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U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
(Amending Part I - Items 1, 2 and 3,
Part II - Items 7, 8 and 13 and Part IV -
Item 14 and Financial Statements)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year ended: June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from:
Commission File No. 1-14114
RETIREMENT CARE ASSOCIATES, INC.
(Exact Name of Registrant as Specified in its Charter)
COLORADO 43-1441789
(State or Other Jurisdiction of (I.R.S. Employer Identi-
Incorporation or Organization) fication Number)
6000 Lake Forrest Drive, Suite 200, Atlanta, Georgia 30328
(Address of Principal Executive Offices, Including Zip Code)
Registrant's telephone number, including area code: (404) 255-7500
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Stock, $.0001 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: Common Stock
$.0001 Par Value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of September 18, 1997, 14,749,441 shares of common stock were outstanding.
The aggregate market value of the common stock of the Registrant held by
nonaffiliates on that date was approximately $84,064,500.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Documents incorporated by reference: None.
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PART I
ITEM 1. BUSINESS.
THE COMPANY
Retirement Care Associates, Inc. is a leading provider in the
southeastern United States of senior residential care services, which include
long-term care, assisted living and independent living services. The Company's
long-term care facilities provide skilled nursing care, specialty care services
and ancillary services to patients, while its assisted/independent living
centers provide services to residents in need of varying degrees of assistance
with the activities of daily living. Its facilities are located primarily in
rural and non-urban areas in the United States, and it is the largest provider
of senior residential care services in Georgia. As of September 19, 1997, the
Company operated 101 facilities which it owned or leased, and managed an
additional nine facilities for others.
The Company's headquarters are located in Atlanta, Georgia. Its
executive offices are located at 6000 Lake Forrest Drive, Suite 200, Atlanta,
Georgia 30328. Its telephone number at that address is (404) 255-7500.
The Company was formed under the laws of the State of Colorado on
March 24, 1986, under the name "New Frontiers Investments, Inc." to create a
corporate vehicle to seek and acquire a business opportunity.
In February 1987, the Company completed a public offering of units
consisting of shares and warrants. The gross proceeds to the Company from the
offering were approximately $236,455.
On April 2, 1987, the Company acquired 100% of the outstanding shares
of Retirement Care Associates, Inc. ("RetireCare") in exchange for shares of the
Company's common stock, $.0001 par value per share (the "Common Stock").
RetireCare is a corporation formed in 1987 to engage in the business of
consulting to, marketing and managing retirement centers. RetireCare eventually
planned to expand its operations to include acquisition and syndication of
retirement centers.
At the time of the acquisition, the Company changed its name to
"Retirement Care Associates, Inc." Also as a result of the acquisition, there
was a complete change in control of the Company.
The Company attempted to operate in several facets of the retirement
industry, including development, contract management, acquisition and
consulting. Although the Company had some success turning around distressed
properties, it was not able to retain long-term management contracts. In
September 1988, the Company narrowed its goals to focus on long-term marketing
and management contracts of distressed properties.
In October 1988, the Company purchased The Paxton Manor, a 250 unit
retirement facility located in Omaha, Nebraska. This property, constituting
essentially all of the assets of the Company at the time, was subsequently sold
on November 12, 1991, with shareholder approval. In September 1991, Christopher
F. Brogdon and Edward E. Lane agreed to become Directors of the Company and the
existing directors and several major shareholders of the Company verbally agreed
that if Messrs. Brogdon and Lane would invest $50,000 in the Company, the
Company would issue to them 1,447,031 shares of the Company's Common Stock. The
$50,000 was used to pay the expenses of preparing and filing the Company's
delinquent SEC
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reports and tax returns, and paying the state and federal taxes owed as a result
of the sale of the Paxton Manor during 1991. During this period of time, the
Company's Officers and Directors resigned and Chris Brogdon and Edward Lane
became Officers and Directors of the Company.
From November 1991 to November 1992, the Company had no significant
activities other than the filing of delinquent SEC reports and tax returns.
In November 1992, the Company merged with Capitol Care Management
Company, Inc. ("CCMC"), a Georgia corporation engaged in the business of
providing management services to retirement facilities, personal care facilities
and nursing homes. In connection with the merger, the Company issued 964,688
shares of the Company's Common Stock and Promissory Notes in the aggregate
amount of $1,000,000 to the CCMC shareholders. Simultaneously with the merger,
all of the assets, liabilities and operations of CCMC were placed into a newly
formed Georgia corporation named Capitol Care Management Company, Inc. ("Capitol
Care") which is a wholly-owned subsidiary of the Company. On December 31, 1992,
the promissory notes aggregating $1 million were novated and in consideration
therefor the holders of the promissory notes were issued 1,000,000 shares of
Series C Convertible Preferred Stock which were subsequently converted into
964,688 shares of Common Stock.
In December 1993, the Company acquired Retirement Management
Corporation, a Nevada corporation engaged in the business of providing
management and marketing services to retirement care facilities, in a merger
transaction whereby it was merged into Capitol Care. Immediately after the
merger, all of the assets, liabilities and operations of Retirement Management
Corporation were transferred into Retirement Management Corporation ("RMC"), a
newly formed Georgia corporation and a subsidiary of Capitol Care.
On September 30, 1994, the Company acquired approximately 63% of the
outstanding capital stock of Contour Medical, Inc., a publicly-held, Nevada
corporation located in Alpharetta, Georgia, which distributes a full line of
disposable medical supplies to nursing homes, home health agencies and other
healthcare providers. The Company currently owns approximately 60% of the
outstanding capital stock of Contour Medical, Inc.
In July, 1993, the Company effected a 1 for 12 reverse stock split of
the shares of the Company's outstanding Common Stock. The Company paid 5%
stock dividends on its outstanding Common Stock in February 1994, February 1995
and May 1996. All financial information and share data in this Report give
retroactive effect to the reverse split and stock dividends.
On February 17, 1997, the Company entered into an Agreement and Plan of
Merger and Reorganization (the "Merger Agreement") by and among Sun Healthcare
Group, Inc. ("Sun"), Peach Acquisition Corporation, a Colorado corporation and
wholly-owned subsidiary of Sun, and the Company, pursuant to which the
subsidiary of Sun would be merged with and into the Company. The Merger
Agreement was subsequently amended on May 27 and August 21, 1997.
Subject to the terms and conditions of the Merger Agreement (including,
without limitation, approval by the stockholders of Sun and the shareholders of
the Company), upon the effective time of the Merger, each outstanding share of
common stock of the Company (other than shares held in the treasury of the
Company, owned by Sun or any subsidiary of Sun, or held by persons who exercise
their dissenter's rights under Colorado law) will be cancelled and extinguished
and converted automatically into the right to receive 0.520 shares of the common
stock of Sun. As a result of the Merger, the Company will become a wholly-owned
subsidiary of Sun.
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On February 17, 1997, Sun also entered into a Stockholders Stock Option
and Proxy Agreement (the "Option Agreement") by and among Sun and Christopher F.
Brogdon, Connie B. Brogdon, Edward E. Lane, Darrell C. Tucker and Winter Haven
Homes, Inc., collectively owners of approximately 36% of the outstanding shares
of common stock of the Company. Pursuant to the Option Agreement, each of these
shareholders granted to Sun an irrevocable option to purchase such shareholder's
shares at a price per share equal to $9.27 under certain circumstances. In
addition, each shareholder agreed to vote, and granted to Sun an irrevocable
proxy to vote, all voting securities of the Company held by such shareholder in
favor of approval of the Merger Agreement and the Merger and against any merger,
consolidation, sale of assets, reorganization or recapitalization of the Company
with any party other than Sun and its affiliates and against any liquidation or
winding up of the Company.
On February 17, 1997, Sun also entered into a merger agreement to
acquire Contour Medical, Inc. Concurrent with the execution of the merger
agreement and as an inducement to Sun to enter into the merger agreement, Sun
and the Company entered into a Stockholder's Stock Option and Proxy Agreement,
pursuant to which the Company granted to Sun (i) proxies to vote the shares of
the capital stock of Contour Medical, Inc. held by the Company in favor of the
merger of Contour Medical, Inc. with Sun and against any competing transaction
and (ii) an option to purchase shares of the capital stock of Contour Medical,
Inc. held by the Company, representing approximately 65% of the shares of the
capital stock of Contour Medical, Inc. issued and outstanding on the date of
grant, under certain circumstances relating to the termination of the Merger
Agreement or the occurence of a Competing Transaction (as defined in the Merger
Agreement) at a purchase price of $8.50 per share of the common stock and $4.00
per share of the preferred stock of Contour Medical, Inc.
The Company and Sun have filed with the Securities and Exchange
Commission (the "SEC"), on a confidential basis, a preliminary proxy statement
with respect to the Merger, and Sun and Contour Medical, Inc. filed with the
SEC, on a confidential basis, a preliminary information statement with respect
to the proposed merger of a wholly-owned subsidiary of Sun with and into Contour
Medical, Inc.
The Merger is subject to the approval of the shareholders of the
Company and the stockholders of Sun and will be considered at separate meetings
now anticipated to occur in the fourth quarter of calendar year 1997. The Merger
will be effective promptly following shareholder approval, assuming satisfaction
of other conditions to the Merger.
INTRODUCTION
The Company is a leading provider in the southeastern United States of
senior residential care services, which include long-term care, assisted living
and independent living services. The Company's long-term care facilities provide
skilled nursing care, specialty care services and ancillary services to patients
while the Company's assisted/independent living centers provide services to
residents in need of varying degrees of assistance with the activities of daily
living. Most of the Company's facilities are located in rural and non-urban
areas in the southeastern United States, and the Company is the largest provider
of senior residential long term care services in Georgia.
The Company's strategy is to increase the number of facilities that it
operates (i) primarily by acquiring by purchase or lease independently-owned
long-term care facilities and assisted/independent living centers located in the
Southeast and (ii) secondarily by developing assisted/independent living centers
adjacent or complementary to it existing facilities. Upon the acquisition of a
facility, the Company implements its management information and control systems
and provides capital for necessary physical plant improvements to enable its
professionals to increase occupancy and attain the Company's standards for
quality of care.
The Company's operating strategy with respect to its
assisted/independent living centers is to increase its center occupancy rates by
maintaining high quality social and support services for its residents, to
develop relationships with community leaders and other referral sources and to
implement a strong
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marketing program, including direct mail marketing and advertising and special
events. Assisted living is an increasingly popular form of senior housing which
offers seniors who need or desire help with the activities of daily living and
limited health care services a residential alternative which allows them more
independence and is less costly than a long-term care facility. The Company's
independent living centers offer residents complete independence and provide
basic support services as well as customized services to meet their individual
needs.
The Company's operating strategy with respect to its long-term care
facilities is to improve its payer mix by (i) making capital improvements which
the Company believes are necessary to attract more private pay residents, (ii)
aggressively marketing such facilities to prospective private pay residents and
(iii) seeking Medicare certification for newly acquired facilities. The Company
seeks to enhance the revenue of its existing facilities by offering its
long-term care patients physical, speech, occupational and respiratory therapy,
wound care and other ancillary services. At June 30, 1997, all of the Company's
long-term care facilities were Medicare certified.
The following table sets forth the approximate percentage of the
Company's total revenue attributable to each of Medicare, Medicaid and private
payors during each of the last three fiscal years.
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1996 FISCAL 1995
<S> <C> <C> <C>
Medicaid 50% 55% 65%
Medicare 10% 10% 10%
Private 40% 35% 25%
--- --- ---
Total 100% 100% 100%
</TABLE>
SENIOR RESIDENTIAL CARE INDUSTRY
GENERAL. The senior residential care industry encompasses a broad range
of residential and health care services provided to the elderly and to patients
who can be cared for outside the acute care hospital environment. The Company
believes that demand for the services provided by long-term care facilities and
assisted/independent living centers will increase substantially during the next
decade primarily due to demographic and social trends and, to a lesser extent,
the growth of private insurance and governmental payment sources for assisted
living services. Other factors which affect the senior residential care industry
are (i) the limited supply of long-term care facilities, (ii) the effects of
government cost containment measures and (iii) the fragmentation of the
long-term care industry. Furthermore, given the cost containment pressure at the
federal, state and local levels, government and private payers are attracted to,
and motivated to support, long-term care facilities as a more cost effective
alternative to subacute care facilities and to hospitals and assisted living
centers as a less expensive and still effective alternative to traditional
long-term care facilities when ongoing care is needed.
DEMOGRAPHIC AND SOCIAL TRENDS. The consumers of the Company's senior
residential care services are persons generally over 65 years of age. In the
United States, the number of individuals over 65 years of age has increased from
approximately 25 million in 1980 to more than 31 million in 1990. The number of
persons 65 years of age and over is expected to grow to approximately 35 million
in 2000.
GROWTH OF LONG-TERM CARE INSURANCE. Numerous insurance companies
currently offer long-term care insurance which provides the beneficiary coverage
for
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expenses associate with long-term care and assisted/independent living services.
Furthermore, the number of long-term care policies in existence is increasing
rapidly. According to the Health Insurance Association of America, approximately
2.4 million long-term care policies were in existence as of December 1991,
representing a compound average annual growth rate of 31.5% from 1987 to 1991.
In calendar 1994, 1.4 million long-term care policies were purchased as compared
to 0.6 million in 1991. In addition, employers have started to offer long-term
care insurance in their "cafeteria plans," and Congress is considering a
proposal to make long-term care insurance premiums tax deductible. Based upon
these factors and the demographic and social trends of the United States
population, the Company expects more people to be covered by long-term care
insurance.
LIMITED SUPPLY OF LONG-TERM CARE BEDS. The Company believes that
certain factors impacting the available supply of long-term care beds will
favorably impact the demand for the services offered by the Company in the
future. All of the states in the southeastern United States, including the
states in which the Company operates, have enacted certificate of need ("CON")
or similar legislation which restricts the supply of licensed long-term care
facility beds. These laws generally limit the construction of long-term care
facilities, and the addition of beds or services to existing long-term care
facilities, and hence tend to limit the available supply of traditional
long-term care beds. In addition, some long-term care facilities have started to
convert traditional long-term care beds into sub-acute beds.
FRAGMENTED INDUSTRY. Market share data indicate that the long-term care
industry is a highly fragmented and competitive industry in which the 30 largest
providers operate approximately 352,000 beds, or 22% of total industry beds.
Competitive dynamics in the industry, including increasing complexity of medical
needs, growing regulatory and compliance requirements and increasingly
complicated reimbursement systems, have resulted in smaller operators (who lack
the sophisticated management information systems, operating efficiencies and
financial resources necessary to compete effectively) selling their businesses
and operations to companies, such as the Company, that have the management
information systems, operating efficiencies and financial resources necessary to
compete effectively.
The result of these factors is a relative increase in the demand for
long-term facility care, which, in turn, increases the demand for residential
options, such as assisted living facilities, to serve patients historically
served by long-term care facilities. In addition, long-term care facility
operators are continuing to focus on expanding services to sub-acute patients
requiring very high levels of nursing care. As such, the supply of long-term
care beds likely will be increasingly occupied by patients with higher acuity
levels, thereby increasing the supply of lower acuity patients who may be served
by assisted living facilities. The Company believes that, as a result of these
trends, there will be opportunities for assisted living to more cost effectively
provide accommodation and service facilities to provide accommodations and
services on a cost-effective basis to residents requiring lower levels of care
than is generally provided to patients in long-term care facilities.
STRATEGY
The Company's strategy is to increase the number of facilities that it
operates primarily by (i) acquiring by purchase or lease independently-owned
long-term care facilities and assisted/independent living centers located in the
southeastern United States and secondarily by (ii) developing
assisted/independent living centers adjacent or complementary to its existing
facilities. Key elements of this strategy include: (i) acquiring and developing
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additional long-term care and assisted/independent living facilities; (ii)
increasing facility occupancy rates; (iii) improving the payer mix at the
Company's long-term care facilities; and (iv) achieving operating efficiencies.
ACQUIRE AND DEVELOP FACILITIES. The Company intends to acquire and
develop additional long-term care facilities and assisted/independent living
facilities in its existing markets and contiguous areas. Management believes
that such expansion will allow the Company to take better advantage of its
existing expertise and organizational resources and improve margins by reducing
overhead costs. As a result of the growing complexity of regulatory requirements
and the continued pressure on reimbursement rates, the Company believes that
other smaller, independent providers may be more willing to consider selling or
leasing their facilities on terms acceptable to the Company. The Company
believes it is well positioned to make acquisitions because of its reputation
and established geographic presence. In addition, the Company intends to offer a
broad range of senior residential care services. Towards that end, the Company
has recently implemented a strategy to develop assisted living centers adjacent
to its long-term care facilities or independent living centers, thereby creating
senior residential care campuses which offer a greater variety of senior
residential care services in one location. At September 17, 1997, the Company
had 11 of these senior residential care campuses.
In evaluating an existing facility for acquisition, the Company
primarily considers the facility's historical occupancy rates and payor mix,
reputation and compliance history, physical condition and appearance, labor
force stability, the availability of financing on acceptable terms and, in the
case of assisted/independent living facilities, the demographics of the
surrounding area. In evaluating a development project, the Company primarily
considers the strength of the market demand for the senior residential care
services.
Upon the acquisition of a facility, the Company implements its
management information and control systems and provides capital for necessary
physical plant improvements to enable its professionals to increase occupancy
and attain the Company's standards for quality of care. The Company's strategy
with respect to its long-term care facilities is to seek Medicare certification
while simultaneously marketing the facility to attract more Medicare and private
pay residents. The Company believes that with effective cost controls, the
Company's facilities can continue to be profitable with a highly concentrated
Medicaid payer mix.
Although the Company believes it has generally been successful in
integrating and managing the operations of its acquired facilities, the Company
has experienced some difficulty in integrating the operations of certain of its
recently-acquired facilities. While the Company has been successful in
implementing its management information and control systems, administrative and
nursing staff and capital improvement plans and in obtaining Medicare
certification at all of its acquired facilities, the Company has experienced
significant turnover of key employees, a decline in occupancy rates and
Medicaid rates without a corresponding reduction in operating costs, and
certain regulatory compliance problems at certain of its recently-acquired
facilities.
INCREASE FACILITY OCCUPANCY RATES. Although occupancy rates declined
during fiscal year 1996, the Company believes its occupancy rates in existing
assisted/independent living centers should increase primarily due to three
factors: (i) an enhanced emphasis on facility-specific marketing efforts; (ii)
the continued growth of the elderly segment of the population in the Company's
markets; and (iii) the limited supply of long-term care beds and
assisted/independent living units. Increasing occupancy rates will allow the
Company to further reduce its fixed costs per patient day.
IMPROVE PAYOR MIX. The Company seeks to improve its payer mix at its
long-term care facilities by making capital improvements which management
believes are necessary to attract more private pay residents, by aggressively
marketing such facilities to prospective private pay residents and by seeking
Medicare certification for newly acquired facilities. The Company has recently
implemented a strategy to develop assisted living centers adjacent to its
long-term care facilities or independent living centers, thereby creating a
senior residential care campus which offers a greater variety of senior
residential care services in one location. Management believes that providing a
"continuum of care" to its residents enhances the marketing efforts of its
assisted/independent
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living centers and that these centers should provide a referral source to the
other facilities on the same campus. The Company also has intensified efforts to
provide the full range of Medicare services to eligible patients and is
increasingly concentrating its marketing efforts on private third party payers,
such as managed care and insurance companies, as well as hospital discharge
planners, thereby developing referral sources for both its long-term care and
assisted/independent living centers.
ACHIEVE OPERATING EFFICIENCIES. Although the ratio of general and
administrative expenses to total operating revenue has been increasing over the
past two consecutive fiscal years, the Company is seeking to reduce this ratio
through economies of scale resulting from acquisitions and through efforts to
more efficiently control and manage its businesses. The effective operation of
the Company's managerial and financial information and control systems are
fundamental to its performance. These systems allow the Company, among other
things, to assimilate acquisitions and control costs by achieving reductions of
administrative staff, economies in purchasing, efficient management of patient
care personnel and reduced use of nurses from employment agencies.
LONG-TERM CARE SERVICES. Basic resident services are those
traditionally provided to elderly patients in long-term care facilities with
respect to daily living activities and general medical needs. The Company
provides in all of its facilities room and board, 24-hour skilled nursing care
by registered nurses, licensed practical nurses and certified nursing aides, and
a broad range of support services, including dietary services, therapeutic
recreational activities, social services, housekeeping and laundry services,
pharmaceutical and medical supplies, physical, speech, occupational and
respiratory therapy, wound care and other ancillary services.
ASSISTED LIVING SERVICES. The Company's assisted living centers are
designed to assist those persons generally 75 years of age or over who may
require assistance with any of the five basic activities of daily life (i.e.,
bathing, dressing, eating, walking and toileting). The Company assesses incoming
residents and develops an individualized care plan based on their acuity level.
The Company reassesses each of its residents on a regular basis to determine if
they require additional care. Each of the Company's assisted living facilities
offers its residents with private or semi-private accommodations, ongoing health
assessments, three meals per day and snacks approved by a registered dietician,
as well as 24-hour assistance with activities of daily life, housekeeping
service, linen and personal laundry service, organized social activities and
transportation. The Company's assisted living services are provided in
freestanding assisted living centers and in certain units in each of the
Company's independent living centers.
INDEPENDENT LIVING SERVICES. The Company's independent living centers
offer independent living to seniors. Each center offers a standard package of
services that typically include meal service, laundry and linen service,
housekeeping, organized social activities and transportation. In addition, each
of the Company's independent living facilities offers a menu of separately
priced additional services available at the option of the resident.
LONG-TERM CARE OPERATIONS
FACILITY OPERATIONS. The Company's facilities are currently divided
into 10 regions, each of which is supervised by a regional director of
operations and contains four to eight facilities. The regional director of
operations monitors and supervises all aspects of operations of the facilities
in the region and acts as liaison between such facilities and corporate
headquarters. The regional director of operations is responsible for, among
other things, ensuring
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compliance with federal, state and local regulations, reviewing and monitoring
compliance with corporate policies and procedures and monitoring adherence to
budgets. In addition, each region has a quality assurance nurse and a dietary
consultant who meet regularly with their regional director of operations and
report to the vice president of compliance.
The regional and facility personnel are supported by a corporate staff
based at the Company's headquarters. Corporate personnel work with regional
directors of operations and facility administrators with respect to the
establishment of facility goals and strategies; quality assurance oversight;
reimbursement, accounting, cash management and treasury functions; development
of monitoring systems and operational procedures; human resources management;
and development and implementation of new programs.
Each facility is managed by an on-site, state licensed administrator
who is responsible for the overall operation of the facility, including quality
of care, marketing and financial performance. The administrator is assisted by
various professional and nonprofessional personnel (some of whom may be
independent contractors), including a medical director, nurses and nursing
assistants, social workers, dietary personnel, therapeutic recreation staff and
housekeeping, laundry and maintenance personnel.
The medical treatment of residents is the responsibility of the
residents' attending physicians, who are not employed by the Company and bill
their patients directly for services. The support services provided by the
Company, including therapeutic recreation, speech, occupational, respiratory and
physical therapy, wound care and other ancillary services, are provided
primarily by independent providers under contractual commitments with the
facility.
MARKETING. The Company engages in facility-specific marketing efforts
to maintain and improve occupancy rates and to promote the services, including a
full range of medical services offered by the Company's long-term care
facilities. The Company's marketing activities are conducted primarily by each
facility's admissions director and administrator who together seek to establish
relationships with potential referral sources, such as hospital discharge
planners and managed health care organizations. The Company believes that many
of the services and programs provided by its facilities in the normal course of
business supplement formal marketing efforts by promoting the reputation of each
facility in the community as a provider of quality care. Each facility offers a
variety of community programs and activities which are designed primarily as a
service to the community and as a means to enhance the quality of patient life.
QUALITY ASSURANCE. The Company's quality assurance program with respect
to its long-term care facilities involves personnel at all levels. The Company
has established a quality assurance team comprised of the vice president of
compliance and the facility's senior medical professionals that periodically
visits and inspects each of the Company's long-term care facilities and
evaluates all aspects of the facility's operations, including patient care,
physical environment, patients' rights, patient activities and dietary regimen.
The Company's corporate director of nursing receives quarterly quality assurance
reports from each facility, reviews them against prior quarterly reports and
against applicable state survey results for the facility, and works with the
relevant regional director of operations and the facility's quality assurance
committee to address any deficiencies and work toward continual improvement. All
regional directors of operations, medical and other consulting personnel are
required to prepare and submit reports at the end of each scheduled visit
identifying any patient care or other quality related issues.
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ASSISTED/INDEPENDENT LIVING OPERATIONS
CENTER OPERATIONS. The Company's assisted/independent living centers
are currently divided into five regions, each of which is supervised by a
regional director of operations and contains four to seven centers. The regional
director of operations monitors and supervises all aspects of operations of the
centers in the region and acts as liaison between such facilities and corporate
headquarters. The regional director of operations is responsible for, among
other things, ensuring compliance with applicable federal, state and local
regulations, reviewing and monitoring compliance with corporate policies and
procedures and monitoring adherence to budgets.
Each of the Company's assisted/independent living centers is managed by
an executive director who is responsible for monitoring the day-to-day
operations of the center and the resident assistants who provide the personal
care to the center's residents. Each center also has a social activities
coordinator, a community service representative, a kitchen manager and dietary
staff. The regional and center personnel are supported by a corporate staff
based at the Company's headquarters. Corporate personnel work with regional
directors of operations and the executive director of each center with respect
to the establishment of goals and strategies; quality assurance oversight;
budgeting, accounting, cash management and treasury functions; development of
monitoring systems and operational procedures; human resources management; and
development and implementation of new marketing programs.
In connection with the Company's delivery of services to its assisted
living residents, a resident assistant is responsible for the personal care,
medication supervision (when state law so permits), meal service, housekeeping,
laundry and linen service and social activities of a small number of residents.
In addition, management believes that its method of service delivery permits the
care-giver to establish a better relationship with the resident and in some
cases become an extension of the resident's family.
The Company's Extended Care Program reassesses each of its assisted
living residents on a regular basis to develop a daily care plan that provides
each of the residents with the appropriate level of care and assistance. The
Company has adopted an objective assessment system whereby each resident
receives points based upon his or her acuity level. The Company is then able to
determine the appropriate level of care based on this point acuity assessment.
MARKETING. The Company develops a comprehensive marketing plan for each
of its assisted/independent living centers. The marketing plan identifies the
strengths and weaknesses of the center, the demographic and competitive profile
of the geographic area in which the center is located and provides a strategy
for marketing the center in light of these factors. The plan consists of a
combination of advertising, primarily directed to the adult children of
potential residents, special events, direct mail and community networking, all
of which are designed to generate a sufficient number of inquiries to fill the
center.
The Company's marketing effort sets goals for the number of inquiries,
facility tours, deposits and new residents resulting from such efforts on a
monthly basis. With this targeted marketing approach, management believes that
it has been successful in marketing its assisted/independent living centers.
QUALITY ASSURANCE. The Company's quality assurance program with respect
to its assisted independent living centers involves personnel at all levels. The
Company has established a quality assurance team that periodically visits and
inspects each of the Company's assisted/independent living centers and
evaluates
-10-
<PAGE> 11
all aspects of the center's operations, including resident care, physical
environment, staff appearance, residents' rights, resident activities and
dietary regimen. The management receives the reports from the quality assurance
team, reviews them against prior reports, and works with the relevant regional
director of operations and the facility's administrators to address any
deficiencies and work toward continual improvement.
GENERAL FACILITY OPERATION
MANAGEMENT AND FINANCIAL CONTROLS. The Company has developed integrated
management and financial information systems and controls intended to maximize
operating efficiency. These systems enable management to monitor key operations
and financial data on a timely basis. Key operating data, such as payables and
billing data, cash collections and admissions/discharge data, are entered into
the system daily. This information forms the basis for a variety of management
and financial reports, including monthly financial statements, for each
facility.
PURCHASING. The Company's focus in purchasing is to develop national
pricing contracts for nursing supplies and dietary, housekeeping and laundry
products. Each facility, however, is responsible for purchasing the required
supplies and products pursuant to those contracts.
MANAGEMENT AND MARKETING SERVICES
The Company provides management services to all its owned or leased
facilities, as well as to eight facilities owned by its affiliates and one
facility owned by unaffiliated third parties. See "ITEM 2. PROPERTIES."
Pursuant to its management agreements with the owners of each facility,
the Company supervises the management of the facility as to staffing,
accounting, billing, collections, rate setting and general administration, and
provides marketing services, which include identifying target markets,
developing appropriate marketing strategies and procedures, hiring, training and
supervising qualified leasing counselors as employees of the manager and
budgeting and controlling costs. The Company is responsible for hiring, on
behalf of the owner, all staff, including a facility administrator or executive
director. The management agreements provide for management fees of a flat rate
per month, a percentage of net operating revenues (total revenues less
deductions and allowances for contractual adjustments to third party payors and
charitable allowances) or a combination of a flat rate and a percentage of net
operating revenues. For long-term care facilities, which require the greatest
amount of management services, the Company charges management fees of $4,000 to
$24,000 per month, depending primarily on the number of beds, or, in some cases,
6% of net operating revenues. For assisted/independent living centers, which
involve fewer management services, the Company charges $1,000 to $15,000 per
month, depending primarily on the amount of revenues of the center. The
management agreements also provide a separate fee for the marketing services
provided by the Company to assisted/independent living centers. Most of the
revenue from management services is received pursuant to management agreements
with entities controlled by Messrs. Brogdon and Lane. These arrangements have
three to five year terms and are terminable upon sixty days prior written notice
by either party. The management services agreements expire on various dates
between 1999 and 2002.
The obligations to pay management fees to the Company are general
obligations of the owners of the facilities. In many cases the facilities have
incurred substantial debt in the form of municipal bonds, debentures or similar
debt instruments. The payment of management fees to the Company is generally
subordinated to the payment of these obligations.
On July 15, 1997, Sun and the Company entered into an agreement (the
"Management Agreement") pursuant to which Sun agreed to provide management,
consulting and advisory services to the Company with respect to 16 long-term
care facilities (the "Facilities") in Virginia and North Carolina operated by
the Company. As payment for providing such services, Sun will receive a monthly
management fee equal to seven percent of the gross revenues of the Facilities.
The Management Agreement also authorizes Sun to cause its therapy services and
pharmaceutical subsidiaries to provide such ancillary services to the Facilities
at costs not in excess of those that would be charged to the Company by an
unrelated third party in an arms'-length transaction. The Company has agreed to
indemnify Sun with respect to any investigations, actions or proceedings on the
part of regulatory authorities involving any of the Facilities. The Management
Agreement will terminate on the earlier to occur of the effective time of the
merger of the Company and Sun, 120 days after the termination of the Merger
Agreement, or the repayment of certain indebtedness of the Company in favor of
Sun.
-11-
<PAGE> 12
SOURCES OF REVENUES
The Company derives its patient service revenue primarily from a
combination of state Medicaid programs, the federal Medicare program and private
payment sources. The Company's revenues are determined by a number of factors,
including the licensed bed capacity of its facilities, occupancy rates at the
facilities and the payer mix. While management believes that it has been
successful in obtaining reimbursement, there can be no assurance that
reimbursement rates will remain at present levels or increase at rates necessary
to offset the effects of inflation. In particular, cost containment proposals at
both the state and federal levels may impact the Company's ability to recover
its costs of providing services to Medicaid and Medicare patients. See "--
Government Regulation."
MEDICAID. Medicaid refers to the various state-administered
reimbursement programs that are eligible for matching federal funds. Each of the
Company's long-term care facilities participates in the Medicaid program of the
state in which it is located. Under the federal Medicaid statute and
regulations, state Medicaid programs must provide reimbursement rates that are
reasonable and adequate to cover the costs that would be incurred by efficiently
and economically-operated facilities in providing services in conformity with
state and federal laws, regulations and quality and safety standards.
Furthermore, payments must be sufficient to enlist enough providers so that
services under the state's Medicaid plan are available to recipients at least to
the extent that those services are available to the general population.
The Medicaid programs in which the Company's facilities participate pay
a per diem rate based on each facility's reasonable allowable costs incurred in
providing services, subject to cost ceilings applicable to both operating and
fixed costs, plus a return on equity. Reimbursement rates are typically
determined by the state, on a prospective or retrospective basis, from cost
reports filed by each facility. Under a prospective system, per diem rates are
established (generally on an annual basis) based on certain historical costs of
providing services during the prior year, adjusted to reflect factors such as
inflation and any additional services required to be performed; no subsequent
adjustment is made to reflect variations in actual costs from the rates
established. All of the Company's long-term care facilities are reimbursed on a
prospective rate system. Providers must accept reimbursement from Medicaid as
payment in full for the services rendered. The Georgia and Tennessee Medicaid
programs currently include incentive allowances for providers whose costs are
less than certain ceilings and who meet other requirements. See "-- Government
Regulation."
All Medicaid programs conduct periodic financial audits of
participating facilities. To date, adjustments from Medicaid audits have not had
a material adverse effect on the Company. While there can be no assurance that
future adjustments will not have such an effect, the Company believes that the
actual reimbursable amounts determined after audit will approximate the
estimated reimbursable amounts at which Medicaid revenue has been recorded.
MEDICARE. Medicare is a federally-funded and administered health
insurance program primarily designed for individuals who are age 65 or over and
are entitled to receive Social Security benefits. The Medicare program consists
of two parts: Part A covers in-patient hospital services and services furnished
by other institutional health care providers, such as long-term care facilities;
Part B covers the services of doctors, suppliers of medical items and services,
and various types of outpatient services. Part B services include physical,
speech and occupational therapy, pharmaceuticals and medical supplies, certain
intensive rehabilitation and psychiatric services and ancillary diagnostic and
other services of the type provided by long-term care or acute care facilities.
-12-
<PAGE> 13
Part A coverage is limited to a specified term (generally 100 days in a
long-term care facility) and requires beneficiaries to share some of the cost of
covered services through the payment of a deductible and a co-insurance payment.
There are no limits on duration of coverage for Part B services, but there is a
co-insurance requirement for most services covered by Part B.
The majority of the Company's long-term care beds are certified for
Medicare services. Generally, the Company's Medicare participating facilities
receive monthly reimbursement payments during the year at interim rates based
on historical costs. These rates are later adjusted to reflect actual allowable
direct and indirect costs of services based on the submission of a cost report
at the end of each year. Actual costs incurred and reported by each facility
are subject to retrospective audits which can result in upward or downward
adjustments of payments received. To date, adjustments from Medicare audits
have not had a material adverse effect on the Company. While there can be no
assurance that future adjustments will not have such an effect, the Company
believes that the actual reimbursable amounts determined after audit will
approximate the estimated reimbursable amounts at which Medicare revenue has
been recorded.
PRIVATE PAY. Private pay revenues include payments from individuals who
pay directly for services without governmental assistance and include payments
from commercial insurers, Blue Cross organizations, health maintenance
organizations, preferred provider organizations, workers' compensation programs
and other similar payment sources. The Company's rates for private pay residents
are typically higher than rates for patients eligible for assistance under
governmental reimbursement programs. The amount the Company charges to private
pay residents is not subject to regulatory control in any state in which the
Company operates. However, the private pay rates charged by the Company are
influenced primarily by the rates charged by other providers in the local market
and by Medicaid and Medicare reimbursement rates.
All of the Company's patient service revenue attributable to its
assisted/independent living centers is derived exclusively from private pay
sources. Monthly resident fees for the Company's independent living centers
typically range from approximately $1,250 to $1,800 and monthly resident fees
for the Company's assisted living centers typically range from $1,500 to $3,000
based upon the resident's level of required care. Government payments for
assisted living services have been limited and are not material to the Company's
assisted/independent living operations.
ANCILLARY BUSINESSES
On September 30, 1994, the Company acquired approximately 63% of the
outstanding capital stock of Contour Medical, Inc. ("Contour") from certain
shareholders of Contour. In exchange for such shares, the Company issued 125,000
shares of the Company Common Stock and 300,000 shares of the Company's Series AA
Convertible Preferred Stock. The Company currently owns approximately 64.3% of
Contour's outstanding capital stock.
Contour is a publicly-held company based in Alpharetta, Georgia which
distributes a full line of disposable medical supplies to nursing homes, home
health agencies and other healthcare providers. These supplies include
disposable surgical procedure products for outpatient surgery, X-ray, radiology,
and other imaging technology within the hospital, emergency room, integrated
care facilities and clinic markets. These supplies, such as pads, bags,
equipment covers and drapes, are used to protect equipment, patients and
attending personnel in the surgery or emergency room environment, and are
designed to meet
-13-
<PAGE> 14
the requirements of infection control for medical, industrial and institutional
applications. In addition, Contour markets its REDI NURSE SYSTEMS product line,
which provides custom-packaged procedural trays for use in clinics and long-term
care centers as well as by home health care nurses, and distributes medical
supplies and equipment produced by other manufacturers.
In March 1996, Contour acquired AmeriDyne Corporation, a bulk medical
supply company based in Jackson, Tennessee, which has annual sales of
approximately $10 million.
In August 1996, Contour acquired all of the outstanding stock of
Atlantic Medical Supply Company, Inc. ("Atlantic Medical"), a distributor of
disposable medical supplies and a provider of third-party billing services to
the nursing home and home health care markets. Contour paid $1,400,000 in cash
and promissory notes totaling $10,500,000 for the stock of Atlantic Medical. The
promissory notes bore interest at 7% per annum and were paid in full by the
Company on January 10, 1997. The payment of these promissory notes was funded by
a loan from the Company in the amount of $9,750,000. The Company funded the loan
to Contour from the proceeds of a $9,750,000 loan from Sun. The loan from Sun
accrues interest at a rate of 11%, which could increase to 15% during any period
of default. Principal under such loan is due 120 days following the termination
of the merger agreement between Sun and the Company.
In consideration of the Company's agreement to guarantee Contour's
obligations with respect to such promissory notes, Contour agreed to pay the
Company $500,000, which obligation was satisfied by the issuance of 100,000
shares of the common stock of Contour valued at $5.00 per share on the date of
issuance. The loan from the Company to Contour was evidenced by a convertible
promissory note bearing interest at a rate of 9% per annum and payable on
demand. This note was converted into 1,950,000 shares of the common stock of
COntour on January 10, 1997.
The Company holds approximately 27% of the outstanding capital stock of
In-House Rehab, Inc., a publicly held company based in Louisville, Kentucky,
whose wholly owned subsidiary, In-House Rehab, Inc., provides rehabilitation
services to approximately 36 of the Company's long-term care facilities.
COMPETITION
The senior residential care industry is highly competitive. The Company
competes with other providers of senior residential care services on the basis
of the breadth and quality of its services, the quality of its facilities and,
with respect to private pay patients or residents, price. The Company also
competes in the acquisition and development of additional facilities. The
Company's current and potential competitors include national, regional and local
operators of long-term care facilities, acute care hospitals and rehabilitation
hospitals, extended care centers, assisted/independent living centers,
retirement communities, home health agencies and similar institutions, many of
which have significantly greater financial and other resources than the Company.
In addition, the Company competes with a number of tax-exempt nonprofit
organizations which can finance capital expenditures on a tax-exempt basis or
receive charitable contributions unavailable to the Company and which are
generally exempt from paying income tax. There can be no assurance that the
Company will not encounter increased competition which could adversely affect
the Company's operating results.
While the Company's competitive standing varies from market to market,
management believes that the Company competes favorably in substantially all of
the markets it serves based on key competitive factors such as the breadth and
quality of services it offers, the quality of its facilities, its recruitment
and retention of qualified health care personnel and its reputation among local
referral sources.
Competition for the acquisition of long-term care facilities has
remained steady in recent years, but is expected to increase as the demand for
long-term care increases. Construction of new long-term care facilities near the
Company's facilities could adversely affect its business. However, state laws
generally require a CON, which is only issued if the applicant proves that the
need for additional long-term care beds exists under the state devised formula,
before a
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<PAGE> 15
new long-term care facility can be built or beds can be added to existing
facilities. The Company believes that these laws reduce the possibility of
overbuilding and promote higher utilization of existing facilities. CON laws are
in place in all states where the Company operates. While such measures may limit
the Company's expansion of current facilities and possible future acquisitions,
they may also reduce competition in the affected service area.
The Company competes with other health care providers for both
professional and nonprofessional employees and with non-health care providers
for non-professional employees. In recent years the health care industry has
experienced a shortage of qualified health care personnel. While the Company has
been able to retain the services of an adequate number of qualified personnel to
staff its facilities appropriately and maintain its standards of quality care,
there can be no assurance that continued shortages will not affect the ability
of the Company to maintain the desired staffing levels. A lack of qualified
personnel at any facility could result in significant increases in labor costs
or otherwise adversely affect the operations at that facility. Any of these
developments could adversely affect the Company's operating results or expansion
plans.
GOVERNMENT REGULATION
The federal government and all states in which the Company operates
regulate various aspects of the Company's business. In addition to the
regulation of rates by governmental payer sources, the development and operation
of long-term care and assisted living facilities and the provision of long-term
care services are subject to federal, state and local licensure and
certification laws which regulate with respect to a facility, among other
matters, the number of beds, the services provided, the distribution of
pharmaceuticals, the condition and use of medical equipment, staffing
requirements, operating policies and procedures, fire prevention measures and
compliance with building and safety codes and environmental laws. There can be
no assurance that federal, state or local governments will not impose additional
restrictions which might impact the Company's business.
LICENSURE AND CERTIFICATION. All of the facilities operated by the
Company are licensed under applicable state laws and have all required CONs
from responsible state authorities. All of the Company's long-term care
facilities are certified or approved as providers under the Medicaid program,
and the majority of its long-term care facilities are certified or approved as
providers under the Medicare program. Both initial and continuing qualification
of a long-term care facility to participate in the Medicaid and Medicare
programs depend on many factors, including accommodations, equipment, services,
non-discrimination policies against indigent patients, patient care, quality of
life, residents' rights, safety, personnel, physical environment and adequacy
of policies, procedures and controls. Licensing, certification and other
applicable standards vary from jurisdiction to jurisdiction and are revised
periodically. State agencies survey or inspect all long-term care facilities on
a regular basis to determine whether such facilities are in compliance with the
requirements for participation in government-sponsored third party payer
programs. In some cases or upon repeat violations, the reviewing agency has the
authority to take various adverse actions against a facility, including the
imposition of fines, temporary suspension of admission of new patients to the
facility, suspension or decertification from participation in the state
Medicaid or the Medicare program, denial of payment under Medicaid for new
admissions, reduction of payments, and, in extreme circumstances, revocation of
a facility's license or closure of a facility. The compliance history of a
prior operator may be used by state or federal regulators in determining
possible action against a successor operator.
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<PAGE> 16
REGULATORY COMPLIANCE AND ENFORCEMENT. The Company believes that its
facilities comply in all material respects with all applicable statutes,
regulations, standards and requirements, including applicable Medicaid and
Medicare regulatory requirements. However, in the ordinary course of its
business, the Company's long-term care facilities are surveyed from time to time
for regulatory compliance and receive notices of deficiencies for failure to
comply with various regulatory requirements. In most cases, the Company and the
reviewing agency will agree upon corrective measures to be taken to bring the
facility into compliance. To date, statements of deficiency received by the
Company have not had any material adverse effect on its operations, and there is
no pending or threatened decertification of or moratorium on admissions at any
of its facilities. While there can be no assurance that future surveys will not
have a material adverse effect on the Company, based on its operating policies
and compliance procedures, quality assurance programs and past experience, the
Company does not expect to receive any statements of deficiency which would,
either individually or in the aggregate, have a material adverse effect on its
operations.
FRAUD AND ABUSE LAWS. Various federal and state laws regulate the
relationship between providers of health care services and physicians, including
employment or service contracts and investment relationships. These laws include
the broadly-worded fraud and abuse provisions of the Medicaid and Medicare
statutes, which prohibit payments for the referral of Medicaid or Medicare
patients. Violations of these provisions may result in civil or criminal
penalties for individuals or entities or exclusion from participation in the
Medicaid and Medicare programs. Management believes that in the past the Company
has been, and in the future it will be, able to arrange its business
relationships so as to comply with these provisions.
OBRA - 87. Effective October 1, 1990, the Omnibus Budget Reconciliation
Act of 1987 ("OBRA") eliminated the different certification standards for
"skilled" and "intermediate care" nursing facilities under the Medicaid program
in favor of a single "nursing facility standard. This standard requires, among
other things, that the Company have at least one registered nurse on each day
shift and one licensed nurse on each other shift and increases training
requirements for nurse's aides by requiring a minimum number of training hours
and a certification test before a nurse's aide can commence work. States must
continue to certify that nursing facilities provide "skilled care" in order to
obtain Medicare reimbursement. Management is unable to predict how individual
state licensure laws win conform to this change but believes that the Company
will not be materially adversely affected.
RESTRICTIONS ON ACQUISITIONS, CONSTRUCTION AND ADDITIONS. All states in
which the Company operates have adopted CON or similar laws which generally
require that, with respect to long-term care facilities, a state agency
determine that a need exists prior to the addition or reduction of beds or
services, the implementation of other changes, the incurrence of certain capital
expenditures or, in certain states, the closure of a facility. State approvals
are generally issued for a specified maximum expenditure and require
implementation of the proposal within a specified period of time. Failure to
obtain the necessary state approval can result in the inability of the facility
to provide the service, operate the facility or complete the acquisition,
addition or other change in a facility and in the imposition of sanctions or
other adverse action on the facility's license and reimbursement eligibility.
GOVERNMENTAL BUDGETARY RESTRAINTS. Both the federal government and
various states are considering imposing limitations on the amount of funding
available for various health care services. Among the proposals being considered
by the
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<PAGE> 17
United States Congress is a "block grant" funding mechanism for the disbursement
of the federal share of Medicaid payments to the individual states. If enacted,
this could cause a reduction in the availability of Medicaid funds in future
years to the states which, in turn, provide reimbursement to Medicaid-certified
long-term care facilities. In addition, various states are themselves
considering reduced levels of spending in various areas which also could affect
the amount of available Medicaid funding. In November 1995, the United States
Senate and House of Representatives passed a budget reconciliation bill which
would establish a framework for balancing the federal budget in seven years.
While the President vetoed the bill, the Administration has agreed to achieve a
balanced budget in this time frame. The bill passed by the Senate and House
would have resulted in a major restructuring of the current Medicaid program.
Rather than operating as an entitlement program, the new "MediGrant" program
would provide federal block grants to the states for medical assistance programs
to low income individuals and families. While the states would be subject to
certain federal requirements, states would also have broad flexibility to
establish their coverage, eligibility and payment standards. Given the fixed
federal funds that would be available to support state MediGrant programs, there
would be no assurance that, if enacted, these provisions would not have a
material adverse effect on the results of operations of the Company. While
Medicare and Medicaid reimbursements may not continue at the current levels or
rates of increase, it is not possible to predict with certainty the effect of
any legislation upon the Company's operations.
EMPLOYEES. As of June 30, 1997, the Company employed in the aggregate
approximately 7,320 employees, including 106 employees at the Company's
executive offices. The Company believes that its relationship with its employees
is satisfactory. The Company has collective bargaining agreements with unions
representing two of the facilities that the Company operates. The Company is
currently negotiating an agreement with the union representing employees at one
other facility operated by the Company. The employees at the remaining
facilities operated by the Company have not elected to be covered by collective
bargaining agreements.
The Company believes that the attraction and retention of dedicated,
skilled and experienced nursing and other professional staff has been and will
continue to be a critical factor in the successful development of its business.
In response to this challenge, a compensation program which provides for regular
merit and cost-of-living reviews and a variety of financial and other incentives
have been implemented to promote facility staff motivation and productivity and
to reduce turnover rates. The Company believes that its wage rates for nursing
and other professional staff are commensurate with market rates.
INSURANCE
Providing health care services entails an inherent risk of liability.
The Company maintains liability insurance providing coverage which it believes
to be adequate. In addition, the Company maintains property, business
interruption and workers' compensation insurance covering all facilities in
amounts deemed adequate by the Company. The Company carries malpractice
insurance coverage for each of the facilities that it owns, operates or manages
in the amount of $1 million per incident per facility and $3 million annual
aggregate per facility. The Company also carries an umbrella excess liability
insurance policy which has a $20 million per incident limit with an aggregate
limit of $20 million. There can be no assurance that any future claims will not
exceed applicable insurance coverage or that the Company will be able to
continue its present insurance coverage on satisfactory terms, if at all.
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<PAGE> 18
ITEM 2. PROPERTIES.
The Company currently leases approximately 20,000 square feet of office
space for its corporate offices at 6000 Lake Forrest Drive, Suite 200, Atlanta,
Georgia, from an unaffiliated party. This lease expires in October 2000, and
currently requires base monthly lease payments of approximately $36,015. The
Company believes that these facilities are suitable and adequate to meet its
present and anticipated needs.
The Company has entered into management services agreements with
facilities owned or controlled by affiliated entities that are have three to
five year terms and are cancelable within sixty days written notice by either
party. The agreements provide for monthly fees ranging from $2,000 to $28,000
per facility and expire at various times through 2002. These affiliated
entities are owned and controlled by Messrs. Brogdon and Lane.
The lease agreements with affiliated facilities have annual rental
payments ranging from approximately $290,000 to $850,000, expire on various
dates from 2003 to 2007 and are renewable for periods of five to ten years.
The annual rental payments are generally based on 110% of yearly debt service.
These facilities are owned and controlled by Messrs. Brogdon, Lane and Tucker.
The following table summarizes certain information regarding facilities
leased, owned and managed by the Company in Georgia, Florida, Tennessee,
Alabama, North Carolina, Virginia, Ohio and Arizona as of September 19, 1997.
With regard to facilities leased from or managed for affiliated companies, the
name of the affiliate is indicated using the following abbreviations: Winter
Haven Homes, Inc. - WHH; Gordon Jensen Health Care Associates, Inc. - GJ;
National Assistance Bureau, Inc. - NAB; Southeastern Cottages, Inc. - SCI;
Chamber Health Care Society - CHCS; and Retirement Group, L.L.C. - RG.
<TABLE>
<S> <C>
"Long-term care facilities
Owned 15
Leased 47
Managed --
Leased from Affiliated Entities 7
Managed for Affiliated Entities 5
Assisted living/independent living facilities
Owned 18
Leased 9
Managed 1
Leased from Affiliated Entities 5
Managed for Affiliated Entities 3
Total facilities 110*
</TABLE>
- --------
* As of September 19, 1997 the Company had three facilities under construction
with estimated completion dates ranging from January 1998 to April 1998."
<TABLE>
<CAPTION>
Leased/
Owned/ Occupancy
Number Managed As of
Type of of Beds (Name of September 19,
Name Location Facility or Units Affiliate) 1997
- ------------------ ---------- ----------- -------- --------- ----------
GEORGIA
<S> <C> <C> <C> <C> <C>
Twin View Health Twin City Long-Term 110 Leased 96%
Care Center Care (RG)
Griffin Health Griffin Long-Term 148 Owned 99%
Care Center Care
Midway Health Midway Long-Term 169 Managed 94%
Care Center Care (GJ)
Dearfield Nursing Columbus Long-Term 210 Owned 95%
Facility Care
Summer's Landing- Vidalia Assisted/ 24 Managed 100%
Vidalia Independent (SCI)
Living
Summer's Landing- Cordele Assisted/ 36 Owned 89%
Cordele Independent
Living
Summer's Landing- Douglas Assisted/ 58 Leased 95%
Douglas Independent (GJ)
Living
Summer's Landing- Dublin Assisted/ 56 Owned 89%
Dublin Independent
Living
Summer's Landing- Dahlonega Assisted/ 24 Leased 83%
Dahlonega Independent
Living
Summer's Landing- Griffin Assisted/ 30 Owned 31%
Griffin Independent
Living
</TABLE>
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<PAGE> 19
<TABLE>
<S> <C> <C> <C> <C> <C>
Summer's Landing- Plains Assisted/ 40 Owned Under
Plains Independent Construction
Living
Twelve Oaks Health Riverdale Long-term 152 Leased 93%
Care Care
Cedartown Health Cedartown Long-term 116 Leased 97%
Care Center Care
Floyd Health Care Rome Long-term 100 Leased 91%
Center Care
Friendship Health Cleveland Long-term 89 Leased 97%
Care Center Care
Gateway Health Cleveland Long-term 60 Leased 98%
Care Center Care
Gold City Health Dahlonega Long-term 102 Leased 97%
Care Center Care
Mountain View Clayton Long-term 117 Leased 91%
Health Care Center Care
Sandmont Health Trenton Long-term 71 Leased 97%
Care Center Care
Rome Health Care Rome Long-term 100 Leased 97%
Center Care
Sun Mountain Rome Long-term 100 Leased 95%
Health Care Center Care
Arrowhead Nursing Jonesboro Long-term 115 Owned 92%
Center Care
Roberta Nursing Roberta Long-term 100 Leased 93%
Home Care
West View Health Port Long-term 99 Leased 98%
Care Center Wentworth Care
Peachbelt Health Warner Long-term 106 Leased 87%
Care Center Robins Care
Dogwood Retirement Warner Assisted/ 18 Leased 100%
Village Robins Independent
Living
New Beginnings Covington Long-term 158 Managed 96%
Health & Rehab Care (CHCS)
</TABLE>
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<PAGE> 20
<TABLE>
<S> <C> <C> <C> <C> <C>
Springdale Conva- Atlanta Long-term 109 Owned 95%
lescent Center of Care
Atlanta
Springdale Conva- Carters- Long-term 118 Leased 96%
lescent Center ville Care
of Bartow County
Summer's Landing- Carters- Long-term 50 Owned 46%
Springdale ville Care
Brunswick Nursing Brunswick Long-term 204 Leased 97%
Center Care
Tattnall Nurse Reidsville Long-term 92 Leased 87%
Care Center Care
Altamaha Conva- Jesup Long-term 62 Leased 100%
lescent Center Care
Summer's Landing- Rome Assisted/ 60 Owned 95%
Rome Independent
Living
Riverview Health- Rome Long-term 115 Owned 93%
care Center Care
Marietta Health Marietta Long-term 119 Leased 98%
Care Care
Brown's Health- Statesboro Long-term 64 Leased 95%
care Center Care
Clinch Healthcare Homerville Long-term 92 Leased 88%
Center Care
Jeff Davis Health Hazelhurst Long-term 73 Leased 93%
Care Center Care
Charlton Health Folkston Long-term 92 Leased 85%
Care Center Care
Hartley Woods Macon Long-term 147 Leased 92%
Health & Rehab Care (RG)
Center
The Renaissance - Warner Assisted/ 132 Owned Under
Warner Robbins Robbins Independent Construction
Living
Total for Georgia 4,037 (42 facilities)*
- ---------------
* Excludes facilities under construction.
FLORIDA
Renaissance of Sebring Assisted/ 170 Owned 89%
Sebring Independent
Living
</TABLE>
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<PAGE> 21
<TABLE>
<S> <C> <C> <C> <C> <C>
The Garden at Green Cove Assisted/ 28 Leased 39%
Magnolia Manor Springs Independent (RG)
Living
Magnolia Manor Green Cove Long-term 60 Leased 92%
Nursing Center Springs Care (RG)
Lake Forrest Jackson- Long-term 60 Leased 98%
Health Care ville Care (WHH)
Center
Summer's Landing- Lynn Haven Assisted/ 51 Managed 73%
Lynn Haven Independent (NAB)
Living
The Renaissance Titusville Assisted/ 101 Leased 96%
Independent (WHH)
Living
Renaissance of Sanford Assisted/ 94 Managed 86%
Sanford Independent (WHH)
Living
The Atrium Jackson- Assisted/ 178 Managed 95%
ville Independent and 75%
Care Owned
The Atrium Jackson- Long-term 84 Managed 71%
Nursing Home ville Care and 75%
Owned
The Preserve Pompano Assisted/ 297 Managed 99%
Beach Independent
Living
The Renaissance Destin Assisted/ 116 Owned 97%
of Sandestin Independent
Living
The Edwinola Dade City Assisted/ 214 Owned 76%
Independent
Living
Westwood Fort Walton Assisted/ 208 Owned 93%
Retirement Independent
Living
Southside Health Jackson- Long-term 120 Leased 64%
Care Center ville Care
The Renaissance Lakeland Assisted/ 104 Owned 77%
of Lakeland Independent
Living
</TABLE>
-21-
<PAGE> 22
<TABLE>
<S> <C> <C> <C> <C> <C>
Bayou Villa Pensacola Assisted/ 106 Leased 50%
Independent
Living
Westwood Nursing Fort Walton Long-term 60 Owned 97%
Center Care
Summer's Landing- Jackson- Assisted/ 39 Managed 87%
Atrium ville Independent and 75%
Living Owned
Summer's Landing- Titusville Assisted/ 28 Leased Under
of Titusville Independent (WHH) Con-
Living struc-
tion
Orlando Health Orlando Long-term 132 Leased 92%
Care Center Care
Gainesville Health Gainesville Long-term 180 Leased 82%
& Rehab Center Care
Coventry Square Ocala Long-term 132 Leased 89%
Health & Rehab Care
Center
St. Cloud Health St. Cloud Long-term 131 Leased 86%
Care Center Care
North Jacksonville Jackson- Long-term 60 Leased Under
Rehab and Nursing ville Care Con-
Center struc-
tion
Total for Florida 2,753 (24 facilities)*
- ---------------
*Excludes facilities under construction.
TENNESSEE
Marshall C. Voss Harriman Long-term 139 Managed 89%
Health Care Care (NAB)
Trenton Health Trenton Long-term 58 Leased 95%
Care Center Care (RG)
Summer's Landing- Trenton Assisted/ 22 Leased 100%
Trenton Independent (RG)
Living
Jackson Oaks Jackson Assisted/ 178 Owned 97%
Retirement Independent
Living
</TABLE>
-22-
<PAGE> 23
<TABLE>
<S> <C> <C> <C> <C> <C>
Cumberland Green Henderson- Assisted/ 140 Owned 90%
Retirement ville Independent
Living
Winchester Health Winchester Long-term 80 Leased 100%
Care Care
Health Care Ardmore Long-term 79 Leased 99%
Center of Care
Ardmore
Fayetteville Fayetteville Long-term 79 Leased 98%
Health Care Care
Center
River Park Health Nashville Long-term 78 Leased 90%
Care Center Care
Palmyra Inter- Palmyra Long-term 75 Leased 97%
mediate Care Care
Center
Milan Health Milan Long-term 66 Leased 83%
Care Center Care
Pleasant View Bolivar Long-term 67 Leased 100%
Health Care Care
Center
Lauderdale Ripley Long-term 71 Owned 87%
Healthcare Care
Oak Manor Health McKenzie Long-term 66 Leased 99%
Care Center Care
Parkway Health Memphis Long-term 100 Managed 96%
and Rehab Care (CHCS)
Hillview Nursing Dresden Long-term 70 Owned 100%
Home Care
Crestwood Nursing Manchester Long-term 59 Owned 100%
Home Care
Reelfoot Manor Tiptonville Long-term 120 Leased 85%
Care
Maplewood Health Jackson Long-term 172 Leased 87%
Care Center Care (RG)
Laurelwood Health Laurelwood Long-term 74 Leased 85%
Care Center Care (RG)
Total for Tennessee 1,793 (20 facilities)
</TABLE>
-23-
<PAGE> 24
<TABLE>
<S> <C> <C> <C> <C> <C>
ALABAMA
Gardendale Gardendale Long-term 148 Leased 98%
Health Care Care
Center
Summer's Landing- Gardendale Assisted/ 26 Leased 100%
Gardendale Independent
Living
Summer's Landing- Hanceville Assisted/ 46 Leased 70%
Hanceville Independent
Living
Sea Breeze Mobile Long-term 140 Managed 99%
Health Care Care (WHH)
Center
The Renaissance Decatur Assisted/ 120 Leased 99%
of Decatur Independent
Living
Total for Alabama 480 (5 facilities)
NORTH CAROLINA
Wilkinson Health Gastonia Long-term 50 Leased 98%
Care Center Care
Len-Care Fayetteville Assisted/ 152 Leased 92%
Rest Home Independent
Living
East Carolina Greenville Long-term 150 Leased 85%
Care Care
Len-Care Nursing Elizabeth- Long-term 120 Leased 98%
and Convalescent town Care
Center
Carolina Greenville Assisted/ 120 Leased 71%
Care Independent
Living
Maplewood Nursing Reidsville Long-term 110 Leased 97%
Center Care
Willow Springs Carboro Assisted/ 108 Leased 73%
Health Care Independent
Center Living
Fayetteville Fayetteville Long-term 100 Leased 55%
Health Care Care
Center
Pemberton Place Pembrooke Long-term 84 Leased 98%
Nursing Center Care
</TABLE>
-24-
<PAGE> 25
<TABLE>
<S> <C> <C> <C> <C> <C>
Brookshire Health Brookshire Long-term 80 Leased 96%
Care Center
Total for North 1,074 (10 facilities)
Carolina
VIRGINIA
West Hampton Richmond Long-term 195 Owned 83%
Health and Rehab Care
Center
New River Health- Dublin Long-term 132 Leased 74%
care Center Care
Tappahannock Tappahannock Long-term 118 Owned 78%
Health and Rehab Care
Center
Summer's Landing- Tappahannock Assisted/ 42 Owned 97%
Tappahannock Independent
Living
Brentlox Health & Chesapeake Long-term 120 Owned 98%
Rehab Center Care
Lynn Shores Manor Virginia Long-term 242 Leased 83%
Care
Total for Virginia 849 (6 facilities)
OHIO
Hamlet Chagrin Assisted/ 222 Owned 87%
Retirement Falls Independent
Care
Hamlet Nursing Chagrin Long-term 88 Owned 85%
Manor Falls Care
Total for Ohio 310 (2 facilities)
ARIZONA
The Carillons Sun City Assisted/ 76 Owned 90%
Independent
Care
Total for Arizona 76 (1 facility)
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
As of October 7, 1997 the Company and certain of its officers and
directors have been named as defendants in nine putative class action lawsuits
which were commenced during the period from August 25, 1997 through October 2,
1997 (the "Shareholder Lawsuits"). The Company expects that the Shareholder
Lawsuits, which are similar in all material respects, will be consolidated and
proceed as one class action. The complaints allege that the Company and the
individual defendants misrepresented the results of the Company's operations,
concealed adverse material information concerning the operations, finances,
financial condition, products, inventories, results of operations and future
business prospects of the Company and overstated the Company's profitability
in its quarterly reports, filings with the Commission, press releases and
presentations to securities analysts. The plaintiffs claim that the Company and
certain of its officers and directors violated Section 10(b) of the Securities
Act and Rule 10b-5 promulgated thereunder, and Section 20(A) of the Exchange
Act.
-25-
<PAGE> 26
Generally each of the complaints seeks unspecified compensatory damages,
pre-judgment and post-judgment interest, reasonable attorneys' fees, expert
witness fees and other costs, equitable and injunctive relief. Following is a
list of these class actions:
1. Solomon Jacob on behalf of himself and all others similarly
situated, Plaintiff v. Retirement Care Associates, Inc., Chris
Brogdon, Darrell C. Tucker and Edward E. Lane, Defendants.
This complaint was filed on August 29, 1997 in the United
States District Court, Northern District Court of Georgia,
Atlanta Division, Civil Action No. 1:97-CV-2529.
2. Joseph Goldstein, on behalf of himself and all others
similarly situated, Plaintiff v. Retirement Care Associates,
Inc., Chris Brogdon and Darrell C. Tucker, Defendants. This
class action complaint was filed on September 28, 1997 in the
United States District Court, Northern District Court of
Georgia, Atlanta Division, Civil Action No. 1:97-CV-2503.
3. Southland Securities, Inc. on behalf of himself and all others
similarly situated, Plaintiff v. Retirement Care Associates,
Inc., Chris Brogdon, Darrell C. Tucker and Edward E. Lane,
Defendants. This class action complaint was filed on August
27, 1997 in the United States District Court, Northern
District Court of Georgia, Atlanta Division, Civil Action No.
1:97-CV-2494-MHS.
4. Pankai Shah, on behalf of himself and all others similarly
situated, Plaintiff v. Retirement Care Associates, Inc., Chris
Brogdon, Darrell C. Tucker, Julian S. Daley and Harlan
Mathews, Defendants. This class action complaint was filed on
September 10, 1997 in the United States District Court,
Central District of California, Case Number CV-97-6768-GHK
(JGx).
5. Israel Shurkin, on behalf of himself and all others similarly
situated, Plaintiff v. Retirement Care Associates, Inc., Chris
Brogdon, Darrell C. Tucker, Julian S. Daley and Harlan
Mathews, Defendants. This class action complaint was filed on
August 25, 1997 in the United States District Court, Northern
District Court of Georgia, Civil Action No. 1:97-CV-2558.
6. Michael Gerber, on behalf of himself and all others similarly
situated, Plaintiff v. Retirement Care Associates, Inc., Chris
Brogdon and Darrell C. Tucker, Defendants. This class action
complaint was filed on September 12, 1997 in the United States
District Court, Northern District Court of Georgia, Atlanta
Division, Civil Action No. 1:97-CV-2680.
7. David Applestein, on behalf of himself and all others
similarly situated, Plaintiff v. Retirement Care Associates,
Inc., Chris Brogdon and Darrell C. Tucker, Defendants. This
class action complaint was filed on September 22, 1997 in the
United States District Court, Northern District Court of
Georgia, Atlanta Division, Civil Action No. 1:97-CV-2850.
8. Jean Poulsen, on behalf of himself and all others similarly
-26-
<PAGE> 27
situated, Plaintiff v. Retirement Care Associates, Inc., Chris
Brogdon and Darrell C. Tucker, Defendants. This class action
complaint was filed on October 2, 1997 in the United States
District Court, Northern District Court of Georgia, Atlanta
Division, Civil Action No. 1:97-CV-3009.
9. Tim Semple, on behalf of himself and all others similarly
situated, Plaintiff v. Retirement Care Associates, Inc., Chris
Brogdon and Darrell C. Tucker, Defendants. This class action
complaint was filed on October 1, 1997 in the United States
District Court, Northern District Court of Georgia, Atlanta
Division, Civil Action No. 1:97-CV-2998.
The Company intends to defend the above actions vigorously. The Company
cannot predict the financial impact of the costs of defending these actions, or
their settlement, with any certainty, but believes that the costs to the Company
could have a material adverse effect on the Company and its operations.
On April 30, 1997 a complaint was filed by Theratx, Inc. against the
Company, Darrell C. Tucker, Capitol Care Management Company, Inc. et. al. in the
Superior Court of Fulton County, Georgia (Civil Action File No. E-59089). The
complaint seeks approximately $1,600,000 in damages plus interest of
approximately $239,000 and costs and fees of approximately $24,500 in connection
with past due accounts for therapy services and rehabilitation services. The
Company is attempting to settle this matter and has submitted a settlement offer
to Theratx. The amount at issue is attributable to seven (7) facilities, six (6)
of which are operated by the Company and one (1) of which is operated by Chamber
Health Care Society, Inc. The amount claimed relating to the six facilities
operated by the Company is less than $500,000.
On July 1, 1997 a complaint was filed by CMS Therapies, Inc. against
the Company in the Superior Court of Mecklenburg County, North Carolina (Civil
Action File No. 97-CVS-8434). The complaint seeks approximately $1,277,000 plus
interest and fees in connection with therapy services agreements.
On July 1, 1997, a complaint was filed by CMS Therapies, Inc. against
the Company's subsidiary, Capitol Care Management Company, Inc. in the Superior
Court of Mecklenburg County, North Carolina (Civil Action File No. 97-CVS-8435).
The complaint seeks $597,553.80 in damages plus interest and fees in connection
with the alleged breach of a settlement agreement relating to the payment for
therapy services.
-27-
<PAGE> 28
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
YEAR ENDED JUNE 30, 1997 COMPARED TO YEAR ENDED JUNE 30, 1996
The Company's total revenues for the year ended June 30, 1997 were
$253,227,861 compared to $134,011,369 for the year ended June 30, 1996.
Management fee revenue decreased from $3,781,433 in the year ended June
30, 1996, to $2,629,329 in the year ended June 30, 1997. The Company leased
three long-term care facilities and four assisted living/independent living
facilities and purchased two assisted living/independent living facilities
during the fiscal year ended June 30, 1997, each of which the Company managed
during the fiscal year ended June 30, 1996. All of these facilities were owned
and controlled by Messrs. Brogdon and Lane. The Company purchased and leased
these facilities to reduce the affiliated receivable due the Company and to
increase the number of facilities owned or leased, rather than just managed, by
the Company. Included in the Company's management fee revenue is $2,212,500 and
$3,472,900 from affiliates during the year ended June 30, 1997 and 1996,
respectively.
Due to the increased number of facilities owned or leased by the
Company, patient service revenue increased from $119,499,849 for the year ended
June 30, 1996 to $202,603,841 for the year ended June 30, 1997. The cost of
patient services in the amount of $148,520,849 for the year ended June 30, 1997,
represent 73% of patient service revenue, as compared to $81,082,972 or 68%, of
patient service revenue during the year ended June 30, 1996. The increase in the
percentage is attributed to the Company's operation of twenty-one long-term care
facilities compared to fourteen assisted living/ independent living facilities
in the year end June 30, 1997. The long-term care facilities require more
everyday skilled patient services than assisted living/independent living
facilities. Additionally, staffing a long-term care facility requires more
nursing specialists, therapy services and higher staffing levels as compared to
assisted living/independent living facilities.
Owning or leasing a facility is distinctly different from managing a
facility with respect to operating results and cash flows. For an owned or
leased facility, the entire revenue/expense stream of the facility is recorded
on the Company's income statement. In case of a management agreement, only the
management fee is recorded. The expenses associated with management revenue
are somewhat indirect as the infrastructure is already in place to manage the
facility. Therefore, the profitability of managing a facility appears more
lucrative on a margin basis than that of an owned/leased facility. However,
the risk of managing a facility is that the contract generally can be canceled
on a relatively short notice, which results in loss of all revenue attributable
to the contract. Furthermore, with an owned or leased property the Company
benefits from the increase in value of the facility as its performance
increases. With a management contract, the owner of the facility maintains the
equity value. From a cash flow standpoint, a management contract is more
lucrative because the
-28-
<PAGE> 29
Company does not have to support the ongoing operating cash flow of the
facility.
The Company owned or leased 35 additional facilities during fiscal
year ended June 30, 1997 compared to fiscal year ended June 30, 1996, which
resulted in a corresponding increase in net revenues of $36 million during the
fiscal year ended June 30, 1997. The number of leased or owned properties at
year end are presented in the following table (which does not include managed
facilities):
<TABLE>
<CAPTION>
Type Fiscal 1995 Fiscal 1996 Fiscal 1997
<S> <C> <C> <C>
Long-Term Care 30 48 69
Assisted Living/Independent
Living 8 18 32
Total 38 66 101
</TABLE>
For facilities that were in place for the entire year ended June 30,
1996 and June 30, 1997, revenue increased approximately $1 million, or 2%,
during the year ended June 30, 1997. For these same facilities, average rates
increased approximately 4% while patient-days decreased approximately 2%.
Medical supply revenue increased from $9,825,252 during the fiscal
year ended June 30, 1996 to $45,500,712 during the fiscal year ended June 30,
1997. These revenues, which are the revenues of Contour, increased primarily due
to the acquisition of Ameridyne Corporation on April 1, 1996 and Atlantic
Medical Supply Company, Inc. on July 1, 1996. The cost of medical supplies sold
during the fiscal year ended June 30, 1996, $5,350,817, represented 54% of the
Company's total medical supply revenue for such period, compared to the cost of
medical supplies sold during the year ended June 30, 1997, $31,045,671, which
represents 68% of the Company's total medical supply revenue for such period.
This increase is primarily due to increases in the cost of the goods sold and
increased competition in the medical supply industry, which has decreased the
sale prices of most products.
Other revenues increased from $904,835 for the fiscal year ended June
30, 1996, to $2,463,979 for the fiscal year ended June 30, 1997. Financing fees
increased from $150,000 for the fiscal year ended June 30, 1996 to approximately
$700,000 for the fiscal year ended June 30, 1997. Financing fees represent fees
received by the Company for assisting other companies to obtain financing for
facilities. The Company recorded income under the equity method of $240,000 for
investments in unconsolidated subsidiaries. The Company also experienced
increases in other revenue not related to resident care, such as guest meals and
beauty and barber services, due to the increased number of facilities the
Company operated.
Lease expense increased from $8,442,671 in the year ended June 30,
1996, to $14,117,392 in the year ended June 30, 1997. This increase is
primarily attributable to the increased numbers of facilities leased during the
year, as well as the full year effect of leased facilities that started during
the year ended June 30, 1996.
General and administrative expenses for the year ended June 30, 1997
were $46,346,051, representing 18% of total revenues, as compared to
$23,192,250 representing 17% of total revenues, for the year ended June 30,
1996.
During the year ended June 30, 1997, the Company recorded a $2,982,063
provision for bad debts. The amount of the provision for bad debts was based
upon the aging and estimated collectibility of receivables from Medicare,
Medicaid and private payors. During the year ended June 30, 1997, the aging of
receivables increased compared with the aging of receivables at June 30, 1996.
The increase in the allowance for doubtful accounts of Contour reflects an
adjustment to the purchase price allocation for Contour's acquisition of
Atlantic Medical and its subsidiaries. The adjustment was required to reduce
acquired trade receivables, principally due from Medicare and Medicaid, to their
net realizable value.
