16 of 19
<PAGE>
The Company anticipates that cash from operations and borrowings under
revolving credit facilities will be adequate to cover its scheduled debt
payments and future anticipated capital expenditure requirements throughout
1997. The Company expects to continue to be growth oriented in 1997 by expanding
acquiring its existing operations, continuing to implement its MSU programs and
by the acquisition of additional facilities and ancillary service companies, and
obtaining agreements to manage additional facilities.
PART II: OTHER INFORMATION
Item 5. - Other Information
-----------------
Settlement with Coram
---------------------
On October 19, 1996, IHS and Coram entered into a definitive
agreement and plan of merger (the "Merger Agreement") providing for
the merger of a wholly-owned subsidiary of IHS into Coram, with
Coram becoming a wholly-owned subsidiary of IHS. Under the terms of
the Merger Agreement, holders of Coram common stock were to receive
for each share of Coram common stock 0.2111 of a share of the
Company's Common Stock. As a result of the merger, IHS would have
assumed approximately $375 million of indebtedness. On April 4,
1997, IHS notified Coram that it had exercised its rights to
terminate the Merger Agreement. IHS also terminated the March 30,
1997 letter amendment, setting forth proposed revisions to the terms
of the merger (which included a reduction in the exchange ratio to
0.15 of a share of IHS Common Stock for each share of Coram common
stock), prior to the revisions becoming effective at the close of
business on April 4, 1997. On May 5, 1997, IHS and Coram entered
into a settlement agreement pursuant to which the Company paid Coram
$21 million in full settlement of all claims Coram might have
against IHS pursuant to the Merger Agreement which the Company will
recognize in the second quarter. In addition, during the first
quarter the Company incurred $6.6 million of accounting, legal and
other costs related to the merger.
Page 17 of 19
<PAGE>
Tender Offer for Senior Subordinated Notes
------------------------------------------
On April 30, 1997, the Company announced that it had commenced cash
tender offers, subject to certain conditions including, without
limitation, obtaining financing from debt or equity offerings or
borrowings under its credit facility, to purchase all its
outstanding 9-5/8% Senior Subordinated Notes due 2002 Series A (the
"9-5/8% Notes"), and its 10-3/4% Senior Subordinated Notes due 2004
(the "10-3/4% Notes" and together with the 9-5/8% Notes, the "Tender
Notes") and related consent solicitations to eliminate certain
restrictive covenants and other provisions in the indentures
pursuant to which the Tender Notes were issued in order to improve
the operating and financial flexibility of the Company.
The total consideration payable pursuant to the tender offer and
consent solicitation to holders of the 9-5/8% Notes who tender their
notes (and thereby deliver consents to the proposed amendments to
the indenture pursuant to which the 9 5/8% Notes were issued) is
$1,094 plus accrued and unpaid interest to, but not including, the
payment date, consisting of $1,089 plus accrued and unpaid interest
as tender offer consideration and $5 as a consent payment. Total
consideration payable pursuant to the tender offer and consent
solicitation to holders of the 10-3/4% Notes who tender their notes
(and thereby deliver consents to the proposed amendments to the
indenture pursuant to which the 10 3/4% Notes were issued) is
$1,119.50 plus accrued and unpaid interest to but not including the
payment date, consisting of $1,114.50 plus accrued and unpaid
interest as tender offer consideration and $5 as a consent payment.
The tender offer and consent solicitation for each of the 9 5/8%
Notes and the 10 3/4% Notes expires at 12:00 midnight, New York City
time, on May 29, 1997, unless extended (the "Expiration Date").
Holders must validly tender their Tender Notes prior to 12:00
midnight on the Expiration Date in order to receive the tender offer
consideration. In order to receive the consent payment, holders must
validly tender ther Tender Notes (and thereby deliver their consent
to the proposed amendments to the indenture pursuant to which their
Tender Notes were issued) prior to 12:00 midnight, New York City
time, on the Consent Date. The Consent Date for each of the 9 5/8%
Notes and the 10 3/4% Notes is the later of May 14, 1997 or the
Consent Achievement Date for such such Tender Notes. The Consent
Acheivement Date for each of the 9 5/8% Notes and the 10 3/4% Notes
is the date that the Company receives duly executed consents from
holders representing a majority in principal amount of such Tender
Notes outstanding.
An aggregate of $115 million principal amount of 9-5/8% Notes is
presently outstanding. An aggregate of $100 million principal amount
of 10-3/4% Notes is presently outstanding. Each tender offer and
consent solicitation is conditioned upon, among other things, the
availability to the Company of funds sufficient to pay the aggregate
consideration and related costs and expenses of the offers on terms
and conditions satisfactory to the Company in its sole discretion.
The Company intends to pay the aggregate consideration due in
connection with the tender offer and consent solicitation with the
proceeds of a private debt financing.
Item 6. - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
10.1 Settlement Agreement and Mutual Release, made and entered
into as of Monday, May 5, 1997, by and between Integrated
Health Services, Inc. and Coram Healthcare Corporation
10.2 Amendment No. 3 to Revolving Credit Agreemment, dated as of
May 15, 1996, as amended, among Integrated Health Services,
Inc., Citibank N.A., as administrative agent thereunder and
the other financial institutions party thereto.
10.3 Guaranty dated as of April 14, 1997 made by Integrated
Health Services, Inc. in favor of Daiwa Healthco 2 LLC
10.4 Guaranty dated as of April 14, 1997 made by Integrated
Health Services, Inc. and Health and Retirement Properties
Trust
10.5 Reimbursement agreement dated April 14, 1997 between
Community Care of America, Inc. and Integrated Health
Services, Inc.
10.6 Subordination agreement, dates as of April 30, 1997 between
Integrated Living Communities, Integrated Health Services
and Nations Bank.
Page 18 of 19
<PAGE>
- 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.
INTEGRATED HEALTH SERVICES, INC.
By: /s/ Robert N. Elkins
-----------------------------
Robert N. Elkins
Chief Executive Officer
By: /s/ W. Bradley Bennett
------------------------------
W. Bradley Bennett
Executive Vice President and
Chief Accounting Officer
By: /s/ Eleanor C. Harding
-------------------------------
Eleanor C. Harding
Executive Vice President Finance
Dated: May 15, 1997
Page 19 of 19
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
This Settlement Agreement and Mutual Release ("Agreement") is made and
entered into as of Monday, May 5, 1997 by and between Integrated Health
Services, Inc. (referred to herein as "IHS") , on the one hand, and Coram
Healthcare Company (referred to herein as "Coram"), on the other hand.
W I T N E S S E T H:
WHEREAS, on October 19, 1996, Coram and IHS entered into an "Agreement
and Plan of Merger" ("Merger Agreement");
WHEREAS, on March 30, 1997, Coram and IHS executed a letter agreement
amending the Merger Agreement;
WHEREAS, by letter dated April 4, 1997 IHS advised Coram that it was
terminating the March 30, 1997 letter agreement and terminating the Merger
Agreement;
WHEREAS, certain disputes have arisen between IHS and Coram concerning
their respective rights and liabilities arising out of the actual or
contemplated merger between IHS and Coram, including but not limited to those
arising out of the negotiations, drafting, execution, amendment and/or
termination of that contemplated merger and various related agreements,
including without limitation the Merger Agreement and March 30, 1997 letter
agreement (hereinafter referred to as "the dispute");
WHEREAS, IHS and Coram desire to compromise, settle and release any and
all claims, whether known or unknown, arising out of the dispute;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties hereto agree as follows:
1. Payment of Money. Upon complete execution of this Agreement, IHS
agrees to pay to "Coram Healthcare Corporation" $21 million by wire transfer.
IHS will make good faith efforts to accomplish such wire transfer on or before
5:00 p.m. (eastern daylight time), Monday, May 5, 1997.
2. Mutual Release and Convenant Not to Sue.
(a) IHS, for itself, its predecessors, successors, parent entities,
subsidiaries, affiliates, related entities of any nature, as well as on behalf
of their respective officers, directors, employees, heirs, executors,
administrators, agents and assigns, hereby forever releases, waives, discharges
and covenants not to sue Coram, or any of Coram's predecessors, successors,
parent entities, subsidiaries, affiliates, related entities of any nature, as
well as their respective officers, directors, employees, heirs, executors,
administrators, agents and assigns, collectively or individually, with respect
to any and all claims, assertions of claims, debts, demands, actions,
<PAGE>
suits, expenses, attorneys' fees, costs, damages and liabilities of any nature,
type and description, known or unknown, arising out of any fact or matter in any
way related to or connected with the dispute.
(b) Coram, for itself, its predecessors, successors, parent entities,
subsidiaries, affiliates, related entities of any nature, as well as on behalf
of their respective officers, directors, employees, heirs, executors,
administrators, agents and assigns, hereby forever releases, waives, discharges
and covenants not to sue IHS, or any of IHS's predecessors, successors, parent
entities, subsidiaries, affiliates, related entities of any nature, as well as
their respective officers, directors, employees, heirs, executors,
administrators, agents and assigns, collectively or individually, with respect
to any and all claims, assertions of claims, debts, demands, actions, suits,
expenses, attorneys' fees, costs, damages and liabilities of any nature, type
and description, known or unknown, arising out of any fact or matter in any way
related to or connected with the dispute.
(c) The parties hereto understand and for valuable consideration
hereby expressly waive all of the rights and benefits of Section 1542 of the
California Civil Code (and any similar or equivalent statute under the law of
any state or jurisdiction), which section reads as follows:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have
materially affected his settlement with the debtor.
3. Nonadmission of Liability. The parties hereto acknowledge that
this Agreement does not constitute an admission of liability and/or loss,
express or implied, on the part of either party with respect to any fact or
matter which may be involved in the dispute. The parties further agree that
nothing herein shall constitute evidence of any fact or matter related to any
such liability and/or loss that may be involved in the dispute.
4.
5. Construction of Agreement. This Agreement is the product of
negotiation by and among the parties hereto and their respective attorneys.
Accordingly, the parties hereto acknowledge and agree that this Agreement shall
not be deemed prepared or drafted by one party or another, or the attorneys for
one party or another, and shall be construed accordingly.
6. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, and all of which together shall constitute
one and the same instrument.
2
<PAGE>
7. Captions. The captions herein have been inserted for identification
and reference purposes only and shall not be used in the construction or
interpretation of this Agreement.
8. Assignment of Claims. The parties hereto represent and warrant that
they have not assigned or transferred or purported to assign or transfer to
anyone any claim, demand, action or cause of action based upon, arising out of ,
pertaining to , concerning or connected with any of the matters or things
released herein.
9. Delaware Law. This Agreement will be interpreted in accordance with
Delaware law.
10. Severability. If any provision or provisions of this Agreement
shall be held invalid, illegal or unenforceable, the validity, legality and/or
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby. If any terms or sections of this Agreement are determined to
be unenforceable, they shall be modified so that the unenforceable term or
section is enforceable to the greatest extent possible.
11. Entire Agreement. This Agreement contains the entire understanding
among the parties to this Agreement with regard to the matters herein set forth,
and is intended to be and is a final integration thereof. There are no
representations, warranties, agreements, arrangements, undertakings, oral or
written, between or among the parties hereto relating to the dispute or to this
Agreement which are not fully expressed herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
Dated: May 5, 1997 Dated: May 1, 1997
/s/Marshall A. Elkins /s/Paul J. Quiner
- ------------------------------------- -----------------------------------
Integrated Health Services, Inc. Coram Healthcare Corporation
By: Marshall A. Elkins By: Paul J. Quiner
--------------------------------- -------------------------------
Its: Executive V.P. & Gen. Counsel Its: SR. V.P. & Gen. Counsel
--------------------------------- -------------------------------
3
INTEGRATED HEALTH SERVICES, INC.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
March 24, 1997
To the Administrative Agent and
the Lenders parties to the Revolving
Credit Agreement referred to below
Amendment No.3 to Revolving Credit Agreement
Ladies and Gentlemen:
Reference is made to the Revolving Credit Agreement, dated as of May 15,
1996, as amended by Amendment No. 1 dated September 6, 1996 and Amendment No. 2
dated November 8, 1996 (such Revolving Credit Agreement as so amended being the
"Credit Agreement"), among Integrated Health Services, Inc. ("IHS"), Citibank
N.A., as administrative agent thereunder (the "Agent"), and the other financial
institutions party thereto, as lenders thereunder. Capitalized terms used and
not otherwise defined herein are used herein as defined in the Credit Agreement.
IHS has proposed to (i) issue senior subordinated notes in an aggregate
principal amount of up to $450,000,000 and (ii) purchase the indebtedness
outstanding under the 1994 Subordinated Debt Indenture and the 1995 Subordinated
Debt Indenture. In connection with the foregoing, IHS has requested that the
Lenders agree to amend certain covenants contained in Article V of the Credit
Agreement to permit such transactions. We understand that the Requisite Lenders
are, on the terms and conditions stated below, willing to grant our request, and
the Requisite Lenders have agreed to amend the Credit Agreement as hereinafter
set forth.
Effective as of the date hereof and subject to the satisfaction of the
condition precedents set forth below, the Credit Agreement is hereby amended as
follows:
(a) The definition of "1996 Subordinated Debt Indenture" in Section 1.01 is
amended in full to read as follows:
"'1996 SUBORDINATED DEBT INDENTURE' means the Indenture, dated as of
May 15, 1996, between the Borrower, as Issuer, and Signet Trust
Company, as Trustee."
(b) In Section 1.01, the following definition of "1997 Subordinated Debt
Indenture" is added in the appropriate alphabetical order:
<PAGE>
2
"'1997 SUBORDINATED DEBT INDENTURE' means the Indenture to be entered
into after April 7, 1997 between the Borrower, as Issuer, and the
trustee thereunder in connection with a proposed senior subordinated
note offering."
(c) The definition of "Subordinated Debt Indentures" in Section 1.01 is
amended in full to read as follows:
"'SUBORDINATED DEBT INDENTURES' means the 1992 Convertible
Subordinated Debt Indenture, the 1993 Convertible Subordinated Debt
Indenture, the 1994 Subordinated Debt Indenture, the 1995 Subordinated
Debt Indenture, the 1996 Subordinated Debt Indenture and, upon the
effectiveness thereof, the 1997 Subordinated Debt Indenture"
(d) Section 5.03(d) is amended by deleting the period at the end of
subsection (v) thereof and substituting therefor "; and" and adding a new
subsection (vi) following such subsection (v) to read as follows:
"(vi) Subordinated Debt incurred under the 1997 Subordinated Debt
Indenture in an aggregate principal amount of up to $450,000,000, with
an interest rate not in excess of 10.25%, and any extension, renewal
or refinancing of such Debt so long as either (A) the principal amount
of such Debt is not increased or (B) any increase in the principal
amount of such Debt is permitted pursuant to another clause of this
Section 5.03(d); provided that the terms and conditions of such 1997
Subordinated Debt Indenture shall be (1) substantially similar to the
terms and conditions contained in the 1996 Subordinated Debt Indenture
and (2) satisfactory to the Agent in its sole discretion."
(e) Section 5.03(h)(G) is amended in full to read as follows:
"(G) so long as no Event of Default exists or would result and unless
otherwise prohibited under this Agreement and the 1993 Convertible
Subordinated Debt Indenture, the Borrower may pay on January 1, 2001
any principal amount then due and payable under the 1993 Convertible
Subordinated Debt Indenture; and"
(f) Section 5.03(h) is amended by adding a new subsection (H) following
subsection (G) to read as follows:
"(H) purchase by tender or otherwise any or all of the indebtedness
outstanding under the 1994 Subordinated Debt Indenture and the 1995
Subordinated Debt Indenture for an amount not in excess of 116% of the
principal amount purchased, provided that the aggregate amount of such
purchases cannot be in excess of the aggregate net proceeds of the
Subordinated Debt referred to in Section 5.03(d)(vi)."
<PAGE>
3
This Amendment shall become effective on the date when and only when the
Agent shall have received (A) counterparts of this Amendment executed by IHS and
the Requisite Lenders, or as to any of such Lenders, advice satisfactory to the
Agent that such Lender has executed this Amendment and (B) counterparts of the
Consent appended hereto (the "Consent"), executed by each Guarantor.
IHS represents and warrants as follows:
(a) IHS is duly organized and validly existing under the laws of Delaware.
Each Guarantor is a corporation or partnership duly organized and validly
existing under the laws of the jurisdiction in which it is organized.
(b) Each of IHS and each Guarantor has the corporate or partnership power
to execute, deliver and perform this Amendment and the Consent, as the case may
be, and to take all action necessary to consummate the transactions contemplated
hereunder. The execution, delivery and performance by IHS and each Guarantor of
this Amendment and the Consent, respectively, have been duly authorized by all
necessary action and do not contravene (i) its certificate or articles of
incorporation (or, in case of a partnership, governing agreements) or (ii) any
law or any indenture, lease or written agreement binding on or affecting it.
(c) No authorization or approval or other action by, and no notice to or
filing with, any Governmental Authority is required for the due execution,
delivery and performance by IHS or any Guarantor of this Amendment or the
Consent, respectively.
(d) This Amendment and the Consent constitutes legal, valid and binding
obligations of IHS and each Guarantor, respectively, enforceable against IHS and
each Guarantor, respectively, in accordance with their respective terms subject
to laws generally affecting the enforcement of creditors' rights.
(e) The Credit Agreement is a "Credit Agreement" within the meaning of the
1997 Subordinated Debt Indenture, upon its effectiveness, and the obligations
under the Credit Agreement when incurred will be "Senior Indebtedness" within
the meaning of the 1997 Subordinated Debt Indenture.
Upon the effectiveness of this Amendment, on and after the date hereof each
reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" of
words of like import referring to the Credit Agreement, and each reference in
the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement, shall mean and be a
reference to the Credit Agreement as amended hereby. Except as specifically
amended above, the Credit Agreement, and all other Loan Documents, are and shall
continue to be in full force and effect and are hereby in all respects ratified
and confirmed. The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of any Lender or the Agent
<PAGE>
4
under any of the Loan Documents, not constitute a waiver of any provision of any
of the Loan Documents. This Amendment shall be governed by, and construed in
accordance with, the laws of the State of New York.
Please evidence your acknowledgement of and agreement to the foregoing by
executing and returning not later than the close of business on April 4, 1997
three counterparts of this Amendment No. 3 to Citicorp Securities, Inc., 399
Park Avenue, 9th Floor, New York, New York 10043, Attention: Rosemary Bell. This
Amendment No. 3 is subject to the provisions of Section 8.01 of the Credit
Agreement.
This Amendment No. 3 may be executed in any number of counterparts and by
any combination of the parties hereto in separate counterparts, each of which
counterparts shall be an original and all of which taken together shall
constitute one and the same Amendment No. 3.
Very truly yours,
INTEGRATED HEALTH
SERVICES, INC.
By:
------------------------------------
Name:
-----------------------------
Title:
----------------------------
ACKNOWLEDGED, AGREED AND CONSENTED TO as of the date first above written:
CITIBANK, N.A.,
as Administrative Agent and as a Lender
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE>
5
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as a Lender and Co-Agent
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
THE BANK OF NOVA SCOTIA,
as LC Bank, a Lender and Co-Agent
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
CORESTATES BANK, N.A.,
as a Lender and Co-Agent
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
CREDIT LYONNAIS,
NEW YORK BRANCH,
as a Lender and Co-Agent
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE>
6
DEUTSCHE BANK AG,
NEW YORK BRANCH AND/OR
CAYMAN ISLANDS BRANCH,
as a Lender and Co-Agent
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA,
as a Lender and Co-Agent
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
NATIONSBANK, N.A.,
as a Lender and Co-Agent
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
PNC BANK, NATIONAL ASSOCIATION,
as a Lender and Co-Agent
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE>
7
TORONTO DOMINION (TEXAS), INC.,
as a Lender and Co-Agent
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST,
as a Lender and Co-Agent
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
CREDITANSTALT CORPORATE
FINANCE, INC.,
as a Lender
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
FLEET NATIONAL BANK,
as a Lender
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE>
8
GENERAL ELECTRIC
CAPITAL CORPORATION,
as a Lender
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
HIBERNIA NATIONAL BANK,
as a Lender
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
AMSOUTH BANK OF ALABAMA,
as a Lender
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
THE BANK OF TOKYO-MITSUBISHI
TRUST COMPANY,
as a Lender
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE>
9
THE SANWA BANK, LIMITED,
NEW YORK BRANCH
as a Lender
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
SIGNET BANK,
as a Lender
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
THE SUMITOMO BANK, LIMITED,
as a Lender
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
FIRST AMERICAN NATIONAL BANK,
as a Lender
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
ALLIED IRISH BANK,
as a Lender
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE>
PROVIDENT BANK OF MARYLAND,
as a Lender
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
BANK OF AMERICA ILLINOIS
as a Lender
By:
--------------------------------
Name:
-------------------------
Title:
-------------------------
<PAGE>
2
CONSENT
The undersigned, as Guarantors under the Subsidiary Guaranty, dated as
of May 15, 1996 or under Agreements to be Bound by such Subsidiary Guaranty
(collectively, the "Guaranty"), in favor of the Agent for the Lenders parties to
the Credit Agreement referred to in the foregoing Amendment No. 3 hereby consent
to such Amendment No. 3 and hereby confirm and agree that notwithstanding the
effectiveness of such Amendment No. 3, the Guaranty is, and shall continue to
be, in full force and effect and is hereby confirmed and ratified in all
respects.
ABC GP, INC.
ABC HOME HEALTH AND HOSPICE OF ALBANY, INC.
ABC HOME HEALTH AND HOSPICE OF ATHENS, INC.
ABC HOME HEALTH AND HOSPICE OF BRUNSWICK, INC.
ABC HOME HEALTH AND HOSPICE OF DUBLIN, INC.
ABC HOME HEALTH AND HOSPICE OF MACON, INC.
ABC HOME HEALTH AND HOSPICE OF SAVANNAH, INC.
ABC HOME HEALTH AND HOSPICE OF TIFTON, INC.
ABC HOME HEALTH AND HOSPICE OF VIDALIA, INC.
ABC HOME HEALTH AND HOSPICE OF WAYCROSS, INC.
ABC HOME NURSING, INC.
ABC NEWCO, INC.
ABC PHARMACEUTICALS, INC.
ALABAMA SENIOR LIFE CARE, INC.
ALPINE MANOR, INC.
ARBOR LIVING CENTERS OF FLORIDA, INC.
ARBOR LIVING CENTERS OF TEXAS, INC.
ASIA CARE, INC.
BETHAMY LIVING CENTER MANAGEMENT COMPANY
BETHAMY LIVING CENTERS LIMITED PARTNERSHIP
BRIAR HILL, INC.
BRIARCLIFF NURSING HOME, INC.
CAMBRIDGE CARE CENTERS, INC.
CAMBRIDGE GROUP OF INDIANA, INC.
CAMBRIDGE GROUP OF PENNSYLVANIA, INC.
CAMBRIDGE GROUP OF TEXAS, INC.
CARE CENTERS HOLDING, INC.
CARRIAGE-By-THE-LAKE OF IHS, INC.
CEDARCROFT HEALTH SERVICES, INC.
CENTRAL PARK LODGES, INC.
CENTRAL PARK LODGES OF WEST PALM BEACH, INC.
CENTRAL PARK LODGES (TARPON SPRINGS), INC.
CLARA BURKE NURSING HOME, INC.
CLAREMONT INTEGRATED HEALTH, INC.
COMPREHENSIVE POSTACUTE SERVICES, INC.
DERRY INTEGRATED HEALTH, INC.
ELIZABELL CO., INC.
ELM CREEK OF IHS, INC.
<PAGE>
3
F.L.C. BENEVA NURSING PAVILION, INC.
F.L.C. SARASOTA NURSING PAVILION, INC.
FERRIGAN MOBILE X-RAY, INC.
FIRELANDS OF IHS, INC.
FIRST AMERICAN HOME CARE OF ALABAMA, INC.
FIRST AMERICAN HOME CARE OF ARKANSAS, INC.