During the year ended June 30, 1997, the Company had $673,655 in
interest income and financing fees as compared to $1,847,868 in interest income
and financing fees for the year ended June 30, 1996. The decrease in interest
income is a result of the decreased amount of advances to related parties
during the current year.
Interest expense increased from $7,948,091 in the year ended June 30,
1996 to $14,111,843 in the year ended June 30, 1997. This increase is
primarily attributable to the increased numbers of facilities acquired by the
Company during the year, as well as the full year effect of facilities that
were acquired by the Company during the year ended June 30, 1996.
For the year ended June 30, 1997, the Company incurred benefits for
income taxes of $2,343,256 which represents an effective tax benefit rate of
25% as compared to expenses for income taxes of $1,307,091, which represents an
effective tax rate of 48% for the year ended June 30, 1996.
The net loss of $7,535,810 for the year ended June 30, 1997 is lower
than the net income of $1,746,808 for the year ended June 30, 1996, due to the
fact that the Company's operations have deteriorated
-29-
<PAGE> 30
as a result of the pendency of and delays associated with the merger with Sun,
including higher-than-normal turnover, costs associated with the integration and
operation of the Company's recently-acquired Virginia and North Carolina
facilities (including certain regulatory compliance problems), declines in
Medicaid rates and occupancy rates during fiscal year 1997 without a
corresponding reduction in operating costs, and accounting adjustments related
to the restatement of the Company's financial statements. Although difficult to
quantify, the Company believes that such staffing concerns led to increases in
costs of patient care and selling, general and administrative expenses during
fiscal year 1997.
Occupancy rates have also impacted the Company's profitability this
fiscal year versus fiscal year 1996. Occupancy rates have declined because of
the turnover of administrators, social workers, and nurses. With both the
expansion of the number of facilities the Company operated during fiscal year
1997 and the higher than normal staff turnover, the Company's existing
management staff was spread very thin.
Most of the revenue from the management services division of the
Company's business is received pursuant to management agreements with entities
controlled by Messrs. Brogdon and Lane, two of the Company's officers and
directors. These management agreements have three to five year terms, however,
they are all subject to termination on 60 days notice, with or without cause, by
either the Company or the owners. Therefore, Messrs. Brogdon and Lane have full
control over whether or not these management agreements, and thus the management
services revenue, continue in the future. These fees represent .87% and 2.82%
of the total revenues of the Company for the years ended June 30, 1997 and 1996,
respectively.
YEAR ENDED JUNE 30, 1996 COMPARED TO YEAR ENDED JUNE 30, 1995
The Company's total revenues for the year ended June 30, 1996, were
$134,011,369 compared to $79,616,053 for the year ended June 30, 1995.
Management fee revenue decreased from $4,169,694 in the year ended June
30, 1995, to $3,781,433 in the year ended June 30, 1996. The Company leased one
long-term care facility, purchased three long-term care facilities and purchased
two assisted living/independent living facilities during the fiscal year ended
June 30, 1996, each of which it managed during the fiscal year ended June 30,
1995. All of these facilities were owned and controlled by Messrs. Brogdon and
Lane. The Company purchased and leased these facilities to reduce the
affiliated receivable due the Company and to increase the number of facilities
owned or leased, rather than just managed, by the Company. Included in the
Company's management fee revenue is $3,472,900 and $3,517,500 from affiliates
during the years ended June 30, 1996 and 1995, respectively.
Due to the increased number of facilities owned or leased by the
Company, patient service revenue increased from $69,949,822 for the year ended
June 30, 1995 to $119,499,849 for the year ended June 30, 1996. The cost of
patient services in the amount of $81,082,972 for the year ended June 30, 1996,
represents 68% of patient service revenue, as compared to $47,778,410, or 68%,
of patient service revenue during the year ended June 30, 1995. The decrease in
the percentage is attributed to an increase in the ratio of assisted
living/independent living facilities to long-term care facilities operated
during the current year. Assisted living/independent living facilities require
less patient services than long-term care facilities. The ratio of long-term
care facilities to assisted living/independent living facilities decreased to
2.7 from 3.8 during the year ended June 30, 1996.
Owning or leasing a facility is distinctly different from managing a
facility with respect to operating results and cash flows. For an owned or
leased facility, the entire revenue/expense stream of the facility is recorded
on the Company's income statement. In the case of a management agreement, only
the management fee is recorded. The expenses associated with management
revenue are somewhat indirect as the infrastructure is already in place to
manage the facility. Therefore, the profitability of managing a facility
appears more lucrative on a margin basis than that of an owned/leased facility.
However, the risk of managing a facility is that the contract generally can be
canceled on a relatively short notice, which results in loss of all revenue
attributable to the contract. Furthermore, with an owned or leased property
the Company benefits from the increase in value of the facility as its
performance increases. With a management contract, the owner of the facility
maintains the equity value. From a cash flow standpoint, a management contract
is more lucrative because the Company does not have to support the ongoing
operating cash flow of the facility.
-30-
<PAGE> 31
The Company converted four managed properties to leased properties
during the fiscal year ended June 30, 1996, which resulted in an increase in
net revenues of $1 million during the fiscal year ended June 30, 1996 compared
to the fiscal year ended June 30, 1995. The number of leased or owned
properties at year-end are presented in the table below (the table does not
included managed facilities):
<TABLE>
<CAPTION>
TYPE FISCAL 1994 FISCAL 1995 FISCAL 1996
---- ----------- ----------- -----------
<S> <C> <C> <C>
Long-term Care 20 30 48
Assisted Living/Independent
Living 6 8 18
----- ----- ------
Total 26 38 66
</TABLE>
For facilities that were in place for the entire year ended June 30,
1995 and June 30, 1996, revenue increased approximately $3 million, or 5%,
during the year ended June 30, 1996. For these same facilities, average rates
increased approximately 3% while patient-days increased approximately 2%.
During the year ended June 30, 1996, the Company had revenue from
medical supply sales of $14,542,421, an approximately $6.2 million increase
compared to fiscal year ended June 30, 1995, of which $4,717,169 was
intercompany sales which were eliminated in consolidation. These sales reflect
the operations of Contour Medical, Inc., of which the Company acquired a
majority interest on September 30, 1994. Because the Company acquired Contour
on September 30, 1994, only nine months of activity were recorded for fiscal
year ended June 30, 1995. Sales for those nine months of $3,617,439 have been
annualized and recorded for the year ended June 30, 1995 and comprise $1.2
million of the $6.2 million increase in medical supplies revenue for the fiscal
year ended June 30, 1995. Sales for the nine month period following the
Contour acquisition have been annualized so as not to distort the net increase
in revenues from the fiscal year ended June 30, 1995 to the fiscal year ended
June 30, 1996. Moreover, Contour acquired AmeriDyne on March 1, 1996, which
contributed $3.6 million of revenue for the fiscal year ended June 30, 1996
(see Contour 6/30/96 10-K, page 16). While AmeriDyne contributed $3.6 million
of revenue for the fiscal year ended June 30, 1996 (as set forth correctly in
Contour's 6/30/96 10-K), Contour's $4.7 million in sales should not have been
labeled intercompany because this amount was not attributable to sales to RCA.
The remaining $1.4 million increase in sales increase is attributable to the
internal growth of the business. The change in costs of goods sold as a
percentage of sales during fiscal year ended June 30, 1996 versus fiscal year
ended June 30, 1995 is not meaningful because the method of recording
intercompany elimination changed during the fiscal year ended June 30, 1996.
During the fiscal year ended June 30, 1995, intercompany sales of $4,995,346
were recorded as an elimination of medical supply revenue and an elimination of
routine and ancillary costs. During the fiscal year ended June 30, 1996,
intercompany sales of $4,717,169 was recorded as an elimination of medical
supply revenue and an elimination of medical supply costs of goods sold. If
fiscal year ended June 30, 1996 is treated identically to fiscal year ended
June 30, 1995, the costs of goods sold margin would be 107% of sales as
compared to 87% of sales during fiscal year ended June 30, 1995. The increase
in costs of goods sold margin is primarily attributable to the fact that sales
to RCA comprised 32% of Contour's sales during fiscal year ended June 30, 1996
(representing costs without associated revenues), while sales to RCA comprised
only 22% of Contour's sales during fiscal year ended June 30, 1995. The Cost
of Goods Sold for the year ended June 30, 1996, was $5,773,934.
Lease expense increased from $5,769,232 in the year ended June 30,
1995, to $8,442,671 in the year ended June 30, 1996. This increase is
primarily attributable to the increased numbers of facilities leased during the
year, as well as the full year effect of leased facilities that started during
the year ended June 30, 1995. There were ten new facilities leased during the
fiscal year ended June 30, 1996.
-31-
<PAGE> 32
General and administrative expenses for the year ended June 30, 1996,
were $23,192,250, representing 17% of total revenues, as compared to
$12,769,582 representing 16% of total revenues, for the year ended June 30,
1995.
During the year ended June 30, 1996, the Company recorded a $3,423,117
provision for bad debts. The amount of the provision for bad debts was based
upon the aging and estimated collectibility of receivables from Medicare,
Medicaid and private payors. During the year ended June 30, 1996, the aging of
receivables increased compared with the aging of receivables at June 30, 1995.
In addition, at June 30, 1996, a larger amount of the receivables was deemed to
be uncollectible than at June 30, 1995. As of June 30, 1995, the estimated
allowance for bad debts was immaterial to the financial statements and was,
therefore, not recorded. The Company's consideration of several factors
related to the current accounts receivable balance for fiscal year 1996
resulted in the Company recording a $2.7 million bad debt reserve. The Company
considered the overall increase in patient account balances (approximately 80%)
resulting from the Company's acquisitions during fiscal year 1996, the
deterioration in the aging categories due to untimely collection practices by
individual facilities which in several cases resulted in the expiration of
allowable time periods to bill accounts, the significant rise in accounts
receivable net days, the growth in self-pay balances and the lack of timely
write-off of uncollectible accounts throughout the fiscal year.
During the year ended June 30, 1996, the Company had $1,847,868 in
interest income and financing fees as compared to $658,215 in interest income
and financing fees for the year ended June 30, 1995. Financing fees, which
totaled $150,000 for the year ended June 30, 1996, represents fees received by
the Company for assisting other companies to obtain financing for nursing homes
and retirement facilities. The increase in interest income is a result of the
increased amount of advances to related parties during the current year.
Interest expense increased from $1,179,052 in the year ended June 30,
1995, to $7,948,091 in the year ended June 30, 1996. This increase is
primarily attributable to the increased numbers of facilities acquired by the
Company during the year, as well as the full year effect of facilities that
were acquired by the Company during the year ended June 30, 1995.
For the year ended June 30, 1996, the Company incurred expenses for
income taxes of $1,307,091, which represents an effective tax rate of 48%, as
compared to expenses for income taxes of $3,419,092, which represents an
effective tax rate of 40%, for the year ended June 30, 1995. The increase in
the effective tax rate is mainly the result of a non-deductible tax penalty of
approximately $400,000 which was assessed during the year ended June 30, 1996.
The net income of $1,746,808 for the year ended June 30, 1996, is less
than the net income of $5,058,503 for the year ended June 30, 1995, due to the
provision of an additional allowance for bad debts and increased interest
expense because of the larger number of facilities acquired during the most
recent fiscal year.
Most of the revenue from the management services division of the
Company's business is received pursuant to management agreements with entities
controlled by Messrs. Brogdon and Lane, two of the Company's officers and
directors. These management agreements have three to five year terms; however,
they are all subject to termination on 60 days notice, with or without cause, by
either the Company or the owners. Therefore, Messrs. Brogdon and Lane have full
control over whether or not these management agreements, and thus the management
services revenue, continue in the future. These fees represent 2.82% and 5.24%
of total revenues of the Company for the years ended June 30, 1996 and 1995,
respectively.
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<PAGE> 33
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had a deficit of $10,489,285 in working
capital compared to a $1,496,160 deficit at June 30, 1996. The funds needed to
reduce such working capital deficit could be provided by a new line of credit
secured by accounts receivable, increased collection efforts on the existing
accounts receivable balances, extended payment terms to major vendors and
possible refinancing of selected facilities.
During the year ended June 30, 1997, cash provided by or (used in)
operating activities was ($3,838,000) as compared to $5,549,626 for the year
ended June 30, 1996. The $9,387,626 decrease was primarily due to the net loss
of $7,535,810 for the year ended June 30, 1997, increases in deferred income
taxes of $11,111,558 arising from the carryback of the loss and refunds of
estimated tax payments, and increases in accounts receivable of $20,987,667 due
to the addition of thirty five facilities for the year ended June 30, 1997. Cash
provided by operating activities was primarily attributed to depreciation and
amortization of $6,514,713 on the facilities and an increase in accounts payable
and accrued expenses of $29,187,587 due to the addition of thirty five
facilities for the year ended June 30, 1997.
Cash used in investing activities during the year ended June 30, 1997,
was $23,581,023. The expenditures primarily related to purchases of property and
equipment of 12,734,389 and acquisitions of facilities and a medical supply
company of $18,807,777. On August 6, 1996, Contour Medical, Inc., a
majority-owned subsidiary of the Company, purchased all of the outstanding stock
of Atlantic Medical, a distributor of disposable medical supplies and a provider
of third-party billing services to the nursing home and home health care
markets. The acquisition was accounted for as a purchase and made retroactively
to July 1, 1996. Contour paid $1.4 million in cash and $10.5 million in
promissory notes for all of the outstanding stock of Atlantic Medical. The
promissory notes bore interest at 7% per annum and were paid in full on January
10, 1997. On October 14, 1996, the Company acquired two assisted
living/independent living facilities from individuals who are officers and
directors of the Company for their fair value, based on independent appraisals,
totaling $19,200,000. The facilities were subject to bond debt of $7,670,000.
The remaining balance due from the Company was $11,530,000 and in conjunction
with the return and subsequent retirement of $3,000,000 of the Company's common
stock from Gordon Jensen Health Care Association, notes receivable of
$13,500,000 due the Company from Winter Haven Homes, Inc. and Gordon Jensen
Health Care Association were retired and advances to Winter Haven Homes, Inc.,
an affiliated company, of $143,876 were repaid. The advances were due on demand.
Cash provided by financing activities during the year ended June 30,
1997, totaled $31,012,336. Sources of cash included proceeds of $9,340,000 from
the issuance of 1,000,000 shares of $10.00 Series F Convertible Preferred Stock
which were sold in an offering to foreign investors in September, 1996. Holders
of the Series F Preferred Stock have no voting rights except as required by law,
and have a liquidation preference of $10.00 per share plus 4% per annum from the
date of issuance. The shares of Series F Preferred Stock are convertible into
shares of common stock at a conversion price of $7.425 or 85% of the average
closing bid price for the five trading days prior to the date of conversion,
whichever is lower. At the time of conversion, the holder is also entitled to
additional shares equal to $10.00 per share of Series F Preferred Stock
multiplied by 8% per annum from the date of issuance divided by the applicable
conversion price. Sources of cash also included proceeds from stock options and
warrants exercised of $1,900,306, and proceeds from long-term debt and lines of
credit of $33,919,190. The Company's net borrowing from lines of credit was
$9,935,036, with interest rates ranging from prime plus .25% to prime plus
1.25%. Available borrowings at June 30, 1997 was $14,050,000. The Company
incurred long-term debt of approximately $24 million, due through 2026, with
interest rates ranging from 7.0% to 12.5%. Included in the long-term debt is a
$9,750,000 loan with Sun, used to repay the notes payable associated with the
Contour acquisition of Atlantic Medical, with interest accruing at rates of 11%
and would increase to 15% during any period of default. Principal is due 120
days following the termination of the agreement or merger with Sun. In
connection with bond indentures, the Company is required to meet certain
covenants, including monthly sinking fund deposits, adequate balances in debt
service reserve funds, timely payment of tax obligations and adequate insurance
coverage. At June 30, 1997, the Company was in violation of several of these
covenants creating a technical default on approximately $22 million of bond
indentures. These violations included the failure to make monthly payments to
the bond sinking funds for certain of these facilities and inadequate debt
service reserves for certain of these facilities. The Company is also delinquent
with regard to approximately $1.2 million of property taxes at several
facilities. The trustees have not called the bonds in the past for these
violations and management does not foresee the bonds being called at this time.
All semi-annual interest and principal payments have been made in a timely
fashion. Cash used in financing activities primarily consisted of $13,329,520 in
payments of long-term debt, $600,000 in redemption of Series AA Preferred Stock,
$841,318 in purchases of treasury stock, and $240,000 for dividends on preferred
stock. Subsequent to June 30, 1997, the Company obtained an additional note
payable from Sun of $5,000,000 for working capital purposes on July 10, 1997.
Interest accrues at the rate of 12% and would increase to 16% during any period
of default. Principal is due 120 days following the termination of the agreement
or merger with Sun.
At June 30, 1996, the Company had a deficit of $1,496,160 in working
capital compared to a surplus of $2,925,302 at June 30, 1995.
During the year ended June 30, 1996, cash provided by operating
activities was $5,549,626 as compared to $4,208,048 for the year ended June 30,
1995. The $1,341,578 increase was primarily due to net income of $1,746,808 for
the year ended June 30, 1996, depreciation and amortization of $3,406,986 on the
facilities, provisions for bad debts of $3,423,117 on accounts receivable and
increases in accounts payable and accrued expenses of $9,964,620 due to the
addition of twenty eight facilities for the year ended June 30, 1996. Cash used
in operating activities was primarily due to the increase in accounts receivable
of $10,672,485 due to the addition of twenty eight facilities for the year ended
June 30, 1996 and increases in inventories of $2,245,194 on the nursing
facilities and Contour Medical Supply, Inc.
Cash used in investing activities during the year ended June 30, 1996,
was $44,981,326. The expenditures primarily related to purchases of property and
equipment of $12,490,298 and acquisitions of facilities of $21,938,513. On
December 15, 1995, the Company obtained both a sole general and a limited
partnership interest, totaling 74.25% interest, in Encore Partners, L.P. in
exchange for a capital contribution to Encore of $3.5 million. Encore owns three
assisted living/independent living and two long-term care facilities. The
acquisition was accounted under the purchase method of accounting. Profits and
losses of Encore are allocated 74.25% to the Company and 25.75% to other
partners. Available cash, if any, is distributed 74.25% to the Company and
25.75% to the other partners. On February 27, 1996, the Company purchased a
thirty six unit assisted living/independent living facility from individuals who
are officers and directors of the Company. The Purchase price was $2,000,000 and
was financed with $400,000 from the Company and a $1,600,000 mortgage loan from
an unrelated third-party real estate investment trust. The Company issued notes
receivable and advances of $8,935,677 to Gordon Jensen Health Care Association,
Inc., Winter Haven Homes, Inc., Southeastern Cottages, Inc., National Assistance
Bureau, Inc., Chamber Health Care Society, Inc., and Senior Care, Inc. all owned
or controlled by individuals who are officers and directors of the Company. The
notes receivable bore interest at 12% and were paid in full in 1997. The
advances were due on demand and were paid in full in 1997. The Company funded an
additional $4,720,047 in restricted bond funds used for debt service reserve
requirements, semi-annual principal and interest payments and project funds for
facilities under construction or renovation. Cash provided by investment
activities was primarily the repayment of a $2,200,000 note receivable from an
unrelated third-party.
Cash provided by financing activities during the year ended June 30,
1996, totaled $34,269,880. Sources of cash included proceeds of $9,300,000 from
the issuance of 1,000,000 shares of $10.00 Series E Convertible Preferred Stock
which were sold in an offering to foreign investors in April, 1996. Holders of
the Series E Preferred Stock have no voting rights except as required by law,
and have a liquidation preference of $10.00 per share plus 4% per annum from the
date of issuance. The shares of Series E Preferred Stock are convertible into
shares of common stock at a conversion price of $11.55 or 85% of the average
closing bid price for the five trading days prior to the date of conversion,
whichever is lower (but no lower than $5.00). At the time of conversion, the
holder is also entitled to additional shares equal to $10.00 per share of Series
E Preferred Stock multiplied by 8% annum from the date of issuance divided by
the applicable conversion price. Sources of cash also included proceeds from
stock options and warrants exercised of $559,593, and proceeds from long-term
debt and lines of credit of $35,329,244. The Company's net borrowing from lines
of credit was $3,556,535, with interest rates ranging from prime plus .25% to
prime plus 1.25%. Available borrowings at June 30, 1996 was $5,075,000. The
Company incurred long-term debt of approximately $31 million, due through 2025,
with interest rates ranging from 6.75% to 11.28%. In connection with bond
indentures, the Company is required to meet certain covenants, including monthly
sinking fund deposits, adequate balances in debt service reserve funds, timely
payment of tax obligations and adequate insurance coverage. At June 30, 1996,
the Company was in violation of several of these covenants creating a technical
default on approximately $14 million of bond indentures. These violations
included the failure to make monthly payments to the bond sinking funds for
certain of these facilities and inadequate debt service reserves for certain of
these facilities. The Company is also delinquent with regard to approximately
$800,000 of property taxes at several facilities. The trustees have not called
the bonds in the past for these violations and management does not foresee the
bonds being called at this time. All semi-annual interest and principal payments
have been made in a timely fashion. Cash used in financing activities primarily
consisted of $9,443,626 in payments of long-term debt, $600,000 in redemption of
Series AA Preferred Stock, $274,040 in purchases of treasury stock, and $270,000
for dividends on preferred stock.
During the year ended June 30, 1995, cash provided by operating activities
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<PAGE> 34
was $4,208,048 as compared to $1,523,311 for the year ended June 30, 1994.
The $2,684,737 increase was primarily due to the increased net income for the
year ended June 30, 1995.
Cash used in investing activities during the year ended June 30, 1995,
was $(10,644,726). The expenditures primarily related to purchases of
property and equipment of $6,079,610, purchases of bonds receivable of
$4,487,936, increases in investments and advances to The Atrium Ltd. of
$2,985,833 and advances to affiliates of $1,742,147 due to capital expenditures
and working capital deficits of the affiliates. These were partially offset by
the proceeds from a sale-leaseback transaction of $4,500,000.
At June 30, 1995, advances to affiliates had increased to $7,328,222
from $5,605,250 at June 30, 1994, due to additional capital expenditures and
working capital deficits of the affiliates.
Cash provided by financing activities during the year ended June 30,
1995, totalled $10,683,801. Sources of cash included capital investment by
minority shareholders of a subsidiary of $1,729,469, net borrowings under lines
of credit of $1,745,316 and proceeds from long-term debt of $9,564,670. Cash
used in financing activities primarily consisted of $2,130,654 in payments of
long-term debt and $225,000 for dividends on preferred stock.
Management's objective is to acquire only those facilities it believes
will be able to generate sufficient revenue to pay all operating costs,
management fees, lease payments or debt service, and still return a 3% to 4%
cash flow. Management believes that the Company's cash flow from operations,
together with lines of credit and the sale of securities described below, will
be sufficient to meet the Company's liquidity needs for the current year.
The Company maintains various lines of credit with interest rates
ranging from prime plus .25% to prime plus 1.25%. At June 30, 1997, the
Company had approximately $4,115,000 in unused credit available under such
lines.
On September 30, 1994, the Company purchased a majority of the stock
of Contour Medical, Inc. in exchange for shares of the Company's common stock
and preferred stock. The Company is obligated to redeem the preferred stock
issued in the transaction over the five years for $3,000,000 in cash. $600,000
was paid on September 30, 1996 pursuant to this obligation. Management intends
to fund these redemptions from cash flow generated from operations.
In the event the merger with Sun does not take place, management's
plans include a complete reorganization of operations of the Company and
Contour. With respect to the Company, this reorganization plan would include new
personnel to implement increased census and develop and implement ancillary
businesses (e.g., pharmacy and therapy). A comprehensive plan is being developed
to implement these changes, if necessary. The personnel for this plan have been
identified and could be immediately available. The funds needed to implement
this plan would be provided from a new line of credit, sale and lease-back
transactions for certain identified properties of the Company, as well as
refinancing of other of the Company's targeted facilities.
The Company believes that its long-term liquidity needs will generally
be met by income from operations. If necessary, the Company believes that it
can obtain an extension of its current line of credit and/or other lines of
credit from commercial sources. Except as described above, the Company is not
aware of any trends, demands, commitments or understandings that would impact
its liquidity.
The Company intends to use long-term debt financing in connection with
the purchase of additional assisted living/independent living and long-term care
facilities on terms which can be paid out of the cash flow generated by the
property.
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<PAGE> 35
The Company intends to continue to lease or purchase additional
retirement care and/or nursing home facilities in the future.
IMPACT OF INFLATION AND PENDING FEDERAL HEALTH CARE LEGISLATION
Management does not expect inflation to have a material impact on the
Company's revenues or income in the foreseeable future so long as inflation
remains below the 9% level. The Company's business is labor intensive and
wages and other labor costs are sensitive to inflation. Management believes
that any increases in labor costs in its management services segment can be
offset over the long term by increasing the management fees. With respect to
the operations segment, approximately 52% of the Company's net patient service
revenue is received from state Medicaid programs. The two states which make
Medicaid payments to the Company have inflation factors built into the rates
which they will pay. Georgia's inflation factor is nine percent and
Tennessee's inflation is eleven percent. Therefore, increases in operating
costs due to inflation should be covered by increased Medicaid reimbursements.
Management is uncertain what the final impact will be of pending
federal health care reform packages since the legislation has not been
finalized. However, based on information which has been released to the public
thus far, Management doesn't believe that there will be cuts in reimbursements
paid to nursing homes.
Legislative and regulatory action, at the state and federal level, has
resulted in continuing changes in the Medicare and Medicaid reimbursement
programs. The changes have limited payment increases under these programs.
Also, the timing of payments made under the Medicare and Medicaid programs are
subject to regulatory action and governmental budgetary constraints. Within
the statutory framework of the Medicare and Medicaid programs, there are
substantial areas subject to administrative rulings and interpretations which
may further affect payments made under these programs. Further, the federal
and state governments may reduce the funds available under those programs in
the future or require more stringent utilization and quality review of health
care facilities.
ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standard Board has adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS No. 115). The Company has adopted this
standard in fiscal 1995. In management's opinion, adopting SFAS No. 115 did
not materially affect the Company's financial statements for the year ended
June 30, 1995.
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<PAGE> 36
PART III
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has agreements to provide management and accounting
services for nursing homes and personal care facilities which are owned or
controlled by entities which are owned or controlled by Officers, Directors and
principal shareholders of the Company. As of October 1, 1997, the Company had
agreements to manage two facilities owned or controlled by Winter Haven Homes,
Inc. ("Winter Haven"); one facility owned or controlled by Gordon Jensen Health
Care Associates, Inc. ("Gordon Jensen"); two facilities owned or controlled by
National Assistance Bureau, Inc. ("NAB"); one facility owned by Southeastern
Cottages, Inc. ("SCI"); and two facilities owned by Chamber Health Care
Society, Inc. ("Chamber"). The Company previously managed a facility owned by
Senior Care, Inc. ("Senior Care"). Winter Haven is owned by a corporation
which is owned 50% by Edward E. Lane, an Officer and Director of the Company,
and 50% by
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<PAGE> 37
Connie Brogdon, the wife of an Officer and Director of the Company. Gordon
Jensen is a non-profit corporation of which Edward E. Lane is President. NAB is
also a non-profit corporation of which Edward E. Lane is President and Chris
Brogdon is Secretary/Treasurer. Chamber and Senior Care are non-profit
corporations. Edward E. Lane is President and a director of Chamber. SCI is a
corporation owned 50% by Chris Brogdon and 50% by Edward E. Lane.
The agreements to provide management and accounting services to the
affiliated entities are for periods of three to five years but are cancelable
upon 60 days' notice by either party. The agreements provide for monthly fees
ranging from $2,000 to $28,000 per facility and expire at various times between
1999 to 2002. During the fiscal year ended June 30, 1997, these agreements
resulted in revenue to the Company of $2,212,500.
The Company currently manages eight facilities owned or controlled by
affiliates of the Company, and as part of its duties, the Company also manages
the cash and pays the bills for the facilities. In doing so, the Company
maintains a cash management system where the deposits of all properties are
swept into an investment account daily. The Company is not obligated by its
management agreements with such affiliates to advance working capital to such
affiliated entities, but the Company has and will continue to advance such
working capital to such affiliated entities when necessary. At June 30, 1996,
aggregate amounts were due from the following entities: Winter Haven -
$8,887,833; Gordon Jensen - $2,982,975; SCI - $679,144; NAB - $1,326,391;
Chamber - $336,857; Senior Care - $84,095; and other affiliates - $19,366.
Subsequent to June 30, 1996, entities controlled by Winter Haven assumed the
liabilities of NAB, SCI, Chamber and Senior Care.
<TABLE>
<CAPTION>
Monthly Management Management
Management Fee Payable at Agreement Renewal
"Facility Fee June 30, 1997 Expiration Provisions
-------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
Midway Health
Care Center 24,000 24,000 12/00 Three year
automatic unless
cancelled
Summers Landing -
Vidalia 2,000 2,000 06/01 No renewal
provision
New Beginnings
Health &
Rehabilitation 28,000 28,000 12/00 Three year
automatic unless
cancelled
Summers Landing -
Lynn Haven 2,000 2,000 01/99 One year
automatic unless
cancelled
Renaissance of
Sanford 15,000 15,000 07/02 No renewal
provision
Marshall C. Voss
Health Care 14,000 14,000 07/01 Three year
automatic unless
cancelled
Parkway Health
& Rehabilitation 4,000 4,000 03/00 No renewal
provision
Sea Breeze
Health Care 12,000 12,000 07/00 Three year
automatic unless
cancelled"
</TABLE>
On October 14, 1996, Winter Haven sold two retirement facilities to the
Company for their fair value, based on an independent appraisal, for a total
purchase price of $19,200,000. These include the Jackson Oaks retirement
facility in Jackson, Tennessee, which the Company previously leased, and the
Cumberland Green retirement facility which the Company previously managed. The
purchase prices for these facilities were $12,400,000 and $6,800,000,
respectively. These facilities were acquired subject to total bond debt of
$7,670,000, resulting in $11,530,000 due to Winter Haven, which was applied to
eliminate the $11,214,320 owed to the Company by Winter Haven.
On September 27, 1996, Gordon Jensen transferred 399,426 shares of the
Company's Common Stock to the Company with a fair market value of $3,000,000 in
exchange for the cancellation of its debt totaling $2,982,000. The Company
subsequently retired these shares. These shares were loaned to Gordon Jensen by
Edward E. Lane, Chris Brogdon and Connie Brogdon. Gordon Jensen must repay the
debt with either stock or cash within five years.
In February 1996, the Company purchased a 36-unit retirement facility
known as Summers Landing-Cordele, from Gordon Jensen. The purchase price for the
facility was $2,000,000, $400,000 of which was paid in cash by the Company and
the balance of which was financed through a $1,600,000 mortgage loan from an
unrelated third party real estate investment trust.
In May 1996, the Company leased the 60-bed Lake Forest Health Care
Center from a partnership controlled by Winter Haven. The lease is for a period
of 10 years at $25,000 per month.
On June 30, 1996, the Company leased the 158-unit Jackson Oaks
retirement facility from Winter Haven for a period of 15 years. The Company paid
Winter Haven $50,000 per month under this lease. As noted above, Winter Haven
subsequently sold this facility to the Company in October 1996 to retire a
portion of its debt to the Company.
On September 1, 1996, the Company leased the 58-unit Summer's Landing-
Douglas facility from Gordon Jensen. The Company paid $300,000 to Gordon Jensen
on execution of the lease and is paying the debt service on an existing mortgage
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<PAGE> 38
each month during the first year. During year two, there will be an additional
payment of $500 per month; in year three - $750 per month; in year four - $1,000
per month; and in year five (and any extension of the lease) - $1,250 per month.
The lease is for an initial term of five years, but the Company may extend the
lease for additional terms of five years each. As of June 30, 1997, the
Company has paid a total of $260,000 in lease payments for such facility.
The Company has guaranteed the debts of two facilities owned by Winter
Haven totaling approximately $6,000,000. The Company has management agreements
on these facilities which expire in 2000.
On September 30, 1996, the Company leased the 101-unit (with 28
additional units under construction) retirement facility known as The
Renaissance - Titusville in Titusville, Florida from a partnership controlled by
Winter Haven for a period of 10 years. The Company has the right to extend the
lease for an additional five year term. The Company paid Winter Haven $1,500,000
on execution of the lease, and will pay monthly rent equal to 1.1 times the debt
service requirements on the facility. For the purposes of this calculation, the
principal debt will not exceed $6,000,000. As of June 30, 1997, the Company has
paid a total of $387,000 in lease payments for such facility.
During the year ended June 30, 1997, the Company entered into leases on
eight facilities with Retirement Group, L.L.C., the owner of these facilities.
Retirement Group, L.L.C. is owned 41.1% by an entity controlled by Edward E.
Lane; 41.8% by Chris Brogdon and his wife, Connie Brogdon; 10.0% by Winter Haven
Homes; 3.5% by Darrell C. Tucker; and 3.6% by James J. Andrews, an officer of a
subsidiary of the Company. Each of these leases are for an initial term of ten
(10) years, with the Company having the right to extend each lease for an
initial five (5) year term. The amount of the rent payment under each lease is
equal to 110% of the principal and interest that Retirement Group, L.L.C. is
required to pay to the lenders of the respective properties. During the fiscal
year ended June 30, 1997, $1,355,217 was paid to Retirement Group, L.L.C. under
these leases. All lease terms with affiliated entities of the Company are
comparable to terms that could be obtained in an arms' length negotiation with
independent third parties.
As of June 30, 1997, the Company has guaranteed debt in the amount of
approximately $30,000,000 related to eight facilities owned by affiliates and
leased by the Company. The debt is collateralized by such facilities, bears
interest at rates ranging from approximately 10% to 11.5% and matures at various
times through 2007.
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<PAGE> 39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS. The following financial statements are
filed as part of this report:
<TABLE>
<CAPTION>
Page(s)
<S> <C> <C>
Independent Auditors' Report................................... F-1
Report of Independent Certified Public Accountants............. F-2
Consolidated Balance Sheets as of June 30, 1997 and 1996....... F-3 - F-4
Consolidated Statements of Income for the years ended
June 30, 1997, 1996 and 1995................................. F-5
Consolidated Statements of Shareholders' Equity for the
years ended June 30, 1997, 1996 and 1995..................... F-6 - F-7
Consolidated Statements of Cash Flows for the years ended
June 30, 1997, 1996 and 1995................................. F-8 - F-9
Notes to Financial Statements.................................. F-10 - F-28
</TABLE>
(a) 2. FINANCIAL STATEMENT SCHEDULES. All schedules have been omitted,
as the required information is inapplicable or the information is presented in
the financial statements or the notes thereto.
(a) 3. Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION LOCATION
<S> <C> <C>
2.1 Agreement and Plan of Incorporated by reference
Merger and Reorganization to Exhibit 2.1 to the Company's
dated February 17, 1997, Current Repot on Form 8-K
among Sun Healthcare Group, dated February 17, 1997
Peach Acquisition Corporation
2.2 Amendment No. 1 to the Agree- Incorporated by reference
ment and Plan of Merger and to Exhibit 2.1 to the Company's
Reorganization dated as of Current Report on Form 8-K
February 17, 1997, among Sun dated May 23, 1997
Healthcare Group, Inc.,
Peach Acquisition Corporation
and Retirement Care Associates,
Inc.
2.3 Amendment No. 2 to the Agree- Incorporated by reference
ment and Plan of Merger and to Exhibit 2.1 to the Company's
Reorganization dated as of Current Report on Form 8-K
February 17, 1997, among Sun dated August 21, 1997
Healthcare Group, Inc., Peach
Acquisition Corporation
and Retirement Care Associates,
Inc.
</TABLE>
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<PAGE> 40
<TABLE>
<S> <C> <C>
3.1 Articles of Incor- Incorporated by reference
poration, as amended to Exhibit No. 3.1 to the
Company's Form S-18 Regis-
tration Statement No. 33-7666-D
3.2 Bylaws, as amended Incorporation by reference
to Exhibit No. 3.2 to the
Company's Form S-18 Regis-
tration Statement No. 33-7666-D
3.3 Articles of Amendment Incorporated by reference
to Articles of Incor- to Exhibit 3.3 to the
poration Company's Annual Report on
Form 10-K for the fiscal year
ended June 30, 1993
3.4 Statements Establish- Incorporated by reference
ing Series A and Series to Exhibit 3.4 to the
D Convertible Preferred Company's Annual Report on
Stock Form 10-K for the fiscal year
ended June 30, 1994
3.5 Articles of Amendment to Incorporated by reference
Articles of Incorporation to Exhibit 3.5 to the
(Series AA Convertible Company's Annual Report on
Preferred Stock) Form 10-K for the fiscal year
ended June 30, 1994
3.6 Articles of Amendment to Incorporated by reference
Incorporation (Series E to Exhibit 3.6 to the
Convertible Preferred Company's Annual Report on
Stock) Form 10-K for the fiscal
year ended June 30, 1996
3.7 Articles of Amendment to Incorporated by reference
Articles of Incorporation to Exhibit 3.7 to the
(Series F Convertible Pre- Company's Annual Report on
ferred Stock) and Certif- Form 10-K for the fiscal
icate of Correction to year ended June 30, 1996
same
10.1 Employment Agreement Incorporated by reference
with Darrell C. Tucker to Exhibit 10.1 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended June 30, 1996
10.2 Management and Marketing Filed herewith electronically
Agreement with Affiliates
10.3 Nursing Home Management Filed herewith electronically
Agreements with Affiliates
10.4 Lease Agreements with Filed herewith electronically
Affiliates
</TABLE>
-40-
<PAGE> 41
<TABLE>
<S> <C> <C>
10.5 Loan Agreement between Incorporated by reference
Residential Care Facilities to Exhibit 10.1 to the
for the Elderly Authority of Company's Current Report
the City of Dublin and the on Form 8-K dated February 3,
Company 1994
10.6 Deed to Secured Debt and Incorporated by reference
Security between Residen- to Exhibit 10.2 to the
tial Care Facilities for Company's Current Report
the Elderly Authority of on Form 8-K dated February 3,
the City of Dublin and 1994
the Company
10.7 Trust Indenture between Incorporated by reference
Residential Care Facili- to Exhibit 10.3 to the
ties for the Elderly Company's Current Report
Authority of the City of on Form 8-K dated February 3,
Dublin and the Sentinel 1994
Trust Company
10.8 Loan Agreement between Incorporated by reference
Highlands County (Florida) to Exhibit 10.2 to the
Industrial Development Company's Current Report
Authority and the Company on Form 8-K dated March 3,
1994
10.9 Trust Indenture between Incorporated by reference
Highlands County (Florida) to Exhibit 10.3 to the
Industrial Development Company's Current Report
Authority and the Company on Form 8-K dated March 3,
1994
10.10 Asset Purchase Agreement Incorporated by reference
between the Company and to Exhibit 10.1 to the
Springdale Convalescent Company's Current Report
Center of Atlanta, Ltd., et on Form 8-K dated April 29,
al., and Springdale Conva- 1994
lescent Center Purchase
Agreement between the
Company and Bartow
River L.L.C.
10.11 Promissory Note from the Incorporated by reference
Company to Winter Haven to Exhibit 10.46 to the
Homes Company's Annual Report
on Form 10-K for the fiscal
year ended June 30, 1994
10.12 Promissory Note from the Incorporated by reference
Company to Tiffany Indus- to Exhibit 10.3 to the
tries, Inc. Company's Current Report
on Form 8-K dated April 29,
1994
</TABLE>
-46-
<PAGE> 42
<TABLE>
<S> <C> <C>
10.13 Loan Agreement with Cave Incorporated by reference
Spring Housing Develop- to Exhibit 10.57 to the
ment Corporation Company's Annual Report
on Form 10-K for the fiscal
year ended June 30, 1994
10.14 Trust Indenture between Incorporated by reference
Cave Spring Housing to Exhibit 10.58 to the
Development Corporation Company's Annual Report
and Sentinel Trust Company on Form 10-K for the fiscal
year ended June 30, 1994
10.15 Transfer and Assignment of Incorporated by reference to
Loan Asset and Forbearance to Exhibit 10.67 to the
Agreement with R. Wayne Company's Annual Report
Lowe, et al. on Form 10-K for the fiscal
year ended June 30, 1994
10.16 Promissory Note from South- Incorporated by reference
eastern Cottages, Inc. and to Exhibit 10.67 to the
related Mortgage and Company's Registration
Security Agreement Statement on Form S-1
File No. 33-85886
10.17 Promissory Note from Gordon Incorporated by reference
Jensen Health Care, Inc. to Exhibit 10.68 to the
and related Deed to Secure Company's Registration
Debt Statement on Form S-1
File No. 33-85886
10.18 Promissory Note from Incorporated by reference
Renaissance Retirement, to Exhibit 10.69 to the
Ltd. and related Mortgage Company's Registration
and Security Agreement Statement on Form S-1
File No. 33-85886
10.19 Promissory Note from Incorporated by reference
Retirement Village of to Exhibit 10.70 to the
Jackson, Ltd. and related Company's Registration
Deed of Trust Statement on Form S-1
File No. 33-85886
10.20 Promissory Note from Incorporated by reference
Hendersonville Retirement to Exhibit 10.71 to the
Village, Ltd. and related Company's Registration
Deed of Trust Statement on Form S-1
File No. 33-85886
10.21 Agreement and Amendment Incorporated by reference
to Agreement with The to Exhibit 10.77 to the
Atrium of Jacksonville, Company's Annual Report
Ltd. and Assignment to on Form 10-K for the fiscal
the Company year ended June 30, 1994
10.22 Guaranties and Stock Pledge Incorporated by reference
and Maintenance Agreements to Exhibit 10.80 to the
with Edward E. Lane and Company's Registration
Connie B. Brogdon Statement on Form S-1
File No. 33-85886
</TABLE>
-42-
<PAGE> 43
<TABLE>
<S> <C> <C>
10.23 Dearfield Nursing Home Incorporated by reference
Purchase Agreement to Exhibit 10.1 to the Com-
pany's Report on Form 8-K
dated April 28, 1995
10.24 Loan Agreement Incorporated by reference
to Exhibit 10.2 to the Com-
pany's Report on Form 8-K
dated April 28, 1995
10.25 Promissory Note Secured by Incorporated by reference
Security Deed to Exhibit 10.3 to the Com-
pany's Report on Form 8-K
dated April 28, 1995
10.26 Security Agreement Incorporated by reference
to Exhibit 10.4 to the Com-
pany's Report on Form 8-K
dated April 28, 1995
10.27 Deed to Secure Debt, Incorporated by reference
Security Agreement, to Exhibit 10.5 to the Com-
Assignment of Rents and pany's Report on Form 8-K
Filing for Dearfield dated April 28, 1995
Nursing Home
10.28 Edwinola Retirement Incorporated by reference
Community Purchase Agree- to Exhibit 10.93 to the
ment Company's Annual Report on
Form 10-K for the fiscal
year ended June 30, 1995
10.29 Loan Agreement between Incorporated by reference
Dade City, Florida and to Exhibit 10.94 to the
the Company Company's Annual Report on
Form 10-K for the fiscal
year ended June 30, 1995
10.30 Promissory Note from The Incorporated by reference
Atrium Nursing Home, Inc. to Exhibit 10.95 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended June 30, 1995
10.31 Promissory Note from Incorporated by reference
Hendersonville Retirement to Exhibit 10.96 to the
Village, Ltd. Company's Annual Report on
Form 10-K for the fiscal
year ended June 30, 1995
10.32 Second Amendment to Incorporated by reference
Agreement with The Atrium to Exhibit 10.97 to the
of Jacksonville, Ltd. Company's Annual Report on
Form 10-K for the fiscal
year ended June 30, 1995
</TABLE>
-48-
<PAGE> 44
<TABLE>
<S> <C> <C>
10.33 Promissory Note from Incorporated by reference
National Assistance to Exhibit 10.98 to the
Bureau Company's Annual Report on
Form 10-K for the fiscal
year ended June 30, 1995
10.34 Letter Agreement with Incorporated by reference
R. Wayne Lowe, et al., to Exhibit 10.99 to the
Amending Forebearance Company's Annual Report on
Agreement Form 10-K for the fiscal
year ended June 30, 1995
10.35 Hillview Nursing Home Incorporated by reference
Purchase Agreement to Exhibit 10.100 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended June 30, 1995
10.36 Crestwood Nursing Home Incorporated by reference
Purchase Agreement and to Exhibit 10.101 to the
Lease Assignment Agree- Company's Annual Report on
ment Form 10-K for the fiscal
year ended June 30, 1995
10.37 Florida Retirement Villa Incorporated by reference
Purchase Agreement to Exhibit 10.102 to the
Company's Annual Report on
Form 10-K for the fiscal
year ended June 30, 1995
10.38 Loan Agreement dated Incorporated by reference
September 29, 1995, with to Exhibit 10.103 to the
LTC Properties, Inc. Company's Annual Report on
Form 10-K for the fiscal
year ended June 30, 1995
10.39 Form of Promissory Note Filed herewith electronically
($5,000,000) by
Retirement Management
Corporation and Capitol
Care Management Company,
Inc. to Sun Healthcare
Group, Inc. dated July
10, 1997
10.40 Form of Subsidiary Filed herewith electronically
Guaranty dated July 10,
1997
10.41 Form of Subsidiary Pledge Filed herewith electronically
Agreement dated July 10,
1997
10.42 Form of Security Agreement Filed herewith electronically
by Retirement Care Associates,
Inc. dated July 10, 1997
10.43 Form of Security Agreement Filed herewith electronically
by Capitol Care Management
company, Inc. in favor of
Sun Healthcare Group, Inc.
dated July 10, 1997
10.44 Form of Subsidiary Security Filed herewith electronically
Agreement dated July 10,
1997
10.45 Form of Subsidiary Filed herewith electronically
Guaranty dated July 10,
1997
10.46 Form of Pledge Agreement by Filed herewith electronically
Capitol Care Management
Corporation in favor of
Sun Healthcare Group, Inc.
dated July 10, 1997
10.47 Form of Security Agreement Filed herewith electronically
by Retirement Management
Corporation in favor of
Sun Healthcare Group, Inc.
dated July 10, 1997
10.48 Form of Amended and Restated Filed herewith electronically
Promissory Note ($9,750,000)
by Retirement Management
Corporation and Capitol Care
Managment Company, Inc. to
Sun Healthcare Group, Inc.
dated as of July 10, 1997
10.49 Form of Pledge of Agreement Filed herewith electronically
by Retirement Management
Corporation in favor of
Sun Healthcare Group, Inc.
dated as of July 10, 1997
10.50 Form of Amended and Restated Filed herewith electronically
Pledge Agreement by
Retirement Care Associates,
Inc. in favor of Sun
Healthcare Group, Inc.
dated as of July 10, 1997
10.51 Form of Agreement to Provide Filed herewith electronically
Management Services to Long
Term Care Facilities dated
July 15, 1997
16 Letter re Change in Incorporated by reference
Certifying Accountant to Exhibit 16.1 to the
Company's Current Report on
Form 8-K/A dated as of
August 14, 1997
21 Subsidiaries of the *
Registrant
23.1 Consent of Cherry, Bekaert & Filed herewith electronically
Holland, L.L.P. (See Item 14(a)1. hereof)
23.2 Consent of BDO Seidman, LLP Filed herewith electronically
(See Item 14(a)1. hereof)
27 Financial Data Schedule *
</TABLE>
- --------------------
* Previously filed
(b) REPORTS ON FORM 8-K. The Company filed one Report on Form 8-K
during the last quarter of the period covered by this Report as follows: The
Company filed a Report on Form 8-K dated May 27, 1997, reporting information
under Item 5 - Other Events and Item 7 - Financial Statements, Pro Forma
Financial Information and Exhibits, reporting an amendment to the Company's
Agreement and Plan of Merger with Sun Healthcare Group, Inc.
-44-
<PAGE> 45
REPORT OF CHERRY, BEKEART & HOLLAND
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of
Retirement Care Associates, Inc.
We have audited the accompanying consolidated balance sheets of Retirement Care
Associates, Inc. and subsidiaries as of June 30, 1997 and 1996 and the related
consolidated statements of income, shareholders' equity and cash flows for the
years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsiblity is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Retirement Care
Associates, Inc. and subsidiaries as of June 30, 1997 and 1996 and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
As described in Note 6 to the consolidated financial statements, the Company
changed its method of accounting for certain costs in inventory.
/s/ Cherry, Bekaert & Holland, L.L.P.
CHERRY, BEKAERT & HOLLAND, L.L.P.
Greensboro, North Carolina
October 10, 1997
F-1
<PAGE> 46
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders of
Retirement Care Associates, Inc.
We have audited the accompanying consolidated statements of income,
shareholders' equity and cash flows of Retirement Care Associates, Inc. and
Subsidiaries for the year ended June 30, 1995. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Retirement Care Associates, Inc. and Subsidiaries for the year ended June 30,
1995, in conformity with generally accepted accounting principles.
/s/ BDO Seidman, LLP
BDO SEIDMAN, LLP
Atlanta, Georgia
October 9, 1995,
except for Note 1
which is as of May 1, 1996
F-2
<PAGE> 47
FINANCIAL STATEMENTS
Retirement Care Associates, Inc. & Subsidiaries
Consolidated Balance Sheets
June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Assets:
Current Assets
Cash and cash equivalents $ 3,637,878 $ 45,365
Accounts receivable, net 40,391,377 18,845,780
Inventories 7,255,289 3,998,991
Note and accrued interest receivable 75,000 613,750
Deferred tax asset 4,408,733 2,008,430
Income tax receivable 4,065,431 --
Restricted bond funds 3,068,276 2,342,565
Prepaid expenses and other assets 2,009,467 1,623,679
Total current assets 64,911,451 29,478,560
Property and equipment, net of
accumulated depreciation 150,492,221 111,420,486
Marketable equity securities -- 33,645
Investment in unconsolidated affiliates 734,514 496,800
Deferred lease and loan costs 13,065,759 7,665,891
Goodwill, net of accumulated amortization 16,357,532 6,636,675
Notes and advances due from non-affiliates 1,421,405 1,372,247
Notes and advances due from affiliates 1,411,379 14,316,661
Restricted bond funds 3,689,969 3,514,969
Other assets 3,286,736 2,556,353
Total assets $255,370,966 $177,492,287
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-3
<PAGE> 48
Retirement Care Associates, Inc. & Subsidiaries
Consolidated Balance Sheets
June 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Lines of credit $ 9,935,036 $ 3,556,535
Current maturities of long-term debt 11,454,059 2,220,491
Loans Payable to Affiliates 1,478,368 --
Accounts payable 34,076,015 10,115,347
Accrued expenses 18,417,258 11,316,030
Income taxes payable -- 3,726,317
Deferred gain 40,000 40,000
Total current liabilities 75,400,736 30,974,720
Deferred gain 181,370 371,370
Deferred income taxes 1,098,929 277,000
Long-term debt, less current 141,674,131 108,481,040
Minority interest 4,520,953 4,122,039
Commitments and contingencies
Redeemable convertible preferred stock 1,800,000 2,400,000
Shareholders' equity
Common stock, $.0001; 300,000,000 shares
authorized; 14,489,888 and 12,145,875
shares issued, respectively 1,450 1,214
Preferred stock 3,250,000 7,408,279
Additional paid-in capital 43,799,617 28,329,625
Retained earnings (deficit) (16,356,220) (4,752,880)
Treasury stock, at cost -- (120,120)
30,694,847 30,866,118
$ 255,370,966 $ 177,492,287
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 49
Retirement Care Associates, Inc. & Subsidiaries
Consolidated Statements of Income
For the years ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Revenues:
Net patient service revenue 202,603,841 $ 119,499,849 $ 69,949,822
Medical supply revenue 45,500,712 9,825,252 3,617,439
Management fee revenue:
From affiliates 2,212,500 3,472,900 3,517,500
From others 446,829 308,533 652,194
Other revenue 2,463,979 904,835 1,879,098
Total revenues 253,227,861 134,011,369 79,616,053
Expenses:
Cost of patient services 148,520,849 80,815,511 47,778,410
Cost of medical supplies sold 31,045,671 5,350,817 3,153,430
Lease expense 14,117,392 8,442,671 5,769,232
General and administrative 46,346,051 23,192,250 12,769,582
Depreciation and amortization 6,514,713 3,406,986 1,128,183
Provision for bad debts 2,982,063 3,423,117 --
Total expenses 249,526,739 124,631,352 70,598,837
Operating income 3,701,122 9,380,017 9,017,216
Other income (expense):
Interest income 673,655 1,847,868 658,215
Interest expense (14,111,843) (7,948,091) (1)179,052
Income before minority interest, income taxes,
extraordinary item and cumulative effect of
change in accounting principle (9,737,066) 3,279,794 8,496,379
Minority interest 348,000 (597,895) (18,784)
Income before income taxes, extraordinary item
item and cumulative effect of change in
accounting principle (9,389,066) 2,681,899 8,477,595
Income taxes (2,343,256) 1,307,091 3,419,092
Income before extraordinary item and cumulative
effect of change in accounting principle (7,045,810) 1,374,808 5,058,503
Extraordinary Charge - loss on extinguishment
of debt, net of tax benefit of $300,000 490,000 -- --
Cumulative effect of change in accounting
principle, net of income taxes of $228,000 -- 372,000 --
Net income (loss) (7,535,810) $ 1,746,808 $ 5,058,503
Preferred stock dividends 2,236,777 2,266,777 225,000
Income (loss) applicable to common stock $ (9,772,587) $ (519,969) $ 4,833,503
Income (loss) per common and common equivalent share:
Income (loss) before extraordinary item
and cumulative effect of change in
accounting principle $ (0.68) $ (.08) $ 0.38
Extraordinary Charge-loss on
extinguishment of debt (.03) -- --
Cumulative effect of change in
accounting principle -- 0.03 --
Net income (loss) (.71) (.05) 0.38
Weighted average shares outstanding 13,709,590 11,324,755 12,616,835
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 50
Retirement Care Associates, Inc. & Subsidiaries
Consolidated Statements of Shareholders' Equity
For the Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Series A Series E Series F Shares Amount
<S> <C> <C> <C> <C> <C>
Balance June 30, 1994 $ 364,083 $ -- $ -- 9,526,166 $ 952
Issuance of common stock upon
conversion of
Series A preferred stock (364,083) -- -- 69,508 7
Issuance of common stock upon
conversion of
Series D preferred stock -- -- -- 125,000 12
Issuance of common stock upon
Contour Medical, Inc. acquisition -- -- -- 105,000 11
Stock dividend, 5% -- -- -- 491,409 49
Balance June 30, 1995 $ -- $ -- $ -- 10,317,083 $ 1,031
Issuance of Series E preferred stock -- 9,300,000 -- -- --
Issuance of common stock upon
conversion of
Series E preferred stock -- (534,750) -- 54,516 5
Unamortized balance on imputed
Series E Preferred stock dividend -- (1,356,971) -- -- --
Treasury stock purchased -- -- -- -- --
Retirement of treasury stock -- -- -- (15,500) (2)
Stock issued in exchange for
cancellation of warrants and
stock warrants exercised -- -- -- 1,198,894 120
Stock options exercised -- -- -- 22,076 2
Preferred stock, 10% dividend -- -- -- -- --
Stock dividend, 5% -- -- -- 568,806 58
Balance June 30, 1996 $ -- $ 7,408,279 $ -- 12,145,875 $ 1,214
Issuance of Series F preferred stock -- -- 9,340,000 -- --
Amortization of imputed Series E
preferred stock dividend -- 1,356,971 -- -- --
Issuance of common stock upon
conversion of
Series E preferred stock -- (8,765,250) -- 1,318,533 132
Issuance of common stock upon
conversion of
Series F preferred stock -- -- (6,090,000) 1,148,698 115
Treasury stock purchased
Retirement of treasury stock -- -- -- (520,272) (52)
Stock issued in exchange for
Cancellation of warrants and
new stock warrants exercised -- -- -- 144,872 15
Stock options exercised -- -- -- 252,182 26
Preferred stock, 10% dividend -- -- -- -- --
Balance June 30, 1997 $ -- $ -- $ 3,250,000 14,489,888 $ 1,450
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 51
Retirement Care Associates, Inc. & Subsidiaries
Consolidated Statements of Shareholders' Equity
For the Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Retained
Paid-In Earnings Treasury
Capital (Deficit) Stock
<S> <C> <C> <C>
Balance June 30, 1994 $ 12,391,673 $ 643,043 $ --
Issuance of common stock upon conversion
of Series A preferred stock 364,076 -- --
Issuance of common stock upon conversion
of Series D preferred stock 499,989 -- --
Issuance of common stock upon
Contour Medical, Inc. acquisition 999,988 -- --
Preferred stock, 10% dividend -- (225,000) --
Stock dividend, 5% 4,299,951 (4,300,000) --
Net income -- 5,058,503 --
Balance June 30, 1995 $ 18,555,677 $ 1,176,546 $ --
Issuance of Series E preferred stock -- -- --
Issuance of common stock upon conversion
of Series E preferred stock 534,743 -- --
Unamortized balance on imputed Series E
preferred stock dividend 1,356,971 -- --
Treasury stock purchased -- -- (274,040)
Retirement of treasury stock -- (153,918) 153,920
Stock issued in exchange for cancellation
of warrants and stock warrants exercised 473,673 -- --
Stock options exercised 156,303 -- --
Preferred stock, 10% dividend -- (270,000) --
Stock dividend, 5% 7,252,258 (7,252,316) --
Net income -- 1,746,808 --
Balance June 30, 1996 $ 28,329,625 $ (4,752,880) $ (120,120)
Issuance of Series F preferred stock -- -- --
Amortization of imputed Series E
Preferred stock dividend (1,356,971) -- --
Issuance of common stock upon conversion
of Series E preferred stock 8,768,297 -- --
Issuance of common stock upon conversion
of Series F preferred stock 6,086,446 --
Treasury stock purchased -- -- (3,707,410)
Retirement of treasury stock -- (3,827,530) 3,827,530
Stock issued in exchange for
Cancellation of warrants and
new stock warrants exercised 70,966 -- --
Stock options exercised 1,901,254 -- --
Preferred stock, 10% dividend -- (240,000) --
Net income -- (7,535,810) --
Balance June 30, 1997 $ 43,799,617 $(16,356,220) $ --
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE> 52
Retirement Care Associates, Inc. & Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ (7,535,810) $ 1,746,808 $ 5,058,503
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Gain on sale of assets (608,423) -- --
Depreciation and amortization 6,514,713 3,406,986 1,128,183
Loss on sale of marketable securities -- 29,085 --
Cumulative effect of change in accounting
principles -- (372,000) --
Amortization of deferred gain (40,000) (40,000) (40,000)
Provision for bad debt 2,982,063 3,423,117 --
Equity in income from investees -- 146,800 --
Minority interest (348,000) 597,895 18,784
Deferred income taxes (11,111,558) (1,297,613) 261,092
Changes in assets and liabilities net of
effects of acquisitions
Accounts receivable (20,987,667) (10,672,485) (6,012,900)
Inventories (960,447) (2,245,194) (996,139)
Prepaid expenses and other assets (970,008) 703,690 (642,013)
Accrued interest receivable 38,750 157,917 (196,667)
Accounts payable and accrued expenses 29,187,587 9,964,620 6,608,148
Deferred lease and loan costs -- -- (978,943)
Net cash provided by (used in)
operating activities (3,838,800) 5,549,626 4,208,048
Cash flows from investing activities:
Purchases of property and equipment (12,734,389) (12,490,298) (6,079,610)
Proceeds from sale leaseback transaction -- -- 4,500,000
Proceed from repayment of notes receivable 13,500,000 2,200,000 --
Issuance of notes receivable and advances
to affiliates and non-affiliates (143,876) (8,935,677) (1,742,147)
Purchase of bonds receivable -- -- (4,487,936)
Investments in unconsolidated affiliates (237,714) 3,787,635 (3,335,833)
Restricted bond funds (900,711) (4,720,047) (17,317)
Proceed from sale of fixed assets 3,350,000 -- --
Cash acquired in acquisition of Contour Medical, Inc. -- -- 73,254
Decrease in marketable equity securities -- -- 444,863
Proceed from sale of marketable equity securities 33,645 36,780 --
Goodwill paid in acquisitions (2,109,852) (2,327,736) --
Acquisitions, net of cash required (18,807,777) (21,938,513) --
Payment of deferred lease costs (5,530,349) (593,470) --
Net cash used in investing activities $(23,581,023) $(44,981,326) $(10,644,726)
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE> 53
Retirement Care Associates, Inc. & Subsidiaries
Consolidated Statements of Cash Flows (continued)
For the Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash flows from financing activities
Capital investment by minority shareholders
of subsidiary $ -- $ 2,088,492 $ 1,729,469
Redemption of preferred stock (600,000) (600,000) --
Purchase of treasury stock (841,318) (274,040) --
Dividends on preferred stock (240,000) (270,000) (225,000)
Proceeds from issuance of preferred stock 9,340,000 9,300,000 --
Proceeds from stock options and warrants exercised 1,900,306 559,593 --
Proceeds from long-term debt and net borrowings
under line of credit 33,919,190 35,329,244 11,309,986
Payments on long-term debt (13,329,520) (9,443,626) (2,130,654)
Payments on deferred loan costs (614,690) (2,419,783) --
Proceeds from L/P to affiliates 1,478,368 -- --
Net cash provided by financing
activities 31,012,336 34,269,880 10,683,801
Net increase (decrease) in cash and cash equivalents 3,592,513 (5,161,820) 4,247,123
Cash and cash equivalents, beginning of year 45,365 5,207,185 960,062
Cash and cash equivalents, end of year $ 3,637,878 $ 45,365 $ 5,207,185
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
<PAGE> 54
RETIREMENT CARE ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997 and 1996
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS AND BASIS OF PRESENTATION
Retirement Care Associates, Inc. ("RCA" or the "Company") operates 101 leased
and owned nursing and retirement facilities in the Southeast United States and
manages, for both related and unaffiliated third parties, an additional 9
nursing and retirement facilities. The Company also owns a majority interest in
Contour Medical, Inc. ("Contour") whose principal operations consist of
distributing medical supplies to healthcare facilities.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, as well as its majority-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
CASH AND CASH EQUIVALENTS
For purposes of financial statement presentation, the Company considers all
highly liquid investments with maturities of three months or less at issuance
to be cash equivalents.
INVENTORIES
Inventories, consisting mainly of medical supplies, are valued at the lower of
cost (first-in, first-out) or market.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The Company periodically reviews the adequacy of the allowance for possible
loan losses on affiliate notes receivable by considering various factors, among
others, such as the fair value of the underlying facility collateral in excess
of prior and senior liens, the periodic results of operations of the underlying
collateral, the fair value of other collateral or guarantees pledged as
security for the notes receivable, and the Company's ability to foreclose, if
necessary, against prior and senior liens to protect the collateral value.
During 1996, the Company adopted Statement of Financial Accounting Standards
No. 114, "Accounting by Creditors for Impairment of a Loan" (SFAS No. 114).
All affiliated notes receivable were liquidated subsequent to June 30, 1996
(see Note 19).
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation, which includes amortization of assets under capital leases, is
computed using the straight-line method over the estimated useful lives of the
related assets (five to thirty years). Maintenance and repairs are charged to
expense as incurred. Upon sale, retirement or other disposition of these assets
the cost and the related accumulated depreciation are removed from the
respective accounts and any gain or loss on the disposition is included in
income.
INVESTMENT IN UNCONSOLIDATED AFFILIATES
During the year ended June 30, 1995, the Company acquired a 35% interest in
In-House Rehab, Inc. ("In-House"), a therapy service company, for $350,000. The
F-10
<PAGE> 55
Company accounts for its investment in In-House on the equity method. The
Company's share of In-House's net income was $327,714 and $146,800 for the
years ended June 30, 1997 and 1996, respectively.
DEFERRED LEASE AND LOAN COSTS
Deferred lease and loan costs, consisting of lease acquisition fees paid to
lessors and loan commitment fees and related expenditures, are amortized over
the respective terms of the lease or loan using the interest method. The
related amortization of the lease and loan cost is recorded as lease and
interest expense, respectively.
RESTRICTED BOND FUNDS
Restricted bond funds relate to the debt service requirements of RCA's
outstanding bond obligations. RCA has several industrial revenue bonds, housing
development mortgage revenue bonds and municipal revenue bonds, which relate to
the restricted bond funds. Current restricted bond funds include principal and
interest funds which are used for payment of principal and interest on or
before the dates required by the trust indenture. Non-current restricted bond
funds include debt service reserve funds (used for payment of principal and
interest when principal and interest funds are insufficient) and project funds
(used for payment of construction, improvement and equipment costs at
facilities under construction).
GOODWILL
Goodwill arises in connection with business combinations accounted for as
purchases where the purchase price exceeds the fair value of the net assets of
the acquired businesses. Goodwill is amortized on a straight-line basis over 15
years. The carrying value of goodwill is reviewed if the facts and
circumstances suggest that it may be impaired. Any permanent impairment would
be recognized by a charge against earnings. Accumulated amortization of
goodwill approximated $719,000 and $233,000 as of June 30, 1997 and 1996,
respectively.
ASSESSMENT OF LONG-LIVED ASSETS
Effective July 1, 1996, the Company adopted FAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of.
The Company periodically reviews the carrying values of its long-lived assets
(primarily property and equipment and intangible assets) whenever events or
circumstances provide evidence that suggests that the carrying amount of
long-lived assets may not be recovered. If this review indicates that the
long-lived assets may not be recoverable, the Company reviews the expected
undiscounted future net operating cash flows from its facilities, as well as
valuations obtained in connection with various refinancings. Any permanent
impairment of value is recognized as a charge against earnings in the statement
of income. As of June 30, 1997, the Company does not believe there is any
indication that the amortization period of its long-lived assets needs to be
adjusted.
DEFERRED GAIN
Deferred gain on a sale-leaseback transaction is recorded at cost and is
amortized into income on a straight-line basis over 10 years, the life of the
lease. The related amortization is recorded as a reduction of lease expense.
STOCK DIVIDENDS
During January 1995 and April 1996, the Company declared 5% stock dividends
which were payable on February 15, 1995 and May 15, 1996, respectively, to
shareholders of record on February 15, 1995 and May 1, 1996, respectively. All
common stock information presented has been retroactively restated to reflect
these stock
F-11
<PAGE> 56
dividends.
NET PATIENT SERVICE REVENUE
Net patient service revenue is derived primarily from services to retirement
center residents and nursing home patients. Retirement center residents
typically pay rent in advance of the month for which it is due. Nursing home
patients are predominately beneficiaries of the Medicare and Medicaid programs.
The Medicare program reimburses nursing homes on the basis of allowable costs,
subject to certain limits. Payments are received throughout the year at amounts
estimated to approximate costs. Following year end, cost reports are filed with
the Medicare program and final settlements are made. Provisions for Medicare
settlements are provided in the financial statements in the period the related
services are rendered. Differences between amounts accrued and final
settlements are reported in the year of settlement.
State Medicaid programs pay nursing homes primarily on a per diem basis with no
retroactive settlement. Revenues from services to Medicaid patients are
recorded at payment rates established by the various state programs in the
period services are rendered.
There has been, and the Company expects that there will continue to be, a
number of proposals to limit Medicare and Medicaid payments for long-term and
rehabilitative services. The Company cannot predict at this time whether any of
these proposals will be accepted or, if adopted and implemented, what effect
such proposals would have on the Company.
TAXES ON INCOME
Deferred income taxes are recognized for the tax consequences of temporary
differences between the financial reporting bases and the tax bases of the
Company's assets and liabilities. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the period and the change during the
period in deferred tax assets and liabilities.
NET INCOME PER SHARE
Net income per share is computed on the basis of net income applicable to
common stock and the weighted average number of common and common equivalent
shares outstanding during each year, retroactively adjusted to give effect to
the stock dividends. Shares used in the calculation consist of the weighted
average number of shares actually outstanding as well as the weighted average
number of common share equivalents which include dilutive convertible preferred
stock, stock options and warrants.
Common stock equivalents for the years ended June 30, 1997 and 1996 have not
been included since the effect would be antidilutive. Shares used in the
calculation for the year ended June 30, 1995 consisted of the weighted average
number of shares actually outstanding (10,798,292), as well as, the weighted
average number of common share equivalents (1,818,543) which include dilutive
stock options and warrants.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
The Financial Accounting Standards Board released SFAS No. 123, "Accounting for
F-12
<PAGE> 57
Stock Based Compensation." SFAS No. 123 encourages, but does not require,
companies to recognize compensation expense based on the fair value of grants
of stock, stock options, and other equity investments to employees. Although
expense recognition for employee stock-based compensation is not mandatory,
SFAS No. 123 requires that companies not adopting must disclose pro forma net
income and earnings per share. The Company will continue to apply the prior
accounting rules and make pro forma disclosures.
RECLASSIFICATIONS
Certain 1995 amounts have been reclassified to conform with the 1997 and 1996
presentations.
2. BUSINESS ACQUISITIONS:
ENCORE
On December 15, 1995, the Company obtained both a sole general and a limited
partnership interest, totaling a 74.25% interest, in Encore Partners, L.P.
("Encore") in exchange for a capital contribution to Encore of $3.5 million.
Encore owns three retirement facilities, totaling 527 beds, and two nursing
homes, totaling 157 beds. The acquisition was accounted under the purchase
method of accounting. The consolidated financial statements include the results
of operations since the date of acquisition.
Profits and losses of Encore are allocated 74.25% to the Company and 25.75% to
other partners. Available cash, if any, is distributed 74.25% to the Company
and 25.75% to the other partners.
ATRIUM
During the year ended June 30, 1995, Winter Haven Homes, Inc. ("Winter
Haven"),an affiliated entity, assigned to the Company its rights under an
agreement between Atrium and Winter Haven. The agreement granted Winter Haven
the right to acquire up to a 75% ownership interest in Atrium in exchange for
and upon meeting certain performance requirements.
In addition to the assignment, Winter Haven and the Company entered into a
separate Compensation Agreement requiring the Company to pay Winter Haven an
amount equal to 25% of the appraised values of Atrium upon each transfer of a
25% interest in Atrium to the Company. Through June 30, 1996, the payment of
each 25% interest in Atrium was reflected as an increase in Investment in
Unconsolidated Affiliates and a decrease in Notes and Advances Due From
Affiliates in the accompanying financial statements.
At June 30, 1995, a 50% interest in Atrium had been transferred to the Company
at a carrying value of $1,913,000 plus advances made by the Company to Atrium
of $2,149,060. This investment was accounted for under the equity method. In
May 1996, the Company obtained an additional 25% interest for $1,230,000,
bringing the total investment to $3,143,000 plus advances made by the Company
to Atrium of $2,602,942, and the total ownership interest to 75%. Effective May
1996, the accounts of Atrium have been consolidated with those of the Company.
The minority partners of Atrium are allocated 25% of the profits and losses and
25% of available cash flow, if any, is distributed to the minority partners.
ATLANTIC MEDICAL
On August 6, 1996, Contour acquired all of the outstanding stock of Atlantic
Medical Supply Company, Inc. ("Atlantic Medical"), a distributor of disposable
medical supplies and a provider of third-party billing services to the nursing
home and home health care markets. The acquisition was accounted for as a
purchase and made retroactively to July 1, 1996. Contour paid $1.4 million in
cash and $10.5 million in promissory notes for all of the outstanding stock of
F-13
<PAGE> 58
Atlantic Medical. The purchase price exceeded fair value of the net assets
acquired by approximately $1.3 million. The resulting goodwill is being
amortized on the straight-line method over forty years. The consolidated
financial statements include the results of operation of Atlantic Medical
subsequent to June 30, 1996.
The promissory notes bore interest at 7% per annum and were due in full on
January 10, 1997. In the event of a default in the payment of the promissory
notes, they were convertible into shares of common stock of RCA. On January 10,
1997, Contour retired all outstanding notes due to sellers of Atlantic Medical
in the aggregate principal amount of $10,850,000, along with accrued interest.
The retirement of these notes was funded by a loan of $9,750,000 from the
Company, with the balance funded from Contour's existing line of credit with
Barnett Bank. The loan from the Company was evidenced by a convertible
promissory note bearing interest at 9% per annum and payable upon demand. This
note was convertible into 1,950,000 shares of Contour's Common Stock, and on
January 10, 1997, the Company exercised this conversion right.
OTHER
During the year ended June 30, 1996, the Company purchased a number of other
facilities. Such purchases included both nursing and retirement facilities.
The data related to these purchases is as follows:
<TABLE>
<CAPTION>
1996
<S> <C>
Number of Facilities Purchased:
Nursing 7
Retirement 3
Total 10
Cost of acquired facilities:
Cash paid $ 223,000
Debt incurred 19,811,000
Total $20,034,000
</TABLE>
The cost of the facilities acquired during 1996 exceeded the fair value of net
assets acquired by approximately $2,660,000. The excess is being amortized over
a 20-year period.
The Company typically obtains financing in excess of the purchase price paid
for acquired facilities. The excess funds are used to cover certain closing
costs associated with the transactions with any residual amounts retained by
the Company.
The acquisitions referred to above have been accounted for using the purchase
method of accounting. The operating results of those acquired facilities have
been included in the consolidated statement of operations from the date of
acquisition.