FIRST AMERICAN HOME CARE OF CALIFORNIA, INC.
FIRST AMERICAN HOME CARE OF COLORADO, INC.
FIRST AMERICAN HOME CARE OF FLORIDA, INC.
FIRST AMERICAN HOME CARE OF FT. LAUDERDALE, INC.
FIRST AMERICAN HOME CARE OF GEORGIA, INC.
FIRST AMERICAN HOME CARE OF ILLINOIS, INC.
FIRST AMERICAN HOME CARE OF INDIANA, INC.
FIRST AMERICAN HOME CARE OF LOUISIANA, INC.
FIRST AMERICAN HOME CARE OF MICHIGAN, INC.
FIRST AMERICAN HOME CARE OF MISSISSIPPI, INC.
FIRST AMERICAN HOME CARE OF MISSOURI, INC.
FIRST AMERICAN HOME CARE OF NAPLES, INC.
FIRST AMERICAN HOME CARE OF NEBRASKA, INC.
FIRST AMERICAN HOME CARE OF NEW MEXICO, INC.
FIRST AMERICAN HOME CARE OF NORTH CAROLINA, INC.
FIRST AMERICAN HOME CARE OF OHIO, INC.
FIRST AMERICAN HOME CARE OF OKLAHOMA, INC.
FIRST AMERICAN HOME CARE OF PENNSYLVANIA, INC.
FIRST AMERICAN HOME CARE OF SOUTH CAROLINA, INC.
FIRST AMERICAN HOME CARE OF TENNESSEE, INC.
FIRST AMERICAN HOME CARE OF TEXAS, INC.
FIRST AMERICAN HOME CARE OF VALDOSTA, INC.
FIRST AMERICAN HOME CARE OF VIRGINIA, INC.
FIRST AMERICAN HOME CARE OF WEST VIRGINIA, INC.
FIRST AMERICAN INTERNATIONAL, INC.
FLORIDA LIFE CARE, INC.
GAINESVILLE HEALTH CARE CENTER, INC.
GRAVOIS HEALTH CARE, INC.
HEALTH CARE SYSTEMS, INC.
HOME HEALTH INTEGRATED HEALTH SERVICES OF FLORIDA, INC.
HOSPICE INTEGRATED HEALTH SERVICES OF DISTRICT I, INC.
HOSPICE INTEGRATED HEALTH SERVICES OF DISTRICT VII-B, INC.
HOSPICE INTEGRATED HEALTH SERVICES OF FLORIDA, INC.
HOSPICE OF INTEGRATED HEALTH SERVICES, INC.
IHS ACQUISITION XIII, INC.
IHS ACQUISITION XV, INC.
IHS ACQUISITION XVIII, INC.
IHS ACQUISITION XIX, INCL
IHS ACQUISITION XXII, INC.
<PAGE>
4
IHS AT LANSING, INC.
IHS CHICAGO POST-ACUTE NETWORK, INC.
IHS DEVELOPMENT-HIGHLANDS PARK, INC.
IHS HOME CARE, INC.
IHS LAND ACQUISITION-HIGHLANDS PARK, INC.
IHS MANAGEMENT GROUP, INC.
IHS NETWORK SERVICES, INC.
IHS OF DANA, INC.
IN-HOME HEALTH CARE, INC.
INTEGRACARE, INC.
INTEGRATED-BALLARD, INC.
INTEGRATED HEALTH GROUP LIMITED PARTNERSHIP
INTEGRATED HEALTH OF LOCUST VALLEY ROAD, INC.
INTEGRATED HEALTH OF WATERFORD COMMONS, INC.
INTEGRATED HEALTH SERVICES AT ALEXANDRIA, INC.
INTEGRATED HEALTH SERVICES AT BIG SAIL, INC.
INTEGRATED HEALTH SERVICES AT BLUE RIDGE MANOR, INC.
INTEGRATED HEALTH SERVICES AT BRIARCLIFF HAVEN, INC.
INTEGRATED HEALTH SERVICES AT CADIZ, INC.
INTEGRATED HEALTH SERVICES AT CENTRAL FLORIDA, INC.
INTEGRATED HEALTH SERVICES AT CHEYENNE, INC.
INTEGRATED HEALTH SERVICES AT COLORADO SPRINGS, INC.
INTEGRATED HEALTH SERVICES AT COLUMBUS, INC.
INTEGRATED HEALTH SERVICES AT DAYTON, INC.
INTEGRATED HEALTH SERVICES AT DRIFTWOOD, INC.
INTEGRATED HEALTH SERVICES AT EASTERN MASSACHUSETTS, INC.
INTEGRATED HEALTH SERVICES AT GRANDVIEW CARE CENTER, INC.
INTEGRATED HEALTH SERVICES AT GREAT BEND, INC.
INTEGRATED HEALTH SERVICES AT HIGHLANDS PARK, INC.
INTEGRATED HEALTH SERVICES AT HOPEDALE, INC.
INTEGRATED HEALTH SERVICES AT HOUSTON, INC.
INTEGRATED HEALTH SERVICES AT INDIAN CREEK, INC.
INTEGRATED HEALTH SERVICES AT KENT, INC.
INTEGRATED HEALTH SERVICES AT KING DAVID CENTER, INC.
INTEGRATED HEALTH SERVICES AT NEWARK, INC.
INTEGRATED HEALTH SERVICES AT ORMOND BEACH, INC.
INTEGRATED HEALTH SERVICES AT PARK REGENCY, INC.
INTEGRATED HEALTH SERVICES AT PENN, INC.
INTEGRATED HEALTH SERVICES AT SILVERCREST, INC.
INTEGRATED HEALTH SERVICES AT SOMERSET VALLEY, INC.
INTEGRATED HEALTH SERVICES AT SOUTHERN HILLS, INC.
INTEGRATED HEALTH SERVICES AT STEUBENVILLE
INTEGRATED HEALTH SERVICES AT SYCARMORE CREEK, INC.
INTEGRATED HEALTH SERVICES AT THREE RIVERS, INC.
INTEGRATED HEALTH SERVICES AT TREYBURN, INC.
<PAGE>
5
INTEGRATED HEALTH SERVICES FINANCIAL HOLDINGS, INC.
INTEGRATED HEALTH SERVICES HOLDINGS, INC.
INTEGRATED HEALTH SERVICES NPR, INC.
INTEGRATED HEALTH SERVICES OF ARCADIA, INC.
INTEGRATED HEALTH SERVICES OF ATHENS, INC.
INTEGRATED HEALTH SERVICES OF BRENTWOOD, INC.
INTEGRATED HEALTH SERVICES OF BRUNSWICK, INC.
INTEGRATED HEALTH SERVICES OF CALIFORNIA, INC.
INTEGRATED HEALTH SERVICES OF CLIFF MANOR, INC.
INTEGRATED HEALTH SERVICES OF COLORADO AT CHERRY CREEK, INC.
INTEGRATED HEALTH SERVICES OF EAGLE CREEK, INC.
INTEGRATED HEALTH SERVICES OF GREEN BRIAR, INC.
INTEGRATED HEALTH SERVICES OF HERITAGE MANOR, INC.
INTEGRATED HEALTH SERVICES OF HICKORY CREEK, INC.
INTEGRATED HEALTH SERVICES OF INDIAN HILLS, INC.
INTEGRATED HEALTH SERVICES OF JACKSONVILLE, INC.
INTEGRATED HEALTH SERVICES OF KURT, INC.
INTEGRATED HEALTH SERVICES OF LESTER, INC.
INTEGRATED HEALTH SERVICES OF MELISSA, INC.
INTEGRATED HEALTH SERVICES OF MISSOURI, INC.
INTEGRATED HEALTH SERVICES OF ORANGE PARK, INC.
INTEGRATED HEALTH SERVICES OF RIVERBEND, INC.
INTEGRATED HEALTH SERVICES OF SCENIC HILLS, INC.
INTEGRATED HEALTH SERVICES OF SKYVIEW, INC.
INTEGRATED HEALTH SERVICES OF SKYVIEW II, INC.
INTEGRATED HEALTH SERVICES OF SUNSET, INC.
INTEGRATED MANAGED CARE, INC. (formerly Isabeth Co., Inc.)
INTEGRATED MANAGEMENT-GOVERNOR'S PARK, INC.
INTEGRATED OF AMARILLO, INC.
INTEGRATED PHYSICIAN GROUP SERVICES, INC.
J.R. REHAB ASSOCIATES, INC.
LIFEWAY, INC.
LPC BETHAMY HEALTH CORPORATION, L.P.
MANCHESTER INTEGRATED HEALTH, INC.
MOBILE RAY OF NEW ORLEANS, INC.
MOUNTAIN VIEW NURSING CENTER, INC.
NEW SOUTHWOOD ASSOCIATES, INC.
PALESTINE NURSING CENTER, INC.
PINELLAS PARK NURSING HOME, INC.
PREFERRED HOME HEALTH SERVICES, INC.
PROFESSIONAL REVIEW NETWORK, INC.
REHAB MANAGEMENT SYSTEMS, INC.
REST HAVEN NURSING CENTERS, INC.
REST HAVEN NURSING CENTERS (CHESTNUT HILL), INC.
REST HAVEN NURSING CENTERS (WHITEMARSH), INC.
<PAGE>
6
RIKAD PROPERTIES, INC.
SAMARITAN CARE, INC. (Illinois Domestic)
SAMARITAN CARE, INC. (Michigan Domestic)
SAMARITAN MANAGEMENT, INC.
SHC OF ARIZONA, L.P.
SHC SERVICES OF ARIZONA, L.P.
SIGNATURE HOME CARE GROUP, INC.
SIGNATURE HOME CARE, INC.
SIGNATURE HOME CARE OF ARLINGTON, INC.
SIGNATURE HOME CARE OF FLORIDA, INC.
SIGNATURE HOME CARE OF GEORGIA, INC.
SIGNATURE HOME CARE OF KANSAS, INC.
SIGNATURE HOME CARE OF NEW JERSEY, INC.
SIGNATURE HOME CARE OF NEW JERSEY GENERAL PARTNERSHIP
SIGNATURE HOME CARE OF SAN ANTONIO, INC.
SIGNATURE HOME CARE SERVICES OF FLORIDA, INC.
SIGNATURE HOME CARE SERVICES OF SAN ANTONIO, INC.
SIGNATURE MANAGEMENT SERVICES, INC.
SIGNATURE RECEIVABLES CORP.
SLC COMMUNITY CARE, INC.
SOUTHWOOD HOLDINGS, INC.
SPRING CREEK OF IHS, INC.
SYMPHONY ANCILLARY SERVICES, INC.
SYMPHONY DIAGNOSTIC SERVICES, INC.
SYMPHONY DIAGNOSTIC SERVICES NO. 1, INC.
SYMPHONY DIAGNOSTIC SERVICES NO. 2, INC.
SYMPHONY HEALTH CARE CONSULTING, INC.
SYMPHONY HEALTH SERVICES, INC.
SYMPHONY HOME CARE SERVICES, INC.
SYMPHONY HOME CARE SERVICES NO. 1, INC.
SYMPHONY HOME CARE SERVICES NO. 2, INC.
SYMPHONY HOME CARE SERVICES NO. 3, INC.
SYMPHONY HOME CARE SERVICES NO. 4, INC.
SYMPHONY HOME CARE SERVICES NO. 5, INC.
SYMPHONY HOME CARE SERVICES NO. 6, INC.
SYMPHONY HOME CARE SERVICES NO. 7, INC.
SYMPHONY HOME CARE SERVICES NO. 8, INC.
SYMPHONY HOME CARE SERVICES NO. 9, INC.
SYMPHONY HOME CARE SERVICES NO. 10, INC.
SYMPHONY HOME CARE SERVICES NO. 11, INC.
SYMPHONY HOME CARE SERVICES NO. 12, INC.
SYMPHONY HOME CARE SERVICES NO. 13, INC.
SYMPHONY HOME CARE SERVICES NO. 14, INC.
SYMPHONY HOME CARE SERVICES NO. 15, INC.
SYMPHONY HOME CARE SERVICES NO. 16, INC.
<PAGE>
7
SYMPHONY HOME CARE SERVICES NO. 17, INC.
SYMPHONY HOME CARE SERVICES NO. 18- CALIFORNIA, INC.
SYMPHONY HOME CARE SERVICES NO. 18- LOUISIANA, INC.
SYMPHONY HOME CARE SERVICES NO. 18- OKLAHOMA, INC.
SYMPHONY HOME CARE SERVICES NO. 18- TEXAS. INC.
SYMPHONY HOME CARE SERVICES NO. 19, INC.
SYMPHONY HOME CARE SERVICES NO. 100, INC.
SYMPHONY HOME CARE SERVICES NO. 101, INC.
SYMPHONY HOME CARE SERVICES NO. 102, INC.
SYMPHONY HOME CARE SERVICES NO. 103, INC.
SYMPHONY HOME CARE SERVICES NO. 104, INC.
SYMPHONY HOME CARE SERVICES NO. 105, INC.
SYMPHONY HOME CARE SERVICES NO. 106, INC.
SYMPHONY HOME CARE SERVICES NO. 107, INC.
SYMPHONY HOME CARE SERVICES NO. 108, INC.
SYMPHONY HOME CARE SERVICES NO. 109, INC.
SYMPHONY HOME CARE SERVICES NO. 110, INC.
SYMPHONY HOME CARE SERVICES NO. 113, INC.
SYMPHONY HOME CARE SERVICES NO. 114, INC.
SYMPHONY HOME CARE SERVICES NO. 115, INC.
SYMPHONY HOME CARE SERVICES NO. 116, INC.
SYMPHONY HOME CARE SERVICES NO. 117, INC.
SYMPHONY HOME CARE SERVICES NO. 118, INC.
SYMPHONY HOME CARE SERVICES NO. 119, INC.
SYMPHONY HOME CARE SERVICES NO. 120, INC.
SYMPHONY HOME CARE SERVICES NO. 121, INC.
SYMPHONY HOME CARE SERVICES NO. 122, INC.
SYMPHONY REHABILITATION SERVICES, INC.
SYMPHONY REHABILITATION SERVICES NO. 1, INC.
SYMPHONY REHABILITATION SERVICES NO. 2, INC.
SYMPHONY REHABILITATION SERVICES NO. 3, INC.
SYMPHONY REHABILITATION SERVICES NO. 4, INC.
SYMPHONY RESPIRATORY SERVICES, INC.
TEXAS LPC, INC.
THE BESTON CORPORATION
WEST COAST CAMBRIDGE, INC.
WOODRIDGE CONVALESCENT CENTER, INC.
By:
---------------------------------------
Name:
---------------------------------
Title:
--------------------------------
of Each Guarantor or of the
General Partner of such Guarantor
GUARANTY, dated as of April 14, 1997, made by INTEGRATED HEALTH
SERVICES, INC. (the "Guarantor") in favor of DAIWA HEALTHCO-2 LLC ("Daiwa").
PRELIMINARY STATEMENTS.
Daiwa is the lender under that certain Loan and Security
Agreement, dated as of December 23, 1996 (as amended on the date hereof, and as
the same may be further amended, modified, supplemented or restated from time to
time in accordance with its terms, the "LSA"), between CCA Funding LLC ("CCA")
and Daiwa. All terms not otherwise defined herein shall have meanings set forth
in the LSA.
Daiwa and CCA are entering into a certain Waiver and Amendment,
dated as of the date hereof, to the LSA. The Guarantor will derive substantial
benefit from the transactions contemplated by the LSA as amended. It is a
condition precedent to the effectiveness of the Waiver and Amendment that the
Guarantor shall have executed and delivered this Guaranty.
NOW, THEREFORE, in consideration of the premises, the Guarantor
hereby agrees as follows:
SECTION 1. Guaranty; Limitation of Liability
(a) The Guarantor hereby unconditionally and irrevocably
guarantees the punctual payment when due of all amounts owing from CCA under the
LSA in excess of the Basic Borrowing Amount (the "Guaranteed Obligations") and
agrees to pay any and all reasonable costs and expenses (including reasonable
counsel fees and expenses) paid or incurred in enforcing any rights under this
Guaranty. Without limiting the generality of the foregoing, the Guarantor's
liability shall extend to all amounts that constitute part of the Guaranteed
Obligations and would be owed by CCA under the LSA but for the fact that they
are unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving a Provider.
(b) Any and all payments by or on behalf of the Guarantor
hereunder shall be made free and clear of and without deduction or withholding
for any and all present or future taxes unless required by law.
SECTION 2. Guaranty Absolute. The Guarantor guarantees that the
Guaranteed Obligations will be paid in accordance with the terms of the LSA
regardless of any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of such terms or the rights of CCA or Daiwa with
respect thereto. The obligations of the Guarantor hereunder is independent of
the obligations of CCA under the LSA and a separate action or actions may be
brought or prosecuted against the Guarantor to enforce this Guaranty,
irrespective of whether action is brought against CCA or whether CCA is joined
in any such action or actions. The liability of the Guarantor under this
<PAGE>
Guaranty shall be absolute and unconditional, and shall not be affected or
released in any way, irrespective of-.
(a) any lack of validity or enforceability of the LSA or any
agreement or instrument relating thereto (collectively, the "Documents");
(b) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Guaranteed Obligations, or any other
amendment or waiver of or any consent to departure from any Document including,
without limitation, any increase in the Guaranteed Obligations;
(c) any taking and holding of collateral or additional
guarantees for all or any of the Guaranteed Obligations, or any amendment,
alteration, exchange, substitution, transfer, enforcement, waiver,
subordination, termination or release of any collateral or such guarantees, or
non-perfection or delay in perfection of any collateral, or any consent to
departure from any such guaranty, for all or any of the Guaranteed Obligations;
(d) any manner of application of collateral, or proceeds
thereof, to all or any of the Guaranteed Obligations, or any commercially
reasonable manner of sale or other disposition of any collateral for all or any
of the Guaranteed Obligations or any other assets of CCA or any other Person;
(e) any consent by Daiwa, CCA or any other Person to the change,
restructure or termination of the corporate structure or existence of CCA, Daiwa
or any of their affiliates and any corresponding restructure of the Guaranteed
Obligations, or any other restructure or refinancing of the Guaranteed
Obligations or any portion thereof; or
(f) any other circumstance which might otherwise constitute a
defense available to, or a discharge of CCA.
Without limiting the generality of the foregoing, the Guarantor
hereby consents to, and hereby agrees, that the rights of Daiwa hereunder, and
the liability of the Guarantor hereunder, shall not be affected by any and all
releases of any collateral, whether for purposes of commercially reasonable
sales or other dispositions of assets or for any other purpose.
Section 3. Waivers. The Guarantor hereby waives:
(a) promptness, diligence, notice of acceptance and any
other notice with respect to any of the Guaranteed Obligations
and this Guaranty;
(b) any requirement that Daiwa, CCA or any other Person
protect, secure, perfect or insure any Lien or any property
subject thereto or exhaust any right or take any action against
CCA or any other Person or any collateral; and
2
<PAGE>
(c) any duty on the part of Daiwa, CCA or any other Person
to disclose to the Guarantor any matter, fact or thing relating
to the business, operation or condition of CCA and its assets
now known or hereafter known by such Person.
SECTION 4. Waiver of Subrogation and Contribution. Until the
later to occur of the Maturity Date and payment in full of all Guaranteed
Obligations, the Guarantor hereby irrevocably waives any claim or other rights
which it may now or hereafter acquire against CCA that arises from the
existence, payment, performance or enforcement of the Guarantor's obligations
under this Guaranty, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution or indemnification and any right to
participate in any claim or remedy against CCA or any collateral which Daiwa now
has or hereafter acquires, whether or not such claim, remedy or right arises in
equity, or under contract, statute or common law, including, without limitation,
the right to take or receive from CCA or, directly or indirectly, in cash or
other property or by set-off or in any other manner, payment or security on
account of such claim, remedy or other right. If any amount shall be paid to the
Guarantor in violation of the preceding sentence at any time prior to the later
to occur of the Maturity Date and payment in full of all Guaranteed Obligations,
such amount shall be deemed to have been paid to the Guarantor for the benefit
of, and held in trust for the benefit of, Daiwa, and shall forthwith be paid to
Daiwa to be credited and applied to the Guaranteed Obligations and all other
amounts payable under this Guaranty, whether matured or unmatured, in accordance
with the terms of the Documents, or to be held as collateral for any Guaranteed
Obligations or other amounts payable under this Guaranty thereafter arising. The
Guarantor acknowledges that it will receive direct and indirect benefits from
the financing arrangements contemplated by the Documents and that the waiver set
forth in this subsection is knowingly made in contemplation of such benefits.
SECTION 5. Representations and Warranties. The Guarantor hereby
represents and warrants as follows:
(a) no authorization, consent, approval or other action
by, and no notice to or filing with, any governmental authority
or regulatory body or any other Person is required for the due
execution, delivery and performance by the Guarantor of this
Guaranty except for consents which have been obtained.
(b) it has, independently and without reliance upon Daiwa
or CCA and based on such documents and information as it has
deemed appropriate, made its own credit analysis and decision to
enter into this Guaranty.
SECTION 6. Amendments, Etc. No amendment or waiver of any
provision of this Guaranty nor consent to any departure by the Guarantor
therefrom shall in any event be effective unless the same shall be in writing
and signed by Daiwa (and, if an amendment, by the Guarantor), and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
3
<PAGE>
SECTION 7. No Waiver; Remedies. No failure on the part of Daiwa,
to exercise, and no delay 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. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law or any other Document.
SECTION 8. Continuing Guaranty; Assignment. This Guaranty is a
continuing guaranty and shall (a) subject to the last sentence of Section 2
hereof, remain in full force and effect until the later to occur of the Maturity
Date and payment in full of all Guaranteed Obligations, (b) be binding upon the
Guarantor, its successors and assigns, and (c) inure to the benefit of and be
enforceable by Daiwa and its successors and assigns.
SECTION 9. Financial Condition of CCA. The Guarantor represents
to Daiwa that it is now and will be completely familiar with the prospects,
business, operations and condition (financial and otherwise) of CCA, and the
Guarantor hereby waives and relinquishes any duty on the part of Daiwa or any
other Person to disclose any matter, fact or thing relating to the prospects,
business, assets, liabilities, operations or condition (financial or otherwise)
of CCA now known or hereafter known by Daiwa or any other Person.
SECTION 10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK (WITHOUT
GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF).
SECTION 11. WAIVER OF JURY TRIAL, JURISDICTION AND VENUE. THE
PARTIES HERETO HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY IN THE EVENT OF ANY
LITIGATION WITH RESPECT TO ANY MATTER RELATED TO THIS AGREEMENT, AND HEREBY
IRREVOCABLY CONSENT TO THE JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED
IN NEW YORK COUNTY, NEW YORK CITY, NEW YORK IN CONNECTION WITH ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. IN ANY SUCH LITIGATION,
THE PARTIES HERETO WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER
PROCESS AND AGREES THAT SERVICE THEREOF MAY BE MADE BY CERTIFIED OR REGISTERED
MAIL DIRECTED TO THE OTHER PARTY AT ITS ADDRESS SET FORTH ON THE SIGNATURE PAGE
HEREOF. THE PARTIES HERETO SHALL APPEAR IN ANSWER TO SUCH SUMMONS, COMPLAINT OR
OTHER PROCESS WITHIN THE TIME PRESCRIBED BY LAW, FAILING WHICH THE PARTIES
FAILING TO SO APPEAR SHALL BE DEEMED IN DEFAULT AND JUDGMENT MAY BE ENTERED BY
THE OTHER PARTY FOR THE AMOUNT OF THE CLAIM AND OTHER RELIEF REQUESTED THEREIN.
SECTION 12. Severabilitv. If any term or provision of this
Guaranty is or shall become illegal, invalid or unenforceable in any
jurisdiction, all other terms and provisions of this
4
<PAGE>
Guaranty shall remain legal, valid and enforceable in such jurisdiction and such
illegal, invalid or unenforceable provision shall be legal, valid and
enforceable in all other jurisdictions.