The following table presents unaudited pro forma results of operations data as
if the acquisitions described above had occurred on July 1, 1995. The pro forma
amounts are provided for information purposes only. It is based on historic
information and does not necessarily reflect the actual results that would have
occurred, nor is it necessarily indicative of future results of operations of
the combined enterprise.
<TABLE>
<CAPTION>
For the year ended June 30,
(Unaudited)
1997 1996
<S> <C> <C>
Revenues $254,410,713 $158,534,082
Net income (7,537,686) 1,798,053
Net income (loss) per share (.71) (.04)
</TABLE>
The pro forma information includes adjustments for interest expense that would
have been incurred to finance the acquisitions, additional depreciation based
on the fair market value of the facilities and other adjustments, together with
related income tax effects. The pro forma financial information is not
F-14
<PAGE> 59
necessarily indicative of the results of operations as they would have been had
the transactions been effected on the assumed dates.
3. RELATED PARTY TRANSACTIONS:
The Company provides management and administrative services for eight
facilities in addition to leasing twelve facilities, all owned by affiliates.
These affiliates are owned and controlled by two individuals who are officers
and directors of the Company.
The management and administrative services to affiliate facilities are provided
pursuant to agreements which have three to five year terms and are cancelable
with sixty days written notice by either party. The agreements provided for
monthly fees ranging from $2,000 to $28,000 per facility and expire through
2002. Revenue from these management services totaled $1,993,000, $3,472,900 and
$3,517,500 for the years ended June 30, 1997, 1996 and 1995, respectively.
CCMC maintains a cash management account where all operating cash funds of the
managed facilities are pooled into one bank account and invested daily. Notes
and advances due from (to) affiliates consist of advances to facilities, net of
advances from facilities, owned by the following affiliated entities:
<TABLE>
<CAPTION>
June 30,
1997 1996
<S> <C> <C>
Gordon Jensen Health Care Association, Inc. $(1,019,474) $2,982,975
Winter Haven Homes, Inc. (458,894) 8,887,833
Southeastern Cottages, Inc. 295,642 679,144
National Assistance Bureau, Inc. 149,815 1,326,391
Chamber Health Care Society, Inc. 964,240 336,857
Senior Care, Inc. 1,682 84,095
Other Affiliates - 19,366
(66,989) $14,316,661
Less current portion (payable) (1,478,368) -
Noncurrent receivable $ 1,411,379 $14,316,661
</TABLE>
The above amounts receivable from affiliates as of June 10, 1996 were satisfied
during the acquisition by the Company of two facilities from related parties
and the return of approximately 400,000 shares of Company stock held by Gordon
Jensen to the Company treasury, discussed in following paragraphs. These notes
required quarterly interest payments at 8% per annum. The notes were
collateralized by second mortgages on facilities owned by affiliates, and
certain notes were guaranteed by the principals of Winter Haven, who are
shareholders of the Company.
The amounts receivable from and payable to affiliates as of June 30, 1997 were
unsecured. The amounts receivable of $1,411,379 are noncurrent. The amounts
payable of $1,478,368 are current and payable upon demand.
The Company's exposure to credit loss in the event of nonperformance by its
related parties totaled $1,411,379 and $14,316,661 as of June 30, 1997 and
1996, respectively.
FACILITY ACQUISITIONS FROM AFFILIATES
On February 27, 1996, the Company purchased a 36-unit retirement facility from
an affiliate. The purchase price was $2,000,000 and was financed with $400,000
from the Company and a $1,600,000 mortgage loan from an unrelated third-party
real estate investment trust.
On May 5, 1996, the Company entered into a lease agreement with an affiliate to
rent a 60-unit nursing home. Terms of the agreement are ten years at $300,000
per year beginning on June 1, 1996. The total lease payments in 1996 were
$25,000.
F-15
<PAGE> 60
On October 14, 1996, the Company acquired two retirement facilities from
related parties, individuals who control the Company and its affiliates, for
their fair value, based on independent appraisals, totaling $19,200,000. The
facilities were subject to bond debt of $7,670,000. The remaining balance due
from the Company was $11,530,000. For the purpose of this transaction, Winter
Haven had assumed the amounts due to the Company in the amount of $2,426,487,
from Southeastern Cottages, Inc., National Assistance Bureau, Inc., Chamber
Health Care Society, Inc. and Senior Care, Inc. which, in combination with the
amount of $8,887,833 previously due from Winter Haven to the Company, totaled
$11,314,320. As part of the exchange agreement, the Company and Winter Haven
agreed to offset the Company's debt incurred of $11,530,000 with the Company's
receivable of $11,314,320.
FACILITIES LEASED FROM AFFILIATES
During the years ended June 30, 1997 and 1996, the Company leased nursing
homes and retirement homes from affiliates. In 1996, one facility was leased
with an annual rental of $300,000, expiring in 2006 with one ten-year renewal.
In 1997, a total of eleven facilities were leased with annual rentals ranging
from approximately $290,000 to $850,000, expiration dates through 2007, and
renewal periods of five to ten years. The annual rentals of the ten leases
acquired in 1997 are based upon 110% of the outstanding debt balance, so the
future annual rentals are expected to decline during the lease terms.
ADDITIONAL TRANSACTIONS
On September 27, 1996, Gordon Jensen Health Care Association, Inc. (Gordon
Jensen) returned approximately 400,000 shares of stock in the Company which had
a fair market value of $3,000,000 in payment of Gordon Jensen's debt of
$2,982,000 due to the Company. The retirement of these shares reduced
stockholders' equity of the Company by $3,000,000.
In 1997, the Company received a guarantee fee of $500,000 for guarantee of
Contour's $10,500,000 note payable which arose in connection with its
acquisition of Atlantic Medical. As payment, the Company received 100,000
shares of Contour common stock. Contour's note payable was paid off in January,
1997 and the guarantee was released.
As of June 30, 1997 the Company had guaranteed debt in the amount of
approximately $30,000,000 related to eight facilities of affiliates which the
Company leases or manages. The debt is collateralized by the facilities, bears
interest ranging from approximately 10% to 11.5% with due dates through 2007.
The Company was paid fees of $150,000 by affiliates in connection with
locating financing for three facilities in 1996. These fees were included in
interest income on the accompanying statements of income.
The Company has service and consulting agreements whereby In-House provides to
facilities therapy and case management for a fixed monthly fee plus a charge
per treatment unit provided. In 1997, the Company purchased approximately
$5,129,000 or 77% of the total sales of In-House, and the Company's account
payable to In-House of $1,528,000 was 49% of the total accounts receivable of
In-House. For 1996, total sales and accounts receivable of In-House related to
the Company.
4. ACCOUNTS RECEIVABLE:
Patient accounts receivable and net patient service revenue include amounts
estimated by management to be payable by Medicaid and Medicare under the
provisions of payment formulas in effect. Medicaid and Medicare programs
accounted for approximately 72% and 68% of net patient service revenue during
1997 and 1996, respectively.
The Company grants credit without collateral to its patients most of whom are
local residents of the respective nursing home and retirement facilities and
are insured under third-party payor agreements. The mix of receivables from
patients and third party payors is as follows:
<TABLE>
<CAPTION>
June 30,
1997 1996
<S> <C> <C>
Medicaid $17,452,025 $10,644,368
Medicare 9,728,258 4,304,368
Other third-party payors 1,084,008 1,598,816
Patients 12,315,451 3,113,145
Trade receivables - Contour 7,811,635 2,595,083
48,391,377 22,255,780
Allowance for doubtful accounts 8,000,000 3,410,000
$40,391,377 $18,845,780
</TABLE>
F-16
<PAGE> 61
In the opinion of management, any differences between the net revenue recorded
and final determination will not materially affect the consolidated financial
statements.
The activity in the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
June 30,
1997 1996 1995
<S> <C> <C> <C>
Beginning of Period $3,410,000 $ -- $ --
Provision 2,982,063 3,423,117 --
Other Additions-Contour 1,995,386 -- --
Write Offs (387,449) (13,117) --
End of Period $8,000,000 $3,410,000 --
</TABLE>
The increase in the allowance for doubtful accounts of Contour reflects an
adjustment to the purchase price allocation for Contour's acquisition of
Atlantic Medical and its subsidiaries. The adjustment was required to reduce
acquired trade receivables, principally due from Medicare and Medicaid, to their
net realizable value.
5. NOTE RECEIVABLE:
On February 7, 1996, the Company loaned $500,000 to an unaffiliated company.
The note, plus interest at 9% per annum, was due on February 7, 1997 and was
collateralized by a first lien on a 38-bed nursing home in Atlanta, Georgia.
This note was paid in full with interest on May 15, 1997.
6. CHANGE IN ACCOUNTING FOR SUPPLIES INVENTORY:
During the year ended June 30, 1996, the Company changed its method of
accounting for facility supplies inventory from expensing when purchased to
capitalizing and expensing as used. The Company believes that this change is
preferable in the circumstances because it more closely matches inventory costs
with net patient service revenue. In connection with the capitalization
of facility supplies inventory at June 30, 1996, the Company recorded
additional inventory and reduced supplies expense by approximately $1.0
million, of which approximately $600,000 related to inventory on hand as of
June 30, 1995. Accordingly, the cumulative effect of this change in accounting
principle on beginning retained earnings has been shown, net of tax, as a
separate component of the statement of operations for the year ended June 30,
1996. Although the cumulative effect on retained earnings at June 30, 1995
resulting from the change can be determined, the pro forma effects of
retroactive application cannot be computed for individual prior periods.
Accordingly, net income and income per common share computed on a pro forma
basis have not been presented for the years ended June 30, 1995 and 1994.
7. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
Estimated
Useful
Lives 1997 1996
<S> <C> <C> <C>
Land - $ 8,330,565 $ 7,184,001
Buildings 30 107,901,652 83,281,050
Equipment 5-10 16,115,893 12,179,912
Leasehold improvements 5-10 3,373,755 2,193,228
Buildings and equipment under
capital leases 5-30 18,642,560 8,111,801
154,364,425 112,949,992
Less accumulated depreciation 13,897,697 8,518,084
140,466,728 104,431,908
Construction in progress 10,025,493 6,988,578
Net property and equipment $150,492,221 111,420,486
</TABLE>
Construction in progress, consisting of the development of four facilities,
includes approximately $607,000 and $605,000 of capitalized interest costs as
of June 30, 1997 and 1996, respectively. The total contract price of
construction in progress was approximately $13,500,000 for the year ended June
30, 1997.
Substantially all property and equipment is pledged as collateral for long-term
debt.
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<PAGE> 62
8. DEFERRED LEASE AND LOAN COST:
In connection with the execution of certain lease transactions and financing of
acquisitions, the Company incurred lease and loan commitment fees, which are
included in deferred lease and loan costs in the accompanying balance sheets,
as follows:
<TABLE>
<CAPTION>
June 30,
1997 1996
<S> <C> <C>
Lease cost:
Affiliated $ 2,000,000 $ 500,000
Non-affiliated 5,831,968 1,801,619
Loan cost:
Affiliated 410,000 410,000
Non-affiliated 6,414,978 5,800,288
14,656,946 8,511,907
Less accumulated amortization 1,591,187 846,016
Net deferred lease and loan cost 13,065,759 $7,665,891
</TABLE>
9. SHAREHOLDERS' EQUITY:
STOCK PURCHASE WARRANTS
During the year ended June 30, 1997, the Company issued warrants to an
investment banker and consultants to purchase 250,000 shares of its common
stock at prices ranging from $6.96875 to $9.25 per share. The warrants were
exercisable at varying dates through June 1999. None of the warrants were
exercised during the year ended June 30, 1997.
The Company has issued Class A warrants in connection with a private offering
and Class B and Class C warrants in connection with an offer to Class A warrant
holders to convert their warrants. The Class A and Class C warrants are
exercisable at $1.00 per warrant, the Class B warrants are exercisable at $6.00
per warrant. At any time during the period the warrants are exercisable, the
Company may redeem the warrants at $.05 per warrant upon 45 days written notice
in the event certain listing and registration requirements are achieved, and the
closing bid price of the common stock exceeds $7.00 per share for the Class A
and Class C Warrants, and $10.00 per share for the Class B Warrants, for 20 of
30 consecutive trading days. During the year ended June 30, 1997, Class A
Warrants were exercised to purchase approximately 136,180 shares of common stock
and Class C Warrants were exercised to purchase approximately 8,692 shares of
common stock. As of June 30, 1997, there were Class A warrants outstanding which
entitle the holders to purchase 101,581 shares of common stock, Class B warrants
outstanding which entitle the holders to purchase 426,432 shares of common stock
and Class C Warrants outstanding which entitle the holders to purchase 186,956
shares of common stock.
STOCK OPTIONS
Stock option plans
In October 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." This new standard defines a fair value based method of
accounting for an employee stock option or similar equity instrument. This
statement gives entities a choice of recognizing related compensation expense
by adopting the new fair value method or to continue to measure compensation
using the intrinsic value approach under Accounting Principals Board (APB)
Opinion No. 25, the former standard. If the former standard for measurement is
elected SFAS No. 123 requires supplemental disclosure to show the effects of
using the new measurement criteria. This statement is effective for the
Company's 1997 fiscal year. The Company intends to continue using the
measurement practices prescribed by APB Opinion No. 25, and accordingly, this
pronouncement will not affect the Company's financial position or results
of operations.
In December 1993, the Company adopted the 1993 Stock Option Plan (the "Plan").
A total of 1,682,625 shares of the Company's common stock have been reserved
for
F-18
<PAGE> 63
issuance under the Plan. Under the Plan, options are granted at an exercise
price of not less than 100% of the fair market value of the shares on the date
of grant. Certain options are exercisable immediately, while others are subject
to vesting provisions as specified by the Board of Directors on the date of
grant. Each option grant under the Plan automatically expires ten years after
the date of grant or at such earlier time as may be determined by the Board of
Directors.
The following is a summary of stock option activity and related information for
the years ended June 30:
<TABLE>
<CAPTION>
1997 1996 1995
Weighted Avg. Weighted Avg. Weighted Avg.
Options Exercise Price Options Exercise Price Options Exercise Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding:
Beginning 1,498,368 $6.77 1,066,818 $5.24 882,110 $4.74
Granted 364,025 $7.44 489,300 $9.90 239,138 $7.42
Exercised (246,973) $4.59 (22,076) $4.65 - -
Canceled (30,810) $4.65 (35,674) $5.36 (54,430) $6.67
End of year 1,584,610 $5.40 1,498,368 $6.77 1,066,818 $5.24
Exercisable:
End of year 1,584,610 $5.40 1,498,368 $6.77 1,066,818 $5.24
Weighted average fair
value of options
granted during the
year: $6.72 $7.56 $5.82
</TABLE>
Exercise prices for options outstanding as of June 30, 1997 ranged from $4.65
to $10.24. The weighted average remaining contractual life of those options is
7.35 years.
Because the Company has adopted the disclosure-only provisions of SFAS No. 123,
no compensation cost has been recognized for the stock option plans. Had
compensation cost for the Company's stock option plan been determined based on
the fair value at the grant date of the awards consistent with the provisions
of SFAS No. 123, the Company's net earnings and earnings per share would have
been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net income (loss) as reported $(7,535,810) 1,746,808
Net loss - pro forma net (8,908,810) (513,192)
Loss per share - as reported (.71) (.05)
Loss per share - pro forma (.81) (.25)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1996 and 1995; dividend yield of 0%, expected
volatility of 66%, risk-free interest rates of 6.0% for 1997 and 5.4% for 1996
and expected lives of four years for 1996 options and five years for 1995
options.
PREFERRED STOCK
As of June 30, 1997, the Company has authorized 40,000,000 shares of preferred
stock and has designated the following series of preferred stock:
- - SERIES AA REDEEMABLE CONVERTIBLE PREFERRED STOCK
300,000 shares of Series AA Redeemable Convertible Preferred Stock are
authorized. These shares were issued in connection with the acquisition of a
majority interest in Contour. Holders of the Series AA Redeemable Convertible
Preferred Stock are entitled to receive cumulative dividends of $1.00 per share
(10%) annually, and are convertible into common stock at any time at the rate of
F-19
<PAGE> 64
5.5125 shares of common stock for each six shares of Series AA Redeemable
Convertible Preferred Stock. Each share is entitled to one vote and has a
preferred rate of $10.00 per share upon voluntary or involuntary liquidation,
dissolution, or winding up of affairs of the Company.
The Company may redeem shares of Series AA Redeemable Convertible Preferred
Stock, in whole or in part, at any time at its option at a price of $10.00 per
share plus any unpaid dividends (the "Redemption Price"). In addition, to the
extent that such funds are legally available, the Company is required to
redeem, at the Redemption Price, at least 20% of each holder's initial number
of shares of Series AA Redeemable Convertible Preferred Stock by September 30,
1995; 40% by September 30, 1996; 60% by September 30, 1997; 80% by September
30, 1998; and 100% by September 30, 1999. In the event that a holder of Series
AA Redeemable Convertible Preferred Stock shall have converted a portion of his
shares into common stock, such converted shares shall be counted toward the
redemption requirement and shall be deemed redeemed for the purposes of the
mandatory redemption requirement. In addition, in the event that the Company
fails to pay any dividend on the Series AA Redeemable Convertible Preferred
Stock within 30 days of the due date, the Company is required to redeem all of
the outstanding Series AA Redeemable Convertible Preferred Stock. During the
year ended June 30, 1996, the Company redeemed 60,000 shares of Series A
Redeemable Preferred Stock.
- - SERIES A CONVERTIBLE PREFERRED STOCK
2,000,000 shares of Series A Convertible Preferred Stock, par value $.10 per
share, are authorized. Each share is entitled to 10 votes and has a preference
rate of $.01 per share with no dividend rights. 750,000 shares of Series A
Preferred Stock were issued in connection with a 1992 acquisition transaction
between the Company and Capitol Care Management Company, Inc. The preferred
shares were converted into common stock in 1994 and 1995.
- - SERIES C CONVERTIBLE PREFERRED STOCK
1,000,000 shares of Series C Convertible Preferred Stock are authorized. Each
share is entitled to one vote per share and had a preference rate of $1.00 per
share with no dividend rights.
The shares of Series C Convertible Preferred Stock were converted in 1994 into
common stock.
- - SERIES E CONVERTIBLE PREFERRED STOCK
1,000,000 shares of Series E Convertible Preferred Stock are authorized. These
shares were sold in an offering to foreign investors in April 1996 at $10.00
per share. Holders of the Series E Preferred Stock have no voting rights except
as required by law, and have a liquidation preference of $10.00 per share plus
4% per annum from the date of issuance. The shares of Series E Preferred Stock
are convertible into shares of common stock at a conversion price of $11.55 or
85% of the average closing bid price for the five trading days prior to the
date of conversion, whichever is lower (but no lower than $5.00).
At the time of conversion, the holder is also entitled to additional shares
equal to $10.00 per share of Series E Preferred Stock converted multiplied by
8% per annum from the date of issuance divided by the applicable conversion
price. As of June 30, 1997, the remaining 942,500 shares of Series E
Convertible Preferred Stock were converted into 1,318,533 shares of common
stock.
- - SERIES F CONVERTIBLE PREFERRED STOCK
1,000,000 SHARES of Series F Convertible Preferred Stock are authorized. These
shares were sold in an offering to foreign investors in September, 1996 at
$10.00 per share. Holders of the Series F Preferred Stock have no voting rights
except as required by law, and have a liquidation preference of $10.00 per
share plus
F-20
<PAGE> 65
4% per annum from the date of issuance. The shares of Series F Preferred Stock
are convertible into shares of common stock at a conversion price of $7.425 or
85% of the average closing bid price for the five trading days prior to the
date of conversion, whichever is lower.
At the time of conversion, the holder is also entitled to additional shares
equal to $10.00 per share of Series F Preferred Stock converted multiplied by
8% per annum from the date of issuance divided by the applicable conversion
price. During the year ended June 30, 1997, the 651,666 shares of Series F
Convertible Preferred Stock were converted into 1,148,698 shares of common
stock.
TREASURY STOCK
During the year ended June 30, 1997, the Company purchased and retired 520,326
shares of its common stock at an aggregate cost of $3,923,222.
10. LONG-TERM DEBT:
Long-term debt at June 30, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Non-affiliates:
Notes payable to a real estate
investment trust ("REIT") $ 40,700,380 $ 39,623,938
Industrial development revenue bonds 22,615,000 20,060,000
Municipal revenue bonds 26,265,000 18,170,000
Housing development mortgage revenue bonds 25,795,000 21,750,000
Notes payable to banks (8.5% or prime plus
1% to 10% due through 2003) 15,780,008 3,049,012
Capitalized lease obligations 21,972,802 8,048,581
153,128,190 110,701,531
Less current maturities 11,454,059 2,220,491
$141,674,131 $108,481,040
</TABLE>
Future maturities of debt and capital lease obligations are as follows:
<TABLE>
<CAPTION>
Capital
Year Lease Debt Total
<S> <C> <C> <C>
1998 $ 2,408,701 $ 11,980,406 $ 14,389,107
1999 2,416,138 2,538,317 4,954,455
2000 2,423,272 2,963,682 5,386,954
2001 2,430,508 3,455,739 5,886,247
2002 2,437,846 3,552,304 5,990,150
Thereafter 36,798,942 106,664,940 143,463,882
Total 48,915,407 131,155,388 180,070,795
Less amount representing imputed
interest at 11% to 12% 26,942,605 - 26,942,605
Total obligations $ 21,972,802 $131,155,388 $153,128,190
</TABLE>
The notes payable to the REIT consist of mortgage notes on sixteen facilities.
Principal amounts are amortized over a 25-year period with monthly installments
payable through 2006. Interest ranges on these notes from 9.75% to 11.28% and
increases annually at rates ranging from 0.1% to 0.25%. The notes are
collateralized by property and equipment of the sixteen facilities.
The industrial development revenue bonds consist of bonds on two facilities: a
retirement community located in San Destin, Florida and Atrium, a nursing and
retirement community located in Jacksonville, Florida. The San Destin facility
serves as collateral for $11,925,000 of bonds payable to the Walton County
Industrial Development Authority. Principal payments range from $150,000 to
$1,300,000 annually through 2019 and interest accrues at 10.5%. The Atrium
facility serves as collateral for three City of Jacksonville Industrial
Development Revenue Refunding bonds totaling $10,690,000. Principal payments
F-21
<PAGE> 66
range from $65,000 to $375,000 annually through 2024, $6,060,000 due in 2011,
and interest accrues at rates ranging from 6.5% to 11.5%.
The housing development mortgage revenue bonds include approximately
$18,525,000 of bond debt assumed by the Company in connection with the
acquisition of Encore. The bond debt, which is collateralized by property and
equipment of five facilities, includes Okaloosa County, Florida Retirement
Rental Housing Revenue Series A bonds totaling $7,925,000 with semi-annual
interest payments at 10.75% due in 2003 and Ohio Rental Housing Revenue Series
A bonds totaling $9,800,000 with semi-annual interest at 10.38% due in 2009.
The remainder of the housing development mortgage revenue bonds consist of
bonds totaling $8,070,000 collateralized by three facilities with interest
ranging from 7% to 11.0% with maturities through 2026. The housing development
mortgage revenue bonds require annual principal payments ranging from $150,000
to $2,000,000.
The municipal revenue bonds, which are collateralized by property and equipment
of seven facilities and require annual principal payments ranging from $370,000
to $1,635,000, consist of the following:
Dade City, Florida Series A and B bonds totaling $6,395,000, with principal
payments due through 2025 and interest ranging from 6.75% to 8%.
Highland County Series A and B bonds totaling $4,230,000, with principal
payments due through 2024 and interest ranging from 6.5% to 8.5%.
City of Dublin Series A and B bonds totaling $2,740,000, with principal
payments due through 2024 and interest ranging from 8.5% to 10.5%
Rome-Floyd County Development Authority Revenue Series A and B bonds totaling
$2,655,000, with principal payments due through 2011 and interest rates ranging
from 7.5% to 10%.
Americus-Sumter Series A and B bonds totaling $1,900,000, with principal
payments due through 2026 and interest rates ranging from 8.0% to 10.25%.
Houston County Series A and B bonds totaling $5,650,000 with principal payments
due through 2026 and interest rates ranging from 7% to 8.4%.
Sumner, TN Series A and B bonds totaling $2,695,000 with principal payments due
through 2010 and interest rates ranging from 10.5% to 12.5%.
The Company recorded an extraordinary charge of $490,000, net of income tax
benefit of $300,000, associated with the early extinguishment of approximately
$9.2 million of long-term debt on the Company's retirement facility located in
Destin, Florida.
In connection with the bond indentures, the Company is required to meet certain
covenants, including monthly sinking fund deposits, adequate balances in debt
service reserve funds, timely payment of tax obligations and adequate insurance
coverage. At June 30, 1997 and 1996, the Company was in violation of several of
these covenants including the failure to make monthly payments to the bond
sinking funds for certain of these facilities and inadequate debt service
reserves for certain of the facilities. The Company is also delinquent with
regard to the payment of property taxes at several facilities. The trustees
have not called the bonds in the past for these violations and management does
not foresee the bonds being called at this time. All semi-annual interest and
principal payments have been made in a timely fashion.
11. LINES OF CREDIT:
The Company maintains various lines of credit with interest rates ranging from
prime plus .25% to prime plus 1.25%. Available borrowings under the lines of
credit totaled $14,050,000 and $5,075,000 for the years ended June 30, 1997 and
1996, respectively. Total borrowings against the lines of credit were
$9,935,036 and $3,556,535 at June 30, 1997 and 1996, respectively.
12. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases nursing homes and retirement care facilities from
unaffiliated entities (in addition to leasing eleven nursing and retirement
facilities from affiliated entities. (see Note 3). The lease agreements
commenced on various dates with terms extending through February 2016. The
Company has options to extend most of the leases for an additional five to ten
years. The Company also leases certain facilities under agreements classified
as capital leases. These agreements include purchase options exercisable at
the Company's discretion during, or at the end of, each of the lease terms. The
capital lease agreements commenced on various dates with terms extending
through October 2008.
Included in the above agreements are seven leases whereby a sale to the lessor
F-22
<PAGE> 67
preceded the lease agreement ("sale/leaseback transaction"). The Company has
accounted for six of these sale/leaseback transactions as sales with no gains
or losses recognized on the transactions. The remaining sale/leaseback
transaction was capitalized and included a deferred gain of $381,370 to be
amortized over the term of the lease. Future minimum payments, by year and in
the aggregate, under noncancelable operating leases with initial or remaining
terms of one year or more consist of the following at June 30, 1997:
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1998 $ 19,484,267
1999 19,264,153
2000 19,243,829
2001 19,159,033
2002 18,710,901
Future years 119,850,928
Total $215,713,111
</TABLE>
The Company's rental expense under operating leases for nursing homes and
retirement care facilities amounted to approximately $13,200,000, $6,040,000
and $5,750,000 for the years ended June 30, 1997, 1996 and 1995, respectively.
The Company leases office space under a noncancelable operating lease which
expires in October 2000. At June 30, 1997, minimum future rental payments under
the noncancelable lease were as follows:
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1998 $325,455
1999 341,683
2000 358,673
2001 120,509
</TABLE>
Total amounts paid for rental of office facilities totaled approximately
$306,000, $317,000, and $60,000 for the years ended June 30, 1997, 1996 and
1995, respectively.
OTHER
The Company has guaranteed 20% to 100%, or approximately $9,000,000, of debt on
six facilities owned by unaffiliated entities that are currently operated by
the Company under operating leases.
The Company is involved in legal proceedings arising in the ordinary course of
business. In addition, the Company is in dispute with the Internal Revenue
Service ("IRS") concerning the application of certain income and payroll tax
liabilities and payments. The IRS contends that the Company is delinquent in the
payment of certain taxes and has assessed taxes, penalties and interest in
connection with the alleged underpayment of approximately $1.2 million. The
Company contends that the IRS has misapplied payments between income and payroll
taxes and between the Company and its affiliates. On advise of counsel handling
the matter, the Company has estimated and accrued in the accompanying financial
statements $400,000 for ultimate settlement of this dispute. The Company has
filed lawsuits against the IRS related to this matter. In the opinion of
management, the ultimate resolution of pending legal proceedings and the IRS
dispute will not have a material effect on the Company's financial positions or
results of operations.
F-23
<PAGE> 68
13. INCOME TAXES:
The components of the provision for income taxes were as follows:
<TABLE>
<CAPTION>
Year ended June 30,
1997 1996 1995
<S> <C> <C> <C>
Current:
Federal $(1,097,110) $2,671,891 $2,659,000
State (240,648) 501,600 499,000
(1,337,758) 3,173,491 3,158,000
Deferred (benefit):
Federal (846,568) (1,571,500) 221,928
State (158,930) (294,900) 39,164
$(1,005,498) (1,866,400) 261,092
Total income tax provision $(2,343,256) $1,307,091 $3,419,092
</TABLE>
The income tax provisions (benefit) included in the consolidated statements of
income are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Income before extraordinary item and
cumulative effect of change in
accounting principle $(2,343,256) $1,307,091 $3,419,092
Cumulative effect of change
in accounting principle - 228,000 -
Extraordinary Item (300,000) - -
(2,643,256) $1,535,091 $3,419,092
</TABLE>
Deferred income taxes are provided to reflect temporary differences between
financial and income tax bases of assets and liabilities. The sources of the
temporary differences and their effect on the net deferred taxes at June 30,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Current deferred taxes:
Deferred tax assets:
Workers' compensation accrual $1,936,000 $1,062,900
Provision for losses on accounts
receivable 2,039,200 811,300
Health insurance accrual 227,800 227,800
Net operating loss 444,500 355,100
Total current deferred tax asset 4,647,500 2,457,100
Less valuation allowance (444,500) (355,100)
4,203,000 2,102,000
Deferred tax liability - other (137,569) (93,570)
Net current deferred tax asset 4,065,431 $2,008,430
Noncurrent deferred taxes:
Deferred tax asset - deferred gain 276,700 $ 276,700
Deferred tax liabilities:
Property and equipment 673,900 352,600
Deferred lease cost 568,200 201,100
Other 133,529 -
Net noncurrent deferred tax
liability $1,098,929 $ 277,000
</TABLE>
The provision for income taxes for the year ended June 30, 1996 and 1995 varies
from the amount determined by applying the Federal statutory rate to pretax
income as a result of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Income tax expense (benefit)
at federal statutory rate (3,310,600) $1,115,130
Nondeductible tax penalties 305,800 417,700
State income taxes, net of
federal tax benefit (192,000) 331,100
Other, net 668,801 (556,839)
$(2,527,999) $1,307,091
</TABLE>
The primary difference between the actual income tax rate of approximately 40%
for the year ended June 30, 1995 and the Federal income tax rate of 34% is the
F-24
<PAGE> 69
amount paid for state income taxes.
14. FAIR VALUES OF FINANCIAL INSTRUMENTS AND INVESTMENTS:
The following methods and assumptions were used by the Company in estimating
the fair value of its financial instruments.
CASH AND CASH EQUIVALENTS
The carrying amount reported in the balance sheet for cash and cash equivalents
approximates fair value because of the short maturity of these instruments.
MARKETABLE EQUITY SECURITIES
The carrying amount reported in the balance sheet for marketable equity
securities approximates fair value. All marketable equity securities are
classified as "available for sale" for accounting purposes and, therefore, are
carried at fair value with unrealized gains and losses recorded directly in
equity. There were no significant unrealized gains or losses at June 30, 1996.
NOTES RECEIVABLE
The carrying amount approximates fair value for the notes receivable based on
the fair value being estimated as the net present value of cash flows that
would be received on the notes over the remaining notes' terms using the
current market interest rates rather than stated interest rates.
SHORT- AND LONG-TERM DEBT
The fair value of all debt has been estimated based on the present value of
expected cash flows related to existing borrowings discounted at rates
currently available to the Company for debt with similar terms and remaining
maturities.
The cost basis and estimated fair values of the Company's financial instruments
at June 30 are as follows:
<TABLE>
<CAPTION>
June 30, 1997
Carrying Fair
Amount Value
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 3,637,878 $ 3,637,878
Financial liabilities:
Short-term debt 21,389,095 21,389,095
Long-term debt 141,674,131 128,718,000
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996
Carrying Fair
Amount Value
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 45,365 $ 45,365
Marketable equity securities 33,645 33,645
Financial liabilities:
Short-term debt 5,777,026 5,777,026
Long-term debt 108,481,040 112,338,000
</TABLE>
As of June 30, 1995, the carrying amount of all financial instruments
approximated fair value.
F-25
<PAGE> 70
15. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
As described in Note 2, the Company acquired certain businesses during 1997.
The fair value of the assets acquired was $30,411,391 and the fair value of the
liabilities assumed was $11,603,614, which resulted in net cash payments of
$18,807,777.
As described in Note 2, the Company acquired certain businesses during 1996.
The fair value of assets acquired was $69,826,951 and the fair value of
liabilities assumed was $47,888,438, which resulted in net cash payments of
$21,938,513.
During 1997, the Company entered into approximately $14,000,000 of capital
lease agreements.
Contour acquired Atlantic Medical Supply Company, Inc. and sold CFI with
noncash transactions of $16,073,970 and $624,252, respectively.
Cash paid for interest during the years ended June 30, 1997, 1996 and 1995 was
$13,851,484, $6,561,954, and $1,172,883, respectively.
Cash paid for income taxes during the years ended June 30, 1997, 1996 and 1995
was $3,265,632, $3,561,089, and $829,292, respectively.
Dividends on preferred stock of $15,000 and $1,996,777 were accrued but not
paid at June 30, 1996.
Dividends on preferred stock of $1,966,777 were accrued but not paid at June
30, 1997.
During 1997 and 1996, approximately $13,730,000 and $8,112,000, respectively,
of lease assets and obligations were capitalized.
16. ACCRUED EXPENSES:
Accrued expenses consisted of the following as of June 30:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Payroll and payroll taxes $ 5,808,124 $ 3,587,217
Interest 2,129,164 1,868,805
Workers Compensation 5,275,000 2,975,000
Other 5,204,970 2,885,008
Total $18,417,258 $11,316,030
</TABLE>
17. EMPLOYEE RETIREMENT PLAN:
During the year ended June 30, 1996, the company established a defined
contribution retirement plan. Employees qualify for the plan upon the
completion of three months of service with the Company and reaching the age of
twenty-one. Company contributions to the plan represent a matching percentage
of certain employee contributions. The matching percentage is subject to
management's discretion based upon consolidated financial performance. For the
years ended June 30, 1997 and 1996, the Company has not made any contributions
to the plan.
18. BUSINESS SEGMENT INFORMATION:
Retirement Care Associates; Inc. and Subsidiaries is a long-term health care
provider which engages in two distinct business segments. The Retirement Care
Associates entity operates and manages nursing homes and retirement facilities
throughout the Southeast. As of June 30, 1997, approximately 11,100 beds were
owned or operated by this entity.
The Contour entity manufacturers a full line of orthopedic care and
F-26
<PAGE> 71
rehabilitation products and distributes them to nursing facilities throughout
the Southeast. The Contour entity was acquired in 1995. The following
represents business segment information for the years ended June 30, 1997,
1996 and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Operating revenues:
Retirement Care Associates $204,612,388 $124,951,954 $76,656,829
Contour Medical 48,615,473 9,059,415 2,959,224
253,227,861 $134,011,369 $79,616,053
Depreciation and amortization
expense:
Retirement Care Associates $ 5,653,472 $ 2,806,637 $ 1,051,842
Contour Medical 861,241 600,349 76,341
$ 6,514,713 $ 3,406,986 $ 1,128,183
Identifiable assets:
Retirement Care Associates $227,984,979 $165,094,536 $72,644,179
Contour Medical 27,385,987 12,397,751 7,613,367
$255,370,966 $177,492,287 $80,257,546
Capital expenditures:
Retirement Care Associates $ 11,764,903 $ 11,741,135 $ 5,763,553
Contour Medical 969,486 749,163 316,057
$ 12,734,389 $ 12,490,298 $ 6,079,610
Operating Income
Retirement Care Associates $ 3,006,819 $ 8,540,815 $ 8,865,388
Contour Medical 694,303 839,202 151,820
$ 3,701,122 $ 9,380,017 $ 9,017,208
</TABLE>
19. SUBSEQUENT EVENTS
The board of directors of RCA has unanimously approved and adopted the
Agreement and Plan of Merger and reorganization, dated as of February 17, 1997,
as amended by Amendment No. 1 thereto dated as of May 27, 1997, and also
amended by Amendment No. 2 thereto dated as of August 21, 1997, with Sun
Healthcare Group, Inc. ("Sun"). The proposed RCA merger is contingent upon,
among other things, the approval of the holders of the requisite number of
shares of Sun Common Stock and RCA Capital Stock, which is described in a Joint
Proxy Statement/Prospectus/Information Statement. The proposed RCA Merger will
be consummated as soon as practicable after such approvals are obtained and the
other conditions to the RCA Merger are satisfied or waived.
The Company renewed debt of $9,750,000 and obtained $5,000,000 of additional
debt with Sun Healthcare Group, Inc. on July 10, 1997. Interest accrues at
rates ranging from 11% to 12% and would increase from 15% to 16% during any
period of default. Principal is due 120 days following the termination of the
agreement or merger with Sun.
Subsequent to June 30, 1997, the Company became obligated on approximately
$2,500,000 bonds to construct a twenty-five unit addition to its Jackson,
Tennessee facility.
20. ADJUSTMENTS TO 1996 FINANCIAL STATEMENTS
As discussed in Note 19, on February 17, 1997, following a series of meetings
and negotiations, the company agreed to be acquired by Sun Healthcare Group,
Inc. (Sun) through an exchange of shares of Sun for shares of the Company.
During due diligence procedures associated with the transaction, certain
adjustments to previously issued financial statements were discovered to be
required. Those adjustments, together with additional amounts, have been
applied to the financial statements for the year ended June 30, 1996 as
restatements and corrections as follows:
F-27
<PAGE> 72
<TABLE>
<CAPTION>
<S> <C>
Additional provision for uncollectible accounts $1,705,000
Additional accrual for claims incurred, but not
reported for self-insured worker's compen-
sation and health care 3,400,000
Accrual for compensated absences 300,000
Adjustment of previously recorded inventory 809,219
Adjustment to lease expense 530,000
6,744,219
Less:
Adjustment to income taxes (2,921,219)
Decrease in net income $3,823,000
Decrease in net income per share $ .34
</TABLE>
21. LIQUIDITY
During the period ending June 30, 1997, the Company experienced a significant
net operating loss and at the same time a decline in liquidity, resulting from
the operating loss and a heightened level of investment in new facilities.
Management believes that the operating loss is the result of a decline in the
overall census of residents and patients in the Company's facilities, together
with losses at Contour Medical, Inc. resulting from costs of consolidation of
subsidiaries acquired during the period. Closing of the merger of the Company
with Sun as discussed in Note 19 will provide access to additional sources of
liquidity as the Company's facility proceed through a combination of new
admissions to nursing facilities and set-up of retirement facilities. In the
event the merger does not take place, management's plans include a complete
reorganization of operations of the nursing home segment, assisted living
segment and Contour Medical, Inc. This reorganization plan would include new
personnel to implement increased census, develop and implement ancillary
business (i.e., pharmacy, therapy, etc.) which would be beneficial from an
operations point of view as well as increase profits for the Company. A
comprehensive plan is being developed to implement these changes if necessary.
The personnel for this plan have been identified and could be brought on board
quickly. The funds to implement this plan would be provided from a new line of
credit, sale and lease-back transactions for certain identified properties of
the Company as well as refinancing of other Company targeted facilities.
F-28
<PAGE> 73
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized.
RETIREMENT CARE ASSOCIATES, INC.
Dated: March 11, 1998
By: /s/ Darrell C. Tucker
---------------------------------
Darrell C. Tucker, Treasurer
<PAGE> 1
EX-10.2
MANAGEMENT AND MARKETING AGREEMENT
This agreement (the "Agreement") is made and entered into as of the 1st
day of January 1996, by and between Winter Haven Homes, Inc. ("Owner"), which
owns a retirement community known as Renaissance of Sanford, located at 300 West
Airport Road, Sanford, Florida (the "Facility"), and Capitol Care Management
Company, Inc., a Georgia corporation ("CCMC"). This Agreement shall take effect
on January 1, 1996, or on such other date as the parties agree in writing (the
"Effective Date@).
In consideration of the mutual covenants, promises and conditions
contained herein, the parties hereby agree as follows:
I. APPOINTMENT
Owner hereby appoints CCMC as its exclusive agent and manager for the
marketing and management of the Facility during the term of this Agreement and
any extensions or renewals thereof.
II. TERM; TERMINATION
1. The term of this Agreement shall commence as of the Effective
Date and shall continue for a period of five (5) years. In addition, the Owner
shall have the option to renew this Agreement for additional terms of One (1)
year each. Such renewals shall be automatic unless Owner gives Manager written
notice of cancellation at least sixty (60) days prior to the expiration of the
then current contract term.
2. Owner may terminate this Agreement upon giving CCMC sixty (60)
days written notice after the end of the third year of this Agreement. CCMC may
terminate this Agreement at any time by giving the Owner, sixty (60) days
written notice.
III. COMPENSATION
1. As compensation for the services to be performed by CCMC under
this Agreement CCMC shall receive a monthly marketing fee (the AMarketing Fee@)
of: $.00 and receive a monthly management fee (the "Management Fee") of:
$14,000.00, and receive a monthly accounting fee (the "Accounting Fee") of:
$1,000.00.
2. In addition to the Marketing and Management Fee, the Manager
shall be entitled to reimbursement of all reasonable out-of-pocket expenses
incurred in connection with management of the Facility and documented in a
reasonable manner; provided, however, that any such expenses in excess of $250
shall require the Owner's prior approval. Expense reimbursements shall be due
and payable within 30 days of Management's submission of an invoice therefore.
3. If any time during the term of this agreement Owner terminates as
Owner of facility this agreement shall terminate upon receipt of notice of
Owner's termination.
<PAGE> 2
IV. RESPONSIBILITIES OF CCMC
As Exclusive Agent and Manager of the Facility, CCMC shall have the
authority to and shall operate, market and manage the Facility on behalf of and
as agent for the Owner, including, but not limited to the following:
1. General Authority and Policies
a. Subject to Owner's prior approval, CCMC shall have the
authority to establish and change all resident rents, fees and other charges
with respect to the Facility.
b. CCMC is authorized to and shall establish and enforce
operating policies and procedures for the Facility with a view of promoting a
safe and comfortable residential environment consistent with maximizing the net
cash flow to Owner from the Facility. Such policies shall cover all aspects of
management including leasing, tenant relations, food service, public relations,
advertising, maintenance, social activities, accounting and regulatory
compliance.
c. CCMC is authorized to and shall, on the Owner's behalf,
take all action necessary in order to assure that such policies and procedures
are correctly followed.
d. CCMC is hereby granted exclusive authority by Owner to
advertise the availability of units in the Facility or any room, space, or
apartment thereon for rental and to display same; to execute, renew, mollify
and/or cancel leases for the Owner for any part of the Facility on such terms
and conditions as CCMC reasonably deems best and to collect on Owner's behalf,
rents and other income clue or to become due and given written acknowledgment of
payment. Subject to prior written approval of Owner, given at the direction of
the Owner, the Manager shall have the authority to terminate tenancies as
Owner's agent and to sign and serve in the name of Owner such direction and
shall have authority to institute and prosecute legal actions, evict tenants,
and settle, compromise and release such actions or suits or reinstate such
tenancies.
e. CCMC shall establish procedures for collection of rentals
and other income from the Facility and shall deposit all such amounts in the
operating account maintained by Manager for the benefit of Owner.
2. Marketing
Manager's marketing responsibilities shall include:
identifying target markets; developing appropriate marketing strategies and
procedures; hiring, training and supervising qualified leasing counselors as
employees of Owner, and budgeting and cost control Subject to Owner's prior
approval, Manager shall have the authority as agent for Owner to retain the
services of marketing professionals to assist in the marketing of the
2
<PAGE> 3
Facility. The costs incurred in retaining such professionals shall be included
in the proposed operational budget to be approved by Owner.
3. Accounting
CCMC, on the effective date of this Agreement, shall have
implemented a system of accounting controls and procedures for timely monthly
reporting of all accounts, including an analysis versus budget. CCMC shall make
its accounting system available for review by Trustee. All costs associated with
the accounting for the Facility shall be at Owner's sole cost and expense.
Manager shall make all accounting records available to Owner's auditors upon
reasonable notice.
4. Standard of Care
In performing its obligations under this Agreement, CCMC shall
act in good faith and with the prudence and care required of health
professionals situated in similar circumstances in this industry.
Notwithstanding any other provision contained herein, whether express or
implied, neither the Owner nor the Bondholders shall be responsible for any
claims, liabilities, or expenses arising from CCMC's negligence or willful
misconduct.
5. Employees
Manager shall hire as employees of Owner and discharge,
maintain and supervise, to the extent the same are available in the community,
an adequate staff of employees at competitive wage and salary rates for the
various job classifications approved from time to time by Owner. Release of
employees shall be at the discretion of Manager. Manager shall recommend and
institute, subject to approval of Owner, appropriate employee benefits. Employee
benefits may include pension plans (where applicable), insurance benefits,
incentive plans for key employees and vacation policies.
V. RESPONSIBILITIES OF OWNER
Owner shall make itself or its designated representative available
to meet with Manager on a monthly basis to review the progress of the Facility
and approve or otherwise direct Manager's plans and strategies. Owner agrees
that it will review and evaluate all proposals within a reasonable time to
assure the uninterrupted operation of the property. Owner also agrees as
follows:
1. Employment
Owner agrees and acknowledges that all Facility employees
shall be employees of Owner. Owner accepts hill responsibility for all costs and
expenses associated with employment of such employees. Owner agrees to pay, and
to indemnity and hold Manager harmless with respect to, all salary, benefits,
taxes and regulatory costs with respect to such employees, including, but not
limited to, payroll taxes, wages, worker's compensation
3
<PAGE> 4
insurance, unemployment insurance, health and benefit plan costs, salaries, any
extended benefits, and other charges or insurance provided to such employees or
levied or required by federal, state or local statutes related to the employment
of the Facility's employees.
2. Indemnification
Owner agrees to indemnify and hold Manager harmless from and
against any and all liabilities, claims, laws, damages or actions arising out of
or relating to the Facility or the operation thereof, including without
limitation any liabilities arising out of violations of any antipollution or
environmental protection or remediation laws, the Occupational Safety and Health
Act of 1970, the Fair Labor Standards Act, as amended, Title VI of the Civil
Rights Act of 1964, as amended, the Age Discrimination in Employment Act of
1967, as amended, and any rules and regulations thereunder, except for any
liabilities, claims, laws, damages or actions arising directly out of (a) any
actions taken by Manager contrary to the express written instructions or
specific written policy of Owner relating to the operation of the Facility, or
3. Designated Representatives of Owner
The name of the officer, agent or employee of Owner designated
by the Owner as Owner's representative for purposes of this Agreement are as
follows:
Christopher F. Brogdon, President
Retirement Care Associates, Inc.
6000 Lake Forrest Drive, Suite 200
Atlanta, Georgia 30328
(404) 255-7500 fax (404) 843-9677
Owner may change its designated representative(s) from time to
time by giving written notice to Manager. In any situation in which Owner is
required or permitted under the terms of this Agreement to take any action,
or to give any consent or approval, Manager shall be entitled to rely
conclusively upon the statement of any of such designated representative(s). In
the event Owner, through its designated representative(s) does not respond to a
request by Manager for approval or consent under this Agreement within 15
business days after receipt of such request, the request shall be deemed
approved. If any action is required in a shorter period of time in order to
comply with legal requirements or other emergency circumstances, Owner shall be
so notified and shall be required to respond within such shorter period of time.
Owner agrees that it will not unreasonably withhold or delay any approvals or
consents requested by Manager hereunder.
VI. PROPRIETARY MATERIALS
The Owner acknowledges that in managing the Facility under this
Agreement, the Manager will use certain proprietary materials which are the
exclusive property of the Manager, including computer software used for
accounting, marketing and food service functions, as well as marketing,
4
<PAGE> 5
accounting and food services operations manuals. The Owner understands that
these materials will remain the sole and exclusive property of the Manager and
that the Owner will not acquire any rights or license in such materials. Upon
expiration or termination of this Agreement for any reason, all such materials
in tangible form, including all copies, shall be returned to Manager, and all
such materials or copies stored by electronic means shall be purged or erased.
VII. MISCELLANEOUS PROVISIONS
The following provisions are an integral part of this Agreement.
1. The Agreement shall be binding upon and shall inure to the
benefit of the successors and assigns of the respective parties hereto. Either
party may assign this contract after obtaining the prior written consent of the
other party, which consent shall not be unreasonably withheld or delayed.
2. The headings used in the Agreement are inserted for reference
purposes only and shall not be deemed to limit or affect the meaning or
interpretation of any of the terms or provisions of this Agreement.
3. This Agreement constitutes the entire understanding and agreement
between the patties with respect to the subject matter hereof and supersedes all
prior agreements, representations or understandings between the parties relating
to such subject matter.
4. The provisions of this Agreement are severable and should any
provision hereof be void, unenforceable, or invalid, such void, unenforceable or
invalid provision shall not affect any other portion or provision of this
Agreement.
5. Any waiver by either party hereto or any breach of this Agreement
of any kind or character whatsoever by the other party, whether such waiver be
direct or implied, shall not be construed as a continuing waiver or as a consent
to any subsequent breach or waiver of this Agreement on the part of the other
party. 6. The several tights and remedies herein expressly reserved to each of
the parties shall be construed as cumulative; none of them shall be exclusive or
in lieu or Dictation of any other right, remedy, or priority allowed by law.
7. This Agreement shall be interpreted, construed and enforced
according to the laws of the State of Georgia.
8. This Agreement may not be modified except by an instrument in
writing signed by the party against whom enforcement is sought.
9. In the event arty action or proceeding is brought by either party
against the other under this Agreement, the prevailing party shall be entitled
to recover reasonable attorney's fees such amounts as the courts may deem just.
5
<PAGE> 6
10. Unless otherwise specified, all notices, demands and requests
required or permitted to be given hereunder shall be deemed duly given at the
time of delivery if delivered in person on the date of delivery if sent and
receipted for by Federal Express or other nationally recognized overnight
service, or three (3) business day=s following mailing if mailed by registered
or certified mail, return receipt requested, addressed to the following:
If to Owner, to:
Christopher F. Brogdon, President
Retirement Care Associates, Inc.
6000 Lake Forrest Drive, Suite 200
Atlanta, Georgia 30328
If to Manager, to:
Jeff Andrews, President
Retirement Management Company, Inc.
6000 Lake Forrest Drive, Suite 525
Atlanta, Georgia 30328
Either party shall have the right to specify in writing, in
the manner above provided other address to which subsequent notices to such
parties be given. Any notice given hereunder shall be deemed to have been given
as of the date delivered or mailed
11. Nothing contained in this Agreement shall constitute or be
construed to be or to create a joint venture, partnership or lease between Owner
and Manager with respect to the Facility or any equity interest in the Facility
on the part of Manager. The relationship of Manager to Owner under this
Agreement is that of an independent contractor.
12. Manager shall not, by entering into and performing this
Agreement or by managing the Facility, assume or become liable for any of the
existing or future obligations, liabilities or debts of the Facility or Owner.
Manager's sole liability to Owner hereunder will be for actual damages incurred
by Owner due to Manager's breach of the standard of care described in paragraph
V.9. Under no circumstances shall Manager be liable for any incidental,
consequential or special damages suffered by Owner for any reason whatsoever,
whether arising out of breach of contract, negligence, tort or otherwise.
13. Neither party shall be deemed to be in violation of this
Agreement if it is prevented from performing any of its obligations hereunder
for any reason beyond its reasonable control, including without limitation, acts
of God or of the public enemy, flood or stone, fire or explosion, labor trouble
or statutes, regulations or rules of any federal, state or local government, or
any agency thereof.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have signed this agreement as of
the date first stated above.
CAPITOL CARE MANAGEMENT WINTER HAVEN HOMES, INC.
COMPANY, INC.
By: /s/ Darrell Tucker By: /s/ Edward E. Lane
Its: President Its: President
7
<PAGE> 8
ADDITIONAL MANAGEMENT & MARKETING AGREEMENTS OMITTED
The Registrant has additional Management and Marketing Agreements with
affiliates substantially identical to the foregoing. The material details of
such agreements which differ are as follows:
<TABLE>
<CAPTION>
Monthly Fees
----------------------------
Name of Date of Manage-
Facility Location Owner* Agreement ment Marketing Accounting
- --------------- ----------- ------ --------- ------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Summer=s Landing Lynn Haven, NAB 12/10/96 $ 1,000 -0- $1,000
- - Lynn Haven FL
Summer=s Landing Vidalia, GA SCI 12/10/93 $ 1,000 -0- $1,000
- - Vidalia
- ---------------
</TABLE>
* The names of the owners are abbreviated as follows: National Assistance
Bureau, Inc. - NAB; Southeastern Collages, Inc. - SCI
8
<PAGE> 1
EX-10.3
NURSING HOME
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (the "Agreement") is made and entered into this
1st day of January 1995, by and between National Assistance Bureau, Inc.,
(hereinafter called "Owner"), and Capitol Care Management Company, Inc.
(hereinafter called "CCMC").
Owner and CCMC agree that CCMC shall manage Marshall C. Voss Care Center,
HIarriman, Tennessee (the "Facility"), owned by Owner, containing 138 licensed
nursing home beds, on the following tens and conditions:
SECTION ONE: MANAGEMENT DUTIES AND OBLIGATIONS
1.01 Management of Facility. During the term of this Agreement, CCMC shall
supervise the management of the Facility including but not limited to staffing,
accounting, billing, collections, setting of rates and charges and general
administration. In connection therewith CCMC (either directly or through
supervision of employees of the Facility) shall:
(a) Hire on behalf of Owner and maintain (to the extent such
personnel are reasonably available in the community in which the Facility is
located) an adequate staff of nurses, technicians, office and other employees,
including an administrator, at wage and salary rates for various job
classifications approved Dom time to time by Owner; and release employees at
CCMC's discretion.
(b) Recommend and institute, subject to approval of Owner,
appropriate employee benefits. Employee benefits may include pension and
profit-sharing plans, insurance benefits, incentive plans for key employees and
vacation policies.
(c) Design and maintain accounting, billing, patient and collection
records; prepare and file insurance, Medicaid and any and all other necessary or
desirable reports and claims related to revenue production.
(d) Order, supervise and conduct a program of regular maintenance
and repair of the Facility except that physical improvements costing more than
$500.00 shall be subject to prior approval of Owner which shall not be
unreasonably withheld.
(e) Purchase supplies, drugs, solutions, equipment, Furniture and
furnishings on behalf of Owner' except that purchases of items of equipment
which cost more than $500.00 shall be subject to prior approval of Owner which
shall not be unreasonably withheld.
(f) Administer and schedule all services of the Facility.
(g) Supervise and provide the operation of food service facilities.
<PAGE> 2
(h) Provide for the orderly payment (to the extent funds of Owner
are available therefore) of accounts payable, employee payroll, taxes and
insurance premiums.
(i) Institute standards and procedures for admitting patients, for
charging patients for services, and for collecting the charges from the patients
or third parties.
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<PAGE> 3
(j) Advise and assist Owner in obtaining and maintaining adequate
insurance coverage with Owner, Manager and such other persons as requested by
Owner named as insured for the Facility. CCMC shall advise Owner with regard to
the availability, nature and desirable policy limits of insurance coverage for
the Facility, and shall request and receive bids for such coverage.
(k) Negotiate on behalf of Owner (and in conjunction with Owner's
counsel) with any labor union lawfully entitled to represent employees of the
Owner who work at the Facility, but any collective bargaining agreement of labor
contact must be submitted to Owner for approval and execution.
(1) Make periodic evaluation of the performance of all departments
of the facility paying particular attention to those departments where there is
an inconsistency between expenditures and budget.
(m) Establish and maintain books of account using accounts and
classifications consistent with those used by CCMC at other facilities owned or
leased by it or its affiliates.
(n) Advise and assist Owner in designing an adequate and appropriate
public and personnel relations program.
1.02 Reports to Owner. CCMC shall prepare and deliver to Owner monthly
financial statements (unaudited) containing a balance sheet and statement of
income in reasonable detail, and such monthly financial statements will be
delivered to Owner within 30 days after the close of each calendar month. CCMC
shall submit to Owner each 12 months a proposed budget for the operation of the
Facility during the succeeding 12-month period, and shall use its best efforts
to operate the Facility in accordance with the provisions of the budget
submitted to and approved by Owner. CCMC shall submit to Owner each week a
vacancy report for the Facility.
1.03 Bank Accounts and Working Capital. CCMC shall deposit all funds
received from the operation of the Facility in an Operating Account in a bank or
banks presently being used by the Facility or such other banks as are designated
from time to time by CCMC. Owner shall provide sufficient working capital for
the operation of the Facility and shall make deposits in the Operating Accounts
of such working capital from time to time upon the request of CCMC. All costs
and expenses incurred in the operation of the Facility shall be paid out of the
Operating Accounts. All checks or other documents withdrawal must be signed by
the Comptroller of CCMC or his designate. Deposits may be made by the
Comptroller of CCMC or his designate.
1.04 Access to Records and Facility. The books and records kept by CCMC
for the Facility shall be maintained at the Facility, although CCMC shall have
the right to maintain copies of such records at its home office for the purpose
of providing services under this Agreement. CCMC shall make available to Owner,
its agents, accountants and attorneys, during normal business hours, all books
and records pertaining to the Facility and CCMC shall promptly respond to any
questions of Owner with respect to such books and records and
3
<PAGE> 4
shall confer with Owner at all reasonable times, upon request, concerning
operation of the Facility. In addition, Owner shall have access to the Facility
at all reasonable hours for the purpose of examining or inspecting the Facility.
1.05 Licenses.
(a) CCMC shall use its best efforts to manage the Facility in a
manner necessary to maintain all necessary licenses, permits, consents, and
approvals from all governmental agencies which have jurisdiction over the
operation of the Facility. CCMC shall not assume the liability for any
employee action, failure to act or negligence prohibiting the intent of this
provision to be met.
(b) Neither Owner nor CCMC shall knowingly take any action which may
(1) cause any governmental authority having jurisdiction over the operation of
the Facility to institute any proceeding for the rescission or revocation of any
necessary license, permit, consent or approval, or (2) adversely affect Owner's
right to accept and obtain payments under Medicare, Medicaid, or any other
public or private medical payment program; however, this Agreement in no way
guarantees or warrants that any or all of the above will not or could not occur.
(c) CCMC shall, with the written approval of Owner, have the right
to contest by appropriate legal proceedings, diligently conducted in good faith,
in the name of the Owner, the validity or application of any law, ordinance,
rule, ruling, regulation, order or requirement of any governmental agency having
jurisdiction over the operation of similar facilities. Owner, after having given
its written approval, shall cooperate with CCMC with regard to the contest, and
Owner shall pay the reasonable attorney's fees incurred win regard to the
contest. Counsel for any such contest shall be mutually selected by CCMC and
Owner. CCMC shall have the right, without the written consent of the Owner, to
process all third-party payment claims for the services of the Facility,
including the full right to contest adjustments and denials by governmental
agencies (or their fiscal intermediaries) as third-party payer.
1.06 Taxes. Any taxes or other governmental obligations properly imposed
on the Facility are the obligations of the Owner, not of CCMC, and shall be paid
out of the operating Accounts of the Facility. With the Owner's written consent,
CCMC may contest the validity or amount of any such tax or imposition on the
Facility in the same manner as described in Section 1.05(c).
1.07 Use of CCMC's Personnel. CCMC shall actively utilize CCMC staff
specialists in such areas as accounting, auditing, budgeting, computer services,
dietary services, housekeeping, industrial engineering, interior design, legal,
nursing, personnel, pharmaceutical, purchasing, systems and procedures, and
third-party payments for services of facilities in the management of the
Facility when considered desirable by CCMC or upon the reasonable request of
Owner.
4
<PAGE> 5
SECTION TWO: TERM AND TERMINATION
2.01 Term. The term of this Agreement shall commence on July 1, 1995 and
shall terminate at Midnight on June 30, 2001, unless an earlier date is mutually
agreed upon during the provision of section 2.02.
This Agreement shall automatically renew for an additional three year term
unless either party shall terminate this Agreement in accordance with Section
2.02.
2.02 Termination. Owner may terminate this Agreement upon giving CCMC
sixty (60) days written notice after the end of the third year of this
Agreement. CCMC may terminate this Agreement at any time by giving the Owner
sixty (60) days written notice.
SECTION THREE: MANAGEMENT FEE
3.01 Fee to CCMC. During each term of this Agreement the Facility shall
pay CCMC a fee equal to Fourteen Thousand dollars ($14,000.00) per month for the
term of this Agreement. During the term of this Agreement, the management fee
shall comply with Revenue Procedure 93-19.
3.02 Timing of Payments to CCMC. Within twenty (20) days after the end of
each month of the term, CCMC shall be paid the fee computed in accordance with
the provisions of Section 3.01. The amount of such fee shall be calculated on
the basis of monthly financial statements regularly prepared by CCMC in
accordance with Section 1.02 hereof.
SECTION FOUR: COVENANTS OF OWNER
4.1 Insurance. Owner shall provide and maintain throughout the Term, the
following insurance with responsible companies naming Owner and CCMC (as its
interest may appear) as insured thereunder in amounts approved by CCMC and
Owner.
(a) public liability insurance and insurance against theft of or
damage to patient's property in the Facility or its Premises;
(d) workman's compensation, employers' liability or similar
insurance as may be required by law;
(c) insurance against loss or damage to the Facility Down fire and
such other risks and casualties now or hereafter embraced by "Extended
Coverage," as well as such other risks and casualties with respect to which
insurance is customarily carried for similar facilities;
(d) business interruption insurance against loss of income due to
the risks insured against under this Section 4.01;
(e) personal injury liability insurance against claims of bodily
injury or death or otherwise arising out of the operations of the Facility
5
<PAGE> 6
such insurance to afford minimum protection of not less than $1,000,000 in
respect to bodily injury or death to any one person;
(f) such other insurance or additional insurance as CCMC and Owner
together shall reasonably deem necessary for protection against claims,
liabilities and losses arising from the operation or ownership of the Facility.
If Owner fails to effect or maintain any such insurance, Owner will
indemnify CCMC against damage, loss or liability resulting from all risks for
which such insurance should have been maintained, and CCMC may, but shall not be
liable for its failure so to do, effect the same as the agent of Owner by taking
our policies in such insurance companies as may be selected by CCMC, running for
a period not to exceed one year.
4.02 Convalescent Services. Owner covenants and agrees that Facility is
and will continue to be a fully licensed nursing home containing the number of
licensed beds set forth on the first page of this Agreement. CCMC and Owner
agree that the services rendered by the Facility will not, during the term
thereof, be changed in any material respect, unless there shall first have been
mutual agreement between CCMC and Owner to such change.
SECTION FIVE: MISCELLANEOUS
5.01 Assignment by CCMC. CCMC shall not assign its rights or obligations
under this Agreement without the consent of Owner.
5.02 Assignment by Owner. Owner shall not assign its rights or obligations
under this Agreement without the notice to CCMC. 5.03 Binding on Successors and
Assigns. The terms, covenants, conditions, provisions and agreements herein
contained shall be binding upon and inure to the benefit of the parties hereto,
their heirs, administrators, executors, successors and assigns, subject to
provisions of Section 5.01 and 5.02 above.
5.04 Negation of Partnership. Joint Venture and Agency. Nothing in this
Agreement contained shall constitute or be construed to be or to create a
partnership, joint venture or lease between Owner and CCMC with respect to the
Facility. The parties intent for the relationship of CCMC to Owner under this
Agreement to be that of an independent contractor, nor that of an agent. Owner
shall not have the power to control the time method or manner of CCMC's
performance hereunder, Owner shall look solely to the results to be achieved by
CCMC, and nothing contained herein shall be construed to create a relationship
of agency between CCMC and Owner.
5.05 Notices. All notices hereunder by either party to the other shall be
in writing. All notices, demands and request shall be deemed given when mailed,
postage prepaid, registered, or certified mail, return receipt requested,
(a) to Owner: Edward E. Lane
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<PAGE> 7
National Assistance Bureau, Inc.
6000 Lake Forrest Drive, Suite 200
Atlanta, GA 30328
(b) to CCMC: Capitol Care Management Company, Inc.
6000 Lake Forrest Drive, Suite 225
Atlanta, GA 30398
or to such other address or to such other person as may be designated by notice
given from time to time during the term by one party to the other.
5.06 Entire Agreement. This Agreement contains the entire agreement
between the parties hereto, and no representations or agreements, oral or
otherwise, between the parties not embodied herein or attached hereto shall be
of any force and effect. Any additions or amendments to this Agreement
subsequent hereto shall be of no force and effect unless in writing and signed
by the party to be bound.
5.07 Governing Law. This Agreement has been executed and delivered in the
State of Georgia, all the teas and provisions hereof and the rights and
obligations of the parties hereto shall be construed and enforced in accordance
with the laws hereof.
5.08 Captions and Headings. The captions and headings throughout this
Agreement are for convenience and reference only, and the words contained
therein shall in no way be held or deemed to define, limit, describe, explain,
modify, amplify or add to the interpretation, construction or meaning of any
provision of or the scope or intent of this Agreement nor in any way affect this
Agreement.
5.09 Disclaimer of Employment of Facility Employees. No person employed by
Owner in operation of the Facility will be an employee of CCMC, and CCMC will
have no liability for payment of wages, payroll taxes and other expenses of
employment, except that CCMC shall have the obligation to exercise reasonable
care in its management of the Facility to properly apply available Facility
funds to the payment of such wages and payroll taxes.
5.10 Impossibility of Performance. Neither party to this Agreement shall
be deemed to be in violation of this Agreement if it is prevented from
performing any of its obligations hereunder for any reason beyond its control,
including without limitation, acts of God or of the public enemy, flood or
storm, strikes or statutory regulation or rule of any federal, state, or local
government, or any agency thereof.
5.11 Non-assumption of Liabilities. CCMC shall not, by entering into and
performing this Agreement, become liable for any of the existing or future
obligations, liabilities or debts of Owner, and CCMC shall not be managing the
Facility assume or become liable for any of the obligations, debts and
liabilities of Owner, and CCMC will in its role as manager of the Facility have
only the obligation to exercise reasonable care in its management and handling
of the funds generated from the operation of the Facility.
7
<PAGE> 8
5.12 Responsibility for Misconduct of Employees and Other Personnel. CCMC
will have no liability whatever for damages suffered on account of the
dishonesty, willful misconduct or negligence of any employee of the Owner
regarding the Facility in connection with damage or loss directly sustained by
it by reason of the dishonesty, willful misconduct and gross negligence of CCMC
employees in the operation of the Facility during the teen of this Agreement.
5.13 Rights Cumulative, No Waiver. No right or remedy herein conferred
upon or reserved to either of the parties hereto is intended to be exclusive of
any other right or remedy, and each and every right and remedy shall be
cumulative and in addition to any other right or remedy given hereunder, or now
or hereafter legally existing upon the occurrence of any event of default
hereunder. The failure of either party hereto to insist at any time upon the
strict observance or performance of any of the provisions of this Agreement or
to exercise any right or remedy as provided in this Agreement shall not impair
any such right or remedy to be construed as a waiver or relinquishment thereof.
Every right and remedy given by this Agreement to the parties hereto may be
exercised from time to time and as often as may be deemed expedient by the
parties hereto, as the case may be.
5.14 Time of Essence. Time is of the essence of this Agreement.
5.15 Invalid or Unenforceable Provisions. If any terms, covenants or
conditions of this Agreement or the application thereIof to any person or
circumstances other than those to which it is held invalid or unenforceable,
shall not be affected thereby and each term, covenant or condition of this
Agreement shall be valid and shall be enforced to the fullest extent permitted
by law.
5.16 Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed an original and all such counterparts together
shall constitute one and the same instrument.
5.17 Authorization of Agreement. CCMC and Owner represent and warrant,
each to the other, thIat this Agreement has been duly authorized by its
respective Board of Directors and, if required by law, shareholders; and that
this Agreement consulates a valid and enforceable obligation of CCMC and Owner
in accordance with its terms.
5.18 Designation. Owner agrees that, during the term of this Agreement,
CCMC shall have the right to designate and make public reference to the Facility
as a Capitol Care ManaIgement Company, Inc., managed facility.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, the
day and year first above written.
CAPITOL CARE MANAGEMENT COMPANY, INC.
By:/s/ Darrell C. Tucker
NATIONAL ASSISTANCE BUREAU, INC.
By: /s/ Edward E. Lane
8
<PAGE> 9
ADDITIONAL NURSING HOME MANAGEMENT AGREEMENTS
The Registrant has additional Nursing Home Management Agreements with
affiliates substantially identical to the foregoing. The material details of
such agreements which differ are as follows:
<TABLE>
<CAPTION>
Owner Date of Termination Monthly
Name of Facility Location (1) Agreement Date Fee
- ---------------- ------------- ----- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Midway H.C.C. Midway, GA GJ(1) 7/1/95 12/31/00 $24,000
New Beginnings Covington, GA CHCS(1) 7/1/95 12/31/00 $28,000
Health & Rehab
Sea Breeze H.C.C. Mobile, AL WHH(1)(2) 7/1/94 7/31/00 $12,000
Parkway H.C.C. Memphis, TN CHCS(1) 4/1/95 3/31/00 3% of Gross
Revenues(3)
- -------------
</TABLE>
(1) The names of the owners are abbreviated a follows: Gordon Jensen Health Care
Associates, Inc. - GJ; Chamber Health care Society, Inc. - CHCS; Winter Haven
Homes, Inc. - WHH.
(2) Owned by Sea Breeze Health Care Center, Inc., a subsidiary of Winter Haven
Homes, Inc.
(3) In addition, the owner paid an initial fee of $100,000.
9
<PAGE> 1
EX-10.4
LEASE AGREEMENT
This lease agreement made and entered into this 5 day of May, 1996, by and
between PHEO MED LIMITED PARTNERSHIP a partnership organized under the laws of
the State of Georgia, hereinafter referred to as LESSOR and LAKE FOREST HEALTH
CARE CENTER, INC., a corporation organized under the laws of the State of
Georgia, hereinafter referred to as LESSEE;
WITNESSETH
That for and in consideration of the mutual promises and benefits hereinafter
stipulated and agreed to, the parties mutually agree and bind themselves as
follows:
SECTION 1. Lease of Property. The Lessor hereby leases unto the Lessee and the
Lessee hereby leases from the Lessor the premises described as follows:
that 60-bed licensed nursing home facility, located in Jacksonville, Florida
commonly known as "Lake Forest Health Care Center" located at 1771 Edgewood
Avenue, Jacksonville, Florida 32208, including all furnishings, equipment and
attachments thereto. It is understood that the leased premises include such
inventories, supplies and other items as are incident to the operation of the
facility in accordance with the requirements of the Department of Human
Resources, and that comparable inventories, supplies and other items will be
returned to the Lessor upon the expiration of this lease.
SECTION 2. Term of Lease. The term of this lease shall commence on June 1, 1996,
and the same shall continue for a period of ten(10) years thereafter,
terminating at midnight on May 31, 2006,or until the same is sooner terminated
according to the provisions hereinafter contained. At the expiration of the
original term of this lease, Lessee shall have the option to renew upon a thirty
(30) day written notice to Lessor prior to the expiration of the original term
of this lease for an additional ten year period through May 31, 2012 at a rate
to be mutually agreeable.
SECTION 3. Lease Payments. The Lessee shall pay to the Lessor as rental the sum
of $25,000.00 on June 1, 1996 and at the 1st of every month thereafter up to and
including May 1, 2006. The monthly Lease payments are due on the first day of
each month beginning June 1, 1996, with the last payment due on May 1, 2006, or
2016, as the case may be.
SECTION 4. Supplies and Inventory. Lessee shall be permitted to utilize the
inventory of consumable items located on the Property at the commencement of the
term, including but not limited to food, beverages, medicines, drugs, linens and
cleaning supplies and other items incident to the operation of the nursing home
(collectively the "Supplies and Inventory") and Lessee shall replenish the
Supplies and Inventory as they are consumed, and a comparable inventory of
supplies shall be returned to the Lessor upon the expiration of this Lease.
<PAGE> 2
SECTION 5. Payables and Receivables. (a) All accounts payables chargeable to the
nursing home prior to the month of June, 1996 shall remain the liability of
Lessor. Lessee shall accumulate such payables as received and forward to Lessor
for payment within 10 days of receipt of same.
(b) Uncollected receivables prior to the month of June, 1996 will be received by
Lessee and immediately forwarded to Lessor.
SECTION 6. Use and Operation. (a) The Lessee agrees to use and operate said
property during the entire term of this lease as a nursing home and shall
operate the same in a business like and professional manner as is generally
acceptable and normal in the operation of a nursing home for the elderly. The
same shall be open for business and in operation continuously each and every day
for the entire term hereof unless otherwise mutually agreed upon in writing by
the parties hereto. Provided, however, that the business office may be closed on
Saturday and Sunday of each week, but such closure shall not prevent admission
or dismissal of residents.