SECTION 13. Section Titles. The Section titles contained in this
Guaranty 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.
IN WITNESS WHEREOF, this __ day of April 1997, the Guarantor has
caused this Guaranty to be duly executed and delivered by its officer thereunto
duly authorized as of the date first above written.
INTEGRATED HEALTH SERVICES, INC.
By: /s/ W. Bradley Bennet
--------------------------------------------
Name: W. Bradley Bennet
Title: Executive Vice President and
Chief Accounting Officer
AGREED:
CCA FUNDING LLC
By: /s/ Timothy J. Trybus
--------------------------------------------
Name: Timothy J. Trybus
Title: Vice President and Treasurer
Address: 3050 N. Horseshoe Drive, Suite 260
Naples FL 34104
5
GUARANTY dated as of April 14, 1997 made by INTEGRATED HEALTH
SERVICES, INC., a Delaware corporation (the "Guarantor") and HEALTH AND
RETIREMENT PROPERTIES TRUST, a Maryland real estate investment trust (with its
successor and assigns, "HRP").
WITNESSETH:
WHEREAS, Community Care of America, Inc. ("CCA") and its subsidiaries (with
CCA, collectively, the "CCA Companies") have entered into certain loan and lease
financings with HRP governed by certain documents, instruments and agreements to
which the various CCA Companies and/or HRP are a party (as from time to time in
effect, collectively, the "CCA Documents");
WHEREAS, the CCA Companies have requested that HRP (a) consent to the
waiver through February 28, 1998 of the covenants in the CCA Documents requiring
the CCA Companies (i) to maintain a ratio of current assets to current
liabilities of at least 1.0 to 1.0 and (ii) not to permit its tangible net worth
to be less than $5,000,000 and (b) agree to apply a portion of the $6,185,000
security deposit held by HRP as collateral for the obligations of the CCA
Companies under the CCA Documents (the "Security Deposit") to the payment of
existing arrearages under the CCA Documents, to pay a restructuring fee to HRP
and to pay 50% of future monthly payments of regularly scheduled installments of
Minimum and Additional Rent, Mortgage Facilities Fees and principal and interest
on loans by HRP, as and when due;
WHEREAS, HRP is willing to so consent and agree, subject to the terms and
conditions of a letter agreement dated as of April 14, 1997 by HRP to the CCA
Companies (the "Letter Agreement");
WHEREAS, it is a condition to the effectiveness of the Letter Agreement
that, among other things, the Guarantor deliver this Guaranty in favor of HRP;
WHEREAS, the Guarantor holds warrants to purchase ___ shares of common
stock of CCA, the value of which would be adversely affected if the Letter
Agreement, were not to become affected;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the Guarantor hereby agrees with HRP as follows:
1. Defined Terms. Unless otherwise defined herein, terms which are defined in
the CCA Documents and used herein are so used as so defined. In addition, the
following terms shall have the meanings set forth below:
<PAGE>
- 2 -
"Applicable-Law" shall mean any law of any governmental authority, whether
domestic or foreign, including without limitation all federal and state laws, to
which the Person in question is subject or by which it or any of its property is
bound, and including without limitation any: (a) administrative, executive,
judicial, legislative or other action, code, consent decree, constitution,
decree, directive, enactment, finding, guideline, injunction, interpretation,
judgment, law, order, ordinance, policy statement, proclamation, promulgation,
regulation, requirement, rule, rule of law, rule of public policy, settlement
agreement, statute, or writ, of any governmental authority, domestic or foreign,
whether or not having the force of law; (b) common law or other legal or
quasi-legal precedent; or (c) arbitrator's, mediator's or referee's award,
decision, finding or recommendation, or, in any case, any particular section,
part or provision thereof
"CCA Event of Default" shall mean an "Event of Default" under and as
defined in any CCA Document.
"Default Amount" shall mean $10,000,000 or such lesser amount to which the
Guarantor's maximum liability hereunder has been reduced pursuant to the second
paragraph of Section 2 hereof.
"Default Rate" shall mean 4% per annum above the prime rate or base rate on
corporate loans at large U.S. money center commercial banks as published in The
Wall Street Joumal or, if publication of such rate shall be suspended or
terminated, the annual rate of interest, determined daily and expressed as a
percentage, from time to time announced by one of the five largest
national-chartered banking institutions having their principal office in New
York, New York and selected by HRP at the time such publication is suspended or
terminated. Each change in the Interest Rate shall take effect simultaneously
with the date of publication or announcement, as applicable, of each
corresponding change in such prime rate or base rate.
"Material Adverse Effect" means a material adverse effect on (a) the
business, operations, property, condition (financial or otherwise) or prospects
of the Guarantor, or of the Guarantor and its Subsidiaries taken as a whole, (b)
the ability of the Guarantor to perform its obligations under this Guaranty, or
(c) the validity or enforceability of this Guaranty, or the rights of HRP
hereunder.
"Obligations" shall mean the payment and performance of each and every
obligation and liability of any CCA Company to HRP, whether under a CCA Document
or otherwise, whether now existing or hereafter arising or created, joint or
several, direct or indirect, absolute or contingent, due or to become due,
matured or unmatured, liquidated or unliquidated, arising by contract, operation
of law or otherwise, and including, without limitation, (i) all principal,
premium or prepayment fee and interest (including, without limitation, Minimum
Interest and Additional Interest, as such terms are defined in the various CCA
Documents) under any promissory note payable to HRP, (ii) all rent under any
lease with HRP as landlord (including, without limitation, any Minimum Rent,
Additional Rent and Additional Charges, as such terms are defined in the
<PAGE>
- 3 -
various CCA Documents), and (iii) all fees and charges (including without
limitation, any Mortgage Facilities Fee, as such term is defined in the various
CCA Documents).
2. Guaranty. The Guarantor hereby unconditionally and irrevocably guarantees to
HRP the prompt and complete payment and performance by the CCA Companies (and
each of them), when due (whether at stated maturity, by acceleration or
otherwise), of the Obligations. The Guarantor further agrees to pay any and all
reasonable expenses (including, without limitation, all reasonable fees and
disbursements of counsel to HRP) which may be paid or incurred by HRP in
enforcing any of its rights under this Guaranty. This Guaranty is a guaranty of
payment and not of collectibility and is absolute and in no way conditional or
contingent. The Guarantor's liability hereunder is direct and unconditional and
(without limiting the provisions of Section 15 hereof) may be enforced after
nonpayment or nonperformance by any CCA Company of any Obligation without
requiring HRP to resort to any other Person (including without limitation such
CCA Company) or any other right, remedy or collateral. This Guaranty shall
remain in full force and effect until the Obligations are paid in full.
Notwithstanding the aggregate amount of the Obligations at any time or from
time to time payable or to be payable by the CCA Companies to HRP, the liability
of the Guarantor to HRP hereunder in respect of the Obligations shall not exceed
$10,000,000 in the aggregate. The Guarantor agrees that the Obligations may at
any time and from time to time exceed the amount of the liability of the
Guarantor hereunder without impairing this Guaranty or affecting the rights and
remedies of HRP hereunder. The Guarantor agrees that whenever, at any time, or
from time to time, it shall make any payment to HRP on account of its liability
hereunder, it will notify HRP in writing that such payment is made under this
Guaranty for such purpose. No payment or payments made by any CCA Company or any
other Person or received or collected by HRP from any CCA Company or any other
Person by virtue of any action or proceeding or any set-off or appropriation or
application, at any time or from time to time, in reduction of or in payment of
the Obligations shall be deemed to modify, reduce, release or otherwise affect
the liability of the Guarantor hereunder which shall, notwithstanding any such
payment or payments, remain liable for the amount of the Obligations until the
Obligations are paid in full.
3. Costs and Expenses of Collection. The Guarantor agrees, as principal obligor
and not as a guarantor only, to pay to HRP forthwith upon demand, in immediately
available funds, all costs and expenses (including, without limitation, all
court costs and all fees and disbursements of counsel to HRP) incuffed or
expended by HRP in connection with the enforcement of this Guaranty, together
with interest on such amounts from the time such amounts become due until
payment at the Default Rate. The Guarantor's covenants and agreements set forth
in this Section 3 shall survive the termination of this Guaranty.
4. Right of Setoff. Regardless of the adequacy of any collateral or other means
of obtaining repayment of the Obligations, HRP is hereby authorized, without
notice to the Guarantor or compliance with any other condition precedent now or
hereafter imposed by Applicable Law (all of which are hereby expressly waived to
the extent permitted by Applicable Law) and to the fullest extent permitted by
Applicable Law, to set off and apply any securities, deposits or other property
belonging to the Guarantor now or hereafter held by HRP against the obligations
of the
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Guarantor under this Guaranty, whether or not HRP shall have made any demand
under this Guaranty, at any time and from time to time after the occurrence of a
Guarantor Event of Default, in such manner as HRP in its sole discretion may
determine, and the Guarantor hereby grants HRP a continuing security interest in
such securities, deposits and property for the payment and performance of such
obligations.
5. Subrogation and Contribution. Until the Obligations shall have been paid and
performed in full, the Guarantor irrevocably and unconditionally waives any and
all rights to which it may be entitled, by operation of law or otherwise, to be
subrogated, with respect to any payment made by the Guarantor hereunder, to the
rights of HRP against any CCA Company, or otherwise to be reimbursed,
indemnified or exonerated by any CCA Company in respect thereof or to receive
any payment, in the nature of contribution or for any other reason, from any
other guarantor of the Obligations with respect to any payment made by the
Guarantor hereunder. Until the Obligations shall have been paid and performed in
full, the Guarantor waives any defense it may have based upon any election of
remedies by HRP which impairs the Guarantor's subrogation rights or the
Guarantor's rights to proceed against any CCA Company for reimbursement
(including without limitation any loss of rights the Guarantor may suffer by
reason of any rights, powers or remedies of such CCA Company in connection with
any anti-deficiency laws or any other laws limiting, qualifying or discharging
any indebtedness to HRP). Until the Obligations shall have been paid, performed
and satisfied in full, the Guarantor further waives any right to enforce any
remedy which HRP now has or may in the future have against any CCA Company, any
other guarantor or any other Person and any benefit of, or any right to
participate in, any security whatsoever now or in the future held by HRP.
6. Effect of Bankruptcy Stay. If acceleration of the time for payment or
performance of any of the Obligations is stayed upon the insolvency, bankruptcy
or reorganization of any CCA Company or any other Person or otherwise, all such
amounts otherwise subject to acceleration shall nonetheless be payable by the
Guarantor under this Guaranty forthwith upon demand.
7. Receipt of CCA Documents, etc. The Guarantor confirms, represents and
warrants to HRP that (i) it has received true and complete copies of all
existing CCA Documents from the CCA Companies, has read the contents thereof and
reviewed the same with legal counsel of its choice; (ii) no representations or
agreements of any kind have been made to the Guarantor which would limit or
qualify in any way the terrns of this Guaranty; (iii) this Guaranty is executed
at the CCA Companies' request and not at the request of HRP; (iv) HRP has made
no representation to the Guarantor as to the creditworthiness of any CCA
Company; and (v) the Guarantor has established adequate means of obtaining from
each CCA Company on a continuing basis information regarding such CCA Company's
financial condition. The Guarantor agrees to keep adequately informed from such
means of any facts, events, or circumstances which might in any way affect the
Guarantor's risks under this Guaranty, and the Guarantor further agrees that HRP
shall have no obligation to disclose to the Guarantor any information or
documents acquired by HRP in the course of its relationship with the CCA
Companies .