(b) The Lessee agrees that said premises shall at all times be kept and used in
accordance with laws of the State of Florida, and the rules and regulations of
the Florida Agency for Health Care Administration or any successor agency and in
accordance with the ordinances, resolutions, rules, and regulations of all
local, state, and federal governments. The Lessee will permit no waste, damage
or injuries to the premises and at Lessee's own cost and expense will keep all
drainage pipes free and open.
(c) The Lessee shall not make any alterations, additions, or improvements in and
to the leased premises, including the improvements placed thereon by the Lessor,
without the consent of the Lessor in writing first being had and obtained. The
Lessor shall not withhold approval of any alterations, additions, or
improvements required by the Florida Agency for Health Care Administration or
any successor agency thereof for the continued use of the premises as a nursing
home. Lessee will make appropriate alterations, additions, or improvements as
may be required by the Florida Agency for Health Care Administration or any
successor agency. All alterations, additions, or improvements made to the
nursing home, and/or grounds, shall become a part of the leased premises and
shall be and remain the sole property of the Lessor, subject to the terms of
this lease.
(d) All personal property brought upon the leased premises during the term of
this lease shall be at the risk of the Lessee. The Lessor shall not be liable
for any damage, either to persons or to property, sustained by Lessee or others,
caused by any defect in the leased premises or the sidewalks adjoining the same,
now existing or hereafter arising therein, including any improvements placed
thereon by Lessor or any part or appurtenance thereof, nor by reason of the same
becoming out of repair, nor by reason of any bursting or leaking water, gas,
steam or other pipes or from any act of neglect of employees, co-tenants or
other occupants of said building or buildings, if any, or any other persons
whomsoever, in and upon or about the leased premises or sidewalks adjoining the
same, or the occurrence of any accident or event from whatever cause in and
about the leased premises and the improvements
2
<PAGE> 3
thereon and sidewalks or areas adjoining the same. The Lessee agrees to defend
and hold Lessor harmless from any and all lawful claims, demands, liabilities,
or judgements for damages suffered or alleged to be suffered in or about the
leased premises by any person, firm, or corporation, including reasonable costs
incurred by Lessor in investigating and/or defending against the same in the
event the Lessee does not do so.
(e) The Lessee shall keep the leased premises including all improvements therein
free from any liens arising out of any work performed, material furnished or
obligations incurred by Lessee. In the event Lessee becomes insolvent,
voluntarily or involuntarily bankrupt, or if a receiver, assignee, or other
liquidating officer is appointed for the business of Lessee, then Lessor may
cancel this lease at Lessor's option.
(f) All signs or symbols placed in the windows or doors of the premises or upon
any exterior part of the buildings on the leased premises by Lessee, shall be
subject to the approval of Lessor. In the event Lessee shall place signs or
symbols on the exterior of said building or in the windows or doors where they
are visible from the street that are not satisfactory to the Lessor, the Lessor
may immediately demand removal of said signs or symbols, and refusal of Lessee
to comply with such demand within a period of ten (10) days shall constitute a
breach of this lease and entitle Lessor to immediately recover possession of
said premises in the manner provided by law.
(g) The Lessee agrees to immediately forward a copy of all licensure surveys,
cost reports, any disciplinary action, fines or penalties, or default of any bed
tax, or tax or licensed assessed by any government agency. In absence of a
timely agreement with that agency, this shall constitute a default of lease
agreement and Lessor shall have the right to immediately and without further
demand or legal process retake the leased property.
SECTION 7. Insurance Requirements (a) The Lessee agrees to and shall carry
liability insurance including malpractice insurance with limits and liability of
at least one million dollars ($1,000,000) for property damages and personal
injury limits of at least one million ($1,000,000) dollars, and Lessor may
require of the Lessee that said limits be adjusted upward in such amounts as may
be required by law, ordinance, state or federal rules and regulations. In the
event the Lessee fails to obtain the insurance hereinabove mentioned, then, the
Lessor may obtain the same at the expense of and to the charge of the Lessee or
the Lessor may at its option treat such failure as a breach of this lease and
terminate the same and take possession of the premises and fixtures and hold the
Lessee liable for such damages as the Lessor may show itself entitled to as a
result of such breach. The Lessee agrees to and shall hold the Lessor harmless
on account of any or all liability which may result as a result of the use,
occupancy, and operation of the nursing home on the premises. The Lessee agrees
to carry workers compensation insurance on all employees of the Facility.
(b) The Lessee shall furnish and carry at its expense, fire and extended
coverage insurance with Lessor as named insured in the amount of $1,950,000 on
the building, equipment and furnishings in an amount sufficient to replace the
3
<PAGE> 4
entire building, equipment and furnishings in the same condition as before they
were destroyed or damaged with not more than Five Thousand ($5,000) Dollars
deductible and shall insure the Lessor's interest therein and furnish a copy of
the policy to the Lessor. The Lessee shall be liable to the Lessor for any
losses occasioned by the Lessor resulting from the Lessee's failure to provide
and maintain such insurance. Upon the failure of the Lessee to provide such
insurance, the Lessor may at its option terminate the original lease and the
lease as herein amended or may purchase such insurance at the charge and expense
of the Lessee.
(c) Lessee shall furnish, at its expense, use and occupancy insurance in an
amount sufficient to pay Lessor its monthly rental fee for up to not less than
twelve months should Lessee experience the loss of use of any part or all of the
facility caused by the perils covered by fire and extended coverage insurance. A
copy of said policy shall be furnished to Lessor.
SECTION 8. Maintenance. The Lessee assumes responsibility to maintain and repair
the building, including the roof and outside structure, equipment, fixtures and
furnishings in a good state of repair during the entire period of this lease and
shall bear the expense of all the same except those expenses that may be
compensated for by insurance carried by either party hereto. At the expiration
or termination of this lease, the Lessee will return the premises to the Lessor
in as good a condition as that which existed at the commencement of this lease,
except for ordinary and usual wear and tear.
SECTION 9. Property Taxes. The Lessee shall be responsible for any real estate,
personal property, or intangible taxes during the term of this lease. Taxes for
the year 1993 shall be prorated between Lessor and Lessee with each paying for
their respective share.
SECTION 10. Fees and Charges. All fees and charges due and owing to any agency,
firm, city, county, state, or federal government on account of any required
inspection made of the facility or the leased premises by any officer or
employee of such inspection shall be paid by the Lessee.
SECTION 11. Utilities. The Lessee hereby covenants and agrees to pay all charges
for heat, lights, water, telephone and all other utilities which shall be used
in or charged against the leased premises during the entire term of this lease.
SECTION 12. Access to Property. Lessee will allow Lessor or Lessor's agent free
access at all reasonable times to said premises for the purpose of inspecting
the buildings and premises or any allegations made by a governing agency. This
right shall not be construed as an agreement on the part of the Lessor to make
any repairs, all of such repairs to be made by Lessee as aforesaid.
SECTION 13. Damage by Casualty. In the event the nursing home is damaged by
fire, windstorm, or other casualty to the extent of not more than fifty (50%)
percent of the value of the facility, the Lessee shall rebuild, remodel, repair,
and restore said facilities to the condition existing immediately preceding said
fire or casualty within a reasonable time. In the event the
4
<PAGE> 5
premises are destroyed by fire, windstorm, or other casualty in excess of fifty
(50) percent of its value, it shall be optional with the Lessor as to whether it
rebuilds, repairs, or restores the facilities. If the facility is so repaired,
rebuilt, or repaired, then it is agreed that during any period of time within
which the premises may be untenable and after such restoration the term of this
lease herein provided for shall be extended over and above the original term or
any extension thereof by the amount of time necessary to restore the premises.
If the Lessor does not elect to rebuild, repair, or restore the same, then, in
such event this lease shall terminate and be of no force and effect except for
the rights and obligations which shall have accrued prior to the date of such
termination.
SECTION 14. Assignment and Subletting. Lessee shall not let, sublease, or sublet
the whole leased premises, or any part thereof, or assign this lease without the
written consent of Lessor which shall not be unreasonably withheld.
SECTION 15. Waivers. (a) Failure of Lessor to insist upon strict performance of
any of the covenants and agreements of this lease, or to exercise any option
herein conferred in any one or more instances, shall not be construed to be a
waiver or relinquishment of any such or any other covenants or agreements, but
the same shall be and remain in full force and effect.
(b) In the event of any suit or action instituted on account of any default or
to enforce any provisions of this agreement, both Lessor and Lessee agree that
the court may award to the prevailing party such amount as the court may
consider necessary and reasonable as the attorney fees, together with court
costs, and this provision shall also apply in connection with any appeal
thereof.
SECTION 16. Defaults. If the Lessee shall default in payment of any rent,
additional rent, or other sum required by this lease, and Lessee fails to cure
such default for a period of ten (10) days after receipt by Lessee of written
demand by Lessor for payment, Lessee shall immediately return the leased
property back to Lessor. In the event Lessee defaults in the performance of any
other provision of this lease, for a period of thirty (30) days after Lessee's
receipt of written demand by Lessor for performance of such other provision of
this lease (provided, however, that if such non-monetary default may not be
reasonable cured within thirty (30) days after Lessee receives Lessors written
demand therefor, Lessee shall immediately cure said default with due diligence,
unless by mutual written agreement said time is extended), Lessor may cancel
this lease by giving a fifteen (15) day written notice to Lessee, whereupon the
expiration of the said fifteen (15) day notice period, Lessee shall return the
leased property to Lessor. Lessor may immediately reenter property at the end of
fifteen (15) day period without legal process if Lessor has not remitted proper
payment. No further notice to Lessee shall be necessary before reentry by Lessor
or commencement of legal actions.
SECTION 17. Binding Effect. Subject to the provisions hereof pertaining to
assignment and subletting, the covenants and agreements of this lease shall be
5
<PAGE> 6
binding upon the heirs, legal representatives, successors, and assigns of any or
all of the parties hereto.
SECTION 18. Notices. Any notice required to be served in accordance with the
terms of this lease shall be sent by registered mail, to the last known address
of either the Lessor or the Lessee, or their agents or representatives, and such
notice shall be deemed and treated as notice to all of them, their heirs, legal
representatives or assigns. Lessee will forward within fifteen (15) days of
receipt of any State Licensure Inspection a copy of such Licensure inspection as
well as plans of corrections to Lessor.
SECTION 19. Regulatory Approval. This lease is subject to approval and
continued approval of all applicable state and federal regulatory agencies.
SECTION 20. Right of First Refusal to Purchase. Lessee has the first right of
refusal to purchase this facility from Lessor at any time during the period of
this lease provided Lessor receives a bona fide offer for the Facility. Lessee
has thirty days to respond in writing to Lessor of its intentions of exercising
its Right of Refusal to purchase the Facility. In any event if Lessor chooses to
sell this Facility the new purchaser is bound by this Lease.
SECTION 21. Acceptance of the Premises. Lessee has inspected the facility and
the operations thereof, and herewith agree to accept the facility in its current
condition, as is, and subject only to the terms of this Lease Agreement. Lessee
agrees to hold Lessor, its Agents, Officers, and Directors harmless for any acts
or omissions of actions arising out of or in connection with this Lease
Agreement so long as it shall remain in full force and effect.
IN TESTIMONY WHEREOF, the parties hereunto have executed this contract
in duplicate originals as of the day and date first above mentioned.
PHEO MED LIMITED PARTNERSHIP
By: Winter Haven Homes, Inc.
Its General Partner
By: /s/ Edward E. Lane
Its President (Lessor)
[Corporate Seal]
LAKE FOREST HEALTH CARE CENTER, INC.
By: /s/ Chris Brogdon
Its President (Lessee)
[Corporate Seal]
6
<PAGE> 7
ADDITIONAL LEASE AGREEMENTS WITH AFFILIATES
The Registrant has additional Lease Agreements with affiliates
substantially identical to the foregoing. The material details of such
agreements which differ are as follows:
<TABLE>
<CAPTION>
Owner Date of
Name of Facility Location (1) Agreement Lease Lease Payment
- ---------------- ---------- ----- --------- ------- ------------------------
<S> <C> <C> <C> <C> <C>
Summer=s Landing Douglas, GJ 9/1/96 5 years $300,000 on execution of
- - Douglas GA (2) the lease plus debt pay-
ment on existing mort-
gage each month (3)
Magnolia Manor Green Cove RG 2/28/97 10 years 1.1 times payment of
Springs, FL (4) principal and interest
on debt, debt not to ex-
ceed $3,200,000 (initial
monthly payment -
$34,144.30)
Macon Health Macon, GA RG 2/28/97 10 years 1.1 times payment of
Care Center (4) principal and interest
(Hartley Woods on debt, debt not to ex-
H.& R.C.) ceed $2,700,000 (initial
monthly payment -
$30,026.66)
Trenton Health Trenton, RG 1/8/97 10 years 1.1 times payment of
Care Center TN (4) principal and interest
on debt, debt not to ex-
ceed $3,500,000
Twin View Twin City, RG 2/28/97 10 years 1.1 times payment of
Health Care GA (4) principal and interest
Center on debt, debt not to ex-
ceed $2,750,000 (initial
monthly payment -
$29,342.75)
Laurelwood Jackson, RG 4/8/97 10 years 1.1 times payment of
Health Care TN (4) principal and interest
Center on debt, debt not to ex-
ceed $2,300,000
Maplewood Jackson, RG 4/8/97 10 years 1.1 times payment of
Health Care TN (4) principal and interest
Center on debt, debt not to ex-
ceed $6,375,000
Renaissance - Titusville, WHH 9/30/96 10 years $1,500,000 upon execu-
Titusville FL (4) tion of the lease plus
1.1 times payment of
principal and interest
on debt not to exceed
$6,000,000
- --------------
</TABLE>
(1) The names of the owners are abbreviated as follows: Gordon Jensen Health
Care associates, Inc. - GJ, Winter Haven Homes, Inc. - WHH, and Retirement
Group, L.L.C. - RG.
(2) The Registrant may extend up to two additional terms of five years each.
(3) Beginning in year two there will be an additional payment of $500 per month;
in year three $750 per month; in year four $1,000 per month and in year five
$1,250 per month. During any extensions the additional amount will be
$1,250 per month.
(4) The Registrant may extend for one additional term of five years.
7
<PAGE> 1
EXHIBIT 10.39
PROMISSORY NOTE
$5,000,000 July 10, 1997
FOR VALUE RECEIVED, RETIREMENT CARE ASSOCIATES, INC., a Colorado
corporation ("RCA"), RETIREMENT MANAGEMENT CORPORATION, a Georgia corporation
("RMC"), and CAPITOL CARE MANAGEMENT COMPANY, INC., a Georgia corporation
("CCMC") (hereinafter, whether one or more, referred to as "Maker"), does hereby
promise to pay to SUN HEALTHCARE GROUP, INC., a Delaware corporation
(hereinafter referred to as "Payee"), at its principal offices located at 101
Sun Lane, Albuquerque, New Mexico 87109, or at such other address as Payee may
from time to time designate, the principal sum of FIVE MILLION AND NO/100
DOLLARS ($5,000,000.00), together with interest thereon as hereinafter set
forth.
From and after the date hereof, interest shall accrue on the
outstanding principal balance hereof at the rate of twelve percent (12%) per
annum; provided that, during any period of default hereunder which is not cured
within any grace period provided for herein, interest shall accrue at the rate
of sixteen percent (16%) per annum; and provided further that, notwithstanding
any provision hereof, it is not intended by this Note to impose upon Maker any
obligation to pay interest in excess of the maximum rate of interest permitted
by law.
The entire principal balance hereof, together with all accrued and
unpaid interest hereunder, and all other amounts outstanding hereunder, shall be
due and payable in full on or before the close of business on the 120th day
following the termination of the Agreement and Plan or Merger and Reorganization
among Payee, Peach Acquisition Corporation and RCA, dated as of February 17,
1997 (the "Maturity Date").
All payments received hereunder shall be applied first to unpaid
interest and then to the principal balance outstanding hereunder. Maker shall be
entitled to prepay all or any portion of the principal balance hereof prior to
maturity without premium or penalty.
This Note is secured by a lien on the accounts receivable and certain
related assets of Maker, which have been pledged by Maker pursuant to the terms
and conditions of that certain Security Agreement dated as of even date herewith
executed and delivered by RCA to Payee (the "Security Agreement") and by those
certain Security Agreements dated as of even date herewith executed by each of
RMC and CCMC to Payee (the "Additional Security Agreements" and, together with
the Security Agreement, the "Security Agreements"), and by a lien on the
accounts receivable and certain related assets of West Tennessee, Inc., Lake
Forest Healthcare Center, Inc., Statesboro HealthCare, Inc., Lake Health Care
Center, Inc., Roberta Health Care Center, Inc., Gardendale Health Care Center,
Inc., Southside Health Care Center, Inc., Gainesville Health Care
<PAGE> 2
Center, Inc., Charlton City Healthcare, Inc., Jeff Davis Healthcare, Inc.,
Seaside Retirement, Inc., Mid-Florida, Inc., Bibb Health & Rehabilitation, Inc.,
Brent-Lox Hall Nursing Home, Inc., Libbie Rehabilitation Center, Inc., Phoenix
Associates, Inc., Summer's Landing, Inc., Riveria Retirement, Inc., Pine Manor
Healthcare, Inc., Suncoast Retirement, Inc., Atrium of Jacksonville and The
Atrium Nursing Home, Inc. (collectively referred to herein as the "Subsidiary
Guarantors"), which have been pledged by the Subsidiary Guarantors pursuant to
the terms and conditions of that certain Subsidiary Security Agreement dated as
of even date herewith executed and delivered by the Subsidiary Guarantors to
Payee (the "Subsidiary Security Agreement").
The occurrence and continuation of any one of the following events
(each an "Event of Default") shall constitute a default hereunder: (i) Maker
shall fail to make due and punctual payment of all amounts of principal and
interest under this Note on the Maturity Date; (ii) Maker fails to perform any
other covenant or agreement in this Note or the Security Agreements (other than
payment when due of principal and interest under this Note or compliance with
the "Borrowing Base" restriction set forth in clause (iii) below) and Maker
fails to cure such violation within ten (10) days after written notice thereof
from Payee; (iii) the aggregate principal amount outstanding at any time
hereunder shall be in excess of the "Borrowing Base" as reflected in the most
recent "Borrowing Base Certificate" provided to Payee by RCA (such terms being
used herein with the respective meanings ascribed thereto in the Security
Agreement), and Maker fails to cure such violation within twenty (20) days after
written notice thereof from Payee; (iv) any Subsidiary Guarantor fails to
perform any covenant or agreement contained in the Subsidiary Security Agreement
and such Subsidiary Guarantor fails to cure violation within ten (10) days after
written notice thereof from Payee; (v) an "Event of Default" shall occur under
that certain Amended and Restated Promissory Note made by Maker to Payee dated
as of even date herewith; (vi) Maker makes an assignment for the benefit of
creditors, is adjudicated insolvent or bankrupt, a petition for bankruptcy,
reorganization, dissolution, or liquidation is filed by or against Maker under
any arrangement or debt readjustment law or statute of any jurisdiction whether
now or hereafter in effect which remains undismissed for sixty (60) days, or
Maker applies for or permits the appointment of a receiver or trustee for any or
all of its property or any such receiver or trustee shall have been appointed
for any and all property or assets of Maker or Maker by any act indicates
consent to, approval of or acquiescence in any such proceeding; (vii) a change
in control (of a nature that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended) shall have been announced or occurred with
respect to Maker, or a person (other than Payee) shall have announced its
intention to make a tender offer or exchange offer including 15% or more of
Maker's outstanding voting stock; or (viii) the receipt by any of Christopher F.
Brogdon, Edward E. Lane, Darrell C. Tucker, Philip M. Rees, John R. Mack or
Jeffrey Andrews of notice after the date hereof from any creditor that any
account payable in excess of $35,000 is past due and that as a result of such
past due account such creditor has interrupted, suspended or terminated, or
threatened to interrupt, suspend or terminate, the provision of goods or
services to Maker or any of its subsidiaries (other than where Maker has
arranged for an alternate supplier of such goods or services on terms no less
favorable to Maker than those previously available from the terminated supplier
prior to such termination); provided, however, that Maker shall have ten (10)
days from the date of such notice to cure such violation.
2.
<PAGE> 3
If an Event of Default occurs and is continuing, then, at the option of
Payee, the entire principal amount outstanding hereunder, together with any
accrued and unpaid interest thereon, shall, upon written notice from Payee to
Maker, become immediately due and payable. The rights, remedies, powers and
privileges provided for herein are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
Maker shall pay all expenses of Payee in the collection of this Note,
including all reasonable attorneys' fees and expenses.
No waiver by Payee of any default shall be effective unless in writing,
nor shall it operate as a waiver of any other default or of the same default on
a future occasion. No delay or omission by Payee in exercising any of its
rights, remedies, powers and privileges hereunder or at law and no course of
dealing between Payee and Maker or any other person shall be deemed a waiver by
Payee of any of such rights, remedies, powers and privileges even if such delay
or omission is continuous or repeated, nor shall any single or partial exercise
of any right, remedy, power or privilege preclude any other or further exercise
thereof by Payee or the exercise of any other right, remedy, power or privilege
by Payee. Maker waives demand, presentment, protest, notice of protest and
notice of dishonor.
All amendments to this Note, and any waiver or consent of Payee, must
be in writing and signed by Payee and Maker.
Maker hereby waives presentment, demand, notice of dishonor, protests
and all other notices except as specifically provided herein.
This Note shall be governed by, construed and enforced in accordance
with the laws of the State of New York, without regard to the conflicts of laws
principles thereof, other than such laws that direct the application of New York
law.
It is expressly agreed that if, from any circumstances whatsoever,
fulfillment of any provision of this Note at the time performance of such
provision shall be due shall be invalid under presently applicable usury
statutes or any other applicable laws with regard to obligations of like
character and amount, then the obligation to be fulfilled shall be reduced to
the limit of such validity, so that in no event shall any exaction be possible
under this Note that is in excess of the current limit of such validity, but
such obligation shall be fulfilled to the limit of such validity. In no event
shall Maker be bound to pay for the use, forbearance or detention of the money
loaned pursuant hereto interest of more than the current legal limit. The right
to demand any such excess is hereby expressly waived by Payee.
This Note shall be binding upon the successors and assigns of Maker.
Neither Maker nor Payee may assign or transfer this Note to any person or entity
without the written consent of the other party.
3.
<PAGE> 4
All notices and other communications hereunder shall be in writing and
shall be deemed given if (i) delivered by hand, (ii) mailed by registered or
certified mail (return receipt requested) or (iii) telecommunicated and
immediately confirmed both orally and in writing, to the parties at the
following addresses (or at such other addresses for a party as shall be
specified by like notice) and shall be deemed given on the date on which so
hand-delivered or so telecommunicated or on the second business day following
the date on which so mailed, if deposited in a regularly-maintained receptacle
for United States mail:
If to Maker: 6000 Lake Forrest Drive
Suite 200, Atlanta, Georgia 30328
If to Payee: 101 Sun Lane
Albuquerque, New Mexico 87109
IN WITNESS WHEREOF, Maker has caused this Note to be executed, sealed
and delivered as of the date and year first written above.
RETIREMENT CARE ASSOCIATES, INC.
By:
----------------------------------
Its:
------------------------------
RETIREMENT MANAGEMENT
CORPORATION
By:
----------------------------------
Its:
------------------------------
CAPITOL CARE MANAGEMENT
COMPANY, INC.
By:
----------------------------------
Its:
------------------------------
4.
<PAGE> 1
EXHIBIT 10.40
SUBSIDIARY GUARANTY
SUBSIDIARY GUARANTY (this "Subsidiary Guaranty") dated as of
July 10, 1997 made by West Tennessee, Inc., Lake Forest Healthcare Center, Inc.,
Statesboro HealthCare, Inc., Lake Health Care Center, Inc., Roberta Health Care
Center, Inc., Gardendale Health Care Center, Inc., Southside Health Care Center,
Inc., Gainesville Health Care Center, Inc., Charlton City Healthcare, Inc., Jeff
Davis Healthcare, Inc., Seaside Retirement, Inc., Mid-Florida, Inc., Bibb Health
& Rehabilitation, Inc., Brent-Lox Hall Nursing Home, Inc., Libbie Rehabilitation
Center, Inc., Phoenix Associates, Inc., Summer's Landing, Inc., Riveria
Retirement, Inc., Pine Manor Healthcare, Inc., Suncoast Retirement, Inc., Atrium
of Jacksonville and The Atrium Nursing Home, Inc. (each, a "Subsidiary
Guarantor," and collectively, the "Subsidiary Guarantors") in favor of Sun
Healthcare Group, Inc., a Delaware corporation (the "Lender").
PRELIMINARY STATEMENTS:
WHEREAS, the Lender has agreed to make a loan to Retirement
Care Associates, Inc., a Colorado corporation ("RCA"), in the principal amount
of $9,750,000 (the "Original Loan") pursuant to the terms and conditions of that
certain Promissory Note made by RCA (as Maker) to the Lender (as Payee) dated of
January 10, 1997 (the "Original Note");
WHEREAS, RCA and the Lender have agreed to amend and restate
the Original Note pursuant to the terms and conditions of that certain Amended
and Restated Promissory Note made by RCA, Retirement Management Corporation, a
Georgia corporation ("RMC"), and Capitol Care Management Company, Inc., a
Georgia corporation ("CCMC") (hereinafter, whether one or more, referred to as
the "Borrower"), (as Maker) to the Lender (as Payee) dated of even date herewith
(the "Restated Note"); and
WHEREAS, each Subsidiary Guarantor is a direct or indirect
wholly owned subsidiary of RCA, and thus each Subsidiary Guarantor will derive
substantial direct and indirect benefit from the transactions contemplated by
the Restated Note; and
WHEREAS, as a condition to the amendment and restatement of
the Original Note pursuant to the Restated Note, each Subsidiary Guarantor has
agreed to execute and deliver this Subsidiary Guaranty.
NOW, THEREFORE, in consideration of the premises and in order
to induce the Lender to amend and restate the Original Note pursuant to the
Restated Note, each Subsidiary Guarantor hereby agrees as follows:
SECTION 1. Guaranty. Each Subsidiary Guarantor hereby
unconditionally and irrevocably guarantees the punctual payment when due,
whether at stated maturity, by acceleration or otherwise, of all obligations of
the Borrower now or hereafter existing under the
1.
<PAGE> 2
Restated Note, whether for principal, interest, fees, expenses or otherwise
(such obligations being the "Obligations"), and agrees to pay any and all
expenses (including reasonable counsel fees and expenses) incurred by the Lender
in enforcing any rights under this Subsidiary Guaranty. Without limiting the
generality of the foregoing, each Subsidiary Guarantor's liability shall extend
to all amounts which constitute part of the Obligations and would be owed by the
Borrower under the Restated Note but for the fact that they are unenforceable or
not allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving the Borrower.
SECTION 2. Guaranty Absolute. Each Subsidiary Guarantor
guarantees that the Obligations will be paid strictly in accordance with the
terms of the Restated Note, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Lender with respect thereto. The obligations of each Subsidiary
Guarantor under this Subsidiary Guaranty are absolute, unconditional and
independent of the Obligations, and a separate action or actions may be brought
and prosecuted against each Subsidiary Guarantor to enforce this Subsidiary
Guaranty, irrespective of whether any action is brought against the Borrower or
any other Subsidiary Guarantor or whether the Borrower or any other Subsidiary
Guarantor is joined in any such action or actions. The liability of each
Subsidiary Guarantor under this Subsidiary Guaranty shall be absolute and
unconditional irrespective of:
(i) any lack of validity or enforceability of the Restated
Note, that certain Amended and Restated Pledge Agreement dated as of
even date herewith executed by RCA to the Lender (the "Pledge
Agreement"), those certain Pledge Agreements dated as of even date
herewith executed by each of RMC and CCMC to the Lender (collectively,
the "Additional Pledge Agreements"), or that certain Subsidiary Pledge
Agreement dated as of even date herewith executed by each of the
Subsidiary Guarantors to the Lender (the "Subsidiary Pledge Agreement"
and, together with the Restated Pledge Agreement and the Additional
Pledge Agreements, the "Pledge Agreements," which Pledge Agreements,
together with the Restated Note, and any and all modifications,
amendments or substitutions thereto being referred to herein as the
"Loan Documents");
(ii) any change in the time, manner or place of payment of,
or in any other term of, all or any of the Obligations, or any other
amendment or waiver of or any consent to departure from the Restated
Note, the Pledge Agreements or Loan Documents, including, without
limitation, any increase in the Obligations resulting from the
extension of additional credit to the Borrower or any of its affiliates
or otherwise;
(iii) any taking, exchange, release or non-perfection of any
collateral, or any taking, release or amendment or waiver of or consent
to departure from any other guaranty, for all or any of the
Obligations;
2.
<PAGE> 3
(iv) any manner of application of collateral, or proceeds
thereof, to all or any of the Obligations, or any manner of sale or
other disposition of any collateral for all or any of the Obligations
or any other assets of the Borrower or any of its affiliates;
(v) any change, restructuring or termination of the
corporate structure or existence of the Borrower or any of its
affiliates; or
(vi) any other circumstance which might otherwise constitute
a defense available to, or a discharge of, the Borrower or any other
guarantor or Subsidiary Guarantor.
This Subsidiary Guaranty shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the Obligations is rescinded
or must otherwise be returned by the Lender upon the insolvency, bankruptcy or
reorganization of the Borrower or otherwise, all as though such payment had not
been made.
SECTION 3. Waivers. Each Subsidiary Guarantor hereby waives
(and consents in advance to the taking, or the failure to take, any action
specified below), to the fullest extent permitted by applicable law:
(i) any requirement that the Lender secure or insure any
security interest or lien or any property subject thereto or exhaust
any right or take any action against the Borrower or any other person
(including any other guarantor or Subsidiary Guarantor) or any
collateral;
(ii) any defense arising by reason of any claim or defense
based upon an election of remedies by the Lender (including, without
limitation, an election to non-judicially foreclose on any collateral)
which in any manner impairs, reduces, releases or otherwise adversely
affects such Subsidiary Guarantor's subrogation, reimbursement or
contribution rights or other rights to proceed against the Borrower,
any other guarantor or Subsidiary Guarantor or any other person or any
collateral;
(iii) any defense arising by reason of the failure of any
other person (including any Subsidiary Guarantor) to execute this
Subsidiary Guaranty or any other guaranty or agreement;
(iv) any defense arising by reason of the failure of any
person (including any Subsidiary Guarantor) to execute properly any
Loan Document or otherwise comply with applicable legal formalities;
(v) any defense in the context of nonjudicial foreclosure
under any provision of the law of any jurisdiction, and all other
suretyship and other similar defenses such Subsidiary Guarantor would
otherwise have under the laws of any jurisdiction;
3.
<PAGE> 4
(vi) any duty on the part of the Lender to disclose to such
Subsidiary Guarantor any matter, fact or thing relating to the
business, operation or condition of the Borrower or any of its
affiliates and their respective assets now known or hereafter known by
the Lender;
(vii) all benefits of any statute of limitations affecting
such Subsidiary Guarantor's liability under this Subsidiary Guaranty or
affecting the enforcement of this Subsidiary Guaranty or any of the
Obligations or realization on any collateral for the Obligations;
(viii) all setoffs and counterclaims;
(ix) promptness, diligence, presentment, demand for
performance and protest;
(x) notice of non-performance, default, acceleration,
protest or dishonor;
(xi) except for any notice otherwise required by applicable
laws that may not be effectively waived by such Subsidiary Guarantor
(all of which are hereby waived to the fullest extent permitted by
law), notice of sale or other disposition of any collateral for the
Obligations; and
(xii) notice of acceptance of this Subsidiary Guaranty and of
the existence, creation or incurring of new or additional Obligations.
SECTION 4. Waiver of Subrogation. Each Subsidiary Guarantor
hereby irrevocably waives any claim or other rights that such Subsidiary
Guarantor may now or hereafter acquire against the Borrower or any other
guarantor or Subsidiary Guarantor that arise from the existence, payment,
performance or enforcement of such Subsidiary Guarantor's obligations under this
Subsidiary Guaranty or any of the Loan Documents, including, without limitation,
any right of subrogation, reimbursement, exoneration, contribution or
indemnification by or from the Borrower or any other guarantor or Subsidiary
Guarantor and any right to participate in any claim or remedy of the Lender
against the Borrower or any other guarantor or Subsidiary Guarantor or any
collateral for the Obligations, 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 the Borrower or any other
guarantor or Subsidiary Guarantor, 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 right. If any amount shall be paid to such Subsidiary
Guarantor in violation of the preceding sentence at any time prior to the
indefeasible payment in full in cash of the Obligations and all other amounts
payable under this Subsidiary Guaranty, such amount shall be held in trust for
the benefit of the Lender and shall forthwith be paid to the Lender to be
credited and applied to the Obligations and all other amounts payable under this
Subsidiary Guaranty, whether matured or unmatured, or to be held as collateral
for any Obligations or other amounts payable under this Subsidiary Guaranty
thereafter arising. Each Subsidiary Guarantor acknowledges that it will receive
direct and indirect benefits from
4.
<PAGE> 5
the transactions provided for in the Restated Note, and that the waiver set
forth in this Section 4 is knowingly made in contemplation of such benefits.
SECTION 5. Taxes. Each Subsidiary Guarantor agrees to pay any
present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made hereunder or
from the execution, delivery, registration, filing, recording or enforcement of,
or otherwise with respect to, this Subsidiary Guaranty.
SECTION 6. Representations and Warranties. Each Subsidiary
Guarantor hereby represents and warrants as follows:
(i) This Subsidiary Guaranty is executed at the request of
the Borrower and no oral promises, assurances, representations or
warranties have been made by or on behalf of the Lender to induce such
Subsidiary Guarantor to execute and deliver this Subsidiary Guaranty.
(ii) This Subsidiary Guaranty is the legal, valid and binding
obligation of such Subsidiary Guarantor enforceable against such
Subsidiary Guarantor in accordance with its terms, subject to the
effect of any applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors'
rights generally.
(iii) Such Subsidiary Guarantor has established adequate means
of obtaining from the Borrower on a continuing basis information
pertaining to, and is now and on a continuing basis will be completely
familiar with, the financial condition, operations, properties and
prospects of the Borrower.
(iv) Such Subsidiary Guarantor has received and approved
copies of the Restated Note and the Pledge Agreements.
(v) Such Subsidiary Guarantor is, and after the due
execution and delivery of this Subsidiary Guaranty and giving effect to
the transactions contemplated by the Restated Note will be, solvent.
SECTION 7. Amendments, Etc. No amendment or waiver of any
provision of this Subsidiary Guaranty, and no consent to any departure by any
Subsidiary Guarantor herefrom, shall in any event be effective unless the same
shall be in writing and signed by the Lender, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
SECTION 8. Addresses for Notices. All notices, demands and
requests hereunder shall be in writing, shall be delivered personally against
receipt, or sent by recognized overnight courier service, or mailed by
registered or certified mail, return receipt requested, postage prepaid, and if
by telecopy, shall be followed forthwith by letter. Any such notice,
5.
<PAGE> 6
demand, or request shall be deemed given when sent. All notices and other
communications under this Agreement shall be given to the parties hereto at the
following addresses:
If to the Lender:
Sun Healthcare Group, Inc.
101 Sun Lane
Albuquerque, New Mexico 87019
Attn: General Counsel
If to any Subsidiary Guarantor, care of such Subsidiary
Guarantor at:
Retirement Care Associates
6000 Lake Forrest Drive
Suite 200
Atlanta, Georgia 30328
Attn: President
Any party hereto may change the address to which notices shall
be directed under this Section by giving written notice of such change to the
other party.
SECTION 9. No Waiver; Remedies. No failure on the part of the
Lender 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 under the Restated Note.
SECTION 10. Right of Set-off. Upon the occurrence and during
the continuance of any Event of Default (as defined in the Restated Note) the
Lender is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all cash or other property
at any time held and other indebtedness at any time owing by the Lender to or
for the credit or the account of any Subsidiary Guarantor against any and all of
the Obligations, whether or not the Lender shall have made any demand under this
Subsidiary Guaranty. The Lender agrees promptly to notify any such Subsidiary
Guarantor after any such setoff and application made by the Lender; provided,
however, that the failure to give such notice shall not affect the validity of
such setoff and application. The rights of the Lender under this Section 10 are
in addition to other rights and remedies (including, without limitation, other
rights of setoff) which the Lender may have.
SECTION 11. Continuing Guaranty. This Subsidiary Guaranty is a
continuing guaranty and shall (i) remain in full force and effect until the
indefeasible payment in full in cash of the Obligations and all other amounts
payable under the Restated Note, the Pledge Agreements and this Subsidiary
Guaranty, (ii) be binding upon each Subsidiary Guarantor, its
6.
<PAGE> 7
successors and assigns and (iii) inure to the benefit of, and be enforceable by
the Lender and its successors, transferees and assigns.
SECTION 12. Severability. The provisions of this Subsidiary
Guaranty are severable, and if any clause or provision hereof shall be held
invalid or unenforceable in whole or in part in any jurisdiction, then such
invalidity or unenforceability shall affect only such clause or provision, or
part thereof, in such jurisdiction, and shall not in any manner affect such
clause or provision in any other jurisdiction, or any other clause or provision
of this Subsidiary Guaranty in any jurisdiction.
SECTION 13. GOVERNING LAW. THIS SUBSIDIARY GUARANTY SHALL BE
DEEMED TO HAVE BEEN MADE IN THE STATE OF NEW YORK AND SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF SUCH STATE, EXCEPT THAT NO DOCTRINE
OF CHOICE OF LAW SHALL BE USED TO APPLY THE LAWS OF ANY OTHER STATE OR
JURISDICTION. EACH SUBSIDIARY GUARANTOR AGREES THAT, IN ADDITION TO ANY OTHER
COURTS THAT MAY HAVE JURISDICTION UNDER APPLICABLE LAWS OR RULES, ANY ACTION OR
PROCEEDING TO ENFORCE OR ARISING OUT OF THIS SUBSIDIARY GUARANTY OR ANY LOAN
DOCUMENT MAY BE COMMENCED IN ANY STATE OR FEDERAL COURT SITTING IN NEW YORK, NEW
YORK, AND EACH SUBSIDIARY GUARANTOR CONSENTS AND SUBMITS IN ADVANCE TO SUCH
JURISDICTION AND AGREES THAT VENUE WILL BE PROPER IN SUCH COURTS OR ANY SUCH
MATTER. SHOULD ANY SUBSIDIARY GUARANTOR FAIL TO APPEAR OR ANSWER ANY SUMMONS,
COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THIRTY (30) DAYS AFTER THE MAILING
OR OTHER SERVICE THEREOF, SUCH SUBSIDIARY GUARANTOR SHALL BE DEEMED IN DEFAULT
AND AN ORDER OR JUDGMENT MAY BE ENTERED AGAINST SUCH SUBSIDIARY GUARANTOR AS
DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE CHOICE
OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE
ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM, OR THE TAKING OF ANY ACTION
UNDER THIS SUBSIDIARY GUARANTY OR THE ANY LOAN DOCUMENT TO ENFORCE THE SAME, IN
ANY APPROPRIATE JURISDICTION.
SECTION 14. WAIVER OF JURY TRIAL. EACH SUBSIDIARY GUARANTOR
HEREBY WAIVES TRIAL BY JURY, RIGHTS OF SETOFF, AND ANY RIGHT TO PUNITIVE DAMAGES
OR CONSEQUENTIAL, SPECIAL OR INCIDENTAL DAMAGES IN ANY LITIGATION IN ANY COURT
WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS SUBSIDIARY GUARANTY,
ANY LOAN DOCUMENT, THE OBLIGATIONS OF SUCH SUBSIDIARY GUARANTOR OR ANY
COLLATERAL FOR SUCH OBLIGATIONS, OR ANY INSTRUMENT OR DOCUMENT DELIVERED
PURSUANT HERETO OR THERETO, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING,
BETWEEN SUCH SUBSIDIARY
7.
<PAGE> 8
GUARANTOR AND THE LENDER. SUCH SUBSIDIARY GUARANTOR CONFIRMS THAT THE FOREGOING
WAIVERS ARE INFORMED AND FREELY MADE.
SECTION 15. Each Subsidiary Guarantor acknowledges and agrees
that this Subsidiary Guaranty and the other Loan Documents shall be treated as
"Proprietary Information" under the Confidentiality Agreement, dated December
23, 1996, between Lender and RCA, and each Subsidiary Guarantor agrees to so
treat this Subsidiary Guaranty and the Loan Documents to be bound thereby.
IN WITNESS WHEREOF, the Subsidiary Guarantors have duly
executed and delivered this Subsidiary Guaranty as of the date first above
written.
-----------------------------------
West Tennessee, Inc.
-----------------------------------
Lake Forest Healthcare Center, Inc.
-----------------------------------
Statesboro HealthCare, Inc.
-----------------------------------
Lake Health Care Center, Inc.
-----------------------------------
Roberta Health Care Center, Inc.
8.
<PAGE> 9
-----------------------------------
Gardendale Health Care Center, Inc.
-----------------------------------
Southside Health Care Center, Inc.
-----------------------------------
Gainesville Health Care Center,
Inc.
-----------------------------------
Charlton City Healthcare, Inc.
-----------------------------------
Jeff Davis Healthcare, Inc.
-----------------------------------
Seaside Retirement, Inc.
-----------------------------------
Mid-Florida, Inc.
-----------------------------------
Bibb Health & Rehabilitation, Inc.
-----------------------------------
Brent-Lox Hall Nursing Home, Inc.
-----------------------------------
Libbie Rehabilitation Center, Inc.
-----------------------------------
Phoenix Associates, Inc.
9.
<PAGE> 10
-----------------------------------
Summer's Landing, Inc.
-----------------------------------
Riveria Retirement, Inc.
-----------------------------------
Pine Manor Healthcare, Inc.
-----------------------------------
Suncoast Retirement, Inc.
-----------------------------------
Atrium of Jacksonville
-----------------------------------
The Atrium Nursing Home, Inc.
10.
<PAGE> 1
EXHIBIT 10.41
SUBSIDIARY PLEDGE AGREEMENT
THIS SUBSIDIARY PLEDGE AGREEMENT (this "Agreement") is made as
of this ____ day of July 1997 (the "Effective Date"), by each of West Tennessee,
Inc., Lake Forest Healthcare Center, Inc., Statesboro HealthCare, Inc., Lake
Health Care Center, Inc., Roberta Health Care Center, Inc., Gardendale Health
Care Center, Inc., Southside Health Care Center, Inc., Gainesville Health Care
Center, Inc., Charlton City Healthcare, Inc., Jeff Davis Healthcare, Inc.,
Seaside Retirement, Inc., Mid-Florida, Inc., Bibb Health & Rehabilitation, Inc.,
Brent-Lox Hall Nursing Home, Inc., Libbie Rehabilitation Center, Inc., Phoenix
Associates, Inc., Summer's Landing, Inc., Riveria Retirement, Inc., Pine Manor
Healthcare, Inc., Suncoast Retirement, Inc., Atrium of Jacksonville and The
Atrium Nursing Home, Inc. (each, a "Pledgor," and collectively, the "Pledgors"),
in favor of SUN HEALTHCARE GROUP, INC., a Delaware corporation (the "Lender"),
witnesseth:
RECITALS
WHEREAS, the Lender has agreed to make a loan to Retirement
Care Associates, Inc., a Colorado corporation ("RCA") in the principal amount of
$9,750,000.00 (the "Original Loan") pursuant to the terms and conditions of that
certain Promissory Note made by RCA (as Maker) to the Lender (as Payee) dated as
of January 10, 1997 (the "Original Note");
WHEREAS, RCA and the Lender have agreed to amend and restate
the Original Note pursuant to the terms and conditions of that certain Amended
and Restated Promissory Note made by RCA, Retirement Management Corporation, a
Georgia corporation ("RMC"), and Capitol Care Management Company, Inc., a
Georgia corporation ("CCMC") (as Maker) to the Lender (as Payee) dated of even
date herewith (the "Restated Note" and, together with the Original Note,
collectively the "Note");
WHEREAS, each Pledgor acknowledges that it is a direct or
indirect wholly owned subsidiary of RCA and will derive substantial direct and
indirect benefit from the transactions contemplated by the Restated Note;
WHEREAS, as a condition to the amendment and restatement of
the Original Note pursuant to the Restated Note, each Pledgor has agreed to
execute and deliver a Subsidiary Guaranty, dated as of even date herewith (the
"Subsidiary Guaranty") to the Lender; and
WHEREAS, in connection with the transactions contemplated by
the Restated Note and the Subsidiary Guaranty, each Pledgor has agreed to enter
into this Agreement as security for the payment and performance of such
Pledgor's obligations hereunder and under the Subsidiary Guaranty.
1.
<PAGE> 2
NOW, THEREFORE, in order to secure the prompt payment of all
past, present, and future indebtedness, liabilities, and obligations of each
Pledgor to the Lender of any nature whatsoever in connection with the Subsidiary
Guaranty, together with all obligations of each Pledgor to the Lender hereunder,
however and wherever created, arising, or evidenced, whether direct or indirect,
absolute, contingent, or otherwise, now or hereafter existing or due or to
become due (collectively, the "Pledgors' Liabilities"), and the performance by
each Pledgor of all the terms, conditions, and provisions of this Agreement and
of any other loan document previously, simultaneously or hereafter executed and
delivered by the Pledgors and/or any other person, singly or jointly with
another person or persons, evidencing, securing, guarantying, or in connection
with any of the Pledgors' Liabilities, including the Subsidiary Guaranty
(collectively, the "Loan Documents"), each Pledgor agrees with the Lender as
follows:
1. Collateral. To secure the payment and performance of
the Pledgors' Liabilities and each Pledgor's performance of its obligations
under the Loan Documents, and subject to Section 20 hereof, each Pledgor hereby
grants to the Lender a security interest in, and security title to, all of the
following (being referred to collectively herein as the "Collateral"): (i) such
Pledgor's present or future accounts, accounts receivable, other receivables,
contract rights, issues, profits, rents, chattel paper, instruments and
documents, together with all of the proceeds, cash or non-cash, thereof, however
acquired, or now or hereafter existing, including, without limitation, all
reimbursable costs or payments from Medicaid and Medicare, or other state or
federal governmental agencies, amounts due from clients and third party
providers, rights to management fees, and amounts due to such Pledgor from
advances to any of its managed or affiliated companies, (ii) all revenues
payable to and rights to distributions of such Pledgor from agreements or
contracts with residents of facilities owned, leased or managed by such Pledgor
and all rights to deposits from such residents and insurance benefits due to
such Pledgor with respect to such residents (excluding any escrow accounts
maintained on behalf of such residents), and (iii) all proceeds of the foregoing
(collectively, the "Accounts").
The term "Collateral" as used herein means each and all of the items of
Collateral described above, and the term "proceeds" as used herein includes,
without limitation, the proceeds of all insurance policies covering all or any
part of such items of Collateral.
2. Title to Collateral. Subject to Section 20 hereof,
the Pledgors jointly and severally warrant and represent that (i) they are the
lawful owner of the Collateral, and have the full right, power, and authority to
convey, transfer, and grant the security title and security interest in the
Collateral granted herein to the Lender; (ii) all licenses relating to the
Collateral are fully paid and freely assignable to Lender, and, upon the
occurrence of an Event of Default (as defined herein) and foreclosure by the
Lender, the Lender shall have all rights of the applicable Pledgor to any
Collateral licensed to such Pledgor or licensed by such Pledgor; (iii) the
Collateral is not, and so long as this Agreement is in effect will not be,
subject to any liens, claims, security interests, encumbrances, taxes, or
assessments, however described or denominated, except for liens, claims,
security interests and encumbrances in
2.
<PAGE> 3
favor of the Lender and except as set forth on Exhibit "A" hereto; (iv) no
financing statement, mortgage, notice of lien, deed of trust, deed to secure
debt, security agreement, or any other agreement or instrument creating an
encumbrance, lien, charge against any of the Collateral is in existence or on
file in any public office, other than financing statements (or other appropriate
security documentation) filed on behalf of the Lender or disclosed on Exhibit
"A" hereto; and (v) all information with respect to the Collateral and the
Pledgors' Liabilities, or any of them, set forth in any written schedule,
certificate, or other document at any time heretofore or hereafter furnished by
RCA or any Pledgor to the Lender, including any Borrowing Base Certificate
referred to in Section 3 of that certain Amended and Restated Pledge Agreement
dated as of even date herewith executed by RCA to the Lender (the "RCA Restated
Pledge Agreement"), and all other written information heretofore or hereafter
furnished by each Pledgor to the Lender, is and will be true and correct in all
material respects as of the date furnished.
3. Further Assurances. Each Pledgor will defend its
title to the Collateral against all persons and will, upon request of the
Lender, (a) furnish such further assurances of title as may be required by the
Lender, (b) deliver and execute or cause to be delivered and executed, in form
and content satisfactory to the Lender, any financing statements, notices,
certificates of title, and other documents and pay the cost of filing or
recording the same in all public offices deemed necessary by the Lender, as well
as any recordation, documentary, or transfer tax required by law to be paid in
connection with such filing or recording, and (c) do such other acts as the
Lender may request in order to perfect, preserve, maintain, or continue the
perfection of the Lender's security interest in the Collateral and/or its
priority.
4. Accounts, etc. Until such time as the Lender shall
notify any Pledgor in writing of the revocation of such power and authority,
such Pledgor, as agent for the Lender, will, at its own expense, diligently
collect, as and when due, all amounts owing under the Accounts, including the
taking of such action with respect to such collection as the Lender may request
from time to time, and to hold in trust and segregate for the Lender all funds
received from the Accounts; provided, however, that until an Event of Default
shall occur or would occur but for the passage of time, or giving of notice, or
both (such event being a "default"), such Pledgor may use or consume in the
ordinary course of its business any such collections on the Accounts in any
lawful manner not inconsistent with this Agreement and the other Loan Documents.
The Lender, however, may after an Event of Default shall occur or during the
continuance of a default and upon notice to any Pledgor revoke such power and
authority and in any event shall have the authority and right to notify any
parties obligated on any of the Accounts to make payment to the Lender of any
amounts due or to become due thereunder, and enforce collection of performance
under any of the Accounts by suit or otherwise, and surrender, release, or
exchange all or any part thereof, or compromise or extend or renew for any
period (whether or not longer than the original period) any indebtedness
thereunder or evidenced thereby. After an Event of Default, each Pledgor will,
at its own expense, notify any parties obligated on any of the Accounts to make
payments to the Lender and will hold in trust and immediately forward to the
Lender all payments
3.
<PAGE> 4
received by the Pledgor in the form received, with all necessary endorsements
thereon for collection by the Lender.
5. Transfer and Other Liens. The Pledgors will not sell,
lease, transfer, exchange, or otherwise dispose of the Collateral, or any part
hereof, without the prior written consent of the Lender and will not permit any
lien, security interest, or other encumbrance to attach to the Collateral, or
any part thereof, other than those in favor of the Lender or those permitted by
the Lender in writing, except that each Pledgor may, in the ordinary course of
its business and in the absence of an Event of Default hereunder or notice by
the Lender to such Pledgor under this Agreement, collect its Accounts.
6. Financial Statements, Books, and Records. Each
Pledgor will (a) at all times maintain, in accordance with generally accepted
accounting principles consistently applied, accurate and complete books and
records pertaining to the operation, business affairs, and financial condition
of such Pledgor and pertaining to the Collateral and any contracts and
collections relating to the Collateral, (b) furnish to the Lender promptly upon
request, certified by an officer of such Pledgor and in the form and content and
at the intervals specified by the Lender, such financial statements, reports,
schedules, and other information with respect to the operation, business
affairs, and financial condition of such Pledgor as the Lender may from time to
time require, (c) at all reasonable times, and without hindrance or delay,
permit the Lender or any person designated by the Lender to enter any place of
business of such Pledgor or any other premises where any books, records, and
other data concerning such Pledgor and/or the Collateral may be kept and to
examine, audit, inspect, and make extracts from and photocopies of any such
books, records, and other data, (d) furnish to the Lender promptly upon request,
certified by an officer of such Pledgor and in the form and content specified by
the Lender, lists of purchasers of inventory, aging of accounts, aggregate cost
or wholesale market value of inventory, schedules of equipment, and other data
concerning the Collateral as the Lender may from time to time specify, and (e)
mark its books and records in a manner satisfactory to the Lender so that the
Lender's rights in and to the Collateral will be shown.
7. Names of Pledgors, Places of Business, and Location
of Collateral. Each Pledgor represents and warrants that its correct legal name
is as specified on the signature lines of this Agreement, and each legal or
trade name of such Pledgor for the previous five (5) years (if different from
such Pledgor's current legal name) is as specified below the signature lines of
this Agreement. Without the prior written consent of the Lender, no Pledgor will
change its name, dissolve, merge, or consolidate with any other person. Each
Pledgor warrants that the address of such Pledgor's chief executive office and
the address of each other place of business of such Pledgor are as specified
below the signature lines of this Agreement. The Collateral and all books and
records pertaining to the Collateral have been, are, and will be located at the
applicable Pledgor's chief executive office specified below or at any other
place of business which may be specified below the signature lines of this
Agreement. Without the prior written consent of the Lender, no Pledgor will open
any new place of business or change the location of any Collateral to any place
not specified below. Each Pledgor will immediately advise the Lender in writing
of the opening of any new place
4.
<PAGE> 5
of business and of any change in the location of the places where the Collateral
or any part thereof, or the books and records concerning the Collateral or any
part thereof, are kept.
8. Care of Collateral. Each Pledgor will maintain the
Collateral in first-class condition and will not do or permit anything to be
done to the Collateral that may impair its value. The Lender shall have no duty
to, and each Pledgor hereby releases the Lender from all claims for loss or
damage caused by the failure to, collect or enforce any Account or to preserve
rights against prior parties to the Collateral.
9. Taxes. Each Pledgor will pay as and when due and
payable all taxes, levies, license fees, assessments, and other impositions
levied on the Collateral or any part thereof or for its use and operation.
10. Specific Assignments. Promptly upon request by the
Lender, each Pledgor will execute and deliver to the Lender written assignments,
endorsements, and/or schedules, in form and content satisfactory to the Lender,
of specific Accounts or groups of Accounts, but the security interest of the
Lender hereunder shall not be limited in any way by such assignments.
11. Government Contracts. If any Account arises out of a
contract or contracts with the United States of America or any department,
agency, or instrumentality thereof, each Pledgor shall immediately notify the
Lender thereof in writing and execute any instruments or take any steps required
by the Lender in order that all moneys due or to become due under such contract
or contracts shall be assigned to the Lender and notice thereof given under the
Federal Assignment of Claims Act or other applicable law.
12. Collateral Account.
(a) Subject to the exercise by Fidelity of its
rights and remedies under the Fidelity Agreement referred to in Section 20
hereof, each Pledgor will, upon the request of the Lender at any time and from
time to time both prior to and after the occurrence of an Event of Default
hereunder, deposit or cause to be deposited to a bank account designated by the
Lender and from which the Lender alone has power of access and withdrawal
(collectively, the "Collateral Account") all checks, drafts, cash, and other
remittances in payment or on account of payment of the Accounts, and the cash
proceeds of any returned goods, the sale or lease of which gave rise to an
Account and, when permitted by the paying companies (including without
limitation, Medicaid and Mutual of Omaha Medicare payment [EDS-Title XVIII]) all
such payments therefrom (all of the foregoing herein collectively referred to as
"Items of Payment"). Each Pledgor shall deposit the Items of Payment for credit
to the Collateral Account within two (2) business days of the receipt thereof,
and in precisely the form received, except for the endorsement of such Pledgor
where necessary to permit the collection of the Items of Payment, which
endorsement such Pledgor hereby agrees to make. Pending such deposit, no Pledgor
will commingle any of the Items of Payment with any of its other funds or
property but will hold them separate and apart. The
5.
<PAGE> 6
Lender may at any time and from time to time apply the whole or any part of the
collected funds credited to the Collateral Account against the Pledgors'
Liabilities.
(b) So long as Lender, in its discretion, so
desires, each Pledgor shall establish and maintain a blocked account in Lender's
name with a bank satisfactory to Lender (the "Collecting Bank") to which such
Pledgor will immediately deposit all payments from account debtors in the
identical form in which such payment was made, whether by cash or check.
(c) The Collecting Bank shall acknowledge and
agree, in a manner satisfactory to Lender, that all payments made to such
blocked account are the sole and exclusive property of the Lender, that the
Collecting Bank has no right of set off against such blocked account, and that
the Collecting Bank will wire or otherwise transfer in immediately available
funds, in a manner satisfactory to Lender, funds deposited in such blocked
account to Lender on a daily basis as soon as such funds are collected. Each
Pledgor hereby agrees that all payments made to such blocked account or
otherwise received by Lender, whether on Accounts or as proceeds of the
Collateral or otherwise, will be the sole and exclusive property of Lender and
will be applied on account of the Obligations. With respect to any payment
relating to or proceeds of any Accounts or the Collateral which come into its
possession or under its control, each Pledgor and any affiliates, subsidiaries,
shareholders, directors, officers, employees, agents or persons acting for or in
concert with such Pledgor shall receive any such item, as trustee for Lender, as
sole and exclusive property of Lender, and immediately upon receipt thereof,
such Pledgor shall remit the same or cause the same to be remitted in kind, to
Lender, at Lender's address set forth herein. Each Pledgor agrees to pay to
Lender any and all fees, costs, expenses which Lender incurs in connection with
obtaining and maintaining the blocked account and depositing for collection by
Lender any check or item of payment received or delivered to the Collecting Bank
or the Lender, and each Pledgor further agrees to reimburse, indemnify and hold
harmless Lender from any claims asserted by the Collecting Bank in connection
with the blocked account or any returned or uncollected checks received by the
Collecting Bank as proceeds of the Collateral.
13. Rights of Lender and Duties of Pledgors. The Lender
may at any time and from time to time both prior to and after the occurrence of
an Event of Default hereunder (a) notify the account debtors obligated on any of
the Collateral to make payments thereon directly to the Lender, and to take
control of the cash and noncash proceeds of any such Collateral; (b) charge to
the applicable Pledgor any Item of Payment credited to the Collateral Account
which is dishonored by the drawee or maker thereof; (c) compromise, extend, or
renew any of the Collateral or deal with the same as it may deem advisable; (d)
release, make exchanges or substitutions for, or surrender all or any part of
the Collateral; (e) remove from each Pledgor's place of business all books,
records, ledger sheets, correspondence, invoices, and documents relating to or
evidencing any of the Collateral or, without cost or expense to the Lender, make
such use of each Pledgor's place(s) of business as may be reasonably necessary
to administer, control, and collect the Collateral; (f) repair, alter, or supply
goods, if any, necessary to fulfill in whole or in part the purchase order of
any account debtor; (g)
6.
<PAGE> 7
demand, collect, receipt for, and give renewals, extensions, discharges, and
releases of any of the Collateral; (h) institute and prosecute legal and
equitable proceedings to enforce collection of, or realize upon, any of the
Collateral; (i) settle, renew, extend, compromise, compound, exchange, or adjust
claims with respect to any of the Collateral or any legal proceedings brought
with respect thereto; (j) endorse the name of the applicable Pledgor upon any
Items of Payment relating to the Collateral or upon any proof of claim in
bankruptcy against an account debtor; and (k) receive and open all mail
addressed to each Pledgor and, if an Event of Default exists hereunder, notify
postal authorities to change the address for the delivery of mail to each
Pledgor to such address as the Lender may designate; and for purposes of taking
the actions described in Subsections (a) through (k) each Pledgor hereby
irrevocably appoints the Lender as its attorney-in-fact (which appointment being
coupled with an interest is irrevocable while any of Pledgors' Liabilities
remain unpaid), with power of substitution, in the name of the Lender or in the
name of such Pledgor or otherwise, for the use and benefit of the Lender, but at
the cost and expense of such Pledgor and without notice to such Pledgor. Each
Pledgor will (a) make no material change to the terms of any Account without the
prior written permission of the Lender; (b) on demand, make available in form
acceptable to the Lender shipping documents and delivery receipts evidencing the
shipment of goods which gave rise to an Account, completion certificate, or
other proof of the satisfactory performance of services which gave rise to an
Account, copies of the invoices arising out of an Account, and such Pledgor's
copy of any written contract or order from which an Account arose; and (c) when
requested, regularly advise the Lender whenever an account debtor returns or
refuses to retain any goods, the sale or lease of which gave rise to an Account,
and will comply with any instructions which the Lender may give regarding the
sale or other disposition of such returns.
14. Performance by Lender. If any Pledgor fails to
perform, observe, or comply with any of the conditions, terms, or covenants
contained in this Agreement, the Lender, without notice to or demand upon such
Pledgor and without waiving or releasing any of the Pledgors' Liabilities or any
Event of Default, may (but shall be under no obligation to) at any time
thereafter perform such conditions, terms, or covenants for the account and at
the expense of such Pledgor, and may enter upon any place of business or other
premises of such Pledgor for that purpose and take all such action thereon as
the Lender may consider necessary or appropriate for such purpose. All sums paid
or advanced by the Lender in connection with the foregoing and all costs and
expenses (including, without limitation, reasonable attorneys' fees actually
incurred and expenses) incurred in connection therewith (collectively, the
"Expense Payments") together with interest thereon at the post-default rate of
interest provided for in the Restated Note (but in no event higher than the
maximum interest rate permitted by applicable law), from the date of payment
until repaid in full, shall be paid by such Pledgor to the Lender on demand and
shall constitute and become a part of the Pledgors' Liabilities secured hereby.
15. Default. The occurrence of any one or more of the
following events shall constitute an event of default (an "Event of Default")
under this Agreement: (a) failure of any Pledgor to pay any of the Pledgors'
Liabilities as and when due and payable, after
7.
<PAGE> 8
giving effect to any applicable grace period; (b) failure of any Pledgor to
perform, observe, or comply with any of the provisions of this Agreement or of
any of the other Loan Documents, after giving effect to any applicable grace
period; (c) the occurrence of an Event of Default (as defined therein) under the
Restated Note or any of the other Loan Documents; (d) any information contained
in any financial statement, application, schedule, report, or any other document
given by any Pledgor or by any other person in connection with the Pledgors'
Liabilities, with the Collateral, or with the Restated Note or any of the Loan
Documents, including any Borrowing Base Certificate referred to in Section 3 of
the RCA Restated Pledge Agreement, is not in all respects true and accurate or
any Pledgor or such other person omitted to state any material fact or any fact
necessary to make such information not misleading; (e) any Pledgor is generally
not paying debts as such debts become due; (f) the filing of any petition for
relief under any provision of the Federal Bankruptcy Code or any similar state
law is brought by or against any Pledgor; (g) an application for the appointment
of a receiver for, the making of a general assignment for the benefit of
creditors by or the insolvency of, any Pledgor; (h) the dissolution, merger,
consolidation, or reorganization of any Pledgor; (i) suspension of the operation
of any Pledgor's present business; (j) transfer of a substantial part
(determined by market value) of any Pledgor's property; (k) sale, transfer, or
exchange, either directly or indirectly, of a controlling stock interest of any
Pledgor; (l) termination or withdrawal of any guaranty for the Pledgors'
Liabilities or the Restated Note; (m) the Pension Benefit Guaranty Corporation
commences proceedings under Section 4042 of the Employee Retirement Income
Security Act of 1974 ("ERISA"), as amended, to terminate any employee pension
benefit plan of any Pledgor; (n) the determination in good faith by the Lender
that a material adverse change has occurred in the financial condition of any
Pledgor from the condition set forth in the most recent financial statement of
such Pledgor heretofore furnished to the Lender, or from the financial condition
of such Pledgor as heretofore most recently disclosed to the Lender in any other
manner; (o) the determination in good faith by the Lender that the prospect of
payment of any of the Pledgors' Liabilities is impaired for any reason; or (p)
the occurrence of an "Event of Default" under the Fidelity Agreement referred to
in Section 20 hereof.
16. Rights and Remedies upon Default.
(a) Upon and after an Event of Default, Lender
shall have, subject to Section 20 hereof, the following rights and remedies:
(i) In addition to any other rights and
remedies contained in this Agreement and in all the other Loan Documents and the
Restated Note, all the rights and remedies of a secured party under the Uniform
Commercial Code of the State of New York or other applicable laws, all of which
rights and remedies shall be cumulative and non-exclusive, to the extent
permitted by law;
(ii) The right to open each Pledgor's
mail and to collect any and all amounts due each Pledgor from account debtors;
and
8.
<PAGE> 9
(iii) The right to: (A) demand payment of the
Accounts; (B) enforce payment of the Accounts by legal proceedings or otherwise;
(C) exercise all of each Pledgor's rights and remedies with respect to the
collection of the Accounts; (D) settle, adjust, compromise, extend or renew the
Accounts; (E) settle, adjust or compromise any legal proceedings brought to
collect the Accounts; (F) to the extent permitted by applicable law, sell or
assign the Accounts upon such terms, for such amounts and at such time or times
as Lender deems advisable; (G) discharge and release the Accounts; (H) take
control, in any manner, of any item of payment or proceeds from any account
debtor; (I) prepare, file, and sign any Pledgor's name on any proof of claim in
bankruptcy or similar document against any account debtor; (J) prepare, file,
and sign any Pledgor's name on any notice of lien, assignment or satisfaction of
lien or similar document in connection with the Accounts; (K) do all acts and
things necessary, in Lender's sole discretion, to fulfill each Pledgor's
obligations under the Loan Documents; (L) endorse the name of each Pledgor upon
any chattel paper, document, instrument, invoice, freight bill, bill of lading
or similar document or agreement relating to the Accounts; (M) use each
Pledgor's stationery and sign each Pledgor's name to verifications of the
Accounts and notices thereof to account debtors; and (N) use the information
recorded on or contained in any data processing equipment or computer hardware
or software relating to the Accounts or proceeds thereof to which each Pledgor
has access.
(b) Upon and after an Event of Default, Lender
shall have, subject to Section 20 hereof, the right to: (i) sell or otherwise
dispose of all or any Collateral in its then condition, or after any further
manufacturing or processing thereof, at public or private sale or sales, with
such notice as may be required by law, in lots or in bulk, for cash or on
credit, all as Lender, in its sole discretion, may deem advisable; (ii) adjourn
such sales from time to time with or without notice; and (iii) to conduct such
sales on each Pledgor's premises or elsewhere and use each Pledgor's premises
without charge for such sales for such time or times as Lender may see fit.
Lender is hereby granted a license or other right to use, without charge, each
Pledgor's labels, patents, copyrights, rights of use of any name, trade secrets,
trade names, trademarks and advertising matter, or any property of a similar
nature, as it pertains to the Collateral, in advertising for sale and selling
any Collateral. Each Pledgor's rights under all licenses and all franchise
agreements shall inure to Lender's benefit. Lender shall have the right to sell,
lease or otherwise dispose of any Collateral, or any part thereof, for cash,
credit or any combination thereof, and Lender may purchase all or any part of
the Collateral at public or, to the extent permitted by law, private sale and,
in lieu of actual payment of such purchase price, may set off the amount of such
price against each Pledgor's obligations to Lender. The proceeds realized from
the sale of any Collateral shall be applied first to the reasonable costs,
expenses and attorneys' fees and expenses incurred by Lender for collection and
for acquisition, completion, protection, removal, storage, sale and delivery of
the Collateral; second, to the indebtedness under the Subsidiary Guaranty; and
third, to the payment of all other Pledgor Liabilities. If any deficiency shall
arise, each Pledgor shall remain liable to Lender therefor.
(c) Any notice required to be given by Lender of
a sale, lease or other disposition of the Collateral or any other intended
action by Lender, if deposited in the
9.
<PAGE> 10
United States mail, postage prepaid and addressed to any Pledgor at its address
set forth herein, at least five days prior to such proposed action, shall
constitute commercially reasonable and fair notice thereof to such Pledgor.
(d) Upon the occurrence of an Event of Default
which has not been cured, the rate of interest accruing on the indebtedness
evidenced by the Restated Note shall, at Lender's option, be increased to a
default rate of interest provided in the Restated Note.
17. Remedies Cumulative. Each right, power, and remedy of
the Lender as provided for in this Agreement or in the other Loan Documents or
the Restated Note or now or hereafter existing at law or in equity of by statute
or otherwise shall be cumulative and concurrent and shall be in addition to
every other right, power, or remedy provided for in this Agreement or in the
other Loan Documents or the Restated Noted or now or hereafter existing at law
or in equity or by statute or otherwise, and the exercise or beginning of the
exercise by the Lender or any one or more of such rights, powers, or remedies
shall not preclude the simultaneous or later exercise by the Lender of any or
all such other rights, powers, or remedies.
18. Waiver. No failure or delay by the Lender to insist
upon the strict performance of any term, condition, covenant, or agreement of
this Agreement or of the other Loan Documents or of the Restated Note, or to
exercise any right, power, or remedy consequent upon a breach thereof, shall
constitute a waiver of any such term, condition, covenant, or agreement or of
any such breach, or such term, condition, covenant, or agreement or of any such
breach, or preclude the Lender from exercising any such right, power, or remedy
at any later time or times. By accepting payment after the due date of any of
the Pledgors' Liabilities, the Lender shall not be deemed to have waived the
right either to require payment when due of all other Pledgors' Liabilities or
to declare an Event of Default for failure to effect such payment of any such
other Pledgors' Liabilities. Each Pledgor waives presentment, notice of
dishonor, and notice of non-payment with respect to Accounts.
19. Miscellaneous. Time is of the essence of this
Agreement. The section headings of this Agreement are for convenience only and
shall not limit or otherwise affect any of the terms hereof. Neither this
Agreement nor any term, condition, covenant, or agreement hereof may be changed,
waived, discharged, or terminated orally but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge,
or termination is sought. This Agreement shall be governed by the laws of the
State of New York and shall be binding upon each Pledgor and its heirs,
executors, administrators, legal representatives, successors, and assigns, and
shall inure to the benefit of the Lender and its successors and assigns. As used
herein, the singular number shall include the plural, the plural the singular,
and the use of the masculine, feminine, or neuter gender shall include all
genders, as the context may require, and the term "person" shall include an
individual, a corporation, an association, a partnership, a trust, and an
organization. Invalidation of any one or more of the provisions of their
Agreement shall in no way affect any of the other provisions hereof, which shall
remain in full force and effect. All references
10.
<PAGE> 11
herein to any document, instrument, or agreement shall be deemed to refer to
such document, instrument, or agreement as the same may be amended, modified,
restated, supplemented, or replaced from time to time. Unless varied by this
Agreement, all terms used herein which are defined by the Uniform Commercial
Code of the State of New York shall have the same meanings hereunder an assigned
to them by the Uniform Commercial Code of the State of New York.
20. Senior Security Agreement. Notwithstanding anything
contained herein to the contrary, this Agreement and the security interest
created hereby shall be junior to the security interest in favor of Fidelity
National Bank ("Fidelity") pursuant to that certain Security Agreement dated as
of December 30, 1994, as such agreement has been and may be amended from time to
time (the "Fidelity Agreement"). To the extent that there is any inconsistency
between the exercise of the Lender's rights and remedies provided for herein and
the exercise by Fidelity of its rights and remedies pursuant to the Fidelity
Agreement, the exercise of the Lender's rights and remedies provided for herein
shall be subordinate to any exercise by Fidelity of its rights and remedies
pursuant to the Fidelity Agreement. Each Pledgor represents and warrants that
Fidelity has consented to this Agreement and the security interest created
hereby.
11.
<PAGE> 12
IN WITNESS WHEREOF, each Pledgor has caused its duly
authorized officers to execute this Agreement and to affix its corporate seal
hereto, as of the day and year first written above.
PLEDGORS:
WEST TENNESSEE, INC.
By:
--------------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
Attest:
-----------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
Address(es) of other place(s) of business of
the above Pledgor:
(1)
----------------------------------
----------------------------------
----------------------------------
(2)
----------------------------------
----------------------------------
----------------------------------
12.
<PAGE> 13
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
----------------------------------
----------------------------------
----------------------------------
(2)
----------------------------------
----------------------------------
----------------------------------
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
----------------------------------
(2)
----------------------------------
LAKE FOREST HEALTHCARE CENTER, INC.
By:
--------------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
Attest:
-----------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
13.
<PAGE> 14
Address(es) of other place(s) of business of
the above Pledgor:
(1)
----------------------------------
----------------------------------
----------------------------------
(2)
----------------------------------
----------------------------------
----------------------------------
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
----------------------------------
----------------------------------
----------------------------------
(2)
----------------------------------
----------------------------------
----------------------------------
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
----------------------------------
(2)
----------------------------------
STATESBORO HEALTHCARE, INC.
By:
--------------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
Attest:
-----------------------------------------
Secretary
14.
<PAGE> 15
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
-------------------------------------------
-------------------------------------------
-------------------------------------------
Address(es) of other place(s) of business of
the above Pledgor:
(1)
----------------------------------
----------------------------------
----------------------------------
(2)
----------------------------------
----------------------------------
----------------------------------
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
----------------------------------
----------------------------------
----------------------------------
(2)
----------------------------------
----------------------------------
----------------------------------
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
----------------------------------
(2)
----------------------------------
15.
<PAGE> 16
LAKE HEALTH CARE CENTER, INC.
By:
--------------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
Attest:
-----------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
Address(es) of other place(s) of business of
the above Pledgor:
(1)
----------------------------------
----------------------------------
----------------------------------
(2)
----------------------------------
----------------------------------
----------------------------------
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
----------------------------------
----------------------------------
----------------------------------
16.