8. Amendments, etc. with Respect to the Obligations. The obligations of the
Guarantor under this Guaranty shall remain in full force and effect without
regard to, and shall not be
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released, altered, exhausted, discharged or in any way affected by any
circumstance or condition (whether or not any CCA Company shall have any
knowledge or notice thereof), including without limitation (a) any amendment or
modification of or supplement to any CCA Document, or any obligation, duty or
agreement of the CCA Companies or any other Person thereunder or in respect
thereof; (b) any assignment or transfer in whole or in part of any of the
Obligations; any fumishing, acceptance, release, nonperfection or invalidity of
any direct or indirect security or guaranty for any of the Obligations; (c) any
waiver, consent, extension, renewal, indulgence, settlement, compromise or other
action or inaction under or in respect of any CCA Document, or any exercise or
nonexercise of any right, remedy, power or privilege under or in respect of any
such instrument (whether by operation of law or otherwise); (d) any bankruptcy,
insolvency, reorganization, arrangement, readjustment, composition, liquidation
or similar proceeding with respect to any CCA Company or any other Person or any
of their respective properties or creditors or any resulting release or
discharge of any Obligation (including without limitation any rejection of any
lease pursuant to Section 365 of the Federal Bankruptcy Code); (e) any new or
additional financing arrangements entered into by any CCA Company or by any
other Person on behalf of or for the benefit of any CCA Company; (f) the merger
or consolidation of any CCA Company with or into any other Person or of any
other Person with or into any CCA Company; (g) the voluntary or involuntary sale
or other disposition of all or substantially all the assets of any CCA Company
or any other Person; (h) the voluntary or involuntary liquidation, dissolution
or termination of any CCA Company or any other Person; (i) any invalidity or
unenforceability, in whole or in part, of any term hereof or of any CCA
Document, or any obligation, duty or agreement of any CCA Company or any other
Person thereunder or in respect thereof; (j) any provision of any applicable law
or regulation purporting to prohibit the payment or performance by any CCA
Company or any other Person of any Obligation; (k) any failure on the part of
any CCA Company or any other Person for any reason to perform or comply with any
term of any CCA Document or any other agreement; or (1) any other act, omission
or occurrence whatsoever, whether similar or dissimilar to the foregoing. The
Guarantor authorizes each CCA Company, each other guarantor in respect of the
Obligations and HRP at any time in its discretion, as the case may be, to alter
any of the terms of any of the Obligations.
9. Guarantor as Principal. If for any reason the CCA Companies, or any of them,
or any other Person is under no legal obligation to discharge any Obligation, or
if any other moneys included in the Obligations have become unrecoverable from
the CCA Companies, or any of them, or any other Person by operation of law or
for any other reason, including, without limitation, the invalidity or
irregularity in whole or in part of any Obligation or of any CCA Document, the
legal disability of any CCA Company or any other obligor in respect of
Obligations, any discharge of or limitation on the liability of any CCA Company
or any other Person or any limitation on the method or terms of payment under
any Obligation, or of any CCA Document, which may now or hereafter be caused or
imposed in any manner whatsoever (whether consensual or arising by operation of
law or otherwise), this Guaranty shall nevertheless remain in full force and
effect and shall be binding upon the Guarantor to the same extent as if the
Guarantor at all times had been the principal obligor on all Obligations.
10. Waiver of Demand, Notice, Etc, The Guarantor hereby waives, to the extent
not prohibited by applicable law, all presentments, demands for performance,
notice of
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nonperformance, protests, notices of protests and notices of dishonor in
connection with the Obligations or any CCA Document, including but not limited
to (a) notice of the existence, creation or incurring of any new or additional
obligation or of any action or failure to act on the part of any CCA Company,
HRP, any endorser or creditor of any CCA Company or any other Person; (b) any
notice of any indulgence, extensions or renewals granted to any obligor with
respect to the Obligations; (c) any requirement of diligence or promptness in
the enforcement of rights under any CCA Document, or any other agreement or
instrument directly or indirectly relating thereto or to the Obligations; (d)
any enforcement of any present or future agreement or instrument relating
directly or indirectly thereto or to the Obligations; (e) notice of any of the
matters referred to in Section 9 above; (f) any defense of any kind which the
Guarantor may now have with respect to his liability under this Guaranty; (g)
any right to require HRP, as a condition of enforcement of this Guaranty, to
proceed against any CCA Company or any other Person or to proceed against or
exhaust any security held by HRP at any time or to pursue any other right or
remedy in HRP's power before proceeding against the Guarantor; (h) any defense
that may arise by reason of the incapacity, lack of authority, death or
disability of any other Person or Persons or the failure of HRP to file or
enforce a claim against the estate (in administration, bankruptcy, or any other
proceeding) of any other Person or Persons; (i) any defense based upon an
election of remedies by HRP; 0) any defense arising by reason of any "one
action" or "anti-deficiency" law or any other law which may prevent HRP from
bringing any action, including a claim for deficiency, against the Guarantor,
before or after HRP's commencement of completion of any foreclosure action,
either judicially or by exercise of a power of sale; (k) any defense based upon
any lack of diligence by HRP in the collection of any Obligation; (1) any duty
on the part of HRP to disclose to the Guarantor any facts HRP may now or
hereafter know about any CCA Company or any other obligor in respect of
Obligations; (m) any defense arising because of an election made by HRP under
Section 1 1 1 1 (b) (2) of the Federal Bankruptcy Code; (n) any defense based on
any borrowing or grant of a security interest under Section 364 of the Federal
Bankruptcy Code; (o) and any defense based upon or arising out of any defense
which any CCA Company or any other Person may have to the payment or performance
of the Obligations (including but not limited to failure of consideration,
breach of warranty, fraud, payment, accord and satisfaction, strict foreclosure,
statute of frauds, bankruptcy, infancy, statute of limitations, lender liability
and usury). Guarantor acknowledges and agrees that each of the waivers set forth
herein on the part of the Guarantor is made with Guarantor's full knowledge of
the significance and consequences thereof and that, under the circumstances, the
waivers are reasonable. If any such waiver is determined to be contrary to
Applicable Law such waiver shall be effective only to the extent not prohibited
by such Applicable Law.
ii. Reinstatement. This Guaranty shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Obligations is rescinded or must otherwise be restored or returned by
HRP upon the insolvency, bankruptcy, dissolution, liquidation or reorganization
of any CCA Company or upon or as a result of the appointment of a receiver,
intervenor or conservator of, or trustee or similar officer for, any CCA Company
or any substantial part of its property, or otherwise, all as though such
payments had not been made.
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12. The Guarantor hereby agrees that the Obligations will be paid to HRP without
set-off or counterclaim in U.S. Dollars at the office of HRP located at 400
Centre Street, Newton, Massachusetts 02158, or to such other location as HRP
shall notify the Guarantor.
13. Representations and Warranties. The Guarantor represents and warrants that:
(i) Corporate Existence. The Guarantor is a corporation
duly incorporated and validly existing under the laws of the
jurisdiction of its incorporation, and is duly licensed or
qualified as a foreign corporation in all states wherein the
nature of its property owned or business transacted by it makes
such licensing or qualification necessary, except where the
failure to be licensed or to so qualify could not have a
Material Adverse Effect.
(ii) No Violation. The execution, delivery and performance
of this Guaranty will not contravene any provision of law,
statute, rule or regulation to which the Guarantor or any of its
Subsidiaries is subject or any judgment, decree, franchise,
order or permit applicable to the Guarantor or any of its
Subsidiaries, or conflict or be inconsistent with or result in
any breach of, any of the terms, covenants, conditions or
provisions of, or constitute a default under, or result in the
creation or imposition of (or the obligation to create or
impose) any lien or security interest upon any of the property
or assets of the Guarantor or any of its Subsidiaries pursuant
to the terms of any agreement or instrument to which the
Guarantor or any of its Subsidiaries is party, or violate any
provision of the respective corporate charters or bylaws of the
Guarantor or any of its Subsidiaries.
(iii) Corporate Authority and Power. The execution,
delivery and performance of this Guaranty is within the
corporate powers of the Guarantor and has been duly authorized
by all necessary corporate action.
(iv) Enforceability. This Guaranty has been duly executed
and delivered by the Guarantor, and this Guaranty constitutes
the valid and binding obligation of the Guarantor enforceable
against the Guarantor in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and except as
enforceability may be subject to general principles of equity,
whether such principles are applied in a court of equity or at
law.
(v) Governmental Approvals. No order, permission, consent,
approval, license, authorization, registration or validation of,
or filing with, or exemption by, any governmental authority is
required to authorize, or is required in connection with, the
execution, delivery and performance of this Guaranty, or the
taking of any action contemplated hereby or thereby.
(vi) Litigation. The Guarantor has no notice or knowledge
of any action, suit or proceeding pending or threatened against
or affecting it at law or in equity or before or by any
governmental department, court, commission, board, bureau,
agency or
<PAGE>
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instrumentality, domestic or foreign, or before any arbitrator
of any kind that would, if adversely determined, have a Material
Adverse Effect.
14. Subordination of Claims against CCA Companies. Without limiting the
provisions of Section 5 hereof, the Guarantor hereby irrevocably agrees that any
and all claims which the Guarantor may now or hereafter have against any CCA
Company or any other guarantor of the Obligations, including, without
limitation, the benefit of any set-off or counterclaim or proof against
dividend, composition or payment by any CCA Company or such other guarantor,
shall be subject and subordinate to the prior payment in full of all of the
Obligations to HRP. After the occurrence of an Event of Default under and as
defined in any CCA Document, or any event or condition that with the giving of
notice or lapse of time or both could become such an Event of Default (a "CCA
Default"), the Guarantor shall not claim from any CCA Company or such other
guarantor, or with respect to any of their respective properties, any sums which
may be owing to the Guarantor, or have the benefit of any set-off or
counterclaim or proof against dividend, composition or payment by such CCA
Company or such other guarantor, until all Obligations shall have been paid in
full. Should any payment or distribution or security or the benefit of proceeds
thereof be received by the Guarantor upon or with respect to amounts due to the
Guarantor from any CCA Company or any other guarantor of the Obligations after a
CCA Default has occurred and prior to the payment in full of all Obligations,
the Guarantor shall forthwith deliver the same to HRP in precisely the form
received (except for endorsement or assignment where necessary), for application
in or towards repayment of the Obligations and, until so delivered, the same
shall be held in trust as property of HRP. In the event of the failure of the
Guarantor to make any such endorsement or assignment, HRP is hereby irrevocably
authorized to make the same on behalf of the Guarantor.
15. Guarantor Events of Default. If one or more of the following events (a
"Guarantor Event of Default") shall have occurred:
(i) a CCA Event of Default shall have occurred and be
continuing for more than three Business Days after notice by HRP
to the Guarantor;
(ii) the Guarantor shall fail to make punctual payment of
any amount payable hereunder as the same shall become due and
payable; or
(iii) any representation or warranty of the Guarantor
contained in this Guaranty, or any statement or certificate
furnished pursuant to any provision of this Guaranty or the
Amendment, shall have been false, incorrect or misleading in any
material respect when made or so certified to; or
(iv) the Guarantor shall breach any of the provisions of,
or fail duly to observe or perform any covenant, agreement or
provision contained in, this Guaranty, and such breach shall
continue for ten days after notice by HRP to the Guarantor; or
(v) the Guarantor shall apply for or consent to the
appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a
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substantial part of its property, make a general assignment for
the benefit of its creditors, commence a voluntary case under
the Bankruptcy Code, file a petition seeking to take advantage
of any other law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or readjustment of
debts, fail to controvert in a timely and appropriate manner, or
acquiesce in writing to, any petition filed against it in an
involuntary case under the Bankruptcy Code, or take any
corporate action for the purpose of effecting any of the
foregoing; or
(vi) a proceeding or case shall be commenced, without the
application or consent of the Guarantor thereof in any court of
competent jurisdiction, seeking its liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of
its debts, the appointment of a trustee, receiver, custodian,
liquidator or the like of the Guarantor or of all or any
substantial part of its assets, or similar relief in respect of
the Guarantor under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of
debts, and such proceeding or case shall continue undismissed,
or an order, judgment or decree approving or ordering any of the
foregoing shall be entered and continue unstayed and in effect,
for a period of 60 days; or an order for relief against the
Guarantor shall be entered in an involuntary case under the
Bankruptcy Code;
THEN, irrespective of whether a CCA Event of Default may then have occurred and
be continuing, (a) in the event of a Guarantor Event of Default described in
paragraph (v) or (vi) above, there shall become due and payable to HRP, and the
Guarantor shall immediately pay HRP, without notice or demand of any kind
whatsoever, an amount in immediately available funds equal to the Default
Amount, and (b) in the event of any other Guarantor Event of Default, upon
notice from HRP specifying such Guarantor Event of Default, there shall become
due and payable to HRP, and the Guarantor shall immediately pay HRP, an amount
in immediately available funds equal to Default Amount. The amounts so paid to
HRP shall be held as collateral for the payment of the Obligations and the
obligations of the Guarantor hereunder. Such amounts shall be applied by HRP to
the payment and performance of the Obligations and the obligations of the
Guarantor hereunder as and when the same become due and payable in accordance
with the provisions thereof and hereof.