<PAGE> 17
(2)
----------------------------------
----------------------------------
----------------------------------
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
----------------------------------
(2)
----------------------------------
ROBERTA HEALTH CARE CENTER, INC.
By:
--------------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
Attest:
-----------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
Address(es) of other place(s) of business of
the above Pledgor:
(1)
----------------------------------
----------------------------------
----------------------------------
17.
<PAGE> 18
(2)
----------------------------------
----------------------------------
----------------------------------
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
----------------------------------
----------------------------------
----------------------------------
(2)
----------------------------------
----------------------------------
----------------------------------
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
----------------------------------
(2)
----------------------------------
GARDENDALE HEALTH CARE CENTER, INC.
By:
--------------------------------------------
Name:
---------------------------------------
Title:
---------------------------------------
Attest:
-----------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
18.
<PAGE> 19
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
Address(es) of other place(s) of business
of the above Pledgor:
(1)
----------------------------------------
----------------------------------------
----------------------------------------
(2)
----------------------------------------
----------------------------------------
----------------------------------------
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
----------------------------------------
(2)
----------------------------------------
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
----------------------------------------
(2)
----------------------------------------
SOUTHSIDE HEALTH CARE CENTER, INC.
By:
----------------------------------------
19.
<PAGE> 20
Name:
----------------------------------
Title:
---------------------------------
Attest:
-----------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
------------------------------------
------------------------------------
------------------------------------
------------------------------------
Address(es) of other place(s) of
business of the above Pledgor:
(1)
---------------------------------
---------------------------------
---------------------------------
(2)
---------------------------------
---------------------------------
---------------------------------
Address(es) where Collateral of the
above Pledgor is to be located:
(1)
---------------------------------
---------------------------------
---------------------------------
(2)
---------------------------------
---------------------------------
---------------------------------
20.
<PAGE> 21
Previous legal and/or trade name(s) of
the above Pledgor:
(1)
-----------------------------------
(2)
-----------------------------------
GAINESVILLE HEALTH CARE CENTER,
INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Attest:
------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
------------------------------------
------------------------------------
------------------------------------
------------------------------------
Address(es) of other place(s) of
business of the above Pledgor:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
21.
<PAGE> 22
Address(es) where Collateral of the
above Pledgor is to be located:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
Previous legal and/or trade name(s) of
the above Pledgor:
(1)
----------------------------------
(2)
----------------------------------
CHARLTON CITY HEALTHCARE, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Attest:
------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
22.
<PAGE> 23
Address(es) of other place(s) of
business of the above Pledgor:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
Address(es) where Collateral of the
above Pledgor is to be located:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
Previous legal and/or trade name(s) of
the above Pledgor:
(1)
-----------------------------------
(2)
-----------------------------------
JEFF DAVIS HEATLHCARE, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Attest:
------------------------------------
Secretary
23.
<PAGE> 24
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
Address(es) of other place(s) of
business of the above Pledgor:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
Address(es) where Collateral of the
above Pledgor is to be located:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
Previous legal and/or trade name(s) of
the above Pledgor:
(1)
-----------------------------------
(2)
-----------------------------------
24.
<PAGE> 25
SEASIDE RETIREMENT, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Attest:
------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
Address(es) of other place(s) of
business of the above Pledgor:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
Address(es) where Collateral of the
above Pledgor is to be located:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
25.
<PAGE> 26
(2)
-----------------------------------
-----------------------------------
-----------------------------------
Previous legal and/or trade name(s) of
the above Pledgor:
(1)
-----------------------------------
(2)
-----------------------------------
MID FLORIDA, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Attest:
------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
Address(es) of other place(s) of
business of the above Pledgor:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
26.
<PAGE> 27
(2)
-----------------------------------
-----------------------------------
-----------------------------------
Address(es) where Collateral of the
above Pledgor is to be located:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
Previous legal and/or trade name(s) of
the above Pledgor:
(1)
-----------------------------------
(2)
-----------------------------------
BIBB HEALTH & REHABILITATION, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Attest:
------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
27.
<PAGE> 28
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
Address(es) of other place(s) of
business of the above Pledgor:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
Address(es) where Collateral of the
above Pledgor is to be located:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
Previous legal and/or trade name(s) of
the above Pledgor:
(1)
-----------------------------------
(2)
-----------------------------------
BRENT-LOX HALL NURSING HOME, INC.
By:
----------------------------------------
28.
<PAGE> 29
Name:
-----------------------------------
Title:
----------------------------------
Attest:
------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
Address(es) of other place(s) of
business of the above Pledgor:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
Address(es) where Collateral of the
above Pledgor is to be located:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
29.
<PAGE> 30
Previous legal and/or trade name(s) of
the above Pledgor:
(1)
-----------------------------------
(2)
-----------------------------------
LIBBIE REHABILITATION CENTER, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Attest:
------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
Address(es) of other place(s) of
business of the above Pledgor:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
30.
<PAGE> 31
Address(es) where Collateral of the
above Pledgor is to be located:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
Previous legal and/or trade name(s) of
the above Pledgor:
(1)
-----------------------------------
(2)
-----------------------------------
PHOENIX ASSOCIATES, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Attest:
------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
31.
<PAGE> 32
Address(es) of other place(s) of
business of the above Pledgor:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
Address(es) where Collateral of the
above Pledgor is to be located:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
Previous legal and/or trade name(s) of
the above Pledgor:
(1)
-----------------------------------
(2)
-----------------------------------
SUMMER'S LANDING, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Attest:
------------------------------------
Secretary
32.
<PAGE> 33
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
Address(es) of other place(s) of
business of the above Pledgor:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
Address(es) where Collateral of the
above Pledgor is to be located:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
Previous legal and/or trade name(s) of
the above Pledgor:
(1)
-----------------------------------
(2)
-----------------------------------
33.
<PAGE> 34
RIVERIA RETIREMENT, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Attest:
------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
Address(es) of other place(s) of
business of the above Pledgor:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
Address(es) where Collateral of the
above Pledgor is to be located:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
(2)
-----------------------------------
34.
<PAGE> 35
-----------------------------------
-----------------------------------
Previous legal and/or trade name(s) of
the above Pledgor:
(1)
-----------------------------------
(2)
-----------------------------------
PINE MANOR HEALTHCARE, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Attest:
------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
Address(es) of other place(s) of
business of the above Pledgor:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
35.
<PAGE> 36
(2)
-----------------------------------
-----------------------------------
-----------------------------------
Address(es) where Collateral of the
above Pledgor is to be located:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
Previous legal and/or trade name(s) of
the above Pledgor:
(1)
-----------------------------------
(2)
-----------------------------------
SUNCOAST RETIREMENT, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Attest:
------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
36.
<PAGE> 37
---------------------------------------
---------------------------------------
---------------------------------------
---------------------------------------
Address(es) of other place(s) of
business of the above Pledgor:
(1)
------------------------------------
------------------------------------
------------------------------------
(2)
------------------------------------
------------------------------------
------------------------------------
Address(es) where Collateral of the
above Pledgor is to be located:
(1)
------------------------------------
------------------------------------
------------------------------------
(2)
------------------------------------
------------------------------------
------------------------------------
Previous legal and/or trade name(s) of
the above Pledgor:
(1)
-----------------------------------
(2)
-----------------------------------
ATRIUM OF JACKSONVILLE
By:
----------------------------------------
37.
<PAGE> 38
Name:
-----------------------------------
Title:
----------------------------------
Attest:
------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
Address(es) of other place(s) of
business of the above Pledgor:
(1)
---------------------------------
---------------------------------
---------------------------------
(2)
---------------------------------
---------------------------------
---------------------------------
Address(es) where Collateral of the
above Pledgor is to be located:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
38.
<PAGE> 39
Previous legal and/or trade name(s) of
the above Pledgor:
(1)
-----------------------------------
(2)
-----------------------------------
THE ATRIUM NURSING HOME, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Attest:
------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
Address(es) of other place(s) of
business of the above Pledgor:
(1)
-----------------------------------
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
39.
<PAGE> 40
Address(es) where Collateral of the
above Pledgor is to be located:
(1)
----------------------------------
----------------------------------
----------------------------------
(2)
----------------------------------
----------------------------------
----------------------------------
Previous legal and/or trade name(s) of
the above Pledgor:
(1)
----------------------------------
(2)
----------------------------------
40.
<PAGE> 41
EXHIBIT "A"
[1. Security interest in favor of Fidelity National Bank pursuant to a
Security Agreement dated as of December 30, 1994, as such agreement has been and
may be amended from time to time (the "Fidelity Agreement").]
[2. Financing statements have been filed in the states of Georgia,
Tennessee, Florida and Alabama in connection with the security interests granted
pursuant to the Fidelity Agreement.]
41.
<PAGE> 1
EXHIBIT 10.42
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made as of this
10th day of July 1997 (the "Effective Date"), by RETIREMENT CARE ASSOCIATES,
INC., a Colorado corporation (the "Pledgor"), in favor of SUN HEALTHCARE GROUP,
INC., a Delaware corporation (the "Lender"), witnesseth:
RECITALS
WHEREAS, the Lender has agreed to make a loan to the Pledgor,
Retirement Management Corporation, a Georgia corporation ("RMC"), and Capitol
Care Management Company, Inc., a Georgia corporation ("CCMC"), in the principal
amount of $5,000,000 (the "Loan") pursuant to the terms and conditions of that
certain Promissory Note made by the Pledgor, RMC and CCMC (as Maker) to the
Lender (as Payee) dated as of even date herewith (the "Note"); and
WHEREAS, as a condition to the Loan, the Pledgor agreed to
enter into this Security Agreement and to pledge certain collateral as security
for the payment and performance of the Pledgor's obligations hereunder and under
the Note.
NOW, THEREFORE, in order to secure the prompt payment of all
past, present, and future indebtedness, liabilities, and obligations of the
Pledgor to the Lender of any nature whatsoever in connection with the Note,
together with all obligations of the Pledgor to the Lender hereunder, however
and wherever created, arising, or evidenced, whether direct or indirect,
absolute, contingent, or otherwise, now or hereafter existing or due or to
become due (collectively, the "Pledgor's Liabilities"), and the performance by
the Pledgor of all the terms, conditions, and provisions of this Agreement and
of any other loan document previously, simultaneously or hereafter executed and
delivered by the Pledgor and/or any other person, singly or jointly with another
person or persons, evidencing, securing, guarantying, or in connection with any
of the Pledgor's Liabilities, including the Note (collectively, the "Loan
Documents"), the Pledgor agrees with the Lender as follows:
1. Collateral. To secure the payment and performance of the
Pledgor's Liabilities and the Pledgor's performance of its obligations under the
Loan Documents, and subject to Section 21 hereof, the Pledgor hereby grants to
the Lender a security interest in, and security title to, all of the following
(being referred to herein as the "Collateral"): (i) Pledgor's present or future
accounts, accounts receivable, other receivables, contract rights, issues,
profits, rents, chattel paper, instruments and documents, together with all of
the proceeds, cash or non-cash, thereof, however acquired, or now or hereafter
existing, including, without limitation, all reimbursable costs or payments from
Medicaid and Medicare, or other state or federal governmental agencies, amounts
due from clients and third party providers, rights to management fees, and
amounts due to Pledgor from advances to any of its managed
1.
<PAGE> 2
or affiliated companies, (ii) all revenues payable to and rights to
distributions of Pledgor from agreements or contracts with residents of
facilities owned, leased or managed by Pledgor and all rights to deposits from
such residents and insurance benefits due to Pledgor with respect to such
residents (excluding any escrow accounts maintained on behalf of such
residents), and (iii) all proceeds of the foregoing (collectively, the
"Accounts").
The term "Collateral" as used herein means each and all of the items of
Collateral described above, and the term "proceeds" as used herein includes,
without limitation, the proceeds of all insurance policies covering all or any
part of such items of Collateral.
2. Title to Collateral. Subject to Section 21 hereof, the
Pledgor warrants and represents that (i) it is the lawful owner of the
Collateral, and has the full right, power, and authority to convey, transfer,
and grant the security title and security interest in the Collateral granted
herein to the Lender; (ii) all licenses relating to the Collateral are fully
paid and freely assignable to Lender, and, upon the occurrence of an Event of
Default (as defined herein) and foreclosure by the Lender, the Lender shall have
all rights of the Pledgor to any Collateral licensed to the Pledgor or licensed
by the Pledgor; (iii) the Collateral is not, and so long as this Agreement is in
effect will not be, subject to any liens, claims, security interests,
encumbrances, taxes, or assessments, however described or denominated, except
for liens, claims, security interests and encumbrances in favor of the Lender
and except as set forth on Exhibit "A" hereto; (iv) no financing statement,
mortgage, notice of lien, deed of trust, deed to secure debt, security
agreement, or any other agreement or instrument creating an encumbrance, lien,
charge against any of the Collateral is in existence or on file in any public
office, other than financing statements (or other appropriate security
documentation) filed on behalf of the Lender or disclosed on Exhibit "A" hereto;
and (v) all information with respect to the Collateral and the Pledgor's
Liabilities, or any of them, set forth in any written schedule, certificate, or
other document at any time heretofore or hereafter furnished by the Pledgor to
the Lender, including any Borrowing Base Certificate referred to in Section 4
hereof, and all other written information heretofore or hereafter furnished by
the Pledgor to the Lender, is and will be true and correct in all material
respects as of the date furnished.
3. Further Assurances. The Pledgor will defend its title to
the Collateral against all persons and will, upon request of the Lender, (a)
furnish such further assurances of title as may be required by the Lender, (b)
deliver and execute or cause to be delivered and executed, in form and content
satisfactory to the Lender, any financing statements, notices, certificates of
title, and other documents and pay the cost of filing or recording the same in
all public offices deemed necessary by the Lender, as well as any recordation,
documentary, or transfer tax required by law to be paid in connection with such
filing or recording, and (c) do such other acts as the Lender may request in
order to perfect, preserve, maintain, or continue the perfection of the Lender's
security interest in the Collateral and/or its priority.
4. Collateral Reporting. The Pledgor shall deliver to the
Lender on the date hereof and on the tenth calendar day of each month a
borrowing base certificate, attested to by an officer of the Pledgor, indicating
the amount of the Borrowing Base (the "Borrowing
2.
<PAGE> 3
Base Certificate"). As used herein, the term "Borrowing Base" shall mean an
amount equal to (i) one hundred percent (100.0%) of all Eligible Accounts, plus
(ii) the aggregate fair market value of any property pledged to Lender in
accordance with Section 22 hereof, minus (ii) the aggregate principal amount of
indebtedness outstanding under (A) the Fidelity Agreement referred to in Section
21 hereof and (B) that certain Amended and Restated Promissory Note made by the
Pledgor, RMC and CCMC to the Lender dated as of even date herewith. As used
herein, the term "Eligible Accounts" shall mean all Accounts of the Pledgor,
RMC, CCMC and the Subsidiary Guarantors (as defined in the Note), but not of any
other subsidiary of the Pledgor, which are not more than one hundred twenty
(120) days past due, which are not due and payable from any insider, affiliate,
officer or shareholder of the Pledgor or any of its managed or affiliated
companies, and which are not classified as "Pre-Current" in Pledgor's books and
records pertaining to the Collateral.
5. Accounts, etc. Until such time as the Lender shall notify
the Pledgor in writing of the revocation of such power and authority, the
Pledgor, as agent for the Lender, will, at its own expense, diligently collect,
as and when due, all amounts owing under the Accounts, including the taking of
such action with respect to such collection as the Lender may request from time
to time, and to hold in trust and segregate for the Lender all funds received
from the Accounts; provided, however, that until an Event of Default shall occur
or would occur but for the passage of time, or giving of notice, or both (such
event being a "default"), the Pledgor may use or consume in the ordinary course
of its business any such collections on the Accounts in any lawful manner not
inconsistent with this Agreement and the other Loan Documents. The Lender,
however, may after an Event of Default shall occur or during the continuance of
a default and upon notice to the Pledgor revoke such power and authority and in
any event shall have the authority and right to notify any parties obligated on
any of the Accounts to make payment to the Lender of any amounts due or to
become due thereunder, and enforce collection of performance under any of the
Accounts by suit or otherwise, and surrender, release, or exchange all or any
part thereof, or compromise or extend or renew for any period (whether or not
longer than the original period) any indebtedness thereunder or evidenced
thereby. After an Event of Default, the Pledgor will, at its own expense, notify
any parties obligated on any of the Accounts to make payments to the Lender and
will hold in trust and immediately forward to the Lender all payments received
by the Pledgor in the form received, with all necessary endorsements thereon for
collection by the Lender.
6. Transfer and Other Liens. The Pledgor will not sell, lease,
transfer, exchange, or otherwise dispose of the Collateral, or any part hereof,
without the prior written consent of the Lender and will not permit any lien,
security interest, or other encumbrance to attach to the Collateral, or any part
thereof, other than those in favor of the Lender or those permitted by the
Lender in writing, except that the Pledgor may, in the ordinary course of its
business and in the absence of an Event of Default hereunder or notice by the
Lender to the Pledgor under this Agreement, collect its Accounts.
3.
<PAGE> 4
7. Financial Statements, Books, and Records. The Pledgor will
(a) at all times maintain, in accordance with generally accepted accounting
principles consistently applied, accurate and complete books and records
pertaining to the operation, business affairs, and financial condition of the
Pledgor and pertaining to the Collateral and any contracts and collections
relating to the Collateral, (b) furnish to the Lender promptly upon request,
certified by an officer of the Pledgor and in the form and content and at the
intervals specified by the Lender, such financial statements, reports,
schedules, and other information with respect to the operation, business
affairs, and financial condition of the Pledgor as the Lender may from time to
time require, (c) at all reasonable times, and without hindrance or delay,
permit the Lender or any person designated by the Lender to enter any place of
business of the Pledgor or any other premises where any books, records, and
other data concerning the Pledgor and/or the Collateral may be kept and to
examine, audit, inspect, and make extracts from and photocopies of any such
books, records, and other data, (d) furnish to the Lender promptly upon request,
certified by an officer of the Pledgor and in the form and content specified by
the Lender, lists of purchasers of inventory, aging of accounts, aggregate cost
or wholesale market value of inventory, schedules of equipment, and other data
concerning the Collateral as the Lender may from time to time specify, and (e)
mark its books and records in a manner satisfactory to the Lender so that the
Lender's rights in and to the Collateral will be shown.
8. Name of Pledgor, Places of Business, and Location of
Collateral. The Pledgor represents and warrants that its correct legal name is
as specified on the signature lines of this Agreement, and each legal or trade
name of the Pledgor for the previous five (5) years (if different from the
Pledgor's current legal name) is as specified below the signature lines of this
Agreement. Without the prior written consent of the Lender, the Pledgor will not
change its name, dissolve, merge, or consolidate with any other person. The
Pledgor warrants that the address of the Pledgor's chief executive office and
the address of each other place of business of the Pledgor are as specified
below the signature lines of this Agreement. The Collateral and all books and
records pertaining to the Collateral have been, are, and will be located at the
Pledgor's chief executive office specified below or at any other place of
business which may be specified below the signature lines of this Agreement.
Without the prior written consent of the Lender, the Pledgor will not open any
new place of business or change the location of any Collateral to any place not
specified below. The Pledgor will immediately advise the Lender in writing of
the opening of any new place of business and of any change in the location of
the places where the Collateral or any part thereof, or the books and records
concerning the Collateral or any part thereof, are kept.
9. Care of Collateral. The Pledgor will maintain the
Collateral in first-class condition and will not do or permit anything to be
done to the Collateral that may impair its value. The Lender shall have no duty
to, and the Pledgor hereby releases the Lender from all claims for loss or
damage caused by the failure to, collect or enforce any Account or to preserve
rights against prior parties to the Collateral.
4.
<PAGE> 5
10. Taxes. The Pledgor will pay as and when due and payable
all taxes, levies, license fees, assessments, and other impositions levied on
the Collateral or any part thereof or for its use and operation.
11. Specific Assignments. Promptly upon request by the Lender,
the Pledgor will execute and deliver to the Lender written assignments,
endorsements, and/or schedules, in form and content satisfactory to the Lender,
of specific Accounts or groups of Accounts, but the security interest of the
Lender hereunder shall not be limited in any way by such assignments.
12. Government Contracts. If any Account arises out of a
contract or contracts with the United States of America or any department,
agency, or instrumentality thereof, the Pledgor shall immediately notify the
Lender thereof in writing and execute any instruments or take any steps required
by the Lender in order that all moneys due or to become due under such contract
or contracts shall be assigned to the Lender and notice thereof given under the
Federal Assignment of Claims Act or other applicable law.
13. Collateral Account.
(a) Subject to the exercise by Fidelity of its rights and
remedies under the Fidelity Agreement referred to in Section 21 hereof, the
Pledgor will, upon the request of the Lender at any time and from time to time
both prior to and after the occurrence of an Event of Default hereunder, deposit
or cause to be deposited to a bank account designated by the Lender and from
which the Lender alone has power of access and withdrawal (collectively, the
"Collateral Account") all checks, drafts, cash, and other remittances in payment
or on account of payment of the Accounts, and the cash proceeds of any returned
goods, the sale or lease of which gave rise to an Account and, when permitted by
the paying companies (including without limitation, Medicaid and Mutual of Omaha
Medicare payment [EDS-Title XVIII]) all such payments therefrom (all of the
foregoing herein collectively referred to as "Items of Payment"). The Pledgor
shall deposit the Items of Payment for credit to the Collateral Account within
two (2) business days of the receipt thereof, and in precisely the form
received, except for the endorsement of the Pledgor where necessary to permit
the collection of the Items of Payment, which endorsement the Pledgor hereby
agrees to make. Pending such deposit, the Pledgor will not commingle any of the
Items of Payment with any of its other funds or property but will hold them
separate and apart. The Lender may at any time and from time to time apply the
whole or any part of the collected funds credited to the Collateral Account
against the Pledgor's Liabilities.
(b) So long as Lender, in its discretion, so desires,
Pledgor shall establish and maintain a blocked account in Lender's name with a
bank satisfactory to Lender (the "Collecting Bank") to which Pledgor will
immediately deposit all payments from account debtors in the identical form in
which such payment was made, whether by cash or check.
5.
<PAGE> 6
(c) The Collecting Bank shall acknowledge and agree, in a
manner satisfactory to Lender, that all payments made to such blocked account
are the sole and exclusive property of the Lender, that the Collecting Bank has
no right of set off against such blocked account, and that the Collecting Bank
will wire or otherwise transfer in immediately available funds, in a manner
satisfactory to Lender, funds deposited in such blocked account to Lender on a
daily basis as soon as such funds are collected. Pledgor hereby agrees that all
payments made to such blocked account or otherwise received by Lender, whether
on Accounts or as proceeds of the Collateral or otherwise, will be the sole and
exclusive property of Lender and will be applied on account of the Obligations.
With respect to any payment relating to or proceeds of any Accounts or the
Collateral which come into its possession or under its control, Pledgor and any
affiliates, subsidiaries, shareholders, directors, officers, employees, agents
or persons acting for or in concert with Pledgor shall receive any such item, as
trustee for Lender, as sole and exclusive property of Lender, and immediately
upon receipt thereof, Pledgor shall remit the same or cause the same to be
remitted in kind, to Lender, at Lender's address set forth herein. Pledgor
agrees to pay to Lender any and all fees, costs, expenses which Lender incurs in
connection with obtaining and maintaining the blocked account and depositing for
collection by Lender any check or item of payment received or delivered to the
Collecting Bank or the Lender, and Pledgor further agrees to reimburse,
indemnify and hold harmless Lender from any claims asserted by the Collecting
Bank in connection with the blocked account or any returned or uncollected
checks received by the Collecting Bank as proceeds of the Collateral.
14. Rights of Lender and Duties of Pledgor. The Lender may at
any time and from time to time both prior to and after the occurrence of an
Event of Default hereunder (a) notify the account debtors obligated on any of
the Collateral to make payments thereon directly to the Lender, and to take
control of the cash and noncash proceeds of any such Collateral; (b) charge to
the Pledgor any Item of Payment credited to the Collateral Account which is
dishonored by the drawee or maker thereof; (c) compromise, extend, or renew any
of the Collateral or deal with the same as it may deem advisable; (d) release,
make exchanges or substitutions for, or surrender all or any part of the
Collateral; (e) remove from the Pledgor's place of business all books, records,
ledger sheets, correspondence, invoices, and documents relating to or evidencing
any of the Collateral or, without cost or expense to the Lender, make such use
of the Pledgor's place(s) of business as may be reasonably necessary to
administer, control, and collect the Collateral; (f) repair, alter, or supply
goods, if any, necessary to fulfill in whole or in part the purchase order of
any account debtor; (g) demand, collect, receipt for, and give renewals,
extensions, discharges, and releases of any of the Collateral; (h) institute and
prosecute legal and equitable proceedings to enforce collection of, or realize
upon, any of the Collateral; (i) settle, renew, extend, compromise, compound,
exchange, or adjust claims with respect to any of the Collateral or any legal
proceedings brought with respect thereto; (j) endorse the name of the Pledgor
upon any Items of Payment relating to the Collateral or upon any proof of claim
in bankruptcy against an account debtor; and (k) receive and open all mail
addressed to the Pledgor and, if an Event of Default exists hereunder, notify
postal authorities to change the address for the delivery of mail to the Pledgor
to such address as the Lender may designate; and for purposes of taking the
actions described in Subsections (a) through (k)
6.
<PAGE> 7
the Pledgor hereby irrevocably appoints the Lender as its attorney-in-fact
(which appointment being coupled with an interest is irrevocable while any of
Pledgor's Liabilities remain unpaid), with power of substitution, in the name of
the Lender or in the name of the Pledgor or otherwise, for the use and benefit
of the Lender, but at the cost and expense of the Pledgor and without notice to
the Pledgor. The Pledgor will (a) make no material change to the terms of any
Account without the prior written permission of the Lender; (b) on demand, make
available in form acceptable to the Lender shipping documents and delivery
receipts evidencing the shipment of goods which gave rise to an Account,
completion certificate, or other proof of the satisfactory performance of
services which gave rise to an Account, copies of the invoices arising out of an
Account, and the Pledgor's copy of any written contract or order from which an
Account arose; and (c) when requested, regularly advise the Lender whenever an
account debtor returns or refuses to retain any goods, the sale or lease of
which gave rise to an Account, and will comply with any instructions which the
Lender may give regarding the sale or other disposition of such returns.
15. Performance by Lender. If the Pledgor fails to perform,
observe, or comply with any of the conditions, terms, or covenants contained in
this Agreement, the Lender, without notice to or demand upon the Pledgor and
without waiving or releasing any of the Pledgor's Liabilities or any Event of
Default, may (but shall be under no obligation to) at any time thereafter
perform such conditions, terms, or covenants for the account and at the expense
of the Pledgor, and may enter upon any place of business or other premises of
the Pledgor for that purpose and take all such action thereon as the Lender may
consider necessary or appropriate for such purpose. All sums paid or advanced by
the Lender in connection with the foregoing and all costs and expenses
(including, without limitation, reasonable attorneys' fees actually incurred and
expenses) incurred in connection therewith (collectively, the "Expense
Payments") together with interest thereon at the post-default rate of interest
provided for in the Note (but in no event higher than the maximum interest rate
permitted by applicable law), from the date of payment until repaid in full,
shall be paid by the Pledgor to the Lender on demand and shall constitute and
become a part of the Pledgor's Liabilities secured hereby.
16. Default. The occurrence of any one or more of the
following events shall constitute an event of default (an "Event of Default")
under this Agreement: (a) failure of the Pledgor to pay any of the Pledgor's
Liabilities as and when due and payable, after giving effect to any applicable
grace period; (b) failure of the Pledgor to perform, observe, or comply with any
of the provisions of this Agreement or of any of the other Loan Documents, after
giving effect to any applicable grace period; (c) the occurrence of an Event of
Default (as defined therein) under any of the other Loan Documents; (d) any
information contained in any financial statement, application, schedule, report,
or any other document given by the Pledgor or by any other person in connection
with the Pledgor's Liabilities, with the Collateral, or with any of the Loan
Documents, including any Borrowing Base Certificate, is not in all respects true
and accurate or the Pledgor or such other person omitted to state any material
fact or any fact necessary to make such information not misleading; (e) the
Pledgor is generally not paying debts as such debts become due; (f) the filing
of any petition for relief
7.
<PAGE> 8
under any provision of the Federal Bankruptcy Code or any similar state law is
brought by or against the Pledgor; (g) an application for the appointment of a
receiver for, the making of a general assignment for the benefit of creditors by
or the insolvency of, the Pledgor; (h) the dissolution, merger, consolidation,
or reorganization of the Pledgor; (i) suspension of the operation of the
Pledgor's present business; (j) transfer of a substantial part (determined by
market value) of the Pledgor's property; (k) sale, transfer, or exchange, either
directly or indirectly, of a controlling stock interest of the Pledgor, other
than to the Lender; (l) termination or withdrawal of any guaranty for the
Pledgor's Liabilities; (m) the Pension Benefit Guaranty Corporation commences
proceedings under Section 4042 of the Employee Retirement Income Security Act of
1974 ("ERISA"), as amended, to terminate any employee pension benefit plan of
the Pledgor; (n) the determination in good faith by the Lender that a material
adverse change has occurred in the financial condition of the Pledgor from the
condition set forth in the most recent financial statement of the Pledgor
heretofore furnished to the Lender, or from the financial condition of the
Pledgor as heretofore most recently disclosed to the Lender in any other manner;
(o) the determination in good faith by the Lender that the prospect of payment
of any of the Pledgor's Liabilities is impaired for any reason; or (p) the
occurrence of an "Event of Default" under the Fidelity Agreement referred to in
Section 21 hereof.
17. Rights and Remedies upon Default.
(a) Upon and after an Event of Default, Lender shall have,
subject to Section 21 hereof, the following rights and remedies:
(i) In addition to any other rights and remedies
contained in this Agreement and in all the other Loan Documents, all the rights
and remedies of a secured party under the Uniform Commercial Code of the State
of New York or other applicable laws, all of which rights and remedies shall be
cumulative and non-exclusive, to the extent permitted by law;
(ii) The right to open Pledgor's mail and to collect
any and all amounts due Pledgor from account debtors; and
(iii) The right to: (A) demand payment of the
Accounts; (B) enforce payment of the Accounts by legal proceedings or otherwise;
(C) exercise all of Pledgor's rights and remedies with respect to the collection
of the Accounts; (D) settle, adjust, compromise, extend or renew the Accounts;
(E) settle, adjust or compromise any legal proceedings brought to collect the
Accounts; (F) to the extent permitted by applicable law, sell or assign the
Accounts upon such terms, for such amounts and at such time or times as Lender
deems advisable; (G) discharge and release the Accounts; (H) take control, in
any manner, of any item of payment or proceeds from any account debtor; (I)
prepare, file and sign Pledgor's name on any proof of claim in bankruptcy or
similar document against any account debtor; (J) prepare, file, and sign
Pledgor's name on any notice of lien, assignment or satisfaction of lien or
similar document in connection with the Accounts; (K) do all acts and
8.
<PAGE> 9
things necessary, in Lender's sole discretion, to fulfill Pledgor's obligations
under the Loan Documents; (L) endorse the name of Pledgor upon any chattel
paper, document, instrument, invoice, freight bill, bill of lading or similar
document or agreement relating to the Accounts; (M) use Pledgor's stationery and
sign Pledgor's name to verifications of the Accounts and notices thereof to
account debtors; and (N) use the information recorded on or contained in any
data processing equipment or computer hardware or software relating to the
Accounts or proceeds thereof to which Pledgor has access.
(b) Upon and after an Event of Default, Lender shall have,
subject to Section 21 hereof, the right to: (i) sell or otherwise dispose of all
or any Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all as Lender, in
its sole discretion, may deem advisable; (ii) adjourn such sales from time to
time with or without notice; and (iii) to conduct such sales on Pledgor's
premises or elsewhere and use Pledgor's premises without charge for such sales
for such time or times as Lender may see fit. Lender is hereby granted a license
or other right to use, without charge, Pledgor's labels, patents, copyrights,
rights of use of any name, trade secrets, trade names, trademarks and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in advertising for sale and selling any Collateral. Pledgor's rights
under all licenses and all franchise agreements shall inure to Lender's benefit.
Lender shall have the right to sell, lease or otherwise dispose of any
Collateral, or any part thereof, for cash, credit or any combination thereof,
and Lender may purchase all or any part of the Collateral at public or, to the
extent permitted by law, private sale and, in lieu of actual payment of such
purchase price, may set off the amount of such price against Pledgor's
obligations to Lender. The proceeds realized from the sale of any Collateral
shall be applied first to the reasonable costs, expenses and attorneys' fees and
expenses incurred by Lender for collection and for acquisition, completion,
protection, removal, storage, sale and delivery of the Collateral; second, to
interest due upon the indebtedness under the Note; third, to the principal of
the indebtedness under the Note; and fourth, to the payment of all other Pledgor
Liabilities. If any deficiency shall arise, Pledgor shall remain liable to
Lender therefor.
(c) Any notice required to be given by Lender of a sale,
lease or other disposition of the Collateral or any other intended action by
Lender, if deposited in the United States mail, postage prepaid and addressed to
Pledgor at its address set forth herein, at least five days prior to such
proposed action, shall constitute commercially reasonable and fair notice
thereof to Pledgor.
(d) Upon the occurrence of an Event of Default which has
not been cured, the rate of interest accruing on the indebtedness evidenced by
the Note shall, at Lender's option, be increased to a default rate of interest
provided in the Note.
18. Remedies Cumulative. Each right, power, and remedy of the
Lender as provided for in this Agreement or in the other Loan Documents or now
or hereafter existing at law or in equity of by statute or otherwise shall be
cumulative and concurrent and shall be
9.
<PAGE> 10
in addition to every other right, power, or remedy provided for in this
Agreement or in the other Loan Documents or now or hereafter existing at law or
in equity or by statute or otherwise, and the exercise or beginning of the
exercise by the Lender or any one or more of such rights, powers, or remedies
shall not preclude the simultaneous or later exercise by the Lender of any or
all such other rights, powers, or remedies.
19. Waiver. No failure or delay by the Lender to insist upon
the strict performance of any term, condition, covenant, or agreement of this
Agreement or of the other Loan Documents, or to exercise any right, power, or
remedy consequent upon a breach thereof, shall constitute a waiver of any such
term, condition, covenant, or agreement or of any such breach, or such term,
condition, covenant, or agreement or of any such breach, or preclude the Lender
from exercising any such right, power, or remedy at any later time or times. By
accepting payment after the due date of any of the Pledgor's Liabilities, the
Lender shall not be deemed to have waived the right either to require payment
when due of all other Pledgor's Liabilities or to declare an Event of Default
for failure to effect such payment of any such other Pledgor's Liabilities. The
Pledgor waives presentment, notice of dishonor, and notice of non-payment with
respect to Accounts.
20. Miscellaneous. Time is of the essence of this Agreement.
The section headings of this Agreement are for convenience only and shall not
limit or otherwise affect any of the terms hereof. Neither this Agreement nor
any term, condition, covenant, or agreement hereof may be changed, waived,
discharged, or terminated orally but only by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge, or
termination is sought. This Agreement shall be governed by the laws of the State
of New York and shall be binding upon the Pledgor and its heirs, executors,
administrators, legal representatives, successors, and assigns, and shall inure
to the benefit of the Lender and its successors and assigns. As used herein, the
singular number shall include the plural, the plural the singular, and the use
of the masculine, feminine, or neuter gender shall include all genders, as the
context may require, and the term "person" shall include an individual, a
corporation, an association, a partnership, a trust, and an organization.
Invalidation of any one or more of the provisions of their Agreement shall in no
way affect any of the other provisions hereof, which shall remain in full force
and effect. All references herein to any document, instrument, or agreement
shall be deemed to refer to such document, instrument, or agreement as the same
may be amended, modified, restated, supplemented, or replaced from time to time.
Unless varied by this Agreement, all terms used herein which are defined by the
Uniform Commercial Code of the State of New York shall have the same meanings
hereunder an assigned to them by the Uniform Commercial Code of the State of New
York.
21. Senior Security Agreement. Notwithstanding anything
contained herein to the contrary, this Agreement and the security interest
created hereby shall be junior to the security interest in favor of Fidelity
National Bank ("Fidelity") pursuant to that certain Security Agreement dated as
of December 30, 1994, as such agreement has been and may be amended from time to
time (the "Fidelity Agreement"). To the extent that there is any
10.
<PAGE> 11
inconsistency between the exercise of the Lender's rights and remedies provided
for herein and the exercise by Fidelity of its rights and remedies pursuant to
the Fidelity Agreement, the exercise of the Lender's rights and remedies
provided for herein shall be subordinate to any exercise by Fidelity of its
rights and remedies pursuant to the Fidelity Agreement. The Pledgor represents
and warrants that Fidelity has consented to this Agreement and the security
interest created hereby.
22. Additional Collateral. Pledgor agrees that, upon the
written request of Lender, it will hereafter promptly (no later than 10 days)
deliver to Lender a first or second priority security interest in such real
property, acceptable to Lender, in order that the aggregate principal amount
outstanding at any time under the Note shall be less than the Borrowing Base.
Such security interest shall be evidenced by documentation acceptable to Lender
creating and perfecting such security interest. The determination of the fair
market value of any property pledged to Lender in accordance with this Section
22 shall be made solely by Lender.
IN WITNESS WHEREOF, the Pledgor has caused its duly authorized
officers to execute this Agreement and to affix its corporate seal hereto, as of
the day and year first written above.
PLEDGOR:
RETIREMENT CARE ASSOCIATES, INC., a
Colorado corporation
By:
-----------------------------------------
Chris F. Brogdon
President
Attest:
-------------------------------------
Secretary
[CORPORATE SEAL]
11.
<PAGE> 12
Address of Pledgor's chief executive
office:
6000 Lake Forrest Drive
Suite 200
Atlanta, Georgia 30328
Fulton County, Georgia
Address(es) where Collateral Address(es) of other place(s) of business
is to be located: of the Pledgor:
6000 Lake Forrest Drive (1)
Suite 200 -----------------------------------
Atlanta, GA 30328
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
Previous legal and/or trade
name(s) of the Pledgor:
(1)
--------------------------
(2)
--------------------------
12.
<PAGE> 13
EXHIBIT "A"
1. Security interest in favor of Fidelity National Bank
pursuant to a Security Agreement dated as of December 30, 1994, as such
agreement has been and may be amended from time to time (the "Fidelity
Agreement").
2. Financing statements have been filed in the states of
Georgia, Tennessee, Florida and Alabama in connection with the security
interests granted pursuant to the Fidelity Agreement.
13.
<PAGE> 1
EXHIBIT 10.43
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made as of this
10th day of July 1997 (the "Effective Date"), by CAPITOL CARE MANAGEMENT
CORPORATION, a Georgia corporation (the "Pledgor"), in favor of SUN HEALTHCARE
GROUP, INC., a Delaware corporation (the "Lender"), witnesseth:
RECITALS
WHEREAS, the Lender has agreed to make a loan to Retirement
Care Associates, Inc., a Colorado corporation ("RCA"), the Pledgor and
Retirement Management Corporation, a Georgia corporation ("RMC"), in the
principal amount of $5,000,000.00 (the "Loan") pursuant to the terms and
conditions of that certain Promissory Note made by RCA, Pledgor and RMC (as
Maker) to the Lender (as Payee) dated as of even date herewith (the "Note");
WHEREAS, as a condition to the Loan, the Pledgor agreed to
enter into this Security Agreement and to pledge certain collateral as security
for the payment and performance of the Pledgor's obligations under the Note; and
WHEREAS, the Pledgor acknowledges that it is a wholly owned
subsidiary of RCA and will derive substantial direct and indirect benefit from
the transactions contemplated by the Note.
NOW, THEREFORE, in order to secure the prompt payment of all
past, present, and future indebtedness, liabilities, and obligations of the
Pledgor to the Lender of any nature whatsoever in connection with the Note,
together with all obligations of the Pledgor to the Lender hereunder, however
and wherever created, arising, or evidenced, whether direct or indirect,
absolute, contingent, or otherwise, now or hereafter existing or due or to
become due (collectively, the "Pledgor's Liabilities"), and the performance by
the Pledgor of all the terms, conditions, and provisions of this Agreement and
of any other loan document previously, simultaneously or hereafter executed and
delivered by the Pledgor and/or any other person, singly or jointly with another
person or persons, evidencing, securing, guarantying, or in connection with any
of the Pledgor's Liabilities, including the Note (collectively, the "Loan
Documents"), the Pledgor agrees with the Lender as follows:
1. Collateral. To secure the payment and performance of the
Pledgor's Liabilities and the Pledgor's performance of its obligations under the
Loan Documents, and subject to Section 20 hereof, the Pledgor hereby grants to
the Lender a security interest in, and security title to, all of the following
(being referred to herein as the "Collateral"): (i) Pledgor's present or future
accounts, accounts receivable, other receivables, contract rights, issues,
profits, rents, chattel paper, instruments and documents, together with all of
the
1.
<PAGE> 2
proceeds, cash or non-cash, thereof, however acquired, or now or hereafter
existing, including, without limitation, all reimbursable costs or payments from
Medicaid and Medicare, or other state or federal governmental agencies, amounts
due from clients and third party providers, rights to management fees, and
amounts due to Pledgor from advances to any of its managed or affiliated
companies, (ii) all revenues payable to and rights to distributions of Pledgor
from agreements or contracts with residents of facilities owned, leased or
managed by Pledgor and all rights to deposits from such residents and insurance
benefits due to Pledgor with respect to such residents (excluding any escrow
accounts maintained on behalf of such residents), and (iii) all proceeds of the
foregoing (collectively, the "Accounts").
The term "Collateral" as used herein means each and all of the items of
Collateral described above, and the term "proceeds" as used herein includes,
without limitation, the proceeds of all insurance policies covering all or any
part of such items of Collateral.
2. Title to Collateral. Subject to Section 20 hereof, the
Pledgor warrants and represents that (i) it is the lawful owner of the
Collateral, and has the full right, power, and authority to convey, transfer,
and grant the security title and security interest in the Collateral granted
herein to the Lender; (ii) all licenses relating to the Collateral are fully
paid and freely assignable to Lender, and, upon the occurrence of an Event of
Default (as defined herein) and foreclosure by the Lender, the Lender shall have
all rights of the Pledgor to any Collateral licensed to the Pledgor or licensed
by the Pledgor; (iii) the Collateral is not, and so long as this Agreement is in
effect will not be, subject to any liens, claims, security interests,
encumbrances, taxes, or assessments, however described or denominated, except
for liens, claims, security interests and encumbrances in favor of the Lender
and except as set forth on Exhibit "A" hereto; (iv) no financing statement,
mortgage, notice of lien, deed of trust, deed to secure debt, security
agreement, or any other agreement or instrument creating an encumbrance, lien,
charge against any of the Collateral is in existence or on file in any public
office, other than financing statements (or other appropriate security
documentation) filed on behalf of the Lender or disclosed on Exhibit "A" hereto;
and (v) all information with respect to the Collateral and the Pledgor's
Liabilities, or any of them, set forth in any written schedule, certificate, or
other document at any time heretofore or hereafter furnished by RCA or the
Pledgor to the Lender, including any Borrowing Base Certificate referred to in
Section 4 of that certain Security Agreement dated as of even date herewith
executed by RCA to the Lender (the "RCA Security Agreement"), and all other
written information heretofore or hereafter furnished by the Pledgor to the
Lender, is and will be true and correct in all material respects as of the date
furnished.
3. Further Assurances. The Pledgor will defend its title to
the Collateral against all persons and will, upon request of the Lender, (a)
furnish such further assurances of title as may be required by the Lender, (b)
deliver and execute or cause to be delivered and executed, in form and content
satisfactory to the Lender, any financing statements, notices, certificates of
title, and other documents and pay the cost of filing or recording the same in
all public offices deemed necessary by the Lender, as well as any recordation,
documentary, or transfer tax required by law to be paid in connection with such
filing or recording, and (c) do
2.
<PAGE> 3
such other acts as the Lender may request in order to perfect, preserve,
maintain, or continue the perfection of the Lender's security interest in the
Collateral and/or its priority.
4. Accounts, etc. Until such time as the Lender shall notify
the Pledgor in writing of the revocation of such power and authority, the
Pledgor, as agent for the Lender, will, at its own expense, diligently collect,
as and when due, all amounts owing under the Accounts, including the taking of
such action with respect to such collection as the Lender may request from time
to time, and to hold in trust and segregate for the Lender all funds received
from the Accounts; provided, however, that until an Event of Default shall occur
or would occur but for the passage of time, or giving of notice, or both (such
event being a "default"), the Pledgor may use or consume in the ordinary course
of its business any such collections on the Accounts in any lawful manner not
inconsistent with this Agreement and the other Loan Documents. The Lender,
however, may after an Event of Default shall occur or during the continuance of
a default and upon notice to the Pledgor revoke such power and authority and in
any event shall have the authority and right to notify any parties obligated on
any of the Accounts to make payment to the Lender of any amounts due or to
become due thereunder, and enforce collection of performance under any of the
Accounts by suit or otherwise, and surrender, release, or exchange all or any
part thereof, or compromise or extend or renew for any period (whether or not
longer than the original period) any indebtedness thereunder or evidenced
thereby. After an Event of Default, the Pledgor will, at its own expense, notify
any parties obligated on any of the Accounts to make payments to the Lender and
will hold in trust and immediately forward to the Lender all payments received
by the Pledgor in the form received, with all necessary endorsements thereon for
collection by the Lender.
5. Transfer and Other Liens. The Pledgor will not sell, lease,
transfer, exchange, or otherwise dispose of the Collateral, or any part hereof,
without the prior written consent of the Lender and will not permit any lien,
security interest, or other encumbrance to attach to the Collateral, or any part
thereof, other than those in favor of the Lender or those permitted by the
Lender in writing, except that the Pledgor may, in the ordinary course of its
business and in the absence of an Event of Default hereunder or notice by the
Lender to the Pledgor under this Agreement, collect its Accounts.
6. Financial Statements, Books, and Records. The Pledgor will
(a) at all times maintain, in accordance with generally accepted accounting
principles consistently applied, accurate and complete books and records
pertaining to the operation, business affairs, and financial condition of the
Pledgor and pertaining to the Collateral and any contracts and collections
relating to the Collateral, (b) furnish to the Lender promptly upon request,
certified by an officer of the Pledgor and in the form and content and at the
intervals specified by the Lender, such financial statements, reports,
schedules, and other information with respect to the operation, business
affairs, and financial condition of the Pledgor as the Lender may from time to
time require, (c) at all reasonable times, and without hindrance or delay,
permit the Lender or any person designated by the Lender to enter any place of
business of the Pledgor or any other premises where any books, records, and
other data concerning the Pledgor and/or
3.
<PAGE> 4
the Collateral may be kept and to examine, audit, inspect, and make extracts
from and photocopies of any such books, records, and other data, (d) furnish to
the Lender promptly upon request, certified by an officer of the Pledgor and in
the form and content specified by the Lender, lists of purchasers of inventory,
aging of accounts, aggregate cost or wholesale market value of inventory,
schedules of equipment, and other data concerning the Collateral as the Lender
may from time to time specify, and (e) mark its books and records in a manner
satisfactory to the Lender so that the Lender's rights in and to the Collateral
will be shown.
7. Name of Pledgor, Places of Business, and Location of
Collateral. The Pledgor represents and warrants that its correct legal name is
as specified on the signature lines of this Agreement, and each legal or trade
name of the Pledgor for the previous five (5) years (if different from the
Pledgor's current legal name) is as specified below the signature lines of this
Agreement. Without the prior written consent of the Lender, the Pledgor will not
change its name, dissolve, merge, or consolidate with any other person. The
Pledgor warrants that the address of the Pledgor's chief executive office and
the address of each other place of business of the Pledgor are as specified
below the signature lines of this Agreement. The Collateral and all books and
records pertaining to the Collateral have been, are, and will be located at the
Pledgor's chief executive office specified below or at any other place of
business which may be specified below the signature lines of this Agreement.
Without the prior written consent of the Lender, the Pledgor will not open any
new place of business or change the location of any Collateral to any place not
specified below. The Pledgor will immediately advise the Lender in writing of
the opening of any new place of business and of any change in the location of
the places where the Collateral or any part thereof, or the books and records
concerning the Collateral or any part thereof, are kept.
8. Care of Collateral. The Pledgor will maintain the
Collateral in first-class condition and will not do or permit anything to be
done to the Collateral that may impair its value. The Lender shall have no duty
to, and the Pledgor hereby releases the Lender from all claims for loss or
damage caused by the failure to, collect or enforce any Account or to preserve
rights against prior parties to the Collateral.
9. Taxes. The Pledgor will pay as and when due and payable all
taxes, levies, license fees, assessments, and other impositions levied on the
Collateral or any part thereof or for its use and operation.
10. Specific Assignments. Promptly upon request by the Lender,
the Pledgor will execute and deliver to the Lender written assignments,
endorsements, and/or schedules, in form and content satisfactory to the Lender,
of specific Accounts or groups of Accounts, but the security interest of the
Lender hereunder shall not be limited in any way by such assignments.
11. Government Contracts. If any Account arises out of a
contract or contracts with the United States of America or any department,
agency, or instrumentality thereof, the Pledgor shall immediately notify the
Lender thereof in writing and execute any
4.
<PAGE> 5
instruments or take any steps required by the Lender in order that all moneys
due or to become due under such contract or contracts shall be assigned to the
Lender and notice thereof given under the Federal Assignment of Claims Act or
other applicable law.
12. Collateral Account.
(a) Subject to the exercise by Fidelity of its rights and
remedies under the Fidelity Agreement referred to in Section 20 hereof, the
Pledgor will, upon the request of the Lender at any time and from time to time
both prior to and after the occurrence of an Event of Default hereunder, deposit
or cause to be deposited to a bank account designated by the Lender and from
which the Lender alone has power of access and withdrawal (collectively, the
"Collateral Account") all checks, drafts, cash, and other remittances in payment
or on account of payment of the Accounts, and the cash proceeds of any returned
goods, the sale or lease of which gave rise to an Account and, when permitted by
the paying companies (including without limitation, Medicaid and Mutual of Omaha
Medicare payment [EDS-Title XVIII]) all such payments therefrom (all of the
foregoing herein collectively referred to as "Items of Payment"). The Pledgor
shall deposit the Items of Payment for credit to the Collateral Account within
two (2) business days of the receipt thereof, and in precisely the form
received, except for the endorsement of the Pledgor where necessary to permit
the collection of the Items of Payment, which endorsement the Pledgor hereby
agrees to make. Pending such deposit, the Pledgor will not commingle any of the
Items of Payment with any of its other funds or property but will hold them
separate and apart. The Lender may at any time and from time to time apply the
whole or any part of the collected funds credited to the Collateral Account
against the Pledgor's Liabilities.
(b) So long as Lender, in its discretion, so desires,
Pledgor shall establish and maintain a blocked account in Lender's name with a
bank satisfactory to Lender (the "Collecting Bank") to which Pledgor will
immediately deposit all payments from account debtors in the identical form in
which such payment was made, whether by cash or check.
(c) The Collecting Bank shall acknowledge and agree, in a
manner satisfactory to Lender, that all payments made to such blocked account
are the sole and exclusive property of the Lender, that the Collecting Bank has
no right of set off against such blocked account, and that the Collecting Bank
will wire or otherwise transfer in immediately available funds, in a manner
satisfactory to Lender, funds deposited in such blocked account to Lender on a
daily basis as soon as such funds are collected. Pledgor hereby agrees that all
payments made to such blocked account or otherwise received by Lender, whether
on Accounts or as proceeds of the Collateral or otherwise, will be the sole and
exclusive property of Lender and will be applied on account of the Obligations.
With respect to any payment relating to or proceeds of any Accounts or the
Collateral which come into its possession or under its control, Pledgor and any
affiliates, subsidiaries, shareholders, directors, officers, employees, agents
or persons acting for or in concert with Pledgor shall receive any such item, as
trustee for Lender, as sole and exclusive property of Lender, and immediately
upon receipt thereof, Pledgor shall remit the same or cause the same to be
remitted in kind, to
5.
<PAGE> 6
Lender, at Lender's address set forth herein. Pledgor agrees to pay to Lender
any and all fees, costs, expenses which Lender incurs in connection with
obtaining and maintaining the blocked account and depositing for collection by
Lender any check or item of payment received or delivered to the Collecting Bank
or the Lender, and Pledgor further agrees to reimburse, indemnify and hold
harmless Lender from any claims asserted by the Collecting Bank in connection
with the blocked account or any returned or uncollected checks received by the
Collecting Bank as proceeds of the Collateral.
13. Rights of Lender and Duties of Pledgor. The Lender may at
any time and from time to time both prior to and after the occurrence of an
Event of Default hereunder (a) notify the account debtors obligated on any of
the Collateral to make payments thereon directly to the Lender, and to take
control of the cash and non-cash proceeds of any such Collateral; (b) charge to
the Pledgor any Item of Payment credited to the Collateral Account which is
dishonored by the drawee or maker thereof; (c) compromise, extend, or renew any
of the Collateral or deal with the same as it may deem advisable; (d) release,
make exchanges or substitutions for, or surrender all or any part of the
Collateral; (e) remove from the Pledgor's place of business all books, records,
ledger sheets, correspondence, invoices, and documents relating to or evidencing
any of the Collateral or, without cost or expense to the Lender, make such use
of the Pledgor's place(s) of business as may be reasonably necessary to
administer, control, and collect the Collateral; (f) repair, alter, or supply
goods, if any, necessary to fulfill in whole or in part the purchase order of
any account debtor; (g) demand, collect, receipt for, and give renewals,
extensions, discharges, and releases of any of the Collateral; (h) institute and
prosecute legal and equitable proceedings to enforce collection of, or realize
upon, any of the Collateral; (i) settle, renew, extend, compromise, compound,
exchange, or adjust claims with respect to any of the Collateral or any legal
proceedings brought with respect thereto; (j) endorse the name of the Pledgor
upon any Items of Payment relating to the Collateral or upon any proof of claim
in bankruptcy against an account debtor; and (k) receive and open all mail
addressed to the Pledgor and, if an Event of Default exists hereunder, notify
postal authorities to change the address for the delivery of mail to the Pledgor
to such address as the Lender may designate; and for purposes of taking the
actions described in Subsections (a) through (k) the Pledgor hereby irrevocably
appoints the Lender as its attorney-in-fact (which appointment being coupled
with an interest is irrevocable while any of Pledgor's Liabilities remain
unpaid), with power of substitution, in the name of the Lender or in the name of
the Pledgor or otherwise, for the use and benefit of the Lender, but at the cost
and expense of the Pledgor and without notice to the Pledgor. The Pledgor will
(a) make no material change to the terms of any Account without the prior
written permission of the Lender; (b) on demand, make available in form
acceptable to the Lender shipping documents and delivery receipts evidencing the
shipment of goods which gave rise to an Account, completion certificate, or
other proof of the satisfactory performance of services which gave rise to an
Account, copies of the invoices arising out of an Account, and the Pledgor's
copy of any written contract or order from which an Account arose; and (c) when
requested, regularly advise the Lender whenever an account debtor returns or
refuses to retain any goods, the sale or lease of which gave rise to an Account,
and will comply with any instructions which the Lender may give regarding the
sale or other disposition of such returns.
6.
<PAGE> 7
14. Performance by Lender. If the Pledgor fails to perform,
observe, or comply with any of the conditions, terms, or covenants contained in
this Agreement, the Lender, without notice to or demand upon the Pledgor and
without waiving or releasing any of the Pledgor's Liabilities or any Event of
Default, may (but shall be under no obligation to) at any time thereafter
perform such conditions, terms, or covenants for the account and at the expense
of the Pledgor, and may enter upon any place of business or other premises of
the Pledgor for that purpose and take all such action thereon as the Lender may
consider necessary or appropriate for such purpose. All sums paid or advanced by
the Lender in connection with the foregoing and all costs and expenses
(including, without limitation, reasonable attorneys' fees actually incurred and
expenses) incurred in connection therewith (collectively, the "Expense
Payments") together with interest thereon at the post-default rate of interest
provided for in the Note (but in no event higher than the maximum interest rate
permitted by applicable law), from the date of payment until repaid in full,
shall be paid by the Pledgor to the Lender on demand and shall constitute and
become a part of the Pledgor's Liabilities secured hereby.
15. Default. The occurrence of any one or more of the
following events shall constitute an event of default (an "Event of Default")
under this Agreement: (a) failure of the Pledgor to pay any of the Pledgor's
Liabilities as and when due and payable, after giving effect to any applicable
grace period; (b) failure of the Pledgor to perform, observe, or comply with any
of the provisions of this Agreement or of any of the other Loan Documents, after
giving effect to any applicable grace period; (c) the occurrence of an Event of
Default (as defined therein) under any of the other Loan Documents; (d) any
information contained in any financial statement, application, schedule, report,
or any other document given by the Pledgor or by any other person in connection
with the Pledgor's Liabilities, with the Collateral, or with any of the Loan
Documents, including any Borrowing Base Certificate referred to in Section 4 of
the RCA Security Agreement, is not in all respects true and accurate or the
Pledgor or such other person omitted to state any material fact or any fact
necessary to make such information not misleading; (e) the Pledgor is generally
not paying debts as such debts become due; (f) the filing of any petition for
relief under any provision of the Federal Bankruptcy Code or any similar state
law is brought by or against the Pledgor; (g) an application for the appointment
of a receiver for, the making of a general assignment for the benefit of
creditors by or the insolvency of, the Pledgor; (h) the dissolution, merger,
consolidation, or reorganization of the Pledgor; (i) suspension of the operation
of the Pledgor's present business; (j) transfer of a substantial part
(determined by market value) of the Pledgor's property; (k) sale, transfer, or
exchange, either directly or indirectly, of a controlling stock interest of the
Pledgor, other than to the Lender; (l) termination or withdrawal of any guaranty
for the Pledgor's Liabilities; (m) the Pension Benefit Guaranty Corporation
commences proceedings under Section 4042 of the Employee Retirement Income
Security Act of 1974 ("ERISA"), as amended, to terminate any employee pension
benefit plan of the Pledgor; (n) the determination in good faith by the Lender
that a material adverse change has occurred in the financial condition of the
Pledgor from the condition set forth in the most recent financial statement of
the Pledgor heretofore furnished to the Lender, or from the financial condition
of the Pledgor as heretofore most recently disclosed to the Lender in
7.
<PAGE> 8
any other manner; (o) the determination in good faith by the Lender that the
prospect of payment of any of the Pledgor's Liabilities is impaired for any
reason; or (p) the occurrence of an "Event of Default" under the Fidelity
Agreement referred to in Section 20 hereof.
16. Rights and Remedies upon Default.
(a) Upon and after an Event of Default, Lender shall have,
subject to Section 20 hereof, the following rights and remedies:
(i) In addition to any other rights and remedies
contained in this Agreement and in all the other Loan Documents, all the rights
and remedies of a secured party under the Uniform Commercial Code of the State
of New York or other applicable laws, all of which rights and remedies shall be
cumulative and non-exclusive, to the extent permitted by law;
(ii) The right to open Pledgor's mail and to collect
any and all amounts due Pledgor from account debtors; and
(iii) The right to: (A) demand payment of the
Accounts; (B) enforce payment of the Accounts by legal proceedings or otherwise;
(C) exercise all of Pledgor's rights and remedies with respect to the collection
of the Accounts; (D) settle, adjust, compromise, extend or renew the Accounts;
(E) settle, adjust or compromise any legal proceedings brought to collect the
Accounts; (F) to the extent permitted by applicable law, sell or assign the
Accounts upon such terms, for such amounts and at such time or times as Lender
deems advisable; (G) discharge and release the Accounts; (H) take control, in
any manner, of any item of payment or proceeds from any account debtor; (I)
prepare, file and sign Pledgor's name on any proof of claim in bankruptcy or
similar document against any account debtor; (J) prepare, file, and sign
Pledgor's name on any notice of lien, assignment or satisfaction of lien or
similar document in connection with the Accounts; (K) do all acts and things
necessary, in Lender's sole discretion, to fulfill Pledgor's obligations under
the Loan Documents; (L) endorse the name of Pledgor upon any chattel paper,
document, instrument, invoice, freight bill, bill of lading or similar document
or agreement relating to the Accounts; (M) use Pledgor's stationery and sign
Pledgor's name to verifications of the Accounts and notices thereof to account
debtors; and (N) use the information recorded on or contained in any data
processing equipment or computer hardware or software relating to the Accounts
or proceeds thereof to which Pledgor has access.
(b) Upon and after an Event of Default, Lender shall have,
subject to Section 20 hereof, the right to: (i) sell or otherwise dispose of all
or any Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all as Lender, in
its sole discretion, may deem advisable; (ii) adjourn such sales from time to
time with or without notice; and (iii) to conduct such sales on Pledgor's
premises or elsewhere and use Pledgor's premises without charge for such sales
for such time or times as
8.
<PAGE> 9
Lender may see fit. Lender is hereby granted a license or other right to use,
without charge, Pledgor's labels, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in advertising
for sale and selling any Collateral. Pledgor's rights under all licenses and all
franchise agreements shall inure to Lender's benefit. Lender shall have the
right to sell, lease or otherwise dispose of any Collateral, or any part
thereof, for cash, credit or any combination thereof, and Lender may purchase
all or any part of the Collateral at public or, to the extent permitted by law,
private sale and, in lieu of actual payment of such purchase price, may set off
the amount of such price against Pledgor's obligations to Lender. The proceeds
realized from the sale of any Collateral shall be applied first to the
reasonable costs, expenses and attorneys' fees and expenses incurred by Lender
for collection and for acquisition, completion, protection, removal, storage,
sale and delivery of the Collateral; second, to interest due upon the
indebtedness under the Note; third, to the principal of the indebtedness under
the Note; and fourth, to the payment of all other Pledgor Liabilities. If any
deficiency shall arise, Pledgor shall remain liable to Lender therefor.
(c) Any notice required to be given by Lender of a sale,
lease or other disposition of the Collateral or any other intended action by
Lender, if deposited in the United States mail, postage prepaid and addressed to
Pledgor at its address set forth herein, at least five days prior to such
proposed action, shall constitute commercially reasonable and fair notice
thereof to Pledgor.
(d) Upon the occurrence of an Event of Default which has
not been cured, the rate of interest accruing on the indebtedness evidenced by
the Note shall, at Lender's option, be increased to a default rate of interest
provided in the Note.
17. Remedies Cumulative. Each right, power, and remedy of the
Lender as provided for in this Agreement or in the other Loan Documents or now
or hereafter existing at law or in equity of by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power,
or remedy provided for in this Agreement or in the other Loan Documents or now
or hereafter existing at law or in equity or by statute or otherwise, and the
exercise or beginning of the exercise by the Lender or any one or more of such
rights, powers, or remedies shall not preclude the simultaneous or later
exercise by the Lender of any or all such other rights, powers, or remedies.
18. Waiver. No failure or delay by the Lender to insist upon
the strict performance of any term, condition, covenant, or agreement of this
Agreement or of the other Loan Documents, or to exercise any right, power, or
remedy consequent upon a breach thereof, shall constitute a waiver of any such
term, condition, covenant, or agreement or of any such breach, or such term,
condition, covenant, or agreement or of any such breach, or preclude the Lender
from exercising any such right, power, or remedy at any later time or times. By
accepting payment after the due date of any of the Pledgor's Liabilities, the
Lender shall not be deemed to have waived the right either to require payment
when due of all other Pledgor's Liabilities or to declare an Event of Default
for failure to effect such payment of
9.
<PAGE> 10
any such other Pledgor's Liabilities. The Pledgor waives presentment, notice of
dishonor, and notice of non-payment with respect to Accounts.
19. Miscellaneous. Time is of the essence of this Agreement.
The section headings of this Agreement are for convenience only and shall not
limit or otherwise affect any of the terms hereof. Neither this Agreement nor
any term, condition, covenant, or agreement hereof may be changed, waived,
discharged, or terminated orally but only by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge, or
termination is sought. This Agreement shall be governed by the laws of the State
of New York and shall be binding upon the Pledgor and its heirs, executors,
administrators, legal representatives, successors, and assigns, and shall inure
to the benefit of the Lender and its successors and assigns. As used herein, the
singular number shall include the plural, the plural the singular, and the use
of the masculine, feminine, or neuter gender shall include all genders, as the
context may require, and the term "person" shall include an individual, a
corporation, an association, a partnership, a trust, and an organization.
Invalidation of any one or more of the provisions of their Agreement shall in no
way affect any of the other provisions hereof, which shall remain in full force
and effect. All references herein to any document, instrument, or agreement
shall be deemed to refer to such document, instrument, or agreement as the same
may be amended, modified, restated, supplemented, or replaced from time to time.
Unless varied by this Agreement, all terms used herein which are defined by the
Uniform Commercial Code of the State of New York shall have the same meanings
hereunder an assigned to them by the Uniform Commercial Code of the State of New
York.
20. Senior Security Agreement. Notwithstanding anything
contained herein to the contrary, this Agreement and the security interest
created hereby shall be junior to the security interest in favor of Fidelity
National Bank ("Fidelity") pursuant to that certain Security Agreement dated as
of December 30, 1994, as such agreement has been and may be amended from time to
time (the "Fidelity Agreement"). To the extent that there is any inconsistency
between the exercise of the Lender's rights and remedies provided for herein and
the exercise by Fidelity of its rights and remedies pursuant to the Fidelity
Agreement, the exercise of the Lender's rights and remedies provided for herein
shall be subordinate to any exercise by Fidelity of its rights and remedies
pursuant to the Fidelity Agreement. The Pledgor represents and warrants that
Fidelity has consented to this Agreement and the security interest created
hereby.
10.
<PAGE> 11
IN WITNESS WHEREOF, the Pledgor has caused its duly authorized
officers to execute this Agreement and to affix its corporate seal hereto, as of
the day and year first written above.
PLEDGOR:
CAPITOL CARE MANAGEMENT COMPANY,
a Georgia corporation
By:
-----------------------------------------
Name:
Title:
Attest:
-------------------------------------
Secretary
[CORPORATE SEAL]
Address of Pledgor's chief executive
office:
6000 Lake Forrest Drive
Suite 200
Atlanta, Georgia 30328
Fulton County, Georgia
Address(es) where Collateral is Address(es) of other place(s) of business
to be located: of the Pledgor:
6000 Lake Forrest Drive (1)
Suite 200 -----------------------------------
Atlanta, GA 30328
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
11.
<PAGE> 12
Previous legal and/or trade name(s) of the Pledgor:
(1)
--------------------------
(2)
--------------------------
12.
<PAGE> 13
EXHIBIT "A"
1. Security interest in favor of Fidelity National Bank
pursuant to a Security Agreement dated as of December 30, 1994, as such
agreement has been and may be amended from time to time (the "Fidelity
Agreement").
2. Financing statements have been filed in the states of
Georgia, Tennessee, Florida and Alabama in connection with the security
interests granted pursuant to the Fidelity Agreement.
13.
<PAGE> 1
EXHIBIT 10.44
SUBSIDIARY SECURITY AGREEMENT
THIS SUBSIDIARY SECURITY AGREEMENT (this "Agreement") is made
as of this ____ day of July 1997 (the "Effective Date"), by each of West
Tennessee, Inc., Lake Forest Healthcare Center, Inc., Statesboro HealthCare,
Inc., Lake Health Care Center, Inc., Roberta Health Care Center, Inc.,
Gardendale Health Care Center, Inc., Southside Health Care Center, Inc.,
Gainesville Health Care Center, Inc., Charlton City Healthcare, Inc., Jeff
Davis Healthcare, Inc., Seaside Retirement, Inc., Mid-Florida, Inc., Bibb
Health & Rehabilitation, Inc., Brent-Lox Hall Nursing Home, Inc., Libbie
Rehabilitation Center, Inc., Phoenix Associates, Inc., Summer's Landing, Inc.,
Riveria Retirement, Inc., Pine Manor Healthcare, Inc., Suncoast Retirement,
Inc., Atrium of Jacksonville and The Atrium Nursing Home, Inc. (each, a
"Pledgor," and collectively, the "Pledgors"), in favor of SUN HEALTHCARE GROUP,
INC., a Delaware corporation (the "Lender"), witnesseth:
RECITALS
WHEREAS, the Lender has agreed to make a loan to Retirement
Care Associates, Inc., a Colorado corporation ("RCA"), Retirement Management
Corporation, a Georgia corporation ("RMC"), and Capitol Care Management
Company, Inc., a Georgia corporation ("CCMC") in the principal amount of
$5,000,000.00 (the "Loan") pursuant to the terms and conditions of that certain
Promissory Note made by RCA, RMC and CCMC (as Maker) to the Lender (as Payee)
dated as of even date herewith (the "Note");
WHEREAS, each Pledgor acknowledges that it is a direct or
indirect wholly owned subsidiary of RCA and will derive substantial direct and
indirect benefit from the transactions contemplated by the Note;
WHEREAS, as a condition to the Loan, each Pledgor has agreed
to execute and deliver a Subsidiary Guaranty, dated as of even date herewith
(the "Subsidiary Guaranty") to the Lender; and
WHEREAS, in connection with the transactions contemplated by
the Note and the Subsidiary Guaranty, each Pledgor has agreed to enter into
this Agreement as security for the payment and performance of such Pledgor's
obligations hereunder and under the Subsidiary Guaranty.
NOW, THEREFORE, in order to secure the prompt payment of all
past, present, and future indebtedness, liabilities, and obligations of each
Pledgor to the Lender of any nature whatsoever in connection with the
Subsidiary Guaranty, together with all obligations of each Pledgor to the
Lender hereunder, however and wherever created, arising, or evidenced, whether
direct or indirect, absolute, contingent, or otherwise, now or hereafter
existing or due or to become due (collectively, the "Pledgors' Liabilities"),
and the
1.
<PAGE> 2
performance by each Pledgor of all the terms, conditions, and provisions of
this Agreement and of any other loan document previously, simultaneously or
hereafter executed and delivered by the Pledgors and/or any other person,
singly or jointly with another person or persons, evidencing, securing,
guarantying, or in connection with any of the Pledgors' Liabilities, including
the Subsidiary Guaranty (collectively, the "Loan Documents"), each Pledgor
agrees with the Lender as follows:
1. Collateral. To secure the payment and performance of
the Pledgors' Liabilities and each Pledgor's performance of its obligations
under the Loan Documents, and subject to Section 20 hereof, each Pledgor hereby
grants to the Lender a security interest in, and security title to, all of the
following (being referred to collectively herein as the "Collateral"): (i) such
Pledgor's present or future accounts, accounts receivable, other receivables,
contract rights, issues, profits, rents, chattel paper, instruments and
documents, together with all of the proceeds, cash or non-cash, thereof,
however acquired, or now or hereafter existing, including, without limitation,
all reimbursable costs or payments from Medicaid and Medicare, or other state
or federal governmental agencies, amounts due from clients and third party
providers, rights to management fees, and amounts due to such Pledgor from
advances to any of its managed or affiliated companies, (ii) all revenues
payable to and rights to distributions of such Pledgor from agreements or
contracts with residents of facilities owned, leased or managed by such Pledgor
and all rights to deposits from such residents and insurance benefits due to
such Pledgor with respect to such residents (excluding any escrow accounts
maintained on behalf of such residents), and (iii) all proceeds of the
foregoing (collectively, the "Accounts").
The term "Collateral" as used herein means each and all of the items of
Collateral described above, and the term "proceeds" as used herein includes,
without limitation, the proceeds of all insurance policies covering all or any
part of such items of Collateral.
2. Title to Collateral. Subject to Section 20 hereof, the
Pledgors jointly and severally warrant and represent that (i) they are the
lawful owner of the Collateral, and have the full right, power, and authority
to convey, transfer, and grant the security title and security interest in the
Collateral granted herein to the Lender; (ii) all licenses relating to the
Collateral are fully paid and freely assignable to Lender, and, upon the
occurrence of an Event of Default (as defined herein) and foreclosure by the
Lender, the Lender shall have all rights of the applicable Pledgor to any
Collateral licensed to such Pledgor or licensed by such Pledgor; (iii) the
Collateral is not, and so long as this Agreement is in effect will not be,
subject to any liens, claims, security interests, encumbrances, taxes, or
assessments, however described or denominated, except for liens, claims,
security interests and encumbrances in favor of the Lender and except as set
forth on Exhibit "A" hereto; (iv) no financing statement, mortgage, notice of
lien, deed of trust, deed to secure debt, security agreement, or any other
agreement or instrument creating an encumbrance, lien, charge against any of
the Collateral is in existence or on file in any public office, other than
financing statements (or other appropriate security documentation) filed on
behalf of the Lender or disclosed on Exhibit "A" hereto; and (v) all
information with respect to the Collateral and the Pledgors' Liabilities, or
2.
<PAGE> 3
any of them, set forth in any written schedule, certificate, or other document
at any time heretofore or hereafter furnished by RCA or any Pledgor to the
Lender, including any Borrowing Base Certificate referred to in Section 3 of
that certain Security Agreement dated as of even date herewith executed by RCA
to the Lender (the "RCA Security Agreement"), and all other written information
heretofore or hereafter furnished by each Pledgor to the Lender, is and will be
true and correct in all material respects as of the date furnished.
3. Further Assurances. Each Pledgor will defend its title
to the Collateral against all persons and will, upon request of the Lender, (a)
furnish such further assurances of title as may be required by the Lender, (b)
deliver and execute or cause to be delivered and executed, in form and content
satisfactory to the Lender, any financing statements, notices, certificates of
title, and other documents and pay the cost of filing or recording the same in
all public offices deemed necessary by the Lender, as well as any recordation,
documentary, or transfer tax required by law to be paid in connection with such
filing or recording, and (c) do such other acts as the Lender may request in
order to perfect, preserve, maintain, or continue the perfection of the
Lender's security interest in the Collateral and/or its priority.
4. Accounts, etc. Until such time as the Lender shall
notify any Pledgor in writing of the revocation of such power and authority,
such Pledgor, as agent for the Lender, will, at its own expense, diligently
collect, as and when due, all amounts owing under the Accounts, including the
taking of such action with respect to such collection as the Lender may request
from time to time, and to hold in trust and segregate for the Lender all funds
received from the Accounts; provided, however, that until an Event of Default
shall occur or would occur but for the passage of time, or giving of notice, or
both (such event being a "default"), such Pledgor may use or consume in the
ordinary course of its business any such collections on the Accounts in any
lawful manner not inconsistent with this Agreement and the other Loan
Documents. The Lender, however, may after an Event of Default shall occur or
during the continuance of a default and upon notice to any Pledgor revoke such
power and authority and in any event shall have the authority and right to
notify any parties obligated on any of the Accounts to make payment to the
Lender of any amounts due or to become due thereunder, and enforce collection
of performance under any of the Accounts by suit or otherwise, and surrender,
release, or exchange all or any part thereof, or compromise or extend or renew
for any period (whether or not longer than the original period) any
indebtedness thereunder or evidenced thereby. After an Event of Default, each
Pledgor will, at its own expense, notify any parties obligated on any of the
Accounts to make payments to the Lender and will hold in trust and immediately
forward to the Lender all payments received by the Pledgor in the form
received, with all necessary endorsements thereon for collection by the Lender.
5. Transfer and Other Liens. The Pledgors will not sell,
lease, transfer, exchange, or otherwise dispose of the Collateral, or any part
hereof, without the prior written consent of the Lender and will not permit any
lien, security interest, or other encumbrance to attach to the Collateral, or
any part thereof, other than those in favor of the Lender or those permitted by
the Lender in writing, except that each Pledgor may, in the ordinary course of
its
3.
<PAGE> 4
business and in the absence of an Event of Default hereunder or notice by the
Lender to such Pledgor under this Agreement, collect its Accounts.
6. Financial Statements, Books, and Records. Each Pledgor
will (a) at all times maintain, in accordance with generally accepted
accounting principles consistently applied, accurate and complete books and
records pertaining to the operation, business affairs, and financial condition
of such Pledgor and pertaining to the Collateral and any contracts and
collections relating to the Collateral, (b) furnish to the Lender promptly upon
request, certified by an officer of such Pledgor and in the form and content
and at the intervals specified by the Lender, such financial statements,
reports, schedules, and other information with respect to the operation,
business affairs, and financial condition of such Pledgor as the Lender may
from time to time require, (c) at all reasonable times, and without hindrance
or delay, permit the Lender or any person designated by the Lender to enter any
place of business of such Pledgor or any other premises where any books,
records, and other data concerning such Pledgor and/or the Collateral may be
kept and to examine, audit, inspect, and make extracts from and photocopies of
any such books, records, and other data, (d) furnish to the Lender promptly
upon request, certified by an officer of such Pledgor and in the form and
content specified by the Lender, lists of purchasers of inventory, aging of
accounts, aggregate cost or wholesale market value of inventory, schedules of
equipment, and other data concerning the Collateral as the Lender may from time
to time specify, and (e) mark its books and records in a manner satisfactory to
the Lender so that the Lender's rights in and to the Collateral will be shown.
7. Names of Pledgors, Places of Business, and Location of
Collateral. Each Pledgor represents and warrants that its correct legal name is
as specified on the signature lines of this Agreement, and each legal or trade
name of such Pledgor for the previous five (5) years (if different from such
Pledgor's current legal name) is as specified below the signature lines of this
Agreement. Without the prior written consent of the Lender, no Pledgor will
change its name, dissolve, merge, or consolidate with any other person. Each
Pledgor warrants that the address of such Pledgor's chief executive office and
the address of each other place of business of such Pledgor are as specified
below the signature lines of this Agreement. The Collateral and all books and
records pertaining to the Collateral have been, are, and will be located at the
applicable Pledgor's chief executive office specified below or at any other
place of business which may be specified below the signature lines of this
Agreement. Without the prior written consent of the Lender, no Pledgor will
open any new place of business or change the location of any Collateral to any
place not specified below. Each Pledgor will immediately advise the Lender in
writing of the opening of any new place of business and of any change in the
location of the places where the Collateral or any part thereof, or the books
and records concerning the Collateral or any part thereof, are kept.
8. Care of Collateral. Each Pledgor will maintain the
Collateral in first-class condition and will not do or permit anything to be
done to the Collateral that may impair its value. The Lender shall have no duty
to, and each Pledgor hereby releases the Lender from all claims for loss or
damage caused by the failure to, collect or enforce any Account or to preserve
rights against prior parties to the Collateral.
4.
<PAGE> 5
9. Taxes. Each Pledgor will pay as and when due and
payable all taxes, levies, license fees, assessments, and other impositions
levied on the Collateral or any part thereof or for its use and operation.
10. Specific Assignments. Promptly upon request by the
Lender, each Pledgor will execute and deliver to the Lender written
assignments, endorsements, and/or schedules, in form and content satisfactory
to the Lender, of specific Accounts or groups of Accounts, but the security
interest of the Lender hereunder shall not be limited in any way by such
assignments.
11. Government Contracts. If any Account arises out of a
contract or contracts with the United States of America or any department,
agency, or instrumentality thereof, each Pledgor shall immediately notify the
Lender thereof in writing and execute any instruments or take any steps
required by the Lender in order that all moneys due or to become due under such
contract or contracts shall be assigned to the Lender and notice thereof given
under the Federal Assignment of Claims Act or other applicable law.
12. Collateral Account.
(a) Subject to the exercise by Fidelity of its
rights and remedies under the Fidelity Agreement referred to in Section 20
hereof, each Pledgor will, upon the request of the Lender at any time and from
time to time both prior to and after the occurrence of an Event of Default
hereunder, deposit or cause to be deposited to a bank account designated by the
Lender and from which the Lender alone has power of access and withdrawal
(collectively, the "Collateral Account") all checks, drafts, cash, and other
remittances in payment or on account of payment of the Accounts, and the cash
proceeds of any returned goods, the sale or lease of which gave rise to an
Account and, when permitted by the paying companies (including without
limitation, Medicaid and Mutual of Omaha Medicare payment [EDS-Title XVIII])
all such payments therefrom (all of the foregoing herein collectively referred
to as "Items of Payment"). Each Pledgor shall deposit the Items of Payment for
credit to the Collateral Account within two (2) business days of the receipt
thereof, and in precisely the form received, except for the endorsement of such
Pledgor where necessary to permit the collection of the Items of Payment, which
endorsement such Pledgor hereby agrees to make. Pending such deposit, no
Pledgor will commingle any of the Items of Payment with any of its other funds
or property but will hold them separate and apart. The Lender may at any time
and from time to time apply the whole or any part of the collected funds
credited to the Collateral Account against the Pledgors' Liabilities.
(b) So long as Lender, in its discretion, so
desires, each Pledgor shall establish and maintain a blocked account in
Lender's name with a bank satisfactory to Lender (the "Collecting Bank") to
which such Pledgor will immediately deposit all payments from account debtors
in the identical form in which such payment was made, whether by cash or check.
5.
<PAGE> 6
(c) The Collecting Bank shall acknowledge and
agree, in a manner satisfactory to Lender, that all payments made to such
blocked account are the sole and exclusive property of the Lender, that the
Collecting Bank has no right of set off against such blocked account, and that
the Collecting Bank will wire or otherwise transfer in immediately available
funds, in a manner satisfactory to Lender, funds deposited in such blocked
account to Lender on a daily basis as soon as such funds are collected. Each
Pledgor hereby agrees that all payments made to such blocked account or
otherwise received by Lender, whether on Accounts or as proceeds of the
Collateral or otherwise, will be the sole and exclusive property of Lender and
will be applied on account of the Obligations. With respect to any payment
relating to or proceeds of any Accounts or the Collateral which come into its
possession or under its control, each Pledgor and any affiliates, subsidiaries,
shareholders, directors, officers, employees, agents or persons acting for or
in concert with such Pledgor shall receive any such item, as trustee for
Lender, as sole and exclusive property of Lender, and immediately upon receipt
thereof, such Pledgor shall remit the same or cause the same to be remitted in
kind, to Lender, at Lender's address set forth herein. Each Pledgor agrees to
pay to Lender any and all fees, costs, expenses which Lender incurs in
connection with obtaining and maintaining the blocked account and depositing
for collection by Lender any check or item of payment received or delivered to
the Collecting Bank or the Lender, and each Pledgor further agrees to
reimburse, indemnify and hold harmless Lender from any claims asserted by the
Collecting Bank in connection with the blocked account or any returned or
uncollected checks received by the Collecting Bank as proceeds of the
Collateral.
13. Rights of Lender and Duties of Pledgors. The Lender
may at any time and from time to time both prior to and after the occurrence of
an Event of Default hereunder (a) notify the account debtors obligated on any
of the Collateral to make payments thereon directly to the Lender, and to take
control of the cash and noncash proceeds of any such Collateral; (b) charge to
the applicable Pledgor any Item of Payment credited to the Collateral Account
which is dishonored by the drawee or maker thereof; (c) compromise, extend, or
renew any of the Collateral or deal with the same as it may deem advisable; (d)
release, make exchanges or substitutions for, or surrender all or any part of
the Collateral; (e) remove from each Pledgor's place of business all books,
records, ledger sheets, correspondence, invoices, and documents relating to or
evidencing any of the Collateral or, without cost or expense to the Lender,
make such use of each Pledgor's place(s) of business as may be reasonably
necessary to administer, control, and collect the Collateral; (f) repair,
alter, or supply goods, if any, necessary to fulfill in whole or in part the
purchase order of any account debtor; (g) demand, collect, receipt for, and
give renewals, extensions, discharges, and releases of any of the Collateral;
(h) institute and prosecute legal and equitable proceedings to enforce
collection of, or realize upon, any of the Collateral; (i) settle, renew,
extend, compromise, compound, exchange, or adjust claims with respect to any of
the Collateral or any legal proceedings brought with respect thereto; (j)
endorse the name of the applicable Pledgor upon any Items of Payment relating
to the Collateral or upon any proof of claim in bankruptcy against an account
debtor; and (k) receive and open all mail addressed to each Pledgor and, if an
Event of Default exists hereunder, notify postal authorities to change the
address for the delivery of mail to each Pledgor to such address as the Lender
may designate; and for purposes of taking
6.
<PAGE> 7
the actions described in Subsections (a) through (k) each Pledgor hereby
irrevocably appoints the Lender as its attorney-in-fact (which appointment
being coupled with an interest is irrevocable while any of Pledgors'
Liabilities remain unpaid), with power of substitution, in the name of the
Lender or in the name of such Pledgor or otherwise, for the use and benefit of
the Lender, but at the cost and expense of such Pledgor and without notice to
such Pledgor. Each Pledgor will (a) make no material change to the terms of any
Account without the prior written permission of the Lender; (b) on demand, make
available in form acceptable to the Lender shipping documents and delivery
receipts evidencing the shipment of goods which gave rise to an Account,
completion certificate, or other proof of the satisfactory performance of
services which gave rise to an Account, copies of the invoices arising out of
an Account, and such Pledgor's copy of any written contract or order from which
an Account arose; and (c) when requested, regularly advise the Lender whenever
an account debtor returns or refuses to retain any goods, the sale or lease of
which gave rise to an Account, and will comply with any instructions which the
Lender may give regarding the sale or other disposition of such returns.
14. Performance by Lender. If any Pledgor fails to
perform, observe, or comply with any of the conditions, terms, or covenants
contained in this Agreement, the Lender, without notice to or demand upon such
Pledgor and without waiving or releasing any of the Pledgors' Liabilities or
any Event of Default, may (but shall be under no obligation to) at any time
thereafter perform such conditions, terms, or covenants for the account and at
the expense of such Pledgor, and may enter upon any place of business or other
premises of such Pledgor for that purpose and take all such action thereon as
the Lender may consider necessary or appropriate for such purpose. All sums
paid or advanced by the Lender in connection with the foregoing and all costs
and expenses (including, without limitation, reasonable attorneys' fees
actually incurred and expenses) incurred in connection therewith (collectively,
the "Expense Payments") together with interest thereon at the post-default rate
of interest provided for in the Note (but in no event higher than the maximum
interest rate permitted by applicable law), from the date of payment until
repaid in full, shall be paid by such Pledgor to the Lender on demand and shall
constitute and become a part of the Pledgors' Liabilities secured hereby.
15. Default. The occurrence of any one or more of the
following events shall constitute an event of default (an "Event of Default")
under this Agreement: (a) failure of any Pledgor to pay any of the Pledgors'
Liabilities as and when due and payable, after giving effect to any applicable
grace period; (b) failure of any Pledgor to perform, observe, or comply with
any of the provisions of this Agreement or of any of the other Loan Documents,
after giving effect to any applicable grace period; (c) the occurrence of an
Event of Default (as defined therein) under the Note or any of the other Loan
Documents; (d) any information contained in any financial statement,
application, schedule, report, or any other document given by any Pledgor or by
any other person in connection with the Pledgors' Liabilities, with the
Collateral, or with the Note or any of the Loan Documents, including any
Borrowing Base Certificate referred to in Section 3 of the RCA Security
Agreement, is not in all respects true and accurate or any Pledgor or such
other person omitted to state any material fact or any fact
7.
<PAGE> 8
necessary to make such information not misleading; (e) any Pledgor is generally
not paying debts as such debts become due; (f) the filing of any petition for
relief under any provision of the Federal Bankruptcy Code or any similar state
law is brought by or against any Pledgor; (g) an application for the
appointment of a receiver for, the making of a general assignment for the
benefit of creditors by or the insolvency of, any Pledgor; (h) the dissolution,
merger, consolidation, or reorganization of any Pledgor; (i) suspension of the
operation of any Pledgor's present business; (j) transfer of a substantial part
(determined by market value) of any Pledgor's property; (k) sale, transfer, or
exchange, either directly or indirectly, of a controlling stock interest of any
Pledgor; (l) termination or withdrawal of any guaranty for the Pledgors'
Liabilities or the Note; (m) the Pension Benefit Guaranty Corporation commences
proceedings under Section 4042 of the Employee Retirement Income Security Act
of 1974 ("ERISA"), as amended, to terminate any employee pension benefit plan
of any Pledgor; (n) the determination in good faith by the Lender that a
material adverse change has occurred in the financial condition of any Pledgor
from the condition set forth in the most recent financial statement of such
Pledgor heretofore furnished to the Lender, or from the financial condition of
such Pledgor as heretofore most recently disclosed to the Lender in any other
manner; (o) the determination in good faith by the Lender that the prospect of
payment of any of the Pledgors' Liabilities is impaired for any reason; or (p)
the occurrence of an "Event of Default" under the Fidelity Agreement referred
to in Section 20 hereof.
16. Rights and Remedies upon Default.
(a) Upon and after an Event of Default, Lender
shall have, subject to Section 20 hereof, the following rights and remedies:
(i) In addition to any other rights
and remedies contained in this Agreement and in all the other Loan Documents
and the Note, all the rights and remedies of a secured party under the Uniform
Commercial Code of the State of New York or other applicable laws, all of which
rights and remedies shall be cumulative and non-exclusive, to the extent
permitted by law;
(ii) The right to open each Pledgor's
mail and to collect any and all amounts due each Pledgor from account debtors;
and
(iii) The right to: (A) demand payment
of the Accounts; (B) enforce payment of the Accounts by legal proceedings or
otherwise; (C) exercise all of each Pledgor's rights and remedies with respect
to the collection of the Accounts; (D) settle, adjust, compromise, extend or
renew the Accounts; (E) settle, adjust or compromise any legal proceedings
brought to collect the Accounts; (F) to the extent permitted by applicable law,
sell or assign the Accounts upon such terms, for such amounts and at such time
or times as Lender deems advisable; (G) discharge and release the Accounts; (H)
take control, in any manner, of any item of payment or proceeds from any
account debtor; (I) prepare, file, and sign any Pledgor's name on any proof of
claim in bankruptcy or similar document against any account debtor; (J)
prepare, file, and sign any Pledgor's name on any notice of lien,
8.
<PAGE> 9
assignment or satisfaction of lien or similar document in connection with the
Accounts; (K) do all acts and things necessary, in Lender's sole discretion, to
fulfill each Pledgor's obligations under the Loan Documents; (L) endorse the
name of each Pledgor upon any chattel paper, document, instrument, invoice,
freight bill, bill of lading or similar document or agreement relating to the
Accounts; (M) use each Pledgor's stationery and sign each Pledgor's name to
verifications of the Accounts and notices thereof to account debtors; and (N)
use the information recorded on or contained in any data processing equipment
or computer hardware or software relating to the Accounts or proceeds thereof
to which each Pledgor has access.
(b) Upon and after an Event of Default, Lender
shall have, subject to Section 20 hereof, the right to: (i) sell or otherwise
dispose of all or any Collateral in its then condition, or after any further
manufacturing or processing thereof, at public or private sale or sales, with
such notice as may be required by law, in lots or in bulk, for cash or on
credit, all as Lender, in its sole discretion, may deem advisable; (ii) adjourn
such sales from time to time with or without notice; and (iii) to conduct such
sales on each Pledgor's premises or elsewhere and use each Pledgor's premises
without charge for such sales for such time or times as Lender may see fit.
Lender is hereby granted a license or other right to use, without charge, each
Pledgor's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks and advertising matter, or any property of a
similar nature, as it pertains to the Collateral, in advertising for sale and
selling any Collateral. Each Pledgor's rights under all licenses and all
franchise agreements shall inure to Lender's benefit. Lender shall have the
right to sell, lease or otherwise dispose of any Collateral, or any part
thereof, for cash, credit or any combination thereof, and Lender may purchase
all or any part of the Collateral at public or, to the extent permitted by law,
private sale and, in lieu of actual payment of such purchase price, may set off
the amount of such price against each Pledgor's obligations to Lender. The
proceeds realized from the sale of any Collateral shall be applied first to the
reasonable costs, expenses and attorneys' fees and expenses incurred by Lender
for collection and for acquisition, completion, protection, removal, storage,
sale and delivery of the Collateral; second, to the indebtedness under the
Subsidiary Guaranty; and third, to the payment of all other Pledgor
Liabilities. If any deficiency shall arise, each Pledgor shall remain liable to
Lender therefor.
(c) Any notice required to be given by Lender
of a sale, lease or other disposition of the Collateral or any other intended
action by Lender, if deposited in the United States mail, postage prepaid and
addressed to any Pledgor at its address set forth herein, at least five days
prior to such proposed action, shall constitute commercially reasonable and
fair notice thereof to such Pledgor.
(d) Upon the occurrence of an Event of Default
which has not been cured, the rate of interest accruing on the indebtedness
evidenced by the Note shall, at Lender's option, be increased to a default rate
of interest provided in the Note.
17. Remedies Cumulative. Each right, power, and remedy
of the Lender as provided for in this Agreement or in the other Loan Documents
or the Note or now or
9.
<PAGE> 10
hereafter existing at law or in equity of by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power,
or remedy provided for in this Agreement or in the other Loan Documents or the
Noted or now or hereafter existing at law or in equity or by statute or
otherwise, and the exercise or beginning of the exercise by the Lender or any
one or more of such rights, powers, or remedies shall not preclude the
simultaneous or later exercise by the Lender of any or all such other rights,
powers, or remedies.
18. Waiver. No failure or delay by the Lender to insist
upon the strict performance of any term, condition, covenant, or agreement of
this Agreement or of the other Loan Documents or of the Note, or to exercise
any right, power, or remedy consequent upon a breach thereof, shall constitute
a waiver of any such term, condition, covenant, or agreement or of any such
breach, or such term, condition, covenant, or agreement or of any such breach,
or preclude the Lender from exercising any such right, power, or remedy at any
later time or times. By accepting payment after the due date of any of the
Pledgors' Liabilities, the Lender shall not be deemed to have waived the right
either to require payment when due of all other Pledgors' Liabilities or to
declare an Event of Default for failure to effect such payment of any such
other Pledgors' Liabilities. Each Pledgor waives presentment, notice of
dishonor, and notice of non-payment with respect to Accounts.
19. Miscellaneous. Time is of the essence of this
Agreement. The section headings of this Agreement are for convenience only and
shall not limit or otherwise affect any of the terms hereof. Neither this
Agreement nor any term, condition, covenant, or agreement hereof may be
changed, waived, discharged, or terminated orally but only by an instrument in
writing signed by the party against whom enforcement of the change, waiver,
discharge, or termination is sought. This Agreement shall be governed by the
laws of the State of New York and shall be binding upon each Pledgor and its
heirs, executors, administrators, legal representatives, successors, and
assigns, and shall inure to the benefit of the Lender and its successors and
assigns. As used herein, the singular number shall include the plural, the
plural the singular, and the use of the masculine, feminine, or neuter gender
shall include all genders, as the context may require, and the term "person"
shall include an individual, a corporation, an association, a partnership, a
trust, and an organization. Invalidation of any one or more of the provisions
of their Agreement shall in no way affect any of the other provisions hereof,
which shall remain in full force and effect. All references herein to any
document, instrument, or agreement shall be deemed to refer to such document,
instrument, or agreement as the same may be amended, modified, restated,
supplemented, or replaced from time to time. Unless varied by this Agreement,
all terms used herein which are defined by the Uniform Commercial Code of the
State of New York shall have the same meanings hereunder an assigned to them by
the Uniform Commercial Code of the State of New York.
20. Senior Security Agreement. Notwithstanding anything
contained herein to the contrary, this Agreement and the security interest
created hereby shall be junior to the security interest in favor of Fidelity
National Bank ("Fidelity") pursuant to that certain
10.
<PAGE> 11
Security Agreement dated as of December 30, 1994, as such agreement has been
and may be amended from time to time (the "Fidelity Agreement"). To the extent
that there is any inconsistency between the exercise of the Lender's rights and
remedies provided for herein and the exercise by Fidelity of its rights and
remedies pursuant to the Fidelity Agreement, the exercise of the Lender's
rights and remedies provided for herein shall be subordinate to any exercise by
Fidelity of its rights and remedies pursuant to the Fidelity Agreement. Each
Pledgor represents and warrants that Fidelity has consented to this Agreement
and the security interest created hereby.
11.
<PAGE> 12
IN WITNESS WHEREOF, each Pledgor has caused its duly
authorized officers to execute this Agreement and to affix its corporate seal
hereto, as of the day and year first written above.
PLEDGORS:
WEST TENNESSEE, INC.
By:
--------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Attest:
----------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
Address(es) of other place(s) of business
of the above Pledgor:
(1)
---------------------------------
---------------------------------
---------------------------------
(2) ---------------------------------
---------------------------------
---------------------------------
12.
<PAGE> 13
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
---------------------------------
---------------------------------
---------------------------------
(2)
---------------------------------
---------------------------------
---------------------------------
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
---------------------------------
(2)
---------------------------------
LAKE FOREST HEALTHCARE CENTER,
INC.
By:
--------------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Attest:
----------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
13.
<PAGE> 14
Address(es) of other place(s) of
business of the above Pledgor:
(1)
---------------------------------
---------------------------------
---------------------------------
(2)
---------------------------------
---------------------------------
---------------------------------
Address(es) where Collateral of the
above Pledgor is to be located:
(1)
---------------------------------
---------------------------------
---------------------------------
(2)
---------------------------------
---------------------------------
---------------------------------
Previous legal and/or trade name(s) of
the above Pledgor:
(1)
---------------------------------
(2)
---------------------------------
STATESBORO HEALTHCARE, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Attest:
------------------------------------
Secretary
14.
<PAGE> 15
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
Address(es) of other place(s) of business of
the above Pledgor:
(1)
--------------------------------------
--------------------------------------
--------------------------------------
(2)
--------------------------------------
--------------------------------------
--------------------------------------
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
--------------------------------------
--------------------------------------
--------------------------------------
(2)
--------------------------------------
--------------------------------------
--------------------------------------
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
--------------------------------------
(2)
--------------------------------------
15.
<PAGE> 16
LAKE HEALTH CARE CENTER, INC.
By:
--------------------------------------------------
Name:
---------------------------------------------
Title:
--------------------------------------------
Attest:
----------------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
----------------------------------------------
----------------------------------------------
----------------------------------------------
----------------------------------------------
Address(es) of other place(s) of business of
the above Pledgor:
(1)
--------------------------------------
--------------------------------------
--------------------------------------
(2)
--------------------------------------
--------------------------------------
--------------------------------------
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
--------------------------------------
--------------------------------------
--------------------------------------
16.
<PAGE> 17
(2)
--------------------------------------
--------------------------------------
--------------------------------------
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
--------------------------------------
(2)
--------------------------------------
ROBERTA HEALTH CARE CENTER, INC.
By:
------------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
Attest:
--------------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
Address(es) of other place(s) of business of
the above Pledgor:
(1)
--------------------------------------
--------------------------------------
--------------------------------------
17.
<PAGE> 18
(2)
--------------------------------------
--------------------------------------
--------------------------------------
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
--------------------------------------
--------------------------------------
--------------------------------------
(2)
--------------------------------------
--------------------------------------
--------------------------------------
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
--------------------------------------
(2)
--------------------------------------
GARDENDALE HEALTH CARE CENTER,
INC.
By:
-----------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
Attest:
-------------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
18.
<PAGE> 19
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
Address(es) of other place(s) of business of
the above Pledgor:
(1)
--------------------------------------
--------------------------------------
--------------------------------------
(2)
--------------------------------------
--------------------------------------
--------------------------------------
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
--------------------------------------
--------------------------------------
--------------------------------------
(2)
--------------------------------------
--------------------------------------
--------------------------------------
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
--------------------------------------
(2)
--------------------------------------
SOUTHSIDE HEALTH CARE CENTER, INC.
By:
----------------------------------------------
19.
<PAGE> 20
Name:
--------------------------------------
Title:
-------------------------------------
Attest:
----------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
-----------------------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
Address(es) of other place(s) of business
of the above Pledgor:
(1)
---------------------------------
---------------------------------
---------------------------------
(2)
---------------------------------
---------------------------------
---------------------------------
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
---------------------------------
---------------------------------
---------------------------------
(2)
---------------------------------
---------------------------------
---------------------------------
20.
<PAGE> 21
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
---------------------------------
(2)
---------------------------------
GAINESVILLE HEALTH CARE CENTER,
INC.
By:
-------------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
Attest:
---------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
----------------------------------------
----------------------------------------
----------------------------------------
----------------------------------------
Address(es) of other place(s) of business
of the above Pledgor:
(1)
---------------------------------
---------------------------------
---------------------------------
(2)
---------------------------------
---------------------------------
---------------------------------
21.
<PAGE> 22
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
---------------------------------
---------------------------------
---------------------------------
(2)
---------------------------------
---------------------------------
---------------------------------
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
---------------------------------
(2)
---------------------------------
CHARLTON CITY HEALTHCARE, INC.
By:
---------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Attest:
-----------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
-----------------------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
22.
<PAGE> 23
Address(es) of other place(s) of business
of the above Pledgor:
(1)
---------------------------------
---------------------------------
---------------------------------
(2)
---------------------------------
---------------------------------
---------------------------------
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
---------------------------------
---------------------------------
---------------------------------
(2)
---------------------------------
---------------------------------
---------------------------------
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
---------------------------------
(2)
---------------------------------
JEFF DAVIS HEALTHCARE, INC.
By:
---------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Attest:
-----------------------------------------
Secretary
23.
<PAGE> 24
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
-----------------------------------------
-----------------------------------------
-----------------------------------------
-----------------------------------------
Address(es) of other place(s) of business
of the above Pledgor:
(1)
---------------------------------
---------------------------------
---------------------------------
(2)
---------------------------------
---------------------------------
---------------------------------
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
---------------------------------
---------------------------------
---------------------------------
(2)
---------------------------------
---------------------------------
---------------------------------
Previous legal and/or trade name(s) of
the above Pledgor:
(1)
---------------------------------
(2)
---------------------------------
24.
<PAGE> 25
SEASIDE RETIREMENT, INC.
By:
-----------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
Attest:
-------------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
-------------------------------------------
-------------------------------------------
-------------------------------------------
Address(es) of other place(s) of business of
the above Pledgor:
(1)
--------------------------------------
--------------------------------------
--------------------------------------
(2)
--------------------------------------
--------------------------------------
--------------------------------------
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
--------------------------------------
--------------------------------------
--------------------------------------
25.
<PAGE> 26
(2)
--------------------------------------
--------------------------------------
--------------------------------------
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
--------------------------------------
(2)
--------------------------------------
MID-FLORIDA, INC.
By:
----------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
Attest:
------------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
Address(es) of other place(s) of business
of the above Pledgor:
(1)
--------------------------------------
--------------------------------------
--------------------------------------
26.
<PAGE> 27
(2)
-------------------------------------
-------------------------------------
-------------------------------------
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
-------------------------------------
-------------------------------------
-------------------------------------
(2)
-------------------------------------
-------------------------------------
-------------------------------------
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
-------------------------------------
(2)
-------------------------------------
BIBB HEALTH & REHABILITATION, INC.
By:
---------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
Attest:
-----------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
27.
<PAGE> 28
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
Address(es) of other place(s) of business
of the above Pledgor:
(1)
------------------------------------
------------------------------------
------------------------------------
(2)
------------------------------------
------------------------------------
------------------------------------
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
------------------------------------
------------------------------------
------------------------------------
(2)
------------------------------------
------------------------------------
------------------------------------
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
------------------------------------
(2)
------------------------------------
BRENT-LOX HALL NURSING HOME, INC.
By:
-------------------------------------------
28.
<PAGE> 29
Name:
----------------------------------------
Title:
---------------------------------------
Attest:
-------------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
Address(es) of other place(s) of business of
the above Pledgor:
(1)
--------------------------------------
--------------------------------------
--------------------------------------
(2)
--------------------------------------
--------------------------------------
--------------------------------------
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
--------------------------------------
--------------------------------------
--------------------------------------
(2)
--------------------------------------
--------------------------------------
--------------------------------------
29.
<PAGE> 30
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
------------------------------------
(2)
------------------------------------
LIBBIE REHABILITATION CENTER, INC.
By:
-----------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
Attest:
-------------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
Address(es) of other place(s) of business of
the above Pledgor:
(1)
------------------------------------
------------------------------------
------------------------------------
(2)
------------------------------------
------------------------------------
------------------------------------
30.
<PAGE> 31
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
------------------------------------
------------------------------------
------------------------------------
(2)
------------------------------------
------------------------------------
------------------------------------
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
------------------------------------
(2)
------------------------------------
PHOENIX ASSOCIATES, INC.
By:
----------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
Attest:
------------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
31.
<PAGE> 32
Address(es) of other place(s) of business of
the above Pledgor:
(1)
------------------------------------
------------------------------------
------------------------------------
(2)
------------------------------------
------------------------------------
------------------------------------
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
------------------------------------
------------------------------------
------------------------------------
(2)
------------------------------------
------------------------------------
------------------------------------
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
------------------------------------
(2)
------------------------------------
SUMMER'S LANDING, INC.
By:
----------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
Attest:
------------------------------------------
Secretary
32.
<PAGE> 33
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
Address(es) of other place(s) of business of
the above Pledgor:
(1)
------------------------------------
------------------------------------
------------------------------------
(2)
------------------------------------
------------------------------------
------------------------------------
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
------------------------------------
------------------------------------
------------------------------------
(2)
------------------------------------
------------------------------------
------------------------------------
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
------------------------------------
(2)
------------------------------------
33.
<PAGE> 34
RIVERIA RETIREMENT, INC.
By:
----------------------------------------------
Name:
-----------------------------------------
Title:
----------------------------------------
Attest:
------------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
Address(es) of other place(s) of business
of the above Pledgor:
(1)
------------------------------------
------------------------------------
------------------------------------
(2)
------------------------------------
------------------------------------
------------------------------------
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
------------------------------------
------------------------------------
------------------------------------
(2)
------------------------------------
34.
<PAGE> 35
------------------------------------
------------------------------------
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
------------------------------------
(2)
------------------------------------
PINE MANOR HEALTHCARE, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Attest:
------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
-------------------------------------------
-------------------------------------------
-------------------------------------------
-------------------------------------------
Address(es) of other place(s) of business of
the above Pledgor:
(1)
------------------------------------
------------------------------------
------------------------------------
35.
<PAGE> 36
(2)
------------------------------------
------------------------------------
------------------------------------
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
------------------------------------
------------------------------------
------------------------------------
(2)
------------------------------------
------------------------------------
------------------------------------
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
------------------------------------
(2)
------------------------------------
SUNCOAST RETIREMENT, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Attest:
------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
36.
<PAGE> 37
------------------------------------
------------------------------------
------------------------------------
------------------------------------
Address(es) of other place(s) of business of
the above Pledgor:
(1)
------------------------------------
------------------------------------
------------------------------------
(2)
------------------------------------
------------------------------------
------------------------------------
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
------------------------------------
------------------------------------
------------------------------------
(2)
------------------------------------
------------------------------------
------------------------------------
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
------------------------------------
(2)
------------------------------------
ATRIUM OF JACKSONVILLE
By:
----------------------------------------
37.
<PAGE> 38
Name:
-----------------------------------
Title:
----------------------------------
Attest:
------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
------------------------------------
------------------------------------
------------------------------------
------------------------------------
Address(es) of other place(s) of business of
the above Pledgor:
(1)
------------------------------------
------------------------------------
------------------------------------
(2)
------------------------------------
------------------------------------
------------------------------------
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
------------------------------------
------------------------------------
------------------------------------
(2)
------------------------------------
------------------------------------
------------------------------------
38.
<PAGE> 39
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
------------------------------------
(2)
------------------------------------
THE ATRIUM NURSING HOME, INC.
By:
----------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Attest:
------------------------------------
Secretary
[CORPORATE SEAL]
Address of the above Pledgor's chief
executive office:
------------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
Address(es) of other place(s) of business of
the above Pledgor:
(1)
------------------------------------
------------------------------------
------------------------------------
(2)
------------------------------------
------------------------------------
------------------------------------
39.
<PAGE> 40
Address(es) where Collateral of the above
Pledgor is to be located:
(1)
------------------------------------
------------------------------------
------------------------------------
(2)
------------------------------------
------------------------------------
------------------------------------
Previous legal and/or trade name(s) of the
above Pledgor:
(1)
------------------------------------
(2)
------------------------------------
40.
<PAGE> 41
EXHIBIT "A"
[1. Security interest in favor of Fidelity National Bank pursuant to a
Security Agreement dated as of December 30, 1994, as such agreement has been and
may be amended from time to time (the "Fidelity Agreement").]
[2. Financing statements have been filed in the states of Georgia,
Tennessee, Florida and Alabama in connection with the security interests granted
pursuant to the Fidelity Agreement.]
41.
<PAGE> 1
EXHIBIT 10.45
SUBSIDIARY GUARANTY
SUBSIDIARY GUARANTY (this "Subsidiary Guaranty") dated as of
July 10, 1997 made by West Tennessee, Inc., Lake Forest Healthcare Center, Inc.,
Statesboro HealthCare, Inc., Lake Health Care Center, Inc., Roberta Health Care
Center, Inc., Gardendale Health Care Center, Inc., Southside Health Care Center,
Inc., Gainesville Health Care Center, Inc., Charlton City Healthcare, Inc., Jeff
Davis Healthcare, Inc., Seaside Retirement, Inc., Mid-Florida, Inc., Bibb Health
& Rehabilitation, Inc., Brent-Lox Hall Nursing Home, Inc., Libbie Rehabilitation
Center, Inc., Phoenix Associates, Inc., Summer's Landing, Inc., Riveria
Retirement, Inc., Pine Manor Healthcare, Inc., Suncoast Retirement, Inc., Atrium
of Jacksonville and The Atrium Nursing Home, Inc. (each, a "Subsidiary
Guarantor," and collectively, the "Subsidiary Guarantors") in favor of Sun
Healthcare Group, Inc., a Delaware corporation (the "Lender").
PRELIMINARY STATEMENTS:
WHEREAS, the Lender has agreed to make a loan to Retirement
Care Associates, Inc., a Colorado corporation ("RCA"), Retirement Management
Corporation, a Georgia corporation ("RMC"), and Capitol Care Management Company,
Inc., a Georgia corporation ("CCMC") (hereinafter, whether one or more, referred
to as the "Borrower"), in the principal amount of $5,000,000 (the "Loan")
pursuant to the terms and conditions of that certain Promissory Note made by the
Borrower (as Maker) to the Lender (as Payee) dated as of even date herewith (the
"Note");
WHEREAS, each Subsidiary Guarantor is a direct or indirect
wholly owned subsidiary of RCA, and thus each Subsidiary Guarantor will derive
substantial direct and indirect benefit from the transactions contemplated by
the Note; and
WHEREAS, as a condition to the Loan, each Subsidiary Guarantor
has agreed to execute and deliver this Subsidiary Guaranty.
NOW, THEREFORE, in consideration of the premises and in order
to induce the Lender to make the Loan pursuant to the Note, each Subsidiary
Guarantor hereby agrees as follows:
SECTION 1. Guaranty. Each Subsidiary Guarantor hereby
unconditionally and irrevocably guarantees the punctual payment when due,
whether at stated maturity, by acceleration or otherwise, of all obligations of
the Borrower now or hereafter existing under the Note, whether for principal,
interest, fees, expenses or otherwise (such obligations being the
"Obligations"), and agrees to pay any and all expenses (including reasonable
counsel fees and expenses) incurred by the Lender in enforcing any rights under
this Subsidiary Guaranty. Without limiting the generality of the foregoing, each
Subsidiary Guarantor's liability shall extend to all amounts which constitute
part of the Obligations and would be owed by the
1.
<PAGE> 2
Borrower under the Note but for the fact that they are unenforceable or not
allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving the Borrower.
SECTION 2. Guaranty Absolute. Each Subsidiary Guarantor
guarantees that the Obligations will be paid strictly in accordance with the
terms of the Note, regardless of any law, regulation or order now or hereafter
in effect in any jurisdiction affecting any of such terms or the rights of the
Lender with respect thereto. The obligations of each Subsidiary Guarantor under
this Subsidiary Guaranty are absolute, unconditional and independent of the
Obligations, and a separate action or actions may be brought and prosecuted
against each Subsidiary Guarantor to enforce this Subsidiary Guaranty,
irrespective of whether any action is brought against the Borrower or any other
Subsidiary Guarantor or whether the Borrower or any other Subsidiary Guarantor
is joined in any such action or actions. The liability of each Subsidiary
Guarantor under this Subsidiary Guaranty shall be absolute and unconditional
irrespective of:
(i) any lack of validity or enforceability of the Note, that
certain Amended and Restated Security Agreement dated as of even date
herewith executed by RCA to the Lender (the "Security Agreement"),
those certain Security Agreements dated as of even date herewith
executed by each of RMC and CCMC to the Lender (collectively, the
"Additional Security Agreements"), or that certain Subsidiary Security
Agreement dated as of even date herewith executed by each of the
Subsidiary Guarantors to the Lender (the "Subsidiary Security
Agreement" and, together with the Restated Security Agreement and the
Additional Security Agreements, the "Security Agreements," which
Security Agreements, together with the Note, and any and all
modifications, amendments or substitutions thereto being referred to
herein as the "Loan Documents");
(ii) any change in the time, manner or place of payment of,
or in any other term of, all or any of the Obligations, or any other
amendment or waiver of or any consent to departure from the Note, the
Security Agreements or Loan Documents, including, without limitation,
any increase in the Obligations resulting from the extension of
additional credit to the Borrower or any of its affiliates or
otherwise;
(iii) any taking, exchange, release or non-perfection of any
collateral, or any taking, release or amendment or waiver of or consent
to departure from any other guaranty, for all or any of the
Obligations;
(iv) any manner of application of collateral, or proceeds
thereof, to all or any of the Obligations, or any manner of sale or
other disposition of any collateral for all or any of the Obligations
or any other assets of the Borrower or any of its affiliates;
(v) any change, restructuring or termination of the
corporate structure or existence of the Borrower or any of its
affiliates; or
2.
<PAGE> 3
(vi) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, the Borrower or any other
guarantor or Subsidiary Guarantor.
This Subsidiary Guaranty shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the Obligations is rescinded
or must otherwise be returned by the Lender upon the insolvency, bankruptcy or
reorganization of the Borrower or otherwise, all as though such payment had not
been made.
SECTION 3. Waivers. Each Subsidiary Guarantor hereby waives
(and consents in advance to the taking, or the failure to take, any action
specified below), to the fullest extent permitted by applicable law:
(i) any requirement that the Lender secure or insure any
security interest or lien or any property subject thereto or exhaust
any right or take any action against the Borrower or any other person
(including any other guarantor or Subsidiary Guarantor) or any
collateral;
(ii) any defense arising by reason of any claim or defense
based upon an election of remedies by the Lender (including, without
limitation, an election to non-judicially foreclose on any collateral)
which in any manner impairs, reduces, releases or otherwise adversely
affects such Subsidiary Guarantor's subrogation, reimbursement or
contribution rights or other rights to proceed against the Borrower,
any other guarantor or Subsidiary Guarantor or any other person or any
collateral;
(iii) any defense arising by reason of the failure of any
other person (including any Subsidiary Guarantor) to execute this
Subsidiary Guaranty or any other guaranty or agreement;
(iv) any defense arising by reason of the failure of any
person (including any Subsidiary Guarantor) to execute properly any
Loan Document or otherwise comply with applicable legal formalities;
(v) any defense in the context of nonjudicial foreclosure
under any provision of the law of any jurisdiction, and all other
suretyship and other similar defenses such Subsidiary Guarantor would
otherwise have under the laws of any jurisdiction;
(vi) any duty on the part of the Lender to disclose to such
Subsidiary Guarantor any matter, fact or thing relating to the
business, operation or condition of the Borrower or any of its
affiliates and their respective assets now known or hereafter known by
the Lender;
(vii) all benefits of any statute of limitations affecting
such Subsidiary Guarantor's liability under this Subsidiary Guaranty or
affecting the enforcement of this
3.
<PAGE> 4
Subsidiary Guaranty or any of the Obligations or realization on any
collateral for the Obligations;
(viii) all setoffs and counterclaims;
(ix) promptness, diligence, presentment, demand for
performance and protest;
(x) notice of non-performance, default, acceleration,
protest or dishonor;
(xi) except for any notice otherwise required by applicable
laws that may not be effectively waived by such Subsidiary Guarantor
(all of which are hereby waived to the fullest extent permitted by
law), notice of sale or other disposition of any collateral for the
Obligations; and
(xii) notice of acceptance of this Subsidiary Guaranty and of
the existence, creation or incurring of new or additional Obligations.
SECTION 4. Waiver of Subrogation. Each Subsidiary Guarantor
hereby irrevocably waives any claim or other rights that such Subsidiary
Guarantor may now or hereafter acquire against the Borrower or any other
guarantor or Subsidiary Guarantor that arise from the existence, payment,
performance or enforcement of such Subsidiary Guarantor's obligations under this
Subsidiary Guaranty or any of the Loan Documents, including, without limitation,
any right of subrogation, reimbursement, exoneration, contribution or
indemnification by or from the Borrower or any other guarantor or Subsidiary
Guarantor and any right to participate in any claim or remedy of the Lender
against the Borrower or any other guarantor or Subsidiary Guarantor or any
collateral for the Obligations, 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 the Borrower or any other
guarantor or Subsidiary Guarantor, 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 right. If any amount shall be paid to such Subsidiary
Guarantor in violation of the preceding sentence at any time prior to the
indefeasible payment in full in cash of the Obligations and all other amounts
payable under this Subsidiary Guaranty, such amount shall be held in trust for
the benefit of the Lender and shall forthwith be paid to the Lender to be
credited and applied to the Obligations and all other amounts payable under this
Subsidiary Guaranty, whether matured or unmatured, or to be held as collateral
for any Obligations or other amounts payable under this Subsidiary Guaranty
thereafter arising. Each Subsidiary Guarantor acknowledges that it will receive
direct and indirect benefits from the transactions provided for in the Note, and
that the waiver set forth in this Section 4 is knowingly made in contemplation
of such benefits.
SECTION 5. Taxes. Each Subsidiary Guarantor agrees to pay any
present or future stamp or documentary taxes or any other excise or property
taxes, charges or similar levies which arise from any payment made hereunder or
from the execution, delivery,
4.
<PAGE> 5
registration, filing, recording or enforcement of, or otherwise with respect to,
this Subsidiary Guaranty.
SECTION 6. Representations and Warranties. Each Subsidiary
Guarantor hereby represents and warrants as follows:
(i) This Subsidiary Guaranty is executed at the request of
the Borrower and no oral promises, assurances, representations or
warranties have been made by or on behalf of the Lender to induce such
Subsidiary Guarantor to execute and deliver this Subsidiary Guaranty.
(ii) This Subsidiary Guaranty is the legal, valid and binding
obligation of such Subsidiary Guarantor enforceable against such
Subsidiary Guarantor in accordance with its terms, subject to the
effect of any applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors'
rights generally.
(iii) Such Subsidiary Guarantor has established adequate means
of obtaining from the Borrower on a continuing basis information
pertaining to, and is now and on a continuing basis will be completely
familiar with, the financial condition, operations, properties and
prospects of the Borrower.
(iv) Such Subsidiary Guarantor has received and approved
copies of the Note and the Security Agreements.
(v) Such Subsidiary Guarantor is, and after the due
execution and delivery of this Subsidiary Guaranty and giving effect to
the transactions contemplated by the Note will be, solvent.
SECTION 7. Amendments, Etc. No amendment or waiver of any
provision of this Subsidiary Guaranty, and no consent to any departure by any
Subsidiary Guarantor herefrom, shall in any event be effective unless the same
shall be in writing and signed by the Lender, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given.
SECTION 8. Addresses for Notices. All notices, demands and
requests hereunder shall be in writing, shall be delivered personally against
receipt, or sent by recognized overnight courier service, or mailed by
registered or certified mail, return receipt requested, postage prepaid, and if
by telecopy, shall be followed forthwith by letter. Any such notice, demand, or
request shall be deemed given when sent. All notices and other communications
under this Agreement shall be given to the parties hereto at the following
addresses:
5.
<PAGE> 6
If to the Lender:
Sun Healthcare Group, Inc.
101 Sun Lane
Albuquerque, New Mexico 87019
Attn: General Counsel
If to any Subsidiary Guarantor, care of such Subsidiary
Guarantor at:
Retirement Care Associates
6000 Lake Forrest Drive
Suite 200
Atlanta, Georgia 30328
Attn: President
Any party hereto may change the address to which notices shall
be directed under this Section by giving written notice of such change to the
other party.
SECTION 9. No Waiver; Remedies. No failure on the part of the
Lender 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 under the Note.
SECTION 10. Right of Set-off. Upon the occurrence and during
the continuance of any Event of Default (as defined in the Note) the Lender is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all cash or other property at any
time held and other indebtedness at any time owing by the Lender to or for the
credit or the account of any Subsidiary Guarantor against any and all of the
Obligations, whether or not the Lender shall have made any demand under this
Subsidiary Guaranty. The Lender agrees promptly to notify any such Subsidiary
Guarantor after any such setoff and application made by the Lender; provided,
however, that the failure to give such notice shall not affect the validity of
such setoff and application. The rights of the Lender under this Section 10 are
in addition to other rights and remedies (including, without limitation, other
rights of setoff) which the Lender may have.
SECTION 11. Continuing Guaranty. This Subsidiary Guaranty is a
continuing guaranty and shall (i) remain in full force and effect until the
indefeasible payment in full in cash of the Obligations and all other amounts
payable under the Note, the Security Agreements and this Subsidiary Guaranty,
(ii) be binding upon each Subsidiary Guarantor, its successors and assigns and
(iii) inure to the benefit of, and be enforceable by the Lender and its
successors, transferees and assigns.
6.
<PAGE> 7
SECTION 12. Severability. The provisions of this Subsidiary
Guaranty are severable, and if any clause or provision hereof shall be held
invalid or unenforceable in whole or in part in any jurisdiction, then such
invalidity or unenforceability shall affect only such clause or provision, or
part thereof, in such jurisdiction, and shall not in any manner affect such
clause or provision in any other jurisdiction, or any other clause or provision
of this Subsidiary Guaranty in any jurisdiction.
SECTION 13. GOVERNING LAW. THIS SUBSIDIARY GUARANTY SHALL BE
DEEMED TO HAVE BEEN MADE IN THE STATE OF NEW YORK AND SHALL BE GOVERNED BY AND
INTERPRETED IN ACCORDANCE WITH THE LAWS OF SUCH STATE, EXCEPT THAT NO DOCTRINE
OF CHOICE OF LAW SHALL BE USED TO APPLY THE LAWS OF ANY OTHER STATE OR
JURISDICTION. EACH SUBSIDIARY GUARANTOR AGREES THAT, IN ADDITION TO ANY OTHER
COURTS THAT MAY HAVE JURISDICTION UNDER APPLICABLE LAWS OR RULES, ANY ACTION OR
PROCEEDING TO ENFORCE OR ARISING OUT OF THIS SUBSIDIARY GUARANTY OR ANY LOAN
DOCUMENT MAY BE COMMENCED IN ANY STATE OR FEDERAL COURT SITTING IN NEW YORK, NEW
YORK, AND EACH SUBSIDIARY GUARANTOR CONSENTS AND SUBMITS IN ADVANCE TO SUCH
JURISDICTION AND AGREES THAT VENUE WILL BE PROPER IN SUCH COURTS OR ANY SUCH
MATTER. SHOULD ANY SUBSIDIARY GUARANTOR FAIL TO APPEAR OR ANSWER ANY SUMMONS,
COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THIRTY (30) DAYS AFTER THE MAILING
OR OTHER SERVICE THEREOF, SUCH SUBSIDIARY GUARANTOR SHALL BE DEEMED IN DEFAULT
AND AN ORDER OR JUDGMENT MAY BE ENTERED AGAINST SUCH SUBSIDIARY GUARANTOR AS
DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE CHOICE
OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE
ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM, OR THE TAKING OF ANY ACTION
UNDER THIS SUBSIDIARY GUARANTY OR THE ANY LOAN DOCUMENT TO ENFORCE THE SAME, IN
ANY APPROPRIATE JURISDICTION.
SECTION 14. WAIVER OF JURY TRIAL. EACH SUBSIDIARY GUARANTOR
HEREBY WAIVES TRIAL BY JURY, RIGHTS OF SETOFF, AND ANY RIGHT TO PUNITIVE DAMAGES
OR CONSEQUENTIAL, SPECIAL OR INCIDENTAL DAMAGES IN ANY LITIGATION IN ANY COURT
WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS SUBSIDIARY GUARANTY,
ANY LOAN DOCUMENT, THE OBLIGATIONS OF SUCH SUBSIDIARY GUARANTOR OR ANY
COLLATERAL FOR SUCH OBLIGATIONS, OR ANY INSTRUMENT OR DOCUMENT DELIVERED
PURSUANT HERETO OR THERETO, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING,
BETWEEN SUCH SUBSIDIARY GUARANTOR AND THE LENDER. SUCH SUBSIDIARY GUARANTOR
CONFIRMS THAT THE FOREGOING WAIVERS ARE INFORMED AND FREELY MADE.
7.
<PAGE> 8
SECTION 15. Each Subsidiary Guarantor acknowledges and agrees
that this Subsidiary Guaranty and the other Loan Documents shall be treated as
"Proprietary Information" under the Confidentiality Agreement, dated December
23, 1996, between Lender and RCA, and each Subsidiary Guarantor agrees to so
treat this Subsidiary Guaranty and the Loan Documents to be bound thereby.
IN WITNESS WHEREOF, the Subsidiary Guarantors have duly
executed and delivered this Subsidiary Guaranty as of the date first above
written.
-------------------------------------------
West Tennessee, Inc.
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Lake Forest Healthcare Center, Inc.
-------------------------------------------
Statesboro HealthCare, Inc.
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Lake Health Care Center, Inc.
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Roberta Health Care Center, Inc.
-------------------------------------------
Gardendale Health Care Center, Inc.
-------------------------------------------
Southside Health Care Center, Inc.
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Gainesville Health Care Center, Inc.
8.
<PAGE> 9
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Charlton City Healthcare, Inc.
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Jeff Davis Healthcare, Inc.
-------------------------------------------
Seaside Retirement, Inc.
-------------------------------------------
Mid-Florida, Inc.
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Bibb Health & Rehabilitation, Inc.
-------------------------------------------
Brent-Lox Hall Nursing Home, Inc.
-------------------------------------------
Libbie Rehabilitation Center, Inc.
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Phoenix Associates, Inc.
-------------------------------------------
Summer's Landing, Inc.
-------------------------------------------
Riveria Retirement, Inc.
-------------------------------------------
Pine Manor Healthcare, Inc.
9.
<PAGE> 10
-------------------------------------------
Suncoast Retirement, Inc.
-------------------------------------------
Atrium of Jacksonville
-------------------------------------------
The Atrium Nursing Home, Inc.
10.
<PAGE> 1
EXHIBIT 10.46
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement") is made as of this
10th day of July 1997 (the "Effective Date"), by CAPITOL CARE MANAGEMENT
CORPORATION, a Georgia corporation (the "Pledgor"), in favor of SUN HEALTHCARE
GROUP, INC., a Delaware corporation (the "Lender"), witnesseth:
RECITALS
WHEREAS, the Lender has agreed to make a loan to Retirement
Care Associates, Inc., a Colorado corporation ("RCA") in the principal amount of
$9,750,000.00 (the "Original Loan") pursuant to the terms and conditions of that
certain Promissory Note made by RCA (as Maker) to the Lender (as Payee) dated as
of January 10, 1997 (the "Original Note");
WHEREAS, as a condition to the Original Loan, RCA agreed to
enter into a Pledge Agreement, dated as of January 10, 1997 (the "Original
Agreement"), pursuant to which RCA agreed to pledge certain collateral as
security for the payment and performance of RCA's obligations under the Original
Note;
WHEREAS, RCA and the Lender have agreed to amend and restate
the Original Note pursuant to the terms and conditions of that certain Amended
and Restated Promissory Note made by RCA, the Pledgor and Retirement Management
Corporation, a Georgia corporation ("RMC") (as Maker), to the Lender (as Payee)
dated of even date herewith (the "Restated Note" and, together with the Original
Note, collectively the "Note");
WHEREAS, the Pledgor acknowledges that it is a wholly owned
subsidiary of RCA and will derive substantial direct and indirect benefit from
the transactions contemplated by the Restated Note; and
WHEREAS, in connection with the transactions contemplated by
the Restated Note, the Pledgor has agreed to enter into this Agreement as
security for the payment and performance of Pledgor's obligations hereunder and
under the Note.
NOW, THEREFORE, in order to secure the prompt payment of all
past, present, and future indebtedness, liabilities, and obligations of the
Pledgor to the Lender of any nature whatsoever in connection with the Note,
together with all obligations of the Pledgor to the Lender hereunder, however
and wherever created, arising, or evidenced, whether direct or indirect,
absolute, contingent, or otherwise, now or hereafter existing or due or to
become due (collectively, the "Pledgor's Liabilities"), and the performance by
the Pledgor of all the terms, conditions, and provisions of this Agreement and
of any other loan
1.
<PAGE> 2
document previously, simultaneously or hereafter executed and delivered by the
Pledgor and/or any other person, singly or jointly with another person or
persons, evidencing, securing, guarantying, or in connection with any of the
Pledgor's Liabilities, including the Note (collectively, the "Loan Documents"),
the Pledgor agrees with the Lender as follows:
1. Collateral. To secure the payment and performance of the
Pledgor's Liabilities and the Pledgor's performance of its obligations under the
Loan Documents, and subject to Section 20 hereof, the Pledgor hereby grants to
the Lender a security interest in, and security title to, all of the following
(being referred to herein as the "Collateral"): (i) Pledgor's present or future
accounts, accounts receivable, other receivables, contract rights, issues,
profits, rents, chattel paper, instruments and documents, together with all of
the proceeds, cash or non-cash, thereof, however acquired, or now or hereafter
existing, including, without limitation, all reimbursable costs or payments from
Medicaid and Medicare, or other state or federal governmental agencies, amounts
due from clients and third party providers, rights to management fees, and
amounts due to Pledgor from advances to any of its managed or affiliated
companies, (ii) all revenues payable to and rights to distributions of Pledgor
from agreements or contracts with residents of facilities owned, leased or
managed by Pledgor and all rights to deposits from such residents and insurance
benefits due to Pledgor with respect to such residents (excluding any escrow
accounts maintained on behalf of such residents), and (iii) all proceeds of the
foregoing (collectively, the "Accounts").
The term "Collateral" as used herein means each and all of the items of
Collateral described above, and the term "proceeds" as used herein includes,
without limitation, the proceeds of all insurance policies covering all or any
part of such items of Collateral.
2. Title to Collateral. Subject to Section 20 hereof, the
Pledgor warrants and represents that (i) it is the lawful owner of the
Collateral, and has the full right, power, and authority to convey, transfer,
and grant the security title and security interest in the Collateral granted
herein to the Lender; (ii) all licenses relating to the Collateral are fully
paid and freely assignable to Lender, and, upon the occurrence of an Event of
Default (as defined herein) and foreclosure by the Lender, the Lender shall have
all rights of the Pledgor to any Collateral licensed to the Pledgor or licensed
by the Pledgor; (iii) the Collateral is not, and so long as this Agreement is in
effect will not be, subject to any liens, claims, security interests,
encumbrances, taxes, or assessments, however described or denominated, except
for liens, claims, security interests and encumbrances in favor of the Lender
and except as set forth on Exhibit "A" hereto; (iv) no financing statement,
mortgage, notice of lien, deed of trust, deed to secure debt, security
agreement, or any other agreement or instrument creating an encumbrance, lien,
charge against any of the Collateral is in existence or on file in any public
office, other than financing statements (or other appropriate security
documentation) filed on behalf of the Lender or disclosed on Exhibit "A" hereto;
and (v) all information with respect to the Collateral and the Pledgor's
Liabilities, or any of them, set forth in any written schedule, certificate, or
other document at any time heretofore or hereafter furnished by RCA or the
Pledgor to the Lender, including any Borrowing Base Certificate referred to in
Section 4 of that certain Amended and Restated Pledge Agreement dated as of even
date
2.
<PAGE> 3
herewith executed by RCA to the Lender (the "RCA Restated Pledge Agreement"),
and all other written information heretofore or hereafter furnished by the
Pledgor to the Lender, is and will be true and correct in all material respects
as of the date furnished.
3. Further Assurances. The Pledgor will defend its title to
the Collateral against all persons and will, upon request of the Lender, (a)
furnish such further assurances of title as may be required by the Lender, (b)
deliver and execute or cause to be delivered and executed, in form and content
satisfactory to the Lender, any financing statements, notices, certificates of
title, and other documents and pay the cost of filing or recording the same in
all public offices deemed necessary by the Lender, as well as any recordation,
documentary, or transfer tax required by law to be paid in connection with such
filing or recording, and (c) do such other acts as the Lender may request in
order to perfect, preserve, maintain, or continue the perfection of the Lender's
security interest in the Collateral and/or its priority.
4. Accounts, etc. Until such time as the Lender shall notify
the Pledgor in writing of the revocation of such power and authority, the
Pledgor, as agent for the Lender, will, at its own expense, diligently collect,
as and when due, all amounts owing under the Accounts, including the taking of
such action with respect to such collection as the Lender may request from time
to time, and to hold in trust and segregate for the Lender all funds received
from the Accounts; provided, however, that until an Event of Default shall occur
or would occur but for the passage of time, or giving of notice, or both (such
event being a "default"), the Pledgor may use or consume in the ordinary course
of its business any such collections on the Accounts in any lawful manner not
inconsistent with this Agreement and the other Loan Documents. The Lender,
however, may after an Event of Default shall occur or during the continuance of
a default and upon notice to the Pledgor revoke such power and authority and in
any event shall have the authority and right to notify any parties obligated on
any of the Accounts to make payment to the Lender of any amounts due or to
become due thereunder, and enforce collection of performance under any of the
Accounts by suit or otherwise, and surrender, release, or exchange all or any
part thereof, or compromise or extend or renew for any period (whether or not
longer than the original period) any indebtedness thereunder or evidenced
thereby. After an Event of Default, the Pledgor will, at its own expense, notify
any parties obligated on any of the Accounts to make payments to the Lender and
will hold in trust and immediately forward to the Lender all payments received
by the Pledgor in the form received, with all necessary endorsements thereon for
collection by the Lender.
5. Transfer and Other Liens. The Pledgor will not sell, lease,
transfer, exchange, or otherwise dispose of the Collateral, or any part hereof,
without the prior written consent of the Lender and will not permit any lien,
security interest, or other encumbrance to attach to the Collateral, or any part
thereof, other than those in favor of the Lender or those permitted by the
Lender in writing, except that the Pledgor may, in the ordinary course of its
business and in the absence of an Event of Default hereunder or notice by the
Lender to the Pledgor under this Agreement, collect its Accounts.
3.
<PAGE> 4
6. Financial Statements, Books, and Records. The Pledgor will
(a) at all times maintain, in accordance with generally accepted accounting
principles consistently applied, accurate and complete books and records
pertaining to the operation, business affairs, and financial condition of the
Pledgor and pertaining to the Collateral and any contracts and collections
relating to the Collateral, (b) furnish to the Lender promptly upon request,
certified by an officer of the Pledgor and in the form and content and at the
intervals specified by the Lender, such financial statements, reports,
schedules, and other information with respect to the operation, business
affairs, and financial condition of the Pledgor as the Lender may from time to
time require, (c) at all reasonable times, and without hindrance or delay,
permit the Lender or any person designated by the Lender to enter any place of
business of the Pledgor or any other premises where any books, records, and
other data concerning the Pledgor and/or the Collateral may be kept and to
examine, audit, inspect, and make extracts from and photocopies of any such
books, records, and other data, (d) furnish to the Lender promptly upon request,
certified by an officer of the Pledgor and in the form and content specified by
the Lender, lists of purchasers of inventory, aging of accounts, aggregate cost
or wholesale market value of inventory, schedules of equipment, and other data
concerning the Collateral as the Lender may from time to time specify, and (e)
mark its books and records in a manner satisfactory to the Lender so that the
Lender's rights in and to the Collateral will be shown.
7. Name of Pledgor, Places of Business, and Location of
Collateral. The Pledgor represents and warrants that its correct legal name is
as specified on the signature lines of this Agreement, and each legal or trade
name of the Pledgor for the previous five (5) years (if different from the
Pledgor's current legal name) is as specified below the signature lines of this
Agreement. Without the prior written consent of the Lender, the Pledgor will not
change its name, dissolve, merge, or consolidate with any other person. The
Pledgor warrants that the address of the Pledgor's chief executive office and
the address of each other place of business of the Pledgor are as specified
below the signature lines of this Agreement. The Collateral and all books and
records pertaining to the Collateral have been, are, and will be located at the
Pledgor's chief executive office specified below or at any other place of
business which may be specified below the signature lines of this Agreement.
Without the prior written consent of the Lender, the Pledgor will not open any
new place of business or change the location of any Collateral to any place not
specified below. The Pledgor will immediately advise the Lender in writing of
the opening of any new place of business and of any change in the location of
the places where the Collateral or any part thereof, or the books and records
concerning the Collateral or any part thereof, are kept.
8. Care of Collateral. The Pledgor will maintain the
Collateral in first-class condition and will not do or permit anything to be
done to the Collateral that may impair its value. The Lender shall have no duty
to, and the Pledgor hereby releases the Lender from all claims for loss or
damage caused by the failure to, collect or enforce any Account or to preserve
rights against prior parties to the Collateral.
4.
<PAGE> 5
9. Taxes. The Pledgor will pay as and when due and payable all
taxes, levies, license fees, assessments, and other impositions levied on the
Collateral or any part thereof or for its use and operation.
10. Specific Assignments. Promptly upon request by the Lender,
the Pledgor will execute and deliver to the Lender written assignments,
endorsements, and/or schedules, in form and content satisfactory to the Lender,
of specific Accounts or groups of Accounts, but the security interest of the
Lender hereunder shall not be limited in any way by such assignments.
11. Government Contracts. If any Account arises out of a
contract or contracts with the United States of America or any department,
agency, or instrumentality thereof, the Pledgor shall immediately notify the
Lender thereof in writing and execute any instruments or take any steps required
by the Lender in order that all moneys due or to become due under such contract
or contracts shall be assigned to the Lender and notice thereof given under the
Federal Assignment of Claims Act or other applicable law.
12. Collateral Account.
(a) Subject to the exercise by Fidelity of its rights and
remedies under the Fidelity Agreement referred to in Section 20 hereof, the
Pledgor will, upon the request of the Lender at any time and from time to time
both prior to and after the occurrence of an Event of Default hereunder, deposit
or cause to be deposited to a bank account designated by the Lender and from
which the Lender alone has power of access and withdrawal (collectively, the
"Collateral Account") all checks, drafts, cash, and other remittances in payment
or on account of payment of the Accounts, and the cash proceeds of any returned
goods, the sale or lease of which gave rise to an Account and, when permitted by
the paying companies (including without limitation, Medicaid and Mutual of Omaha
Medicare payment [EDS-Title XVIII]) all such payments therefrom (all of the
foregoing herein collectively referred to as "Items of Payment"). The Pledgor
shall deposit the Items of Payment for credit to the Collateral Account within
two (2) business days of the receipt thereof, and in precisely the form
received, except for the endorsement of the Pledgor where necessary to permit
the collection of the Items of Payment, which endorsement the Pledgor hereby
agrees to make. Pending such deposit, the Pledgor will not commingle any of the
Items of Payment with any of its other funds or property but will hold them
separate and apart. The Lender may at any time and from time to time apply the
whole or any part of the collected funds credited to the Collateral Account
against the Pledgor's Liabilities.
(b) So long as Lender, in its discretion, so
desires, Pledgor shall establish and maintain a blocked account in Lender's name
with a bank satisfactory to Lender (the "Collecting Bank") to which Pledgor will
immediately deposit all payments from account debtors in the identical form in
which such payment was made, whether by cash or check.
5.
<PAGE> 6
(c) The Collecting Bank shall acknowledge and agree, in
a manner satisfactory to Lender, that all payments made to such blocked
account are the sole and exclusive property of the Lender, that the Collecting
Bank has no right of set off against such blocked account, and that
the Collecting Bank will wire or otherwise transfer in immediately available
funds, in a manner satisfactory to Lender, funds deposited in such blocked
account to Lender on a daily basis as soon as such funds are collected. Pledgor
hereby agrees that all payments made to such blocked account or otherwise
received by Lender, whether on Accounts or as proceeds of the Collateral or
otherwise, will be the sole and exclusive property of Lender and will be
applied on account of the Obligations. With respect to any payment relating to
or proceeds of any Accounts or the Collateral which come into its possession or
under its control, Pledgor and any affiliates, subsidiaries, shareholders,
directors, officers, employees, agents or persons acting for or in concert with
Pledgor shall receive any such item, as trustee for Lender, as sole and
exclusive property of Lender, and immediately upon receipt thereof, Pledgor
shall remit the same or cause the same to be remitted in kind, to Lender, at
Lender's address set forth herein. Pledgor agrees to pay to Lender any and all
fees, costs, expenses which Lender incurs in connection with obtaining and
maintaining the blocked account and depositing for collection by Lender any
check or item of payment received or delivered to the Collecting Bank or the
Lender, and Pledgor further agrees to reimburse, indemnify and hold harmless
Lender from any claims asserted by the Collecting Bank in connection with the
blocked account or any returned or uncollected checks received by the
Collecting Bank as proceeds of the Collateral.
13. Rights of Lender and Duties of Pledgor. The Lender may at
any time and from time to time both prior to and after the occurrence of an
Event of Default hereunder (a) notify the account debtors obligated on any of
the Collateral to make payments thereon directly to the Lender, and to take
control of the cash and noncash proceeds of any such Collateral; (b) charge to
the Pledgor any Item of Payment credited to the Collateral Account which is
dishonored by the drawee or maker thereof; (c) compromise, extend, or renew any
of the Collateral or deal with the same as it may deem advisable; (d) release,
make exchanges or substitutions for, or surrender all or any part of the
Collateral; (e) remove from the Pledgor's place of business all books, records,
ledger sheets, correspondence, invoices, and documents relating to or evidencing
any of the Collateral or, without cost or expense to the Lender, make such use
of the Pledgor's place(s) of business as may be reasonably necessary to
administer, control, and collect the Collateral; (f) repair, alter, or supply
goods, if any, necessary to fulfill in whole or in part the purchase order of
any account debtor; (g) demand, collect, receipt for, and give renewals,
extensions, discharges, and releases of any of the Collateral; (h) institute and
prosecute legal and equitable proceedings to enforce collection of, or realize
upon, any of the Collateral; (i) settle, renew, extend, compromise, compound,
exchange, or adjust claims with respect to any of the Collateral or any legal
proceedings brought with respect thereto; (j) endorse the name of the Pledgor
upon any Items of Payment relating to the Collateral or upon any proof of claim
in bankruptcy against an account debtor; and (k) receive and open all mail
addressed to the Pledgor and, if an Event of Default exists hereunder, notify
postal authorities to change the address for the delivery of mail to the Pledgor
to such address as the Lender may designate; and for purposes of taking the
actions described in Subsections (a) through (k)
6.
<PAGE> 7
the Pledgor hereby irrevocably appoints the Lender as its attorney-in-fact
(which appointment being coupled with an interest is irrevocable while any of
Pledgor's Liabilities remain unpaid), with power of substitution, in the name of
the Lender or in the name of the Pledgor or otherwise, for the use and benefit
of the Lender, but at the cost and expense of the Pledgor and without notice to
the Pledgor. The Pledgor will (a) make no material change to the terms of any
Account without the prior written permission of the Lender; (b) on demand, make
available in form acceptable to the Lender shipping documents and delivery
receipts evidencing the shipment of goods which gave rise to an Account,
completion certificate, or other proof of the satisfactory performance of
services which gave rise to an Account, copies of the invoices arising out of an
Account, and the Pledgor's copy of any written contract or order from which an
Account arose; and (c) when requested, regularly advise the Lender whenever an
account debtor returns or refuses to retain any goods, the sale or lease of
which gave rise to an Account, and will comply with any instructions which the
Lender may give regarding the sale or other disposition of such returns.
14. Performance by Lender. If the Pledgor fails to perform,
observe, or comply with any of the conditions, terms, or covenants contained in
this Agreement, the Lender, without notice to or demand upon the Pledgor and
without waiving or releasing any of the Pledgor's Liabilities or any Event of
Default, may (but shall be under no obligation to) at any time thereafter
perform such conditions, terms, or covenants for the account and at the expense
of the Pledgor, and may enter upon any place of business or other premises of
the Pledgor for that purpose and take all such action thereon as the Lender may
consider necessary or appropriate for such purpose. All sums paid or advanced by
the Lender in connection with the foregoing and all costs and expenses
(including, without limitation, reasonable attorneys' fees actually incurred and
expenses) incurred in connection therewith (collectively, the "Expense
Payments") together with interest thereon at the post-default rate of interest
provided for in the Restated Note (but in no event higher than the maximum
interest rate permitted by applicable law), from the date of payment until
repaid in full, shall be paid by the Pledgor to the Lender on demand and shall
constitute and become a part of the Pledgor's Liabilities secured hereby.
15. Default. The occurrence of any one or more of the
following events shall constitute an event of default (an "Event of Default")
under this Agreement: (a) failure of the Pledgor to pay any of the Pledgor's
Liabilities as and when due and payable, after giving effect to any applicable
grace period; (b) failure of the Pledgor to perform, observe, or comply with any
of the provisions of this Agreement or of any of the other Loan Documents, after
giving effect to any applicable grace period; (c) the occurrence of an Event of
Default (as defined therein) under any of the other Loan Documents; (d) any
information contained in any financial statement, application, schedule, report,
or any other document given by the Pledgor or by any other person in connection
with the Pledgor's Liabilities, with the Collateral, or with any of the Loan
Documents, including any Borrowing Base Certificate referred to in Section 4 of
the RCA Restated Pledge Agreement, is not in all respects true and accurate or
the Pledgor or such other person omitted to state any material fact or any fact
necessary to make such information not misleading; (e) the Pledgor is generally
not paying
7.