16. Severability. Any provision of this Guaranty 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.
17. Additional Guaranties. This Guaranty shall be in addition to any other
guaranty or other security for the Obligations, and it shall not be prejudiced
or rendered unenforceable by the invalidity of any such other guaranty or
security.
<PAGE>
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18. Paragraph Headings. The paragraph headings used in this Guaranty are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
19. No Waiver, Cumulative Remedies. HRP shall not by any act (except by a
written instrument pursuant to Paragraph-20 hereof), delay, indulgence, omission
or otherwise, be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or in any breach of any of the terms and conditions
hereof. No failure to exercise, nor any delay in exercising, on the part of HRP,
any right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by HRP of any right or remedy hereunder on
any one occasion shall not be construed as a bar to any right or remedy which
HRP would otherwise have on any future occasion. The rights and remedies herein
provided are cumulative, may be exercised singly or concurrently and are not
exclusive of any rights or remedies provided by law.
20. Waivers and Amendments. None of the terms or provisions of this Guaranty may
be waived, amended, supplemented or otherwise modified except by a written
instrument executed by the Guarantor and HRP, provided that any provision of
this Guaranty may be waived by HRP in a letter or agreement executed by HRP or
by telecopy from HRP. This Guaranty shall be binding upon the successors and
assigns of the Guarantor and shall inure to the benefit of HRP and its
successors and assigns.
21. WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION; GOVERNING LAW. THE GUARANTOR
HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY NOW OR HEREAFTER HAVE TO A JURY TRIAL
IN ANY SUIT, ACTION OR PROCEEDING WHICH ARISES OUT OF OR BY REASON OF THIS
GUARANTY, ANY CCA DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY.
BY ITS EXECUTION AND DELIVERY OF THIS GUARANTY, THE GUARANTOR (1) ACCEPTS
FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY,
THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT OR
PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
GUARANTY, ANY CCA DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY,
IN ADDITION TO ANY OTHER COURT IN WHICH SUCH ACTION, SUIT OR PROCEEDING MAY BE
BROUGHT; (2) IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED BY ANY SUCH
COURT IN ANY SUCH ACTION, SUIT OR PROCEEDING IN WHICH IT SHALL HAVE BEEN SERVED
WITH PROCESS IN THE MANNER HEREINAFTER PROVIDED; (3) TO THE EXTENT THAT IT MAY
LAWFULLY DO SO, WAIVES AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE
OR OTHERWISE, IN SUCH ACTION SUIT OR
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PROCEEDING ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF
SUCH COURT, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION,
THAT THE ACTION, SUIT OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT
THE VENUE THEREOF IS IMPROPER; AND (4) AGREES THAT PROCESS MAY BE SERVED UPON IT
IN ANY SUCH ACTION, SUIT OR PROCEEDING IN THE MANNER PROVIDED BY CHAPTER 223A OF
THE GENERAL LAWS OF MASSACHUSETTS, RULE 4 OF THE MASSACHUSETTS RULES OF CIVIL
PROCEDURE OR RULE 4 OF THE FEDERAL RULES OF CIVIL PROCEDURE.
THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
22. Notices. All notices under this Guaranty shall be in writing, and shall be
delivered by hand, by a nationally recognized commercial overnight delivery
service, by first class mail or by telecopy, delivered, addressed or
transmitted, if to HRP, at 400 Centre Street, Newton, Massachusetts 02158,
Attention: President (telecopy no. 617-332-2261), with a copy to Sullivan &
Worcester LLP, One Post Office Square, Boston, Massachusetts 02109, Attention:
Alexander A. Notopoulos, Esq. (telecopy no. 617-338-2880), and if to the
Guarantor, at its address or telecopy number set out below its signature in this
Guaranty. Such notices shall be effective: in the case of hand deliveries, when
received; in the case of an overnight delivery service, on the next business day
after being placed in the possession of such delivery service, with delivery
charges prepaid; in the case of mail, three days after deposit in the postal
system, first class postage prepaid; and in the case of telecopy notices, when
electronic indication of receipt is received. Either party may change its
address and telecopy number by written notice to the other delivered in
accordance with the provisions of this Section.
<PAGE>
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IN WITNESS WHEREOF, the undersigned has caused this Guaranty to
be duly executed and delivered as of the date first above written.
INTEGRATED HEALTH SERVICES, INC.
By /s/ W. Bradley Bennett
-------------------------------------
Name: W. Bradley Bennett
Title: Executive Vice President and
Chief Accounting Officer
Address for Notices:
--------------------------------------
--------------------------------------
--------------------------------------
Telecopy No.:____________
REIMBURSEMENT AGREEMENT
REIMBURSEMENT AGREEMENT (the "Agreement"), dated as of April 14, 1997, by
and between INTEGRATED HFALTH SERVICES, INC., a Delaware corporation having an
address at 10065 Red Run Boulevard, Owings Mills, Maryland 21117 ("IHS"), and
COMMUNITY CARE OF AMERICA, INC., a Delaware corporation having an address at
3050 N. Horseshoe Drive, Naples, Florida 33942 ("CCA").
WITNESSETH.
WHEREAS, CCA has entered into that certain Loan and Security Agreement
with Daiwa Healthco-2 LLC ("Daiwa") dated as of December 23, 1996 (the "Loan
Agreement");
WHEREAS, as a condition to extending to CCA certain accommodations under
the Loan Agreement, Daiwa has required that IHS provide a guaranty (the "Daiwa
Guaranty") securing the repayment of all amounts owing from CCA to Daiwa under
the Loan Agreement in excess of the Basic Borrowing Amount, as well as the
payment of any and all reasonable costs and expenses (including reasonable
counsel fees and expenses) paid or incurred by Daiwa in enforcing its rights
under the Daiwa Guaranty;
WHEREAS, CCA has entered into a letter agreement with Health and
Retirement Properties, Trust ("HRPT") dated as of April 14, 1997 (the "Letter
Agreement"),
WHEREAS, in accordance with the Letter Agreement, HRPT has required that
IHS provide a guaranty (the "HRPT Guaranty") securing certain obligations owed
by CCA to HRPT,
WHEREAS, as a condition to providing the Daiwa Guaranty and the HRPT
Guaranty, IHS requires that CCA agree to reimburse IHS for any amounts that
become payable by IHS in respect of the Daiwa Guaranty and the HRPT Guaranty.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth, and for other good and valuable consideration, the parties hereby agree
as follows:
1. Subject to any waiver by IHS of the right to subrogation or
reimbursement contained in the Daiwa Guaranty and/or the HRPT Guaranty, CCA
shall, on demand, reimburse IHS for any amounts paid by IHS on behalf of CCA in
accordance with the terms of the Daiwa Guaranty and/or the HRPT Guarantee,
including any costs, fees, charges and expenses (including reasonable legal fees
and expenses of counsel) arising out of the negotiation, preparation or issuance
of, or performance under, the Daiwa Guaranty and/or the HRPT Guarantee
(collectively, the "Reimburstment Obligations").
2. Any and all amounts which became owing to IHS by CCA in respect of the
Reimbursement Obligations shall bear interest, from the date such amounts are
advanced by IHS under the applicable guaranty until paid in full, at the rate of
fifteen (15%) percent per annum.
<PAGE>
3. This Agreement shall remain in full force and effect until all of
the Reimbursement Obligations shall have been fully, finally and irrevocably
satisfied and IHS has been fully, finally and irrevocably released from all
obligations with respect to the Daiwa Guaranty and the HRPT Guaranty.
4. All agreements between CCA and IHS herein are hereby expressly
limited so that in contingency or event whatsoever, shall the amount paid or
agreed to be paid to IHS for the use, forbearance or detention of money
hereunder exceed the maximum permissible under applicable law. If, from any
circumstance whatsoever, the fulfillment of any provision hereof, validity
prescribed by law, then, ipso facto, the obligation to be fulfilled shall be
reduced to the limit of such validity, and if from any circumstance IHS should
ever receive as interest an amount which would exceed the highest lawful rate,
such amount which would be excessive interest shall be applied to the reduction
of the principal of the Reimbursement Obligations and not to the payment of
interest.
5. Any notice or other communication by either party to the other shall
be in writing and shall be given and be deemed to have been duly given, upon the
date delivered if delivered personally or upon the date received if mailed
postage pre-paid, registered, or certified mail, addressed as follows:
To CCA: Community Care of America, Inc.
3050 North Horseshoe Drive, Suite 260
Naples, Florida 33942
Attention: President
To IHS: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attention: General Counsel
or to such other address, and to the attention of such other person or officer
as either party may designate in writing by notice.
6. The substantive laws of the State of Maryland shall govern the
validity, construction, enforcement and interpretation of this Agreement and all
other documents and instruments referred to herein, unless otherwise specified
therein. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
2
<PAGE>
7. Neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought. This Agreement shall be binding upon CCA and its
successors and assigns, and shall inure to the benefit of and be enforceable by
the IHS and its successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
INTEGRATED HEALTH SERVICES, INC
By: /s/ W. Bradley Bennett
-------------------------------------
Name: W. Bradley Bennett
Title: Executive Vice President and
Chief Accounting Officer
COMMUNITY CARE OF AMERICA, INC
By: /s/ Debbie Lau
-------------------------------------
Name: Debbie Lau
Title: Chief Operating Officer
REVOLVING CREDIT NOTE
Date: April 30, 1997 Maturity Date: April 30, 1998
Amount: $5,000,000
Lender: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Borrower: Integrated Living Communities, Inc.
24850 Old 41 Road, Suite 10
Bonita Springs, FL 34135-7022
- --------------------------------------------------------------------------------
FOR VALUE RECEIVED, the undersigned Borrower hereby unconditionally promises to
pay in immediately available funds to the order of Lender, its successors, and
assigns, at its offices indicated at the beginning of this Note, or at such
other place as may be designated by Lender from time to time, the principal
amount of $5,000,000.00 or so much thereof as may be outstanding from time to
time (the "Principal"), together with interest computed daily on the outstanding
Principal balance hereunder, at the annual interest rate, and in accordance with
the payment schedule indicated below.
1. Rate. This Note shall bear interest from its date until maturity on the
Principal outstanding from to time to time hereunder at a rate per annum equal
to twelve (12%) percent (the "Interest Rate").
Notwithstanding any provision of this Note, Lender does not intend to charge and
Borrower shall not be required to pay, any amount of interest or other charges
in excess of the maximum permitted by the applicable law of the State of
Florida. Any payment in excess of such maximum shall be refunded to Borrower or
credited against principal, at the Lender's option.
2. Accrual Method. Unless otherwise indicated, the Interest Rate set forth above
will be calculated by the actual/360-day method (a daily amount of interest is
computed for a hypothetical year of 360 days; that amount is multiplied by the
actual number of days for which any Principal is outstanding hereunder).
3. Payment Schedule. All Principal and other amounts outstanding under this Note
shall be due and payable on the first anniversary of the date of this Note. Six
(6) months following the date hereof, the maximum aggregate amount of Principal
permitted to be outstanding at any time shall be reduced to $4,500,000; and nine
months following the date hereof, the maximum
<PAGE>
aggregate amount of Principal permitted to be outstanding at any time shall be
further reduced to $4,000,000. Borrower shall make such payments of Principal as
shall be necessary to comply with the foregoing limits on the amount of
Principal outstanding. Interest due hereunder shall be payable on each date that
a payment of Principal is made hereunder, and monthly in arrears on the first
business day of each calendar month during the term of this Note. Any payment to
the Lender hereunder shall be applied first to the payment of all accrued
interest and the balance shall be applied to Principal. Borrower may prepay all
or any part of the remaining principal balance of this Note, including all
interest accrued thereon through the date of such prepayment, at any time prior
to the maturity date without penalty or premium. The Lender is authorized but
not required to record the date and amount of each loan made, the date and
amount of any payment, and the balance hereof on the Grid attached hereto and
made a part hereof, and any such recordation shall, in the absence of manifest
error, constitute prima facie evidence of the accuracy of the information so
recorded; provided however, that the Lender' failure to so record shall not
limit the obligations of the Borrower hereunder to pay the amount of all loans
hereunder.