<PAGE> 8
debts as such debts become due; (f) the filing of any petition for relief under
any provision of the Federal Bankruptcy Code or any similar state law is brought
by or against the Pledgor; (g) an application for the appointment of a receiver
for, the making of a general assignment for the benefit of creditors by or the
insolvency of, the Pledgor; (h) the dissolution, merger, consolidation, or
reorganization of the Pledgor; (i) suspension of the operation of the Pledgor's
present business; (j) transfer of a substantial part (determined by market
value) of the Pledgor's property; (k) sale, transfer, or exchange, either
directly or indirectly, of a controlling stock interest of the Pledgor, other
than to the Lender; (l) termination or withdrawal of any guaranty for the
Pledgor's Liabilities; (m) the Pension Benefit Guaranty Corporation commences
proceedings under Section 4042 of the Employee Retirement Income Security Act of
1974 ("ERISA"), as amended, to terminate any employee pension benefit plan of
the Pledgor; (n) the determination in good faith by the Lender that a material
adverse change has occurred in the financial condition of the Pledgor from the
condition set forth in the most recent financial statement of the Pledgor
heretofore furnished to the Lender, or from the financial condition of the
Pledgor as heretofore most recently disclosed to the Lender in any other manner;
(o) the determination in good faith by the Lender that the prospect of payment
of any of the Pledgor's Liabilities is impaired for any reason; or (p) the
occurrence of an "Event of Default" under the Fidelity Agreement referred to in
Section 20 hereof.
16. Rights and Remedies upon Default.
(a) Upon and after an Event of Default, Lender shall
have, subject to Section 20 hereof, the following rights and remedies:
(i) In addition to any other rights and
remedies contained in this Agreement and in all the other Loan Documents, all
the rights and remedies of a secured party under the Uniform Commercial Code of
the State of New York or other applicable laws, all of which rights and remedies
shall be cumulative and non-exclusive, to the extent permitted by law;
(ii) The right to open Pledgor's mail and to
collect any and all amounts due Pledgor from account debtors; and
(iii) The right to: (A) demand payment of the
Accounts; (B) enforce payment of the Accounts by legal proceedings or otherwise;
(C) exercise all of Pledgor's rights and remedies with respect to the collection
of the Accounts; (D) settle, adjust, compromise, extend or renew the Accounts;
(E) settle, adjust or compromise any legal proceedings brought to collect the
Accounts; (F) to the extent permitted by applicable law, sell or assign the
Accounts upon such terms, for such amounts and at such time or times as Lender
deems advisable; (G) discharge and release the Accounts; (H) take control, in
any manner, of any item of payment or proceeds from any account debtor; (I)
prepare, file and sign Pledgor's name on any proof of claim in bankruptcy or
similar document against any account debtor; (J) prepare, file, and sign
Pledgor's name on any notice of lien, assignment or satisfaction of lien or
similar document in connection with the Accounts; (K) do all acts and
8.
<PAGE> 9
things necessary, in Lender's sole discretion, to fulfill Pledgor's obligations
under the Loan Documents; (L) endorse the name of Pledgor upon any chattel
paper, document, instrument, invoice, freight bill, bill of lading or similar
document or agreement relating to the Accounts; (M) use Pledgor's stationery and
sign Pledgor's name to verifications of the Accounts and notices thereof to
account debtors; and (N) use the information recorded on or contained in any
data processing equipment or computer hardware or software relating to the
Accounts or proceeds thereof to which Pledgor has access.
(b) Upon and after an Event of Default, Lender shall
have, subject to Section 20 hereof, the right to: (i) sell or otherwise dispose
of all or any Collateral in its then condition, or after any further
manufacturing or processing thereof, at public or private sale or sales, with
such notice as may be required by law, in lots or in bulk, for cash or on
credit, all as Lender, in its sole discretion, may deem advisable; (ii) adjourn
such sales from time to time with or without notice; and (iii) to conduct such
sales on Pledgor's premises or elsewhere and use Pledgor's premises without
charge for such sales for such time or times as Lender may see fit. Lender is
hereby granted a license or other right to use, without charge, Pledgor's
labels, patents, copyrights, rights of use of any name, trade secrets, trade
names, trademarks and advertising matter, or any property of a similar nature,
as it pertains to the Collateral, in advertising for sale and selling any
Collateral. Pledgor's rights under all licenses and all franchise agreements
shall inure to Lender's benefit. Lender shall have the right to sell, lease or
otherwise dispose of any Collateral, or any part thereof, for cash, credit or
any combination thereof, and Lender may purchase all or any part of the
Collateral at public or, to the extent permitted by law, private sale and, in
lieu of actual payment of such purchase price, may set off the amount of such
price against Pledgor's obligations to Lender. The proceeds realized from the
sale of any Collateral shall be applied first to the reasonable costs, expenses
and attorneys' fees and expenses incurred by Lender for collection and for
acquisition, completion, protection, removal, storage, sale and delivery of the
Collateral; second, to interest due upon the indebtedness under the Restated
Note; third, to the principal of the indebtedness under the Restated Note; and
fourth, to the payment of all other Pledgor Liabilities. If any deficiency shall
arise, Pledgor shall remain liable to Lender therefor.
(c) Any notice required to be given by Lender of a
sale, lease or other disposition of the Collateral or any other intended action
by Lender, if deposited in the United States mail, postage prepaid and addressed
to Pledgor at its address set forth herein, at least five days prior to such
proposed action, shall constitute commercially reasonable and fair notice
thereof to Pledgor.
(d) Upon the occurrence of an Event of Default which
has not been cured, the rate of interest accruing on the indebtedness evidenced
by the Restated Note shall, at Lender's option, be increased to a default rate
of interest provided in the Restated Note.
17. Remedies Cumulative. Each right, power, and remedy
of the Lender as provided for in this Agreement or in the other Loan Documents
or now or hereafter existing at law or in equity of by statute or otherwise
shall be cumulative and concurrent and shall be
9.
<PAGE> 10
in addition to every other right, power, or remedy provided for in this
Agreement or in the other Loan Documents or now or hereafter existing at law or
in equity or by statute or otherwise, and the exercise or beginning of the
exercise by the Lender or any one or more of such rights, powers, or remedies
shall not preclude the simultaneous or later exercise by the Lender of any or
all such other rights, powers, or remedies.
18. Waiver. No failure or delay by the Lender to insist
upon the strict performance of any term, condition, covenant, or agreement of
this Agreement or of the other Loan Documents, or to exercise any right, power,
or remedy consequent upon a breach thereof, shall constitute a waiver of any
such term, condition, covenant, or agreement or of any such breach, or such
term, condition, covenant, or agreement or of any such breach, or preclude the
Lender from exercising any such right, power, or remedy at any later time or
times. By accepting payment after the due date of any of the Pledgor's
Liabilities, the Lender shall not be deemed to have waived the right either to
require payment when due of all other Pledgor's Liabilities or to declare an
Event of Default for failure to effect such payment of any such other Pledgor's
Liabilities. The Pledgor waives presentment, notice of dishonor, and notice of
non-payment with respect to Accounts.
19. Miscellaneous. Time is of the essence of this
Agreement. The section headings of this Agreement are for convenience only and
shall not limit or otherwise affect any of the terms hereof. Neither this
Agreement nor any term, condition, covenant, or agreement hereof may be changed,
waived, discharged, or terminated orally but only by an instrument in writing
signed by the party against whom enforcement of the change, waiver, discharge,
or termination is sought. This Agreement shall be governed by the laws of the
State of New York and shall be binding upon the Pledgor and its heirs,
executors, administrators, legal representatives, successors, and assigns, and
shall inure to the benefit of the Lender and its successors and assigns. As used
herein, the singular number shall include the plural, the plural the singular,
and the use of the masculine, feminine, or neuter gender shall include all
genders, as the context may require, and the term "person" shall include an
individual, a corporation, an association, a partnership, a trust, and an
organization. Invalidation of any one or more of the provisions of their
Agreement shall in no way affect any of the other provisions hereof, which shall
remain in full force and effect. All references herein to any document,
instrument, or agreement shall be deemed to refer to such document, instrument,
or agreement as the same may be amended, modified, restated, supplemented, or
replaced from time to time. Unless varied by this Agreement, all terms used
herein which are defined by the Uniform Commercial Code of the State of New York
shall have the same meanings hereunder an assigned to them by the Uniform
Commercial Code of the State of New York.
20. Senior Security Agreement. Notwithstanding anything
contained herein to the contrary, this Agreement and the security interest
created hereby shall be junior to the security interest in favor of Fidelity
National Bank ("Fidelity") pursuant to that certain Security Agreement dated as
of December 30, 1994, as such agreement has been and may be amended from time to
time (the "Fidelity Agreement"). To the extent that there is any
10.
<PAGE> 11
inconsistency between the exercise of the Lender's rights and remedies provided
for herein and the exercise by Fidelity of its rights and remedies pursuant to
the Fidelity Agreement, the exercise of the Lender's rights and remedies
provided for herein shall be subordinate to any exercise by Fidelity of its
rights and remedies pursuant to the Fidelity Agreement. The Pledgor represents
and warrants that Fidelity has consented to this Agreement and the security
interest created hereby.
11.
<PAGE> 12
IN WITNESS WHEREOF, the Pledgor has caused its duly authorized
officers to execute this Agreement and to affix its corporate seal hereto, as of
the day and year first written above.
PLEDGOR:
CAPITOL CARE MANAGEMENT
COMPANY, a Georgia corporation
By:
----------------------------------------
Name:
Title
Attest:
------------------------------------
Secretary
[CORPORATE SEAL]
Address of Pledgor's chief executive
office:
6000 Lake Forrest Drive
Suite 200
Atlanta, Georgia 30328
Fulton County, Georgia
Address(es) where Collateral is Address(es) of other place(s) of business of
to be located: the Pledgor:
6000 Lake Forrest Drive (1)
Suite 200 -----------------------------------------
Atlanta, GA 30328
-----------------------------------------
-----------------------------------------
(2)
-----------------------------------------
-----------------------------------------
-----------------------------------------
Previous legal and/or trade name(s) of the
Pledgor:
(1)
-------------------------------------
(2)
-------------------------------------
12.
<PAGE> 13
EXHIBIT "A"
1. Security interest in favor of Fidelity National Bank
pursuant to a Security Agreement dated as of December 30, 1994, as such
agreement has been and may be amended from time to time (the "Fidelity
Agreement").
2. Financing statements have been filed in the states of
Georgia, Tennessee, Florida and Alabama in connection with the security
interests granted pursuant to the Fidelity Agreement.
13.
<PAGE> 1
EXHIBIT 10.47
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made as of this
10th day of July 1997 (the "Effective Date"), by RETIREMENT MANAGEMENT
CORPORATION, a Georgia corporation (the "Pledgor"), in favor of SUN HEALTHCARE
GROUP, INC., a Delaware corporation (the "Lender"), witnesseth:
RECITALS
WHEREAS, the Lender has agreed to make a loan to Retirement
Care Associates, Inc., a Colorado corporation ("RCA"), the Pledgor and Capitol
Care Management Company, Inc., a Georgia corporation ("CCMC"), in the principal
amount of $5,000,000.00 (the "Loan") pursuant to the terms and conditions of
that certain Promissory Note made by RCA, Pledgor and CCMC (as Maker) to the
Lender (as Payee) dated as of even date herewith (the "Note");
WHEREAS, as a condition to the Loan, the Pledgor agreed to
enter into this Security Agreement and to pledge certain collateral as security
for the payment and performance of the Pledgor's obligations under the Note; and
WHEREAS, the Pledgor acknowledges that it is a wholly owned
subsidiary of RCA and will derive substantial direct and indirect benefit from
the transactions contemplated by the Note.
NOW, THEREFORE, in order to secure the prompt payment of all
past, present, and future indebtedness, liabilities, and obligations of the
Pledgor to the Lender of any nature whatsoever in connection with the Note,
together with all obligations of the Pledgor to the Lender hereunder, however
and wherever created, arising, or evidenced, whether direct or indirect,
absolute, contingent, or otherwise, now or hereafter existing or due or to
become due (collectively, the "Pledgor's Liabilities"), and the performance by
the Pledgor of all the terms, conditions, and provisions of this Agreement and
of any other loan document previously, simultaneously or hereafter executed and
delivered by the Pledgor and/or any other person, singly or jointly with another
person or persons, evidencing, securing, guarantying, or in connection with any
of the Pledgor's Liabilities, including the Note (collectively, the "Loan
Documents"), the Pledgor agrees with the Lender as follows:
1. Collateral. To secure the payment and performance of the
Pledgor's Liabilities and the Pledgor's performance of its obligations under the
Loan Documents, and subject to Section 20 hereof, the Pledgor hereby grants to
the Lender a security interest in, and security title to, all of the following
(being referred to herein as the "Collateral"): (i) Pledgor's present or future
accounts, accounts receivable, other receivables, contract rights, issues,
profits, rents, chattel paper, instruments and documents, together with all of
the
1.
<PAGE> 2
proceeds, cash or non-cash, thereof, however acquired, or now or hereafter
existing, including, without limitation, all reimbursable costs or payments from
Medicaid and Medicare, or other state or federal governmental agencies, amounts
due from clients and third party providers, rights to management fees, and
amounts due to Pledgor from advances to any of its managed or affiliated
companies, (ii) all revenues payable to and rights to distributions of Pledgor
from agreements or contracts with residents of facilities owned, leased or
managed by Pledgor and all rights to deposits from such residents and insurance
benefits due to Pledgor with respect to such residents (excluding any escrow
accounts maintained on behalf of such residents), and (iii) all proceeds of the
foregoing (collectively, the "Accounts").
The term "Collateral" as used herein means each and all of the items of
Collateral described above, and the term "proceeds" as used herein includes,
without limitation, the proceeds of all insurance policies covering all or any
part of such items of Collateral.
2. Title to Collateral. Subject to Section 20 hereof, the
Pledgor warrants and represents that (i) it is the lawful owner of the
Collateral, and has the full right, power, and authority to convey, transfer,
and grant the security title and security interest in the Collateral granted
herein to the Lender; (ii) all licenses relating to the Collateral are fully
paid and freely assignable to Lender, and, upon the occurrence of an Event of
Default (as defined herein) and foreclosure by the Lender, the Lender shall have
all rights of the Pledgor to any Collateral licensed to the Pledgor or licensed
by the Pledgor; (iii) the Collateral is not, and so long as this Agreement is in
effect will not be, subject to any liens, claims, security interests,
encumbrances, taxes, or assessments, however described or denominated, except
for liens, claims, security interests and encumbrances in favor of the Lender
and except as set forth on Exhibit "A" hereto; (iv) no financing statement,
mortgage, notice of lien, deed of trust, deed to secure debt, security
agreement, or any other agreement or instrument creating an encumbrance, lien,
charge against any of the Collateral is in existence or on file in any public
office, other than financing statements (or other appropriate security
documentation) filed on behalf of the Lender or disclosed on Exhibit "A" hereto;
and (v) all information with respect to the Collateral and the Pledgor's
Liabilities, or any of them, set forth in any written schedule, certificate, or
other document at any time heretofore or hereafter furnished by RCA or the
Pledgor to the Lender, including any Borrowing Base Certificate referred to in
Section 4 of that certain Security Agreement dated as of even date herewith
executed by RCA to the Lender (the "RCA Security Agreement"), and all other
written information heretofore or hereafter furnished by the Pledgor to the
Lender, is and will be true and correct in all material respects as of the date
furnished.
3. Further Assurances. The Pledgor will defend its title to
the Collateral against all persons and will, upon request of the Lender, (a)
furnish such further assurances of title as may be required by the Lender, (b)
deliver and execute or cause to be delivered and executed, in form and content
satisfactory to the Lender, any financing statements, notices, certificates of
title, and other documents and pay the cost of filing or recording the same in
all public offices deemed necessary by the Lender, as well as any recordation,
documentary, or transfer tax required by law to be paid in connection with such
filing or recording, and (c) do
2.
<PAGE> 3
such other acts as the Lender may request in order to perfect, preserve,
maintain, or continue the perfection of the Lender's security interest in the
Collateral and/or its priority.
4. Accounts, etc. Until such time as the Lender shall notify
the Pledgor in writing of the revocation of such power and authority, the
Pledgor, as agent for the Lender, will, at its own expense, diligently collect,
as and when due, all amounts owing under the Accounts, including the taking of
such action with respect to such collection as the Lender may request from time
to time, and to hold in trust and segregate for the Lender all funds received
from the Accounts; provided, however, that until an Event of Default shall occur
or would occur but for the passage of time, or giving of notice, or both (such
event being a "default"), the Pledgor may use or consume in the ordinary course
of its business any such collections on the Accounts in any lawful manner not
inconsistent with this Agreement and the other Loan Documents. The Lender,
however, may after an Event of Default shall occur or during the continuance of
a default and upon notice to the Pledgor revoke such power and authority and in
any event shall have the authority and right to notify any parties obligated on
any of the Accounts to make payment to the Lender of any amounts due or to
become due thereunder, and enforce collection of performance under any of the
Accounts by suit or otherwise, and surrender, release, or exchange all or any
part thereof, or compromise or extend or renew for any period (whether or not
longer than the original period) any indebtedness thereunder or evidenced
thereby. After an Event of Default, the Pledgor will, at its own expense, notify
any parties obligated on any of the Accounts to make payments to the Lender and
will hold in trust and immediately forward to the Lender all payments received
by the Pledgor in the form received, with all necessary endorsements thereon for
collection by the Lender.
5. Transfer and Other Liens. The Pledgor will not sell, lease,
transfer, exchange, or otherwise dispose of the Collateral, or any part hereof,
without the prior written consent of the Lender and will not permit any lien,
security interest, or other encumbrance to attach to the Collateral, or any part
thereof, other than those in favor of the Lender or those permitted by the
Lender in writing, except that the Pledgor may, in the ordinary course of its
business and in the absence of an Event of Default hereunder or notice by the
Lender to the Pledgor under this Agreement, collect its Accounts.
6. Financial Statements, Books, and Records. The Pledgor will
(a) at all times maintain, in accordance with generally accepted accounting
principles consistently applied, accurate and complete books and records
pertaining to the operation, business affairs, and financial condition of the
Pledgor and pertaining to the Collateral and any contracts and collections
relating to the Collateral, (b) furnish to the Lender promptly upon request,
certified by an officer of the Pledgor and in the form and content and at the
intervals specified by the Lender, such financial statements, reports,
schedules, and other information with respect to the operation, business
affairs, and financial condition of the Pledgor as the Lender may from time to
time require, (c) at all reasonable times, and without hindrance or delay,
permit the Lender or any person designated by the Lender to enter any place of
business of the Pledgor or any other premises where any books, records, and
other data concerning the Pledgor and/or
3.
<PAGE> 4
the Collateral may be kept and to examine, audit, inspect, and make extracts
from and photocopies of any such books, records, and other data, (d) furnish to
the Lender promptly upon request, certified by an officer of the Pledgor and in
the form and content specified by the Lender, lists of purchasers of inventory,
aging of accounts, aggregate cost or wholesale market value of inventory,
schedules of equipment, and other data concerning the Collateral as the Lender
may from time to time specify, and (e) mark its books and records in a manner
satisfactory to the Lender so that the Lender's rights in and to the Collateral
will be shown.
7. Name of Pledgor, Places of Business, and Location of
Collateral. The Pledgor represents and warrants that its correct legal name is
as specified on the signature lines of this Agreement, and each legal or trade
name of the Pledgor for the previous five (5) years (if different from the
Pledgor's current legal name) is as specified below the signature lines of this
Agreement. Without the prior written consent of the Lender, the Pledgor will not
change its name, dissolve, merge, or consolidate with any other person. The
Pledgor warrants that the address of the Pledgor's chief executive office and
the address of each other place of business of the Pledgor are as specified
below the signature lines of this Agreement. The Collateral and all books and
records pertaining to the Collateral have been, are, and will be located at the
Pledgor's chief executive office specified below or at any other place of
business which may be specified below the signature lines of this Agreement.
Without the prior written consent of the Lender, the Pledgor will not open any
new place of business or change the location of any Collateral to any place not
specified below. The Pledgor will immediately advise the Lender in writing of
the opening of any new place of business and of any change in the location of
the places where the Collateral or any part thereof, or the books and records
concerning the Collateral or any part thereof, are kept.
8. Care of Collateral. The Pledgor will maintain the
Collateral in first-class condition and will not do or permit anything to be
done to the Collateral that may impair its value. The Lender shall have no duty
to, and the Pledgor hereby releases the Lender from all claims for loss or
damage caused by the failure to, collect or enforce any Account or to preserve
rights against prior parties to the Collateral.
9. Taxes. The Pledgor will pay as and when due and payable all
taxes, levies, license fees, assessments, and other impositions levied on the
Collateral or any part thereof or for its use and operation.
10. Specific Assignments. Promptly upon request by the Lender,
the Pledgor will execute and deliver to the Lender written assignments,
endorsements, and/or schedules, in form and content satisfactory to the Lender,
of specific Accounts or groups of Accounts, but the security interest of the
Lender hereunder shall not be limited in any way by such assignments.
11. Government Contracts. If any Account arises out of a
contract or contracts with the United States of America or any department,
agency, or instrumentality thereof, the Pledgor shall immediately notify the
Lender thereof in writing and execute any
4.
<PAGE> 5
instruments or take any steps required by the Lender in order that all moneys
due or to become due under such contract or contracts shall be assigned to the
Lender and notice thereof given under the Federal Assignment of Claims Act or
other applicable law.
12. Collateral Account.
(a) Subject to the exercise by Fidelity of its rights and
remedies under the Fidelity Agreement referred to in Section 20 hereof, the
Pledgor will, upon the request of the Lender at any time and from time to time
both prior to and after the occurrence of an Event of Default hereunder, deposit
or cause to be deposited to a bank account designated by the Lender and from
which the Lender alone has power of access and withdrawal (collectively, the
"Collateral Account") all checks, drafts, cash, and other remittances in payment
or on account of payment of the Accounts, and the cash proceeds of any returned
goods, the sale or lease of which gave rise to an Account and, when permitted by
the paying companies (including without limitation, Medicaid and Mutual of Omaha
Medicare payment [EDS-Title XVIII]) all such payments therefrom (all of the
foregoing herein collectively referred to as "Items of Payment"). The Pledgor
shall deposit the Items of Payment for credit to the Collateral Account within
two (2) business days of the receipt thereof, and in precisely the form
received, except for the endorsement of the Pledgor where necessary to permit
the collection of the Items of Payment, which endorsement the Pledgor hereby
agrees to make. Pending such deposit, the Pledgor will not commingle any of the
Items of Payment with any of its other funds or property but will hold them
separate and apart. The Lender may at any time and from time to time apply the
whole or any part of the collected funds credited to the Collateral Account
against the Pledgor's Liabilities.
(b) So long as Lender, in its discretion, so desires,
Pledgor shall establish and maintain a blocked account in Lender's name with a
bank satisfactory to Lender (the "Collecting Bank") to which Pledgor will
immediately deposit all payments from account debtors in the identical form in
which such payment was made, whether by cash or check.
(c) The Collecting Bank shall acknowledge and agree, in a
manner satisfactory to Lender, that all payments made to such blocked account
are the sole and exclusive property of the Lender, that the Collecting Bank has
no right of set off against such blocked account, and that the Collecting Bank
will wire or otherwise transfer in immediately available funds, in a manner
satisfactory to Lender, funds deposited in such blocked account to Lender on a
daily basis as soon as such funds are collected. Pledgor hereby agrees that all
payments made to such blocked account or otherwise received by Lender, whether
on Accounts or as proceeds of the Collateral or otherwise, will be the sole and
exclusive property of Lender and will be applied on account of the Obligations.
With respect to any payment relating to or proceeds of any Accounts or the
Collateral which come into its possession or under its control, Pledgor and any
affiliates, subsidiaries, shareholders, directors, officers, employees, agents
or persons acting for or in concert with Pledgor shall receive any such item, as
trustee for Lender, as sole and exclusive property of Lender, and immediately
upon receipt thereof, Pledgor shall remit the same or cause the same to be
remitted in kind, to
5.
<PAGE> 6
Lender, at Lender's address set forth herein. Pledgor agrees to pay to Lender
any and all fees, costs, expenses which Lender incurs in connection with
obtaining and maintaining the blocked account and depositing for collection by
Lender any check or item of payment received or delivered to the Collecting Bank
or the Lender, and Pledgor further agrees to reimburse, indemnify and hold
harmless Lender from any claims asserted by the Collecting Bank in connection
with the blocked account or any returned or uncollected checks received by the
Collecting Bank as proceeds of the Collateral.
13. Rights of Lender and Duties of Pledgor. The Lender may at
any time and from time to time both prior to and after the occurrence of an
Event of Default hereunder (a) notify the account debtors obligated on any of
the Collateral to make payments thereon directly to the Lender, and to take
control of the cash and noncash proceeds of any such Collateral; (b) charge to
the Pledgor any Item of Payment credited to the Collateral Account which is
dishonored by the drawee or maker thereof; (c) compromise, extend, or renew any
of the Collateral or deal with the same as it may deem advisable; (d) release,
make exchanges or substitutions for, or surrender all or any part of the
Collateral; (e) remove from the Pledgor's place of business all books, records,
ledger sheets, correspondence, invoices, and documents relating to or evidencing
any of the Collateral or, without cost or expense to the Lender, make such use
of the Pledgor's place(s) of business as may be reasonably necessary to
administer, control, and collect the Collateral; (f) repair, alter, or supply
goods, if any, necessary to fulfill in whole or in part the purchase order of
any account debtor; (g) demand, collect, receipt for, and give renewals,
extensions, discharges, and releases of any of the Collateral; (h) institute and
prosecute legal and equitable proceedings to enforce collection of, or realize
upon, any of the Collateral; (i) settle, renew, extend, compromise, compound,
exchange, or adjust claims with respect to any of the Collateral or any legal
proceedings brought with respect thereto; (j) endorse the name of the Pledgor
upon any Items of Payment relating to the Collateral or upon any proof of claim
in bankruptcy against an account debtor; and (k) receive and open all mail
addressed to the Pledgor and, if an Event of Default exists hereunder, notify
postal authorities to change the address for the delivery of mail to the Pledgor
to such address as the Lender may designate; and for purposes of taking the
actions described in Subsections (a) through (k) the Pledgor hereby irrevocably
appoints the Lender as its attorney-in-fact (which appointment being coupled
with an interest is irrevocable while any of Pledgor's Liabilities remain
unpaid), with power of substitution, in the name of the Lender or in the name of
the Pledgor or otherwise, for the use and benefit of the Lender, but at the cost
and expense of the Pledgor and without notice to the Pledgor. The Pledgor will
(a) make no material change to the terms of any Account without the prior
written permission of the Lender; (b) on demand, make available in form
acceptable to the Lender shipping documents and delivery receipts evidencing the
shipment of goods which gave rise to an Account, completion certificate, or
other proof of the satisfactory performance of services which gave rise to an
Account, copies of the invoices arising out of an Account, and the Pledgor's
copy of any written contract or order from which an Account arose; and (c) when
requested, regularly advise the Lender whenever an account debtor returns or
refuses to retain any goods, the sale or lease of which gave rise to an Account,
and will comply with any instructions which the Lender may give regarding the
sale or other disposition of such returns.
6.
<PAGE> 7
14. Performance by Lender. If the Pledgor fails to perform,
observe, or comply with any of the conditions, terms, or covenants contained in
this Agreement, the Lender, without notice to or demand upon the Pledgor and
without waiving or releasing any of the Pledgor's Liabilities or any Event of
Default, may (but shall be under no obligation to) at any time thereafter
perform such conditions, terms, or covenants for the account and at the expense
of the Pledgor, and may enter upon any place of business or other premises of
the Pledgor for that purpose and take all such action thereon as the Lender may
consider necessary or appropriate for such purpose. All sums paid or advanced by
the Lender in connection with the foregoing and all costs and expenses
(including, without limitation, reasonable attorneys' fees actually incurred and
expenses) incurred in connection therewith (collectively, the "Expense
Payments") together with interest thereon at the post-default rate of interest
provided for in the Note (but in no event higher than the maximum interest rate
permitted by applicable law), from the date of payment until repaid in full,
shall be paid by the Pledgor to the Lender on demand and shall constitute and
become a part of the Pledgor's Liabilities secured hereby.
15. Default. The occurrence of any one or more of the
following events shall constitute an event of default (an "Event of Default")
under this Agreement: (a) failure of the Pledgor to pay any of the Pledgor's
Liabilities as and when due and payable, after giving effect to any applicable
grace period; (b) failure of the Pledgor to perform, observe, or comply with any
of the provisions of this Agreement or of any of the other Loan Documents, after
giving effect to any applicable grace period; (c) the occurrence of an Event of
Default (as defined therein) under any of the other Loan Documents; (d) any
information contained in any financial statement, application, schedule, report,
or any other document given by the Pledgor or by any other person in connection
with the Pledgor's Liabilities, with the Collateral, or with any of the Loan
Documents, including any Borrowing Base Certificate referred to in Section 4 of
the RCA Security Agreement, is not in all respects true and accurate or the
Pledgor or such other person omitted to state any material fact or any fact
necessary to make such information not misleading; (e) the Pledgor is generally
not paying debts as such debts become due; (f) the filing of any petition for
relief under any provision of the Federal Bankruptcy Code or any similar state
law is brought by or against the Pledgor; (g) an application for the appointment
of a receiver for, the making of a general assignment for the benefit of
creditors by or the insolvency of, the Pledgor; (h) the dissolution, merger,
consolidation, or reorganization of the Pledgor; (i) suspension of the operation
of the Pledgor's present business; (j) transfer of a substantial part
(determined by market value) of the Pledgor's property; (k) sale, transfer, or
exchange, either directly or indirectly, of a controlling stock interest of the
Pledgor, other than the Lender; (l) termination or withdrawal of any guaranty
for the Pledgor's Liabilities; (m) the Pension Benefit Guaranty Corporation
commences proceedings under Section 4042 of the Employee Retirement Income
Security Act of 1974 ("ERISA"), as amended, to terminate any employee pension
benefit plan of the Pledgor; (n) the determination in good faith by the Lender
that a material adverse change has occurred in the financial condition of the
Pledgor from the condition set forth in the most recent financial statement of
the Pledgor heretofore furnished to the Lender, or from the financial condition
of the Pledgor as heretofore most recently disclosed to the Lender in any
7.
<PAGE> 8
other manner; (o) the determination in good faith by the Lender that the
prospect of payment of any of the Pledgor's Liabilities is impaired for any
reason; or (p) the occurrence of an "Event of Default" under the Fidelity
Agreement referred to in Section 20 hereof.
16. Rights and Remedies upon Default.
(a) Upon and after an Event of Default, Lender shall have,
subject to Section 20 hereof, the following rights and remedies:
(i) In addition to any other rights and remedies
contained in this Agreement and in all the other Loan Documents, all the rights
and remedies of a secured party under the Uniform Commercial Code of the State
of New York or other applicable laws, all of which rights and remedies shall be
cumulative and non-exclusive, to the extent permitted by law;
(ii) The right to open Pledgor's mail and to collect
any and all amounts due Pledgor from account debtors; and
(iii) The right to: (A) demand payment of the
Accounts; (B) enforce payment of the Accounts by legal proceedings or otherwise;
(C) exercise all of Pledgor's rights and remedies with respect to the collection
of the Accounts; (D) settle, adjust, compromise, extend or renew the Accounts;
(E) settle, adjust or compromise any legal proceedings brought to collect the
Accounts; (F) to the extent permitted by applicable law, sell or assign the
Accounts upon such terms, for such amounts and at such time or times as Lender
deems advisable; (G) discharge and release the Accounts; (H) take control, in
any manner, of any item of payment or proceeds from any account debtor; (I)
prepare, file and sign Pledgor's name on any proof of claim in bankruptcy or
similar document against any account debtor; (J) prepare, file, and sign
Pledgor's name on any notice of lien, assignment or satisfaction of lien or
similar document in connection with the Accounts; (K) do all acts and things
necessary, in Lender's sole discretion, to fulfill Pledgor's obligations under
the Loan Documents; (L) endorse the name of Pledgor upon any chattel paper,
document, instrument, invoice, freight bill, bill of lading or similar document
or agreement relating to the Accounts; (M) use Pledgor's stationery and sign
Pledgor's name to verifications of the Accounts and notices thereof to account
debtors; and (N) use the information recorded on or contained in any data
processing equipment or computer hardware or software relating to the Accounts
or proceeds thereof to which Pledgor has access.
(b) Upon and after an Event of Default, Lender shall have,
subject to Section 20 hereof, the right to: (i) sell or otherwise dispose of all
or any Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all as Lender, in
its sole discretion, may deem advisable; (ii) adjourn such sales from time to
time with or without notice; and (iii) to conduct such sales on Pledgor's
premises or elsewhere and use Pledgor's premises without charge for such sales
for such time or times as
8.
<PAGE> 9
Lender may see fit. Lender is hereby granted a license or other right to use,
without charge, Pledgor's labels, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in advertising
for sale and selling any Collateral. Pledgor's rights under all licenses and all
franchise agreements shall inure to Lender's benefit. Lender shall have the
right to sell, lease or otherwise dispose of any Collateral, or any part
thereof, for cash, credit or any combination thereof, and Lender may purchase
all or any part of the Collateral at public or, to the extent permitted by law,
private sale and, in lieu of actual payment of such purchase price, may set off
the amount of such price against Pledgor's obligations to Lender. The proceeds
realized from the sale of any Collateral shall be applied first to the
reasonable costs, expenses and attorneys' fees and expenses incurred by Lender
for collection and for acquisition, completion, protection, removal, storage,
sale and delivery of the Collateral; second, to interest due upon the
indebtedness under the Note; third, to the principal of the indebtedness under
the Note; and fourth, to the payment of all other Pledgor Liabilities. If any
deficiency shall arise, Pledgor shall remain liable to Lender therefor.
(c) Any notice required to be given by Lender of a sale,
lease or other disposition of the Collateral or any other intended action by
Lender, if deposited in the United States mail, postage prepaid and addressed to
Pledgor at its address set forth herein, at least five days prior to such
proposed action, shall constitute commercially reasonable and fair notice
thereof to Pledgor.
(d) Upon the occurrence of an Event of Default which has
not been cured, the rate of interest accruing on the indebtedness evidenced by
the Note shall, at Lender's option, be increased to a default rate of interest
provided in the Note.
17. Remedies Cumulative. Each right, power, and remedy of the
Lender as provided for in this Agreement or in the other Loan Documents or now
or hereafter existing at law or in equity of by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power,
or remedy provided for in this Agreement or in the other Loan Documents or now
or hereafter existing at law or in equity or by statute or otherwise, and the
exercise or beginning of the exercise by the Lender or any one or more of such
rights, powers, or remedies shall not preclude the simultaneous or later
exercise by the Lender of any or all such other rights, powers, or remedies.
18. Waiver. No failure or delay by the Lender to insist upon
the strict performance of any term, condition, covenant, or agreement of this
Agreement or of the other Loan Documents, or to exercise any right, power, or
remedy consequent upon a breach thereof, shall constitute a waiver of any such
term, condition, covenant, or agreement or of any such breach, or such term,
condition, covenant, or agreement or of any such breach, or preclude the Lender
from exercising any such right, power, or remedy at any later time or times. By
accepting payment after the due date of any of the Pledgor's Liabilities, the
Lender shall not be deemed to have waived the right either to require payment
when due of all other Pledgor's Liabilities or to declare an Event of Default
for failure to effect such payment of
9.
<PAGE> 10
any such other Pledgor's Liabilities. The Pledgor waives presentment, notice of
dishonor, and notice of non-payment with respect to Accounts.
19. Miscellaneous. Time is of the essence of this Agreement.
The section headings of this Agreement are for convenience only and shall not
limit or otherwise affect any of the terms hereof. Neither this Agreement nor
any term, condition, covenant, or agreement hereof may be changed, waived,
discharged, or terminated orally but only by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge, or
termination is sought. This Agreement shall be governed by the laws of the State
of New York and shall be binding upon the Pledgor and its heirs, executors,
administrators, legal representatives, successors, and assigns, and shall inure
to the benefit of the Lender and its successors and assigns. As used herein, the
singular number shall include the plural, the plural the singular, and the use
of the masculine, feminine, or neuter gender shall include all genders, as the
context may require, and the term "person" shall include an individual, a
corporation, an association, a partnership, a trust, and an organization.
Invalidation of any one or more of the provisions of their Agreement shall in no
way affect any of the other provisions hereof, which shall remain in full force
and effect. All references herein to any document, instrument, or agreement
shall be deemed to refer to such document, instrument, or agreement as the same
may be amended, modified, restated, supplemented, or replaced from time to time.
Unless varied by this Agreement, all terms used herein which are defined by the
Uniform Commercial Code of the State of New York shall have the same meanings
hereunder an assigned to them by the Uniform Commercial Code of the State of New
York.
20. Senior Security Agreement. Notwithstanding anything
contained herein to the contrary, this Agreement and the security interest
created hereby shall be junior to the security interest in favor of Fidelity
National Bank ("Fidelity") pursuant to that certain Security Agreement dated as
of December 30, 1994, as such agreement has been and may be amended from time to
time (the "Fidelity Agreement"). To the extent that there is any inconsistency
between the exercise of the Lender's rights and remedies provided for herein and
the exercise by Fidelity of its rights and remedies pursuant to the Fidelity
Agreement, the exercise of the Lender's rights and remedies provided for herein
shall be subordinate to any exercise by Fidelity of its rights and remedies
pursuant to the Fidelity Agreement. The Pledgor represents and warrants that
Fidelity has consented to this Agreement and the security interest created
hereby.
10.
<PAGE> 11
IN WITNESS WHEREOF, the Pledgor has caused its duly authorized
officers to execute this Agreement and to affix its corporate seal hereto, as of
the day and year first written above.
PLEDGOR:
RETIREMENT MANAGEMENT
CORPORATION, a Georgia corporation
By:
--------------------------------------------------
Name:
Title:
Attest:
----------------------------------------------
Secretary
[CORPORATE SEAL]
Address of Pledgor's chief executive
office:
6000 Lake Forrest Drive
Suite 200
Atlanta, Georgia 30328
Fulton County, Georgia
Address(es) where Collateral Address(es) of other place(s) of business
is to be located: of the Pledgor:
6000 Lake Forrest Drive (1)
Suite 200 -----------------------------------
Atlanta, GA 30328
-----------------------------------
-----------------------------------
(2)
-----------------------------------
-----------------------------------
-----------------------------------
11.
<PAGE> 12
Previous legal and/or trade
name(s) of the Pledgor:
(1)
--------------------------
(2)
--------------------------
12.
<PAGE> 13
EXHIBIT "A"
1. Security interest in favor of Fidelity National Bank
pursuant to a Security Agreement dated as of December 30, 1994, as such
agreement has been and may be amended from time to time (the "Fidelity
Agreement").
2. Financing statements have been filed in the states of
Georgia, Tennessee, Florida and Alabama in connection with the security
interests granted pursuant to the Fidelity Agreement.
13.
<PAGE> 1
EXHIBIT 10.48
AMENDED AND RESTATED PROMISSORY NOTE
$9,750,000.00 July 10, 1997
FOR VALUE RECEIVED, RETIREMENT CARE ASSOCIATES, INC., a Colorado
corporation ("RCA"), RETIREMENT MANAGEMENT CORPORATION, a Georgia corporation
("RMC"), and CAPITOL CARE MANAGEMENT COMPANY, INC., a Georgia corporation
("CCMC") (hereinafter, whether one or more, referred to as "Maker"), does hereby
promise to pay to SUN HEALTHCARE GROUP, INC., a Delaware corporation
(hereinafter referred to as "Payee"), at its principal offices located at 101
Sun Lane, Albuquerque, New Mexico 87109, or at such other address as Payee may
from time to time designate, the principal sum of NINE MILLION SEVEN HUNDRED
FIFTY THOUSAND AND NO/100 DOLLARS ($9,750,000.00), together with interest
thereon as hereinafter set forth.
Maker acknowledges and agrees that RCA is currently indebted to Payee
in respect of the loan (the "Existing Loan") evidenced by that certain
Promissory Note dated January 10, 1997, executed by RCA in the principal amount
of $9,750,000 (the "Original Note"). This Note is executed to amend and restate
the Original Note in connection with the extension by Payee of the original
maturity date of the Existing Loan, the inclusion of RMC and CCMC as Makers
hereof, and the amendment of certain other terms of the Original Note, and not
as a novation of the Existing Loan. This Note shall evidence RCA's continuing
obligations with respect to the Existing Loan. RMC and CCMC acknowledge that
they are wholly-owned subsidiaries of RCA and will derive substantial direct and
indirect benefit from the transactions contemplated hereby.
From and after the date hereof, interest shall accrue on the
outstanding principal balance hereof at the rate of eleven percent (11%) per
annum; provided that, during any period of default hereunder which is not cured
within any grace period provided for herein, interest shall accrue at the rate
of fifteen percent (15%) per annum; and provided further that, notwithstanding
any provision hereof, it is not intended by this Note to impose upon Maker any
obligation to pay interest in excess of the maximum rate of interest permitted
by law.
The entire principal balance hereof, together with all accrued and
unpaid interest hereunder and all accrued and unpaid interest on the Existing
Loan under the Original Note, and all other amounts outstanding hereunder and
thereunder, shall be due and payable in full on or before the close of business
on the 120th day following the termination of the Agreement and Plan or Merger
and Reorganization among Payee, Peach Acquisition Corporation and RCA, dated as
of February 17, 1997 (the "Maturity Date"). Accrued interest on the Existing
Loan under the Original Note is equal to four hundred thirty six thousand four
hundred seventy nine dollars ($436,479).
<PAGE> 2
All payments received hereunder shall be applied first to unpaid
interest and then to the principal balance outstanding hereunder. Maker shall be
entitled to prepay all or any portion of the principal balance hereof prior to
maturity without premium or penalty.
This Note is secured by a lien on the accounts receivable and certain
related assets of Maker, which have been pledged by Maker pursuant to the terms
and conditions of that certain Amended and Restated Pledge Agreement dated as of
even date herewith executed and delivered by RCA to Payee (the "Restated Pledge
Agreement") and by those certain Pledge Agreements dated as of even date
herewith executed by each of RMC and CCMC to Payee (the "Additional Pledge
Agreements" and, together with the Restated Pledge Agreement, the "Pledge
Agreements"), and by a lien on the accounts receivable and certain related
assets of West Tennessee, Inc., Lake Forest Healthcare Center, Inc., Statesboro
HealthCare, Inc., Lake Health Care Center, Inc., Roberta Health Care Center,
Inc., Gardendale Health Care Center, Inc., Southside Health Care Center, Inc.,
Gainesville Health Care Center, Inc., Charlton City Healthcare, Inc., Jeff Davis
Healthcare, Inc., Seaside Retirement, Inc., Mid-Florida, Inc., Bibb Health &
Rehabilitation, Inc., Brent-Lox Hall Nursing Home, Inc., Libbie Rehabilitation
Center, Inc., Phoenix Associates, Inc., Summer's Landing, Inc., Riveria
Retirement, Inc., Pine Manor Healthcare, Inc., Suncoast Retirement, Inc., Atrium
of Jacksonville and The Atrium Nursing Home, Inc. (collectively referred to
herein as the "Subsidiary Guarantors") which have been pledged by the Subsidiary
Guarantors pursuant to the terms and conditions of that certain Subsidiary
Pledge Agreement dated as of even date herewith executed and delivered by the
Subsidiary Guarantors to Payee (the "Subsidiary Pledge Agreement").
The occurrence and continuation of any one of the following events
(each an "Event of Default") shall constitute a default hereunder: (i) Maker
shall fail to make due and punctual payment of all amounts of principal and
interest under this Note on the Maturity Date; (ii) Maker fails to perform any
other covenant or agreement in this Note or the Pledge Agreements (other than
payment when due of principal and interest under this Note or compliance with
the "Borrowing Base" restriction set forth in clause (iii) below), and Maker
fails to cure such violation within ten (10) days after written notice thereof
from Payee; (iii) the aggregate principal amount outstanding at any time
hereunder shall be in excess of the "Borrowing Base" as reflected in the most
recent "Borrowing Base Certificate" provided to Payee by RCA (such terms being
used herein with the respective meanings ascribed thereto in the Restated Pledge
Agreement), and Maker fails to cure such violation within twenty (20) days after
written notice thereof from Payee; (iv) any Subsidiary Guarantor fails to
perform any covenant or agreement contained in the Subsidiary Pledge Agreement
and such Subsidiary Guarantor fails to cure violation within ten (10) days after
written notice thereof from Payee; (v) Maker makes an assignment for the benefit
of creditors, is adjudicated insolvent or bankrupt, a petition for bankruptcy,
reorganization, dissolution, or liquidation is filed by or against Maker under
any arrangement or debt readjustment law or statute of any jurisdiction whether
now or hereafter in effect which remains undismissed for sixty (60) days, or
Maker applies for or permits the appointment of a receiver or trustee for any or
all of its property or any such receiver or trustee shall have been appointed
for any and all property or assets of Maker or Maker by any act indicates
consent to, approval of or acquiescence in any such proceeding; or (vi) a change
in control (of a nature that would
2.
<PAGE> 3
be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended) shall have been announced or occurred with respect to Maker, or a
person (other than Payee) shall have announced its intention to make a tender
offer or exchange offer including 15% or more of Maker's outstanding voting
stock.
If an Event of Default occurs and is continuing, then, at the option of
Payee, the entire principal amount outstanding hereunder, together with any
accrued and unpaid interest thereon, shall, upon written notice from Payee to
Maker, become immediately due and payable. The rights, remedies, powers and
privileges provided for herein are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
Maker shall pay all expenses of Payee in the collection of this Note,
including all reasonable attorneys' fees and expenses.
No waiver by Payee of any default shall be effective unless in writing,
nor shall it operate as a waiver of any other default or of the same default on
a future occasion. No delay or omission by Payee in exercising any of its
rights, remedies, powers and privileges hereunder or at law and no course of
dealing between Payee and Maker or any other person shall be deemed a waiver by
Payee of any of such rights, remedies, powers and privileges even if such delay
or omission is continuous or repeated, nor shall any single or partial exercise
of any right, remedy, power or privilege preclude any other or further exercise
thereof by Payee or the exercise of any other right, remedy, power or privilege
by Payee. Maker waives demand, presentment, protest, notice of protest and
notice of dishonor.
All amendments to this Note, and any waiver or consent of Payee, must
be in writing and signed by Payee and Maker.
Maker hereby waives presentment, demand, notice of dishonor, protests
and all other notices except as specifically provided herein.
This Note shall be governed by, construed and enforced in accordance
with the laws of the State of New York, without regard to the conflicts of laws
principles thereof, other than such laws that direct the application of New York
law.
It is expressly agreed that if, from any circumstances whatsoever,
fulfillment of any provision of this Note at the time performance of such
provision shall be due shall be invalid under presently applicable usury
statutes or any other applicable laws with regard to obligations of like
character and amount, then the obligation to be fulfilled shall be reduced to
the limit of such validity, so that in no event shall any exaction be possible
under this Note that is in excess of the current limit of such validity, but
such obligation shall be fulfilled to the limit of such validity. In no event
shall Maker be bound to pay for the use, forbearance or detention of the money
loaned pursuant hereto interest of more than the current legal limit. The right
to demand any such excess is hereby expressly waived by Payee.
3.
<PAGE> 4
This Note shall be binding upon the successors and assigns of Maker.
Neither Maker nor Payee may assign or transfer this Note to any person or entity
without the written consent of the other party.
All notices and other communications hereunder shall be in writing and
shall be deemed given if (i) delivered by hand, (ii) mailed by registered or
certified mail (return receipt requested) or (iii) telecommunicated and
immediately confirmed both orally and in writing, to the parties at the
following addresses (or at such other addresses for a party as shall be
specified by like notice) and shall be deemed given on the date on which so
hand-delivered or so telecommunicated or on the second business day following
the date on which so mailed, if deposited in a regularly-maintained receptacle
for United States mail:
If to Maker: 6000 Lake Forrest Drive
Suite 200, Atlanta, Georgia 30328
If to Payee: 101 Sun Lane
Albuquerque, New Mexico 87109
IN WITNESS WHEREOF, Maker has caused this Note to be executed, sealed
and delivered as of the date and year first written above.
RETIREMENT CARE ASSOCIATES, INC.
By:
-----------------------------
Its:
--------------------------
RETIREMENT MANAGEMENT
CORPORATION
By:
-----------------------------
Its:
-------------------------
4.
<PAGE> 5
CAPITOL CARE MANAGEMENT
COMPANY, INC.
By:
------------------------
Its:
----------------------
5.
<PAGE> 1
EXHIBIT 10.49
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement") is made as of this
10th day of July 1997 (the "Effective Date"), by RETIREMENT MANAGEMENT
CORPORATION, a Georgia corporation (the "Pledgor"), in favor of SUN HEALTHCARE
GROUP, INC., a Delaware corporation (the "Lender"), witnesseth:
RECITALS
WHEREAS, the Lender has agreed to make a loan to Retirement
Care Associates, Inc., a Colorado corporation ("RCA") in the principal amount of
$9,750,000.00 (the "Original Loan") pursuant to the terms and conditions of that
certain Promissory Note made by RCA (as Maker) to the Lender (as Payee) dated as
of January 10, 1997 (the "Original Note");
WHEREAS, as a condition to the Original Loan, RCA agreed to
enter into a Pledge Agreement, dated as of January 10, 1997 (the "Original
Agreement"), pursuant to which RCA agreed to pledge certain collateral as
security for the payment and performance of RCA's obligations under the Original
Note;
WHEREAS, RCA and the Lender have agreed to amend and restate
the Original Note pursuant to the terms and conditions of that certain Amended
and Restated Promissory Note made by RCA, the Pledgor and Capitol Care
Management Company, Inc., a Georgia corporation ("CCMC") (as Maker), to the
Lender (as Payee) dated of even date herewith (the "Restated Note" and, together
with the Original Note, collectively the "Note");
WHEREAS, the Pledgor acknowledges that it is a wholly owned
subsidiary of RCA and will derive substantial direct and indirect benefit from
the transactions contemplated by the Restated Note; and
WHEREAS, in connection with the transactions contemplated by
the Restated Note, the Pledgor has agreed to enter into this Agreement as
security for the payment and performance of Pledgor's obligations hereunder and
under the Note.
NOW, THEREFORE, in order to secure the prompt payment of all
past, present, and future indebtedness, liabilities, and obligations of the
Pledgor to the Lender of any nature whatsoever in connection with the Note,
together with all obligations of the Pledgor to the Lender hereunder, however
and wherever created, arising, or evidenced, whether direct or indirect,
absolute, contingent, or otherwise, now or hereafter existing or due or to
become due (collectively, the "Pledgor's Liabilities"), and the performance by
the Pledgor of all the terms, conditions, and provisions of this Agreement and
of any other loan
1.
<PAGE> 2
document previously, simultaneously or hereafter executed and delivered by the
Pledgor and/or any other person, singly or jointly with another person or
persons, evidencing, securing, guarantying, or in connection with any of the
Pledgor's Liabilities, including the Note (collectively, the "Loan Documents"),
the Pledgor agrees with the Lender as follows:
1. Collateral. To secure the payment and performance of the
Pledgor's Liabilities and the Pledgor's performance of its obligations under the
Loan Documents, and subject to Section 20 hereof, the Pledgor hereby grants to
the Lender a security interest in, and security title to, all of the following
(being referred to herein as the "Collateral"): (i) Pledgor's present or future
accounts, accounts receivable, other receivables, contract rights, issues,
profits, rents, chattel paper, instruments and documents, together with all of
the proceeds, cash or non-cash, thereof, however acquired, or now or hereafter
existing, including, without limitation, all reimbursable costs or payments from
Medicaid and Medicare, or other state or federal governmental agencies, amounts
due from clients and third party providers, rights to management fees, and
amounts due to Pledgor from advances to any of its managed or affiliated
companies, (ii) all revenues payable to and rights to distributions of Pledgor
from agreements or contracts with residents of facilities owned, leased or
managed by Pledgor and all rights to deposits from such residents and insurance
benefits due to Pledgor with respect to such residents (excluding any escrow
accounts maintained on behalf of such residents), and (iii) all proceeds of the
foregoing (collectively, the "Accounts").
The term "Collateral" as used herein means each and all of the items of
Collateral described above, and the term "proceeds" as used herein includes,
without limitation, the proceeds of all insurance policies covering all or any
part of such items of Collateral.
2. Title to Collateral. Subject to Section 20 hereof, the
Pledgor warrants and represents that (i) it is the lawful owner of the
Collateral, and has the full right, power, and authority to convey, transfer,
and grant the security title and security interest in the Collateral granted
herein to the Lender; (ii) all licenses relating to the Collateral are fully
paid and freely assignable to Lender, and, upon the occurrence of an Event of
Default (as defined herein) and foreclosure by the Lender, the Lender shall have
all rights of the Pledgor to any Collateral licensed to the Pledgor or licensed
by the Pledgor; (iii) the Collateral is not, and so long as this Agreement is in
effect will not be, subject to any liens, claims, security interests,
encumbrances, taxes, or assessments, however described or denominated, except
for liens, claims, security interests and encumbrances in favor of the Lender
and except as set forth on Exhibit "A" hereto; (iv) no financing statement,
mortgage, notice of lien, deed of trust, deed to secure debt, security
agreement, or any other agreement or instrument creating an encumbrance, lien,
charge against any of the Collateral is in existence or on file in any public
office, other than financing statements (or other appropriate security
documentation) filed on behalf of the Lender or disclosed on Exhibit "A" hereto;
and (v) all information with respect to the Collateral and the Pledgor's
Liabilities, or any of them, set forth in any written schedule, certificate, or
other document at any time heretofore or hereafter furnished by RCA or the
Pledgor to the Lender, including any Borrowing Base Certificate referred to in
Section 4 of that certain Amended and Restated Pledge Agreement dated as of even
date
2.
<PAGE> 3
herewith executed by RCA to the Lender (the "RCA Restated Pledge Agreement"),
and all other written information heretofore or hereafter furnished by the
Pledgor to the Lender, is and will be true and correct in all material respects
as of the date furnished.
3. Further Assurances. The Pledgor will defend its title to
the Collateral against all persons and will, upon request of the Lender, (a)
furnish such further assurances of title as may be required by the Lender, (b)
deliver and execute or cause to be delivered and executed, in form and content
satisfactory to the Lender, any financing statements, notices, certificates of
title, and other documents and pay the cost of filing or recording the same in
all public offices deemed necessary by the Lender, as well as any recordation,
documentary, or transfer tax required by law to be paid in connection with such
filing or recording, and (c) do such other acts as the Lender may request in
order to perfect, preserve, maintain, or continue the perfection of the Lender's
security interest in the Collateral and/or its priority.
4. Accounts, etc. Until such time as the Lender shall notify
the Pledgor in writing of the revocation of such power and authority, the
Pledgor, as agent for the Lender, will, at its own expense, diligently collect,
as and when due, all amounts owing under the Accounts, including the taking of
such action with respect to such collection as the Lender may request from time
to time, and to hold in trust and segregate for the Lender all funds received
from the Accounts; provided, however, that until an Event of Default shall occur
or would occur but for the passage of time, or giving of notice, or both (such
event being a "default"), the Pledgor may use or consume in the ordinary course
of its business any such collections on the Accounts in any lawful manner not
inconsistent with this Agreement and the other Loan Documents. The Lender,
however, may after an Event of Default shall occur or during the continuance of
a default and upon notice to the Pledgor revoke such power and authority and in
any event shall have the authority and right to notify any parties obligated on
any of the Accounts to make payment to the Lender of any amounts due or to
become due thereunder, and enforce collection of performance under any of the
Accounts by suit or otherwise, and surrender, release, or exchange all or any
part thereof, or compromise or extend or renew for any period (whether or not
longer than the original period) any indebtedness thereunder or evidenced
thereby. After an Event of Default, the Pledgor will, at its own expense, notify
any parties obligated on any of the Accounts to make payments to the Lender and
will hold in trust and immediately forward to the Lender all payments received
by the Pledgor in the form received, with all necessary endorsements thereon for
collection by the Lender.
5. Transfer and Other Liens. The Pledgor will not sell, lease,
transfer, exchange, or otherwise dispose of the Collateral, or any part hereof,
without the prior written consent of the Lender and will not permit any lien,
security interest, or other encumbrance to attach to the Collateral, or any part
thereof, other than those in favor of the Lender or those permitted by the
Lender in writing, except that the Pledgor may, in the ordinary course of its
business and in the absence of an Event of Default hereunder or notice by the
Lender to the Pledgor under this Agreement, collect its Accounts.
3.
<PAGE> 4
6. Financial Statements, Books, and Records. The Pledgor will
(a) at all times maintain, in accordance with generally accepted accounting
principles consistently applied, accurate and complete books and records
pertaining to the operation, business affairs, and financial condition of the
Pledgor and pertaining to the Collateral and any contracts and collections
relating to the Collateral, (b) furnish to the Lender promptly upon request,
certified by an officer of the Pledgor and in the form and content and at the
intervals specified by the Lender, such financial statements, reports,
schedules, and other information with respect to the operation, business
affairs, and financial condition of the Pledgor as the Lender may from time to
time require, (c) at all reasonable times, and without hindrance or delay,
permit the Lender or any person designated by the Lender to enter any place of
business of the Pledgor or any other premises where any books, records, and
other data concerning the Pledgor and/or the Collateral may be kept and to
examine, audit, inspect, and make extracts from and photocopies of any such
books, records, and other data, (d) furnish to the Lender promptly upon request,
certified by an officer of the Pledgor and in the form and content specified by
the Lender, lists of purchasers of inventory, aging of accounts, aggregate cost
or wholesale market value of inventory, schedules of equipment, and other data
concerning the Collateral as the Lender may from time to time specify, and (e)
mark its books and records in a manner satisfactory to the Lender so that the
Lender's rights in and to the Collateral will be shown.
7. Name of Pledgor, Places of Business, and Location of
Collateral. The Pledgor represents and warrants that its correct legal name is
as specified on the signature lines of this Agreement, and each legal or trade
name of the Pledgor for the previous five (5) years (if different from the
Pledgor's current legal name) is as specified below the signature lines of this
Agreement. Without the prior written consent of the Lender, the Pledgor will not
change its name, dissolve, merge, or consolidate with any other person. The
Pledgor warrants that the address of the Pledgor's chief executive office and
the address of each other place of business of the Pledgor are as specified
below the signature lines of this Agreement. The Collateral and all books and
records pertaining to the Collateral have been, are, and will be located at the
Pledgor's chief executive office specified below or at any other place of
business which may be specified below the signature lines of this Agreement.
Without the prior written consent of the Lender, the Pledgor will not open any
new place of business or change the location of any Collateral to any place not
specified below. The Pledgor will immediately advise the Lender in writing of
the opening of any new place of business and of any change in the location of
the places where the Collateral or any part thereof, or the books and records
concerning the Collateral or any part thereof, are kept.
8. Care of Collateral. The Pledgor will maintain the
Collateral in first-class condition and will not do or permit anything to be
done to the Collateral that may impair its value. The Lender shall have no duty
to, and the Pledgor hereby releases the Lender from all claims for loss or
damage caused by the failure to, collect or enforce any Account or to preserve
rights against prior parties to the Collateral.
4.
<PAGE> 5
9. Taxes. The Pledgor will pay as and when due and payable
all taxes, levies, license fees, assessments, and other impositions levied on
the Collateral or any part thereof or for its use and operation.
10. Specific Assignments. Promptly upon request by the Lender,
the Pledgor will execute and deliver to the Lender written assignments,
endorsements, and/or schedules, in form and content satisfactory to the Lender,
of specific Accounts or groups of Accounts, but the security interest of the
Lender hereunder shall not be limited in any way by such assignments.
11. Government Contracts. If any Account arises out of a
contract or contracts with the United States of America or any department,
agency, or instrumentality thereof, the Pledgor shall immediately notify the
Lender thereof in writing and execute any instruments or take any steps required
by the Lender in order that all moneys due or to become due under such contract
or contracts shall be assigned to the Lender and notice thereof given under the
Federal Assignment of Claims Act or other applicable law.
12. Collateral Account.
(a) Subject to the exercise by Fidelity of its rights and
remedies under the Fidelity Agreement referred to in Section 20 hereof, the
Pledgor will, upon the request of the Lender at any time and from time to time
both prior to and after the occurrence of an Event of Default hereunder, deposit
or cause to be deposited to a bank account designated by the Lender and from
which the Lender alone has power of access and withdrawal (collectively, the
"Collateral Account") all checks, drafts, cash, and other remittances in payment
or on account of payment of the Accounts, and the cash proceeds of any returned
goods, the sale or lease of which gave rise to an Account and, when permitted by
the paying companies (including without limitation, Medicaid and Mutual of Omaha
Medicare payment [EDS-Title XVIII]) all such payments therefrom (all of the
foregoing herein collectively referred to as "Items of Payment"). The Pledgor
shall deposit the Items of Payment for credit to the Collateral Account within
two (2) business days of the receipt thereof, and in precisely the form
received, except for the endorsement of the Pledgor where necessary to permit
the collection of the Items of Payment, which endorsement the Pledgor hereby
agrees to make. Pending such deposit, the Pledgor will not commingle any of the
Items of Payment with any of its other funds or property but will hold them
separate and apart. The Lender may at any time and from time to time apply the
whole or any part of the collected funds credited to the Collateral Account
against the Pledgor's Liabilities.
(b) So long as Lender, in its discretion, so desires,
Pledgor shall establish and maintain a blocked account in Lender's name with a
bank satisfactory to Lender (the "Collecting Bank") to which Pledgor will
immediately deposit all payments from account debtors in the identical form in
which such payment was made, whether by cash or check.
5.
<PAGE> 6
(c) The Collecting Bank shall acknowledge and agree, in a
manner satisfactory to Lender, that all payments made to such blocked account
are the sole and exclusive property of the Lender, that the Collecting Bank has
no right of set off against such blocked account, and that the Collecting Bank
will wire or otherwise transfer in immediately available funds, in a manner
satisfactory to Lender, funds deposited in such blocked account to Lender on a
daily basis as soon as such funds are collected. Pledgor hereby agrees that all
payments made to such blocked account or otherwise received by Lender, whether
on Accounts or as proceeds of the Collateral or otherwise, will be the sole and
exclusive property of Lender and will be applied on account of the Obligations.
With respect to any payment relating to or proceeds of any Accounts or the
Collateral which come into its possession or under its control, Pledgor and any
affiliates, subsidiaries, shareholders, directors, officers, employees, agents
or persons acting for or in concert with Pledgor shall receive any such item, as
trustee for Lender, as sole and exclusive property of Lender, and immediately
upon receipt thereof, Pledgor shall remit the same or cause the same to be
remitted in kind, to Lender, at Lender's address set forth herein. Pledgor
agrees to pay to Lender any and all fees, costs, expenses which Lender incurs in
connection with obtaining and maintaining the blocked account and depositing for
collection by Lender any check or item of payment received or delivered to the
Collecting Bank or the Lender, and Pledgor further agrees to reimburse,
indemnify and hold harmless Lender from any claims asserted by the Collecting
Bank in connection with the blocked account or any returned or uncollected
checks received by the Collecting Bank as proceeds of the Collateral.
13. Rights of Lender and Duties of Pledgor. The Lender may at
any time and from time to time both prior to and after the occurrence of an
Event of Default hereunder (a) notify the account debtors obligated on any of
the Collateral to make payments thereon directly to the Lender, and to take
control of the cash and noncash proceeds of any such Collateral; (b) charge to
the Pledgor any Item of Payment credited to the Collateral Account which is
dishonored by the drawee or maker thereof; (c) compromise, extend, or renew any
of the Collateral or deal with the same as it may deem advisable; (d) release,
make exchanges or substitutions for, or surrender all or any part of the
Collateral; (e) remove from the Pledgor's place of business all books, records,
ledger sheets, correspondence, invoices, and documents relating to or evidencing
any of the Collateral or, without cost or expense to the Lender, make such use
of the Pledgor's place(s) of business as may be reasonably necessary to
administer, control, and collect the Collateral; (f) repair, alter, or supply
goods, if any, necessary to fulfill in whole or in part the purchase order of
any account debtor; (g) demand, collect, receipt for, and give renewals,
extensions, discharges, and releases of any of the Collateral; (h) institute and
prosecute legal and equitable proceedings to enforce collection of, or realize
upon, any of the Collateral; (i) settle, renew, extend, compromise, compound,
exchange, or adjust claims with respect to any of the Collateral or any legal
proceedings brought with respect thereto; (j) endorse the name of the Pledgor
upon any Items of Payment relating to the Collateral or upon any proof of claim
in bankruptcy against an account debtor; and (k) receive and open all mail
addressed to the Pledgor and, if an Event of Default exists hereunder, notify
postal authorities to change the address for the delivery of mail to the Pledgor
to such address as the Lender may designate; and for purposes of taking the
actions described in Subsections (a) through (k)
6.
<PAGE> 7
the Pledgor hereby irrevocably appoints the Lender as its attorney-in-fact
(which appointment being coupled with an interest is irrevocable while any of
Pledgor's Liabilities remain unpaid), with power of substitution, in the name of
the Lender or in the name of the Pledgor or otherwise, for the use and benefit
of the Lender, but at the cost and expense of the Pledgor and without notice to
the Pledgor. The Pledgor will (a) make no material change to the terms of any
Account without the prior written permission of the Lender; (b) on demand, make
available in form acceptable to the Lender shipping documents and delivery
receipts evidencing the shipment of goods which gave rise to an Account,
completion certificate, or other proof of the satisfactory performance of
services which gave rise to an Account, copies of the invoices arising out of an
Account, and the Pledgor's copy of any written contract or order from which an
Account arose; and (c) when requested, regularly advise the Lender whenever an
account debtor returns or refuses to retain any goods, the sale or lease of
which gave rise to an Account, and will comply with any instructions which the
Lender may give regarding the sale or other disposition of such returns.
14. Performance by Lender. If the Pledgor fails to perform,
observe, or comply with any of the conditions, terms, or covenants contained in
this Agreement, the Lender, without notice to or demand upon the Pledgor and
without waiving or releasing any of the Pledgor's Liabilities or any Event of
Default, may (but shall be under no obligation to) at any time thereafter
perform such conditions, terms, or covenants for the account and at the expense
of the Pledgor, and may enter upon any place of business or other premises of
the Pledgor for that purpose and take all such action thereon as the Lender may
consider necessary or appropriate for such purpose. All sums paid or advanced by
the Lender in connection with the foregoing and all costs and expenses
(including, without limitation, reasonable attorneys' fees actually incurred and
expenses) incurred in connection therewith (collectively, the "Expense
Payments") together with interest thereon at the post-default rate of interest
provided for in the Restated Note (but in no event higher than the maximum
interest rate permitted by applicable law), from the date of payment until
repaid in full, shall be paid by the Pledgor to the Lender on demand and shall
constitute and become a part of the Pledgor's Liabilities secured hereby.
15. Default. The occurrence of any one or more of the
following events shall constitute an event of default (an "Event of Default")
under this Agreement: (a) failure of the Pledgor to pay any of the Pledgor's
Liabilities as and when due and payable, after giving effect to any applicable
grace period; (b) failure of the Pledgor to perform, observe, or comply with any
of the provisions of this Agreement or of any of the other Loan Documents, after
giving effect to any applicable grace period; (c) the occurrence of an Event of
Default (as defined therein) under any of the other Loan Documents; (d) any
information contained in any financial statement, application, schedule, report,
or any other document given by the Pledgor or by any other person in connection
with the Pledgor's Liabilities, with the Collateral, or with any of the Loan
Documents, including any Borrowing Base Certificate referred to in Section 4 of
the RCA Restated Pledge Agreement, is not in all respects true and accurate or
the Pledgor or such other person omitted to state any material fact or any fact
necessary to make such information not misleading; (e) the Pledgor is generally
not paying
7.
<PAGE> 8
debts as such debts become due; (f) the filing of any petition for relief under
any provision of the Federal Bankruptcy Code or any similar state law is brought
by or against the Pledgor; (g) an application for the appointment of a receiver
for, the making of a general assignment for the benefit of creditors by or the
insolvency of, the Pledgor; (h) the dissolution, merger, consolidation, or
reorganization of the Pledgor; (i) suspension of the operation of the Pledgor's
present business; (j) transfer of a substantial part (determined by market
value) of the Pledgor's property; (k) sale, transfer, or exchange, either
directly or indirectly, of a controlling stock interest of the Pledgor, other
than to the Lender; (l) termination or withdrawal of any guaranty for the
Pledgor's Liabilities; (m) the Pension Benefit Guaranty Corporation commences
proceedings under Section 4042 of the Employee Retirement Income Security Act of
1974 ("ERISA"), as amended, to terminate any employee pension benefit plan of
the Pledgor; (n) the determination in good faith by the Lender that a material
adverse change has occurred in the financial condition of the Pledgor from the
condition set forth in the most recent financial statement of the Pledgor
heretofore furnished to the Lender, or from the financial condition of the
Pledgor as heretofore most recently disclosed to the Lender in any other manner;
(o) the determination in good faith by the Lender that the prospect of payment
of any of the Pledgor's Liabilities is impaired for any reason; or (p) the
occurrence of an "Event of Default" under the Fidelity Agreement referred to in
Section 20 hereof.
16. Rights and Remedies upon Default.
(a) Upon and after an Event of Default, Lender shall
have, subject to Section 20 hereof, the following rights and remedies:
(i) In addition to any other rights and remedies
contained in this Agreement and in all the other Loan Documents, all the rights
and remedies of a secured party under the Uniform Commercial Code of the State
of New York or other applicable laws, all of which rights and remedies shall be
cumulative and non-exclusive, to the extent permitted by law;
(ii) The right to open Pledgor's mail and to collect
any and all amounts due Pledgor from account debtors; and
(iii) The right to: (A) demand payment of the
Accounts; (B) enforce payment of the Accounts by legal proceedings or otherwise;
(C) exercise all of Pledgor's rights and remedies with respect to the collection
of the Accounts; (D) settle, adjust, compromise, extend or renew the Accounts;
(E) settle, adjust or compromise any legal proceedings brought to collect the
Accounts; (F) to the extent permitted by applicable law, sell or assign the
Accounts upon such terms, for such amounts and at such time or times as Lender
deems advisable; (G) discharge and release the Accounts; (H) take control, in
any manner, of any item of payment or proceeds from any account debtor; (I)
prepare, file and sign Pledgor's name on any proof of claim in bankruptcy or
similar document against any account debtor; (J) prepare, file, and sign
Pledgor's name on any notice of lien, assignment or satisfaction of lien or
similar document in connection with the Accounts; (K) do all acts and
8.
<PAGE> 9
things necessary, in Lender's sole discretion, to fulfill Pledgor's obligations
under the Loan Documents; (L) endorse the name of Pledgor upon any chattel
paper, document, instrument, invoice, freight bill, bill of lading or similar
document or agreement relating to the Accounts; (M) use Pledgor's stationery and
sign Pledgor's name to verifications of the Accounts and notices thereof to
account debtors; and (N) use the information recorded on or contained in any
data processing equipment or computer hardware or software relating to the
Accounts or proceeds thereof to which Pledgor has access.
(b) Upon and after an Event of Default, Lender shall have,
subject to Section 20 hereof, the right to: (i) sell or otherwise dispose of all
or any Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all as Lender, in
its sole discretion, may deem advisable; (ii) adjourn such sales from time to
time with or without notice; and (iii) to conduct such sales on Pledgor's
premises or elsewhere and use Pledgor's premises without charge for such sales
for such time or times as Lender may see fit. Lender is hereby granted a license
or other right to use, without charge, Pledgor's labels, patents, copyrights,
rights of use of any name, trade secrets, trade names, trademarks and
advertising matter, or any property of a similar nature, as it pertains to the
Collateral, in advertising for sale and selling any Collateral. Pledgor's rights
under all licenses and all franchise agreements shall inure to Lender's benefit.
Lender shall have the right to sell, lease or otherwise dispose of any
Collateral, or any part thereof, for cash, credit or any combination thereof,
and Lender may purchase all or any part of the Collateral at public or, to the
extent permitted by law, private sale and, in lieu of actual payment of such
purchase price, may set off the amount of such price against Pledgor's
obligations to Lender. The proceeds realized from the sale of any Collateral
shall be applied first to the reasonable costs, expenses and attorneys' fees and
expenses incurred by Lender for collection and for acquisition, completion,
protection, removal, storage, sale and delivery of the Collateral; second, to
interest due upon the indebtedness under the Restated Note; third, to the
principal of the indebtedness under the Restated Note; and fourth, to the
payment of all other Pledgor Liabilities. If any deficiency shall arise, Pledgor
shall remain liable to Lender therefor.
(c) Any notice required to be given by Lender of a sale,
lease or other disposition of the Collateral or any other intended action by
Lender, if deposited in the United States mail, postage prepaid and addressed to
Pledgor at its address set forth herein, at least five days prior to such
proposed action, shall constitute commercially reasonable and fair notice
thereof to Pledgor.
(d) Upon the occurrence of an Event of Default which has
not been cured, the rate of interest accruing on the indebtedness evidenced by
the Restated Note shall, at Lender's option, be increased to a default rate of
interest provided in the Restated Note.
17. Remedies Cumulative. Each right, power, and remedy of the
Lender as provided for in this Agreement or in the other Loan Documents or now
or hereafter existing at law or in equity of by statute or otherwise shall be
cumulative and concurrent and shall be
9.
<PAGE> 10
in addition to every other right, power, or remedy provided for in this
Agreement or in the other Loan Documents or now or hereafter existing at law or
in equity or by statute or otherwise, and the exercise or beginning of the
exercise by the Lender or any one or more of such rights, powers, or remedies
shall not preclude the simultaneous or later exercise by the Lender of any or
all such other rights, powers, or remedies.
18. Waiver. No failure or delay by the Lender to insist upon
the strict performance of any term, condition, covenant, or agreement of this
Agreement or of the other Loan Documents, or to exercise any right, power, or
remedy consequent upon a breach thereof, shall constitute a waiver of any such
term, condition, covenant, or agreement or of any such breach, or such term,
condition, covenant, or agreement or of any such breach, or preclude the Lender
from exercising any such right, power, or remedy at any later time or times. By
accepting payment after the due date of any of the Pledgor's Liabilities, the
Lender shall not be deemed to have waived the right either to require payment
when due of all other Pledgor's Liabilities or to declare an Event of Default
for failure to effect such payment of any such other Pledgor's Liabilities. The
Pledgor waives presentment, notice of dishonor, and notice of non-payment with
respect to Accounts.
19. Miscellaneous. Time is of the essence of this Agreement.
The section headings of this Agreement are for convenience only and shall not
limit or otherwise affect any of the terms hereof. Neither this Agreement nor
any term, condition, covenant, or agreement hereof may be changed, waived,
discharged, or terminated orally but only by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge, or
termination is sought. This Agreement shall be governed by the laws of the State
of New York and shall be binding upon the Pledgor and its heirs, executors,
administrators, legal representatives, successors, and assigns, and shall inure
to the benefit of the Lender and its successors and assigns. As used herein, the
singular number shall include the plural, the plural the singular, and the use
of the masculine, feminine, or neuter gender shall include all genders, as the
context may require, and the term "person" shall include an individual, a
corporation, an association, a partnership, a trust, and an organization.
Invalidation of any one or more of the provisions of their Agreement shall in no
way affect any of the other provisions hereof, which shall remain in full force
and effect. All references herein to any document, instrument, or agreement
shall be deemed to refer to such document, instrument, or agreement as the same
may be amended, modified, restated, supplemented, or replaced from time to time.
Unless varied by this Agreement, all terms used herein which are defined by the
Uniform Commercial Code of the State of New York shall have the same meanings
hereunder an assigned to them by the Uniform Commercial Code of the State of New
York.
20. Senior Security Agreement. Notwithstanding anything
contained herein to the contrary, this Agreement and the security interest
created hereby shall be junior to the security interest in favor of Fidelity
National Bank ("Fidelity") pursuant to that certain Security Agreement dated as
of December 30, 1994, as such agreement has been and may be amended from time to
time (the "Fidelity Agreement"). To the extent that there is any
10.
<PAGE> 11
inconsistency between the exercise of the Lender's rights and remedies provided
for herein and the exercise by Fidelity of its rights and remedies pursuant to
the Fidelity Agreement, the exercise of the Lender's rights and remedies
provided for herein shall be subordinate to any exercise by Fidelity of its
rights and remedies pursuant to the Fidelity Agreement. The Pledgor represents
and warrants that Fidelity has consented to this Agreement and the security
interest created hereby.
11.
<PAGE> 12
IN WITNESS WHEREOF, the Pledgor has caused its duly authorized
officers to execute this Agreement and to affix its corporate seal hereto, as of
the day and year first written above.
PLEDGOR:
RETIREMENT MANAGEMENT
CORPORATION, a Georgia corporation
By:
---------------------------------------------
Name:
Title:
Attest:
-----------------------------------------
Secretary
[CORPORATE SEAL]
Address of Pledgor's chief executive
office:
6000 Lake Forrest Drive
Suite 200
Atlanta, Georgia 30328
Fulton County, Georgia
Address(es) where Collateral is to be Address(es) of other place(s) of
located: business of the Pledgor:
6000 Lake Forrest Drive (1) ___________________________________
Suite 200 ___________________________________
Atlanta, GA 30328 ___________________________________
(2) ___________________________________
___________________________________
___________________________________
Previous legal and/or trade name(s) of the
Pledgor:
12.
<PAGE> 13
(1) ________________________
(2) ________________________
13.
<PAGE> 14
EXHIBIT "A"
1. Security interest in favor of Fidelity National Bank
pursuant to a Security Agreement dated as of December 30, 1994, as such
agreement has been and may be amended from time to time (the "Fidelity
Agreement").
2. Financing statements have been filed in the states of
Georgia, Tennessee, Florida and Alabama in connection with the security
interests granted pursuant to the Fidelity Agreement.
14.
<PAGE> 1
EXHIBIT 10.50
AMENDED AND RESTATED PLEDGE AGREEMENT
THIS AMENDED AND RESTATED PLEDGE AGREEMENT (this "Agreement")
is made as of this 10th day of July 1997 (the "Effective Date"), by RETIREMENT
CARE ASSOCIATES, INC., a Colorado corporation (the "Pledgor"), in favor of SUN
HEALTHCARE GROUP, INC., a Delaware corporation (the "Lender"), witnesseth:
RECITALS
WHEREAS, the Lender has agreed to make a loan to the Pledgor
in the principal amount of $9,750,000.00 (the "Original Loan") pursuant to the
terms and conditions of that certain Promissory Note made by the Pledgor (as
Maker) to the Lender (as Payee) dated as of January 10, 1997 (the "Original
Note");
WHEREAS, as a condition to the Original Loan, the Pledgor
agreed to enter into a Pledge Agreement, dated as of January 10, 1997 (the
"Original Agreement"), pursuant to which the Pledgor agreed to pledge certain
collateral as security for the payment and performance of the Pledgor's
obligations under the Original Note;
WHEREAS, the Pledgor and the Lender have agreed to amend and
restate the Original Note pursuant to the terms and conditions of that certain
Amended and Restated Promissory Note made by the Pledgor, Retirement Management
Corporation, a Georgia corporation ("RMC"), and Capitol Care Management Company,
Inc., a Georgia corporation ("CCMC") (as Maker), to the Lender (as Payee) dated
of even date herewith (the "Restated Note" and, together with the Original Note,
collectively the "Note"); and
WHEREAS, in connection with the amendment and restatement of
the Original Note pursuant to the Restated Note the Pledgor and the Lender have
agreed to amend and restate the Original Agreement as of the Effective Date as
provided herein.
NOW, THEREFORE, in order to secure the prompt payment of all
past, present, and future indebtedness, liabilities, and obligations of the
Pledgor to the Lender of any nature whatsoever in connection with the Note,
together with all obligations of the Pledgor to the Lender hereunder, however
and wherever created, arising, or evidenced, whether direct or indirect,
absolute, contingent, or otherwise, now or hereafter existing or due or to
become due (collectively, the "Pledgor's Liabilities"), and the performance by
the Pledgor of all the terms, conditions, and provisions of this Agreement and
of any other loan document previously, simultaneously or hereafter executed and
delivered by the Pledgor and/or any other person, singly or jointly with another
person or persons, evidencing,
1.
<PAGE> 2
securing, guarantying, or in connection with any of the Pledgor's Liabilities,
including the Note (collectively, the "Loan Documents"), the Pledgor agrees with
the Lender as follows:
1. Collateral. To secure the payment and performance of the
Pledgor's Liabilities and the Pledgor's performance of its obligations under the
Loan Documents, and subject to Section 21 hereof, the Pledgor hereby grants to
the Lender a security interest in, and security title to, all of the following
(being referred to herein as the "Collateral"): (i) Pledgor's present or future
accounts, accounts receivable, other receivables, contract rights, issues,
profits, rents, chattel paper, instruments and documents, together with all of
the proceeds, cash or non-cash, thereof, however acquired, or now or hereafter
existing, including, without limitation, all reimbursable costs or payments from
Medicaid and Medicare, or other state or federal governmental agencies, amounts
due from clients and third party providers, rights to management fees, and
amounts due to Pledgor from advances to any of its managed or affiliated
companies, (ii) all revenues payable to and rights to distributions of Pledgor
from agreements or contracts with residents of facilities owned, leased or
managed by Pledgor and all rights to deposits from such residents and insurance
benefits due to Pledgor with respect to such residents (excluding any escrow
accounts maintained on behalf of such residents), and (iii) all proceeds of the
foregoing (collectively, the "Accounts").
The term "Collateral" as used herein means each and all of the items of
Collateral described above, and the term "proceeds" as used herein includes,
without limitation, the proceeds of all insurance policies covering all or any
part of such items of Collateral.
2. Title to Collateral. Subject to Section 21 hereof, the
Pledgor warrants and represents that (i) it is the lawful owner of the
Collateral, and has the full right, power, and authority to convey, transfer,
and grant the security title and security interest in the Collateral granted
herein to the Lender; (ii) all licenses relating to the Collateral are fully
paid and freely assignable to Lender, and, upon the occurrence of an Event of
Default (as defined herein) and foreclosure by the Lender, the Lender shall have
all rights of the Pledgor to any Collateral licensed to the Pledgor or licensed
by the Pledgor; (iii) the Collateral is not, and so long as this Agreement is in
effect will not be, subject to any liens, claims, security interests,
encumbrances, taxes, or assessments, however described or denominated, except
for liens, claims, security interests and encumbrances in favor of the Lender
and except as set forth on Exhibit "A" hereto; (iv) no financing statement,
mortgage, notice of lien, deed of trust, deed to secure debt, security
agreement, or any other agreement or instrument creating an encumbrance, lien,
charge against any of the Collateral is in existence or on file in any public
office, other than financing statements (or other appropriate security
documentation) filed on behalf of the Lender or disclosed on Exhibit "A" hereto;
and (v) all information with respect to the Collateral and the Pledgor's
Liabilities, or any of them, set forth in any written schedule, certificate, or
other document at any time heretofore or hereafter furnished by the Pledgor to
the Lender, including any Borrowing Base Certificate referred to in Section 4
hereof, and all other written information heretofore or hereafter furnished by
the Pledgor to the Lender, is and will be true and correct in all material
respects as of the date furnished.
2.
<PAGE> 3
3. Further Assurances. The Pledgor will defend its title to
the Collateral against all persons and will, upon request of the Lender, (a)
furnish such further assurances of title as may be required by the Lender, (b)
deliver and execute or cause to be delivered and executed, in form and content
satisfactory to the Lender, any financing statements, notices, certificates of
title, and other documents and pay the cost of filing or recording the same in
all public offices deemed necessary by the Lender, as well as any recordation,
documentary, or transfer tax required by law to be paid in connection with such
filing or recording, and (c) do such other acts as the Lender may request in
order to perfect, preserve, maintain, or continue the perfection of the Lender's
security interest in the Collateral and/or its priority.
4. Collateral Reporting. The Pledgor shall deliver to the
Lender on the date hereof and on the tenth calendar day of each month a
borrowing base certificate, attested to by an officer of the Pledgor, indicating
the amount of the Borrowing Base (the "Borrowing Base Certificate"). As used
herein, the term "Borrowing Base" shall mean an amount equal to (i) sixty-six
and two-thirds percent (66.67%) of all Eligible Accounts minus (ii) the
aggregate principal amount of indebtedness outstanding under (A) the Fidelity
Agreement referred to in Section 21 hereof and (B) that certain Promissory Note
made by the Pledgor, RMC and CCMC to the Lender dated as of even date herewith.
As used herein, the term "Eligible Accounts" shall mean all Accounts of the
Pledgor, RMC, CCMC and the Subsidiary Guarantors (as defined in the Restated
Note), but not of any other subsidiary of the Pledgor, which are not more than
one hundred twenty (120) days past due, which are not due and payable from any
insider, affiliate, officer or shareholder of the Pledgor or any of its managed
or affiliated companies, and which are not classified as "Pre-Current" in
Pledgor's books and records pertaining to the Collateral.
5. Accounts, etc. Until such time as the Lender shall notify
the Pledgor in writing of the revocation of such power and authority, the
Pledgor, as agent for the Lender, will, at its own expense, diligently collect,
as and when due, all amounts owing under the Accounts, including the taking of
such action with respect to such collection as the Lender may request from time
to time, and to hold in trust and segregate for the Lender all funds received
from the Accounts; provided, however, that until an Event of Default shall occur
or would occur but for the passage of time, or giving of notice, or both (such
event being a "default"), the Pledgor may use or consume in the ordinary course
of its business any such collections on the Accounts in any lawful manner not
inconsistent with this Agreement and the other Loan Documents. The Lender,
however, may after an Event of Default shall occur or during the continuance of
a default and upon notice to the Pledgor revoke such power and authority and in
any event shall have the authority and right to notify any parties obligated on
any of the Accounts to make payment to the Lender of any amounts due or to
become due thereunder, and enforce collection of performance under any of the
Accounts by suit or otherwise, and surrender, release, or exchange all or any
part thereof, or compromise or extend or renew for any period (whether or not
longer than the original period) any indebtedness thereunder or evidenced
thereby. After an Event of Default, the Pledgor will, at its own expense, notify
any parties obligated on any of the Accounts to make payments to the Lender and
will hold in trust and immediately forward to the Lender all payments received
by
3.
<PAGE> 4
the Pledgor in the form received, with all necessary endorsements thereon for
collection by the Lender.
6. Transfer and Other Liens. The Pledgor will not sell, lease,
transfer, exchange, or otherwise dispose of the Collateral, or any part hereof,
without the prior written consent of the Lender and will not permit any lien,
security interest, or other encumbrance to attach to the Collateral, or any part
thereof, other than those in favor of the Lender or those permitted by the
Lender in writing, except that the Pledgor may, in the ordinary course of its
business and in the absence of an Event of Default hereunder or notice by the
Lender to the Pledgor under this Agreement, collect its Accounts.
7. Financial Statements, Books, and Records. The Pledgor will
(a) at all times maintain, in accordance with generally accepted accounting
principles consistently applied, accurate and complete books and records
pertaining to the operation, business affairs, and financial condition of the
Pledgor and pertaining to the Collateral and any contracts and collections
relating to the Collateral, (b) furnish to the Lender promptly upon request,
certified by an officer of the Pledgor and in the form and content and at the
intervals specified by the Lender, such financial statements, reports,
schedules, and other information with respect to the operation, business
affairs, and financial condition of the Pledgor as the Lender may from time to
time require, (c) at all reasonable times, and without hindrance or delay,
permit the Lender or any person designated by the Lender to enter any place of
business of the Pledgor or any other premises where any books, records, and
other data concerning the Pledgor and/or the Collateral may be kept and to
examine, audit, inspect, and make extracts from and photocopies of any such
books, records, and other data, (d) furnish to the Lender promptly upon request,
certified by an officer of the Pledgor and in the form and content specified by
the Lender, lists of purchasers of inventory, aging of accounts, aggregate cost
or wholesale market value of inventory, schedules of equipment, and other data
concerning the Collateral as the Lender may from time to time specify, and (e)
mark its books and records in a manner satisfactory to the Lender so that the
Lender's rights in and to the Collateral will be shown.
8. Name of Pledgor, Places of Business, and Location of
Collateral. The Pledgor represents and warrants that its correct legal name is
as specified on the signature lines of this Agreement, and each legal or trade
name of the Pledgor for the previous five (5) years (if different from the
Pledgor's current legal name) is as specified below the signature lines of this
Agreement. Without the prior written consent of the Lender, the Pledgor will not
change its name, dissolve, merge, or consolidate with any other person. The
Pledgor warrants that the address of the Pledgor's chief executive office and
the address of each other place of business of the Pledgor are as specified
below the signature lines of this Agreement. The Collateral and all books and
records pertaining to the Collateral have been, are, and will be located at the
Pledgor's chief executive office specified below or at any other place of
business which may be specified below the signature lines of this Agreement.
Without the prior written consent of the Lender, the Pledgor will not open any
new place of business or change the location of any Collateral to any place not
specified below. The Pledgor will immediately advise the Lender in writing of
the opening of any new place of business and of
4.
<PAGE> 5
any change in the location of the places where the Collateral or any part
thereof, or the books and records concerning the Collateral or any part thereof,
are kept.
9. Care of Collateral. The Pledgor will maintain the
Collateral in first-class condition and will not do or permit anything to be
done to the Collateral that may impair its value. The Lender shall have no duty
to, and the Pledgor hereby releases the Lender from all claims for loss or
damage caused by the failure to, collect or enforce any Account or to preserve
rights against prior parties to the Collateral.
10. Taxes. The Pledgor will pay as and when due and payable
all taxes, levies, license fees, assessments, and other impositions levied on
the Collateral or any part thereof or for its use and operation.
11. Specific Assignments. Promptly upon request by the Lender,
the Pledgor will execute and deliver to the Lender written assignments,
endorsements, and/or schedules, in form and content satisfactory to the Lender,
of specific Accounts or groups of Accounts, but the security interest of the
Lender hereunder shall not be limited in any way by such assignments.
12. Government Contracts. If any Account arises out of a
contract or contracts with the United States of America or any department,
agency, or instrumentality thereof, the Pledgor shall immediately notify the
Lender thereof in writing and execute any instruments or take any steps required
by the Lender in order that all moneys due or to become due under such contract
or contracts shall be assigned to the Lender and notice thereof given under the
Federal Assignment of Claims Act or other applicable law.
13. Collateral Account.
(a) Subject to the exercise by Fidelity of its rights and
remedies under the Fidelity Agreement referred to in Section 21 hereof, the
Pledgor will, upon the request of the Lender at any time and from time to time
both prior to and after the occurrence of an Event of Default hereunder, deposit
or cause to be deposited to a bank account designated by the Lender and from
which the Lender alone has power of access and withdrawal (collectively, the
"Collateral Account") all checks, drafts, cash, and other remittances in payment
or on account of payment of the Accounts, and the cash proceeds of any returned
goods, the sale or lease of which gave rise to an Account and, when permitted by
the paying companies (including without limitation, Medicaid and Mutual of Omaha
Medicare payment [EDS-Title XVIII]) all such payments therefrom (all of the
foregoing herein collectively referred to as "Items of Payment"). The Pledgor
shall deposit the Items of Payment for credit to the Collateral Account within
two (2) business days of the receipt thereof, and in precisely the form
received, except for the endorsement of the Pledgor where necessary to permit
the collection of the Items of Payment, which endorsement the Pledgor hereby
agrees to make. Pending such deposit, the Pledgor will not commingle any of the
Items of Payment with any of its other funds or property but will hold them
separate and
5.
<PAGE> 6
apart. The Lender may at any time and from time to time apply the whole or any
part of the collected funds credited to the Collateral Account against the
Pledgor's Liabilities.
(b) So long as Lender, in its discretion, so desires,
Pledgor shall establish and maintain a blocked account in Lender's name with a
bank satisfactory to Lender (the "Collecting Bank") to which Pledgor will
immediately deposit all payments from account debtors in the identical form in
which such payment was made, whether by cash or check.
(c) The Collecting Bank shall acknowledge and agree, in
a manner satisfactory to Lender, that all payments made to such blocked
account are the sole and exclusive property of the Lender, that the Collecting
Bank has no right of set off against such blocked account, and that the
Collecting Bank will wire or otherwise transfer in immediately available funds,
in a manner satisfactory to Lender, funds deposited in such blocked account to
Lender on a daily basis as soon as such funds are collected. Pledgor hereby
agrees that all payments made to such blocked account or otherwise received by
Lender, whether on Accounts or as proceeds of the Collateral or otherwise, will
be the sole and exclusive property of Lender and will be applied on account of
the Obligations. With respect to any payment relating to or proceeds of any
Accounts or the Collateral which come into its possession or under its control,
Pledgor and any affiliates, subsidiaries, shareholders, directors, officers,
employees, agents or persons acting for or in concert with Pledgor shall
receive any such item, as trustee for Lender, as sole and exclusive property of
Lender, and immediately upon receipt thereof, Pledgor shall remit the same or
cause the same to be remitted in kind, to Lender, at Lender's address set forth
herein. Pledgor agrees to pay to Lender any and all fees, costs, expenses which
Lender incurs in connection with obtaining and maintaining the blocked account
and depositing for collection by Lender any check or item of payment received
or delivered to the Collecting Bank or the Lender, and Pledgor further agrees
to reimburse, indemnify and hold harmless Lender from any claims asserted by
the Collecting Bank in connection with the blocked account or any returned or
uncollected checks received by the Collecting Bank as proceeds of the
Collateral.
14. Rights of Lender and Duties of Pledgor. The Lender may at
any time and from time to time both prior to and after the occurrence of an
Event of Default hereunder (a) notify the account debtors obligated on any of
the Collateral to make payments thereon directly to the Lender, and to take
control of the cash and noncash proceeds of any such Collateral; (b) charge to
the Pledgor any Item of Payment credited to the Collateral Account which is
dishonored by the drawee or maker thereof; (c) compromise, extend, or renew any
of the Collateral or deal with the same as it may deem advisable; (d) release,
make exchanges or substitutions for, or surrender all or any part of the
Collateral; (e) remove from the Pledgor's place of business all books, records,
ledger sheets, correspondence, invoices, and documents relating to or evidencing
any of the Collateral or, without cost or expense to the Lender, make such use
of the Pledgor's place(s) of business as may be reasonably necessary to
administer, control, and collect the Collateral; (f) repair, alter, or supply
goods, if any, necessary to fulfill in whole or in part the purchase order of
any account debtor; (g) demand, collect, receipt for, and give renewals,
extensions, discharges, and releases of any of the Collateral; (h) institute
6.
<PAGE> 7
and prosecute legal and equitable proceedings to enforce collection of, or
realize upon, any of the Collateral; (i) settle, renew, extend, compromise,
compound, exchange, or adjust claims with respect to any of the Collateral or
any legal proceedings brought with respect thereto; (j) endorse the name of the
Pledgor upon any Items of Payment relating to the Collateral or upon any proof
of claim in bankruptcy against an account debtor; and (k) receive and open all
mail addressed to the Pledgor and, if an Event of Default exists hereunder,
notify postal authorities to change the address for the delivery of mail to the
Pledgor to such address as the Lender may designate; and for purposes of taking
the actions described in Subsections (a) through (k) the Pledgor hereby
irrevocably appoints the Lender as its attorney-in-fact (which appointment being
coupled with an interest is irrevocable while any of Pledgor's Liabilities
remain unpaid), with power of substitution, in the name of the Lender or in the
name of the Pledgor or otherwise, for the use and benefit of the Lender, but at
the cost and expense of the Pledgor and without notice to the Pledgor. The
Pledgor will (a) make no material change to the terms of any Account without the
prior written permission of the Lender; (b) on demand, make available in form
acceptable to the Lender shipping documents and delivery receipts evidencing the
shipment of goods which gave rise to an Account, completion certificate, or
other proof of the satisfactory performance of services which gave rise to an
Account, copies of the invoices arising out of an Account, and the Pledgor's
copy of any written contract or order from which an Account arose; and (c) when
requested, regularly advise the Lender whenever an account debtor returns or
refuses to retain any goods, the sale or lease of which gave rise to an Account,
and will comply with any instructions which the Lender may give regarding the
sale or other disposition of such returns.
15. Performance by Lender. If the Pledgor fails to perform,
observe, or comply with any of the conditions, terms, or covenants contained in
this Agreement, the Lender, without notice to or demand upon the Pledgor and
without waiving or releasing any of the Pledgor's Liabilities or any Event of
Default, may (but shall be under no obligation to) at any time thereafter
perform such conditions, terms, or covenants for the account and at the expense
of the Pledgor, and may enter upon any place of business or other premises of
the Pledgor for that purpose and take all such action thereon as the Lender may
consider necessary or appropriate for such purpose. All sums paid or advanced by
the Lender in connection with the foregoing and all costs and expenses
(including, without limitation, reasonable attorneys' fees actually incurred and
expenses) incurred in connection therewith (collectively, the "Expense
Payments") together with interest thereon at the post-default rate of interest
provided for in the Restated Note (but in no event higher than the maximum
interest rate permitted by applicable law), from the date of payment until
repaid in full, shall be paid by the Pledgor to the Lender on demand and shall
constitute and become a part of the Pledgor's Liabilities secured hereby.
16. Default. The occurrence of any one or more of the
following events shall constitute an event of default (an "Event of Default")
under this Agreement: (a) failure of the Pledgor to pay any of the Pledgor's
Liabilities as and when due and payable, after giving effect to any applicable
grace period; (b) failure of the Pledgor to perform, observe, or comply with any
of the provisions of this Agreement or of any of the other Loan Documents,
7.
<PAGE> 8
after giving effect to any applicable grace period; (c) the occurrence of an
Event of Default (as defined therein) under any of the other Loan Documents; (d)
any information contained in any financial statement, application, schedule,
report, or any other document given by the Pledgor or by any other person in
connection with the Pledgor's Liabilities, with the Collateral, or with any of
the Loan Documents, including any Borrowing Base Certificate, is not in all
respects true and accurate or the Pledgor or such other person omitted to state
any material fact or any fact necessary to make such information not misleading;
(e) the Pledgor is generally not paying debts as such debts become due; (f) the
filing of any petition for relief under any provision of the Federal Bankruptcy
Code or any similar state law is brought by or against the Pledgor; (g) an
application for the appointment of a receiver for, the making of a general
assignment for the benefit of creditors by or the insolvency of, the Pledgor;
(h) the dissolution, merger, consolidation, or reorganization of the Pledgor;
(i) suspension of the operation of the Pledgor's present business; (j) transfer
of a substantial part (determined by market value) of the Pledgor's property;
(k) sale, transfer, or exchange, either directly or indirectly, of a controlling
stock interest of the Pledgor, other than to the Lender; (l) termination or
withdrawal of any guaranty for the Pledgor's Liabilities; (m) the Pension
Benefit Guaranty Corporation commences proceedings under Section 4042 of the
Employee Retirement Income Security Act of 1974 ("ERISA"), as amended, to
terminate any employee pension benefit plan of the Pledgor; (n) the
determination in good faith by the Lender that a material adverse change has
occurred in the financial condition of the Pledgor from the condition set forth
in the most recent financial statement of the Pledgor heretofore furnished to
the Lender, or from the financial condition of the Pledgor as heretofore most
recently disclosed to the Lender in any other manner; (o) the determination in
good faith by the Lender that the prospect of payment of any of the Pledgor's
Liabilities is impaired for any reason; or (p) the occurrence of an "Event of
Default" under the Fidelity Agreement referred to in Section 21 hereof.
17. Rights and Remedies upon Default.
(a) Upon and after an Event of Default, Lender shall
have, subject to Section 21 hereof, the following rights and remedies:
(i) In addition to any other rights and remedies
contained in this Agreement and in all the other Loan Documents, all the rights
and remedies of a secured party under the Uniform Commercial Code of the State
of New York or other applicable laws, all of which rights and remedies shall be
cumulative and non-exclusive, to the extent permitted by law;
(ii) The right to open Pledgor's mail and to
collect any and all amounts due Pledgor from account debtors; and
(iii) The right to: (A) demand payment of the
Accounts; (B) enforce payment of the Accounts by legal proceedings or otherwise;
(C) exercise all of Pledgor's rights and remedies with respect to the collection
of the Accounts; (D) settle, adjust,
8.
<PAGE> 9
compromise, extend or renew the Accounts; (E) settle, adjust or compromise any
legal proceedings brought to collect the Accounts; (F) to the extent permitted
by applicable law, sell or assign the Accounts upon such terms, for such amounts
and at such time or times as Lender deems advisable; (G) discharge and release
the Accounts; (H) take control, in any manner, of any item of payment or
proceeds from any account debtor; (I) prepare, file and sign Pledgor's name on
any proof of claim in bankruptcy or similar document against any account debtor;
(J) prepare, file, and sign Pledgor's name on any notice of lien, assignment or
satisfaction of lien or similar document in connection with the Accounts; (K) do
all acts and things necessary, in Lender's sole discretion, to fulfill Pledgor's
obligations under the Loan Documents; (L) endorse the name of Pledgor upon any
chattel paper, document, instrument, invoice, freight bill, bill of lading or
similar document or agreement relating to the Accounts; (M) use Pledgor's
stationery and sign Pledgor's name to verifications of the Accounts and notices
thereof to account debtors; and (N) use the information recorded on or contained
in any data processing equipment or computer hardware or software relating to
the Accounts or proceeds thereof to which Pledgor has access.
(b) Upon and after an Event of Default, Lender
shall have, subject to Section 21 hereof, the right to: (i) sell or otherwise
dispose of all or any Collateral in its then condition, or after any further
manufacturing or processing thereof, at public or private sale or sales, with
such notice as may be required by law, in lots or in bulk, for cash or on
credit, all as Lender, in its sole discretion, may deem advisable; (ii) adjourn
such sales from time to time with or without notice; and (iii) to conduct such
sales on Pledgor's premises or elsewhere and use Pledgor's premises without
charge for such sales for such time or times as Lender may see fit. Lender is
hereby granted a license or other right to use, without charge, Pledgor's
labels, patents, copyrights, rights of use of any name, trade secrets, trade
names, trademarks and advertising matter, or any property of a similar nature,
as it pertains to the Collateral, in advertising for sale and selling any
Collateral. Pledgor's rights under all licenses and all franchise agreements
shall inure to Lender's benefit. Lender shall have the right to sell, lease or
otherwise dispose of any Collateral, or any part thereof, for cash, credit or
any combination thereof, and Lender may purchase all or any part of the
Collateral at public or, to the extent permitted by law, private sale and, in
lieu of actual payment of such purchase price, may set off the amount of such
price against Pledgor's obligations to Lender. The proceeds realized from the
sale of any Collateral shall be applied first to the reasonable costs, expenses
and attorneys' fees and expenses incurred by Lender for collection and for
acquisition, completion, protection, removal, storage, sale and delivery of the
Collateral; second, to interest due upon the indebtedness under the Restated
Note; third, to the principal of the indebtedness under the Restated Note; and
fourth, to the payment of all other Pledgor Liabilities. If any deficiency shall
arise, Pledgor shall remain liable to Lender therefor.
(c) Any notice required to be given by Lender of a
sale, lease or other disposition of the Collateral or any other intended action
by Lender, if deposited in the United States mail, postage prepaid and addressed
to Pledgor at its address set forth herein, at least five days prior to such
proposed action, shall constitute commercially reasonable and fair notice
thereof to Pledgor.
9.
<PAGE> 10
(d) Upon the occurrence of an Event of Default which has
not been cured, the rate of interest accruing on the indebtedness evidenced by
the Restated Note shall, at Lender's option, be increased to a default rate of
interest provided in the Restated Note.
18. Remedies Cumulative. Each right, power, and remedy of the
Lender as provided for in this Agreement or in the other Loan Documents or now
or hereafter existing at law or in equity of by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power,
or remedy provided for in this Agreement or in the other Loan Documents or now
or hereafter existing at law or in equity or by statute or otherwise, and the
exercise or beginning of the exercise by the Lender or any one or more of such
rights, powers, or remedies shall not preclude the simultaneous or later
exercise by the Lender of any or all such other rights, powers, or remedies.
19. Waiver. No failure or delay by the Lender to insist upon
the strict performance of any term, condition, covenant, or agreement of this
Agreement or of the other Loan Documents, or to exercise any right, power, or
remedy consequent upon a breach thereof, shall constitute a waiver of any such
term, condition, covenant, or agreement or of any such breach, or such term,
condition, covenant, or agreement or of any such breach, or preclude the Lender
from exercising any such right, power, or remedy at any later time or times. By
accepting payment after the due date of any of the Pledgor's Liabilities, the
Lender shall not be deemed to have waived the right either to require payment
when due of all other Pledgor's Liabilities or to declare an Event of Default
for failure to effect such payment of any such other Pledgor's Liabilities. The
Pledgor waives presentment, notice of dishonor, and notice of non-payment with
respect to Accounts.
20. Miscellaneous. Time is of the essence of this Agreement.
The section headings of this Agreement are for convenience only and shall not
limit or otherwise affect any of the terms hereof. Neither this Agreement nor
any term, condition, covenant, or agreement hereof may be changed, waived,
discharged, or terminated orally but only by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge, or
termination is sought. This Agreement shall be governed by the laws of the State
of New York and shall be binding upon the Pledgor and its heirs, executors,
administrators, legal representatives, successors, and assigns, and shall inure
to the benefit of the Lender and its successors and assigns. As used herein, the
singular number shall include the plural, the plural the singular, and the use
of the masculine, feminine, or neuter gender shall include all genders, as the
context may require, and the term "person" shall include an individual, a
corporation, an association, a partnership, a trust, and an organization.
Invalidation of any one or more of the provisions of their Agreement shall in no
way affect any of the other provisions hereof, which shall remain in full force
and effect. All references herein to any document, instrument, or agreement
shall be deemed to refer to such document, instrument, or agreement as the same
may be amended, modified, restated, supplemented, or replaced from time to time.
Unless varied by this Agreement, all terms used herein which are defined by the
Uniform Commercial Code of the State of New York shall have the same
10.
<PAGE> 11
meanings hereunder an assigned to them by the Uniform Commercial Code of the
State of New York.
21. Senior Security Agreement. Notwithstanding anything
contained herein to the contrary, this Agreement and the security interest
created hereby shall be junior to the security interest in favor of Fidelity
National Bank ("Fidelity") pursuant to that certain Security Agreement dated as
of December 30, 1994, as such agreement has been and may be amended from time to
time (the "Fidelity Agreement"). To the extent that there is any inconsistency
between the exercise of the Lender's rights and remedies provided for herein and
the exercise by Fidelity of its rights and remedies pursuant to the Fidelity
Agreement, the exercise of the Lender's rights and remedies provided for herein
shall be subordinate to any exercise by Fidelity of its rights and remedies
pursuant to the Fidelity Agreement. The Pledgor represents and warrants that
Fidelity has consented to this Agreement and the security interest created
hereby.
22. Conditions Precedent. This Agreement shall be effective as
of the Effective Date, provided that (i) the Pledgor shall have delivered to the
Lender a fully executed original of: (a) this Agreement, (b) the Restated Note,
and (c) financing statements in a form satisfactory to the Lender to be filed on
behalf of the Lender in the states of Georgia, Florida, Tennessee, Alabama,
South Carolina, North Carolina, Virginia, Ohio and Arizona, (ii) each of Edward
E. Lane and Christopher F. Brogdon shall have delivered to the Lender a fully
executed original of an Amended and Restated Guaranty, dated as of the date
hereof, in a form satisfactory to the Lender, (iii) each of RMC and CCMC shall
have delivered to the Lender a fully executed original of a Pledge Agreement,
dated the date hereof, in a form satisfactory to the Lender, and (iv) West
Tennessee, Inc., Lake Forest Healthcare Center, Inc., Statesboro HealthCare,
Inc., Lake Health Care Center, Inc., Roberta Health Care Center, Inc.,
Gardendale Health Care Center, Inc., Southside Health Care Center, Inc.,
Gainesville Health Care Center, Inc., Charlton City Healthcare, Inc., Jeff Davis
Healthcare, Inc., Seaside Retirement, Inc., Mid-Florida, Inc., Bibb Health &
Rehabilitation, Inc., Brent-Lox Hall Nursing Home, Inc., Libbie Rehabilitation
Center, Inc., Phoenix Associates, Inc., Summer's Landing, Inc., Riveria
Retirement, Inc., Pine Manor Healthcare, Inc., Suncoast Retirement, Inc., Atrium
of Jacksonville and The Atrium Nursing Home, Inc., shall have delivered to the
Lender a fully executed original of a Subsidiary Guaranty and a Subsidiary
Pledge Agreement, in each case dated the date hereof and in a form satisfactory
to the Lender. Upon the effectiveness of this Agreement: (x) the Lender shall
deliver to the Pledgor (A) the certificates representing the "Pledged Shares"
(as defined in the Original Agreement), and (B) the Original Note; (y) the
Lender's lien in the "Collateral" (as defined in the Original Agreement) shall
be released; and (z) each of Edward E. Lane and Christopher F. Brogdon shall be
released from those certain Guaranties executed and delivered by each of them on
January 10, 1997.
11.
<PAGE> 12
IN WITNESS WHEREOF, the Pledgor has caused its duly authorized
officers to execute this Agreement and to affix its corporate seal hereto, as of
the day and year first written above.
PLEDGOR:
RETIREMENT CARE ASSOCIATES, INC., a
Colorado corporation
By:
----------------------------------------
Chris F. Brogdon
President
Attest:
------------------------------------
Secretary
[CORPORATE SEAL]
Address of Pledgor's chief executive
office:
6000 Lake Forrest Drive
Suite 200
Atlanta, Georgia 30328
Fulton County, Georgia
Address(es) where Collateral is to be Address(es) of other place(s) of
located: business of the Pledgor:
6000 Lake Forrest Drive (1)_________________________________
Suite 200 _________________________________
Atlanta, GA 30328 _________________________________
(2)_________________________________
_________________________________
_________________________________
12.
<PAGE> 13
Previous legal and/or trade name(s) of the
Pledgor:
(1) _________________________________________
(2) _________________________________________
13.
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EXHIBIT "A"
1. Security interest in favor of Fidelity National Bank
pursuant to a Security Agreement dated as of December 30, 1994, as such
agreement has been and may be amended from time to time (the "Fidelity
Agreement").
2. Financing statements have been filed in the states of
Georgia, Tennessee, Florida and Alabama in connection with the security
interests granted pursuant to the Fidelity Agreement.
14.
<PAGE> 1
EXHIBIT 10.51
AGREEMENT TO PROVIDE MANAGEMENT
SERVICES TO LONG TERM CARE FACILITIES
This Agreement ("Agreement"), made and entered into as of the 15th day
of July, 1997, by and between Sunrise Healthcare Corporation, a New Mexico
corporation ("Sun"), and Retirement Care Associates, Inc., a Colorado
corporation ("RCA").
RECITALS
A. Sun Healthcare Group, Inc., a Delaware corporation ("SHG") (the
parent company of Sun), RCA and Peach Acquisition Corporation ("PAC"), a
Colorado corporation, have entered into an Agreement and Plan of Merger and
Reorganization dated as of February 17, 1997, as amended (the "Merger
Agreement"), pursuant to which the parties have agreed to combine the businesses
of SHG and RCA by means of a merger of PAC with and into RCA upon the terms and
subject to the conditions set forth in the Merger Agreement. Capitalized terms
not otherwise defined herein shall have the same meaning herein as in the Merger
Agreement.
B. RCA and its subsidiaries (the "RCA Subsidiaries" operate the long
term care facilities located in Virginia and North Carolina listed in Exhibit A
attached hereto (the "Facilities"). The term "RCA" as used herein shall include
the RCA Subsidiaries as appropriate.
C. Closing under the Merger Agreement is scheduled to occur on the date
specified in the Merger Agreement, assuming that all of the conditions to
closing set forth therein have been satisfied as of that date.
D. SHG and RCA wish to permit Sun to assume certain management
responsibilities for the Facilities effective as of the later to occur of July
21, 1997 or the date of the funding of the $5,000,000 loan (the "Loan") to be
made by SHG to RCA concurrently herewith (the "Effective Date"), pending the
closing of the transactions provided for in the Merger Agreement.
E. SHG, Sun and RCA wish to document the terms and conditions under
which Sun will assume such management responsibilities for the Facilities.
F. RCA acknowledges that certain of the Facilities are or have been or
may become the subject of investigations, actions or proceedings ("Regulatory
Actions") on the part of regulatory authorities that could possibly result in
loss of the applicable Facility's license or decertification as a provider under
Medicare and Medicaid legislation or regulations. RCA has requested that Sun
assist in resolving the issues relating to pending Regulatory Actions, avoiding
loss of licenses, and avoiding decertification, and Sun is willing to provide
such assistance on the terms and conditions set forth herein. In connection
therewith, RCA and Sun wish to confirm that Sun will be indemnified and held
harmless with respect to any and all Regulatory Actions, regardless of the
outcome thereof and regardless of whether in fact any license is lost or any
decertification occurs as a result of any Regulatory Actions, except as
otherwise specifically
<PAGE> 2
provided herein.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, IT IS AGREED AS FOLLOWS:
I. Management and Consulting Responsibilities of Sun: RCA hereby
engages Sun and Sun hereby accepts such engagement and agrees to provide
management, consulting and advisory services to RCA in connection with the
operation of the Facilities, upon the terms and conditions set forth in this
Agreement. By entering into this Agreement, RCA does not delegate to Sun any
powers, duties or responsibilities which it is prohibited by law from
delegating. RCA also retains such other authority as shall not have been
expressly delegated to Sun pursuant to this Agreement. Management and
supervisory personnel of the Facilities shall report to a representative
designated by Sun (the "Sun Representative") who shall be an employee of Sun.
The initial Sun Representative shall be Alan Zampini. Any changes in such
designation shall be effected by Sun in Sun's sole discretion at any time by
notice to RCA. Reports to the Sun Representative by management and supervisory
personnel of the Facilities shall be in such manner and form and at such times
as shall be reasonably required by the Sun Representative, and such management
and supervisory personnel and the other employees of the Facilities shall
implement the decisions and directives of the Sun Representative relating to
operation of the Facilities and consistent with this Agreement. Sun's
obligations under this Agreement shall be performed by the Sun Representative
and such other employees of Sun, if any, as Sun may deem appropriate in its
discretion, and by the management and supervisory personnel and employees of the
Facilities acting pursuant to the direction and under the supervision of the Sun
Representative (and such other employees of Sun, if any). Subject to the
foregoing, Sun shall provide the following services:
A. Operational Policies and Forms: Sun shall implement
operational policies and procedures and develop such new policies and procedures
as it deems necessary to insure the establishment and maintenance of operational
standards appropriate for the nature of the Facilities.
B. Charges: Sun shall establish the schedules of recommended
charges for services rendered to the patients at the Facilities. RCA shall have
the right to review and approve the charge schedules established by Sun, which
approval shall not be unreasonably withheld or delayed.
C. Information: Sun shall develop any informational material,
mass media releases, and other related publicity materials, which it deems
necessary for the operation of the Facilities. RCA shall have the right to
review and approve such marketing and mass media materials developed by Sun,
which approval shall not be unreasonably withheld or delayed.
D. Regulatory Compliance: Sun, with the cooperation of RCA if
requested by Sun and if such cooperation is required under applicable law, shall
use its commercially
<PAGE> 3
reasonable good faith efforts to maintain all licenses, permits, qualifications
and approvals from any applicable governmental or regulatory authority for the
operation of the Facilities and to manage the operations of the Facilities in
full compliance with all applicable laws and regulations; provided, however,
that it is understood and agreed that certain licenses and certifications may
currently be in jeopardy due to Regulatory Actions, regulatory non-compliance or
other conditions existing as of the Effective Date hereof, and Sun shall not be
deemed to be in default of its obligations hereunder, and RCA shall indemnify,
protect, defend and hold Sun harmless, with respect to any Regulatory Actions,
regulatory non-compliance and other conditions existing as of the Effective
Date; provided, further that Sun shall be required to use its commercially
reasonable good faith efforts from and after the Effective Date to correct such
areas of non-compliance and to avoid decertification and loss of licenses;
provided, further, that the cost of any such corrective or other action shall be
deemed to be an operating expense of the relevant Facility or Facilities and
shall be paid from the cash receipts of the Facilities. Notwithstanding the
foregoing, RCA shall retain ultimate responsibility for the compliance of the
Facilities with applicable state and federal licensure and certification laws,
subject, however, to RCA's right to seek damages from Sun in the event any costs
or damages incurred by RCA as a result of non-compliance thereunder is the
result of the breach by Sun of its obligations under this Agreement.
E. Equipment, Repairs and Improvements:
(i) Sun shall advise RCA as to equipment and improvements
which are needed to maintain or upgrade the quality of the Facilities and said
equipment, to replace obsolete or run-down equipment, to correct any other
survey deficiencies which may be cited during the term of this Agreement or to
otherwise cause the Facilities to be operated and maintained in compliance with
the terms of the Facility Leases or any mortgage or deed of trust or other
indebtedness secured by the Facilities (the "Facility Debt Documents").
(ii) RCA shall review and act upon Sun's recommendations as
expeditiously as possible, it being understood and agreed that Sun shall not be
liable for any cost or liability which RCA may incur, including liability for a
default under the Facility Leases or the Facility Debt Documents, in the event
RCA disregards Sun's recommendations. Notwithstanding the foregoing, RCA shall
have no right to object to Sun's acquisition of any equipment necessary to
correct survey deficiencies or otherwise comply with licensure requirements.
(iii) Sun shall not be required to secure RCA's approval prior
to undertaking routine maintenance and repairs at the Facilities, including
non-structural repairs and maintenance such as painting, provided, however, Sun
shall be required to secure the approval of the landlords under the Facility
Leases and any lender under the Facility Debt Documents if and to the extent
required by the terms thereof.
(iv) Sun shall make all necessary and/or, if applicable,
approved repairs, replacements and maintenance in a workmanlike and lien free
manner from the cash receipts of the Facilities.
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<PAGE> 4
(v) For purposes hereof, maintenance and repairs shall be
deemed to be routine if they are designed to maintain the condition of the
Facilities in accordance with the requirements of the Facility Leases and/or the
Facility Debt Documents as compared to upgrading the condition thereof, and do
not exceed $5,000 in the aggregate per facility.
F. Accounting:
(i) From and after the date hereof, RCA shall continue to
provide home office and accounting support to the Facilities and cash management
and banking unless and until agreed otherwise by RCA and Sun.
(ii) RCA shall prepare or cause to be prepared on a timely
basis all Medicare and Medicaid cost reports, which may be due during the term
of this Agreement.
(iii) Any taxes and any reimbursement obligations due to
Medicare and/or Medicaid shall be deemed to be operating expenses of the
Facilities and shall be paid out of the cash receipts of the Facilities.
(iv) To the extent Sun has custody or control thereof, Sun
shall make available to RCA on request such financial information as RCA may
require in order to address issues raised in a Medicare, Medicaid, governmental
or banking audit of any cost reports filed or other filings made by RCA or by
Sun on behalf of RCA prior to or during the term of this Agreement or as may be
needed by RCA to prepare and/or file its state and federal tax returns or for
any other lawful purposes.
G. Reports: Sun shall cause to be prepared and provided to the
RCA a monthly profit and loss statement, balance sheet and a statement of
accrued and unpaid management fees within thirty (30) days after the end of each
month during the term of this Agreement, such reports and documents with respect
to the operations at the Facilities as may be required by the terms of the
Facility Leases or the Facility Debt Documents and this Management Agreement and
such other operational and financial information which may from time to time be
reasonably requested by RCA, including any information needed to assist RCA in
completing its tax returns and in complying with any reporting obligations
imposed with respect to RCA, as borrower, as compared to the Facilities, under
the terms of the Facility Debt Documents. In addition, to the extent Sun has
custody or control thereof, Sun shall make available to RCA on request
supporting documentation with respect to the monthly profit and loss and balance
sheets provided pursuant hereto.
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<PAGE> 5
H. Bank Accounts:
(i) Sun shall cause to be deposited in the Facility depository
accounts all money received during the term of this Agreement with respect to
services rendered by Sun in the course of its operation of the Facilities and
RCA shall continue to be responsible for the disbursement of the funds from the
Facility bank accounts, in payment of the operating expenses of the Facilities,
including, but not limited to, the rent payments due under the Facility Leases,
payroll and employee benefits for the employees of the Facilities and payment of
Sun's management fee. For so long as RCA retains responsibility for the cash
management of the Facilities, RCA shall cooperate with Sun to ensure that,
taking into account the then availability of funds to meet the cash needs of the
Facilities, all payments are made by RCA in a manner designed to minimize any
disruption to the operation of the Facilities by Sun. In the event RCA transfers
such responsibility to Sun, RCA shall cooperate with Sun to ensure a smooth
transfer of operational responsibility therefor and shall continue to ensure
that any payments made by RCA for periods prior to the date on which said
transfer of responsibility occurs are made by RCA in a manner which is designed
to minimize any disruption to the operation of the Facilities by Sun.
(ii) RCA and Sun acknowledge and agree that Sun shall have no
liability for any costs, expenses or liabilities incurred, assumed or accrued by
or on behalf of RCA prior to the Closing, including, but not limited to,
overpayments made by any third party payor and legal fees with respect to
litigation or related claims which relate to the operation of the Facility by
RCA or its agents prior to the Closing or by Sun from and after the Effective
Date (except to the extent that any of the foregoing arise out of a breach by
Sun of its obligations hereunder).
(iii) RCA shall also pay from the Facilities bank accounts all
local, state and federal taxes unless the same are being duly contested by RCA
or Sun, as appropriate; provided, however, that any such tax contest which may
result in the imposition of a lien against the Facility shall be pursued by Sun
in accordance with the terms of the Facility Leases, if applicable.
I. Personnel:
(i) Unless and until agreed otherwise by RCA and Sun, all of
the employees of the Facilities shall be and remain the employees of RCA and
their benefits (including, unless otherwise agreed by RCA and Sun, their workers
compensation insurance coverage) shall be and remain as established by RCA prior
to the Effective Date.
(ii) At such time as may be agreed upon by RCA and Sun, RCA
shall terminate all of the employees of the Facility and Sun shall re-hire such
employees as Sun shall deem necessary for the operation of the Facilities and
thereafter provide such employees with benefits in accordance with the programs
and plans established and maintained by Sun; provided, however, that RCA shall
remain liable for any wages or benefits earned or accrued by the employees and
owing to them under applicable law, RCA's policies and procedures or otherwise
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<PAGE> 6
(including under the terms of any applicable union contract) as of the date on
which said employees are hired by Sun and shall indemnify, defend and hold
harmless Sun from and against any and all costs, expenses and liabilities with
respect thereto (the "Benefits Indemnity"); and provided, further, that nothing
herein shall be construed as requiring RCA to take any action with respect to
the Facilities' employees which would violate the terms of any union contract by
which RCA and said employees are bound.
(iii) Whether employed by Sun or RCA, Sun shall train,
promote, direct, discipline, suspend and discharge personnel at the Facilities;
establish salary levels and personnel policies; and establish employee
performance standards, all as needed during the term of this Agreement to ensure
the efficient operation of all departments within and services offered by the
Facilities; provided, however RCA shall, in accordance with the requirements of
state and federal law, retain the right to appoint the administrator of each of
the Facilities, subject, however, to Sun's approval of each such appointment,
which approval shall not be unreasonably withheld; and provided, further, that
any salary increases shall be subject to RCA's prior review and approval unless
the same are routine increases designed to reflect increases in the cost of
living or annual performance review increase, in which case no such prior
approval shall be required.
(iv) Sun shall have the right to recruit and hire such
additional or replacement employees as it deems appropriate to ensure the
efficient operation of all departments within and services offered by the
Facilities provided any additional staffing shall require RCA's prior written
consent, unless such additional staffing is required to comply with law, in
which case no such consent shall be required.
(v) Whether or not employed by RCA any wages or benefits due
to said employees or claims paid to or on behalf of said employees, including
workers compensation claims, shall be deemed to be an obligation of RCA and
shall be paid from the cash receipts of the Facilities deposited in the
Facilities bank accounts pursuant to Paragraph I(H).
(vi) Sun shall indemnify, defend and hold harmless RCA from
and against any and all costs, expenses, damages and liabilities which it incurs
as a result of Sun's violation of law or the terms of any applicable union
contract in the manner in which it disciplines, suspends, discharges or
terminates personnel at the Facilities.
J. Supplies and Equipment: Sun shall arrange for the purchase
of supplies and non-capital equipment needed to operate the Facilities in the
ordinary course and shall arrange for such purchases to be sufficient to
maintain such supplies and equipment at a level equivalent to that maintained by
RCA prior to the Effective Date, unless Sun determines that a higher level is
required to comply with law or the terms of the Facility Leases and there are
sufficient cash receipts available to maintain such supplies and equipment at a
higher level. Payment for such supplies and non-capital equipment shall be made
from the cash receipts of the Facilities. In arranging for the purchase of said
supplies and equipment, if possible, Sun shall take advantage of any national or
group purchasing agreements to which Sun may be a party.
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<PAGE> 7
K. Legal Proceedings: Sun shall, through its legal counsel,
coordinate all legal matters and proceedings with RCA's counsel.
L. Collection of Accounts:
Sun and RCA acknowledge and agree that the accounts receivable which
relate to the ownership and operation of the Facility prior to the Closing shall
remain the sole property of RCA and that during the Term hereof Sun shall be
responsible for the billing therefor and RCA shall be solely responsible for the
collection thereof (other than Sun's obligation to remit to RCA any payments
received by it at the Facilities as set forth more fully below) and, that except
as specifically provided herein, Sun shall have no obligation to assist RCA or
to cooperate with RCA in any such collection efforts. Sun agrees that it shall
make certain employees of the Facilities currently involved in the billing for
and collection of accounts receivable available to RCA for the purpose of
assisting RCA in its billing and collection efforts for its accounts receivable
for the period prior to the Effective Date but only to the extent that such
availability does not interfere with the day to day operations at the
Facilities.
II. Insurance:
(i) During the term hereof, RCA, at the cost and expense of
the Facilities, shall arrange for and maintain all necessary and proper hazard
insurance covering the Facilities, the furniture, fixtures, and equipment
situated thereon, and all necessary and proper malpractice and public liability
insurance for RCA's protection, for its lender's protection under the Facility
Debt Documents and for the protection of RCA's officers, agents and employees.
RCA shall include in each such insurance policy a waiver of subrogation
endorsement for the benefit of Sun.
(ii) RCA shall provide all employee health and worker's
compensation insurance for so long as it is the employer of the Facilities'
employees under the terms hereof, and the cost of all such insurance shall be
deemed to be an operating expense of the Facilities and shall be paid from the
cash receipts of the Facilities.
(iii) Sun shall, at its sole cost and expense, arrange for and
maintain all necessary and proper malpractice and public liability insurance for
the protection of itself, its officers, agents and employees.
(iv) Any insurance provided pursuant to this paragraph shall
comply with the requirements of the Facility Leases and shall name RCA and the
landlord under the applicable Facility Lease as additional insureds or loss
payees, as applicable, thereunder.
(v) The premiums or other costs due with respect to the
insurance coverage required by the terms hereof (other than the insurance
required by Paragraph II(iii)), including, but not limited to, deductibles,
losses in excess of available insurance proceeds or losses resulting from risks
not required to be insured under the terms of the Facility Leases and for which
RCA is responsible under the terms of the Facility Leases shall be deemed to be
operating expenses
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<PAGE> 8
of the Facilities and shall be paid by RCA from the cash receipts of the
Facilities; provided, however, that in the event the loss was due to the
negligence of Sun or a breach by Sun of its obligations hereunder, Sun shall be
solely responsible for such deductibles, losses in excess of available insurance
proceeds or losses resulting from risks not required to be insured under the
terms of the Facility Leases to the extent RCA is responsible therefor under the
terms of the Facility Leases. In no event shall Sun have any obligation to
provide insurance with respect to any period prior to the Effective Date.
III. Proprietary Interest: The systems, methods, procedures and
controls employed by Sun and unique to Sun's operations or developed by Sun in
connection with the operation of its own facilities and any written materials or
brochures developed by Sun to document the same are to remain the property of
Sun and are not, at any time during or after the term of this Agreement, to be
utilized, distributed, copied or otherwise employed or acquired by RCA.
IV. Term of Agreement:
A. The Term: The Term of this Agreement shall commence and shall
be effective as of the Effective Date and, unless earlier terminated in
accordance with the terms of Paragraph VI, shall terminate on the earlier to
occur of (i) the Closing, (ii) 120 days following the termination of the Merger
Agreement, or (iii) payment and satisfaction of the Loan obligations, provided
that Sun shall have received not less that thirty (30) days prior written notice
of such prepayment stating RCA's intention to terminate this Agreement
concurrently with such prepayment.
B. Survival: RCA specifically acknowledges and agrees that in the
event of the termination of this Agreement other than upon the Closing, its
obligations with respect to the Benefits Indemnity shall survive the termination
of this Agreement and that it shall be and remain liable to Sun with respect
thereto.
V. Default: Either party may terminate this Agreement in the event
of a default ("Event of Default") by the other party.
A. Sun Event of Default: With respect to Sun, it shall be an
"Event of Default" hereunder:
(i) If all of the following shall occur: (A) Sun shall fail
to keep, observe or perform any material agreement, term or provision of this
Agreement, (B) written notice thereof shall have been given to Sun by RCA, which
notice shall specify the event or events constituting the default and (C) Sun
shall fail to cure such default within a period of thirty (30) days after the
date of said notice of default is received by Sun; provided, however, that in
the event said default cannot reasonably be cured within said thirty (30) day
period but Sun commences the cure within said period and diligently prosecutes
the same to completion, Sun shall have an additional period not to exceed sixty
(60) days to complete the cure thereof.
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<PAGE> 9
(ii) If Sun shall be dissolved or shall apply for or consent
to the appointment of a receiver, trustee or liquidator of Sun of all or a
substantial part of its assets, file a voluntary petition in bankruptcy, or
admit in writing its inability to pay its debts as they become due, make a
general assignment for the benefit of creditors, file a petition or an answer
seeking reorganization or arrangement with creditors or taking advantage of any
insolvency law, or if an order judgment or decree shall be entered by a court of
competent jurisdiction, on the application of a creditor, adjudicating Sun a
bankrupt or insolvent or approving a petition seeking reorganization of Sun, or
appointing a receiver, trustee or liquidator of Sun or all or a substantial part
of its assets.
B. RCA Event of Default: With respect to RCA, it shall be an
Event of Default hereunder:
(i) If all of the following shall occur: (A) RCA shall fail
to keep, observe or perform any material agreement, term or provision of this
Agreement, including its obligations with respect to the Benefits Indemnity, (B)
written notice thereof shall have been given to RCA by Sun, which notice shall
specify the event or events constituting the default and (C) RCA fails to cure
such default within a period of thirty (30) days after the date of said notice
of default is received by RCA; provided, however, that in the event said default
cannot reasonably be cured within said thirty (30) day period but RCA commences
the cure within said period and diligently prosecutes the same to completion,
RCA shall have an additional period not to exceed sixty (60) days to complete
the cure thereof.
(ii) If RCA shall be dissolved or shall apply for or consent
to the appointment of a receiver, trustee or liquidator of RCA of all or a
substantial part of its assets, file a voluntary petition in bankruptcy, or
admit in writing its inability to pay its debts as they become due, make a
general assignment for the benefit or creditors, file a petition or an answer
seeking reorganization or arrangement with creditors or taking advantage of any
insolvency law, or if an order, judgment or decree shall be entered by a court
of competent jurisdiction, on the application of a creditor, adjudicating RCA a
bankrupt or insolvent or approving a petition seeking reorganization of RCA or
appointing a receiver, trustee or liquidator of RCA or all or a substantial part
of its assets.
In addition, it shall be a default by RCA with respect to any of the Facilities
(and, in addition to any other damages or remedies to which Sun may be entitled
in respect of such breach, shall excuse Sun's obligations hereunder with respect
to the applicable Facility) if RCA fails to make payments, or keep any
covenants, owing to any third party, which are beyond the control of Sun to make
or keep, and which are designed to, or in fact, cause RCA to lose possession of
such Facility or any personal property located therein and required to operate
such Facility in the normal course and in compliance with law and the terms of
the applicable Facility Leases, if any.
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<PAGE> 10
VI. Remedies Upon Default:
A. Sun's Remedies: If any Event of Default by RCA shall occur,
Sun may, in addition to any other remedy available to it in law or equity on
account of such Event of Default, forthwith terminate this Agreement, in which
event Sun shall immediately be entitled to receive payment of all accrued but
unpaid management fees (subject to the payment provisions of Paragraph X(B)
hereof).
B. RCA's Remedies: If any Event of Default by Sun shall occur,
RCA may, in addition to any other remedy available to it in law or equity on
account of such Event of Default, forthwith terminate this Agreement; provided,
however, that Sun shall be entitled to receive payment, within thirty (30) days
after such termination, of all accrued but unpaid management fees.
C. Any amounts due to Sun and not paid within thirty (30) days
after the date of termination shall bear interest at the default rate provided
under the promissory note evidencing the Loan, from the date due to the date
paid in full.
VII. RCA's Inspection: During the term hereof, RCA shall have the
right, upon request and at reasonable times, to inspect the Facilities and to
inspect and/or audit all books and records pertaining to the operation thereof
provided RCA does not interfere with the operation of the Facilities during any
such inspections.
VIII. Facilities Operations:
A. No Guarantee of Profitability: Sun does not guarantee that
operation of the Facilities will be profitable. Sun will, however, operate the
Facilities in accordance with the same standards of operation applied by it to
its own Facilities.
B. Standard of Performance: In performing its obligations
under this Agreement including, but not limited to, its obligation under
Paragraph I(D) to use its best efforts to maintain all licenses, permits,
qualifications and approvals from any applicable governmental or regulatory
authority for the operation of the Facilities, Sun shall use its best efforts
and act in good faith and with professionalism in accordance with acceptable and
prevailing standards of health care and the policies adopted by, and resources
(including the cash) available to, the Facilities.
C. Force Majeure: Sun will not be deemed to be in violation of
this Management Agreement if it is prevented from performing any of its
obligations hereunder for any reason beyond its control, including, without
limitation, strikes, shortages, war, acts of God, lack of the RCA's financial
resources or lack of available cash from the operation of the Facilities, acts
or omissions of RCA, its employees or agents, or any statute, regulation or rule
of federal, state or local government or agency thereof.
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D. Contracts With Affiliates and Others for Ancillary Services.
RCA acknowledges and agrees that the residents of the Facility require certain
ancillary services such as physical, occupational, speech and respiratory
therapy and pharmaceutical goods and services (collectively, the "Ancillary
Services") and that certain of Sun's affiliates are in the business of providing
Ancillary Services to long term care facilities. RCA hereby authorizes Sun, in
the course of its operation of the Facilities, to contract on RCA's behalf and
in RCA's name with such affiliates or with any other party for the provision of
Ancillary Services and RCA agrees that from and after the date hereof it shall
not enter into any contracts for the provision of Ancillary Services during the
term hereof. Sun shall ensure, in the case of any contract for Ancillary
Services with an affiliate of Sun, that the costs charged do not exceed those
which would be charged to RCA by an unrelated third party in an arms length
transaction and that any such contract for pharmaceutical goods or services
shall provide that the same may be terminated by RCA at any time on thirty (30)
days notice in the event the Closing fails to occur as provided in the Merger
Agreement.
IX. Working Capital: RCA and Sun acknowledge and agree that the
working capital needs of the Facilities are and shall continue to be met from
the cash receipts of the Facilities. However, at anytime during the term hereof,
Sun shall have the right, but not the obligation, to advise RCA that it is
prepared to provide the working capital needed by the Facilities. In the event
Sun elects to do so and RCA agrees, in its sole discretion, to have Sun do so,
RCA and Sun shall enter into such amendments hereto as may be necessary to
document the terms and conditions on which said working capital advances shall
be made by Sun.
X. Management Fee:
A. Base Fee: The monthly management fee due to Sun shall be equal
to 7% of the Gross Revenues of the Facilities, and shall be payable on or before
the tenth (10th) day of each month with respect to the Gross Revenues for the
prior month.
B. Gross Revenues Defined: For purposes hereof, "gross revenues"
shall mean all revenues generated by the Facilities on an aggregate basis from
services rendered or goods or supplies sold during the term hereof , but shall
specifically exclude the proceeds from the sale of any of the Facilities'
equipment, any loan proceeds and any insurance and condemnation proceeds.
C. Proration: If the services of Sun commence or terminate (for
any reason, including those set forth in Paragraph V) other than on the first
day of the month, the fee shall be prorated in proportion to the number of days
for which services are actually rendered, and payment for the partial month at
the commencement of this Agreement, if applicable, shall be made concurrently
with the payment for the first full calendar month.
D. Subordination: The management fee shall be subordinated to debt
service as and to the extent required by the Facility Debt Documents.
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XI. Assignment: This Agreement and the duties hereunder shall not
be assigned or delegated in whole or in part by either party, it being
understood and agreed that this Agreement is personal to RCA and Sun.
XII. Notices: All notices required or permitted hereunder shall be
given in writing and shall be delivered in the manner and at the addresses set
forth in the Merger Agreement (with notices to Sun to be delivered to SHG's
address).
XIII. Relationship of the Parties: The relationship of the parties
shall be that of owner and independent contractor and all acts performed by Sun
during the term hereof as Sun of the Facilities shall be deemed to be performed
in its capacity as an independent contractor. Nothing contained in this
Agreement is intended to or shall be construed to give rise to or create a
partnership or joint venture or lease between RCA, its successors and assigns on
the one hand, and Sun, its successors and assigns on the other hand. Sun will
not be liable in the performance of its duties for any loss incurred by or
damage to the RCA, unless such loss or damage results from the negligence or
willful misconduct of Sun or a breach by Sun of its obligations hereunder. Sun
shall indemnify, defend and hold harmless RCA from any loss or damage resulting
from the negligence or wilful misconduct of Sun's officers, agents or employees
in connection with the operation of the Facilities by Sun. RCA shall indemnify,
defend and hold Sun harmless from any loss incurred by or damage to Sun where
such loss or damage results from the negligence or willful misconduct of RCA in
performing its obligations under the Agreement or a breach by RCA of its
obligations hereunder.
XIV. Entire Agreement: This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and shall be
binding upon and inure to the benefit of their successors, and shall be
construed in accordance with the laws of the State of New York. This Agreement
may not be modified or amended except by written instrument signed by both of
the parties hereto.
XV. Captions: The captions used herein are for convenience of
reference only and shall not be construed in any manner to limit or modify any
of the terms hereof.
XVI. Attorney's Fees: In the event either party brings an action to
enforce this Agreement, the prevailing party in such action shall be entitled to
recover from the other all costs incurred in connection therewith, including
reasonable attorney's fees.
XVII. Severability: In the event one or more of the provisions
contained in this Agreement is deemed to be invalid, illegal or unenforceable in
any respect under applicable law, the validity, legality and enforceability of
the remaining provisions hereof shall not in any way be impaired thereby.
XVIII. Cumulative; No Waiver: A right or remedy herein conferred upon
or reserved to either of the parties hereto is intended to be exclusive of any
other right or remedy, and each and every right and remedy shall be cumulative
and in addition to any other right or remedy
-12-
<PAGE> 13
given hereunder, or now or hereafter legally existing upon the occurrence of an
Event of Default hereunder. The failure of either party hereto to insist at any
time upon the strict observance or performance of any of the provisions of this
Agreement or to exercise any right or remedy as provided in this Agreement shall
not impair any such right or remedy or be construed as a waiver or
relinquishment thereof with respect to subsequent defaults. Every right and
remedy given by this Agreement to the parties hereof may be exercised from time
to time and as often as may be deemed expedient by the parties thereto, as the
case may be.
XIX. Authorization for Agreement: The execution and performance of
this Agreement by RCA and Sun have been duly authorized by all necessary laws,
resolutions or corporate action, and this Agreement constitutes the valid and
enforceable obligations of RCA and Sun in accordance with its terms.
XX. Access of the Government to Books and Records: In the event
the services provided hereunder have a 12-month cost or value of $10,000 or more
(or such other amount as may hereafter be established by law):
(a) Until the expiration of four years (or such longer or
shorter period as may be prescribed by the law governing access to books and
records under Medicare and Medicaid) after the furnishing of services pursuant
to this Agreement, Sun shall make available upon written request to the
Secretary of the United States Department of Health and Human Services, or upon
request to the Comptroller General of the United States, or any of their duly
authorized representatives, this Agreement, and books, documents and records
that are necessary to certify the nature and extent of such costs.
(b) If Sun or its affiliates carries out any of the duties of
this Agreement through a subcontract, with a related organization, such
subcontract shall contain a clause to the effect that until the expiration of
four years (or such longer or shorter period as may be proscribed by the law
governing access to books and records under Medicare and Medicaid) after the
furnishing of such services pursuant to such subcontract, the related
organization shall make available, upon written request to the Secretary of the
United States Department of Health and Human Services, or upon request to the
Comptroller General of the United States, or any of their duly authorized
representatives, the subcontract, and books, documents and records of such
organization that are necessary to certify the nature and extent of such costs.
(c) The parties agree that any applicable attorney-client or
other legal privileges shall not be deemed waived by virtue of this Agreement.
XXI. Counterparts: This Agreement may be executed in any number of
counterparts, each of which shall be an original, and each such counterpart
shall together constitute but one and the same Agreement.
XXII. Third Party Beneficiary. Nothing in this Agreement express or
implied is intended to and shall not be construed to confer upon or create in
any person, other than the parties hereto,
-13-
<PAGE> 14
any rights or remedies under or by reason of this Agreement, including without
limitation, any right to enforce this Agreement.
XXIII. SHG Consent; No Other Effect on Merger Agreement. SHG hereby
consents, pursuant to Section 6.01 of the Merger Agreement, to RCA's entry into
this Agreement, and each of the parties hereby acknowledges and agrees that
entry into this Agreement, and the performance of their respective obligations
hereunder, shall have no other effect on the Merger Agreement including, without
limitation, the satisfaction of the conditions thereto or any rights of the
parties with respect to termination thereof.
IN WITNESS WHEREOF, the parties have hereto caused this Agreement to be
duly executed, as of the day and year first above written.
RETIREMENT CARE ASSOCIATES, INC.
By:
----------------------------------------
Its:
---------------------------------------
SUNRISE HEALTHCARE CORPORATION
By:
----------------------------------------
Its:
---------------------------------------
Sun Healthcare Group, Inc. hereby consents to this Agreement as provided in
Section XXIII above.
SUN HEALTHCARE GROUP, INC.
By:
----------------------------------------
Its:
---------------------------------------
-14-
<PAGE> 15
EXHIBIT A
FACILITY LIST
Virginia
Libbie Convalescent Center Richmond
Highland Manor Dublin
Tappahannock Healthcare Tappahannock
Brentlox Hall Chesapeake
Lynn Shores Manor Virginia Beach
North Carolina
Carolina Care Greenville
East Carolina Care Greenville
Lencare of Elizabethtown Elizabethtown
Lencare of Fayetteville Fayetteville
Maplewood Reidsville
Pine Manor Fayetteville
Pemberton Place Pembroke
Brookshire Healthcare Hillsborough
Wilkinson Gastonia
Willow Springs Carrboro
Hillside Wake Forest
-15-
<PAGE> 1
EX-21
SUBSIDIARIES OF THE REGISTRANT
Atrium Nursing Home, Inc. Florida
Bibb Health & Rehabilitation, Inc. Georgia
Brent-Lox Hall Nursing Home, Inc. Virginia
Capitol Care Management Company, Inc. Georgia
Charlton Healthcare, Inc. Georgia
Crescent Medical Services, Inc. Georgia
Duval Healthcare Center, Inc. Georgia
Encore Retirement Partners, Ltd. New York
F & L Associates, Inc. Virginia
Gainesville Healthcare Center, Inc. Georgia
Gardendale Health Care Center, Inc. Georgia
Jeff Davis Healthcare, Inc. Georgia
Lake Forest Healthcare Center, Inc. Georgia
Lake Health Care Center, Inc. Georgia
Libbie Rehabilitation Center, Inc. Virginia
Maplewood Health Care Center of
Jackson, Tennessee, Inc. Tennessee
Mid-Florida, Inc. Georgia
Phoenix Associates, Inc. Virginia
Pine Manor Rest Home, Inc. North Carolina
Pro-Scription, Inc. Georgia
Quality N.H.F. Leasing, Inc. Georgia
Retirecare, Inc. Colorado
Retirement Management Corp. Georgia
Riviera Retirement, Inc. Georgia
Roberta Health Care Center, Inc. Georgia
Sea Side Retirement, Inc. Georgia
Southside Health Care Center, Inc. Georgia
Statesboro Health Care Center, Inc. Georgia
Summers Landing, Inc. Georgia
Sun Coast Retirement, Inc. Georgia
The Atrium of Jacksonville, Ltd. Florida
W.R. Partners (Warner Robins) L.P. Georgia
West Tennessee, Inc. Georgia
Willow Way, Inc. Georgia
Woodbury Health Care Center, Inc. Georgia
Contour Medical, Inc. Nevada
Contour Medical - Michigan Michigan
Contour Medical of Central Florida, Inc. Florida
AmeriDyne Corporation Tennessee
Atlantic Medical Supply Company, Inc. Georgia
Americare Health Services Corp. Delaware
Facility Supply, Inc. Florida
Gerimed, Inc. Florida
Florida ACLF, Inc. Florida
Quest Medical Supply, Inc. Georgia
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME FOUND ON
PAGES F-3 THROUGH F-5 OF THE COMPANY'S FORM 10-K FOR THE FISCAL YEAR ENDED JUNE
30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,637,878
<SECURITIES> 0
<RECEIVABLES> 40,391,377
<ALLOWANCES> 0
<INVENTORY> 7,255,289
<CURRENT-ASSETS> 64,911,451
<PP&E> 150,492,221
<DEPRECIATION> 0
<TOTAL-ASSETS> 255,370,966
<CURRENT-LIABILITIES> 75,400,736
<BONDS> 141,674,131
1,800,000
3,250,000
<COMMON> 1,450
<OTHER-SE> 27,443,397
<TOTAL-LIABILITY-AND-EQUITY> 255,370,966
<SALES> 45,500,712
<TOTAL-REVENUES> 253,227,861
<CGS> 31,832,734
<TOTAL-COSTS> 217,694,005
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (14,111,843)
<INCOME-PRETAX> (9,389,066)
<INCOME-TAX> (2,343,256)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 490,000
<CHANGES> 0
<NET-INCOME> (7,535,810)
<EPS-PRIMARY> (.71)
<EPS-DILUTED> 0
</TABLE>