4. Revolving Feature. Until the day preceding the first anniversary of the date
hereof, Borrower may borrow and reborrow hereunder at any time, up to a maximum
aggregate amount outstanding not to exceed at any time the amounts as set forth
in Paragraph 3, above, provided, that all of the conditions set forth below
shall have been satisfied as of the date of borrowing.
(i) Borrower shall have given Lender at least five (5) days prior written
notice (the "Notice") of Borrower's intent to borrow under this Note;
(ii) the Notice shall include the stated purpose for the proceeds borrowed
under this Note and shall include a certification that no Event of Default shall
have occurred and be continuing;
(iii) Borrower shall only be permitted to use the proceeds under this Note
(a) to assist Borrower in its working capital needs, or (b) to provide bridge
financing for acquisitions by Borrower approved by Lender, or (c) to make
payments due under the Unsecured Credit Note issued by Borrower to Lender, dated
as of November 20, 1996, in the original principal amount of $3,445,024.00, as
amended as of the date hereof (the "Initial Note");
(iv) no Event of Default shall have occurred and be continuing; and
(v) the minimum amount that may be borrowed at any one time under this Note
shall be $250,000 (the "Minimum Draw"). The Minimum Draw may be increased in
$50,000 increments only.
Lender shall incur no liability for its refusal to advance funds based upon
its determination that any conditions of such further advances have not been
met.
<PAGE>
5. Waivers, Consents and Covenants. Borrower, any endorser or guarantor hereof,
or any other party hereto (individually an "Obligor" and collectively
"Olbigors") and each of them jointly and severally: (a) waive presentment,
demand, protest, notice of demand, notice of intent to accelerate, notice of
acceleration of maturity, notice of protest, notice of nonpayment, notice of
dishonor, and any other notice required to be given under the law to any Obligor
in connection with the delivery, acceptance, performance, default or enforcement
of this Note, any endorsement or guaranty of this Note, or any other documents
executed in connection with this Note or any other note or other loan documents
now or hereafter executed in connection with any obligation to Borrower to
Lender (the "Loan Documents"); (b) consent to all delays, extensions, renewals
or other modifications of this Note or the Loan Documents, or waivers of any
term hereof or of the Loan Documents, or release or discharge by Lender of any
Obligors, or release, substitution or exchange of any security for the payment
hereof, or the failure to act on the part of the Lender, or any indulgence shown
by the Lender (without notice to or further assent from any of the Obligors),
and agree that no such action, failure to act or failure to exercise any right
or remedy by the Lender shall in any way affect or impair the obligations of any
Obligors or be construed as a waiver by the Lender, or otherwise affect, any of
Lender's rights under this Note, under any endorsement, or guaranty of this Note
or under any of the Loan Documents; and (c) agree to pay, on demand, all costs
and expenses of collection or defense of this Note or of any endorsement or
guaranty hereof and/or the enforcement or defense of Lender's rights with
respect to, or the administration, supervision, preservation, or protection of,
or realization upon, any property securing payment hereof, including with
limitation, reasonable attorney's and paralegal's fees and expenses, including
fees related to any suit, mediation or arbitration proceeding, out of court
payment agreement, trial, appeal, bankruptcy proceedings or other proceeding, in
such amount as may be determined reasonable by any arbitrator or court,
whichever is applicable.
6. Idemnifaction. Obligors agree to promptly pay, indemnify and hold Lender
harmless from all State and Federal taxes of any kind and other liabilities with
respect to or resulting from the execution and/or delivery of this Note or any
advances made pursuant to this Note. If this Note has a revolving feature and is
secured by a mortgage, Obligors expressly consent to the deduction of any
applicable taxes from each taxable advance extended by Lender.
7. Delinquency Charge. To the extent permitted by law, a delinquency charge may
be imposed in an amount not to exceed four (4%) percent of any payment that is
more than fifteen days late.
8. Events of Default. Upon the occurrence of any of the following, Lender may
declare an "Event of Default" to exist: (a) the failure to pay or perform any
obligation, liability or indebtedness of any Obligor to Lender, or to any
affiliate or subsidiary of Integrated Health Services, Inc., whether under this
Note or any Loan Documents or the Initial Note, as and when due (whether upon
demand, at maturity or by acceleration); (b) the failure to pay or perform any
other obligation, liability or indebtedness of any Obligor to any other party
when due (whether upon demand, at maturity or by acceleration); (c) the
commencement of a proceeding against any Obligor for dissolution or liquidation,
the voluntarily or involuntary termination or dissolution of
<PAGE>
any Obligor or the merger or consolidation of any Obligor with or into another
entity; (d) the insolvency of, the business failure of, the appointment of a
custodian, trustee, or receiver for or for any of the property of, the
assignment for the benefit of creditors by, or the filing of a petition under
bankruptcy, insolvency or debtor's relief law or the filing of a petition for
any adjustment or indebtedness, composition or extension by or against any
Obligor; (e) the determination by the Lender that any representation or warranty
made to the Lender by an Obligor in any Loan Documents or otherwise is or was,
when it was made, untrue or materially misleading; (f) the failure of any
Obligor timely deliver such financial statements, including tax returns, other
statements of condition or other information, as Lender shall request from time
to time; (g) the entry of a judgment against any Obligor or which Lender deems
to be a material nature, in Lender's sole discretion; (h) the seizure or
forfeiture of, or the issuance of any writ of possession, garnishment or
attachment, or any turnover order for any property of any Obligor; (i) the
determination by Lender that a material adverse change has occurred in the
financial condition of any Obligor; (j) the failure of Borrower's business to
comply with any law or regulation controlling its operation; or (k) a Change in
Control of the Borrower shall occur. For purposes hereof, a "Change in Control"
of the Borrower shall mean the occurrence of any of the following events; (i)
any party or two or more parties acting in concert shall have acquired
beneficial ownership, directly or indirectly, of, or shall have acquired by
contract or otherwise, or shall have entered into a contract or arrangement
that, upon consummation, will result in its or their acquisition of, control
over, Voting Stock of Borrower (or other securities convertible into such Voting
Stock) representing 25% or more of the combined voting power of all Voting Stock
of Borrower, (ii) Lender shall fail to own and have the right to vote at least
25% of the outstanding Voting Stock of Borrower determined on a fully diluted
basis after giving effect to the conversion and exercise of all outstanding
warrants, options and other securities of Borrower that are convertible into or
exercisable for Voting Stock of Borrower (whether or not such securities are
then currently convertible or exercisable), (iii) during any period of up to 24
consecutive months, commencing after the Closing Date, individuals who at the
beginning of uch 24-month period were directors of Borrower (together with any
new director whose election by Borrower's Board of Directors or whose nomination
for election by Borrower's shareholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
directors of Borrower then in office or (iv) Borrower shall fail to own and have
the right to vote 100% of the outstanding Voting Stock of the Borrower,
determined on a fully diluted basis after giving effect to the conversion and
exercise of all outstanding warrants, options and other securities of the
Borrower that are convertible into or exercisable for Voting Stock of the
Borrower. As used herein, "beneficial ownership" shall have the meaning provided
in Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934.
9. Remedies Upon Default. Whenever there is Event of Default under this Note (a)
the entire balance outstanding hereunder and all other obligations of any
Obligor to Lender (however acquired or evidenced) shall, at the option of the
Lender immediately due and payable and any obligation of Lender to permit
further borrowing under this Note shall immediately cease and
<PAGE>
terminate, and/or (b) to the extent permitted by law, the Interest Rate on the
unpaid Principal shall be increased at Lender's discretion up to the Interest
Rate plus five (5%) percent per annum, or the maximum rate allowed by law,
whichever is lower (the "Default Rate"). The provisions herein for a Default
Rate shall not be deemed to extend the time of any payment hereunder or to
constitute a "grace period" giving Obligors a right to cure any default. At
Lender's option, any accrued and unpaid interest, fees or charges may, for
purposes of computing and accruing interest on a daily basis after the due date
of the Note or any installment thereof, be deemed to be a part of the Principal
balance, and Interest shall accrue on a daily compounded basis after such date
at the Default Rate provided in this Note until the entire outstanding balance
of Principal and interest is paid in full, and all such interest thereon shall
thereafter be due on demand. Upon an Event of Default under this Note, Lender is
hereby authorized at any time, at its option and without notice of demand, to
set off and charge against any deposit accounts of any Obligor (as well as any
money, instruments, securities, documents, chattel paper, credits, claims,
demands, income and any other property, rights and interests of any Obligor),
which at any time shall come into the possession or custody or under the control
of Lender or any of its agents, affiliates or correspondents, any and all
obligations due hereunder. Additionally, Lender shall have all rights and
remedies available under each of the Loan Documents, as well as all rights and
remedies available law or in equity. Any judgment rendered on this Note shall
bear interest at the highest rate of interest permitted pursuant to Chapter 687
Florida Statutes.
10. Non-Waiver. The failure at any time of the Lender to exercise any of its
options or any other rights hereunder shall not constitute a waiver thereof, nor
shall it be a bar to the exercise of its options or rights at a later date. All
rights and remedies of the Lender shall be cumulative and may be pursued singly,
successively or together at the option of the Lender. The acceptance by Lender
of any partial payment shall not constitute a waiver of any default or of any of
Lender's rights under this Note. No waiver of any of its rights hereunder, and
no modification or amendment of this Note shall be deemed to be made by Lender
unless the same shall be in writing, duly signed on behalf of Lender; each such
waiver shall apply only with respect to the specific instance involved, and
shall in no way impair the rights of the Lender or the obligations of Obligors
to Lender in any respect at any other time.
11. Applicable Law, Venue and Jurisdiction. This Note and the rights and
obligations of Borrower and Lender shall be governed by and interpreted n
accordance with the law of the State of Florida.
12. Partial Invalidity. The enforceability or invalidity of any provision of
this Note shall not affect the enforceability or validity of any other provision
herein and the invalidity or unenforceability of any provision of this Note or
of the Loan Documents to any person or circumstances shall not affect the
enforceability o validity of such provision as it may apply to other persons or
circumstances.
<PAGE>
13. Binding Effect. This Note shall be binding upon and inure to the benefit of
Borrower, Obligors and Lender and the respective successors, assigns, heirs and
personal representatives, provided, however, that no obligations of Borrower or
Obligors hereunder can be assigned without the prior written consent of Lender.
14. Controlling Document. To the extent that this Note conflicts with or is in
any way incomparable wit any other document related specifically to the loans
evidenced by this Note, this Note shall control over any other such document,
and if the Note does not address an issue, then each other such document shall
control to the extent that it deals most specifically with an issue.
15. Notwithstanding any provisions to the contrary contained herein, this Note
and all renewals, extensions and modifications hereof, are and shall remain
subject to the terms of that certain Subordination Agreement, dated as of April
9, 1997 (the "Subordination Agreement") among NationsBank, N.A. (South), Lender
and Borrower, as amended. Each transferee of this Note, by acceptance of same,
absolutely agrees to be bound by all of the provisions of the Subordination
Agreement.
Borrower represents and warrants to the Lender that the proceeds of these loans
are to be used for business purposes only and are therefore commercial loans.
Borrower acknowledges having read and understood, and agrees to be bound by, all
terms and conditions of this Note and hereby executes this Note as of the date
here above-written.
This written promissory note may not be contradicted by evidence of prior,
contemporaneous, or subsequent oral agreements of the parties. There are no
unwritten oral agreements between the parties with respect to the subject matter
of this Note.
IN WITNESS WHEREOF, the undersigned has executed this Note on the date
first above written.
INTEGRATED LIVING
COMMUNITIES, INC.
By: /s/ John Poole
--------------------------------
Title: Senior Vice President - Chief
Financial Officer
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<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
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0
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